Current state of outsourcing relationships: the watermelon effect

Companies from across all industry sectors are looking to their outsourcing partners to harness the best of new digital technologies to stay ahead of current and future competitors, while delivering a more focused customer service. Hexaware Technologies is using its innovative strategy to give clients an alternative that the digital marketplace is demanding from its participants.

A global provider of IT and business consulting services, Hexaware is led by a team of experts who have witnessed the evolution of the outsourcing industry over the last 20 years, and who understand very well how the technological advances can create new revenue streams and shake up well-established industries.

Part of the problem is that over the years many outsourcing companies have become too big and therefore unable to provide the right attention and quality of service to most of their customers

At a time when outsourcing vendors should be leading the way for their clients and ushering in the golden digital age, what is ironic is how very few vendors are able to deliver the value clients expect from their outsourcing contracts.

Hexaware’s chief executive officer R. Srikrishna

Hexaware’s chief executive officer R. Srikrishna

Hexaware’s chief executive officer R. Srikrishna says: “I have seen the changes that have taken place in our industry; organisations shifting their focus from their customers as a priority to their profits. The result is often a poor relationship between the customer and its outsourcing partner.”

What has led the industry into this current situation? According to Hexaware, it is a phenomenon known as the “watermelon effect”. On the outside, a watermelon is smooth, shiny and green, but under the surface it is red and very fragile. The stark contrast is symbolic of the sub-optimal relationships that exist between companies and their outsourcing partners.

Part of the problem is that over the years many outsourcing companies have become too big and therefore unable to provide the right attention and quality of service to most of their customers. Yet, customers continue to use the service provider, not because they are truly delighted, or even satisfied, but because they cannot see an alternative.

Many of the large outsourcing companies have pursued growth relentlessly and aggressively, and done it using a pyramid strategy, where new recruits especially fresh college graduates are added in large numbers to perform low-level manual tasks and improve the margins of the outsourcing contracts.

These individuals are picked out of college and put into a job, often with little or no experience, and no understanding or insight in terms of how the hyper-competitive digital world operates. As soon as they have gained a couple of years’ experience, working on the same account, they are moved into a more senior role, taking with them all the knowledge about the customer’s business that has been built into the team. No knowledge management system can compensate for this.

Hexaware takes the anti-pyramid approach. Consultants stay with the same client account for at least four years, which strengthens the customer relationship, and enables the retention of skills and knowledge within the organisation.

The company brings together the best of its talent pool and cutting-edge digital technologies to deliver the best business value to its customers. Employees are encouraged to think about innovation and share their ideas with each other and with their client managers on how to improve operations on an ongoing basis. Indeed, Hexaware often contractually commits to such ideas and considers this a fundamental part of an outsourcing vendor’s role.

Hexaware account teams are extremely agile, independent and have freedom to make decisions. In doing so they also create a greater customer-led culture within the organisation.

But pyramid strategy aside, a perfect storm is brewing and causing real challenges for the largest of outsourcing service providers – and that is automation.

The technology behind automation and robotics can help companies streamline their operations, improve product quality and cut costs, as many in the manufacturing, retail and distribution, and automotive sectors have already done.

Hexaware firmly believes that a new era of automation is setting in that could eliminate 30 to 50 per cent of the activities that a typical outsourcing partner delivers today, especially those manual activities performed by fresh inexperienced graduates at the bottom of the pyramid. Automation can create added value to clients beyond that which their traditional outsourcing vendors are able to provide.

In addition, Hexaware believes few of the large established outsourcing vendors are capable of shrinking their own revenue base so dramatically, being so heavily dependent upon the traditional pyramid model to deliver services. Delivering the full potential of automation to clients has associated human, social and revenue impacts that large vendors just cannot ignore.

Within the largest outsourcing vendors, the size that was once their strength becomes their liability, for they lack the agility to adapt to the change automation is unleashing. And in the process the customer loses out; not only do they continue to pay between 30 per cent and 50 per cent more than they should, they are doing so to vendors that use their environments for training and rotating fresh graduates at the bottom of their pyramids.

For a company such as Hexaware, its “right size” becomes one of its greatest assets, and its commitment to use automation and deliver financial benefits to its customers beyond what the market is willing to provide is further strengthening its market position.

Hexaware has no plans to embark on a high-volume client acquisition strategy. Instead the company has set out a strategy to acquire only a handful of new customers every quarter. At that rate of acquisition the company knows it can deliver on its commitment to provide executive attention and build relationships that are deeper and stronger, and be in a better position to understand their customer priorities.

The leadership team at Hexaware has a six-pronged strategy to deliver a world-class customer experience to its outsourcing clients, based on the pillars of strategy, understanding of the customer’s business, design, measurement, governance and culture.

This team is now looking to apply these principles on the bottom 80 per cent of the clients of the largest outsourcing companies. Offering clients the best technology services available and a more productive customer relationship with their outsourcing partner could be a real game-changer for the outsourcing industry.

Mr Srikrishna illustrates this by recalling a recent client acquisition at Hexaware. He says: “This company had been with their previous service provider for eight years and they made it very clear to me that switching service providers was not a decision they made very easily.

“What it came down to was they were paying a lot of money, but in return were not delivered a service that was world class by any means. Even when they pointed out that they weren’t happy, the provider didn’t listen. The reason they came to Hexaware is not because of money, but because we provide them with the right level of service and attention.”

Hexaware’s message to companies across all industry sectors is simple. They can let the status quo continue with their outsourcing providers or they could significantly increase the value they derive from new digital technologies simply by changing their outsourcing partner for one that is at the forefront of technological advances, is very customer focused and will deliver on all its outsourcing promises.

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