See you over there...
See you over there...
So H-Day has arrived, and we can finally reveal what it actually means. It's the day Horses for Sources became more than a blog... today it becomes an advisory analyst organization focused exclusively on researching global outsourcing strategy.
So why on earth do this?
A natural and logical progression. Simply put, it's a natural progression for Horses. Having developed such an effective community for collecting so many opinions, having such strong outreach to all the key stakeholders in the outsourcing business (buyers, vendors, intermediaries, investors, academics etc), leveraging the three-year development of Horses as the platform for a new research organization is the logical next-step.
The outsourcing buyer needs a pure analyst organization. While there's tons of great content floating around out there, there really isn't one entity that has brought together researchers and real practitioners, with real experience, to focus purely on researching BPO and global sourcing as a pure analyst organization, that doesn't broker deals or write vendor white papers. Some of the sourcing advisors deliver excellent thought-leadership, and they deserve credit for driving the sourcing industry over the last few years. The large analyst shops have stuck to their IT knitting and have largely overlooked BPO - they service IT vendors and IT users. Investing heavily in sales and research to service finance, HR, procurement and other operations professionals desperate to learn more about outsourcing (not solely IT), is not something any of the large traditional analyst firms have done. You can read, in detail, the challenges and opportunies we face over at SageCircle.
The Horses won't change, we just expanded
Firstly, the blog remains, and will have even more content and contribution. We've exported all the content from "fersht.typepad.com" over to www.horsesforsources.com and the blog will continue as a front-end to the analyst organization. We are producing a series of premium content reports that you will need to be a client to access, but the blog will continue to deliver opinion, and discuss many of the key findings from our research. I am encouraging our analyst team to set up their own personal blogs in time (if they want to), and several of them will be sharing snippets of their research on the Horses. And we'll continue to invite industry guests to be interviewed and submit articles.
A big fat personal thank you
Bottom-line, this wouldn't have been possible without the ongoing support and participation of so many of you over the last three years. I am amazed at the sheer quantity of email and comments I get on a daily basis from people all over the world who visit this thing. All I ask is that you continue to lend your opinion, respond to our surveys, and continue to pass on the good word. End of the day, I choose research because I enjoy learning how we can constantly get better at being global, savvy organizations. I do not profess to know how the world will look in 3 years' time, but if we all continue to debate the issues, the future will gradually unravel.
I really do welcome your thoughts, opinions, suggestions, criticisms and contributions, so drop me an email anytime,
We're still recovering from one of the longest discussion-threads in the history of outsourcing when we asked whether some outsourcing vendors had thrown in the innovation towel.
This also inspired my old friend Bob Cecil to reach out and ask us to work with him to provide some practical advice to the industry on how to achieve some innovation; without coupons, promotional discounts, or even early-bird specials. Just plans old advice, practical thinking, and - heaven forbid - maybe even some patience. "But wait! If you call in the next 10 minutes, we'll also throw in..."
Bob, simply-put, is "Equa-Man" - one of the original champions of BPO who has been a key figure in helping mastermind the growth of outsourcing advisory firm Equaterra since its inception. If there's ever a complex BPO engagement in the works, Bob's usually somewhere on the scene (and likely holding up a warning sign). He's also hard to track down, as you have to drag him off a basketball court or ski-slope when he's not on a plane somewhere, but we did manage to grab a few minutes with him earlier this week...
Plug in your headphones, crank up the volume and ask yourself... are you ready for H day?
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How many of these images from the history of the Horses do you remember?
What's happened to the industry analyst business? You may recall a discussion right here two years ago when we berated the Chinese Internet purges and the impact they could have on the development of their own knowledge services and BPO industry. While such censorship of free opinion-sharing is depressing enough in a controlled society, it's even more alarming when it's happening right on our own doorstep, when you see analyst heavyweight Forrester Research officially banning its own analysts from having personal blogs that touch upon issues related to their research coverage or technology markets.
If you saw the recent passionate debate over at analyst relations guru Carter Lusher's Sage Circle site, you can read an official statement from Forrester's head of Corporate Communications:
"We believe we can best serve our clients in their professional roles by aggregating our intellectual property in one place – at Forrester.com. Make no mistake: Forrester is committed to social media, and the number of our analyst bloggers is increasing, not decreasing. Analysts will still have the ability to blog outside of Forrester on topics not related to their coverage areas."
Analysts will still have the ability to blog outside of Forrester on topics not related to their coverage areas? Hmmm... I really do want to know about their CRM analyst's stamp collection.
