HfS Network

Monthly Archives: Feb 2009

Time to put banking executives on trial?

February 28, 2009 | Phil Fersht

Jail As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial.  I am inclined to agree with them.  The BBC's Robert Peston just put out an excellent analysis of HBOS's final earnings report as a discreet entity:

This corporate division generated losses of £6.8bn in 2008 from loans and advances to businesses of £116bn.  It has had to write off an average of 47% of those loans in this area that have gone bad. Almost 12% of all its corporate loans are now classified as impaired or damaged. And as a percentage of the total corporate lending book, the impairment charge is just under 6%.  On the basis of those statistics, HBOS appears to have left a big bag of money open on the pavement with a sign saying "borrow what you want".

How can you give out over $100 billion in bad loans?  In Spain, for example, their banking system, which has been one of the least affected by the crisis, operates using dynamic provisioning, where each loan mustbe underwritten with capital in the banks' reserves.But what has transpired in the US and UK banks is tantamount to executives knowingly driving their businesses into the ground at the expensive of getting fat and happy themselves.  It's like hundreds of these executives were riding tigers without knowing when to get off. If I hear one more jingoistic anti-offshoring argument about the fact that a whole industry should be tarnished because a single service-provider was caught cooking the books... how about a whole industry cooking its books?

Posted in: IT Outsourcing / IT Services

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Is the call center finally coming back onshore?

February 28, 2009 | Phil Fersht

Buy-america We had a great discussion a few weeks' ago regarding the USA's potential to take on more sourcing work, with increasing unemployment and downward wage pressures.  I've made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work.  And where better to start than the call center?

Bottom-line, President Obama should take a leaf out of Margaret Thatcher's book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline.  I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM - she closed down unprofitable coalmines during the 80's recession, and encouraged businesses to set up call centers in depressed British cities.  Now there are over 650,000 call center employees across the UK. 

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesSourcing Locations

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Source like an Egyptian

February 28, 2009 | Phil Fersht

My colleague Dana Stiffler had some fun in Egypt this week, as a guest of Egypt’s Information Technology Industry Development Agency (ITIDA).  Check out her observations at Think Global.

Egypt

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesSourcing Locations

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Get your finances in order before you outsource?

February 25, 2009 | Phil Fersht

Accountant When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities.  In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition.  However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated.  That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.

To this end, an old friend of mine, Bill Rieke, shared his experiences with CFOs of mid-market firms trying to drive cost-efficiencies into the financial processes.  Bill is a respected veteran of the BPO industry, having worked on multiple international engagements with Convergys and subsequently Genpact.  He now works independly with firms as an advisor with BPO and process optimization.  Over to you Bill...

In American Heartland, Optimization Finally Brings Hope of Accounting Transformation

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Posted in: Buyers' Sourcing Best PracticesIT Outsourcing / IT ServicesOutsourcing Advisors

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Did Slumdog wipe the Satyam slate clean?

February 23, 2009 | Phil Fersht

OscarsLee Ann Moore sent me this interesting analogy of Slumdog's Millionaire's success at the Oscars, and whether it could enhance India Inc's image in the wake of the Satyam scandal and the "Buy America" protectionim we're seeing at the moment...

The post-Academy Award media has declared 2009 the year of India. Will that hold true for outsourcing and Indian workers? Perhaps this push is just what our political leaders need to keep protectionism policies at bay. It is too late to impact the recent bailout package that bans recipient companies from hiring H-1B workers, many of whom are well-educated Indian nationals. Can this Oscar favorite change our attitude toward work in India?

How could our sentimental side not cheer for all the Jamal’s and Latika’s of India who grew up in an impoverished country and work every day to create a better life for themselves and their family? Granted the movie presents a well-written yet fanciful tale, but it helps us understand a unique and beautiful culture. Only time will tell if Hollywood can help the American worker minimize his fear of losing a job to India or perhaps treat the tech support personnel with a bit more respect. Shall we track the call center escalations pre and post-“Slumdog”?

There are many challenges in understanding how a global economy will benefit the American worker and corporations. Thomas Friedman’s recent post, The Open-Door Bailout, provides a compelling argument for open borders and challenging Americans to focus on innovation over fear or job loss. Perhaps the emotional appeal of “Slumdog Millionaire” will allay the fears of the American worker and challenge Washington to think and act global.

Posted in: IT Outsourcing / IT Services

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Payback can be sweet...

