Sourcing Strategies
opinion
Customer Perspectives
Provider Perspectives
Vijay Sethi
CIO, Hero MotoCorp Ltd.
A BALANCED APPROACH TO OUTSOURCING IS KEY TO SUCCESS
Mr. Sethi is Vice President - Information Systems and CIO at M/s Hero MotoCorp Ltd. – world’s largest 2 wheeler company. Mr. Sethi is also part of the Enterprise Management team (the leadership team of the organization). Mr. Sethi has more than twenty two years of experience in industry and consulting environment and prior to Hero MotoCorp Ltd. has worked with M/s Ranbaxy Laboratories Limited and M/s Tata Consultancy Services. He has won several prestigious awards. Some of the recent awards include India’s Best CIOs 2010, India’s Best IT Managers – 2009, CIO - 100 in 2008, 2009 and 2010, CIO Green Edge Awards 2008 and 2009 and Top 10 Green I.T. Enterprise Award - 2010. Mr. Sethi is member of various forums including IT committees of CII and SIAM. He is also the Board member and North India Region Head of INDUS (SAP India User Group). He has also been the jury member for some of the leading IT and telecom awards in India. Academically, he has a Masters Degree (M.Tech.) in Industrial Engineering, an MBA in Materials Management and an Engineering Degree (B.Tech.) in Mechanical Engineering. Apart from this, he has a number of certifications in various areas of management and IT. This includes APICS certification in the area of Supply Chain and CISA certification in the area of Information Systems Audit. He has also attended training programs organized by leading institutes including Harvard Business School (HBS), Indian School of Business (ISB) and IIM Ahmedabad. He is a regular speaker at various forums both in India and across the globe.
DRIVERS FOR ADOPTION OF TECHNOLOGY AT Hero Motocorp Ltd.
The Indian manufacturing Industry that has tremendous cost pressures is adopting information technology in a big way to remain cost competitive and improve efficiencies. Today Hero MotoCorp Ltd., world’s largest two wheeler company, has some of the leading edge technologies that are supporting business achieve its goals.
Apart from the business benefits of implementing any technology being the key driver, the organizational culture of exploration and espousal of new technology has played an important role in driving technology adoption. The key role of the CIO and the other members of the senior management team is to nurture an environment where people are not averse to taking risk in early adoption of technologies. As long as it makes business sense and the initiatives are within agreed parameters, management adequately supports these initiatives.
Over the years, the need to push the deployment of technology in the organization has seen a phenomenal change with a major pull now coming from users to deploy IT based solutions and automation so as to enable them to utilize their time better in delivering business goals. While the users have realized the immense benefits of technology in an official set-up, another factor for rapidly growing adoption has been the increasing penetration of IT in the daily life of people. With things like internet banking, on-line bookings or the advent of social networking, IT has become an integral part of the life of users.
Yet another driver of adopting emerging technologies is the easy availability of skill sets with the service providers and consultants. Now CIOs only have to focus on organizational needs while selecting a new technology rather than delving into the nuts and bolts of the implementation. With the availability of skilled expertise, CIOs now have an option of adopting futuristic technologies right away or they can also wait till the time they become relevant for their business context.
TECHNOLOGY SELECTION PROCESS
While we do take inputs from consultants, vendors and research analysts to gain understanding of the technology offerings and get insights on the comparisons of the choices available in the market, the final decision is driven by a set of factors including the likely business benefits, the technical strengths of the product, strengths of the vendor and how the technology and vendor fits into our own IT strategy.
Another technological area that is gaining ground globally is Cloud Computing which has to be dealt differently while selecting technologies. The selection of cloud technologies becomes complex because apart from factors such as basic functionality and commercial and licensing terms, factors like exit terms, data protection, risk mitigation, information security, etc. also have to be considered.
