The Outsourcing Blog: Horses for Sources

Buy some innovation right here... just talk to Bob

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...

The Industry Speaks, Part III: Demand for outsourcing is reaching new heights, but will vendors disappoint?

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:

Alsbridge doubles-down on data-rich consulting with TAG acquisition

 
We've had a huge amount of debate concerning the future direction of outsourcing advisory services, and today, we can exclusively reveal a sea-change in the advisor industry landscape with  Alsbridge's acquisition of TAG, the leading life-cycle expense management advisor for network services.

2010 Predictions for the Outsourcing Industry

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. 

Can IT overcome its credibility crisis?

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.

The next stage of industry development: Co-learning partnerships, not mega-mergers

The industry's next phase of growth is unlikely to be dominated by the mega-mergers of the past (DEC/Compaq, HP/EDS etc.).  It's going to be focused on service providers moving into partnership engagements with clients, where they can develop specific IP and industry process competence.  

I see this trend escalating in the application development arena, as this area is now approaching significant scale and maturity, but also believe this will pave the way for future BPO development, as service providers find new opportunities to layer on business process services that compliment their application development work.  It's really about learning specific industry process, how they can be enabled and optimized by smart applications, and processed by smart people who add value.

This isn't simply lift and shift where the service provider does the same with less - it's where the service provider brings specific expertise to the table that allows the client to scale its business globally.  It allows the client to focus more heavily on its core competencies, which provide the real value for its own growth.  And it allows the service provider to develop specific industry process knowledge of its client's industry that is can replicate across its own knowledge workers.  The maturity of the application outsourcing marketplace is now going down this path, where the leading service providers have the lions' share of the talent - and the scale - to provide the technology development services that allow clients to invest in their core industry services that make up core value proposition.  Why invest their scarce resources in IT development when they can find a third-party to do this for them and invest in areas that will improve the front-end of their business?

One prime example of this is the new partnership between UK-based industrials magnate Invensys and service provider Cognizant.  Invensys wants to focus on on its core competency of product definition and architecture and developing its industrial automation platform, with Cognizant being its technology partner for product development. 

Invensys can focus on where it's best, and Cognizant can make a surge into the manufacturing industry.  Invensys will learn from Cognizant's technology skills and Cognizant from Invensys' manufacturing process and operations prowess.  Jobs are not lost, and existing employees are going to enhance their careers with new industry and technology knowledge.  If this partnership works, both firms will end up creating more jobs to support their expanding business portfolios. 

 You can read more about this partnership over at Think Global.

Captive sell-offs: good for innovation, good for employment

I know I've been depressing everyone with calls for change and for our flagging companies to step up and disrupt their business models.  But did I ever say I was here to make you happy?

However, one shimmer of light amidst this gloom is the increase in activity of service providers buying up business' captives or shared service operations (often under the guise of a new "client win"). 

EXL's acquisition of Schenider Logistics' Czech operations is yet another recent example of a service provider making a strategic move to add scale and expertise to its delivery portfolio.  In this case, EXL is cementing its European presence in a unique and attractive sourcing location, enhancing its F&A BPO business and bolstering its multilingual capabilities, in addition to incorporating supply chain and logistics management process expertise - an area of increasing importance in the industry.

So why is this good for industry?

Everything you need to know about Supply Management BPO (but never dared to ask)

Folks - we're staging a webinar entitled "Supply Management BPO: Why Business and Technology Transformation is Critical for Long-Term Success". 

Supply Management BPO - short-term body shopping trumps business transformation

It's easy to get excited with high-growth markets, but supply management BPO's different. 

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.

Why the lay-off culture is far more damaging than offshoring

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

Contemplating the BPO industry with Wipro's Ashutosh Vaidya

One of the most enthusiastic leaders in the BPO industry is the man who has overseen Wipro's rapid rise in recent times:  Ashutosh Vaidya.  In-between playing squash, watching cricket and clocking up a ridiculous quantity of airmiles, Ashutosh has overseen a series of Finance & Accounting, HR and supplier management wins that have moved the service provider into the BPO industry's top tier.  I asked Ashutosh to share his views of the current state of the BPO industry and what steps need to be take to ensure the continual growth of the business in these times.

PF: Ashutosh, we’ve been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn’t?

AV: Indeed the BPO world has come a very long way over the past decade. In fact, 2009 really marks the 10th anniversary of the meaningful 3rd party BPO

Contemplating the BPO industry with Infosys' Ritesh Idnani

When he's not tinkering with his fast-cars and rock music, Ritesh Idnani has emerged one of the key guys behind Infosys' prominent rise as a leading BPO provider.  But's it's not been an easy ride...when you get up close, you can start to see some grey hairs creeping in to defy those baby-face looks.  I've known Ritesh for a number of years and thought it ample time for him to share his views on the development of the BPO industry and what holds for the future in these crazy times...

PF: We've been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn't?

RI: The emergence of outsourcing is not a new phenomenon. It has been practiced by corporates from the 60’s, but it is only in the last decade or so that corporations have recognized the phenomenon and actively engaging in outsourcing as a lever to reduce the effect of non-core activities contributing to the wrong side of P&L .

