HfS Network

Category Archives: HfS Surveys: State of the Outsourcing 2013

Outsourcing and shared services investment intentions at record high as the Integrated Global Services model takes center stage

June 22, 2014 | Phil Fersht

It's official:  outsourcing is not dying - it's simply become a key part of a broader enterprise operations strategy: Integrated Global Services.  312 buyers recently shared their investment intentions over the next two years during our 2014 State of Outsourcing study, conducted with support from KPMG, and their operations strategy clear:  one in four are reinvesting heavily in their global shared services operations, while seven-out-of-ten are continuing to make (largely moderate) investments in their outsourcing delivery.

The long and short of this is that 93% of enterprises today have shared services and 96% are outsourcing some element of their back office IT and business operations, while 27% are actually reducing their investments in their own internal business units. What's more, 56% are already increasing investments in their centralized hybrid governance function to manage their mix of service delivery models. To this end, the increasing majority of enterprise buyers today are investing in an integrated global services model that orchestrates their process delivery across all available vehicles of sourcing:

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Let's delve a bit deeper here and view how these investment intentions have shifted over the last three years, comparing this with the 2011 and 2013 State of Outsourcing studies:

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Shared Services makes its strongest re-emergence as a delivery model for a decade.   While the broad number of firms increasing their focus on both the outsourcing and shared services models is relatively consistent over the past 3 years, the difference today is the intensity of investment.  Outsourcing has slowed to a more moderate pace, while a number of large-scale enterprises are focusing on moving more work into their internal shared services centers - the first time in a decade we are really seeing shared services making a reemergence of this magnitude.

Buyers are shifting more of their higher-value work into their offshore shared services operations.  It's become abundantly clear that buyers are now aggressively globalizing their

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



Why so many cost-obsessed CEOs will fail if they ignore their supplier management capabilities

December 05, 2013 | Phil Fersht

Recessions are good times for business leaders who love to focus on containing costs.  Saving money is the name of the game, and executives who achieve this for their organizations become heroes.

Struggling to manage your extended enterprise? Then click here to course correct

However, times of recovery are markedly different. The onus shifts from cost to value; from defense to attack; from conservative to bold; from tactical to strategic; from efficiency to innovation. And, with the current recovery, perhaps most significantly, the very nature of a company’s cost base is shifting from inside to outside of the organization.

For decades, enterprise executives focused on reducing costs as the key to unlocking an organization’s profitability. This often began with an emphasis on reducing expenditures around SG&A. Activities that fell under this area received derogatory descriptions such as “back-office” and “non-core.” In time, the application of these terms spread across the entire business and any function tagged as such was prime for outsourcing. As a result, many parts of the enterprise were increasingly outsourced.

At the same time, forward-looking businesses began to adopt new organizational structures that were developed to foster lean operations. Rather than build out functional areas across the value chain, companies picked a few key areas to focus on and used partners to deliver the rest. Car manufacturers stopped building components and focused on design and assembly. Hotel chains stopped owning and operating buildings and focused on building and maintaining a brand. Businesses in nearly every industry adopted models that moved significant functional elements to a third party.

Consequently, many of today’s companies look like shells of their former behemoth selves. Marketers now rely on outside agencies and analytics providers to improve their own customer insight and advertising spend, operations teams rely on outsourcing and technology to eliminate labor costs, and IT teams rely on cloud-enabled SaaS platforms instead of an army of programmers occupying the lower floors. For any area of an enterprise’s P&L, a range of suppliers are ready and willing to perform the same tasks faster, cheaper, and better. Yesterday’s pay slips have become today’s supplier invoices.

