Humanomics: Making Sense of the Socio-Economic Impacts of Global Sourcing

AuthorHouse™ LLC

1663 Liberty Drive

Bloomington, IN 47403

www.authorhouse.com

Phone: 1-800-839-8640

© 2014 Bobby Varanasi. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 01/22/2014

ISBN: 978-1-4918-3834-1 (sc)

ISBN: 978-1-4918-3833-4 (hc)

ISBN: 978-1-4918-3832-7 (e)

Library of Congress Control Number: 2013921799

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Table of Contents

Prologue

Intended Audience

PART I—The Global Sourcing Industry

1.   Global Sourcing—Achilles Heel or Panacea?

2.   Identifying the Right Customers

Facets of the Mid-Market Sector

Opportunities to Leverage Global Sourcing

Potential Benefits from Adopting Outsourcing

Challenges

3.   Impacts on Socio-Economics of Developing Nations

So Where Are We Today?

Understanding the Demand Spectrum

The Supply Side Conundrum

Socio-Economics in the Sourcing Playbook

In Bridging the Gap

4.   National Imperatives with Knowledge Creation

The Institutional Conundrum

The Core Issue—Employability, or Lack of It

The National Agenda

Some Successes—Are These Sufficient?

What Next?

5.   Governments—Ahoy!

The Case for Governments to Adopt Sourcing Models

The Core Issue—Can Governments Leverage Sourcing?

The Positive Case for Outsourcing by Governments: Regulation vs. Outsourcing

Can This Be Replicated in Other Nations?

What Has Been Achieved So Far?

6.   The Confluence & Influence of Culture

Impact on Relationships

It Is a Globalized World Today—Or Is It?

Local Practices & Norms

Trust—Or Lack of It

Performance vs. Hierarchy

7.   Euphoric Potential or Cold Reality

Where is the Focus?

The Euphoria Within

The Cold Reality

So, Is There Clarity?

Love Affair with Rankings

8.   Demise of Globalization?

PART II—The Players, Their Issues & Challenges

9.   Evolution of the Supply Landscape

Evolution of Outsourcing Providers

Consolidation of Capabilities

Sourcing 1.0 to 2.0—The Transformative Journey

10.   Multisourcing & Its Impacts on Suppliers

Services Globalization

What Drives Multisourcing

Multisourcing Best Practices

The Multisourcing Challenge Spectrum

Key to Multisourcing: Balancing

11.   Pursuing Inorganic Strategies

The Case for Inorganic Growth Strategies

Enter the Commodity Era

Dichotomy of Pursuits

The Opportunity

12.   Value-Scale Conundrum

The Predicament

The Value-Scale Conundrum

13.   Battle of Wits

It’s in the Economics

Elusive Growth

Quest for Quick Wins

14.   Knowledge Wars

We Know Too Much—Perhaps?

Democratization of Knowledge

What We Know Is Irrelevant

15.   Technology Modernity and Sourcing

The Age of Creative Commons

Enter the Dragon—Suppliers

Exit the Rat—Customers

Visualizing the Disconnect

16.   Jobless Growth & Non-Linearity

Growth & Jobs

Non-Linearity & Elusive Search for Value

Victims, or the New Normal?

17.   Academia-Industry Collaboration

PART III—Where to from Here

18.   Poor Economics

Vulnerable & Underprivileged People—Producers or Consumers?

Food Fights

Reduced Wellbeing

Provisioning & Access Exclusions

Race to the Bottom

Understanding Disinterest from the Private Sector

A Ray of Hope, Perhaps?

19.   Entrepreneurship & Domestic Markets

20.   Balancing Production & Consumption Economies

21.   Sustainability & Inclusivity

Social Aspects & Role of Sourcing

Vulnerable Communities do Produce

Demographics

Pursuit of Modernity & Localized Concerns

Realities with the Youth Bulge

Urbanization & Marginalized Communities

Ecosystem & Enablers

Impact Investing

Inclusive Development for Sustainability

22.   In Conclusion

References

Special Acknowledgments

About the Author

To My Wife Bela

For Without You, Nothing of Worth Is Possible

&

To My Sons Anshul & Arnav

For Without You, Nothing Is Worth Pursuing

Cometh the Hour, Cometh the Man,

Time for Pretenses is Over.

