HfS Network

Monthly Archives: Jan 2008

Is the financial services sector finally warming to BPO?

January 31, 2008 | Phil Fersht

Tcslogo_2 My interest has been piqued by the recent announcement of Sunlife of Canada outsourcing its UK customer services operation to TCS's Diligenta subsidiary in a $200m deal.   This comes hot on the heels of some financial services captive buy-outs in India.  The financial services sector has long been the problem child of the BPO industry, with operational executives extremely reluctant to relinquish control over business processes - especially finance and accounting.  As I have said on record several times, it will only take a few big deals to hit and many others will follow in a domino effect.  Bottom-line, the large BPO providers have capacity and are willing to invest in clients to gain an edge in this market.  Most of the near-term deals will more likely be captive acquisitions like the two mentioned above, but this is the clear strategy some of the providers are following to build out a global delivery infrastructure.  (Hey - I managed to avoid saying lift n' shift).

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So why do I think this sector is poised to become a BPO hotbed?

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  • Competition is too fierce and the incumbents are looking at all options to contain costs and improve margins;
  • Decreased shelf life of products;
  • Business impacts and high costs of maintaining non-strategic and closed blocks of business;
  • Rising wage costs and attrition within captives is proving too costly and taking up far too much management resources - the outsourcing option is becoming increasingly attractive and less risky from a business perspective;
  • The sub-prime fiasco has really changed the game with several FSI firms - they are now prepared to take on more risk to remain profitable;
  • BPO models can help firms scale up and down quicker - particularly with a looming economic downturn.  Having that flexibility could prove vital, especially in times when FSI firms need to get product to market quickly;
  • Improved service levels from providers and their willingness to take on more customer risk;
  • Improved technology add-ons at no incremental cost, for example analytics tools, that can sweeten the BPO opportunity.

More on this issue shortly....

Posted in: Captives and Shared Services Strategies

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Offshoring Secrets

January 30, 2008 | Phil Fersht

As I've mentioned before, I admire people with the dedication and focus to write a book... especially one about their experiences of offshoring.  Step up Utkarsh Rai, who heads up India operations for Infinera, an optical transmission equipment supplier, after starting his career working for Siemens in India in the '80s and spending time in Germany and Silicon Valley in various roles.  Uktarsh has a deep and unique experience of setting up offshore operations in India and has kindly offered to share some of his views here, taken from his book Offshoring Secrets.  I found the book an extremely informative and refreshing read about the trials, tribulations and best practices behind developing successful offshore operations . Over to you Utkarsh:

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Read More »

Posted in: Outsourcing Heros

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What outsourcing research does the industry need?

January 29, 2008 | Phil Fersht

Reports Firstly, thanks to all of you who have sent me best wishes - both privately and on the site.  I am currently in the throes of rolling out a research agenda that aims to fill a significant gap in the industry to advise buy-side clients on how to approach their complex sourcing issues, particularly in light of this mooted economic downturn.  This will focus more on the how to source than the what, based on multiple ongoing discussions with enterprises that have been through the process and are continually looking to optimize what they have on a global basis.  I wanted to invite regular visitors to this site to contribute their ideas and views on what the industry needs to see from a research perspective.  Feel free to share your views here, or email me directly.

Warm regards,

Phil.

Posted in: Business Process Outsourcing (BPO)

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Going back to my roots

January 24, 2008 | Phil Fersht

Amrlogo_2  I am returning to my analyst roots with AMR Research, where I will be studying Outsourcing and Implementation Services markets for AMR's enterprise clients.

Those of you who know me well, will remember I spent the first 10 years of my career in the analyst community, before moving into the outsourcing advisory world three years' ago.  I have found the practical experience of working on outsourcing and offshoring engagements extremely valuable, but always wanted to go back to my analyst roots at some stage (it kinda gets into your DNA...).  AMR sets such a high standard with its research, has some of the finest analyst minds in the industry, and is in my adopted home town of Boston.  Moreover, I am delighted to end my days of waking up every morning in airport Marriotts, stuffing free beer from the concierge lounge in my laptop bag each evening, and getting back to what I love doing best :)  But I do have some pretty decent frequent flyer status.....

