The Outsourcing Blog..."Horses for Sources"

Bored? Look no further

Clearly you have far too much time on your hands if you're spending time here, so here are more places to go to fill those vacant hours.  This is especially for all you sourcing consultants who went out of your way to vote for yourselves as the "top place to go to get balanced advice on outsourcing" - c'mon chaps get real -:)

IBM vs. Tata: Who's More American? - Businessweek's Steve Hamm raises some incisive points, namely, TCS, India's largest tech-services company, collected 51% of its revenues in North America last quarter, while 65% of IBM's were overseas.   Builds upon some of the issues we discussed here last year;

Are You in Personal Branding Prison? Copyblogger raises the burning issue of "over-branding" yourself on the web.  Too much personal branding can be damaging to a professional. If you brand yourself too strongly, you can’t take a break, because there’s no one else to fill your shoes. Without you, your business has no value....Start building value into your business so that potential customers think of your business name first and your name second. Get people interested in working with your business, not you;

Think Before You Do That Layoff - more common-sense from my enigmatic friend Brian Sommer;

How the Economy is Affecting Outsourcing -  Podcast with yours' truly and AMR Research CEO Tony Friscia;

More EDS-HP banter from Mark Stelzner and Vinnie Mirchandani;

My friend and industry luminary on analyst relations best practices,  Carter Lusher, discussing the Definition of an Analyst;

Procurement and Belgian ale connoisseur Jason Busch questioning whether China can be innovative;

And finally, our good friend and Indian outsourcing death-proclaimer, Sramana Mitra,  (partially)redeems herself with an excellent discussion on vertical integration at Samsung and Apple.

Meet me in India!

I'm going on a tour of the sub-continent in June, stopping in Delhi, Mumbai, Hyderabad and Bangalore, where I will be speaking at the Nasscom BPO strategy summit.  Drop me an email if you want to meet up while I'm over.

HP/EDS redux

I know several of you are hounding me for my views here... we've put out a couple of pieces on this today at AMR - check out Bruce Richardson's blog where he raises the discussion. 

I have to confess this one came completely out of left-field while I was traveling, but does tally well with HP's focus on bundled BPO.  All-in-all, these are my key takeaways from this eventful day:

No-one saw this one coming, most of us were expecting one of the Indian providers merging with EDS.  This now raises the possibility of further mergers in services, even though this was looking unlikely until recently.  The incumbent Western providers need scale and depth to compete effectively with the lower-cost Indian firms, and we could see a response from one of the other top tier firms to swallow up one of the vulnerable services firms.

On the BPO side, this is a great move, with the merger filling both companies’ BPO portfolio gaps, most notably in finance and accounting (F&A) and HR processes.  As we discussed a few weeks' ago, BPO market leaders Accenture and IBM have already been aggressively pushing their combined portfolios of finance and accounting and HR BPO services, with increasing emphasis on bundling these services with their application outsourcing services.   HP is looking to follow suit, with the likes of Cap Gemini, Infosys, Wipro and TCS avidly observing how they can broaden their global BPO and IT services depth, scale and industry specialization.  Now HP has deep HR delivery expertise to draw on, which elevates its bundling capability, in addition to EDS's $1 billion call center outsourcing and global IT services business.

Culturally, this is definitely an odd one to fathom, but Mark Hurd has the track record and financial discipline to make this merger a success.  He also got a good valuation for the firm, so now was probably a good time to strike.

Interesting times... maybe we'll have some more days like this in the coming months?

Ensure you have a solid platform before you seal the deal

Anyone from the UK will appreciate this...

Whom do you trust for balanced outsourcing advice?

I wrote a piece entitled "Blog-culture is ripping up the rule book for the outsourcing services and technology media industry" a few weeks' ago which raised a few eyebrows.  OK, it's a litttle biased and I was on my high-horse, but it did raise several questions on where people go to get balanced, insightful information on the outsourcing industry that they can rely on.  So, please choose your preferred three information outlets on the poll to the left side-bar.  And please be honest :)

Please can add your vote on the toolbar to the left 

Is it time to dump the term "outsourcing"?