Rise and Rise Again,

Until Lambs become Lions!

-Adaptation of the original saying by Maitreya,

the Friend of all Souls¹.

Reviews

Humanomics is a well-researched, written, and heart-felt book. Bobby Varanasi, one of the most engaging experts in the world of global sourcing, sets out to both share what he’s learned so far and to challenge all of us to see its ultimate potential—a truly human endeavor that lifts everyone. He succeeds brilliantly on both counts.

Michael F. Corbett

Founder & Chairman, International Association of Outsourcing Professionals

www.linkedin.com/pub/michael-corbett/6/211/40

Humanomics is a valuable addition to the global services arena. Bobby particularly addresses the socio-economic issues and benefits well. A fair and balanced view and I applaud him for it. Read it and apply it!

Atul Vashistha

Chairman, neoGroup

Globalization Today Powerhouse 25 Leaders

Power 50 Nearshore Americas

HRO & FAO Superstar

www.linkedin.com/in/atulvashistha

I found the book fascinating and very thought provoking. It strikes me that this is like two people looking into a tube from different ends. Bobby provides a really interesting view of what the world looks like from one end; essentially that of the supply economies where labour and resources can provide outsourcing services into the global economy. He rightly points out the challenges posed for them—particularly if they are relatively late entrants—and also where the market(s) may take them. Reengineering services and offering them short-term via the cloud will disintermediarise behemoths like the IBMs and Wipros.

David Barrett

Director, Corporate Vitality

Partner, Varuna Partners

uk.linkedin.com/pub/david-barrett/6/696/481

Bobby’s book offers an intuitive and interesting perspective on economics and the human capacity to create entrepreneurial ventures even in the most trying conditions which many would perhaps not consider economic drivers. His insight and alternative thinking to harnessing capability is something many in business particularly the financial world should consider. I recommend this read if only to open up parallel thinking.

David Hawkins

Director of Operations & Knowledge Architect

Institute for Collaborative Working

uk.linkedin.com/pub/david-hawkins/2/822/571

Bobby writes very well, clear, and presents a good perspective of the industry. This is pretty extensive and broad.

Dr. Vinny Caraballo

President, Global Targeting, Inc

Core Faculty—Marketing at Capella University, Chicago www.linkedin.com/pub/vinny-caraballo/0/377/7ab

Humanomics by Bobby is an intensive read, making it the first complete reference book about all aspects directly or indirectly in touch with Sourcing. In my opinion, this book is at the top of the pyramid and is perfect as the key reference for people familiar with the topics. Bobby has expanded my little knowledge about Sourcing into larger and larger rings of knowledge starting with an outsourcing deal up to the understanding of the World Economy.

I am certain it will be a well deserved success and a textbook in all Universities, Governments and Service providers’ offices.

Francois Degueldre

Managing Director, Opulus Consulting

Ex-Finance Director, Delphi Automotive Systems, Europe

Humanomics is well presented. It makes for easy reading while being insightful, thought provoking, and most of all, relatable. It is Bobby’s practical approach to this subject that makes this book out of the ordinary.

Soumitra Rathod

Corp. VP, New York Life Insurance

Ex-SVP, Worldwide IT Sourcing, McGraw Hill Group

www.linkedin.com/in/soumitrarathod/

Looking for a Sourcing: Beyond 101? Go no further. Bobby covers immense turf on this subject. Starting with process outsourcing he touches upon other Sourcing models as well. He addresses practically all major outsourcing destinations today. Beginning from global economic trends that have driven this industry, he moves rapidly through how various countries have responded to the opportunity: at last, I can make money even from my ordinary Joes… I don’t need to have Einsteins to make money. Perhaps one of the most refreshing aspects of Bobby’s style is the facility with which he covers panoramic areas while talking of global industries, corporations and national economies and, with equal ease, takes deep dives into specific companies’ strategies, or issues such as cultural differences or the demise of globalization, where he chooses to! In the same vein he moves from a study of the sourcing industry to the impact on national economies and the ‘bottom of the pyramid’.

