The Outsourcing Blog: Horses for Sources

Eulogizing on the Eurozone with Principal Euan

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.

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"?

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.

Taking a walk on the Wacki side...

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?

Efstathiou uncut: all aboard with the sourcing skipper

When I returned to these Western shores 6 years' ago, I was given the the unenviable task of working with the indomitable Andy Efstathiou. 

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.

Why I joined Cognizant

Folks -

Having spent 14 years on the analyst and advisory side of the sourcing industry, it's a natural move for me to join a service provider - for both professional and personal reasons.  Having considered several options (and some of them were truly awesome... you know you are), I decided to make the service provider move, and chose Cognizant.  To keep this brief, and avoid a completely blatant sales-pitch, here were my reasons:

• They're in high-growth mode
• They have a truly dynamic culture and offer something unique to their clients, in terms of value and energy (customers rarely lie...)
• They focus on genuine IT-BPO, leading with industry acumen, supported by global scale
• Their CEO reads this blog (well, that did worry me a little...)
• They have acquired the letter "C"... wait for the announcement

I'll be working in a strategy and communications role, so hope to continue stimulating the debate right here... please keep coming and we'll keep the story of this industry rolling.  And am always open to suggestions for topics to write about, or receive compelling insights from you, so email me here if you like. 

PF.

Consulting the Oracle: Tibor's talktrack (Part II)

  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.

Consulting the Oracle: Tibor's talktrack (Part I)

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.

Insecurity is the modern corporate disease

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:

Xerox copies Dell's example and acquires ACS, but again, where's the fit?

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...

Forget Platform BPO, it's really about the Business Services Cloud (Part II)

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

The Dell finally tolls - but is this the right fit?

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?

Stephanie Moore's Law

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

Forget Platform BPO, it's really about the Business Services Cloud (Part I)

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,

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Mixing it with the big boys: A Tea-interval with Tiger

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

The entire Great Recession of 2008-2009: Blogged for the outsourcing industry

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):

The future of the sourcing industry: DNA and industry knowledge trump scale

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

Crash and Learn: is TPI's "quartus horribilis" reflective of the sourcing industry at large?

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

Introducing new-age BPO: the standardization/personalization balance

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. 

Is this a good climate to take a career "risk"? Or is it riskier staying where you are?

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 next stage of industry development: Co-learning partnerships, not mega-mergers

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.

Who's looking out for the US business these days?

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.

TPI loses its talisman

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.

Is this "2001 all over again" for outsourcing?

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

Captive sell-offs: good for innovation, good for employment

I know I've been depressing everyone with calls for change and for our flagging companies to step up and disrupt their business models.  But did I ever say I was here to make you happy?

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?

Everything you need to know about Supply Management BPO (but never dared to ask)

Folks - we're staging a webinar entitled "Supply Management BPO: Why Business and Technology Transformation is Critical for Long-Term Success". 

It’s time for disruption, not stagnation

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.

Outsourcing drivers in today's climate: large companies want to globalize, mid-sized companies seek expertise

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...

Being Frank about Global Sourcing: An interview with Cognizant's CEO (Part II)

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.

Being Frank about Global Sourcing: An interview with Cognizant's CEO (Part I)

Observing the rise of the new wave of service providers over the last few years, the one that has scared the living daylights out of all of the incumbents is Cognizant. 

Now a $3bn company with deep footprints in the world'slargest global financial institutions, consumer businesses, manufacturing and healthcare organizations, Cognizant can no longer be considered an upstart.  It's now part of the industry elite; quietly and cleverly aligning its value proposition to the post-recession era.  As CEO Francisco D'Souza points out,  we're in a time of not only cyclical change, but also secular change.

I've had the pleasure of talking with Frank a few times over the last couple of years and have been impressed by his high-energy, thoughtful and common-sensical approach. I was even more surprised when I received emails from an "FDSouza" on the Horses... took a couple of times for me to realize who this guy was.  To cut to the chase, Frank is one of the youngest IT and BPO industry leaders of the modern age, having risen through the management ranks of Cognizant to assume the role of President and CEO at the beginning of 2007 when the company was announcing its landmark Kimberly-Clark engagement.  And when Frank isn't busy hacking his way around the local golf course, or playing with his kids, he managed to find some time to share some of his views of the global sourcing industry with us...

Can 6-sigma really help execute an effective sourcing process?

One major service provider that has quietly - and very effectively - grown its US presence over the last couple of years is HCL.  And behind the scenes is a very classy guy, Debashish Sinha, who pulls the strings across its US sales, marketing and operations units. 