Aren't analysts supposed to create buzz?
I fondly recall the heyday of industry analyst business in the '90's, where the technology and services business thrived on innovation, on research, on unfettered opinion, where people had a vision and were unafraid to give forward-looking - and sometimes far-reaching - views regarding what was going to happen next, in a world that was being dramatically impacted by the onset of the Internet and web-enabled technologies, readily-available computing power and networking infrastructure, and steady globalization.
As we discussed during the previous five chapters of this encyclopedic journey to over-analyze our industry, customers are looking beyond the old simplicities of outsourcing to find new and creative ways to find new performance thresholds.
One of these areas is to exploit BPO opportunities within industry-specific domains, especially where there is opportunity to bundle both BPO and IT services together under a single vendor's provision to generate more efficient business outcomes.
To cut to the chase, the industry-specific (vertical) process domains are where some of the newer vendor entrants are infiltrating, almost unnoticed, into the BPO industry. Most of the strong IT services vendors have been developing BPO niches in specific verticals where they have developed some strong process acumen and client credibility, and have the determination to invest in becoming best-in-class within that industry.
Has it occurred to you how unromatic and unsexy outsourcing can make you feel sometimes? Fed up with those rate cards, those legal wrangles and those penalty clauses, when all you really want is a nice big hug?
Well, the team over here at the Horses wants to make you feel loved this year on Valentine's Day. So drop us an email and we'll make send you a free copy of our recent "Seeking a New Normal in Outsourcing Delivery" survey findings... whether you're a customer, a vendor, or even a consultant... we love you all equally (well sort of).
For once I am stumped for a catchy title, and am opting for some good ol' jargon-laden gruyère to tee-up Part IV in the series discussing our New Normal in Outsourcing Delivery survey. At least I've avoided the 'T' word lately, to grant myself a morsel of poetic license to indulge in a little schmolz...
But we all love the term "Cloud" (c'mon, you know you do...). It gives us a nice fluffy visual of ripping out all that complex, clunky computing chaos from our organization, and having some nice services vendor deliver us everything we need for our business... leaving us with simply a screen, a keyboard and lots off additional space in the office to set up that Fussball table... or a Twister mat in the corner...
Why Cloud Computing is the future of outsourcing delivery
While I am probably the first cynic to de-odorize the latest cheese fumes that infuse our industry, I have to admit I am rather taken with the whole philosophy of Cloud Computing. Cloud signifies the coming-together of business process and IT delivery in a fully outsourced model (see earlier post). Cloud's not simply about outsourcing the heavy-duty computing grunt - it's about the delivery of real business services, enabled by the applications needed to support them, powered by the requisite computing and network infrastructure to host and deliver them.
Industry analysts are often accused of hyping the market they cover, creating hockey-stick growth projections to get everyone excited and avoiding ever reporting a worrying decline in growth. I just heard you gasp in shock and horror at this revelation...
So what do you do when you're actually in a position to dust-off the old hockey-stick, last seen used adorning a forecast for online vacuum-cleaner parts from ’99, and slap it under a title such as "Outsourcing spending to reach $250 Gazillion by 2016"?
Which brings us to the topic du jour: what are customers intending to do this year with their outsourcing strategies? When we spoke to 1055 customers, intermediaries and vendors across the global sourcing industry earlier this month, they gave us the real picture:
Fed up with short, punchy news titles such as "Outsourcing is Dead", or "My Delivery Manager Ate my Hamster", designed purely to capture your attention with minimal substance?
Well, salvation can be found right here, as long-winded rambling ones are going to be all the rage this year, so here's one to send you into a tail-spin: "Infosys will buy Capgemini, then IBM will acquire the newly-merged entity before spinning it out as part of a joint-venture with Deloitte, GE and Macdonalds". Actually, before you hurry out to purchase some stock in the Golden Arches, I just made that up...
Instead, let's talk about outsourcing vendors, and what on earth they are going to do when these tasty labor-arbitrage deals start to fizzle-out. As we discussed at length back in November, operational service provision is commoditizing and leveling the playing field. Customers did their planning during the recession, and, now armageddon has (apparently) been averted, it's time to execute on that planning. And part of many customers' planning right now, is to take advantage of moving operational support offshore and driving out some cost.
This is bonanza-time for the offshore-specialists that can deliver basic IT and BPO services at competitive prices. Contract-signings that were delayed during the painful recession months are now in full-swing, service vendors are reporting healthy results and even the sourcing advisors have stopped moaning about their lack of deals, and are making money again.
