Outsourcing: Alexei Miller, Executive Vice President Of DataArt (Part 3)

By Sramana Mitra and guest author Sudhindra Chada

Sramana Mitra: How do you identify this kind of group of people, [who will stay with you and build the company]?

Alexei Miller: We search for them. We have very strong managers in Russia and Ukraine who are scouting different regions. They go and meet people at conferences, or hold events where we discuss DataArt and our culture. Usually at those types of events and as a result of local media coverage, certain people react, certain people get in touch, and then we start to do things together. We have a variety of internal programs where we can try out a few groups of people. When the opportunity presents itself, we typically have a choice.

SM: Okay, fair enough. And how are the 600 people split among the four locations? Is it an equal split?

AM: Three locations, including the one in St. Petersburg are equal in size. The fourth one in Kherson is slightly smaller, and it is the only location that has some specialization in our scheme of things. It is more geared toward quality assurance (QA) work than software engineering work, and every other location does a mix of tasks and projects.

SM: You talked about price performance. Given the strategy you described earlier of hiring higher-end people, what is the price differential from your competitors and other competitive regions?

AM: It is a very hard question to answer. On the one hand, there is so much being said about different price levels in India, China, the Philippines and Eastern Europe – the popular destinations. At the same time, my experience in competitive situations and through what I have learned in conversation with clients who practice multi-sourcing shows that there is wide rage of pricing that one can get from India and one can get from even the same town in Russia. A lot depends on the company’s overhead, the kinds of people they hire, and so on. We try not to generalize too much as far as our pricing levels compared with those of, for example, India as a region or another company as a large body.

We have a differentiated rate schedule and obviously the more the senior the people, the higher the rates, but overall we think that there is a, a threshold or a premium that clients are willing to pay for higher-end expertise. We might get to this a bit later, but I believe there is a mental standard that is being established in the outsourcing industry for the most primitive, the simplest level of service, and everyone understands that this level of service costs X. I think there is a premium of up to 50% on top of that X that clients are willing to pay for premium service. This is a very vague definition and I understand that, but in my experience, clients will not want to [pay double] and will be very happy if they can get much higher level of service at a 10% premium to that sort of benchmark level. This threshold, in my book, is roughly at +50%.

SM: From the customer point of view, are the customers you are working with IT departments of various enterprises?

AM: We differentiate among end users, in which case there is end user software technology. In that case, correct, our clients will be IT departments. There are special situations where we work directly for the business, and sometimes there are technologies organizations that are powered by technology in providing services or products to their client. Those are not necessarily independent software vendors (ISVs). Although we have a few ISVs for clients, they are not a major focus for us. When I say service providers, I mean, for example, fund administration companies that provide back office services to money managers and the financial services industry or market data providers that sell data. They are essentially technology companies, or at least technology-powered companies. But you would not necessarily define them as end user in a sense that they are a bank, hedge fund, or healthcare organization.

SM: So, your true specialization is in the vertical application work in the financial services, healthcare and travel fields.

AM: That is correct! I was going to say that specialization has two flavors. First is access to unique work. It is no secret that the concept of outsourcing is not new; most sizeable organizations have either tried it or are actively using it. As a whole we live in this post-outsourcing world, and many companies have drawn lines internally. They are lines in the sand, obviously, but companies do live by them for the most part. The lines that separate what we will outsource from what we will not – each company goes about defining that line in its own way. But it is a wonderful experience when by demonstrating your industry expertise you can move that line a little bit; you can lift a few eyebrows and hear a client say, “Interesting, I have not met a company that know this, maybe we could use you for this kind of task. We never imagined we could outsource this kind of task, but it is not actually a bad idea.” It gives us and me personally special pleasure when we are able to get access to work that would otherwise not be outsourceable to a traditional outsourcing company.

That is number one and a very important facet of specialization. The other aspect is efficiencies or effectiveness. Many of the tasks we do for, say, financial services organizations can be done by a company that does not have the specialized expertise; it just take them longer and the work may be of lower quality. We have done interesting work in trying to measure that and trying to explain to our potential clients what this gain of efficiency actually means in terms of days, months, and dollars. Then you get to the level when you are productive much faster because you have this background in a given area.

This segment is part 3 in the series : Outsourcing: Alexei Miller, Executive Vice President Of DataArt
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