See you over there...
See you over there...
So H-Day has arrived, and we can finally reveal what it actually means. It's the day Horses for Sources became more than a blog... today it becomes an advisory analyst organization focused exclusively on researching global outsourcing strategy.
So why on earth do this?
A natural and logical progression. Simply put, it's a natural progression for Horses. Having developed such an effective community for collecting so many opinions, having such strong outreach to all the key stakeholders in the outsourcing business (buyers, vendors, intermediaries, investors, academics etc), leveraging the three-year development of Horses as the platform for a new research organization is the logical next-step.
The outsourcing buyer needs a pure analyst organization. While there's tons of great content floating around out there, there really isn't one entity that has brought together researchers and real practitioners, with real experience, to focus purely on researching BPO and global sourcing as a pure analyst organization, that doesn't broker deals or write vendor white papers. Some of the sourcing advisors deliver excellent thought-leadership, and they deserve credit for driving the sourcing industry over the last few years. The large analyst shops have stuck to their IT knitting and have largely overlooked BPO - they service IT vendors and IT users. Investing heavily in sales and research to service finance, HR, procurement and other operations professionals desperate to learn more about outsourcing (not solely IT), is not something any of the large traditional analyst firms have done. You can read, in detail, the challenges and opportunies we face over at SageCircle.
The Horses won't change, we just expanded
Firstly, the blog remains, and will have even more content and contribution. We've exported all the content from "fersht.typepad.com" over to www.horsesforsources.com and the blog will continue as a front-end to the analyst organization. We are producing a series of premium content reports that you will need to be a client to access, but the blog will continue to deliver opinion, and discuss many of the key findings from our research. I am encouraging our analyst team to set up their own personal blogs in time (if they want to), and several of them will be sharing snippets of their research on the Horses. And we'll continue to invite industry guests to be interviewed and submit articles.
A big fat personal thank you
Bottom-line, this wouldn't have been possible without the ongoing support and participation of so many of you over the last three years. I am amazed at the sheer quantity of email and comments I get on a daily basis from people all over the world who visit this thing. All I ask is that you continue to lend your opinion, respond to our surveys, and continue to pass on the good word. End of the day, I choose research because I enjoy learning how we can constantly get better at being global, savvy organizations. I do not profess to know how the world will look in 3 years' time, but if we all continue to debate the issues, the future will gradually unravel.
I really do welcome your thoughts, opinions, suggestions, criticisms and contributions, so drop me an email anytime,
We're still recovering from one of the longest discussion-threads in the history of outsourcing when we asked whether some outsourcing vendors had thrown in the innovation towel.
This also inspired my old friend Bob Cecil to reach out and ask us to work with him to provide some practical advice to the industry on how to achieve some innovation; without coupons, promotional discounts, or even early-bird specials. Just plans old advice, practical thinking, and - heaven forbid - maybe even some patience. "But wait! If you call in the next 10 minutes, we'll also throw in..."
Bob, simply-put, is "Equa-Man" - one of the original champions of BPO who has been a key figure in helping mastermind the growth of outsourcing advisory firm Equaterra since its inception. If there's ever a complex BPO engagement in the works, Bob's usually somewhere on the scene (and likely holding up a warning sign). He's also hard to track down, as you have to drag him off a basketball court or ski-slope when he's not on a plane somewhere, but we did manage to grab a few minutes with him earlier this week...
What's happened to the industry analyst business? You may recall a discussion right here two years ago when we berated the Chinese Internet purges and the impact they could have on the development of their own knowledge services and BPO industry. While such censorship of free opinion-sharing is depressing enough in a controlled society, it's even more alarming when it's happening right on our own doorstep, when you see analyst heavyweight Forrester Research officially banning its own analysts from having personal blogs that touch upon issues related to their research coverage or technology markets.
If you saw the recent passionate debate over at analyst relations guru Carter Lusher's Sage Circle site, you can read an official statement from Forrester's head of Corporate Communications:
"We believe we can best serve our clients in their professional roles by aggregating our intellectual property in one place – at Forrester.com. Make no mistake: Forrester is committed to social media, and the number of our analyst bloggers is increasing, not decreasing. Analysts will still have the ability to blog outside of Forrester on topics not related to their coverage areas."
Analysts will still have the ability to blog outside of Forrester on topics not related to their coverage areas? Hmmm... I really do want to know about their CRM analyst's stamp collection.
Aren't analysts supposed to create buzz?
I fondly recall the heyday of industry analyst business in the '90's, where the technology and services business thrived on innovation, on research, on unfettered opinion, where people had a vision and were unafraid to give forward-looking - and sometimes far-reaching - views regarding what was going to happen next, in a world that was being dramatically impacted by the onset of the Internet and web-enabled technologies, readily-available computing power and networking infrastructure, and steady globalization.
As we discussed during the previous five chapters of this encyclopedic journey to over-analyze our industry, customers are looking beyond the old simplicities of outsourcing to find new and creative ways to find new performance thresholds.
One of these areas is to exploit BPO opportunities within industry-specific domains, especially where there is opportunity to bundle both BPO and IT services together under a single vendor's provision to generate more efficient business outcomes.
To cut to the chase, the industry-specific (vertical) process domains are where some of the newer vendor entrants are infiltrating, almost unnoticed, into the BPO industry. Most of the strong IT services vendors have been developing BPO niches in specific verticals where they have developed some strong process acumen and client credibility, and have the determination to invest in becoming best-in-class within that industry.
I've recently had two rather disturbing conversations with friends interviewing for client management positions with outsourcing vendors. In both cases, they were only being asked to bring in new logos from selling low-cost IT/BPO services, as opposed to working with existing clients to up-sell more consultative, higher business-value offerings.
Both these chaps are senior-level execs who are highly experienced, well networked, and can engage in C-level conversation. You would have thought several of the offshore-centric vendors would be clamoring for people of this caliber to raise their level of conversation within their existing accounts, rather than utilize them to go after a handful of remaining logos. Most of the top-tier vendors have relationships with most of the major enterprise buyers these days, so you would have thought their strategy should be centered on developing deeper footprints with them, as opposed to simply increasing the number of low-end operational engagements (or at least a combination of the two).
