HTTP://WWW.HORSESFORSOURCES.COM
See you over there...
HTTP://WWW.HORSESFORSOURCES.COM
See you over there...
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...
Continue reading "Buy some innovation right here... just talk to Bob" »
Plug in your headphones, crank up the volume and ask yourself... are you ready for H day?
(may take a few seconds to load if you have a cheap computer)
How many of these images from the history of the Horses do you remember?
We've had some great contributors to the Horses over the years, and I was delighted to get a call the other day from one of the legends of outsourcing lore, offering to share some of his career learnings with us.
I'd like to think he rates us that highly, but it's more likely the two feet of snow that submerged his local golf course was what really inspired Mike Atwood to lend us some of his thoughts about globalization, the development of capitalism, and our favorite topic: outsourcing.
I recall my first meeting with Mike a few years ago at an Admirals Club in Atlanta, when we were off to impress a potential client with our knowledge of the industry. All Mike said that day to me was, "you'd better have some good charts"... and the rest is history. Mike's experience with outsourcing spans 35 years, much of which was spent leading three major divisions at EDS, before turning his hand to sourcing advisory work in recent years, where he's served as a Principal with Everest Group, and leading Hackett's ventures into the advisory space. Mike has also worked extensively in Tehran (during the Shah's days), Jeddah and Mexico. Without further ado, let's turn the stage over to Mike to hear his take on how...
Adam Smith got it right!
Over 350 years ago he observed and defined the concept of markets, specialization of labor, demand, all of it.
Continue reading "The Atwood Files: Adam Smith got it right! " »
For all 1055 of you who perservered through completing our survey, and then being subjected to six lengthy diatribes about what it all means, we can finally put this little study to bed with a FREE WEBCAST on Friday 5th March at 11.00 AM Eastern standard time.
CLICK HERE TO REGISTER
As we discussed during the previous five chapters of this encyclopedic journey to over-analyze our industry, customers are looking beyond the old simplicities of outsourcing to find new and creative ways to find new performance thresholds.
One of these areas is to exploit BPO opportunities within industry-specific domains, especially where there is opportunity to bundle both BPO and IT services together under a single vendor's provision to generate more efficient business outcomes.
To cut to the chase, the industry-specific (vertical) process domains are where some of the newer vendor entrants are infiltrating, almost unnoticed, into the BPO industry. Most of the strong IT services vendors have been developing BPO niches in specific verticals where they have developed some strong process acumen and client credibility, and have the determination to invest in becoming best-in-class within that industry.
For once I am stumped for a catchy title, and am opting for some good ol' jargon-laden gruyère to tee-up Part IV in the series discussing our New Normal in Outsourcing Delivery survey. At least I've avoided the 'T' word lately, to grant myself a morsel of poetic license to indulge in a little schmolz...
But we all love the term "Cloud" (c'mon, you know you do...). It gives us a nice fluffy visual of ripping out all that complex, clunky computing chaos from our organization, and having some nice services vendor deliver us everything we need for our business... leaving us with simply a screen, a keyboard and lots off additional space in the office to set up that Fussball table... or a Twister mat in the corner...
Why Cloud Computing is the future of outsourcing delivery
While I am probably the first cynic to de-odorize the latest cheese fumes that infuse our industry, I have to admit I am rather taken with the whole philosophy of Cloud Computing. Cloud signifies the coming-together of business process and IT delivery in a fully outsourced model (see earlier post). Cloud's not simply about outsourcing the heavy-duty computing grunt - it's about the delivery of real business services, enabled by the applications needed to support them, powered by the requisite computing and network infrastructure to host and deliver them.
Industry analysts are often accused of hyping the market they cover, creating hockey-stick growth projections to get everyone excited and avoiding ever reporting a worrying decline in growth. I just heard you gasp in shock and horror at this revelation...
So what do you do when you're actually in a position to dust-off the old hockey-stick, last seen used adorning a forecast for online vacuum-cleaner parts from ’99, and slap it under a title such as "Outsourcing spending to reach $250 Gazillion by 2016"?
Which brings us to the topic du jour: what are customers intending to do this year with their outsourcing strategies? When we spoke to 1055 customers, intermediaries and vendors across the global sourcing industry earlier this month, they gave us the real picture:
Fed up with short, punchy news titles such as "Outsourcing is Dead", or "My Delivery Manager Ate my Hamster", designed purely to capture your attention with minimal substance?
Well, salvation can be found right here, as long-winded rambling ones are going to be all the rage this year, so here's one to send you into a tail-spin: "Infosys will buy Capgemini, then IBM will acquire the newly-merged entity before spinning it out as part of a joint-venture with Deloitte, GE and Macdonalds". Actually, before you hurry out to purchase some stock in the Golden Arches, I just made that up...
