HfS Network

Monthly Archives: Nov 2008

How should companies approach outsourcing in this economy?

November 29, 2008 | Phil Fersht

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

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


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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesFinance & Accounting BPO

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Ford: outsource only where it makes long-term strategic sense

November 25, 2008 | Phil Fersht
Ford_modelt_french I trust you enjoyed the animated discussion on the woes of the US autromotive industry. My take was that these issues facing Detroit represent a microcosm of the problems facing many of today's flagging industries, with urgent needs to transform their business models, product-lines, management talent, labor unions, global supply chains and outsourcing strategies in order to survive.  I wanted to share these comments from Rachel Geiger, who is a lead HR executive at Ford Motor Company, where she has held senior HR positions for both labor relations and procurment strategy.  Rachel makes some interesting points regarding why Ford is a little different; namely it's focus on ongoing transformation and strategic outsourcing.  Over to you Rachel:
 
"I agree that it is about changing their DNA, or "What does it mean to work at Ford?". Being in the organizational change business, and taking part in driving this cultural change, I can honestly say that I do see it happening.

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesIT Outsourcing / IT Services

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Investing in the right vehicles for change

November 22, 2008 | Phil Fersht

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

Auto

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

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

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesCaptives and Shared Services Strategies

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Smarter and smaller: banks bank on BPO

November 18, 2008 | Phil Fersht

Michael KoontzI am delighted to introduce a long-time industry friend, and one of the pioneering executives in the world of financial services BPO:  Michael Koontz.

Michael has spent most of his career (14 years, in fact) helping steer Wachovia's BPO strategy, where he led over 130 transitions, managed over 1000 SLAs, over four countries and three service providers. He also served as Wachovia's CFO for Banking Operations. Michael recently made his first foray into service provider world, leading the financial services vertical for up-and-coming BPO and KPO service provider Aditya Birla Minacs.

Michael is sharing his views with us on where he sees the banking sector going with its BPO strategies - namely a further sell-off of captives, service provider rationalization, growth in regional markets, and also the smaller banks opening up to BPO contracts. Over to you Michael:

What we are seeing in the financial services sector is nothing less than a major paradigm shift, as big banks struggle to survive the current financial crisis and many smaller, regional banks leverage this opportunity to play catch-up with offshoring.

Big Banking Trends

There are a couple of distinct trends among the big banks. First, they are moving away from captive models as they try to liberate capital and focus on their core activities. We will see the banks sell off non-core processes, or at least move them from captive operations to third-party providers. Citibank’s sale of its India-based outsourcing arm to Tata Consulting Group (TCS) is one recent example of this trend toward the “monetization” of captives.

Second, those already using a third-party model are rationalizing their current BPO/KPO providers, ensuring they have neither too few (which increases risk) nor too many (which can dilute the value of outsourcing, reduce scale, and limit their providers’ attention to the business). Two or three BPO/KPO partners is generally the right number to effectively segment work, benchmark results, and create healthy competition. Many banks arrive at this magic number as they attempt to achieve efficiency gains while mitigating risk. In addition to ensuring the right number of suppliers, banks are seeking strategic partners that can provide solutions across a spectrum rather than a productized offering.

Regional Banking Trends

Unlike the large institutions, regional banks have not done much offshoring or outsourcing. There are several reasons for this. First, the cost of entry was prohibitive when offshoring began—infrastructure, governance, and consultants, and more consultants drove up costs. Recently, this price tag has decreased dramatically—from 20% – 70%, depending on the service—as the market matured, technology costs dropped, and off-the-shelf options increased. In many instances, a bank can now start a program with very little outlay, and many providers will even cover start-up costs.

Scale was the other issue—most providers were not interested in small banks because they couldn’t provide the scale needed to support the FTE models dominant in the industry at that time. Transactional models are much more common today for many processes, and scale plays a much smaller role in these decisions.

Common Evolutions

All financial services companies will evaluate which processes they consider to be core; as the industry has matured, companies have come to realize that many processes once thought of as central and inalienable can be successfully off-shored. As this happens, we will see many more processes migrate outside the physical walls of companies.

Another big evolution is toward offshore enablers—technology solution providers that make it easier and more efficient for other companies to embrace offshoring. Imaging platforms are one example, as they enable virtual processing of paper-intensive processes such as check processing. With front-end image capture, many of the day-one activities previously conducted in locations across the US can now be centralized at one location anywhere in the world.

The Bottom-line: It's the smaller banks moving the BPO needle

While the big banks remain distracted by the recent wreckages of the financial markets, many smaller banks have quickly moved ahead with creating and executing their offshore strategies. The outsourcing industry is more mature than it was three years ago, and many of these smaller banks have watched, learned, and are now looking for strong partners to help implement their strategies. Over the next two years, watch for the emergence of many smaller contracts for many more banks. As small banks join the game, they may in many cases surpass the results of the larger companies by leveraging past learnings.

Michael Koontz is SVP and Business leader for Financial Services at Aditya Birla Minacs.

Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesCaptives and Shared Services Strategies

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You know you're doing something right...

November 16, 2008 | Phil Fersht

...when CIO.com starts picking up on your posts.  They got the context a bit wrong, but it's good to know outsourcing discussions are hitting mainstream media these days.  I'll leave you with an autumnal scene from the Public Gardens in Boston this afternoon...

Public-gardens-boston

Posted in: Business Process Outsourcing (BPO)

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Getting the fundamentals right

November 15, 2008 | Phil Fersht

Williams-Lowell We've had some serious - and sometimes passionate - discussions on "Horses" these last few weeks, and I laud so many of you for chiming in with your feelings and thoughts. 