Whether it's cash management in Casablanca, or payroll in Patagonia, there's one guy who'll have a Harvey Ball polished and ready for you. Enter Everest Group's rock-loving, paint-balling enthusiast, Anand Ramesh, who lives and breathes global sourcing locations.
However, before you read the excellent guest article he's submitted for us, please spend a few minutes assisting Anand with his new study to understand how companies are leveraging offshore locations – particularly for high-value services – and how the landscape is likely to evolve. Just click here to access his study, and he'll send you a summary of the "Market Vista" report in return for your efforts. Over to you Anand...
Global Sourcing Destinations: Perspective 2010
The ripple effects of the global economic slowdown made 2009 an interesting year for outsourcing and offshoring. Rapid growth in offshoring slowed in 2009, despite the fact that the trend of high wage inflation in offshoring markets diminished significantly.
So it's time to drip-feed the intentions and experiences of 1055 buyers, intermediaries and vendors into the global sourcing industry.
We'll be discussing the results from our "Seeking the New Normal in Outsourcing Delivery" in full at the Global Services Conference on 28th January, but the nuances behind why - and how - companies are exploring sourcing delivery models, as we come out of a painful recession into an uncertain climate, need to be aired and discussed.
There's been a lot of talk about a "New Normal", or a "Reset Economy", that things will never be quite the same as before, however, we really need to zone-in on reality to grasp what these new dynamics really entail, in order to understand how we can address them.
To cut to the chase, most industries are in a state of profound change, where businesses are having to accomplish new levels productivity and sources of revenue simply to survive, let alone grow, in this climate. Whether you're making cars, pharmaceutical products, providing consulting services, and so forth, the chances are there's someone else in your industry vying to deliver what you do at lower cost, and potentially better quality. (Unless you're in banking, where it's business as usual...).
Thanks to all of you who participated in December's survey "Seeking The New Normal in Outsourcing Delivery".
In total, 1051 companies gave their opinions, with a strong mix of buyers, intermediaries and providers participating to give us an unprecedented pulse on the outsourcing industry. About time we had less prophesying and some actual hard facts on what's really going on out there...
In anticipation of releasing the results of the study later next week, I'd like to recap some recent thoughts on where the industry is headed, to help make sense of what is really happening in the industry. And a special thanks to our friends at Global Services Media and the Shared Services & Outsourcing Network, who graciously invited their member communities to complete the survey (thank you, Ed and Sarah). And curses to those of you who pilfered our phrase "New Normal"... you know who you are :)
The "new normal" in the outsourcing delivery business
This truly has been a pivotal quarter for the outsourcing business. As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn.
In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations. But while some providers are clearly delivering, others are struggling to compete in this "new normal".
So what is this "new normal"?
Right on cue with our discussion earlier this week, the "void" just got bigger as software analyst legend, Bruce Richardson, announced his departure from the analyst community to take on the role of Chief Strategy Officer at software giant Infor.
Known in the industry as "Mr AMR", Bruce has entertained us for years with his famous "First Thing Monday" newsletter and blog. I, personally, have Bruce to thank for bringing me back to the analyst fold with AMR in 2007, and being a guide and mentor to myself and many other analysts during his role as Chief Research Officer.
Like everyone else in the industry, I am hoping - and expecting - Bruce to continue enlightening us all with his weekly musings from the vendor side. And I am sure even SAP and Oracle won't begrudge him what has become industry-standard with our Monday-morning espresso. Who said you can't blog from the dark side?
Good luck Bruce - you ARE a legend :)
And now time for the long-awaited second part of our interview with our francophonic snowboarding services stud Sebastien Ruest, IDC's Veep for Global services research. (Vous pouvez accéder à la première partie ici). And ladies, please no more emails asking me whether he's single...
Phil Fersht: Sebastien, let’s talk about Cloud, where you’ve been particularly involved. In a nutshell, can you help us separate the hype from reality, and explain to our readers whether this is just the next buzz-phrase in the IT business, or a genuine way we’re going to access services in the future? Do we have any optimistic IDC projections with cloud-based services?
Sebastien Ruest: In the last few months, I have had the chance to speak with many CIOs and one thing I learned is that the idea of Cloud, this new model of IT and broadly speaking of Business and Consumer delivery through the cloud is of very high interest, to business execs, CIOs in the market right now. But, as you can imagine, Cloud Computing means different things to different people. The cynics will say that it is nothing more than "ASPs on Steroids".