FACTORS INFLUENCING OUTSOURCING OF TECHNOLOGY IN MANUFACTURING
On Outsourcing – I feel the question is not that of ‘if’ but ‘how-much’. Outsourcing today is a need and not a luxury. Running a totally internal based IT in today’s context is not a viable option in the manufacturing industry – both from the perspective of developing skill sets and also retaining manpower. Outsourcing some part of the IT operations aids in catapulting IT to the next level of service as the internal team can concentrate on the ‘vital few’ activities. Outsourcing for us forms an important part of our strategy on how to manage our IT set up rather than being an initiative directed towards cost savings. I feel there is a myth that in Indian context outsourcing can significantly reduce cost of operations, as, for an Indian organization IT outsourcing does not provide the cost arbitrage which an American or an European organization might achieve. In fact the cost of running IT can be even higher if it is totally outsourced as compared to when a mixed or balanced approach is taken. In spite of the cost considerations, there are cases where outsourcing becomes the only viable option because of shortage of technical manpower in areas where technical resource cannot be attracted by a manufacturing organization.
Our strategy of outsourcing revolves around three competency areas. The first is the core competency - the ‘core’ part as we refer to it. This gives us our business differentiation and hence we do not outsource these activities at all and the resources are internal to the organization. On the other extreme are the service areas like hardware maintenance, network maintenance, facility management, etc. where we do not want to hire and retain resources internally as we cannot offer a career path for them and also because there are mature companies who provide these services very well, hence these areas are completely outsourced. Apart from these two extreme ends, the third area, which forms a very large and significant part of our IT services, is the business solutions which are handled as individual projects. This is an area where we need expert services which either we do not have or do not want to build; hence for this we hire consultants on a project basis. An important aspect in this area is that the overall accountability and responsibility of the project delivery remains with us as we firmly believe that these cannot be delegated to a third party. In case the project fails, the provider’s liability is limited to what has been contractually agreed whereas for us it is much more. We perform project management and governance and we take the overall responsibility. Even in cases of niche technologies, while we do have consultants with specific skill sets working for us, but they work under our IT team and the accountability and responsibility is with the internal IT though we may not have skill sets on those technologies.
ENGAGING THE TECHNOLOGY PROVIDERS
We give a lot of importance to the relationship which we develop with our providers as we believe that they should be treated more as partners rather than just as vendors. This culture of treating our service providers as partners has been embedded deeply into the organization and has enabled us to build a very strong relationship with our service providers. A partnership is not a function of size or duration of the engagement; rather it is the way one organization treats the other. For a strong partnership, the selection process should not just be based on quantitative scores, in fact what also needs to considered is how well we bond with the technology provider. It is also important that we are transparent with them in our selection process as this helps in maintaining the relationship beyond only specific transactions.
DRIVERS FOR ADOPTION OF TECHNOLOGY AT Hero Motocorp Ltd.
The Indian manufacturing Industry that has tremendous cost pressures is adopting information technology in a big way to remain cost competitive and improve efficiencies. Today Hero MotoCorp Ltd., world’s largest two wheeler company, has some of the leading edge technologies that are supporting business achieve its goals.
Apart from the business benefits of implementing any technology being the key driver, the organizational culture of exploration and espousal of new technology has played an important role in driving technology adoption. The key role of the CIO and the other members of the senior management team is to nurture an environment where people are not averse to taking risk in early adoption of technologies. As long as it makes business sense and the initiatives are within agreed parameters, management adequately supports these initiatives.
Over the years, the need to push the deployment of technology in the organization has seen a phenomenal change with a major pull now coming from users to deploy IT based solutions and automation so as to enable them to utilize their time better in delivering business goals. While the users have realized the immense benefits of technology in an official set-up, another factor for rapidly growing adoption has been the increasing penetration of IT in the daily life of people. With things like internet banking, on-line bookings or the advent of social networking, IT has become an integral part of the life of users.
Yet another driver of adopting emerging technologies is the easy availability of skill sets with the service providers and consultants. Now CIOs only have to focus on organizational needs while selecting a new technology rather than delving into the nuts and bolts of the implementation. With the availability of skilled expertise, CIOs now have an option of adopting futuristic technologies right away or they can also wait till the time they become relevant for their business context.
TECHNOLOGY SELECTION PROCESS
While we do take inputs from consultants, vendors and research analysts to gain understanding of the technology offerings and get insights on the comparisons of the choices available in the market, the final decision is driven by a set of factors including the likely business benefits, the technical strengths of the product, strengths of the vendor and how the technology and vendor fits into our own IT strategy.
