Madelein Smit is ready for dreamSource… are YOU? (Click to learn more)
If you have recovered from the mental impairment caused by the really awful governance dancing, it’s time to get back to the serious discussion about the narrowing onshore/offshore cost gap, and the diversity issues in sourcing…. so let’s visit the final part of our recent interview with Madelein Smit, outsourcing head at the global logistics giant, CEVA Logistics…
Phil Fersht (HfS): Madelein, in our previous discussion, you talked about a watershed period for sourcing arriving in 2013, with the narrowing cost differential between onshore and offshore talent. Do you think that is going to have a noticeable impact on how a company like yours is sourcing its BPO?
Madelein Smit (CEVA Logistics): We are in a very cost-driven environment, so we will keep sourcing in a way that suits our need. One thing that has happened over the last three years in the accounting space, five years now in the IT space, is that we have built up valuable partnerships with our partners. And I do think we are at the point where we have moved beyond labor arbitration in both of our agreements, and are driving much higher value-add. I don’t think wage arbitration will impact this year in existing engagements in which there is active engagement by both provider-side and buyer-side management. But I do think that for people considering doing in-house shared services or moving to an outsourced solution for what still remains onshore, the business case will become harder and harder to fill, and the value-add will prove harder and harder for an outsourced solution.
Phil: So do you see that the buy-side will evaluate offshoring against just getting cheaper talent in-house? And do you think providers will broaden their customer options to deliver more services from onshore and nearshore locations. How do see the dynamics evolving here?
Madelein: I think both, and this is exactly my point. If the providers don’t come up with those alternative solutions, I think it will be major pickings in the pipelines for new deals. They definitely have to change the way in which they sell, and work with sourcing managers to help them understand what that value-add might be. With F&A, if you put a pure cost layer on the table, I think it’s 50/50.
Phil: You’ve also been quite vocal on the topic of diversity. Would you please talk a bit about some of the conversations you have been having on the role of women in sourcing and some of the issues going on there?
Madelein: Absolutely…I find it fascinating. Having grown up in Africa myself, in a very male chauvinist-dominated culture, I find it very interesting to see India going through a journey similar to what Europe went through maybe 40 years ago and what Africa went through 10 years ago, or is still in the process of making. There are still basic social inequalities among people. I know this sounds a bit overly dramatic, but I do believe in equal rights for all people, and I think that we have the opportunity to do something good in the world through our work. So, this is one of the areas that I demand of my providers. I demand that they have a diversity program in place, and I regularly discuss with them what they do retain, motivate and stimulate women in places like India. I also discuss with them issues like gender or sexual preference in places like Eastern Europe, where that is perhaps a more relevant topic today.
It is very interesting to see what these large companies are doing. The leadership of NASSCOM, which is made up of all of the big providers in India, so among them they employ close to a million people or more…all of these providers recently signed an agreement that they will ask all of their suppliers what they are doing about diversity in India. Think about the security companies, the facility companies, the catering companies. The trickle-down effect of this is enormous, and has an enormous impact on the transformation of the culture and the rights of people and the development of people.
Phil: Do you think part of the problem is we live in an industry that is obsessed with cost and delivery, and it seems to override all other issues including diversity?
Madelein Smit is VP Outsourcing at CEVA Logistics
Madelein: Yes, but I think it’s like all business. You know, capitalism can be a force for evil or a force for good, as we have seen with the recent demise of some high profile banks, and with the work some of the big players like Unilever are doing in the world for the Green agenda, the Corporate Social Responsibility agenda. I think there is a huge opportunity for good. And I think that we take our old purses to work every day, and if there’s something in our power to do good, I believe we should.
Phil: That was a great answer. Thank you so much for sharing some of these views and ideas and feelings with us today. And we are all eagerly anticipating your next performance at dreamSource. Maybe the Harlem Shake?
Madelein: We’ll just have to wait in anticipation 🙂 See you in New York!
Madelein Smit (pictured) is VP Outsourcing at CEVA Logistics and will be leading the session entitled “The Science of Performance Management” at the forthcoming dreamSource summit in Westchester New York April 30th-May 2nd. Click here for more details.
Picture the scene – it’s day three of the HfS 50 event in Boston last October… three days of perpetual debate, fueled by a seemingly endless supply of red wine and caffeine. Yes, just the perfect time to have an hour’s education on next-gen performance management strategy.
Step-up Madelein “Mads” Smit, head of both IT and F&A outsourcing for CEVA Logistics, who – sensing the moment, took it upon herself to play the Gangnam video at full blast. Now, if you’ve ever witnessed a room full of hungover middle-aged governance professionals attempting to get-down Gangnam style…
Warning – the following clip may cause serious psychological damage:
Needless to say, Mads just had to be asked back for a second round of performance-enhancing antics, this time at the forthcoming dreamSource extravaganza…. so without further ado, let’s find out more about what Mads is all about, besides her undoubted skills singing and dancing…
Phil Fersht (HfS): Good morning Madelein, would you please give our readers some background on yourself, your career and why you are doing what you are doing today?
