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Category Archives: HfS Surveys: 2011 "Double Dip" Recession Study

What are Business Platforms and why they represent the future of outsourcing

November 14, 2011 | Phil Fersht

We've been talking about Platform BPO, Cloud BPO and every other permutation of BPO for a very, very long time.  So what's changed, we hear you cry

Buyers are ready to standardize business processes

"Please mind the innovation gap"... click here to find out what Business Platforms are and why they represent the future of outsourcing

Our recent study that covered the intentions and observations of 534 buyers, advisors and providers with their sourcing strategies, in the event of this seemly ever-present threat of a “Double-Dip” Recession, revealed what is motivating buyers to outsource in this current climate.

While eliminating cost is an ever-present obligation, buyers are also equally focused on achieving greater flexibility to scale and support their global operations - and even more significantly - prepared to explore adopting standardized business processes.

Yes:  80% of buyers are willing to move onto standard processes.  They are increasingly unconcerned if their closest competitors use the same expense management or claims adjudication processes, the same cash applications or collections tools.  They simply want to adopt quality process flows they can deploy effectively and efficiently, if there is no competitive advantage to be gained that necessitates conducting these processes in a certain unique manner:

 

Providers have a real incentive to position productized and one-to-many (or at least one-to-few) utility offerings onto buyers

The ability to develop some best-in-class processes as "Business Platforms", whether they focus on horizontal or vertical process clusters, is becoming a real differentiator in the market, as buyers

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

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Why outsourcing professionals must stay in touch with the 99%

November 06, 2011 | Phil Fersht

Like everyone else, I am disturbed by the economic and social instability in which our world currently finds itself.  While the 2008 crash saw us all face a major economic and fiscal reality-check, 2012's landscape will see us move beyond bailouts and credit downgrades to a world where governments and business leaders need to deal with the societal impact of growing unemployment, worker insecurity and an alarmingly widening gap between the wealthy establishment and the common workers (or, as the Americans love to call them, "the Middle Class").

We're already starting to see visible signs of social unrest developing with the "Occupy" demonstrations spreading across the western world. Worryingly, for business leaders and governments, is the fact that there is no imminent prospect of these movements fizzling out. A Double-Dip Recession will exacerbate these issues further and we could be on the cusp of some dramatic and painful changes to the global economic and political landscape.

As we stumble towards this increasing likelihood of a Double-Dip Recession, these are becoming highly sensitive times for our enterprises, and none more so for the buyers, advisors and sellers of outsourcing services operating right in the midst of many of these issues. So what are their expectations, and how do they anticipate their respective businesses to be impacted if things take a nose-dive?

Providers and Advisors are bullish about profiting from a Double-Dip, but must avoid complacency

Our new study that covered the intentions and observations of 534 buyers, advisors and providers with their sourcing strategies, in the event of a “Double-Dip” Recession, reveals that the folks advising and selling outsourcing services are feeling pretty bullish that their clients will turn to them for even more help, if things really start to get dicey over the next six months.  61% of provider and 44% of advisor executives are expecting their respective businesses to increase revenues:

While the sell-side readies itself to enjoy increased profits, close to half of enterprises are expecting layoffs, 40% are sizing up increasing the labor-arbitrage of IT and 30% similarly with finance, procurement, industry-specific and customer management processes:

Business leaders, like political leaders, must not lose touch with their employees during these difficult times - especially over issues such as outsourcing

While most of us are incredibly frustrated with Greek PM Papandreou's decision to turn to his people for their opinion, let's pause for a moment - if your government had mismanaged your economy so badly that you were going to be indebted to the Germans and the Chinese for the next few decades, wouldn't you be feeling a bit miffed?  If your CEO was about to sell a major shareholding in your firm to some other entity, and you were a stakeholder in the business, wouldn't you want a say?  If your company's board had mismanaged its finances so badly, it feels the need to outsource a whole chunk of its operations to some provider who barely understands the intricacies of your company, wouldn't you want a say?

Surely, lousy management teams run the risk of ripping the very soul out their corporate cultures if they fail to listen to the concerns and recommendations of their people, just like those awful governments who drove their nations to bankruptcy and think they can still fix their problems with even more bailouts and loans, without consulting their people?  Do corporate leaders want their workforces to feel like the "99%"?  I don't think so...