Want to learn more?  Then download our new report "Why so many cost-obsessed CEOs will fail if they ignore their supplier management capabilities", where we hone in on the following:

  • The shell game: today’s successful enterprises are leaner versions of their former selves
  • The goal: leverage external relationships for broader business value
  • How to shift from tactical sourcing and procurement to a capable strategic team
  • The bottom line: the business models of the future require better leverage of your supply base’s assets and operational flexibility

Feel free to drop me a line with any questions on the topic,


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



Forget business outcomes and innovation for now... most enterprises just want to get beyond adequate first

September 02, 2013 | Phil Fersht

Outcomes, outcomes, analytics, analytics, innovation, innovation... Outcomes, outcomes, analytics, analytics, innovation, innovation... Outcomes, outcomes, analytics, analytics, innovation, innovation...  Hurry while stocks last folks!

Buyers wants to shift from the basics first...

Well, we have some shocking news for you all... these things are only making the "nice to haves" category when it comes to provider selection, as buyers look at more immediate, tangible benefits from providers.

Our seminal State of Outsourcing Study, conducted with the support of KPMG, where we delved into the views and dynamics of 399 enterprises, has revealed that today's wizening outsourcing buyer is looking at industry experience and the provision of talent that can do more than just the basics, when it comes to choosing between their providers:

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The answer's simple - most providers are tooled up to deliver what was contracted, not what the client really needs.  Most large outsourcing deals today were (and many still are) initially negotiated and brokered by different teams, on both the provider and buyer sides, than the teams which ended up running the engagements. Too many enterprise outsourcing relationships, today, were (and many still are) brokered to solve yesterday’s challenges - namely, driving out labor costs, mitigating risks, and achieving a basic level of operational performance.

These are now “table-stakes” - or should be - for any serious enterprise buyer or provider. However,

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



Is it time to de-social our lives?

July 21, 2013 | Phil Fersht

Shall we go home and tweet each other instead?

The hype over social media is over.  While most of us - as individuals - have found the right uses for social media in our personal and professional lives, its potential has, for now, been pretty much realized.

We can network like never before, communicating electronically with girlfriends we haven't seen since our teens, with people with whom we once worked, forgot about, and probably will never see again, and with people we were subjected to at college and never really liked, whose Facebook pics of their kids seem mildly more than interesting than the presentation we are supposed to be reviewing.

Not only that, we are being deluged with crap from people we really don't need - or want - to hear from, and will never acknowledge or respond to.  How important is it that someone I barely know just updated her LinkedIn profile, or someone I once fired just endorsed me for my management skills (seriously)?  How critical is it that my competitors are tweeting their own yawn-inducing PR at a faster rate than my firm... to no-one in particular?

If your life is anything like mine, you simply cannot cope with the velocity of electronic bullish*t surrounding your day. Let's face facts here, folks... social media has become a distraction - and, (I hate to admit it), probably a big fat waste of time. It has also dragged me into having ridiculously superficial relationships with people I probably do not need to invest my time with, being ridiculously superficial.

While social has played a great purpose in expanding my electronic database and reconnecting me with all these people my life didn't really need back in it, it's now reached a point where I am trying to figure out how to de-social myself from some of this rubbish.

And to prove that "social" really doesn't count for much when it comes to enterprise strategy, this is where it ranked as an enterprise priority, in our recent state of industry study conducted with KPMG:

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While people will argue that it's still "early days" for social media, it's already been years since the whole world (seemingly) started using it.  It's here and it matters, but is it really enabling new business innovations and dominating corporate thinking?  I don't think so - and neither do most of the 400 enterprises we spoke to. I would argue that it's actually time to "de-social" our behavior to regain the effectiveness and quality of our interactions and relationships.

So here are some top-of-mind ideas on how to improve the quality of our real social lives:

1) Kill the PowerPoint in conference calls.  PPT gives everyone, bar the presenter, the opportunity to zone out and do mindless tasks - and you can only guess how many of the folks on the call are checking their Facebook updates or tweeting some mindless crap to noone in-particular.  Surprise your conference call comrades by engaging them in a (gasp) conversation.  They will actually have to listen and respond.

2) Remove the Twitter/LI/FB apps from your mobile device.  These apps will find a way to give you a notification update every 5 minutes, which I guarantee will have a meaningless impact on your life.  Go in and check your updates once or twice a day manually - you'll save those hours of wasted time and energy nervously checking your phone like a reflex action that you just can't control...

