Partnering is a fundamentally different behavior than traditional contract-based sourcing arrangements. This shift in attitude is needed from both the provider and the buyer. How are companies moving to collaborative mature offshoring and converting their providers into partners? What are the desired outcomes and expectations from such relationships? What are the associated risks and benefits?

Abstract

This session explores the global organizations' perspective to whether partner or just simply outsource their operations to India; the factors that are decisive for companies to enter into a partnership with offshore service providers. The panelists share their views on how to fully leverage a partner or provider relationship. A new term that evolved in the session is 'provider partner' - how an offshore service provider can play both roles and what are the expectations of the companies.

Discussion

Parag Samarth: In your view where is it that a provider probably ends in and a partner begins. When you say partner and provider, what comes to your mind?

Hennelore: As you move from overall relationships spectrum into the next level, it is really focusing on increasing your business productivity and going to the highest level of basic transforming your business together with your partner.

Parag Samarth: Anne, would you want to elaborate where the provider is coming in and where the partner is coming in?

Anne: Everyone has to have the strategic relationship and I think that is probably fits into partnership mode. I think best chance for both parties to achieve that business outcome is through a partnership arrangement. I think key definitions of the success are based on whether you focus on organizational, geographic or wholesale change.

Parag Samarth: The relationship is becoming a partnership. Clive, does it comes right away or is it something that has to grow and at what time does this come?

Clive: I think the relationship almost certainly to become a partnership and probably that has to start as a provider relationship. If in a partnership both partners are focused together on market share then a lot of the micro execution becomes lesser the focus. For that the outsource partner has to be knowledgeable about that end market and end customer. That probably comes from having a relationship of some length and that knowledge is built up by starting potentially as a provider.

Parag Samarth: We have strategic relationship contributing to the business value. We are talking of the relationship so that provider becomes partner after understanding the business and is being able to impact the business. Mike, is there something which is important or you being the last and final word in what you are doing? Can you just go straight into saying what I am talking off and let so straight into the partnership.

Mike: When I look at this partnership and provider role and see that the cases where we have provider and partnership role. I am starting to think about our partnership relationship with HCL, which is about access to skills and special people, and people who could really understand and solve the complex problems that can not be defined in a SLA with a provider role and like in every company those precious people who really are outstanding and really good fit for the job. The question comes in why I should get those people when everyone else wants those people. That is where the partnership comes in. That is where true understanding of what I need and able to match it with your talent. The true understanding of what your partners need and be able to answer the talent; make a real difference. So I look at the provider partner. I take the slightly different curve. I did everything everyone said up to now. But I really do look at the skills at I need to deal with more and more complex challenges and my inability to do my own and needing a partner to help me.

Parag Samarth: Let me take this point further: about simple stuff - provider; prescribed stuff - provider; the complex stuff - partner: the new stuff - partner. Clive mentioned about time element. The longer the time more you get into the partnership and we mentioned about business value. There are other vendors in the market who are in for long time and who have been with you for long time. By definition if you have been working with them for long time, do they automatically become a partner or is there a difference or you want to distinguish between how you work with them? Or would they automatically become a partner or would you treat them differently in different situations?

Hannelore: The time element is important from a relationship point of view but that is not all. It comes back to business value and what is important again for you as a company. If I take an example, we use Oracle as part of our databases. So we made a contract with Oracle and I didn't see as a business partner. Because if I look at it from a relationship point of view this is just a commodity for me. Now if I go forward to know and look at some of my service providers, who actually take care of my overall global infrastructure. This is dear to my heart and dear to my business. So there the relationship and the partnership is more important and I invest more into that.

Parag Samarth: I am trying to make the two things very precise: the provider and the partner. You are saying that may be you could have a situation where you have both. So we are talking about simplicity. We are talking about impact on business value and we are talking about the situation where the provider/partner has been around for long time.

Anne: I guess the migration or the move related to the time element, how long you know the company, is important. A lot of revolves around couple of things like the importance of what you are trying to build together but also you got to let the vendor in. I have been vendor side where I have tried really-really hard. We had some fantastic ideas, we just know we can just help the clients. But if you are kept in the engine room it is really tough. Somehow this is got to be a trust thing that your client has got to let you into the part of the organization where you can bring your skills out best and you can make it work.

