Sal-sourcing in the real world, Part I

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

One of the great double-acts in the early years of the BPO business was always the Kevin Campbell and Mike Salvino show (read our interview from last year).  …And it still is!

Not too many people have been on the front lines of the BPO business since the very early days (remember Exult, anyone?), so it was no surprise when Kevin yanked Mike out of Hewitt Associates in 2006 to have him join him at the helm of Accenture’s outsourcing business.

Now, neither of these guys are your typical silky-smooth Savile Row-clad consulting partners – they’re wholesomely direct and open about the trials and tribulations of succeeding in a very complex global environment.  Their impact on Accenture is notable – not only among many industry observers, but also many of their clients.

Mike Salvino – or simply “Sal” to his friends and colleagues, has brought a real air or pragmatism to Accenture, where he now leads the firm’s global BPO business.  And while everyone else was getting carried away with mixing Cloud computing with nanotechnology (at a recent analyst meet), Mike’s response was simply “well, how about those clients who are just trying to get some results out of their business process deal today”.  I realized, then, it was high-time to have Mike on here to grace us with his views of the real world, and he kindly ducked away from his son’s basketball practice to spend some time with us…

Phil Fersht: Mike, since you’ve been on the front lines of the BPO industry from the early days in the 90’s, how do you think things have changed in the last decade? What’s different today compared to 10 years ago?

Mike Salvino: Let’s look at this across a number of different factors. If you dial the clock back 10 years, BPO was about pure cost savings and non-core transaction activities. So in 2000, clients were supposed to define what was core to their businesses and then get rid of everything that was non-core.  In the early days of HR BPO I remember having debates that there was no way service providers could do things like recruiting, learning or even expatriate administration because clients viewed those processes as core and would never want to give them up.

The early deal shapes were around having the service provider take on people from the client and try to scale them, versus leveraging the provider’s assets for the client’s benefit. From a geographic standpoint, it was unheard of to have processes delivered from India, the Philippines or Eastern Europe. People wanted to keep their processes close, and were mostly just trying to get it right using onshore resources.

Moving the clock ahead 10 years…any time I see a “take the people”-type deal, I see a red flag. If a provider is pursuing this type of engagement, it is either just trying to get the business or flat-out doesn’t have the capability to do it — and it’s really hard to win business-wise doing those types of deals. The major players in the BPO industry are not taking on large numbers of people from clients.

In addition, BPO providers have proven they have moved beyond the “core vs. non-core” categorization as we’ve been able to push our offerings all the way into the front office. A great example is Navitaire, Accenture’s wholly owned subsidiary for the airline industry. Through Navitaire, our robust solutions are providing the leading edge to nearly every phase of low-cost airline industry.  We’re the back office for these airlines. We’re their middle office, which is the scheduling of flight crews and planes from end-to-end. And we’re their front office, running their reservations, ticketing and customer loyalty systems. Ten years ago this would have been unheard of. Now, people are more attuned to looking at these kinds of processes if somebody else has a better mousetrap.

Finally, this is now clearly a global business. Back in 2000, I wasn’t sure how global it was ever going to be. Was BPO just about taking people from a client and going to a different location in the same city? Or could you get leverage and scale and do it globally? In 2000 “following the sun” meant that we could do the work for our client before our client woke up, depending on where the client was. Now with a global footprint, we can literally move the work around the world as we need to. We clearly do this today while before it was just a concept.

Phil Fersht: So now, at present day coming off the recession, we seem to be moving into a new era where some of the deals are getting smaller, more incremental. A lot of clients seem to want to move piece by piece rather than the whole ship at once. How are you seeing the landscape changing?

Mike Salvino: I think things went a little over-the-top before the recession. Billion dollar deals were being done and we are just not seeing that right now. Today it’s all about the client’s business case, the dollars and cents. We can choose any process we want as long as we can show a business case. Then, obviously, if we show a business case, we need to follow up with the delivery capabilities and referenceable clients. This makes it hard to get into potential new areas, but some clients are very focused on what they want us to deliver to them. So they are willing to go into those new areas, such as clinical-data management or engineering services, processes you could say are going to be the core of BPO. Whatever the process, clients want us to help define the business case, and then they want us to put skin in the game around delivering on that business case. And that’s fine, because I think they are clearly separating the pretenders from the real contenders.

We do see the deals getting smaller, but we also see the deals being more bundled in terms of F&A, procurement, sourcing and even some HR. We also see them more bundled with IT. But we’re seeing clients more frequently wanting to first do a “pilot”, and then scale from there.

Phil Fersht: Accenture has made a lot of noise in recent talks around bundling processes across towers. You mentioned you’ve been doing deals where you’ve seen alignment among procurement, F&A and bits of HR. Do you see this mixed bag continuing to proliferate? How is that developing?

Mike Salvino: It’s not developing the way we once thought it might. Before the downturn, we felt we could do bigger deals by bundling all the services together at the outset. But what we are seeing is, if we successfully deliver F&A for a client, it gives us the door to swim upstream into procurement and extend that into an F&A and procurement deal. Then, if we’re good at doing the procurement, it allows us to get into the sourcing strategies, which then allows us to get into the demand forecasting and demand generation areas.