3) Start calling people up just to "chat".  This may freak people out, but what happened to the days when you could call people and just talk about stuff?  It seems we spend more time trying to create a freaking appointment to talk for 30 mins in three weeks' time, when you could have just called each other up there and then.

4) Make efforts to have more in-person meetings.  My word, the quality of interaction in a face-to-face meeting, versus a conference call or web-session, is eons higher.  You talk, you listen, you exchange ideas...

5) Go to more conferences.  Everyone's just so "busy" these days, but what happened to those days when we went to conferences, met people, had a few beers with them etc?  Haven't you noticed how "sanitized" some of your relationships have become?  It's because you're restricting your interactions to freaking LI messages, "likes" in facebook chats and re-bloody-tweets.  Take it from me - nothing beats a pint of beer, a glass of wine or a decent single malt to have a real conversation with someone.

To prove my point, I will buy anyone a drink who shows up at my office over the next two weeks... but hurry while stocks last :)

Posted in: Absolutely Meaningless ComedyBusiness Process Outsourcing (BPO)Buyers' Sourcing Best Practices



Welcome to the Six Tenets of Sourcing 2.0 - where a "lights on" approach might just get you fired

June 30, 2013 | Phil Fersht

Forget all the "phases" of outsourcing that have been debated so vigorously over the last twenty years - the industry is only now evolving  to a new phase, where middle and upper managers are being challenged like never before to bring value to ambitious organizations, or face worrying consequences.

All that rhetoric, all that PowerPoint, all those white papers.  Many providers and advisors desperately tried to portray the outsourcing of IT and business operations being more than simply saving money.  But they were all really painting a pretty veneer over why enterprises were really interested in it:  they wanted to reduce the cost-burden at the bottom of their enterprises.  They wanted to get smaller.  That really was the premise behind Sourcing 1.0.

Welcome to 2013.  We're only now limping away from five years of cost-containment and reactionary measures, into a world where much of the cost-burden at the bottom of most enterprises' operating functions has now been hacked away.  Ambitious enterprise leaders are now zoning in on those next layers upwards of their staff investments to understand how to become even more cost efficient and even more nimble, in terms of managing their global operations.  Big and clunky is ugly, lean and scalable is the new corporate sexy.

The transformational capability of middle and upper management is under intense scrutiny as enterprises shift from the reactionary to the radical

Times of economic recovery pose an entirely new set of challenges and skill requirements for middle and upper managers:  no longer is their primary job focus simply to keep a lid on costs and keep the machine ticking along.  Suddenly, they are expected to come up with the "what next?"  Managing operations to drive new ways of achieving value is far, far harder than keeping the lights on and the costs contained.  And it's exposing many middle and upper managers as being legacy-thinkers and legacy-operators - unable to grasp new ideals, new ways of doing business and letting go the inefficient, cost-bloated ways of the past.

Suddenly managers, whether they sit in IT, finance, procurement, marketing and so on, are expected to be transformation experts, constantly innovating and aligning their focus areas with the objectives of the business.  If they are incapable of driving value beyond maintaining the status quo, they become walking bloated costs waiting to be exposed, analyzed, and eventually removed or replaced.  I cannot count on both hands how many conversations I have had over the last few months with executives who have found themselves moved out of their firms because they were not seen as "transformational" enough in their approach.  Most were not bad at their job - it fact, some are very capable, but the common thread is simply that they had found themselves overseeing a static operational function and no longer could prove their value beyond keeping the lights on.

The Onset of Sourcing 2.0:  Embedding third-party services into the broader Business Operations Value Chain

You only have to analyze the prime motivations of enterprises - and how they are shifting - to understand the new challenges facing middle and upper managers, as their business leaders seek to manage their operations in their entirety across outsourced, shared services and inhouse elements.  Suddenly, we need managers who understand processes, how they are enabled by technology, and how they can be best delivered by their own staff in tandem the workers contracted to their outsourcing partners.