Having worked on a large number of "O" initiatives with enterprises over the last few years, the term outsourcing has given me nothing but problems. The minute the "O" word is uttered, staff get defensive, passions get stirred, resistance occurs.  Often staff quickly brush up their CVs for a hasty exit before the axe falls.  Staff and management tend to associate outsourcing with job losses, and their firms using low-cost labor from service providers. 

But what else can you use when you are looking to move into a multi-year engagement with  third-party service provider, where you will use their staff, technology and processes and likely reduce your own inhouse overhead?  I have experienced companies trying to disguise the fact they are outsourcing by labeling their service initiative as "out-tasking", "co-sourcing", "right-sizing", or even "resource-optimizing" (oh, there is more...).   Peter Allen also chips in with his preferred term "services contracting".  However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor.   

Personally, I prefer the term "managed services", as staff are not always transitioned out of the organization, and management responsibility for running the contracted services is transitioned over to the third-party provider.  However, outsourcing has become ingrained in modern business vernacular, not dissimilar to information technology.  It describes the activity a company goes through when it engages a third-party to take on the management of specific IT or business services on a long-term basis.  However, I would stress that outsourcing these days describes the activity of evaluating and transitioning the processes and not normally the long-term management of them.  For example, if a company decides to engage ADP to take on its payroll services, it will say "we're outsourcing our payroll to ADP".  However, ask the same company how they run their payroll a couple of years later, and it will say "we use ADP for payroll".  It won't say "we outsource our payroll to ADP".

So all-in-all, if you are looking to outsource processes, be upfront with your staff and tell them you are looking at outsourcing opportunities.  Explain they are a key part of making this outsourcing initiative successful and you need them onboard to support the initiative.  It will be good for their career, and they will have the chance to take on new tasks that are more core the the business - for example vendor and service-level management and higher-level business activities that directly impact senior management decision-making.   The more upfront you are with what you are doing, the more your key staff will appreciate the honest communication, and the more likely they will be supportive and proactive in making it work.  If they still resist and try to derail the process, at least you know who the dissenters are and who may not be onboard the train once it has left the station.

If you have any preferred terms for outsourcing, I'd love to hear from you...

Retail therapy....replaid

For those of you who missed today's webcast on outsourcing and offshoring for the retail sector, you can access a replay here.

Why are you calling it outsourcing in the first place?

I've been enjoying some great comments from people these past months and thought it time to highlight the occasional contribution that got me thinking "good point!".  The recent post entitled "Is it time to dump the term outsourcing?" has - and still is - produced some superb discussion, in particular one comment from Robert Jakobson, a program manager and 15-year veteran with IBM, Microsoft and Sun Microsystems, who puts forward a great argument on why some enterprises use the "O" term in the first place.  Enjoy.

Join the BPO and Offshoring Best Practices Forum

I am extending an invitation to HFS readers apply to join our new networking group on LinkedIn entitled the "BPO and Offshoring Best Practices Forum".  This is intended to be a forum for leading outsourcing executives to share their experiences, views, opinions, best practices and lessons learned in the world of business process outsourcing and offshoring.

Sign up now!

Are we reaching an inflection point of business globalization?

I can't help feeling we are entering into a critical phase of business globalization, due to a convergence of factors.   We have seen these global dynamics in play for the last 30 years, but we are now in an economy where today's CEOs are aware they need the tools at their disposal to become truly integrated global enterprises.

I was privileged to have a preview of IBM's new study of 1100 CEOs this week at its analyst event in New York, and, while the findings are under embargo until next Tuesday's public release, I can say they reinforced one thing for me:  the vast majority of today's CEOs recognize the need for change, and are more prepared than ever to be bold and adopt measures that can drive rapid change through their organization.   So why is now different from that of 5 years' ago, or 25 years' ago?

Bada Din comes late this year for Indian outsourcers: the Indian STPI tax holiday is extended

The Indian Government has clearly been reading this blog and bowed to our pressure to extend the Software Technology Parks of India (STPI) tax holiday.  The Indian finance minister has now proposed to extend the  STPI tax holiday to expire on March 31 2010, a year later than the originally stipulated March 31 2009 date. 

This is a shot in the arm for the Indian offshore services sector, and the shares of Infosys, Wipro, TCS, Cognizant, WNS, Patni, Satyam, EXL Service, Genpact et al. are all expected to jump by up to 10% as a result.  The additional year should give the Indian outsourcing industry the time it needs to stabilize its current issues with Rupee appreciation and wage inflation.