The flat of the curve: are we scared of innovation?

Kevin O'Marah, AMR Research's Chief Strategy Officer, blogs a thought-provoking piece that highlights how so many retailers and manufacturers have failed to embrace collaborative supply chain models through fear of "giving more than they'll get".  Kevin argues that consolidation amongst suppliers will accelerate in this environment as major industrials drive cost out of their supply chains by reducing their supplier bases.  He adds,"what we have since seen is that cooperation takes a lot more than just setting up EDI, reverse auctions, or visualization.  It takes trust, which apparently is still in short supply." 

Supplier Management BPO breaks a billion

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...

Join the Horses' socially-networked BPO forum

Yes, there is such a thing as a free lunch...

Horses For Sources' official LinkedIn Group, the aptly-named "BPO and Offshoring Best Practices Forum" has just passed its first anniversary, and 5,000 members. 

This is 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 our forthcoming "State of the BPO Industry" online survey next month. 

LinkedIn has just expanded the group's capacity to 8,000, so we can start letting more of you in... whether you want to find out the cost of a mainframe developer in Buenos Aires, chit-chat with other services-nerds, or just can't wait to find that dream job (ahem).  You also get a free subscription to the Horses Digest.  And it's FREE FREE FREE.  Am I the most charitable person you know?

SIGN UP HERE

 

Highlights from SIG

TPI's Bill Huber was busy on the blog all last week at the Sourcing Interests Group show and has good summaries of some of the key sessions.  For any of you who missed the show, I suggest you follow the progress of the group under the excellent stewardship of Dawn Evans.  To pack a place as well as she did - in this market - is a phenomenal achievement.  The fact the event was organized in Baltimore was a master-stroke... people don't feel guilty going to events in Baltimore :)

SaaS: Outsourcing out-of-control?

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.

Blogs and Research on outsourcing: are you getting what you need?

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:

Guatemala: Bananas, Green Tomatoes... and BPO

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. 

BPO bucks the trend as WNS posts strong revenue growth

As we discussed last month, the Business Process Outsourcing market is maintaining double-digit growth as we move into 2009, fueled by increased uptake of source-to-pay, analytics, finance and accounting, HR and industry-specific services. WNS Global Services, one of the largest pure-play BPO providers, with revenues in excess of $500m, has posted a 15.9% increase in revenues for Q4 2008, over the corresponding quarter in the prior fiscal year.  WNS's main competitor Genpact is due to report on 18th February, and I would expect to see a similar revenue increase from them.  It really appears that BPO is finding its feet and

India dominates procurement BPO delivery

Taking a detour from the Satyam fiasco, I have much better news for the Indian services sector based on brand new data on the procurement business process outsourcing (BPO) market.  Only a couple of years' ago, barely a small fraction of procurement work was sourced from offshore locations such as India.  However, it has now reached almost 70% for all current procurement BPO engagements.  Read the full post at Think Global.

The Horses spawns a partner: Think Global

Amigos - I'm excited to announce the launch of a sister-blog to Horses for Sources : here ariseth "Think Global", with focus on global delivery strategy, BPO, supply chain and IT services trends.  My firm, AMR Research (God bless 'em) has admirably tolerated the Horses for a long time now, until finally asking if I'll consider extending my verbosity to our research content, to which many of you do not gain access.  I've kicked this off with complimentary access to a new research article entitled "Beware of Myopic Cost Cutting: Use Outsourcing To Be More Competitive in This Economy".

I've always used the Horses platform as an outlet to knock around views, cultivate ideas and take the industry temperature.  So many of you have been part of that.  And, while we might not always have been 100% accurate, we've collectively generated so many gems of insight that I frequently read our commentary to add some color to what I am thinking - and I know many of you do the same. 

The power of the blogsphere is truly extending to the analyst world.  And while some of the other analyst firms have pushed their blog strategies for a while now, I am (for once) going to brag that none of them have come close to cracking the blogging code.  Over here we have, and it's time to take it mainstream.

Horses will not be going away, but will run in tandem with Think Global.  I hope you take a little time to pay a visit.

While you're there, please also check out the blogs from a couple of AMR's industry legends, Bruce Richardson and Kevin O'Marah.  I'll see you over there...

PF.

Horses outsourcing predictions for 2009

Yes, it's that time again folks, when analysts and other industry wannabe needle-movers come up with some profound verbiage that they think gets everyone excited for a few days, and hope no-one re-reads in 6 months.  Well... I occasionally do some research in my spare time, so here are some thoughts on what we can probably expect to see happen (just don't bookmark this page and hold it against me):

Low-hanging fruit outsourcing with immediate cost-savings will be strong.  As we discussed and surveyed here, it's areas where enterprises can streamline initial costs over a contract and get an immediate impact on the bottom-line.  That's bread-and-butter application outsourcing, high-arbitrage BPO areas such as F&A and vertical-specific analytics (that KPO stuff).  I am also expecting increased adoption of procurement BPO models as increased procurement and supply management work is moved offshore, and buyers can benefit from labor arbitrage to underpin the transformation costs that have held back adoption in the past. 