February 23, 2009 | Phil Fersht


Posted in: Absolutely Meaningless Comedy

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Can Cloud transform Outsourcing?

February 22, 2009 | Phil Fersht

What I detest most about recessions is when firms put all their focus on short-term cost-reduction measures and take their eye off the ball with initiatives that can reap much more lucrative efficiencies over a longer period.  I am somewhat hopeful this recession is a little different: shaving a few percentage points off the bottom-line is unlikely to make a huge difference when your very survival is at stake, and several companies are exploring more radical, longer-term strategies that will lift them above the depressed morass.  Moreover, many smart executives are seeking to tie themselves to longer-term projects that give them added job security and enhance their own roles in changing times. 

Cloud computing has all the attributes and potential to support a global outsourcing environment with lower infrastructure costs, lower energy costs from eliminating hardware boxes, and much better scaleability to provide computing resources to meet demand in an unpredictable global market.  My view is that we are in a global delivery continuum, where many organizations will originally evolve from crude BPO environments (a lot of lift and shift), explore SaaS delivery to optimize that environment, and ultimately dabble with SaaS apps that be deployed in a Cloud "plug-in" model.  A flashy diagram will likely ensue, but that's the nuts-and-bolts of how this continuum will eventually play out.  Bottom-line, those service providers which persist in a labor-arbitrage-only service model and ignore the benefits and cost-efficiencies of SaaS and Cloud, will get left behind.

Cloud-computing"I just knew the mainframe would make a comeback", said an excited industry veteran on Cloud computing recently. He's actually right, but the difference in today's world, is we are creating the applications and the development environment to run real business applications in a cloud environment.

We're not there yet, but smart organizations need to start exploring service provider relationships where Cloud is on the horizon.  Cloud computing is not only rapidly emerging as an infrastructure option that is relatively inexpensive; it is also becoming a buyers' market.

Cloud has come a long way since being a small blip on the radar in 2007 when the likes of Microsoft, HP, Google

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

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Conference alert: The Global Services Conference 2009

February 20, 2009 | Phil Fersht

Global-Services-Conference

Just a reminder that the Global Services Conference in next Thursday at the Sheraton New York Hotel. Seems like a good group of industry practitioners and buyers will be there in force (judging by the number of meeting requests I've been getting).

There's a distinguished speaker line-up including Linda Tuck Chapman, and Thomas A. Stewart, Chief Marketing and Knowledge Officer of Booz & Company and former head of the Harvard Business Review.  You'll also have the chance to rub shoulders with a very impressive array of sourcing leaders from F500 enterprises - for more details check out the agenda here.  I hope to see many of you there - drop me an email if you can make it...  If you would like more details on the show, contact my good friend Ed Nair, editor of Global Services Magazine. 

Cheers,

PF.

Posted in: Uncategorized

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The Black Book of Hollywood

February 18, 2009 | Phil Fersht

Ladies and gentlemen, these guys need no introdution.  Each year we are treated to a new set of rankings that gets everyone talking.  Yes, it's the infamous Black Book of Outsourcing's top advisors and consultants guide!  Forget your sourcing advisors, forget research reports, forget client references - these guys will simply tell you how it is with their magical rankings. 

You have to hand it to them, they never fail to stir up emotions, excite some small outsourcing vendor, or boutique advisor... when it comes to the Black Book, anyone can get in on the game.  This year we're treated to several one-man bands, outsourcing vendors posing as "independent advisors", and some firms who don't even do what their category states... can you guess some of them?

Download 2009 Outsourcing Advisors Report

Posted in: Confusing Outsourcing Information

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Doing nothing is not an option

February 18, 2009 | Phil Fersht

Some excellent feedback and comments from you regarding our recent discussion about the cost and delivery models sourcing advisors need to deploy with cost-constrained clients.  Lee Ann Moore of sourcing advisory firm Equaterra, has shared some experiences her company has been finding in this market, and offers some alternative services advisors can deliver, beyond trying to crack a wall-nut with a sledgehammer.  Lee Ann is one of the behind-the-scences brains behind the rapid rise of the firm since 2003, being the company's first employee and Chief Marketing Officer.  Over to you Lee Ann.

Leeann-Moore"Corporations are in a state of flux and uncertainty. Many of our clients are announcing layoffs and going through divestitures, mergers and acquisitions – activity that places pressure on their sourcing organizations that often exceeds capacity and capability. These companies must demonstrate productivity improvements and cost savings now. Doing nothing is not an option, and many organizations avoid a doom loop by using flexible advisory services when they cannot afford full-time employees or consultants for business transformation projects.

