The Outsourcing Blog..."Horses for Sources"

Preparing the new organization for life after outsourcing

I wanted to share an article from last year that discusses how enterprises today can better prepare their key staff for life after outsourcing: 

The outsourcing debate over recent years has been dominated by the operational ability of companies to transition processes to a third-party supplier to manage. Too many companies have presumed their business will carry on as it was pre-outsourcing, but with third-party staff managing some of the business functions. However, in the majority of outsourcing efforts there is a degree of employee transition, and when this happens there are leading practices for both transitioning and restructuring the retained organization.

Experience demonstrates that those companies that proactively prepare their management effectively to:

(1) Modify their roles, responsibilities, and management styles,

(2) View outsourcing as a strategic tool,

(3) Learn new skills, and

(4) Change their daily routine...

...are those that are able to achieve value from an outsourced environment.

The full article is featured in Crossing media's HROToday magazine, and can be accessed here

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WNS enters the BPO big-time

So the long debated and much anticipated saga of the Aviva BOT (Build-Operate-Transfer) has finally been resolved, with WNS Global Services taking on a $1 billion contract to become the British insurance giant's BPO provider of choice for the next 8 years.  WNS will be assuming all of the current 24/7 Customer contact center work and some of EXL Service's F&A work, with the latter's contract remaining until 2012.  This contract follows a storming 2007 for WNS, where the Mumbai-headquartered firm has made significant inroads into both financial services and retail sectors, in addition to its already dominant position in the airline sector. 

Some key points

What the hell is KPO and where is it going? Answer: PhDs on tap

During this year's NASSCOM BPO summit, we were subjected to a deluge of three-lettered acronyms which (let's face it) aren't particularly relevant today - as Pramod Bhasin so eloquently opined.  And while "BPO" is clearly a broad and fluffy term that is now used to to describe any type of outsourced process solution that isn't IT, "KPO" is even more vague.  In fact, I discover a new firm daily which claims to have a "KPO" solution, ever since I invited every man and his dog to partake in my new research effort.  And when you have the Chairman of NASSCOM asking "what the hell is KPO?", you know there is a communication issue out there.

So why should we care? 

Sourcing advisors - your opinion is valuable

We've had some pretty spicy debating this year about the role and importance of third-party sourcing advisors.  In addition, we've had lively discussion on the boutique advisors which are proving to be an active low-cost channel for many buyers.  As part of my ongoing research into this market, I am very interested in what today's buyers and providers of outsourcing services are experiencing with the sourcing advisor medium.  Please take a few minutes to add your opinion here. And yes, you can remain anonymous if you prefer.

The Evolution of Captive and Outsourced delivery models for business processes: what is the right option for your company?

We are privileged to showcase the following incisive article from my good long-time friend Graham Russell, who leads Global Transaction Processing for pharma giant AstraZeneca.  Graham has been a long-established and respected authority on shared services and outsourcing for many years, and is one of a rare breed of executives who has had many years of experience managing both models.  I can't think of many other people in the industry more qualified than Graham to discuss the merits and shortcomings of both captive and outsourced delivery models.  Over to you Graham:

Birth of captives

Once upon a time, global and pan regional companies operated as a collection of single country businesses. Their back-office financial support was organized in the same way, with processes and systems being developed at a local level in each country. In the eighties, new global companies such as Microsoft entered the scene and were able to quickly organize their businesses and their back-office support services in a different manner since they were able to start with a clean sheet of paper, making them appear lean and nimble.

A final word from India: moving beyond "old BPO"

As we discussed last week, BPO is rapidly evolving into "Global Services Provision". Most enterprises ventured into early BPO engagements to take advantage of the quick cost-savings on offer from employee remediation, using low-cost offshore labor on offer from outsourcing service providers. Many enterprises undertook BPO in times of financial distress, their priority centered on their year-end balance sheet and satisfying short-term shareholder demand, as opposed to long-term strategic thinking.

