Capping IT Off

Capping IT Off

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Benefits of replacing subcontractors

(1)   Introduction 

Managed Testing Services (MTS) have seen aggressive growth in the IT industry. The MTS contracts have various transformational leverage. Often, customers who frequently use direct sub-contractors do not think of outsourcing.  For them, the very first transformational step could be to consider replacing direct contractors with outsourcing involving an outsourcing service provider

 

(2)  Findings from the World Quality Report 2016 on Industrialization and Testing Centers of Excellence

The Capgemini World Quality Report 2016 #WQR2016 points towards a shift in intelligence-led Test COEs. 49% of participants cite leveraging or increasing their managed services model with an expert QA vendor.

 

(3)  Use of Direct Sub-Contractors Remains Prevalent

Organizations have been locally hiring sub-contractors. This is often done in emergency situations where there is no time to undertake an outsourcing exercise. Deploying sub-contractors has its perils as it does not lend itself easily to (a) knowledge retention including knowledge hand-over when closing (b) the ability to respond quickly to market dynamics, (c) costs involved, and (d) poor economies of scale involved.

Often sub-contractors are independent individuals who come in for one specific project and move on to another. As such, they are not necessarily being provisioned or hired through outsourcing service providers who might be better suited to change the engagement from a staff-provisioning to a managed service.

Regardless of sub-contractor origin, there are shortcomings in the approach of using sub-contractors. In this blog, we will both discuss key challenges associated with facilitating sub-contractors and demonstrate—through real examples—the benefits (savings) accomplished by replacing sub-contractors with managed services. 

It is appropriate at this point to briefly define or outline what we mean by "Managed Services". While there are varied definitions and service offerings, the crux is that with "Managed" services, the provider is responsible for ensuring the agreed upon deliverables of the engagement, regardless of the specific members working on the engagement. Variants of Managed Services include risk-sharing, reward and penalties, regular tracking of SLAs and KPIs, pricing for the output, etc. Needless to say, these value adds cannot be accomplished with disparate members deployed to accomplish specific tasks without a holistic view or without unified members collaborating on a shared vision.

 

(4) Key Challenges Associated with Working with Sub-Contractors.

  • Difficulty in Retaining Knowledge: Subcontractors are not encouraged to document and handover knowledge. Usually, this is not even an expected Key Performance Indicator (KPI) for them. The current demand is for customers to work with an organization that can provide a mature and proven Knowledge Management System with world class tools. Proper documentation of knowledge has enabled organizations to create many reusable assets that will help reduce time during delivery and time to market in the future.
  • Lack of Handover: The 5-10 day notice period for releasing subcontractors does not allow for a sufficient handover of deliverables. Effective handover processes are also not employed during the handover, consequently impacting project delivery. 
  • Delayed Response to Market Dynamics: Technology transitions in the field of Information Technology are quite common and an IT organization should be able to quickly respond to these transitions before the business is lost to competition. Any changes to the client’s IT strategy would involve change for the sub-contractors, too; this is generally difficult as they are usually specialists linked to a specific technology area. Organizations then must search for new sub-contractors to align with their strategies, which can be time consuming, costly, and impact “Go to Market time”.
  • Low Cost Effectiveness: The higher rates of sub-contractors compared to internal staff or managed services cost, combined with annual rate increases make sub-contracting an expensive choice. In addition, there is difficulty of knowledge retention, leading to an ongoing search for skills. When the new sub-contract resource is identified, there is significant time spent training and grooming the resource to be productive due to a lack of hand-overs. 
  • Poor Economies of Scale: Sub-contracting is often done for individual tasks and not for aggregated services, making it difficult to achieve economies of scale.

 

(5) How Replacing Testing Sub-Contractors with Managed Testing Services Helps

“What is Managed Services” is a topic in itself, and there is another blog of mine that one can refer to entitled, "Agile Managed Test Services" (See Reference). However, for the purpose of this blog, let’s focus on how Managed Services resolved the aforementioned challenges about using sub-contractors.

