The KSeeker

In Search of Knowledge…

Learnings from the DHL story

Posted by Girish Krishnan on September 3, 2006

Check out a McKinsey Quartery Article on how Deutsche Post World Net, the corporate parent of Deutsche Post and DHL, consolidated its IT operations and developed a unique model for Offshoring and outsourcing.

In a rare practical talk getting published,Stephen McGuckin (SM) who is DPWN’s Managing Director for IT services elicits some real world nuggets – I am just summarizing some points that impressed me, mainly because of my current job focus, and would highly recommend reading the original article to get the full picture..

On the importance of IT in the logistics industry and esp in the case of DHL and Deutsche post –
SM – The Information system should never fail even though the physical distribution system does – Very important to keep the customers informed!

On the skepticism of internal folks on IT outsourcing
SM – Was just general resistance to change

On Choosing the destination for consolidated IT center DHL could centralize much of the application development – They chose Malaysia
SM – There was a business-friendly government, there were incentives, and the labor was skilled and affordable + Government guarantees to the business set up there (as part of “Multimedia Super Corridor”) including these two important clauses
– One was that telecommunications costs would be benchmarked and prices kept competitive with Western rates.
– Second, there was a guaranteed five-day turnaround to obtain a work permit for a qualified person from anywhere in the world.

On Choosing the outsourcing Partner – “Infosys”
SM – Detailed, documented process for KM, which other company’s seemingly lacked

Low attrition rates – DHL thought that ESOPs also helped, and this was a differentiator as none of the other companies were giving stocks to employees!

Wanted DHL to contribute significant part of company’s revenue, so that they would get due importance; But didnt want to be dependant on only DHL – hence arrived at a figure between 5-10% of the company revenue

Flexibility in terms of business model requirements
Infosys agreed to do part FP and part T&M, and agreed to bid for every new project to ensure competitiveness as long as DHL gave a minimum guarantee for it to keep a team in place

From the customer’s stand point, Infy would take the trouble of optimizing its team (DHL doesnt micro manage) and bid for all new projects against the minimum guarantee DHL offered.

On how initial internal IT conflicts got resolved
SM – DHL employees slowly learnt to manage a vendor relationship and not to micro manage as they would do in a typical inhouse set up.

As there was fear of them losing control, DHL got the HLDs and architecture back into their purview. Thereafter, the team felt it could control things and could really understand whether the outsourced partner was overbidding or underbidding.

My Take : Its worthwhile to put yourselves into the shoes of the customer and look at some aspects he wants highlighted from an outsourcing partner.Many a time, as an outsourcing service provider we are engulfed in the tough competitive reality around us and this justifies the way we portray ourselves in a sales pitch. The flip side of this is that, we fail to give importance to some aspects the customer treats as important (say stock options!). There is no magic mantra that we could adopt at the last minute to tailor our face for the liking of the customer – Fundamental to all is good corporate governance and that, according to me, is the only real differentiator in this industry. At a higher level, the government should have a mechanism to check out the competitive forces playing at a national level and it should keep tuning the “Outsource to India” macro advantage list to keep the comparative advantage!

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