Throughout the Enron scandal, 9/11, the Indian terrorist attacks and the meltdowns of the Wall Street financial institutions and the mortgage and auto industries, software services outsourcing providers continued to operate and provide service continuity. As discovered in the Société Générale bank embezzlement, prominent entities whose primary corporate offices are located outside the United States are not immune to financial misdeeds. So what happens when your own outsourcing provider has an unforeseen crisis, such as what occurred at Satyam Computer Services?

As written into your final agreement, your company is covered contractually; being operationally prepared, though, is another matter.

Here are a few guarantees when this situation happens to your company:

  • Your company did not prepare for this type of event since financial transparency is nonexistent. Savvy, financially fundamental companies like GE and Nestle appear to have not been aware of the risks when they selected Satyam as their provider. With the growth and explosion of offshoring companies, inflated revenues and balance sheets are an afterthought. All the annual and quarterly financial information–Dun & Bradstreet and Hoover Reports–did not disclose the necessary awareness to anticipate the left hook to your blind spot, and now is not the time to place blame as to why this was not uncovered prior to entering into or during the agreement.

  • Additional concern exists as a result of the provider not being incorporated in the same country as the client..

  • The account team executives providing your services are the last ones to know what is happening inside the company. As far as they know, they have been buying up company stock and still receiving a paycheck.

  • Getting through to the executives at the company is next to impossible, and when you do, no assurances exist, since they cannot disclose any more than what has been disclosed to the public already.

  • Other outsourcing companies are getting ready to pounce on the opportunity of a struggling competitor. U.S.-based providers, such as Accenture and IBM, and companies located in India, like Infosys and TCS, view this as growth potential.

It is not as daunting when you take a step back, breathe, and think through the process. Hindsight thoughts of contracting with a nondomestic-based provider and moving a number of positions offshore are mute at this point. Your next steps are the most important.

  • Meet with your project management team and solicit contingency planning. Address business critical services, processes and applications.

  • Act rationally and don’t expect to receive communication about the provider’s viability status as quickly and as accurately as desired. Cross due diligence has been performed during the contracting process and the capabilities do not automatically vaporize.

  • Review the policy regarding the hiring of contracted provider employees upon termination of the agreement.

  • Investigate your options, but don’t immediately start discussions regarding termination of services with the provider. This will send a message to existing provider employees that their position is in jeopardy, as well as send a message to the provider itself, which could potentially cause a degradation of services.

  • Require meetings between your project management office and the provider account executive receiving updates about contingency planning.

It may be difficult to believe, but this is not a much different situation than a disaster recovery situation. Other providers are looking at the opportunity to quickly come in and take over operations of the troubled entity.

On the last note, in the case of Satyam, which means “truth” in the Indian Sanskrit language, its most intangible asset is its most valuable tangible asset: the people who generate the intellectual property and delivery for its customers.  Humans have two attributes that cannot be confused with hard goods: a brain and a pulse.  Satyam’s client base appears to have a strong foundation that is extremely attractive to acquirers (if it does not survive), and with the current state of software services providers and market pressures, the cost of services, more than likely, will not increase.

This will not be the last case of overambitious and aggressive financial reporting as discovered in G8 countries, in which businesses are regulated more closely. It has just now hit the next economic tier of industrial nations.  As part of the process of every evolving entrepreneurial geographic region, surprises like this will continue.

In the future, when initiating a relationship with any outside software services provider, plan a disaster recovery plan internally that incorporates this additional nuance.  When other unstable events occur, be prepared to have a process in place that communicates internal organizational stability.

Chuck Rosenfield
http://www.articlesbase.com/outsourcing-articles/steps-to-help-your-company-survive-an-outsourcing-provider-meltdown-722305.html

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Filed under: Business Contingency Planning

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