Srikrishna Vadrevu

CEO, Sigmax-e Services

Ex-CEO, SCOPE International, Malaysia

my.linkedin.com/in/srivadrevu

Excellent read. Hard to put down once you get started. The book made me ask myself the question as to why customers want a sustainable relationship with providers. With sustainability comes a certain amount of inflexibility but at the same time it affords a degree of familiarity. Is this good, does it restrict creative positive improvement or is this offset by a bit of commodity behavior? Read Humanomics for answers and perspectives.

Jerry Durant

Chairman Emeritus—International Institute for

Outsource Management

Globalization Today Powerhouse 25 Leaders

ph.linkedin.com/in/tectl

Prologue

It was during the last quarter of the year 2004—I was then associated with an independent advisory firm and was working on a request for proposal from the government of a state in Southern India—that I first realized the importance of, emphasis with, and the complexities surrounding a government’s endeavor at leveraging information and communications technologies to create some form of value for its citizens. The RFP in itself was more of an extension to an existing arrangement, but with renewed emphasis on garnering foreign direct investments. At the moment I found the focus resting on creating jobs within cities to be quite simplistic, as it was a foregone conclusion that the advent of the IT industry in India had resulted in creation of thousands of jobs—highly paying I might add—by a variety of companies looking to reduce their costs, and access cheap yet skilled labor from India. So why was this potential client of ours embarking on engaging an advisory firm to garner more investments into the state, while each month the state government’s technology department was busy to the hilt with potential client inquiries, visits, and evaluations? I didn’t get the answers then. Our team including I visited the client’s offices for the final presentation, with the knowledge that we were one of the two advisory companies shortlisted by the government, and that this two-hour presentation to senior government officials was the key to winning or losing. The incumbent was eventually awarded the deal, much to our collective disappointment.

Nevertheless, it was heart-warming when the senior leadership team from this incumbent visited our offices three weeks later, asking to partner with us for collectively delivering on the client’s expectations. It was perhaps the first time I was negotiating a partnership with a direct competitor, given that my bosses had enabled me with the authority to do so. Eventually, after many rounds of discussions we couldn’t agree upon a way to work together while protecting our competencies. Coming from a boutique advisory firm had its advantages—that of being niche and focused; but a key disadvantage was lack of scale, and ability to take on large liabilities in the event of failure. Much to the chagrin of the incumbent, we decided not to go through with the partnership. Disappointed as much as me and my colleagues were, it taught us a valuable lesson—focus on your competencies and do not dilute effectiveness. We were rewarded because of this stance, not because the incumbent brought in added flexibility to the partnership negotiation, but made an offer to acquire us lock, stock and barrel. From euphoria to disappointment to hope to helplessness within six weeks made for a roller-coaster ride. We didn’t go through with the offer, thereby losing an opportunity to advise the said government. What we gained was much needed experience in dealing with competitors in a new industry, where there was zero-tolerance for mistakes—after all this was a government investing tax-payer dollars [rupees in this case] to create jobs for its citizens, and enable a better quality of life.

I realized then that our partnership discussions failed not because of us disagreeing on what portions of the scope each of us would be independently accountable for. Rather we disagreed on the scope itself, including the value guarantees the incumbent was pursuing, which were from our point of view quite diluted, and meaningless for the government eventually. We chose not to be a part of an endeavor that couldn’t deliver on the promise. My colleagues and I were firmly agreed upon the fact that this experience taught us more about the responsibilities of governments, not because we were specially endowed, but because we chose to put ourselves in the shoes of the citizens, and evaluate if the scope and delivery guarantees would really meet citizen expectations or not. They wouldn’t meet ours and that was sufficient conclusion for us. We did try to revise the scope to make it impactful. However the incumbent’s insistence to be rigid with their scope, and only use our senior resources for our experience was the last nail in the coffin of a potential partnership.

