Are you achieving sourcing success for your finance function? Click to take part in our survey

Members of the ACCA global membership and HfS Research’s own network of finance and sourcing professionals are being surveyed over the next couple of weeks across organizations of all sizes, industries and regions.

We will gain an unprecendented global picture of finance and accounting sourcing from well over 1000 organizations:

• What CFOs and senior finance executives really think about shared services and outsourcing;
• How organizations’ adoption patterns of finance and accounting sourcing are differing across industry sectors and countries;
• What are the experiences of  finance professionals to date and how they rate their sourcing performance in terms of both cost control and productivity improvements;
• Whether today’s finance functions are realizing finance transformation improvements with the right level of finance talent and technology they need;
• Whether finance leadership’s business objectives are being met by a shared service or outsourced finance delivery model – and have these business objectives changed since they started on their transformation journey;
• How finance leaders are measuring sourcing success.

Does your organisation use finance shared services or outsourcing? If so, we would like to hear from you.

Your feedback will be aggregated with that of others and will be a key input into our series of research and insights looking at finance transformation by both ACCA and HfS. At the end of this survey we welcome you to register for a copy of the report findings from this survey and enter a free prize draw for an iPad 2 as a thank you for time and feedback.

Please click here to take the survey

Wonder if I'll get an invitation to Nasscom?

As per usual, election year brings up the age-old argument about how to combat the “threat” of outsourcing.  However, let’s not forget this is nothing new..I recall in 2004 when an HR Outsourcing conference was subjected to a vociferous demonstration by anti-outsourcing protesters  (I mean – seriously  - HRO?  Most of it is onshore in any case).

Today’s angry hoards of protesters are (and quite rightly so) expressing anger at the obscene wealth generated by Wall St, and barely even notice the fact that real “American” companies, such as Apple, employs 500,000 people in Chinese factories and that lovely “American” Hanes underwear brand employs thousands of people in Vietnamese sweatshops.

Yes, the argument is boring, flawed and jaded, and while politicians need to be seen to be against it, they do little to prevent it.  However, one major stride of progress that Obama emphasized during his recent State of the Union speech has been how the US automotive industry has been brought back from the brink:

“This blueprint begins with American manufacturing. On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.

“We bet on American workers. We bet on American ingenuity. And tonight, the American auto industry is back.

“What’s happening in Detroit can happen in other industries. It can happen in Cleveland and Pittsburgh and Raleigh. We can’t bring back every job that’s left our shores. But right now, it’s getting more expensive to do business in places like China. Meanwhile, America is more productive.”

Why is the experience of the resurgent US automotive industry significant to resurrecting its flagging IT industry?

Let’s not beat around the bush here.  The US onshore IT industry has ceded much of its dominance to India in recent years.  While three-quarters of ERP development work was performed onshore in 2008, the proportion has today decreased to 65%:

I’m not going to get into the tedium of this latest wave of toothless “protection” acts aimed at creating tax incentives / disincentives, and other various penalties and inconveniences for US organizations which dare to employ foreign labor outside of the country to service their business operations and manufacture their wares.  Simply put, there are already US IT services firms, such as Systems in Motion,  pushing services at US enterprises with wage rates comparable, and often even cheaper, than those of Bangalore – especially those which leverage resources in low-cost onshore locations such as Michigan.  And while some niche onshore providers are finding pockets of business and growth for themselves, you can’t ignore the bigger picture that the US onshore IT industry is on the decline.  At HfS, we’ve even seen enterprises actually declining to use onshore US IT services firms which underbid their Indian competition, because many of these buyers of services are so invested in the Indian IT brand.  Today, many senior IT executives within US organizations actually prefer to invest in their Indian IT relationships than their US ones!

The Bottom-line:  It’s time for government to help re-brand US IT services

While the US IT services industry is nowhere near the state of distress that the US auto industry found itself during the last Recession, isn’t it now clear that the only way for the government to stimulate the success of its onshore industries is to invest in them, to aggressively help them, to encourage them to hire locally with real investment? By investing so heavily in their automotive industry, they also re-branded the entire American automotive business. Nothing’s worse than a business in financial decline, and by giving automotive a helping hand, they also improved the perception and credibility of the entire US automotive industry.

The Chinese and Indian governments, as examples, constantly invest in their local business to help them grow and be successful – so why can’t the US government do the same for its flagging IT industry, that it did for automotive?

I, for one, would be happy to see my tax dollars being re-invested in stimulating local industries and job creation in growth industries like IT services and Cloud computing, BPO, social media and medical research, so why not follow the example of how the US automotive industry was salvaged and do the same for IT?  Invest in some local companies… hire train and their local workforces to support our organizations’ IT systems.  Small measures never work, waste everyone’s time and allow our more aggressive foreign counterparts to advance further ahead in industries such as global IT services. Isn’t now the time, in an election year, to stop the rhetoric and actually make commitments to growing local industries that have a direct impact?

Two years into its $6.4 billion acquisition by Xerox, management has finally decided to phase out this famous old brand… HfS Research’s Tony Filippone and Phil Fersht take a closer look into why Xerox brass has now decided to do this, what it means to this heritage business, and where it needs to focus in the future to strengthen its market position.

ACS finally gets its re-brand as Xerox zeros in on integrating the businesses and cultures

Corporate-naming consultants must have pitched ACS a dozen better names, but none better than the one it interred today. The fact is, straight-talking ACS has never spent the billions its competitors have on branding. In fact, even their unremarkable logo remained nearly identical for the company’s 24-year history. All this makes us believe that today’s announcement that ACS will now market itself as Xerox, rather than “ACS, a Xerox company” is a sign of opportunity and synergy.

As its branding has reflected and its customers know, ACS’ success is not because it is smarter than everyone else.  Rather, ACS simply outhustles its competitors. Its Midwest American values make the company the likeable, down-to-earth service provider that gobbles up government deals one after the other. Moreover, it is focused on technology-based outsourcing solutions, not headcount. Its vertical experience is a marvel, with strong positions in government, healthcare and financial services.

The acquisition announcement had analysts everywhere wondering exactly what the offspring of a toner cartridge mother and a call center father would be like. Mixing this capability with Xerox’s traditional business has clearly not been easy. Our discussions with buyers suggest that Xerox’s aggressiveness has put off clients who don’t want to hear sales pitches, while Xerox’s recent acquisition of the Breakaway Group indicates that Xerox is supporting ACS’s industry-focused approach. However, we’ve also heard that Xerox’s rigid financial management process at times conflicts with clients’ needs for flexibility.

When the acquisition was announced, it was obvious that Xerox saw Dell’s Perot acquisition and HP’s EDS acquisition as examples of technology manufacturers entering the services business. “With ACS, we take another step forward, expanding our leadership to include business process outsourcing that helps simplify document-driven work,” claimed Xerox CEO Ursula Burns at the completion of the acquisition.

Well, a lot has happened over the last few years that shows just how difficult corporate transformations can truly be:  IBM’s transformation from a manufacturing company to a services organization continues to much ballyhooed success, HP’s public leadership brouhaha has held the firm back, and Dell Services (formerly Perot) continues to grow, but it’s clear that Dell remains a technology product organization.

Xerox’s 2011 Q4 earnings release held a mixed bag as it relates to services revenues. While its BPO earnings increased 8 percent, its ITO earnings dropped 6 percent. When compared to its competitors in the BPO arena, Xerox has slipped further from the top tier into the middle of the bunch since the Xerox buy-out.  Accenture and Infosys’ recent quarters featured increases of at least 20 percent in outsourcing revenues, while IBM showed a 3 percent improvement and HP stayed flat.

The easy story this tells is simple: printers and ink relationships aren’t going to win you an outsourcing engagement given the aggressive ADM marketplace and sophisticated sales approaches of their competitors.

The harder story to decipher is the development of the marketplace for document management outsourcing. While companies clearly don’t want to print more, they certainly want to redesign processes in a manner that eliminates the need for documents to manage. Based on numerous discussions with buyers, we’re confident that buyers want to redesign their processes to reduce the source of costs, instead of simply managing them more cost efficiently. The question is how Xerox will cope with the more complex projects this shift generates.

The Bottom Line: The hard work starts now for Xerox

Having two names confused the marketplace and hid any synergies from view. Having one name suggests that there aren’t two different teams providing services to buyers (buyers hate multi-party deals and the politics they cause). The elimination of the ACS brand will clarify Xerox’s account management strategy and should encourage groups to continue to work together. Xerox also needs to complete the naming soon and eliminate the decision to keep the ACS brand in Asia Pacific. This sort of decision confuses the marketplace of global buyers.

Xerox needs to pursue the vertical focus that its competitors, such as Cognizant, have mastered. Xerox has long maintained a geographic focus, but they need to refocus on global industry leadership as ACS does (did). The elimination of ACS’s brand is one step down this path, but it would be a mistake to stop here.  Xerox should organize its services team by vertical and focus its effort on strengthening vertical expertise through acquisition and internal development (Xerox is well-known for its R&D capability).

Document management isn’t a growth horizontal, it’s a cash cow. If Xerox wants to demonstrate leadership, it will need to develop strong consultative skills to help clients alleviate their reliance on documents as part of solutions. Positioning ACS’s industry leaders and improving their internal thought leadership is a critical step. Hard work is important, but this effort takes the type of intelligence the Indians love to exhibit – and Xerox will compete against them heavily. ACS needs to focus on thought leadership to battle the brainy Indians and smart consultant-wielding Accenture and IBM. They need to hire more consultative resources, invest more in their services leadership team, and be bold in their R&D efforts.

Build on ACS’ strengths in healthcare, government and financial services.  Xerox needs to bring more consultative skills and technology to the table, beyond what it inherited from ACS. While its competitors are hurriedly investing in developing business platforms that combine their business process and technology (Cloud) capabilities, we are yet to see Xerox put a stake in the ground to develop solutions beyond document management that can set the industry alight.

Revitalize ACS’ horizontal BPO businesses.  While ACS’ position in F&A BPO has slipped in recent years, it has a great chance to leverage the Xerox brand and significant customer base in document management to open up more client conversations and opportunities.  Adding more consultative capability in finance transformation would help elevate Xerox’s differentiation  from much of the competition- solely relying on brand isn’t going to fly for many customers.  Xerox has also inherited a stellar HR outsourcing capability, with the respected Buck consulting division helping cement its position in the market in recent years, while also developing a strong business line in benefits administration services. Like F&A, Xerox needs to give its HR business plenty of investment in terms of sales acumen and market awareness, but is well positioned to challenge for market leadership with many of the leading HRO providers struggling to grow their businesses in today’s environment.  Procurement BPO is also a market where Xerox has a belated opportunity to make a push, with such strong internal manufacturing competency, but needs to make some specific investments in platform development, category expertise sales and marketing to make up for lost ground against the likes of IBM and Accenture.

Its ITO business needs a serious overhaul. Losing revenues in a growing market indicates a real weakness. While ACS still had a strong ITO business two years ago, today’s ITO environment is too commoditized to be a “me, too” player. Xerox needs to differentiate its ITO offerings through development of business platforms, build on its strong US domestic capabilities, get aggressive in search of strong acquisitions (such as Genpact’s acquisition of Headstrong), or exit the business. ITO cannot be built on the back of toner cartridges and multifunction devices, while other service providers show aggressive tenacity to win marketshare.

Xerox has a market awareness problem when it comes to services.  When you talk to Xerox, what are you talking to them about?  What is the company focused on today – are they selling a machine or a business platform?  Xerox needs to develop some real thought leadership in the markets it chooses to go after.

And for those of you who can’t be bothered, here were the main points of note:

* SOPA/PIPA have worthy anti-piracy goals, but are highly problematic in technological, political, legal, and commercial terms. They would shift considerable cost and liability for policing copyright-infringing websites and links onto businesses that aren’t engaged in piracy.

* SOPA/PIPA reflect the media & entertainment industry’s latest effort to assert control over the Internet as a content distribution channel. This is fundamentally at odds with how consumers and businesses now use it, and would crimp many valuable, legitimate commercial uses of the Internet, not just piracy.

* The many objections to SOPA/PIPA demand a smarter, more technologically-savvy, less one-sided approach to fighting piracy than this onerous legislative one. Better enforcement of existing copyright laws and pursuit of new entertainment-industry revenue models were among the panel’s suggestions.

• YOU (the taxpayer) would help foot the cost of policing our blogs (they’d have to hire an army of administrators), and if we got a complaint, we could be shut down while we fought it out in court;
• HfS would have to monitor closely every comment on every blog post to make sure it didn’t link to anything infringing, or we could be blacked out… we can already sense our competitors rubbing their hands with anticipation. 

So, without further ado, here’s our security analyst, Jim Slaby, explaining why this legislation is akin to cracking a walnut with a sledgehammer…

If you were surprised to find Wikipedia offline yesterday, you weren’t alone: many Internet users were unaware of the widespread one-day online protest against SOPA and PIPA, two bills before the US Congress designed to fight online media piracy.  Participation ranged from outright shutdown to the display of prominent protest messages or symbols. High-profile players included Wikipedia, Craigslist, Google, and many media sites, but thousands of other less-trafficked sites also participated.

What got them up in arms? The Stop Online Piracy Act (SOPA, the US House of Representatives’ version of the bill) and the Protect IP Act (PIPA, the US  Senate version) are aimed at curbing online piracy of movies, TV programming, music, and other copyrighted content. Largely written by lobbyists for the RIAA, the MPAA, professional sports organizations and media conglomerates (Sony, ESPN, et. al.), its aim is laudable: ensuring that the artists that create original content, broadcasts of professional sporting events, and the companies that distribute them get paid for their work. We at HfS Research feel the sting of piracy ourselves  — at least intellectual piracy, judging from some of our competitor’s eerily familiar-sounding reports – but it’s obvious to us that SOPA and PIPA are going about the problem all wrong.

Critics call the implementation of the legislation grossly heavy-handed: it gives the Justice Department the authority to order a blackout (using Internet domain-name filtering) not only of any website accused of hosting copyrighted content without authorization, but worse: any site that links to such a site. With nothing more than a letter of complaint, copyright holders could force payment networks (like Visa and Paypal) to block payments to such sites. If your corporate website has a blog or discussion forum that accepts comments, a link posted by a user in a comment could offend copyright holders.

To quote The Daily Show’s hilarious illustration of the problem, your site could be shut down for some commenter on one of your blogs linking to a YouTube clip of you dancing in footie pajamas to a Beyoncé song while a rerun of the Bob Newhart Show plays mutely in the background on your TV.  (Incidentally, the copyright violation would be the Newhart clip.)

Viewing it in terms of the Constitutional protections of due process and free speech, it’s a disaster: it effectively reverses the hallowed American legal precept of “innocent until proven guilty”. The possibilities for rampant abuse are chilling, as it grants the Feds with virtually unchecked censorship powers. But let’s look at it purely as a commercial proposition. Your corporate website could remain blacked out for extended periods while you fight a copyright suit in court. You’d have to scrutinize every comment posted on every blog or online forum or discussion board on any or your websites to scrub potentially offending links.

For buyers of outsourcing services, you’d have to start renegotiating for contractual protections to ensure that your provider does nothing to get the websites they’re running on your behalf blocked, too. You would have to assume the burden of proof, and all the costs of doing so, to demonstrate that nothing on your websites, and no website any of them even link to, infringe on any legitimate copyright.

James R. Slaby is Research Director, Sourcing Security and Risk Strategies, HfS Research (click for bio)

HfS Research is all for the protection of copyright holders: we gladly pay for our movies, music, and on-demand reruns of The Wire and Deadwood. And we hope our subscribers aren’t giving pirated copies of our reports to their friends. (Come on: we give you tons of great content for free already!) But in essence, this boils down to an issue of digital rights management (DRM), and in the marketplace, that’s a thorny one. Even Apple, with perhaps more power to move the consumer market toward standards than any other vendor – it effectively killed Flash, forcing Adobe to move to HTML 5 – largely threw in the towel on traditional DRM a few years ago.

In the interest of zealously protecting the interests of copyright holders, SOPA and PIPA trample due process, and in turn place far too much of the economic burden for their enforcement on the vast majority of Internet-connected businesses that don’t engage in piracy. Smarter people than our elected officials in Congress, few of whom seem to have a clue about the workings of the “series of tubes” that is the Internet, need to go back to the drawing board on this problem.

And if you want to hear Jim live discussing the SOPA issues on your business, click here.

Jim Slaby (pictured) is Research Director, Sourcing Security & Risk Strategies.  You can view his bio here.

The BPO industry has been going through such a remarkable evolution since the first major deals were cast barely more than a decade ago, that it’s high time we took stock and considered the phases – or generations - through which our industry has progressed.

Mike Salvino is Group Chief Executive, Business Process Outsourcing, Accenture

And there are few people who have lived and breathed these generational shifts more closely that Accenture’s BPO leader, Mike Salvino (or “Sal” to those who know him).  Having begun his career with Accenture’s ITO business in the late 80′s and 90′s, Mike spent time on the BPO front lines with one of the industry’s first pureplay BPO providers, Exult, before leading the HRO sales organization post their merger with HR services giant Hewitt.  Mike rejoined Accenture in 2006 where he led their F&A business before taking full responsibility for the company’s entire BPO function.

We managed to grab a few moments with Sal to discuss these generational shifts in the BPO industry before he had to run off to coach his kid’s basketball team…

PHIL FERSHT: Mike, when we spoke two years ago, our discussion focused on what you termed third generation BPO, which is a vernacular many others in the industry are now using. But I know your thinking and Accenture’s delivery model, has evolved quite a bit since then and you’re now talking about fourth, fifth and even a sixth generation. Please talk us through this evolution and these new and upcoming generations of BPO.

MIKE SALVINO: Third generation BPO, where some of the providers and their clients are a bit stuck, was focused on global delivery of end-to-end processes using either operational excellence or Six Sigma-type techniques on those processes to achieve what I call “silent running.” For the most part, providers can now do third generation BPO, but it’s a very commodity-based business, it’s very price competitive, and very competitive in terms of differentiating yourself as a provider.

So we set out to define what we at Accenture call fourth generation BPO, which is focused on business outcomes, either helping a client increase its revenue or further decrease its costs. To do this, we applied analytics to all the transactions we were processing in our global delivery network. And by looking at the past to try and predict the future and showing real-world examples to our clients, we were able drive tangible business value. Very few providers are delivering fourth generation BPO.

The fifth generation, which Accenture is into right now, is taking the investments we’ve made in the cloud, in analytics, in social media and in mobility and applying them to BPO to build business platforms. Our best example is what we call our Accenture BPO Navigator, which is built in private clouds and allows our clients not only to see the end-to-end service level performance but also the business results and the business outcomes we’re driving for them on a regular basis. Access to the BPO Navigator is also enabled for mobile devices so they can carry it around with them…it makes a big impact in terms of how they are managing their businesses.

But the whole overarching concept around fifth generation BPO is creating a more flexible and scalable delivery model so our clients can really do what for 10 years they’ve been asking for – to start small and scale fast.

Sixth generation is creating learning communities of clients around these fifth generation business platforms using social media technology to create a force for future innovation and a glue between those clients and providers.

If you look at the colored columns in this graphic, you’ll get a solid idea of our perspective on each of the generations:

PHIL:  Mike, my read on this is that you have clients that have been doing this for a very long time, where you’ve been able to help them evolve along this path as they’ve become more mature, more in control, and have more visibility into how they want to perfect their processes. Do you feel the experienced adopters are going to be the first ones to progress to these fourth, fifth and sixth generations, or do you think there are going to be a lot of clients – new to BPO adoption – coming into play?

MIKE:  I think it’ll be a combination of the two. Our existing book of business is the most intuitive group to move directly into fourth generation in terms of business outcomes because they’ve seen us process their transactions for years and they’re asking the same questions we asked when we developed the concept for the fourth generation BPO…what can you tell us about our business, given that you process our transactions every year?

