The path forward: A COVID-19 offshore playbook
Editor’s note: This article is the third in a three-part series to help information technology leaders who depend on partners and suppliers in India for core information technology services better understand the current status of COVID-19 in India, the impact on offshore IT service relationships, and what actions can be taken to protect and support U.S. enterprises.
Given India’s dense population, COVID cases and deaths remain notably low with ~67,000 cases and ~2,200 deaths across the country. But, as anticipated, the COVID rates continue to climb, with new cases now topping 3,000 three days in a row. India’s government is cautiously loosening some restrictions, but India’s largest cities, which host many offshore provider locations, remain red zone hotspots for the virus.
Sources in India report that IT leaders are abiding by restrictions and adopting very conservative policies to keep workers largely at home and safe. Unemployment has recently reached 27 percent, with protests of the lockdown in the capital city of Delhi creating familiar friction between health and economic policies. India, heating up for the monsoon and summer months, awaits further notice on extended lockdown and movement restrictions beyond May 17.
The COVID-19 offshore playbook
With an offshore impact assessment completed, it is now time to set the go-forward strategy for offshore services.
There are two key factors that must drive your strategy: the strength of your vendor under COVID and the strength of your own enterprise. In this series, we have primarily focused on your vendor’s ability to deliver services during the pandemic. However, the strength of your firm’s balance sheet, revenue streams and supply chains and your business strategy must factor into the approach to modifying your business relationship with your offshore vendor partners. Forecasts on the length and depth of the downturn and the pace of recovery and resultant impact on your business must be thoughtfully considered.
For U.S. leaders, the ambiguous and volatile domestic business environment is not expected to settle any time soon, with wide variations across the states in economic and health policies and outcomes. As a result, leaders must plan for competing scenarios, planning thoughtfully around calculated probabilities. For simplicity, we’ll refer to the strategies available in a hand of poker: Hold, Draw, Raise and Fold.
Under a Hold strategy, you keep the cards you were dealt. You have validated that your vendor is in a good position to continue serve you and have concluded that the currently contracted services best meets the needs of your firm. A change may represent a greater risk than standing pat.
If you are fortunate enough to find yourself in this scenario, continue to monitor and adjust as needed.
Under a Draw strategy, you keep your best cards and exchange the rest to improve your position. You believe that your vendor has a solid foundation to meet your needs, but your assessment identified selected deficiencies requiring changes to the contract or the relationship that must be addressed. Market conditions and talent availability may be to your advantage in requesting changes.
Based on the issues unearthed by your assessment, you may choose to swap out or name specific team members, update the content and frequency of reporting to you, install additional security capabilities, or contractually formalize your position in the client pecking order (e.g., move to higher tier.) Creatively and specifically address issues that may lead to greater, future risks for your enterprise.
Depending on the condition of your respective balance sheets, you may seek discounts over months where performance under contact is poor or seek to defer payments with renegotiated terms. Additionally, consider scope changes that may minimize external expenditures while keeping a core vendor team in place. Sharing the pain and financial responsibility is a reasonable request.
Regardless of your position, require additional triggers and escalation procedures to ensure that new deficiencies are communicated and mitigated in a timely manner. Finally, you may to restructure remaining years of the contract as your business’s needs may have permanently changed.
Under a Raise strategy, you commit more money because you believe with conviction that you have a winning position. In this case, your vendor is serving you well as a true partner and is well positioned to weather the storm. Solid performing partners may be able to take on more, allowing you to safely shift more to a trusted partner. Your vendor may be very hungry to earn additional business, offsetting any of their customers who have failed, and offering favorable terms and pricing to grow their relationship with you. Ask for what you need.
For example, a Fortune 500 manufacturing and services CIO told us, “We have released 90% of U.S. and offshore contractors due to the unpredictable nature of our revenues. We have decided to shift spend to a global insourcing strategy where we have more control over talent selection and reduced cost. We’re doubling down on an option that works.”
Consider extending the duration of current contracts or increasing the breadth of services provided (e.g., additional development projects, additional applications to support, additional business units to serve.) You may be able to increase other terms such as service level agreements or dedicated resource commitments that were previously non-negotiable.
If you have the financial means, this may be the time to launch new initiatives such as artificial intelligence or robotic process automation to prepare you for a market recovery. Consider playing offense as you position for post-COVID opportunities.
In Folding, you accept that you are not holding a winning hand and choose to cut your losses and move to the next deal. Your assessment may have left your organization exposed or disappointed that your vendor is not acting as a partner during the current and ongoing COVID trial. If it’s time to take action, assess your alternatives first.
To Fold, you must select your next strategy, and you must determine the best approach to exit and transition the existing relationship. First, appropriately evaluate your contractual exit options (e.g., breach, force majeure, termination for cause, termination for convenience) and processes for notice and for remedies. Beyond the legal requirements, you must consider the practical reality of moving or rehosting technologies and the requisite knowledge transfer. The decision to change brings its own set of challenges to be mitigated.
Next, understand there are multiple models now available to IT leaders to engage top offshore talent. Evaluate them and choose the strategy best for your situation.
- Traditional offshoring/outsourcing is well known, yet with varying results. Assess your situation and evaluate if a new offshore provider would complicate or solve your already identified open risks.
- Reshoring, bringing the work onshore, supports a safer “close to home” approach. Assess your ability to hire new employees and take on additional cost. Bringing the work onshore increases your control but compromises your cost footprint.
- Global insourcing is a third approach available to IT leaders. Global Insourcing Centers (GIC) blend the two scenarios, keeping an offshore cost structure but building a dedicated offshore employee team, complimenting your US-based team. GICs may be a managed service or build-to-own entity. (Disclosure: Patricia Connolly, co-author of this article, is the CEO and Founder of SMC2, an innovative leader in establishing Global Insourcing Centers (GICs) in India for US companies.)
Just as in the U.S., there is a great deal of displaced IT talent in India in this moment. If you currently have the financial means, this is an opportune time to recruit outstanding talent onshore or into an offshore GIC group. The talent shortage of January 2020 has turned into the talent surplus of May 2020.
However, this talent availability is not expected to last in India. Several U.S. and Indian IT leaders have told us that this is a short-term scenario, creating a temporary opportunity for the stronger GICs to amass top talent. They’re accelerating hiring, anticipating market share gains from underperforming outsourcers.
The bottom line: Especially in volatile times, IT leaders must assess and address the challenges presented by COVID-19 in their offshore service relationships. Your active assessment and action are imperative. Beyond mitigating risks, COVID presents a unique opportunity to enhance your prospects for the future.
SMC² is based in the DFW Metroplex and provides global IT Services including the development of global insourcing centers with client-specific designs.
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