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Category Archives: HfS Surveys: State of Outsourcing 2011

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

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Happy birthday, Dodd-Frank!

July 21, 2012 | Phil Fersht

Whoever said we weren't stimulating new growth in the professional services industry?

Every few years there comes along a piece of regulation, or enforced change, from which hoards of management consultants, service providers and tech companies can prosper.

The Y2K bug created an unlimited ATM for the whole software and services industry, and the infamous Sarbanes Oxley which created more audit partners than eHarmony. And just as you thought that well was running dry, we now have Dodd-Frank Act, designed to:

"Promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes."

With Michael Koontz, our new lead analyst for banking and financial services, now fully bedded-in, he's found half his time is already being spent talking to clients about how to get ahead of these new regulations.  Let's hear his initial thoughts...

Dodd-Frank turns Two

Please join me in wishing Dodd-Frank “Happy Birthday.”  This is the largest financial reform act in U.S. history, amassing 884 pages when it was finally signed in 2010, designed to enforce the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.

Dodd-Frank was implemented to address the financial services meltdown, that began back in 2007.  In the political aftermath, Regulators were quick pass this legislation which has now morphed into

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Posted in: About UsBusiness Process Outsourcing (BPO)HfS Surveys: State of Outsourcing 2011

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Which industries are more inclined to outsourcing versus shared services?

March 05, 2012 | Phil Fersht

Our recent State of Outsourcing study, conducted with the Outsourcing Unit at the London School of Economics, has revealed that nine out of every ten enterprises will be increasing or maintaining their reliance on either, or both, outsourcing and shared services over the next three years.  The key is to identify, at the industry level, what factors are influencing these increasingly aggressive approaches to global sourcing strategy.

The study has uncovered many home-truths about why some organizations are more motivated to externalize their support operations to third-parties, while others prefer to focus on their own shared services investments. We can also evaluate organizations within specific industries that are seeking to assign equal significance to both outsourcing and shared services as they pursue a holistic governance framework across both models.

So we've taken a closer look at how 250 large organizations, with annual revenues greater that $1 Billion, are intending to make significant planned investments in either, or both outsourcing and shared services models over the next three years: 

It's plain to see that it's organizations within those industry verticals experiencing fundamental shifts to their economics, which are more prepared than ever to admit they need to look outside of their current organizational boundaries to keep their business operations competitive. Simply-put, secular changes to industry environments are crystallizing options for businesses and driving more radical and actionable behaviors from executives under pressure to deliver continual productivity improvements. The radical impact outsourcing can potentially have on business performance is clearly becoming more attractive to those businesses in the throes of tackling fundamental challenges and opportunities to their business environments.

Buyers are getting savvier at focusing their outsourcing plans to improve their competitive advantage

Increasingly, we are seeing a realization that retaining some processes internally isn't – in any shape of form – bringing organizations a competitive edge, and these sourcing decisions are no longer only about cost – they represent a fundamental change in the way business leaders now view outsourcing as an integral function of their operations.

For example, many of today’s leading banks do not lead their markets because they process mortgage applications better than their competitors.  Their management teams typically prefer to find a services partner to process them at lower cost, using industry-standard process flows and technology, while it focuses its internal competencies on business functions that can help the bank gain marketshare, such as smarter customer targeting, or upselling new product through customer support channels etc.

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHfS Surveys: All our Survey Posts

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The undisputed facts about outsourcing, Part 8: Industries experiencing secular change have more aggressive outsourcing plans

August 29, 2011 | Phil Fersht

Our recent State of Outsourcing study, conducted with the Outsourcing Unit at the London School of Economics, has been uncovering many home-truths about why some industries are more motivated than others to externalize their support operations to third-parties.  

However, one factor that is continuously being reinforced, is that those organizations being impacted by radical, fundamental shifts to their very industry economics, are more prepared than ever to admit they need to look outside of their current organization boundaries to keep their business operations cost-competitive.  Simply-put, secular change crystallizes options for businesses and the outsourcing planning process often becomes more clear-cut as a result.

Buyers today are figuring out where to focus their outsourcing plans to benefit the core business

Increasingly, we are seeing a realization that retaining some processes internally isn't - in any shape of form - bringing organizations a competitive edge, and these sourcing decisions are no longer only about cost - they represent a fundamental change in the way business leaders now view outsourcing as an integral function of their operations.  For example, does a bank lead its market because it processes mortgage applications better than its competitors?  Or would its management rather find someone else to process them at lower cost, using industry-standard process flows and technology, while they focus internal competency on business functions that can help them gain marketshare, such as smarter customer targeting, or  upselling new product through customer support channels etc.  And does a retailer really need to maintain its entire application portfolio inhouse, when it can devote its internal talent and IT resources to improving its customers' online shopping experience, where it can actually grow its business?