For once I am stumped for a catchy title, and am opting for some good ol' jargon-laden gruyère to tee-up Part IV in the series discussing our New Normal in Outsourcing Delivery survey. At least I've avoided the 'T' word lately, to grant myself a morsel of poetic license to indulge in a little schmolz...
But we all love the term "Cloud" (c'mon, you know you do...). It gives us a nice fluffy visual of ripping out all that complex, clunky computing chaos from our organization, and having some nice services vendor deliver us everything we need for our business... leaving us with simply a screen, a keyboard and lots off additional space in the office to set up that Fussball table... or a Twister mat in the corner...
Why Cloud Computing is the future of outsourcing delivery
While I am probably the first cynic to de-odorize the latest cheese fumes that infuse our industry, I have to admit I am rather taken with the whole philosophy of Cloud Computing. Cloud signifies the coming-together of business process and IT delivery in a fully outsourced model (see earlier post). Cloud's not simply about outsourcing the heavy-duty computing grunt - it's about the delivery of real business services, enabled by the applications needed to support them, powered by the requisite computing and network infrastructure to host and deliver them.
Industry analysts are often accused of hyping the market they cover, creating hockey-stick growth projections to get everyone excited and avoiding ever reporting a worrying decline in growth. I just heard you gasp in shock and horror at this revelation...
So what do you do when you're actually in a position to dust-off the old hockey-stick, last seen used adorning a forecast for online vacuum-cleaner parts from ’99, and slap it under a title such as "Outsourcing spending to reach $250 Gazillion by 2016"?
Which brings us to the topic du jour: what are customers intending to do this year with their outsourcing strategies? When we spoke to 1055 customers, intermediaries and vendors across the global sourcing industry earlier this month, they gave us the real picture:
Fed up with short, punchy news titles such as "Outsourcing is Dead", or "My Delivery Manager Ate my Hamster", designed purely to capture your attention with minimal substance?
Well, salvation can be found right here, as long-winded rambling ones are going to be all the rage this year, so here's one to send you into a tail-spin: "Infosys will buy Capgemini, then IBM will acquire the newly-merged entity before spinning it out as part of a joint-venture with Deloitte, GE and Macdonalds". Actually, before you hurry out to purchase some stock in the Golden Arches, I just made that up...
Instead, let's talk about outsourcing vendors, and what on earth they are going to do when these tasty labor-arbitrage deals start to fizzle-out. As we discussed at length back in November, operational service provision is commoditizing and leveling the playing field. Customers did their planning during the recession, and, now armageddon has (apparently) been averted, it's time to execute on that planning. And part of many customers' planning right now, is to take advantage of moving operational support offshore and driving out some cost.
This is bonanza-time for the offshore-specialists that can deliver basic IT and BPO services at competitive prices. Contract-signings that were delayed during the painful recession months are now in full-swing, service vendors are reporting healthy results and even the sourcing advisors have stopped moaning about their lack of deals, and are making money again.
Whether it's cash management in Casablanca, or payroll in Patagonia, there's one guy who'll have a Harvey Ball polished and ready for you. Enter Everest Group's rock-loving, paint-balling enthusiast, Anand Ramesh, who lives and breathes global sourcing locations.
However, before you read the excellent guest article he's submitted for us, please spend a few minutes assisting Anand with his new study to understand how companies are leveraging offshore locations – particularly for high-value services – and how the landscape is likely to evolve. Just click here to access his study, and he'll send you a summary of the "Market Vista" report in return for your efforts. Over to you Anand...
Global Sourcing Destinations: Perspective 2010
The ripple effects of the global economic slowdown made 2009 an interesting year for outsourcing and offshoring. Rapid growth in offshoring slowed in 2009, despite the fact that the trend of high wage inflation in offshoring markets diminished significantly.
So it's time to drip-feed the intentions and experiences of 1055 buyers, intermediaries and vendors into the global sourcing industry.
We'll be discussing the results from our "Seeking the New Normal in Outsourcing Delivery" in full at the Global Services Conference on 28th January, but the nuances behind why - and how - companies are exploring sourcing delivery models, as we come out of a painful recession into an uncertain climate, need to be aired and discussed.
There's been a lot of talk about a "New Normal", or a "Reset Economy", that things will never be quite the same as before, however, we really need to zone-in on reality to grasp what these new dynamics really entail, in order to understand how we can address them.
To cut to the chase, most industries are in a state of profound change, where businesses are having to accomplish new levels productivity and sources of revenue simply to survive, let alone grow, in this climate. Whether you're making cars, pharmaceutical products, providing consulting services, and so forth, the chances are there's someone else in your industry vying to deliver what you do at lower cost, and potentially better quality. (Unless you're in banking, where it's business as usual...).
My earliest memory of outsourcing was ringing to complain about a utility bill and getting a polite, but calmly authoritative, Scottish girl at the end of the line. I knew immediately that I wasn't going to get a ton of mileage with my quest for justice that day...
We've spent a lot of time discussing outsourcing locations here, and one we've overlooked is Scotland. And it's not because I'm a Brit and the Jocks don't like us very much - it's simply the fact that they don't make a great deal of noise about what a stellar location they have. They quietly go about taking on BPO services for the likes of Morgan Stanley and Shell and let their reputation take care of itself.
So, with this year's European Shared Services Week conference being staged in Edinburgh (where I once narrowly dodged the cheese police, but I'll save that story for another time), I asked Danny Cusick to give us his best Scottish sales pitch that puts those "Invest in Wales" ads (we get force-fed on BA flights), into the shade. And for those of you who don't know Danny, he's President of the Americas for Scottish Development International. Over to you Sire!
Thanks to all of you who participated in December's survey "Seeking The New Normal in Outsourcing Delivery".
In total, 1051 companies gave their opinions, with a strong mix of buyers, intermediaries and providers participating to give us an unprecedented pulse on the outsourcing industry. About time we had less prophesying and some actual hard facts on what's really going on out there...
In anticipation of releasing the results of the study later next week, I'd like to recap some recent thoughts on where the industry is headed, to help make sense of what is really happening in the industry. And a special thanks to our friends at Global Services Media and the Shared Services & Outsourcing Network, who graciously invited their member communities to complete the survey (thank you, Ed and Sarah). And curses to those of you who pilfered our phrase "New Normal"... you know who you are :)
The "new normal" in the outsourcing delivery business
This truly has been a pivotal quarter for the outsourcing business. As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn.