Another technological area that is gaining ground globally is Cloud Computing which has to be dealt differently while selecting technologies. The selection of cloud technologies becomes complex because apart from factors such as basic functionality and commercial and licensing terms, factors like exit terms, data protection, risk mitigation, information security, etc. also have to be considered.
FACTORS INFLUENCING OUTSOURCING OF TECHNOLOGY IN MANUFACTURING
On Outsourcing – I feel the question is not that of ‘if’ but ‘how-much’. Outsourcing today is a need and not a luxury. Running a totally internal based IT in today’s context is not a viable option in the manufacturing industry – both from the perspective of developing skill sets and also retaining manpower. Outsourcing some part of the IT operations aids in catapulting IT to the next level of service as the internal team can concentrate on the ‘vital few’ activities. Outsourcing for us forms an important part of our strategy on how to manage our IT set up rather than being an initiative directed towards cost savings. I feel there is a myth that in Indian context outsourcing can significantly reduce cost of operations, as, for an Indian organization IT outsourcing does not provide the cost arbitrage which an American or an European organization might achieve. In fact the cost of running IT can be even higher if it is totally outsourced as compared to when a mixed or balanced approach is taken. In spite of the cost considerations, there are cases where outsourcing becomes the only viable option because of shortage of technical manpower in areas where technical resource cannot be attracted by a manufacturing organization.
Our strategy of outsourcing revolves around three competency areas. The first is the core competency - the ‘core’ part as we refer to it. This gives us our business differentiation and hence we do not outsource these activities at all and the resources are internal to the organization. On the other extreme are the service areas like hardware maintenance, network maintenance, facility management, etc. where we do not want to hire and retain resources internally as we cannot offer a career path for them and also because there are mature companies who provide these services very well, hence these areas are completely outsourced. Apart from these two extreme ends, the third area, which forms a very large and significant part of our IT services, is the business solutions which are handled as individual projects. This is an area where we need expert services which either we do not have or do not want to build; hence for this we hire consultants on a project basis. An important aspect in this area is that the overall accountability and responsibility of the project delivery remains with us as we firmly believe that these cannot be delegated to a third party. In case the project fails, the provider’s liability is limited to what has been contractually agreed whereas for us it is much more. We perform project management and governance and we take the overall responsibility. Even in cases of niche technologies, while we do have consultants with specific skill sets working for us, but they work under our IT team and the accountability and responsibility is with the internal IT though we may not have skill sets on those technologies.
ENGAGING THE TECHNOLOGY PROVIDERS
We give a lot of importance to the relationship which we develop with our providers as we believe that they should be treated more as partners rather than just as vendors. This culture of treating our service providers as partners has been embedded deeply into the organization and has enabled us to build a very strong relationship with our service providers. A partnership is not a function of size or duration of the engagement; rather it is the way one organization treats the other. For a strong partnership, the selection process should not just be based on quantitative scores, in fact what also needs to considered is how well we bond with the technology provider. It is also important that we are transparent with them in our selection process as this helps in maintaining the relationship beyond only specific transactions.
The first step towards setting up the right kind of relationship starts early right from the process of selection and evaluation of the provider. For instance in all our key initiatives, one of the most important or highly weighted criteria has been the technology provider’s passion towards the project. Apart from project specific evaluation parameters such as product capability, technology, vendor capability, vendor background, etc., we give a lot of weightage to softer aspects like the way the provider interacted with us and responded to our queries. These soft aspects are qualitative and subjective but play an important role, as ultimately we are choosing a partner and not a vendor for our engagements. We carry forward our relationships with all the vendors that we evaluate and not just with the ones who finally get to work on the project.
Once we select our partner, the key is not to resort to contract constantly. The contract is there only as a fall back in case there is some major issue in the project. At any given time, relationships are as important as the terms in the contract and there may be times when we have to pay extra for scope change but these can be best resolved through mutual discussions in the interest of project success. However, even though relationships should be given a lot of focus to, this doesn’t underscore the role of contracting as an important phase in the entire sourcing cycle. A CIO might have run through many contracts, but still has to involve specialists especially from the legal to provide their insights and inputs. It is also important to involve IT advisors for their views on the overall structure.
