Over the years, we’ve had the opportunity to interview many of the key characters who have helped develop and shape the global services industry as we know it today.
And one gentleman who has quietly spent many, many hours in executive boardrooms all over the world helping craft some extremely complex – and sometimes very simple – global services management strategies, is the great bald eagle of sourcing himself, Eugene Kublanov.
And when Eugene hasn’t managed to get his family lost somewhere in the wilds of his adopted Arkansas or coaching , he is busily growing and developing one of the industries’ first platform-based managed governance services solutions at KPMG. So, in a long overdue interview, we a delighted to have Eugene with us today to give us his own story…
Phil Fersht, CEO, HfS Research: Good afternoon, Eugene, and thank you very much for taking the time with us today. I think we first met seven or eight years ago, and I seem to remember that you were running a lot of outsourcing engagements and offshoring localization work. Can you talk a bit about your background and how you got into this business?
Eugene Kublanov, Managing Director, Shared Services and Outsourcing Advisory, KPMG: Sure, Phil. Thank you; I appreciate the opportunity to catch up. I started in the outsourcing advisory business in 1999, and that was really through a combination of circumstance and accident. I had spent the early part of my career at a consulting firm advising clients on market entry strategies for the former Soviet Union, living and working in Russia for a good bit of the ’90s.
Then in 1998, when things sort of came crashing down in that part of the world, I went back to school and was recruited by a firm called neoIT. A few years after I joined, the dot-com bust forced the company to rethink its mission and business model. We realized that clients really valued our knowledge and expertise as it related to nontraditional IT providers, locations, cultures, and the mechanics of getting the whole offshoring model to work right. We also realized that the VC community had closed its wallets for the time being. So, we evolved into the first offshoring advisory firm.
I spent nine years at neoIT, the last two as its CEO, and I had the opportunity to work with some very talented professionals who have in their own right taken on leadership positions in the industry today in client companies, advisory firms, and provider organizations. Then in 2009, a good friend and neoIT colleague, Cliff Justice, brought me into KPMG to help launch its Shared Services and Outsourcing Advisory practice.
We grew the practice from a handful of us in 2009 to nearly 1,000 shared services and outsourcing advisory professionals globally. Along the way, we’ve had some great milestones, none more significant than our acquisition of EquaTerra in 2011. Not only did we exponentially grow our ranks, but we also added incredible talent to our mix that has helped us innovate and establish a market leadership position.
Today I lead KPMG’s Managed Governance Services solution, which is a platform technology-enabled service that helps clients be more effective in managing their portfolio of outsourcing providers.
Phil: I remember NeoIT well – it was a smaller advisory boutique . . . very hands on, and you guys were hustling for deals. How did that compare when you went into a big company like KPMG, and how has that been for you?
Eugene: The first thing you realize when you go from a boutique consulting firm to a Big Four is how much risk actually exists in the world. After two weeks of online courses on security, risk management, and independence you realize how much of a tight rope you were walking on before.
After the initial learning period, I began to witness a really interesting phenomenon that I’ve now seen numerous times as new professionals join our practice and the broader firm—a really healthy balance of core KPMG culture and the entrepreneurial spirit you see in boutique firms taking root. It happened with me, it’s happened with our EquaTerra acquisition, and it’s been evident in the numerous acquisitions KPMG has done since I’ve been here.
This blended culture has created an environment where we are learning to move faster and yet we are still very much grounded in managing risk and meeting regulatory requirements. So for me personally, I think it has been a phenomenal learning journey, and one that has made me a more well-rounded professional.
Phil: Talk to me about the governance practice which I know you have now been very intimately involved in growing and building, over the last few years. This must be a very hard concept to sell to clients, convincing them that they need real help externally with managing their relationships and governing their operations. How is that faring?
Eugene: That’s a good question, Phil. It is interesting, in the last five or six years that I have really been focused in the governance area, there has been a noticeable change and shift. There are two types of clients we see today. The first type are The Indoctrinated. These are organizations that really understand the value of effective governance. Their understanding typically comes from past failures to meet business cases, poor customer satisfaction, operational breakdowns, regulatory and internal audit findings, and contracting nightmares. The second type are The Unindoctrinated. These are organizations that have not yet realized the value of effective governance. This may be the result of their early stage in the outsourcing life cycle, a lack of focus, a lack of talent, or a lack of realization that managing the vendor relationship is ultimately the only way to create sustainable value.
