Monthly Archives: Oct 2008

Why not build a shared services infrastructure to support the banking sector?

October 30, 2008 | Phil Fersht

Wallstreet With the US Treasury yesterday making an initial $125 billion stock purchase of nine beleaguered financial institutions, it makes me think seriously about how these colossal investments also could be deployed to create new jobs, better technology investments, and more efficient support processes. 

Our recent survey shows that many financial institutions are ready to grab the low-hanging fruit of outsourcing offerings, where they can make quick cost-savings and transition costs are offset by arbitrage.

However, while outsourcing clearly has its benefits, what about the

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Posted in: Business Process Outsourcing (BPO)Captives and Shared Services StrategiesFinance & Accounting BPO



Leading Change – the 15% Solution

October 28, 2008 | Phil Fersht

The most dominant discussion thread I constantly have with clients today is about change management, and this is massively relevant in these times of rampant globalization, and this uncertain climate.

Companies today simply cannot go out and hire teams of executives with deep outsourcing and offshoring experience - they are hard to find, expensive and often don't understand your specific business needs (horses for courses...). There simply is no defined curriculum for managing change. Companies need their change leaders to lead from the front and bring out new qualities and skills from their existing people.  To this end, I am humbled to receive this guest article from one of the most respected practitioners in sourcing folklore...and certainly the finest to hail from Canada ;)

In her recent past, Linda Tuck Chapman led the sourcing efforts at Fifth-Third Bank (as Chief Sourcing Officer), Scotiabank and BMO Financial Group and now runs her own boutique strategy firm called ONTALA Performance Solutions.  Linda also studied under the tutelage of my father-in-law during her MBA, and claims to have been a model student.  Anyway - over to you Linda to discuss executing a change strategy in this economy:

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Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesHR Strategy



Join the BPO and Offshoring Best Practises Forum

October 26, 2008 | Phil Fersht

BPO and Offshoring Forum logoI am cordially inviting HFS readers to apply to join the Forum, which has just had its capacity increased to 5000 (thanks LinkedIn)

Apply to join the BPO and Offshoring Best Practises Forum

The BPO and Offshoring Best Practises Forum was set up a few months' ago on LinkedIn to allow senior executives in the sourcing industry to share views, news, best practices, discuss current industry issues and network.  We already have close to 3000 members active in this group.

Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesSocial Networking



Multi-lingual outbound sales anyone?

October 25, 2008 | Phil Fersht

Someone should tell this kid to go into BPO... he'd make far more money -:)

(Thanks Ed)

Posted in: Absolutely Meaningless ComedySourcing Locations



The challenges of moving to a global HR model

October 22, 2008 | Phil Fersht

Julia Velixon at Mercer recently presented a new study conducted with the Harvard Business School, based on interviews with senior HR leaders from 60 global corporation, focused on the challenges of HR leaders moving from local to global roles within an global HR function.

Key findings from the study:

Julia_VelixonWorkforces are becoming more globally-dispersed.  The increased globalization of many of today's businesses, both in terms of their penetration into new international markets, in addition to their adoption of global sourcing models across IT and corporate support functions, is significantly increasing the need for global HR practices.  More than 50% of respondents' workforces reside outside of their corporate home country - the pressure to standardize policies and processes, manage increased workforce mobility and manage compliance needs is greater than ever. 

Many senior HR executives are stepping up into global roles, but are failing to divest of their localized issues.  45% of the executives have moved into global roles over the last two-to-three years, many of these transitioned in the last year alone.  However, while roles are being structured globally, most of the executives have been struggling to get away from dealing with local and regional issues.  For those working in global roles today, 9 out of 10 have less than 3 years experience and a failing to move away from their previous localized job roles:

HR... stepping up into global roles?

 Lack of standardization.  The lack of a consistent approach to governance and compliance, especially in Europe and Asia - where employment and tax laws vary widely in different jurisdictions - creates further challenges for HR leaders.  There is also a lack of standardization around the approach to global mobility, which hinder's HR's ability to apply consistent procedures to the compensation and benefits of a workforce that has been growing rapidly.  It is becoming increasingly important for companies to properly manage the logistics of moving there employees from country to country.

Download mercer_hbs_white_paper_september_2008.pdf

Posted in: Business Process Outsourcing (BPO)HR OutsourcingHR Strategy



Expect a phrenetic Q1'09 for outsourcing activity in the banking sector

October 20, 2008 | Phil Fersht

More on the recent survey we ran (to which many of you contributed) on the immediate outsourcing intentions from the beleaguered financial sector.

The financial services sector has held back from many outsourcing opportunities in recent years through a stubborn resistance to change and a fear of losing control over non-core business processes. However, with this current tough financial climate, executives have little choice but to embrace global opportunities that afford both short and long-term cost-savings, access to process acumen and new technologies. When we delve deeper into the new survey data,

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



India shows us how to innovate

October 18, 2008 | Phil Fersht

My old friend Raj Sajja, who works for Oracle in Singapore, picked this up on video-camera during a recent visit to New Delhi... innovation at its best

Posted in: Absolutely Meaningless Comedy



How the credit crunch will affect Britain

October 17, 2008 | Phil Fersht


Will one be wanting fries with that?

(Thanks Bruce McCracken for this little piece of humour...)

Posted in: Absolutely Meaningless Comedy



Banks ramp-up their outsourcing plans

October 15, 2008 | Phil Fersht

Thanks to all of you who took the time to complete our recent poll of the financial crisis and its impact on the outsourcing strategies of financial institutions.  Below is a snippet of the findings:

Financial-Institutions-Outsourcing-Plans* Only 16% of financial institutions surveyed have actively sought to pull-back their outsourcing expenditure plans, while 39% are now looking to increase expenditure in light of recent events

* 45% have not made any changes to their planned outsourcing expenditure on ITO and BPO services

When we delve deeper into the data, it's the major US banks which are clearly the most aggressive with ramping-up their plans to pursue outsourcing strategies.  The main service-lines where they are focusing are banking-specific BPO services, application outsourcing, IT infrastructure outsourcing and Finance and accounting BPO.  Insurance companies also stated a strong focus on adopting insurance-specific BPO services in a 6-12 month period.

Service lines not being so aggressively pursued are primarily HR outsourcing and IT staff augmentation projects.  More thoughts to follow. 

Many thanks to the folks at Global Services Media for their help in sending the survey to its readership.


Posted in: Business Process Outsourcing (BPO)Finance & Accounting BPOHR Outsourcing



Can Obama turn the USA into a competitive sourcing location?

October 13, 2008 | Phil Fersht

Manhole-laBeing ineligible to vote in this country, I've been an amused observer of one of the the most enthralling and contentious elections in years - and trying to understand how each candidate will impact the future of the global outsourcing industry.

What is clear, is that shipping jobs offshore isn't necessary very good for the local unemployment rate - the age-old argument of focusing US staff on "higher-value" work is wearing a bit thin these days.  What's more, many offshore service providers are now focused on taking on more higher-value work activities for their clients, in addition to routine transactional work. For example, once you have your general ledger run from a service provider in, say Chennai, what is now stopping that provider taking on higher-value accounting services, such as budgeting/forecasting and business intelligence?  That provider basically owns and understands much of the revenue cycle of that client, hence the natural next step is to move up the process value chain. And if your current provider won't move up the value-chain, there is a proliferation of KPO providers willing and ready to take on higher-value offshore work.  Moreover, while a firm may have been enjoying good quality COBOL programming from Brazil, what's stopping that provider offering systems architecture work for their client, which is among the costliest onshore IT services?

We've now been sucked into a global employment war for sourcing services, and from what I was hearing from Mr Obama today, he intends to give US firms tax-breaks to source work onshore.  I'm not sure exactly how he plans to do this (he seems to have a lot of good intentions without getting specific on how he plans to execute), but it wouldn't surprise me if he plans to initially incent buyers, as opposed to the providers, to source work to onshore US locations.  This is the opposite strategy of the Indian government's STPI tax scheme, which gives tax-breaks to new Indian organizations (mainly suppliers) in the region of 10-20% for their first 10 years of inception, designed primarily to bolster its software industry, but also directly applies to its service providers.

Look at it this way, you can hire staff in low-cost US locations for a low as $25K a year for back-office administrative work.  If you can reduce that further, to $22K a year as a result of tax incentives, and the cost of health-care is reduced/subsidized, the price differential with locations such as Lat-am and India is minimal.  IT, on the other hand, is significantly cheaper in locations such as India and China for all levels of services.

Here's my take:

For BPO services, the US is still in the game.  The issues surrounding client / employee contact still favor onshore services (even though offshore services are improving by the day), plus the fact that there is still a great supply of mid-level executives who will be anxious to keep their jobs in the forthcoming months.  With significant incentives to keep work onshore, I can see the US stepping up as a serious BPO location.  Not a bad thing for the BPO industry, as long as the service providers invest wisely in attaining the right onshore/offshore balance within their delivery infrastructures.  Moreover, the onus on sourcing we're going to see from the restructuring financial services industry is going to entail a delicate balance of onshore/offshore BPO work.  If the major financial services firms struggle to sell off their Indian captives, we may well see several of them scale-down their offshore dependence and seek onshore services as an alternative.

For IT services, it's looking a bit late to pull much of this back.  In India, for example, IT services have become the life-blood of the country's economy, and the skills in basic programming are widely available for mainstream applications.  Even if US wage rates for programming work come down significantly, there is also a major issue with the fact that the quality of many IT services delivered from offshore locations is now consistent.  The core battle is with services needed from business-process architects and staff with deep industry-specific expertise.  We have seen many of the leading offshore providers invest in their onshore deliver centers over the last year - and we can expect to see continued significant competition between the incumbents and offshore providers in the coming months for onshore-related work.

Posted in: Business Process Outsourcing (BPO)Finance & Accounting BPOHR Outsourcing



Why Rick Astley should be put in charge of the US Treasury

October 12, 2008 | Phil Fersht

Rick-astley Rick-Astley 

Posted in: Absolutely Meaningless Comedy



Dispatches from DC: Shift Happens

October 12, 2008 | Phil Fersht

Here is the movie clip taken from my recent presentation "Creating a Strategic Enterprise Sourcing Strategy and Governing Change".  A special thanks to John Fisch for supplying some great content, and Mike Brown at AMR for mixing up the clip with this great soundtrack.  Enjoy.

And we did this before the Wall street shenanigans, just to add fuel to the fire...

Posted in: Business Process Outsourcing (BPO)HR OutsourcingHR Strategy



10 commandments of blogging

October 12, 2008 | Phil Fersht

GodVinnie Mirchandani picks up on a great posting from Christian Today on ten cyberspace commandments to give bloggers a "moral edge in a virtual age":

  • You shall not put your blog before your integrity.
  • You shall not make an idol of your blog.
  • You shall not misuse your screen name by using your anonymity to sin.
  • Remember the Sabbath day by taking one day off a week from your blog.
  • Honor your fellow-bloggers above yourselves and do not give undue significance to their mistakes.
  • You shall not murder someone else’s honor, reputation or feelings.
  • You shall not use the web to commit or permit adultery in your mind.
  • You shall not steal another person’s content.
  • You shall not give false testimony against your fellow-blogger.
  • You shall not covet your neighbor's blog ranking. Be content with your own content.

I recently ran my own analysis on what makes a blog compeling, but this takes cyber-guidelines to a new level -:)

Posted in: Absolutely Meaningless ComedyBuyers' Sourcing Best Practices



Is the day of the offshore financial services captive in terminal decline?

October 07, 2008 | Phil Fersht

CitigroupThe current financial crisis is driving many of the leading financial institutions to sell their Indian captive operation to third-party service providers, typified by Citigroup today offloading its Indian banking services operations to Tata Consultancy Services for $505 million. Most of these offshore captives were established in recent years to cater for growth in the financial services sector, and with the current climate, many of them have little choice but to sell them off.

I was having an interesting discussion just yesterday regarding Securities/Capital Market BPO (back office operations of Investment Banks, Asset Managers etc.).