We've taken the data from our 2011 State of Outsourcing Study and compared it with the same study we ran earlier this year to see where the motivations are shifting across delivery frameworks, whether they be predominantly outsourced, predominantly inhouse, predominantly shared services, or predominantly a hybrid approach:

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Externalization of internal capability still remains a significant objective of most organizations. HfS Research analysis (see above) of several hundred major organizations’ outsourcing behaviors, over the last three years, shows that 45% of companies in 2013 are decreasing reliance on in-house operations, up from 35% in 2011. While interest in pure outsourcing has slid from 70% in 2011 to 59% in 2013, 62% of companies in 2013 are looking to build hybrid shared services and outsourcing operating models. This clearly tells that, while externalization of operations is increasing, enterprises desire operating models that encourage inter-company collaboration across the base of external partners.

The Six Tenets of Sourcing 2.0

So how can today's middle and upper managers approach sourcing in today's environment to find new thresholds of value?

1)    Value is created by collaborating with multiple providers

The first major shift with Sourcing 2.0 is that value can no longer be generated solely by a single company. In fact, value in the future must be leveraged by an extended value chain of services provided across marketing, human resources, finance and the business units. Successful companies of the future must actively collaborate to identify mutual sources of value.

2)   Innovative services are inspired by some providers' creativity and investments

The second major shift is that a company’s providers have an onus to innovate on behalf of their clients in order to win their business. Today's enterprises simply cannot create every innovation for every function, process and technology. They are becoming increasingly reliant on their providers’ investments and creativity to drive value for them. The challenge, of course, is on the enterprise executives to build the right alliances that encourage their providers to deliver innovation in the areas they need it most. Today, the vast majority of companies are failing miserably at communicating their strategic needs and encouraging their partners, or potential partners, to meet them. When it comes to funding, few enterprises are willing to invest in either their internal or external resources to improve their provider relationships. Instead, their managers persist in grinding their providers’ prices lower and lower. How can companies expect to achieve innovation from their providers when the benefits are not shared or funded?

3)    The flow of data across the operations value chain creates invaluable IP with which providers can arm their clients

The third major shift is the massive amounts of data and IP embedded into processes that is increasingly transferred outside of enterprises, or even owned by providers. With increasingly large networks of providers, data flows across an enterprises' entire operational environment is becoming increasingly complex to manage. Highly proprietary data frequntly flows through shared services centers, internal business units and across the various interfaces of the externalized operations being managed by the service providers. The question of intellectual property ownership is increasingly being tested as providers’ inventions are used to drive client value.  Moreover, enterprises need to develop capabilities that create a visibility of processes to manage risk and compliance across their internal and external operational partners.

4)    Enterprises must treat their providers as strategic partners and judge them on capability, as opposed to merely being low-cost

Providers have become integral to the success of the smart enterprise.  They need to play a major role in driving the capability and productivity of the people that remain in their clients.  They need to have a meaningful impact on the operational effectiveness of their clients' business, but their clients have to treat them fairly and engage them as an extension of their own enterprise, as opposed to the "master/slave" model of Sourcing 1.0.  Successful enterprise managers view alliance-building as more than a contractual document and more powerful than cross-functional team facilitation. Pulling together a disparate set of executives across various internal and external entities and encouraging them to team together to improve the competitive nature of their enterprises is a critical capability for the successful operations leader.

5)    Operations executives must align themselves with the front office of the enterprise. The need for creative thinkers, who can act as peers to senior stakeholders and can understand and influence their businesses’ needs, is a pre-requisite for today's workplace. Operations executives must be more commercially-orientated to the business needs in a way that better achieves corporate objectives.  This is already happening in IT, for example, where many CIOs are being put in revenue-generating roles where they need to talk to customers and be much more aligned with their product marketing and sales teams.  Many “old-school” CIOs are finding themselves quickly being cast aside as their companies look for innovators leading their business functions, as opposed to “operators”.

