IT Outsourcing System Is Broken, How Can Service Providers Fix It?

Andrew Wasser, a veteran CIO and the associate dean of the Heinz College's School of Information Systems and Management at Carnegie Mellon University, tells CIO.com how outsourcing providers can develop cultures of innovation and other challenges and trends and in the industry.

Andrew Wasser's perch affords him a broad view of the IT outsourcing industry. Wasser serves as associate dean of the Heinz College's School of Information Systems and Management at Carnegie Mellon University (CMU), where a third of the graduate students studying applied business and information technology are refugees from the IT services industry. He has oversight over many of CMU's business projects that are commissioned by a virtual who's who of the outsourcing industry -- providers, clients and consultancies. And, as a veteran financial services CIO and director of CMU's CIO Institute, he has an intimate understanding of the outsourcing practitioner's point of view.

From his multidimensional perspective, one thing is clear: The outsourcing system is broken. Heck, if you go by the old saw that defines insanity as doing the same thing over and over again and expecting different results, it's downright crazy. The vendors say they are strategic partners, but they are in fact neither strategic nor partners. Both providers and customers say they want to create more business value and innovation, but neither is making the changes necessary to do that.

CIO.com talked to Wasser about what ails the outsourcing industry -- from talent gaps and process devotion to closed-off clients and poor communication -- and what, if anything, could turn things around.

CIO.com: You have a particular interest in the growing talent gap in the global sourcing industry. What is the state of offshore outsourcing recruiting?

Wasser: As important as what we are seeing is why we are seeing it.

My bias is in looking at the big Indian firms -- Infosys, Wipro, Cognizant, TCS -- and to some extent the Accentures, IBMs and captive centers. In the beginning when you talked to a tier-one sourcing [firm], they would tell you, "We get the best of the best." They made offers only to the top 0.5 percent at the universities. And they may still tell you that today, but the reality is quite different.

Because of increased competition and a shortage of talent, they have had to go much deeper into the pool of students and go to second and third-level schools. They are no longer getting the best and the brightest. It's no longer a coup to get an offer from Tata because everyone is getting an offer from Tata.

CIO.com: Is that just a result of needing more people? Are they still recruiting the best and brightest as well -- or is that top talent going elsewhere?

Wasser: These firms have hiring targets -- sometimes as many as 5,000 new employees. They may be getting, at best, the top quartile. I don't have a good handle on where the top decile is going. These young professionals entering the sourcing industry end up "going back to school" at Infosys or Cognizant or Tata, which all have their own academies. They take mechanical or chemical engineers and teach them how to be IT engineers, ideally with some client skills. They repackage them.

CIO.com: What's the biggest complaint you hear from outsourcing customers?

Wasser: We see continued frustration from clients that these people are really good order takers, but they are not problem solvers. They are smart -- no question -- but they are not the strategic partners they had hoped they would be.

CIO.com: Can you trace all of that dissatisfaction back to the recruiting issues at the junior level?

Wasser: I have several hypotheses. One issue is what I call the "filter effect." The sourcing firms go to the same affiliate universities and programs year after year. The HR people have a formulaic set of attributes they are looking for. Did they take discrete math or programming one and two? How were their grades? When they can check off all the boxes, they make an offer.

So they are getting students who have done exactly what they were supposed to do. They graduated from high school with good grades. They told their parents they wanted to study history or art. The parents said, "Great, but you're going to be an engineer." They have no gaps in their studies, no blemishes on their records, their extracurriculars are all in place. And when they finally graduate with a chance to do something innovative or unique, they once again do exactly what mom and dad tells them to do -- apply for a job at IBM or Infosys.

Then the firms say, "Why aren't my people innovating?" Well, you filtered out all the people who might innovate -- the guy who took time off to hike the mountains or the girl who tried to start her own t-shirt company or the student who stumbled freshman year because he was interested in guitars and girls. You hired people who are good at doing what they are told and now you wonder why they're only [a] good order taker.

CIO.com: Couldn't the providers teach them how to approach the work differently?

Wasser: I think so. But that gets to what I call the "treatment effect." Once you get into these sourcing companies, they all follow CMM-I or Six Sigma or ITIL. They put in place all these SLAs and metrics and procedures and policies. I have no problem with process frameworks. They have been great for our industry and turned what was a craft into a science. But they do not foster innovation. No one is willing to say, "Hey this might not meet the SLA or it's not ITIL, but here's a novel way to address a business need."

CIO.com: Are these problems only found in the Indian or offshore-centric firms?

Wasser: No. They are all going after the same talent pool. Some firms tend to be more westernized. I would put Cognizant and Accenture and IBM in that mix. But they've all replicated the Indian delivery model, so they are experiencing the same problems.

One of the issues particular to offshore outsourcing is what I call the "texting effect." Whether you are in China or Mexico or India, the [English] speaking and listening and writing skills aren't always great to begin with. Adding to the problem is that engineers are notoriously weak communicators. And if, on top of that, the engineer doesn't understand the business drivers, they're never going to speak the real language of the client.

CIO.com: Do the customers themselves bear any responsibility for the lack of problem solving in their outsourcing engagements?

Wasser: The client holds a whole lot of responsibility. They often don't want to spend much time with the Indian guy -- they don't think he's that fun, he has an accent, and he can't talk about the Syracuse win last night -- that's a problem.

That is tied up with what I call the "context effect." The client tells the vendor what to do but not why they want it done. If I tell you, "Move this box from here to there," and you do not know the context, all you can do is what I tell you. But if you understand the bigger picture, you may realize you can discard some of what's in those boxes, some of it you can scan, and some you can leave behind. There is so much value in understanding the real meaning of what you are trying to accomplish. Context can be especially difficult to gain when a development center is in Monterrey or Chennai. But it is the client's responsibility to share that business context.

CIO.com: What can outsourcing customers and providers do to advance their relationships and foster the innovation they say they want?

Wasser: Some of it is obvious. Who is doing the hiring? How are they doing it? Where are they doing it? If it's the same old HR mindset, you will get the same old results. Why not take a look at the guy who dropped out of school or the music major?

But even more important is how are you incenting these workers? That is going to require some deprogramming on the client side. You can't focus on the strictest service-level agreements and then wonder why the provider didn't innovate. You didn't create an environment for innovation. You need to explain the why, not just the what.

CIO.com: Many of your master's and Ph.D. students came from the IT outsourcing industry to make the switch from order taker to business innovator. Are they going back into IT services?

Wasser: No. Most stay in the U.S. and go to client firms or consulting firms or technology firms.

I tell them that these talent gaps are an opportunity for them. What you want to be is one of [the] people [who] can fill that gap -- that polymath who can look at things from an entrepreneurial perspective. There will always be someone in Pune or Poland that can program more cheaply than you. But what the world needs is business technologists -- IT professionals who understand negotiation and information security and economics and architecture. We are not going to out-MBA the MBA or out-tech the computer scientist. We are filling the sweet spot in between the two. And that's what companies tell us they need.

Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section.

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