Buy the rickshaw

This is a rickshaw. As you can see , its a tri-cycle. It can carry lots of people

Cost of Rickshaw- 110 USD or 5000 rs.

Maintainance cost -5 USD per month or 220 rs /month.

You can hire it instead especially if you live in India.

Cost of hiring Rickshaw based on daily commute of 10 km (home-office/metro station-back)

=Rs 1500 per month or USD 35.

Cost to environment = zero

Running costs =zero or occasional bottle of H20.

Cost of Car – Min 6000 USD

or 100 USD pe r month for EMI

Maintainance cost -5 USD per month or 220 rs /month.

Running Costs- 75 USD per month or 3200 Rs

Cost of car based on daily commute of 10 km (home-office/metro station-back)

Cost to environment- yes.

You decide. Your money. Your environment.

In case the tricycle/rickshaw is not available- buy the bicycle.

Need for Economists in Corporate India

Corporate India has been caught on surprise on many counts recently and most of them are macro economic events.

These have been namely credit rate hikes, inflation due to oil prices (consequent demand for better salaries and attrition) , market entry of new players and above all the rupee appreciation that shave off nearly 1000 basis points off the profitability of unhedged exporters.

Add to this the uncertainty in stock markets over remote events in the sub prime mortgage market in the United States that has actually led to many corporates getting below expectation results in their listing or Initial Public Offerings despite good fundamentals.

All these point to need for better corporate planning and strategizing for economic changes and events especially in a networked world.

Table 1-Top Macro Economic Events that caught corporate India by surprise and their impact

? Credit Policy Hikes by RBI 2006-2007 leading to expensive debt.
? Rupee Appreciation and RBI steps including curbs on ECB.
? Oil Prices and Inflation.
? US Mortgage Market, Effect on Global Equity Markets including India.
? SEZ Policy and impact on communities (this is more of socio-economic topic)

The primary impact of this has been exporters like Infosys missing their earnings guidance due to rupee appreciation, corporates like WNS having lower listed prices ,rising credit costs including for banks , and considerable rework of SEZ plans for corporates like Tatas and Reliance.

These are the biggest names in India, so the impact of lack of econometric planning and forecasting on smaller players is likely to be more.

Most corporates in advanced economies have business intelligence units and economic strategy and planning units. They are used mainly for forecasting sales using scientific quantitative methods like base driver models, time series models and regression models to predict and anticipate demand and align corporate supply and demand chains accordingly.

The usual audience for them is at CXO or Board level advisory positions.

In India while many corporates have started creating these units they are yet to gain the credibility and respect that they would have got in Western Companies.

Main reasons for these are as follows –
depth of Indian academia in application oriented research and their ability to adjust to corporate demands,
skepticism regarding modeling techniques most of which are complex for end users and corporate audiences ,
lack of investment in forecasting soft wares (like SAS , SPSS and even Excel/Solver ) and human resources in these units.

Most Indian corporates would rather hire five more sales managers than invest in two economists who would help create a much better forecast to help plan the corporate strategy.

This is partly due to historic mindsets and partly due to cultural risk aversion, as corporates engage in cost cutting, sales is looked upon as revenue units and planning units are cost centers. An additional complicating factor is that many companies still believe in push based sales, rather than pull based demand targets.

Table 2
Examples of Business Intelligence Units / Planning Units in Indian Corporates.

ICICI
Reliance
Muruguppa Group
Airtel

Examples of Business Intelligence Units / Planning Units in other countries.

General Motors
British Telecom
Nestle
Citigroup

An alternative for corporates unwilling to go into full fledged economics planning units is to become subscribers for customized content providers by third party providers.

This content could be in the form of business research, market research and segmentation studies, predictive models or even economics newsletters. The chief drawback to this is that due to the outsourcing and Knowledge Process Outsourcing boom, sales margins for third party content providers is much more when catering to the global market.

However even for the outsourcing sector it would be advisable to keep a foot in the domestic market, keeping in mind long term growth plans of Indian corporates and the ability to build domain expertise much better while catering to onshore Indian clients rather than offshore global clients. In the short term, these would be lower margins but it would help in building the domain expertise necessary for them to move up the value chain.

As the Indian economy is poised for sustained growth, the size and scale of this domestic demand for economics content would likely scale up manifold. Indian corporates should actually benchmark their demand planning and economic units from international players and partners

Outsourcing Analytics to India: 1

Outsourcing -Some Facts

 

A study found that out of every 1 dollar outsourced, only 31 cents comes to the outsourced country. The rest is captured by the Western Company in terms of savings and dividends. Most of India’s outsourcing sector is directly and indirectly owned by Western private equity players, who also use their influence within client companies in the West to outsource work. In addition in some sectors outsourcing helps to bridge resources shortage gaps to make those domains sustainable. The excesses of outsourcing happens when middle management start outsourcing for a short term quarterly benefit, without retraining it’s workers and in order to get the tab of “successfully managed an outsourcing/transition process” on their resumes. To some part American tax policies are responsible for those excesses. Also countries that benefit from outsourcing become more stable allies and in turn provide emerging markets for Western Manufacturers. At best it can be termed as a transfer of value between Western workers to Western investors via outsourcing staff.

