As the world prepares to hibernate and recharge its lithium batteries in anticipation of a frenetic 2011, we take a look back at the highlights of 2010, as seen by your friends at HfS Research™...

The year started out as one would expect: with resolutions. Did you keep yours? We tried. But we're sure a few "transformations" slipped out over the course of the last 12 months. Look back on this post and see how you did: New Year’s outsourcing resolutions for service providers.  Anyway, here are some HfS highlights from 2010:

In 2009, we were officially the first to coin the term "New Normal", only to see every other Joe Schmo latch onto it, but in January it didn't stop us from revealing the results from our "Seeking the New Normal in Outsourcing Delivery" study...in a six-part blog!

In February, we asked the musical question: Are you Ready for H-Day? Just what was H-Day? Well, if you must know, you'll find the answer here. That's right--H-Day was the day HfS Research was borne out of the Horses for Sources blog.  Will they make it?  Many asked... several doubted, but we're still here aren't we, calling out the nonsense... and readying to add some new faces in 2011.

What on earth's an "oxymoron"?

And when it comes to nonsense, we like to give you some answers. So, when a term like Private Cloud comes across our screens, we have to ask: Is it the new Jumbo Shrimp? You know, is a “private cloud” an oxymoron?

As spring arrived, so too did a new healthcare law in the States. We investigated and found a scramble was under way to fine new sources of productivity. See our report here.

Innovation is a word that's tossed around a lot. And most early adopters of BPO are a tad underwhelmed with what little innovation they've

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Posted in: Business Process Outsourcing (BPO),  Cloud Computing,  HfS Research Company News

Most people in the sourcing business have been exposed to the cheeky grin and affable sense of humor of EquaTerra's Ron Walker. He's always been at the front end of wheeling and dealing big deals - so most of us were left scratching our heads a couple of years' ago, when he informed us he was going to focus his energies on developing an advisory practice around Real Estate and Facilities Management Outsourcing (REFMO).

Real-estate Ron wrestles with a Yellow Fin

"People outsource that stuff?"  We all asked. Apparently, managing and maintaining global real-estate infrastructure is a big deal and a major overhead for businesses, and they can save a boat-load of money integrating and sourcing the management of these services (Click here to dowload an overview of the market) .  So we grabbed some time with Ron to have him explain more  to us about REFMO...

HfS Research: Ron, What is REFMO all about, and why should today’s sourcing professionals be interested in it?

Ron Walker: Sourcing professionals should be very interested in REFMO because it is the second or third largest spend category of any company. Only recently has there been an opportunity to integrate the function. Most strategic sourcing organizations have focused on cost reduction via standard procurement techniques. New tools, processes and service provider capabilities have come to the market over the last 2-3 years that have dramatically changed the opportunity to improve service and reduce costs.

The REFM opportunity is similar to where supply chain was 15-20 years ago when executives realized that if you can integrate the entire supply chain, the cost and service improvements are exponential.

HfS Research: Which are the main service providers operating in this market, and typically, who are the main executives on the buy-side which deal with managing these functions?

Ron Walker: The service provider market has changed dramatically over the last several years with many organizations adding both capability and an expanded geographic delivery footprint. Much of the improvement in capabilities and footprint was accomplished via M&A activity. I would say the three providers with the largest capability or geographic footprint are CB Richard Ellis, Johnson Controls and Jones Lang LaSalle. Although there are many regional and/or geographic service providers who are equally qualified for the right circumstances-- for example,  Sodexo, Veolia, Cushman & Wakefield).

One of the challenges with integrating the REFM function is that the leadership can be fragmented. There is seldom one person responsible for end-to-end REFM. The executive(s) we typically work with include VP/director of facilities, VP/director or real estate (sometimes combined) and often the strategic sourcing executive is involved and/or leading the initiative. We have seen great results when the CFO, COO or CAO have been directly involved because they understand that silos are usually less efficient.

