Outsource Magazine

Last week, I was attending an SME summit in India, organised by a media house that covers information technology events and topics. The majority of the delegates were from micro, small and medium enterprises and were decision makers.

When the sponsors, who all were IT firms, filled in slot after slot with how they could improve productivity, I saw a steady stream of delegates moving out to actively network and broker deals with industry peers.  IT, to many, is a necessary investment but not one which they understand or actively pursue to understand. The pace of change of technology, and the inherent bias of IT practitioners towards jargon and abstractions, make it tough for these entrepreneurs to catch up and keep up.

The Aberdeen Group confirms that nearly 50 per cent of outsourcing initiatives fail and 70 per cent of failure is due to underwhelming performance of outsourcers. I suspect, in the case of SMEs, the mismatch of expectations would contribute a lot to that 70 per cent.

Long story short, the right information is missing and even if it’s available there is no skill to process and derive insights. The time required to develop that skill is never available for these entrepreneurs who run businesses like how an ambulance runs (no time to pause and think!).

Mash this underlying fault line with a buoyant note from service providers, who actively advise SMEs for ‘big bang’ outsourcing. We have in our hands the equivalent of a disadvantaged class of business (at least in its IT knowhow) who are being coached to take a risky approach to outsourcing by the very constituency that benefit the most from it.

SMEs have to do it the big bang way, for the business case to make sense for most top service providers, who frequent summits like the one I attended. While, by itself, this advice is not bad and shall benefit SMEs, we need to realise that the soft infrastructure required to undertake such course-changing initiatives is barely in place in most enterprises.

SMEs are aware of this. While there is no statistic available on the number of big bang outsourcing initiatives vs piecemeal initiatives in the SME space, I would safely make my bet on the latter. It has to be true because SMEs face most failures (in percentage terms) with outsourcing. Part of the reason could be with the expectations of the SMEs themselves, while another important reason could be the lack of information about the providers.

The SME market is operating in an environment characterised by lack of information.

• The market does not have a vibrant analyst ecosystem nor can SMEs afford such services.
• The providers are often not public companies.
• The network path required for information to travel between SMEs is often weak or complex so the right information is almost never in the right hands at the right time, making peer feedback a not-so-scalable - and hence unreliable - source of information.
• Even if information were available, the ability to process information and infer insights is often missing within the organisation

So how do SMEs discover the right vendor in such an environment that is ripe for adverse selection bias? And, how do they do it with little external professional support? Here comes technology, again, to the rescue.

Lack of information, higher chances of failure, lack of ability to set expectations and process information leads to distrust in the concept of outsourcing itself - and did I mention I saw a stream of entrepreneurs walking out of sessions, during the summit? After SMEs, the most affected party due to this environment is providers who are genuinely set for scale, through their impeccable service and technical depth. It’s difficult to build trust and sell in such a market where you are wrong unless you can prove otherwise.

So providers who scale are generally the ones who are visible too, if SMEs make an effort to look for them. They are the ones who answer questions on forums, contribute code to open source movements, rant about architecture and coding practices. They are the ones who would be conspicuous by their absence from online labour markets that encourage price-led relationships.

Contrary to the prevalent notion, SME business leaders don’t have to understand all that they hear from these forums. Being entrepreneurs who do most heavy lifting in their respective enterprises, SME business leaders can use their innate ability to form a basket of prospective vendors. To evaluate further against a specific context, they can again pick a non-traditional route to seek expertise.

Search cost for information is in freefall. Take advantage of it. Cost of insight still has a price and contextual insight demands a premium. However one can hack that too.

Any web-savvy business owner can pick experts from business networks and services like Quora, LinkedIn and geek hangouts like HackerNews, GitHub and Stack Exchange. One can harvest experts from blogs and comments on blogs. Often we would be in for a surprise at how straight the advice is from such sources, as they are unencumbered by typical contractual relationships.

Through the local chambers of commerce and informal technology chapters in the counties, SMEs can crowd source advisory services from technologists and practitioners who have no vested interests (e.g. tech startups, product firms, independent tech evangelists, free and open source movements, open coffee/startup forums).

Such self-organised technology and startup groups often have experts that carry a dissent for overheads and big enterprise processes. They naturally align to the SME way of running businesses. These groups have regular and free meet-ups and are often about encouraging the right use of technology. Tech startups are the epitome of frugal use of technology and they tend to have a culture of paying it forward! SMEs should leverage these sources.

The cost of piecing data, information and insights far outweighs the cost of failure. So be open to newer ways of discovering vendors. The odds are turning in your favour!

About the Author

Ashwin Ramasamy is the Founder & CEO of ContractIQ, a peer recommendation service for SMEs that seek to outsource. ContractIQ mashes the power of data and social networking concepts, to deliver contextual insights about vendors.

Prior to ContractIQ, Ashwin helped set up the India Operations of Europe’s largest IT services company. Ashwin was earlier handling F500 account relationships out of the USA and West Asia. Ashwin started as an early-stage executive with an award-winning internet consulting startup where providing consulting services to over 300 SMEs.