Instead, let's talk about outsourcing vendors, and what on earth they are going to do when these tasty labor-arbitrage deals start to fizzle-out. As we discussed at length back in November, operational service provision is commoditizing and leveling the playing field. Customers did their planning during the recession, and, now armageddon has (apparently) been averted, it's time to execute on that planning. And part of many customers' planning right now, is to take advantage of moving operational support offshore and driving out some cost.
This is bonanza-time for the offshore-specialists that can deliver basic IT and BPO services at competitive prices. Contract-signings that were delayed during the painful recession months are now in full-swing, service vendors are reporting healthy results and even the sourcing advisors have stopped moaning about their lack of deals, and are making money again.
So it's time to drip-feed the intentions and experiences of 1055 buyers, intermediaries and vendors into the global sourcing industry.
We'll be discussing the results from our "Seeking the New Normal in Outsourcing Delivery" in full at the Global Services Conference on 28th January, but the nuances behind why - and how - companies are exploring sourcing delivery models, as we come out of a painful recession into an uncertain climate, need to be aired and discussed.
There's been a lot of talk about a "New Normal", or a "Reset Economy", that things will never be quite the same as before, however, we really need to zone-in on reality to grasp what these new dynamics really entail, in order to understand how we can address them.
To cut to the chase, most industries are in a state of profound change, where businesses are having to accomplish new levels productivity and sources of revenue simply to survive, let alone grow, in this climate. Whether you're making cars, pharmaceutical products, providing consulting services, and so forth, the chances are there's someone else in your industry vying to deliver what you do at lower cost, and potentially better quality. (Unless you're in banking, where it's business as usual...).
Thanks to all of you who participated in December's survey "Seeking The New Normal in Outsourcing Delivery".
In total, 1051 companies gave their opinions, with a strong mix of buyers, intermediaries and providers participating to give us an unprecedented pulse on the outsourcing industry. About time we had less prophesying and some actual hard facts on what's really going on out there...
In anticipation of releasing the results of the study later next week, I'd like to recap some recent thoughts on where the industry is headed, to help make sense of what is really happening in the industry. And a special thanks to our friends at Global Services Media and the Shared Services & Outsourcing Network, who graciously invited their member communities to complete the survey (thank you, Ed and Sarah). And curses to those of you who pilfered our phrase "New Normal"... you know who you are :)
The "new normal" in the outsourcing delivery business
This truly has been a pivotal quarter for the outsourcing business. As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn.
In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations. But while some providers are clearly delivering, others are struggling to compete in this "new normal".
So what is this "new normal"?
Continue reading "Weekend recap: the "new normal" in the outsourcing delivery business" »
And now time for the long-awaited second part of our interview with our francophonic snowboarding services stud Sebastien Ruest, IDC's Veep for Global services research. (Vous pouvez accéder à la première partie ici). And ladies, please no more emails asking me whether he's single...
Phil Fersht: Sebastien, let’s talk about Cloud, where you’ve been particularly involved. In a nutshell, can you help us separate the hype from reality, and explain to our readers whether this is just the next buzz-phrase in the IT business, or a genuine way we’re going to access services in the future? Do we have any optimistic IDC projections with cloud-based services?
Sebastien Ruest: In the last few months, I have had the chance to speak with many CIOs and one thing I learned is that the idea of Cloud, this new model of IT and broadly speaking of Business and Consumer delivery through the cloud is of very high interest, to business execs, CIOs in the market right now. But, as you can imagine, Cloud Computing means different things to different people. The cynics will say that it is nothing more than "ASPs on Steroids".
So the "great analyst roll-up" is in full swing, with Gartner's announcement today to acquire another competitor, this time the Burton Group, for 56 big ones. This comes hot on the heels of my former firm, AMR Research, also being acquired by Gartner. I won't go into the details of the mechanics of these mergers, as you can read exhaustive commentary, debate and analysis over at Carter Lusher's blog. However, I did want to discuss what this means to our sourcing industry.
Limited choice for alternative opinions. As most of Gartner's competitors couldn't really compete on brand, they've had to differentiate themselves to survive, and that meant finding areas of coverage that Gartner didn't do (or do well), and having analysts on staff who weren't afraid to rock the apple-cart with edgy, sometimes controversial, opinion and research. While Big G has picked up some superlative minds from its latest acquisitions, its new challenge is going to be maintaining those edgy opinions, and not having them toned down under the glossy corporate veneer of the billion-dollar brand. Whichever way you look at this scenario, we simply have to have more than two analyst voices dominating the opinion and insight of our $850 billion sourcing industry. Why?
Continue reading "The great analyst roll-up is on... who'll step into the void?" »
Most people I speak to can't wait for 2009 to be put to bed. People suddenly awoke to the realization that everything they have grafted so hard to achieve in their lives could be seized from them, because their economy had failed them.
