The Outsourcing Blog..."Horses for Sources"

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

Datamonitor goes to Hollywood

Congratulations to our friends at the Black Book of Outsourcing, who have been rewarded for their years of entertaining us with a nice little buy-out by British research firm Datamonitor, which also owns boutique outsourcing advisor Orbys.

It speaks volumes for the Brown-Wilson group

Where should outsourcing vendors invest their marketing dollars in this climate?

Being an analyst, you get a broad view of all the entities competing for the same service provider dollar. You also get a good perspective on how service providers can get the best bang for their marketing buck. And being a blogger, you also pick up a strong sense for the effectiveness of media outreach, but I'll save that discussion for another time.

There is no one-stop support shop for vendors to find and attract new clients, and influence the market - they need to gauge where they need to build influence, using both direct tactical measures - i.e. speaking at conferences or advertising, and indirect measures - i.e. influencing influencers or subliminal branding. The current pull-back in discretionary spending from vendor marketing budgets is seriously exposing the bloated array of firms feeding off the vendor marketing-dime, and with a lot less to go round, we're going to see some firms exit the market, some market consolidation, and others simply going out of business. We'll also see some boutiques linger around the industry because their owner has no idea what else to do, and his only costs are living and travel expenses, and maintaining a website.  Desperate times call for desperate behavior and none more so than for many of those entities forging their living selling to IT services and BPO firms.

Time to offshore the law

I've been getting an increasing number of service providers talking up the growth of Legal Process Outsourcing (with the mind-blowing acronym "LPO").  Personally I'm a bigger fan of PPO (Political Process Outsourcing), but it seems like we could have some onshore/offshore complications with that one, so let's talk about LPO. 

Having had a few discussions with clients and service providers in this space, it's clearly an area for major cost-efficiences for businesses.  I've even had one service provider bragging he was making a killing doing liquidation administration offshore.  Bottom-line, several of the fat law firms are already offshoring their own legal support work to low-cost locations, whilst still billing their clients top-whack rates, so smart corporate legal buyers are focusing on engaging with LPOs, as opposed to highly-expensive law firms, for a lot of legal work, while retaining expensive lawyers for critical activies that require deep experience.  And did you know Mahatma Gandhi was a barrister?  I'd use him anyday over Denny Craine :)

I've recently had the pleasure of interacting with the industry's one full-time LPO advisor (if there are others, here's your chance to make yourself known), so I asked him if he can educate us more regarding what LPO's all about.  Step up Matt Sullivan who lived in Pune, India, for two years, where he managed the risk management & regulatory compliance practice for a global IT outsourcing company as part of a 20 year career in services and outsourcing. He now plies his trade at Red Bridge Strategy, where he's teamed up with some very smart and friendly consultants who focus on global sourcing issues. Over to you Matt:

Changes Ahead in Sourcing U.S. Legal Services in 2009

Businesses have traditionally relied on a combination of in-house legal departments and outside law firms for all of their legal work. During the past few years, maturing processes, technologies, and legal-services-delivery-perspectives have created an environment where corporations now have a spectrum of choices from which to source legal services.

Get your finances in order before you outsource?

When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities.  In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition.  However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated.  That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.

To this end, an old friend of mine, Bill Rieke, shared his experiences with CFOs of mid-market firms trying to drive cost-efficiencies into the financial processes.  Bill is a respected veteran of the BPO industry, having worked on multiple international engagements with Convergys and subsequently Genpact.  He now works independly with firms as an advisor with BPO and process optimization.  Over to you Bill...

In American Heartland, Optimization Finally Brings Hope of Accounting Transformation

Doing nothing is not an option

Some excellent feedback and comments from you regarding our recent discussion about the cost and delivery models sourcing advisors need to deploy with cost-constrained clients.  Lee Ann Moore of sourcing advisory firm Equaterra, has shared some experiences her company has been finding in this market, and offers some alternative services advisors can deliver, beyond trying to crack a wall-nut with a sledgehammer.  Lee Ann is one of the behind-the-scences brains behind the rapid rise of the firm since 2003, being the company's first employee and Chief Marketing Officer.  Over to you Lee Ann.

"Corporations are in a state of flux and uncertainty. Many of our clients are announcing layoffs and going through divestitures, mergers and acquisitions – activity that places pressure on their sourcing organizations that often exceeds capacity and capability. These companies must demonstrate productivity improvements and cost savings now. Doing nothing is not an option, and many organizations avoid a doom loop by using flexible advisory services when they cannot afford full-time employees or consultants for business transformation projects.

