HfS Network

Monthly Archives: May 2014

Is it high time industry analysts are regulated?

May 31, 2014 | Phil Fersht

One issue that is increasingly rearing its ugly head is the ridiculous - and often insane - demands industry analysts are placing on providers of technology and business services to pony up client references for their scatterplot charts. The situation has become so bad that the integrity of these research processes appear to be reaching a breaking point, and I would argue that some form of regulation is needed to protect the interests of the business consumer.

The leading analyst firms are demanding five client references per provider.. and one recently even requested TEN client references. The requests are made with the veiled threat that the analyst will "not have sufficient information on the provider's performance" if these references aren't made.  When I repeatedly have multiple providers complain about the situation to me, in addition to several of these overused buyers, surely it's high to get this issue on the table?

Correct me if I am wrong here, but isn't it these analysts jobs to have regular ongoing conversations with buyers of their covered markets, so added references are merely a rubber-stamp? In fact, why are references even needed if these analysts are so informed, connected to the buyers and have so much valuable data and research to call on?

So why is this a growing problem, I hear you cry?

Can you imagine what it must be like for a provider to ask a good chunk of its referenceable clients to partake in one hour reference calls with 3, 4 or even 5 analyst firms?  Not only that, these same clients are being asked to provide even more detailed references to sourcing advisors and management consultants for their procurement and vetting processes. Hence, some of

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

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Why offshoring is hotter than ever

May 28, 2014 | Phil Fersht

While we're all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises' operations: IT and business processes are increasing their extension offshore at a breathtaking pace.

Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely - whether by an outsourcing provider or their own offshore shared service center.  And - as we've lamented on this site since the days when ACS was a market leader and people still used Yahoo! - enterprises are just obsessed with driving out cost - and then figuring our things like "transformation of processes" at some future point in time.

However, the difference today is that most of the perceived "risk" of moving offshore has gone and enterprises are simply doing it as part of their day to day operations.  The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:

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The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing.  While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services - a similar trend to IT infrastructure.  Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring - almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations.  We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.

The Bottom-line:  The story today is about managing integrated services across global operations

1) The game has switched to integrated global operations management.  It was barely 2-3 years' ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost.  What's clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly).  They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves.  What's more, many organizations are clearly not very impressed with the quality of their providers' resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we're seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called "Integrated Business Services".  We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.

2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS.  While it's not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today.  Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.

Net-net, offshoring provides a very durable BandAid for many organizations, and we're still yet to witness a slowdown in the amount of offshoring that is taking place - in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher.  Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.

3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise.  Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan.  Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa.   As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.

Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesCloud Computing

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Time to stop the buzzword balderdash and become meaningful again

May 24, 2014 | Phil Fersht

Am I smoking something illegal, or has our industry really started to lose the plot with the amount of buzz terms that – quite frankly – only mean something to the sellers and advisors trying to make their wares sound that little bit savvier than their competitors. And even then, I am not too sure whether many of them even fully understand what they are buzzing about either, more simply regurgitating what their competitors are saying.

I’m not trying to be a fuddy-duddy here, and I do empathize with the exuberance of so many sell-side individuals who are simply starry-eyed at all the disruptive technology and evolving business models that are on the horizon, but c’mon folks, can we find a sensible balance between vision and reality?  Why has it become so uncool to talk about where we are, as opposed to where we think things might evolve in 5 years' time?

I mean, wasn’t it barely six months ago when we were still having (relatively) meaningful debates about things such as:

  • “What is innovation, and how can I get some of that?”
  • “How can I find a provider to do something more for me than provide cheap labor”
  • “I really would like some visibility over my order-to-cash process chain”
  • “Our provider still can’t figure out how to automate our accounts payable processes”
  • “Do we really get value from outsourcing all this stuff – are there other options to consider?”

Instead, suddenly it’s become terribly untrendy to have meaningful conversations about what we’re actually trying to achieve… like improving processes, trying to do a better job than merely maintain status quo operational performance, and accessing meaningful data to help us get more value from our day to day operations.