Like everything else in this world, we always wait until its too late before taking drastic action, and 2009 epitomized this reactionary mindset that dominates so much of our society.
However, I did want to sign off from 2009 with a dose of realism... fancy phrases such as "New Normal", or "Preparing for the Recovery" only wash when they attempt to address the question: "How the blimming heck can we radically change our attitudes and actions to save our children from economic and environmental disaster".
Continue reading "2009 - the year of papering over cracks" »
If there was a Nobel Prize for industry analysts, this guy walks away with it - he's super cool, talks a good game, and has done very little beyond, well, be super-cool and super-smart... and with a French accent to boot. So today, I thought we'd give IDC's Sebastien Ruest the chance to prove there's a bit more substance behind the snowboarding, hockey-stick-wielding playboy façade :)
Sebastien's proving IDC's nearshore model by leading it's global services research from Canada, and developing a solid reputation in the industry as one of the industry analysts who "gets it". So I thought it time to grab a few minutes with the dude himself...
Remember our mystery blogger who evangelizes on best practices for vendor management? Well that mysterious individual has challenged me to a predictions dual this morning (gasp), where he /she said "I'd be willing to wager a drink on who gets a higher percentage right. After all, I didn't bet on England in the World Cup, so I'm pretty optimistic :)" We'll see about that sunshine...
In any case, our friend has come up with some pretty eye-catching and profound statements, for example:
So here's the eagerly-awaited second part of the Lowell Williams experience, where we decided to give him 30 minutes of fame. Over to Equattera's HRO mega-star with the handbrake firmly in the off position...
Phil Fersht: Lowell, we’ve had a lot of talk on here about “Platform BPO”, where clients essentially take on a standard SaaS-delivered platform, supported by business processing services delivered by a BPO provider. How do you view these “on-demand” business services? Isn’t this just a win-win for the software providers, with limited value for the BPO provider? How can service providers differentiate their offerings in this type of model?
Lowell Williams: As mentioned above, many HR and IT executives
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.
Continue reading "2010 Predictions for the Outsourcing Industry" »
One of the advisors which has really made a strong move in the sourcing business this year is Alsbridge. Much of that has been down to its strong track record with clients, but its also made some canny investments to augment its advisory services. One of these I've had some exposure to is ProBenchmark, which has been running some excellent webcasts looking into how pricing trends and dynamics in IT services.
I caught up with CEO Ben Trowbridge the other day, and he wanted to let us know about a webcast ProBenchmark is running next week - you can register here. Plus - for all you cheapskates... its FREE (Wednesday 10th December at 2.00pm EST).
Anyhow, I managed to drag Ben away from a hunting outing for a few minutes to pose the following questions:
PF: Which IT services have fluctuated in price the most?
Continue reading "Are prices really dropping, or are services merely being disaggregated?" »
For once I am stumped for a title. The one man who had successfully escaped my previous attempts to feature him has finally been caught. Either his career has nose-dived and he's now desperate for some publicity, or the "Horses" now gives that 15-minutes of fame people so badly crave. I hope it's the latter -:)
Yes - we have the one-and-only Lowell Williams in a two-parter...
Lowell, quite simply, is the most respected practitioner in HR Outsourcing. Not only has he spent many years as an actual HR leader, he also worked for the "original" HRO provider Exult, moved into the sourcing world with TPI, before joining Equaterra in 2004 to head their HRO advisory practice. He has been responsible for many HRO engagements - and he has somehow survived to tell the tale. He also became the HROA's "Person of the Year" in 2008... an honor only bestowed to the most lovable scoundrels in the outsourcing world. So without further ado...
Before you tuck into your Thanksgiving turkey and guzzle a gallon of bad quality Chardonnay, please take 10 minutes to complete our industry-wide study entitled "The New Normal in Outsourcing Delivery". And if you're in Asia or Europe, currently giving thanks for US declaring itself independent from everyone else, this includes you too.
Anyhow, we are actively seeking the collective opinions and experiences of services customers, providers, and advisors and need 10 minutes of your time to complete this quick survey, designed especially for the patience-challenged, attention-deficit-inclined executive. Simply click on the following link:
Click here to complete our survey "Seeking the New Normal in Outsourcing Delivery"
All individual responses to the survey will be maintained strictly confidential. In return for your time, you'll receive a free write-up of the survey findings (wow).
We have partnered with the member communities at Global Services Media and the Shared Services & Outsourcing Network to ensure a powerful global participation of decision-makers and senior executives engaged in outsourcing delivery services. Please do participate and help advance our collective understanding of the industry.
Please note that "Horses" is a free resource for the sourcing industry at large, and the purposes of this research are to further all our knowledge and understanding of the direction of the global sourcing industry, whether you buy, sell, advise, criticise, market, commentate or analyse sourcing delivery. And if you do neither of these activities, please seriously question what you're doing here in the first place -:)
PF.