NASSCOM dispatch: "We're now past the era of BPO" (Pramod Bhasin)

Have just listened to the inaugural NASSCOM address delivered by Som Mittal (President, NASSCOM), Ganesh Natarajan (Chairman, NASSCOM), Shri Jainder Singh (Secretary for IT and Comms Department for the India Government) and Pramod Bhasin (CEO Genpact).  My main observation is the level of energy, passion and enthusiasm for the industry by the speakers - a far cry from some of the tired, jaded speeches I have been subjected to in the States and Europe recently. 

BPO: It's all about taking ownership to get results

Our last debate about about "Platform BPO" got me thinking more about how outsourcing PMOs can be more successful at delivering these engagments, and reaching a desirable operating state sooner.  While my good friend from SAP's BPO group, Gianni Giacomelli, makes an excellent point that service providers need to leverage economies of scale and process optimization ruthlessly to hit their targets, it also raises the question of how outsourcing PMOs within the buyer need to step up to the plate to take more owenership over their outsourced processes.  (Gianni wrote an excellent piece here last year entitled "Why a good BPO provider is not enough for a successful BPO service delivery" on this topic).

Many BPO engagements are currently a lot more complex than IT outsourcing engagements, where there are many additional challenges from the buyers' standpoint, namely training personnel, mapping new processes, transfering knowledge, establishing realistic service levels, developing workable reporting models and understanding which processes can be offshored successfully, and which of them should remain onshore - on inhouse - with the buyer. 

Finance and Accounting BPO continues its growth path

As we picked up on here a few weeks ago, the F&A BPO market has had a red hot 2007, and this growth is continuing into this year.   The market saw a 30% growth in expenditure, a 20% growth in total contracts, and new contract expenditure totaling close to $4bn in contract value.  So a record year and a critical mass is being reached.  The barriers to entry in this market are getting harder and we're getting a clearer picture of how this could play out.  So, what's driving this, and who are the key players?  Read my aticle in the new issue of FAOToday magazine.

Join the BPO and Offshoring Best Practices Forum

Sign up now!

I am extending an invitation to HFS readers apply to join our new networking group on LinkedIn entitled the "BPO and Offshoring Best Practices Forum" - we already have 850 members signed up.  This is intended to be a forum for leading outsourcing executives to share their experiences, views, opinions, best practices and lessons learned in the world of business process outsourcing and offshoring.  You will also get a chance to participate in a "State of the BPO Industry" online survey next month.  And it's FREE.

 

BPO partnerships are opportunistic, rarely strategic

Having worked closely with both ICG Commerce and Genpact for the last few years, it was a positive step forward for the firms to announce a partnership, but I believe the companies should go a step further and merge.  Partnerships like this are normally opportunistic; they help the firms team up for broader finance/procurement customer bids, as they can be vulnerable when competing with Accenture and IBM, which have broadscale finance & accounting (F&A) and Procurement BPO solutions. 

Happy birthday Horses for Sources

124 posts, 548 comments and ONE YEAR later, this blog continues to (somehow) prolong the dialog on the "O" topic.  I have learned so much from some of the excellent views, opinions and insights from so many of you - I hope some of you have too.

Here are some of my favorite highlights:

Can this Marriage Be Saved?

You may recall the excellent guest post "Upward, Onward, Onsource!" by my good friend Deborah Kops, back in November last year.  Deborah is widely recognized as one of the outsourcing industry's foremost thoought-leaders, having led global transformation efforts at Deutsche Bank and Bank of America before helping to establish PwC's outsoucing division.  Today, Deborah is Chief Marketing Officer for WNS Global Services, a leading offshore BPO and KPO provider.  BPO today is all about governing your service provider relationship, and whether or not you view your vendor as your partner, the whole experience is certainly like a marital relationship (better hope my missus doesn't come here...).  Thanks Deborah for sharing this great article with us... over to you:

Will the EDS acquisition spark a BPO feeding frenzy?

So HP acquired EDS.  Wow.  Biggest services news since HP acquired Compaq a week before 9/11?  In my opinion it is, anyway.

We discussed here in January the issue of consolidation among large outsourcing suppliers, and the general view was one that we would be unlikely to see acquisition among services firms that were similar in nature:

Outsourcers like to acquire firms that bring something new to the table to enhance their outsourcing offerings - for example new technologies, or a niche expertise that gives them competitive advantage.  Too many large outsourcers are too similar... they overlap too much and a merger would often end up as an unprofitable exercise and result in a mass exodus of key talent.