Yes, folks, if we aren’t creating Digital Services on SMAC platforms, we’re going to fail with Big Data and the Robots will come to replace us… so let’s see what 312 major buyers - in the brand new State of Outsourcing Study we conducted with KPMG - really understand about today’s latest slew of sexy savvy-sounding soliloquies:

Click to Enlarge

All joking aside, there is a serious message here: too many buyers are getting lost in the verbiage and the lack of relevance to their businesses and simply don't understand exactly what is being sold to them. Let’s be honest here, SMAC doesn’t mean anything to 70% of buyers beyond being a concoction of new technologies lumped together… finance executives have been talking about “Big Data” for four decades and nothing is really new except the fact there is better technology to help them analyze it… I can go on.  Oh – and nearly a third of buyers don’t know what “transformation” means to their business? Seriously?

The Bottom-line:  Our industry is simply terrible at communicating to clients and needs a major reality check

There is an abject communication problem in our industry, when such vast numbers of operations executives are baffled by the BS their providers and advisors are lobbing at them via boring white papers, instantly-forgotten PPT decks and thousands of automated inane tweets.

It’s time for the industry side to start tying all this buzz to the reality of operations – where we can educate how enterprises can learn more about where the world is heading, how they can start to evaluate the pace of change that will impact them and develop change programs and new operations strategies that make sense to their businesses.

We have got to stop jumping on the bandwagon of spewing poorly communicated rubbish that has little meaningful relevance to businesses today, and instead explain in plain English how processes and interactions can be digitized, how robotics could one day enable our business systems to become more cognitive and less reliant on manual steps, how new analytics tools and expertise can help our staff become more relevant and valuable, as opposed to turning widgets and updating spreadsheets. Most of the stuff I read today is focused 95% on flashy terminology and only 5% on the actual substance on what businesses can do with all this stuff.

It’s time to get meaningful people and stop this feeding frenzy of confusing jargon…

Posted in: Analytics and Big DataBusiness Process Outsourcing (BPO)Buyers' Sourcing Best Practices

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Accenture, Wipro, TCS and ISGN make the Winner's Circle for Mortgage Services BPO

May 20, 2014 | Phil Fersht

The residential mortgage services market is one of the most established and competitive segments of the global BPO industry. Most of the major service providers have been in this market for a considerable time providing services across the process chain of mortgage origination, mortgage servicing and the (sadly more significant these days) area of loan default and foreclosure management.

It used to be that most service providers were simply providing domestic or offshored labor to augment the capacity needs of the large lenders, but that old operating model is being changed as a result of the consequences of what happened to our global economies post 2008 - and especially in the US.  Whereas before the crash the entire mortgage industry was going through such a “gold rush” that volume took precedence above all else, now, as a result of increased regulations and reduced volumes that have driven up the cost of completing a loan origination, the focus is elsewhere.

Today, this is an industry looking closely at the processes and technologies that underlie the business and turning to industry savvy service providers which can provide cost effective, compliant delivery that increasingly includes a significant component of sourced technology solutions as well. This mature market is changing and, as a result, so too is the roster of BPO service providers who are meeting those evolving client needs. So let’s take a closer look at the innovation and execution capabilities of the leading service mortgage services BPO providers:

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HfS has evaluated the innovation and execution capabilities of service providers catering to the origination, servicing and default/foreclosure management processes of residential mortgage lenders.  We asked our EVP of Research, Charles Sutherland, who led this blueprint initiative, to share some of his insights arising from this Blueprint Report.

Charles, what are some of the key challenges facing lenders today?

This is a market segment undergoing a profound level of change.  First, of all there is a dramatic fall in customer demand for new loans as post-crash engine of refinanced loans is coming to an end.   Second, is the rise in the overall costs of originating a loan, which are now up several

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Posted in: Analytics and Big DataBusiness Process Outsourcing (BPO)Buyers' Sourcing Best Practices

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Defying disruption, or a ticking HR time-bomb? How TCS reduces its average cost per employee by 6.3% each year

May 19, 2014 | Phil Fersht

When we recently calculated the profit margins of top IT service providers in our HfS IT Services Top 10, it was very apparent that TCS enjoys the highest profit margin, by a considerable distance, of 28.4% among the top 10 global IT services providers and also among the leading offshore centric IT service firms. Hence, not only does TCS enjoy the highest revenue growth in the IT services industry, it is also the most profitable - so what's the secret sauce?