Further on we did advise a few governments gaining experience and perspective along the way, as also a healthy respect for the complexities governments face in attracting investments into their countries/ cities in the context of competition from a host of emerging and developing nations. Our emphasis on creating comparative indices, and distilling down to the most intrinsic levels of detail with opportunities and challenges each national environment offered, resulted in us gaining significant amounts of knowledge. However I was still battling a host of questions. What is the interest of governments—state and federal—in consigning significant amounts of its tax-payer dollars to developing an industry that is both new, and economically insignificant [at least for most nations at the current moment in time] while existing industries are either languishing or denied of a much-needed boost from their own governments?

What drives governments to pursue foreign direct investments so aggressively that local industry and entrepreneurs get the short end of the stick more often than not, resulting in a lackluster business environment on the one end, and a nascent industry that most citizens don’t trust as one that could sustain itself beyond a generation? Globalization is real, and is here to stay. Localization has always been there, and continues to play a significant role in domestic economies of most emerging and developing nations. What are the complexities and ambiguities [within this vast space] between this spectrum of globalization and localization faced by governments whose quest is to create a sustained value for citizens? Who are the major players here? What is the role of developmental institutions, trade bodies/ associations and the industry itself? Is there sufficient understanding of the various roles? Is there light really at the end of the tunnel to warrant so much attention, and investments?

I haven’t found answers to most questions yet. What I have gained however, is a host of perspectives along the way, in my conversations with leaders from both sides of the aisle—governments and corporations. I have also found some systemic reasons for lackluster adoption of services globalization in certain countries, while there’s aggressive adoption in others. I have been able to distill and distinguish between the symptoms, and the root causes for the cacophony one sees in the global services industry today. I have more questions now than when I started questioning way back in 2004. There is more clarity, and yet there’s added ambiguity. Looking back over the past eight years, I am glad to have made the acquaintance of so many accomplished individuals and organizations, that I have come to realize one fact: the questions will never stop! However it doesn’t discourage us in our pursuit at understanding, gaining knowledge and perhaps some wisdom along the way.

This book is an attempt to put into writing what I have learned in my journey so far. It is an attempt to pose all the questions—that continue to perplex me—to the larger audience out there. It is a humble acknowledgement of the fact that while capitalistic goals beset our day-to-day lives, there is more, much more one can do to create positive, sustainable impacts by calling upon human endeavor, not for the purposes of economic gain alone, but bundling such gains intrinsically, and irrevocably with social gains. The book is divided into three parts—starting with the industry, moving on to the players and attendant issues/ opportunities, culminating with a part on perspectives and way forward. Each of the three parts contains chapters that look at particular facets of the impacts the global sourcing industry is meant to create, or has been able to. Within each chapter there are various questions that form the crux of this book. I have tried to provide perspectives and in some cases potential solutions to the issues addressed by each question. I have tried to tie in the solutions to socio-economic impacts—so as to maintain the reader’s attention with the subject at hand—and not get carried away into the larger aspects surrounding macroeconomics or geo-politics. I am neither qualified nor an expert in either of these two subjects, but surely an avid observer and learner.

Wherever permitted, relevant and non-contributing to sensitivities, I have used real names of organizations/ governments, all the while driven by an endeavor only to delve into questions and seek answers, without judging or critiquing them. In cases where sensitivities are attached, I have used fictitious names with relevant oblique references. The principal intent is to get to the questions and possible answers, not to judge or categorize the players involved. At this point I would like to specifically place on record my gratitude for William B. Bierce, of Bierce & Kenerson P.C, a law firm dedicated to advancing sustainable disciplined business relationships. Apart from being an award-winning expert on outsourcing law and business, Bill is a great friend, and his recently published book titled Devil’s Dictionary of Global Services is a must-read. The dictionary is an eye-opener, for its ability to clearly distill the comprehensiveness and complexity of the industry in a simple manner, but also a must-read because it has Bill’s amazing sense of humor intertwined into the subjects. Each chapter in my book begins with one of the dictionary definitions appropriate to the subject at hand, used with Bill’s permission.