The new clients want to move into it more quickly. I haven’t spoken with a new client that doesn’t want to try to start small, scale fast, and use the latest and greatest technology, whether regionally or globally.

The sixth generation is a very new concept where we invite people into those communities to do business, exchange insights and to further advance the standardized platforms and processes that actually do the work. And while the fourth and fifth generations are realities today, the sixth generation is what we’re shaping now.

PHIL:  Our new research has shown that, for eighty percent of today’s buyers (see link), standardizing on best practice process flows is now one of their major BPO drivers. So in terms of that, how are you building your future business around this willingness to standardize more and adopt these “pre-packaged” best practices?

MIKE:  So that’s where we partner with our management consulting and with technology experts. You’re exactly right. We’ve seen this movie before in terms of people saying that there’s a product out there that’s all of a sudden going to standardize everything. Are there better products out there? Absolutely. Are people more willing to go to them? Absolutely. Our strategy is clear. We want to own those platforms, especially for the industry-specific areas. We will take our clients to platforms, much like we have taken them into our centers to do the work. The reality is that the platform discussion is no different than the debate we had five years ago about whether service providers do the work at the client’s site or can actually take the work into their own delivery centers.

So now that the work is in our centers, we can get them to a standard platform, but that’s old-type thinking. What I think is different is that once we get them to those platforms, we can we get them to fourth and fifth generation BPO by looking at the transactions. We use our management consulting talent and industry knowledge to determine what those transactions mean, and then be as flexible as we possibly can to enable our clients to start small and scale fast.

PHIL:  This takes me back to the ‘90s when companies were pushing ‘buy this suite of enterprise resource software and you’d have best-in-class processes across all these domains, and we ended up with a situation where companies were buying full-scope licenses for products like SAP, but struggled to standardize their processes to conform with the ERP. Isn’t this happening all over again, where buyers are being sold some type of “productized” workflow, however this time the onus has shifted to the providers to take them through the transformation?  Doesn’t this emphasize the need for buyers to rely heavily on their providers’ consultative transformation capabilities, as opposed to solely this kind of just low-cost, productized approach?

MIKE:  Okay, but if we delivered exactly what you just said, that isn’t good enough. That’s just third-generation BPO. As I said earlier, most of what we’re talking about is industry specific because I don’t believe that clients are going to come off SAP or Oracle for the horizontals. So if all we do is take you to a standard process globally based on a new application, all that does is get you to third generation, with lower cost and more efficient end-to-end processes.

But today, when you sell to the C-suite, they don’t care that we process invoices, port telephone numbers or support wellness programs better than anybody else. What they really want is what the analytics data tells us about how we can have a better impact on their business either by increasing their revenue or further decreasing their costs.

I’m not positive you have to go to a new platform. But I am positive that you have to understand what you’re processing and how that’s going to impact your clients’ business.

PHIL:  This is interesting, when we look at how the ITO industry developed – it kind of got stuck in its own version of “third generation” for a very long time, and arguably, a lot of it still is. But I think there’s a much bigger opportunity in BPO, because of the level of depth and intimacy you have with the clients, and their institutional process that you have to learn over time to help them move to outcome-based delivery situations. So I do think that BPO is more uniquely positioned to move buyers towards these fifth and sixth generations than some of the other outsourcing models in the past.

MIKE:  But don’t you think that’s what people wanted out of BPO when we started this? It’s just taken us 10 years longer than we thought. The significant difference between ITO and BPO is that we could finally get into the business. I know it started with taking transactions that weren’t core, and by the time we got to third generation we were certainly doing non-core. But now, with fourth, fifth and sixth generation BPO, we can finally give the industry what it’s been asking for years. Do you agree?

PHIL:  Yes, I think the clients have got a lot smarter over the last couple of years, and they are demanding much more innovation from their relationships. They’re also realizing they’re more accountable and until they play out the agenda, it’s going to get tough for them. So I do think that the industry has really moved on in terms of the conversation, in terms of what it’s looking to achieve.  In fact, we’ve done more in the last two years than the last ten, and these current economic conditions are driving people to look more long term at their businesses, and really try to be a bit more radical with making some changes to their businesses that need to be made.

Additionally, the competitive dynamics are at a point where I think we’re already seeing three or four players break from the rest of the pack quite aggressively now, and I think in a year’s time we’ll really start to see a mature market. So I do feel that this sixth generation you’re talking about is going to happen sooner than we think. I think it’s already creeping in. Our research clearly demonstrates decision-makers are increasingly going to each other – we’ve got the data to show it. Peer experience is more impactful now than anything else, so I do feel the quicker we can get people to the community concept, giving them the ability to share best practices, worst practices, ideas and get better at this, the better off the industry will be.

MIKE:  Again, the purple column on the chart that represents sixth generation BPO is what people have been asking for over the years. We used to call them user groups. We still do an event every year, and bring our clients together because they want to talk to each other about what’s going on, about what they’re dealing with, about how they’re resolving issues, whether old or new. So to be able to set up that community in an invited, exclusive-type way where you can really conduct  business will be key.

PHIL:  We’re in an interesting age where there seems to be a follow-the-leader scenario going on where someone comes up with a great concept and before you know it, everybody else has jumped on it. And with this concept of “generations” that you initially developed, I remember us going through it a while back and we started seeing competitors of yours coming up with similar messages and stories. What goes on in your mind when you see this …and how are you going to win?

MIKE:  I love the fact that the industry has taken on the generations vernacular, as it’s the best form of flattery. And when the industry wins, Accenture BPO wins, and if we’re moving the industry into the fourth, fifth and sixth generation BPO, then clients, as a whole, will expect more from us and we’ll deliver more value. So it’s a win for clients too.

PHIL:  Mike – thanks for taking the time to discuss your BPO Generations with our readers – we appreciate it, and look forward to sharing your insights.

Mike Salvino (pictured above) is Group Chief Executive, Business Process Outsourcing, for Accenture.  You can read his bio here.

Thanks to our friend Matt Heffron of Sourcing Sage for sending us another classic

Would you kindly stay on the line to complete a brief customer satisfaction survey?

The main feature of 2011 was all about the demise of quick cost reduction as prime driver behind global sourcing, and the focus on enterprises establishing a flexible global operational framework that can be effective in today’s environment.  

Yes, cost prudence is always an ongoing concern, but it’s no longer the differentiator; today it’s embedded in all forms of operation strategy and planning. Hence, this means enterprises’ prime focus is fast becoming global and not solely about being low-cost.  This also means providers need to service their clients as global partners with global delivery capability.

To this end, HfS Research Fellow and Sourcing Change protagonist Deborah Kops completes her investigation into the dominance of India in the world of outsourcing, and whether or not the game’s up for non-Indian providers to come back into the picture.  Over to you, Debs…

You don’t have to be Indian to be a global outsourcing provider!

In The Sourcing Raj Part I, I ticked off the reasons why non-Indian providers have had a hard time cracking the offshore outsourcing market. Indian players not only have a good 10 years’ head start penetrating the market, a brand that makes India and outsourcing virtually synonymous, and an unparalleled onshore network of buyers and influencers that all know the secret handshake. But the good news for non-Indian providers is that the global economic map will continue to evolve, making it imperative to implement a portfolio approach in response to changes in markets, availability of talent, cost and other considerations. Those players with the stomach to check nationalism at their borders and follow a few simple rules can nip at the feet of the Sourcing Raj.

You may not be familiar with the iconic 1970’s ad featuring a Native American in full regalia eating a sandwich on dark bread. The tagline, “You don’t have to be Jewish to love Levy’s,” did more to get Americans to eat something other than squishy packaged white bread than giving out samples in bakeries. Non-Indian providers have a legitimate role to play in global delivery, but it means they must approach the market differently. The market has evolved since the first Indian firms came onshore, requiring a different approach to an industry where offshore is frankly synonymous with India. It’s up to the others to convince the market that it’s possible to be a viable provider without a home base in India.

Brand as a global, not a (name that country) provider. Take a page out of the book of several leading Indian providers. They no longer call themselves Indian; they proudly declare they are global players. They push very hard to emphasize their network of operations in a range of geographies, of which India is just one. Their mission statements no longer contain the aspiration to be India’s number one (or two or three). They focus their messaging where their clients are, at the same time paying sufficient attention in their home markets to build enough brand to attract the right talent.

Yet many offshore players doggedly play their country card in their branding. While having pride in the home office location is important, understanding that parochialism is the enemy of globalization is critical to getting on a revenue growth trajectory. Clients seek good delivery from markets with sufficient scale, talent and reputation to underwrite their decisions, and that perform as strong cogs in a global delivery model. At the end of the day, that’s what matters. Providers that shed the trappings of their legacy location have a good chance to grow and prosper.

Rapidly devolve management control. To be honest, it has taken the Indian firms far too long to realize that true globalization is more than locating cheeks in seats in other geographies, retaining tight control in India. Even today, look up some of the Indian majors and note that every key management position is occupied by someone in Gurgaon, Chennai, Mumbai or Bangalore. Many Indian providers talk the global talk, but often when it comes to making a decision, it requires a call to country code 91.

Non-Indian providers have an opportunity to send the right globalization message now, leapfrogging the Indian providers by quickly devolving control into exporting markets. Clients increasingly look for leadership across geographies, signifying that the company’s management is truly global, evaluating the provider on the extent to which there is local decision making authority. Take a page out of the books of the global majors such as Accenture or IBM—locate key execs with real decision making authority in a range of geographies. It’s the smart way to grow a business in a global world.

Move quickly to develop a strong base of local sales and account management staff. For years, Indian providers parachuted in sales and account management staff, thinking they were saving money, or even believing that local hires were incapable of understanding and selling the offshore value proposition. However, the industry now “gets” offshore; there is increasing recognition that one no longer had to grow up in India to sell or manage clients.

The non-Indian player should aggressively seize the “glocal” high ground, declaring we’re both global and local by hiring prodigious indigenous talent. Clients still prefer to do business with people they believe are fundamentally like them so putting a local face on the client interface goes a long way in establishing credibility.

Declare your hand. The market’s far too mature and competitive to entertain provider neophytes who are continuously and publicly testing the market. The market looks for providers who can draw a line in the sand, saying what they can do, why they can do it, and for whom they have already delivered results. Do your homework, pick your service offerings and industries, and settle on an approach before you blitz the market. Trying to be all things to all people is a recipe for disappointment.

Invest in marketing. Jobs exporting markets cannot be conquered with a website that says little, an exhibit booth staffed by a smiling young lady,  a thumb drive with a logo, or an occasional banner ad in a third tier industry publication. Assuming because you as a provider are the best in Wroclaw or Wuxi that the market will beat a path to your door is massively misguided. Sitting offshore and second guessing your target market is not only revenue-limiting, it’s sheer hubris. Spending marketing funds sporadically tells the market you are not serious players.

If it is not important enough to invest the right amount of money in effective marketing, why bother to enter a market? There’s a direct line of sight between spend and results—spend little, especially in the wrong areas, get nothing. Spend a lot on the wrong approaches, get little. Spend the right amount on channels that matter and it’s a game changer. Figure out the right channels, the right approaches and spend the right amount of money, and the payback can be more than 25 times investment over time.

Develop superior English language skills. It’s not enough to rely solely on state investment in English training when the provider’s future is dependent on speaking the world’s premier business language. Ensuring that everyone who interacts with the client at every level has a command of clear, contextual business English is not only an imperative and differentiator, it eliminates unspoken objections inherent in client teams. Playing the non-language dependent card no longer works.

The Bottom-line: many non-Indian providers have the opportunity, but have a lot of work to do

Deborah Kops, Research Fellow, Sourcing Change Management, HfS Research (click for bio)

Can non-Indian outsourcing providers end the sourcing raj? Certainly geopolitics, the state of the global economy, currency movements and, more specifically, the positioning of the IT/ITES industry within India will affect the course of events. And it will take some time before the Chinese or Brazilian equivalent of the sourcing network becomes as insidious as that of the Indians. But much of the answer lies within the direct control of the non-Indian players. Will they play a global game? Will they place a bet on a few services, and make the requisite investment? Will their nationals start to appear on the rosters of client teams? Will they devolve management to other geographies? Will they spend the amount of money necessary to create a brand? Will they invest in training superior English speaking capability? Only time will tell.

A special thanks to Sutherland’s Matthew Heffron for sending us this little ditty.  Check out his excellent BPO video blog Sourcing Sage.

This is just one example of how social media is driving the human element out of our business interactions.  There’s just too much interaction out there, too much opinion, too much self-promotion and – let’s face it – too many bloody people with seemingly nothing better to do. Come to think of it, I don’t think there has been a time in my career when I’ve known so many people who I can’t figure out what is it they actually do all day, how they make any money for themselves, or others.  And I can’t figure out, for the life of me, why some companies pay some people to do what it is they supposedly do all day.

In fact, I probably spend more time avoiding people these days than trying to network with them – few seem to have anything interesting to say, any new ideas about where the world is going and simply are following the commonly agreed set of “industry trends” that most people have been force-fed by industry influencers who are running out of sexy new ideas (or ran out a while back, and are bumbling along on empty until they find something new to grab onto).

What happened to the times when peoples’ opinions mattered – even if they were wrong, or were just plain off-the-wall?  Economic and political paralysis, exacerbated by inane electronic social networking has sapped so much of the passion, creativity and enthusiasm from our professional lives.  I find myself increasingly spending time with people who are interested in sport, music, movies or just playing with the kids, because at least there is enthusiasm and passion there.  But going out for dinners with faceless executives to talk about cloud-bloody-computing – and how it is going to change the world… without being able to explain why, just that it will, because they need to sound cloudy… don’t get me started!

What we need is a dose of renewed optimism, that our world has an exciting future, that there will be areas for renewed growth, renewed innovation, renewed opportunities.  That we have exciting careers where we can constantly find new challenges and invigorating things to do.  Have you ever known a time when so many people cling to the job they hate because it’s the only way they know how to make a paycheck these days, and are too nervous to even consider a new challenge?  Too many people are stuck in a professional status quo – and have been since the 2008 crash scared the professional lives out of so many.  I have lost count of the number of people who are just plain miserable in their jobs, have lost confidence in their management and their companies’ offerings and directions, and are losing that spark and desire to find something that will give them that renewed energy and that passion?  Many people seem to be so jaded these days, and it worries me that they will struggle to ever be truly energized and passionate about what they do again.

So let’s make 2012 the year of getting passionate again!  Let’s dig deep to be honest with ourselves about what gets us up in the morning – what will make us look forward to going to work again.  Paralyzed politicians won’t come with the answers, and neither will directionless corporate managers – only you can summon up the courage and passion to make a difference.  Take a risk – jeez, take a pay cut if you have to – but if you lose your passion for what you do, you’ll find it harder and harder each year to get it back.

January

Ditch Procurement!

Deb Kops began the year in feisty fashion by declaring war on the procurement function… Is traditional procurement deeply involved in M&A activity? Corporate strategy? Business transformation? Not a chance. While our friends in the CPO’s office have an important role to play in procurement process and governance, they cannot be the major arbiter of taste when it comes to sourcing true corporate change.

RIP Joe Vales

The nicest guy in sourcing – and one of the best marketing guys you’d ever met – Joe Vales, sadly passed away… An avid fan of HfS, he will be sorely missed by us, and am sure many of you will be equally saddened by his passing.  He was a sweet and lovely guy, who loved his work.

Impatient Premji plays catch-up

You won’t see a CEO being removed after achieving a double-digit growth rate too often, but that’s just what happened, when Wipro’s co-chiefs Suresh Vaswani and Girish Paranjpe were replaced by TK Kurien…  So will Premji’s impatience to produce numbers as stellar as his competitors be rewarded, or has he already missed this phase of hyper-growth in offshore services?

February

EquaTerra + KPMG – a new era, or a new error for outsourcing advisory?

KPMG became the only “Big 5″ management consultant to buy a boutique sourcing advisor… The outsourcing advisory business is all about talented people, experience and relationships. It would have been extremely messy if KPMG had tried to hire away these folks one-by-one. They have retained the top talent and have created careers for them within their organization. Quite simply, there is a really bad (and worsening) talent shortage in our industry, and KPMG has just snapped up a good portion of it in one full swoop.

March

So what on earth does the future hold for sourcing advisors?

Esteban Herrera doesn’t hold back when he declares, “Twenty-five years at EDS may have made you an expert at outsourcing IT, but it did not teach you how to run a recalcitrant back office environment that is just plain hard to optimize.”

HfS takes a deep look into Latin America’s sourcing capabilities

Clients attest to lower attrition levels and fewer site visits, and when they were required, these site visits as part of the governance were much easier to do—these and other soft factors impact the total cost of ownership.  Download your copy of the report here.

How 10-year-olds explain Cloud Computing

The most concise way anyone has succeeded in describing it.  One has aspirations to make a video game that features a villain with a head made of cheese puffs. 

April

Are you ready for… The HfS Private Cloud Challenge?  Answer = No

Not a single provider or buyer could answer Esteban’s warcry to prove they had a “Private Cloud”. Private Cloud makes my blood boil. Private Clouds are a cynical oxymoron. The whole point of a Cloud is that you share resources and don’t have to own the capacity you need, because its available on demand, so you can pay by the drink. Well, if you own the resources and the capacity, it is inherently limited to what you own, and you’ve already paid for everyone’s drinks at the bar whether they consume them or not! 

Forget the Magic Quadrant, you can now get covered in the HfS Research Painsharing Paradox

At HfS, we’d had enough of service providers and their clients raving about how bloody wonderful they all are.  Enter the Painsharing Paradox.  We figure out which providers have the biggest budgets, and then produce a draft PP – the bigger the marketing budget, the further they are positioned over to the upper-right corner of the grid.  Then the bidding process starts.  Depending on how much we like them, how many first class boondoggles we’ve been treated to, and how much hard cash they’re prepared to pony up, we’ll maneuver them down the grid towards that hallowed lower-left quadrant, where everyone wants to be.

HP’s strategy: is it plotting, or losing the plot?

Phil Fersht takes no prisoners when questioning Léo Apotheker’s curious decisions.  Was he onto something? If HP isn’t plotting a radical move to buy SAP, or some other ERP business, it seems to be letting itself down badly – the firm needs new thinkers who can drive innovation and a new direction into the business, because right now, most industry observers are left scratching their heads trying to figure out what the game-plan is.

May

Buyers are saving money, but aren’t seeing a whole lot more

Our “money slide” of 2011, where 347 buyers revealed they were happy with their outsourcing cost-savings, but the other business benefits were proving elusive. A defining chart for the outsourcing industry. Our concern at HfS is that costs are like hedgerows  - once trimmed they always grow back.  Providers cannot afford their clients to struggle.  After their transition to a working operational outsourcing model, corporate leadership isn’t going to keep reminding their shareholders about “that stellar 30% we took off the bottom-line three years ago”.  They are going to be looking for their next improvement metric

It’s hard to be CSC

A perennial subject of acquisition chatter, CSC has built in poison pills in the form of gnarly government contracts with lots of limitations on who can own them and what can be done with them. It lacks the scale of IBM and HP, the brand and loyalty of Accenture, and the relatively low overhead of the leading Indian IT providers. It is, effectively, stuck in the middle. It’s hard to be CSC…

June

Will the industry analyst business be dead in five years?

Phil Fersht rocked the troubled analyst world with this defining post that even inspired Gideon Gartner to chime in. I’ve seen analysts ride waves and become rock stars, and then lose the plot somewhere along the line before either exiting the industry altogether, or plodding along on the vendor-briefing circuit, eking out their paychecks towards retirement.  I also know level-headed analysts who quietly go about their job and produce decent stuff – never making a lot of noise, but effectively doing their job.  I’ve also worked with egomaniacs who pander to paying clients and scare the living daylights out of anyone who dare criticize them – or refuse to buy their services. I’ve also worked with absolute numb-skulls who somehow remain employed, despite knowing very little about anything.  And I’ve worked with analysts who really know very little, but somehow persuade the world they are visionary thought-leaders.

