The Cultural challenge (for outsourcing companies)

After their successes with outsourcing services, Indian IT Services firms are growing their consulting business. In Europe, and in particular mainland western countries like Germany and France, one of their key challenges is to convince European executives that they have acquired internally enough “local” culture to provide adapted services. 

 This is only a matter of time and the first Indian firms to achieve this will build a strong competitive advantage. Andreas Floth from PA Consulting Group, the international management, systems and technology consultancy, said back in 2004: “The growth of ‘nearshoring’ in Central and Eastern Europe offers exciting opportunities in Western Europe for provision of IT development and business process outsourcing. Their standard of IT literacy and expertise is very high, and both supply and demand of IT knowledge in the acceding countries will increase steadily. ‘Near-shore’ outsourcing also appeals to cautious CIOs who want to maintain control over IT assets. However, service providers must improve significantly to meet expectations.” 

Three years later, we can say that the Indian consulting firms have taken on board this competition threat. In fact, some of them have started recruiting and opening up support and technical sites in Eastern Europe, bringing with them their technical skills and experience. However, success is not just about technologies and how to implement them. It is also about a deep understanding of the customers and their business, social and political environment. 

According to Gartner Indian offshore service providers face three big challenges if they hope to be seen as equals with traditional European providers (all consulting firms with a long history in Europe): 

 1. “European Providers Enjoy Entrenched Mind Share Traditional European local or multinational providers enjoy greater mind share among European buyers. Their long-term presence and investments have demonstrated a commitment to each of the European countries and have underlined a European strategy. Until recently, with the exception of the U.K., many European companies believed the Indian providers had an opportunistic approach to Europe. By increasing local hires, the Indian companies will take the first step on a long, slow path toward gaining European buyers' trust and confidence. A growing number of providers are starting to demonstrate capabilities that will help organizations look beyond cost savings to achieve other benefits, including access to scarce skills, resource agility, productivity gains, process improvements or innovation.

 2. European Companies Are Reluctant to Publicly Acknowledge Offshoring Continental European buyers' reluctance to acknowledge their use of offshore services does not help providers that want to leverage their success to win more deals, particularly when they are trying to gain traction in certain industries or countries. This silence about the use of offshore services also disguises the extent to which companies use offshore resources. Some continental European companies have signed deals with traditional service providers for offshore services, so that it is not obvious to the market that they are moving work overseas. Many traditional service providers have decreased their European operations in favor of increased offshore delivery capability. Some offshore providers, therefore, are justified in claiming that they are the local employers of the future as they scale up their local network of skills. 

 3. A Large Labor Pool Can Become Unwieldy Indian and traditional providers are building scale offshore, in India and elsewhere. For the Indian providers to continue their strong growth, they must move away from labor-intensive methods of responding to strong demand. Effective operations in the future must also be able to offer process automation, including repeatable solutions and utility delivery models, or these providers risk building up an unsustainable and unwieldy resource pool.” 

The second and third challenges are more concerning the outsourcing activities (not the topic of this article but nevertheless important). The first challenge about mind share however is also valid for the consulting business, in fact even more so I would say. 

In the same article, “Gartner advises Indian offshore service providers to establish local (onshore and/or nearshore) delivery capabilities, not just sales offices. This is because buyers will seek consulting and delivery capabilities that understand their local markets and business environments, in addition to being able to address language and cultural issues. 

Indian offshore service providers must plan early to adapt their delivery model, taking into account nuances like automation of processes, more repeatable services and solutions, utility delivery approaches and true innovation.” Unless you don’t mind taking 10+ years to get there, this local delivery capability means local recruitment among consultants and professionals with a significant European professional and cultural experience. These “locals” will help for: Winning contracts. 

European executives need be comforted by the client-facing sales team that their consulting firm has the competences to deeply understand the given business. Having around the table a team of Indians looking and sounding like they’ve just landed from Mumbai might not do the trick. Delivering successful projects with greater chances to exceed customer expectations. With top class knowledge of best practices and technical skills, a team of Indian consultants would probably manage to meet most project objectives (and usually with very competitive prices). However, in order to go beyond these objectives, the team would benefit having at least one member with local and specific knowledge of the customer’s business, social and cultural context. 

It is important to realize that it is not only about the culture of given countries, it is ideally also about a specific market and/or organizational culture in line with the consulting firm’s strategy. 