In a world where there is constant downward pressure on services pricing and there is increasingly availability of disruptive alternatives that should begin drive down the reliance on an FTE-based delivery model, how - on earth - does TCS do it?  So we asked HfS Principle Analyst Pareekh Jain, to take a deeper look, and it was quickly apparent that the firm has increased its proportion of "freshers" (recent college grads) has increased from 50% to 80% since 2007:

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The interesting metric to analyze is employee cost per headcount, which has grown from Rs 1.155 Million in 2007 to Rs. 1.240 Million (US $21,200) in 2013 - an annual increase of just 1.2%. This is an outstanding achievement given the high wage hikes in India and other countries. A conservative estimate of 8% annual wage hike in India, 2% hike in developed countries and 4% hike in other

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Posted in: Business Process Outsourcing (BPO)HfSResearch.com HomepageHR Strategy

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Europe's finest enterprise operators take on the USA at the Cambridge University Blueprint Sessions. Who's sourcing smarter?

May 15, 2014 | Phil Fersht

HfS Blueprint Cambridge

Forget the Ryder Cup... this June we are assembling the ultimate pool of European and American services talent to duke it out on the hallowed lawns of Cambridge University's Gonville and Caius College to find our who's really delivering above par.

Yes, we're flying over a team of sourcing leaders from the USA to compete for the first ever global sourcing crown against the determined Europeans, who believe they have a strategic approach to their game that will ultimately deliver more value.

Are we finally ready to cross the value chasm?

We're counting down the final days before the next "HfS Blueprint Sessions" summit (click here to apply for a place) at Gonville and Caius College, Cambridge University, on 24-25 June this summer.  This will be the the most revealing and intimate discussion yet on the future of integrated enteprise

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Posted in: Analytics and Big DataBusiness Process Outsourcing (BPO)Buyers' Sourcing Best Practices

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Capgemini's new BPO General rocks up: Chris Stancombe

May 11, 2014 | Phil Fersht

We should change the image of the industry, there are fantastic opportunities for people who want to get involved and we should do a better job of attracting talent

- Chris Stancombe, Capgemini, May 2014

Christopher Stancombe is Chief Executive Officer, BPO strategic business unit, Capgemini

One of the main features of the BPO industry since the Great Recession has been the emergence of several providers with a progressive outlook, which are now driving the market. One of those has been Capgemini, which has captured third spot in market share and made the Winner's Circle for finance and accounting (F&A) BPO.

In addition, the BPO service line has been promoted to a tier one delivery unit for the global Capgemini organization, giving the division added strategic focus and resources. Great credit has to be given to Hubert Giraud who has overseen the growth of the BPO business and has now been moved upstairs to lead HR and transformation of the whole Capgemini company - clearly great recognition of his success leading and growing the most people-centric business unit for the firm.

Filling his shoes has been one of the mainstays of the BPO business, quietly asserting his practical style and approach to operations and global services. Since joining Capgemini in 2005, Christopher Stancombe has overseen the expansion, growth and maturity of the Capgemini F&A BPO business, before advancing to the COO role for the whole BPO division last year and then taking on the full CEO role from Hubert this year.

For those of you who don't know Chris so well, he actually started his professional life as a geophysicist and even ran an African engineering business before venturing into the world global service provision. He's a straight-talking, pragmatic chap who likes to get to the point... so without further ado...

Phil Fersht, CEO, HfS Research: Good afternoon, Chris, and welcome back to HfS. I think it's been three years since we last had you on here (see interview). So I imagine quite a lot has changed. Can you just tell me what you've been up to? How have the last three years fared?