In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations. But while some providers are clearly delivering, others are struggling to compete in this "new normal".
So what is this "new normal"?
So the "great analyst roll-up" is in full swing, with Gartner's announcement today to acquire another competitor, this time the Burton Group, for 56 big ones. This comes hot on the heels of my former firm, AMR Research, also being acquired by Gartner. I won't go into the details of the mechanics of these mergers, as you can read exhaustive commentary, debate and analysis over at Carter Lusher's blog. However, I did want to discuss what this means to our sourcing industry.
Limited choice for alternative opinions. As most of Gartner's competitors couldn't really compete on brand, they've had to differentiate themselves to survive, and that meant finding areas of coverage that Gartner didn't do (or do well), and having analysts on staff who weren't afraid to rock the apple-cart with edgy, sometimes controversial, opinion and research. While Big G has picked up some superlative minds from its latest acquisitions, its new challenge is going to be maintaining those edgy opinions, and not having them toned down under the glossy corporate veneer of the billion-dollar brand. Whichever way you look at this scenario, we simply have to have more than two analyst voices dominating the opinion and insight of our $850 billion sourcing industry. Why?
Wouldn't it be refreshing if some outsourcing executives decided to try doing a few things differently this year? Here are some suggestions...
Stop using the word "transformation".
Start trying to be different from the rest of the pack, or at least admit it if you're not really any different (but are probably cheaper, or have a sexier brand, or something).
Stop espousing that you will bring "innovation" to a finance function when you're just lumping the invoice processing offshore.
Stop claiming you're recent infrastructure management deal was a "cloud transformation".
In fact, stop using the word "transformation".
And please stop wheeling out your only client of note as an example of "innovation" and "best practice" when:
1) You bought the deal in the first place,
2) We've heard it 20 times before, and
3) The client hates you anyway.
Stop claiming you do something, when you don't.
Stop claiming you can do something, when you can't.
Stop claiming ERP support is a "scarce expertise" that warrants a higher price-tag.
Stop copying your competitors' slideware.
Stop talking too much and actually listen.
Stop adopting other peoples' buzz phrases as your own.
Stop espousing that you will bring "transformation" to an HR function when you're just processing the payroll checks somewhere cheaper and using some limited piece of software that's only marginally better than the rubbish the client is currently using.
Start demonstrating how you actually did something unique with a client to help them be more efficient or generate more revenue.
Stop using the word "transformation".
Start being realistic.
Stop boring the living daylights out of everyone by tweeting all your press releases and thinking people actually will click on them.
And why not stop having meaningless meetings with sourcing advisors, when you're only going to talk about the same tired old deals everyone already knows about, and the client already knows who they're going to select in any case...
Hmmm... come to think of it, if everyone stuck to those, we probably wouldn't have an outsourcing industry anymore. So please ignore and carry on regardless...
Happy New Year and Rock On 2010 -:)
If there was a Nobel Prize for industry analysts, this guy walks away with it - he's super cool, talks a good game, and has done very little beyond, well, be super-cool and super-smart... and with a French accent to boot. So today, I thought we'd give IDC's Sebastien Ruest the chance to prove there's a bit more substance behind the snowboarding, hockey-stick-wielding playboy façade :)
Sebastien's proving IDC's nearshore model by leading it's global services research from Canada, and developing a solid reputation in the industry as one of the industry analysts who "gets it". So I thought it time to grab a few minutes with the dude himself...
So here's the eagerly-awaited second part of the Lowell Williams experience, where we decided to give him 30 minutes of fame. Over to Equattera's HRO mega-star with the handbrake firmly in the off position...
Phil Fersht: Lowell, we’ve had a lot of talk on here about “Platform BPO”, where clients essentially take on a standard SaaS-delivered platform, supported by business processing services delivered by a BPO provider. How do you view these “on-demand” business services? Isn’t this just a win-win for the software providers, with limited value for the BPO provider? How can service providers differentiate their offerings in this type of model?
Lowell Williams: As mentioned above, many HR and IT executives
Firstly: my apologies to everyone for hopping on the perennial "Predictions Bandwagon". One may as well say "Stop press everyone, I'm just such an important smarty-pants you should listen to ME ME ME!" As Newt Gingrich told us earlier this year: "There is not one living being that can accurately predict the outcome of this crisis, all we can do is continue the dialog and the answers will slowly unravel".
Secondly: we've conducted two major studies with outsourcing buyers globally this year (and am currently sifting through 800 responses - and counting - from our current industry study). While we can evangelize, prophecize, pontificate and sermonize, nothing can substitute for real data on what everyone is currently doing and planning to do. We have the platform here to do that, and I personally thank all of you who took a little time out to share their views, actions and intentions.
And Thirdly: I'm just such an important smarty-pants you should listen to ME ME ME!" So maybe I can help with the unraveling?
i) CIOs and CFOs will be uniquely challenged to avoid becoming "Cartoons of the Recession".
Simply put, when there's a serious recession in the works, the job of the CIO is relatively simple - cut costs and squeeze your suppliers using whatever means are at your disposal. CIOs rarely get fired in this scenario, unless they somehow messed up the cost-cutting.
For once I am stumped for a title. The one man who had successfully escaped my previous attempts to feature him has finally been caught. Either his career has nose-dived and he's now desperate for some publicity, or the "Horses" now gives that 15-minutes of fame people so badly crave. I hope it's the latter -:)
Yes - we have the one-and-only Lowell Williams in a two-parter...
Lowell, quite simply, is the most respected practitioner in HR Outsourcing. Not only has he spent many years as an actual HR leader, he also worked for the "original" HRO provider Exult, moved into the sourcing world with TPI, before joining Equaterra in 2004 to head their HRO advisory practice. He has been responsible for many HRO engagements - and he has somehow survived to tell the tale. He also became the HROA's "Person of the Year" in 2008... an honor only bestowed to the most lovable scoundrels in the outsourcing world. So without further ado...
Before you tuck into your Thanksgiving turkey and guzzle a gallon of bad quality Chardonnay, please take 10 minutes to complete our industry-wide study entitled "The New Normal in Outsourcing Delivery". And if you're in Asia or Europe, currently giving thanks for US declaring itself independent from everyone else, this includes you too.