If for example a consulting firm intends to provide services to the large food retailers (like Carrefour, Tesco and Asda) it needs to recruit professionals and consultants with relevant retail experience (i.e. worked for one of these retailers). Managing a chain of supermarkets in Europe carries specific cultural traits that would not be immediately assimilated by an Indian consultant with an Asiatic food retailing experience. I will illustrate the importance of cultural differences with the reverse example of one of these European retailers (Carrefour) that had to adapt to the Chinese market for a rather odd but nonetheless important cultural habit: the Chinese grocery shopper likes to touch and smell fresh food before buying, and not only fruits and vegetables as in most European countries, but also rice, fish and meat! It is extremely unhygienic but Carrefour had to adapt their shop design and packaging practices or not sell these products. This is of course an extreme and easily identifiable market specificity but more insidious differences could have no less significant impact on a consulting project.

The knowledge challenge (for outsourcing companies)

[Below is an article I wrote in Nov 07 for a now defunct Indian website. I stand by it even more today].

For Indian outsourcing providers, their business is evolving towards securing partnerships for innovation with their customers. It is therefore no longer only about cost-savings and taking on non-core activities. Now here is a challenge for them: How to go about obtaining enough specific internal knowledge from their customers in order to produce relevant value-adding innovation? 

The reason why this is a challenge is that most organizations today still fail - or don’t even attempt - to build a knowledge based culture where knowledge sharing between all their employees is the norm. If a customer’s key representatives only share knowledge and experience with their colleagues when they have to, why would they share more freely with external consultants? 

In my experience, consultants usually obtain more information on a specific issue than internal managers, but that is usually due to their – justified or not - “impartial” and “more objective” status. It is also because employees are told to assist the consultant in any way they can because… hem… they are not cheap. But this actually only reinforce my point: For a true value-adding cooperation between an outsourcing firm and a customer organization, you cannot rely on people sharing knowledge only because they are told to do so, you need much more willing and systematic involvements. 

To truly understand the issue, one must realise that the type of partnership that we are talking about here is of a new breed. It is not the classic consulting time-bound project with consultants walking in, gathering information, analysing it, developing then submitting a solution, and finally walking out. What is suggested here is a long-term relationship requiring systematic access to relevant information and sharing of knowledge and experience between the customer and the service provider. 

Innovation does not happen in a vacuum but is very context-dependant. Furthermore, innovation is nearly always the product of collaboration between individuals/teams/companies. Ok, so what is my point then? I do not claim to know all the consequences of this problem (I count on you all reading this to help out). I would only suggest this: Outsourcing firms should steam ahead offering new collaborative services to their most “knowledge focused” customers. With them, there should be no problem in co-generating innovation and value. However, with the other customers still stuck in, pre-Knowledge economy, pre-Web 2.0 era with Industrial Age management methods, my advice is either stay clear of making too many promises, or alternatively first offer to assist them in transforming their organizational culture and foster knowledge-sharing. 

To support the second option, I will quote a report on the recent KM India 2007 Summit : 

<< Comparing the current Knowledge Management (KM) movement with the Quality movement of [the] 80s, noted IT entrepreneur and Chairman & Managing Director of Mindtree Consulting Mr Ashok Soota said, "Knowledge movement is the next important movement. It is like the Quality movement of past. CII and industry will promote this like we did with quality movement." The Summit is being held in New Delhi from Nov 14-16. Highlighting the importance of KM in today's corporate world, quoting management guru Peter Drucker, Mr Soota said, "Today there are no poor countries, only ignorant countries! The same is true of companies." >>

Innovation is a priority, so why not KM?

A recent Boston Consulting Group report shows that 64% of companies consider innovation as one of their top 3 priorities. This is less than the 72% in 2006 but still high in the current difficult economy. That is good and understandable but then why is Knowledge Management not a priority as well as a result? You cannot foster innovation throughout a company wihout effective and efficient knowledge sharing processes. Apple, Google and Toyota took the top 3 spots of the most innovative companies. Unsurprisingly, these 3 are regularly at the top of the global Most Admired Knowledge Enterprises (MAKE). In the 2008 ranking, they were in the 7th, 2nd and 4th place respectively. In fact, 9 of the 20 global MAKE companies last year are among the BCG top 50 innovative companies including 5 of the top 6 ! These organisations have understood that innovation does not only sit in the R&D labs, it is to be fostered everywhere. Innovation implies effective collaboration between individuals, teams, deparments and companies, and effective collaboration implies in turn effective knowledge sharing between all these actors. All these companies above invest heavily in knowledge management and would typically have managers with formal KM responsibilities. But then why is it that the companies with such formal and significant KM are still such a minority? What will it take for leaders to realise en masse the importance of KM?

Is sharing knowledge really desirable in a business?