So the "great analyst roll-up" is in full swing, with Gartner's announcement today to acquire another competitor, this time the Burton Group, for 56 big ones. This comes hot on the heels of my former firm, AMR Research, also being acquired by Gartner. I won't go into the details of the mechanics of these mergers, as you can read exhaustive commentary, debate and analysis over at Carter Lusher's blog. However, I did want to discuss what this means to our sourcing industry.
Limited choice for alternative opinions. As most of Gartner's competitors couldn't really compete on brand, they've had to differentiate themselves to survive, and that meant finding areas of coverage that Gartner didn't do (or do well), and having analysts on staff who weren't afraid to rock the apple-cart with edgy, sometimes controversial, opinion and research. While Big G has picked up some superlative minds from its latest acquisitions, its new challenge is going to be maintaining those edgy opinions, and not having them toned down under the glossy corporate veneer of the billion-dollar brand. Whichever way you look at this scenario, we simply have to have more than two analyst voices dominating the opinion and insight of our $850 billion sourcing industry. Why?
If there was a Nobel Prize for industry analysts, this guy walks away with it - he's super cool, talks a good game, and has done very little beyond, well, be super-cool and super-smart... and with a French accent to boot. So today, I thought we'd give IDC's Sebastien Ruest the chance to prove there's a bit more substance behind the snowboarding, hockey-stick-wielding playboy façade :)
Sebastien's proving IDC's nearshore model by leading it's global services research from Canada, and developing a solid reputation in the industry as one of the industry analysts who "gets it". So I thought it time to grab a few minutes with the dude himself...
Firstly: my apologies to everyone for hopping on the perennial "Predictions Bandwagon". One may as well say "Stop press everyone, I'm just such an important smarty-pants you should listen to ME ME ME!" As Newt Gingrich told us earlier this year: "There is not one living being that can accurately predict the outcome of this crisis, all we can do is continue the dialog and the answers will slowly unravel".
Secondly: we've conducted two major studies with outsourcing buyers globally this year (and am currently sifting through 800 responses - and counting - from our current industry study). While we can evangelize, prophecize, pontificate and sermonize, nothing can substitute for real data on what everyone is currently doing and planning to do. We have the platform here to do that, and I personally thank all of you who took a little time out to share their views, actions and intentions.
And Thirdly: I'm just such an important smarty-pants you should listen to ME ME ME!" So maybe I can help with the unraveling?
i) CIOs and CFOs will be uniquely challenged to avoid becoming "Cartoons of the Recession".
Simply put, when there's a serious recession in the works, the job of the CIO is relatively simple - cut costs and squeeze your suppliers using whatever means are at your disposal. CIOs rarely get fired in this scenario, unless they somehow messed up the cost-cutting.
One of the advisors which has really made a strong move in the sourcing business this year is Alsbridge. Much of that has been down to its strong track record with clients, but its also made some canny investments to augment its advisory services. One of these I've had some exposure to is ProBenchmark, which has been running some excellent webcasts looking into how pricing trends and dynamics in IT services.
I caught up with CEO Ben Trowbridge the other day, and he wanted to let us know about a webcast ProBenchmark is running next week - you can register here. Plus - for all you cheapskates... its FREE (Wednesday 10th December at 2.00pm EST).
Anyhow, I managed to drag Ben away from a hunting outing for a few minutes to pose the following questions:
PF: Which IT services have fluctuated in price the most?
Before you tuck into your Thanksgiving turkey and guzzle a gallon of bad quality Chardonnay, please take 10 minutes to complete our industry-wide study entitled "The New Normal in Outsourcing Delivery". And if you're in Asia or Europe, currently giving thanks for US declaring itself independent from everyone else, this includes you too.
Anyhow, we are actively seeking the collective opinions and experiences of services customers, providers, and advisors and need 10 minutes of your time to complete this quick survey, designed especially for the patience-challenged, attention-deficit-inclined executive. Simply click on the following link:
All individual responses to the survey will be maintained strictly confidential. In return for your time, you'll receive a free write-up of the survey findings (wow).
We have partnered with the member communities at Global Services Media and the Shared Services & Outsourcing Network to ensure a powerful global participation of decision-makers and senior executives engaged in outsourcing delivery services. Please do participate and help advance our collective understanding of the industry.