What's happening to sourcing advice?

I have never (I repeat never) witnessed such an intense level of interest in global sourcing than the current environment.   I simply am struggling to find the time to do anything but take calls from companies in deperate need of working out their sourcing options.  In fact, if anyone wants to send me compeling guest posts, be my guest, as this thing is creeping into my weekends far too much these days ;)  However, I have been alarmed with the recent retrenchments that several of the leading sourcing advisors are being forced to make.  Their problem is simply the cost model - if large engagements close out with nothing immediate to re-staff the advisors, they simply cannot afford to keep them on the bench.  What worries me is how buyers are getting their advice and direction. 

Bottom-line, buyers are being forced to avoid spending on consultants unless deemed absolutely essential, and investing a few hundred grand on getting the support, methodology, data, ideas, knowledge and experience they need, seems to be beyond many firms at the moment.  So what are they doing?  The answer is scratching around for snippets of wisdom, being courted by service providers offering "free" evaluations, turning up at industry events hoping for free info and joining LinkedIn groups hoping for a silver bullet solution for helping them through the sourcing maze.

So what's the answer?  

Executing effective HR in 2009: an interview with Jason Geller

We've had the privilege of hearing from a host of industry leaders over the last couple of years (just look under the Outsourcing Heros category), and I'm delighted to present an interview with Deloitte's Jason Geller.  Jason has been instrumental in driving some of the largest and most complex global HR transformation initiatives over the last decade, and has gained a stellar reputation within the industry as one of HR's most prominent thought leaders and consultants.  I also had the privilege of working with Jason, and discovered he's quite a bashful chap who frequently shuns the spotlight in favor of his colleagues, so I thought I'd do something about that...

PF: Jason, in a nutshell, what do you see as the major challenges and opportunities facing HR executives today - and what measures do you recommend to address these?

JG: In these uncertain times, it is more important than ever to focus HR on activities that create business value. That means having a HR Strategy/Business Plan laser-focused on business value drivers:

• Revenue Growth:  Business Transformation, Globalization, M&A, New Markets, Innovation  

• Talent Strategies:  Workforce Planning, Learning & Development, Total Rewards, Mass Career, Customization, Global Mobility

• Operational Effectiveness:  HR Policy, HR Service Delivery, HR Operations & Technology, Change and Culture, HR Analytics, Compliance

HR must deliver the HR services needed to support business strategy, such as revenue growth, talent and operational effectiveness. HR must make sure it is doing the right qqwork at the right level within the organization: By the right person; At the right location; By the right entity; Through the right delivery method; By the right HR role, which will lead to improved alignment with business goals.

Now the election is over... what about outsourcing?

Not many people are better-placed to debate the thorny issues of outsourcing and government policy than my old friend Glenn Davidson.  Glenn is synonyous in the public sector world with issues relating to human resources strategy and broader outsourcing strategy, having been one of the founding members behind Equaterra's public sector practice that was launched in 2005 and now a major part of their business.  Among several commercial roles, Glenn previously served as one of Accenture's key executives behind their early forays HRO post their e-Peopleserve acquisition, and prior to that as a chief of staff and communications director to a Virginia governor, as the Commonwealth’s chief federal lobbyist and as a legislative director to an Ohio congressman.  

With so much heated discussion regarding the policies President-Elect Obama is going to deliver regarding the USA's future stance on offshore outsourcing and public sector contracting (which we touched upon here), I asked Glenn to put together some of his thoughts on where this will lead... over to you Mr D:

Looking to 2009: a chat with Peter Allen

One of the most sought-after thinkers in the sourcing industry, fellow-blogger and TPI  veteran, is Peter Allen.  Peter started his own blog Consider the Source around the same time "Horses for Sources" got rolling, and we've pretty much been bouncing ideas, opinions, advice and outlooks off each other over the last couple of years. Peter spent some time at our offices recently and I wanted to share some highlights from our discussion as we move into this new era of global sourcing:

PF: Peter - You've witnessed the growth and development of the global outsourcing industry and probably have had more conversations with sourcing buyers and suppliers than most people over the years.  How critical is this current economic crisis to the outsourcing industry?  Do you see increased activity on 2009 as a result?

PA: Thanks, Phil. These are certainly times of considerable stress

Getting the fundamentals right

We've had some serious - and sometimes passionate - discussions on "Horses" these last few weeks, and I laud so many of you for chiming in with your feelings and thoughts. 

