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Category Archives: HfS Surveys: Dropping the "O" Word

The great outsourcing talent-chasm: 57% of service provider staff don't understand their clients' businesses

September 30, 2012 | Phil Fersht

Rarely has a debate aroused so many emotions, yet failed to reach any conclusions, which was precisely what transpired when 900 of us duked it out over whether to drop the term "Outsourcing".  However we view this debate, outsourcing is centered predominantly on one constant:  talent.  

Talent costs money and brings capability.  Outsourcing is about helping enterprises get better capability without increasing costs.  It's about tinkering with enterprises' talent bases to deliver improved services without increasing costs.  So how - pray tell - can enterprises improve their talent without going through the considerable expense of hiring new people and training their existing staff?  The answer is simple: find someone else to help you do it - and good luck with it!

Of course, better workflow and process, better quality and innovation are vital ingredients to achieve greater productivity and increased revenues, but you have to start with the most critical ingredient:  your talent.

If the industry known as outsourcing can prove consistently over time it can improve clients' access to talent and new capabilities without increasing costs, then we won't call it "outsourcing" any more, we'll just call it "IT", or "Finance", or "Insurance" (and so on) services.  However, when the central component of the industry is to swap out local staff with foreign staff, the first question the general public (92% of whom - in the US - are actually employees) will ask is "Can these people do IT, finance or insurance better than we can".

Fortunately, HfS has been able to reach out to close to 700 key stakeholders in the industry, 215 of whom are from predominantly large-sized US corporations, where we were able to ask them how they rated the attributes of their local talent to the overseas talent being provided by their service provider:

Where outsourcing is performing well

In terms of work ethic, process competency and overall value for money, service providers' non-US staff are matching the local staff.  If these staff are 30-50% cheaper, that's a pretty good return on your investment if that's all you really care about.

Where outsourcing needs to close the gaps

In terms of business understanding, initiative, innovation and culture, the non-US staff being provisioned are miles behind local staff.  For example, only 43% of buyers feel their non-US staff understands their business, when compared to 88% of local staff.  Yes, this gap will surely close as the industry matures, but I find this talent-chasm unacceptable in today's global marketplace.

The Final Word: Service providers need to improve their talent mix and use more local talent, however, buyers need to demand it

Outsourcing has earned a largely crappy reputation because it's become so focused on providing rules-based models that can enable offshore staff to get the job done.  Many clients, for whatever reason, have been convinced they can do this with 90% of their delivery staff sitting offshore, or some simply didn't care and wanted to make the numbers work.

However, our research clearly tells us that most clients care passionately about innovation and process improvement, so why are we persisting with these imbalanced delivery models, where the outcomes are performing miles from what we want to be?  Why aren't today's buyers training their own staff to manage their global resources more effectively, so that more of them do understand their businesses?  Why are service providers so insistent on sending offshore managers onto their clients' sites to manage their own staff, when they should be training their clients to be more self-sufficient?

I believe this industry has become skewed - too much work has been shifted to offshore locations, when their needs to be greater investment in improving local talent.  Providers need to be more global with their focus and provide more balanced location options for their clients, even though clients will have to pay more for it.  A more balanced onshore/offshore mix will lead to better development of offshore personnel and help bridge the current talent-chasm that is plaguing today's outsourcing industry.

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



An industry with no name? The outsourcing industry votes out the "O" word but can't think of an alternative...

September 07, 2012 | Phil Fersht

"How do we re-brand outsourcing" was the rallying cry at the NASSCOM BPO Summit in Gurgaon, India, this week.  Easy - let's call it something else... with two-thirds of the buyers and providers voting to drop the term, all we have to do now is agree on a super cool new set of words, and the industry's current  image problems will soon become old wives' tales.

So let's take a look at the renaming options each industry stakeholder group has voted for (this is for BPO - we asked about ITO separately) :

The beauty of this table is that it doesn't require a whole lot of analysis.  Buyers are so at a loss for alternatives, they couldn't think of much else and "Outsourcing/BPO" actually came top.  Most of the providers just want to swap out "outsourcing" for "services", while most advisors stuck with BPO, with a growing number, mainly the management consultants, pushing the Global Business Services badge (even though GBS is supposed to represent all forms of sourcing being managed under a holistic governance framework).