6)    Enterprises must shift their negotiation focus to collaborative deal-making. Collaborative deal-making must over-ride the ability to grind every last penny out of providers in negotiations. The Sourcing 2.0 skillset requires a shift of focus toward maximizing the size of the entire pie to the benefit of all participants.  Smart operations leaders need to learn the capabilities of their providers better in order to create contracts that inspire co-investment an co-learning from both parties.  For example, helping providers develop technology and IP that can leveraged across their client base is a smart way for many enterprises to benefit from innovation investments without paying exorbitant consulting fees.   On the flip-side, if the provider only really operates with a low-cost, standard-value model, then the buying organizations needs to make a strategic decision whether cost trumps long term value for the services in questions.

The Bottom-line:  Executives ignoring the Tenets of Sourcing 2.0 run the risk of Extinction

Lets not make any bones about it - there is an increasingly large number of former middle and upper management entering the job market today realizing that the 30 year career job is fast becoming a thing of the past.  The last 20 years if outsourcing has essentially created a culture of externalizing staff where possible, as companies simply do not want to employ hundred upon thousands of people to turn widgets, write code, scan documents, cleanse data, run reports etc.   Now many of those tasks have been externalized, the onus has shifted to the next layer of staff upwards to prove they do more than run operational tasks, that can easily be replaced by others for half the wage (or even less).  Operations executives running business functions have to get smarter about how they source their work and drive value into their businesses.  In most cases, there won't be a rule book published entitled "Steps to get more valuable in your organization", you just have to figure it out for yourself!

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



Replay of "Outsourcing is DEAD! Long Live Outsourcing..."

June 27, 2013 | Phil Fersht

Firstly folks, apologies for the dramatic title, but it certainly worked - we had a record 1,400 participants tuning in to yesterday's webcast, to discuss the key findings of the largest-ever global study of enterprises' outsourcing intentions and dynamics, covering 1,355 industry stakeholders, which we conducted with the support of KMPG's Shared Services and Outsourcing Advisory group.

A hat-tip to to KPMG's Dave Brown and Stan Lepeak for their excellent contributions to the discussion.

As per usual, we're sharing our collective learning and data with the industry, along with the replay

Click here for the replay & Click here for the slides. Enjoy!

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



Why American firms are more progressive with outsourcing than the Europeans and Asians

April 18, 2013 | Phil Fersht

Why is it always the Americans at the head of the queue when it comes to increasing quarterly profit margins?  But, even more intriguingly, why are they also leading the way when it comes to attempting to improve their capabilities when they outsource?  Our recent State of Outsourcing Study 2013, conducted with the support of KPMG, clearly shows the differing mission-critical business motivations across the main three global regions, when it comes to ITO/BPO:

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So, in our true style of insulting everyone from every continent with sweeping generalizations, let's take a closer look:

North American Enterprises:

Simply put, these firms are a lot more experienced with outsourcing IT and business processes, and a good proportion of them are today showing a good deal of maturity as a result.  Much of this is because outsourcing has traditionally been a game for the large corporates to play... and most of the large corporates are based Stateside.  Moreover, the biggest "lever" of attractiveness over the last

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



Cheap and cheerful: Is this really as good as it gets for IT Outsourcing?

March 17, 2013 | Phil Fersht

Newsflash... Enterprises reduce costs by outsourcing, but struggle to achieve little else of value.  Well, on the surface, this would still appear to be largely true, but when you rummage even deeper under the covers, you'll soon discover it's more the legacy IT outsourcing deals which are still all about low-cost bums on seats, while we are actually seeing a few chinks of light with BPO that could resemble what we've been searching for since we started this damn blog... value beyond cost (gasp!).

So industry has spoken:  399 enterprises, (two-thirds of which have revenues over $3bn) recently took part in our 2013 State of Outsourcing Study, conducted with the support of KPMG.  And one chart, above all others, again illustrates the familiar frustrations outsourcing brings, better than any others:

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So what do we read into this data?