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Posted in: Business Process Outsourcing (BPO),  Buyers' Sourcing Best Practices,  Outsourcing Advisors

Esteban Herrera is appointed Chief Operating Officer, HfS Research

Dear Folks,

• We've built a global team - with more characters  joining next year;
• We've developed a phenomenally ambitious research agenda (stay tuned for the official launch);
• We're about to launch a super-sexy new research website in the New Year;
• We were named "Analyst of the Year" by our industry peers at the Institute of Industry Analyst Relations;
• We've now reached 40,000 subscribers, 40% of whom are sourcing practitioners.  We've never even thought about buying a list - everyone just found us!
• We've surveyed the views and buying intentions of more than 8,000 enterprises;
• We've added 20+ research clients across buyers, advisors and providers of sourcing;
• We've launched an elite group of sourcing buyers, dubbed the HfS 25, which we're already having to look at re-branding the HfS 50, due to the enthusiastic interest from so many of you.

And one person who's really stood out, as we've romped through all these milestones, is the most poker-faced advisor-turned-analyst of them all:  Esteban Herrera.

Despite my inability to spell his name, plus the fact that he has to put up with me (daily), and his giving up a big-bucks job to help steer this thing, he actually seems to like it here (or that's what he tells me...).

We are very pleased to announce the promotion of Esteban to the role of Chief Operating Officer for HfS Research.  His vast experience advising sourcing customers, combined with his energy, enthusiasm, sense of humor and entrepreneurship will make him a popular pundit and analyst for HfS readers, as we venture towards a very exciting 2011 for our growing organization.

Esteban Herrera (pictured) is Chief Operating Officer for HfS Research.  You can access his bio here and reach him at esteban dot herrera at hfsresearch.com.   He can also be found on twitter:  @eherrerahfs

Posted in: HfS Research Company News,  Outsourcing Advisors,  Outsourcing Heros

HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services

Today's CIO is under constant pressure to drive out cost, without impacting business performance. And if tomorrow's CIO can deliver real business value beyond smart cost-management, then he or she will succeed - and should remain gainfully employed after they've stripped out whatever operational cost they can.

Our study blatantly shows CIOs are caught up in an aggressive cycle of providing services to the business that are cheaper to run, faster to access, and more relevant to driving productivity and growth. Gone are the days when CIOs demanded their shareholders underpin massive technology investments in ERP and infrastructure.  Those investments have been made, and most CEOs intend never again to make capital outlays of that ilk on technology.

Enter the Cloud. This is driving a new inflection point in the provisioning of business services, that goes far beyond straightforward outsourcing.

So why is Cloud the future?

Simply-put, many of today's large businesses have already squeezed much of the obvious cost out of their IT departments by having their lower-end support and development needs replaced or supplemented with offshore-based services, while offloading the costly burden of clunky, unnecessary IT hardware to third party IT infrastructure service providers.

For many large business that have maximized their cost-savings potential with outsourcing, Cloud computing gives CEOs hope that another inflection point is upon us, that will not only take out that next 20-30% of cost, but also empower their business functions to access best-in-class services.  The potential to slim down the IT department to a "CIO and a crack team of IT service managers" is becoming very real for the sourcing-savvy organization.  However, the challenge for the large organization to move to the Cloud is far more cumbersome than most smaller business, which we discussed so vibrantly here.

For the small-to-medum business, Cloud is already pretty much here - and has been for a while.  You can access nearly all packaged applications in the Cloud and have a service provider deliver you the services you need via a shared-service utility model.  You already have your Ultimates, ADPs, Netsuites, SFDCs and the like processing your pay checks, doing your benefits enrollments, managing your customer and employee data, hosting your accounts etc. in the Cloud - and you can choose how many staff to keep inhouse to service those functions for you, versus having them provisioned by third-party service providers.

