The Unbearable FTE Burden on Managed Services

For a variety of reasons, FTEs or “Full Time Employees” have been the primary currency of managed services contracts, especially those that are outsourced. Chief among them is the direct comparison of the wage arbitrage and the straightforward transition of processes, as-is. In these situations, it’s always most convenient to take a cue from the existing headcount and staff it with a similar FTE count, post transition. This also gives comfort to the client that he is getting a similar workforce to support his process by the vendor.

On the supply side, this has also suited a lot of managed services vendors from India. It started with IT Services but the model was soon embraced by outsourcers of all types, including fully owned, captive analytics outsourcing organizations of large multinationals. From there it was adopted most third party analytics services providers. Given the availability of required talent in the thousands, if not millions, hiring by the truckload and staffing up engagements where billing was directly proportional to headcount suited them just fine. As this practice gathered steam, a key metric that vendors started to get evaluated by was their “bench strength”. Crudely put, this is the count of the idle people who were hired and are actually doing nothing. From the client’s perspective, this was a measure of how soon a vendor can deploy worker bees.

Worker Bees

During the initial feeding frenzy, the vendors started to fatten themselves when the cost arbitrage was very seductive. Added to this was the bottom fishing of entry salaries that widened the gap between the billing rates and average blended salaries. Their growth rates began to skyrocket and became the envy of the investor world. In the captive world, very seductive “savings” numbers began to circulate that made lions out of lambs in the executive suite. The beauty of this business model is that practically no attention had to be paid on the primary offering to their clients. This was the FTE who was your average John Doe who knew to add and subtract. The velocity of the cash registers would depend on the speed at which bodies could be shovelled onto contracts.

Alas, the music had to stop! And it did. The first and most debilitating casualty was the positioning that india based outsourcing organizations (both captive and vendor) occupied in the minds of clients. In the pyramid of services, the only available spot was in the bottom most layer, which was highly commoditized and was like buying office consumables. During this time, two simultaneous trends squeezed out the margins that these entities had traditionally enjoyed and taken for granted. One was the gradually vanishing cost arbitrage, especially in the tier1 cities of India.

The other was that business cycles took a turn for the worse and was exacerbated by the worst financial crisis since the Great Depression that eventually engulfed entire economies of countries in the western world. This double whammy made the practitioners of this model started to resemble deer who are caught in the headlights on a busy highway. Years of focusing only on the hiring frenzy left no room to nurture expertise, capabilities or innovation.

FTE strategy employed by Vendors
Skill based upward mobility is the key to long term sustainability of the Managed Services business

Knee jerk reactions to acquire “consultants” boomeranged badly. The workforce never was incentivized to value learning of any kind. Attrition was rampant that laid to waste all efforts to develop expertise and the necessary gravitas.

My own humble view is that the root cause of the branding and positioning deficit facing Indian managed services vendors is the FTE business model. It is high time that we ditched it and adopted a more end to end ownership view of engagements.

The ideal way to engage in long term managed services contracts is to take ownership of outcomes and work scope rather than commit to a body count. That way, the vendor is aligned to search for the best ways to efficiently deliver the work scope that would in turn lead to the intended outcomes. This approach also entails the vendor to embrace technology platforms and productivity enhancement measures for their own good rather than as showpiece mascots.

Body Count Jigsaw puzzle

The other essential part of this package should be for managed services vendors to wholeheartedly place bets on business impact that they would drive for the client’s bottom-line and derive a share of the benefits. This makes for a real win-win situation that engenders a solution based approach among the workforce. A workday that is primarily focused on getting faster, higher and stronger makes for a very challenging work environment filled with a sense of accomplishment.

For captives, this advice is even more pertinent. Being a fully owned part of the parent organization provides a golden opportunity to get a seat at the high table on the basis of business impact created, on par with how the primary BU s are evaluated. Treating captives with kid gloves and allowing an easy ride will only contribute to destroy their positioning in the long run.

To conclude, the managed services engagement of the future is one that is based on a true partnership model of signing upto deliver better outcomes for the client and aligning success for the vendor on that basis.


The author, Karthikeyan Damodharan is a Consulting Services Delivery Leader at BRIDGEi2i – A company on a mission to unleash the power of analytics and transform the lives of enterprises and individuals alike. We believe that the solutions to almost all intractable problems lies buried inside the data. The Managed Analytics Services group within BRIDGEi2i is firmly focused on going the distance with client organizations to make sure that the realization of business impact is a core imperative of every engagement.

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position or viewpoint of BRIDGEi2i.