 

Outsourcing – What Works , What doesn’t

 

A healthy outsourcing project outsources only required number of projects, has proper time for transitioning, has an on site co coordinator, and is adequately priced. If the contract squeezes the vendor, the vendor may cut corners and drop quality (he has American investors to answer to!). If the price is too lavish, the outsourcer will be disappointed in lesser cost savings and the hidden costs especially traveling and training.

 

The worst type of outsourcing transition is some people will transition in three weeks what they have learnt in three years to a bunch of consultants flying in, and will then be fired. This leaves everyone confused on the vendor side especially as most transition projects end up doing most of the documentation themselves . The resentful employees (and rightly so) share the bare professional minimum information and there is no team work here.

 

The best outsourcing projects that I have seen work are ones in which the vendor team is treated as a member of the company that happens to sit in India, thus can provide round the clock coverage due to time zone differences. The vendors are usually eager to learn, and if the outsourcing team is secure in transferring knowledge they generally pass along the soft informal tricks and trades of the process as well (for e.g. do not use table A from DW X, use table B, as it is more accurate). These contracts are generally adequately priced as ell. Remember your vendor team gets approx 20 to 33 % of billings only (for 100 dollar invoice only 30 dollars will go the team salary), the rest goes in overheads, investor returns etc. So an adequate billing rate ensures that your of shore team has more food with some jam on the table, thus will stick with you longer. An important check is to ask from your vendor before the contract starts to give the exact ratio of billing to salaries, and also to give the promotion schedule for the team. Also ask for the names of the analysts and qualifications and actual time spent in vendor company to avoid window dressing by vendors.

 

 

Choosing the right vendor without burning your fingers

 

You may get confused or plain irritated at the vendor selection stage where every vendor claims to build the Taj Mahal on the moon for 20 $ a hour for you. One of the best techniques is to give some sample data/task to be done to multiple vendors, and then evaluate the top 3. Then go for a free two month pilot to see synergies and team capabilities. Always ask for names of analytics working on the project. Then award the project but with adequate penalties in an elaborate service level agreement and liability clauses, just to keep operational risk down.

 


What to outsource and what not: A stepwise approach

 

Don’t give your vendor more to chew than he can swallow. Ask the vendor for examples and not just slides on similar work. Give an old actual project done by your team as a test in the pilot above. A stepwise approach to outsourcing will help save you much more money in the long term.

 

Outsourcing in Data Mining and Analytics:Transitions

 

India , China and Eastern Europe have vast pools of statisticians and MBA s that can be utilized for data mining analytics. But outsourcing everything in your analytics project is , well ,its like throwing the baby out with the bath water.

 

Time intensive tasks like Data crunching, Data querying, Data pulling and cleaning , and running repetitive jobs should definitely be outsourced. An additional aspect is to get these tasks documented during the transition process for your own operational stability.

 

The next stage is to transition reporting, but only after you feel your vendor team has documented and is comfortable with the data universe. Since most vendor teams use Master’s degrees and advanced programmers you can also give incentives to them for creating an automation process rather than do the same task again and again which enables them to enhance billing.

 

 

Lastly you can outsource high value tasks like market basket analysis ,scoring models as well as credit models, but only after regular compliance training has been given. You can also ask your offshore team to do research on newer techniques that you never had the time to.

 

 

 

Data Security

For data security insist on an on site inspection or a suitable standard like ISO 27001 certification to keep sensitive data safe, with proper encryption (like PGP) for data exchanges. Also insist on certain legal training for your offshore team (and not just on the job training) and this could be in the form of certifications as well.

 

Insist on sharing all codes and logs from your vendor as your own intellectual property as this will ensure operational stability and quality assurance at all stages of the project and the contract.

 

Outsourcing in this manner enables systematic freeing up of valuable on site resources to business context and strategic tasks rather than low level tasks, thus enhancing their skill sets as well. Having adequate penalties (in terms of free credits) for service level agreement breaches will ensure high quality steady output.


Cutting software costs in outsourcing of analytics and data mining –

Some costs like software costs remain the same through the globe.

You can use the outsourcing transition to force some innovation, like insist 50 % of offshore team uses Open Office and Google Applications for first six months, and nearly half the team uses open source statistical tools like R.

 

Using newer softwares like WPS ( a base SAS clone ) for cutting down SAS and SPSS costs, open source tools like Linux for say 25 % of the offshore team’s systems can actually help you do a test and control on costs on your own team.

 

Having personally worked with all these softwares, an optimized approach can save you much more costs than you can imagine.

 

Cultural Differences, Communication and Tracking– Most Indians see Western culture from Hollywood movies so be prepared for some fun here. Try and speak slowly, and ask if you have been understood after you say a paragraph. Ask your offshore team to send you a meeting summary after each call, and ask them to send a schedule of work for the upcoming week to ensure adequate resource allocation.