Anyone dealing with HCL these days is always glad to have Debashish around (despite the fact he organized their last industry event in Orlando).  Prior to HCL, Deb has consulted for both Conscient Partners and NeoIT, in addition to being Gartner Group's principle analyst for IT services and sourcing.  And when he's not comparing the subtle nuances of Malbecs or flying planes (not simultaneously, I assure you), he has some excellent views on the effectiveness of 6-sigma methodology in a sourcing environment.  Over to you Deb...

About four hundred years ago, Galileo Galilei noted that “We must measure what can be measured, and make measurable what cannot be measured,” a philosophy now embodied in the well-tested axiom “You can’t manage what you can’t measure”.

So how about managing the Sourcing cycle? How do you actually measure Risk, or Internal Readiness, or even effective Governance?

One potential option could be to use Planning for Six Sigma tools to “make measurable what can’t be measured”. After all, it’s still one of the most prominent approaches for managing by measurement.

Hear the great Hags on global finance transformation

I never knew that one day I would get to co-host a webcast with the great John Hagerty, but tune in on June 18th at 2.00pm ET to hear about Transforming the Global Finance Function in Today's Economy.  Click here for full details, or register directly here.  And like everything else here, it's FREE FREE FREE.

John is a true legend in the analyst world, where he delivers insights in the world of finance transformation, performance management and corporate governance. He could also convince Newt Gingrich to vote for the communist party in 2012.  In addition to the great "Hags" and myself, you'll also get to hear from Joe Spears, senior finance executive at eBay, and Dominick DiPaolo, BlackLine Systems.

John Hagerty (pictured) is Vice President and Research Fellow for AMR Research. He is the recognized worldwide authority in business intelligence and enterprise performance management.  This picture also reveals the wear and tear of the analyst life -:)

Supply Management BPO - short-term body shopping trumps business transformation

It's easy to get excited with high-growth markets, but supply management BPO's different. 

While the market has grown exponentially, and a 30% increased expenditure last year is eye-opening, the nature of these engagements doesn't give me confidence that this market will sustain its growth trajectory unless customers think beyond short-term labor arbitrage, and service providers introduce significant process and technology enhancements to the early adopters to help them optimize their delivery.  This "lift and shift" model could well result in customers losing more than they save.  Read more at Think Global.

Executive ADD: The disruptive scourge of social networks in the services industry

When you try and quantify the impact social media is having on industry, it's actually quite alarming how dangerous this medium can be on our lives and our careers. 

We discussed the impact of blog culture over a year ago, but the speed by which social media has crept into our daily activities, already dates many of the opinions expressed back then. The information world has altered radically, and this economic environment is accelerating the speed of change.

As an analyst in global services industries, my job is to get across insight and opinion to as wide an audience as possible.  A couple of years' ago, if I'd produced an article or report, I'd probably send it out to about 100 people... that was the extent of the audience with which you would typically deal, and you'd rely on your firm's marketing department to disseminate press releases and media advisories to drive more eyeballs to your craft. 

The Campbell chronicles: an exclusive interview

If the Queen was handing out honours for outsourcing, then "arise Sir Kevin" would be a likely outcome.  However, unless Accenture can grant him a British passport, even their PR heavyweights may struggle to pull that one off.  

Kevin Campbell is a legend in the outsourcing business (I refrained from saying "the Tiger Woods"...), having begun his career with the old Andersen Consulting business in the 90's before making his name as the COO of Exult, the protagonist of HR BPO, where he because synonymous with many of the early multi-process BPO deals for clients such as BP, Bank of America and International Paper. 

Upon Exult's sale to Hewitt in 2005, Kevin found himself returning to his roots with Accenture, where he how has been elevated to overseeing the firm's entire $9.2 billion global outsourcing business, when he's not watching re-runs of the Packers and terrorizing his kids. 

I managed to catch-up with Kevin recently, and was surprised to hear he's a regular visitor here, so convinced him to share some of his views on the industry with us...

Shaping your career in this sourcing industry

There's one character in the sourcing business those "in the know" know... Larry Janis.  When senior management look to hire or poach key talent, Larry is known as the discreet man with the black book.  He's also a great guy, and agreed to post a few suggestions on what sourcing executives should be doing to shape their careers in this environment.  No-one in the business knows the hiring dynamics of buyers, consultants and service providers as well as Larry...

PF: Larry – you’ve been a lead search consultant in the sourcing industry for many years. In terms of roles and openings both buyers and service providers are looking for, what’s changed today?