Chris Stancombe, CEO, BPO Division, Capgemini: Thanks Phil, it's a pleasure to speak with you again. This year we are celebrating our ten year anniversary of BPO at Capgemini and I've been here for nine of those now. So it has been a good time for reflection. People always say it, but the pace of change is incredible. Over the last three years I've been very focused on the delivery side as

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Posted in: Business Process Outsourcing (BPO)Cloud ComputingFinance & Accounting BPO

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A little bit of HR heaven as Kutik tackles the toughie from Southie

May 07, 2014 | Phil Fersht
Bill Kutik Talks with Christa Degnan Manning

Bill Kutik (pictured left) Talks with Christa Degnan Manning. Click to listen to the interview!

Last week, our own Christa Degnan Manning, Senior Vice President for Talent and Workforce strategies, was a guest on the revered Bill Kutik Radio Show.

As I have explained to many people, you can't really claim to have "made it" in HR until Bill has you on his show... it's that passport to HR heaven to which so many people aspire.  So we're delighted to share Christa's debut on the hallowed stage (click here) where she realized her life's ambition of joining the HR elite, which she could only dream of when trawling the pubs of Boston's Southie during her student days...

Christa talked with Bill about four key issues:

1. The Extended Enterprise

Looking at the workforce holistically has long been a missed opportunity for businesses. The workforce is not just the people on the payroll. It’s also contractors, and increasingly not just contingent workers that work for an agency, it’s also consultants that do statement-of-work-type engagements, and third-party service providers doing work on behalf of organizations.

Of note, first-generation outsourcing was not as successful as it could have been because no one really thought about the workforce that was left on either side: the staff that had to manage and motivate third-party service providers. And the staff of the third-party service provider had to be inculcated into the culture and the systems. The knowledge management and sharing required for

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Posted in: Business Process Outsourcing (BPO)Global Business ServicesHfSResearch.com Homepage

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Outsourcing advisors must be governance experts armed with research if they want to survive

May 01, 2014 | Phil Fersht

Governance? Research? Really?

Thanks to all of you who have (so far) set aside 15 minutes to complete our most probing study yet on the State of Outsourcing in 2014 (and if you haven't yet done so, please click here NOW).

Anyhow, we couldn't resist a little sneak peak at the interim data as it rolls in, and one area that peaked my interest was when we asked advisors (161 so far) how their clients' demands of them were changing. And for the gray-haired old woolly mammoths, this isn't great news... their clients are now more interested in advisory services that can help them govern their outsourcing engagements better - and they also want more data and research to help them approach outsourcing more effectively:

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While a good number of clients still want more help with their negotiations, it's clear that most clients with experience of outsourcing also want an advisor who can stick around and provide ongoing support (or at least some project-based support).

So what does this all mean?

Advisors need to do research.  52% of advisors report that their clients have increased (many significantly) their thirst for research and benchmarks. Simply put, buyers want to be more empowered to understand the market, analyze their operations, and compare their performance with other firms. Hence, advisors need to have the ability to arm their clients with data and insight to help them.  If they do not have any research, their clients will likely look elsewhere for help.

Advisors need to understand how to support governance processes.  50% of advisors see their buyer clients wanting more help with governance and their provider relationships.  This means providers need some advisors on staff who have lived the practitioner experience (with the battle scars to prove it) - they can't just reel out deal guys who used to broker contracts for service providers to craft governance strategies. There is no written rule book for governance - it's something that clients need to learn through good advice and real-world experience.

Advisors still need to be good at negotiating deals.  Buyer needs for deal help are definitely not decreasing - and close to half are wanting even more help. This means the deal guys can still get paid, but clearly need to up their game if they want to keep winning business with clients. Clients want to hire advisors which can be great at deals, but also great beyond the deal... and we've long been at pains, here at HfS, to discuss how clients need the same people negotiating the contract and actually living it after the ink has dried.

Stay tuned for a lot more from this awesome study... coming soon to a web-enabled device somewhere in your life

Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesGlobal Business Services

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Why providers must do their due diligence before they merge

April 30, 2014 | Phil Fersht

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Posted in: Absolutely Meaningless Comedy

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