An Industry Gone Wild on HRM Technology Deployment: HR luminary, Naomi Bloom, is on top form as she gives us a breakdown of the evolution of the Human Resources Management (HRM) software market over the past 4 decades, and discusses the influence of how IT and Business Process Outsourcing has given companies access to delivery models and scarce talent to run HR technology platforms. However, she doubts today's HRM software vendors will achieve the Holy Grail of a true one-to-many model with SaaS, as they cannot create the "embedded intelligence across HRM processes" and has faith in HR BPO as the preferred deployment and payment model. Well worth a read.
Renewal Strategies for ITO Relationships: TPI's thought-provoker Peter Allen is on the money discussing options enterprises have when they enter into renewal discussions with their ITO provider. "Incumbent providers should not be retained on the basis of predecessor agreements. A review of the current market conditions – meaning pricing, contract terms, and scope of services – is essential. We’ve observed that some clients can become complacent and trapped by the perception that the transfer of responsibility and institutional knowledge between IT service providers, or repatriation, becomescostly.....The pricing of the existing contract should be compared to the prevailing market for like services in order to gauge the range of anticipated future pricing" I appreciate Peter's efforts to discuss some of these options for enterprises today so openly on his blog. My view is that enterprises today need to use renegotiation as a great opportunity to get more value (process and technology) from their provider. More on this to follow...
Mexico Sourcing: That Margarita Never Looked Better: Jason Busch on Mexico's attractiveness as a manufacturing sourcing location for US businesses. "When it comes to the dollars and sense of importing manufactured parts and goods into the US on a total cost basis, the benefits that Mexico presents more than outweigh the risks." Interesting discussion... builds on what we discussed here.
You're Not Consultants Anymore: Brian Sommer on why consultants have become "order fulfillment specialists". "People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day. Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects. No, you're not a consultant."
I wanted to introduce a great blog called 360 Degree Vendor Management written by a good friend of mine who facilitates complex RFP development, leads vendor selections, contract negotiations, and manages outsourcing governance processes for a FORTUNE1000 enterprise. She / he obviously cannot share her experiences publicly so chooses to do so under blogsphere anonymity. Respect to that!
Some great pieces which are well worth reading include:
I am delighted to announce that today's guest post is from none other than Mr John Cleese of Monty Python and Basil Fawlty folklore. I'm afraid Mr Cleese has some rather disturbing news for you Americans. Over to you John....
The Guardian put out an excellent report last week entitled "Behind the Great Firewall", which discusses the Internet popularity in China, and the fact that there will shortly be more Chinese online than Americans. The piece does a good job pointing out how much the Web is impacting society, but what concerns me is the fact that the Chinese government is working extremely hard to increase its level of censorship and keep the Chinese Internet-world sectioned off from the rest of the world. The Guardian has since followed up with a further report entitled "China's New Internet Purge", which discusses how the Chinese government is ramping up its attempts to close down it's "Black Web" bars. Just last month, there were 868 arrests made of people providing "unhealthy" content. Google reports that the most searched for words in China are related to "money" and "technology", which indicates that this "unhealthy" content probably wasn't all pornography. People talk a lot about how China will be changed more by the Internet than the Internet will change China, but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this "unhealthy" content, then surely there will be a limit to the level with which China can become "changed"? How far could the Chinese government go to restrict the Internet within its borders? And will the Internet really change China to a great extent if their citizen are only interacting amongst themselves across controlled media. If it's a battle for restricting information online, then surely the player with trillions of dollars will win out?
As we discussed here a few week's ago, there are some clear challenges with China becoming a dominant force for delivering outsourced, or offshored, knowledge-services for Western businesses. One of the key reasons for the success of India and the Philippines, for example, for delivering outsourced services such as application development, insurance services and accounting services, is the ability for their workers to learn and assimilate with Western business culture. Interaction with Western staff is vital, and so is the ability for offshore workers to research information in the Web. If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won't this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall? They have proved themselves highly proficient at producing physical products in China at very low cost, and have clear potential to develop their engineering services on a global scale, but the constant attempts to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. If their development is stifled through restricted access to information and people outside of China, they could be left performing knowledge tasks that require very limited "business thinking" , for example data-cleansing services.
