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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
This is the only book that we know of, that focuses on the end-to-end IT services and outsourcing life cycle. The target audience is anybody that wants to know about the IT services business. The book is a complete seller's and buyer's guide for today's market. Sellers will learn how to do analysis on the target market, form the right bid team, partner with relevant influencers and create unique go to market strategies for finding qualified IT services and outsourcing deals. Both buyers and sellers will learn how to define appropriate engagement models, create pricing and financial structures, form well defined contracts, negotiate effectively, institute transition best practices and govern the entire program with success. As a testament for its quality, this book is endorsed via back cover blurbs, advanced praise and foreword by top leaders of major IT services organization like NASSCOM, International Association of Outsourcing Professionals (IAOP), Outsourcing Institute (OI); executives of top IT services companies like Perot Systems, CSC and others; and analysts from major advisory firms like Black Book of Outsourcing and Ovum Consulting. Packed with witty anecdotes, insights and lessons for the practitioner from the authors' own and other experts' experience and stellar trade performance, Dutta and Folden's work is a vital read for customers, vendors, advisors and anyone involved in today's complex IT services and outsourcing deals.
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Seitenzahl: 373
Veröffentlichungsjahr: 2012
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Contents
ACKNOWLEDGMENTS
FOREWORD
PROLOGUE
Who Will This Book Benefit?
How Is This Book Organized?
SECTION I: CREATING THE FOUNDATION FOR WINNING DEALS
CHAPTER 1 What’s the Big Deal?
Selected Big Deal Headlines, 1999–2007
What’s a Big Global Sourcing Deal?
Are Big Deals Important?
Global Economics and IT Services: The Established vs. the Challengers
How Will This Book Help You Win Big Deals?
Conclusion
Notes
CHAPTER 2 Getting the Right People Ready to Win Large Deals
Analyzing Emotional Challenges: A Hard Look at Large Deals
Conclusion: Two Ways to Increase the Probability of Success
Notes
SECTION II: FINDING DEALS
CHAPTER 3 Finding Big Deals
Where Are Big Deals?
Sales Leadership Counts!
Conclusion
Note
CHAPTER 4 Winning Deals Through Third-Party Advisors
Everything You Need to Know About TPAs
How Can I Win Business Through TPAs?
Rules for Success in Getting Deals Through TPAs
Conclusion
SECTION III: DOING DEALS
CHAPTER 5 Leading from the Rear
The Anatomy of Leading from the Rear
Conclusion
Notes
CHAPTER 6 Structuring Deals Right
What’s Your Customer’s Sourcing Model?
Big Deal Engagement Models: Laying the Bed for Pricing
The Price Is Right! What Customers Want
Conclusion: Risk Mitigation, Customer Focus, and Relationships Are All That Matters
CHAPTER 7 Advanced Deal Structuring
Incentive-Based or Gain-Sharing Model: The Carrot-and-Stick Approach
Joint-Sourced Models: A Perfect Marriage
Strategic Alliance Models and Joint Ventures: Like Working with Friends and Neighbors
Being Innovative Financiers: When Service Providers Become Bankers
Conclusion
Notes
CHAPTER 8 Doing Contracts Right
The Basics About Contracting (What Every Deal Maker Should Know)
Avoiding the TPA Trap: Some Red Flags for the Service Provider
All About IP: Why Not Knowing This Can Take You to the Cleaners
IP Security Best Practice: Steps to Mitigate Potential Pain
Resolving Disputes in Big Deals: How Not to Go to Court
Conclusion
Notes
CHAPTER 9 Closing Big Deals
Assembling the “Dream Team” of Large Deal Negotiators
Inside the Deal: Deal Room Expertise
Multi-cultural Negotiation Best Practices
Conclusion
Notes
CHAPTER 10 Case Study
A Crash Course in Service Provider’s Organization Structure
The Deal Pursuit Process: Putting Service Orientation into Practice
Summary
Note
SECTION IV: MANAGING DEALS
CHAPTER 11 Managing Transitions and Change
The First Course in Transition
The Essential Element in Transition: Join Your Customer at the Hip
Managing Change: We Can and We Must
Conclusion
Note
CHAPTER 12 Managing Integrated Programs
The Shortcomings of the Traditional Globally Sourced Service Delivery Model
What Does the Customer Want from a Service Provider?
What’s Needed to Manage Big Service-Delivery Engagements: The Collaborative Governance Structure
What Makes a Good Program Manager?
Conclusion
EPILOGUE: Some Parting Thoughts
INDEX
Advance Praise for Winning Strategies
Winning large outsourcing deals is not just about mastery in sales. The practice requires excellence in governance, management, finance, negotiation, and the capacity to understand human behavior, among other elements. Anirban and Hetzel highlight this and take us through the numerous aspects of winning large deals.