ENHANCING VALUE FROM CURRENT ENGAGEMENT
The role of CIO is not limited to IT investment; rather, it is to ensure that such investments provide optimum value to the organization. In order to achieve the best out of our investments we have to manage relationships, resolve conflicts and assess the value delivered and take necessary steps wherever required to ensure continuous delivery of value. As part of governance, we do have formal structures like steering committees, operational task forces etc. but beyond a point to get maximum value out of an engagement one needs to leverage relationships for which we organize meetings at business leadership levels so that we go beyond transactional relationships.
To ensure ongoing delivery of value, we also do periodic value assessments which are primarily targeted to understand areas of improvement from a third party perspective which we then incorporate in our organization along with our partner. In case of benchmarking we have to be clear that every organization is different and industry level comparisons can just be used as a reference and not instrumental in driving internal decisions or engagements as it might become counter-productive.
ORGANIZATIONS MIGHT BE DIFFERENT BUT ROLE OF IT IS THE SAME
Fundamentally, every organization is different because of its industry focus, its way of working, the set up, and the culture. Differences notwithstanding, at the process level they are almost same and it holds true from IT perspective. At Hero MotoCorp Ltd,
IT has been able to bring transformation in many domains whether it is on the demand side or supply side. IT was instrumental in improving conversion rates, decrease cycle times, achieve very high level integration of order-to-dispatch between vendor and our production systems etc. Unlike the early days, where IT was just limited to automation and faced challenges of change management, today it has taken a 180 degree shift and has become a strategic enabler. IT is being pushed to deliver results by the users, who are now IT savvy and appreciate the influence of IT and its inherent value. With such a pull from the user side, IT function has to be managed judiciously by outsourcing technology, but retaining accountability and responsibility. This mantra holds good for every organization from different industry sectors.
Once we select our partner, the key is not to resort to contract constantly. The contract is there only as a fall back in case there is some major issue in the project. At any given time, relationships are as important as the terms in the contract and there may be times when we have to pay extra for scope change but these can be best resolved through mutual discussions in the interest of project success. However, even though relationships should be given a lot of focus to, this doesn’t underscore the role of contracting as an important phase in the entire sourcing cycle. A CIO might have run through many contracts, but still has to involve specialists especially from the legal to provide their insights and inputs. It is also important to involve IT advisors for their views on the overall structure.
ENHANCING VALUE FROM CURRENT ENGAGEMENT
The role of CIO is not limited to IT investment; rather, it is to ensure that such investments provide optimum value to the organization. In order to achieve the best out of our investments we have to manage relationships, resolve conflicts and assess the value delivered and take necessary steps wherever required to ensure continuous delivery of value. As part of governance, we do have formal structures like steering committees, operational task forces etc. but beyond a point to get maximum value out of an engagement one needs to leverage relationships for which we organize meetings at business leadership levels so that we go beyond transactional relationships.
To ensure ongoing delivery of value, we also do periodic value assessments which are primarily targeted to understand areas of improvement from a third party perspective which we then incorporate in our organization along with our partner. In case of benchmarking we have to be clear that every organization is different and industry level comparisons can just be used as a reference and not instrumental in driving internal decisions or engagements as it might become counter-productive.
ORGANIZATIONS MIGHT BE DIFFERENT BUT ROLE OF IT IS THE SAME
Fundamentally, every organization is different because of its industry focus, its way of working, the set up, and the culture. Differences notwithstanding, at the process level they are almost same and it holds true from IT perspective. At Hero MotoCorp Ltd,
IT has been able to bring transformation in many domains whether it is on the demand side or supply side. IT was instrumental in improving conversion rates, decrease cycle times, achieve very high level integration of order-to-dispatch between vendor and our production systems etc. Unlike the early days, where IT was just limited to automation and faced challenges of change management, today it has taken a 180 degree shift and has become a strategic enabler. IT is being pushed to deliver results by the users, who are now IT savvy and appreciate the influence of IT and its inherent value. With such a pull from the user side, IT function has to be managed judiciously by outsourcing technology, but retaining accountability and responsibility. This mantra holds good for every organization from different industry sectors.