We've examined the impact of our current predicament on the outsourcing industry, how globalized delivery has such a pivotal role to play in improving businesses' competitiveness, and even how struggling industries and faltering economies could embrace global delivery to create new jobs and industry.  It's proving to be a time for many of us in the outsourcing industry to reflect on how this business has developed over recent years, and why we must focus on helping enterprises compete more effectively at a global level, than simply stripping out short-term overhead.

To sum things up, my old friend Lowell Williams sent me his thoughts yesterday on the current economic situation. 

Are vendors and advisors getting too cosy?

We completed our survey looking at the world of third-party sourcing advisors this week, with the high-level results being discussed by my friend Ed Nair, over at Global Services Media. 

One of the key takeways, which I wanted to share with you, is the importance of the sourcing advisor / vendor relationship.  Of the 114 advisors who completed their section of the study, almost half of them revealed they frequently get business through their relationships with vendors.  We always knew that vendors refer advisors in certain client instances, but not to this extent:

The Future Of HRM Service Delivery

I am honored to welcome one of my earliest - and long-time - mentors in the services and hi-tech advisory business to guest on Horses for Sources. It's taken me over a year to persuade her to showcase her insights here, so I guess now she has submitted me a piece is testament to the power of blogging, and the fact that it is fast-becoming a preferred medium for industry luminaries to opine their views to the industry-at-large. The fact that she felt she could be a little more "edgy" and freer to express her views here makes me feel like I am doing something useful for the outsourcing industry hosting this blog :)

Ladies and gentlemen, please welcome the honorable Naomi Bloom and her take on the future of Human Resources Management service delivery. Naomi has over four-decades of experience in HR delivery and technology in a number of advisory roles and is widely-regarded as the pre-emeninent authority in HR platform delivery. Over to you, Mrs Bloom:

Good luck Lisa

I was a sad day this week then Lisa Ross announced that FAO Research is ceasing its operations.  I have known Lisa for several years as a good friend, and have rarely met such a talented industry networker and marketeer with a strong perspective on the industry.  Lisa has also guested here during the early days of Horses. 

Lisa's recent work bringing together the sourcing advisor and vendor communities in targeted forums created a platform for valuable industry interaction that only Lisa made possible.  All is not lost, however, as she will continue her recently launched blog.  Knowing Lisa, we will see her re-invented and re-energized in the not-too-distant future.

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.

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:

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....

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

The low-cost outsourcing advisors are on the march...

I am seeing increased demand for outsourcing advisors early this year to facilitate outsourcing transactions.  The applications outsourcing space, in particular, is showing no signs of slowing down as companies seek to renegotiate existing contracts and a host of enterprises are evaluating their options for the first time.  Having spoken to several outsourcing providers over the last couple of weeks, I am increasingly seeing small advisors with low cost-bases in on the game.  These firms can afford to work with clients and run deals for $250-600K for a typical 4/6 month outsourcing advisory engagement. The 4-6 month time-frame is what it typically takes to conduct a baseline analysis, develop and administer an RFP, downselect vendors and negotiate a contract.  When firms want to negotiate a $10m ADM deal, for example, they do not want to spend more than 5% of the TCV on advisory fees to do the deal in the first place.  This causes issues for the higher-cost advisors, who simply cannot afford to entertain low fees at this level to conduct the same work. 

I am seeing smaller advisory firms such as W Group, Argea, TBI, Pace Harmon, Alsbridge and Archstone Consulting as very active in the industry facilitating client engagements right now, and competing very effectively with the established outsourcing advisory brands, namely Deloitte, TPI, PWC, Equaterra and Everest Group. So what is going on here?

1) Enterprises need advisors to facilitate and negotiate deals for them.  Quite simply, most enterprises do not have the inhouse expertise to manage these complex transactions themselves.  They have to use third-party support, or risk getting a poor deal and poor service levels.

2) Once an enterprise has made the decision to outsource, it wants a transaction done with "no frills".    Advisors are differentiating themselves in the market with their experience, their existing IP from previous deals, and their skills in helping firms make strategic outsourcing decisions, developing post-transaction governance programs, helping to manage the initial vendor relationship(s) and develop change management programs.  While enterprises like these offerings, they only really care about getting a deal done and think they can take care of all the additional issues themselves.  While we have outlined here the potholes many firms have fallen down in the evaluation process, many still only view the world in a short-term "transactional" way. 