Anyhow, we are actively seeking the collective opinions and experiences of services customers, providers, and advisors and need 10 minutes of your time to complete this quick survey, designed especially for the patience-challenged, attention-deficit-inclined executive. Simply click on the following link:
All individual responses to the survey will be maintained strictly confidential. In return for your time, you'll receive a free write-up of the survey findings (wow).
We have partnered with the member communities at Global Services Media and the Shared Services & Outsourcing Network to ensure a powerful global participation of decision-makers and senior executives engaged in outsourcing delivery services. Please do participate and help advance our collective understanding of the industry.
Please note that "Horses" is a free resource for the sourcing industry at large, and the purposes of this research are to further all our knowledge and understanding of the direction of the global sourcing industry, whether you buy, sell, advise, criticise, market, commentate or analyse sourcing delivery. And if you do neither of these activities, please seriously question what you're doing here in the first place -:)
My dear friend, and former colleague at AMR Research, Dana Stiffler(pictured), recently sent us in some of her views on the merger. Dana actually got promoted today to VP and Head of Research for AMR's services research, where she will be offering clients "cashable benefits, or your money back" with her group's output.
Anyhow, thought this a good time to showcase her talent... Over to you, Dana:
Xerox-ACS: Cloud Services Potential, or Dinosaurs Huddling Together for Warmth?
Xerox is the latest in a long line of technology manufacturers to realize that its future lies in services, not products, particularly in the B2B value chain. Once manufacturing and supply chain efficiencies have been wrung out, it’s time to turn to top-line opportunities: services that use product heritage as a foundation. The fastest way to acquire these capabilities is by acquisition. Xerox’s predecessors in this journey include IBM, Fujitsu, Hitachi, HP, and, just recently, Dell, with its acquisition of Perot Systems.
Attend any European analyst meeting and there’s one character guaranteed to be propping up the bar. Scratch that, there are normally about 50 analysts propping up the bar. But in the midst of the throng you will undoubtedly find the stolid Euan Davis of Forrester Research.
I recall a conversation with Euan back in '95 when I told him “you should give this analyst lark a try” (If you want to know what he working on in those days, drop me a note…). Anyhow, the story began from there, with Euan rising through the ranks at IDC’s European operation, making a curious detour to Yankee Group, before finally attaining new heights of stardom and adulation with Forrester.
Euan now boasts the words Principal Analyst in his job title and waxes lyrical about IT services in the Eurozone. Ask anyone in the industry and you’ll discover he’s fast becoming one of the most popular analyst figures on the European services circuit. And, despite the fact he once lost to me at tennis (a shameful occurrence for any man or beast), he still warrants an airing on the Horses…
Phil Fersht (PF): Euan, firstly, what are the main issues you’re hearing from your Euro clients these days? What are the main contrasts between now and before the economic crash last year?
Euan Davis (ED): The issues are many and varied but if I was to distill it down to what I see as the issues that clients are facing today then they fall into three categories: Some are “firefighters” and are looking to reduce costs wherever they can, pushing for discounts and getting economies of scale through aggressive supplier consolidation. Others are “explorers” and are directing energies into investigating a host of emerging options for IT service deliver—and business process outsourcing is one such area. The exciting ones to watch for my money are the “builders.” These firms are sinking the foundations that underpin a profound shift in their operating model architecture, IT/business redesign, and supplier engagement models. These firms are building hybrid operating models driven by a structured sourcing frame works, regulated through a retooled service management structure, and connected to a core set of suppliers. And the recession has speeded up the process of change.
This truly has been a pivotal quarter for the outsourcing business. As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn.
In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations. But while some providers are clearly delivering, others are struggling to compete in this "new normal".
So what is this "new normal"?
Operational service provision is commoditizing and leveling the playing field. Coming out of the recession, there is a backlog of engagements which are largely labor arbitrage-focused and it's often a question of price balanced with the promise of delivery performance for most clients. There isn't a lot of secret sauce these days for what many clients are currently demanding, where in the past, incumbent service providers could play the "capability game". With many of these skills becoming mainstream, the competitive playing field has leveled out.
If there’s one person who’s been a consistent figure closely tied to the development of Finance and Accounting sourcing over the last decade, it’s Paul Nowacki (or to those of us know him, simply “Wacki”), who today leads F&A transformation for leading sourcing strategy and implementation consultancy, Everest Group.
Paul’s advised on several of the largest engagements in the business (in fact, I do think he’s worked on the largest) and taught me a lot about the space when I worked with him at Everest a few years’ back. Never afraid to speak his mind, Paul is always a popular figure at industry events to talk about what our industry needs to do to get to that next level of performance. He’s truly a “been there done that guy” who’s seen it all… Anyhow, I managed to drag Paul away from his favorite past-time of tracking global financial indices and stock markets (no joke, he does that for fun) to talk to us for a while about finance transformation and global sourcing:
Phil Fersht (PF): Paul, firstly, what are the main issues you’re hearing from your clients these days? What are the main contrasts between now and before the economic crash last year?
Now, analysts who have spent 20 years working in commercial banks are not to be messed with - and I quickly learned my lesson with Andy, who (literally) has an encyclopedic knowledge and perspective of everything that has gone wrong with the world. I recall Andy warning us years' ago that this was all going to go horribly wrong... and did anyone listen?
Andy has since become a good friend over the years, and has always been one of my first ports-of-call when I want to understand anything about sourcing and the banking sector. He now runs the Banking Sourcing Program for BPO analyst NelsonHall, but his real claim-to-fame is that he finished seventh in the US Olympic trials for sailing in 1988 (pictured). Not many people knew that...
Anyhow, I caught up with Andy last week to pose a few direct questions on the current state of the banking industry, how sourcing strategies will evolve after the recession, and how banks can navigate these choppy waters (sorry):
Phil Fersht (PF): Andy, firstly, let's not beat around the bush here. What's the climate like in the banking, financial services and insurance (BFSI) sector these days? Do you expect things to continue improving, or are we in a false dawn right now?