  • Knowledge Retention: With Managed Services, customers benefit from an outsourcing provider with a broad talent pool of multiple skills possessing the ability to adapt to a customer’s specific technology needs while providing seamless, flexible service.
  • Hand-Over: Outsource service providers have well-established notice periods with the staff in case of separations if a staff member quits, there is hand-over of responsibilities to other identified staff members to ensure project continuity.
  • Cost of Resourcing: When there are resource changes in the team, the provider ensures both knowledge retention and handover to the new member, relieving the customer of the burden to redo the knowledge transfer.  
  • Economies of Scale: Outsource service providers offer services across multiple customers, which offer economies of scale to offer a large mix of skills and services. Economies of Scale also offers opportunity to standardize processes, reduce duplication, and cut down overall project spend. 

As outsourcing serving providers offer services across multiple customers, they also offer economies of scale across a large mix of skills and services. This continuity allows for more standardized protocol, decreased duplication [of services] and fewer project costs.

 

 (6) Illustration of Benefits

 One of our leading banking clients from the APAC region with a complex and challenging project had the following challenges:

  • A large contractor base led to a cost overrun as contractors were expensive
  • A lack of cost-effective, skilled resources with cultural orientation.

In our Managed Testing Services (MTS) solution, one of the transformation levers applied was “People transfer and transition.” We replaced an existing sub-contractor from their workforce-testing project and deployed our career testers with cultural alignment to run the testing delivery. Our model ensured the work was carried out with 26% productivity improvement over a 3-year period, effectively reducing the employees required to carry out the project. Using career testers, ensuring knowledge retention, accelerating automation, and leveraging our Testing Assets and IP were some of the techniques employed for success.

A few key highlights include:

  • The client gained increased price and cost certainty, where 90% of projects (50% BAU) were executed within the fixed price mode and bracket.
  • Clients “break even within the first year, without any negative delivery impact.         
  •  The client received a cumulative savings of 35% over three years
  • Statistics showed a 26% productivity increase after three years using our MTS service.

 

(7) A Saving Calculator

The saving calculator illustrated below depicts the financial savings incurred when subcontractors working for a firm’s IT delivery organization are replaced by professionals from an outsourcing services organization like Capgemini.

 

 

It is evident that in this illustration a savings of 23,738 pounds is accrued every day, resulting in a 19.7% savings/decrease on base and annual saving at 5.17 million euros. The savings are accrued through the differential cost of professionals from the Outsourcing Services Provider relative to the direct sub-contractors. The savings improve with use of offshore locations such as India.  

(8)   Conclusion

Software is now so critical to international business that it can no longer be considered a supporting or enabling technology but rather an inherent part of company strategy. Service providers must excel at understanding the subtleties of the customer’s business, domain, IT ecosystem, and technology. The customer must be willing to engage with their service providers for a longer period of time and with a vision to see them as strategic partners. 

Sub-contracting is a tactical approach, but  over-dependence on sub-contractors poses some business risk, especially if the sub-contractors are from smaller entities that cannot swiftly move to newer technologies. Sub-contracting may still prevail for some time; however, clients must fully understand the risks involved and therefore mitigate the risks as early as possible. There should also be an attempt to maintain a ratio of subcontractors to in-house IT staff within manageable proportions and gradually replace sub-contractors with more strategic outsourcing service providers.

 

(9)   References

For details of Managed Testing Services, please refer to the blog by Renu Rajani entitled "Managed Testing Services (MTS) in an Agile World – A Case for Agile MTS"

https://www.capgemini.com/blog/capping-it-off/2015/08/managed-testing-services-mts-in-an-agile-world-a-case-for-agile-mts

For an in-depth look at the key trends in Testing and QA, download the World Quality Report 2016 http://ow.ly/cNrI304DKdX

Author – Renu Rajani, Vice President, Testing Global Service Line, Capgemini India. renu.rajani@capgemini.com

Supporting Author – Rohit Sharan, Solutioning Manager, Testing Global Service Line, Capgemini India.  rohit.sharan@capgemini.com

 

About the author

Renu Rajani
3 Comments Leave a comment
Very good description on benefits side for replacing sub-contractors.
Very good article. Replacing sub-contractors is more suitable choice in the current competitive scenario and with overall benefits as it’s evident from WQR report as well. In fact, for one of my last engagements we faced tough challenge to replace niche skills contractors at client site in order to improve financials; which we eventually managed after constructive due diligence and the results were positive.
PTT model highlights the productivity improvement with 26% and IMPORTANCE of Career Testers wrt knowledge retension etc, Good to see the statistics driven data.

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