HfS Network

Monthly Archives: Apr 2008

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

April 29, 2008 | Phil Fersht

Holiday_4The Indian Government has clearly been reading this blog and bowed to our pressure to extend the Software Technology Parks of India (STPI) tax holiday.  The Indian finance minister has now proposed to extend the  STPI tax holiday to expire on March 31 2010, a year later than the originally stipulated March 31 2009 date. 

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

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

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



Long-term contract renewals: the real litmus test

April 24, 2008 | Phil Fersht

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

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

Posted in: HR Outsourcing



HROWorld 2008: An industry re-inventing itself

April 17, 2008 | Phil Fersht

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

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

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

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

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

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

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

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

Posted in: Buyers' Sourcing Best PracticesHR OutsourcingHR Strategy



Quest for an Organic Approach to Offshore Outsourcing

April 15, 2008 | Phil Fersht

One of the toughest challenges for businesses today is trying to retrofit offshore operations once they have evaluated what work to send offshore or outsource.  They can spend months - or even years - strategizing how to do this effectively.   I am honored to welcome Uttiya Dasgupta discuss his theories on developing a phased approach to implementing an offshore outsourcing initiative.  Uttiya is one of the industry's first genuine offshoring pioneers, having set up and managed IBM's first offshore dedicated center in Bangalore in the 1980's, in addition to helping Texas Instuments and Samsung establish their offshore operations.  He now heads up his own outsourcing consulting firm Omnispan.  Over to you Uttiya:

Read More »

Posted in: Buyers' Sourcing Best PracticesOutsourcing Heros



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

April 11, 2008 | Phil Fersht

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

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

Posted in: Business Process Outsourcing (BPO)HR OutsourcingIT Outsourcing / IT Services



F&A BPO: 107 contracts in 2007... more to follow?

April 09, 2008 | Phil Fersht

PumpkinAs speculated during our March recap, the F&A BPO market is bounding on.  I can now  confirm (and you heard it here first) there were 107 multi-process F&A BPO contracts signed in 2007 - that's 20% growth over 2006.  In addition, the average contract value stabilized at the $33m level.  I'll be delving more into this market in my research in the coming weeks.  Strong performances from Accenture, IBM, Genpact, HP, InfosysBPO and Vengroff Williams were the prime catalysts for the record year.  The outlook for this year is even stronger.

I have always been a believer in a robust business model for F&A BPO - it balances the benefits of offshore resources with financial workflow solutions, and - in theory - allows finance executives to focus more time on delivering their leadership information they need to base business decisions - and less time overseeing tactical process issues.  However, like any solution involving the transition of labour and processes, the success of F&A BPO depends heavily on the buyer's patience and ability to get the best out of their vendor, and their willingness to re-tool themselves to operate in an outsourced environment. 

In any case, it's going to be a fascinating period ahead for this market with the economic situation. Some companies will aggressively pursue outsourcing strategies, spurred on by the cost-savings, while others will adopt a short-term mindset of "getting through the next quarter", and the upheaval of a multi-year outsourcing engagement will be low on the priority list.

Posted in: Finance & Accounting BPO



Cost-cutting measures for troubled companies in these tough economic times

April 09, 2008 | Phil Fersht

CostcutIn these troubling economic times, most firms are tightening their belts to keep those unnecessary costs down while we look to ride out this recession.  I used to charge $500/hour for dishing out this kind of advice, but I thought I'd give out some cost-cutting tips to Horses-readers as a gesture of economic goodwill:

1) Make all your senior managers and sales people fly Northworst.  You'll be amazed at how many of those "critical" business trips go away....

2) Reduce the "on the road" food budget to $30 a day.  (Makes everyone order pizza to their rooms, rather than those terrible room service burgers);

3) Enforce a zero-tolerance policy on alcohol products to be expensed.  This will automatically reduce 25-50% from your bottom-line.  (Better than any outsourcing initative);

4) Send all your lowest performers on Six Sigma certification training.  They'll either disappear from your payroll completely, or have a complete epiphany and start delivering the goods;

5) Seek out the cheapest, most desperate outsourcing service provider you can find and get them to take on all your messed-up HR, finance, procurement and customer service processes.  Hire a razor sharp sourcing attorney to include performance-levels you would never have dreamed possible - and which you would never have ever reached yourself in a million years.  Wait one year, do nothing, and they are guaranteed to have missed every single performance metric.  Now you can sue them for a small fortune for lost revenues that you would never have made in the first place.  Genious;

6) Sign a corporate deal with Red-roof Inn for any off-plan sales reps.  There is no better way to improve performance;

7) Completely refocus your entire business strategy on producing mind-numbing facebook applications.  You can't go wrong, trust me.

Rr '

Time to look at new means to lower those corporate costs -:)

Posted in: Absolutely Meaningless Comedy



How severely will the expiration of India's STPI tax scheme impact the Indian outsourcing industry?