In this endeavor I am assisted by a host of people—family, friends, colleagues, industry peers, global luminaries—too many to name. You will find them mentioned within these pages frequently; giving you a brief insight into how their contributions and knowledge have helped shaped this book. It is with humility, and gratitude that I took up the onerous task of putting together a fraction of their collective wisdom within the context of globalization. I hope I have done justice to them. All failures are mine, and mine alone. I would be remiss if I didn’t acknowledge one special person who has been the backbone. She has, incessantly, and without expectations, supported my endeavors that have been variously exciting, frustrating, perplexing and agonizing. My life-partner and wife Bela is the true protagonist in this book [if there is one], representative of those hundreds of thousands of spouses who support their partners as they navigate the complex and confusing waters of globalization and technological mysteries in the current day and age. Her questions and perspectives have been significantly important too, as they do form a metaphysical part of the larger questions this book aims to address—that of what we are creating for the next generation; if all that we do is really worth it in the long run, when we are all dead and gone!

Bobby Varanasi

August 2013

Intended Audience

The global sourcing sector is quite wide and fairly encompassive of most of the organized private sector (and increasingly even the unorganized sectors in the context of creating social impacts through pursuing commercial goals). Over the past few years (particularly in the last decade), governments, both national and local have begun to proactively address the opportunities presented by this sector. Meanwhile the industry itself has gone through some significant upheavals thanks to technological innovations, and transformatory realizations in business acumen where opportunities have been crafted bottom-up in a manner befitting much of the growth we see today in the context of globalization. In doing so, the number of actors who have become willing and able participants has only increased exponentially, contributing to a plethora of complexities, dichotomies and convergences.

This book is aimed at leadership in the private sector, especially Board room leaders who are looking continually to enhance shareholder value and customer aspirations from an increasingly sophisticated global marketplace. It is also aimed at governments, particularly policy-makers, Ministries of Information, Communication & Technologies, Ministries of Human Resources and those various regulatory bodies and parastatal agencies that pursue investment promotion, sector development, external trade, and talent development as they push to transform their economies and enable their citizens.

Finally, this book is aimed at those young entrepreneurs who aspire to create some form of value or the other through leveraging modern technologies on the one end, while contending with technological obsolescence on the other end. Last but not the least this book is aimed at each young individual in developing and emerging nations who are vying to remain contributory and relevant in today’s fast-paced times, while contending with the vagaries and uncertainties of a globalized world. The intent with this entrepreneurial group is to get them to think about larger issues plaguing mankind and our way of life, instead of limiting their( entrepreneurial) endeavors to capitalist pursuits and personal profiteering alone. There’s much that needs to be done and it is no more the concern of a few over the many.

PART I

The Global Sourcing Industry

1.   Global Sourcing—Achilles Heel or Panacea?

Global Services, n. (1) organizational design for tele-services of owned and hired resources, based on web-enabled ubiquity, instant accessibility, data-based transaction processing, pre-defined business processes and scalability; (2) your business in a box.

One consistent headline I have come across in the past three years since the advent of the financial crisis across global and regional media is the great predictions around outsourcing booming in recessionary times. Too much has been said and analyzed about the impacts of recession on corporations and governments worldwide. Unfortunately, just about the time when the world was beginning to rework itself out of the financial meltdown mess, we had Bernard Madoff’s Ponzi scheme striking yet another fatal blow on large banking and financial institutions. The confidence of investors had been shattered in the recent times and now this blow seems to sound like a death-knell to globalization in general. On the one hand many economies with conservative and quasi-protectionist approaches from developing economies are beginning to indulge in chest-thumping acts, vindicated by the lesser impact they are feeling in today’s times. On the other hand corporations within such economies are coming under increasing pressure to overhaul their business portfolios in a manner unprecedented in recent history. In such dynamic and distressing situations where ambiguity seems to have become the norm of the day, what is in store for global sourcing as an industry? Let’s try and address a few of the interesting aspects I have come across, without gainsaying or attesting to other predictions of doom or growth.