3) Short-term thinking is rife.  Many executives put in charge of the outsourcing decision-making are not being made accountable to think long-term about the ramifications of outsourcing, and only really care about the short-term dynamics of performing a transaction with an outsourcing services supplier.

4) The small firms can afford to do this for less.  When an advisory firm has a handful of employees, its running costs are often not a great deal more that its advisors' salaries.  It can outsource its marketing, IT support, travel support, and even switchboard.  Normally, advisors work from home, so there is no office rent.  Kit out some smart experienced outsourcing veterans with a laptop, blackberry and a corporate AMEX and you are in business.  When you aren't dragging around corporate overhead, such as heavy marketing, HR, IT and management costs, you can, quite simply, afford to do this work for far less cost.   

5) The objective of outsourcing is usually to save money.  When an enterprise is in the mindset to outsource, saving money is normally the prime driver, and this mentality normally transfers over to the cost of using an advisor to broker the transaction.  If you can find someone to do the same work for you for 300K, as opposed to $1m, then you may be tempted to take a few shortcuts to get the same outcome. 

6) The smaller firms may have some impressive consultants. At the end of the day, advisory services are only as good as the advice from the advisor giving it.  If an enterprise feels the smaller firm knows how to broker an outsourcing deal as well as a bigger branded higher-priced advisor, then the choice to go with the smaller firm is a no-brainer.

 

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. 

 

The worst mistakes companies make when they evaluate BPO - and how to avoid them (Part I)

"Best Practices" are formed through the experiences of firms innovating and trying out new ways of doing things.  So - in reality - that means they'll tell you where they messed up and give advice on how they got it right (or how they would do something differently second-time around).  BPO is no exception... in fact, it's probably a shining example of how to learn from others' mistakes :)

Here, in my experience, are the most common mistakes companies have (and many still are) making when evaluating BPO:

And if a sourcing advisor was elected President...

• Everyone In the West Wing will have to work until 9PM every night so taxpayers feel they are getting their money’s worth
• He will have walked every congress member through the “State of the Union” address prior to presenting it In order to gain consensus and avoid any political land mines
• The US Budget will be delivered as one large spreadsheet full of pivot tables
• All official White communications will be done in PowerPoint
• White House meal budget will increase six fold
• Cabinet members will need to have a hypothesis prior to engaging in any official business
• The President’s salary will be done through a SOW
• The US will have the greatest strategy, but none of it will ever happen
• He will start planning reelection immediately as a means of “follow-on work”

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.... have a great 2008 to readers of Horses for Sources :)

Outsourcing advisory firms must shift from Tactical to Accountable support

The role of the outsourcing advisor has shifted significantly over the last couple of years. Outsourcing has become such a core issue facing almost all companies today - becoming extremely complex in many cases - that companies are depending more than ever on trusted informed advice upon which to base their crucial decisions – decisions that will impact them for the next decade and beyond.  Until recently, there weren’t too many independent outsourcing advisory firms which had the niche specialty to quantify the possibilities, source a supplier and broker a deal.  However, the old sourcing advisor mentality of “going in to do a deal and slipping quietly out of the back door” is well-and-truly over.  The secret sauce behind assessing vendors, getting a good price and doing a quick deal, is now pretty much a standard practice – there are at least 15 advisory businesses out there, of varying sizes, claiming they can do this for you.  The level of competency of these advisors is open to interpretation – but how can you assess how good these firms are if their core practice is helping make outsourcing deals happen, and their clients then try and manage the transition all by themselves - right through to the operational end-state?

   

Companies should seek advisors which can be held accountable.  Outsourcing buyers need to be able to declare in 5 years’ time: “XXX did a great job helping us through this process, and we still keep them close to our business for advice on how to govern our provider(s), manage our internal operations and cultural change.”  However, advisors can only be held accountable if their clients decide to make them so – and that means they need to engage an advisor which will be with them for the long haul.  If you buy an expensive car, for example, you will more than likely always go back to the same mechanic when you have an issue…so when you have car trouble in the future, you can always go back to the same garage and get them to take care of your problem.  The garage has become accountable for the general performance of your vehicle – and no matter how many problems you may have along the way, they will be on hand to try getting you back on the road again.  Moreover, wouldn’t you prefer to use a garage that you know has sufficient expertise to take care of more than merely the basic problems and will be in business for the long haul?