July

Europeans love money, but hate change

We managed to upset some Europeans with this one. Ah… mes amis!  Let’s rip out ze costs, but for ‘eaven’s sake, don’t make any changes to our mother-ship.  By all means, sack all the expensive foreign staff in the vorldvide offices and sheeft ze vork to India or Les Philippines, but – we repeat – don’t CHANGE anything!  Judging by the Eurozone paralysis, how wrong were we?

August

Is the outsourcing industry really still that clueless about cultural issues?

Esteban lets loose once more, this time at Brandi Moore’s revelation in Outsource Magazine that the outsourcing industry doesn’t understand cultural issues.  She manages to disparage an entire industry, ignore the facts, offer tired examples as brilliant self-aggrandizement, and demonstrate a poor understanding of her supposed field of expertise (culture). Brandi declined Outsource Magazine’s offer to host a debate between Esteban and Brandi to discuss the issues openly.

September

Just because buyers aren’t always in a rush to outsource, doesn’t always mean they are too “short-term focused”

Our latest research revealed 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”.  You do start to wonder whether many advisors and provider executives really have much understanding of their clients’ business pressures beyond cost-reduction – and our recent survey data, discussed above, supports this viewpoint.  

October

70% of buyers are sitting on the fence with their outsourcing plans in the current climate

The 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. 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…

The major driver behind outsourcing is no longer immediate cost reduction

New research 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. Many buyers have some version of “failed lift and shift” on their unofficial outsourcing resumés today – they’ve realized that once they’ve shifted it, there’s little money, or board-level volition, left to invest in improving process and technology. They know that their chance to rip out the rot is with the lift and shift – not at some divine point in the future when corporate leadership is suddenly going to issue a holy decree that they are going to make process optimization their number one prority..

HfS is awarded IIAR Analyst of the Year for second year in succession

HfS Research won the individual award for “Analyst of the Year” for a second year in succession (some individual called Phil Fersht now sporting an ego so insufferable, it’s rumored he can’t even stand his own company). In addition to the individual analyst award, HfS Research topped the charts for “Outsourcing, BPO and Maintenance Analyst Firm of the Year“. And this time, HfS Research was a runner-up for the overall “Analyst Firm of the Year”, behind the formidable Gartner. Over 260 analyst and influencer relations specialists took part in this year’s survey – by far the greatest number to date, who voted on all the major research analyst organizations, such as IDC, Forrester, Ovum and so forth. We would like to offer anyone who voted for us a cocktail on us when you see us at some upcoming conference, which we will be able to pay for out of the 20% price hike we’re gonna add to our services.

Eight top tips to prevent outsourcing providers committing harakiri 

It simply had to be said… Dear Providers – we love you. Without you there would be no outsourcing industry and we would not have jobs. More than anything, we want to see you succeed. Why, oh why, must you insist in compromising your own success by practicing death by PowerPoint on your prospects?

November

HfS and Sylvan advisory launch HfS Consulting 

HfS Consulting is a unique coming together of acclaimed research, benchmarking analytics, market insight and strategic consulting expertise.  It is revolutionary in the fact that enterprise clients can access ongoing analysis, data and expert advice via an annual, affordable and on-demand subscription relationship model, as opposed to solely buying costly “hourly billable” consulting services. We lead with our proven research brand and analytical capabilities and have the ability to apply these to our clients with consultative advisory programs.  So we strategize, we apply our unique data and insight and then we execute.

 Why outsourcing professionals must stay in touch with the 99%

Phil Fersht fires a warning shot to the outsourcing industry that it faces a backlash if outsourcing executives are overly-complacent. 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.

December

@The_Whole_Outsourcing_Industry: Labor arbitrage built your house of cards. #Bubble What’s next?

And what better way to cap off 2011 with HfS’ EVP of Research, Tony Filippone, simply calling it how it bloody is.  The road to our future is unclear.  As buyers begin to line up for higher value services, their shift in demand will dramatically affect the marketplace.  Service providers that cannot develop IT-enabled BPO platforms, provide insightful analytics, or drive high value business outcomes will lose market share and be relegated to second tier “tactical” supplier status.

Well… that’s pretty much all from HfS Research for 2011.  Hopefully, we can continue to keep you entertained, and drive more topical debate in 2012.  

Peace out!

The HfS Research team

Do you procure this Australian as your lawfully wedded category specialist?

As we discussed recently, these are pivotal times for Infosys’ BPO division, as it looks to surpass half a billion greenbacks in revenue this year.

And when you look at the overall performance of Infy’s development in BPO, surprisingly only a third is coming from the foundation horizontal of most traditional BPO providers – finance an accounting.  Impressively, Infy has developed its strengths in less mature BPO markets, such as financial services and, surely the jewel in its recent performance, sourcing and procurement.

Moreover, Infy has been growing footprints in its clients by linking together supply chain and customer management processes, such as supply chain visibility, inventory management, logistics optimization, integrated service management, demand planning, order management and aftersales services – bolstered by its analytics competences.

With its sourcing and procurement (S&P) practice up to $40m this year – not an insignificant size in this immature market, especially when you bear in mind they have built this service line from practically nothing in four years – Infy has made its first substantial investment in the sourcing and category management space, picking up the lead Australasian provider Portland Group for $37m.

Why is this significant?

Pits Infosys firmly against Accenture and IBM in the Australasian markets.  Portland has 42 clients, including two of the four major Aussie banks, a major airline, some oil and gas companies and a major retailer.  Previously, Infy’s only major client in the region was Rio Tinto.

Gives Infosys significant sourcing expertise.  Only a third of Portland’s revenues are derived from managed services (indirect procurement). The rest comes from strategic sourcing and category management services, which is exactly where Infosys need to invest to move up the sourcing value chain.

Gives Infosys considerable cross-vertical expertise.  With the many of Infosys’ competitors’ businesses centered in semi-conductor, hi-tech and manufacturing clients, this acquisition branches into other verticals where sourcing BPO is still nascent, such as retail and transportation.

The Australasian market is in high growth mode with BPO.  HfS sees considerable opportunity for providers such as Infosys to take advantage of the growing ANZ market for BPO services, which is in a similar position to the UK market a 3-4 years’ ago, before it took off.  Moreover, having a strong footprint in ANZ should make it easier to go after deals from the pan Asian multi-nationals headquartered not only in Sydney and Melbourne, but also Singapore and potentially even Hong Kong.

The Bottom-line: Infosys now raises the sourcing game, but needs to look at further acquisitions to compete globally

Infosys now boasts a plethora of impressive brands under its S&P BPO portfolio, which include the likes of Verizon, Caterpillar, Charles Schwab, Rio Tinto, BP and a couple of major pharma. However, in order to increase its percentage of sourcing work over lower-value indirect procurement services, it needs to acquire more niche providers like Portland in other geographic regions, such as the US, China, the UK and various continental European countries. It’s very challenging to hire and train sourcing experts, hence acquisition is the logical way forward to grow quickly in the S&P market.  Infosys already has 30% of its S&P staff located outside of India, and we anticipate this ratio may need to grow as high as 50% if the practice continues to expand at this pace – something of a cultural shift for the Indian headquartered providers.

We expect Infy to pass $100m in sourcing and procurement next year, and there are a number of niche sourcing specialists it can consider to fill out the global portfolio.  The big question now is whether Infy’s top brass stop here, or whether they have the appetite to keep investing.  The next six months should prove very telling.

Related post: As InfosysBPO reaches the $500m mark, is it ready for the big-time?

And if you can’t be bothered to listen to any of it, here were some of our predictions* highlights:

1. Outsourcing Providers will shy away from mega-mergers

2. European market going to be in limbo for first half of 2012 with limited major outsourcing contract signings, due to economic paralysis

3. Threat of recession will hold back one-in-four buyers from signing contracts until current economic uncertainty lifts

4. Buyers are looking more broadly than simply outsourcing to drive productivity improvements in today’s climate

5. Buyers will seek assistance from advisors with sourcing strategy, governance and Cloud

6. Focus shifts from cost savings to standardization, global flexibility and better technology

7. Many Advisors and Providers will still be overly-focused on Cost-Reduction for their clients, as opposed to process improvement and innovation

8. Global Companies need more Global Support

9. 2012 to be Year of the Mid-Market

10. Account Management of outsourcing to take Center Stage

* All these predictions have already expired and no longer valid

And then there will be the procurement weenies that scratch their heads and wonder why anyone would want to run a reverse auction for enterprise software on a platform managed by the service provider competing in the bidding. Especially when eRFX management, Emptoris’ bailiwick, is widely available from a long list of competitors who are busy pricing themselves out of business. Frankly, it wouldn’t be surprising to see a $0.99 iPhone app for strategic sourcing. Except, they’d soon be confronted with the king patent troll of all patent trolls, the so-called inventor of competitive bidding. LOL.

So what’s the skinny on this marriage of Emptoris and IBM and why should you care?

The story begins with Procurement BPO. For a long-time the red-headed stepchild of the $50bn Finance and Accounting BPO market, Procurement BPO has silently grown into a respectable market with more than 400 deals with an estimated expenditure of of $2.5 billion this year. It is primed to be the most widely-adopted virgin BPO category at the enterprise level, with a fifth of them exploring first time adoption over the next year (Exhibit 1).

Exhibit 1: Procurement BPO tops Enterprise buyers’ outsourcing intentions for new areas of adoption

Procurement BPO is a real winner in the marketplace because service providers have proven capabilities that internal procurement executives have toiled against all the odds to create. Casting off the shackles of labor arbitrage, Procurement BPO service providers bring heavy category expertise to bear in sourcing events and category management. The results are impressive – the average Procurement BPO deal creates a ROI of almost 200% per year.

However, despite the rise of procurement technology and the hubbub with the likes of Hubwoo, SAP, Coupa, and Ariba, technology is simply not a major factor in most current Procurement BPO engagements. Our data shows more than 73% of procurement BPO deals neither upgraded the existing system or implemented a new system (see exhibit 2).

Exhibit 2: Percentage of Contracts that Excluded New Systems or Upgrades by Procurement Process

Source: HfS Research, 2011

Our research has concluded that there are many reasons for the lack of investment.  Namely, the technology is expensive, the ROI is perceived to be low, and most buyers have existing applications that are under-utilized.  Possibly more importantly, few technology partners have built successful, monogamous alliances with outsourcing service providers. In fact, technology service providers like Ariba, SAP, and Oracle will happily kiss anyone who has licensing dollars to spend. This confuses buyers who think these messy arrangements are all about marketing dollars and kickbacks.

Capgemini saw through this and acquired IBX to bolster its procurement capability – and more recently VWA in accounting.  Other Procurement BPO service providers white label their technology to keep their stories straight.  We view the acquisition of technology platforms, such as Emptoris, which providers can deploy as part of an integrated “Business Platform” offering, as the future of driving productivity and growth for their services lines as they seek to break from a heavy reliance on labor-based pricing models.  In some specific processes and functions, ownership of the technology by the service provider is proving to be a major differentiator, and we see procurement and sourcing as one of these with real potential.

What we think IBM is really up to: Becoming the intermediary overlord of B2B commerce.

IBM is already one of the two largest service providers of procurement outsourcing services, outdistancing the nearest competitor by more than 70 deals. Not only do they pack the punch of their mega billion dollar global procurement spend, but they bring together billions of dollars from their clients.  While Accenture’s acquisition of Ariba’s Freemarket’s team created an extremely competent sourcing factory, IBM is likely heading down the path of creating a marketplace where buyers can leverage RFX tools built by sourcing gurus, request category assistance on demand from IBM’s procurement gurus, and allow buyers to participate as desired in the services.  Whether buyers want to make a single vehicle purchase, develop a category strategy for fleet management and execute competitive bids, or ask IBM to manage this non-core purchase on their behalf, IBM will have the capability to support clients.  This is a lot different than how most Procurement BPO deals are constructed and will allow IBM to rapidly move into the long tail of middle and small markets, which has been largely ignored (see exhibit 3).

Exhibit 3: Size of Buyers’ Companies which have adopted Procurement BPO

Source: HfS Research, 2011

Bottom-line: IBM made a smart acquisition to advance its B2B commerce and procurement market leadership

Emptoris’ well-regarded user interface and strong brand recognition among the procurement crowd make it an idea mate for IBM’s technology-driven focus and market leading Procurement BPO capability. While the integration of Sterling, DemandTec, and Emptoris will take some time to become “smarter commerce” (IBM’s catch phrase), there will be some immediate upsides.  Emptoris’ Rivermine telecommunications capability will be a boon to infrastructure outsourcing clients.  Emptoris’ Xcitec brings IBM strong supplier relationship management capability that chief procurement officers need.  And, of course, IBM customers will get Emptoris, a leading sourcing and contract management toolset. Down the line, we expect more benefits of this acquisition as IBM develops a cloud business platform in the procurement category. Meanwhile, we wonder if Ariba’s valuation just went up as they remain a major player capable of competing with IBM’s technology advances.

Tony Filippone is EVP, Research at HfS Research (see bio).  He can be reached at tony dot filippone @hfsresearch.com

…because it’s now the HfS 50!  Yes, the fiftieth organization has signed up and we’re very, very excited to announce our inaugural HfS 50 event to take place at New York’s Soho Grand next April 24th-25th:

This is going to be a defining two-day working session for power-brokers of the outsourcing industry, where leading buyers of both ITO and BPO services will confront today’s critical issues impacting outsourcing, to establish a Blueprint for the industry in 2015. And this time, we will have a vendor/buyer face-off session where leaders from six of the major service providers will join the debate.

 Key Highlights

*The next generation account manager—making the role work for both parties
*The next generation governance executive—making the role work for both parties
*Disrupting the vendor/client model – getting better visibility and transparency into each others’ pain-points
*Trends—what is around the corner for the industry and what will it look like in 2015?
*Trust—what has worked in building trusting relationships – and what has not?
*Community sourcing—how can social media and community networking drive better cross-client collaboration?
*Global Business Services frameworks—the next wave of value-creation, or glorified change management?
*The realities of disruptive sourcing: What is really going to change the game and how can these be effective:

• Moving to standard business processes and platforms – reality or fantasy?
• The uptake of Cloud computing – democratizing outsourcing?
• Moving to genuine outcome-based pricing models – reality or fantasy?
• Achieving real innovation with sourcing – reality or fantasy?

Do you have what it takes to make an impact?

If you are a buy-side sourcing governator and would like to get involved with the HfS 50, or a lead service provider executive, please email Tom Ivory for more information.

We hope to see many of you in New York in the Spring!

We know that buyers were accomplices in the run up. After failing to invest in their operations, buyers saw limited value in their business functions.  Accounts payable teams were overwhelmed with paper, finance teams struggled with creating process rigor, and human resources teams bungled global resource management.

Struggling with recent macroeconomic issues, buyers simply didn’t have the time or resources to reengineer for greater value.  So, they threw in the towel and asked service providers to manage their processes for them at a lower cost.  To them, reducing the monetary size of their cost centers was success.

IT was no different and they were the biggest buyers of expensive labor.  Their internal customers furiously revolted against swelling technology wai$tline$ and the lack of an “application development factory” mentality.  So, in the midst of economic haircuts, CIOs surrendered by outsourcing their staff to offshore companies that brought CMM and ITIL process rigor.  Yet, these efforts did little to simplify underlying application and infrastructure platforms that drove their high costs.

Have no doubt – labor arbitrage provided everyone immense value.  Yet, at its best, labor arbitrage is a funding mechanism for true best practice adoption.  At its worst, it is a circus sideshow absorbing management focus.   And we know that most buyers adopted to lift and shift, rather than rushing to adopt best practices at the outset of their deals…

Never before has the future of our industry been more clear: Today’s wiser buyers know that the value of accounts payable, procurement, or customer service shouldn’t be equated to its cost per invoice, PO, or call.  They want value.  Accounts payable should improve working capital and enforce contract compliance.  Procurement should generate hard savings and source best in class suppliers.  Customer service should eliminate the sources of customer frustration and create loyal relationships.

Still, the road to our future is unclear.  As buyers begin to line up for higher value services, their shift in demand will dramatically affect the marketplace.  Service providers that cannot develop IT-enabled BPO platforms, provide insightful analytics, or drive high value business outcomes will lose market share and be relegated to second tier “tactical” supplier status.  Service providers that can help extract greater value will dominate and their customers will benefit.   Billions of dollars are on the line and buyers need to make bold decisions – many of which involve justifying switching costs of changing service providers on improved business outcomes.

The Bottom-line: Today’s Buyers Face Three Challenges

1) The foremost challenge facing buyers is the immaturity of service providers to provide more than labor arbitrage.  In every segment of the outsourcing marketplace, leading service providers are urgently developing solutions.  Like Accenture’s acquisition of Duck Creek to provide value to property and casualty technology.  Or IBM’s development of Watson and its application in the healthcare industry.  Or Genpact’s acquisition of Akritiv to support account receivable departments.   Surprisingly, most service providers are non-committal and prefer “dating” through arms length partnerships, but their maze of third party partnerships are hard for buyers to understand.  Other service providers are hesitant to invest at all and instead try to talk their customers into co-investing in developing improved capabilities

2) The second challenge facing buyers is determining a fair fee structure of a value-based arrangement.  Because buyers have a mindset and past experience based on FTE-based economics, they find it difficult to compensate service providers for the value they will create.  Especially when comparing a value-based bid to lower cost labor arbitrage-based bids.  Buyers are notoriously cheap.  Buyers figure they can start “phase 1” with a low cost FTE-based structure, but rely on the service provider’s unplanned “innovations” that may provide more value.  But they are unlikely to be satisfied with the results.  The foundation of any outsourcing relationship should be making changes that maximize a process’s business value.  Service providers who create better outcomes should be entitled to better margins, which buyers should be willing to pay – if the outcomes are assured and proven.

Tony Filippone is Executive VP for Research (click for bio)

3) The third challenge facing buyers is managing transitions to new service providers that can provide value.  If their business cases are not sound, internal pundits will hamper transitions and long-term value.  Risk adverse buyers with limited experience with switching service providers will need to manage large transition efforts. Most importantly of all, if buyers fail to establish the right governance leadership, they will fail to achieve their ultimate goals.

Much of what lies ahead is unclear.  As the economist Adam Smith said, “On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity.”  To this end, HfS Research will continue its aggressive research agenda focused on providing unbridled, industry-leading research to organizations seeking improved clarity.

Tony Filippone is EVP, Research at HfS Research.  He can be reached at tony dot filippone @hfsresearch.com

“On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity…”

… and what better way to announce an exciting promotion than this quote from capitalism’s founding father, Adam Smith that, well, pretty much sums up how the outsourcing industry needs to evolve beyond its labor arbitrage model.  Yes, at HfS we sure this is what Mr Smith was really referring to when envisioning the wealth of nations over two centuries ago.

People keep asking me what makes HfS different from other analyst firms.  Rather that take you through reams of cheesy PowerPoint to demonstrate our unique ways of developing and actioning data and insight, let’s cut to the chase:  what makes us different is our people.  Essentially, we have a mix of personalities at HfS who come from practitioner, consultative, service provider and analyst firm backgrounds.  We don’t just hire kids and stick them in ivory towers, or professional ivory tower-types who just like sitting in their….er ivory towers.  We focus on the practical, as well as the insightful:

• If you’re a buyer and you want help with your governance, we think you’d prefer to speak to an analyst advisor who has done just that as a buyer, who constantly talks to many other buyers to explore best practices;
• If you’re a provider and you want help with your messaging or positioning, we think you’d prefer to talk to an expert who has done just that for a provider and hobnobs with many other providers to explore best practices;
• If you just want to get into your own ivory tower and pontificate with other ivory tower-dwellers, well, we can do that too (if you like) and have the ppt primed and ready for your scholarly satisfaction.