I am constantly surprised by how many times I get pulled into the "captive versus outsource" debate. I thought this one was settled long ago, but it seems many firms are still trying to go it alone. If you are a well-resourced firm which has a set of processes that need to be kept inhouse, or are core to your business - and you can save substantial costs by moving these processes offshore - then my advice is to maintain a captive center. However, make sure you have the local management expertise to hire the staff you need and develop career plans to retain them. If you are a top tier brand, you stand a good shot at running a successful captive operation, but if you are a lesser-known firm with a small global presence, you will struggle to retain and develop your staff in this intense offshore environment. There are many firms which still persist in funneling low-value administrative processes into their captive centers, where you have to question the business case of doing so. Utkarsh Rai, in his guest post here entitled "offshoring secrets" does an excellent job surmising how challenging and expensive it is to run your own captive operation in India. Utkarsh has spent most of his career managing offshore operations and here are some excerpts (and these are best-practices, not warnings):
Attracting Talent: Providing an excellent work environment, a challenging work and a competitive compensation and benefits package are important in attracting the talent
Cost of operations: For the last three four years the salary raises have been given to India employees in the range of 15-20%. But this does not translate into the payroll cost. The annual payroll cost increase can be around 5% or so, depending upon the type of growth in the headcount.
If your company runs an offshore captive, ask yourself the following questions:
1) Is the work being performed in the captive truly core to our business, or could we move it over to a third party?
2) How much risk are we exposing to our business by transitioning the captive operations over to an outsourcer? Can we work with the outsourcer to manage the transition process to ensure there is a smooth transition of people and operations?
3) By selling off our captive, how much can we save over a 5 year period?
4) What is our option-value in the future if we want to take some of these operations back in-house?
5) How severe is our attrition rate, and how does this impact running costs and quality?
6) Is the captive truly a part of our global organization, or is it really a distant support center that doesn't play a core role in our day-to-day business operations?
7) How much management time, and how much cost, is spent flying senior executives over to offshore locations to oversee low-value processes such as accounts payable, help deck support etc.?
8) How much experience with offshoring do our firm's senior executives currently have, or are they learning it by trial and error and substantial cost to our organization?
9) How complex is it to transfer knowledge from our parent operations over to our offshore operations? Wouldn't it be cleaner and easier to move the work to a third party outsourcer, who will take on the work they are contracted to do?
10) Is it worth keeping our captive, but re-locating it to a more appropriate location? And what are the costs / benefits associated with doing that?
Alternatively, look at the Aviva model, and get a third party to build your captive for you with the future option-value of selling it to a third party. However, with the amount of captives currently operating, my prediction is that the market for selling captives will be pretty much dusted in 2 years... so is this a sensible option?
The outsourcing providers are primed to grow through two channels: (1) buying captives and (2) taking on business from firms with no offshore or shared services support. If you already have an established captive you have a compelling option to investigate over the next 18 months: do you sell it to one of the ambitious outsourcing providers looking to grow their business? If you have a well established captive operation now, you are in a lucky position. The outsourcing firms prefer to acquire captives to grow their businesses, than acquire each other (as discussed here). With a limited number of captives currently up for sale, you will find a handful of outsourcing providers interested in your business - and you could make a tidy windfall from the sale. They will take from it what they need to run your business, and utilize some of the resources to support other clients. They also have the advantage of running your captive virtually by integrating it into their multi-location delivery infrastructure, that can cater for multi-lingual support and a whole variety of IT and business processes that you can't often manage from a single location. You will also minimize your business risk by having these services run by an experienced provider with a multi-location delivery strategy.
This discussion between Genpact's European leadership and Michael Jones, editor of Finance Director Europe, raises some compelling arguments in favor of this virtual captive model that Genpact has successfully developed during its recent hyper-growth. Other leading providers, namely Accenture, IBM, HP, ACS, Cap Gemini, Infosys, TCS and Wipro, are also extremely adept at delivering services from their multi-location infrastructures. The other major advantage of selling your existing captive is that transition is far less painful for both buyer and provider. Retaining key staff is often less challenging, as working for a services firm, rather than a captive, can often provide a more compelling challenge for the offshore professional.
' Have you evaluated whether you should go captive, or just sell out altogether?
