Why Do We Have So Many Jobs in Bangalore?

yeah, like they say "give me 1 wife and 10 months, not 10 wives and 1 month".. :)

"A harem of ten that lasted a month" now that would be some story;)

hmmmm

When I go and pitch with clients in the west,invariably there are multiple vendors. Not all vendors are Indian and everybody is desperate to get the business. Therefore all proposals and cost estimates are subject to intense price and margin competition. The final pitches (when the technical team comes into play) have large number of questions on the efficency of the design proposed and so on. Therefore it would be very interesting to know how outsourcing providers in this analysis overcome all these multiple hurdles and inflate their people numbers. :-)

rgds

Sujai, terrific!

Chandra has a point thought. How does all of this work when the outsourcing vendor is quoting a fixed price contract?

Aspi, Chandra:
In this article, I did not go into all aspects of outsourcing business. I only dwelt upon the businesses that have already been outsourced and are now only being continued (or extended).

In my knowledge, most projects are based on headcount rather than fixed price contracts. The fixed price contracts form less than 10% of the IT/ITES business (according to my knowledge).

Going into the topic of how outsourcing actually starts would require another topic in itself. However, I will deal with those aspects which has some relevance on this topic here.

Bidding involves factors more than just the pricing.

Some of the factors which favor Indian companies (in addition to pricing) are:

1. English (how many US or European companies can actually converse with a Vietnamese, Chinese or a Romanian?) [Outsourcing manufacturing is different from outsourcing software. A blueprint is all it needs to mass manufacture hardware boards. A conversation, communication, and exact interpretation (which includes language) of requirements is needed for making software.]
2. Have already done that project before (most Indian companies continue to have edge over newer countries in the sense that they have already delivered such projects- in time and with quality).
3. Indians at key positions at vendor's companies (we know how many Indians are at Intel or Cisco in key positions, but how many Romanians are there in those positions?)
4. Brand names (this comes more as a retrospect analysis- which is easy). (Infosys is known, CrisDesign is unknown. Bangalore is known for IT, Bucharest is known for travel).
5. Ability to scale (Indians come in billions, Romanians come in millions. Indians companies train and keep many guys ready. Romanians companies may not be able to).

As I said earlier, I did not deal with the factors that influence and favor India as a favorite destination for outsourcing IT/ITES, but concentrated on the phenomenon of inflating jobs.

Sujai

hmmm....Yes it makes sense in existing contracts/ extended projects . Extending this logic,it is also possible that large size multi year contracts also offer scope for such manipulation. I am not very familiar with the variable pricing system so cannot comment on any further. Fixed price projects offer very little scope for such manipulation. It is a perennial fight for every penny.

Either way at an entry salary of 5000 to 8000 dollars we severly utilse our most intelligent resources. In other countries the same intelligence/ skills would generate 5 or 10 times more income. Pure waste of national resources.

rgds

Vote for this article at http://www.bestofindya.com

crappiest article i've read in a while...how about some real journalism

Avi, how about a real critique of this piece instead of lame generalizations.

Avi

Thank you for your suggestion (real journalism). Why do you want to ruin the quality of desicritics by getting real journalists? :-) Let the real journalists focus on Aishwarya and Shilpa. Thats their quality ;)

With regards to calling this analysis crap, as Aspi said, why dont you add some value by contributing.

rgds
rgds

Outsourcing even a single job, requires the client manager to cross many hurdles - like

1) Dependency - Depending on the vendor for all turn around times. Also over a period of time, the outsourcing companies tend to have a better knowledge about the systems than the internal team members, which can be crippling & difficult to explain to his superiors.

2) Having clearly defined processes n systems - Thats the most imp step before anyone can plan for outsourcing, so cleaning up the house tends to take a huge effort, & prevent them from outsourcing everything. Havin legacy systems, many mergers, etc, makes this situation even worse, where you have 10 applications doing similar stuff, but each one of them is indispensible. Explaining this can be a real pain, forget abt outsourcing.

3) Change - I need not explain this
4) Managing offshore team
5) Instant hate from subordinates - who can become impossible to work with if threatened & who have enough knowledge to bring the day to day functioning to a complete halt.

But inspite of all these challenges, the client managers are doing outsourcing, but it can never be the case that the manager who outsources more saves more dollars for the company is the champion. This is not the only criteria.

Its about leveraging the strengths of outsourcing without being completely dependent on them. Today also, very few companies in US are 100% dependent on outsourcing - all critical decision making architect level roles n functions are rarely outsourced.

So it all comes down to what a client manager can outsource & what he cant. If he is a production support manager, probably he can outsource 80% of his work, but in case he is the manager of the development team, he would like to have a mixed bag, ensuring that his team retains enough domain & technical knowledge to be independent in future. Even if we talk abt 2 production support managers, the amount of work that can be outsourced is clearly defined for each one of them, & just to please their superiors or for small career growth, client managers wont risk their jobs by depending 100% on offshore vendors. So if manager's unit has work for 400 ppl, he might want to offshore 350 n have a team of 50 folks to look over the functioning, but never would give it all to offshore, n sit back n relax, assuming everything is fine.

You will come to know more about this, once you start talking with the client managers & their CTOs.

In this case, your assumption that one who outsources more gets the credit doesnt hold true & the management folks at client end are not dumb enough just to see who outsource more n who less, they take a complete picture, before rewarding anybody.

Prats:

You will come to know more about this, once you start talking with the client managers & their CTOs.

Why the assumption that it is not done already?
;-)

As I said in comment #5, I did not go into the details of analyzing the factors that lead to outsourcing, but instead concentrated on inflation of numbers as seen in some of the projects that continue on an ongoing basis.

Chandra:

For fixed price projects, I agree there are many vendors fighting for the same slice of pie, but still the numbers game is played there.

Although I'm not a master in this field, I've observed a few tendencies that support Sujai's views.

1) The vendor who has the best design as per the client tech team will not get the project 70-80 % of the time, for the simple reason that this team is not the lowest cost. If this team is a 'preferred' vendor, then the negotiations start to get the price down.

2) Once a vendor gets the project with a lower margin, the team composition will be affected as you have to meet your company's guidelines of 8-15% profit in each project. How do you get this, get lower experienced resources or in cases get freshers that learn development on the job

3) The quality of product is directly proportional to resource experience. Then the concepts of Change requests etc. come into play where the vendor company has higher margins to play with

4) Vendors also try to push for more onsite resources. This happens more for emotional reasons where the customer manager gets a comfort feeling of seeing people on a daily basis.

5) The documentation for each project may not be as per the requirements, i.e., pieces of functionality description may be truncated, copying and pasting without modifying to reflect correct changes, etc ensure future business.

As I mentioned above, these are the tendencies I observed working with a few companies. This is not to say that all the companies are same and I only hope that I get to work with such a company.

Glider

How similar are the experiences ;)

Having said that, your examples still donot support higher manpower boosting that Sujai alluded to. What you are referring to is related quality of resources and related margin play. Atleast companies i work with donot necessarily have larger number of resources to compensate the presence of freshers.I guess it may be happening some where else.

rgds

Sujai: Why the assumption that it is not done already? ;-)


Had you been involved with any kind of presales work, you would have never argued that the client manager who offshores more jobs, gets the reward in his company. You would have had a first hand experience of the challenges that client managers face in recent times. And increasing outsourcing(more than actually he can - beyond the risk level) just for own career growth, would be no less than digging his own grave.

Inflation in number of resources may be happening, I dont deny that, but its never the case that client manager intends to do that for his career growth - as argued by you.

Prats:

but its never the case that client manager intends to do that for his career growth - as argued by you.