Our core mantra at HfS has always been to tackle the issues and complexities of global sourcing through the eyes of the buyer.  One analyst who has spent nine years of his life doing just that, leading BPO governance for the $62 Billion healthcare payor, WellPoint, is our Governator himself, Tony Filippone.

Tony "The Governator" Filippone, concealing a baseball bat, is HfS' new Executive VP for Research (click for bio)

No single person in 2011 has written to – or talked with –  more buyers about their governance challenges, and we are delighted to reveal to the world today his elevation to Executive Vice President of HfS’ research team.  Tony’s role, is to ensure all our research is communicated to the buyer (and not the puffy stuff only advisors and providers pretend to understand).  He is also tasked with pulling our ongoing data on industry trends and dynamics from our 63,000 network and making it meaningful and actionable to the world.  And his ultimate religious quest is how to figure out, with the rest of the industry, how the hell we can all move on from the labor arbitrage model… so without further ado, I’ll hand you over to Tony, who tweets (click to read on):

@The_Whole_Outsourcing_Industry: Labor arbitrage built your house of cards.  #Bubble  What’s next?

And while you are shrugging off your office party hangover and trying to avoid recalling what you were doing the night before*, we’ll be deliberating the following topics:

• How this year’s economic uncertainty impacted sourcing behavior with outsourcing and shared services strategies across IT and business operations
• How we expect to see 2012 shaping up with outsourcing adoption
• How the financial mechanics of outsourcing have been impacted by the economic volatility – and what we can expect to see happening in 2012**
• How Cloud Computing and Business Platforms are expected to impact global sourcing next year
• Will the rising impact of social communities help buyers and providerhfs-s learn from each other?    

December 16th at 10:00 AM Eastern Time, 3.00pm GMT

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*Remember to check the photocopier room to destroy any evidence
**Please be advised that any predictions made during this session will automatically expire on January 7th, 2012

For better or for worse, for richer, for poorer, until many missed SLAs do us part.

Imagine committing to someone for 15 years?  Most marriages are long-divorced by that stage, companies rise and fall, entire countries are created, invaded and may even go bankrupt…

So how about standardizing life assurance and pension policies for said period, which is exactly what TCS’ insurance services delivery subsidiary, Diligenta, has become wedded to in a 15-year, $2.2bn, 1900 employee marital partnership with the UK’s Friends Life. This represents the largest life and pensions BPO engagement by a considerable margin, eclipsing the $1.1bn Prudential contract awarded to Capita in 2007.

At HfS, we believe this move from TCS signals a sea-change in the industry with regards to the growth strategies and ambitions of the leading BPO providers.  Simply put, they are no longer keen to acquire each other, and see much more value ingesting large clients with domain and technology value. Taking on new clients, even at low-margins, is simply less risky from an investment perspective, and the value from developing on-shore domain capability and delivery platforms far outweighs absorbing all the unwanted mess you get when you take out competitors.

The BPO Holy Grail is no longer all about scale – it’s also about removing as many manual elements from processes as possible

We’ve been rambling on a lot about Business Platforms of late, and we see this engagement as a genuine move by a provider to develop one that dominates the UK insurance sector.  So let’s keep this simple – the other day I made an electronic payment to one of our suppliers.  Once the payment was completed, I had generously opted to pay the $25 transaction fee at my end for sending an “international payment” (even though it was all made in US dollars).  Still wallowing in the pleasant thoughts about what a nice generous person I was, the next day I received a phone call from said supplier complaining that he had been subjected to a $35 fee from his bank for receiving the payment.  ”Dude, we’re in the wrong business”, was the conversation that ensued.

Essentially, retail banks are making obscene sums of money from business process transactions that actually entail virtually no human interaction. In this example, both our banks had developed sophisticated Cloud-based transaction systems, and the only human labor costs they were incurring (associated with electronic payments) involved offshore support services to take the odd tech support call, if we couldn’t figure out how to use their online service.

It’s the same with insurance, where the vast majority of processes are standard, high in frequency, completely administrative and commidotizable.  Applying for a policy can also be completely automated, based on the applicant’s details (i.e. age, location, previous claims history, desired coverage etc), and so can the claims process, where only occasional human intervention may be required – i.e. making a complex adjudication, occasional routine audits, taking a customer support call etc.

The kernel of this issue is that once the BPO provider has developed a Business Platform that removes much of manual process requirements and can be Cloud-based (i.e. no on-premise software or hardware), their insurance clients can focus their competitive differentiation investments on more subtle nuances – and in many cases it’s purely down to who can deliver their services at the lowest cost, with the most attractive service benefits and the smartest advertising strategy. Essentially, the more automated the process can become, with the least amount of associated labor and IT infrastructure costs, the more competitive the BPO provider can be with its pricing, and the more competitive the insurance client can become, having more resources to focus on better marketing and service differentiation.

So, without further ado, let’s discuss the ins and outs of this strategy:

Positives of the engagement

Absorbing operations from services clients is a lot less expensive and (often) less messy that acquiring other providers.  Taking on expensive back office operations is nothing new to TCS, as many recall their $500m punt on Citigroup’s Indian captive just as the last financial crisis was exploding. Clearly, TCS sees more long-term value in absorbing industry-specific scale and capability, than simply acquiring other service providers outright.  For example, another play could have been acquiring EXL service, the much-courted, but expensively-valued, service provider with good capability and reputation for servicing insurance companies globally.  However, that strategy would have involved either a billion-dollar outlay or a lot of stock changing hands.  The Friends Life deal brings to TCS a lot more onshore delivery capability, does not require anything near the initial financial outlay, and given them a predictable path for the future in terms blowing Capita out of the UK insurance sector.  At worst, the deal will be neutral to mildy-profitable over the next few years, and doesn’t create a huge hole in TCS’s cash-laden warchest, which it may choose to open if we do hit another recession and some bargain acquisitions appear.

Growing delivery scale in low-cost onshore locations is critical for future BPO development.  Unlike the Citi deal three years ago, acquiring additional scale in India is much less attractive today.  For starters, most of the providers have what they need in India, or can quickly develop it (or acquire for much cheaper prices these days) if they need it.  Adding sizable staff numbers in low cost regions in the UK, such as Peterborough, is comparable with those costs in areas such as Bangalore these days.  Moreover, for industries such as insurance with customer-contact requirements, the advantages of up-selling customers and creating competitive edge through quality onshore customer service provision is high.

On-shore investment is politically more important than ever in today’s economy.  As we discussed at length recently, the political focus on job creation is reaching intense levels, and could exacerbate very quickly if a further recession occurs.  The Indian providers, in particular, are under constant scrutiny regarding their investment activity and immigration strategies.  Entering into agreements like this is a major positive for the perception of the outsourcing industry and creates a strong argument for helping clients such as Friends Life be competitive.  Moreover, as the leading providers chase more industry-focused engagements that require real domain skills that are tied to both local regulations and process flows, the need for localized delivery is becoming pivotal in the global sourcing delivery mix.

Developing common processes and a business platform will give TCS more teeth as a global insurance BPO provider.   Most service providers have struggled to make effective investments in technology platforms that underpin their service delivery, and those that have invested have struggled to develop them effectively in such a way that they can actually sell their platforms multiple times. And by the way, the last point is crucial for the success of this deal – the jury is still out on how much standardization and scale TCS can drive out of this.

Potential to break the linkage between headcount and revenue growth, and the willingness to absorb lower initial margins (or even lose money) to do so. Several of the leading BPO providers, in addition to TCS, are eager to make platform-based BPO services a large proportion of their businesses over time (this has varied between 10 and 33% of future revenues, depending on provider).  This suggests that providers are increasingly worried about the longer-term supply-side constraints in India, namely wage appreciation, quality of staff,  constant attrition etc. The more that processes can be automated and standardized, the easier it is to train and develop staff, effect uniform process improvements and globalize process flows.

The IT services growth rate is slowing down and this is one way for the likes of TCS to add significant revenue to their bottomline. With the Rupee depreciating, TCS will have higher profitability from the rest of its business, such as BPO services, and this loss can easily be masked. Moreover, the Tata group at large has made successful turnarounds on Jaguar/Landrover and therefore there is a willingness and confidence to make substantial long-term bets, such as this Friend Life engagement.

Challenges with this deal

TCS could find themselves constrained to the UK market.  TCS is going to find it challenging to scale these UK-specific investments to insurance sectors in Continental Europe, the US and Asia.  Life assurance and pension processes and regulatory issues for UK clients are different from those in other countries, so the current resources acquired in this engagement are likely to be confined to future UK-centric insurance business TCS hopes to win.

This is the largest migration of insurance policies onto a single system ever untertaken in the L&P industry.  To be able to migrate 8 million policies onto the TCS BaNCS platform is likely to take 2 to 3 years, which will pose a major challenge in a niche market with only one major competitor, Capita. Essentially, any serious migration issues would quickly make this deal unprofitable for TCS, however, it hopes this new engagement can be as successful as its recent migration of the 3.2 million Phoenix Group policies onto BaNCS.

Platforms are only going to work effectively with transactional high volume standardized processes with very little variation is outputs. While there is a rush in the BPO business for many processes to be “productized” on platform offerings, these are only going to be effective with processes that can be easily automated and require minimal contextual input and customization. While the opportunity to develop platforms to service insurance firms is clear, HfS is concerned too many service providers are already getting carried away with the Business Platform approach, as it’s only going to work with certain industrial and horizontal processes. Hence, the winning BPOs are those which develop competences for both context-based and standardized service provision. We already run the risk  of some providers starting to sound like software companies…

From a stock perspective, many Wall St analysts are lukewarm with these platform initiatives.  Several investors worry that these investments are going to dilute margins in the near-term and this will impact valuation in the public markets. However, this is because many only care about short-term impacts and do not take the longer view that it takes some short-term pain to achieve long-term benefits. Moreover, too many investors have been blinded by the high-margin profitability of many ITO deals and simply do not understand the different dymanics and nuances that go into a more complex BPO engagement.

The Diligenta proposition does not use wholesale offshoring. This poses a great challenge (and opportunity) for TCS to drive efficiencies through automation and process transformation to make money from the engagement. With such a large base of UK employees, it will have to contend with local UK labor laws and regulations, in addition to a tense political environment with regards to job creation.  The Indian offshoring mentality of yesteryear of throwing cheap labor at a problem will never work in this scenario.  TCS has no choice but to make this work – and if it can, it will become one of the first leading Indian providers to truly break out of the low-cost wage arbitrage delivery model.

The Bottom Line: TCS makes the boldest move yet of the Indian providers and forces itself to change the FTE game

There’s been so much talk about this move away from the FTE-based model of cheaper bodies to do the same work, but we’ve not seen much of it in practice.  However, this deal is different.  As much as people like to sneer at the lower margin expectations, the sheer scale of onshore labor investment and the unproven financial model for business platform utility in the L&P business, TCS is forcing itself to make this transformative engagement work.  Quite simply, there is little room for error, and there is little patience in the TCS boardroom for unprofitable business.  However, TCS has proven to be the most profitable of the Indian giants, and with the ITO model losing steam, it has to look at new business areas to hit the $10bn revenue goal.  If it’s ever going to take a risk, now is the time, and this is the right kind of deal that will challenge the firm to embrace new forms of productivity growth. Investing in Friends Life should prove to be a major step forward in evolving their BPO offerings – and surely a much smarter and more cost-effective way to acquire scale, domain depth and extend their BaNCS platform.

"I'll show you how I feel about your license model..."

SAP has made a major move to “Cloudify” its software portfolio with the $3.4bn acquisition of the darling of HR software, SuccessFactors. However, while HfS’ research partner Ray Wang succinctly outlines why this is a winning move for SAP, we do not believe this is particularly good news for BPO service providers and services clients.

This rampant consolidation of business software apps firms makes it tough for service providers to develop their own Business Platform offerings and develop outcome-based delivery models.  As we have been discussing at length on HfS, the leading BPO providers are hurriedly developing service offerings that are underpinned by Business Platforms to support transactional, high-volume, standardized processes with very little variation in outputs.  HR services are prime candidates to be optimized by Business Platform delivery, epitomized by ADP’s GlobalView payroll and HRO offerings – arguably the industry’s first Business Platform – introduced years before anyone even knew what a Business Platform was.

This means BPO providers have three choices with their Business Platform strategies

Choice 1: Develop and patent their own cloud-based workflows

This is surely where BPO service providers can really clean up, provided they can deliver complete clusters of standard process offerings for their clients that are cloud-based, affordable, scalable, high-quality and – most importantly – can be maintained with quality service personnel that can offer consultative support when needed, as the client seeks to transition onto the offerings.  Most BPOs today are developing prototype platforms that they can “productize” as utility services, once they achieve a handful of clients using each offering.  Our ongoing research already points to more than 150 business platforms in various nascent stages of development from the BPO providers.

Choice 2: Acquire them from a client or another vendor

Most of the ambitious BPOs are seeking to pick up new clients that deliver the potential to develop industry platforms, such as TCS’ recent $2.2bn Friend’s Life engagement which gives the firm the ability to enhance and deploy insurance systems across multiple insurance clients, and Cognizant’s acquisition of UBS’ India operations to service capital markets clients.  In terms of outright vendor acquisitions, the capability to develop platforms is high on the agenda, such as Capgemini’s recent acquisition of VWA and its WebCollect OTC platform, Infosys with McCamish, Accenture with Zenta and IBM with Sterling Commerce.

Choice 3: Partner with a software firm and deliver directly to the client

Both SAP and Oracle have invested heavily in structured programs over recent years to encourage the BPO providers to deliver processing services that are underpinned by their software products.  This has included programs to support education and implementation throughout the outsourcing process, in addition to license agreements structured specifically for an outsourced environment.  Many BPO “partnerships” have been announced such as Wipro with Oracle and Netsuite with Genpact, however, we’ve yet to see significant evidence of clients chomping at the bit to take up these software/BPO partnership offers.  Most of the software firms have “partnered” with as many services providers as possible to maximize their market opportunity, as opposed to co-development and co-investment of product and delivery resources.

While SAP already has been attempting to assemble its own portfolio of Cloud “offerings”, it has been worried about cannibalizing its cash-cow legacy revenue from its ERP licensed products. How SAP  structures the licensing and pricing of SuccessFactors is going to dictate whether BPO providers offering HR services will seek to push it proactively to their clients.

SAP joins Oracle in increasing its stranglehold over enterprise software platforms

For service providers seeking to push HR services  to large enterprises, it’s increasingly challenging to avoid partnering with either SAP or Oracle in some capacity (Choice 3 above).

For example, if the client already has PeopleSoft or SuccessFactors and wants a BPO provider to service those existing implementations, there really are only two ways for the providers to be competitive from each other:

1) Be cheaper than everyone else.  Provide payroll processing or employee-record update services at a lower FTE cost than the next provider.  Hmmm… doesn’t sound like a very attractive business for the ambitious provider looking to increase its margins and service value… sounds more like a race to the bottom.

2) Be better than everyone else.  Provide HR consultative services, such as succession planning or change management that truly differentiates themselves from their competitors, and allows them to charge higher rates to the clients.  Clearly, this is the preferential model for providers seeking higher margin-value, but wouldn’t it be so much more attractive to provide their own workflows and platform?

The dichotomy here is that whatever route BPO service providers decide to take, they can only really achieve price-per-headcount results and can’t truly look at delivering real business outcomes for their clients, if they are delivering someone else’s workflows. For example, being incentivized financially for lowering a client’s employee-attrition, or increasing their employee-satisfaction. Moreover, whichever way they look at it, they are going to have to factor in the hefty Oracle or SAP license fees somewhere along the line.

The bottom-line: SAP and Oracle need to embrace outcome-based service provision to make this attractive for both BPOs and clients alike

SAP and Oracle need to work with service providers to develop outcome-based scenarios for clients.  This means they actively need to offer up portions of their license fees to incentivize risk-sharing pricing.  This could work if the ERP provider gets paid via the same gain-share model the BPO has structured with its client.  However, this is a lot easier-said-than-done, as it’s hard enough for client and provider to broker a gain-share engagement model, let alone invite the software vendor to get involved.  (If someone has an example of this type of model actually working in practice, please tell us, as this is where many of these engagements need to be structured in the future – and would be a great advancement for the lawyers and third party advisors, if they dare to venture away from their familiar FTE-based transactions).

Ambitious services providers in the HR space need to look further afield to make smart platform investments. There aren’t too many options left in the market for BPO providers seeking to make their own platform investments.  If you read the speculation, Taleo is the next best available, and this isn’t overly attractive, with most of its revenues coming from recruiting. It also puts the spotlight on SuccessFactors’ (arguably) toughest competitor, Cornerstone OnDemand, with its compelling platform of integrated Cloud-based talent management processes.

Beyond Taleo and Cornerstone, there are few public HCM SaaS vendors left worth acquiring, and there is precious little value to be found when examining the HCM start-up space. The darkhorse in all of this is what happens with Workday, and whether it can make itself a more attractive partner for one of the BPOs to make a real play into the HR BPO services market.  What would be game-changing, is if one of the leading BPOs were to acquire Workday and create a whole new platform/BPO ecosystem in its own right; however, it’s unlikely that any of them would dare upset their cash-cow Oracle and SAP relationships.

It seems the Oracle/SAP stranglehold is set to continue for a few years’ yet, but the increasing development of the Business Platforms market could be the ultimate force that finally starts to erode their domination.

Well, your wait for answers is soon to be over, thanks to our own resident cheese-buster himself, the notorious Esteban Hererra who re-wrote the rule book on busting through the PowerPont cheese with his famous post entitled “Eight top tips to prevent outsourcing providers committing harakiri in the sales process“.

So how can you make the sales process smell less like a Wisconsin dairy farm? Easy – simply join us for our next web event, where we’ll discuss – and officially answer – these questions:

• Which common presentation practices are actually detrimental to the efforts?
• What are buyer’s pet peeves during sales pitches?
• What can buyers do to improve the quality of the communications they receive?
• How do successful presenters manage time and use tools like powerpoint?
• What makes a presentation memorable?
• In outsourcing pitches, how can you achieve differentiation?
• How can you separate the hype from the actual capabilities of a provider?

December 7th at 11:00 AM Eastern Time, 4.00pm GMT

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HfS says NO to cheese

Watch the sparks fly as HfS COO Esteban Herrera leads the discussion with these four cheese-busting industry luminaries:

*Kevin Judice: CIO, PNM Resources
(Rumored to turn up to sales pitches with a 12-bore)
*John Gustafson: VP, Energy & Utilities, Wipro
(Has the bullet-holes to prove it)
*David Poole: BPO Executive
(A reformed fondue expert and expert salesman)
*Chip Wagner: Chief Cheese-Busting Officer, Alsbridge
(Spends his days wearing cheese-armor)
*Mystery Cheese
(We’ll unveil a mystery cheese-buster especially for the occasion!)

December 7th at 11:00 AM Eastern Time, 4.00pm GMT

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Taking on the Indian outsourcers: too late to make a splash?

HfS Research Fellow and Sourcing Change protagonist Deborah Kops investigates whether India has bowled an unplayable delivery to the rest of the world’s ambitious outsourcing businesses, or if there’s still a chance to nick it over the slips and get on the scoreboard…

Let’s give Indian-legacy providers their due—they arguably initiated, then accelerated acceptance of  the concept of working offshore; they’re well-entrenched in some of the best global clients; they’ve set the bar for industrialized delivery—from hiring to training; from process mapping to technology, from delivery to measurement. As a result, sending critical processes over five time zones away is considered safe and smart today. Other countries want to emulate their positioning, ensuring that the names Brazil or Chile, Malaysia or China, South Africa or Kenya, Ukraine or Poland are mentioned in the same breath when global delivery models are under discussion.

Will the market expand rapidly enough to make non-Indian providers a must-add to business models—beyond a language or regional proximity play? Will clients seriously consider providers based in other geos to deliver critical scale for finance and accounting, knowledge or vertical business functions in the near term?

Despite rising costs and increasing attrition rates, it seems, for the foreseeable future, Indian legacy providers will continue to have a leg up on providers headquartered in other countries, with good reason.

Why is challenging for non-Indian offshore providers to penetrate the global outsourcing market?

Reputation. Bad American sitcoms and call center jokes aside, just as Germany has built a reputation for precision engineering, or Italy for fashion, or the French for fine food, today India’s greatest reputational export is globalizing work. It makes no difference that the Koreans can now go toe-to-toe on the manufacture of quality cars, or some of the best new fashion designers are coming out of Turkey, or London has more Michelin-starred restaurants than Paris—Germany, Italy and France are synonymous with great cars, high style and fabulous eating. Similarly, Brand India is outsourcing.

When buyers think of India, they think of the jobs export destination. Whether that reputation is due to timing, compelling wage rates, undisputable demographics, marketing or luck is unimportant; truth is no other destination  conjures up the same meaning in the minds of sourcing decision makers. Buyers are aware of the plusses and minuses of sourcing to India and understand the map– Bangalore has strong analytics talent, Chennai the right location for technology and Pune a Mecca for finance and accounting. By contrast, what sort of talent can be found in Uberlandia, Timisoara or Accra?

For the foreseeable future, unless there are explicit language, market, or portfolio risk issues, India’s providers will dominate every long list. What’s helping India reign supreme? Why can’t providers in South Africa, Colombia, Ukraine, Brazil or even China come close to India?

Scale. We acknowledge that without scale, any business is seen as a hobby. Although there is sometimes room in our sourcing portfolio for small, emerging best-in-breed providers, we tend to gravitate to markets and providers with scale to serve our needs, even if we don’t plan to expand. Scale says that other clients are placing the same bet; that we’re dealing with a financially and operationally sound operation; and that the provider will be able to make the right investments to improve our business. Plain and simple, at this point in time, other outsourcing destinations do not have sufficient scale to challenge India.

There are several dimensions to scale—scale of the indigenous industry, scale of the export industry and scale of the individual provider. Scale of the indigenous industry is important: corporate decision makers want comfort that the location will grow as a sourcing destination and the government’s economic development policies are aligned with their goals. Corporations have no interest in being held hostage to the vagaries of political and economic policy in emerging sourcing destinations.

Second, few corporations have any desire to be the only game in town. Going it alone is rarely an option when it comes to designing a global delivery model; the herd instinct is the strongest justification for offshore location decisions. Being the foundation client for a provider’s new center is fraught with risk—will the provider be able to attract the right talent? Will the provider scale quickly enough to keep costs in check? Few organizations have the desire to be the biggest fish in the provider’s pond, even though providers think playing the “special relationship” card is a great enticement. In a maturing market, clients no longer have to take this risk.

Lack of network. Have you looked at the roster of so-called global sourcing leadership in blue chip companies lately? Along with Smith and Johnson, you’ll find an increasing number of names that reflect the map of India—Gupta, Jain, Singh. These sourcing-savvy executives, often groomed by stints in leading Indian providers, or selected because they understand how to do business offshore (read: India), have, in aggregate, extraordinary power to devise corporations’ global delivery maps—and source more work in India.

Although India is certainly a vast country, as a percentage of the population, experienced sourcing professionals are relatively few. So the game of seven degrees of separation works wonders when an Indian outsourcing salesperson knocks on the door of a major bank, telecom or outsourcing advisor. This is not to accuse Indian sourcing executives of any overt bias toward India as a sourcing destination, or India-legacy providers; rather, they go with what and whom they know.

Providers from other locations just don’t have the same network of countrymen in place. Chances are, walking into a meeting and greeting the exec in Sichuan dialect, or chatting about the best place to eat in Lvov, is highly unlikely. So if shared knowledge or experience is not in place as a platform to build the trust necessary to establish a good relationship, it means the non-Indian provider has to work that much harder to gain credibility.

Lack of strategy. When Indian providers first came onshore, market conditions were nascent. Timing and luck were often enough to attain scale. It was possible to play the IT card one day, and boast mastery of business process delivery the very next. If one client wanted insurance process delivery, and another logistics support, the provider could—dare I say it—fake it, leaning on a relationship to get enough time to figure it out.

But in today’s mature market, it’s impossible to grow without a plan. With an established sourcing destination map, and a recognizable roster of Indian-legacy providers, successful market entry by non-Indian offshore providers means playing it more strategically.

It’s no longer enough for a provider to show up at a trade show, throwing up a value proposition and seeing what sticks—ITO, analytics, horizontal or vertical BPO. Second, the all-things-to-all-people approach that worked 10 years ago is now passé. Buyers have moved on, demanding proven track records and deep skill sets before they entertain a relationship. So the non-Indian player, with limited relationships and brand recognition, is forced to declare his hand relative to process and domain.

Lack of investment in marketing. Granted, with a few exceptions, Indian providers are not masters of marketing. Most of them are still struggling with differentiating their brands in a market where one provider’s declared value proposition looks like another’s. But the news is they have some semblance of brand resulting from time in market and success in client penetration, not to mention a boost from the India-as-the-premier-sourcing-location reputation.

The “me-too” marketing approach taken by non-Indian providers is simply not workable. Believing that brand doesn’t matter and that the market is big enough for everyone is a non-starter.  They either spend a pittance in marketing, or when they do open their wallets, they get limited bang for their buck, buying ads or showing up at conferences which few clients attend– because the decisions are being made from marcomms managers in Buenos Aires, Kiev, Dalian or Kuala Lumpur. Little attention is paid to deepening relationships with influencers or developing thought leadership as a differentiator. Marketing is treated as a sideline, when it’s the key driver of revenue for new outsourcing market entrants.

Language. English really rules in the outsourcing world. The vast majority of multi-nationals use English as their lingua franca, even if they are based in Germany, Spain or Russia. Industry research and commentary is written primarily in English. Most conferences are held at least in part in English. Computer literacy is heavily dependent on knowledge of English. Buyers want a range of language capability to service particular markets, but who grows a global outsourcing business speaking mainly Finnish, Chinese, Tagalog or French?

Deborah Kops, Research Fellow, Sourcing Change Management, HfS Research (click for bio)

The concept that providers without strong English language skills can simply decouple tasks as “non-language dependent” in order to move delivery anywhere is a belief of mythical proportion. And assuming that client-facing staff with less-than-adequate fluency can successfully grow a business is a similar fallacy. The charm of a thick accent pales when a buyer is negotiating a contract or the transition team is mapping processes.

Language skills imply a degree of cultural understanding. When a student is immersed in English language study, he learns more than grammar. The syntax tells him something about the way native speakers look at the world. Exercises help the student understand why the English are fanatics about gardening, or why Americans love their baseball. Don’t underestimate how language drives context in outsourcing—it makes all the difference to relationship success.

Let’s face it–India has the English advantage in spades. Granted, not all staff speaks like Bostonians or Brummies, but the understanding necessary to communicate is present. Outsourcing is about crossing an organizational divide to forge relationships; if the language issue rears its head as an obstacle, it’s difficult to justify working with the provider, all other things being equal.

So, with the reputation, scale, client networks and language boxes checked by India, how do non-Indian headquartered providers compete? Stay tuned for Part Two.

The Indian ITOs have built their companies by occupying “real-estate” in the CIO offices of the Global 2000.  They’ve done a phenomenal job piling in the people resources to support application testing, maintenance, help desk and development projects.  They’ve developed institutional knowledge of their clients’ IT processes to support the business, which has proven cost-effective for the vast majority of leading global enterprises.  Our recent state of outsourcing survey found 97% of $1bn enterprises outsourcing some component of their operations in today’s environment, with most of these organizations involving Indian ITO service providers within their supplier portfolio. However…

Developing BPO footprints requires cementing relationships beyond the walls of the CIO’s office. One of the reason’s for HfS’ success, is our ability to communicate with business function leaders, in addition to IT leaders.  This involves understanding and lending value to supporting the business function issues and processes that impact finance, procurement, supply chain, HR and other operational areas.  Most of our research competitors are firmly rooted in IT-land and have not invested in personnel that can open communication channels to support the business functions - and most never will.

It’s similar for the Indian IT services firms, as they seek to push business-process led solutions, often enabled by IT, into their clients.  While many initially began their forays into BPO by attempting to reach business function leaders through their IT relationship, most have realized that they need a more direct line into the business function than tenuous introductions from the VP of CRM apps.  They’ve realized they need to make significant investments in domain-specific personnel (with real process experience) both onshore and offshore, to create awareness and open communication channels, in addition to the scale they need to take on business. They’re also realizing they need patience to convert clients and often start with much smaller engagements and make margin sacrifices.

So let’s take a closer look at one of the up-and-coming Indian firms that’s made a concerted effort to build a top-tier BPO business over recent years: InfosysBPO, who recently invited us, and several other industry influencers, to partake in their anual BPO client event, named “Colloquium 2011“.

Is InfosysBPO ready to challenge for industry leadership?  Here is our thinking…

InfosysBPO is now a major BPO contender in the global marketplace.  Infosys has quietly gone about building its BPO business streams since its inception via the buyout of FAO provider Progeon, exactly five years’ ago and expects to reach the landmark of $500m in revenues this year.  HfS has always been encouraged by the firm’s approach to developing both horizontal and vertical BPO services, and its focus on leveraging its IT heritage to augment its value proposition.  Infy is by no means the biggest player in the BPO business nor does it want to be, but it has been able to establish itself as a smart and very respected player in the BPO business.

Overall, it has shown the rest of the industry how to grow profitably and maintain above-industry growth performance. Last fiscal, it grew its business from $352m to $427m, while maintaining operating margins in excess of 20% – the best growth performance than the rest of the BPO market. We believe it has also established strong positions in the retail and consumer products, banking, insurance and manufacturing industry verticals, in addition to the horizontal BPO areas of analytics, sourcing and procurement and finance and accounting.

Consequently, today’s business takes on the following estimated revenue-breakdown:

HfS’ opinion of InfosysBPO’s strengths

Its open culture creates greater customer loyalty.  Infosys has consistently been one of the most open BPO firms for introducing its customers to each other and instigating open and transparent dialog with industry influencers. Attend any of its BPO customer events and you’ll be surprised by the refreshing openness of the dialog where customers air their operational issues in an open forum and have practical discussion with their peers to share their best (and worst) practices.  Too many of their competitors’ events make you feel like all the content is stringently policed and controlled with constant “rah rah” cheerleading of the provider’s performance. With BPO, we are dealing with real people, real business issues and real processes; clients today are too smart to be brainwashed and want to have the open, honest debate regarding how to get better at managing a BPO engagement.

Its organic growth performance has been exemplary. InfosysBPO has done a fabulous job growing its business organically – the best among its peer group of traditional IT offshore competitors.  All its major offshore IT competitors have inherited more than 50% of their business from acquisitions:

• TCS –$688m out of $919m
• Wipro – $235m out of $508m
• Cognizant – $150m out of $250

Strong leverage with IT clients. It has leveraged its existing client base on the technology side with more than 60% of the existing BPO accounts also being relationships on the technology side. At the same time, it has been able to drive new business with its dedicated sales team opening several new annuity BPO relationships and using that as a hook to cross-sell and up-sell other Infosys offerings.

Strong vertical process performance. It has focused, over the last couple of years, on expanding its offerings which impact the direct costs of their clients and, hence, the gross margin line as well as impacting revenue of its end customers. Revenue from these vertically-focused offerings today give Infosys BPO more than 35% of its total business, which is significantly higher compared to the rest of the industry, which focuses most of its energy and resources on horizontal BPO offerings.

Focus on business platforms. InfyBPO has focused its energies on converging operations and technology to drive a multiplier effect for its clients which goes far beyond Six Sigma and continuous process improvement. Its heritage in technology has allowed it to lead leveraging Business Platforms (branded as InfosysEdge for different vertical and horizontal areas with 14 platforms actively in the marketplace) as well launch several Technology Value Accelerators (TVAs). Today, Infosys has more than 100 such TVAs in the marketplace in different vertical and horizontal markets. Today, all technology led BPO revenue constitutes more than 20% of the business and is steadily growing in contribution.

Global expansion is broadening its growth potential. InfyBPO has also been able to create a true global organization with local leadership in each of its centers – for example, its Brazilian operations are led by a local Brazilian, its Mexican operations are led by a local Mexican, its Polish operations are led by a local, as well as its Chinese and Philippines operations.

Speed of response and a high degree of customer centricity. With InfyBPO being a subsidiary of the Infosys mothership, it has provided its clients access to executive management, unlike its parent organization which has been a lot slower off the blocks. Having its key senior leadership (Ritesh Idnani – Chief Operating Officer; Gautam Thakkar – Global Head, F & A and Suranjan Pramanik – Global Head, Manufacturing) highly visible in the marketplace – and always available for a beer – is a huge plus compared to some of the other providers.

HfS’ opinion of InfosysBPO’s future challenges

Ability to continue differentiation in a rapidly evolving marketplace.  For now, Infosys’ bet on leveraging technology to drive efficiency and effectiveness in their BPO business is paying dividends and they do have an early-mover advantage here.  However, the rest of the pack is aggressively pursuing similar game-plans and it is going to require a lot of continued investment and focus to stay in front.

Ensuring client expectations around transformation and innovation are suitably calibrated. Gone are the days of labor arbitrage and process improvement – that’s now tablestakes for BPO. InfyBPO does seem to have taken some relevant steps here with the constitution of an Innovation and Transformation Board for its clients, which helps drive the transformation agenda in a focused and structured manner, however, several of its competitors also have similar iniatives in play with their clients.

Placing BPO at the forefront of the executive Infosys corporate agenda. BPO only represents 8% of the Infosys business today, but is one of the key growth engines and still an investment business rather than a mature business. Will it be able to get a significant mindshare in the overall Infosys enterprise to garner investments?  Will it receive the sales, marketing and investment attention it needs to hit $1 billion in the medium term?  Bear in mind that Capgemini recently elevated BPO to one its top tier service lines, while Accenture often leads with BPO at its corporate events.  In addition, IBM has recently appointed a true services veteran, Ginni Rometty as CEO, a known proponent for growing IBM business process market share.

Over-ambitious profit expectations at the expense of growth re-investments. The InfyBPO business still has higher profits compared to most of the BPO sector.  Worryingly, Infosys lost marketshare in the IT services side in 2008, when its other competitors like Accenture, TCS and Cognizant went after growth while maintaining margins in a lower band. Infy’s BPO business could get similarly trapped if it continues to want significantly higher margins than the rest of the sector and not be prepared to make strategic bets in areasit wants to grow (such as TCS’ recent margin-gamble to win the Friends Life insurance deal).

Being over-tentative with its cash investments to develop capabilities. Infosys needs to leverage its cash chest more aggressively as competitors are fast either plugging capability gaps or gaining advantages in markets on the BPO side (such as EXL’s recent acquisition of OPI, Genpact with Headstrong, Accenture with Ariba services, Cognizant with CoreLogic and Capgemini with VWA). Given the greater stickiness of relationships on the BPO side, this will be a critical component for continued success to avoid its competitors gaining scale.

Attrition and availability of talent.  These are common industry challenges and cannot be overlooked, especially in the current environment where quality client executive leaders in BPO are becoming scarce. InfyBPO does seem to have taken steps here to arrest attrition and keep it below industry averages, however, it does have some high-performing client executives it needs to ensure are firmly on the train for the future journey.

HfS’ view of acquisitions Infy should look at to grow its BPO business beyond $1Billion

Infosys has been tardy in its acquisitions although its BPO business has been a lot more progressive with 2 acquisitions in the last 4 years. It acquired Philips’s shared services center in 2007, which has now more than doubled in revenue since acquisition. It made a foray in the insurance marketplace with the acquisition of McCamish, in December 2009, which instantly gave it a leadership  position in the life and annuities insurance market. The McCamish business has grown more than 40% since acquisition and the pipeline has quadrupled in the last 22 months.

With such proven success with its two previous acquisitions, HfS is surprised Infy hasn’t been more aggressive with making additional investments in new capabilities to augment its market position even further. The market for acquisitions has been hotting up with several of Infosys’s competitors being aggressive in fueling inorganic growth to compensate for their lack of organic growth in the marketplace, such as the examples we mentioned above. Infy will need to look at bolstering its footprint in the following areas – healthcare, utilities, gaining more scale in traditional sourcing, onshore collections etc to ensure it can grows its business beyond $1 billion over the next few years.  With its strong position in insurance, for example, it could take a serious look at insurance BPO provider EXL service to cement its position in the sector.  Such investments do not come cheap, and will require some bold management decisions in the coming months, if they are to stave off aggressive competitive behavior.

The Bottom-line:  A great job to get to this point, but the crucial work starts now

Having been witness to this organization growing from practically nothing to half-a-billion on barely five years, you can only praise InfyBPO and its leadership for a great achievement.  One constant tireless figure that deserves a mention has been COO Ritesh Idnani, who has been integral to the division’s development over this period.  However, the challenge for InfyBPO now is not only to go after the traditional western providers, such as Accenture, Capgemini and IBM, but also to stave off the canny moves we are seeing from the likes of Cognizant and TCS.

The speed of development of the competition to develop business platforms and secure new capabilities can change the market outlook very, very quickly indeed, and those who rest on their laurels will get left behind very quickly. The Infosys corporate mothership needs to start viewing its BPO division as a critical avenue for future growth and plan strategic investments that may involve some margin sacrifices.  By creating a separate operating entity has been smart, but the time is now upon us, where InfyBPO needs more focus than ever from its corporate benefactor.

HfS Research analysts attended Infosys Colloquium 2011 to hear how Infosys BPO is working with its clients. Over 150 attendees (clients, partners, analysts and Infosys employees) came together to share perspectives, learn from customers and understand Infosys’s BPO capabilities and new investments. HfS analysts Phil Fersht, Keith Strodtman, and Robert McNeill attended and joined customer panels.

Here’s the line-up…

The Buy-team

Roxanna Wall, Executive Director, Corporate Development at UBS AG

Colin Provine, Global Commodity Director, Honeywell

Ian Maher, Sourcing Management Office, The Hanover Insurance Group

Srinivasan Krishnamurthy, Vice President, Kronos Inc.

The Sell-team

Anoop Sagoo, Managing Director, Business Process Outsourcing, Accenture

Ritesh Idnani, Chief Operating Officer, InfosysBPO

Donniel Schulman, GM, F&A and Supply Chain Global Process Services, IBM

Hubert Giraud, Chief Executive Officer, Business Process Outsourcing, Capgemini

The Referee

Phil Fersht, Chief Executive Officer, HfS Research

November 22nd at 11:00 AM Eastern Time, 4.00pm GMT

REGISTER NOW 

With competition in Finance and Accounting Business Process Outsourcing (F&A BPO) reaching cut-throat levels (just observe some recent down-select negotiations and you’ll know what I’m talking about), what better than to acquire one of the most attractive onshore order-to-cash (OTC) specialists?  With demand for comprehensive F&A BPO coming from both mid-sized, in addition to enterprise-level clients, what better than to acquire an OTC specialist with on-the-ground delivery expertise and a mid-market offering?