Madelein Smit (CEVA Logistics): Hi Phil! I got started in outsourcing as a youngster. I was originally an accountant at PwC, and traded in that job when someone said, “There’s this thing called outsourcing coming up…would you like to be on the project for a little while?” Since then, my career has taken all sorts of turns and changes. I have been on the buy-side, the sell-side and the consulting side, so I have seen this industry from many angles. Right now, I am in a role where I am turning around an IT outsourcing contract; it’s quite large scale and looking at the benefits we can harness from integrating F&A and IT in our process. It’s now 16 years since I started working in the outsourcing industry, and I am still passionate about it.
Phil: You are still passionate about outsourcing after all these years. Why oh why?
Madelein: I think that it’s a great leveler. A lot of people talk about globalization, but not many have the advantage or the privilege to see that up close. I have visited India on average two or three times each year for the last eleven years, and have seen first hand the transformation in its economy and the real difference it has made on the ground to the lives of millions of people there. I think it is really a transformational activity in the way that an NGO or a government can’t begin to change the social standing of people, and similar cases are also being played out in the Philippines and even parts of Africa. It’s contributing to education, it’s contributing to rights for women, it’s contributing to the workforce being valued in a different way, and I think it’s the best thing we can do for world peace because it’s process understanding between cultures and people living in different parts of the world working toward the same goal.
I do look at it in a bit of a romanticized way from a social development perspective. But I am also passionate about things like process improvement, and I have seen the amount of waste that could be taken out of functions and how waste builds up in functions over time. And it is just so refreshing to see other people coming out, looking at this problem with fresh eyes and transforming it into something that is far more effective. That has to be good for capitalism as well.
Phil: You said you have been traveling to India for over ten years now. What would you say has fundamentally changed there over the last decade in terms of how they engage and deliver these services?
Madelein Smit is VP Outsourcing at CEVA Logistics
Madelein: Well, they have become the market leaders in terms of developing and delivering BPO. Many years ago, you still had to explain to people what BPO was, what outsourcing was. But it is a complete concept in India. You can get a doctorate degree in outsourcing now, so it has become a professionalized function that people really look up to and aspire to. That has definitely changed. We are also seeing wage arbitration, which was taken for granted from Day One. I think in 2013 we will see a real transformation in that if India does not find other value-add in this process, it will start to lose ground. We’re now reaching a point due to high unemployment that you can hire a graduate onshore in certain pockets of Europe for about the same money as in India.
Phil: That’s a very interesting point, and we ourselves – at HfS – hire local MBA graduates. We have noticed the narrowing gap in wage costs for mid-level skill sets. When we were in India at NASSCOM last year, there was a lot of debate around the fact that, in BPO, they haven’t quite developed the factory of talent coming out of the universities that they had achieved in IT. And, they needed to get their act together in terms of training youngsters and talent in colleges and linking them to the providers’ training programs. Is that something you are seeing improving, or do you think it is still a major issue for them?
Madelein: I still think it’s a major challenge. I also think there is, to some degree, a general divide in this. Accounting is usually seen in India as more of a female, or slightly softer, occupation, and IT is seen as a largely male occupation. So, there is a good stream of graduates being fed out of the big schools in the IT space, but the same is not true in accounting. So, I definitely buy into that about ITO versus BPO. Also on the diversity front, there is a real struggle to develop and pay women. They have made great strides in the industry, but still the graduate output of the top schools is about 40 percent women and 60 percent men. That remains a gap to be filled, and I think that is more valuable in the BPO space. Unfortunately the recent events in Delhi – the high profile rape case – has also led to a social reaction with a lot of clients putting women out of work when it entails them traveling home at night time, which has all just put a big dent in development and retention in the last two months.
Phil: Very good insights, thank you. At CEVA, you oversee both IT and F&A sourcing. What do you see as the key differences in terms of talent issues and delivery between the two functions from a sourcing perspective?
Madelein: I think the IT space is definitely much more commoditized. Managed services are much easier to apply in a sizable amount – managing so many servers, keeping them patched, fed and running. But accounting is a far more subjective art. I think that adds to the complexity, which sometimes causes providers to struggle to estimate the amount of work needed, struggle to estimate the skill level needed and so on. So I do think that setting up an engagement is slightly more complex in the accounting space than in the IT space.
Stay tuned for the second part of this interview, where we talk about onshoring of BPO and the diversity issue in the sourcing industry…
If ever I am lost for words to introduce an article, then I am now lost for words. So without further ado, here is Deadly Deborah… and definitely with the handbrake off…
Outsourcing Executives: What’s your career narrative?
Deborah Kops is, always was, and always will be, Deborah Kops (click for bio)
I’m obsessed by careers. I spend time trying to make sense of the various and sundry twists and turns that the life’s work of those in our industry seem to take. And I look closely for patterns. Will leaving a secure position in a global firm for a start-up end in happily ever after? Does a stint in a Tier 3 provider indelibly affect a career path? After all, if Ecclesiastes 1:9 is right, there’s nothing new under the sun, or as the saying goes, history always repeats itself. So colleagues, do any of these career narratives resonate? Or is this article just the fanciful creation of someone who is absolutely at the end of her career rope?