April 06, 2008 | Phil Fersht

Taj_mahal_4 360DegreeVendorManagement raises some real concerns regarding the Software Technology Parks of India (STPI) tax scheme which expires on March 31 2009.  The scheme currently gives tax-breaks to new Indian organizations in the region of 10-20% for their first 10 years of inception, designed primarily to bolster India's software industry. Established Indian firms are constantly spinning out new companies to keep enjoying the tax breaks. Today, exports by STPI registered units comprise more than 95% of the total software exports from the country, which include ITO and BPO exports.

Our mystery vendor management expert, recommends to her vendor management peers:

  • Get more knowledgeable on this subject now. Talk with your attorneys, analysts and consultants. Do not wait for your vendor to “educate” you. There are many layers of taxes and your advisors will be able to separate hearsay from fact.
  • Negotiate your pricing terms to reduce your exposure to changes in Indian taxes.
  • Use the risk as another reason to diversify your offshore vendors and locations. Multi-location, multi-vendor strategies mitigate a wide variety of risks.
  • Recognize that this change will not kill the Indian industry - it will just level the comparative costs among countries. India will likely become just as expensive as the Philippines.
  • Adjust your financial plans now as you enter into 2009 budgeting and planning.

To compound issues with the competitiveness of India's outsourcing exports, Ted Botzum at TPI discusses the issues with foreign currency fluctuations and their impact on outsourcing contracts.  Ted pushes the point that firms looking at outsourcing need to invest in scenario development to balance the financial risk. 

Hence, there are a number of variables that must be built into the Indian outsourcing scenario:

  • Rupee appreciation
  • Weak dollar and potential weakening of the Euro
  • Impact of the STPI tax scheme elimination
  • Impact of Indian wage inflation

By taking away the tax break, the price-playing field will be leveled considerably between the Western outsourcers and the Indian-centric firms.  The Indian firms are now competing for the majority of top-tier enterprise outsourcing contracts, both BPO and ITO - which was not the case five years' ago.  Firms such as Infosys, Wipro, TCS, Genpact and Satyam (as we discussed here last year) are constantly having to evolve their human capital strategies to retain and develop quality staff over longer periods and keep wage inflation to a minimum.  Moreover, they are moving increasingly towards volume / service-based pricing models and relying less on FTE-based pricing, which leaves them vulnerable to these pricing pressures.  Incumbent global outsourcing firms such as Accenture, ACS, HP and IBM, which have large employee-bases in India, are also facing similar challenges to keep spiraling costs to a minimum, but benefit from having a larger proportion of their employee resources in other global locations, and are not going to be impacted when this tax break is eliminated. 

My view is that the Indian-headquartered suppliers have arrived on the global stage and are now seeking to take their services to a new level by investing in higher-value services and greater onshore presence.  By taking away their tax-break, the Indian government is only serving to harm its star performers at a time they need greater support to maintain their market surge.  With the current economic downturn, outsourcing deals are more competitive than ever, and next couple of years will lay the groundwork for the global sourcing industry for years to come.  I'd be surprised if the Indian government doesn't relent on extending the STPI tax break, but maybe it's decided the time has come to cash in on its most successful export? 

Update:  the Indian finance minister is proposal a 1 year extension to the STPI tax holiday until March 31 2010

Posted in: Finance & Accounting BPOIT Outsourcing / IT Services



Hewlett-Packard warms to bundled BPO/ITO

April 02, 2008 | Phil Fersht

I spent some time at HP's industry analyst event in Boston today, and was surprised to hear its leadership openly embracing BPO as one of the company's strategic initiatives. Hp_4Having witnessed the firm quietly picking up several large - and complex - BPO deals over the last 3 years, I have been disappointed that CEO Mark Hurd has, until now, chosen to talk up other product lines of his company - i.e. its infrastructure and printer businesses, leaving its promising BPO service line to take a backseat.  Meanwhile, several of HP's services competitors have been aggressively touting BPO as a major strategic arm for their businesses, despite the fact their BPO market presence is far inferior to that of HP's.

I will be writing a lot more about bundled outsourcing solutions in the coming months, as I firmly believe the future of outsourcing lies in outsourcing vendors' abilities to deliver hybrid business process and IT solutions in a managed services model - either under a single vendor, or under a well-governed combination of best-of-breed players.  Molson_2HP's new outsourcing client, Molson Coors,is a bundled F&A, HR and IT engagement, which can make sense for many mid-size firms of a similar size, where having a single throat to choke, combined with the fact that their provider is transforming business processes in tandem with their corresponding business applications, can prove to be the right way to go.  However, I do emphasize the "can" here, as it's really all about how effectively buyers govern their vendor relationships, and understanding what works best for them.  Again, it's a question - in every instance - of Horses for Courses....

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