Over several years of our interaction with CEOs with several IT captives and service providers, we could see one area of significant concern, ‘Trust’ between the two parties. The world of IT Vendors brings immense benefits to companies, but the level of trust has always been low on account of many factors that cannot be managed by either of the parties.
While we all know that trust plays a critical role in every personal and professional relationship and we also understand that it is in short supply, the three key reasons why this happens in context to Captive companies is essential to understand.
Reason 1: Conflicting interests on cost
IT Companies globally have two models of working, T&M (Time and material) and a Fixed Cost model. These models cover almost 100% of the global relationship between clients & IT companies. In these models, the interest of both the parties is opposite with a common goal. The vendor wants to maximize their profits while the client wants to reduce their cost. The common goal is to get the job done as desired. It is this collective goal that keeps the necessary amount of trust going, but only till the time the contract is getting renewed. Vendor always keeps their pricing model very opaque giving a feeling that there is still a scope to reduce further.
The reason for increasing popularity of IT Captives has been primarily this reason. The belief that vendors are making more profits than they should be making encourages companies to move out and explore lower cost options, and they rarely get disappointed with the Captive choice on cost. Cost transparency of a captive gives the companies a feeling of trust and openness that they seldom get from their IT vendors.
Reason 2: Compromises on quality
While it starts with cost, the IT vendors almost always do cost engineering to keep their margins intact. Maintaining low salaries and intake of a large number of low-cost fresh graduates from unrated colleges are established part of IT companies. The race is always against the cost per hour vs. earning per hour and almost always the quality of people is compromised. Such compromises may not appear threatening from outside, but it kills the most important aspect of a team that every company should be looking at ‘Innovation.’ Key members are shifted to higher paying projects and a continuous shuffling of resources more for keeping cost optimal and lesser for the reason of keeping employees happy. The loss of someone moving out that knew a particular work takes time to refill. Such compromises and mostly opaque structures of teams again lead to lack of trust that is mainly managed by IT vendors by further cost reduction when contract renewals happen.
Reason 3: Conflicting interests on innovation
IT vendors are known to suppress innovation for their clients in a T&M of Fixed Cost model just because it might compromise their revenue. Efforts are made to live with status quo on almost everything while the world moves ahead with innovations at every end. While it suits executives in companies in some cases who are too busy to look at change management, the outcomes are now becoming more evident.
Many of the executives openly cited lack of innovation in the areas outsourced to vendors for getting their captives.
A significant number of CIOs cited lack of trust on bringing cost & innovation benefits with their service provider as one of the reasons for setting up their captive. They say that their belief that their service providers did not give the best.
ScrumStart Virtual Captive Model eliminates this problem through its Trust pricing model and technology enhancement approach that gives ultimate simplicity in making a captive happen, quick start, higher benefits, and reduced risk.
About the Author:
Mr. Santosh Panicker, CEO ScrumStart, is a specialist in setting up business processes and has established himself as an inspirational leader in the corporate world. Mr. Panicker has demonstrated his capabilities in setting up end- to -end HR, legal, and business process operations for 9 start-ups through his career years. He has over 22 years of experience working across diverse industries including IT, FMCG, Retail, Automobile and consumer durables with blue chip companies