Andy Efstathiou (AE): Banks will continue to do well as long as they are on performance enhancing stimulus. However, the banks are aware that some day they will have to stand on their own two feet. In order to do that they need to be able to scale operations in both directions without eating overhead on the downside or investing capital to expand on the upside. Therefore banks have been aggressively working with outsourcers to create engagements built around transaction based pricing.
In the second-part of this two-part interview, Oracle's Tibor Beles discusses how service providers can be successful at platform-BPO offerings, how the broader BPO industry can improve, in addition to discussing the shifting dynamics with software licensing models. Tibor is also a blackbelt in martial arts (not the Six Sigma category), but spends more time hitting tennis balls these days with his teenage daughter. He also loves political thrillers, but he didn't elaborate whether that was through his day-job, or reading Le Carré novels -:)
Phil Fersht (PF): Do you see platform-based BPO as a major threat to the BPO pureplays which are not experienced in broad-based ERP enablement and implementation services?
Tibor Beles (TB):The first question calls for a long answer but I will try to keep it short. An aggregate BPO service provider must be passionately committed to process and IT excellence in its chosen function. Offshoring for labor arbitrage alone has limited benefits.
We've had a number of discussions with some of the SAP executives over the last few years regarding its highly-publicized BPO partner-program. Meanwhile, there's been a crack Oracle team quietly working on developing its own BPO strategy, led by its enigmatic commander Tibor Beles. After being been educated on the nuances of Hungarian beer in a Budapest bar recently, I decided it was time to drag Tibor away from his Karate sessions to talk about his team's progress...
Phil Fersht (PF): Tibor, why does Oracle have a group dedicated to BPO? What's the game-plan here?
Tibor Beles (TB): Our customers demand more choice when it comes to leveraging Oracle software. In addition to the traditional on-premise deployment and hosted/managed applications our customers expect us to offer BPO services powered by the software they like and are familiar with. As we don’t want to be a BPO provider, we have created the BPO powered by Oracle choice by partnering with leading service providers. Our goal is to place Oracle software under the hood of their offerings.
In 1597, Sir Francis Bacon coined the famous phrase "Knowledge is Power". While knowledge does create power to the beholder of that knowledge, it can rarely be harnessed effectively until is it shared with other entities. In today's business world, I'd broaden that phrase to "Sharing Knowledge Creates Value".
Let me explain my thinking here. Too many employees today have a tendency to hoard their nuggets of knowledge, for fear of fear that giving them away will weaken their value and, ultimately, their job security. This can sometime be as rudimentary as documenting a business process, through to sharing knowledge of a particular market, discovery or idea.
It never ceases to amaze me how much better businesses could perform if their employees were better at sharing their knowledge with each other, and - ultimately - with their trusted partners. We can talk for hours (and have done) about how you can develop service levels, contract stipulations and incentive plans to drive more value into a service-contract. But ultimately it's the spirit of collaboration and knowledge-sharing that wins the day.
How can firms create this spirit? Can they go out an buy some software to enable it? Can they call up McKinsey or PwC and pay for them to create it for them? Sometimes; these are measures that can help, but ultimately it's about corporate leadership driving change throughout their organization that is likely unprecedented for them. And sadly, it's a change that is likely abhorrent to the culture that has blighted so many organizations in this modern business world. This change is about making talent feel secure about their jobs and their futures.
Let's take some examples from across the sourcing industry where knowledge-sharers succeed:
Is there a recurring theme here? US-based giants with faltering commodity business models from yesteryear, making very late plays to get into the IT-BPO services business?
While I could see some synergies between Dell and Perot, this one's even tougher to fathom, unless Xerox has further plans to marry ACS with a stellar IT services acquisition.
ACS was one of the early darlings of BPO, and was right at the top of the competitive tree in the early 2000's whenever a large Finance & Accounting, HR or call center deal was up for grabs. It would always give Accenture and IBM a run for their money in BPO pursuits, and had a compeling culture and engagement methodology for many of the old world BPO engagements (i.e. a lot of lift and shift and staff re-badging).
Sadly, ACS has rather fallen away in recent times, and has struggled to cope with the aggressive entry of the Indian-centric global competitors into the BPO space. The new generation of global services providers are bringing passion and combined IT-BPO prowess into the mix, in addition to global sourcing models that are driving down the price-points.
Xerox, on the other hand, has been eyeing broader business services for a while, and I can see why they'd find part of the ACS portfolio attractive - a broader client-base, great presence in healthcare, government, hi-tech and consumer business, a strong BPO brand and global delivery presence. ACS also has a strong IT services business, but not on the same scale as the top tier.
The real challenge for this combined entity, is to cope with the new throng of competitors in this space: Cognizant, Genpact, Infosys, TCS et al., and not solely the incumbents such as Accenture, Capgemini and IBM. The combined Xerox-ACS business will have a short-term potential to consolidate a commanding position in back-office BPO areas such as document management, call center, payroll, benefits admin and accounts payable.
However, clients today are spoiled for choice with other service providers which can offer the same services at lower cost. Xerox also needs to make a quick move to push a utility delivery model, based on common processes and standards, with compeling industry-alignment. Continuing to push old-world BPO, where the customer shifts existing processes with limited transformation, is not a recipe for success.
My take? If this combined entity were to merge with a strong IT services provider and develop a coherent IT-BPO strategy, then we really have something to talk about. Funnily enough, if you combined the new Xerox with the new Dell, then you'd be looking at a company with a lot of future potential...
We inspired a lot of offline debate when we discussed the challenges facing BPO providers delivering so-called "Platform BPO" solutions. Bottom-line, if BPO service providers are competing for commodity services engagements which are underpinned by software platforms that are widely deployed by several other service providers, they face a major challenge of differentiating themselves to win new clients and avoid a price-war for new business.
At the enterprise level, selecting a BPO provider to process transactional business services for a major Oracle or SAP-based engagement is dependent on the providers' global scale, brand and competency. For these large-scale transactional BPO engagements (i.e. accounts payable, payroll etc), it's largely a commodity market these days. However, the battle is on to provide industry-specific solutions, such as health insurance processing and revenue-cycle management, banking-specific services (i.e. netting, lock-box services), retail merchandising, legal services, healthcare informatics etc etc.