We've examined the impact of our current predicament on the outsourcing industry, how globalized delivery has such a pivotal role to play in improving businesses' competitiveness, and even how struggling industries and faltering economies could embrace global delivery to create new jobs and industry.  It's proving to be a time for many of us in the outsourcing industry to reflect on how this business has developed over recent years, and why we must focus on helping enterprises compete more effectively at a global level, than simply stripping out short-term overhead.

To sum things up, my old friend Lowell Williams sent me his thoughts yesterday on the current economic situation. 

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Posted in: Buyers' Sourcing Best PracticesHR OutsourcingHR Strategy

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Outsourcing: cash, growth and hedge-trimming

November 13, 2008 | Phil Fersht

Spending the day with Accenture at their annual analyst presentation, it helped put a lot of our current predicament into perspective.

We can debate, for hours, the finer points of whether outsourcing is currently helping the wounded US economy, but what is abundantly clear, as Accenture’s CEO Bill Green points out, is the need for the US economy to be competitive globally – and to be competitive as a nation, we need our businesses to be competitive.

King-Kev We also had the pleasure of listening to one of outsourcing’s legendary figures, Kevin Campbell, who runs Accenture’s $10bn outsourcing business. For those of you who don’t know Kevin, he was a pivotal figure behind the industry growth of HR outsourcing at Exult, before moving over to Accenture in 2005 post Hewitt’s acquisition. He is one of the industry’s most straight-talking and colorful characters, with a seemingly infinite supply of energy (evidenced by the 4.00AM emails he shoots off periodically).

Kevin makes some great points that outsourcing can – and is – providing many enterprises today with many more business benefits than simply slashing administrative costs. However, you need to engage a service partner which can deliver

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesFinance & Accounting BPO

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

November 08, 2008 | Phil Fersht

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

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

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

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Posted in: Business Process Outsourcing (BPO)Finance & Accounting BPOHR Outsourcing

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Wipro brews Brazilian BPO

November 04, 2008 | Phil Fersht

Wipro Wipro has continued its aggressive surge into the BPO world by announcing plans to open a BPO delivery center in Curtiba, Brazil, to service it new client, AmBev, the South American bewing giant, and subsidiary of global brewing giant InBev.  InBev recently had its merger with Anheuser-Busch approved to create a global beer monolith - not a bad industry to be developing your outsourcing business, in this economy (to quote a CIO at a major brewer recently: "we love the good times, but we REALLY LOVE the bad times"...)

Following on from Capgemini's agreement to take over Unilever's South Leffe American BPO operations, we are clearly seeing signs - as we discussed last year - that Latam countries have great potential for delivering BPO services, such as finance and accounting and HR, in addition to supporting IT engagements (particularly with the legacy development skills that have sprung out of the Latam financial services sector).  This latest development further augments the discussions that the leading outsourcing providers see Latam as a major addition to a global delivery framework, especially when you consider the investments Accenture, Genpact, IBM, Infosys, TCS and others have also been making in Latam resources.

Moreover, this announcement follows on from several major recent BPO wins from Wipro, which has been performing a stellar job taking on multi-tower BPO services for a number of global clients across finance, HR, customer care and some industry-specific domains.

Posted in: Business Process Outsourcing (BPO)Captives and Shared Services StrategiesFinance & Accounting BPO

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Can flagging industries be replaced by BPO services?

November 02, 2008 | Phil Fersht

British Coal-mine I had a distressing conversation regarding the future of the US automotive industry today with a guy from Detroit.  Their main concern these days is the widely-speculated acquisition of Chrysler by General Motors. 

The expectation is that if GM buys Chrysler, it will only retain the Jeep and Minivan businesses, close all the other Chrysler plants, and lay off 75% of Chrysler's engineering staff, for a direct loss of 90,000 jobs - not including ~6x more jobs at suppliers -  throughout North America. If no merger happens, one or more of the "Big 3" will go bankrupt, resulting in a total loss of all jobs - more than 120,000. One of his neighbors is putting his house on the market tomorrow, anticipating losing his job soon. Several other friends and neighbors expect to lose their jobs by the end of the year.
 
This reminds me of the situation in the UK in the 1980's when

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Posted in: Business Process Outsourcing (BPO)Captives and Shared Services StrategiesHR Strategy

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SAP plays it safe, with some positive signs ahead

November 01, 2008 | Phil Fersht

SAP-logo With the ever-closing barriers between ERP strategy and BPO - which we discussed at length back in August, it's important to understand enterprises' activities with their ERP maturity in order to get a solid picture of future potential outsourcingactivity.  The performances of both SAP and Oracle are now a sure-bell-weather for the IT and outsourcing industries at large.

Bruce Richardson, AMR's Chief Research Officer, offers some keen insight into SAP adoption in his recently launched blog "First Thing Monday", which is an extension of his popular e-newsletter that hits the wires at the beginning of every week.

Bruce points out some key indicators of what we can expect in the coming months:

  • Many SAP customers he is talking to are continuing to expand their footprint at present and are still planning for further upgrades;

  • SAP is not planning any labor reductions, despite heavy growth in recent years, and will reduce costs with a hiring freeze and travel restrictions;

  • SAP is likely to push new programs in the short-term to encourage mid-size business to move into SAP environments.

While we're clearly moving into a difficult economic climate, it's encouraging that many enterprises are continuing to invest in their ERP backbones.  I anticipate that as we see more companies seeking cost-containment outsourcing avenues, many will be able to benefit from upgraded (or new) ERP platforms as they evaluate their options.  Common ERP standards ultimately support more scalable and lower-cost outsourcing strategies.

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

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