Most of the outsourcing in this sector here is to captives, for example, JP Morgan, Lehman, DB, UBS, Goldman Sachs and Morgan Stanley each have between 1500 - 7000 employees in Indian captive operations. The trading volumes in some instruments are practically negligible in this economic climate. Take OTC Derivatives Confirmations and Settlement processes - these teams were significantly ramped-up towards the end of 2005 to meet regulatory requirements, in view of very high-volume spikes in demand. Now, in some cases, 60-70% of team members are literally twiddling their thumbs. Attrition has reduced significantly as there are not many jobs on the market offering higher salaries.  Moreover, the back-office-cost-per-trade ratio continues to rise as this economic situation fleshes out.

Hence some of these captives are in a quandary; large scale lay-offs are not an easy option in India as they significantly impact the brand.  Redundancies in India have generally been of two types - small 100-150 employee operations closing shop or industry giants letting-go less than couple of percentage points of their workforce under 'under-peformance' or some other pretext.

The theoretical argument in favor of third-party outsourcing is that it provides flexibility to scale-up and down and keep the cost-per-trade at a minimum. This segment of the industry went mostly captive over-looking this argument in a high-growth period, with control and regulation being the over-riding factor. One large operation is already on sale, and there are some of the largest third-party outsourcing deals in discussion - is this the beginning of restructuring of this segment, and is the day of the offshore financial services captive in terminal decline?

This argument is strongly supported by today's largest-ever buy-out of an Indian captive operation.  It was a widely known fact in the industry that Citigroup had been contemplating selling its Indian banking operations to a third-party for over a year now.  The fact that is has finally made that decision so quickly after the recent financial meltdown is telling of the changing attitude towards outsourcing, and the fact that these captive support models do not work well in a volatile economy.

Posted in: Buyers' Sourcing Best PracticesCaptives and Shared Services StrategiesKnowledge Process Outsourcing & Analytics



Cash is king again as M&A activity in outsourcing hots up

October 06, 2008 | Phil Fersht

We've been talking a lot about consolidation in the outsourcing industry and when/how/if it will happen.  We can debate for hours the strategic benefits of service providers of adding niche competences, industry specialization, process acumen and global scale, and whether they should merge, acquire captives, or grow organically through client acquisition to achieve this.  However, the financial crisis is creating a compelling event to accelerate M&A between service providers. 

Dollar-bill The amount of consolidation we're seeing in the financial sector, which is likely to have knock-on effects into other industries, will drive new client needs for global sourcing models. Many clients are worried about making large initial capital investments in outsourcing engagements - especially ones which have complex transition and transformational needs, hence those service providers which can help streamline these costs over the course of a contract will be successful. Complexity, disruption and increased globalization drive change, and outsourcing is one vehicle that can help many companies reach a global support infrastructure quickly.  Hence, those service providers with the global scale, competency and financial resources to deliver this quickly will be the winners in this market.

While this industry has ramped-up beyond the wildest expectations over the last 5 years,

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Posted in: Business Process Outsourcing (BPO)Captives and Shared Services StrategiesIT Outsourcing / IT Services



In case you missed the real debate...

October 05, 2008 | Phil Fersht

In case you missed it...last night's hilarious skit of the VP debate on Saturday Night Live:

Posted in: Absolutely Meaningless Comedy



Why these are good times for the outsourcing industry

October 02, 2008 | Phil Fersht

Beautiful-cloudsDespite the uncertainly and current gloom that is consuming us, these really are opportunistic times for the outsourcing industry.

Outsourcing thrives on mergers. disruption, corporate restructuring, cost-containment needs and business change (remember the post 9/11 outsourcing bounce). 

The financial services industry is finally ready for that change, and early survey results show this.  In addition, the majority of service providers are polarizing their sales efforts on the beleaguered sector to increase their market presence and defend existing business. Moreover, my optimistic side tells me that this bail-out package will be ratified by Congress, and it will drive a new culture of long-term change into the sector that will favor long-term ITO and BPO contracts that reduce costs and add core focus to re-emerged enterprises. 

Traditionally, this sector has been very reticent

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Posted in: Business Process Outsourcing (BPO)Finance & Accounting BPOHR Outsourcing