—Raj G Asava,Chief Strategy Officer, Perot Systems
Mega deals are the arteries of the services organization. Nurturing the lead to a deal is a subject of complexity beyond men and machines. This book looks at mega deals from a lifecycle point of view and thus helps everyone understand the situational aspects of deal making through its various stages.
—Ed Nair,Editor, Global Services
The perception of large and strategic deals, especially from an offshoring standpoint, has been ambiguous. This book not only clearly delineates what large deals stand for but also substantiates the strategic long-term benefits of pursuing such deals.
—Sridhar Vedala,Managing Director, Equaterra
Now that the benefits of global sourcing are clear for everyone to behold, this book provides the coaching required for sales leaders to really hone their skills and become true professionals!
—David Lancashire,CEO and Chairman, Bold Ventures
Successful deal making is both a science and an art, and it is not any different for an outsourcing deal. Offshore outsourcing deals bring their own dimensions and complexities. A book such as this provides insight and experience from all angles and will certainly be a reference book for anyone involved in any and all aspects of mega deals.
—Jagdish Dalal,President, JDalal Associates
Big deals require a process that runs from discovery to revenue recognition. This book demonstrates the in-depth understanding of this process required for senior management as well as for the quota carriers.
—Ed Peters,CEO, OpenConnect Systems
This is the quintessential guide to best practices in big deal global sourcing. Anyone touching the global outsourcing arena should tap into this tremendous resource.
—Melissa Henderson,Managing Director, Gilbert Tweed International
This book is an excellent resource for all business development professionals. It has great lessons that can be explored and implemented to help achieve higher goals and benefits for everyone. I highly recommend this read.
—Ed Cohen,Chief Learning Officer at a major IT service company and the author of Leadership Without Borders
Putting large IT outsourcing deals together is both science and art. This immensely practical book, written by experienced dealmakers, covers both aspects as it walks you through all of the major steps, from finding and winning deals through contract negotiation and deal closing.
—Vijay Gurbaxani,Professor of Information Systems and Computer Science, Paul Merage School of Business, University of California, Irvine
Copyright © 2010 John Wiley & Sons (Asia) Pte. Ltd.
Published in 2010 by John Wiley & Sons (Asia) Pte. Ltd. 2 Clementi Loop, #02-01, Singapore 129809
All rights reserved.
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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought.
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Library of Congress Cataloging-in-Publication Data
ISBN: 9780470824665
Typeset in 10.5/13 point, Garamond Light by Thomson Digital
10 9 8 7 6 5 4 3 2 1
Words cannot express the gratitude I have for my wife, Julie. Her editing of the manuscript, singlehandedly looking after our two-year-olds for twelve months so I could focus on the book, and constant moral support have been instrumental in getting this book published. Thanks to my son, Jai, and my daughter, Maya, for helping relieve my stress and bringing incredible joy in my life. Thank you also to my parents, Jayanta and Anjali, who by nature and nurture gave me the ability to complete this book. I dedicate this book to all of you.
Anirban Dutta
To my wife, Cindy, my true partner in life—professional, personal, and spiritual. Without her keen insights and constant consultations, I would be directionless and purposeless. In celebration of our twenty-fifth wedding anniversary, I dedicate this book and my career successes to you.
Hetzel W. Folden
ACKNOWLEDGMENTS
It is extremely difficult to write acknowledgments because we are certain we will unknowingly forget to credit some people who deserve appreciation for the contents of this book. So at the outset, we sincerely thank everybody, from teachers to colleagues, professional organizations, educational institutions, employers, customers, and everyone in between, from both past and present, that have helped shape our views on Big Deals and global sourcing in general. But we would be ungrateful if we did not mention a few individuals without whom this book would not have become reality.
Ed Cohen, the author of Leadership Without Borders, took it on himself to get us connected with John Wiley & Sons. This book would not have happened had he not steered us to the publishers. A big thanks to the entire Wiley team of Nick Wallwork, C. J. Hwu, Janis Soo, Joyce Poh, Fiona Wong, Louise Koh, Cynthia Mak, Jessie Yeo, Camy Boey and others from Wiley Singapore; Paras Bansal and Vikas Gupta from Wiley India; and copy editors Roger Bullen and Thomas Finnegan, who stayed with us as we kept slipping deadlines while pushing the schedule back.