Having recently decided that there are four major career narratives for our shared services executive cousins, I’ve turned my attention to outsourcing (read: sell side) executive career trajectories. In a segment of the global services industry with much more nuance (and opportunity), It seems to me that in every outsourcing executive’s career, there is an event, or a decision, or some other such driver that will profoundly impact his or her career narrative.
So read the 12 narratives I’ve observed in outsourcing executives. And have a good laugh if they don’t cut too close to home:
1. The mid-life crisis career narrative: Around the age of 40, some well-established outsourcing executives become frustrated with a), corporate bureaucracy; b), a stalled salary band; or c), the fact that they have years of experience on the man or woman they report to. And if their peers (especially their batch mates) are making money hand over foot starting their own companies, the itch to throw security to the winds and join a start up is compelling. So the itch takes over, and the leader leaves a good job to join the ranks of the challengers, crossing fingers that he’ll make enough money to pay off the mortgage and put the kiddies through school.
2. The yo-yo career narrative: Yo-yo career narratives characterize those executives who start out in ITO, hone their sales or management skills, are tapped to run a BPO gig because their skills are thought to be transferable, then high tail it back to ITO when a), the realization dawns on said leader that not all outsourcing pursuits are created equal; or b); their management realize that BPO is a foreign language to their hire. So after a period of time, and a very cordial leaving, the leader goes back to an often bigger post in ITO, sadder, wiser and richer for the experience.
3. The find the greater fool career narrative: The entire market knows that Mr or Ms X is a great interview, taking credit for every deal since Eve persuaded Adam to take a bite of the apple. And providers, desperate for leadership in a market with very little talent, bite hard on the marvelous resume. But eventually—about 9 months in– when the honeymoon is over and nary the hope of a deal has materialized, the dial hasn’t moved on operations, or the solutions team develops a severe allergy to a different way of working, said executive starts looking again…and again…and again.
4. The grass is always greener career narrative: A second cousin to the find the greater fool career, executives with greener grass career narratives are our industry’s true seekers. They are always looking for the perfect home: money, flexibility, respect, influence…and move around frequently, often as much as once a year, to find job nirvana. Sometimes they are allowed to come back to home base, a bit sheepish but glad to be back in the bosom of a family; otherwise they keep moving on, often into the sunset and out of the outsourcing industry.
5. The Book of Ruth career narrative: No, I am not trying to get all biblical on you, readers, but if you apply what the Old Testament’s Ruth said to Naomi “”whither thou goest, I will go, ” you’ll see some couples of the professional kind that always seem to move jobs together. These joined-at-the-hip folks show up together in outsourcing companies big and small, with the senior of the two either moving first, then yanking out his faithful follower, or as a package deal. Employers sunder their ties at their own peril: the two of them just can’t function effectively without the other.
6. The fox in the henhouse career narrative: We all know the type: he or she is itching to move from the dark to the light side, and perpetrate every crime against nature on the provider community. The former provider executive is dying to show the client side how a deal should actually done—or governed– and if a little pain is inflicted on either his former employer, or his employer’s biggest competition, so be it. After all, what better position to be in than have the CEO who never knew your name suddenly have you on speed dial when you move to the buy side.
7. The I’ve been captured career narrative: Although this career narrative is rare given the number of commercialized captive operations, there are a few of these blokes in the industry. Executive is a corporate creature, having started a captive for a multi-national. The captive is then sold to an eager provider, and the executive suddenly has to become a commercial operator. After getting over the initial shock of having to be accountable, the former captive leader wholeheartedly drinks the Kool-Aid, and becomes a pillar of his outsourcing practice…or quickly walks out the door into any career that does not involve SLAs.
8. The gentle decline career narrative: There’s a growing trend I kindly refer to as the “gentle decline.” Look around and you’ll see players who started their careers at the powerhouses of our industry—Accenture, IBM, even the late great EDS—then, over time, softly switch to companies with less and less prestige in the outsourcing provider pecking order. Said gentle decliners are absolutely convinced that their skill and acumen will be the silver bullet that elevates their new employers into the top tier. The paradox? The jobs get bigger but the employers get smaller.
9. The “any advisory firm would die to have me” career narrative: The executive is tired of 2 am conference calls to India, or wherever, and being grilled when the numbers run shy of quarterly expectations. Jumping the fence to an advisory practice, particularly if it’s at the partner level with the trappings of business class airfare and a liberal expense account, seems very attractive, despite having to don a tie to visit a client. But if these former deal or operating titans are able to make the shift, they find that selling, operating and consulting are indeed different, and yearn for the days when filling in a timesheet did not take up an hour each day.
10. The time to be an entrepreneur career narrative: The executive is a deal maven extraordinaire. He or she can sell snow to indigenous peoples living above the Arctic Circle, and is always brimming with innovative ideas. Often a lone ranger, the wannabe entrepreneur carefully calculates when his commission payouts hit, and starts looking for backing from friends and family. When the time is right, he jumps ship, spending a good year burning cash either to develop a slightly better mousetrap—a riff on some kind of KPO or accounting offering, or applies what he knows to another area entirely—perhaps selling timeshares in Florida or Cyprus.
11. The phoenix rising from the ashes career narrative: There are a few executives that flame out spectacularly by their own hands, supposedly committing some crime that’s considered to be so egregious (flaunting policy, losing a foundation client, or worse) that it results in an instant exit from a lofty position. But like the careers of many politicians and corporate moguls, memories are short and all is forgiven after an enforced period of wandering in the wilderness complete with penance and daily golf. And eventually the phoenix rises from the ashes, accepting megabucks and a CEO title from some global or private equity player.
12. The end of the line career narrative: Readers, that’s me…and several others I will refrain from naming. Having tried absolutely every outsourcing role with either a modicum of success, or a spectacular failure, we’re completely unemployable and now relegated to the sidelines of punditry. It’s a lonely job, but someone’s got to do it.
Deborah Kops (pictured above) leads many lives, including her own boutique firm, SourcingChange, a Research Fellow for HfS and The Conference Board. You can email her here.
After more than three years at the helm of leading research organization HfS Research, Phil Fersht will be stepping down as CEO to “pursue other interests”. The HfS advisory board is meeting later this week to discuss potential replacements.
Advisory board spokesman, Ari Gibbs, has released the following statement:
“We appreciate Phil’s energy and sense of humour, but you can’t expect to run a profitable analyst business while giving away all the research and throwing lavish executive parties. We will announce a replacement in due course.”
Phil Fersht to step aside as CEO of HfS Research
Fersht founded HfS Research in March, 2010, based on the success of his blog “Horses for Sources” and proceeded to assemble a world class pool of research talent to flood the market with research reports, surveys, white papers, webcasts, benchmarking data and forecasts. Today, the firm has produced over 200 published research documents and caters for a global subscriber base in excess of 120,000 avid readers across all spectra of industry.
However, the firm’s revenue model has always remained a mystery. According to one research subscriber, “The HfS experience has been incredible – the analysts actually talk to us like we’re human beings. We don’t have to dial 1-800 numbers and go through endless tiers of administration to talk to them. They even write research that is readable and practical!” However, when the subscriber was questioned as to the cost of the research, she declined to comment.
According to an HfS employee, who wishes to remain anonymous:
“Things have gotten so bad, we’re having to steal toilet paper from the Starbucks over the road from the office. Meanwhile, Phil’s off swilling pink champagne with the likes of Stephen Dubner.”
One of HfS’ competitors greeted the news with trepidation, “Thank god he’s gone – how can you compete with a research firm that actually has personality and the confidence to give some of its research away for free? We’ve been getting killed. My concern now is they’ll actually replace him with someone with a business brain who will really hurt us”.
Members of the HfS analyst team remain focused, despite their wayward leader
HfS has been internationally acclaimed for its approach to research with many accolades, including being named as the most Innovative Analyst Firm of 2012 by the International Institute of Analyst relations. It is the new analyst brand everyone has been talking about that has disrupted the traditional analyst business of expensive paywalls, stuffy research and dubious vendor rankings.
“The sourcing industry owes Phil a great debt for bringing many of the core operational issues impacting firms to the mainstream business audience”, commented Randy Bender, Chairman of the Incontinent Association of Outsourcing Practitioners. “But he’s clearly running out of gas. I wish him all the best with his future career, but I hope it’s doing something else, as we’ve had enough of him and his bloody blog”.
How many times have you heard sales people complain “our marketing needs to be better”? The role of the CMO is probably the most thankless job in the modern organization: the executives expect great branding and messaging to be propelled through all the optimal channels to market to maximize awareness and, ultimately, increase sales. And the marketing department rarely gets credit when things go well (that goes to sales), but always bears the brunt of the blame when revenue goals are missed. What’s more, it’s always really tough for marketers to get budget approved to support the campaigns their organizations need to create awareness, educate their market and drive new sales activity. Justifying the marketing ROI is probably the hardest calculation to produce in any organization.
When I was a young business studies student, the great Philip Kotler defined marketing simply as “Satisfying customers’ needs and wants profitably“. I’d go even further – it’s about “Satisfying customers’ needs profitably while successfully managing the expectations of the sales function”. To this end, HfS analyst Reetika Joshi has been taking a deep look at how leading service providers are trying to help CMOs today…
Getting actionable insights from an integrated marketing optimization platform
In 2013, our research shows three secular changes challenges challenging the success of the modern CMO:
» Analytics and the big data movement is gaining momentum with the need to now look beyond traditional web analytics and siloed projects, towards comprehensive marketing analytics that optimize all marketing activities, be it inbound or outbound.
» Mobile and the real estate value of the second screen: While addressing mobile in the past meant optimizing websites and emails to suit mobile formats, marketeers now need to rethink seriously the best ways to integrate mobile devices as important marketing channels as part of overall strategy.