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.
Continue reading "Can IT overcome its credibility crisis?" »
Attend any European analyst meeting and there’s one character guaranteed to be propping up the bar. Scratch that, there are normally about 50 analysts propping up the bar. But in the midst of the throng you will undoubtedly find the stolid Euan Davis of Forrester Research.
I recall a conversation with Euan back in '95 when I told him “you should give this analyst lark a try” (If you want to know what he working on in those days, drop me a note…). Anyhow, the story began from there, with Euan rising through the ranks at IDC’s European operation, making a curious detour to Yankee Group, before finally attaining new heights of stardom and adulation with Forrester.
Euan now boasts the words Principal Analyst in his job title and waxes lyrical about IT services in the Eurozone. Ask anyone in the industry and you’ll discover he’s fast becoming one of the most popular analyst figures on the European services circuit. And, despite the fact he once lost to me at tennis (a shameful occurrence for any man or beast), he still warrants an airing on the Horses…
Phil Fersht (PF): Euan, firstly, what are the main issues you’re hearing from your Euro clients these days? What are the main contrasts between now and before the economic crash last year?
Euan Davis (ED): The issues are many and varied but if I was to distill it down to what I see as the issues that clients are facing today then they fall into three categories: Some are “firefighters” and are looking to reduce costs wherever they can, pushing for discounts and getting economies of scale through aggressive supplier consolidation. Others are “explorers” and are directing energies into investigating a host of emerging options for IT service deliver—and business process outsourcing is one such area. The exciting ones to watch for my money are the “builders.” These firms are sinking the foundations that underpin a profound shift in their operating model architecture, IT/business redesign, and supplier engagement models. These firms are building hybrid operating models driven by a structured sourcing frame works, regulated through a retooled service management structure, and connected to a core set of suppliers. And the recession has speeded up the process of change.
Continue reading "Eulogizing on the Eurozone with Principal Euan" »
This truly has been a pivotal quarter for the outsourcing business. As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn.
In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations. But while some providers are clearly delivering, others are struggling to compete in this "new normal".
So what is this "new normal"?
Operational service provision is commoditizing and leveling the playing field. Coming out of the recession, there is a backlog of engagements which are largely labor arbitrage-focused and it's often a question of price balanced with the promise of delivery performance for most clients. There isn't a lot of secret sauce these days for what many clients are currently demanding, where in the past, incumbent service providers could play the "capability game". With many of these skills becoming mainstream, the competitive playing field has leveled out.
Continue reading "The "new normal" in the outsourcing delivery business" »
"Most of our managers are happy sitting on a shrinking business" bemoaned a senior executive the other day. Sound familiar?
I hate to say this, but too many senior executives I talk to these days adopted this survival mechanism during the economic crisis, and are clearly struggling to change their mind-set now it's clear that armageddon has been averted. And the main reason seems to be that the last year has exhausted them, preventing fresh, bold decisions to be made. Hey - it's exhausted everyone.
Smart business leaders are now trying to re-energize their staff, take that deep-set panic out of the daily job, and find reasons to celebrate, like a not-so-bad-quarter.
I clung to the forlorn hope that a year-long economic crash, a transformative president, and new approaches to business ideology would encourage businesses to start thinking differently. But, in many cases, I appear to have been naïve . The result is that many businesses are going to have to force real change upon themselves to escape this malaise.
From wanting change... to embracing it
In reality, most businesses are coming out of recession having already cut visible costs to the bone, for example areas where cost can be directly extracted from the business without any form of arbitrage such as travel feezes, headcount reductions from non-critical areas, budget reductions across departments in areas such as marketing or IT, and so on. The next steps are to explore cost arbitrage through labor (i.e. outsourcing), and ultimately process transformation that should accompany any form of outsourcing. Simply put, it's nigh-on impossible to dig out further pockets of cost, without re-wiring the guts of business operations to find new efficiencies.
Global sourcing provides one of those vehicles where businesses
can effect progressive shifts in their business models to approach things differently. It can provide the change agent to make this happen, but only when our management talent has the energy and determination to look at things differently - and refuse to settle for sitting on that shrinking P&L.Continue reading "Sitting on a shrinking business and afraid to change" »
"You are going to keep doing that blog aren't you?" seems to have been the most frequently-asked question I've had since I changed my day-job.
And a few people have asked whether I can still credibly run this blog, now I work for one of the firms actually tasked with delivering the services we have been talking about for the best part of three years. Heaven forbid.
As we have discussed at length, blogs and other social media have been a major game-changer with how we engage with issues, market dynamics - and each other.
We live in a different world today, where the rules are changing and we are constantly seeking out new and innovative ways to reach our industry. To sum up the new constant in a nutshell, credibility is in the eye of the beholder.
