As the Nearshore industry and global outsourcing continue growing, many companies new to the outsourcing process are entering the space.
These companies have many questions they want answered. Among them are concerns over contracting practices, the best way to seek out reliable and able outsourcing partners, and how exactly they can make outsourcing provide both financial and operational enhancements.
Here, we chat with Tim Montgomery to get those questions answered.
Tim began working in offshore outsourcing in 1996 as the CIO of Equipment division at GE, where helped pioneer the company’s Indian outsourcing practice and establish vendor partnerships. After 20 years at the company, Tim moved on to take other high-level positions at organisations including CIGNA and Satyam, where he oversaw outsourcing and tech operations.
Today as president of TIMIT Solutions, a US software development and IT services company that constantly works with outsourced teams across Latin America and other world regions, he both spearheads end-to-end projects and guides client on how best to utilize outsourcing.
NSAM: How do you find the right cultural fit in an outsourcing partner?
Tim: I begin by making sure I understand my customer; how they behave, whether they have internal resources they want to displace, the scope and quality of their IT development infrastructure or resources and that’s what they’re looking for.
The first question that clients ask is “how much am I going to save?” Any good consultant will say: “that depends.” Outsourcing isn’t about labor arbitrage, even though that’s why all companies begin outsourcing. It is about how efficient a company is end-to-end. If a company cuts its hourly expenses in half but spends three times the amount of time completing the same task then no savings have been made.
In the same way that customers in different parts of the US expect different outcomes dependent on their location, outsourcing partners in different locations offer a variety of skills. In my experience, outsourcing partners in Latin America tend to be very creative in their approach to problem solving, and use a lot of out of the box thinking.
NSAM: What are the characteristics that you look for in a trustworthy outsourcing partner?
Tim: In the pandemic era, all the usual in-person interaction that help make these decisions disappeared. Personally, when I introduce a customer to somebody, I interrogate that vendor myself. I know the questions I have to ask and I know the answers I expect to receive. I’ll do that due diligence for my client.
If a company cuts its hourly expenses in half but spends three times the amount of time completing the same task then no savings have been made
On the client side, I recommend that they are very upfront and transparent with the vendor to make that vendor a partner. I suggest they take a look at the vendor’s IT strategy, the imperatives they have to meet that strategy; to really push that potential partner to offer feedback, to suggest what they would do differently. They should be able to explain when they’ve previously failed and what they did about it.
These sorts of questions really help open an honest dialogue and give the client an impression of the vendor’s abilities. None of this takes the place of service-level agreement or governance.
NSAM: What metrics do you use when comparing one potential vendor partner against others?
Tim: Of course, cost comes first. But cost is a multidimensional metric and estimations from a variety of potential vendors help give an idea of this. The labor rate is a central element of the overall cost of any partnership.
Another metric would be an understanding of how the vendor works with teams like mine. Are deliverables very black and white to this vendor, with little flexibility? Are they able to work with customers to reprioritize product backlogs, offer estimates for delivery, and enter a very methodical process in which we deliver what we have said we would?
Lastly, I like to hear about past problems the vendor has had with clients and how those problems were solved. It is unlikely that a vendor has never failed with a customer, and I can paint insight from hearing about how the vendor resolved an issue, how it reacted to a challenge.
NSAM: How do you efficiently manage outsourced teams working on end-to-end projects?
Tim: With a customer looking for an outsourced partner, they should never hire a partner that simply subs out the work that needs to be done then hope it gets done. That is a worst case scenario.
When I was a CIO, and what I do now on my own projects or when advising customers, is to bring all parties in the team together quickly. All teams go through the forming, storming, norming stage, and they need to be minimized. We have a kickoff meeting to bring everyone to the table to demonstrate that we are all in this together; I’m not subbing the work out and there are no obstacles to communication between us. Barriers must be broken down from Day One.
We have a kickoff meeting to bring everyone to the table to demonstrate that we are all in this together; barriers must be broken down from Day One
After that, we make sure that we have regular follow ups. The customer does not need to be involved in every little interaction, but at least once a week they should be re-engaged with the team in order to fast things out. If not, then you are waiting for the customer to raise a concern or the problem that needs their involvement, and this means communication has not been sufficiently rigorous.
There is no issue with my clients reaching out to my outsourced team to qualify a concern so long as we are all on the same page.
NSAM: How do you structure partner contracts, and which contract models are most useful when bringing a team together?
Tim: Time and material contracts are probably the riskiest contract form from the customer’s side, whereas fixed-price contracts are riskier from the side of the provider.
Fixed-price contracts are tougher in the Agile development process because all aspects of the project are not defined upfront.
However, putting a not-to-exceed in place helps to resolve this fixed-price issue, and this is what I suggest to customers. I ask for their Wishlist in terms of what they know they need now from their product backlist, set this out, and then give a not-to-exceed estimate. It’s important to outline the relationship between TIMIT Solutions and the partner and TIMIT Solutions and the customer. When you have the product backlog, it can be defined in terms of functional requirements, and inserted into the contract I have with my partner and my customer. Each is identical. Without standardization across the contracts, finger pointing can be a problem if there are any difficulties. This way, the customer can request additional deliverables if they require them, while having a do-not-exceed in place for the deliverables that the project begins with.
Without standardization across the contracts, finger pointing can be a problem
I usually put in place a 20% margin either way on the do-not-exceed either. The hourly rate, however, must be negotiated with the customer and the partner, and this will then impact the profits for myself and my partner. But non-technical aspects, like customer experience management and governance must all be taken into account when negotiating the split with my partner.
I also include an agreement that I used to expect to see when I was a CIO. Namely, this is an agreed-upon length of time for how long the rate we have agreed on will be valid for future projects. Project backlogs will grow and APIs will need to be updated. This could be one or two years, after which rates can be renegotiated. This adds further stability.
NSAM: How are you dealing with the influx of new clients who want help for their digital transformation but might now have used outsourcing before?
Tim: Most of the major companies have been undergoing digital transformation for years. However, in the mid market this is less the case. There is less experience here.
I’m very upfront with clients when they approach me. I explain that I will not personally be doing the coding for their project but that I will make sure every piece of code is perfect.
There are challenges to anything when you are not used to it. Outsourcing is an opportunity to save money and reach a wider talent pool. But they need to know of the downsides, particularly the time difference if they’re outsourcing to somewhere like India. Eastern European companies can be quite curt in discussions, while outsourcing to Latin America will be joyful but meetings can go a little off-topic. Each region has benefits and drawbacks and clients need to know this.