Unfortunately, for many of the large businesses using complex ERP apps that are wrenched into all sorts of back-end databases, they are faced with some significant capital investments to find their way to a Cloud-ready environment.  And it simply doesn't suit many of the Cloud-unfriendly software providers to have their clients move to a model that will save them money.  The onus is moving to the service providers to build services that can take organizations on a journey of business change and technology change, which we discuss further here.

Our study shows the momentum towards the Cloud is well under way

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Posted in: Buyers' Sourcing Best Practices,  Cloud Computing,  HfS Surveys: All our Survey Posts

Join us as HfS Research discusses our predictions for 2011 - not yet hosted by Larry King.  Click

[podcast]http://www.horsesforsources.com/wp-content/uploads/2010/12/2010_12_16_podcast_2.mp3[/podcast]

You can also download your copy of our predictions here.

Posted in: Business Process Outsourcing (BPO),  Cloud Computing,  IT Outsourcing / IT Services

In years gone by, TPI's Index established itself as a bell-weather for all stakeholders in the outsourcing industry - most outsourcing deals were big, everyone knew what there were, and TPI advised on a good chunk of them. The Index was a reliable checkpoint to know what was going on. However, after their recent Q3 outlook, several industry colleagues expressed concern that TPI wasn't reflecting market reality, with particular reference to their claim that the BPO industry had taken a 15% nose-dive (see slide 4 here) in 2010.

New HfS Research data that encompasses all current Finance & Accounting (F&A) BPO engagements, reveals two key factors that cause us to question the reliability of the latest TPI Index's BPO outlook:

1) Advisor-led deals are diminishing

Our latest research of all current multi-process FAO engagements, for example, reveals that five of every six engagements signed since the beginning of 2008 have been orchestrated directly by the customer.  Many of these were competitive bids, in addition to sole-sourced situations, but what's clear is a third-party advisor was not involved in process:

2) The average deal size has fallen below TPI's radar

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Posted in: Business Process Outsourcing (BPO),  Confusing Outsourcing Information,  Finance & Accounting BPO

Phil Fersht is named "Analyst of the Year" by the Institute of Industry Analyst Relations

It's a sad day for our industry when you wake up to learn that Phil Fersht has been voted analyst of the year by 150 analyst relations professionals at the Institute of Industry Analyst Relations.  

This now means:

**Everything I say is now correct for an entire year

**HfS Research prices get a 10% hike

**Euan can't argue that our report titles sound like blog posts

**Our predictions sell-by-date gets extended to the 3rd January

In all seriousness, I would like to thank all of your for your support (especially those who voted for me - you know who you are!).  This really does prove there is an independent analyst model that can co-exist alongside the big houses, and we're super-excited about what's in store for us in 2011.

I also would like to extend my congratulations to my alma-maters IDC and AMR (Gartner) which also achieved significant recognition - I learned the analyst trade during my years there and can recommend to anyone that the analyst career path is an incredibly rewarding one to follow if you are curious, critical and passionate about covering an industry.

One other award worth mentioning is our research partner EquaTerra's recognition, which is a culmination of their tireless work to drive independent thought and advice into the market.

Thanks again - it's a real honor for the HfS team to achieve such widespread industry recognition as we embark on a very ambitious research agenda,

Phil

Posted in: Business Process Outsourcing (BPO),  HfS Research Company News,  IT Outsourcing / IT Services

Larry King to come out of retirement for HfS?

And here we are, like clockwork,  jumping on the tackiest, lamest marketing exercise every analyst, consultant, CEO, and wannabe thought-leader always persists in doing... because you are supposed to gasp "Wow - they are predicting the future!"