» Social marketing and the fall of paid traditional media: Beyond simply increasing social presence, the next step is to think of innovative new ways to drive user-generated content creation and sharing, making campaigns more personal, identifying and appealing to social ‘influencers’ and tracking the impact social has on overall marketing effectiveness.
Every CMO has had countless discussions about the best way forward to tackle these mega-trends in marketing to get ahead of the competition. At HfS Research, we see two overarching marketing optimization challenges for organizations:
1) Crafting an integrated campaign strategy that works in the real world
Marketeers have an increasingly complex marketplace in which to make campaign decisions. From selecting the marketing channels in which to operate – both traditional and new media, to the modes of engagement and messaging for each channel, the frequency and sequence of channels to be tapped, and finally, the methods of evaluating and optimizing these marketing efforts in near-real time. Traditional campaign management often ignores the importance of these factors to realizing fully the potential of changing customer preferences and engagement models. There is thus a strong need for rethinking and measuring the effectiveness of the integrated modern marketing campaign strategy.
The sense of urgency towards an integrated campaign strategy can be explained when we bring up three short letters hounding CMOs today – ROI. IBM’s CMO Survey reveals that 86% of marketers claim their CEO demands more marketing ROI today than ever before. This inextricably links marketing with the need for more accountability, tracking, data mining and smart analytics that can prove, beyond reasonable doubts, where the marketing dollars should be spent to maximize ROI.
Analytics can be leveraged to improve campaign strategy (and ultimately ROI gains) by optimizing timing, messaging, etc. For example, analysis of customer PoS data and channel responsiveness (email/SMS, etc.) could reveal which channels are the most effective to target certain groups.
2) Finding the muscle to get execution right
Campaign execution is the logical flip-side of the coin when it comes to optimization challenges. The key issues are two-fold:
i) Achieving the right balance of technology to support effective campaign management, and
ii) Acquiring the right talent to revolutionize siloed marketing functions.
When it comes to technology, there is frequently an immense fragmentation of tools and platforms that not only make integration expensive, but also slow down decision-making during campaign execution. Getting actionable insights from an integrated marketing optimization platform, and accordingly making the right recommendations to customers, is the Holy Grail for marketers today.
Where technology is up to speed (in cases where marketing and IT are on the same page), the other execution challenge lies with departmental siloes and lack of talent. Where before there existed departments such as TV, direct marketing and PR working discretely to push outbound messaging, there now needs to be a combined and synergized effort of online and offline tactical elements to drive inbound marketing. Additionally, the types of skills marketing professionals need are changing. Successful marketers today not only need to be able to practice core marketing principles and have sound knowledge of their markets, but also weave in skills such as: content marketing and writing skills that are relevant and flexible (e.g. blogging vs. SMS), technology know-how for enabling tools, technologies and applications, digital and social media prowess to be able to select and nurture only the most relevant online marketing channels, an understanding of analytics and KPI metrics to make business decisions, and a healthy dose of curiosity to try new things (e.g. engage the customer in a new/unconventional way). Having said that, specializations in these areas will continue to evolve as companies start to integrate them seriously into marketing operations. This brings up the challenge of attracting and retaining specialists that are already in high demand. As an example of the specialized talent gap, McKinsey & Company forecasts an annual shortage of 200,000 data scientists by 2020.
Sensing the scale of these challenges, ambitious CMOs have started to make drastic changes to their strategies for future growth. External partnerships are is one such key lever that is on the rise – companies are leveraging third party providers for tools and platforms expertise, marketing analytics support, marketing consulting and multi-channel customer engagement, among others.
Reetika Joshi is Principal Analyst, BPO and Analytics Strategies (click for bio)
At HfS Research, we have strived to present business cases and best practices that highlight how different marketers are trying to cope with evolving/maturing marketing channels and consumer habits. In our recent case study based research, we present the experience and learning of one such company, a large US-based discount footwear retailer, that engaged with Infosys on an ambitious marketing optimization project to address the key challenges discussed above. With the help of the provider on both campaign strategy and execution, the retailer used an omni-channel, analytics-powered campaign optimization solution and was able to reduce its media costs, gain a unified view of its customers, and experienced a 5% campaign response lift, potentially impacting $3MM+ in 6 month revenue flows. Read more about this case experience here.
After three years of hard labor, we, at HfS, are proud to launch our first “HfS Blueprint” that we believe is the revolutionary crowdsourced methodology for evaluating business and IT service providers.
The industry has been literally screaming at us to change the way analyst firms portray their assessments of service provider performance, and we’ve dug deep to leverage our massive community, our extensive buyer relationships and demand data, to facilitate what we truly believe is a major game-changer in the research analyst industry: The HfS Blueprint.
Finally: A genuine way to assess services providers that isn’t reliant on the arbitrary viewpoint of a single analyst;
Finally: A credible methodology to gauge the performance of service providers against “real” innovation and execution capabilities;
Finally: A performance assessment of providers that apportions importance weightings of each innovation and execution category based on data from our State of Outsourcing survey, conducted with the support of KPMG, covering 1355 enterprise buyers, influencers, advisors and provider executives;
Finally: A performance assessment of providers where exhaustive inputs from buyers and influencers shape the scoring (not solely a handful of rose-tinted client references from the providers themselves);
Finally: A customizable assessment tool where enterprise buyers can re-calibrate the weightings to assess their provider-fit based on their own unique needs.