Outsourcing achieves its table-stakes goals and makes some progress providing value. On the strong positives, enterprises are achieving success when it comes to meeting their cost targets, globalizing their operations and even standardizing processes.  In fact, barely one-in-seven can claim to be actually dissatisfied with their meeting these goals to-date.  Also quite encouraging, is the fact that the majority of enterprises are achieving positive outcomes with higher-value areas, namely accessing capable talent and transforming processes, even though these are largely modest results for most enterprises.  Considering most buyers venture into outsourcing seeking these initial "table-stakes" goals of cost-reduction, global scalability and process standardization, you have to give a healthy thumbs up to those providers and buyers for achieving these initial objectives.  However, can today's ambitious enterprises really turn around and claim they are happy with basic, operational success in today's economy, or do they want to seek to move beyond ordinary?

Outsourcing is falling short when it comes to innovation and analytical value.  With all the puff

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



Why the mid-market is the mother-in-law of outsourcing

March 09, 2013 | Phil Fersht

I want the best SaaS platform, some great BPO and a bunch of data scientists...

When it comes to outsourcing, dealing with the middle-market has been somewhat akin to dealing with the mother-in-law:  can be awkward to deal with, very hard to please, and always has complex demands on your patience and resources.  However hard you try, defining and delivering a solution that can deliver the outcomes you both want seems like the impossible nirvana.

However, as the wise ones among us have now discovered, winning over the mother-in-law goes a whole long way to achieving future happiness.  What's more, those of you who have avoided addressing the mother-in-law's demands will soon regret it...

However which was you look at it, many of today's middle-market firms are going to be the F1000 of the future.  What's more, most are seeking technology and sourcing solutions that can drive nimbleness and cost-effectiveness, as they simply do not have the prodigious people and technology resources within their IT, finance, HR, marketing and supply chain operations to manage their evolving needs. In fact, many of them can't afford the top talent to run their operations, and those providers which can deliver it are already in high-demand.

Let's examine what 399 enterprises had to say about their mission-critical objectives driving both ITO/BPO decisions in today's market.  It's already becoming abundantly clear that high-end businesses today, unlike their mid-market counterparts, are focused primarily on cost-reduction when outsourcing, as opposed to investing in new solutions and capabilities that providers could (and really should) bring to the table:

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Why aren't today's providers winning over their mothers-in-law to grease the wheels for their future success?

So... if most the providers are promoting their wondrous capabilities in terms of talent, technology and analytical capability, why aren't they targeting those clients who actually want those capabilities:  the middle-market firms?

Providers are set up for high-end enterprise deals, not the mid-market. Sadly, most of today's

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



If outsourcing were an employee, it would be fired... Part 1

February 17, 2013 | Phil Fersht

Lee Coulter is... Lee Coulter (click for bio)

The first time I spoke to Lee Coulter, I was an analyst at the old AMR Research (now Gartner) and managed to get him on the phone, where I hoped to convince Kraft's global überlord of shared services, IT and outsourcing to spend a day at a roundtable I was organizing.  "You've got 5 minutes to convince me why I should invest my time with you", was his response. I knew straight away this was a guy who didn't like to xxxx around.

Since then, Lee has been a great friend in helping us establish the HfS Research organization three years ago, in addition to lending his time and support helping us assemble the most irresistible community of senior sourcing practitioners.  For those of you attending our dreamSource summit this Spring, Lee and I will co-host a session entitled "If outsourcing were an employee, it would be fired".  Lee, who today has built and now leads shared services for heathcare provider, Ascension Health, caught up with us last week to talk about the session and why we called it just that...

Phil Fersht (HfS Research):  Good morning Lee - a pleasure to get you on the line today. You’ve been a well known figure in sourcing shared services and outsourcing world for quite a few years now.  Can you tell us a bit about your background and how you got to where you are today?

Lee Coulter (Ascension Health):  Sure, Phil, I guess it goes back quite a ways!  Originally, I guess I was starting my career in what wasn’t really an outsourcing or shared services configuration. Actually as a delivery guy, I was a service engineer delivering services to hospitals and health systems. Twelve years, later I had moved from delivering services for diagnostic imaging equipment

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