A. Imagine a company where no knowledge is shared. Only information is passed on between employees within pre-defined operational processes. Each employee exchange information only to their immediate colleagues, either within their team/department or with the colleagues in the next/precedent levels in the operational chain. B. Imagine a company where all knowledge (tacit or explicit) is shared. All employees share their individual and collective (team/department) knowledge with every one else within the company. Each employee is free to share his/her knowledge with anyone else and to ask anyone for his/her knowledge on any subject (of a professional and non-confidential nature). My question is simple: which of these two extremes is likely to generate the most successful business, assuming they would be both in the same market(s) and every other parameters equal (eg. number of employees, age) ? I will expand on this question later on but for now, let me just say that for anyone answering B, please give me strong arguments because the majority of businesses today are still closer to extreme A.

Getting the right information to your retail customers at the right time, or how to make them loyal to your brand

In these very challenging economical times, retaining your customers is a must to survive now and thrive when things improve. For your customers to repetitively shop in your stores (on the high street or online) means for them one or both of the following conditions:

· It is to them the most practical or ‘lack of choice’ (ex.: “I shop at your supermarket because it is the closest to my home”).
· It is the brand that best fits their needs and/or wants at that moment in time.

You could of course consider the first group of customers as a bonus but they should be nurtured too as the practical reason for their custom could disappear and them with it (like moving house). The key for making either type of customers (“for practicality” or “by choice”) stay with your brand long term, is increasingly to provide them with the right information at the right time and in the right place, and this through all the market channels you make available to them. For instance, when online, a customer is virtually always one-click away to choose a competitor. I am not referring here only to ecommerce situation but to any web browsing situation to obtain information about your brand/company, starting of course with your main informational website.

In retail, you not only need to be consistent between your various channels but you need to integrate them as well. So it is not just about consistency in products and pricing, but also for example about enabling a customer who purchased online to be able to collect and return in store if he/she wishes to. And this type of seamless (to the customer) integration is not just an information systems problem. For instance, the manager of the store where the products purchased online are collected, will not welcome the transaction if the sale isn’t allocated to his store some way or another! So if only your online store gets the sale, you will de facto create internal resistance and unnecessary competition that ultimately could affect the customer (a solution by the way here is to have the sale shared by both channels).

Providing customers with the right information at the right time and in the right place implies understanding their likes and dislikes, their needs and wants. In the luxury goods sector, this knowledge on customers has historically been obtained by the sales associate on the shop floor during the process of a sale. When you buy a £,000+ product or service, you have time to chat about yourself and the reasons for your purchase (and you often want to) but when you are buying a pack of beer, a pair of socks or a bottle of shampoo, you usually don’t want to spend more time than necessary. Well, this is changing and primarily thanks to ecommerce. When you want to buy a shampoo or a pack of beer online, you must first register your name and contact details at the very least, so you have provided the private information that the retailer would not have obtained on the high street – except if you had used a “loyalty” card. So retailers can track customer behaviour online but often fail to do so on the high street which makes it difficult to leverage the integration of the different channels to market. Loyalty card schemes have been thought of the solution but too often fail to deliver the desired outcome because:

- Too many customers don’t bother signing up to the scheme (for various reasons but often simply because they don’t consider the associated discounts significant enough).
- A majority of customers will view it only as a discount scheme (“when I shop here, I might as well use the card and get the discount points as a bonus”) but their repeat visits do not depend on it.
- Most of the competition have a similar scheme so it does not constitute a significant USP (large number of customers end up with all your competitors’ loyalty card in their wallet).

A loyalty scheme needs to be about loyalty, not only about discounted repeat purchases. So this takes us back to the subject of this post: “true” loyalty can be achieved when the customer has access to and is given the right information at the right time about your product and services. “Right” information means as individualized as possible. A customer is really only interested in the products and services that concerns him/her. So for ex, a customer who never drinks alcohol wouldn’t care less about a promotion on wines. And it is not as simple as thinking that such a promotion should target only customers with a history of wine purchases. Our non-drinker customer could easily have once bought a bottle as a one-off gift for a friend.

My point here is that the goal for retailers should be to have reliable and relevant knowledge of their customers in order to provide them in return with the right information at the right time.
This effective knowledge of your customers will of course rely on sales history based information obtained with traditional “loyalty schemes”. But crucially, to obtain a true USP with this knowledge, a retailer will have to find and master other sources of information. Social networks are one such source, with examples being online communities. Examples of retail focused websites taking full advantage of this are the customer reviews based sites like www.toptable.com or www.yelp.com. Retailers need to engage with these indirect sources of customer information and use them as models for implementing social networking solutions directly engaging with their customers (or potential customers).

I will not list here all the possibilities (and I don’t know them all anyway) for retailers to improve their deliveries of effective information to their customers. Obviously, many great ideas are still to come. What is certain is that the retailers that will consider this challenge strategically and be among the first to surpass their customers’ expectations, will lead the pack when the economy recovers.