So here are the reasons for keeping these hooves galloping:
Continue reading "So where next for the Galloping Hooves?" »
When I returned to these Western shores 6 years' ago, I was given the the unenviable task of working with the indomitable Andy Efstathiou.
Now, analysts who have spent 20 years working in commercial banks are not to be messed with - and I quickly learned my lesson with Andy, who (literally) has an encyclopedic knowledge and perspective of everything that has gone wrong with the world. I recall Andy warning us years' ago that this was all going to go horribly wrong... and did anyone listen?
Andy has since become a good friend over the years, and has always been one of my first ports-of-call when I want to understand anything about sourcing and the banking sector. He now runs the Banking Sourcing Program for BPO analyst NelsonHall, but his real claim-to-fame is that he finished seventh in the US Olympic trials for sailing in 1988 (pictured). Not many people knew that...
Anyhow, I caught up with Andy last week to pose a few direct questions on the current state of the banking industry, how sourcing strategies will evolve after the recession, and how banks can navigate these choppy waters (sorry):
Phil Fersht (PF): Andy, firstly, let's not beat around the bush here. What's the climate like in the banking, financial services and insurance (BFSI) sector these days? Do you expect things to continue improving, or are we in a false dawn right now?
Andy Efstathiou (AE): Banks will continue to do well as long as they are on performance enhancing stimulus. However, the banks are aware that some day they will have to stand on their own two feet. In order to do that they need to be able to scale operations in both directions without eating overhead on the downside or investing capital to expand on the upside. Therefore banks have been aggressively working with outsourcers to create engagements built around transaction based pricing.
Continue reading "Efstathiou uncut: all aboard with the sourcing skipper" »
In the second-part of this two-part interview, Oracle's Tibor Beles discusses how service providers can be successful at platform-BPO offerings, how the broader BPO industry can improve, in addition to discussing the shifting dynamics with software licensing models. Tibor is also a blackbelt in martial arts (not the Six Sigma category), but spends more time hitting tennis balls these days with his teenage daughter. He also loves political thrillers, but he didn't elaborate whether that was through his day-job, or reading Le Carré novels -:)
Phil Fersht (PF): Do you see platform-based BPO as a major threat to the BPO pureplays which are not experienced in broad-based ERP enablement and implementation services?
Tibor Beles (TB):The first question calls for a long answer but I will try to keep it short. An aggregate BPO service provider must be passionately committed to process and IT excellence in its chosen function. Offshoring for labor arbitrage alone has limited benefits.
Continue reading "Consulting the Oracle: Tibor's talktrack (Part II) " »
We inspired a lot of offline debate when we discussed the challenges facing BPO providers delivering so-called "Platform BPO" solutions. Bottom-line, if BPO service providers are competing for commodity services engagements which are underpinned by software platforms that are widely deployed by several other service providers, they face a major challenge of differentiating themselves to win new clients and avoid a price-war for new business.
At the enterprise level, selecting a BPO provider to process transactional business services for a major Oracle or SAP-based engagement is dependent on the providers' global scale, brand and competency. For these large-scale transactional BPO engagements (i.e. accounts payable, payroll etc), it's largely a commodity market these days. However, the battle is on to provide industry-specific solutions, such as health insurance processing and revenue-cycle management, banking-specific services (i.e. netting, lock-box services), retail merchandising, legal services, healthcare informatics etc etc.
For example, I had a great conversation last week with Mark Stiffler, CEO of sales compensation provider Synygy. He was faced with two choices for his business: either to provide an on-demand managed service to his clients, or license his software through BPOs in the channel. Sales compensation is an area that can be delivered on a set of standard processes, with some unique personalization to the client. It's also an area where there's a hell of a lot of value an outsourcing provider can add
Continue reading "Forget Platform BPO, it's really about the Business Services Cloud (Part II)" »
One of the most prominent industry analysts in sourcing over the last decade-plus has been Stephanie Moore. Steph started out at Gartner, before spending time at Giga, and most recently Forrester Research, where she built an industry-wide reputation as an outspoken and respected figurehead of the IT services and outsourcing world.
Earlier this year, Steph made her first venture over to the service provider side, and when she's not busy entertaining her three kids, sailing around the Westport beaches, or regaling stories of her junior golf open triumph (she swears they had color-TV back then...), Steph assumes the role of Chief Marketing Officer for IT services firm, UST Global. I thought I'd take this oppountunity to grab a few words with Steph to share some of her views on where the industry is headed, and how she's finding life on the vendor-side of the fence...
PF: Stephanie, how has the world of offshoring changed over the last decade?
SM: Phil, it has changed dramatically. In 1999, people were using offshore outsourcing to save money, but also to execute on very low-value tasks. There were also a lot of people scrambling to fix the Y2K problem. Today, it couldn’t
Being a relatively recent immigrant to US society, it's fascinating to observe the political games corporations and politicians play to reach their desired outcomes.