   

In the today’s intricate global sourcing environment, the role of the advisor is becoming almost as important as the capability of the outsourcing supplier.  Companies should have an advisor helping them through their entire business lifecycle – and outsourcing is simply one change agent of several scenarios geared towards achieving operational excellence and core business focus.  What’s more, the outsourcing decision is becoming more challenging with the newer wave of companies evaluating their options.  Most of the earlier adopters made decisions based on short-term cost considerations, and went for the least complex outsourcing arrangement that had the quickest cost benefits.  Nowadays, an increasing proportion of companies considering their global sourcing strategy are faced with more complex decisions, for example, many of these firms already have existing shared services operations and multiple outsourced point solutions; multiple IT systems and applications; multiple language needs and specific country laws and issues with which to contend; compliance requirements; cultural issues…the list of requirements goes on and on.  There have been too many past occurrences of buyers who engaged with sourcing advisors that came in to make an outsourcing deal happen, and then allowed that advisor to exit the equation, leaving them to fend for themselves to manage unparalleled transition challenges and cultural change within their organization.  In many cases, the advisors’ specialty skill was to broker the deal, and the reason why they exited the relationship was simply that they did not have the depth and breadth of expertise to warrant their continued presence. 

 

   

Advisors...keeping you on the road

 

Guest Post: An Outsourcer on Every Corner: Part I

David Sheinfeld is one of the best-kept-secrets in the outsourcing world... he operates behind the scenes on many major deals doing the real down-and-dirty technical and contractual stuff to make these things work.  The man is a walking encyclopedia - need I say more?  The following is a snapshot of his thoughts on how dramatically the industry is changing....

• It used to be that Outsourcing was reserved for the name companies in the marketplace. That was not long ago. After Y2K and the spending spree, corporate America embarked upon it, and it became clear that many functions could be handled more efficiently and less costly by having someone else do the work. We saw contracts orth billions of dollars being awarded to the likes of IBM and EDS. Then along came companies such as Accenture, ACS, CSC and HP. Together, these six companies became known as the Big Six of outsourcing companies. That was just a couple of years ago. How things have changed in such a short time period. The latest reports showing dollar volume, growth and the number of outsourcers seem to question whether the term Big Six is even applicable today. Over the past few years many other companies, especially those companies located outside the U.S. and whose Global delivery model has gained traction, have diluted the market share of the Big Six. A recent report by TPI states that over $100 billion dollars worth of contracts were coming due in 2006 and 2007, with almost 50% of those dollars concentrated in two companies, IBM and EDS. Now there is a whole group of new companies coming up the chain to provide the same services and solutions as do the larger companies. Outsourcing has become a commodity and is experiencing the same pressures that many other commodities go through as they become mature market players.

• As in any commodity business, the more choices you have, the more pressure the commodity has in the market.  The Outsourcing Industry is in a sea of change. The client is more knowledgeable today than in the late 90’s when those original contracts were signed.  The client appears not as concerned with outsourcing and has a more expanded view of what the outsourcer should provide -  and it’s not just cost savings.  The client is requesting more in terms of value-added services and solutions as part of the outsourcing transaction. The outcome of all of this is more choices, more competition and therefore greater price pressures on those providing the services.

• Depending upon which offering the outsourcer is pursuing will determine what services are offered and the price for those services.  For example, call center services and the pricing for those services may be more generic and the processes more uniform than Finance and Accounting or Human Resource processes.  Each specific area requires a particular expertise not only on the human side but also the technology side.  Some areas have the potential for large transition and start-up costs which are likely to cause greater margin pressures during the life of the agreement.  Now with clients breaking up the contract scope to more than one provider, there is less margin dollars and less opportunity to make up losses if they should occur in the beginning of the contract.  Furthermore, with smaller contracts in place there is a greater emphasis by the outsourcing company to try to hold back transition and start-up costs as the ability to recoup those costs becomes that much more difficult.  The new contracts may also require more services or other value added solutions that increases not only the requirements under the terms of the agreement but also increases the risk to perform. Thus, the provider needs to be prepared to give more for less!!

David Sheinfeld is currently a strategic partner with Becton Schantz, Inc., one of the largest application service providers in the country.  He is a Principal of Horizon Business Advisors LLC, a strategy, management and merchant banking firm.  He is also the founder and CEO of MKJ Advisors, LLC, a merchant bank and advisory firm specializing in strategic planning and mergers and acquisitions.  Previous to this David was a founder, Chairman and CEO of Fresh America, Corp., one of the largest distributors and manufacturers of value-added food products in North America.  David can be reached at dsheinfeld@bectonschantz.com