LJ: The stress in the global economy has certainly changed in the outsourcing provider space. Add to this, HP/EDS merger/acquisition, the Satyam scandal and staff reductions at several of the major providers. As a result, both the

The Kraft of Outsourcing: Learnings from Lee Coulter (Part III)

And finally… the last tranche of our three-part interview with Kraft’s Lee Coulter. Here’s Lee’s take on attributes service providers need to demonstrate, and some advice for budding sourcing executives today…

PF: Lee, when evaluating outsourcing service providers today, what attributes should companies look for? What should they try to avoid?

LC: That is a really big question and not one I am sure I can answer in less than ten pages. Every engagement is different, and the basic dimensions of suitability are: service scope, service quality, service cost, cultural match, the leadership teams, partnership capability, and risk. Assuming that you have providers capable of doing the job and meeting the objectives, then it is about the team and the commitment to true partnership (a topic for another day). These two things lead to a measure I use… confidence. So you would score the providers

Talent Management vs. HRO – it’s not an “either or” proposition

If you've ever ventured into the brave world of HR Outsourcing (and you need to be brave...) the chances are you'll hear the views of Ceridian's Keith Strodtman. 

Keith has been a constant at the global $1.6 billion HR services and store-card solutions giant for many years now, and when he's not coaching his twin girls' fastpitch softball team (that's "rounders" for any Brits on here), he's been running Ceridian's global HRO practice.  He is also widely recognized as HRO's smoothest man, with a constant smile, never a raised word, and never a hair out of place. 

Keith has some excellent views on how companies can use third-party managed services to take on their administrative work and focus their HR executives on what they should be doing:  helping develop their organizations' talent.  Over you Keith...

I’m not sure about you, but I don’t get why some analysts and bloggers

Why the lay-off culture is far more damaging than offshoring

Ever since President Obama proposed to change the IRS tax code that regulates how US corporations declare income from international activities, I've been thinking about other measures governments can take to slow the recession and help businesses become less myopic with how they navigate these rough waters. 

Reading between the lines, he appears to be targeting a revenue grab, while making political overtones against companies which use offshore resources.  However, he's simply penalizing firms from being more productive with their exports.  Sure, there are issues with tax fraud from havens such as Bermuda or the Caymens, but this is primarily an issue with individuals, not large enterprises. 

Why penalize a US conglomerate for manufacturing diapers in Brazil for the

The Kraft of Outsourcing: Learnings from Lee Coulter (Part II)

During  Part I of Lee's interview, he talked about the development of the global sourcing industry and how companies were now approaching sourcing strategy in today's economic climate.  In more Blackberry-smashing style, Lee goes on to discuss his theory of "innovation" within outsourcing relationships, and delivers some tips on how operations leaders can improve the performance of their service providers (without resorting to baseball-bats, water-boarding or enforced transition workshops at Epcott).

PF: Lee, what is your theory of "innovation" within outsourcing relationships, and are we really seeing it in today’s engagements?

LC: I have a pretty simple theory of innovation. We aren’t seeing it today because most of the clients today didn’t buy it. Somehow we believed that

Globalizing the business is the key to outsourcing today

As we discussed last week, it's clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore.  While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business. 

If there's one thing this recession taught us, it's 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.  Outsourcing doesn't provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level.  Check out our thoughts based on new survey data over at Think Global...

The Kraft of Outsourcing: Learnings from Lee Coulter (Part I)

There is only one Lee Coulter.  Service providers tremble at the very sound of his name, consultants run for the hills... practitioners flock for advice.  And when he isn't performing carpentry or attempting cordon bleu, Lee has the small task of being SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth".  He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities.  He even once threatened to smash up my blackberry.   

On a more serious note, Lee has a practical and experienced perspective on how enterprises today should approach global sourcing, and we have enjoyed his exuberance and candor in our buyers' group meetings.  Today, we are blessed with the first part of a lengthy interview with Lee, where he is discussing how practitioners should approach global sourcing in this economic climate, how to select and engage the right service partner and how to decipher and execute innovation (yes, I said it) in a global sourcing environment...

PF: Lee, we’ve been through some major developments in the world of global sourcing over the last decade. As a senior operations leader in one of the world’s largest multinationals, what, in your opinion, has worked, and what hasn’t?

LC: Let me start by saying that the global sourcing industry has proven its most basic value proposition, and that is a huge success. There are many skeptics of

Wipro and Oracle partner to blow-up the BPO delivery model

Folks - I can exclusively reveal to you today that Wipro BPO and Oracle are shortly going to announce a partnership dubbed "simPlify", whereby Wipro will deliver PeopleSoft HR to both mid-market and high-end clients via a hosted utility BPO service, that will cater for 20 major countries.  They will also partner with The Hackett Group as part of the arrangement to provide performance benchmarks for HR processes.