HP/EDS redux

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hewlett-Packard warms to bundled BPO/ITO

I spent some time at HP's industry analyst event in Boston today, and was surprised to hear its leadership openly embracing BPO as one of the company's strategic initiatives. Having witnessed the firm quietly picking up several large - and complex - BPO deals over the last 3 years, I have been disappointed that CEO Mark Hurd has, until now, chosen to talk up other product lines of his company - i.e. its infrastructure and printer businesses, leaving its promising BPO service line to take a backseat.  Meanwhile, several of HP's services competitors have been aggressively touting BPO as a major strategic arm for their businesses, despite the fact their BPO market presence is far inferior to that of HP's.

I will be writing a lot more about bundled outsourcing solutions in the coming months, as I firmly believe the future of outsourcing lies in outsourcing vendors' abilities to deliver hybrid business process and IT solutions in a managed services model - either under a single vendor, or under a well-governed combination of best-of-breed players.  HP's new outsourcing client, Molson Coors,is a bundled F&A, HR and IT engagement, which can make sense for many mid-size firms of a similar size, where having a single throat to choke, combined with the fact that their provider is transforming business processes in tandem with their corresponding business applications, can prove to be the right way to go.  However, I do emphasize the "can" here, as it's really all about how effectively buyers govern their vendor relationships, and understanding what works best for them.  Again, it's a question - in every instance - of Horses for Courses....

March madness: little advisors, Starbucks redux, F&A is bubbling back... and EDS gets active

So what was the month of March all about?

Little outsourcing advisors.  The outsourcing advisor debate continued on Deal Architect.  We opened the debate here where we discussed the plethora of small boutique outsourcing advisors that continue to be influential advising on outsourcing engagements.  We also kicked off a heated discussion thread when we discussed what enterprises should look for in an advisor.  Vinnie makes some interesting comments on why many firms find advantages with the smaller players, especially when established advisors can suffer from Stockholm Syndrome and refrain from aggressive negotiation tactics with large vendors.  Bottom-line, it's "Horses for Courses" when enterprises decide what's best for them... now where is that recurring theme from again?

Starbucks redux.  Returning CEO Howard Schultz made a quick decision to perform a U-turn on the retailer's HR Outsourcing (HRO) engagement with Convergys, which got debated here.  HRO has proved too much of a distraction for the firm’s management and staff, as the firm goes through a major restructuring to improve its offering to its customers, close some US stores and slow down opening new ones.  With the contract only eight months old, you cannot cite operational issues as a prime reason for this reversal of strategy.  As only Convergys was involved in the initial blue-print deployment work, both parties can exit the agreement before any serious implementation efforts have started. With the press trying to find flaws in the HRO model, I have been at pains to point out that only a small handful of HRO deployments (3%) have actually been terminated.  While comprehensive HRO deals may be under continual scrutiny, the demand for smaller scope HRO solutions in transactional areas is still healthy, with ADP announcing it is servicing payroll for 100,000 of Sodexo's employees.  The fifth annual HROWorld show this year should be interesting... and yes, I will be there.

Finance & Accounting (F&A) Outsourcing is bubbling again.  There are a number of major F&A BPO pursuits well underway at the moment, with the market showing strong signs of a pick up this year after a slowdown in the latter half of 2007.  Watch-out for my upcoming report on this market in May.  My old friend Clarence Schmitz, who runs F&A BPO specialist Outsourcing Partners International, has also been busy expanding his company's footprint.  Only a week after he announced his firm had opened a new F&A service center in Gurgaon (New Delhi), I was invited to the opening of their new 280,000 sq foot facility in Bangalore in May.  OPI now boasts three facilities in India (their other center is in Kochi),  in addition to its Central European center in Sofia, Bulgaria.  And if you ever wanted some excellent - and low-cost - skiing, don't discount Bulgaria...