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

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What's happening to sourcing advice?

February 17, 2009 | Phil Fersht

Looking into the sourcing advisorsI have never (I repeat never) witnessed such an intense level of interest in global sourcing than the current environment.   I simply am struggling to find the time to do anything but take calls from companies in deperate need of working out their sourcing options.  In fact, if anyone wants to send me compeling guest posts, be my guest, as this thing is creeping into my weekends far too much these days ;)  However, I have been alarmed with the recent retrenchments that several of the leading sourcing advisors are being forced to make.  Their problem is simply the cost model - if large engagements close out with nothing immediate to re-staff the advisors, they simply cannot afford to keep them on the bench.  What worries me is how buyers are getting their advice and direction. 

Bottom-line, buyers are being forced to avoid spending on consultants unless deemed absolutely essential, and investing a few hundred grand on getting the support, methodology, data, ideas, knowledge and experience they need, seems to be beyond many firms at the moment.  So what are they doing?  The answer is scratching around for snippets of wisdom, being courted by service providers offering "free" evaluations, turning up at industry events hoping for free info and joining LinkedIn groups hoping for a silver bullet solution for helping them through the sourcing maze.

So what's the answer?  

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Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesOutsourcing Advisors

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It's really not THAT bad

February 16, 2009 | Phil Fersht

Check out this video of an hysterical passenger screaming at airline staff and writhing on the floor after missing a flight at Hong Kong airport.


no more said...

Posted in: Absolutely Meaningless Comedy

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Think before you fire: The cost of replacing IT talent

February 12, 2009 | Phil Fersht

There’s currently a certain sense of déjà-vu within the IT community, as companies look at shaving even more cost out of a function that has been battered since the 2001 dot-com bust. However, when we look at the lessons of the past, you do have to question companies which decide to sharpen their knives once more when they address their IT costs. Companies need to offset the cost of every layoff with the cost of replacing that talent when the economy improves. It is not so much who is left standing, but rather who is in position to grasp the brass ring of prosperity when it returns.

If economic conditions improve in 2010, then the amount of costs saved by releasing an employee may only be $50-100K by the time all the lay-off costs are incurred. How can you put a price on replacing the inherent business knowledge of that staff member when you re-hire a replacement? It may take another year or two to get the replacement up-to-speed, and will not only end up costing you more, but may also impede your executives from accessing critical data in a timely fashion. The overall cost of replacing that staff member could easily be three times the costs saved by laying her off. And these easily-identified direct costs are only the beginning; the costs incurred to your culture and morale can prove even more damaging.

There are lessons to be learned from those who did it right and those who failed to do so during the recession of 2001. The frequently cited observation by George Santayana warrants consideration, “Those who do not remember the past are condemned to repeat it.” Furloughed IT employees in the RIF of 2001 were often reluctant to return to their previous employer. Having been viewed as expendable, the trust and bond between the two may have become a casualty. Often the company belatedly discovered the employee was not at all expendable.

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Posted in: Buyers' Sourcing Best PracticesIT Outsourcing / IT Services

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NASSCOM: Pushing the Reset Button on an Industry, But Hush-Hush on Satyam

February 11, 2009 | Phil Fersht

We are priveleged this year to have AMR's own Dana Stiffler at the NASSCOM show in Mumbai.  What a time to be at the heart of the Indian services industry with the recent Mumbai terror events, the Satyam saga and the current economic crisis...  How is India Inc. responding? Over you to Dana:

Dana StifflerNASSCOM President Som Mittal opened the group’s 17th annual leadership conference with praise for the resilient city of Mumbai, as the packed house observed a moment of silence for the victims of the city’s terrorist attacks last November. It’s a watershed moment for NASSCOM and the industry in general and Mr. Mittal struck just the right tone in his opening comments: cheerful, welcoming, resolute. Addressing the attacks and Satyam’s challenges up front, he told us it was time to reset expectations.

As for specifics, Mr. Mittal announced that NASSCOM will reconvene its ethics and governance committee. He also highlighted green technology

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Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesOutsourcing Events

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Want to offshore yourself?