Thanks to all you for you great contributions on this issue.

Long-term contract renewals: the real litmus test

Following hot on the heels of our recently debated issues regarding the future health of the HR Outsourcing industry, I was delighted to see Convergys renewed its multi-scope HRO engagement with Avaya today for a further five years.   I have some personal experience of this engagement from its transition a few years' ago, when Avaya moved onto a global hub-and-spoke model underpinned by SAP's HR platform, that included a complex global payroll roll-out.  Convergys is also in the midst of global transitions with both DuPont and Johnson & Johnson (both signed after Avaya), and the successful - and lengthy - Avaya renewal spells good news to these more recent adopters of HRO seeking reasurance that their firm chose the right HR deployment model.

In my view, you can only truly judge the success of an outsourcing business when the initial wave of adopters renew for long periods.  We have discussed many of the issues this industry faces, but the ultimate proof is in the pudding, and so far, we are seeing the early adopters choose to remain in an HRO delivery environment.  These are the companies which have worked through the early complexities and found their status quo with their service providers.  I'd like to congratulate both Convergys and Avaya's HR leadership for their renewed relationship and finding a successful balance.

HROWorld 2008: An industry re-inventing itself

Braving the annual industry HRO schmooze fest this year, I realized I was emulating Roger Federer’s extraordinary Wimbledon run by making it to my fifth-consecutive show.  Only an elite few have made all six – at least I can’t claim that honor -:)

From the moment I stepped into Naomi Bloom’s Brazen Hussies event on Tuesday night and was ordered to eat a heavily-garlicked vol-au-vent with the instruction “we’ve all had one, and so should you”, I knew something interesting was in the air this year.

For starters, all the industry big-guns were there; the leading HRO providers with all had their head honchos; the sourcing advisors; both SAP's and Oracle's BPO teams espousing the virtues of outsourcing on their ERP platforms; every staffing, benefits, talent management, data-something-or-other firm you’d never heard of; and even a few mercenary analysts dotted around the place.  We even had a new double-act to entertain us – the Elliot and Richard show, moderated by the vivacious and cabalistic Jay Whitehead.  This was one networking event when you just had to be there.

So, in true HROWorld tradition, I slammed myself with 20 back-to-back meetings over the two days, supplemented with a constant supply of stale coffee and a constant stream of sales literature I will cherish for a long time (ahem). 

My overall impression of the state of HRO is one of re-engineering to get this right.  This was the resounding message I got from several discussions with the market-makers in this industry. OK, we’ve had a few non-starters recently, but let’s emphasize these were projects that were cancelled before any implementation work had taken place, and in several cases, the contract had just never quite made it to fruition.  This doesn’t imply that HRO is failing; it implies that some businesses have made strategic decisions that now isn’t the right time to undergo open-heart HR surgery on themselves.  And do you blame some of these firms, when the bottom has fallen out of their industry and they might just have some other urgent priorities to rectify?

I wrote a year ago that the industry crystallized around the Convergys/J&J deal, and I was right.  What I liked about this show was the serious discussion on what works in HRO versus what doesn’t.  There was a refreshing honesty from almost everyone regarding the steps suppliers and buyers need to take to make this work…and so much less hype.  In fact we had so little hype, we could have used some.  Most of the suppliers are seriously focusing on what they are good at, and crafting HRO solutions based on their core strengths.  The need for standards and common service levels was discussed at length, with several ongoing initiatives in the industry currently focused on the joint-development of common HR standards and technologies that enable a more robust, repeatable HR delivery model. 

There was universal recognition that HRO works when solutions are crafted from the bottom-up, with services added incrementally and HR leaders having more time to develop successful governance practices, as opposed to some of these massive end-to-end “big-bang” deployments, that have often resulted in a misalignment of expectations and delivery.  This isn’t failure or disaster; it’s a 9 year-old industry testing the boundaries of what works - and what doesn’t.  I’ve been at pains recently to point-out that 97% of HRO deals have succeeded – and by succeeded, I emphasize that they are plugging away to get this right.