So where is the Achilles Heel? Is global sourcing going to lend lost credibility to corporations struggling to keep their balance sheets from going into the red? Or is there going to be a significant and palpable withdrawal from the industry in order to clean house internally through conservative adoption of strategic initiatives? It is time we took stock of some of the impacts in the recent past first before we delve into a thorough analysis of repercussions, or predict light at the end of the tunnel. There are many impacts, but I shall touch upon the few most important ones here to ensure the readers’ attention span is not compromised.

•   CIOs Cutting Down On Technology Spending: Most CIOs across the globe have almost vowed to their boards to completely cut down on new technology spending. They are taking a diametrically opposite view to technology and infrastructure. There were days when CIOs were busy spending on adopting the latest state-of-the-art technologies so as to be—potentially at best—nimble and competitive, without much focus on utilization or expansiveness of applicability. Today the view is to make more with less. This in itself is changing the perception that older technologies or infrastructure are just that—old. Demand for innovating and reengineering business processes and functional applicability without additional investment is on the increase, forcing service providers to come up with solutions that go beyond standard infrastructure services.

•   Capital Expenditures Being Deferred: Typically the industry has seen significant capital expenditures in business models and services that are deemed core to organizations and their businesses, while non-core services were sourced out to competent third-party service providers. However there is increasing pressure on Boards to defer or reduce capital expenditure. Unfortunately with lack of internal capabilities sourcing globally for talent and service competencies is forcing companies to farm out even complex and core services to third-party service providers. In such scenarios, the old days of simple competitive bidding methods are unable to address concerns around business risk, IP protection and the like. Sourcing methods are increasingly incorporating core services as inherent targets for service to work on, with the caveat that service providers need to take on more risks than they are either ready to, or have the experience with.

•   Business Models Are Being Realigned: Standard fee-for-service based business models are increasingly being seen as low value. Customer organizations are demanding their service providers to put their skin-in-the-game through price entrenchment and ownership for the pass-through impact of such services on the customers’ businesses. This is an inherently fundamental shift in the nature of global sourcing one has seen so far. While it is appreciable that customers are beginning to trust their global service providers more than they have done so before, it is also putting the noose around the necks of service providers as they are taking on more business risk than ever. While such entrenched models do offer opportunities for longer-term relationships between the customers and provider organizations, focus on co-creation of solutions is putting the pressure on providers to transform their view of their businesses. No longer are customers content with their providers branding or viewing themselves as IT or BP providers. The demand is for providers to view themselves as vertically-aligned and user-oriented solution providers where industry-specific solutions and innovation are driven in a cohesive manner to create and sustain value.

•   Cost Cutting & Pricing Discounts: The all-pervasive strategy that has—seemingly—worked for over a century in the quest of the corporate sector to rationalize business evaluation and competitive positioning. A downstream impact of such approaches has been the inability of corporate mind-sets to look beyond costs, thereby eroding any ability to leverage internal competencies that can position the organization towards creating a core competence. Reaction to competition, rather than appropriate positioning of products/ services is the bane of commoditization.

•   Focus on Marketing & Sales: Assumptions that extensive marketing spend, sales strategies and investment in revenue-generating resources is enough to increase turnover, and resulting bottom-lines. No attention is being paid to evaluation of the effectiveness of products/ services being sold in the first place, resulting in a race to outwit competition.

•   Compulsion to Grow Bigger: The most common focus area for Boards and CEOs—to grow larger and achieve economies of scale that results in heftier bottom-lines. All strategies, especially investment-related decisions are made with this compulsion in mind.

•   Always Asking Customers What They Want: Providers have always been reactive in their offer of