Frankly, we have a difficult time convincing The Unindoctrinated to consider our Managed Governance Services solution. Our typical clients realize that effective governance is hard, requires specialized skills, enabling technology, a process orientation, data, and above all, a disciplined approach that spans the term of the vendor relationship. For The Indoctrinated, we have been able to help take their overall outsourcing programs to an entirely new level.
As we look out over the next three to four years, we are really bullish on how we can continue to create value for our clients and build our business. Based on HfS’s projections, the outsourcing industry will continue to grow at a healthy clip reaching over $1 trillion by 2017. Managing the increasing outsourcing scope will need to be a priority for clients to achieve their overall business objectives, and we are well positioned to be the provider of choice.
Phil: Eugene, let’s talk about when clients start to get really interested in governance support services. Is it typically two or three years after a transaction that they really start to struggle to manage the operations effectively, or are you finding the challenges set in sooner in the process? When are you typically bringing new clients on board during the sourcing lifecycle?
Eugene: That is a good question, Phil, and it’s a bit of a scatter-shot in that regard. Everybody from the analyst to advisory community is still working on educating clients on the value of governance. I would say the leading organizations that are progressive and experienced in this area have developed a strong sense of what it takes to be successful at outsourcing and shared services. These organizations are typically beginning to think about governance during their strategy phase and certainly before they source. They have already committed resources to estimates around financials, resourcing, and what it would take to run this model after it is stood up. Unfortunately, I think the majority of clients typically wake up to the need for governance somewhere in the early to mid-transition stages. These are the companies likely doomed for an early renegotiation with their service provider. In the worst case, they wake up to a governance nightmare six to nine months after finishing their transition phase.
Phil: I know your firm has been talking a lot about GBS and integrated service portfolio management. Are you seeing a stronger amount of attraction between what you are trying to drive at MGS and the broader GBS initiatives, or do you think the two still haven’t quite intertwined yet?
Eugene: They are very much intertwined. In fact, as we work with clients on GBS transformations, we apply a model that consists of eight key dimensions and governance is very prominently one of those elements that needs to be in place. Our belief is ultimately that without effective governance, the GBS model begins to break down over time. There have been cases where companies have stood GBS models up, but didn’t put into place the type of governance needed to run it efficiently and effectively, and they have had to essentially backtrack. That becomes a very expensive proposition. We definitely see GBS as the future and a direction that will allow companies to take their first, second, and third generation of outsourcing and shared services initiatives to create the next level of value from those models. To do that, organizations will need to rely on good governance as the bedrock for GBS.
Phil: As you mature your governance capability, does this mean that you might end up as a kind of service provider for clients to help them manage their providers? Is that the big vision here, that you might become the GBS outsourced managed service office for clients?
Eugene: That’s definitely a possibility. Frankly, I think we are well positioned to play that role. As you know, we don’t provide ITO or BPO services, so we have that unique position of being a neutral advisor in the marketplace. We believe that this is the type of position or role that could really make us very effective as part of the governance engine for GBS organizations.
Phil: What do you think about the role of technology to enable these types of services? Do you feel there is a huge amount of potential out there for clients evolving onto new platforms?
Eugene: Yes, we definitely believe that technology enablement of the GBS organization is absolutely essential to getting full value. So whether it is BI and visualization tools used to enable data and analytics, or business process management tools to enable effective rollout and continuous improvement of global processes or service management tools that enable catalogs and fulfillment, getting the technology mix right is key to GBS success.
As we look at the governance area of GBS, this is where our Managed Governance Services solution plays a key role in helping clients address everything from performance to financials to contract to relationship management.
Phil: Thanks, Eugene – it’s been great catching up again, and I am looking forward to sharing this with our readers. You have been a good friend to HfS over the years, and it will be great to finally get you published on the site. Thank you very much for your time today.
Eugene: Thanks, Phil – we love what you guys are doing at HfS and are happy to contribute!
Eugene Kublanov is Managing Director for KPMG’s Managed Governance Services. You can view his bio here.