What I find a little absurd is how easy it is to decipher the real political motives behind all the rhetoric; especially those ridiculous commercials sponsored by insurance companies trying to protect their monopolistic positions and keep their gravy-train chugging along.
Working in the sourcing industry forces you to cut quickly through complex issues to find sensible solutions, and healthcare doesn't seem a whole lot different - despite the sheer scale of the issues and requirements. Trust me,
Continue reading "Derail the Healthcare gravy-train: introduce competitive multi-sourcing" »
The recession has upped the ante for today's BPO providers: the move to providing business services in a cloud-like model is accelerating, and the real challenge for today's service providers lies in answering the following questions:
1) Do we want to play in the BPO space?
2) How do we play in this market? What's our angle?
3) How can we compete? What's our differentiation?
The challenge today is whether a provider is adding value beyond low-cost processing services. If you are only really providing an arbitrage solution, someone is going to come along and offer it for even less money, and someone else will eventually come along and provide it for even less. It's a no-win game, unless you want to become the lowest-cost provider in town and make a razor-thin profit margin.
What's interesting is this coming together of the IT/BPO model. And it's becoming much more sophisticated then simply providing a platform and some low-cost processing services. It's about integrated business services where the provider delivers the hosting, the application skills and the business services needed to help clients achieve specific business outcomes.
IT services providers have made a living differentiating themselves by providing expertise in technical areas that allowed them to charge a premium to their clients. However, as technical skills became a commodity, some IT services providers are moving up the value-chain by providing expertise that apply technical skills to specific business needs, while others have opted to scrap around for the low-cost "price per developer per hour" commodity business. Those IT services providers which think they can get away with charging a premium for commodity development services are having a rude awakening in today's post-recessionary marketplace. Most clients today are insisting on greater transparency with the costs of services.
This is where BPO gets interesting,
Continue reading "Forget Platform BPO, it's really about the Business Services Cloud (Part I)" »
Not too many service providers have had a bigger impact on the world of Business Process Outsourcing in recent years than General Electric’s former offshore captive, Genpact. And much of this rapid growth to a billion dollars of revenue and a global delivery network, can be credited to one individual – the tenacious “Tiger” Tyagarajan (simply known as Tiger to anyone who knows him). And what an apt name for the wee fellow.
I can recall, just a few short years’ ago, when Tiger was fronting Genpact’s US business and taking on the major incumbent BPO providers such as Accenture, ACS, HP and IBM, with tales of Six Sigma excellence and Virtual Captives; dazzling firms such as Kimberly-Clark,
Wachovia and Cadbury Schweppes in the process. And when he’s not absorbed with cricket statistics
Continue reading "Mixing it with the big boys: A Tea-interval with Tiger" »
Wouldn't it had been something if there had been some sort of interactive journal during the Great Depression, where we could have truly experienced the emotions of the time, peoples' ideas for change, the stark contrasts between desperation and hope?
It's been a geniune privelege to have hosted these emotional debates throughout the entire Great Recession of 2008-9. It's incredible how attitudes have changed over these tough months - I don't know about you, but I feel a little wiser as a result - and the great interaction I have enjoyed and observed with so many of you, has made this all possible.
Here's the whole story of the Great Recession and it's impact on the global sourcing industry (in chronological order):
Continue reading "The entire Great Recession of 2008-2009: Blogged for the outsourcing industry" »
I spent much of last week at InsofysBPO's customer summit in Baltimore. Infy always does a good job with their events - they bring their customers together and encourage open, unstructured debate, where the good, bad and plain ugly about BPO and ITO are openly discussed. They know the best way to win business is through baring their DNA to customers and encouraging them to trust and want to work with them.
They also invited some industry personalities to wax on about their vision for the future - and some predicted rampant "consolidation among suppliers". I say they are wrong - they are clinging to their knowledge of the past and are not re-adjusting their perspective to the present. I'd be surprised if we ever see
Continue reading "The future of the sourcing industry: DNA and industry knowledge trump scale" »
There were a few alarm-bells ringing in the outsourcing industry with TPI's shaky Q2 results. As our recent buy-side survey data indicates, in addition to the multitude of service providers and consultants, outsourcing interest and uptake is on the rebound, so what should we read into TPI's 38% drop in revenues from Q2 2008? I spoke to leaders of all the key sourcing advisors to get their candid input on how their firms were faring, and whether TPI’s results are reflective of the sourcing industry in general.
