BP has reduced its IT vendors from 40 to 5. IBM, Accenture and the three Indian musketeers – Wipro, TCS and Infosys – are the chosen five. It takes a lot of gumption for any company to reduce the vendor dependency.
When I first heard the news, I was like, wow. I thought that is what simplification is all about. Or the fancy word for that is lean. I still hold by that. But a bigger question dawned on me.
Is switching vendors that plug and play? For IT, nothing ever is plug and play. Though everything promises to be plug and play there are these residual things which challenge the notion of plug and play.
Bringing 40 vendors to just 5 needs a lot of diligence. There is a lot of Intellectual property retention. Software developers are really not good at telling us what they have done. The documentation is really poor. This is the general perception of the industry.
Then how did BP manage to eliminate 35 IT vendors? If BP allows, this would be a management case study. When Satyam happened, many of its clients chose to stay with Satyam. It is not that simple to switch vendors. That showed the world the dark truth about outsourcing. You can get it but you cannot get out.
What BP has done challenges that hypothesis. But, it brings up another question. In fact two questions.
- Can the smaller IT companies still think of getting bigger clients?
- Has BP put all its egg in too few baskets?
PS : The 5 vendors wield enormous power and replacing any of the 5 vendors would be difficult. But they are top most companies you can hire to run your business. That kind of negates the thought but is it all eggs in few baskets?
PPS : I also like this news especially because BP chose to downsize the vendor instead going the way have we done much of outsourcing, let’s get the technology and in-source it bull shit.
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{ 6 comments… read them below or add one }
@Sriram
I specially like the Plug and Play opinion of urs.IT sure is no plug and play by any standards, be it any technology for tht matter.
All these on-demand cloud ERP service providers beating the Plug and Play is all crap.
Morevoer, the move seems good from BP’s perspective.But, all five being the big sharks, i have my reservations
1) Generally, the IT outsourcing with multiple vendors is distributed among the Tier-1, Tier-2 and so on. (Atleast thats what i have seen).This ensures the cost effectiveness for the company outsourcing its IT and moreover, provides for a somewhat level playing field for other IT players
But,all 5 being vendors being one of the best, i dont think BP is gonna suffer.Infact, too many vendors could actually complicate the whole process.
You are absolutely right its not so easy…. I also wonder… We need to see what is the timeframe for the switchover….
I don’t think BP will suffer either. But, if the need arises can any of the 5 be easily replaced?
@Sriram
Given the focus on documentation and KT’s by most of the US(read smart clients), i think replacing will not be that big an issue barring the cost and time overheads.
Frankly, the work that happens in the Indian IT sector is not unique wteva the quality be.So, it can be done by others too.Quality may be an issue here but then again, names alone don’t gaurantee quality, do they :)
I am actually surprised they had 40 vendors – even the worst of companies do not have more than 5. Even the government doesnt have more than 10 vendors.
I think they started a program called BP rationalization and put out bids for the entire company. From what I understand, its gonna take atleast 2 yrs to kick in the benefits of having a few vendors. The companies would have bid neck-to-neck on these projects having very slight operating margins. Watch out for a predictable cashflow but not an improvement in EPS.
It is an apt decison taken by BP management; since having two many service vendors, over period of time makes project run out of schedules and hence out of budget, since disparate teams are not able to communicate the project timelines to each other and hence not work in unison. having too few vendors also help identify the clear responsibility and ownership as opposed to having 40 different vendors and like reasons galore.
However the only risk this system carries is dependence on few; like you said. But then again said that, even the Vendor would realize the fact that BP is no more a nimble customer, but big buck generator and having such a customer carries lot of value, which also provides a vendor unique market proposition over its competitors for handling mamoth projects and chance for bigger pie over a long run.