Today's buyers are getting a lot smarter at figuring out how they can improve their organizations by using the resources and knowledge available through third-party relationships.  Examining plans to outsource over the next three years reinforces this mind-shift:

The Secular-Shifters: Gearing up with long-term aggressive outsourcing strategies

 The five most bullish industries planing significant increases with outsourcing, are not only basing their planning on their proven, ongoing cost-reduction outcomes (see Part I), but also because the fundamentals of their industries have dramatically shifted in the recent past, for example:

  • Entertainment, media and publishing: The crash of newspapers and network news; The Web 2.0 impact; Radical new distribution and business models.
  • Software and Hi-Tech: Rapid commodotization of packaged software models; Impact of Cloud computing on licensing and pricing dynamics; Dominance of India, China and other low-cost nations to drive out the cost of development;  Willingness to "Eat their own dog-food" as providers of outsourced services themselves.
  • Energy & Chemicals: High price volatility for oil products; high capital costs of oil exploration projects;  Shortages of talent;  Aging infrastructure and constantly-changing compliance requirements.
  • Banks: Massive de-leveraging; Re-regulation; Unprecedented debt/credit pressures.
  • Insurance: New compliance measures (Solvency II, ObamaCare) causing unprecedented administrative cost and workload; Shortage of risk analysts and actuaries to take on the higher level work.

There are just a few examples of major industries, being shaken to their very foundations, where we can reel off secular shifts driving unprecedented demands on organizations to remain profitable. Is it any coincidence that it's these industries that are today being the most aggressive with embracing third-parties to redefine their global operations?  Secular changes drive bolder,

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

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The undisputed facts about outsourcing, Part 7: Service-culture is the new differentiator

July 21, 2011 | Phil Fersht

Our new study of 1350 outsourcing industry stakeholders, conducted with our friends at the Outsourcing Unit at the London School of Economics, continues to reveal home-truths about what's really going on in the business.  Quite alarmingly, we can also reveal that many providers are not entirely in synch with what their customers actually want from them.

We asked  a cross-section of buyers with significant influence over outsourcing decisions, to reveal the critical attributes they seek in a provider. At the same time, we asked providers what attributes they believe their clients deem critical.  And  - guess what - their are significant gaps between what clients want and what providers think they want:

Providers are underestimating the importance buyers (34% compared to 49%) are placing on their ability to help address their change management and governance challenges.  This indicates a significant communication problem is going on in industry - buyers are clearly realizing they need a ton of help and are actually looking to providers to deliver it.  We believe some providers are simply unaware of the extent to which buyers are concerned about these issues, and are over-focused on being price-competitive, demonstrating operational delivery capability and risk mitigation.

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHfS Surveys: All our Survey Posts

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The undisputed facts about outsourcing, Part 6: Europeans love money, but hate change

July 18, 2011 | Phil Fersht

The one thing that has always baffled me about the European Union, is how they try and unite a hodge-podge of countries which despise each other, when all they really want to do is carry on doing things their way and never take orders from anyone.  

They clearly have three goals within the EU:

1. To make pots of money from that expensive Euro (what a great excuse to raise the price of a coffee from 50 cents to $10);

2. To have a powerless European governance system and keep things exactly as they have always been at the local level;

3. To beat the Americans at golf  every two years (even though the Irish don't need any continental help in that regard).

And when you look at the individual outsourcing intentions of continental Europeans versus the other regions, from our new study that we just conducted with the Outsourcing Unit at the London School of Economics, exactly the same philosophy seems to apply:

 

So what's really driving outsourcing decision-making across the world?

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Posted in: Business Process Outsourcing (BPO)HfS Surveys: All our Survey PostsHfS Surveys: State of Outsourcing 2011

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The undisputed facts about outsourcing, Part 5: Decision-makers increasingly reliant on peer-networking and research than traditional channels

July 03, 2011 | Phil Fersht

As outsourcing becomes increasingly commonplace, buyers are relying more and more on their own means by which to make tough decisions.

In the past, outsourcing was still a unique, foreign and scary activity, and it was always easier for buy-side executives to bring in consultants to make their decisions for them - especially as there were so few trusted data-points and information sources widely available in the industry to support decision-making.  Executives didn't want to get fired for making bad decisions.  However, today they know they'll get fired for the wrong decision regardless of who made it - whether it was theirs' or McKinsey's.  Mess up outsourcing and your head will be on the block in no time - it's not like an ERP implementation that can take years for everyone to figure out what was going on, by which time the original selection team had already left, in any case.

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

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The undisputed facts about outsourcing, Part 4: Mid-market buyers are enjoying better outsourcing outcomes than enterprises

June 16, 2011 | Phil Fersht

Outsourcing is like ripping off a Band-Aid.  Do it slowly, it's a slow and painful experience.  Do it quickly, and the pain is gone before you know it...