Hmm.. I can't argue with that kind of assertion. You seem to know the whole industry and all kinds of outsourcing ON YOUR PLANET. While I seem to know a different planet in which things work little differently. ;-)

Give any logical reason why n how a client manager can gain professionally by simply pushing for more outsourcing. What about the risks that I have mentioned in the earlier post? Everybody wants to cover their back, before taking any step further, n same is the case with these folks. Do you really think that its that easy to simply ask offshore vendors to take care of all the work that you have got. Its surely not that simple. Clients want to leverage the strengths of IT vendors & would not like to be dependent on them.

In all my posts, I am just trying to say that ur stance lacks logic - provide that, that wont be considered as an argument.

Prats:

Give any logical reason why n how a client manager can gain professionally by simply pushing for more outsourcing.

I am not sure if it follows any logic. However, these are trends that are witnessed in many tier-1 telecom and chipset companies that have outsourced some of their work (non-critical) to servicing companies in India. It usually starts with some one non-critical area, and once the gains are established, the scope of outsourcing is widened to include many other areas. Of course, there is always a backlash against any kind of outsourcing - one, more outsourcing means losing more jobs; two, 'are we going to be very dependent on this servicing company that it will affect our business?'

Once it is established that certain areas of work can be outsourced without affecting the business or criticality of the product/technology, there is almost no limit to what can be outsourced (of those components which are considered 'can be outsourced'). For example, the outsourcing may start with taking care of support and maintenance activities of the products which are now being phased out (but they are still operating in the field with many customers), and then it may include outsourcing of support and maintenance of the present products but for old releases only. Then it may extend to regression testing activities of present product lines, and then it may extend to system testing of products that are of older generation but currently served, then it may extend to development activities of non-core functionalities, such as management software and upgrades, non-core protocols and functions, etc, and then it may extend to field support and customer service, and so on.

Most of these vendor companies do not outsource to only one servicing companies- this is to derisk their dependencies.

In this scheme, there are few outsourcing managers who are champions of each servicing companies, who want to promote their companies to be selected for more outsourcing. Most of these successful outsourcing managers have gone up the ladder very fast and are now occupying senior positions. Outsourcing turned out to be a quick path to senior management positions. I know of many examples of such cases within tier-1 telecom and chipset companies, where outsourcing managers have gone through accelerated growths through many ranks to be catapulted to senior positions.

Why does this happen? An outsourcing manager or the VP who champions outsourcing is seen by senior management as life-saver who burdens the losses of other divisions, shows maximum profitability and efficiency, and is seen as a champion of future trends. Usually those heads that resist outsourcing are soon relegated to non-important positions and sometimes are phased out.

These are some of my observations and also observations of other people (that I have talked to in this business) who have seen the outsourcing phenomenon from both sides - as outsourcer and also as servicing companies.

Most of the champions of outsourcing are now occupying key positions in most of these companies now, and to some, outsourcing seems to be the only achievement that came to their aid.

You are talking of the factors that govern the decisions on whether to outsource or not, and if to outsource, what to outsource. Where as, I am talking of the phenomenon that kicks in- after these decisions are already made.

I have not gone thru all the comments - so someone may have mentioned this before I did. you are using the wrong term Vendor for the outsourcing client. This entity is either called the client or the customer. It is the offshore services company that is called the vendor - as it provides services at a cost to the customer.

The initial wave of offshoring was done as is explained by you. But off late, most clients insist on a fixed cost project and there is nothing that the Project Manager can do but cut down on the team size.

On the MNCs - you are right. Most MNCs function the way you had mentioned. And in my opinion it is the same as a services company - but in this case it is a captive services company. But there are organizations which also have better work and probably even cutting edge work in their Indian operations. They are few and far between.

Whatever this maybe - my only suggestion is to be like the Japanese. They started off as copy cats but soon went on to become the leaders in Electronics and Automobile industry. Indians should do the same. We can learn from what we are exposed to now - as software coolies - but soon we should become the leaders in thought and trends in software. I hope that day will come true.

Shankar V:
Thanks. Yes, my term 'vendor' should be replaced by 'client' or 'customer' as you suggest. I guess I was using the term I was used to in my kind of business (which may not be applicable in outsourcing model).