February 07, 2009 | Phil Fersht

IBM is now offering employees, who would otherwise face layoffs from their North American jobs, the chance to work abroad through 'Project Match'. Destinations include Argentina, Brazil, China, Czech Republic, Hungary, Mexico, Poland, Romania, Slovakia, Slovenia, South Africa, Turkey, and United Arab Emirates. IBM will also help with moving costs and provide visa assistance. While some cynics will sneer at this scheme, at least Big Blue is doing something proactive to support at-risk staff, and also promote moving much-needed onshore talent into their emerging country delivery centers. Furthermore, maybe they'll pick up some good work habits and bring them home to the States when the economy improves?

Posted in: IT Outsourcing / IT Services

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BPO bucks the trend as WNS posts strong revenue growth

February 07, 2009 | Phil Fersht

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

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

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Forget 2006, let's go back to '96

February 05, 2009 | Phil Fersht

Like many of you, I have been waking up in the middle of the night wondering what's going on with the global economies and how the world will look in a few months when we adjust to the new economic reality.  I started thinking about about the world when people lived within their means, took a job for a job's sake, and could plan for the future.  It then hit me hard - things have simply fallen out of proportion. 

When I graduated in '94 there weren't a lot of high-powered careers available to graduates - you took what you could get and worked at it until something better came along.  I actually started off in customer relations for a burglar alarm firm... doesn't make my LinkedIn profile, but it actually started me off on a track that somehow got me here (and I did have some hilarious conversations with London celebs with their alarms wailing in the background).

Let's talk about proportion and focus on the two staples in life - food and shelter.  By 1996, I was flying high as an analyst earning a whopping $30K a year (about the same as an Oracle developer in Bangalore today).  I also purchased an apartment for $100K.  In those days you could borrow 3 times your annual salary - that was it.  The cost of groceries was about $40 a week, and a good restaurant meal was never more than $35 a head.  I'll stop there.  While my salary seems terrible by today's standards, I didn't build any debt and I had a mortgage that was manageable for a property that was fairly valued.  Life was good, and I slept well at night.

Take 2008.  The equivalent salary for a graduate-level analyst is about $50K.  The cost of that equivalent apartment is $300K (6 times the salary), weekly groceries $75 and a good meal $60 (if you're lucky and the wine's cheap).  There's no feasible way you can enjoy the same quality of life without mortgaging yourself way beyond your means and delving deep into credit-card debt.  What's worse is that debt has become part of life for so many people.  And that's precisely what happened, and now everyone's paying the price.

The optimum way out of this crisis is for these proportions to be redressed, however painful it may be. 

Guillotine

Posted in: Business Process Outsourcing (BPO)

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Everything will change

February 01, 2009 | Phil Fersht

I've been avidly following Robert Peston's coverage of the economic crisis.  Peston is the BBC's business editor and has built a stellar reputation for reporting the key facts on what went so massively wrong and what we can do to emerge from this crisis. His recent BBC radio discussion with Robert Wolf, Financial Times's chief economic commentator, Richard Lambert, director general of the CBI and Roger Carr, the chairman of Centrica and Cadbury, is well worth hearing.  Key points discussed:

  • The UK is the most vulnerable economy, due to its unprecedented housing bubble and over-reliance on the financial services sector.

  • The strong sense of denial is fading - there aren't going to be any winners out of all this, just relative advantage. 

  • Not everyone yet grasps this is a massive structural change - we're not going back to 2006.  The massive consumer-led debt boom cannot be repeated.  We might go back to fast growth, but the whole pattern of global demand will have to be different for that to happen.  The world economy will have to be re-balanced in different ways.

  • We've done a very good job of driving short-term stimulus and saved the banking system, but the long-term solution has to be the restoration of healthy private sector demand across the world: that is the next stage of getting back to a healthy economy...but does the private sector understand this?  There is an increasing awareness that we are interdependent.  Unless the strong support the frail we will have continuing difficulty.

  • We must protects the emerging economies now and change the way we finance them.  The IMF resources need to be bigger to protect developing economies.

  • We need to have serious intelligent dialog with the Chinese on how to make their growth more compatible with global stability.

All-in-all, you can really start to guage how crucial the role global sourcing has to play as we emerge in a new economic structure.  The inter-dependencies across economies and businesses can be managed more effectively by firms adopting multi-cultural, multi-lingual and multi-regional delivery models. Both governments and businesses need to embrace both local and global talent to restore private sector demand over the long-term.  What is abundantly clear is that we don't fully realize how this structure will ultimately develop, but we are quickly understanding the basics of what needs to change.  The next stage is for both governments and business to work together on stimulating long-term demand and making these inter-dependencies really function effectively.

Posted in: Business Process Outsourcing (BPO)

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