Rebuttal of "The Experiment is Over"
- June 10, 2013
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Souvik Bonnerjee has an interesting and thoughtful rebuttal, of our previous piece on the idea that the Offshore BPM Experiment is Over… First off, Souvik’s experience at Cap Gemini may be different than my experience at BP3. I’ve not worked with a Cap Gemini project in many years, and the one I worked with was not offshored nor blended, so I can’t speak to direct experience with Cap Gemini. Regardless, I appreciate his thoughtful rebuttal – even while I disagree with some of the data and conclusions – and actually agree with some of his points.
I think I need to clarify my own post a little bit in response – to clarify which parts we’re in agreement on from the get-go, and also to clarify why I draw different conclusions, in the areas where we disagree.
- I’m not questioning the economic success of offshore BPM for the consultancies – they’re making money on it – Souvik and I agree on this. We disagree on whether this equates to “successful”
- The measure of success I’m looking at is customer success with BPM. It’s the only measure that matters, but it is harder to find in the data.
- BPM Talent is a lot more scarce offshore than these companies want you to believe.
- Time-to-market dominates cost considerations for most process implementations.
- [Updated] Collaboration and Communication are the most important elements of a successful BPM project.
To the first point, economic success:
The biggest argument against the idea that BPM offshoring is failing is visiting one of the recognized BPM players in India, and seeing their facilities. Meeting the skilled, enthusiastic, experienced teams supporting large-scale and critical engagements, and exploring some of the innovations they have made would dispel any ideas that offshore teams cannot deliver value on par with local teams.
No one is disputing that the offshore companies are making money hand-over fist. What buyers of BPM services should be asking however, is whether it is too good to be true. Can you truly get world-class talent for $25/hour? Can quantity really make up for locality? Can an expensive building make up for treating people like interchangeable widgets?
One one project we participated in, the offshore consulting firm responsible for the project had 100+ people staffed offshore. Upon paying a visit, our customer discovered two fairly distressing issues: first, the most experienced member of the team was only 3 years out of college. It is hard to identify this issue from 10,000 miles away. The customer had negotiated for such a good rate, that the vendor had simply given them the most junior resources to make that rate “work” for them. Second, that the team was intermingled with a team serving their most heated rival in the industry. That intermingling happens 10,000 miles away… difficult to supervise effectively. And you can’t hand-off supervision of these kinds of conflicts to your offshore consulting partner – because they’re incented to ignore them.
In another case, code from one offshore customer migrated to another offshore customer, thanks to an offshore BPM center of excellence. We were able to eliminate that code and rectify the situation.
In yet another, a customer spent north of 50,000 man hours of offshore time to build something that we prototyped a solution for in a week with Spring and an Oracle DB – we estimated it at a man-month of effort. The offshore firm sure made a lot of money on that one.
These offshore firms have minted money, and will continue to mint money, convincing US and European companies to send BPM work to offshore locations (not always India, though that is the example Souvik uses). Souvik says this is his biggest argument to prove that offshore BPM is successful – because the consulting companies are making money.
Customer Success with BPM
I tell these stories because the measure of success I’m most interested in is customer success. On-time or on-budget deliveries of great processes. Subsequent delivery of improved processes. Great ROI. In each of the cases above, the offshore vendor claims the client as a reference success story (in one of those cases, admittedly it is a blinded story). But by any rational definition of success, these are failures.
In case of blended models, one of the key things is that all teams should understand the model and how to make it work successfully; it does require all teams to spend more effort on additional activities like regular calls, and increased documentation to overcome communication gaps which may arise. BPM failures where seen, have been because of customer issues, misaligned expectations, and other issues not because of the presence of an offshore team!
You could drive a truck through the qualifiers and caveats here. Regular calls – likely at 10pm at night in the US. Increased documentation – ie, nothing gets delivered without going through documentation gateways and approvals. And where the BPM failures are seen, let’s blame it on the customer: on their issues, or their expectations, or other issues. It couldn’t possibly be that offshore BPM is much harder than implementing locally, and of course the offshore team approach should only get credit for successes and no blame for failures.
Look, the offshore vendors and generic consulting firms are making a lot of money selling you shovels (hours). The question is, are they helping you dig in the right place? Are you finding gold? That’s what you’re really paying them for – to help you find BPM gold. If they’re pocketing the fees and aren’t delighting you, as a customer, you’re working with the wrong firm. BPM specialists know how to find the gold when they dig, and they’re in the trenches with you right away.
