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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The TSA awards its HRO engagement to Lockheed Martin - an overreaction?

There's been a lot of noise in the market this week concerning the TSA's award or their HRO contract to Lockheed Martin.  While this is clearly a bold move into HRO for Lockheed, this isn't likely to prove a major loss for Accenture.  Why?

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 emergence of the Indian suppliers in HRO: the answer to HRO's slowdown?

One of the most interesting discussion points I had on my recent visit to India was centered on the eagerness of some of the India providers to infiltrate the HRO market.  I recall the entry of the Indian top tier into HRO three years' ago, and have to admit I was skeptical.  Not many people believed you could take broadscale HR services offshore and run them successfully, while saving money for clients at the same time.  However, times have really changed since then, with the Indian top-tier now competing aggressively for hybrid IT-BPO contracts. What's more, the Indian providers are very good at working out how to take on back office work remotely.  It's their focus - and eagerness - to take on ground-up processes, such as payroll, data management, document fulfillment, which is driving a breath of fresh air into the flagging HRO business.

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. 

IBM/Bristol-Meyers: a shot in the arm for HRO

While several people have doubted the vailidity of HRO, IBM offers a strong ray of light for the sector by signing a $324m, 10year agreement with Bristol-Myers Squibb.  As we mentioned here just earlier this week, leading proviers have been working hard to find a workable model for delivering using their global resources:

"As the global providers become increasingly proficient at deploying offshore resources to support these processes, they will generate more cost-savings and compelling business cases for their customers"

As a result of this engagement, IBM is leveraging its employee contact centers in Manila and Budapest, in addition to local US-based delivery faclitiles, to implement and deliver SAP-based HR services. 

Platform BPO in the making?

HRO Redux: 8/10 buyers don't look back, while the vendors look ahead

Following our recent discussions surrounding the successes and challenges of the HR Outsourcing (HRO) industry, I was sent a recent study from Erik Samdahl at the Institute for Corporate Productivity, which canvassed the opinions of 231 senior HR executives, mainly from large organizations, and has some telling stats on the future direction of HRO, which I wanted to share and interpret with you. There are two key observations from this study that standout in my mind:

Join the BPO and Offshoring Best Practices Forum

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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:

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.

Long-term contract renewals: the real litmus test

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

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

HROWorld 2008: An industry re-inventing itself

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

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

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

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

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

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

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

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

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

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

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

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 HRO rediscover its froth despite a 97% success rate?

With the recent announcement that Starbucks and Convergys have mutually agreed to terminate their HRO engagement after only eight months, serious questions are being muttered about the future direction of enterprise-wide HR outsourcing. 

I, for one, have always been a strong advocate of the potential business value of HRO.  The opportunity for enterprises to aggregate multiple suppliers of HR services under a single "throat to choke", take advantage of self-service tools and have their retained HR team aligning themselves more closely with driving higher-value HR initiatives, are compelling.  However, a number of factors have created serious issues with HRO:

1) Inability to take advantage of low-cost offshore labor.  It has proven very difficult for HRO providers to take a great deal of the operational work offshore, which has prevented suppliers offering more sizeable cost reductions for their clients.  Having offshore service staff handle direct issues with onshore staff for many HR issues is simply not workable, not to mention the political, data privacy and compliance issues restricting the movement of sensitive employee data offshore;

2) An HRO engagement affects the whole enterprise.  It hasn't been possible for any HRO deal to be kept under the public radar.  Any HRO deal impacts the whole organization, and is immediately held to public scrutiny.  Other outsourcing initiatives, for example finance and accounting, procurement, or some aspects of IT outsourcing, are typically engagements between a service provider and a single company department.  It's far easier for enterprises to keep these engagements away from the public radar and give themselves time to get it right;

3) HRO engagements are not given enough time to reach a steady-state.  All outsourcing initiatives are painful at first and take at least 2 years to move through transition to a steady state.  The Starbucks engagement was only 8 months along... that is not enough time to get near a fully operational state for the firm;

4) HR staff have been largely resistant to HRO.  When executives resist outsourcing, it makes it extremely challangeing in may cases to execute effectively through the complex transition.  HR trade press have been constantly on the alert throughout the last few years to find the next "HRO tragedy" to dramatize.  In reality, there have been close to 200 enteprise-wide HRO engagements, and barely 6 of these went back in-house.  That's a 3% failure rate.

5) The costs of benefits management have proven greater than suppliers anticipated, which have eaten into their projected profits;

6) The absence of a common one-to-many HR platform. This has plagued HRO since its inception 10 years' ago. The complexities of HR technology integration have driven up the costs of broadscale HR transformation and have clearly slowed adoption over the last year.