Rival Equaterra, which is currently privately held, reports to us that its Q2 results have increased 10% over 2008, expects Q3 to perform well, and is encouraged by strong IT outsourcing activity, with on-plan BPO advisory business. Another rival, Alsbridge, added: “First half revenues are up 40% on a 1st half ‘08 to 1st half ‘09 comparison. Across the board, we see good demand
The new wave of BPO deployment has arrived quicker than many of us anticipated. The recession has driven some common-sense into a BPO value-proposition that was previously centered predominantly on some form of labor arbitrage, with many service providers muddling their way through to attempt to run their clients' process for less cost - and make some sort of profit. Sometimes they pulled it off, other times they failed. Many are currently in a state of semi-transition, with the success of their BPO engagement still hanging in the balance.
Now we've clearly arrived at a turning point in BPO development, which we can put into the following three categories:
1) Straight Lift and Shift: the antiquated form of BPO where client takes "as-is" processes, hands them off to a provider, which subsequently attempts to run with lower staff costs. In many cases it's a simple "re-badge" of existing personnel, with the provider simply employing smaller numbers of the existing delivery team to make a profit on the deal. In most modern cases, the provider will supplement onshore staff with offshore. There is little (or no) enhancement of software applications to standardize workflows and add a modicum of transformation into the engagement.
Likely outcome: Inefficiencies with processes are magnified considerably, change-orders and procedural changes are cumbersome and expensive, client finds it challenging to reduce onshore headcount, and anticipated cost-reduction is not reached.
2) Lift, Shift and Transform: Same as Lift and Shift, but the client and service provider work together to re-map existing processes onto a pre-defined new set of processes.
Continue reading "Introducing new-age BPO: the standardization/personalization balance" »
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.
I was having a little joke yesterday, where the premise was: "So what do we do once all the jobs have been offshored?" My initial solution was: "That's easy - we create great low-cost skills here, and we bring them all back". The other partaker in the mirth added: "Wrong - we will still be offshoring, as all our business headquarters are moving out too. In effect, we'll be offshoring jobs to America".
As we rolled around on the floor in uncontrollable laughter (OK, it wasn't that funny), it did hit home how unattractive the US is becoming for businesses.
US corporate taxes are among the highest in the world.
The cost of living and wages in business centers such as New York, Philadelphia and Chicago is off-the-scale.
The cost of healthcare is a killer - and, despite the excellent intentions of this new proposed healthcare reform, the tax burden on the US business is going to get even worse. For the cost of one years' benefits package in the States, you can hire a full-time ABAP programmer in your offshore captive for that entire year, or pay for half of one (for the entire year) with a service provider.
Other Western countries are far more corporate-friendly. I was helping a friend with a business plan the other day, and the cost of hiring qualified graduates in London (yes, London) is half that of New York (and getting even cheaper in this market). Why even consider setting up a global business in the US these days in this virtual environment?
As much as I admire all the efforts of President Obama to drive reform and economic stimulus into the US economy, I just don't see the environment for the US business to thrive and create new jobs being created. I'd like to see stimulus money being allocated to helping businesses create new knowledge-jobs that are competitive with those on offer from India, Europe, China etc. The way things currently stand, the US business environment has never been so ripe for outsourcing - not just for accessing lower-cost skills, but also for our businesses themselves.
As we've predicted, based on our surveys, many tough discussions with buyers and general chit-chat, sourcing evaluation is now picking up, and we can expect to see a wave of deals in Q4 this year and Q1 next year (and beyond).
First, the sourcing advisors, management consultants and analysts get busy with their clients showing much more urgency, and then we can expect to see some deals happen. Based on my conversations with the advisory community over the last couple of week we're now in that former category. I've even had a couple of people come to me with the question "Is this 2001 all over again". My answer is: "In some ways yes, but the types of deals and the global delivery execution is markedly different this time".
Now why is this?
Post 9/11 we saw a major spree of ITO, call center and end-to-end HR BPO wave. ITO worked, call center is stuttering with offshore value, and HR BPO - in its past form - failed
The IT infrastructure outsourcing deals were onshore mature contracts with established providers such as IBM, CSC and HP, experienced at driving economies of scale with their delivery models. The application development and maintenance deals back then were among the first to truly leverage offshore
Continue reading "Is this "2001 all over again" for outsourcing?" »
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?
Continue reading "Captive sell-offs: good for innovation, good for employment" »
2009 is going to be remembered as the year of cost-containment. Most client discussions are not very sexy – it’s largely about cost, as opposed to innovation or revenue generation. McKinsey recently revealed 70% of its current client engagements are cost-reduction focused, only 30%focused on revenue-generation (the opposite of a year ago).
I strongly believe our businesses, while being diligent about cost-containment, must use this opportunity to make fundamental changes to their business operations in order to emerge more profitably in the future. Simply ripping away cost elements and failing to improve access to global corporate data and processes, is a massive wasted opportunity to be more competitive over the long-term.