Please note that "Horses" is a free resource for the sourcing industry at large, and the purposes of this research are to further all our knowledge and understanding of the direction of the global sourcing industry, whether you buy, sell, advise, criticise, market, commentate or analyse sourcing delivery. And if you do neither of these activities, please seriously question what you're doing here in the first place -:)
There's little doubt about what's been providing the rocket-fuel behind the rebounding services business: IT outsourcing. Simply put, there are plenty of eager providers to choose between, they have access to most of the technical skills companies need, and their rates are far cheaper than retaining or hiring staff inhouse. Some are also getting pretty handy at becoming consultative business partners, and not simply low-cost body shops. Our recent study tells the real story - 50% of enterprises are either kick-starting, or scaling-up, their ITO right now. "So tell us something new", I hear you groan into your laptop screen...
What's different as we emerge from this crisis, is that the perceptions of IT from the other parts of the business are becoming increasingly cynical in many companies. Many companies are hiring new CIOs with the mandate to "turnover half the department, or outsource it", and IT middle-managers are being seriously questioned about the value they are adding to the business. While much of the bottom-layer of IT has already been contracted out, it's now the middle layer of IT professionals which is under threat. CIOs are under pressure to prove the value of maintaining these heavy middle-layers, or move them out of the organization. Some CIOs are already operating under the strategy of hiring a few people who "genuinely get it" to drive IT value, while outsourcing as much of the operational work as they can.
My dear friend, and former colleague at AMR Research, Dana Stiffler(pictured), recently sent us in some of her views on the merger. Dana actually got promoted today to VP and Head of Research for AMR's services research, where she will be offering clients "cashable benefits, or your money back" with her group's output.
Anyhow, thought this a good time to showcase her talent... Over to you, Dana:
Xerox-ACS: Cloud Services Potential, or Dinosaurs Huddling Together for Warmth?
Xerox is the latest in a long line of technology manufacturers to realize that its future lies in services, not products, particularly in the B2B value chain. Once manufacturing and supply chain efficiencies have been wrung out, it’s time to turn to top-line opportunities: services that use product heritage as a foundation. The fastest way to acquire these capabilities is by acquisition. Xerox’s predecessors in this journey include IBM, Fujitsu, Hitachi, HP, and, just recently, Dell, with its acquisition of Perot Systems.
Attend any European analyst meeting and there’s one character guaranteed to be propping up the bar. Scratch that, there are normally about 50 analysts propping up the bar. But in the midst of the throng you will undoubtedly find the stolid Euan Davis of Forrester Research.
I recall a conversation with Euan back in '95 when I told him “you should give this analyst lark a try” (If you want to know what he working on in those days, drop me a note…). Anyhow, the story began from there, with Euan rising through the ranks at IDC’s European operation, making a curious detour to Yankee Group, before finally attaining new heights of stardom and adulation with Forrester.
Euan now boasts the words Principal Analyst in his job title and waxes lyrical about IT services in the Eurozone. Ask anyone in the industry and you’ll discover he’s fast becoming one of the most popular analyst figures on the European services circuit. And, despite the fact he once lost to me at tennis (a shameful occurrence for any man or beast), he still warrants an airing on the Horses…
Phil Fersht (PF): Euan, firstly, what are the main issues you’re hearing from your Euro clients these days? What are the main contrasts between now and before the economic crash last year?
Euan Davis (ED): The issues are many and varied but if I was to distill it down to what I see as the issues that clients are facing today then they fall into three categories: Some are “firefighters” and are looking to reduce costs wherever they can, pushing for discounts and getting economies of scale through aggressive supplier consolidation. Others are “explorers” and are directing energies into investigating a host of emerging options for IT service deliver—and business process outsourcing is one such area. The exciting ones to watch for my money are the “builders.” These firms are sinking the foundations that underpin a profound shift in their operating model architecture, IT/business redesign, and supplier engagement models. These firms are building hybrid operating models driven by a structured sourcing frame works, regulated through a retooled service management structure, and connected to a core set of suppliers. And the recession has speeded up the process of change.
Now, analysts who have spent 20 years working in commercial banks are not to be messed with - and I quickly learned my lesson with Andy, who (literally) has an encyclopedic knowledge and perspective of everything that has gone wrong with the world. I recall Andy warning us years' ago that this was all going to go horribly wrong... and did anyone listen?
Andy has since become a good friend over the years, and has always been one of my first ports-of-call when I want to understand anything about sourcing and the banking sector. He now runs the Banking Sourcing Program for BPO analyst NelsonHall, but his real claim-to-fame is that he finished seventh in the US Olympic trials for sailing in 1988 (pictured). Not many people knew that...