Our only surprise at HfS is that is took so long for one of the top tier BPOs to make this move – acquiring the 45-year old heritage accounts receivables and order-to-cash specialist, Vengroff Williams and Associates.  A provider steeped in blue-chip clients at the enterprise level, such as Disney, General Electric, News Corp, Microsoft and Tyco, in addition to a raft of mid-sized clients such as Elizabeth Arden, U-Haul, Crescent Healthcare and Office Depot.  A provider that has resisted the temptation to develop offshore delivery and focus on smart onshore services. A provider that has developed its own excellent SaaS proprietary order-to-cash technology platform, WebCollect.  A provider with an annual client get-together called the “Billion Dollar Forum”, that you just have to go to, as its the closest thing you’ll ever get to feeling like a billionaire…

Yes, Capgemini has made a major move towards strengthening its position in the global F&A BPO market by today acquiring VWA – and leaping to third in the market share spot for F&A globally (which may change when we re-cast our data early next year, but for now they’re on podium).  You can also read more about our 2011 F&A BPO market landscape and outlook by clicking here.

We believe VWA was one of the few remaining jewels that the major BPOs needed to take a serious look at to bolster their presence and capabilities in order-to-cash.  Here is what they are adding to Capgemini’s global BPO business:

Positives of the acquisition

Expands Capgemini’s US onshore presence.  Capgemini has traditionally been very strong as an International BPO provider – especially with its European and Asian presence, but has perennially been perceived as lagging in the US, despite having made delivery investments in regions such as Junction City, Kansas.  VWA’s addition immediately solves this issue – and actually transforms the US region into a strength for the Capgemini, especially in light of its strong nearshore LatAm presence, with significant investments in countries such as Brazil and Guatemala to help service US clients;

The merger is a good cultural fit.  The two firms have been working together on client engagements for some time, and know each other well.  Moreover, VWA has a strong employee ownership culture and didn’t take this decision lightly – they wanted their own staff to ratify the deal. Several other potential acquirers have taken a good look at them and this “fit” was not nearly as strong;

Accounts Receivable BPO is booming and Capgemini is now firmly in the game.  HfS is observing this market as topping $35bn this year and too many of the existing BPO providers have relied on subcontracting specialists (such as VWA) to provide the AR BPO services.  By owning the process, Capgemini is in a significant positon of strength to price deals more aggressively and has more client exposure and capability to explore outcome pricing options.  Plus, Capgemini can also go after standalone AR BPO deals and leverage its global presence to be very competitive in this market.  Too many of the current crop of F&A BPO engagements have been dominated by accounts payable processes, and this added capability gives Capgemini the chops to go after deals aggressively with heavy OTC components;

VWA brings to the table a quality order-to-cash business platform called “WebCollect“.  We believe WebCollect can really help both new and existing clients standardize on quality standard workflows, which our research is abundantly demonstrating is where much of the future of BPO is headed.

VWA’s business takes Capgemini into the middle-market.  With saturation occuring at the high-end of the market, attention is turning to the middle-market (the $500m-$3 billion segment), where clients are frequently seeking “bigger-bang” and more comprehensive deals that the top tier providers can comfortably cater.  Our recent State of Outsourcing industry study shows the increasing relevance of the middle-market to BPO services areas such as F&A.

This year, Capgemini has BPO as a top-tier service line which will help it capitalize on the acquisition.  Rather than submerging BPO as a secondary service line under ITO, which some other service providers persist in doing, Capgemini’s BPO division now enjoys status as a major front-line services category in its own right.  While this brings increased financial scrutiny from the board, it also empowers the division to get access to similar sales, marketing and development funds as those enjoyed by other top-line services divisions, such as consulting and IT services.  This added marketing muscle will be critical for branding the VWA capabilities, as they are fully merged into the broader BPO division.

Potential challenges posed by the acquisition

Capgemini’s brand in the US.  With all roads traditionally leading to Paris, this has been somewhat of a perennial weakness for Capgemini, when competing for US-centric BPO deals.  However, major client wins in recent years, such as Coca Cola Enterprises and Avon Products have done a lot to increase awareness and exposure in the US market.  Capgemini needs to leverage VWA carefully to improve further  the awareness of its significant onshore US presence and brand awareness as an F&A BPO provider.

Too much focus on horizontals versus verticals.  With Capgemini’s increasing strengths in F&A, procurement, supply chain and customer management BPO, the firm does run the risk of losing focus in some of the emerging vertical BPO markets, for example banking, insurance, life sciences, healthcare and energy.  Capgemini needs to figure out how to develop and position its vertical strengths  effectively and not become overly submerged in a horizontal play.

Potential conflicts with existing engagements.  VWA is present as primary OTC “subcontractor” on engagements where Capgemini’s competitors are the primary F&A BPO supplier.  This could create some contentious issues with regarding to working relationships and contract renewals.  However, it could also put Capgemini in the unique position of potentially edging out some of its primary BPO competitors, so this could ultimately provide more opportunities than headaches.

The Bottom-line:  this is a very smart acquisition by Capgemini

VWA fills many of the needs Capgemini has as an emerging F&A BPO powerhouse.  There aren’t too many BPO acquisitions that appear to be as solid a fit as VWA into Capgemini, and the market for AR BPO is critical for future growth in this space.  The next challenge for all BPOs is going to be creating more utility in the market to take on more clients, and the WebCollect platform has great potential to provide a platform this growth.  HfS would like to see Capgemini embrace WebCollect and develop it over time to cater for clients with specific vertical requirements, for example in the retail space versus hi-tech and media.

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 seek more standardized solutions from their outsourcing engagements. Moreover, more process standardization leads to more Cloud-based BPO services where clients can easily tap-into these Business Platforms without having to grapple with cumbersome on-premise software and expensive licenses, or contend with resistance from awkward internal IT staff.  In short, buyers can start to look at moving from “A to C” with adopting quality standard processes and miss out much of that painful “B” phase (which is often where many get stuck unto perpetuity).

So what are Business Platforms?

Business Platforms, enabled by the fusion of Cloud Computing, SaaS and BPO innovations in an integrated singular managed service, are emerging rapidly as the desired “one-to-many” utility service provision for providers and a new source of value for outsourcing buyers.

Buyers can now explore transitioning more rapidly to a desired future state for a specific business process, or set of processes.  The gauntlet being laid out to providers, with these Business Platforms, is their ability to support their clients’ transitions quickly and inexpensively.  Simply selling “products” is not the concept of business platforms – it is the provider’s ability to work with their customers to facilitate and support the ultimate business outcomes of managing the processes associated with the Business Platform offering.

Business Platforms have four key characteristics:

1. Business platforms provision managed standardized business processes;
2. Business Platform owners (services providers) are responsible for managing the business processes associated with the Business Platform and provisioning the people that operate them, the underlying software-as-a-service platform, and the supporting public of provate Cloud infrastructure;
3. Business Platforms focus on business outputs or outcomes rather than inputs such as labor and physical assets;
4. Business Platforms service more than one client

Well-executed Business Platforms provide customers with compelling technology-enabled business process services that help drive innovation via process re-engineering, greater business agility and productivity improvements. They are flexible and scalable in the face of global demand fluctuations and provide high-quality process workflows.

The Bottom-line: Business Platforms change the focus to the achievement of outcomes 

The days of clients being able to spend multiple-millions of dollars to transform processes as part of a complex outsourcing transformation are fast diminishing. Subscribing to Business Platforms that consolidate infrastructure, middleware software, labor, and process/domain expertise including future investments, as OPEX is attractive to clients. Cheaper to get started, and with output or outcomes-based fees, Business Platforms align with the current budgeting trends evident in the market. Buyers of non-core operational processes do not want to go and ask for CAPEX in this economic climate.

Click here to download our new RapidInsight, “What Are Business Platforms and Why Do They Represent the Future of Outsourcing?”

How do you execute for Global Business Services? Click to find our more...

The complex sourcing options available to global operations leaders today can prescribe real opportunities for business improvement, but  can also pose intricate challenges.  As we’ve been at pains to point out on HfS over the years, outsourcing is only one vehicle to provoke change, impact cost and provide process improvement opportunities. 90% of enterprises, with over $1bn in annual revenues, have shared services operations, and these need to be aligned more effectively with the 97% of these organizations grappling with governing outsourcing relationships.

So how do you take shared services leaders and blend their expertise with the outsourcing governors? How do you go from fragmented service delivery with multiple points of contact, to a global governance model with a rationalized and centralized administration of third-party service providers?

In our first paper on the topic, The Evolution of Global Business Services: Enhancing the Benefits of Shared Services and Outsourcing, we asserted that senior leaders can leverage a Global Business Services strategy as a comprehensive approach to achieve strategic objectives through blended shared services and outsourcing solutions.  In our new report, which we have co-written with Charlie Aird and Derek Sappenfield of PwC and entitled The three tenets of Global Business Services execution: customer alignment, accountability, and economies of scale, we are sharing best practices from organizations that have successfully implemented a Global Business Services strategy.  In particular, these include:

»      Focusing on the Customer – Global Business Services’ processes and technologies enable business unit strategies.  Building alignment and sharing a vision is imperative to achieving successful results.

»      Building the Service Delivery Model – Achieving economies of scale and scope requires well-defined and common business architecture.  Effective organizations have a strategy to construct and leverage their global business service capabilities.

»      Aligning Processes and Technology – Providing best practice back office services requires vision, agility, and coordination across multiple functions.  It requires a focus on the provision of solutions, not technology.

So what are you waiting for?  

Click here to download your freemium copy by visiting our research site

Check out our new Marketing BPO report... just click here

The three top dogs in the enterprise in those days were often the CEO, the CFO… and the CMO.  That ’80s CMO had to to understand the company strategy and have in-depth knowledge of the value of the products and services, while communicating that value to customers.  Not only that, he/she had to have detailed knowledge of who their prospective customers were and figure out how to reach them, while convincing the world they had a more desirable offering than the competition.  Simply put, the top CMOs were the strategists, the analysts, the go-to-market tacticians and the entrepreneurs all rolled into one super-executive.

Somehow, this function lost much of its strategic relevance over the next couple of decades, becoming a morass of (often dysfunctional) processes, data and workflows, with the CMO becoming an increasingly tactical executive, providing fodder for the sales team.  Conversely, the cost and importance of marketing has risen as the effectiveness has fallen away.  Sound familiar?

So!  Like any function in need of a facelift, a cost-gouge and some “transformation”, let’s consider outsourcing parts of it… so without further ado, let’s shift over to HfS Research’s exocet BPO analyst, Reetika Joshi, to discuss her new report “Marketing BPO Services: Solving the CMO’s Dilemma”, which you can download for limited time at our BPO Resource Center…

CMOs have it tough today, whichever geography or market you look at. They’re stretching dollars for myriad activities in a function that’s undergoing major change. The slow recovery from the recent credit crunch has only made the job tougher for marketers. Rising pressure on company profits has increased the need for companies to renew focus on issues such as pricing strategies, customer buying behavior, campaign management, and customer engagement.

A first-of-its-kind new study by IBM and the Economist Intelligence Cell highlights the four main challenges that keep Chief Marketing Officers up at night: the data explosion, social media, proliferation of channels and devices and shifting consumer demographics (for some reason, global outsourcing featured at #11). An overwhelming majority of the 1700 odd CMOs interviewed admitted that over the next five years, the marketplace as they know it will become highly complex. What’s even more disconcerting is that less than half these CMOs felt they were prepared to handle these complexities. Yikes! How will businesses market themselves in the future, what’s the action plan, you ask? The worldwide consensus revolves around three major pillars of marketing improvement, as IBM and EIC’s C-Suite study found:

-       Delivering value to empowered customers by bridging the digital divide and getting to know individuals as well as their markets. This also means implementing new technologies (e.g. to handle big data, mobile apps, social media) and advanced analytics to understand and predict buying behavior better.

-       Fostering lasting connections by focusing on online and offline community building to manage the customer lifecycle better, and developing strong ‘corporate characters’ that employees can internalize.

-       Capturing value and measuring results, which is where the dreaded marketing ROI is tackled through financial analysis, internal and external resource allocation and analytics adoption to measure and act on the results of marketing programs better.

These are ambitious plans indeed, and they’re not going to be implemented overnight. Checking everything off that list will call for a broad multi-disciplinary team working on several new processes and technologies. This isn’t something that every marketing department can maintain successfully. And here lies the strong case for external help that CMOs can seek today, and the opportunity for outsourcing service providers.

Outsourced functions such as finance and accounting, human resources and customer service have become industry norm in the last decade or so. At this critical stage in the maturity of the outsourcing industry, buyers and sellers are both posing questions about the next big function – can marketing make the cut, and be moved out of the organization? We decided to find out, in our new study, “Marketing BPO Services: Solving the CMO’s Dilemma”.

The truth is, marketing departments traditionally already outsource a portion of their marketing function (though this may not be construed as such)– advertising, some promotional activities and event management. Over the years, the services outsourcing industry has started to fulfill demand for a lot more support services under the broad ‘sales and marketing BPO’ category, including customer support and demand generation. The outsourcing of marketing as a horizontal service is in a very nascent stage currently. However, given the increasing pressures for CMOs we just discussed, we believe the scope for outsourced marketing services has expanded exponentially, as the image elaborates.

The range of outsourced marketing services today

Source: “Marketing BPO Services: Solving the CMO’s Dilemma”, HfS Research, October 2011

Now, are companies queued up for miles today, demanding these new fangled ‘integrated sales and marketing solutions’? The short answer is, in comparison with other outsourced services demand in the next year, no.

As recent research shows, 25% of the marketplace currently outsources – or intends to evaluate – marketing outsourcing opportunities in the next 12 months. Moreover, we are seeing first-time-buying intentions in the utilities, media, financial services and consumer goods industries, which roughly 10% of organizations expecting a first foray into marketing BPO services over the course of the next year.

The IBM and EIC study corroborates this, with highly pronounced future intent (next 3-5 years) for external partnerships for lead management, customer and data analytics and direct/relationship marketing, followed by IT, call or service center management and tracking and measurement.

It will be some time before these services are structured and formalized in the same manner as other horizontal offerings such as Finance and Accounting and Human Resources. Strategy teams for service providers are trying to place their fingers on the best approach to this vastly untapped market. The two crucial investments for these services include the right talent and technology/infrastructure. The high level of creativity and judgment in these activities necessitates the need to have people with a strong background in marketing, advertising, campaign management and other allied activities. High-end services within marketing require a lot of investment in the correct tools and technology to work on custom process frameworks and delivery for functions such as design, content management, analytics and database management.

Reetika Joshi is Principal Analyst, BPO and Analytics Strategies (click for bio)

The larger service providers often start with the “big ticket” items such as technical support, customer support and F&A before offering marketing services. These services will be outsourced only once trust has been built up between the client and the service provider (and even then, we’re talking about piecemeal deals currently). Buyers and service providers are likely to show more interest in the category as service offerings mature and buyers start to take stock and implement long term plans to transform their marketing activities.

You can download “Marketing BPO Services: Solving the CMO’s Dilemma” for  a limited time at our BPO Resource Center.

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…

NV "Tiger" Tyagarajan is the new President and CEO, Genpact (click for bio)

In Part I, we asked Tiger about his background and how he’s going to be a little different from his predecessor, Pramod Bhasin; Part II focused on Tiger’s immediate and long-term plans for Genpact; And finally, Part III delves into Tiger’s vision for the future of technology and BPO.  So, without any further ado, let’s circle back to the eye of the Genpact…

Phil Fersht (HfS Research): Tiger, There’s been a lot of talk about business platforms and bringing together clusters of standard processes, putting them in the cloud, etc. Do you feel the industry’s really moving that way, or do you think it’s a bit of a mixed bag?

NV “Tiger” Tyagarajan (Genpact):  I think it’s a mixed bag. Some global companies have deliberately set up independent businesses to enable a “clean sheet of paper” approach. Within that are questions including, “Can we put everything on the cloud?” “Can we wrap services onto a platform and make it standard?” “Can we all buy in to a standard without fighting like cats and dogs about ‘my process’ and ‘your process’”? Here it all boils down to, are we willing to accept a standard even though different people have opposing views?

The second situation is when large corporations are almost forced to venture into emerging markets, e.g., India, China or Brazil, in search of growth. In this scenario, they don’t have to worry about legacy processes and technology, which are expensive and time consuming. And with speed-to-market being so important, they believe they may as well hit the market running without having to invest in technology, instead investing in the cloud for just about everything.

The third scenario is for bespoke solutions for standalone requirements wherein organizations opt to buy, for example, a front-end sales force management tool on the cloud (e.g., Salesforce.com). But the reality is that most of this stuff is typically never integrated into the financial systems of the company, which actually makes it easy to say “I’m buying it.”

Then there are the mid-market companies that are growing rapidly, sometimes at a rate of 25-30 percent. For them, legacy systems don’t matter, because in three years their business will only be half legacy and within five years, it will have gone beyond that.

Similarly, emerging market companies are easily willing to leap frog onto the cloud because of their up to 40 percent growth rate. And for them, as legacy is pretty archaic, their willingness to jump to the cloud is really high.

Let me switch for a second to large corporations and their legacy platforms. We are finding that to be as tough as it was before. The fact is, if I walk into a global pharmaceutical company, even today its 100 (or however many) countries fight with each other on what is the right payables process for them. They are unwilling to sign on to a standard. So, I would argue, if they aren’t willing to sign onto a standard among themselves, the day of signing onto a standard that is a public cloud is far, far away. But I think if they agree to a standard among themselves, at least they can get on to a private cloud, which would be very beneficial.

But I still see that being quite some time away. There’s not enough push happening, primarily because there’s so much legacy and cost sitting out there, plus entrenched decision-making and vested interests. People worry about what’s going to happen to their job if processes go to the cloud. So, I think there’s a little more hype than reality about everything going to the cloud, except in the cases I already talked about where we’re seeing movement.

Phil:  My concern is that you see some of the providers persist in selling in the same myopic way they were three or four years ago, and today’s more sophisticated buyers are saying, “We know there’s cost reduction on the table. We really want to get to what you can do for us beyond that, and how can we trust you?” And if all providers are offering essentially the same thing, how does a provider differentiate itself? Is it ownership of the technology or distinctiveness of domain acumen? I think that’s the holy grail right now, and I’d love to hear your thoughts on this…

Tiger:   I don’t think that ownership of technology will determine differentiation. I actually believe the reverse is happening. More and more we’re getting to a world in which technology is not owned by anyone. The best technologies are open. The best platforms are open. The best platforms are the ones on which anyone can build on top of them and tweak and change them.

My fundamental view is that technology is only as good as the intelligence you build into it. So I believe that to differentiate ourselves, we have to search the world for the best technology, and then build in the intelligence.

How do you do that? First, you have to understand a process in its granularity: what makes it best in class, how to get there, what works, what doesn’t, and its contexts in both the horizontal and vertical domains in which it belongs. Then… we all know that the world is getting filled with data. There’s more data generated than ever before. If something today is not electronic, the drive to globalization is actually making it more electronic. One of the things I think we’ve done as an industry is help companies become more electronic. We’ve pushed the envelope harder, because without going electronic, you cannot globalize. So, globalization is actually helping digitization and electronicization of information.

Now when you have so much information available electronically and digitally, and it’s so easy to process from a cost perspective since storage is so inexpensive these days, who is building intelligence out of that data? Our argument is that in every industry there are companies that have decided their strategy is going to be building intelligence out of data. Our view is that those are the companies that will truly differentiate themselves, and those that don’t will start falling behind. And in my CEO job I’ve kind of championed smart decision services, where we build insights out of data for our clients, and then take those insights and build them into technology.

I believe that differentiation comes in your ability to generate and build those insights for your clients, not in your ability to handle the platform.

Phil:  So, if you could change one thing about the BPO industry today, what would it be? 

Tiger:   Can I pick two, one at the front end and one at the back end?