Outsourcing of IT and business process has always been a game for large enterprises, where well-executed large-scale employee transitions have resulted in profitable endeavors for both providers and buyers.  But while the large buyers like saving the money (see Part 1), it’s actually the mid-market sector ($1bn-$3bn revenues) which is getting a lot more out of the experience:

This graphic shows where outsourcing has been very effective for organizations.  And the mid-market buyers have been enjoying considerably more success in every area – from cost reduction through to global effectiveness, through to getting better business process improvement and technology.

HfS believes much of the reason for this is that mid-market buyers are forced to jump into outsourcing more aggressively to attract a quality provider, which, in turn, is forcing them to transform their operations much more rapidly to incorporate the provider's global delivery infrastructure.  Let's examine this further...

Why mid-market buyers are enjoying more successful business outcomes when they outsource

Mid-market firms appreciate the global scale, expertise and process acumen providers bring to the table

In the mid-market, organizations are less well-resourced – they often have legacy IT and can’t often afford to have well-paid top-notch finance, procurement, HR and operations talent.  Hence, having skilled service providers take on their stuff has been – by and large – a positive experience for them.  Their bigger counterparts tend to have more sophisticated ERP and empires of IT, finance, procurement and HR.   When the large firms outsource, they don’t really want to change the way they do things – they simply want to run them the same way at a lower operating cost. While a mid-market organization may not wield the same level of aggressive cost reduction through large-scale labor arbitrage as larger enterprises, they clearly enjoy the benefits of accessing improved technology and process expertise.

Mid-market buyers initially outsource a greater proportion of their staff and processes to make the economics work, which is leading to more positive business outcomes

Enterprises usually have a lot more staff supporting business functions, and many of them are today outsourcing in increments, perhaps starting, for example, with accounts payable, before extending to receivables, reporting, procurement and analytics.  They are large enough to be able to dictate to suppliers their preferred pace of outsourcing.  Many mid-market firms may only have, for example, 150 people in finance and 25 in procurement.  They're pretty much going to have to bundle as many staff into the first deal to attract a top tier provider and don't have the "luxury" of outsourcing step-by-step.

Moreover, the fact that most of the mid-market buyers have to outsource more processes and staff faster correlates with the increased satisfaction ratings - a more rapid transition to an end-state clearly helps drive transformation and improvements in process.

Many enterprise buyers are outsourcing in an incremental fashion, which doesn't encourage business transformation

Large enterprises continue to dominate the lion's share of current outsourcing activity - because they are tending to outsource in smaller increments which, in turn, is inhibiting change and encouraging them to muddle through with their existing processes, which are often inefficient and not very effective in a global outsourcing delivery model.

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

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The undisputed facts about outsourcing, Part 3: With outsourcing demand at unprecedented levels, can new buyers get across the finish-line?

June 12, 2011 | Phil Fersht

Outsourcing is a cyclical business - when economies nose-dive, organizations batten down the hatches and wait for the uncertainty to clear, before making decisions that are longer-term in nature and potentially disruptive to the business. Recessions drive short-term behaviors, namely immediate cost-cutting, re-orgs and layoffs. Hence, shaking up the finance, HR and procurement functions with complex, stressful outsourcing initiatives could well detract from the short-term tactical measures to ride-out the economic misery.

Having come through the worst Recession since the bubonic plague, it's little surprise that much of the outsourcing energy dissipated between 2008 and 2010.  Lots of low-risk application development and support work was moved to low-cost providers during this time, as it fitted the "cost-out-quickly with minimal disruption" mentality of many organizations. Consequently, many enterprises still operate their core general and administrative work much the same way they've been doing for the last decade or more, and most business function leaders know they have to change.

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

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Nobody doesn't like Sara Lee... and everyone loves an iPad 2

June 08, 2011 | Phil Fersht

If you participated in our State of Outsourcing 2011 survey (see here and here), you may have been anxiously monitoring your inbox for a notification that you'd won the iPad 2. Well, the anticipation is over, and we can announce that the winner of the drawing is Stephen Kincanon, Vice President - Shared Services at Sara Lee Corporation. Congratulations, Stephen!

We managed to get a moment to talk with Stephen once he'd settled down from the excitement...

iPad 2 winner Stephen Kincanon, Vice President of Shared Services at Sara Lee Corporation

HfS Research: Congratulations Steve on winning the iPad 2.  Can you share a little about your role and your involvement with outsourcing?

Stephen Kincanon: At Sara Lee, I am responsible for shared services for North America and the overall relationship with our BPO provider (IBM).  As related to outsourcing, I was involved in the business case development, RFI, RFP, vendor selection and transition of Sara Lee's activities to the BPO provider.

HfS Research: Based on your experiences to date, what would you say are the biggest opportunities and challenges for today's organizations looking at moving into a global outsourcing business model?

Stephen Kincanon: I believe one of the biggest challenges for today's organization is making sure there is flexibility with your BPO provider due to the number of changes within the organization such as mergers, acquisitions, divestitures, restructuring, etc.  Having a provider that is willing to work with you during these time is critical to the success of your outsourcing and shared services.

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

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