Posted in: Uncategorized

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

January 22, 2008 | Phil Fersht

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:

Read More »

Posted in: Finance & Accounting BPOHR OutsourcingIT Outsourcing / IT Services

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How to let your opponent win

January 22, 2008 | Phil Fersht

Away from the outsourcing topic, I watched the Democratic debate (or should I say "slugfest") last night on CNN.  Being a citizen of the old country, I am used to opposing political parties viciously going at each other... but never the politicians from the same party.  If two British MPs (Members of Parliament) from the same party threw accusations at each other in public anything like Obama and Clinton were doing, their party would have thrown them out, because the only winners from my perspective were the leading Republican candidates.  The Democrats should be celebrating the fact they have, for the first time, both the first African American and woman candidates leading the race for their presidential nominations, but instead we are subjected to them trawling through each others' backgrounds on live TV digging up dirt on each other.

Please can we see their campaign leaders clean up their act for the remainder of the campaign?

Posted in: Business Process Outsourcing (BPO)

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H1B Visas: the $12,000 question

January 20, 2008 | Phil Fersht

You may recall the feisty debate on the H1B Visa and outsourcing issue here and here last year.  With the 2008 campaigning now in full swing, the "O" issue is noticeably absent from the candidates' agenda and our old friend Lou Dobbs is waiting in the wings to shoot pot-shots at any of the candidates who say anything that remotely supports offshoring, outsourcing or increasing H1B visas.  Step up Hillary Clinton (see video clip below, taken from Lou Dobbs' CNN show last year).

Yes, she's supporting Silicon Valley businesses and has them contributing substantially to her campaign, but at least she's openly discussing the issue and - more importantly - attempting to tie together the realities of outsourcing, offshoring, immigration and the need for the US government to invest in developing technical and engineering talent.  I respect Lou Dobbs a great deal - he's a passionate man who sincerely believes in his vision for American workers, has a great sense of humor, and conjures up some excellent - and entertaining - political discussion.   However, this H1B argument just isn't holding up. 

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Posted in: Business Process Outsourcing (BPO)

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Procurement outsourcing chatter

January 18, 2008 | Phil Fersht

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!

Posted in: Procurement, Engineering & Supply Chain Outsourcing

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2008 Presidential Update: The Outsourcing Industry speaks out

January 17, 2008 | Phil Fersht

Thanks to all of you who took the time to vote in our poll "Who whould you LEAST like to see in the White House in November 2008".  We've had over 100 responses back, so I thought it time to update you all that Hillary, on the back of her sensational comeback in New Hampshire, is again leading the charge... yes, she is currently the overwhelming favorite NOT to be the next President.  McCain is the least offensive, but the Obama vote picked up recently, as several of you started to panic at the thought of this guy in the oval office.Interim_results_2  Anyhow, keep the votes and comments coming (just click on your least desirables on the poll on the left-hand scrollbar).

 

Posted in: Business Process Outsourcing (BPO)

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Just stop and smell the roses

January 14, 2008 | Phil Fersht

Got the best piece of advice all of last year from my wife: "Just stop and smell the roses"... so tonight I did, taking a walk through the snow on Boston Common :)

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Boston Common in the snow

(taken with a 2 mega-pixel camera phone)

Posted in: Absolutely Meaningless Comedy

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My 10 cents on HR and seats at tables

January 10, 2008 | Phil Fersht

Boardroom_3Firstly, thanks to all of you who contributed to the lively debate following the recent post "Will the HR function have a seat at the corporate table in 2008?".  I was merely highlighting some interesting thoughts from the Inflexion blog, and didn't expect such feverish input from so many of you!  (And before I continue, I promise this will be my final rendition using the corny phrase "seat at the table").  Anyway, I have been under pressure from several people to put forward my opinion in this topic, so here we go:

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

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

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

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

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

Posted in: HR OutsourcingHR Strategy

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

January 07, 2008 | Phil Fersht

"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:

Read More »

Posted in: Finance & Accounting BPOHR OutsourcingHR Strategy

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A great debate on HR

January 06, 2008 | Phil Fersht

Folks - incase you hadn't seen it - check out the discussion thread for the recent post "Will the HR function have a seat at the corporate table in 2008?".  Some true heavyweights from the HR world have chipped in with some great insights.

Posted in: HR Strategy

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And if a sourcing advisor was elected President...

January 03, 2008 | Phil Fersht

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

Newyear_hfs_2 '

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

Posted in: Absolutely Meaningless ComedyOutsourcing Advisors

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

January 02, 2008 | Phil Fersht

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.

Read More »

Posted in: Finance & Accounting BPOHR OutsourcingProcurement, Engineering & Supply Chain Outsourcing

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