Parag Samarth: If I have to argue this further, would there will be a separate set of people be partners and a separate set of people who would be providers? What do you think Clive?

Clive: The more interesting real partnership one, where we pioneered with HCL, is around creating a new value and to really question of, are the partners with the longest tenure automatically the one that moves to this status and the answer is, absolutely not. Lot of it is looking at who we are working with and does the leadership have vision to create more value in their business and have the knowledge of what the end business is all about. Is there are mutual willingness to build vision together and share the risk? It is either we both are going to win or both are going to lose. It is about the existing relationship and who has the vision that can be additive to our vision and is reasonably common and shared who has the skills and experience who is willing to take the risk. It is not about time and material, it is about we are both going to win in the market or not.

Parag Samarth: We established that we have a situation with the same entity can be a partner and provider at the same time. So Mike what I want to do is if you could bring it together then I want to go to the audience to see if they have a different view or they would like to cite some examples in their experience which would probably support our view.

Mike: This provider-partner thing really needs to be defined by the work and the objective that has to be done. Because that is the thing we all have to solve together. I think when you have one partner who provides for basic simple stuff then you don't really look at a partner type relationship, its more provider and you want to work the really complicated stuff where we have to coordinate our decision making mechanisms and have governance; you have to know the difference and treat it differently. And you have to just leave the simple to be simple and run on its own and run on a very structured way and meet the SLAs and you have to deal with the complex as complex and probably you going to have some issues and probably you have to go back and make unexpected request for resources and may be do something outside of your the normal business model.

Parag Samarth: If there is somebody who wants to give an additional insight to distinguish between a provider status and partner status. Some comments would you like to add?

Audience: Is there a specific number of partners? If you need resources you could go to HCL or you could go to any other company, and they will do the same. So what is the difference? Where is the line?

Mike: It is the balance between the kind of competition and if you look at this as a quest to get skills in a competitive market, you might want to limit yourself to just one. For me the answer is kind of more than one. However, the other side of the balance is how many relationships really you want to invest in and can you really invest in? I think you always striking the balance and if you don't mange it correctly and it is not a good partnership. You are just inviting competition in. To me it is a balance; it is a precious few in my world.

Mike: I would agree it's a few. I am talking about software development kinds of activities in particular because if you are looking to build that kind of partnerships that wee are discussing here as opposed to just providing basic utilitarian services. It takes lots of mutual work. It is about people, processes and tools. I would say that biggest challenge is actually people. That takes lot of work and effort at leadership at multiple levels.

Anne: You cannot afford cost of all the governance, because you owe it to your partner relationships to create the platform and frameworks for them and yourself to be successful. When you have a whole civil service trying to administer this, it is difficult for them to see the value and they keep plugging on with you and because a lot of this is about trust. If you build the governance correctly, neither party will get hurt and you actually should create something much better than you could have done on your own.

Hannelore: I want to build on this governance model and how do you manage the governance and how you manage the providers. I think it can't be more than 2 or 3 because the governance model becomes too complex. But you have to think about poor competencies of the different providers and how does it complement your internal skills.

Parag Samarth: When you are really saying that just as you get to handle your customer and they treat you as a partner, you want to sort of do the same thing at the other end. There are some commodity kinds of thing, utility things, where the provider approach probably makes sense. If it is a very simple thing where there is just provider kind of relationship going on, is there is a scope of converting that into a partnership? If yes what exactly is required, because cost of governance is important. Partnership is going to come with the cost. So why would you want to convert the same sort of pen and pencils kind of thing into a partnership? Is it worth an investment?

Audience (Yogesh from Citi): I wouldn't convert them. So anything which is core to my business which is what goes onto the boardroom or to any of the main things, I want/won't partnership. So anything which is non-core, pens and papers is not core to my business. But anything else I don't want to differentiate then between high value work, high end work and more commoditized work, because in my organization of IT I will do all of that. I do a broad spectrum of work from high-end risk analytics that we do to application support and simple technology upgrades. I want my partner to be in the same boat, because those things are pain to me as well. I cannot hire people who would just do commoditized work; everybody wants to do high-end work. I want my partner to understand those pain points. I want to you to partner with me not just for quality work which gives you great visibility, I also want you to partner with me in things which are not necessarily glamorous and things which are more commoditized. So I would treat them as the same if it is my core business.