You may be surprised to learn that a lot of expert help for this book came from people who have nothing to do with global sourcing. But these people offered some core values that can be relied on heavily to win Big global sourcing Deals. For example, Mahesh Bhupathi, possibly the only active professional tennis player (11-time Grand Slam doubles champion) who simultaneously runs a multimillion-dollar business, provided us with some valuable insights on how to build relationships at the highest level while maintaining an insane travel schedule. We had a vision about how futuristic structures for outsourcing deals should look. Thanks to Fazal Syed, a derivatives expert from a major U.S. commercial bank; Jeff Noland, investment banker; and Sukh Saluja, international structuring services expert, who lent a hand in putting the framework around those structures applicable to global sourcing deal making. Thanks also to legal expert Sumathi Chandrashekaran (author of the blog SpicyIP), who guided us with details regarding complex IP-related lawsuits.
Global sourcing gurus played a great role acting as subject matter experts (SMEs) for this book. Nirmal (Nimma) Bakshi, a senior leader at a major IT services provider, not only gave his views of how allianceled “go-to-market” models ought to look but also gave us a futuristic roadmap for alliances. Rajesh Venkatraman from IBM offered his point of view on alliance management in Asia. Balu T.*, the head of service delivery for Satyam’s infrastructure practice, was kind enough to share his unique views on leadership in his typically funny and sarcastic way. Lori Blackman, founder and CEO of the Dallas-based talent management firm DNL Global, taught us the ins and outs of hiring the best deal team members to fit perfectly in any organization. David Hott, a solutions architect with IBM, was instrumental in furnishing input on how architects can play a leading role in large service delivery once the deal is sold. Mahesh Ramachandran from EDS, who has both buy- and sell-side experience, gave us field-tested tips on how to create an environment where the provider and the customer truly partner one another to get the work done. Ken Green, a 20-year-veteran active reservist with the U.S. Air Force and also transition manager for Accenture, simplified transition management by drawing parallels between managing a team in combat and an IT services transition team. Terrence Shaw, CEO of the IT services company Wirevibe, helped to come up with practical case studies on how and why major global service providers run into pitfalls in service delivery engagement. Sandip Bhattachaya, program manager in Satyam, shared with us his creation—the “person commitment and capability model”—a practical and easy-to-use model to manage large IT service delivery programs. Sergey Shneyerson, a Kellogg MBA heading Mirantis’s U.S. sales, shared with us a sales model with which he can outcompete Indian pure plays and take work to Russia. An old sales warhorse, Brent Davidson, shared his secrets of consistently growing Big Deals in penetrated accounts. A mega thanks to Dallas’s own third-party advisor expert Tom Tunstall for helping out with dissecting the complex world of TPAs. And last but not least, a big thanks to all of Hetzel’s Strategic Deals Group (SDG) at Satyam and his current team at Computer Sciences Corporation (CSC), who live day in and day out by the principles defined in this book.
Seasoned executives taught us more than a thing or two along the way. Pioneer Natural Resources CIO Tom Halbouty told us how important it is for providers to have full control of subvendors. He helped us understand how to manage risk and showcase that risk management ability to CIOs to win deals. Sudhakar Gorti, a former VP at NBC with operational directives, helped us understand the COO mind-set. Ted Ehling, CEO of Balanced Performance, helped us with a master stroke in account development strategies. Thanks to Sunil Maheshwari, CEO of Mango Technologies, for sharing with us how to create a culture where salespeople behave as though they are poor, hungry, and driven to win deals.
Reviewing is harder than writing in many ways. We reserve special thanks for our reviewers. The book went through several iterations as the English being used was analyzed and critiqued by the academic father-daughter duo of Frank Markus and Julie Dutta. Nandan Das took time off from designing satellite systems at Viasat by doing a thorough end-to-end, word-by-word review of the book. His acute reasoning and non-sugar-coated comments about the original version of the book have undoubtedly increased the overall quality.
Special thanks go to a list of esteemed technology luminaries, notably Kiran Karnik, former president of the National Association of Software and Services Companies (NASSCOM) and chairman of the board at a major IT services provider; Michael Corbett, chairman of International Association of Outsourcing Professionals (IAOP); Tim Cummins, president and CEO of International Association of Contracts and Commercial Management (IACCM); Russ Owen, president of Managed Services Sector at Computer Sciences Corporation (CSC); David Mitchell, senior vice president at Ovum Consulting; and Frank Casale, founder and CEO of the Outsourcing Institute. They offered their public endorsement for the back cover of the book.
Further thanks go to outsourcing experts Raj Asava, chief strategy officer at Perot Systems; Ed Nair, editor of Global Services Media; Sridhar Vedala, former managing director at Equaterra; David Lancashire, chairman and CEO of Bold Ventures; Jagdish Dalal, renowned thought leader of outsourcing and CEO of JDalal Associates; Ed Peters, CEO of OpenConnect Systems; Melissa Henderson, managing director at Gilbert Tweed International; Ed Cohen; and Vijay Gurbaxani, professor of information systems and computer science at the Paul Merage School of Business, University of California, Irvine. They all took the time to review the book and provide us their comments on the content.