Let’s be brutally honest here, this is business process outsourcing – and this is a tough complex business, where things can only go wrong.  You really cannot judge the “success” of any major outsourcing engagement until it’s at least 3 years’ along and transition has been completed.  The day of the billion-dollar mega-HRO deal may be over for now, but take some time to look at the plethora of these “bottom-up” engagements taking place, where companies like ADP and Ceridian are racking up their HRO clientele at double-digit growth rates; look at Hewitt’s re-focused strategy on centering its core benefits outsourcing business as the kernel of its HRO delivery model; and look at Accenture's and IBM’s continuing efforts to optimize their global HRO engagement models, with HR service-delivery centers employing thousands of service personnel across several global locations. The seeds of this industry have been sewn, and we’ve had our reality check.  Now it’s time to move on and watch some great companies make this thing work.

Quest for an Organic Approach to Offshore Outsourcing

One of the toughest challenges for businesses today is trying to retrofit offshore operations once they have evaluated what work to send offshore or outsource.  They can spend months - or even years - strategizing how to do this effectively.   I am honored to welcome Uttiya Dasgupta discuss his theories on developing a phased approach to implementing an offshore outsourcing initiative.  Uttiya is one of the industry's first genuine offshoring pioneers, having set up and managed IBM's first offshore dedicated center in Bangalore in the 1980's, in addition to helping Texas Instuments and Samsung establish their offshore operations.  He now heads up his own outsourcing consulting firm Omnispan.  Over to you Uttiya:

Is the sub-prime lending crisis placing outsourcing engagements on the backburner, or providing an impetus to proceed faster?

UBS has shelved their planned HRO engagement with ACS and IBM as a result of its issues with the sub-prime lending crisis, the economy and their internal business uncertainty.  Like the recent Starbucks cancellation of their HRO engagement, plans have been waylaid to progress into a major HRO implementation due to changes in the business, as opposed to any operational issues.

What concerns me is the level of short-term-ism that some companies are currently adopting, with their looking only at the next quarter, as opposed to the longer-term picture.  I do believe this crisis will provide the outsourcing industry with a mixed-bag of opportunities, with some firms viewing the bigger picture and moving more aggressively into outsourcing initiatives, and others, like UBS, deferring decisions over long-term initiatives such as HRO, as they monitor the current economic situation and figure out their survival tactics.  Surely this is a perfect time to embrace changes to your business that will drive lower operating costs and new ways of doing things?  I'd be interested in your views....

F&A BPO: 107 contracts in 2007... more to follow?

As speculated during our March recap, the F&A BPO market is bounding on.  I can now  confirm (and you heard it here first) there were 107 multi-process F&A BPO contracts signed in 2007 - that's 20% growth over 2006.  In addition, the average contract value stabilized at the $33m level.  I'll be delving more into this market in my research in the coming weeks.  Strong performances from Accenture, IBM, Genpact, HP, InfosysBPO and Vengroff Williams were the prime catalysts for the record year.  The outlook for this year is even stronger.

I have always been a believer in a robust business model for F&A BPO - it balances the benefits of offshore resources with financial workflow solutions, and - in theory - allows finance executives to focus more time on delivering their leadership information they need to base business decisions - and less time overseeing tactical process issues.  However, like any solution involving the transition of labour and processes, the success of F&A BPO depends heavily on the buyer's patience and ability to get the best out of their vendor, and their willingness to re-tool themselves to operate in an outsourced environment. 

In any case, it's going to be a fascinating period ahead for this market with the economic situation. Some companies will aggressively pursue outsourcing strategies, spurred on by the cost-savings, while others will adopt a short-term mindset of "getting through the next quarter", and the upheaval of a multi-year outsourcing engagement will be low on the priority list.

Cost-cutting measures for troubled companies in these tough economic times

In these troubling economic times, most firms are tightening their belts to keep those unnecessary costs down while we look to ride out this recession.  I used to charge $500/hour for dishing out this kind of advice, but I thought I'd give out some cost-cutting tips to Horses-readers as a gesture of economic goodwill:

1) Make all your senior managers and sales people fly Northworst.  You'll be amazed at how many of those "critical" business trips go away....