Parag Samarth: If we have established the fact that, if it is simple utility commodity probably provider can work. May be there is a scope over there to bring in some partnership aspects, but weigh the cost of governance vs. benefits, but then moving on to the partnership and you mentioned about this situation where it's working well with some people and not working well with the others. Now put yourself on the customer side. What could it be that you could do which would help either somebody to step up into partner mode or if it is in a partner mode and working well with some engagement and not working well with other engagements. We spoke about trust, faith, and common vision. But let us say here, I am this Indian vendor coming to you to willing to be a partner. What do you think from customer side you would like to be done in order to enable that?

Hannelore: Implementing a strong governance model and sharing the vision, goals and strategies and having that actually implemented at all levels in your organizations is important. So from the engineering point of view or the day-to-day operational up to the executive level, how you implement the governance model.

Parag Samarth: So you are saying that you would use the governance model to enable the provider into transform into a partner and let them in. You spoke about the cost of governance and obviously the cost of governance would then have to be commensurate what are the benefits that you would get. So what are the other things that you might want to add, one is we had the governance. What else you think would help provider to transform into a partner?

Anne: Spend time within the organization, around the stakeholder management piece, information gathering piece and try and be as clear. I can articulate the situation clearly the "as is" situation and what the "to be" in a Nirvanic state might look like. Both can then start to build something together, because I think if I was at the vendor side that is a piece that we suffer from, and not all of our clients are very clear on what they want. And if I don't help them clearly, they end up running down the road and if you miss to take the right turn, then it is not the real direction where really you have to go in. I think what are the key things you can do is just spend the time, clean up your own house, spend the time trying to understand what you have to do.

Parag Samarth: Clive, she spoke about the governance, people spoke about trust and I think what Anne is talking is about communication. Think of ourselves now from the provider side. Is it a very convenient way for customers to say I do know what I am doing, my business situation is changing. I have lot of risks coming on and partnership is such a convenient way to have somebody shares it. Is it just convenience and is it something that is really going to be seen differently?

Clive: The best opportunities occur when the potential customer has a problem or an opportunity that can be articulated as that, about how to go about either solving it or grasping the opportunity and creating business success from it, is not clear to the potential customer. In 2005 we migrated one of our major initiatives with you from a more conventional one to very much a partnership was because we had some business-related execution issues and we asked ourselves how can we really do this differently and it started with conversation with HCL executives and it was not about exactly the solution. We had the conversation with several India services companies and it was with HCL that best stepped up to that conversation, not with the detailed answer are. But with a set of comments that showed a shared vision about possibilities and from there we created that.

Parag Samarth: It is not convenience to call it partnership and have somebody else share that problem, but it is really a genuine desire to have somebody see if they can work with you and help you and therefore jointly make the good business proposition. Mike, if I could ask you to think in your business why would you not bring that solution aspect to where you sell PLCs as a commodity and where you sell PLC as a solution and may be if you could use that an example to add some insight what Clive is saying as to where does this partnership come in.

Mike: On the client side what makes the partnership unique is to put ourselves in the provider shoes and try to understand that they are running a company too and a company like HCL, for example, has tremendous pull on its resources particularly its key resources. The one you are probably asking for is probably engaged in something else and as much as you love your account team, they go back into a relatively big company and have to fight awful hard for that resource and that is the resource you need. So understanding in spirit of partnership your issues but also your partner's issues, their strategies, their things and working may be higher up in the organization to allow the people working with you day-to-day to get more done, to get more visibility, because of these real appreciations all throughout the company in what you trying to accomplish. And the common goal you have is not just shared by you and the people who show up from HCL to your organization everyday and the account team, but also more broadly within the provider.

Audience: Could you name three main steps that you made to that were different from going from provider situation to partner situation?