We want to thank our employer, CSC, for supporting us in getting this book published. We are also pleased that the Foreword was written by two global sourcing pioneers, Doug Brown and Scott Wilson, who are coauthors of the best-selling business book The Black Book of Outsourcing: How to Manage the Changes, Challenges and Opportunities (Wiley, 2005, 2008). Thanks, Doug and Scott! Your endorsement means a lot to us.
We cannot conclude the acknowledgments without thanking our spouses, Julie and Cindy, for being with us through this entire journey. Your personal sacrifices help us become better deal makers. And finally, big thanks go to all our readers. We really hope that this book will help you in getting some value while doing deals.
Thanks.
—Anirban Dutta and Hetzel W. Folden
*It is a common practice in the southern parts of India to use the first name and initial of the last name as the full name. We have referred to Balu’s name in that format because he prefers to be called Balu T.
FOREWORD
This book should come with a warning label:
Caution: Do not read this book if you’re the least bit apprehensive about huge successes or the thrills of enormous global opportunities.
Genuine deal makers will find themselves absolutely inspired, motivated, and empowered to passionate extremes as this book’s principles unfold.
The new world economy has opened up a schism between imagining win-win deals and actually structuring them. The process requires a management skill set far beyond hard work and strategic aptitude. Few have attempted it, and far fewer have successfully mastered the craft.
Two of the gifted masters, Anirban Dutta and Hetzel Folden, offer up their global market expertise for strategic deal making as a new generation of business leaders evolves to understand vital outsourcing solutions.
The art and science of contemporary deal making has had no better laboratory in the growth of the outsourcing industry. Since we first published The Black Book of Outsourcing: How to Manage the Changes, Challenges and Opportunities (Wiley) in 2005, most of the Fortune 2000 and Inc. 500’s largest organizations have gone through several cycles of outsourcing exercise.
Nowadays, the customers are aided by analysts, advisors, and legal experts in finding the right sourcing partners. By contrast, offshore-based service providers, once regarded simply as low-cost providers suitable for the deals, have stepped up their game and won many Big Deals. Several offshore providers have even crossed the billion-dollar-revenue mark. Traditional large outsourcing companies, which were once viewed as big enough to win Big Deals but not nimble enough to win small deals, have started outcompeting many offshore-based providers at these smaller deals. The outsourcing playing field has been leveled to a great extent.
To make things more complicated, the world has been hit with an unprecedented economic crisis that pundits are saying could last for a few more years. Customers will have to rethink their strategies about operations and sales and eventually become leaner and meaner in order to survive and thrive going forward. We believe that outsourcing opportunities will increase tremendously in the next few years because of explicit customer needs. Who will win the Big Deals in this turbulent yet promising marketplace? Will it be traditional offshore organizations, or will it be the established global system integrators?
Regardless of who wins market share, competition to win outsourcing deals will be harder than ever. The companies that win the deals will be the ones able to get all parts of their organization in sync and follow a thorough end-to-end strategic pursuit process.
Winning Strategies: Secrets to Clinching Multimillion-Dollar Deals is the only book on the market that is focused on end-to-end strategic pursuit process designed toward winning Big Deals in the global marketplace. Anirban and Hetzel have been successful in taking a fairly heavy topic and presenting it as an informative yet light read that is filled with practical anecdotes. The style of writing has made this book appealing for established outsourcing leaders and laypersons alike. The book will encourage deal makers to be students of the market and be selective in choosing pursuits. The book will also challenge human resources leaders in service provider organizations to think about whether their hiring practices augment a holistic dealwinning model. The matter-of-fact tips and discussions on how service providers can find Big Deals, creatively craft and win Big Deals from scratch, and work with third party advisors to align with customer needs, all the while managing bloated egos and organizational politics, will come in handy as outsourcing sales teams pursue Big Deal opportunities. This book offers a very practical take on what we believe are the three most crucial aspects of Big Deal making: structuring, contracting, and negotiating.
Finally, unlike most sales books, this one encourages outsourcing leaders to view transition and service delivery as an extension of the sales process. As you read this book, we encourage you to keep your mind open and try some of its suggestions in your organization.
Doug Brown and Scott WilsonCoauthors of the best-selling business book The Black Book of Outsourcing: How to Manage the Changes, Challenges and Opportunities (Wiley, 2005, 2008) and founders of Brown-Wilson Group, an international outsourcing industry research firm.www.TheBlackBookOfOutsourcing.com
PROLOGUE
A Note from the Authors
In December 2008, as we were going through the editing of this book, it seemed as if all hell broke loose for everyone associated with our employer at that time, Satyam Computer Services. On December 16, the Satyam board of directors announced a US$1.6 billion acquisition intended to diversify the firm’s businesses. This diversification into non-information-technology businesses was not well received by investors, who reacted negatively, causing a 50 percent decline in the Satyam stock price. The proposed deal was immediately rescinded by Satyam, but not without significant consequences. As of year end 2008, four independent directors of the Satyam board had resigned. Many fingers were pointed at corporate governance. To make matters worse, additional news articles appeared regarding a ban from doing business with the World Bank.