Firstly, on behalf of HfS, I would like to personally apologize for jumping on the predictions sausage-factory (like we do every year).  In fact, someone has probably designed a software package that automates predictions.  In fact again, some provider probably runs a "Predictions on Demand" service that underpins the predictions-generating software with a KPO service that customizes your predictions for you;

Secondly, unlike all the other predictors this year, our predictions will automatically expire on 2nd January 2011, so they will no longer be valid, and will simply become an embarrassing attempt to sound impressive, while grossly misrepresenting reality;

Oh, and thirdly, here are our Predictions:

1.  The outsourcing industry will see the first Cowboy and Indian mega-merger

In today's market, the Western providers have been forced to bring their costs in line to be competitive with lower cost offshore-centric Indian service providers, by expanding and optimizing their offshore/nearshore operations.  Both the traditional Western providers and the newer Indian breed can offer low-cost services to take on new business.  It’s not really about cost anymore, though, as several Indian-headquartered providers continue to gain marketshare in this environment as many outsourcing customers are fond of their work culture.  However, many sourcing managers, a rung down from the CIO, have squeezed as much as they can out of the easy work.  The app support, the testing, the simple coding is running about as cheap as they can get it – there is little room left for them to maneuver.  Hence, the next wave of growth for the Indian providers is to move further up the value chain to win more consultative assignments and service integration work.  Several Indian providers are trying to be more like the Western providers, and the smart Western providers have studied the Indians who’ve been eating their lunch, and are working out a game-plan to win back lost business.  The cultures are moving closer together, and HfS believes 2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents.

2. BPO uptake will creep back throughout 2011, as the recovery stutters and buyers pull the trigger on sourcing initiatives, however, many of the deals for the first-time buyer will be small in scope

Many businesses were paralyzed by the Recession and have been operating a “wait and see” strategy through 2010 regarding their Business Process Outsourcing (BPO) options.  However, a slowing recovery and a growing pressure to meet budgets will drive a steady wave of increased BPO evaluation and contract signing in 2011, especially in Finance and Accounting and Procurement.  HfS demand-side research has pinpointed a strong interest from buyers to increase scope in existing BPO contracts, and close to one-in-four businesses in the mid-market ($1bn - $3bn in revs) are expecting to investigate their first steps into F&A BPO.  Moreover, many BPO providers are more determined than ever to “penetrate and radiate” customers with initial small-sized contracts with minimal profit margins, due to the shortage of attractive captive acquisitions and affordable competitive acquisition candidates.

3. IT Outsourcing will have a banner year as market peaks, however growth will tail-off towards year-end as wage-arbitrage begins to become saturated

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Posted in: Absolutely Meaningless Comedy,  Business Process Outsourcing (BPO),  Cloud Computing

Today, we're delighted to announce the official unveiling of the "HfS 25" - a collection of 25 sourcing leaders working with us behind closed doors with us to help define our industry, the like of which hasn't been done before.

HfS Research is pulling together an intimate forum for the leading minds who live and breathe sourcing everyday.  And what has surprised us, when we reached out to sourcing leaders in the HfS network, is their sheer enthusiasm to be part of this group - they want to get out and network, share ideas, meet peers in other organizations, and add their tuppence to the future direction our industry is taking.

The day of the "sourcing leader" is truly upon us - and the goal of HfS is to produce a vehicle for the collective voices of today's sourcing leaders to make a difference.  Anyhow, we brought onboard Esteban Herrera to help drive this vision into reality, and am delighted today to have him tell you more about this journey that only just beginning...

Why we launched the HfS 25

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

Business leaders want to accelerate to Cloud and half of them expect to rely heavily on third party expertise to help them with governance, change management and business process transformation.

HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services

With both Business and IT decision-makers expecting to allocate 30% of their IT budgets to the Cloud over the next five years, Cloud is going to demand new IT and business operating models and radically different sourcing mind-sets from CIOs and business function leaders.

What's more, it's creating a major headache for many of today's service providers, which are enjoying comfortable growth with their ERP and software maintenance and development work.  Which service providers truly have the appetite to invest in the consultative expertise and the software development skills to be truly Cloud-capable for their clients, versus those which simply want to shut their eyes to all this and plug away with the same-old IT support work?