The outsourcing industry has a lot of work to do, if it wants to "re-brand"

There is far too much "believe our own bullshit" going on and this industry needs to change how it perceived before it can effectively "rebrand".  People in the industry are complaining that the ignorant masses confuse "outsourcing" with "offshoring". Well, I hate to be the bearer of bad news, but isn't the vast majority of ITO/BPO dependent on offshore labor to make the economics work?   We should probably just call it "offshore outsourcing" to be even more accurate (eek!).

Look - we all want non-linear growth, to focus on business outcomes, value creation and innovation.  We desperately want this industry to be making fast progress in overcoming the four challenges of the HfS 50 Blueprint Document.

The Four Blueprint Challenges facing the outsourcing industry:

»      Challenge #1: How can we overcome this singular focus on cost that strips the industry of its value?

»      Challenge #2: How can we leverage outsourcing as one of a variety of vehicles to achieve business objectives?

»      Challenge #3: How can many of the service providers invest smarter in their account management teams?

»      Challenge #4: How can buyers and providers really partner to foster innovations into business process outcomes?

Until these four challenges can be tackled, rebranding the word "outsourcing" is a futile task.  Re-branding is all about changing perception - hence, today's business leaders must be able to associate "outsourcing" with business value creation and true value-partnerships with service providers which are instituting new capabilities into their businesses.

The Bottom-line:  Once the outsourcing industry can prove to the world it is evolving, we can use smarter terminology

Yes, "outsourcing" as a term doesn't convey business value creation, or innovation, or achieving nimble global operations, but this industry needs to demonstrate it is genuinely moving away from the labor arbitrage model, before we can rightfully name it something different.  Yes, many new client/provider relationships are now moving in this direction, but we need to see more of it - and have more of it communicated to industry.

Personally, I like the term "business services partnering" as - in many cases - the entire function is not actually outsourced - only elements of it, so in effect these engagements are partnerships with providers to deliver operations, not the outsourcing of operations.  Don't get me wrong, the "O" word will go away - and we - at HfS - will only use the term when we have to , but the industry needs to prove it is winning the battle of the Four Blueprint Challenges before we can genuinely use new terminology without feeling like we just applied some more lipstick to Ms Piggy.

Posted in: Business Process Outsourcing (BPO)HfS Surveys: Dropping the "O" WordHfSResearch.com Homepage



Look what Obama has done to the "O" word...

September 06, 2012 | Phil Fersht

Remember our recent post "Caught in the xeno-bamia crossfire, these are dangerous times for the outsourcing industry"?  Well, our new survey on the toxic "O" word has resoundingly  proven that negative politics really does sway opinions, as an overwhelming majority of American enterprises want the word scrapped, which is in stark contract to European firms, who are largely happy to keep it:

Now look what you've done, President Obama!  In all seriousness, Europeans are obviously a lot less bothered by terminology - there is simply a lot less toxicity surrounding the term.  The big question is whether these feelings will die down after the US election, or whether the "O" is forever poisoned unto perpetuity?  The plot thickens... stay tuned for more

Posted in: Business Process Outsourcing (BPO)HfS Surveys: Dropping the "O" WordHfSResearch.com Homepage



It's official: the outsourcing industry has voted out its name

September 05, 2012 | Phil Fersht

All the stakeholders in the outsourcing industry have finally spoken - 871 enterprise buyers, providers and advisors - in an unprecedented study of broad opinion as to whether it's finally time to drop the term "outsourcing" for business and IT services.  

HfS Research has reached out (see survey) to its unique community of services and operations professionals, and can finally reveal the answers we have long been searching for - that it's time to re-brand the industry formerly known as outsourcing, with 61% of the industry stakeholders voting to drop the term:

Half of the enterprise buyers responding have over $5bn in revenues, 73% are significant influencers, and most of them have many years of experience with "outsourcing".  HfS would like to thank all of you who took the time to share your opinions on such a pivotal issue.

What's immediately revealing is that close to two-thirds of buyers and providers are fed up with the term, and the fact it's almost impossible to remove the image that outsourcing is only about the offshoring of labor, as opposed to engaging with service providers to create business value.  The advisor community is evenly split, with a good number of them enjoying the fruits of advising on outsourcing transactions - changing the "O" word is bad for business for many of them.  Conversely, there are also many management consultants who would like to remove the term, as it often prevents them from having meaningful and productive discussions with clients, who run a mile when the "O" word crops up.

But what alternative terms have each stakeholder community suggested to replace the "O" word? And what will the termination of the "O" word mean to industry stakeholders?  Will they lose their identity, or is this the beginning of a new era?

Stay tuned... all will be revealed.  Right here!

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