Anyhow, I caught up with Andy last week to pose a few direct questions on the current state of the banking industry, how sourcing strategies will evolve after the recession, and how banks can navigate these choppy waters (sorry):
Phil Fersht (PF): Andy, firstly, let's not beat around the bush here. What's the climate like in the banking, financial services and insurance (BFSI) sector these days? Do you expect things to continue improving, or are we in a false dawn right now?
Andy Efstathiou (AE): Banks will continue to do well as long as they are on performance enhancing stimulus. However, the banks are aware that some day they will have to stand on their own two feet. In order to do that they need to be able to scale operations in both directions without eating overhead on the downside or investing capital to expand on the upside. Therefore banks have been aggressively working with outsourcers to create engagements built around transaction based pricing.
As many of you close to me already know, after 14 years in the analyst and management consulting community, I am going to take a little break and make a few changes.
I'd like to thank publicly AMR Research for a wonderful couple of years, where I got to spar with some great people, service more clients that I care to remember, and have a lot of fun bantering with so many of you who frequent the Horses. I'd especially like to mention some great analysts with whom I'd had the pleasure of working: Dana Stiffler, John Hagerty, Simon Jacobson, Bruce Richardson and Mickey North-Rizza - a real credit to the analyst industry (and will, hopefully, be featured here in the future). I'd also like to thank Helen Scott for her sheer perseverance...
If you're wondering how to get hold of me, you can always mail me here. Onwards and upwards my friends -:)
Wouldn't it had been something if there had been some sort of interactive journal during the Great Depression, where we could have truly experienced the emotions of the time, peoples' ideas for change, the stark contrasts between desperation and hope?
It's been a geniune privelege to have hosted these emotional debates throughout the entire Great Recession of 2008-9. It's incredible how attitudes have changed over these tough months - I don't know about you, but I feel a little wiser as a result - and the great interaction I have enjoyed and observed with so many of you, has made this all possible.
Here's the whole story of the Great Recession and it's impact on the global sourcing industry (in chronological order):
There were a few alarm-bells ringing in the outsourcing industry with TPI's shaky Q2 results. As our recent buy-side survey data indicates, in addition to the multitude of service providers and consultants, outsourcing interest and uptake is on the rebound, so what should we read into TPI's 38% drop in revenues from Q2 2008? I spoke to leaders of all the key sourcing advisors to get their candid input on how their firms were faring, and whether TPI’s results are reflective of the sourcing industry in general.
Rival Equaterra, which is currently privately held, reports to us that its Q2 results have increased 10% over 2008, expects Q3 to perform well, and is encouraged by strong IT outsourcing activity, with on-plan BPO advisory business. Another rival, Alsbridge, added: “First half revenues are up 40% on a 1st half ‘08 to 1st half ‘09 comparison. Across the board, we see good demand
My industry chums Larry Janis and Lowell Williams are conducting a survey of BPO sales professionals to get the buzz on the current economy, your views or lawyers and advisors, and how much moolah you currently rake in. They claim you can do this while sipping a venti in Starbucks. They also claim to be giving away a couple of iPod shuffles to random participants (as if you don't already have one...).
2009 is going to be remembered as the year of cost-containment. Most client discussions are not very sexy – it’s largely about cost, as opposed to innovation or revenue generation. McKinsey recently revealed 70% of its current client engagements are cost-reduction focused, only 30%focused on revenue-generation (the opposite of a year ago).
I strongly believe our businesses, while being diligent about cost-containment, must use this opportunity to make fundamental changes to their business operations in order to emerge more profitably in the future. Simply ripping away cost elements and failing to improve access to global corporate data and processes, is a massive wasted opportunity to be more competitive over the long-term.
I wrote recently about how the lay-off culture that has afflicted both the US and UK in recent years, where many firms treat their labor as a variable cost that can be scaled-up or down at will, depending on the next quarterly forecast. I cannot stress enough the damage this can cause to businesses as the economy recovers. One common theme that has dominated discussions with business leaders recently has been their surprise at the amount of visible cost they have been able to take out of their businesses as they move from a revenue-generation to cost-containment strategy.
It’s not solely the cost of labor that is highly visible – it’s the costs of technology, travel, infrastructure, real-estate etc. that can often be easily driven-down in a desperate business climate. Less visible are costs associated with poorly-integrated business processes and procedures, of dated analytical tools, of ERP systems incapable of supporting global process templates, and so on.
I wanted to share some recent dynamics from our new survey of outsourcing adoption intentions in mid-2009.
While the onus on firms today is to drive out as much cost as they can from their businesses (close to four-fifths view cost-reduction as the primary driver for outsourcing), other factors are becoming crucial for companies’ planning as they evaluating outsourcing business models, notably globalizing their businesses more effectively, re-engineering business processes, and accessing expertise from service partners.
If there's one thing this recession taught us, it is how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. Read more over at Think Global...
While the market has grown exponentially, and a 30% increased expenditure last year is eye-opening, the nature of these engagements doesn't give me confidence that this market will sustain its growth trajectory unless customers think beyond short-term labor arbitrage, and service providers introduce significant process and technology enhancements to the early adopters to help them optimize their delivery. This "lift and shift" model could well result in customers losing more than they save. Read more at Think Global.
Ever since President Obama proposed to change the IRS tax code that regulates how US corporations declare income from international activities, I've been thinking about other measures governments can take to slow the recession and help businesses become less myopic with how they navigate these rough waters.
Reading between the lines, he appears to be targeting a revenue grab, while making political overtones against companies which use offshore resources. However, he's simply penalizing firms from being more productive with their exports. Sure, there are issues with tax fraud from havens such as Bermuda or the Caymens, but this is primarily an issue with individuals, not large enterprises.
Why penalize a US conglomerate for manufacturing diapers in Brazil for the
Folks - if you happen to be drifting around New York City on 3rd June, swing by the Philippine Cultural Center to hear some interesting discussions, including my friend and colleage Dr Stephen Stokes (pictured), author of the infamous piece "The Green Transformation of Indian Outsourcing: Heading for the Clouds, But Doing So on a Low-Cost and Carbon Budget".
The event entitled "Global Sourcing After the Meltdown: In Search of Sustainability" is being organized by my good friends Christine Bullen and Wanda Lopuch at the Global Sorcing Council. For more information click here. You can also contact Wanda directly here.
Talk tracks for the day are as follows:
I wanted to share a few early snippets from our global sourcing adoption study, which we've been running over the last 2 weeks. And thanks to Global Services Media, Vinnie Mirchandani, William Mougayar, Jason Busch and Dennis Howlett, who have all contributed in helping us reach close to 700 respondents, of which we had 127 enterprise buyers for IT, supply chain, finance, HR and other BPO services.
Go to Think Global to read more...
Vinnie Mirchandani has his latest take on the constant controversy of third-party researchers, consultants and associations compiling rankings of service providers. This time the IAOP's Global Services 100 is being questioned.
We've also had some banter about the Black Book of Outsourcing on this site, which made such a noise with its constant rankings of service providers, that Datamonitor decided to buy them to hop on this bandwagon. And we've never even got to discussing the Global Services 100, or several other rankings that come out periodically. Moreover, some "analyst" firms make a living ranking service providers, while barely bothering to talk to their customers, and selling white papers to the winners so they can flout their success (you all know who you are).
Personally, as an analyst and advisor, I find these lists useful - I sometimes find out about some provider I didn't know a lot about, and they draw attention to who's doing well at the
With all the recent fuss in the media and the global sourcing industry about protectionism derailing new engagements, I wanted to set the record straight with some brand new survey data and some views into President Obama's current position, that protectionism is not proving to be as big an impediment behind companies' making outsourcing decisions in the near future as many people have stated.
To this end, I wanted to share some preliminary data from our current survey on global sourcing dynamics that tackles the issues preventing companies from making outsourcing decisions this year:
I wanted to share a few early snippets from our forthcoming market landscape on Supplier Management BPO services, which is due to hit the shelves next month. The market surpassed a billion dollars in expenditure for the first time last year with a 30% hike in expenditure on new multi-scope BPO contracts. Find out more over at Think Global...
Many of you whom I've been interacting with lately know I'm concerned by the degree of protectionism from some politicians and a handful of organizations; namely the TARP-funded financial services firms and a few from the healthcare sector. We recently discussed many of these issues here.
Professor Bob Kennedy, who heads up the William Davidson Institute, a non-profit research and educational institute that focuses on business and policy issues in emerging market economies, has been keeping very close tabs on these issues and I asked him to contribute his recent experiences and views with us. Bob also has a new blog up and running entitled "Services Shift", and has recently released his new book, adorning the same name. Over to you Bob...