The mid-market play is a true move towards "one-to-many", whereas the enterprise play will be a more customized approach.  Clients will need to invest

Take part in our Budapest debate next week... from your front room

This Tuesday, we're holding a "World Exclusive", with a distinguished panel of Horses-readers being webstreamed live from the 9th Annual European Shared Services and Outsourcing Week in Budapest Hungary.  For those of you unable to make the conference, you will have a chance to take part in the debate via a live blog-cast streamed to a computer near you.  I do hope you can partake in the banter.

*World Exclusive* Horses For Sources - Live From Budapest

Deciphering The Business Value Of Tomorrow’s Sourcing Strategies In Today’s Economic Climate

Exclusive: Outsourcing poised to rebound

I wanted to share a few early snippets from our global sourcing adoption study, which we've been running over the last 2 weeks.  And thanks to Global Services Media, Vinnie Mirchandani, William Mougayar, Jason Busch and Dennis Howlett, who have all contributed in helping us reach close to 700 respondents, of which we had 127 enterprise buyers for IT, supply chain, finance, HR and other BPO services.

Go to Think Global to read more...

Contemplating the BPO industry with Wipro's Ashutosh Vaidya

One of the most enthusiastic leaders in the BPO industry is the man who has overseen Wipro's rapid rise in recent times:  Ashutosh Vaidya.  In-between playing squash, watching cricket and clocking up a ridiculous quantity of airmiles, Ashutosh has overseen a series of Finance & Accounting, HR and supplier management wins that have moved the service provider into the BPO industry's top tier.  I asked Ashutosh to share his views of the current state of the BPO industry and what steps need to be take to ensure the continual growth of the business in these times.

PF: Ashutosh, we’ve been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn’t?

AV: Indeed the BPO world has come a very long way over the past decade. In fact, 2009 really marks the 10th anniversary of the meaningful 3rd party BPO

Time to scratch that 7-year HRO itch

So it's coming again this week... the 7th annual HRO schmooze-fest in New York's plush mid-town Hilton.  Yes, I've been to every bloody one and I swear this will be the last :) 

This time I am assured there will be:

• No rubber chicken

• No dodgy awards

• Lots of buyers

In fact, with the industry enjoying something of a revival, this should prove to be an interesting experience, with focus on the core elements of HR operations:  payroll, benefits, recruiting, talent management and HR

Contemplating the BPO industry with Infosys' Ritesh Idnani

When he's not tinkering with his fast-cars and rock music, Ritesh Idnani has emerged one of the key guys behind Infosys' prominent rise as a leading BPO provider.  But's it's not been an easy ride...when you get up close, you can start to see some grey hairs creeping in to defy those baby-face looks.  I've known Ritesh for a number of years and thought it ample time for him to share his views on the development of the BPO industry and what holds for the future in these crazy times...

PF: We've been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn't?

RI: The emergence of outsourcing is not a new phenomenon. It has been practiced by corporates from the 60’s, but it is only in the last decade or so that corporations have recognized the phenomenon and actively engaging in outsourcing as a lever to reduce the effect of non-core activities contributing to the wrong side of P&L .

Supplier Management BPO breaks a billion

I wanted to share a few early snippets from our forthcoming market landscape on Supplier Management BPO services, which is due to hit the shelves next month.  The market surpassed a billion dollars in expenditure for the first time last year with a 30% hike in expenditure on new multi-scope BPO contracts.  Find out more over at Think Global...

Kicking off the "Innovation" discussions: Oracle's Roger Turnham

One of the nicest guys in the BPO industry is Oracle's Roger Turnham.  He's been Oracle's brains-behind-the-scenes since BPO was a mere twinkle in Larry's eye four years' ago.  Many of you have been dazzled by Roger's Texan charm as the software giant develops its BPO partner program for service providers.  He also has some very interesting views on innovation strategies that can add significant value to a BPO engagement.  I am going to hone in on the "I" topic over the coming weeks, and asked Roger to kick off the discussions... over you you Mr T:

Innovation: What’s in a Name?

Over the past four years I’ve sat through BPO panel discussions on innovation, I’ve listened to some of the world’s largest BPO customers complain that they can’t get it, while BPO providers claim great success in delivering it. Either somebody’s lying or the word is like evolution: It’s so broad a word that it can mean anything you want it to. To extend the analogy: Evolution is a word that means everything from change over time to the origin of matter, to a cosmic explosion that created everything, to why some of us are big and others blond and – my personal favorite – how goo turned into you. If “innovation” is like evolution, it can mean anything, or everything, or nothing.

So, what is it?