Clive: Going back to the earlier comments, this was a major change and evolution in the relationship we had around the product line that HCL had already been looking with this on in a more classic relationship which was time and materials. The things we did differently, in summary, were the whole business relationship is now around HCL shares, revenue stream with us. We do not count how many HCL staff are on the program. We frankly don't care. We don't pay for them. It all revenue shares that was the major difference, and by the way, it is completely shared risk upside and downside. So if that product line for some reason was to go south and essentially there was zero revenue, neither of us would make any money of that product line. The second thing we did was and this goes to trust; this goes to letting the partner in. We completely opened up as entirely as you can with respect to certain laws and things coming into play. So that included bringing HCL into customer engagements and forward-looking sales forecast, it included customer SAT data, it included actual results in quarter around the product line, and most importantly included not just allowing for but actively encouraging the innovation in the HCL team to create new aspects of the product line and new ways to do things in the product line. We had learnt that the HCL team has great expertise, great technical expertise and over the last 2 years there has been lot of patentable IP created by the HCL team in the framework. So those are three things I think that became different.

Audience: Knowledge is the key asset of a firm. You are establishing a long term relationship, partnership with the firm, but you might consider that there are risks. Is there anything that would mitigate those risks?

Parag Samarth: Putting that in a broader way, We talked about partnership, about information sharing, communication, trust pay letting them in and doing whole lot of things together. So is that creating new set of risks? Would you think would it create new kind of challenge in term of making sure that because you are working for your organization, for your share holder are you therefore knowingly or unknowingly creating some risk. Do you think there is something in that we have probably not thought of or had you worked on that?

Hannelore: If you go back and look at the time of the relationship and as you start building the trust and start defining the common vision, who you choose as your partner? Risk is the most important part of it. What skill sets do you bring to the table? What skill sets they bring to the table? I think all of that somehow helps you minimize the risk as you move forward with the engagement.

Anne: If you are getting into the area of the licensing, intellectual property, intellectual capital, all that stuff, then I would call out day one, and be clear of the arrangements. How is going to work? How you build it? Who gets what and what really does need to be protected because there is no getting away from it, this as a commercial arrangement. It has to work for both parties. It has to work if it is a long-term partnership. It has to work long term advantage to both parties.

Parag Samarth: Clive, in your area, you are actually sharing some of your future plans in terms of new products, new features, new functionality and even those kinds of plans coming out into the market before you are ready could be real bad news. So is that a risk, and if yes, how do you contain that?

Clive: The answer to the question fundamentally is yes it does create some new kinds of risks. To a degree this is a classic of no risk taken, no potential reward received. The best way to cover those is when you are putting together the arrangement in the first place, get them clarified, get them understood, get them written down as part of the agreement. Then you put it in the drawer and hopefully never have to open the drawer for those reasons later. But coming to your more practical aspect of the question, I think that is all about the trust in the relationship.

Mike: I would like to make a comment about risk particularly in product development and R&D. Some companies have made just tremendous innovations over years. I realize that in fact their innovation is under-represented vs. the innovation that's popping up all around the world and really the future of the world is partnering and using their power to bring the best ideas, no matter where they came from, to the marketplace. So, in a way, the risk of not forming partnerships and not tapping into key providers is a greater risk than the risk you take when you do it.

Parag Samarth: The rate at which things are changing, very soon if you don't make it fast enough that innovation is no longer an innovation. So it's a risk of getting it out to the market faster at the risk of getting somebody else to steal it. But if you don't do it, it might not even come out into the market fast enough.

I want to establish one more issue - provided this it is so simple, I can measure it. How do you measure partnership? How do you go back at the end of the day and say this has worked well or this has scope to go. I wanted to spend time on how do you measure it and how do you report it. So if I could start with you in terms of what are your thoughts in terms of measuring it, and how do you say it is good or not good?

Hannelore: Two areas I measure. One is obviously from an IT outsourcing point of view, we have service levels in place. So meeting the service level agreements, that's one area. But the other area is how do we create business value together, how my partners are actually helping me to achieve the business value, and so that's where we really look at areas we share the goals, I share the goals and we look together on areas we can collaborate and work together.

Parag Samarth: Anne if you could sort of elaborate on this business value. Business value could be of two kinds. One is doing something good on what is already there or helping do something which is new. So does it make the equation that much more difficult in terms of measuring the business value that a partnership has created?