EDS is back onboard the public sector gravy train. It's been an interesting few weeks for EDS, with its contact center outsourcing and government businesses.  No sooner had it announced its joint initiative with Microsoft to develop its Dynamics CRM solutions for its call center business, that it announced it had been named one of the preferred suppliers to the General Services Administration's $2.5 bn Indefinite Delivery/Indefinite Quantity contact center services contract.  This comes hot on the heals of a mega $1.3 bn contract with the Singapore government's iDA to provide desktop services across Singapore 74 public agencies both domestically and worldwide.  Having lived and worked in Singapore, I can personally attest that the country is a true pioneer in developing Internet-enabled government services for its citizens. With EDS' recent initiatives to restructure its SAP services practice and its renewed focus on developing its legacy integration services, are we looking at a new era for the Plano TX firm?  My view is it needs to fill the F&A BPO gap in its delivery portfolio and it will have a completing array of BPO and IT services.  Don't bet against an acquisition this year to remedy this.  Drop me an email if you want to speculate further...

And more from Blogsphere in March....

Can outsourcing be a catalyst for driving down the cost of healthcare?

Outsourcing has proved to be a major "hot potato" for the US healthcare industry.  Coming from the UK, the healthcare system in the US is like comparing a Porsche with a Lada, but the British National Health Service (NHS) has, in recent years, been resorting to outsourcing major pieces of its back office infrastructure in efforts to slash cost, centralize and standardize processes, and access skilled IT services it simply does not have inhouse.  I don't believe the NHS would have dragged itself from a 1950s infrastructure to something vaguely resembling a modern-day organization, if it wasn't for the outsourcing services that have been provided by Accenture, EDS, IBM, Steria (Xansa) and others.  Outsourcing provided a shock to the system that forced reform and modernization it was never going to achieve on its own.

When you spend time studying the improved efficiencies and cost saving opportunities from which hospitals, managed healthcare providers and ambulatory services can benefit, simply by centralizing and standardizing their operational processes, you will scratch your head to understand why this industry has been so resistant to change.  These operational functions include specific healthcare processes such as revenue cycle management, contract management, clinical data management, patient accounting system management, in addition to the classic general and administrative processes such as application management, payroll, benefits admin, transactional accounting and management reporting services.  I have seen cost savings opportunities well in excess of 50% from original budget (and sometimes even more) that many healthcare providers can take advantage of, by outsourcing many of these processes to providers such as ACS, Perot Systems or Vengroff Williams, which specialize in taking on healthcare processes from both onshore and offshore locations.  Perot, for example, has significant medical coding resources in Bangalore, which comprise qualified medical personnel to take on routine revenue cycle processes such as medical insirance coding.  Vengroff Williams has service centers located onshore within the United States for healthcare providers nervous of taking processes offshore.

So why is this industry one of the least willing to adopt third party services?  Much of the problem is cultural - healthcare managers tend to stay with organizations for very long periods, and if they do switch jobs, will move into other organizations with similar infrastructures.  Things do not change much.  Most of the administrative functions are layered with top-heavy management structures that are highly resistant to change and argue that outsourcing will severely disrupt the quality of their services, and ultimately the quality of healthcare.  Perspectives of third-parties are that they will never be able to deliver the quality of services as well as they do themselves.  The healthcare industry has also been, on the whole, highly profitable, and the onus to take on "disruptive" strategies such as outsourcing has never been as strong as it is for highly competitive industries such as manufacturing and consumer business.  And I can tell you from experience, that outsourcing is rarely successful where the resistance is deep and senior managers simply will never buy in.

The US healthcare industry is plagued by high costs throughout its value-chain - from the drugs companies, through to the doctors' salaries and finally through to the heavy administrative costs of healthcare services.  My view is that we need to see a knock-on effect throughout this value chain to reduce the overall cost of healthcare in the US, and outsourcing is just one catalyst to enable this.  The pharma industry is going to be the spark for change ultimately, as competitive dynamics, globalization and low-cost generic products are forcing the incumbents to look towards new ways of stripping out cost and driving efficiencies.  GlaxoSmithKline, Novartis, Bristol Meyers Squibb and some other leading pharma giants have recently entered into BPO engagements, and last week Astra Zeneca announced a significant engagement where Cognizant will provide clinical data management services.  At the end of the day, competitive dynamics drive change, and this is the prime vehicle for outsourcing adoption in pharma.  With increased competition and pressure to reduce costs among healthcare providers, surely it's only a matter of time?  Perhaps the next occupant of 1600 Pennsylvania Avenue will have a say in this?

