For several years Cisco Systems has embraced outsourcing as a practice to leverage global skills to expand its engineering/product development and IT capabilities. By using its own network-based tools to track projects and vendor financials online, Cisco has been able to shrink its governance budget and improve its service levels. How has the Cisco outsourcing governance team realized such results? A key factor in its success is the company’s adoption of outsourcing management tools for tracking and reporting of performance and services financials across vendors and service lines.
This article shares Cisco’s best practices for outsourcing governance, based on an interview with Watson Murthy, a senior manager who has been involved (R&D) for over seven years at Cisco. As a founding member of the Global Partner Engineering group, he’s been instrumental in building Cisco’s largest R&D facilities outside of San Jose, CA working with multiple partners as well as Cisco’s own captive center in Bangalore. Watson has been a key contributor to the formulation and adoption of a coherent and consistent outsourcing engineering strategy for Cisco. He’s overseen the offshore engineering strength grow multi-fold from a modest 100-plus to several thousand today. He’s been instrumental in developing Cisco’s offshore engagement model, including processes, governance, performance metrics, best-practices and financial models. In addition, he’s responsible for the tools development for Cisco’s R&D outsourcing management.
Does Cisco do any R&D or IT services globally?
Cisco has a global development and IT strategy. As part of that strategy, [many] development and IT functions happen at locations around the world, including Bangalore. These functions include engineering (research and development), IT applications development, back-office business processes and other customer support-related functions.
Why did you go with multiple vendors?
As a core part of our strategy, we have used multiple vendors. Over the last few years, the relationships have strengthened to a point where we consider the vendor teams as an extension of our services delivery and consider our vendors as a strategic extension of our R&D capabilities.
What is the primary function of governance and what are your team’s key responsibilities?
Governance enables management to make operational, tactical and strategic decisions that increase the business value derived from the outsourcing relationships, while reducing the risk associated with using a global team.
The key responsibilities of the governance organization cover several functions that go towards improving the business outcome of outsourcing:
- Partner selection.
- Contract negotiation.
- Partner relationship management.
- Demand aggregation.
- Escalation resolution.
- Managing government related issues.
- Overall finance management including PO and invoice management.
- Equipment purchase.
- Information security policy enforcement.
- Infrastructure management.
- Running customer satisfaction surveys.
- Partner training and skills forecasting.
- Liaison to other Cisco organizations related to India.
In addition to this, we actively participate in conferences, knowledge-sharing with other organizations, and providing input into development of tools and processes to support our functions.
What have been the top governance challenges for Cisco?
Managing a multi-sourced partnership, ensuring consistent delivery, balancing work done at a captive center vs. partner outsourcing, handling crises due to local challenges (attrition [and] infrastructure requirements).
How much of your global services budget is allocated for governance?
Like many companies, we strived to keep the partner management and governance budget as low as possible. Most of the budget is split between the global services team personnel cost and tools to support outsourcing management.
It is possible the provider brings tools to the relationship — in this case, the cost of the tools is often implicitly (or explicitly) buried in the price of the services provided.
Did you consider tools from your services providers?
In our evaluation of options for centralizing and tracking partner financials, and resources, we did not come across any tools from services providers that performed similar functions. Though, even if a services provider had tools that covered some of the key capabilities we needed, we would have likely not considered it for our needs.
When multi-sourcing, it becomes critical that processes and tools are uniformly applied across all key providers. Robust outsourcing management tools from independent software vendors are now available that cover key needs for centralizing contract and financials, service quality reporting and change management.
Even when using a tool from the provider, add a provision in the contract that allows you to audit the correct functioning of the tool and the validity of the data fed as input to the tool.
What are the tools used by Cisco to address these challenges?
Our first priority was to centralize partner billing and partner resources management. We used to spend a lot of our time hunting for information or chasing down billing discrepancies. We did not have a concrete way to verify [whether] what we were being billed for was accurate or not.
Further, there was no mechanism to streamline internal approval and change processes. For example, if additional resources need to be brought onsite for an initiative, the tool supports approval processes that need to be followed prior to submitting this request to the provider; and the billing impact of such a request can be tracked online. In fact, the partner invoices are generated right from the system, ensuring there is no discrepancy.
The Billing and Tracking System, or BATS as we call it internally, was developed to address these challenges. Over time, we also added a survey capability and recently an analytics capability to report on spends by vendor, business unit and projects.
Who are the primary users of BATS?
Our partners, primarily the delivery managers and engagement managers; my group, [the Cisco governance team]; and buyers of partner services, typically, project managers and higher level management, as well as finance analysts use this tool. Each of these user roles interfaces with the tool in different ways.
What does BATS enable?
At Cisco — having a single source of truth across our decision support systems is a priority. BATS provides the single source of truth of all outsourced work. Specifically, the partner employees engaged in the outsourced projects and finances associated to it. The tool provides detailed information on history of projects and partner employees associated with various projects, attrition-related information, customer satisfaction and detailed breakdown of costs for every single outsourced project.
Detailed reports generation capability is built into the tool. In addition we have built an analytics portal as well.
What gaps or challenges remain to be addressed via tools?
We would like to address the following areas going forward:
- Demand forecast and supply chain management.
- SLA management.
- Partner skills and availability portal — which partner has what skills, when do resources with specific skills get freed up, etc.
- Project management.
What is the realized return on investment in outsourcing management tools?
There is a hard ROI — that can be measured in real savings:
We saved the company millions of dollars in overhead costs just by not growing the management team proportional to the partner headcount growth. This has been possible with the automation we have put in place with BATS.
We used to have an error margin of 2% (which we had to go back and forth with) when we did all our billing by Excel spreadsheets. Given our current run rate, we will save several million dollars in the error reconciliation alone.
We have saved the company a significant amount of money per year in “non-compliance of contractual obligations” related to vacation credits. This would not have been possible without a financials tracking tool.