agile leads CIos

towards co-sourcing

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Our research shows that the agile way of working is rapidly winning ground. 31 out of the 70 organizations that we surveyed apply Agile in  some form or other. Agile is characterized by multi-disciplinary teams, close collaboration between business and IT, scope that is not fixed and dynamic sprints. So the question for CIOs is:

Is the outsourcing / offshoring model still appropriate or is it back to insourcing?

How can I still collaborate with my main service provider? We had several discussions

with clients and service providers on this topic. Here are the key learnings and

S-Square’s point of view on IT sourcing for Agile.

 

How to source for agile 

Proximity to the business and IT driven transformation make insourcing appropriate. Consequently, we see several organizations rightfully strengthening internal skills.

 

However, since flexible access to ever-changing technology skills remains a challenge – we believe full insourcing is not an option. There remain advantages of working with the large service providers – who have themselves adopted agile, have developed deep skills at scale and strong assets by industry that are not easy to match. They also have access to a larger skill pool.

 

An organization’s sourcing strategy needs to fit its culture and needs. Based on assessment of the agile sourcing model at the organizations we interviewed,  we have come up with a framework that shows the main options available to an organization.

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Sourcing model 1 

Insourcing with staff augmentation

The organization takes full control internally and builds strong internal skills. It utilizes external staffing to fill in the skills gap – handpicking individuals to have a best of breed team. The external staff usually comes from many different companies or sometimes from a few selected partners, but is always a collection of individuals. While this model affords strong internal control, the drawback is that due to hiring individuals the responsibility for results remains fully internal.

 

Sourcing model 2 

Co-sourcing 

If you want to leverage the scale and result-orientation of your traditional service provider, we suggest to adopt a co-sourcing model. These are mixed teams of internal and preferred provider staff. Having sufficient scale, the service provider can take co-responsibility for the deliverables and outcomes. You track and measure performance through different SLA/KPI e.g. Velocity and Net Promotor Score. With the right scale, the service provider can follow “distributed agile”, leveraging off-shore or near-shore capabilities. This brings cost-efficiency and helps to tap into larger skill pools. 

 

We see the co-sourcing model being applied more and more for agile. It is especially appropriate for organizations that have complex, highly integrated application landscapes and/or for digital innovation initiatives. In both cases internal staff are important and a full outsourced service is less appropriate.

 

Attention point! 

As companies transition to agile, we see a clear learning curve on part of both clients and suppliers. With clients, we often see a tendency to continue to work in staff augmentation mode despite the possibility to have more results orientation and ownership from the service provider. Also, co-sourcing requires suppliers to work in a more collaborative manner with shared responsibilities. We see several traditional suppliers (used to working in managed services) struggle to adapt to the new approach. Experience suggests that the learning curve lasts more than a year.

Sourcing option 3 

Strategic Partnership

Strategic partnership represents the next level of maturity and relationship compared to a co-sourcing model. It is characterised by the service provider working across several functional domains; deep C-level relationships; investment from both parties; shared responsibility for success; and a common way of measurement, working and training across client and service provider. It is typically done by companies that have a longstanding relationship with a service provider. 

 

We see this model at large organizations with a lot of experience in sourcing e.g. in financial services and telecommunications, where companies have consolidated to a few strategic partners. The ING case study of distributed agile and strategic partnering is a very good example of that (see next chapter).

 

Sourcing model 4 

Managed Service

Mixed teams, close collaboration with the business and scope not fixed upfront makes managed service less relevant for Agile. However we do see instances of managed services, particularly for non-core applications. The change and run components can be outsourced to a third party as a managed service, while still working agile.

 

Most of the companies following agile are evolving towards some form of co-sourcing, rather than insourcing or a full managed service.

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case study

strategic partnership

and distributed agile

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The banking industry is facing disruption like never before. Small and nimble competition is appearing on the market with smart products at amazing speed. Digital is key and speed is of the essence. The management of ING Bank decided that to stay ahead of competition it needed to go agile – across the entire organization. And in doing so, they have become one of the first few traditional businesses to have adopted agile inspired by the Spotify model. At the same time, ING decided to consolidate its IT sourcing from a fragmentation of external parties towards a strategic co-sourcing relationship with three global service providers.

 

We invited Rocky Woestenborghs who is Head of IT Advisory Products at ING Belgium and Netherlands and was at the forefront of this program, to share his experience with us. Rocky leads a team of 700 highly skilled engineers across 3 countries. Supporting him was Alok Chaurasia, Cognizant’s Client Partner for ING during this journey. This web meeting was organized by S-Square and CIONET.

HOW DOES IT WORK?

In parallel to the decision of going agile, ING decided to restructure its IT Sourcing model. Staff augmentation with many providers evolved into strategic co-sourcing with three strategic partners: Cognizant, HCL and TCS. ING considers the external staff as “an extension of our IT organization”. It is not outsourcing or managed services, but a strategic co-sourcing model. The internal and external staff work as “one integrated team working within the ING operating model”. Currently, the IT team is 50% internal and 50% external. In a natural way, scope and platforms get assigned amongst the three providers.

 

The joint teams operate in the ING way of working: one method of working, one integrated way of measuring performance and one way of managing people. All internal and external staff get classified and grow within the same Dreyfus skill classification model.

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This model creates transparency but also requires more from the service provider. ING expects all external resources to be at least at Competent (Level 3). This is different from the standard pyramid approach in a traditional model and requires the service provider to organize differently.

When working with the external partners, ING wanted access to talent and skills and the insights / assets of global service providers. But at the same time it wanted cost efficiency by leveraging offshore. ING applies the distributed agile model. Currently, onshore - offshore ratio with the strategic partners is 50/50 with the offshore services delivered from India. The intent is to further grow the offshore ratio. ING and its partners want an empowered offshore capability – they have offshore agile coaches and the next step is offshore proxy product owners. A considerable travel budget was reserved to establish the working relationship with the offshore teams during the initial years. Each ING lead spent time in India working side by side with the offshore staff and likewise having offshore staff working onsite on a rotation basis.

 

Alok gave his perspective on how to make such an offshore collaboration successful from a service provider point of view: besides the technology infrastructure and governance (daily stand up calls) – what is more important is high level of trust, transparency and strong relationships at the individual and team level. Communicate and share the business goals, make sure that the service provider teams at offshore get the big picture and that ING staff works hand in hand with offshore teams. That has resulted in a high level of ownership with offshore teams making a positive difference - more outspoken, more pro-active, more engaged.

 

Rocky highlighted the energy and focus that has been put in to achieve this level of relationship: always stress the common purpose, strong governance and communication and strong focus on people management. Each strategic partner has an internal ING “sponsor” (to mediate and to create opportunities). There is executive level governance and long term commitment from ING towards the three strategic partners - both on the existing platforms and new evolutions.

S-Square’s perspective

ING is a very good example of bringing the relationship with the service provider to a strategic level. Consolidation towards strategic  co-sourcing with selected  partners that work under the  client’s agile operating model is a clear trend within Financial Services or others  using agile at scale. In other industries like consumer goods or industrial  companies there is also a trend of supplier consolidation and  strengthened collaboration,  but it is more towards managed services rather than co-sourcing.

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