I wrote recently about how the lay-off culture that has afflicted both the US and UK in recent years, where many firms treat their labor as a variable cost that can be scaled-up or down at will, depending on the next quarterly forecast. I cannot stress enough the damage this can cause to businesses as the economy recovers. One common theme that has dominated discussions with business leaders recently has been their surprise at the amount of visible cost they have been able to take out of their businesses as they move from a revenue-generation to cost-containment strategy.
It’s not solely the cost of labor that is highly visible – it’s the costs of technology, travel, infrastructure, real-estate etc. that can often be easily driven-down in a desperate business climate. Less visible are costs associated with poorly-integrated business processes and procedures, of dated analytical tools, of ERP systems incapable of supporting global process templates, and so on.
Continue reading "It’s time for disruption, not stagnation " »
I wanted to share some recent dynamics from our new survey of outsourcing adoption intentions in mid-2009.
While the onus on firms today is to drive out as much cost as they can from their businesses (close to four-fifths view cost-reduction as the primary driver for outsourcing), other factors are becoming crucial for companies’ planning as they evaluating outsourcing business models, notably globalizing their businesses more effectively, re-engineering business processes, and accessing expertise from service partners.
If there's one thing this recession taught us, it is how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. Read more over at Think Global...
Since Part I of the Francisco D'Souza interview, I've been assured Frank has improved his golf handicap. Now he'll discuss his views on how ITO service providers can differentiate themselves, the convergence of IT and BPO solutions... and a few other tidbits...
PF: How can ITO providers differentiate themselves in today’s market? Is it by vertical focus, or other elements?
FD: Given the extraordinary pressure that clients are under, I think that the key to differentiation is to focus on how to make clients’ businesses stronger. Rather than focusing on technology, process or methodology, I think providers need to really understand a client’s business drivers and then sell and deliver solutions that further those business objectives. As I said before, clients are facing both cyclical and secular pressures. As a result, depending on the client, their objectives of outsourcing will be very different. Some clients seek to improve efficiency or effectiveness. Others are looking to use outsourcing as a enabler of innovation. Still others are looking at outsourcing as a tool to gain access to the best talent in the world – regardless of where that talent is located. And of course, given the significant secular changes we are seeing, many clients are looking to outsource as a way to enable agility and transformation within the organization.
Continue reading "Being Frank about Global Sourcing: An interview with Cognizant's CEO (Part II)" »
Observing the rise of the new wave of service providers over the last few years, the one that has scared the living daylights out of all of the incumbents is Cognizant.
Now a $3bn company with deep footprints in the world'slargest global financial institutions, consumer businesses, manufacturing and healthcare organizations, Cognizant can no longer be considered an upstart. It's now part of the industry elite; quietly and cleverly aligning its value proposition to the post-recession era. As CEO Francisco D'Souza points out, we're in a time of not only cyclical change, but also secular change.
I've had the pleasure of talking with Frank a few times over the last couple of years and have been impressed by his high-energy, thoughtful and common-sensical approach. I was even more surprised when I received emails from an "FDSouza" on the Horses... took a couple of times for me to realize who this guy was. To cut to the chase, Frank is one of the youngest IT and BPO industry leaders of the modern age, having risen through the management ranks of Cognizant to assume the role of President and CEO at the beginning of 2007 when the company was announcing its landmark Kimberly-Clark engagement. And when Frank isn't busy hacking his way around the local golf course, or playing with his kids, he managed to find some time to share some of his views of the global sourcing industry with us...
Continue reading "Being Frank about Global Sourcing: An interview with Cognizant's CEO (Part I)" »
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.
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
Continue reading "Why the lay-off culture is far more damaging than offshoring" »
As we discussed last week, it's clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore. While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business.
If there's one thing this recession taught us, it's how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. Outsourcing doesn't provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level. Check out our thoughts based on new survey data over at Think Global...
Folks - I can exclusively reveal to you today that Wipro BPO and Oracle are shortly going to announce a partnership dubbed "simPlify", whereby Wipro will deliver PeopleSoft HR to both mid-market and high-end clients via a hosted utility BPO service, that will cater for 20 major countries. They will also partner with The Hackett Group as part of the arrangement to provide performance benchmarks for HR processes.
The mid-market play is a true move towards "one-to-many", whereas the enterprise play will be a more customized approach. Clients will need to invest
Continue reading "Wipro and Oracle partner to blow-up the BPO delivery model" »
This Tuesday, we're holding a "World Exclusive", with a distinguished panel of Horses-readers being webstreamed live from the 9th Annual European Shared Services and Outsourcing Week in Budapest Hungary. For those of you unable to make the conference, you will have a chance to take part in the debate via a live blog-cast streamed to a computer near you. I do hope you can partake in the banter.
*World Exclusive* Horses For Sources - Live From Budapest
Deciphering The Business Value Of Tomorrow’s Sourcing Strategies In Today’s Economic Climate
Continue reading "Take part in our Budapest debate next week... from your front room" »
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