And is the 99% really so ignorant about what's going on that both governments and their business leaders can now operate in a bubble of their own because they know better?  Something's gotten broken here, and it may simply be that many of today's politicians and business leaders are actually losing touch with their people. This is an alarming and unsustainable trend, and the outsourcing business could be in danger of getting caught up in the complacency.

While news like this will have some advisors and providers excited about hitting their revenue goals, we have to be highly-conscious of the fact that if this data becomes reality, the outsourcing industry is going to arrive at a highly visible and dangerous phase in its development. As we have been at pains to point out - for five years on this site - buyers need to look beyond labor-arbitrage to find any real long-term benefits from outsourcing. However, these issues are going to move beyond buyers simply improving business processes and cutting costs - they are going to become  centered on how companies are managing their workforces. Governments are very capable of passing measures very quickly to restrict outsourcing if things get really bad - and they won't have much choice if the 99% demand it.

The Bottom-line: Outsourcing professionals need to avoid being perceived as the "1%"

Now, more than ever, the outsourcing industry runs the risk of a backlash, if the worst economic fears are realized in the coming weeks and months.  A Double-Dip Recession will polarize governments and most likely paralyze uncertain businesses.  Most of you who frequent our blog and research sites make a decent living buying, advising or selling sourcing - and we have a collective responsibility to recognize that the very life-blood of organizations and their employees are at stake in the coming months. And if they fail, we will go down with them.

Outsourcing can be a tremendous help for many organizations needing support with improving their processes, globalizing their business operations and accessing better IT, but it is not - and never should be - the only solution to their problems.  It should be a vehicle to help companies perform better, to help its staff become more experienced and knowledgeable.  All outsourcing stakeholders - buyers, providers and advisors - need to focus, more than ever, on helping organizations approach outsourcing as one supporting component of a holistic solution.  In short, buyers and providers need to come closer together to tackle these issues and demonstrate to the world how they are creating value and improving competitive behavior.

We need to demonstrate how making organizations smarter helps create jobs and drive growth - not how making them smaller makes the 1% that little bit richer...

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

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Double-Dip Dynamics, Part II: The new tenets of outsourcing - process standardization, global flexibility and better technology

October 29, 2011 | Phil Fersht

For the very first time in my 16-year career, the major driver behind outsourcing is no longer immediate cost reduction. Hallelujah. Praise the Lord.

In the vast majority of cases, sourcing buyers have already enjoyed a fair amount of cost-reduction in recent years with their outsourcing initiatives, so they already expect the basic financials to work for many of the new endeavors they are exploring... hence, attention moves to other business benefits that outsourcing can deliver.

Moreover, most enterprises today that are experienced with outsourcing have already offloaded many of the conspicuous costs with predominantly labor-based engagements, in areas such as software maintenance support, development and testing, and transactional accounting.  Their attention is now moving to other (and often more complex) processes and technology areas where they need to dig out real improvements, and outsourcing can potentially provide that trigger.

In days gone by, the old adage about outsourcing that many executives would often declare (off-the-record) has been "let's take 30%+ off the bottom-line and if we can make some other business improvements with the exercise that's a bonus, but let's get the costs out."  Today, they're saying, "OK, we know where the cost-savings are with outsourcing, now let's use the experience to get better process and technology for our business".

The impetus has changed - and while many outsourcing engagements, in the past, have largely fallen flat with delivering business benefits beyond cost-elimination, clearly many executives are getting more experienced and skilled at driving sourcing initiatives, and are confident they can use the endeavor as a change agent to promote and implement much-needed improvements to their business operations.

Our new study that covered the intentions and observations of 534 buyers, advisors and providers with their sourcing strategies, in the event of a “Double-Dip” Recession, reveals what is motivating buyers to outsource in this current climate, and while eliminating cost is still is a core fundamental, buyers are even more focused on achieving greater flexibility to scale their global operations as a prime motivating factor:

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

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Double-Dip Dynamics, Part I: 70% of buyers are sitting on the fence with their outsourcing plans in the current climate

October 23, 2011 | Phil Fersht

Innovation? Value? Hmmm... I'll stick to chestnuts

While outsourcing clearly provides a vehicle to help under-pressure business leaders coerce some of the change they need to embrace in today's uncertain economy, most do not view it as the only lever to pull to achieve their goals. The majority of today's buyers are still trying to figure out what sourcing levers they have at their disposal, uncertain as to the right approach for their organizations.

Our new study that covered the intentions and observations of 534 buyers, advisors and providers with their sourcing strategies, in the event of a "Double-Dip" Recession, reveals one major shift in the industry:  most buyers now recognize what their businesses need to improve to drive productivity, they simply are struggling to figure out how to marshall their internal and external resources to help them get there.  And a rocky economy isn't helping drive definitive behavior, with seven-out-of-ten buyers expecting either little change in focus when it comes to outsourcing, or they simply do not know what they are going to do:

* Unlike the 2008 crash, which drove shock and awe into the boardrooms of every business, shouldn't 2011's threat of economic adversity be precipitating a calmer, more organized approach to business planning?

* While experiences of 2008 have provided an expectation that further catastrophe is just around around the corner, shouldn't buyers be far more assertive with planning new measures to contain costs and find new areas for productivity and growth?

The Bottom-line: Buyers are looking more broadly than simply outsourcing to drive productivity improvements in today's climate

Indeed, today's harsh business realities are driving more focus on organizations aligning both their outsourcing and shared services frameworks (click here to download a copy of our Global Business Services paper), however, are companies panicking and screaming: "Help! We must hurl as many of our fixed administrative costs out of the window asap and deploy as much low-cost service delivery as we can, regardless of the consequences"?  Of course they aren't - they're also looking at measures such as their ability to have more flexible global operations, to standardize processes across geographies and ERP instances and to align their internal stakeholders more effectively. Cost-control is a measure that is always a constant focus, however outsourcing doesn't always provide that answer, especially with experienced businesses that have already moved out a lot of tangible cost in areas such as transactional accounting and application support.  Outsourcing only provides part of the answer.

As we recently discussed, business leaders are beset by multiple business pressures in today's climate, and outsourcing provides just one lever among many that they can choose to pull. Only 13% of buyers are concerned about the disruption caused by outsourcing, hence if they currently only view outsourcing as a cost-reduction lever, they are going to place it in a pecking order of other cost-reduction measures… and it’s not always going to the most effective short-term measure in a tough economy. It’s the job of advisors and providers to educate and demonstrate to buyers the benefits beyond cost-reduction and help clients embed outsourcing among their internal governance practices to align its benefits with those provided by internal process improvement and shared services.

We'll reveal all in Part II coming shortly to an HfS website near you...

Posted in: Business Process Outsourcing (BPO)HfS Surveys: 2011 "Double Dip" Recession StudyHfS Surveys: All our Survey Posts

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Too many providers and advisors are being myopic with their clients and failing to understand their business pressures

September 21, 2011 | Phil Fersht

Newsflash:  just because buyers aren't always in a rush to outsource, doesn't always mean they are too "short-term focused" or simply "missing the big picture".

Our latest study shows that many buyer executives are, in actuality, in violent disagreement with many provider and sourcing advisor executives that their business leaders are too “short-term focused”:

When you talk to some (and the operative word being some) advisor and provider executives, they are convinced that every company needs to outsource as much of their operations as they can – and as quickly as they can - so long as they can make the numbers work. It's this attitude that - in my view - has been holding the outsourcing industry back.  Too many provider and advisor executives are overly myopic in their view that business leaders must be "short-term focused", simply because they don't pull the trigger on deals fast enough.

Yes – corporate politics is a critical component of any outsourcing deal, but today’s smart operations and IT leaders all know that the short-term benefits of outsourcing are – by and large – centered on achieving short-term cost-savings from the bottom-line.  Our recent State of Outsourcing study

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHfS Surveys: 2011 "Double Dip" Recession Study

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Cheap and quick please! Wizening buyers are seeking help from easily-accessible sources

September 13, 2011 | Phil Fersht

As we push our Outsourcing in a Double-Dip study, we couldn't resist a quick sneak peak at the data at the half-way point, to get an early indication of how buyers are behaving in this market.  And when we ask them where they're foraging for help and information with outsourcing strategy-making in the coming months, the results are simple:  they are turning to whatever sourcing are most easily-accessible and inexpensively-available to them:

Providers - once in a relationship provide a constant source of information.  Buyers really start to leverage leverage their providers for help once they start working with them and their destinies become intertwined. Since most organizations today are already in outsourcing relationships, it is very easy for buyers to call up their provider contacts and ask for help and information, even though their experiences are usually limited to only those of their other clients. Moreover, our recent State of Outsourcing Survey revealed that 40% of buyers are yet to be convinced that their providers have the know-how to help produce long-term business benefits for them.  In fact, an increasingly large number of providers are asking HfS to help their clients - they have the greatest urgency to educate and keep them informed with objective, credible data and advice.

Analysts - they make themselves accessible.  Most large firms already have subscriptions in place to access reports and tee-up calls with analysts to bounce around ideas. Whether the advice is any good is another issue, but the fact that the leading firms make themselves accessible and (relatively) affordable keeps them top of mind when critical decisions need to me made.  The downside is that it's pretty tough to help clients with such complex and sensitive issues such as outsourcing over the one hour phone call, but smart outsourcing buyers know how to leverage these firms to get the datapoints they need.

Management Consultants - have upped their outsourcing game. Consultants have really made their presence felt,  with several of them having developed comprehensive expertise to support their clients when the "O" questions start popping up.  Smart clients can also squeeze a lot of info out of the without having to summon the MBA bus to their parking lot. Moreover, some of the leading consultants are much better equipped to run small-sized engagements these days, especially with experienced clients who don't need to overhaul their entire operations strategy to understand which service provider can process their invoices best. Furthermore, buyers see the cost savings opportunities, but realize they need more than $20/hour Indian programmers and $15/hour Filipino call center agents (as we recently revealed here).  They need re-engineering, better systems, etc, so many turn to the consultants for help, because their providers haven't been able to deliver much more than the cost savings.

Social Media - becoming a significant channel for advice.  The surprise package here, with close to 60% now leveraging the likes of LI groups (we have more than 14,000 in our group alone), blogs, Google Plus and other tools to get help.  Essentially, there are a lot of knowledgeable sourcing folks getting connected these days, and they're getting easier to seek out.

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHfS Surveys: 2011 "Double Dip" Recession Study

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Will a Double-Dip Recession reverse the trend of buyers "delaying outsourcing" during a slump? Here are 10 factors to consider...

August 22, 2011 | Phil Fersht

Whether you buy, sell or advise on outsourcing, please click to complete our brief study and you might win an annual subscription to HfS Research

Organizations have always been wary of outsourcing during recessions. While today it delivers cost-reduction to clients in spades (proven emphatically during our recent state-of-outsourcing study), many organizations have proven, in the past, to push it down the priority-list of radical cost-reduction measures, when they fear for their very existence.

With the threat of a "Double-Dip" recession very much a grim reality, HfS believes this cycle is likely to be broken. Let's discuss

1) Outsourcing planning has been at an all-time-high coming off the last economic crash.  Many companies have been busily planning to increase the scope of their  outsourcing contracts in mature outsourcing areas such as IT, call center and print/document management, in addition large numbers seeking to make first-time moves into emerging areas such as F&A and Procurement (see our recent data).  We're also experiencing a shortage of available advisors to help clients with their contracts, with the management consultants and boutique advisors enjoying a strong resurgent in client-demand for advisory services.

2) IT Outsourcing is a proven commodity in today's market and BPO is no longer a daunting or "unique" strategy.   During previous economic slowdowns, many companies regarded outsourcing as potentially disruptive to the business, often viewing it as a unique and somewhat risky strategy.  However, as the IT outsourcing market has become a mainstream commodity for the large corporations, whose IT management have honed their expertise with managing outsourcers and global sourcing operations, utilizing offshore IT is today a tried-and-trusted cost reduction tactic employed by the vast majority of the Global 2000.  Hence, it was little surprise that the leading offshore IT services providers continued to grow their businesses throughout the last downturn. Moreover, while many areas of BPO that posed substantial cost-reduction gains were definitely viewed as disruptive last time out, we believe services such as F&A BPO are now proven mainstream offerings with over 800 organizations having now taken the plunge.

3) A lot of fat was cut during the last downturn - in many cases, outsourcing is the only option for productivity gains.  Quite simply, most organizations can only lay-off so many staff over sequential years of tough conditions, until they reach a point where there is no more wiggle-room to find any more costs to shave.  You can only request your managers to increase their numbers of direct staff reports so much, and have them take on only so much extra work, until you get to the point of negative returns from your staff output,  In addition, organizations are frequently losing their best staff who've been burned out and demoralized during drawn out periods of staff retrenchment.  In many cases, outsourcing is the only logical option to open up added resource, and free up your internal talent to focus on adding value to the business, as opposed to plugging leaks. Outsourcing can provide that opportunity to re-energize your top talent, having freed up new resources and eliminated the ongoing cost-pressure.

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHfS Surveys: 2011 "Double Dip" Recession Study

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