What I see happening, is an industry going back to basics.  While the mega-HRO deals have dried up, the amount of less complex and smaller-scope outsourcing engagements in core transactional processes such as payroll and benefits admin are still experiencing healthy growth.  Moreover, recruitment services are growing in adoption and interest, and the focus on talent managemt is at an all time high, as we discussed here recently.  HR consulting services are booming like never before.  Moreover, HRO offerings have the future capability to deliver the value that enterprises unlimately need - we've simply reached a juncture in this market where the current flock of adopters need to be left alone to work this out and deliver their success stories in the future.  I predict a quiet year for HRO, but enough enterprises have taken the plunge, and there are some highly capable providers out there (both services and software) quietly working on getting this right. 

p.s. a big hat-tip to the Inflexion man for tipping me off on this one....

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....

Is your industry over-networked?

Is there such a thing as being over-networked?  While it's practically impossibly to get finance professionals, for example, to do anything but worry about their work and pry them away from their offices, HR folks can't seem to get enough of seeking out the next shindig where they can listen to best-practices all day long and hobnob with their peers from other firms.

My good friend Mark Stelzner, over on his blog Inflexion Point, has hit upon this issue with his coverage of the litany of member-based HR associations and consortiums.  I have never witnessed an industry which is as networked as HR.  Everyone knows everyone, and senior HR personnel seem to spend an exhorbitant amount of their time traveling to these conferences:

SHRM (The Society for Human Resource Management);

IHRIM (The International Association for Human Resources Information Management);

CLC (The Corporate Leadership Council);

HCI (The Human Capital Institute);

HR.com;

HROA (The Human Resources Outsourcing Association); and

i4cp (The Institute for Corporate Productivity)

It'll be interesting to hear your views on associations you frequent and whether your industry has the peer networking you need to do your job more effectively.

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

Claims of death greatly exaggerated

Check it out... Forbes used our counterpunch... thanks for your contributions! 

I was going to write somethng dramatic about the "power of blogging"... but you can work that one out for yourselves.  And a major hat tip to the Forbes technology editor, Elizabeth Corcoran, for publishing this.

PF

The death of Indian outsourcing? Don't make me laugh...

Following hot on the heels of "34% Buyers Axe Their BPO Deals", I woke up to an even more breakfast-choking shocker this fine morning with Forbes.com's Sramana Mitra declaring "The Coming Death of Indian Outsourcing" . 

So I checked out the credentials of the author.  I couldn't find any other outsourcing literature, but plenty of Yahoo-Microsoft commentary, which was pretty informative.  However, I did find Sramana's blog where she comments that the "Indian BPO industry is very much at risk because of the SaaS trend, and if they do not start to get their act together and respond to the trend, they are going to get punished".  This is incorrect. SaaS applications actually enable delivery of BPO services for certain processes.  Where software can be delivered as a pure web application, and does not require onsite maintenance and development, what better for a global delivery model where services are delivered from remote locations?  True, SaaS threatens the traditional software model, but it actually compliments an outsourcing model.  And surely SaaS is much more threatening to software providers than services firms, which dominate India's outsourcing economy.

Moreover, Sramana claims "Yet, India, for all its glory, is still the world’s back office. India's tech industry is a "services" industry. The Indians don’t do the thinking. The customers do. India executes".  Er... isn't that the point?  However, what she plainly fails to discuss is the fact that the better the Indian services become, the greater the number of services that require the "thinking". It is no coincidence that IBM, Accenture and HP have employed 10% plus of their workforces in India today to perform tasks that go beyond pure execution work.  When you look at the scale and type of services being delivered from India today, as opposed to 5 years' ago, the move up the value-chain of services being delivered from India is impressive.  Services such as remote infrastructure management, financial reporting, insurance claims adjudication and industry-specific application development were a far-flung fantasy back then, but today are high-growth outsourced services being delivered for enterprises today.

Sramana picks on on ADP's global sourcing model, which only has 2,500 staff in India.  However, what she doesn't comment on is that fact that very few firms outsource payroll to India, largely as this industry was established long before India came to prominence, but also because of the regulatory and privacy concerns tied to sending payroll data offshore. 

I empathize with her concerns over wage inflation, staff attrition and rupee appreciation.  These are the challenges the Indian industry is dealing with, which we discussed here last year, and it will slow down the breathtaking growth in the long-term, however, to proclaim the "coming death" of Indian Outsourcing is absurd. 

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."