It's been one of the best running blog discussions of recent months, where the Human Capitalist - aka Jason Corsello - predicted that Workstream would get acquired by Empagio. Credit also to Mark Stelzner for hitting the spot with this one. This is one of the first times I have seen a whole host of industry experts come together in one "location" to debate who would acquire who - and when it would happen. A great example of blogging leading the media charge on an issue like this. Interesting times we live in...
While we're off the topic of outsourcing, I've been having some great conversations about social networking this week. Jonathan Yarmis has joined AMR Research to lead the analyst charge in studying this space and has some great perspectives on where social networking is headed - look out for his research in the coming months. New social media networking tools like Twitter and Snitter are enabling people to have multiple interactions with their networks where immediate synchronicity isn't essential. Instant messenger clients, i.e. Skype, Yahoo, MSN, can be intrusive to people who have a heavy work schedule, and these new tools are more adaptable to people lives and work environments. We have to remember, this all really started with good ol' LinkedIn, which has generated a powerful network of professionals who are connected on the Internet. The big challenge of the Twitters of this world is to get the less tech-savvy people to sign-up (i.e. 98% of the LinkedIn network). LinkedIn kept it relative simple - just copy and paste your resume into a form and you're away. So while LinkedIn is positively antiquated these days, it is the one tool that has pretty much everyone on it... and has some great features like Q&A where you can pose questions to huge networks of people interested in that topic. It's a powerful tool when you can get 50 or so people offering opinions and advice on business issues such as offshoring, or IT questions to solve immediate problems.
I'll leave you with a great LinkedIn debate from over a year ago on Vinnie Mirchandani's deal architect where I delivered my LinkedIn tips:
Peter Schumacher, President and CEO of the Value Leadership Group sent me a very interesting article he wrote on the failure of the European IT services industry to compete effectively with the new wave of offshore outsourcing firms, and cites Cognizant's recent growth surge (a 98% revenue increase for its European business in 2006) as a prime example of European's IT services providers inability to cope with this competition. This is not dissimilar to the failure of the US IT services incumbents to recognize the growth surge of Infosys, Wipro and TCS in the late '90s. The five key reasons discussed for this failure are:
European IT services firms...
1. Have failed to see the emerging competitive scenario
2. Face revenue deflation pressure from a smart arbitrage strategy
3. Have not addressed the holistic transformational challenges posed by offshore IT firms
4. Lack the financial resources to challenge offshore firms head-on, which are now driving the game
5. Will need to compete with powerful rule-breaker companies funded by private equity and venture capital firms
I nearly choked on my breakfast this morning with the stunning news that "34% Buyers Axe Their BPO Deals", according to a study conducted by Diamond Management & Technology Consultants and headlined in Global Services Media. I have observed over 400 publicly-announced and private BPO engagements over the last decade, and barely 6 of these were discontinued, normally as a result of the enterprise downsizing to the point where the BPO engagement was no longer viable for both parties. I am not arguing that the other 394 engagements are all going extremely well, but when enterprises move beyond a BPO contract transaction, the short answer is they rarely go back to the way they were.
For starters, the article states "One of three customers of Business Process Outsourcing (BPO) services ended their offshoring deals prematurely". There is a marked difference between "BPO" and "offshoring". Offshoring is the process of moving work offshore, and - in most cases - involves a firm moving more work into its own offshore "captive" center. So are we actually talking about Business Process Outsourcing or offshoring? This is a major difference, as many firms who try to "offshore" work themselves experience far more problems than they anticipated, usually because they do not have the skills or experience internally to manage offshore transition successfully. That is why many firms decide to outsource their business processes, rather than try to offshore them. That is also why many of the large BPO deals signed today are companies selling off their captive operations to an outsourcing provider.
I respect consulting firms that invest in quality research for their clients, to generate eminence in the marketplace, create discussion points with their clients, and use it to support their consulting engagements. However, "research" can be a dangerous tool when firms use it to panic people for the sole purposes of creating attention. I can understand why Global Services Media picked up on the story, as it is a major attention-grabber, but there are no details regarding how the study was conducted, what sample of firms was used and how exactly is "BPO" defined for the purposes of this research.
Coming from the old country and spending the last few years adjusting to life in the new world, it's about time I started sharing some observations over the cultural chasm that exists. However, it's probably better I leak out my views in digestible chunks to avoid risk of deportation. Anyway, let's start with sport: