The Outsourcing Blog: Horses for Sources

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:

HP/EDS: a reverse-takeover to create a services giant, but what's the game-plan?

So HP’s $13.9Bn acquisition of EDS became official this week – the largest-ever merger between two IT and business services providers.  The merged services entity resembles a reverse-takeover of the combined services business, with all the management positions remaining in Plano, with the exception of application services.

Overall, there were few surprises in the deal-finalization announcement. However, the fact that there seems to be no initial definitive plans to integrate the businesses at a service/product level beyond the newly-outlined organization structure, gives me some cause for concern, especially considering the fact that HP/EDS has already had three months to draw up a merger-strategy.  We're operating in a market where crafting and developing a global delivery strategy quickly is critical.  We've seen far too many failures in recent years from services providers that have sat on their traditional revenue streams, while others have pushed aggressive services agendas to win over clients looking for vendors with new thinking and focus on driving innovation into engagements.

Why bundling apps and business processes with a single provider can make a lot of sense

The software industry has - for decades - dealt with the whole "best of breed" versus "integrated application suite (ERP)" quagmire, the scenario centered on whether clients are better off trying to manage a whole variety of individual products themselves, via-à-vis having a ready-made integrated suite of applications.  These arguments are surprisingly similar to the debates raging in the outsourcing industry today.

While a best-of-breed (b-o-b) approach can provide the client added quality (or functionality) and control over its suppliers, the prohibitive cost of managing multiple service providers (or applications), combined with the increased need for unique skillsets to integrate them into the business, favor the multisourcing (integrated-suite) route.  And, while many enterprises have persisted with a b-o-b software strategy, both Oracle and SAP have been vacuuming up many of the niche application products, whereby presenting the client with the integrated-suite strategy, whether they initially wanted it or not.  While outsourcing providers are generally not as acquisitive as software providers for a number of reasons, their need to add process depth, industry expertise, technology enablement and scale to their global services offerings naturally narrows down the playing field over time, as outsourcing engagements become more global and complex.

Why is this blog called "Horses for Sources"?

I get asked this question from someone nearly everyday, so here is the reason:  It's a horse-racing term. Certain horses run better on certain courses.

HORSES FOR COURSES - "A mostly British expression urging someone to stick to the thing he knows best, 'horses for courses' comes from the horse racing world, where it is widely assumed that some horses race better on certain courses than on others. In 1898 a British writer noted in the first recorded use of the expression: 'A familiar phrase on the turf is 'horses for courses.'" From the "Encyclopedia of Word and Phrase Origins" by Robert Hendrickson (Facts on File, New York, 1997, Page 339); "A course of action or policy that has been modified slightly from the original to allow for altered circumstances. A horse that runs well on a dry course will run less well on a damp course and vice versa."

I always felt this phrase sums up the experiences of both vendors and buyers which have danced around with outsourcing relationships over the years. An outsourcing engagement that works well for one firm in its particular circumstances, may not be as successful for another; there is no one-size-fits-all solution, when you are dealing with a company's people, processes and technology.  It took me about 30 seconds to come up with this goofy name after a few glasses of vino when I decided it was high-time to get a blog going...
 

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:

During the analyst panel at the HR Technology Conference in 2003, I made a bold (many said foolhardy if not wrong-headed) prediction, that continues to haunt me about the role that comprehensive HRM BPO would play in human resource management service delivery.  I was in a wheelchair at the time, recovering from a bad fall at Machu Picchu, so perhaps I was emboldened by the pain medicine.  What I wished I had said, and what may in fact be the case, is that by 2010 comprehensive HRM BPO will be the dominant approach considered by HR leaders (and their C-suite colleagues) to HRM service delivery as an alternative to "roll your own"via some flavor of shared services.  What I actually said, which was clearly dead wrong, was that within five years (i.e. by 2008) half the Fortune 500 would be using comprehensive HRM BPO. 

How could I have been so wrong about something so important? And why do I continue to believe that comprehensive HRM BPO, where uptake is moving much, much slower than I had predicted just five years ago, will eventually become that dominate approach to HRM service delivery? Perhaps I was seduced by the obvious business case for comprehensive HRM BPO, a business case which, if anything, has grown stronger over the last five years:

   * Expectations for HRM service delivery go well beyond what even large organizations can (or want to?) envision, create, manage, sustain, afford and do reliably on their own -- and those expectations now include global service delivery with local language and regulatory expertise; intelligent, role-based, integrated and content-rich self service; analytics at every level and, especially, re: business outcomes; and deep and integrated automation for both administrative and strategic HRM (a.k.a. talent management) to reduce costs and improve service consistency, quality, breadth and availability.

   * Piecemeal outsourcing and the associated vendor management, governance, and systems integration challenges, especially as to self service and data analyses, are also more than most end-user organizations can (or want to?) handle, and it’s getting tougher as end-users add SaaS-delivered point solutions into their mix of HRM software.

   * We’ve gotten used to trusting vendors for critical applications software development and providers for critical outsourced processes, and we’ll get used to trusting our core HRM data and HRM delivery system to equally valued, comprehensive HRM BPO providers -- what could be more sensitive than health care claims data, and we routinely outsource claims processing.

   * Corporate leaders have better uses for their capital, bandwidth, scarce expertise, risk-taking, frustration tolerance and other resources than to sustain their own HRM delivery system -- much more competitive advantage can be created via HRM strategy and plan, policy, program and practice design than from operating the “factory” that delivers them.

   * The industry's move to Web services and SOA by all the ERP/HRMS package vendors, with the attendant overhaul of thirty year-old data designs and semantics by the established players, will be the kiss of death to in-house implementations -- CEOs just won’t pay to do this one more time no matter how much migration support is promised by the vendors -- but I was SOOOOO wrong, back in 2003, to think that Oracle or SAP would bring their next generation application suites to market by now. Beyond the slow arrival of disruptive next generation HRMS software from the ERPs as well as specialist vendors, the nascent HRM BPO industry is still trying to recover from a number of flawed assumptions which were made by early buyers, sellers, and investors, including:

   * Lift and shift” is not a sustainable business model;

   * Highly customized and configured in-house implementations of SAP/PeopleSoft/Oracle/etc. cannot be easily commercialized, nor can highly tuned (to one company) shared services organizations;

   * Labor arbitrage will not save the day when customer contracts still express their reluctance to accept foreign CSRs and many HRM practices are too convoluted and undocumented to be taken offshore;

   * Global call centers are not as effective as global intelligent self service, and the HRM challenges of running huge HRM operations centers are big and growing;

   * The lack of an agreed and precisely-defined vocabulary (i.e. an HRM domain model) for discussing scope of services, data definitions, processes, expected outcomes, SLAs and business metrics, standardization, configuration, and customization (G-d forbid!), etc. adds big $$ to every aspect of the sourcing and HRM delivery system life cycles;

   * Comprehensive HRM BPO is not the same as ITO, and many of the early pioneers, firms and leaders, came from ITO; and

   * Comprehensive HRM BPO is also not the same as payroll or benefits admin, and most of the rest of the early pioneers, firms and leaders, came from payroll or benefits admin outsourcing.

The flaws in these assumptions are now well-understood and the industry is working hard to undo the damage caused by them, but there remain many deals that were based upon or made captive to these assumptions that have and are continuing to drain the industry's resources. Furthermore, maximizing labor arbitrage, rolling out truly intelligent self service on a global basis, and getting to an industry standard (or even provider standard) HRM domain model are by no means accomplished as yet, and there's a good bit of heavy lifting still needed to overcome the lack of these critical industry enablers.

What else stands in the way of comprehensive HRM BPO becoming everything I predicted it would be? One glaring barrier is that we are taking far too long, as an industry, to figure out what in HRM should be standardized, within and across organizations, and what MUST be unique in order to create/sustain competitive advantage. We're also taking far too long to create and deliver Amazon.com-like HRM self service (in your language, with your cultural and regulatory sensitivities considered, and by cell phones, smart phones, or whatever our customers have at hand). Doing so would not only get rid of those pesky CSRs and allow the BPO providers and their clients to focus on the few but highly skilled HR generalists and COEs needed to handle what can’t be done self service, but it would also allow those BPO providers who have the right KSAOCs to deliver the insights and advice on improving HRM which were promised.

We are also continuing to pay a very high price for not having, particularly at the high end of the market, HRM BPO software platforms that are the best possible fit for this business. We're running factories here, and you can't make M&Ms profitably in an oil refinery any more than you can make profitable HRM BPO using software designed to be implemented and operated separately for a single client. I've written monthly since 2003 in HROToday about our software platform needs for comprehensive HRM BPO, but so far none of the major ERP/HRMS vendors have committed themselves to meeting my HRM BPO architectural requirements.

The biggest barriers to greater adoption of comprehensive HRM BPO are (1) the lack of proven, high capacity, and profitable providers across all of the relevant markets who are offering compelling, global and integrated HRM delivery services, (2) the lack of HR leaders and their teams who are ready to accept standard HRM service delivery processes and even some lower value HRM business rules where uniqueness carries no competitive advantage, and the lack of truly BPO-ready software platforms. The best providers are working tirelessly to overcome the sins of the past, and new entrants are learning from those early mistakes so as not to repeat them. Since no factory can achieve high quality at low cost without a very high degree of reuse and repeatability, the providers really need their software partners to deliver BPO-ready architectures and their customers to deliver BPO-ready expectations to make this new business model as successful for all interested parties as I believe it must be.

Am I embarrassed by the prediction I made in 2003? Of course I am. But to me the end game is still very clear. Even with the tremendous growth in SaaS among HRM software vendors taking a large chunk out of the TCO (total cost of ownership, alias the direct IT costs) of using that software -- and I'm a staunch supporter of this software deployment option -- end-users are still faced with minimizing the TCSD (total cost of service delivery, alias the full process costs and attendant liabilities), and that can only be done through effective, comprehensive HRM BPO.

Naomi Lee Bloom (pictured) is managing partner of Fort Myers, Florida-based Bloom & Wallace

The Book of Lists (revisited)

There's been a lot of heated discussion in the outsourcing industry of late regarding the issue of lists, rankings, awards and proclamations of vendors, advisors, tought-leaders etc.  As per expected, emotions are strained when some come out looking good, and some not-so-good. 

However, with such a ramshackle swirl of information out there... from consultants, media, bloggers, analysts, associations, researchers, there has never been a more critical need for the ultimate target - the buyer - to have balanced, unbiased and accurate information and advice. The real issue here is that rankings or "best of" lists are only as valuable as the rigor and independence of the evaluation methodology.

Deborah Kops, who has guested here with some intriguing views on outsourcing issues, has offered to share her thoughts with us on this whole issue.  Deborah is widely recognized as one of the outsourcing industry's most experienced voices, having spent the majority of her career on the advisory and practitioner-side of global services, leading global transformation efforts at Deutsch Bank and Bank of America, before helping to establish PwC's outsourcing division.  Today, Deborah is Chief Marketing Officer for WNS Global Services, a leading offshore BPO and KPO provider, and has greater exposure than most people in the industry to these "lists", now she is leading marketing for a services provider with revenues of half-a-billion dollars. Over to you Deborah:

The challenge of staying relevant in today's corporate climate

Mark Stelzner recently posted some interesting statistics on the plummeting average tenure of C-suite executives:

CEO: A 2007 Harvard Law School study shows that a “manager CEO” of a S&P 500 firm averages 5.5 years of tenure.  Crist Associates’ 2007 Volatility Report also shows the majority of CEOs with less than 5 years of service.

CFO: Spencer Stuart has CFO tenure at 4.3 years - and falling (Crist at 5 for all CFOs).

COO: Chief Operating Officer tenure is shrinking to just under 3 years, with the total number of Fortune and S&P 500 COOs diminishing at a perilous rate.  

CIO: According to the 2008 State of the CIO poll results, a Chief Information Officer’s average time in seat is about 4.4 years, down from 5.1 years in the prior period.

CMO: Spencer Stuart’s annual study shows Chief Marketing Officers at a mere 26.8 months, which is actually up from 23.2 months in the prior year.

CHRO:  Workforce Magazine’s analysis putting an average CHRO in their seat for approximately 3.1 years.  

These stats got me thinking more about how organizations today are rethinking their organizational strategy in a challenging economy where talent management is ever-critical to the business, and non-core functions are becoming increasingly subjected to lower-cost outsourcing solutions.  So why are C-suite tenures all getting shorter? 

Preparing the new organization for life after outsourcing

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

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

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

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

(2) View outsourcing as a strategic tool,

(3) Learn new skills, and

(4) Change their daily routine...

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

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

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

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

Sourcing advisors - your opinion is valuable

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

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

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

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

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

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

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

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

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

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

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

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

Platform BPO in the making?

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

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

Join the BPO and Offshoring Best Practices Forum

Sign up now!

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

 

BPO partnerships are opportunistic, rarely strategic

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

Happy birthday Horses for Sources

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

Here are some of my favorite highlights:

Will the EDS acquisition spark a BPO feeding frenzy?

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

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

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

HP/EDS redux

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

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

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

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

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

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

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

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

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

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

Long-term contract renewals: the real litmus test

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

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

HROWorld 2008: An industry re-inventing itself

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

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

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

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

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

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

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

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

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

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

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

Hewlett-Packard warms to bundled BPO/ITO

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

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

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

So what was the month of March all about?

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

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

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

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

And more from Blogsphere in March....

Can HRO rediscover its froth despite a 97% success rate?

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

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

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

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

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

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

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

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

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

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

Is your outsourcing vendor really your partner?

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

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

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

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

Is your industry over-networked?

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

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

SHRM (The Society for Human Resource Management);

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

CLC (The Corporate Leadership Council);

HCI (The Human Capital Institute);

HR.com;

HROA (The Human Resources Outsourcing Association); and

i4cp (The Institute for Corporate Productivity)

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

What to look for in a sourcing advisor

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

My view? 

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

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

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

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

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

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

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

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

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

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

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

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

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

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Let's keep the conversation rolling

Claims of death greatly exaggerated

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

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

PF

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

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

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

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

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

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

Managing talent in these economic conditions

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

February highlights

Some thought-provoking gems from February:

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

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

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

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

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

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 Human Capitalist got it right

   It's been one of the best running blog discussions of recent  months, where the Human Capitalist - aka Jason Corsello - predicted that Workstream would get acquired by Empagio.  Credit also to Mark Stelzner for hitting the spot with this one.   This is one of the first times I have seen a whole host of industry experts come together in one "location" to debate who would acquire who - and when it would happen.  A great example of blogging leading the media charge on an issue like this.  Interesting times we live in...

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

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

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

My 10 cents on HR and seats at tables

Firstly, thanks to all of you who contributed to the lively debate following the recent post "Will the HR function have a seat at the corporate table in 2008?".  I was merely highlighting some interesting thoughts from the Inflexion blog, and didn't expect such feverish input from so many of you!  (And before I continue, I promise this will be my final rendition using the corny phrase "seat at the table").  Anyway, I have been under pressure from several people to put forward my opinion in this topic, so here we go:

HR used to be  merely "personnel" and looked after the administrative activities related to basic employee needs.  It wasn't until the '80s when the wider berth of "Human Resources" was developed where HR would be activity involved in all issues people within a firm, and not just the basic admin, i.e. recruiting, organizational design and development, corporate culture, compensation, career planning and counseling etc.  The challenge of HR leaders was to get taken seriously at board level and prove their worth to the business.  Not an easy task where you are not directly related to revenues and there are always more "critical" issues to be discussed before people strategy.  The HR struggle had begun. 

Then came the onset of HR suites like Peoplesoft, whereby it became vogue for HR executives to apply metrics to their organizations to help base management decisions.  Where else in the company was there a more comprehensive view of staff profiles, compensation, attrition-rates and performance than in the HRIS? Hence, where finance departments could show the board how to budget and forecast the business to aid decisions, HR could (in theory) link employee performance with the business.  Part of the problem has been that HR (unlike finance, for example) hasn't done a good enough job of embracing technology to demonstrate real value metrics to the business.  It has been stuck in the weeds of blocking and tackling, and not focused enough in areas that get real board attention.

And then the wave of HR outsourcing hit after 9/11.  All this achieved was a very public dissection of the "strategic value of HR" as several high-profile companies grabbed at reasons to move out as many HR people as they could into service providers, or out of the firm altogether.  It has taken a few years for HRO to iron out its issues, but it had the impact of alienating many HR leaders within firms, and driving them further away from the corporate table.  However, I am convinced the HRO industry has now found its balance and the real HR issues are back at the forefront of many organizations' agendas.

My view is centered largely on the skillset of the HR professional today - it's too focused on the legal issues, compliance, managing the basics... and not enough on delving into corporate data to provide real input into driving a talent strategy into the organization.  Moreover, we need more "business managers" in HR - people who understand the real business issues, and how to help their firm hire, manage and retain key talent.  HR is the most important function in today's organizations, but it has simply not been developing in the right manner.  Hence, my thoughts are around HR helping to instill world class HR principles and practices into today's managers.  I once managed a team of 14 senior people and it was one of the toughest challenges of my life.  I needed support, advice - and a venting outlet - to help me do this effectively.  The success of my whole business function centered on my ability to be a good manager.  This is where HR, in my opinion, comes into play.  It is there to support today's managers, who are under ever-increasing pressure, to get the best out of their people.  I have seen so many positive examples of where this works in firms... and, unfortunately, some less successful examples.

Will it get there in 2008?  Professor Dave Ulrich, with whom I have enjoyed discussing these issues on several occasions,  outlines  excellently the roles HR departments must fulfill to deliver value.  His mantra is simple:  HR must play a role in implementing state-of-the-art strategies that are tailored to the needs of the business... an "operational executor role".  In a world of rampant change, where firms are constantly globalizing, restructuring, outsourcing, divesting and acquiring, the need for the operational executor has never been so intense.  It is my belief that we will see the roots of this happening in 2008 - otherwise businesses will struggle to survive and change in these complex times.      

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:

China and BPO? Don't bet your mortgage on it

There has been a considerable amount of hype around the China's potential as a BPO power-house, typified by this recent article by Sridhar Vedala and Vibhash Ranjan of sourcing advisor Equaterra, which claims the China BPO market reached $1.3 billion last year.  The definition of BPO is somewhat vague, so I will refrain from commenting on this figure, but am sure the economic climate out there is capable of commanding this level of BPO work.  The article has some excellent points regarding the advantages and potential of China as a BPO destination, namely:

• China's BPO market will be driven by (1) companies from Japan, Korea and Hong Kong outsourcing low-end services; (2) foreign investors that have thousands of employees in China (i.e. Danone and Fuji);  and (3) domestic companies that outsourcing within China.  American and European firms are "rarely sourcing" BPO services from China.
• Global BPO firms, such as IBM and Genpact, are developing a presence in China (even thought IBM is the only firm that has surpassed 1000 employees for BPO services);
• New BPO locations, such as Chengdu and Tianjin, are 30% cheaper that the mainstays of Beijing and Shanghai, and their attrition is only running at 5%, as opposed to 30% in the big cities (this really fills me with confidence);
• "China offers multi-region support to the surrounding customer markets, which sets it apart".  I am assuming these are for regions that require Chinese dialects, such as Jin, Wu, Hui and Pinghua, in addition to Taiwanese, Japanese and other Asian languages.
• Multinationals are shifting their Asia/Pacific regional HQs to China and establishing shared services centers or outsourcing local firms.
• De-regulation of the Chinese banking sector.  It is now much easier for foreign investors to offer retail banking services in China - a real drive for BPO.

Will the HR function have a seat at the corporate table in 2008?

Mark Stelzner, author of organizational-development blog Inflexion Point (and did that gravelly voice-over for Southwest Airlines) sees 2008 as a make or break year for the role of Human Resources:

"Like Toby on NBC’s The Office, HR continues to have a bad name in the eyes of business units, managers and employees.  Often viewed as either enforcers, legal risk mitigators or transactors, the human resources department is not the first place business leaders turn to for advice and guidance in meeting strategic goals and objectives.  They are generally perceived to lack basic business acumen (root cause analysis, business case skills, comparative analytics, etc.) despite years of trying to shift internal and external perception.  I believe this is a make-or-break year for HR.  If consistent, demonstrable examples of strategic value add do not break the glass ceiling in 2008, we will see the continued absorption of HR responsibilities into legal, finance, IT and outsourced service providers, effectively resurrecting the “personnel department” of old."

The HR function has been under increasing scrutiny in recent years, typified by the now-infamous 2005 Fast Company article "Why We Hate HR", by Keith Hammonds.  Stelzner does hit upon a very important point that HR strategy is becoming a core competency that is needed by managers in all corporate departments.  Any successful business manager today should have a solid grounding in HR skills when managing talent, in addition to a degree of understanding of finance to allocate and determine budget for his/her area, and some understanding on the IT needs of his/her function.  Hence, "HR strategy" is not something that is silo-ed into a single HR department, but is pervasive across an organization's management.  The HR department should be the driver and facilitator of sound HR practice across the management team, and ensure these HR practices are aligned with their organizations' strategic goals.  By demonstrating this alignment between solid HR and business performance (i.e. linking customer metrics with employee performance), HR will regain it's "seat at the table" when corporate decisions are made.  Moreover, with many businesses undergoing complex change with outsourcing, globalization and this predicted economic downturn, the role of HR has never been so important as it is today (I outlined the role HR needs to play in a company's outsourcing environment in this article for the IAOP earlier this year).

'

'    ......not yet free to have a seat at the table

   

Outsourcing Predictions for 2008... in a nutshell

Let's not beat around the bush...here's what happening next year:

1) Offshoring panic will continue, but will force providers to innovate. Concerns over the appreciating rupee, weakening dollar, wage inflation and employee attrition will continue to have a powerful impact on the global outsourcing industry.  As highlighted here earlier this year, the onus on the leading outsourcing providers is to focus on building constant ongoing efficiency and dynamic working environments for their staff, price their engagements on business services as opposed to offshore staff wages, and expand their delivery centers into other low-cost global locales like Latin America, Philippines and South East Asia to minimize the risk from their offshore delivery models.

2) The standardization of technology platforms within Business Process Outsourcing (BPO) engagements will take center stage.  You have to take your hat off to SAP for recognizing the significant opportunity BPO is providing for the leading ERP vendors.  They invested significantly in implementing programs for the BPO service providers to deliver outsourced services on their platform three years' ago, recognizing that the future success of BPO lies in standardizing processes across business functions and global regions.  And how else can you do that without having common processes underpinned by standardized technology platforms?  Oracle has also followed suit more recently, as it too has realized it must compete for business with firms looking to moved towards an outsourced end-state.  To put it quite simply, when you are moving processes into the hands of a third party, or offshore, it is much easier to train staff to manage these process for you if they are well documented and are underpinned by software that staff can be quickly trained to use.  It is much easier to find staff who are, for example, familiar with running reports from Oracle financials, or SAP R/3, which significantly lowers the risk of staff attrition, and also allows for outsourcing providers to hire fresh graduates and train them on standard tools and processes, many of which they already gained experience with during college, or in their previous employment.

3) Intense competition among the IT Outsourcing vendors will drive the uptake of Remote Infrastructure Management (RIM).   Up until this year, the growth of RIM - the management of a company's databases, desktops, servers, networks, security and applications from a remote location - has been timid.  However, with the majority of IT infrastructure now manageable from a remote location, it is making less sense for firms to engage in outsourcing engagements where the vendors supply all the kit.  Of course, vendors can command higher fees if they are also supplying the hardware and applications, but they are also footing the bill for asset depreciation and renewal.  With so many vendors competing for a piece of the ITO pie, RIM provides an aggressive entry point for the ambitious offshore providers, for example Satyam, HCL, Patni and Cognizant, to compete with the traditional incumbent ITO vendors.  These companies will be prepared to bid for much smaller contracts to gain a foothold in the market and build operational scale (remember the 90's when the US IT services giants unwittingly let Wipro, Infosys and TCS jump into the IT services game...).  What's more, enterprises can explore RIM solutions on a piecemeal basis and do not have to go for a "big-bang" approach;  outsourcing solutions have often proved more successful where firms can try out one or two processes to begin with.

4) Adoption of Business Process Outsourcing will continue to grow, but at a slower - more cautious pace.  The early wave of Human Resources Outsourcing (HRO) deals was centered on multiple processes across multiple geographies being bundled in a single contract, where the HRO provider delivered multi-lingual services and often multiple technology platforms.  2007 pretty much signaled the end of an era, with the J&J / Convergys HRO engagement being the only end-to-end HRO global mega-deal of note.  However, we did see a plethora of smaller-scope engagements which covered payroll, benefits administration and HR-IT areas.  Expect these to continue in 2008 as providers refine their delivery models and include more offshore services to support HR processes, but the day of the large, global, complex HRO engagement is very much fading.

Finance & Accounting Outsourcing (FAO) has enjoyed unprecedented growth over the last three years as firms take advantage of low-cost offshore services.  However, 2008 will see a slowdown in the 30%+ growth spurt as the leading providers ingest a lot of the recent business they have taken on, and look to build efficiencies in their delivery models that take advantage of better technology, more standardized processes, and incorporate new locations - namely Latin America.  Expect more modest growth in 2008, in the region of 10%.

Procurement Outsourcing (PO) will continue to be adopted at a slow, but steady pace, and will be increasingly bundled onto existing FAO engagements as many of the more experienced adopters seek to add more indirect spend management processes into their outsourced portfolio.  Like HRO, the offshore vendors are learning how to service these processes more effectively, and expect this to be a driver for more adoption next year.

5) An economic downturn will accelerate some outsourcing adoption.  As we so colorfully debated here, each outsourcing inflection point has been driven by urgent financial needs of companies to curtail expenditure on general and administrative functions.  The waves of ITO deals in the early '90s, HRO and ITO deals after 9/11, were primarily driven by the need for buyers to experience a "quick fix" with their costs, combined with ambitious provider pricing designed to have immediate financial benefit to clients.  The more recent wave of FAO deals has been driven by manufacturing, automotive and consumer businesses under serious competitive pressures.  However, the relative economic comfort of recent years has allowed many enterprises to take more time over their sourcing decisions, and adopt a more "start-small" exploratory approach to understand what works for them.  When you look at the anatomy of outsourcing expenditure over the last couple of years, we have seen a surge in smaller contracts that do not make the media radar.  Outsourcing is a complex business, so why should a company enter into huge multiple-process outsourcing engagements, when it can afford to take it's time a move out select functions on an incremental basis.  However, as we stare hard at the prospect of an economic downturn in 2008, will we see companies step up their urgency to cut costs?  Is the maturing provider landscape ready to take on a new wave of more complex services?  I believe it is. 

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One of the toughest years to predict?

Globalization of labor and outsourcing will dominate Human Capital strategy in 2008

An interesting study conducted by WorldatWork, one of the leading HR executive organizations for F500 companies, has cited firms' abilities to deploy a global strategy towards its workforce, the advancement of technology and the increase in outsourcing as having core implication for workforces in 2008. 

"Organizations will look for ways to pull jobs apart to find pieces to outsource. Thought must be given to the motivation of workers assigned “pieces” of the work."

No great surprises here, but hearing the "O" issue becoming so prevalently and openly debated by one of the most reputable HR bodies is a step forward.  The majority of other leading HR bodies are still sweeping the importance of outsourcing under the carpet, so it's a significant mind-shift to see it reaching the top of the HR agenda.  I discussed here the crucial role HR strategy must take on when companies go through the outsourcing process (earlier this year).

Hoovering up the transactional stuff... is NCO becoming the ADP of F&A Outsourcing?

Going pretty much unnoticed last week was the acquisition of receivables management firm Outsourcing Solutions Inc by the global market leader in Collections BPO, NCO Group, to create a combined accounts receivable (AR) BPO giant with revenues of $1.5 billion, and adds nearshore service center capability in Puerto Rico, Canada and Mexico to NCO's current global delivery portfolio, which includes the USA, UK, India, Australia and the Philippines.  NCO has steadily been focusing on developing offerings in reporting, analysis and budgeting areas, and now only needs to acquire a major capability in accounts payable services to boast a pretty impressive full-service F&A offering.  What's impressive about this expanding portfolio is the multiple geographic locations being developed, and the avoidance of over-reliance on India.  The added capabilities in the Philippines and Latin America put the firm in a strong position to compete for global AR contracts, service all the necessary major languages, and jostle service delivery across several low-cost locations to accommodate multiple time zones, combat attrition issues and the appreciation of currencies such as the Rupee.  NCO boasts several high-profile clients, where it delivers outsourced AR services, often as augmented offerings to existing shared services operations.

The HR Outsourcing Industry Crystallizes around J&J

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• You can’t understate the importance of the 10-year $1bn Johnson & Johnson HR Outsourcing contract to the long-term sustainability of the HRO industry. When discussions began within J&J back in the summer of 2005, the key question bouncing around J&J’s leadership was “can we really do this?”.  For a company that has grown largely through acquisition, J&J today boasts a couple of hundred businesses operating under the flagship brand.  You can only begin to imagine the challenge of standardizing this global business on a common HR platform, across multiple countries, supported by centralized HR organizations.  I recall times it looked doubtful the deal would happen with all the negative publicity surrounding HRO, the contractual issues of some of the earlier engagements, and the financial difficulties experienced by some of the ambitious providers who bit off slightly more than they could initially chew.  It became abundantly clear over the last 6 months that J&J would prove to be the bellweather of the HRO industry – its very survival hinging on whether this would actually happen.

• What is transpiring in today's industry, is that outsourcing (BPO and ITO) is providing the lever for companies to go through major change (hey – I managed to avoid saying “transformation”).  And what’s more, HR outsourcing drives business change with the investment footed by labor arbitrage, process automation and self-service technology (contrary to the mega ERP implementations of the ‘90s where the cost was borne by the shareholders).  For many global organizations, they simply cannot drive the scale of change necessary through organic process re-engineering – it’s often far too expensive, far too slow, and often far too political.  Many companies do not have the required management experience to do it either.  Going through outsourcing drives shock into system, forces change quickly and usually reduces administrative costs.  Yes, a handful of companies decided it was not for them, for various reasons, but the vast majority would never go back.  They want to work with what they have achieved and make it better, through better governance and constant innovation. 

So what’s next for the HRO industry? – here are my snapshot predictions:

• Global deals will continue to slow as the major providers reach capacity and absorb what they have already taken on
• The upper middle-market will open up aggressively as firms with 5,000 – 10,000 employees pursue broader outsourcing strategies across SG&A and IT functions.  Interest in outsourcing is at an all-time high and companies are vigorously exploring sourcing models that work for them – i.e. captives / hybrid models / full scope outsourcing
• The “Transform first, then outsource” myth is beginning to fade (but slowly).  The common plea of “we can’t do this right now until we get our act together internally first” isn’t washing as well as it used to, with more and more companies fixing their internal process and technology requirements while going through outsourcing transition.  J&J is a perfect example of that, and a bellweather for many more organizations to follow who desperately need to change.
• HRO will become more accepted as a standard outsourcing practice, like ITO, F&A and Call Center.  My post on the Human Capitalist blog in December 2006 lays out the issues the HRO industry has had to contend with, unlike other outsourcing towers:

  Holding HR Accountable

Why Technology is an important key to BPO-sustainability

Folks:  I will be featuring several guest posts from experts in the outsourcing industry who I respect. One gentleman whom I have known and worked closely with over the years is SAP's BPO group leader, Dr Christian Baader.  Christian is now the globally recognized thought leader on how crucial technology strategy becomes when companies take on BPO engagaments.  Take it away Christian...

There is widespread agreement in the BPO-industry by now, that the traditional, labor arbitrage dominated way  of "lift and shift" or “my mess for less” as some pundits call it, is not producing sustainable BPO-situations.   Many deals not living up to expectations and meager provider profitability are warning signs of this.  Sustainability has become one of the key issues of the industry.

Sustainability should be read as “both sides, customer and provider, achieve their business goals over the deal duration, i.e. the customer gets the targeted improvements in cost and quality of service while maintaining a low risk exposure and keeping long-term options open while the provider makes his margin, and the relationship  grows for both sides in value over time.” 

A number of factors need to get played well in order to safeguard sustainability of the deal from the start, one of them being the decisions around the technology foundation of the deal on the provider and customer side. 

Technology’s influence on deal economics
Business decision makers often tend to either leave the technology choice to the provider (an attitude we often see expressed as "we bought a service, now the  technology choices are on the service provider") or treat it as a mere IT-discussion only.  Both attitudes however miss the crucial influence, that technology has on the enterprise value of the deal:

·         Technology’s influence on the economics for the provider:  The design of the processes and choice of technology influences all the fundamental business drivers influencing the providers ability to service the deal efficiently and in a sustainable fashion: Synergizing between different parts within the customer organization as well as between customers for generating economy of scale (“do it cheaper”), ability to automate and optimize processes taking full advantage of future innovation potential (“do it better”), and effectively leverage labor arbitrage (“employ cheaper resources”)

·         Technology’s influence on the economics for the customer (ie, incl. the retained organization):  The technology choice and platform design of the customer and the provider is very often a shared one, or at least a heavily integrated one - and as such the choice on one end impacts the other end (e.g. when the outsourcing/centralization scope does not include all subprocesses or countries. Common problems include data integrity and ability to keep synchronized over time when the two sides of the fence move in slightly different direction – which might express itself in additional process exceptions requiring manual interventions or inconsistencies  in self service implementations or reporting)

All in all, the appropriate deployment of technology as an enabler of outsourced and retained processes is therefore critical to the sustainable delivery of the BPO services (leveraging appropriately automation, analytics, workflow, authorization concepts etc). 

The need for “Design for Manufacturability” of Process solutions
Furthermore, technology deployment cannot be engineered in a silo – it must be considered TOGETHER with the process reengineering, so that the resulting service is not just satisfying the business requirements but is also efficiently manufacturable.  I call this the "Design for Manufacturability "-paradigm of BPO-service manufacturing (and it seems high time, that we learn from the lessons of the physical goods manufacturing for the service manufacturing world).  Process solution “design for manufacturability” includes the choice of the platform itself, and configuration/customization choices for process adaptation and integration.   The advantages of standards-conformant deployment of standard technology (ie, leveraging configuration and avoiding customization) for your process solutions are manifold:

• required levels of process integration can be achieved more cost-effectively
• the solution is easier to maintain over time – which includes higher quality as well
• adoption of innovation is easier
• necessary scope-extensions of the platform (be it additional processes, geographies, businesses) are easier to accommodate
• finally migrating the platform at the end of contract (to another provider or back to inhouse delivery) will be less risky and painful.

In order to leverage those technology aspects most effectively, decision makers should make sure, that the topic is integrated into the sourcing project from the RFP-design stage onwards and that business and IT-teams are working on this in a highly integrated fashion.

Leave the technology choices to somebody else at your own peril!

Dr Christian Baader is VP of SAP's BPO Group, and is based in Waldorf Germany