By Stephen Taub

How Carnegie-Mellon’s New Consortium Could
Revolutionize How Companies Select
Their Business Partners

Let’s face it. Outsourcing may be a major growth business, but the relationships don’t usually work out as smoothly as everyone involved would like.

According to a Dun & Bradstreet study, for example, between 20% and 25% of all outsourcing relationships fail in any two– year period. Half of the relationships fail within five years.

The reasons cited for the failure are similar across all types of relationships. Nearly 70% of the respondents noted that the outsourcing supplier “didn’t understand what they were supposed to do” and “the cost was too high and they provided poor service.”

According to a Dataquest study, more than half of all sourcing customers report having renegotiated a contract and in nearly one-quarter of those renegotiations, the original service provider lost the account.

Indeed, a 2003 study released by Accenture and the Economist Intelligence Unit (EIU), the three outsourcing risks most often considered were:

• The risk of valuable data falling into competitors’ hands (52%)
• The risk that the cost of outsourcing will exceed expectations (48%)
• The erosion of in-house knowledge (45%)

Enter the IT Services Qualification Center – also known as ITsqc–in Carnegie Mellon University’s School of Computer Science. Around 2000, it led a consortium that created the eSourcing Capability Model for Service Providers (eSCM-SP). Founder members of the consortium include International Business Machines, Accenture and EDS as well as India-based Satyam Computer Services, Ltd.

The Model’s three goals: Help IT-enabled sourcing service providers appraise and improve their ability to provide high quality sourcing services, give them a way to differentiate themselves from the competition, and allow prospective clients to evaluate service providers based on their eSCM-SP level of certification and Practice Satisfaction Profile.

“It was created because client organizations were unhappy with the rate of failure in developing sourcing relationships,” explains Jane Siegel, director of ITsqc. “There was no way [for vendors] to differentiate themselves from their competitors.”

“It provides customers with an important view of those following business practices,” adds Bennet Kumar, consultant to Satyam. “They are assured a level of quality from the service provider.”

There are currently eight consortium members–Accenture, COPPE/Federal University of Rio de Janeiro, EDS, IBM Global Services, Mellon Financial Corp., Satyam Computer Services, Ltd., STQC – Standardization, Testing and Quality Certification, and TPI. There are also two affiliates: itSMF – IT Service Management Forum US, and The Outsourcing Institute.

As an affiliate, The OI will provide advisory services to eSCM–SP participants needing assistance with the certification process. In addition, it will collaborate with Carnegie Mellon University in research that will help boost the eSCM efforts and the outsourcing marketplace in general.

“Outsourcing has completed the transformation from an infant idea to a proven method of conducting business,” says Frank J. Casale, Founder and CEO of The Outsourcing Institute. “With billions of dollars of resources, responsibilities and risk residing outside of corporate boundaries, the stakes have become very high for both sourcing providers and buyers. Both parties want to see the outsourcing relationship honed and standardization methods put into place. The impact of the eSCM program will be felt across industries and around the globe.”

So far, three organizations have been certified, and they are all based in South Korea. They are SK C&C in Daejeon and Seoul, and two operations of LG CNS. One of them is LG CNS Infrastructure Service Center (ISC) in Incheon and Seoul, and LG CNS, LG*Net Network Service Center in Seoul.

Two other India-based companies are in the process of being certified while “many others” are currently preparing to go through the process.

By the end of the year, Siegel expects as many as 10 companies to be fully certified. “I expect the number to grow exponentially,” she adds. “This is something that is just getting started but we expect to grow rapidly.”

Getting certified is no easy feat, however. So, once a company completes the process it is quite an achievement.“

Certification will not guarantee quality of output produced, but, it gives an independent view of all Best Practices,” says Kumar.

The current version of the certification, released in October 2002, is comprised of 84 Practices that address the critical capabilities needed by IT–enabled service providers.

IT-enabled sourcing, also called eSourcing, is a widely defined universe. It uses information technology as a key component. Its services are mostly provided remotely, using telecommunication or data networks, and range from routine, non-critical tasks that are resource intensive and operational in nature such as Help Desks to strategic processes that directly impact revenues, such as Business Process Outsourcing and traditional IT services.

