It’s the kind of blockbuster managed services outsourcing deal — Chokshi refers to it as “out-tasking” — that would make almost any managed services provider green with envy. Chokshi sees it as a confirmation that Amex is on the cutting edge when it comes to managing its IT infrastructure. To get a sense of just how far Amex is taking it, roughly 2000 Amex employees will actually move permanently over to IBM with the deal.
And though the IBM deal is on the computing infrastructure side of enterprise IT, other IT services vendors have doubtless taken note of it as an indication that Amex isn’t afraid to work with outside partners in a very major way. So what does Amex want from other outsourcing providers, now that the IBM deal is in place?
The good news for IT services firms, particularly offshore players from India, is that Amex has kept application development, strategic relationships with technology partners, and anything that defines its technology infrastructure, in house. So from a competitive standpoint the IBM deal is virtually irrelevant for IT services providers from India and elsewhere hoping to get Amex’s business — Amex’s need for their services is unchanged.
What it Takes to Win
When it comes to how Amex chooses offshore vendors, Chokshi is clear: “For things that are relatively undifferentiated we are looking for the highest quality at the lowest cost. I see that trend continuing since financial pressures are not coming down for anyone.” But he also cautions IT services vendors.
“If you are providing those kinds of commodity application development services make sure you are either following the cost curve or moving up the value curve.” And it is really the value side of the equation that Chokshi seems to get most excited about when it comes to services he might at some point be able to employ.
“Riding down the quality cost curve is always going to be there. But if there is creativity [from an outsourcer] in bringing revenues or business development and meeting our own earnings and growth targets, that’s a whole new very interesting conversation,” he explains. “What I have yet to find is somebody who can help us and partner with us on the revenue side.” Chokshi is talking about things like increasing customers, and helping Amex get into new markets. If vendors can provide this, then he seems pretty ready to pay a premium for it.
When it comes to simple application development, he also warns offshore players that low cost is just not a serious differentiator anymore.
Specifically commenting on India, he explains, “We get many exciting proposals from other places in the world besides India. Rather than just a billable hour mentality, we want to do something where it’s a broader relationship, with more complex tasks and specialized services. The fact that they are in India doesn’t make that much of a difference to us.”
Chokshi suggests that large buyers like Amex have moved beyond the most basic motivations for outsourcing — namely low cost. He has a simple counsel for vendors trying to sell to people of the size or scale of Amex:
“If you want to deal with large multi-national buyers who have some experience in this area you’ve got to be focused on that market. If you want to work with companies that are just doing it for the first time and are just focused on doing something that’s 70 percent cheaper than the next guy then that’s a different market segment.”
Chasing Value
Larger IT services organizations tend to advertise that because of their scale they can provide a one-stop-shop approach. And though that seems to have worked for IBM servicing Amex’s enterprise computing needs, according to Chokshi it doesn’t have as much importance on the IT services side for a company with IT needs as sophisticated as those of Amex.
“Having it all in one place minimizes the transaction cost. But that’s not exactly the highest value for us” says Chokshi. “We want the highest capability in application development, call center, financial services, back office processing. If they all happen to be in one place that’s a bonus but that’s not generally the case.”
Chokshi essentially invites vendors to offer a service that provides the most value possible. The IBM deal has demonstrated, he explains, the company’s desire for flexible partnerships, and “increases the opportunity for others that have a true transformational capability the way IBM did in this case.”
But in every event, quality is the key issue, for Chokshi, not cost. “For minor cost savings we would never do anything that would sacrifice the customer experience — never,” he explains, as if his job depends upon it.
His job does depend on it. For Chokshi, the opportunity in outsourcing IT seems clearly to be a matter of maximizing capabilities and value, not saving a few dollars an hour on some programming work.
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