Ultimately, Cloud will drive disruptive change in the way services are both received and delivered, the pivotal challenge being whether those who resist this radical shift can ultimately survive.

It's heady stuff, but this is the seismic finding from our  Cloud Business Services study, conducted in conjunction with the Outsourcing Unit at the London School of Economics. Essentially, business users want to accelerate to Cloud Business Services, while IT wants to mitigate its many risks. However, we reach a critical impasse with both business and IT looking for external support to make their move to Cloud Business Services a reality…and the different type of support both sides want point towards a profound reorganization around Cloud…

Click to enlarge

The bottom line: Cloud Business Services are going to create a revolution in how organizations provision IT and business services. Business leaders are looking to transform many core businesses processes around Cloud, and show serious intent to make it happen—40% revealed to us how they want support transforming IT and business relationships, and want change management support to make the transformed organization effective. But the eye-opening finding is how critical business leaders view governance capability in achieving a Cloud operating end-state—over 50% of business respondents see governance as critical compared with only 36% of their IT counterparts .

At HfS, we believe we are seeing a new mind-set emerge as firms start to rethink their IT operating models around “digital” governance structures to support the move to Cloud Business Services. Why? Because they expect to source Cloud into the delivery mix and will want their internal IT teams to turn themselves into Service Integrators. Cloud Business Services are not hype: they are going to revolutionize IT delivery and business performance.  Vineet correctly pointed out (in his own flamboyant way), that the industry has a long way to go with regards to Cloud-enabling many critical business applications and developing more realistic cost-models, but we're definitely moving past that hype phase in terms of preparing for disruptive change.

Posted in: Buyers' Sourcing Best Practices,  Cloud Computing,  HfS Surveys: All our Survey Posts

Vineet Nayar, CEO at HCL Technologies, has firmly cemented himself as one of today's outspoken visionaries in the world of IT services.  Never afraid to offer an opinion that may rub a few folks the wrong way, the self-styled CEO booked his ticket to notoriety at HCL's analyst conference in Boston this past week, where he described Cloud, well, as bullshit.

Unfortunately for Vineet, some of the HfS Research team had also made their way to the sessions, and we weren't going to let Vineet off lightly, without getting him to share some of his views with our readers.  So Phil Fersht and Esteban Herrera were only too pleased to grab some time with him on Thursday after his flamboyant keynote to get him to elaborate a little further...

Vineet Nayar, Chief Executive Officer, HCL Technologies

HfS Research: Thank you for joining us today, Vineet. Can you elaborate on your statement this morning that “Cloud is Bullshit?”

Vineet Nayar: My view on Cloud is that I always look for disruptive technologies that redefine the way the business gets run. If there is a disruptive technology out there that redefines business I am for it. If there is no underlying technology there, and it is just repackaging of a commercial solution, then I do not call it a business trend. I call it hype.

So, whatever we have seen on the Cloud – whether it is virtualization, if it’s available to… now before I go there, and the reason I believe what I’m saying is right, is because you have now a new vocabulary which has come in Cloud, which is called Private Cloud. So now it is very difficult, so what everybody is saying is “yes, it is private Cloud and public Cloud” So, in my vocabulary Private Cloiud is typically data center and when I say Cloud it is about Public Cloud. So let’s be very clear about it.

All the technologies that have come in so far—whether it is VMware on virtualization, which is the driving force in cloud, or Azure or Spring—are available for the enterprise customers to implement in their data center and to create a robust infrastructure which is a shared platform for their applications to deliver to their consumer. So the question I ask is: “Why should they step out from their data center and go into somebody else’s data center which is shared?” Why would they do that?

They would do it because they believe that with shared infrastructure, assumption one, they will get a better return on investment. Now, that did not happen with grid computing with IBM and IBM On Demand has been a very big campaign.