Why No Regulation of Offshoring: Untangling the Gap Between Rhetoric and Action
Picking up on Phil’s April Fool’s day post, I wanted to share a few thoughts on why we see lots of anti-offshoring rhetoric from politicians, but (thankfully) very little actual policy.
You can spend hours analyzing how the global sourcing industry got to where it is today, but in today's climate it's more important than ever to reach out to the industry at large to get the real deal on what's going to happen next. Your voice is crucual, so please spend a few minutes filling out my online survey and I'll share a summary of the findings with you in return.
SaaS is effectively the same as outsourcing - you're handing control over business processes to a third-party service provider. However, while SaaS delivery shares many similarities with outsourcing as a delivery model, there are serious caveats buyers need to consider. Read more over at Think Global.
When I made the move back to research from the sourcing advisor world last January, many of you may recall providing input into what research you wanted. This blog has proved to be a great medium for driving debate and cultivating ideas - in fact, someone even said recently this was becoming the "Huffington Post" of the sourcing industry.
But blogs are not research reports, they let you test the temperature, get the high-level insight, but not always the deep-dive data points that we all need to base decisions. I wanted to share with you some research highlights we've been putting out at AMR Research over the last year or so, and would love to get more feedback from you on what you want to see in the coming months:
We've been debating the opportunities for Latin American countries to take on BPO work for a while now, and spending a few days in Guatemala has confirmed - beyond doubt - the potential of the region.
I had the pleasure of visiting Capgemini's facility, which is quickly ramping up customer-facing F&A work for Coca-Cola Enterprises (which we picked up on here). I am going to write more about this engagement in due course, but the hybrid nearshore/offshore operating model for Finance and Accounting and Procurement is showing strong signs of being the way forward for the industry. This is also the case for many global strategic sourcing, supply management and HR BPO engagements. For example, Coca-Cola Enterprises is sourcing neashore work to Capgemini's centers in Guatemala and Krakow, and using its Chennai operation to support these centers with non-customer facing processes.
Guatemala's population itself is only 13.7m people, with 40% based in urban areas, however, it is the largest Central American hub with strong potential to source activities to neighboring countries, such as El Salvador and Nicaragua (see graph below) to compliment serices and keep costs low. What impressed me most meeting many operations agents and managers was the easy-to-understand English intonation, the obsession with process, the youthful energy and the discipline.
While many firms are hunkering down tryng to ride out this turbulent year, we're also seeing an increasing number of multi-national companies use this time to develop business support infrastructures that can scale quickly with the needs of the business. It's not all about cost-reduction - it's about being nimble, and having a firmer handle on accessing critical data on your staff at a global level. You can view the full post over at Think Global.
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.
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.
What I detest most about recessions is when firms put all their focus on short-term cost-reduction measures and take their eye off the ball with initiatives that can reap much more lucrative efficiencies over a longer period. I am somewhat hopeful this recession is a little different: shaving a few percentage points off the bottom-line is unlikely to make a huge difference when your very survival is at stake, and several companies are exploring more radical, longer-term strategies that will lift them above the depressed morass. Moreover, many smart executives are seeking to tie themselves to longer-term projects that give them added job security and enhance their own roles in changing times.
Cloud computing has all the attributes and potential to support a global outsourcing environment with lower infrastructure costs, lower energy costs from eliminating hardware boxes, and much better scaleability to provide computing resources to meet demand in an unpredictable global market. My view is that we are in a global delivery continuum, where many organizations will originally evolve from crude BPO environments (a lot of lift and shift), explore SaaS delivery to optimize that environment, and ultimately dabble with SaaS apps that be deployed in a Cloud "plug-in" model. A flashy diagram will likely ensue, but that's the nuts-and-bolts of how this continuum will eventually play out. Bottom-line, those service providers which persist in a labor-arbitrage-only service model and ignore the benefits and cost-efficiencies of SaaS and Cloud, will get left behind.
"I just knew the mainframe would make a comeback", said an excited industry veteran on Cloud computing recently. He's actually right, but the difference in today's world, is we are creating the applications and the development environment to run real business applications in a cloud environment.
We're not there yet, but smart organizations need to start exploring service provider relationships where Cloud is on the horizon. Cloud computing is not only rapidly emerging as an infrastructure option that is relatively inexpensive; it is also becoming a buyers' market.
Cloud has come a long way since being a small blip on the radar in 2007 when the likes of Microsoft, HP, Google