For example, I had a great conversation last week with Mark Stiffler, CEO of sales compensation provider Synygy. He was faced with two choices for his business: either to provide an on-demand managed service to his clients, or license his software through BPOs in the channel. Sales compensation is an area that can be delivered on a set of standard processes, with some unique personalization to the client. It's also an area where there's a hell of a lot of value an outsourcing provider can add
So Dell finally made its major play into the IT services enterprise arena announcing a $3.9bn deal for the Texas-based Perot Systems. Unlike the HP/EDS mega-merger of last year, there is a lot less overlap between the merging entities, however, you have to assume this is more of a play by Dell to transform its commodity hardware business by refocusing its future strategy on services-led engagements.
However, while there isn't much overlap, there also isn't a lot of synergy. Why should Perot customers want to buy Dell equipment all of a sudden? Most CIOs today are looking to move away from hardware-centric IT delivery models, and onto more on-demand cloud computing models. If anything, it's more of a play for Perot to push services onto Dell's customer-base. It also opens up the lucrative healthcare IT market to the newly-merged entity.
While I applaud a bold move by Dell to transform its business model, work has yet to be done to elevate Perot's IT/BPO services business to the top echelon of service providers at a global level. Namely, Perot hasn't yet fully exploited its presence in healthcare to position leading edge IT/BPO offerings in that space, especially with the market ripe for exploitation in light of the new government initiatives, namely ICD-10 compliance and digitization of patient records. If Dell can quickly leverage this merger to make a further strategic acquisition in this space, then you can see a new player emerging. However, if they spend a whole year trying to restructure these firms and take their eye off the ball with regards to broadening the service offerings, this could present a window for several of Perot's services competitors in the healthcare space to step in...
You also have to wonder whether the largely US-dominated vendors are going to continue to consolidate in light of fierce competition from the Indian-dominated global providers. ACS-CSC anyone?
One of the most prominent industry analysts in sourcing over the last decade-plus has been Stephanie Moore. Steph started out at Gartner, before spending time at Giga, and most recently Forrester Research, where she built an industry-wide reputation as an outspoken and respected figurehead of the IT services and outsourcing world.
Earlier this year, Steph made her first venture over to the service provider side, and when she's not busy entertaining her three kids, sailing around the Westport beaches, or regaling stories of her junior golf open triumph (she swears they had color-TV back then...), Steph assumes the role of Chief Marketing Officer for IT services firm, UST Global. I thought I'd take this oppountunity to grab a few words with Steph to share some of her views on where the industry is headed, and how she's finding life on the vendor-side of the fence...
PF: Stephanie, how has the world of offshoring changed over the last decade?
SM: Phil, it has changed dramatically. In 1999, people were using offshore outsourcing to save money, but also to execute on very low-value tasks. There were also a lot of people scrambling to fix the Y2K problem. Today, it couldn’t
The recession has upped the ante for today's BPO providers: the move to providing business services in a cloud-like model is accelerating, and the real challenge for today's service providers lies in answering the following questions:
1) Do we want to play in the BPO space?
2) How do we play in this market? What's our angle?
3) How can we compete? What's our differentiation?
The challenge today is whether a provider is adding value beyond low-cost processing services. If you are only really providing an arbitrage solution, someone is going to come along and offer it for even less money, and someone else will eventually come along and provide it for even less. It's a no-win game, unless you want to become the lowest-cost provider in town and make a razor-thin profit margin.
What's interesting is this coming together of the IT/BPO model. And it's becoming much more sophisticated then simply providing a platform and some low-cost processing services. It's about integrated business services where the provider delivers the hosting, the application skills and the business services needed to help clients achieve specific business outcomes.
IT services providers have made a living differentiating themselves by providing expertise in technical areas that allowed them to charge a premium to their clients. However, as technical skills became a commodity, some IT services providers are moving up the value-chain by providing expertise that apply technical skills to specific business needs, while others have opted to scrap around for the low-cost "price per developer per hour" commodity business. Those IT services providers which think they can get away with charging a premium for commodity development services are having a rude awakening in today's post-recessionary marketplace. Most clients today are insisting on greater transparency with the costs of services.
This is where BPO gets interesting,
Yes, there is such a thing as a free lunch... Horses For Sources' official LinkedIn Group, the aptly-named "BPO and Offshoring Best Practices Forum" now has 7,000 members. This is a forum for leading sourcing practitioners to share their experiences, views, opinions, best practices and lessons learned in the worlds of IT Outsourcing, Business Process Outsourcing, Shared Services and Offshoring. You also get a free subscription to the Horses Digest. And it's FREE...
Not too many service providers have had a bigger impact on the world of Business Process Outsourcing in recent years than General Electric’s former offshore captive, Genpact. And much of this rapid growth to a billion dollars of revenue and a global delivery network, can be credited to one individual – the tenacious “Tiger” Tyagarajan (simply known as Tiger to anyone who knows him). And what an apt name for the wee fellow.
I can recall, just a few short years’ ago, when Tiger was fronting Genpact’s US business and taking on the major incumbent BPO providers such as Accenture, ACS, HP and IBM, with tales of Six Sigma excellence and Virtual Captives; dazzling firms such as Kimberly-Clark,
Wachovia and Cadbury Schweppes in the process. And when he’s not absorbed with cricket statistics
Wouldn't it had been something if there had been some sort of interactive journal during the Great Depression, where we could have truly experienced the emotions of the time, peoples' ideas for change, the stark contrasts between desperation and hope?
It's been a geniune privelege to have hosted these emotional debates throughout the entire Great Recession of 2008-9. It's incredible how attitudes have changed over these tough months - I don't know about you, but I feel a little wiser as a result - and the great interaction I have enjoyed and observed with so many of you, has made this all possible.
Here's the whole story of the Great Recession and it's impact on the global sourcing industry (in chronological order):
I spent much of last week at InsofysBPO's customer summit in Baltimore. Infy always does a good job with their events - they bring their customers together and encourage open, unstructured debate, where the good, bad and plain ugly about BPO and ITO are openly discussed. They know the best way to win business is through baring their DNA to customers and encouraging them to trust and want to work with them.