Anne: It is about communicate, but it's actually more difficult thing than you might think to get to the level of specificity that's necessary in order to create the right SLAs and the framework around it. Another area is around, I guess, the commercials of this. There is always a true cost of the arrangement to both parties and there is where transparency and may be even an open big approach has to come in. Because it takes a long time to get to the true cost and again it has to be mutual; it has to work for both organizations. So there are some hard measures around that. The other one which is possibly it's a bit more intangible. No one ever wants to be out innovated. So how can you have your partner, how can you say to them, okay come up with and x men and new ideas for us per year or take this development to the next level, but there is nevertheless something about value-add, there is something about keep us on the front foot, work together to keep us ahead of the race and that's a tough one, that's born out of the relationship and how well you know each other.

Parag Samarth: Clive, What are you measuring against, if you are challenged to take a call, saying this is working or it is not working? Is it not a very subjective wishy-washy kind of a measure?

Clive: No. I think the distinction I want to draw is typically in these conversations when we use phrases like SLAs, we typically mean that somebody is measuring the output from somebody else and if a threshold is dropped below or continuously dropped, there is some form of penalty, typically that's kind of the notion of an SLA. In the relationship that we created, by the way we now have two of them going on different product lines. there are no SLAs of that kind. The program has a set of metrics. The program team is joined and the activity is jointly owned.

Parag Samarth: So Mike you said that there are some people working in a provider mode, some in a partner mode, some of them working better than the others, and at the end of the day the measure is to make sure that everybody improves. So if you are looking at two teams, one doing better than the other, what is it that you would come back and say because of these one or two elements, I would say this team is doing better than that team because at the end of the day it is comparison.

Mike: I am trying to think of the analogy and why this is tough. But the analogy I use is just a kind of individual performance management system. We all have some methods at the beginning of the year where we write down our objectives. Some of them are going to be big and subjective and others are measurable. I think a partnership is a lot like that we are depending on what you are going to try to accomplish and the measures need to tailored to that. Keep the network up or certain amount of time, and at the end of the day you can go back and measure that. But the fact of the matter is just like with managing an employee. If you are always giving constant feedback, and you've got a good open relationship with that person, it's not a secret when you come to the end of the year about how they are evaluated. You know what you need to do to correct and if it is a relationship worth salvaging or not.

Audience: Where we were leveraging given the intellectual property concern, leveraging the risk that we were taking there, given the disruptive factor of geopolitical factors that come in between protecting homeland security and all that sort of stuff. What is your experience or views on leveraging a partner in that business environment and engagement? How you do that?

Mike: Speaking geopolitical, we'll probably end up moving a lot less into China in terms of that kind of partnership than we will in India. Among the various factors, IP was the number one driving factor amongst a dozen other factors. It's key when you select your partner, where those partners are located and just how you structure it to be able to protect and which one should give out. But I think the geopolitical environment where IP is strong and where it is not one of the major factors that have to be considered for every one of these relationships.

Concluding part

Parag Samarth: We spoke about partners, providers, about measurements, about metrics, the key points, business value, trust, and faith. So those three points that you want the audience to go back with ,that you would want to add.

Hannelore: To create an optimal partnership, one thing is you really need to have a clear understanding of your vision, understand what are your business goals are and then based on that, decide on, who do you partner with and then put a very good governance process in place to manage this partnership going forward.

Anne: There is room for both providers and partners, and in order for each to be successful the basics remain the same. Articulate what you want to do, enable your partner, your provider to be successful and build a good framework around that.

Clive: I would just add that you do need to have some vision of your own. It has already been said that the partners can, together you can discover and decide that you have a mutually shared vision that's going to work and therefore build on that and create a partnership situation. I would say never forget that's all about the people and not just the executives. Real partnership has to be come down through all the layers that need to interact in a partnership and that's real change and that's why executive commitment and helping people understand their roles and evolving is an important ingredient into making a real partnership where the two are very much tied at the hip really work.

Mike: We also need to know exactly what each side of the partnership is going to get out of it, and not ignore that because you're the client or because you're the provider side of it and then second is it's a day-to-day thing. The business world changes too fast. There is no one objective that I could think about that really is worth doing that's very difficult and is fought in the trenches day to day and needs the oversight of both organizations in the partnership to make sure, we adapt to be successful.