We can learn from what we are exposed to now - as software coolies - but soon we should become the leaders in thought and trends in software. I hope that day will come true.

Yes, my hope is the same. Some of us are working in that direction. I know quite a few companies trying to make it out there in producing original technology, software and products. Hope to see some success stories in the next few years.

I would have written a book called "The Mythical Man Month"... had it not already been written 30 years ago. Sigh.

sujai

1. i guess your post probably has relevance as earlier comments mentioned to T&M (time and materials) models of outsourcing. increasingly the trend is towards fixed cost pricing. in the late nineties T&M was predominant (almost 80-95%) today for many large indian vendors my guess is that it should be around 50-65%.

2. again many indian vendors are under the scanner for 'over-billing' or stacking up resources if they ever resort to. i guess that was the case in the early 2000's. as far as my limited knowledge goes.

3. the OMs from the client can't for ever push business here if he/she can't show benefits. and IT budgets of clients are not elastic. i guess they have to show either a strategic value (where costs may not matter) or cost value (where overall savings should count)

4. stacking up numbers is a 'competitive barrier' building game. many clients see that as a ramping up capability of a vendor and in a positive light.

5. as a corollary to the above, some of the vendors let fresh S/E as shadow team members, so that there is cv-building and managing of slack. in some cases it is an antidote to attrition.

6. many of the big vendors from india did incentivize managers to build large teams as there was no demand constraint and only supply constraint. i'd agree some of those managers have risen to higher positions and many of them were struggling to understand and manage the fixed-bid model, which needs different competence. and hopefully some of them have made the moolah (esops etc.) and have taken early retirement :)

7. some of the companies faced a unique but unenviable situation of being laden with large numbers of undeployed employees during the dot.com bust when many clients slowed down in ramping up. i do remember one of the 'biggies' did offer free resources to some of its clients during the period.

cheers

balaji:
my guess is that it should be around 50-65%.

I am not sure what is the right ratio of T&M versus fixed pricing. According to a friend of mine who heads a division at a tier-1 services company of India, more than 80% of their projects are based on T&M. Yesterday, I met another tier-1 services company in Bangalore, and all the potential outsourcing that we discussed were based on T&M.

So, I really do not know what the actual ratio is. But from my experiences, I tend to believe that this number is higher than 50-65% but at the same time it may not be 90% as I quoted in comment #5.

May be, its somewhere in between?

It would be interesting to know how the BPO industry works- T&M or fixed price?

A major chunk of IT/ITES contribution comes from BPO industry- and it will have a bearing on the ratios we are discussing.

Sujai

I think IT still outperforms ITeS by a few billion (need to check NASSCOM data)..

Voice based services are primarily variable (volume and quality based)

Non-voice based services are primarily T & M. A fair bit of activity is also fixed price (Research Projects for example)


rgds

According to NASSCOM (estimate for 2006):

$17.5 B from IT Services,
$7.2 B from ITES-BPO,
$4.8 B from Engineering Services, R&D and Software Products,
$6.9 B from Hardware.

Note that this was an estimate.

just to add, most of the markets move from undifferentiated markets to differentiated markets with multiple offerings and specializations and evolve some niches for high end consulting/product building/services.

i guess you would see the same.

actually that seems to be how the industry is panning out.

the problem of fussing 'high-end' software folks is that they want to have the cake and eat it too. if you wish to make the moolah the lazy way and take less risk it is always the undifferentiated services with large numbers to manage.

there are niche defence industry stuff which is very challenging but not paying as much. because the business itself can't and doesn't make it in dollars and therefore there is no dollar-rupee arbitrage.

how many of the fussing 'high-end' loving techies wd like to work for such companies which predominantly work in niche areas, and some of them for the defence sector in india?

anyways, the market is changing and would change. it probably wd offer higher paying, high-tech, soul-fulfilling work for those who can and wish to work.

cheers.

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