2) Reduce the "on the road" food budget to $30 a day.  (Makes everyone order pizza to their rooms, rather than those terrible room service burgers);

3) Enforce a zero-tolerance policy on alcohol products to be expensed.  This will automatically reduce 25-50% from your bottom-line.  (Better than any outsourcing initative);

4) Send all your lowest performers on Six Sigma certification training.  They'll either disappear from your payroll completely, or have a complete epiphany and start delivering the goods;

5) Seek out the cheapest, most desperate outsourcing service provider you can find and get them to take on all your messed-up HR, finance, procurement and customer service processes.  Hire a razor sharp sourcing attorney to include performance-levels you would never have dreamed possible - and which you would never have ever reached yourself in a million years.  Wait one year, do nothing, and they are guaranteed to have missed every single performance metric.  Now you can sue them for a small fortune for lost revenues that you would never have made in the first place.  Genious;

6) Sign a corporate deal with Red-roof Inn for any off-plan sales reps.  There is no better way to improve performance;

7) Completely refocus your entire business strategy on producing mind-numbing facebook applications.  You can't go wrong, trust me.

'

Time to look at new means to lower those corporate costs -:)

How severely will the expiration of India's STPI tax scheme impact the Indian outsourcing industry?

360DegreeVendorManagement raises some real concerns regarding the Software Technology Parks of India (STPI) tax scheme which expires on March 31 2009.  The scheme currently gives tax-breaks to new Indian organizations in the region of 10-20% for their first 10 years of inception, designed primarily to bolster India's software industry. Established Indian firms are constantly spinning out new companies to keep enjoying the tax breaks. Today, exports by STPI registered units comprise more than 95% of the total software exports from the country, which include ITO and BPO exports.

Our mystery vendor management expert, recommends to her vendor management peers:

• Get more knowledgeable on this subject now. Talk with your attorneys, analysts and consultants. Do not wait for your vendor to “educate” you. There are many layers of taxes and your advisors will be able to separate hearsay from fact.
• Negotiate your pricing terms to reduce your exposure to changes in Indian taxes.
• Use the risk as another reason to diversify your offshore vendors and locations. Multi-location, multi-vendor strategies mitigate a wide variety of risks.
• Recognize that this change will not kill the Indian industry - it will just level the comparative costs among countries. India will likely become just as expensive as the Philippines.
• Adjust your financial plans now as you enter into 2009 budgeting and planning.

To compound issues with the competitiveness of India's outsourcing exports, Ted Botzum at TPI discusses the issues with foreign currency fluctuations and their impact on outsourcing contracts.  Ted pushes the point that firms looking at outsourcing need to invest in scenario development to balance the financial risk. 

Hence, there are a number of variables that must be built into the Indian outsourcing scenario:

• Rupee appreciation
• Weak dollar and potential weakening of the Euro
• Impact of the STPI tax scheme elimination
• Impact of Indian wage inflation

By taking away the tax break, the price-playing field will be leveled considerably between the Western outsourcers and the Indian-centric firms.  The Indian firms are now competing for the majority of top-tier enterprise outsourcing contracts, both BPO and ITO - which was not the case five years' ago.  Firms such as Infosys, Wipro, TCS, Genpact and Satyam (as we discussed here last year) are constantly having to evolve their human capital strategies to retain and develop quality staff over longer periods and keep wage inflation to a minimum.  Moreover, they are moving increasingly towards volume / service-based pricing models and relying less on FTE-based pricing, which leaves them vulnerable to these pricing pressures.  Incumbent global outsourcing firms such as Accenture, ACS, HP and IBM, which have large employee-bases in India, are also facing similar challenges to keep spiraling costs to a minimum, but benefit from having a larger proportion of their employee resources in other global locations, and are not going to be impacted when this tax break is eliminated. 

My view is that the Indian-headquartered suppliers have arrived on the global stage and are now seeking to take their services to a new level by investing in higher-value services and greater onshore presence.  By taking away their tax-break, the Indian government is only serving to harm its star performers at a time they need greater support to maintain their market surge.  With the current economic downturn, outsourcing deals are more competitive than ever, and next couple of years will lay the groundwork for the global sourcing industry for years to come.  I'd be surprised if the Indian government doesn't relent on extending the STPI tax break, but maybe it's decided the time has come to cash in on its most successful export? 

Update:  the Indian finance minister is proposal a 1 year extension to the STPI tax holiday until March 31 2010