To the issue of BPM talent scarcity – In the Lombardi-BPM space, at the time of acquisition, four different offshore companies in India claimed to have north of 500 people “trained” on Lombardi Teamworks. At a time when there weren’t 500 people in the world, trained on Teamworks (after all, there were only 2 trainers…). Those numbers only got bigger with the release of IBM BPM – those same companies’ numbers went up to 2500 on average at the next press release time. Souvik’s argument:
One reason why BPM delivery continues to flourish in India is that it harbours the largest pool of resources in leading BPM tools like Pega, Oracle and IBM.
That’s a matter of opinion. For IBM BPM, it isn’t factual, but it may be for Oracle and Pega.
So whilst the blog suggest that the primary (maybe sole) reason that clients look to offshore is the cost factor, the reality is that the required skill sets are not available in the numbers required locally, which is why offshore is brought-in to deliver the required skills to the extent possible.
This is the general counter-argument, but it just isn’t economically accurate. First, the required skill-sets are not available at the price desired in the US – the quantity of people available is largely a function of price and will respond to higher price points over time – if you set the price too low, you won’t find the qualified candidates you want. Often buyers don’t understand that when they negotiate rate ever downward, they are also negotiating downward the quality of personnel the consulting firm can provide – this is true onshore as well as offshore. The buyers willing to pay the best rates always get the best people over time.
Worse, the experts that these companies bring over from offshore usually don’t know BPM at all – they ask firms like BP3 to train them up once they arrive on the ground. They have basic technical skills, which are quite abundant in the US, and within the companies that employ offshoring, but they don’t have any BPM-specific skills that seem to warrant flying them halfway across the world on temporary assignment. The sort of double-whammy is that there are more skills in the US than are being tapped, and at the same time, the offshore firms – and all large general consulting firms- overstate their own BPM expertise.
Evidence of the overstatement is pretty obvious in the US job market. Every time a big SI gets a deal that involves BPM, they hit the job boards and recruiters hard to try to find those experts that they supposedly had on staff all along. You never see BP3 employing such tactics because we only staff our own employees and contractors that we’ve worked with before – our reported numbers are accurate. I wonder what the SI’s tell their customers currently about their # of IBM BPM professionals (the number I’m most qualified to comment on).
At any rate, thanks to talent scarcity in BPM, and many companies’ unwillingness to invest in their own employees learning the skills, consulting firms and offshore firms will continue to do well in this space, financially.
Time to Market Dominates
Finally, there’s time-to-market versus cost-to-market. This argument actually works in favor of local firms pretty dramatically. With any process that really matters to your business, the value of the improvements are going to be large. For example. We did a small project at a US manufacturer many years ago. They actually bid it out quietly to us, to their own IT team, and to two offshore firms (in this case, based in India). To their credit, they did not share the bid information between the parties, and let each bid independently. Our bid was the most expensive – $350,000. But we were selected. Why?
Because we estimated completion in 3.5 months. Their internal IT estimated 18 months, and their offshore teams averaged in at 11 months and $250,000 or less. This small process we were tackling would save the company north of $2 million per quarter. The opportunity cost of that savings far and away dominated the cost-to-market of building the process.
If you’re tackling a $1B/year process and expect a 10% improvement – you’re talking $100M… Each month is costing you over $8M… So would you rather save a few dollars per hour or get that process done sooner?
Ok, let’s take another hypothetical. A process that is worth a lot – $1B a year, but with only a .1% expected improvement – $10M / year. And because it is a big process and has a lot of transactional and integration issues, cost-to-market might dominate time-to-market.
Question: Should you be solving that problem?
You have better things to do. I’d argue you should redirect the most scarce resource you have at any firm – focus – toward projects and processes with much more ROI – where Time-to-Market dominates Cost-to-Market. I don’t know why you’d want it any other way.
The point I forgot to make above, in the process of responding to the great arguments Souvik presented, was that collaboration is critical for BPM in particular – even more than most IT projects. BPM projects have more in common with building startups than they do with the typical IT project. Successful projects are the result of good people, great communication, and fast learning cycles. And two of these most important elements in a BPM project are the very items sacrificed for offshore development and a lower cost-per-hour.
When time-to-market dominates, and success matters, this trade-off just isn’t worth it.