They also invited some industry personalities to wax on about their vision for the future - and some predicted rampant "consolidation among suppliers". I say they are wrong - they are clinging to their knowledge of the past and are not re-adjusting their perspective to the present. I'd be surprised if we ever see
There were a few alarm-bells ringing in the outsourcing industry with TPI's shaky Q2 results. As our recent buy-side survey data indicates, in addition to the multitude of service providers and consultants, outsourcing interest and uptake is on the rebound, so what should we read into TPI's 38% drop in revenues from Q2 2008? I spoke to leaders of all the key sourcing advisors to get their candid input on how their firms were faring, and whether TPI’s results are reflective of the sourcing industry in general.
Rival Equaterra, which is currently privately held, reports to us that its Q2 results have increased 10% over 2008, expects Q3 to perform well, and is encouraged by strong IT outsourcing activity, with on-plan BPO advisory business. Another rival, Alsbridge, added: “First half revenues are up 40% on a 1st half ‘08 to 1st half ‘09 comparison. Across the board, we see good demand
The new wave of BPO deployment has arrived quicker than many of us anticipated. The recession has driven some common-sense into a BPO value-proposition that was previously centered predominantly on some form of labor arbitrage, with many service providers muddling their way through to attempt to run their clients' process for less cost - and make some sort of profit. Sometimes they pulled it off, other times they failed. Many are currently in a state of semi-transition, with the success of their BPO engagement still hanging in the balance.
Now we've clearly arrived at a turning point in BPO development, which we can put into the following three categories:
1) Straight Lift and Shift: the antiquated form of BPO where client takes "as-is" processes, hands them off to a provider, which subsequently attempts to run with lower staff costs. In many cases it's a simple "re-badge" of existing personnel, with the provider simply employing smaller numbers of the existing delivery team to make a profit on the deal. In most modern cases, the provider will supplement onshore staff with offshore. There is little (or no) enhancement of software applications to standardize workflows and add a modicum of transformation into the engagement.
Likely outcome: Inefficiencies with processes are magnified considerably, change-orders and procedural changes are cumbersome and expensive, client finds it challenging to reduce onshore headcount, and anticipated cost-reduction is not reached.
2) Lift, Shift and Transform: Same as Lift and Shift, but the client and service provider work together to re-map existing processes onto a pre-defined new set of processes.
My definition of corporate failure in this market: "We're gonna ride out 2009 and go for it next year." What are you going for? What are you riding out? If you want to remain successful, you better get your act together now and formulate a game plan.
Too many firms are sticking to their old business models, in denial that they need to do anything different (besides firing a few people), and cling to the vein hope that their fortunes will dramatically turn around in 2010...by doing NOTHING. And I can be 100% sure that everyone reading this is either working for a firm with that attitude, or knows someone who is. Smart executives sense stagnation, and a lot of top talent is re-thinking whether their current employer has what it takes to prosper in a post-recessionary economy. (P.S. a prize is available for the first person to reveal this icon of executive innovation from the '80s...).
And the top tier isn't always offering the most appealing place to work in this market - am seeing several top executives broadening their horizons for unique companies geared for growth in this new economy. Start-ups and small companies, for example, which are plugged into the new economy are becoming vogue. Many people are realizing that no job is particularly secure anymore, so if you're going to take a risk, why not now?
The industry's next phase of growth is unlikely to be dominated by the mega-mergers of the past (DEC/Compaq, HP/EDS etc.). It's going to be focused on service providers moving into partnership engagements with clients, where they can develop specific IP and industry process competence.
I see this trend escalating in the application development arena, as this area is now approaching significant scale and maturity, but also believe this will pave the way for future BPO development, as service providers find new opportunities to layer on business process services that compliment their application development work. It's really about learning specific industry process, how they can be enabled and optimized by smart applications, and processed by smart people who add value.
This isn't simply lift and shift where the service provider does the same with less - it's where the service provider brings specific expertise to the table that allows the client to scale its business globally. It allows the client to focus more heavily on its core competencies, which provide the real value for its own growth. And it allows the service provider to develop specific industry process knowledge of its client's industry that is can replicate across its own knowledge workers. The maturity of the application outsourcing marketplace is now going down this path, where the leading service providers have the lions' share of the talent - and the scale - to provide the technology development services that allow clients to invest in their core industry services that make up core value proposition. Why invest their scarce resources in IT development when they can find a third-party to do this for them and invest in areas that will improve the front-end of their business?
One prime example of this is the new partnership between UK-based industrials magnate Invensys and service provider Cognizant. Invensys wants to focus on on its core competency of product definition and architecture and developing its industrial automation platform, with Cognizant being its technology partner for product development.
Invensys can focus on where it's best, and Cognizant can make a surge into the manufacturing industry. Invensys will learn from Cognizant's technology skills and Cognizant from Invensys' manufacturing process and operations prowess. Jobs are not lost, and existing employees are going to enhance their careers with new industry and technology knowledge. If this partnership works, both firms will end up creating more jobs to support their expanding business portfolios.
You can read more about this partnership over at Think Global.
I was having a little joke yesterday, where the premise was: "So what do we do once all the jobs have been offshored?" My initial solution was: "That's easy - we create great low-cost skills here, and we bring them all back". The other partaker in the mirth added: "Wrong - we will still be offshoring, as all our business headquarters are moving out too. In effect, we'll be offshoring jobs to America".
As we rolled around on the floor in uncontrollable laughter (OK, it wasn't that funny), it did hit home how unattractive the US is becoming for businesses.
US corporate taxes are among the highest in the world.
The cost of living and wages in business centers such as New York, Philadelphia and Chicago is off-the-scale.
The cost of healthcare is a killer - and, despite the excellent intentions of this new proposed healthcare reform, the tax burden on the US business is going to get even worse. For the cost of one years' benefits package in the States, you can hire a full-time ABAP programmer in your offshore captive for that entire year, or pay for half of one (for the entire year) with a service provider.
Other Western countries are far more corporate-friendly. I was helping a friend with a business plan the other day, and the cost of hiring qualified graduates in London (yes, London) is half that of New York (and getting even cheaper in this market). Why even consider setting up a global business in the US these days in this virtual environment?
As much as I admire all the efforts of President Obama to drive reform and economic stimulus into the US economy, I just don't see the environment for the US business to thrive and create new jobs being created. I'd like to see stimulus money being allocated to helping businesses create new knowledge-jobs that are competitive with those on offer from India, Europe, China etc. The way things currently stand, the US business environment has never been so ripe for outsourcing - not just for accessing lower-cost skills, but also for our businesses themselves.