 

You can insist on time sheets (log in –log out), since most outsourcing companies record this information anyways for their own purposes so it’s not a big deal. Eastern cultures tend to be hierarchical with emphasis on deferring to superior’s opinions so try and ask your offshore team to speak up their thoughts in time. Use of instant messengers like skype greatly helps streamline communication.

 

Remember, for better or for worse, outsourcing is here to stay in some form or the other. If you cannot beat it, then join it , and if you do it correctly you, and your company will gain and you will enjoy the process as well.

 

Finding Outsourcing Vendors through Consultants

Consulting companies are limited to biases as most outsourcing companies (in India ) atleast have a big degree of ex consultants.

So each consulting company seems to have a prid quo quo arrangement or a favourite partner.

Outsourcing companies themselves have a lot of churn/attrition in senior management. So nearly everyone knows what the other rates /details are.

The industry average attrition is 40% and thats the annual growth as well.

The best way to choose a consulting/outsourcing company is to

a) ask for previous case studies as for your EXACT process

b) ask them about billing/salaries ratio for their staff for the outsourcer.

c) Ask about risk manaagement or change control processes in place for terminating or transitioning ownership, or even scenarios for changing vendors .

Why Do Indian BPO companies struggle more than Indian IT companies ?

1)different sales cycle and methods of evaluation- cost is the reason to outsource in BPO, capability AND cost is the reason to seek technology outsourcing. Sales cycle are longer and much bigger in IT companies, while BPO companies have a shorter sales invetment hence push for faster sales than a long sales cycle with mega deals

2)consultants are very good at generic processes, outsourcing requires a detail orientation and dealing with lower middle management to get the transitions requirements done correctly….

3) Most BPO’s hire the bottom half of top consulting firms or star salesmen who used to be stars. Sad but true .Ex consultants join PE funds if they are good, start ups if they are ok, BPO’s get the worst in that lot as they pay the least. Same for technology salesmen .

4) BPO is yet to mature in sales, pre sales processes and have a longer term view. It is a younger industry and I am sure IT outsourcing struggled in its initial days too.

5) Internal BPO HR practises-

Much higher levels of attrition in BPO lead to lower quality of delivery than in technology. Also experienced BPO delivery people,with zero sales experience, who stick around sometimes get to partner the new sales people onsite not because its good for the firm but only way to retain these people

6)Competition in BPO is quite ridiculous with rates touching 14-15 $ per hour for large deals, and quite many salesmen end up making discounts just to make that quarter or undercut the competition for strategic reasons.”

Margins are higher in IT companies in India .

Genpact and WNS are exceptions to this rule  due to sheer size and parental pedigree (GE and BA respectively), but most Indian BPOs/BTOs/KPOs less than 4000 people will suffer the above issues

Outsourcing Analytics:Attrition Silver Bullets

Use an analytical tool called common sense and think like the little guys.

1) Have a minimum core team of employees rather than over hire is your enthusiasm

2) pay them well…about 10 % above market rates.

3) give them appropriate designations 🙂 not the ones they manage to haggle for
4) for fluctuating demand/work use sub contractors rather than hire employees /build huge empires of people…..(e.g A VP once told me proudly “I lead 500 people”…as if he was going to fight for Sparta)

5) employees who have periods of very less and sometimes hectic over activity..leave.

attrition is easier controlled in smaller teams, and a lot more work can be sub contracted at economic terms….

6) be flexible and nice  to your people..

as long as they get the work done ,any time they want to come in should be fine as long as they meet deadlines…

7) use tele commuting,work from home , internet conferences etc ,it is safer and the IT industry uses it more than ITES. It also saves costs….

this will act as a substantial barrier to exit……

8) and find work,training ((skill enhancement etc),new developments  to keep young people from getting bored..rather than quarterly off sites. Give them a quarterly cash amount than the offsite .

9) Use predictive attrition control, based on survey based attributes and rate employees in red,yellow,green. Focus on the reds, high attrition threats. Some companies are even coming up with a response model to predict attrition.

Boredom makes people quit faster than anything at least in Indian analytics that I have seen.

Keep em happy and they will return the favour

Outsourcing Analytics:Some Trends

1) Eastern Europe has definitely come up and so is China in basic outsourcing processes. For more complex processes India remains the primary destination and sometimes act as managers to East European and China new outsourcers.EU countries delivery centers enjoy less stringent data norms. The Chinese speak much worse English and are better mathematicians. So are the East Europeans.

Some of this out sourcing 2.0 is driven by Indian companies who want to mitigate risks of rupee and have global delivery 24 * 7 and also enjoy EU norms of data protection.

2) Cutting costs through open source software like R, better solutions like WPS could also get big.

You can also see fragmentation to consultants as technology like remote desktop and skype allows low risk  remote working.

Consolidation of KPO and BPO has been problematic and disappointing in expectations at least in India.

Next big big trend depends on how 2008 US Recession and politics plays out as USA remains the biggest source of outsourcing business and trends in this field