Yes indeed – we threatened these Blueprints five months ago, and we’re now ready to launch the first one… in the much vaunted, but still immature, market of Finance and Accounting BPO, which is currently growing at a double-digit clip. Click here to access our first Blueprint in Finance & Accounting BPO:
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We are happy to discuss the Blueprint methodology in greater detail (drop us a note here) but essentially, in this example for F&A BPO, we assessed data from 745 live multi-process F&A BPO engagements to ascertain provider market shares, depth of client base, breath of execution and geographic scope of delivery. We then conducted exhaustive interviews with multiple buyers and market advisors to help score providers against each other across all the sub-categories of the Blueprint using ExpertChoice, an advanced statistical analytics platform. We also received a tremendous amount of cooperation from (almost) all of the providers above, as we went through this exhaustive process to understand their concrete plans for the future, get really deep with their current client relationships, their overall vision and their appetite to evolve into higher-value areas of F&A BPO.
Congratulations to the Winners Circle and the chasing pack of High Performers… we’ll see how the picture has shifted in 2014!
Thanks to all who took part – you’ve helped create a little bit if research history.
You can download the full HfS Blueprint methodology by clicking here.
Newsflash… Enterprises reduce costs by outsourcing, but struggle to achieve little else of value. Well, on the surface, this would still appear to be largely true, but when you rummage even deeper under the covers, you’ll soon discover it’s more the legacy IT outsourcing deals which are still all about low-cost bums on seats, while we are actually seeing a few chinks of light with BPO that could resemble what we’ve been searching for since we started this damn blog… value beyond cost (gasp!).
So industry has spoken: 399 enterprises, (two-thirds of which have revenues over $3bn) recently took part in our 2013 State of Outsourcing Study, conducted with the support of KPMG. And one chart, above all others, again illustrates the familiar frustrations outsourcing brings, better than any others:
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So what do we read into this data?
Outsourcing achieves its table-stakes goals and makes some progress providing value. On the strong positives, enterprises are achieving success when it comes to meeting their cost targets, globalizing their operations and even standardizing processes. In fact, barely one-in-seven can claim to be actually dissatisfied with their meeting these goals to-date. Also quite encouraging, is the fact that the majority of enterprises are achieving positive outcomes with higher-value areas, namely accessing capable talent and transforming processes, even though these are largely modest results for most enterprises. Considering most buyers venture into outsourcing seeking these initial “table-stakes” goals of cost-reduction, global scalability and process standardization, you have to give a healthy thumbs up to those providers and buyers for achieving these initial objectives. However, can today’s ambitious enterprises really turn around and claim they are happy with basic, operational success in today’s economy, or do they want to seek to move beyond ordinary?
Outsourcing is falling short when it comes to innovation and analytical value. With all the puff and bluster about “Big Data” and analytics, and the pivotal need for today’s enterprises to get better at managing, understanding, an interpreting their internal and external data, it’s vital that outsourcing engagements support this capability for buyers. I would go as far as declaring a provider’s capability to create collaborative analytical partnerships with clients is critical to the future success and growth of outsourcing. If we only focus on these “table-stakes”, we will eventually arrive at the dreaded lowest common-denominator of outsourcing… where the provider with the cheapest labor and a basic ability to deliver average performance, wins.
So let’s drill a little deeper to discover where these engagements are falling short, by comparing where both ITO and BPO engagements are delivering real effectiveness for buyers:
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We can see here that BPO engagements are clearly outperforming ITO engagements, not only in many key tactical areas which clients care about (i.e. cost and process standardization), but also across strategic measures, namely proving greater analytical capability and innovation. So what does this mean to the future direction of outsourcing?
ITO has become a utility service for most enterprises, whereas BPO offers enterprises the potential to achieve value beyond merely cost
Clients pay for – and receive – “cheap and cheerful” ITO. When you consider that most major enterprises began outsourcing administrative IT in the 90’s (and some even earlier), you have to draw the line that if these are the results of two decades of engagements, it probably isn’t going to get much better. However, this is probably because most ITO buyers are pretty much getting what they have set out to achieve: “utility” IT services in areas such an help desk ticketing, infrastructure support, application maintenance and development. Clients wanted cheap and cheerful…. they got cheap and cheerful. And there are many providers, today specializing in the cheap and cheerful, who are really damned good at it. Some of them even openly discuss with analysts and advisors that their main strategy is to target HP (EDS) and IBM renewals and undercut them by 30%.