Phil:  OK, I’ll let you have two…

Tiger:  So at the front end, I really think too much time and effort is spent in repetitively going through the same selection process again and again and again, which keeps everyone at an arm’s length in an “I won’t tell you much” situation, for as long as 12-18 months. With how quickly the world moves today, 18 months is a heck of a long time. I don’t know of any other activity in an organization where people are given 18 months to do something. I’m not given 18 months to do anything.

Instead, if you short circuit that, for example, to three months, then you can spend the next nine months, together with your chosen provider, going into the bowels of your organization and really figure out your roadmap to best in class. Then you can accelerate your execution by at least three months.

But more importantly, because you spent nine months together in this venture, I think your solution is going to be much more robust, and will accelerate you to best in class so much faster. And I think the sourcing world has misunderstood this game as compared to buying laptops or travel, etc. It’s a different world.  But any time you can move it along more quickly, you bring so much more benefit to the client.

On the back end, I think the openness with which an organization approaches the relationship in order to accomplish the end goal…I can’t do it alone, and you can’t do it alone. We have to do it together. And yet, conversations around, “can we both put some skin in the game?” “You don’t own this, so you don’t worry about it. Let me do it.” “I can’t pay you for outcomes or I can’t share the gains”, just take too long.  When we break through those barriers, both companies can gain so much more value.

Phil:  Well, there we have it!  Thanks so much for all your time with us, Tiger – and all the best with the new job!

Click here to read the full three-part interview trilogy

NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact.  You can view his full bio by clicking here.  

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:

Why are these findings significant?

Buyers see little point persisting with their home-made operational processes and are tired of the excuses and inertia.  In days gone by, most buyers only wanted to take their existing mess have have it reproduced with the same workflows, the same spaghetti code, the same quirks etc.  They would often declare “let’s lift it out, shift it over there and then see if we can transform it at some future point”.

Many buyers have now had some version of failed lift and shift on their unofficial outsourcing resumés today – they’ve realized that once they’ve shifted it, there’s little money, or board-level volition, left to invest in improving process and technology (read here for more on this topic). They know that their chance to rip out the rot is with the lift and shift – not at some divine point in the future when corporate leadership is suddenly going to issue a holy decree that they are going to make process optimization their number one prority. There’s more chance of Donald Trump appearing in a Just for Men commercial…

Buyers being highly motivated to move to common standards drives the development of Business Platforms.  Most significantly, is the fact that 80% of buyers are willing to move onto standard processes.  They are 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 those process in a certain unique manner.

This is huge news for providers seeking to push more productized and one-to-many (or at least one-to-few) utility offerings into the market. 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 seek more standardized solutions from their outsourcing engagements. Moreover, more process standardization leads to more Cloud-based BPO services where clients can easily tap-into these Business Platforms without having to grapple with cumbersome on-premise software and and expensive licenses, or contend with resistance from awkward internal IT staff.  In short, buyers can start to look at moving from “A to C” with adopting quality standard processes and miss out much of that painful “B” phase (which is often where many get stuck unto perpetuity).

Buyers are looking to globalize their business service management more effectively.  The greatest single major-motivator driving outsourcing in today’s environment is this need to have more flexible global operations (43%).  Governance leaders are under increasing pressure to move onto single instances of ERP, and develop real end-to-end visibility across their global processes.  In olden outsourcing days, far too many organizations would operate their shared services under one management team, and often brought in elements of outsourced IT and business process into siloed vendor management functions which often became disconnected from the broader shared services function.  Today’s shared services leaders know they need to integrate the outsourced services much more effectively with their existing processes in order to get anything close to achieving global process effectiveness. They are also highly cognizant of the fact that they can leverage outsourcing as a vehicle to achieving process enhancements that have been back-burnered for years.

Buyers want better technology support.  While in the past, much of the motivation behind ITO was simply to drive out the high cost of maintaining support services onshore, the onus has broadened to both ITO and BPO engagements with buyers simply wanting better technology. You only have to look at the pain in the eyes of the long-suffering process-owners, still trying to develop a standard global template for their P2P processes and tie it to one instant of SAP, who still have to spend a fortune each year on multiple services firms to help with Nota Fiscal, China’s Golden Tax or the Russian Tax Code – or simply wind up dropping huge hourly rates on SAP’s consultants to do it for them.  They’re fed up with it and patience is wearing thin, with many firms looking to get more bang for their buck when they look at their global outsourcing engagements.  At the same time, the leading providers are investing more than ever in global delivery to up their game with their clients.  Whether you’re looking for a global SAP build-and-run partnership, or a multi-process finance and procurement BPO, getting top grade IT support is now a major differentiator.  ”Good enough” is no longer an option.

The Bottom-line: Buyers are more educated with outsourcing and looking for a whole lot more from the experience

Reading into this data confirms what most of us in the business are hearing and seeing everyday from buyers – they’re getting smarter about sourcing and are upping their expectations.  They also know they’re likely to be stuck at some end of an outsourcing engagement for most of their career, so they might as well figure out how to do this properly.  Gone are the days when you threw your provider under the bus in five minutes – you’re head is now on the block to make it successful for your organization, because it the engagement fails, you fail and someone else will be drafted into your role to fix the mess. You don’t want a reputation for sloppy governance on that outsourcing resumé.

Health plans, PCs... who cares?

Did HP recruit the right Republican? With the 180-degree strategy flip over the “sale” of its PC division, shouldn’t HP have hired the master of the 180 himself? And is there a difference between “keep” and “couldn’t sell”?

One can ask many questions as to why HP’s new CEO made such a dramatic reversal of Léo Apotheker’s decision barely two months’ ago. There’s nothing wrong with making “180′s” with product and strategy decisions – the very best businesses in the world have been quick to admit bad decisions and correct them. Even the great Steve Jobs made some 180′s in his career… but none of them in barely 2 months.

However, I believe the answer is very simple:  HP’s board has had a deep look into its very soul, and had a very scary premonition of where it was headed. It saw its future existence without its heritage hardware businesses, becoming predominantly an enterprise IT services organization with a curious software acquisition.  Yes, it was running the risk of morphing into a me-too to IBM. IBM has just appointed a laser-focused services leader in Ginny Rommety to take them forward as a services mammoth. Enterprise services is IBM’s DNA. HP has hired a politician and Internet auctioneer entrepreneur. Hmm…

Did Meg make the right call to keep PCs?  Yes – she probably did for three reasons:

1) No-one wanted to buy the division;

2) HP’s board never really wanted to sell it;

3) HP’s board was feeling naked and exposed at the prospect of rebuilding the firm without it.

The jury’s out over whether Meg will turn around a famous company which is now struggling to save its tarnished brand.  It’s an immense challenge and will take several months to see any real progress, but reclaiming part of its very soul – making personal computers – will help it rebuild its identity.

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…

HfS Research is the Analyst Firm of the Year for Outsourcing, while Phil Fersht scoops Analyst of the Year

For some reason, people keep insisting on giving us accolades for being cranky, irritable and disruptive influences on the services industry.  

However, the awards we received today (see link here) are an unbelievable validation of our team’s hard work from the International Institute of Analyst Relations (IIAR) – and proof that we’re not just a “flash in the pan” in the industry analyst business.  IIAR’s awards are widely recognized as the foremost accolades in the analyst profession, with such a large number of analyst-facing professionals providing the votes.

Today, HfS Research won the individual award for “Analyst of the Year” for a second year in succession (some individual called Phil Fersht now sporting an ego so insufferable, it’s rumored he can’t even stand his own company).

In addition to the individual analyst award, HfS Research topped the charts for “Outsourcing, BPO and Maintenance Analyst Firm of the Year“.

And this time, HfS Research was a runner-up for the overall “Analyst Firm of the Year”, behind the formidable Gartner.  Over 260 analyst and influencer relations specialists took part in this year’s survey – by far the greatest number to date, who voted on all the major research analyst organizations, such as IDC, Forrester, Ovum and so forth.  According to some of the participants’ entries, success factors included, “intelligent people with common sense”, “Research that is always compelling to read – and our clients like it” said another. One participant went further saying of HfS, “They are the heartbeat in the world of outsourcing and shared services”.  My word – has the world gone mad?  We’re just a poky 14-analyst set-up where we still re-use our teabags in the morning and have to share two Men’s Wearhouse suits for client meetings (we got the second one free…).

When we won the prestigious IIAR “Analyst of the Year” award last year, it was great to get some recognition for our hard work, but many people sniggered behind our backs that we would fade away pretty quickly.  However, to retain that award this year, and also win the runner-up for “Analyst firm of the Year” is a validation that HfS Research is about to enter its third year in operation, with a strong mandate from industry that people are getting some value from our research, love our accessible model and the fact we can provide real data on industry dynamics practically as the happen.

Anyhow, we would like to offer anyone who voted for us a cocktail on us when you see us at some upcoming conference, which we will be able to pay for out of the 20% price hike we’re gonna add to our services.

Thanks again – we really appreciate all the wonderful support, accolades and banter as we rumble into a third year of operations.

Phil Fersht (HfS Research):  Tiger, there’s been a lot of talk lately about the value that Indian companies can bring to U.S. and European firms. People are saying, “These Indian companies are great at training people, have good talent development and succession planning programs and so forth – they bring a lot to the table.” What’s your view? What do you think that Indian firms can bring to U.S. and European companies, and maybe vice versa?

NV “Tiger” Tyagarajan (Genpact): Firms, including us, Cognizant, Infosys and TCS, have all grown at 20 percent plus for many years now. And one of the things that’s gotten us there is a pretty significant hiring, training and culturalization engine that allows us to have one culture across the company in most cases. But we’ve clearly realized that many of our global clients don’t have one culture. It’s actually very fragmented, and the different countries don’t really work well together.

NV "Tiger" Tyagarajan is the new President and CEO, Genpact (click for bio)

So actually, when people talk about innovation in the industry and wonder where it is, I push back and say that the HR and training practices and models in provider companies is truly innovative. In fact, many of our clients turn to us and ask, “Can we take this practice and that practice of yours, and embed them in our organization? Can you teach us how to do it? Can you give us the same tools, methodologies?”

In Genpact’s case, our singular, enterprise-wide culture is very similar to that of GE. Irrespective of what GE office in the world you walk into – whether it’s Canton, Ohio, New York, India, Shanghai or Tokyo –within five minutes you realize you’re in a GE office. The language used is the same. And while each country of course has its own culture, there’s the overarching, action-oriented, boundary-less, performance-driven culture. And global corporations need a culture that cuts across all nations and to some extent supersedes national culture.

I think one of the other things U.S. and European companies can learn from Indian firms is the concept of jugaad, which is an improvisational style of innovation that’s driven by scarce resources and attention to a customer’s immediate needs. In India, nothing is big enough to dedicate a single person, so people get involved in many things and end up being kind of a mixture of many things with knowledge that cuts across a broad spectrum. And because of the environment in India, people have simply learned to find a way to solve a problem, find an answer, in spite of multiple obstacles.

Phil:  One of characteristics that makes Genpact stand apart from many of its competitors, is the passion and motivation that’s to apparent in its staff. How do you keep people passionate? Is there a secret to that, or do you think it’s just something very cultural within an organization?

Tiger:   Phil, I’m so glad you asked me that, because it’s my one “keeps me awake at night” thing. I do wonder about how to maintain the company’s culture as we keep growing and spreading your wings.

And we are becoming very global. Our growth rate outside of India is faster than in India by a factor of 50 percent, so very quickly we’ll reach a 50/50 split of staff. So, as that happens, and as I continue to shift my leadership team to the markets, which is another big statement I’ve made and I’m making my shift myself, how do you maintain the culture?

One aspect of the culture that we almost put right on top is passion. So, when we hire leaders – and it does begin at hiring – and when we groom younger people into leadership jobs, the one characteristic that we all look for is passion. And we openly talk about it…it’s part of our evaluation criteria. And the world is changing so rapidly that if someone says, “I know this and I know that”, that’s not as important as their passion, ability and willingness to learn.

And – with a bit of the GE in us – we believe that you must wear your passion on your sleeve, and we spend a lot of time injecting passion into our communications within the organization and with our customers. If you don’t, how are you going to influence your team? How are you going to influence your customer into feeling that you fundamentally believe in what you are saying, and therefore, how are you going to make them buy into a ten-year relationship with you?

Also, we all work hard, we all work crazy hours, we all travel a lot, we all have global time zones. Why do that unless you’re in love with what you do? You have to have passion for the work or you should just stop doing it.

Phil:    And what other characteristics do you think have made Genpact successful?

Tiger: Genpact’s and my own personal view of the world is that the most successful organizations are the ones that are most nimble. Nimbleness and agility are one of the big differentiators. And that includes speed: speed to market, speed of action, speed of reaction and so on.

I think organizations need two things to be successful. First, you have to thrive on change. Think about it this way: Genpact is becoming a Titanic in terms of size, but how do you make a Titanic go from one direction to 180 degrees in the opposite direction in literally a nanosecond? If you can create that culture – and it is all about culture – in which you can shift the organization’s focus from one to the other very quickly, I think you have a strong competitive edge.

You also need to have your antennas out with your customers, with the market, to be able to capture signals that tell you something is changing, and then be able to signal it back to your organization so it can change as needed. So that’s what my desire to shift the leadership team of the company to the market is driven by. I want to make sure that we have enough antenna-signal-picking, innovation-driven leaders, who then can drive the organization in the right direction.

I also believe that breakthrough innovations, which is what I think the industry is looking for and we are looking for with our clients, happens when you are closer to the client. Continuous innovation happens in your factories and your delivery centers. But breakthrough innovation happens when you co-innovate with your clients. So my biggest drive is to co-innovate with clients.

Click here to read the full three part interview trilogy, where we talk more about Tiger’s plans for Genpact and his vision for the future of technology and BPO…

NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact.  You can view his full bio by clicking here

NV "Tiger" Tyagarajan is the new President and CEO, Genpact (click for bio)

One company has done more than most (some argue any) to change the very face of Business Process Outsourcing over the last few years.

Its origins can be found in a world-class finance and accounting captive that commercialized its operations with an army of enthusiastic process geeks, schooled in the arts of LEAN and Six Sigma… and  at competitive prices. “Isn’t that the GE company” asked one CFO of me, when I ran him through a potential list of F&A BPO providers candidates, “Get them in, I want to hear what they have to say”.

Indeed, the rise to prominence of Genpact has been nothing short of remarkable, as the firm has reemerged in 2011 hungrier and more acquisitive than ever. Having survived a tough recession for the BPO industry, successfully fending off larger competitors baying for its blood, Genpact has recently taken a new direction: appointing NV “Tiger” Tyagarajan to take the helm from the irrepressible Pramod Bhasin, who preached process so poetically with us last year.

Anyone close to the business has always talked about the “Pramod-Tiger” double-act for several years, with Tiger initially being the US face of the firm, and Pramod coordinating activities from India.  More recently, Tiger returned to his native India, not only to reconnect with his first love, cricket, but also to take on the role of COO and ready himself to succeed Pramod, who had inexhaustibly led this firm, since its 1997 inception, to surpass $1 billion in revenue.

Tiger is now settling back into New York – a short train ride from his son’s university in Georgetown, Washington D.C., where he is now in the process of adding his personal leadership style to the Genpact machine.  So the $2 billion questions today are:  what will Tiger do differently?  How will Genpact fare with its leadership team Stateside? How will Genpact continue to evolve its business to move beyond its mainstay finance and accounting service line?

Well, you needn’t wait any longer, as Tiger recently spent some time bringing us up to speed:

Phil Fersht (HfS Research):  Good morning Tiger. Before we delve into the current business issues, let’s talk a little bit about your earlier career and about you as an individual.

NV “Tiger” Tyagarajan (Genpact):   I did my undergrad in mechanical engineering at the Indian Institute of Technology in Bombay. And while I loved the problem-solving, logic-driven approach that engineering teaches you – and I use that in many situations today – I realized I didn’t want to spend my time with machines. I want to spend my time with people.

So I did my masters at the Indian Institute of Management in India, and specialized in marketing and finance. And I loved those two years. I thought I had found my sweet spot, being able to use logic and numbers and finance while at the same time, driving change through groups of people to get to a decision or a certain point.

My first job was selling, believe it or not, cosmetics for the Indian subsidiary of U.S.-based Chesebrough-Ponds. By my seventh year with the company – which by then had been acquired by Unilever – I had sales management responsibility for the country’s largest region, which accounted for 40 percent of the company’s sales.

That was great management training, and gave me the chance to learn the ropes in managing sales teams, and in understanding consumer and business behavior. But I was getting a little tired of a single product market environment, so I decided to switch to financial services and joined Citibank’s then new retail mortgage lending business. I held six different jobs in three years at Citi. And without going into all the ugly details, I was quickly termed the “cleanup guy”, the person designated to clean up a problem, and one of the ways I did that was by attracting and building up a team of A players. But my fundamental view was that if you really want to succeed, you’ve got to surround yourself with the A players, and I’ve carried that view forward in my career.

By that time, 1994, GE Capital announced it was going to set up a financial services company in India. I read Jack Welch’s two books and fell in love with GE. I knew it was a place where I could spend my entire career, going from credit cards to aircraft engines to healthcare to NBC, without ever leaving the company. I could also at some point in time actually see myself leveraging my engineering background and feeling good about it. So I joined GE Capital – and was probably the third or fourth employee in India – as risk head of its consumer lending business.

I moved to the U.S. in 2002 as the Global Head of Operations and Six Sigma for GE’s commercial lending businesses. Then I joined Gecis, which is now Genpact, and here I am.

Phil:  Tiger, we all know what an amazing job Pramod did to get Genpact to where it is today. Can we expect anything radically different under your leadership?

Tiger:  With the dynamics and pace of change in our industry, all providers have to be nimble and able to change rapidly, and Genpact did that under Pramod. There will continue to be dramatic changes, but that’s par for the course for us.

A few specific changes I am focused on are:

• Significantly growing our investments in domain-led sales and account management folks who have the knowledge and expertise to bring a high degree of sector-specific thought leadership into conversations with clients in vertical industries including banking, capital markets, CPG, pharma, retail, manufacturing, insurance and healthcare
• Shifting the center of gravity of the company’s leadership so that 50 percent are located on the ground in client markets. This of course includes my running Genpact from NY
• I think the next 10 years will be about the science of processes and the insights gleaned from data analytics. So we’ll build on our unique, 10+ years of deep analytical capabilities across a broad range of industries to help our clients make increasingly smarter decisions

Phil:   And is your leadership style very different, or very similar, to Pramod’s?

Tiger:   As we both grew up in GE, there are aspects of our leadership styles that are very similar…bias for speed and action, the passion we openly wear on our sleeves, a deep disdain for bureaucracy, etc. But there are also differences in our styles. I get my energy, ideas and passion from conversations with clients, people in the industry, my team and our broad employee base, so I spend a lot of my time on the road in the markets with them. That is core to my style, probably because of all the time I spent in sales – 22 years! I also believe that this is the best way to drive innovation. And with my years spent as a risk leader, I’m a huge believer in the 80-20 rule…in this case, pick a few things you say “yes” to, and say “no” to a whole lot of things, and then drive the “yeses” hard, and with consistency and investments.

Click here to read the full three part interview trilogy, where we talk more about Tiger’s plans for Genpact and his vision for the future of technology and BPO…

NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact.  You can view his full bio by clicking here

Well, this is where the boys were...

Before we talk about today’s sizzling blog, many of you have probably been wondering where sourcing’s lone change management warrior, Deb Kops, has been hiding.  Was her war against change management avoidance becoming too much?  What was she doing when she criss-crossed the world between India, Singapore, Germany, Spain, UK, Netherlands, China, Austria, Japan and the Republic of Texas over recent months?  Had she contracted an incurable gastric ailment when she was force-fed a deep fried Texan pickle?