To our shock, this bad phase for Satyam was just the beginning. On January 7, 2009, the chairman resigned from his post, admitting to fraud. He said that the company’s cash and balance sheet were inflated and fudged to the tune of US$1.4 billion. Subsequently, both Chairman Ramalinga Raju and his brother Rama Raju (the CEO) were arrested by the Hyderabad police. Satyam became a household name worldwide—in a negative way. News channels from New Delhi to New York covered the Satyam scam in detail, dubbing the company the Enron of India. The stock took a further beating; employee morale went down. There were significant concerns about the company making payroll in January 2009. The government of India stepped in, disbanded the existing board, and formed a new board of directors. This new board basically took control of day-to-day operations. By the middle of February, the board had appointed A. S. Murthy (whom we will call ASM) as CEO from inside Satyam. At the time of editing this book, we were faced with one main question: Would Satyam survive?
We were seriously questioned by some reviewers as to whether it made sense to publish a book on the process of global sourcing of Big Deals in this sickened worldwide business climate. Many people also advised us to wait and publish the book in a year or two, because our association with the Satyam brand could possibly erode some of our credibility about our knowledge of Big Deals.
We decided to go ahead and publish the book as per the original plan. The winning strategies for closing Big Deals presented in this book are still viable, regardless of the state of the economy or some level of corporate fraud. We believe that in a down economy it is extremely important to be nearly perfect in all aspects of deal-making execution. Service delivery organizations will not have the latitude to mess up in sales, delivery, or the core components of deal structuring. We think this down economy gives an added incentive for our potential readers to take up this book and apply its core principles.
Throughout the book, you will see us in some places refer to ourselves as if we are still Satyam employees, although we are no longer part of Satyam. We decided not to change the verbiage. Having written part of this book while working at Satyam, we felt that if we changed the tune of the writing it would dilute the essence of the book. Satyam hired high-end deal makers from the market, focused on winning Big Deals as an organization, and built a process-oriented framework to chase and win deals. The core value of the company cannot be tarnished because of the few men who were responsible for Satyam’s downfall, men who ran it from the top. Regardless of the fate of Satyam going forward, we acknowledge that our experience at the company made us better deal makers. We have benefitted from the opportunity to grow our deal-making capabilities in the several Big Deals we worked on at Satyam. Our readers are beneficiaries of that acquired knowledge.
Who Will This Book Benefit?
The editors at Wiley repeatedly asked us to classify this book. Is it a how-to book? A textbook? We feel that it is neither a pure how-to nor a textbook proper, but more of a “journey” book on Big Deals, covering our collective experience along with others’ on many aspects—such as hiring, team building, sales, leadership, deal making, negotiation, transition, and governance—that are required to make Big Deals happen.We believe that this book will be a beneficial read for multiple audiences:
Casual business book readers
Many people we run into in our extensive global traveling are from completely different professions from the world of global sourcing. They are very curious to know how global sourcing providers such as IBM, HP, and Indian Outsourcing Providers go and win these Big Deals they hear about in the news. We hope this book will present a broad overview of the entire Big Deals pursuit process that a service provider follows.
Deal makers
The experienced deal makers reading the book may resonate with our ideas (“been there, done that”). The book should bring a chuckle to a few novice deal makers who read in disbelief about the organizational politics, behind-the-scenes boardroom antics, and subtle maneuverings of key executives, all in the spirit of closing the Big Deals.
Students
We hope to inject enough curiosity through this book for today’s business and technology students to want to further investigate career options in the world of global sourcing deal making.
IT and other technology professionals
We have seen IT and other technology professionals reach a point in their career where they want to do something else, such as management or sales. This book should give these people who are pondering a career choice thoughts about a high-paying, visible role in the deal-making business.
The bottom line is that the journey you will take, in the pages that follow, will furnish you with a roadmap of how to increase the probability of winning Big Deals and growing your business.
How Is This Book Organized?
We have divided the book into four broad sections that we believe are important in winning large deals. These are the four phases of deal making generally:
Creating the foundation for winning deals → Finding deals → Doing deals → Managing deals
Then we formulate chapters within each section extolling the value of our experience, lessons learned, and words of wisdom from other experts in the field.
Section One: Creating the Foundation for Winning Deals An organization serious about winning Big Deals needs first to create the foundation to win those deals.