ITO has founds its rhythm – low-end work is outsourced, high-end is retained. Many CIOs and IT governance leads we talk to like having the grunt work outsourced so they can focus on the higher-value work inhouse. As we once revealed here, two-thirds of ERP development work is still run onshore. Ambitious CIOs these days like to focus their time on ecommerce, mobility, “Big Data” and Cloud strategies, and will engage IT consultants with projects when they need some high-end help, but most aren’t expecting their outsourcer to do that kind of work for them. India created an amazing factory for taking on the specific routine work than can support large enterprise IT operations – but that is what it largely is – routine work than can be conducted efficiently at lower price-points.
Managed business services, enabled by IT, are where the future value lies with outsourcing. We – at HfS – passionately believe the only way for these providers to move up the value-chain with clients is to create business services that can meet defined business outcomes. Simply put, IT provides a supporting utility to help achieve these business outcomes that clients want to buy, which would ideally be accessible in the cloud where business users can access their services wherever they want. The focus then shifts from providing widgets, to the actual provision of value, where providers start working with their clients to achieve business results, as opposed to creating simply a low-cost environment. ITO has become a supporting utility, with the real transformation happening at the business end. For example, when you buy a new car, how much time do you spend deliberating what grade of fuel to put in it?
Like ITO, BPO has it’s “bread and butter” needs: processing invoices, paychecks, insurance claims, ICD-10 conversions, and so on. There’s a plethora of providers today which can perform said tasks on many different scales, across many geographies and industries, and can flex the pricing if they really want the business. However, unlike ITO, there’s not a whole lot of value with outsourcing business operations if you’re simply getting the same work done for less. ITO is already standardized, to some extent: you need 10 ABAP coders, you pay for 10 ABAP coders. With BPO, buyers’ current processes are rarely standardized and solutions not nearly as easy to industrialize. Clients often need to undergo one helluva “transformation”, simply to transition the stuff to a provider in the first place. Moreover, with BPO, we are dealing with business functions that are critically dependent on analytics to perform their tasks, whether they be marketing, customer service, finance, procurement, workforce management, and so on. As McKinsey recently revealed, it’s this creation of analytical environments which is becoming (or will soon become) the overwhelming onus for so many enterprises, with its assumption that by 2020, we’ll have a surplus of 300,000 office workers and an annual deficit of 200,000 data scientists in the US alone.
The Bottom-line: ITO maybe a commodity business, but a new wave of collaborative business services is beginning to show the way
When you consider that most of these “enterprise BPO” engagements have barely been around for a decade, the results are quite encouraging – 90% of buyers are meeting their transactional goals, and a good proportion are already getting some value from key areas such as accessing talent and improving analytical capability. Yes, there is a long way to go, but at least BPO is moving in the right direction. It’s because clients need much more help with their business operations than simply bums on seats at cheaper prices… they are far more dependent on their provider to help create an environment for themselves to become more analytical, more process-savvy and more focused on actual results, than mere inputs. Welcome to the new phase of outsourcing, which is about partnerships what are not only cheap and cheerful, but also collaborative.
“Someone is needed alongside the CEO that understands the total changes in technology that are changing customer behavior.”
— Bill Payne, IBM, March 2013
In case you missed IBM’s CRM Chief Bill Payne’s return to blog-stardom during Part I, he discussed his vision for the creation of a “Chief Customer Officer” position within companies, who would report directly to the CEO. In Part II, Bill discusses shifting mindsets, the impact of analytics and evolution of outcome-centric engagements impacting the marketing function…
Phil Fersht (HfS Research): Bill, with our next client summit dreamSource coming up in two months, the number one topic on the agenda that enterprise buyers have voted to talk about is “how to shift the corporate leadership mindset away from merely cost control to one of value creation”. Someone once said the definition of insanity is talking about the same problem in many different ways and always arriving at the same conclusion. How can we break this cycle, and is this something that you have seen with any of your clients?
Bill Payne is IBM's CRM Services lead
Bill Payne (IBM Global Services): This change in mindset can often involve a change of thinking at the top, and in some ways, I use that as evidence of why we do not have a chief customer officer. If you have everyone on the board of directors owning the customer, no one truly owns the customer. No one is truly driving the customer/consumer strategy. The CEO has a huge role in that, but in my view, you need someone with a different point of view, someone who really understands the change in generational behavior, change in technology, change in social, and actually injecting the organization with controversy and the reality around how the world is changing. I am not sure I see that in a lot of companies that they get it. We have recently seen a major UK retailer go bust, Comet Group. It had been doing well for many years, but one of the biggest drags to their development is that once they had ecommerce, it was not integrated with their bricks and mortar. Their customers rejected it because of the confusion between the costing and pricing on the website vs. stores, and their staff was not trained across the different platforms. It is a sharp reminder of the pitfalls of not integrating across all channels quickly.
What I see from an IBM perspective and from my space is that we are increasingly having sessions with customers about end to end. No longer are they thinking contact center, no longer are they thinking CRM system, no longer are they thinking speech to text analytics. There are senior people saying: can you paint me a picture, show me a vision of the consumer end to end, and tell me how that can be deployed? Now, where we are seeing that? I have to say in emerging markets, such as Brazil and the Far East. Newer organizations are basically saying, we have to do the design, build, and operate model and we have to get to an integrated solution very quickly. They say we know what our customers want, and if we do not get there, someone else will, and they are going to take away a big piece of our market. That’s the revenue growth piece.