Well, I’m glad to inform you all that nothing has changed as she embarked on another why does no one give a stuff about change management tirade to me last week, but she occasionally does find other wars to wage, while she’s waiting for one of her other wars to come full-circle.  And this war is one she first alerted us to over a year back, when she bemoaned the dominance of the male species on most service providers’ management teams.  So over you, Ms K to give us your inside view on…

Where the boys are

Looking at any outsourcing provider or advisor’s website brings to mind the title of a 1950s song by Connie Francis. Click on “About Us,” then “Management Team,” and a bevy of good looking thirty- and forty-something guys in sharp suits will peer back at you. Occasionally, you’ll see the anomalous face of someone of the female persuasion managing human resources, marketing or the odd business unit. Is this lack of diversity an issue for the global sourcing industry?

Over the past few years, I’ve met growing numbers of women on the client side at levels ranging from program director to vendor to process manager, from executive sponsor to global sourcing leader to business unit head. Empirically, I’d estimate that in meetings with client side management personnel, at least a third of the team had two x chromosomes.

Under the thesis that people prefer to do business with people who are like them, I profiled the management teams and boards of eight major outsourcing providers generally considered the usual suspects—both based onshore and off, some truly global, some, some pure play and some with a technology/consulting heritage. I then took a gander at the websites of three sourcing advisors to see whether many girls have made it into their management big leagues—defined as having a mug shot on the Web.

While I don’t pretend that a look at 11 websites constitutes rigorous research, the results empirically supported my hunch. Granted, no two companies operate under the same definition of management, with the teams on display ranging from 3 to 33 in number, but out of 165 publicly profiled team members, only 17, or less than 10 percent, were women. Some had none, and there was a marked concentration of women in the so-called “traditional” corporate leadership positions—human resources and marketing, with a stray corporate counsel. There were only two lady business line leaders, and only one woman was appointed to a sales leadership role. Perhaps not surprisingly, non-Indian heritage firms had a higher number of women in leadership, but not overwhelmingly so.

To complete my evaluation of the state of play in the unholy sourcing trinity of client, provider and advisor, I looked at the websites of three noted sourcing advisory firms. Historically, professional services firms have been strong proponents of the power of gender diversity; consultancies, accountancies and legal firms have been focused on this issue for over 20 years. Bu out of 87 named management positions on the Internet, only six were occupied by women.

These data are not meant to paint the sole picture of the industry’s awareness of the need for gender diversity. Many provider organizations are increasingly sensitive to the issue,  incorporating strategies to attract, mentor and promote women within their HR policies. Some have appointed diversity officers, while other operate under the dictate that, all qualifications being equal, hire the person in the skirt or the sari. And women are just now starting to show up in the ranks of a few outsourcing providers’ sales forces, which could be termed the first indication of acceptance and enlightenment.

But working under the assumption that it takes at least 15 years to develop an executive, and a concerted effort to retain him or her in order to benefit, will the complexion of the sourcing industry change soon? And is there a burning platform for that change?

The industry is growing…outsourcing is an accepted business model…and other industries don’t have a scarcity of women, so what’s the issue?  Let’s look at the demographics. With almost 43 and 34 percent of women in management in the sourcing export countries of the U.S. and the U.K. alone according to Catalyst (the leading nonprofit membership organization working globally to expand opportunities for women and business), if the numbers in the small sample are indicative of trends in the industry, the corresponding numbers in the provider community don’t match up.

If the workforce numbers alone are not persuasive, go to www.catalyst.com and look for award winners or the advisory board composition. The list of companies whose initiatives ranging from discrete programs to corporate efforts to recruit, retain and advance women mirrors that of about every outsourcing provider’s dream client list. Who would not want to provide services to Avon, Procter & Gamble, Pepsico or JPMorganChase?

Deborah Kops is Research Fellow, Sourcing Change Management, HfS Research (click for bio)

The rationale for greater diversity in the sourcing industry is more than numbers; it’s personal. How often has sourcing scope been expanded because the players forged a relationship on an individual basis? That a strong level of trust between parties meant that problems could be solved fairly and efficiently?  Men have never underestimated the power of a round of golf; while women may not choose to play 18 holes, they have other ways of bonding with their clients. With increasing growth in the ranks of women buyers, there should be no doubt about the power of being able to connect on both personal and professional levels.

Cutting the industry some slack, lack of diversity in the management ranks of the global sourcing world is due to the sheer age of the indigenous industry. Only now are women entering the workforce in numbers that will ultimately result in a funnel which will raise them into the management ranks. It can take as many as 10 years to develop women managers; in a fast-moving industry, that’s far too much time.

But pipeline of qualified women aside, the sourcing industry should confront some hard truths when thinking about presenting a more diverse face to their clients:

Myth still in the way Remember when few women could be found in  professions such as law or accounting? Even as recently as 20 years ago, management believed that women could not be trusted to stick with their careers, that as soon as some guy came around to marry them, the gals would be off to babies and carpools, wasting many years of training and mentorship.  There is still a nagging belief that gals won’t travel, are not as loyal, and just cannot be counted on to solve problems in the same way.

Lukewarm, if any, corporate sensitivity With growth and quality of delivery taking on such overwhelming importance, there is seemingly no reward for efforts perceived as extracurricular—such as workplace diversity— by many outsourcing companies. Attracting and retaining staff is of such import that programs are typically agnostic to gender. And in offshore centers, “best places to work” awards may be seen as nice to have but not truly core to the branding necessary to attract staff.

Unfortunately women, particularly those offshore, are not experienced in drawing attention to the issue constructively. Discussions about gender diversity are often couched as complaints because younger women with few role models and limited experience are not yet fully prepared to make the case about gender diversity. So there is no group pushing from within the industry globally.

No burning client platform to make a change Pushing aggressively against the glass ceiling does not diversity yield; experience indicates that business focuses on diversity issues only when it is in their best interest to do so. No one is yet championing the cause of women in the sourcing industry; only when clients demand diversity in their teams will composition change. 

Apathy of women leaders Last year, an informal survey of 20 onshore management women in sourcing indicated that, while the majority saw the lack of women in the industry as an issue for the industry, several believed that advancement to the management ranks was entirely a personal career challenge. There is residual sentiment in many professions that says “I was able to get where I am today on my own; why should I help others and what’s in it for me?”

Is the sourcing industry focused on the issue?  Informally, yes– provider leaders—men and women alike—privately acknowledge that gender diversity is an important component of growth and client service equations. Clients of the female persuasion bemoan the fact that the ranks of women in their provider leadership ranks are thin, especially when the 10 to 15 man teams proposing are predominantly, if not entirely, male. Leading executive search firms are increasing being asked to source so-called “diversity candidates.” And Nasscom, amongst other groups, is starting to focus on the participation of women as a critical enabling factor for the growth of the industry.

What will speed up the population of more women in the provider side of the outsourcing industry equation?

Enhancing the visibility of women who have “made it” Many young women in our industry are desperately seeking role models of women who have survived and thrived, taking on roles that drive growth and exemplary client service. Several leading providers are implementing in -house mentoring programs, or supporting external organizations such as Women in Leadership India to show the way. Having access to more and more leaders of the same gender will help give younger female professionals the confidence to develop their careers in the industry.

Applying supplier diversity goals to outsourcing contracts As in any industry, unless clients demand change, progress will be slow. When clients demand that women show up in the pitches, or that some of the work go to a women-owned enterprise, or that engagements are staffed with female account managers and supervisors, gender diversity will become a business imperative.

Appointing male sponsors to champion gender diversity Unfortunately, gender diversity is seen as a women’s issue rather than a business issue. When a woman is appointed to lead an initiative, male colleagues see it as a separate issue that does not impact their futures. However, when a respected male colleague takes the helm of a diversity initiative, management is more likely to take notice.

Appointing women to provider boards of directors or advisory boards The gender diversity message will take on more importance if it starts at the board level. That’s not to say that the gentlemen on the board cannot push the issue with management; having female board members governing performance sends a very strong message that performance is without gender, and women belong at the leadership table.

Perhaps in a few years we’ll find the girls where the boys are in the outsourcing industry. And, as a result, it will become even more successful.

Deborah Kops (pictured above) is Research Fellow for HfS Research, and leads her own practice in sourcing change management entitled SourcingChange (www.sourcingchange.com).

Today, we have launched  The BPO Resource Center that’s geared to become THE one-stop shop for anyone seeking to learn more about Business Process Outsourcing – without having to pay thousands of dollars for the privilege.  

In fact, you won’t have to pay anything. This is intended to be the site where buyers, providers, investors, advisors, analysts, academics and politicians can swing by to peruse content, download reports, get engaged in dialog or even contribute their own research.

The BPO Resource Center is geared to become a genuine industry resource that encompasses best-practices, next-practices, worst-practices, news, industry data, views and research insight. However, what makes this sight really unique is that we’re opening up the content to the best minds in the business to share their learnings, and this includes other research analyst firms and academia. We’ve kick-started the site with a selection of recent BPO-related research reports, blogs and articles from HfS and will soon be populating this with research from our research competitors and academic peers.

And while we would love to be a non-profit charity for the outsourcing business (we’ll do that when we get rich and retire), we do occasionally need a little help from industry, and we’re delighted to announce that Accenture has become the first executive sponsor of the Center.  And before you ask, they do not control or influence our content, they are simply great supporters of HfS as an industry voice and want to help support such a great resource to further the learnings of industry. Plus you get a lovely welcome video from the famous Mike Salvino, head of Accenture’s BPO business, when you log-on.

Many of you on the buy or sell side of outsourcing are great clients of ours and we cannot understate enough now much we value your support as we look to expand our knowledge-sharing for the development of the global sourcing business.  The BPO Resource Center is the next stage in the development of the HfS platform as the pre-eminent portal for all things sourcing and shared services, and we strongly urge you to pay it a visit and sample several of the complimentary research reports and discussion pieces.

Take a look at the Horses for Sources BPO Resource Center now

You’ll see some of the best work of the HfS BPO murderers row that include such reprobates as Tony Filippone, Esteban Herrera, Reetika Joshi, Deborah Kops and yours truly. And here’s the best thing: All you need to do is sign up once, and you’ll forever have free access to all the research, which we will frequently refresh.  We’ve also assembled a smattering of the best recent blog posts on the BPO business.

I’d personally love your feedback on this site–what you like, how we can improve it, and anything else you can think of. Please feel free to drop me a line at bpo@hfsresearch.com.

Cheers,

Phil Fersht, Founder and CEO, HfS Research

"Go ahead... just one more slide". HfS' Esteban Herrera saves you a fortune with some free advice

My word, if I get one more spam from someone claiming to help outsourcing providers “get outsourcing leads” through delivering dodgy webcasts (which are probably only attended by other equally desperate outsourcing providers, with similarly deficient sales capabilities), or get invited to take part in a workshop to improve the “velocity of my sales pipeline”, where a paltry $10,000 investment can help my firm meet its $1,000,000,000 target, I think I may throw my Mac out the window and join the Occupy Wall Street demonstration rumbling on down the road.

So let’s save you nice outsourcing providers the time, trouble and expense of getting advice on how not to sell yourself, and give you all the advice you need, right here, right now – and for absolutely nothing.  Plus, you can re-invest that time you just saved by filling a bag with foam pies and hurling them at unsuspecting investment bankers.

Esteban Herrera, along with most of the team at HfS, has gone way further than “Death by PowerPoint” on so many occasions that we can now prescribe your very own Exhumation after PowerPoint… over you, Mr H:-

An open letter to Outsourcing Providers: It’s time for your exhumation after PowerPoint

Dear Providers,

We love you. Without you there would be no outsourcing industry and we would not have jobs. More than anything, we want to see you succeed. Why, oh why, must you insist in compromising your own success by practicing death by PowerPoint on your prospects?

I’ve come to believe that business, and our business in particular, really wants audiences to tune out. Through thousands of “orals” and analyst “briefings” I’ve concluded we actually want to put each other to sleep. We don’t care if the audience retains anything we’ve said, and thus bombard them with a slide per minute. Of course, almost none of us talk that fast, and almost all of us leave the good stuff until the end so we rush to it when nobody is paying attention and everyone is bleary-eyed and exhausted.

In my view, providers are the worst offenders, especially when attempting to woo new clients in competitive situations. The presentations and styles often do exactly the opposite of what is intended: they frustrate and alienate potential clients. In the last fifteen years, I’ve seen lots of sales pitches, some very good, most not so. In an effort to help our industry and keep my sanity during my next round of orals with a buyer client, I’ve put together a few tips, which I am sure most of you will ignore.

1. Ditch the PowerPoint. Clients are so used to “slides” that what will stick out in their mind the most is someone who came to have a conversation with them, not talk at them. In a recent set of orals, one provider had three of six speakers not use slides at all. They finished an hour early of their allotted time, to everyone’s delight, and communicated just as much as anyone else. Engagement, discussion, and relationship-building banter ensued. To say they won the day would be the understatement of the year. More importantly, everyone in the room, including this jaded advisor, remembers them and their story. If you know what you are talking about, you don’t need the damn slide. Plus, you know all your competitors are going to attempt PowerPoint murder, so why not stand out in the crowd?
2. Ditch that innovation funnel slide. You know which one I’m talking about. Everybody has it. Everybody claims it as their own. And nobody believes it. Kill it.
3. Start with the “answer.” How about this simple message to start the session: We are going to save you $X million per year, starting in June, while maintaining or increasing all your existing service levels, while absorbing x% of the risk. If your FIRST statement/page/slide doesn’t follow that pattern, you’ve squandered your best opportunity to differentiate and create a lasting impression. Whomever taught this “build-up” to the punch line method of presenting should be sued for malpractice.
4. Ditch the sales person. Don’t get me wrong, salespeople play a critical role in any pursuit, but they should be seen and not heard. Clients want to speak with subject matter experts and content people. At an intensely competitive pursuit I led last year at a global manufacturer, the sales guy never spoke during presentations, and wasn’t even in the room for the last round (he was outside the door). But I knew he was quarterbacking the effort every step of the way. His team won. I’m sure he didn’t mind being out of the room when his commission check for a $125 million TCV deal came through.
5. Slides are aids, not crutches. If you must use slides, you should be able to speak at least five minutes per slide. They should help tell the story, not remind you what the story is.
6. Bring a Customer. That’s right, there is no more powerful marketing than what an existing, happy client can say about you. Persuade one of your happy clients to come and speak on your behalf. Nobody else is going to do it. Fly them first class and put them up for the weekend at a great resort nearby. The good will in the existing relationship alone is worth it. But how impressive will it be to the prospects? Priceless! And existing clients, before you dismiss this thought, think about the favor you will be able to cash in when you need it! This is a win-win and I don’t know why more buyer/providers don’t do it. Sit your customer down in the middle of the room and let the prospect ask questions. Let the customer answer honestly. Your prospect will remember it forever, and probably hire you on that alone.
7. Engage. These meetings are opportunities to converse. The more one-way the communication, the less likely you are to be successful
8. Personality counts. One of the most successful providers we see in the market has the uncanny ability to match their delivery/account manager to their prospective client very well. Their delivery capability is no better or worse than anyone else in the market, but prospects tend to fall in love with the lead, and more often than not, buy because of that individual.

I have lots more tips, but eight is a good number to start with. I did not want to be critical without offering some suggestions! I genuinely hope you find these helpful. I’m no presentation coach, but I’m happy to recommend a great one (thanks, Ron D.).  Remember, we love you, and we want you to win. And if you don’t curb these bad presentation habits you are going to start losing.

Yours truly,

Esteban (and the HfS team)

ADP makes its move into the lucrative RPO market

ADP, the HR and payroll services giant, is a staple analogy in the BPO business. It has such a dominant command of the payroll market, there’s no room for new entrants (many have tried and limped away); it commands the archetypal ”one-to-many” delivery model with regional service hubs in all major geographic regions; it servers for small, mid-sized and large organizations with a sales and delivery infrastructure that can cater for all types of clients; it also has a rightful claim to be the first true “Business-Process-as-a-Service” offering – years ahead of its time – but doesn’t get a lot of plaudits, because there isn’t a lot of sexiness about payroll.

However, don’t tell HfS’ Keith Strodtman that payroll isn’t sexy… he lives and breathes the stuff, however, today he’s going to talk about how ADP is moving “beyond payroll” with its forays into broader talent management and HR technology segments- and – most notably – it’s move into the Recruitment Process Outsourcing (RPO) market with the acquisition of the popular “The RightThing”.   Over to you Keith…

ADP  has added another tool to its HR BPO toolbox with the acquisition of RPO provider The RightThing.  The acquisition of the twenty-year old privately held firm is ADP’s first foray into the RPO market.  Terms of the deal were not disclosed but it is clear that ADP is sticking to its “beyond payroll” message to support its growth strategy.  Its “beyond payroll” business are already growing about three-times faster than its traditional payroll business, with acquired businesses playing a big role in that growth.

ADP, the world’s largest payroll processor, has used its substantial war chest to completed several acquisitions in the last few years.  Examples include: Workscape – a provider of benefits and talent management solutions, AdvancedMD – a medical practice management solution provider, and OneClickHR – a HR technology provider based in the UK. The company has long participated in portions of the recruiting services market with its pre-employment services business that includes background screening (acquired about ten years ago) and talent acquisition software solutions acquired when it bought Virtual Edge in 2006.  The additional of The RightThing acquisition takes the company to new levels in the talent acquisition market.  Moreover, ADP’s global salesforce has the on-the-ground scale and client-side connections to push RPO services onto its massive client base. ADP can apply its sales and client infrastructure to scale the RightThing business to the next level and compete with the likes of Manpower, Adecco etc.

The RPO market appears to be well-positioned to capitalize on the talent gap megatrend that is emerging globally.  Despite high unemployment rates in many of the world’s developed economies, many CEOs have reported that their companies job openings but can’t fill them because they can’t find workers with the proper skills.  According to the US Bureau of Labor Statistics, there are 3.2 million unfilled positions in the United States.  Companies are looking for solutions, like RPO, that can help them find workers with difficult to find skills.

The RightThing addition also strengths ADP’s multi-process BPO offering.  While broad scope multi-process HR BPO deals are not as common as they once were, having an RPO offering gives ADP one more opportunity to get a “foot-in-the-door” to establish a BPO relationship.  It also elevates the conversation with customer HR executives, something that will support sales of the recently announce talent management solution that is part of ADP’s new Vantage HR solution.

The RightThing is considered among the leaders in the RPO provider market, which counts more than 20 significant providers.  The RightThing’s current customers may not see a lot of near-term upside in this deal, other than the obvious financial stability of ADP – one of only four corporations with a AAA credit rating.  But there is probably not a lot of downside either.  ADP has traditionally done a pretty good job of retaining customers of acquired companies so there is probably limited risk of The RightThing customers feeling disenfranchised.

If ADP can execute, it could become a huge player in the RPO space, at least in the US market.  Global RPO growth may require more acquisitions, as The RightThing is North America-centric.  But there is one variable that we think ADP will need to address to truly realize the benefits of this purchase: encouraging its clients to standardize its recruiting process and technology – something at which ADP has proven adept , with its GlobalView and BPO offerings.  Their Virtual Edge recruiting product is well established, which they should be able to leverage the platform for broader RPO clients, however, ADP may well look at picking up a recruiting marketing platform (such as Jobs2Web) or other niche solutions such as the HireVue video interviewing product.

However, RPO, and recruiting in general, has not yet been fully embraced by buyers, with a quagmire of technology platforms, fragmented processes and the onset of social media to complicate the issues.   Recruiting process and platform standardization will be required if ADP is to be successful at scaling the RPO business to be a mass-market utility solution – but we also view this as a major opportunity  for ADP to attack this market.  If they figure out how to scale the business, they will have a huge customer base at which to sell these newly acquired services.  Regardless of the scale, however, there is little doubt that ADP has strengthened its already market leading BPO business and continues to bolster it “beyond payroll” services.