Bundling is happening, but over an extended period of time.  We are not going in with a huge bundled deal with all these processes at one time.  What we’ve seen over the last 18 to 24 months is many of our new bookings are extensions. Extensions are not just expanding the existing work, but instead extending our clients into new work. So for example, we are Microsoft’s back office. We are touching HR, we are touching procurement, we are touching F&A and we’ve done that over the course of four years. But you aren’t really seeing RFPs hit the street for everything under the sun, unless it’s someone trying to sell its captive operations.

Phil Fersht: We’re hearing a lot of noise, particularly from the ITO sector, on developing BPO competency around these IT/BPO synergies. We’re certainly seeing them in vertical areas, like your Navitaire example. How are you seeing this coming together of technology-enabled BPO? Is it more hype because you’ve got IT services companies trying to develop pockets of BPO, or do you generally see this as a way solutions are going to develop in the future?

Mike Salvino: I think it’s real. It’s hard to ignore, because we have existing IT and people are buying new ways to deal with that IT. Then you’ve got newer technology coming down the pipe…cloud, analytics, mobility. We have to figure out how that’s going to affect BPO and whether or not it’s going to be another game changer. But no matter which direction the IT companies go, they still have to process transactions. You can’t be in this business without processing transactions.

BPO companies know how to process transactions, and are trying to apply technology to those processes. But some of the IT companies are saying, “We have technology and are trying to get it into the BPO business. We can naturally jump into BPO.”  However, it’s not that easy. If you don’t have the processing knowledge, it’s very hard to figure out how you’re going to make the technology work. I think the biggest effect on the industry from a technology standpoint is as much about the cloud and mobility as it is about analytics. Most people continue to talk about analytics, which is important, but cloud and mobility could change the whole game.

In Part II, we’ll ask Mike about his view on the future direction of the industry and the emergence of industry-focused offerings and Cloud Business Services

Mike Salvino (pictured) is Group Chief Executive for Business Process Outsourcing at Accenture.  He is responsible for the firm’s BPO growth platform, and its comprehensive portfolio of cross-industry and industry-specific business process outsourcing (BPO) services globally.  He rejoined Accenture in 2006 from Hewitt, where he served as global sales and accounts co-leader for Hewitt’s HR outsourcing group. He also served as president of the Americas region for Exult Inc., responsible for the company’s business in the United States, Canada and Latin America, prior to that company’s acquisition by Hewitt.  You can access his full bio here.

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6 Comments

  1. Jim Sherwood
    Posted September 15, 2010 at 7:40 pm | Permalink

    Fascinating points here – the process knowledge is so important, and we’re clearly moving into an era where businesses want to move step-by-step into global sourcing models. Many of the earlier deals involved businesses moving clusters of shared services over to outsourcers, but as those types of “low-hanging fruit” engagements have dried up, the industry needs more of a piecemeal approach to transitioning clients into BPO end-states.

    As Mike mentions, other factors, such as the cloud and enteprise mobility, are also having a big impact on work environments and the way businesses access services. We’re moving into different times, where clients are beginning to demad a whole lot more from their vendor than simple, transactional work.

    Looking forward to Part 2!

    Jim Sherwood

  2. Posted September 16, 2010 at 10:49 am | Permalink

    Super interview Phil and Mike! A very good dicussion of how BPO has evolved over the last decade. Can’t wait for Part 2,

    Amanda Hare

  3. Dinesh Goel
    Posted September 18, 2010 at 12:36 pm | Permalink

    Interested to hear Sal’s views on the evolution of cloud based services in future and does that mean the death of the stand-alone BPO providers due to inter-twining of IT and BPO capabilities for delivering business impact.

  4. Posted September 18, 2010 at 1:07 pm | Permalink

    @Dinesh: you raise a very strong point. It’s clear the ITO providers with BPO competency can afford to incubate loss-leading / low-margin BPO deals because of the client-stickiness BPO creates for them, whereas the pure-play BPOs need every deal to be profitable and leverage-able across multiple clients. As BPO deals get smaller and more incremental, having the capability to twin with IT engagements is becoming increasingly important. There will always be room for mid-market and small BPO players, but you do have to start questioning whether the large BPO pureplays need to rethink their IT partnerships and strategy if they are to keep growing.

    PF

  5. Sharan.f.saldanha@accenture.com
    Posted November 21, 2010 at 9:02 pm | Permalink

    Great insight on how Accenture and the businesses have changed tactics to gain new business. I had a question for Mike though. How does Accenture manage to win some clients with competitors like Infosys offering services at lower prices? And in the last year or so how much of that has effected Accenture’s prospects?

  6. Gurjeet
    Posted November 22, 2010 at 1:55 pm | Permalink

    Great insights! IT & BPO convergence is certainly the most discussed topic today with lots of divergent views. Would keen to hear Part II – Sal’s views on Cloud Business Services.

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