One of the grandfathers of the outsourcing industry is Peter Allen (see his recent interview with us), who has established himself over the years as one of the pre-eminent thought-leaders, practitioners and faces of the industry. Peter has also been one of my closest industry companions in blogging on global sourcing issues, with his popular "Consider the Source" blog-journal. He has also been the consistent face of leading sourcing advisor TPI.
Yesterday, Peter resigned from TPI to pursue other opportunities in the industry, after many years with the firm. There is no shortage of suitors for his services... and I look forward to hearing where he lands. Peter wanted to share his personal thoughts with Horses readers at this time:
"The global outsourcing and offshoring industry needs to step up to a new level of performance. The sources of leverage that can bring value to companies far transcend wage arbitrage. I want to help bring to reality a new class of leverage - of investments, platforms, and solutions."
"It has been a privilege to work alongside my colleagues at TPI. A twenty-year record of great outcomes for clients and providers alike is the product of commitment to a culture of value creation for all participants. We do that."
"The current global recession is an awakening for the industry - as much opportunity for redefinition as it is risk of irrelevance. I really believe that the winning equation is one that maximizes the power of leverage to the benefit of productivity. That means that buyers and providers adopt new models for partnership to weather variances in economic conditions."
These are critical times for the outsourcing advisors. The process of managing outsourcing transactions has increasingly commodotized over the last couple of years, and the recession has only exacerbated this issue. The sourcing advisors need to focus on helping clients disrupt their current global business infrastructures, help them execute after the transaction and manage the ongoing outsourced environment.
People like Peter understand this, and I hope advisory firms like TPI continue the work he has done in helping drive these new areas of competency, and hiring consultants who have other skills than solely deal negotiation. Those that focus purely on cranking out transactions will struggle to grow in this new environment.
Good luck Peter - I know many people in the industry join me in wishing you well on your future journey.
As we've predicted, based on our surveys, many tough discussions with buyers and general chit-chat, sourcing evaluation is now picking up, and we can expect to see a wave of deals in Q4 this year and Q1 next year (and beyond).
First, the sourcing advisors, management consultants and analysts get busy with their clients showing much more urgency, and then we can expect to see some deals happen. Based on my conversations with the advisory community over the last couple of week we're now in that former category. I've even had a couple of people come to me with the question "Is this 2001 all over again". My answer is: "In some ways yes, but the types of deals and the global delivery execution is markedly different this time".
Now why is this?
Post 9/11 we saw a major spree of ITO, call center and end-to-end HR BPO wave. ITO worked, call center is stuttering with offshore value, and HR BPO - in its past form - failed
The IT infrastructure outsourcing deals were onshore mature contracts with established providers such as IBM, CSC and HP, experienced at driving economies of scale with their delivery models. The application development and maintenance deals back then were among the first to truly leverage offshore
However, one shimmer of light amidst this gloom is the increase in activity of service providers buying up business' captives or shared service operations (often under the guise of a new "client win").
EXL's acquisition of Schenider Logistics' Czech operations is yet another recent example of a service provider making a strategic move to add scale and expertise to its delivery portfolio. In this case, EXL is cementing its European presence in a unique and attractive sourcing location, enhancing its F&A BPO business and bolstering its multilingual capabilities, in addition to incorporating supply chain and logistics management process expertise - an area of increasing importance in the industry.
So why is this good for industry?
2009 is going to be remembered as the year of cost-containment. Most client discussions are not very sexy – it’s largely about cost, as opposed to innovation or revenue generation. McKinsey recently revealed 70% of its current client engagements are cost-reduction focused, only 30%focused on revenue-generation (the opposite of a year ago).
I strongly believe our businesses, while being diligent about cost-containment, must use this opportunity to make fundamental changes to their business operations in order to emerge more profitably in the future. Simply ripping away cost elements and failing to improve access to global corporate data and processes, is a massive wasted opportunity to be more competitive over the long-term.
I wrote recently about how the lay-off culture that has afflicted both the US and UK in recent years, where many firms treat their labor as a variable cost that can be scaled-up or down at will, depending on the next quarterly forecast. I cannot stress enough the damage this can cause to businesses as the economy recovers. One common theme that has dominated discussions with business leaders recently has been their surprise at the amount of visible cost they have been able to take out of their businesses as they move from a revenue-generation to cost-containment strategy.
It’s not solely the cost of labor that is highly visible – it’s the costs of technology, travel, infrastructure, real-estate etc. that can often be easily driven-down in a desperate business climate. Less visible are costs associated with poorly-integrated business processes and procedures, of dated analytical tools, of ERP systems incapable of supporting global process templates, and so on.
I wanted to share some recent dynamics from our new survey of outsourcing adoption intentions in mid-2009.
While the onus on firms today is to drive out as much cost as they can from their businesses (close to four-fifths view cost-reduction as the primary driver for outsourcing), other factors are becoming crucial for companies’ planning as they evaluating outsourcing business models, notably globalizing their businesses more effectively, re-engineering business processes, and accessing expertise from service partners.
If there's one thing this recession taught us, it is how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. Read more over at Think Global...
Since Part I of the Francisco D'Souza interview, I've been assured Frank has improved his golf handicap. Now he'll discuss his views on how ITO service providers can differentiate themselves, the convergence of IT and BPO solutions... and a few other tidbits...
PF: How can ITO providers differentiate themselves in today’s market? Is it by vertical focus, or other elements?
FD: Given the extraordinary pressure that clients are under, I think that the key to differentiation is to focus on how to make clients’ businesses stronger. Rather than focusing on technology, process or methodology, I think providers need to really understand a client’s business drivers and then sell and deliver solutions that further those business objectives. As I said before, clients are facing both cyclical and secular pressures. As a result, depending on the client, their objectives of outsourcing will be very different. Some clients seek to improve efficiency or effectiveness. Others are looking to use outsourcing as a enabler of innovation. Still others are looking at outsourcing as a tool to gain access to the best talent in the world – regardless of where that talent is located. And of course, given the significant secular changes we are seeing, many clients are looking to outsource as a way to enable agility and transformation within the organization.