Each of the 84 Practices is distributed along three dimensions: Sourcing Life-cycle, Capability Area, and Capability Level.

The Sourcing Life-cycle is further divided into four stages–Ongoing, Initiation, Delivery, and Completion.

All of the Ongoing Practices are contained within six of the 10 Capability Areas: Knowledge Management, People Management, Performance Management, Relationship Management, Technology Management and Threat Management. The other four Capability Areas are considered temporal and are typically associated with a single phase of the Sourcing Life–cycle.

The five Capability Levels describe an improvement path that clients should expect service providers to travel—Providing services, consistently meeting requirements, managing organizational performance, proactively enhancing value, and sustaining excellence.

Keep in mind that this certification process is still in its infancy.

There are currently 12 authorized organizations that have individuals who are authorized to provide various services— Accenture, Advisere, Aptus Partners, COPPE/Federal University of Rio de Janeiro, EDS, IBM Global Services, Integrated System Diagnostics, Inc., The Outsourcing Institute, Satyam Computer Services, Ltd., STQC (Standardization, Testing and Quality Certification), Trimentus Technologies Pvt. Ltd. and Underwriters Laboratories Inc.

How does a company go about becoming certified?

First, it should determine how close they are to even being ready to subject themselves to this scrutiny.

So, consortium members suggest companies start off by undergoing a readiness assessment. Companies are invited to download for free the Board’s Model to see what is even required and what it entails. “Map your corporate processes to determine where you are,” suggests Bill Phifer, Fellow, EDS Production Engineering – Global Processes & Methods. “Understand as much as you can.”

Companies interested in eventually obtaining certification are then urged to sign up for training to learn how to meet the demands. Companies would want to use this time to make their people more familiar with the model and the appraisal method. Altogether, this training will probably take between 6 and 10 days.

“Otherwise, it could be an intimidating, tough road,” Phifer warns. “You want to understand every aspect of the Model and how the industry interprets it. You want a good, solid appraisal team.”

Keep in mind that consortium ethics practices assure that the individual who trains and advises a company is not the one who will then conduct the certification.

Ready to go through the process? Siegel explains that the company must first contact the Consortium, which will help the service provider select an authorized organization. Then the organization will send a lead evaluator to determine the scope of the evaluation. Will it be the whole company? Part of the company? Which areas?

Then the service provider will likely use qualified consultants to assure they are prepared and ready for the actual evaluation process. Once they believe they are, the lead evaluator will assemble a team to perform the evaluation.

At the same time, the organization must negotiate a schedule and cost.

This entire process could be complex and could wind up taking place in more than one geographical area.

Once the certification process gets underway, it is rigorous and very demanding. Typically, four to six people plus a lead evaluator spend, on average, two weeks at the company reviewing documents, processes, policies and procedures and conduct individual interviews with key members for 45 minutes each—typically 30 to 40 people, Phifer says. “We interview a wide cross-section within your organization,” he explains.

Underneath each of those 84 practices is something like 13 to 20 required activities, such as how well the employees are trained and whether there are adequate resources, to name just two of them. So, if you add it up, there are a total of 1,234 required activities being assessed. No kidding.“

We’re looking at a big check-list,” Phifer says.

He explains there are three objectives to the certification process. The primary one is to align with industry best practices— to be the most effective service provider a company can be.

A second objective is to obtain a competitive advantage. It’s an opportunity for a company to differentiate itself from other providers. “If there are two providers and one is certified and one isn’t, it makes sense to go with the certified service provider,” asserts Kumar.

Another reason a company might go through the certification process: An organization looking to outsource could sponsor certification for two finalists and use the results for selection. “This is the least likely reason,” Phifer stresses.

The apparent demands and strenuousness of the certification process come with a price. Phifer figures the entire process—from the day a company downloads the Model to the day it is certified— would take at least a year and maybe several years.

As a result, he concedes that the total cost of the entire exercise could cost an organization “hundreds of thousands of dollars.”

This obviously tips the process in favor of larger, better financed companies. “It does appear on face value that only large companies can get certified,” says Satyam’s Kumar.“

This makes it challenging for a small company, ”Phifer acknowledges. “But, not every company that uses the Model needs to be certified. Some companies may never get there.”