Is your outsourcing vendor really your partner?

I've just returned from an excellent InfosysBPO customer event in Philadelphia.   Was refreshing to have a services firm allow industry experts, its customers and prospects talk freely about the industry and the burning issues.  I especially enjoyed:

• TPI's Sue Danino, leading a panel discussing pricing models;
• Wayne Mincey from the Hackett Group treated us to some confidential new data on world-class performance (a lot of vigorous note-taking during that one...);
• Jason Busch on top form discussing the exorbitant price of zinc and how this impacts procurement BPO;
• Micheal De Zeuw, Infosys' VP in charge of their Philips BPO engagement, discuss their journey;
• AMR research's panel discussing service provider governance, led by some British guy.

One of the key issues that came out of the AMR panel was the discussion centered on whether "your vendor is really your partner".   Sunil Narang, VP of Finance for Level 3 Communications, vehemently argued the case that his firm would have never achieved the success it has with its BPO, if it hadn't developed a partner-style relationship with its provider, based on a great deal of mutual trust and working together.  On the flip-side, I have had many discussions with other sourcing executives who claim their vendor relationship is definitely not a partnership, but a contractual agreement.

My view is you really have to take control over your vendor relationship and drive the agenda, and it often takes a couple of years to get to the stage where you and your vendor feel you have a good understanding of what you need.  If you can develop a relationship which feels like a true partnership, then you must be doing an great job, as this is not the case with everyone.  Much depends on the skill of the sourcing leader within the buyer to create a mutually workable outsourcing environment.  However, this is a skill that most executives need to learn "on-the-job" through real-life experience.  So if you have not lived and breathed an outsourcing relationship, treat the situation like a marriage with a very solid pre-nuptual agreement.  Love to hear your views on this....

What to look for in a sourcing advisor

I've been deluged with many private emails and comments since I posted "The low-cost outsourcing advisors are on the march".  Some passionate views out there,  but one thing's for certain, there has never been as great a need for sourcing advice as there is today... and there has never been such a plethora of advisors competing to give their advice.  And whether you are a highly-sophisticated enterprise with your sourcing experience, or a complete novice in this domain, you will most likely have to engage a third-party, whether it's simply to administer and negotiate a complex contract, or to hold your hand through the entire evaluation process, contract signing and beyond.  At the end of the day, it's "horses for courses" with every firm... you should know best what help you need, so make sure you engage an advisor with experience in those areas who will give you value for money.  If your enterprise has been through complex outsourcing in the recent past, the chances are you will need a lighter-touch approach, but if this is a first-time experience, my recommendation is to seek expert help throughout the whole process.

My view? 

On the whole, you get what you pay for.  However, I have seen situations where enterprises paid top-dollar for third-rate advice, and others which received great service from one of the smaller, cheaper firms.  Buyers are also getting smarter and better educated with sourcing issues, and I am also seeing more firms (mainly FORTUNE 500) trying to do more themselves and rely less on advisors. This is a natural control mechanism when companies take themselves through such sensitive change.

I am getting questions almost daily from buyers asking who/how they should approach selecting a third-party.  It's becoming almost as important as which vendor to select.  I'll be expanding more in a forthcoming research article on sourcing advisors, which will focus on the core competencies enterprises must look for in a sourcing advisor firms. 

An advisory firm's competences, in my experience, must include the following:

1) The ability to share IP internally to leverage for its client engagements;

2) The depth of experience of its advisors within the firm.  Harvard MBAs are a nice-to-have, but this is largely deep operational work conducted at a level below the ivory tower;

3) The advisory firm's mix of experience - this should be include talent which has come from operational backgrounds who have experienced sourcing from the receiving end, not simply staff with outsourcing provider and previous sourcing advisory experience;

4) The firm's ability to "advise" and not just "consult".  I'll expand more on this in the forthcoming article;

5) True "independence" in achiving the optimum outcome for its clients.  They must be focused on YOUR best interests, and not their's;

6) A deep focus on IP, benchmarking data and research - their own and from reputable research firms.  An advisory team of 3 or 4 people will never know everything... they need additional knowledge and support;

7) The operational business focus and experience of its advisors beyond simply negotiating contracts: i.e. post-transaction support, retained org design, vendor governance support

8) A sensible, proven and flexible process for business case evaluation and vendor selection

9) Having the respect of vendors - vendors will work well with advisors when they know they will get a fair crack of the whip.  The last thing you want is an advisor who can't rally vendors to propose on your business;

10) Multiple client references with whom you can talk to directly and discreetly.