Phil Fersht: Working for a big provider like an IBM, in your ideal world, how can you really help clients and, in reality, what is more achievable for businesess that might be 10 years behind the curve? What is the engagement model and how should it look in your mind?
Bill Payne: The engagement model is changing. In my part of the business, we have a large portfolio of customers in the front, middle, and back office. Very often the discussion would be for a piece of that: can you run our contact center? Can you provide us with outbound notification?
We have a number of very large opportunities that are coming through our door and have been having very good discussions with senior level executives about an end-to-end omni-channel fully integrated single view of the customer, using data to drive insight, using data to drive revenue across sell/cross-sell, and designing, building, and rolling that out quickly, while fully outsourcing that capacity, but doing it on a transaction or outcomes basis. Engaging with a customer about IBM sharing the risk and the upside when driving revenue up is a very different commercial model. We are beginning to see a number of significantly large opportunities in this end-to-end play and not just picking up pieces of the customers state.
Phil Fersht: Bill, you talk about outcomes and risk sharing? Can you share an example or two about how this can – and is – working in practice?
Bill Payne: I can share both can and how. It is always difficult to map this out. Phil, you and I have both been in this business long enough to know that this risk reward discussion has been going on for a decade now, and there are a number of winners and losers. I think what we are seeing is something different. As we move our model towards transactions and outcome, and if you are involved in a full omni-channel deployment with customer data for say a retail customer, it is easier then to commercialize and amortize the design and build to share both the cost and the revenue as the business grows. Should the business shrink, then one needs to be able to wind down some of the infrastructure. You need to truly variabilize that cost. What we are seeing with some of the more modern tools and software from IBM and partner’s technology is the ability to commercialize a deal in a different way with easier integration of customer data. It’s not all about throwing away everything you have and re-platforming a new CRM system, it can simply be around integrating data into the face of the customer. The true driver here is that IBM will come around and propose it, design it, build it, and operate it. The idea is to then make the cost variable such that it is variable on the number of customers or volume of transactions within the system and that then rides on a revenue going up, which is what we want to happen, but should it come down, the cost to operate the system will come down as well. We’ve got some deals working very well like that. Those discussions are naturally not easy for executives and can take some negotiation. But I think it is something that we are seeing more and more. In particular as a lot of organizations are potentially short on investment money, they need to move quickly and cannot afford not to do design, build, and operate in one step. I think we are able to utilize our big international and finance systems to drive those kinds of projects.
Phil Fersht: Let’s talk finally about analytics. We have written a lot about this recently, where the world is short on “data scientists” and overloaded with office workers. When I look at an area like customer centricity, there are a lot of niche analytics providers in this space who will provide archiving and interpretation of data. Based on this conversation, analytics is really only useful if you are able to tie it into the whole customer value chain. So, is this the central value of using an IBM as opposed to a niche provider is that you get someone who can actually put it all together and who can look at the big picture?
Bill Payne: Let me try and give you an example of this. As we head towards the heart of the American football season, when we look at the stats of the American football team, we can look at the attack and the defense stats. They are of course very interesting, but are completely uninteresting when you compare them to the winning ratio of the team. So, what this tells you is that you can look at individual pieces of statistical information and draw one conclusion, but it is only when you bring it all together that you can draw the full conclusion. So, I think there is absolutely use in looking at individual stats as one piece of the organization, but what is beginning to happen is that a single view of the customer center is absolutely back on the agenda. For a number of years, companies rejected it, by single view you were suggesting a re-platforming of their CRM system for hundreds of millions of dollars. I think there are very different ways of doing this by drawing together customer information on how we behave on all of the different channels. We do not want to ring up a contact center and then have them not know we have been on their website or what we have been saying on social media.
There is a need to integrate. The good news is that we have some great integration software. There are some really good niche providers, people like ourselves who integrate, and we have some of the tools, but we also use some of our partner’s tools. So, one can use some of these analytics, such as text analytics or speech analytics in a way, but what I think we see in the next decade for sure is how they will get brought together in a much more synergistic way around the customer. When I am speaking to executives and they ask me, what do we do Bill? I will say design your new organization outside in, not inside out. So, outside in means look to where your customers are now and where they will be and then drive that back into you organization. Do not sit around a table designing your organization based on what you think is happening now inside your company, because I can guarantee it is going to change in the customer world in the next decade.
Phil Fersht: And finally, what advice would you give to marketing executives today?
Bill Payne: Take control of your brand, take control of the changes that are happening in your customer market, understand your customers needs, integrate them, and create a new customer experience.
Phil Fersht: Bill, its been great having you back on here – am sure our readers will appreciate your insights.
Bill Payne (pictured above) is VP for Global CRM and Industries at IBM Global Services. He is a 25-year industry veteran where he has held wide ranging responsibilities in the Consulting, Business Services and Outsourcing sectors across Europe, US and Asia. He is well-known on the European speaking circuit and is also an Honorary Professor at Lancaster University Management School.