Is there something I see out there that tells me it will happen now? Yes, it is happening where your usage requirement is time bound—that means you need it for three months for SAP testing, you need it for one month a year for tax consolidation. But, am I going to put my IP on the Cloud, am I going to put my financial accounts on the Cloud, and I going to put my HR applications on the cloud? I have not seen any technical reasons for that to happen.

Then the second reason you can do that is there is commercial benefit that somebody is offering you, which is flexibility of you being able to use the infrastructure at a higher or lower on a significant level—that means you can go up 50% or down 50%. When you look at the pricing available for those kinds of flexibilities, they are commercially unattractive. Which leads me to believe that whoever is selling services of variable infrastructure as Cloud is selling them as leasing connections, rather than selling them as true variable connections. I don’t have a problem with that because there is no underlying technology which makes sharing more productive rather than not sharing. So if there’s no underlying technology, obviously it has to be leasing connections.

And then we go to applications like leasing of Azure, which creates a bus so you have to create more efficient applications rather than inefficient applications. I believe Azure will be a standard tool for creating applications inside the organization so that people, whenever they use those features and services, will use them inside the organization.

So, do I need to I need to go out on the Cloud to use azure or Spring? The answer is no.  the only reason I would go out on the Cloud is for shared services—for applications which are not available for me to buy. Salesforce.com now you can buy as an enterprise license. So the purity of the Cloud is also going away. And you will see a lot of Salesforce.com being inside the enterprise because they will reuse their existing infrastructure.

Now, public citizen services is an area which would lend itself to application sharing. And the same is true with communities coming together—export communities, auto component manufacturing communities—whose owners on a standalone basis are not big enough to buy an ERP system but can come together and buy a shared ERP system.

Now, you can force me to call it Cloud. Or you can force me to say that they will an entrepreneur out there who will see an opportunity to construct a data center, construct and ERP, charge everybody a fee and say that my business is to serve you—and you create a shared services platform.

So my view is that I have not seen anything from a technology point of view which is not available for the enterprise for usage for me to get very excited and saying, “Hey all of this is going to move to the Cloud.” And that’s the reason I’m not as bullish about the Cloud as somebody else is.

HfS Research: You mention about shared services and I think that’s interesting. Do you see the growth of these "shared services" happening more with the small to mid-market businesses? And it’s those companies, as they get bigger, where everything they’re getting, is being provisioned as a shared service in the Cloud. Whereas it’s the large enterprises—the global 2000—where there's a lot of legacy IT apps and infrastructure, and the business case for Cloud isn’t quite there yet.

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

Jolie Newman, Founder of ProEdit Solutions

I recently heard a true tale being recounted where a service provider's RFP response arrived at the prospective client's headquarters with a child's lolly-pop stick stuck to the opening page.

Nothing beats first impressions when a provider declares its intention to be your service partner.  It's like someone viewing your profile on an Internet dating site - if you fail to pass muster with that first encounter, you'll most likely get jettisoned to the rejection pile before you even get to show up for the first date.

Many of you in the sourcing industry will have come across Jolie Newman at some point in your lives - she has tirelessly supported companies such as EquaTerra, Exult, Millbank Tweed and SSON over the years as a communications specialist.  Jolie has even helped out HfS on occasion with her editing skills (and she frequently remarks on our typos...).  After many years of toil, Jolie's realized that many service providers are just plain awful at submitting a pristine proposal when they are seeking a sourcing marriage with a client.  So she's launched her own company, aptly-named "ProEdit Solutions", that's focused on helping service providers put their best foot forward when they respond to RFI and RFPs - and we, at HfS, feel she fully deserves a plug for her new firm's services.

Quite why she turned her back on a budding career as an opera singer to trawl through details on payroll-support abandon rates, I will never fully comprehend, but she's a super-nice lady who deserves every success with her new venture.... so over to you, Jolie:

The secret of outsourcing success – write to read

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Posted in: Buyers' Sourcing Best Practices,  Outsourcing Advisors,  Outsourcing Heros