How should companies approach outsourcing in this economy?

It’s easy for enterprises to panic in this market and jump at outsourcing opportunities, simply with the goal of shedding some cost from the bottom-line. In too many situations, clients have jumped at the lowest cost option, and now live to regret their decision.

Outsourcing clients have to think more smartly and strategically about creating an experience than can drive new growth, deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.

Investing in the right vehicles for change

This whole automotive situation is a microcosm of the broader issues facing the crumbling Western economies in this crisis market, and these issues require significant surgery to our very corporate DNA.  And outsourcing and globalization are right at the heart of the issues. 

Outsourcing provides an enabler for businesses to change, but ultimately we have to be put in a position where we have to change our corporate DNA and stop clinging to the inefficient ways of the past.  That time is now upon us and we need to embrace new ways of working, and new ways of doing this smarter.  And if it's fear that is driving us, some short-term panic, some short-term hardship, is a small price to pay to find new avenues of growth and value-creation further down the road.

And that doesn't mean businesses should go out and find outsourcing providers to save them a few dollars today, for the sake of making a quarterly target. 

The change imperative: it's back-to-basics time

Even though you are probably more interested in the breed of puppy Barack is going to buy his girls, I have had a chance to ponder the realities of the recession.

In a nutshell, we have reached a crucial juncture in our economic history:  gone are the days we can borrow whatever we want to subsidize ambitious business ideas, buy houses we cannot really afford, or fritter money away on expensive holidays. Walking down Boyslton Street at 7.30pm on Friday night - one of Boston's prime restaurant areas - every restaurant had vacant tables and was taking walk-ins.  It really hit home to me that things have finally changed.  Years of over-spending have finally caught up with us and we're now feeling the pinch.  But whether this was to be a rapid banking meltdown, or a long painful slowdown, this had to happen eventually. 

I recall sitting on a panel at at outsourcing conference in New York City back in 2004

Can Obama turn the USA into a competitive sourcing location?

Being ineligible to vote in this country, I've been an amused observer of one of the the most enthralling and contentious elections in years - and trying to understand how each candidate will impact the future of the global outsourcing industry.

What is clear, is that shipping jobs offshore isn't necessary very good for the local unemployment rate - the age-old argument of focusing US staff on "higher-value" work is wearing a bit thin these days.  What's more, many offshore service providers are now focused on taking on more higher-value work activities for their clients, in addition to routine transactional work. For example,

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:

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.

Some summer sourcing soundbites

Outsourcers Hone European Savvy:  Niraj Sheth, of the WSJ, comes up with some compelling examples of how the leading Indian outsourcers are training their staff to understand European business etiquette.  With a weak dollar and tight economy, the offshore leaders are increasing their focus in the high-cost European countries, where expensive currencies, high wages and a challenging economic climate are driving outsourcing to the top of the agenda.  However, it's not quite as simple as adding americanisms to English...

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...
 

Process Optimization is the key to successful Procurement BPO

I was recently engaged in an excellent conversation witn Gianni Giacommelli, who leads marketing strategy for SAP's BPO division, on the way forward for the Procurement BPO market.  One of the aspects about SAP that has impressed me, is their strong view of BPO as a opportunity, as opposed to a threat, to their business.  Gianni's boss, Christain Baader, has performed an excellent job driving this strategy in recent years, and made his case-in-point last year where he discussed why technology is an important key to BPO-sustainaility.   BPO is all about driving common strandards that can help service providers leverage their service staff and technology applications across multiple clients in a utility model.  So what better opportunity is there to encourage enterprises to standardize on a common ERP archtecture than when they evaluate BPO opportunities for their business?  And it's not solely about BPO, it's also about globalization: the more global enterprises can encourage their country-level businesses to operate within a global process template for functions such as finance, HR, sales and procurement, the quicker they can access critical data to make global business decisions.  Without digressing further, I asked Gianni to summarize our conversation regarding the development of procurement BPO solutions, where many of the leverage points for cost savings are driven through process and platform optimization, and not solely labor arbitrage.  Over to you Gianni:

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. 

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....

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. 

 

Mystery vendor management

I wanted to introduce a great blog called 360 Degree Vendor Management written by a good friend of mine who facilitates complex RFP development, leads vendor selections, contract negotiations, and manages outsourcing governance processes for a FORTUNE1000 enterprise.  She / he obviously cannot share her experiences publicly so chooses to do so under blogsphere anonymity.   Respect to that!

Some great pieces which are well worth reading include:

Paying Outsourcing Vendors

Insights on Procurement Outsourcing

Onsite Vendor Management in a Global Outsourcing Environment

Vendor Management and Learning Curves

HRO:  Where's the Value?

Outsourcing Vendor Metrics

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:

Procurement outsourcing chatter

Jason Busch is regarded as the industry's supreme authority on all issues spend-management and procurment.  Jason picks up some interesting points on the slow growth of Procurment Outsourcing on his blog SpendMatters (you must subscribe to this by the way).  Vinnie Michandani, on his Deal Achitect blog also pipes in with his views. Go visit!

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.

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?