Chapter One: “What’s the Big Deal? A Primer on Strategic Deals” An introduction to Big Deals in the context of outsourcing. We explore the market outlook on Big Deals. The goal is for you to understand why Big Deals are important and what you need to do in order to pursue them. This chapter also touches on an omnipresent element of every deal maker’s toolkit: effectively managing politics to get things done.
Chapter Two: “Getting the Right People Ready to Win Large Deals: Introducing Some Essential Concepts of the Human Element of Management” Acknowledges the fact that once the basics have been understood comes the most important aspect: people. The brightest and savviest of deal makers often fail to win deals because the rest of the organization is pulling them down. Deals cannot be won just by ramping up the deals team with good people. The whole organization needs to be in sync. Hiring for roles is not good enough anymore. Organizations need to view their HR portfolio like a financial portfolio, with varied skills and personalities that complement one another. This chapter explores how organizational hiring needs to be done in order to win Big Deals.
Section Two: Finding Deals Building the foundation is a start. But to win deals, one needs to find them. Section Two is all about finding and creating deals.
Chapter Three: “Finding Big Deals: Strategies to Discover High-Value Deals” Explores the most common question asked by sellers: “Where do I find Big Deals?” This chapter promotes two main ways of finding them: growing within established accounts, and finding deals through new business development activities. The organization and individual best practices that are needed to excel in this category are highlighted here. This chapter also focuses on sales leadership because most growth agendas require sales excellence.
Chapter Four: “Winning Deals Through Third Party Advisors: The Art of People Doing Business with People” All about third party advisors. TPAs are an integral part of the deals ecosystem. Customers rely on them to select providers. How does one court TPAs, and what should one not do? How do TPAs decide to whom to award the deals? Answers to these questions and others are explored.
Section Three: Doing Deals The crux of the book. Once deals are identified, how does an organization close them?
Chapter Five: “Leading from the Rear: Influence Events and Lead theDeal” Deal makers need to become experts at leading from the background. They must be experts in managing organization politics, aligning or severing ties (if need be) with business-unit leaders by being non-confrontational, and most important, able to make key game-changing decisions that make or break Big Deals. The hardest part is that they almost always have to work without enjoying the limelight. Specific traits for leading from the rear are described here.
Chapter Six: “Structuring Deals Right: The Art of Pricing” The territory of Big Deal engagement models and pricing. This is the most important chapter from the point of view of a service provider’s CFO office. How should I price this deal? What’s the best way this deal can be structured so that I will get my desired profitability? How can I be creative in these deals so I can beat my competitors? Pricing strategies appropriate for winning Big Deals are discussed, along with a synopsis of the whole pricing process.
Chapter Seven: “Advanced Deal Structuring: Creating Innovative Engagement Models and Being Customer Financiers” Advanced deal structuring. Today, we are in a unique situation. Many technology providers have a strong balance sheet whereas their largest customers are more likely than not going bankrupt. Think of Bear Stearns, AIG, and others. But this situation also opened up a great opportunity for service providers. Customers need to do Big Deals so they can transform themselves to stay competitive. Providers need to behave like investment banks and fund customers to do deals. This chapter discusses advanced deal structuring, where old rules are broken and new structures are essential.
Chapter Eight: “Doing Contracts Right: Creating the Foundation of a Successful Marriage” May not sound exciting, but contracts are the factor that really counts most, at least in the eyes of the law. Commitments, outcomes, and expectations are defined in the contract phase and put on paper. This is where the dotted line is signed. Here, we go through common contract terms such as MSA and LSA, and what needs to be in every document (the dos and don’ts of commercial contracts). We also explore how you, as a service provider, can not only assure customers of saving their intellectual property (IP) but bargain for a piece of it as well.
Chapter Nine: “Closing Big Deals: It’s Commercial Negotiation, Baby!” Goes hand in hand with the preceding chapter. Providers spend a significant amount of time negotiating with the customer line item by line item. Here we discuss the emotional elements of closing the deal, which are as important as the elements actually written into contracts. Deal makers need to excel in negotiation as part of closing deals.
Chapter Ten: “Case Study: A Real-Life Example of a Service Provider Pursuing Strategic Deals” A step-by-step case study on how a real-life service delivery provider pursues Big Deals. The goal here is for deal makers working for different service providers to get some ideas on creating a Big Deals pursuit process, and their own processes for their organization if need be.
Section Four: Managing Deals It is a myth that you walk away when the deal is won. The reality is that major revenue usually is recognized only in year two or three of the deal’s lifetime. This section contains two important post-deal-closing chapters that are an integral part of achieving your desired profitability.
Chapter Eleven: “Managing Transitions and Change: The Stepping Stones for Delivering Service” Talks about change and transition. The Big Deals always have one very important element baked into them as a criterion for success. This is transition, where work is transferred from a customer to a provider, or in many cases from a provider to another provider. A bad transition can absolutely kill a provider in terms of P&L efficiency and customer satisfaction. This chapter describes best practices in transitions.
Chapter Twelve: “Managing Integrated Programs: A Practical Take on Service Delivery Governance” The overarching chapter on governance. We view governance as the ability to keep tabs on every aspect of the deal. We show proven tools and strategies for assessing customer needs and creating a simple yet powerful governance framework. We also focus on how program managers should operate if they want to manage a Big Deal successfully.
Because our target audience is broad, we have decided to keep a conversational tone throughout this book. We have also used many personal examples not related to global sourcing to convey our thoughts and philosophies so that this book does not become a heavy, unread management tome gathering dust on the shelf. As you go through this book, you will see that in some places we give actual names of individuals or businesses, and in other places we refer to them without explicitly naming them. Where we omit the names it is because the people or institutions referred to do not wish to be identified and we respect their privacy.
The book uses some industry-related jargon. We have done our best to explain the terms or expand them wherever we felt it appropriate. But we do realize that because of our broad readership base, some people might need more clarity in really understanding those terms. We pondered building a glossary to clarify common phrases. But then we realized that in today’s technology-enabled world, we could guide our readers to find common industry jargon just as we experienced deal makers do. Our best advice to readers wanting to know more about what certain terms of jargon mean is to Google them to get a broad set of hits explaining them. Trust us: experienced deal makers also Google regularly to clarify industry-specific terms.
Last but not least, we want to thank you for picking up this book. So without further ado, happy reading!
SECTION I
CREATING THE FOUNDATION FOR WINNING DEALS
CHAPTER 1
What’s the Big Deal?
A Primer on Strategic Deals
Selected Big Deal Headlines, 1999–2007
Aerospace and defense giant Raytheon awards major IT outsourcing contract to Computer Sciences Corporation (CSC); contract estimated at nearly US$2 billion (1999)
1
CSC receives US$100 million contract to manage the IT environment at Children’s Hospital of Los Angeles (2001)
2
Motorola awards US$1.6 billion deal to CSC to outsource infrastructure services (2003)
3
BT Concert, a British Telecom and ATT US joint venture, enter into an agreement with CSC to manage the venture’s IT applications (2003)
4
Ascension Health, the largest Catholic hospital system in the United States, awards IT deal to CSC projected at more than US$1 billion (2004)
5
Satyam wins major contract for share of Citigroup’s NAIT applications portfolio (2006)
6
Satyam wins big deal down under: Qantas Airlines outsources applications work (2007)
7
Reuters undertakes major business transformation; Satyam receives ten-year contract worth nearly US$300 million of new business (2007)
8
What’s a Big Global Sourcing Deal?
The first and foremost understanding of closing a large outsourcing (preferably called global sourcing, because we are theoretically professing use of the best resources from all over the world) deal is to recognize that it is a team accomplishment. We often hear the question, “What’s the biggest deal you closed?” The editors at Wiley asked us the same question when we were discussing the need for this book. All of the deals mentioned in the headlines above are part of our legacy in closing large global sourcing deals. But it is a colossal overstatement to say that the Big Deals mentioned earlier were closed just because of our individual merits. The wins, as in any Big Deal, were completely a result of teamwork. It is therefore the thesis of this book that we have taken the hard work of many, from within and outside our industry, and boiled it down to a collection of conclusions and lessons learned from “living the deals.”
A Big Deal is generally viewed as US$50 million or more in total contract value (TCV). TCV is the sum of all contracted revenue over the term of the contract (for example, US$100 million in annual revenue contracted for ten years is a US$1 billion deal).
Figure 1.1 Contract Summary for Big Deals Closed Globally from January to October 2008
You will see that the big deal surrounding Big Deals is that they are truly the growth engine for your firm to reach ultimate greatness. Globally, Big Deals represent nearly 90 percent of the total value of all new outsourcing deals contracted annually, while the number of Big Deals represents only about 30 percent of all deals awarded (see Figure 1.1).9
When our former employer, Satyam, started the Strategic Deals Group (SDG) in 2005–06, the chairman lobbed a minimum contract size for a Big Deal of US$250 million TCV onto the table. This amount was up for discussion when planning the goals and objectives for the coming year with a commensurate “target” for the organization to close a certain amount annually. Because the business units (BUs) had historically closed some Big Deals with several Fortune 500 companies to lay the foundation for Satyam’s meteoric rise in revenues, the target did not seem unreasonable, at least to Satyam corporate. The view was, of course, different if you were responsible for sustaining the closure rate year after year. Using our best negotiation skills (often required more internally than externally), we pointed out that the industry was reporting, through analysts and advisers, that US$50 million TCV was a more appropriate definition for Big Deals. The name of the game was to leverage the company’s investment in expert resources to close Big Deals. The definition for closing Big Deals ultimately came to be defined as “strategic deals”: those with a US$50 million TCV and above, or a lower TCV if the BU leader deemed the pursuit strategic to his business. SDG became a partner of the BUs in pursuing those strategic deals.
Thinking big was always the theme when we targeted higher-value deals for their growth potential. However, a more important question became the center of discussion: Were these deals required for sustainable growth? Clearly, a revenue or top-line financial statement gets attention. However, is the capital required for the resources and time to pursue these types of deals justified? What if you don’t win the pursuit? Then money is directly lost from earnings on the bottom line. Many emerging Indian information technology (IT) global players, who were riding the wave of strong offshoring, cast some doubt on the need to pursue large deals for growth. The formative years of “India Inc.” (a colloquial term used by the global media to refer to the corporate sector of India), in the mid-2000s, illustrate that the India IT players were being rather coy with their public comments related to pursuing Big Deals. Here are two views about Big Deals from industry giants that were floating around in the market in those days:
Infosys believed that mega deals were not necessary to grow at 30–35 percent in FY2007 (although they had started a large deals group as early as 2003).
Cognizant preferred
hunting licenses
rather than large deals, where upfront investments may be required.
Here are a few responses to the ever-vigilant investor, focusing on margin dilution and risk, related to the big global sourcing company experiences with bigger and bigger deals:
Tata Consultancy Services (TCS) believed that, on the Pearl Group deal (a mega deal then), even though they were establishing and stabilizing themselves, the margins were a little less when compared to their overall margins in other deals during the same initial stage. But as TCS improved the processes, they expected that the margin in the Pearl deal would become equivalent to the margins they were used to getting. TCS expected the margins in this deal to move up to company averages within 2.5 to 3 years with increasing offshore proportion.
10
The Infosys-led ABN AMRO deal, contracted in April 2005, was largely margin-neutral over the deal and was diluted initially. We believe the margin in that deal was low in the initial two to four quarters, until the knowledge transition was completed, but it should be almost at company average over the life of the deal.
Wipro always expected pricing to be margin-neutral on a mega deal it signed with General Motors in February 2006, and with no unlikely impact on margins in the long run.
The general sense from these statements is that the pursuit of large deals was certainly a catalyst to accelerating revenue growth in these globally emerging firms. The case for expecting a higher revenue growth rate from the pursuit of Big Deals is borne out by companies growing at more than 35 percent, in spite of an absence of large deals in the past. On the other hand, pursuing large deals without a balance of smaller deals leaves companies exposed to the business variations of a few deals, as opposed to a better balanced portfolio of many customers. The industry was torn; are Big Deals important or not?
Are Big Deals Important?
Categorically: yes. Undoubtedly, if one aspires to build a dominant presence in any market, the opportunities surrounding large deals should be pretty obvious. It is equally important to understand the pitfalls in these deals, especially in the context of endeavoring to enhance margins and build sustainable revenues.
The possibility of recouping lower margins early in a Big Deal, with higher margins over the life of the deal, is a fundamental productivity expectation. But it also brings a risk to longer-term deals for the service provider. Clarity is needed, in terms of three critical factors:
One final note on the finances of Big Deals: pick your game carefully. A comment about pass-through system integration deals will outline our reasoning for saying this.
Pass-through deals can be explained with a simple example. Suppose you sign a US$100 million deal in which SAP software costs US$90 million and your services revenue is US$10 million. The US$90 million is passing through, because SAP gets the revenue, although all of the US$100 million shows as the total deal size for your company. (For the purpose of this discussion, we shall assume that such deals refer to transactions wherein the pass-through component is 80–90 percent of the value of the deal.)
We do not generally recommend such deals when:
The value added from such deals is limited.
The pass-through, being nil or having a low-single-digit margin, means the overall margin would be rather unattractive with the impact of pulling down margins at the company level.
Our experience with the equipment business is limited, and for a low margin we may be picking up significant risk from a performance perspective.
There could be a mismatch of cash flows that could put additional pressure of recovery on us.
The move will not enable any favorable response from the investment community, given that it is margin-diluted.
The multi-national players—IBM, EDS, and CSC—are not too keen to pursue such deals with the same vigor as they did in the past, because of the abovementioned reasons.
However, our recommendation is that when you do choose to pursue Big Deals, do not forget what your drivers are and that you are in it to win a Big Deal. The story in Box 1.1 describes a real-life example.
The bottom line is that Big Deals are an effective strategy to accelerate growth. Large deals are important to both buyer and seller, although the impact of a particular deal is relative to the size of each player.
