India lockdown exacerbates coronavirus impact on IT

Allow for and utilize temporary operational and financial flexibility

Managing the coronavirus impact on IT outsourcing providers will require a partnership-driven and open mindset. To maintain continuity of outsourced work, enterprises will need to show operational and contractual flexibility to accommodate this black swan event and the scale of its impact. This can mean temporary modifications to pricing models -- for example, managed services being moved to time and material pricing with consideration to operational challenges, temporary elimination of resource unit floors that would otherwise trigger take-or-pay or required termination and other flexibility measures.

Also, if Indian outsourcing provider personnel are now working from home, this was likely not contemplated in the original agreement. The shift is driving the need to modify existing contractual provisions and add new provisions to provide the requisite controls and protections. This is particularly important for intellectual property, confidentiality, physical and logical security, data privacy, and audit provisions. All temporary changes should be contemplated and executed with the reversion to the status quo in mind.

The situation will not last forever and specific plans and provisions must be in place to quickly recover and address the original service environment, contract and financial structures and corresponding business needs. Many of these contractual modifications in areas such as data privacy, confidentiality and the like will need to remain in contracts to address these types of events going forward.

Update provider transition plans

Outsourcing transition initiatives are being delayed and, in certain instances, suspended depending on where the transition is in the lifecycle, the impacts to potentially displaced employees and overall operational challenges. Enterprises must work collaboratively with service providers to assess the coronavirus impact on IT and quickly communicate decisions to their internal teams and suppliers.

For those deciding to continue, stakeholders must be aligned with the approach and understand the risks and how they are being mitigated. It is important to recognize that suppliers will also prioritize existing service delivery versus in-flight or planned transition initiatives, further impacting transitions. This is positive for current steady-state enterprise customers, as suppliers must address resource contentions in favor of keeping existing customers up and running. However, it creates more pressure for those in the middle of transitioning certain services to the supplier.

Regardless of what stage the provider transition is in, knowledge transfer to offshore locations is currently more challenging due to travel restrictions and the inability of the legacy enterprise customer and the supplier to engage in shadowing and reverse-shadowing on site or in person. This means that transition management and vendor governance roles take on even greater significance. Evaluating suppliers' meeting transition stage-gates and conducting proficiency testing of trained staff are critical activities.

Another route to consider is e-learning. Historically, on-site training has been a preferred method to support offshore transitions and remote training options have largely been considered less effective. However, online training with the right level of investment and planning should be considered. Enterprise customers in the planning stages of transitions can consider this option to be better prepared in case COVID-19 persists or such a crisis emerges again.

Resource and location impacts

Recruitment drives at India service providers to fill new roles have been affected, which is creating some hiring delays, although video interviews have been utilized successfully, as well as online hiring mechanisms from companies such as HireVue. Enterprises should closely manage the on-boarding to ensure resource quality is not being degraded, that suppliers are hiring sufficiently out in front of the transition need and that suppliers are overhiring for resource needs given the possibility of a meaningful number of resources becoming ill.

Be sure to assess your location strategy. If the coronavirus impact on IT persists longer than planned, and if India's situation becomes particularly problematic, enterprises will have to make tough decisions to diversify their offshore footprint. Services could be moved to less impacted places such as Latin America, or places recovering from COVID-19, such as various Asian locations. In such a situation, well-crafted agreements have provisions to move service locations at the supplier's expense as a risk mitigation measure.

There is no denying that the COVID-19 pandemic is having a measurable impact on enterprise outsourcing engagements being delivered by India service providers, but companies have options to help their engagements stay on track. By approaching these new dynamics by allowing for flexibility, planning for alternate transition plans and tracking location impacts, enterprises will be better positioned to weather the effects of the current situation, as well as future crises.