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Let's keep the conversation rolling

Managing talent in these economic conditions

As we reflect on enterprises' strategies for this troubled economic climate, people seem to be thinking about the same old "routine" approaches for battening down the hatches and riding this out - i.e. mass layoffs and budget slashes across the board.  This may be the case if this recession is longer and deeper than we fear, but in the shorter term, I am seeing many companies taking a different approach when bracing themselves for this forthcoming downturn than many past recessionary experiences.

February highlights

Some thought-provoking gems from February:

An Industry Gone Wild on HRM Technology Deployment:  HR luminary, Naomi Bloom, is on top form as she gives us a breakdown of the evolution of the Human Resources Management (HRM) software market over the past 4 decades, and discusses the influence of how IT and Business Process Outsourcing has given companies access to delivery models and scarce talent to run HR technology platforms.  However, she doubts today's HRM software vendors will achieve the Holy Grail of a true one-to-many model with SaaS, as they cannot create the "embedded intelligence across HRM processes" and has faith in HR BPO as the preferred deployment and payment model.  Well worth a read.

The NASSCOM 2008 Diaries: More Fog on the Windshield:  AMR Research's Chief Research Officer, Bruce Richardson, on his experiences and takeaways from the recent NASSCOM event in India.

Renewal Strategies for ITO Relationships:  TPI's thought-provoker Peter Allen is on the money discussing options enterprises have when they enter into renewal discussions with their ITO provider.  "Incumbent providers should not be retained on the basis of predecessor agreements.  A review of the current market conditions – meaning pricing, contract terms, and scope of services – is essential. We’ve observed that some clients can become complacent and trapped by the perception that the transfer of responsibility and institutional knowledge between IT service providers, or repatriation, becomes costly.....The pricing of the existing contract should be compared to the prevailing market for like services in order to gauge the range of anticipated future pricing"  I appreciate Peter's efforts to discuss some of these options for enterprises today so openly on his blog.  My view is that enterprises today need to use renegotiation as a great opportunity to get more value (process and technology) from their provider.  More on this to follow...

Mexico Sourcing:  That Margarita Never Looked Better:  Jason Busch on Mexico's attractiveness as a manufacturing sourcing location for US businesses.  "When it comes to the dollars and sense of importing manufactured parts and goods into the US on a total cost basis, the benefits that Mexico presents more than outweigh the risks."  Interesting discussion... builds on what we discussed here.

You're Not Consultants Anymore:   Brian Sommer on why consultants have become "order fulfillment specialists".   "People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day.  Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects. No, you're not a consultant."

Podcast:  Outsourcing in a Downturn:  And finally....yours' truly being grilled on the potential ramifications of an economic downturn on outsourcing trends by AMR Research's CEO Tony Friscia. 

 

Why we're seeing virtually no consolidation among large outsourcing suppliers

I found myself embroiled in a debate with a colleague today, who covers software markets.  2008 promises to be a year of unprecedented consolidation in many niche software markets... because supply usually outstrips demand in new innovative areas (where software products tends to live), software products often complement each other, and software companies like to buy each other to hoover up more clients.  Software is an acquisitive industry, which is so well highlighted over at the Human Capitalist with the example of HCM vendor Workstream hawking itself around potential suitors.  (I know several software entrepreneurs who spend all their time trying to find someone to buy them out.... that's their end-game).

So why do we see zero action happening with the large outsourcers?  True we, see growing outsourcers like NCO buying up specialist process vendors like OSI to build out their global delivery model and broaden their process scope, but what ever happened to Accenture buying Hewitt, or IBM buying Genpact, or Infosys buying CapGemini (the list goes on....)?  So here's my reasoning: