I want the best SaaS platform, some great BPO and a bunch of data scientists…
When it comes to outsourcing, dealing with the middle-market has been somewhat akin to dealing with the mother-in-law: can be awkward to deal with, very hard to please, and always has complex demands on your patience and resources. However hard you try, defining and delivering a solution that can deliver the outcomes you both want seems like the impossible nirvana.
However, as the wise ones among us have now discovered, winning over the mother-in-law goes a whole long way to achieving future happiness. What’s more, those of you who have avoided addressing the mother-in-law’s demands will soon regret it…
However which was you look at it, many of today’s middle-market firms are going to be the F1000 of the future. What’s more, most are seeking technology and sourcing solutions that can drive nimbleness and cost-effectiveness, as they simply do not have the prodigious people and technology resources within their IT, finance, HR, marketing and supply chain operations to manage their evolving needs. In fact, many of them can’t afford the top talent to run their operations, and those providers which can deliver it are already in high-demand.
Let’s examine what 399 enterprises had to say about their mission-critical objectives driving both ITO/BPO decisions in today’s market. It’s already becoming abundantly clear that high-end businesses today, unlike their mid-market counterparts, are focused primarily on cost-reduction when outsourcing, as opposed to investing in new solutions and capabilities that providers could (and really should) bring to the table:
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Why aren’t today’s providers winning over their mothers-in-law to grease the wheels for their future success?
So… if most the providers are promoting their wondrous capabilities in terms of talent, technology and analytical capability, why aren’t they targeting those clients who actually want those capabilities: the middle-market firms?
Providers are set up for high-end enterprise deals, not the mid-market. Sadly, most of today’s leading outsourcing providers are geared up for big, bloated enterprise deals, where the economics of labor arbitrage are simple, and selling cost-reduction is a much, much easier than selling business outcomes. What’s more, the providers themselves are not structured to sell aggressively to the mid-market – they tend to have limited sales talent and they want their A-team delivery teams concentrated on their A clients. When you talk to their sales heads, they’ll likely be able to tell you, pretty much, how the entire F1000 shapes up in their pipelines, but when it comes to the next few thousand firms, they’ll have little insight or visibility.
High-end buyers want to get smaller and drive out cost, not invest in new solutions. Moreover, the $10bn+ enterprises want to get rid of cost – they know they have hoards of talent, but their main motivation today is to get leaner and more flexible, to standardize processes and (if we are so bold to surmise) become smaller. Today’s enterprises want to grow their top lines, not their bottom-lines. This is why today’s outsourcing industry is so fixated on labor arbitrage, FTE-cost models and achieving basic operational success.
Middle-market solutions require business platforms, based on industrialized tech platforms and processes. We’ve talked about this for a few years now, but it’s taking an age to evolve. Where are the platform partnerships between the Netsuites, the Workdays, the SFDCs with the BPOs? Why haven’t we seen a “middle-market FAO solution” between a mid-market SaaS accounting provider and a leading F&A BPO provider? While there have been a few mutterings of hope, we are yet to see a single enterprise-scale SaaS/BPO platform engagement that we can write about.
The Bottom-line: The leading SaaS vendors don’t “get” BPO and the leading BPOs don’t want to invest in SaaS
Having spent the best part of my earlier career as an analyst studying apps and packaged software, before being subjected to the horrors of the BPO business, it’s as clear as daylight where enterprise solutions need to be focused – on the middle-market enterprises who want solutions that can be industrialized for the high-end enterprises of the future.
SaaS providers are blind to ADP’s success. However, one thing is very apparent – while SAP and Oracle quickly realized they needed to preserve their license revenue when clients signed BPO deals (both have practices dedicated purely to this cause), the likes of Workday, Salesforce.com and Microsoft Dynamics have shown little-to-no appetite to understand the opportunities a BPO channel can provide. Like, haven’t they noticed how ADP has become the world’s leading SaaS/BPO provider, with more then $10bn in annual income?
IT-BPO providers only looking to invest in niche tuck-in areas. Sadly, too many buyers are too focused on their quarterly balance sheets to focus really long-term on their operations; their operations heads are focused on preserving their empires with a few snips here and there to the operating budget. In addition, providers are also focused on their quarterly balance sheets and find it so much easier to pander to the needs of today’s F1000… not tomorrow’s. While we’ve seen a few niche acquisitions where providers are adding platform capability in process niches, such as Accenture/Octagon, Genpact/Jawood, Capgemini/VWA and Infosys/McCamish, we’re yet to see any of them really attack the mid-market with horizontal solutions that can infiltrate thousands of organizations, such as in Finance, HR and CRM.
This train is leaving the station soon… but who is going to jump on? As the existing high-end business opportunities slowly shrivel up, the new logos are springing up in the mid-tier. The winners of today will only be the winners of tomorrow of they can truly invest and build the solutions today’s mothers-in-law are craving. Those who have ignored the mothers-in-law are already in trouble… Hope springs eternal 🙂
Having been an analyst for the best part of nearly two decades, the big ERPs have always maintained a stranglehold over the majority of the global 2000. Any service or technology enhancement has to connect / integrate / work-around the existing ERP template. Entire operations departments essentially become structured around the ERP platform and dependent on their capabilities and relationships with their ERP vendor.
And the ERP premise has always been pretty good – accomplish standard, automated ways of doing things and you can employ less people to achieve the outcomes you want. However, we all know how that has failed to transpire for so many…
Susan Scrupski is Research Fellow, Business Process Reinvention (Click for bio)
However, the world of business process solutions is finally changing. Most mid-market companies looking at their first “ERP suites”, whether it’s in HR, or finance, or procurement etc, are going straight into the Cloud, with the likes of Workday, Netsuite, Ariba and so on. It’s these companies evaluating business process solutions from scratch, or are simply at the end of their tethers beating the crap out of their legacy ERP systems, which are taking the leap and reinventing their whole approach to process management. I firmly believe it’s many of today’s mid-market companies today that will make up the majority of the Global 2000 in 5 years’ time.
But let’s not get overly carried away…there isn’t a dramatic switch happening from the legacy ERP-driven firms to the new generation organization, where everything is run under a beautifully centralized global operating model, process flows are accessed in the cloud and all non-differentiating processes are outsourced. It’s simply those firms ready for the new are growing in stature and scale, while those clinging to the old are trying to get smaller and leaner. It’s about reinvention, not replacement; it’s about taking a completely new path, not simply papering over the cracks of the old one.
So without further ado, I wanted to introduce a spectacular new personality into the HfS family, Susan Scrupski, a legendary figure in the worlds of disruptive technology and social business – and Fast Company’s “Most Influential Women in Technology” in 2010 – who’s embarked on a pivotal new project with us entitled “Business Process Reinvention”…
Business Process 21C: The Jackhammer Tales
Over the past few months I’ve begun to reflect upon how I arrived here at the intersection of process and innovation in the Enterprise. It occurred to me that everything I learned as a researcher, a writer, and an industry observer in the services provider space (my pre-Internet career) now had great bearing on what I was seeing in the Enterprise as a result of the pace of disruptive technologies impacting the market. The question that kept re-emerging for me was: how are rigidly defined business processes that were hammered out in the 90s reconfiguring to adapt to better, faster, more efficient ways of meeting customer needs? Even more puzzling is, if my friend Josh’s old joke is correct, “SAP is like pouring concrete into a company,” how are large enterprises dismantling foundational ERP systems to include disruptive technologies? After all, no 21st Century business can stand to stay frozen in the past. Even SAP itself is retooling to provide greater flexibility and real-time actions and insights with its HANA in-memory database and its JAM social platform.
This big question has been vexing me for a while, so I asked my friend and fellow Enterprise Irregular, Phil Fersht at HfS Research, if he’d be interested in an exploratory study to see how BPO providers and consultants are responding to new advances in mobile, social, the Internet of things– all new capabilities that were not present when the majority of institutional business processes were “cemented” into the Enterprise. I’ve seen evidence of several companies who’ve been introducing social, in particular, to provide greater value to customers. Of course, some of the best examples are coming from platform vendors themselves such as this post, “Enterprise Social is about Business Process Redesign” by CEO Michael Idinopulos at Socialtext. But, I’ve seen other examples such as Deloitte’s work in this area explained in this post, “Social Reengineering by Design,” and even examples about how large consulting firms are changing their own internal processes as a result of new ways of working, as evidenced by this post, “Spark – taking Collaboration and Corporate Social Networking to a new Level at PwC.” Luckily, Phil agreed this is an area definitely worth pursuing, so we’ve kicked the study off this week. We’re compiling data and hope to publish results in the early May timeframe.
I’m really happy to be working in this area that combines my long history of covering the traditional outsourcing sector with my area of interest for this current iteration of my career in next generation technologies. Phil has done an amazing job with HfS Research, too, so I’m proud to be contributing to their strong brand in the market. HfS was recently named one of the leading analyst firms in a formidable field of competitors. Last week, I paid a visit to my longtime business advisor Mort Meyersen, who is an icon in the outsourcing field having helped build EDS and then Perot Systems. It feels good to be back among old friends, mashing up what I’ve been learning from new friends.
I will be working hard on this study for the next few months, but also working on the startup we announced a few weeks ago, Change Agents Worldwide. So, busy, busy, but really having fun. Hope to see some of you at SXSW, but I will be hunkered down and only getting out to a few of the evening events. Please keep up with me on Foursquare if you’d like to connect while you’re here in Austin.
Susan Scrupski (pictured above) is Research Fellow, HfS Research.
Wow, wow and wow. There’s an Analytics for Banking, Finance & Insurance event in New York next week, and HfS Research is strolling down the I-95 to study the cerebral-ness.
We hope to see you when yours truly (Phil Fersht) moderates the “Leveraging 3rd Party Analytics Players : From a Transactional Support Partner to Turbo-Charging your Core Competencies” session taking place on Wednesday, March 13th at 11:30am along with Allstate’s Ferdinand Dungca and Wells Fargo’s Eric Legrand.
Yes! Its time to head to NYC on March 11-13th at the Sentry Center for a whirl-wind event. And not only have we negotiated our readers a discount, this time we’ve arranged an elephantine 50% off for your attendance:
To register, please email [email protected] to take advantage of the discounted rate.
We look forward to seeing you in New York City next week!
If you’ve ever read Freakonomics, you’ll know how excited we are to announce that co-author Steven Dubner has agreed to speak at our dreamSource event this spring. Here’s the press release that went over the wires this morning….
NEW YORK AND LONDON (February 28, 2013) – HfS Research (www.HfSresearch.com), the leading analyst authority, today announced that Stephen Dubner, co-author of the best-selling book Freakonomics that melds pop culture with economics, will attend dreamSource as the featured speaker for the April 30th evening event at The Ritz-Carlton, Westchester, New York.
No it's not April Fools' Day… Stephen Dubner is really coming to dreamSource
Mr. Dubner offers a way of getting beneath the surface of modern business practices: how to create behavioral change, incentives that work and don’t work, why consensus building often wastes time and resources, and how to achieve the business outcomes you expect.
“Stephen Dubner is a delightful addition to our groundbreaking agenda,” comments Phil Fersht, Founder & CEO of HfS. “He reinforces with both humor and poignancy the notion that the old rules of business no longer apply. His vision is right in line with the spirit of dreamSource and the purpose of the HfS Sourcing Executive Council – to shape the future global operating model for today’s ambitious enterprises and break out of the purgatory in which so many of today’s enterprises are trapped!”
Commenting on his attendance at dreamSource, Stephen Dubner said, “HfS is moving the needle with how today’s leading enterprises need to focus on evolving their global operations dreamSource will be a unique gathering of key enterprise stakeholders to find common ground on how the sourcing industry needs to move from “good enough”, to “getting better”. Too many enterprises are caught in a holding pattern and it’s gatherings like this which will help us find new paths to follow. I am personally excited to meet many of the folks at the event.”
The full agenda addresses 2013’s most critical areas in global sourcing, such as Talent Development, Designing the Governance Organization, Real World Innovation and Influencing Value in the Shadow of Cost Myopia. At the heart of HfS Sourcing Executive Council events are industry heavyweights facilitating the discussions who are leading sourcing initiatives across their enterprises.
DreamSource currently boasts a majestic lineup of session leaders, including Carol Britton, Chief Procurement Officer for Bank of New York Mellon; John Ashworth, Global Head of Finance Transformation for Pearson: Jay Desai, SVP for Global Sourcing at Northern Trust; Craig Libby, AVP Global Service Delivery for USAA; Lee Coulter, CEO of shared services for Ascension Health; and Betsy Gauthier, 2nd Vice President and BPO Program Lead for Travelers’ Global Sourcing Organization.
“Likeminded outsourcing buyers get together to discuss the key issues facing the industry, meet each other and share experiences and wisdom,” comments Madelein Smit, VP Outsourcing for Finance and IT for CEVA Logistics. Mrs. Smit leads The Science of Performance Management on the second day of the dreamSource summit. She continues, “This is the only place where 300+ years of deep outsourcing experience have the opportunity to meet – and that is in a very young industry.”
In addition to the Stephen Dubner and enterprise governance leaders, dreamSource will feature sessions led by HfS Research leadership, including a special discussion led by Professor Leslie Willcocks, Head of the Outsourcing Unit at the London School of Economics, where he will be sharing his new book with the Council members during his session entitled “Advanced Outsourcing Practice: Rethinking ITO, BPO and Cloud Services”. HfS has also invited select leaders from the service provider community to participate in a portion of thedreamSource summit, which include the following firms:
“The Provider community is essential to the conversation to ensure our time is invested in a two-way dialogue,” comments HfS CEO Phil Fersht. “The only way to achieve genuine progress in advancing the global sourcing industry is through open dialogue across both parties in a strictly no-sales environment.”
For a detailed agenda and complete list of all dreamSource session leaders, visit http://www.dream-source.com.
For more information on the HfS Sourcing Executive Council and the HfS dreamSource summit this April, please email Tom Ivory at [email protected].
Bill Payne is Vice President, CRM and Industries at IBM Global Services
Three years after his first appearance here, IBM’s Bill Payne has somehow survived appearing on such a disreputable media platform to talk to us about his refining vision for the future marketing function and, perhaps most importantly, how today’s businesses need to manage their most precious assets in the face of such fundamental change – their customers.
We managed to convince him to take time away from his prized vegetables to talk to use more about this vision for the CCO… The Chief Customer Officer…
Phil Fersht (HfS Research): Good morning, Bill. You recently wrote an article where you spoke about the road to customer centricity and how the world’s leading organizations are putting the customer first. In your experience, how has this been working and what is your vision for the future of the customer centric enterprise?
Bill Payne (IBM Global Services): Companies have always said that they put the customer first, and I think they genuinely believe they do. When the business world was made of just bricks and mortar, and on the primitive edge of the digital age, putting the customer first meant that you had to monitor the customer simply when they walked in the store or if they touched you digitally. The world is way more complex now, and what we have found is in large organizations, there is often no integrated customer or even consumer strategy driven by the board. In an omni-channel world, there isn’t necessarily anyone at the board level who owns all customer driven channels.
According to IBM’s latest Global CEO study, nearly 90% of 1700 CEO’s said knowing the customer is top of their agenda, yet how many of those companies have a chief customer officer who owns all of the customer driven channels?
Let’s take a look at the CXO picture around 20 years ago. Why did people invent the chief information officer? They invented the CIO because information technology was changing the need to globalize, the need to integrate, and the need to rollout standard technology applications across the organization.
Then, you had the dawn of the chief procurement officer, and the theory is exactly the same, why did companies appoint CPO’s? To standardize, centralize, harmonize, and integrate procurement across their enterprise, Similarly, the CFO, allows a degree of centralization across finance.Then you had the Chief Marketing Officer, for the same purpose. To have a complete view of the enterprise and driving the brand value for the consumer, yet hardly anyone has a chief customer officer.
I would contend now that as the world develops, we as customers own the power. Any enterprise that thinks they own the power is kidding themselves. The time is now for savvy organizations to put in place a chief customer officer. The role of that chief customer officer is then to build out the presence and the brand across multiple channels, understand the concept of consumer market data, and bring all of that together with insight.
I would also contest that, that chief customer officer could potentially be the new career model for the chief marketing officer. The CMO is the face of the brand, and therefore could be the person to drive that brand value and take on the role as the chief customer officer. There is absolutely a need in many enterprises that I work with to have someone who understands the changes in the market and be able to bring all of that strategic value together to help the board and the enterprise drive the changes that they need to engage the customer.
Phil Fersht: Something I would like you to challenge here is: Do CEO’s today realize the importance or the complexity of really great marketing anymore? 20 to 30 years ago, marketing was the subject to study at business school. It was all about satisfying customers needs and wants profitably, and aligning a product or a service with the core strategy of the business. Something has seemed to have gotten lost in the last 20 years with how marketing is perceived and managed within the organization. A), Would you agree with this, and B), What do you think has gotten lost, and what do you think we can do to start to fix that?
Bill Payne: I think the brand actually can be the last vestige of loyalty that companies can leverage. I think historically, many of us have been a lot more loyal than we currently are. We tend now to be relatively open to disloyalty ‘Many of us have a mobile app on our smartphones that allows us to scan barcodes in a store, and immediately be offered lower prices for the same goods. The world is rapidly becoming mobile, so this drives an added degree of transparency, which enables us to find cheaper prices. Now, if brands are less vestiged, and I want to buy a brand, then I will go to the lowest point where I can get that brand for the highest level of service.
I think what’s gotten lost in the last 10 years is that companies have not really thought through their consumer and customer strategy and placed the value on the brand that they need to. What we have seen through many of our CEO study’s and certainly CMO studies is that the brand is still extremely important, but many CMO’s have not gotten their energy and efforts fully focused on how they monitor and drive that brand in the new world of mobile, social media and mobile apps. I think that is a big area that needs improving. The brand value is still hugely important and under leveraged by many organizations.
Phil Fersht: We had a very good discussion recently about elements of businesses that are being outsourced today, and one of the hard realities is: do CEOs wake up in a sweat in the middle of the night worrying about their procure to pay process? Probably not, but do they care about their brand and the way they are perceived in the market? You bet they do! So, in terms of developing realistic – and useful – metrics that should be used to define, measure and manage real marketing outcomes in an organization, do you have some views on what would be more effective these days, and how companies could change their approach?
Bill Payne: I think we have to step back a little first. We see vast differences between organizations in how they manage their marketing spend and understand the ROI,
I think the first phase here, in the world of transparency, is you have to get on top of where you are marketing. One of our clients has a totally integrated global brand management system through all of their web portals. They have a 24/7 update of all of their websites around the world so they can rapidly launch new products, test response to them, and work with their customers based on what they see from their digital presence. With this system, it takes about eight hours to completely launch a brand new product or service around the world. One of their main competitors takes eight days to do the same thing. This competitor has individual country based websites and many of those websites are not easily viewed on a mobile device and do not have an integrated update system. Interestingly, between those two companies in the electronics space, one is doing well, and the other is doing badly. (guess which) That is just an example of the need to start integrating your marketing spend.
I think there are two elements in marketing spend, transactional and creative. Those that are being successful are integrating around the creativity and the transactional piece, such that they are understanding the value of campaigns and understanding the value of the customer. They are able to rapidly respond across global , regional or local markets, and find value in creativity and how they deploy that creativity. So, they are effectively starting to manage the ROI of marketing campaigns and marketing spend against their brand value on a global basis.
Phil Fersht: You have talked a lot about this Chief Customer officer, and you feel that this individual should report to the CEO and not the CMO. Can you explain your thinking here and why you feel customer management should be separated from marketing?
Bill Payne: I think that the CCO should report to the CEO, and the CCO should be the CEO’s best buddy. I think it actually is a fantastic role for CMO’s to broaden into as the mentor/owner/driver of both the brand and customer in an enterprise. They could grab it with both hands and drive the change
The task list for the CCO in the next 10 years is going to be the world’s biggest job. The reason being is that everything I see, and with every customer I talk to and company I visit, the whole customer dynamic is moving into a new arena of transparency and service and technical innovation.
So that CCO, has got a huge job to get back to thinking about the single view of the customer, using customer data, using market data, collecting all that data, using analytics to drive insight,adapting to fast changing techologies and then driving (not just cost out,) but revenue up. So the role of that CCO I think is sitting on the right hand shoulder of the CEO, almost as the conscience of the CEO to drive customer revenue.
As we see in our CEO studies, their top concern is their customers. Someone is needed along side the CEO that understands the total changes in technology that are changing customer behavior. I will give you a couple of examples of this: we are in a meeting in Singapore this year with a COO of a major retail organization, and we are developing their digital presence and commerce strategy and website. 30 minutes into the meeting, I say, why are you doing this? To which there was silence. And then I said, surely, we are not talking about ecommerce, but mcommerce, and more likely scommerce (social commerce)? I put it to them: the world in the next 10 years will be 6”x4” or by 8”x10”. There is no point to build a site for a desktop web base, because the world is becoming mobile. So you should be designing all of your commerce structure around what will fit on a smart phone or on a pad. To me, you have to ditch the old thinking. It is not about ecommerce or internet commerce, it is totally about mobile commerce and social commerce going forward.
Stay tuned forPart II where we discuss shifting the corporate mindset, analytics and (heaven forbid) a little bit about IBM…
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.
Yes, you heard it here first, folks: outsourcing expenditure is mushrooming at the warp-speed clip of 4% this year to surpass $950 Billion, and expected to average a 5% clip each year through 2017:
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How do we know all this?
Because we have a super-brainy data guy called Jamie Snowdon leading our data and forecasting practice, where we pull together data from thousands of supplier contracts, revenue databases, inflation estimates, economic primers and – most importantly – from the thousands of buyers and other industry stakeholders, who have been so religiously responding to our ongoing surveys (we have data from over 3,ooo buyer spending intentions just from the last year).
Yes, we’re so excited about sizing and forecasting global outsourcing markets, we’re delivering to industry the quarterly HfS Market IndexTM that delves into all the ITO and BPO services markets by countries, verticals and discreet horizontal markets.
Why are we doing this?
Because noone else is doing it accurately. When IDC claims China’s BPO market is $6bn, you just know something is a bit off…
Because we have such a strong day-to-day involvement into the worlds of the buyers, sellers and advisors of outsourcing. We actually have some peculiar people on staff who wake up in the morning and think about process flowcharts before breakfast.
Because there is very little data out there which really reflects what is going on across outsourcing services, with reliable and realistic capabilities to forecast out four years.
Because we can.
How can you get access to it?
Sadly, we have long tried to run HfS as a non-profit charity, but we found life started getting a bit crappy when the heating got cut off in the offices and we were living off cans of Progresso soup. So our research suibscribers will get the full benefit. However, as good Samaritans, the first one is free – yay! Go register on our site and download your copy now. This offer will expire with one week, otherwise the only other option to get a free copy out of us is through bribery, extortion or heavy imbibement.
So click here to download your one and only free copy of the HfS Market IndexTM. Now
“HFS Research was an outstanding performer in the Analyst Value Survey. Buyers of analysts’ services rate HFS Research as one of the most valuable providers, and one of a handful of firms whose influence grew most impressively in 2012”
Duncan Chapple of Analyst Equity, February 2013
Leading expert and commentator of the global analyst industry, Duncan Chapple, former board member at the International Institute of Analyst Relations and CEO of LighthouseAR, has announced findings from the Analyst Value Survey, which included 198 enterprise consumers of analyst research to understand how much influence each major analyst firm has on enterprise buying decisions and the media.
Considering this study was focused on major analyst firms such as Gartner and Forrester, which cover broad enterprise IT and services buying trends (not just sourcing), we would be have been happy with finishing somewhere in the middle of the pack, but as you can see, we are making some pretty big waves in the enterprise. It’s pretty cool what you can do with a smart group of analysts a bunch of research and a blog:
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We, at HfS, are proud to represent the sourcing industry among the global analyst firms and help communicate today’s complex issues surrounding sourcing to the forefront of the enterprise agenda. Thanks for all your support.
So if you haven’t been fired yet, here’s how to avoid it happening…
Phil Fersht (HfS Research): So, Lee, we talk about more of a fluid and evolving outsourcing relationship. How can we get there? Why is such a large proportion of this industry stuck in the weeds, with so many companies persisting in doing things in such a short-sighted way over the last decade. Why aren’t we evolving these relationships? What is holding us back?
Lee Coulter (Ascension Health): Phil, I think there are two primary reasons:
One is the most common misconception about outsourcing or shared services is that you can declare success. Some executives like to say “We’re done. We’re done outsourcing. We’re done doing shared services”. No, no you can’t! This notion that there is some finite initiative and there is some specific number of deliverables that you can check off on your old checklist and say “Oh I am done, yay”… that is a very common misconception by the leadership in many organizations.
The second one is that the work to continue to evolve the relationship, is really hard work. You know for anybody who has actually been through a significant outsourcing negotiation, it’s hard work. You know, not just to get the MSA in place, statements of work, service level targets, KPI’s, units of cost, demand management processes, these are all hard things to do. They really are pretty hard. And when we have taken the time to describe the nature of our relationship in a contract and it takes you know 6, 9, 12 months to do it and then another 12 months to work the kinks out of that. Nobody really looks at re-characterizing that relationship as something that they really want to do. But, in order for the client to get the best of what a provider has to offer, that’s what needs to happen. And to increase the value and contribution of those services for the business, that’s what has to happen. Continually moving up the value scale to the point where the provider is not only able to bring their expertise and technology to your relationship but has the incentive to do so. You’re in an FTE contract moving to a task based contract, it’s is a minor step. It is a big and important, but minor step.
However, moving into a process component, that is yet another step. Moving up the value chain from purchasing effort to purchasing tasks to result in purchasing processes to finally purchasing the contribution of that service to the business. This incents the provider to bring their own best thinking their own best technology to your services. But it requires that you completely start from scratch with the description of what it is you are buying and how it is you are paying for it, because you have to go through this process every couple of years of looking at what you are purchasing and the way you are purchasing it and say to yourself, “Is this really incenting the right behaviour from both parties?”
Phil: Our data is showing that there is a good chunk of clients today, around a third, who probably have that attitude that outsourcing is done, it’s finished – let’s just keep chugging along with that contract. So, we kind of take the attitude of if that’s the way they approach it, there is not much you can do. But it’s the remaining 66% of clients who have varying degrees of caring about improving and innovating. Would you agree with that, and do you feel that those clients who are in the bottom 33% should be just left to do it their way, or do you need there should be some overall change in the way the industry approaches outsourcing, in general?
Lee: Well, interesting data – It would be interesting to see the segmentation in the 66% and see how they separate out, in terms of what their appetite is for going up the value chain. But for the 33% that kind of describe it as “done”, it’s going to be really hard for a service provider to bring a client from thinking their “done” to convince them that there is more value to be added.
It sounds unfortunate, but I don’t know really what the service provider could do. Having been in outsourcing relationships for the last 15 years, I am sure that these providers are regularly presenting things that they could do for the client and their are conversations about innovation and projects and stuff that they could do, and it would fall on deaf ears. But I would probably encourage providers to look at a way to segment their clients and their service delivery to kind of optimize differently for those clients, on “that’s where they are and that’s where they are going to be”. You are going to be wasting your time trying to do anything else. For the 66% well, I will just leave my answer at that. I would be interested to hear more about how the 66% break down.
Phil: Of the 66% who still actually care about value beyond cost, it’s roughly an even split. You’ve got half of them in the death throes of grappling with antiquated contracts that haven’t been updated in quite some time. But they want to break out of that – they are showing some desire to do that. Then you’ve got the upper echelon 33%, whom we have called the “strategic” camp, who are in more regular dialogue with their providers about defining business outcomes, about trying to align stakeholders more effectively and trying to approach things in a different way. So, we really look at three different camps across the industry – you got “lights on” camp on the left and this “efficiency camp” in the middle that could go either way, and on the right hand side we’ve got this kind of “collaborative strategic camp” who are trying to break out and change:
Today’s outsourcing industry split into three camps
Lee: How does this compare, or is that kind of a snapshot of current state?
Phil: It’s the first time we have really broken it out this way. I think the way to look at this is to realize most enterprise BPO engagements have only really been around for ten years and I think companies are kind of feeling their way, since this the first real view of where companies attitudes and approaches are emerging in all of this. Whereas ITO is obviously a lot more mature and we are in a very operational phase in that industry. But also, with ITO, is that you still have 65% of IT staff doing ERP development work that are still based onshore. I think it’s just still a market where it’s a lot of the low-hanging-fruit administrative work that’s still moving out there. I think ITO has really struggled to move up the value chain from the very early days. Is that something you would agree with, or do you think it is evolving?
Lee: Yes. I really would. The complexities of delivering increased value in technology today and I am going to say the permissiveness or the size of the invitation that the client has to provide to the provider is pretty big. Because every time you talk about evolving your technology portfolio, the number of stakeholders and the level of complexity it takes to do that work – it’s really significant.
If a client isn’t really tuned into that and willing to clear the way for the provider to do that work, and not blame them when there are bumps in the road, it’s really tough for a provider to move out of “run and maintain”, and I make the distinction between “run and maintain” and “evolve and re-transform”. So, the business of evolving and re-transforming – that’s where there is change management, communication, training, engaging directly with the business there is all of these things most organizations are not really thrilled about offering to a provider.
Lee Coulter, CEO Shared Services, Ascension Health (click for bio)
Phil: Lee, I can’t wait for our session at dreamSource. Thanks for your time today, this real is the “hard talk track” so many of the sourcing industry needs to have, to get out of its own way.
Lee: A pleasure, Phil, and looking forward to meeting a lot interesting folks there!
Lee Coulter (pictured right) is Senior Vice President and Chief Executive Officer, Ascension Health Ministry Service Center, LLC. As a distinguished practioner in the fields of outsourcing and shared services he has held several senior operations leadership roles at Kraft, AON and GE. Lee also serves on the board if HfS Research. You can view his full bio by clicking here.
The first time I spoke to Lee Coulter, I was an analyst at the old AMR Research (now Gartner) and managed to get him on the phone, where I hoped to convince Kraft’s global überlord of shared services, IT and outsourcing to spend a day at a roundtable I was organizing. “You’ve got 5 minutes to convince me why I should invest my time with you”, was his response. I knew straight away this was a guy who didn’t like to xxxx around.
Since then, Lee has been a great friend in helping us establish the HfS Research organization three years ago, in addition to lending his time and support helping us assemble the most irresistible community of senior sourcing practitioners. For those of you attending our dreamSource summit this Spring, Lee and I will co-host a session entitled “If outsourcing were an employee, it would be fired“. Lee, who today has built and now leads shared services for heathcare provider, Ascension Health, caught up with us last week to talk about the session and why we called it just that…
Phil Fersht (HfS Research): Good morning Lee – a pleasure to get you on the line today. You’ve been a well known figure in sourcing shared services and outsourcing world for quite a few years now. Can you tell us a bit about your background and how you got to where you are today?
Lee Coulter (Ascension Health): Sure, Phil, I guess it goes back quite a ways! Originally, I guess I was starting my career in what wasn’t really an outsourcing or shared services configuration. Actually as a delivery guy, I was a service engineer delivering services to hospitals and health systems. Twelve years, later I had moved from delivering services for diagnostic imaging equipment to delivering services for IT. And it was pretty surprising to me to find that the whole delivery process was a copy-paste, it was the same stuff. Today, I am in my sixth industry and I have managed every function in a company except marketing. And every time I come to look at these things I find the service delivery process is the same. So, shared services and outsourcing I don’t really consider them to be different. There happens to be a second set of shareholders in an outsourcing relationship, but the dynamics of establishing the service, the KPI’s, the unit of service, the unit of cost, the drive to innovate and then retransform, all of those things… they are essentially the same.
So, I had an opportunity through my career to sit on a commercial outsourcer as well as a buyer and doing so with long-shore, off-shore, near-shore, in-sources, outsources I have kind of had a chance to do kind of all the major things within the industry.
Phil: So, what’s changed, would you say, in the last decade? Do you feel that the attitudes and approaches of enterprises have shifted at all, or do you think we are still going around in the same circles?
Lee: One of the expressions I have been using lately is that the expectation of the business today is far more than simply to “successfully transact”. When you look at what typically gets included in the shared service or outsourcing scope, it is typically transactional or business-rules based work. If we look back to the 80’s and 90’s, it was really about “getting to OK”. If you got “OK”, meaning you successfully reduced the cost of delivering it and you successfully met the very basic expectation of simply “do the transactions and do them satisfactorily well”, that was the challenge. Today, that is no longer considered a challenge; those are now table-stakes.
So for every practitioner, whether they live inside a commercial provider, or inside a company, the expectation is much bigger. It is around business process effectiveness, business process transformation, business insight through analytics, the addition of certain skill-sets that are created to help manage in a shared services or outsourcing environment, like project management and quality, Six Sigma and that kind of stuff. So, all of a sudden what used to be the objective has now become the table-stake. Now businesses are expecting a whole different level of contribution – I’m not just saying performance, but contribution by the shared services/governance organization.
And now you also introduce a couple of major disruptors, namely technology and cloud. And it’s kind of funny, cloud has been around a very long time. When we go back far enough we could argue that AOL, CompuServe is where cloud and well, I guess in the strictest definition they were. In the way we talk about cloud today, where you have applications-as-a-service and cloud-based service platforms which are location-agnostic, in terms of whether resources are need to be there delivering service, it really changes the game in terms of what level of contribution you can have to an organization.
Phil: We’ve got new data that shows the desire to standardize processes is very, very strong behind an outsourcing decision. How much is that playing into the hands of the providers who have good technology? Do you think that the ability to couple good platforms with the right process is now the way to go?
Lee: Absolutely, I would even offer a little bit more, which is the level of variation in core processes is diminishing from organization to organization. What do I mean by that? Well, if we go into some of the tried and true world of shared services and outsourcing… let’s take F&A, AP – your basic hire-to-retire services. It used to be that there was a pretty enormous variation. But, over the last twenty years the adoption of things like SAP and other ERP solutions and the broadly available best practice operating models for running these parts of your organization, have resulted in less variation. Well that means a service provider can build a technology platform and it used to be it was a pretty big leap in terms of process transformation to get a client from their existing process to what we’ll call a best practice standard operating model. More and more companies, to the extent that has been possible for them, have already attempted to adopt these best practice operating models. So, it increases the speed and minimizes the amount of change and disruption from these transitions.
Phil: Lee, we are delighted to have you lead one of our core sessions at our dreamSource summit this year. And, I am going to give you credit for coming up with the title “If outsourcing were an employee, it would be fired”. How did you come up with that and what is the thinking behind it?
Lee: So, let’s say you have signed an employment agreement with someone to become and employee for seven years with some options to extend. Your employee starts and you put some objectives out there around getting control of the stuff and delivering these transactions. You have your annual review and they’re saying, “I’ve now got control of the process and I’m transacting. Pretty soon it will be stable and I will be consistently transacting these services”. You get to the next year and you ask the employee what are their objectives and your employee responds “Well I am going to keep right on transacting”. And the following year you ask “What are your objectives this year” and the employee responds “Well, I am going to try and transact a little bit less expensively”. And every year is the same conversation about “Well, I am going to meet my SLA’s, and I am going to try and not disrupt our business”. Is that the kind of employee you want working in your organization? It’s really become the longest-lived most frustrating conversations around outsourcing in the nation.
The framework of the relationship between outsourcing as an employee and the employer needs to be driven to change, and the employee needs to provoke that. For the folks that work for me, if they give me the same goals this year that they had last year, and their performance is simply a “meets expectations”, well if I keep them around that long, my expectation is that we continually increase the scope of our objectives and that we look for ways to increase our contributions to the business and force ourselves, by virtue of establishing these goals, to do that.
The vast majority of outsourcing relationships don’t fit this model. All the FTE relationships that every single year has the same expectation – “Well, I am going to transact and I am going to wrestle with you on forex and inflation to offset the price reduction you think we should get”. That’s not an employee I want, I don’t know about you…
Stay tuned for Part II (click here) where we talk about how this industry can get out of its own way to evolve these rigid relationships…
Lee Coulter (pictured above) is Senior Vice President and Chief Executive Officer, Ascension Health Ministry Service Center, LLC. As a distinguished practioner in the fields of outsourcing and shared services he has held several senior operations leadership roles at Kraft, AON and GE. Lee also serves on the board if HfS Research. You can view his full bio by clicking here.
The official definition of insanity: asking the same question over and over again, from every conceivable angle, and always arriving at the same conclusion.
The official definition of insanity in sourcing: recounting how many times a service provider has asked you, “We’ve got to get to the C-suite to pitch innovative ideas, because middle management is too risk adverse.”
So who better to analyse sourcing insanity than HfS’ own sourcing insanity analyst, Tony Filippone…
Are service providers addressing the right audiences?
Is there really a disconnect between senior executives and the rest of their teams regarding the importance of innovation during service provider selection? Will ideas fall on deaf ears unless a service provider can schmooze a CFO? Are service providers addressing the right audiences? We asked a few questions in our State of Outsourcing survey to delve deeper into the topic…
To begin with, we can bust part of this myth once and for all. Namely, during evaluations of service providers is the executive suite the only group interested in transformational and innovative ideas while the junior ranks are concerned with process efficiency and execution? When asked which was more important, senior executives favored execution over innovation 71% of the time. That result is statistically consistent with opinions of their middle management (73%) and junior management (70%). All levels of buyer organizations are severely and equally biased toward process efficiency and execution issues, which strongly supports our research findings that motivations of buyers are firm focused on cost reduction. Transformational ideas are going to fall on relatively deaf ears at all levels of the organization.
Exhibit 1: “Which is more important: Execution or Innovation?”
Is time spent with the C-suite worthwhile?
But isn’t there value to schmoozing up the C-suite? Aren’t senior executives swayed more often by relationships over delivery capability than their middle management? Is time spent with the C-suite worthwhile?
This is another myth we’ve bused. We asked whether customer relationship skills were more important than delivery capability during service provider selection, and senior and middle management have statistically similar opinions. For both groups, nearly 30% feel relationships are more important than delivery capability, about 40% feel the opposite, and 30% feel the issues are equal. Junior management is where the switch in perspectives appears. While a similar percentage of junior managers find relationships more important (28%), 52% believe delivery capability is more important and just 10% find the areas equally important. Energy to build relationships therefore is best spent on directors, vice presidents, and senior executives who all find relationships more important than their frontline staff.
Exhibit 2: “Which is more important: Customer Relationship or Delivery Capability?”
The Bottom Line: Don’t Sell Execution Capabilities Short
Our newest data should help service providers build the right strategies to address potential customer interests. Most importantly, all service providers should realize:
The current state of buyer sentiment is emphatic: Today’s market is obsessed with execution, which demonstrates buyers haven’t grasped the potential value of outsourcing. In most competitive bids which sadly provide limited time for buyers and service providers to exchange information, pushing innovation and transformation to hard in evaluation processes may not ensure buyers that service providers can do the work.
Buyer values are identical throughout their ranks. While a CFO may hold the decision-making power, recommendations from their staff are likely to reflect the same bias of execution capabilities over innovative opportunities. This makes influencing all levels in equally important in a buy-decision.
Relationships matter as much to middle managers as they do to senior managers. They want partners with great relationship skills and people they can trust. Spending political capital to address these levels of influencers is important, but the focus of these discussions needs to be on strengthening relationships, not on delivery. Pitching quantities of FTEs and systems savvy to senior executives are wasted opportunities.
Jumping rank over a potential client’s vice president wont win you any favors and doesn’t reach an audience that has a difference of opinion. In fact, vice presidents value relationships just as much as their bosses do and building these relationships may be just as valuable in a competitive bid.
Note to readers: there are no intended political undertones to this article, based on the picture above. All good, apolitical, tongue-in-cheek humor 🙂
The official definition of insanity: asking the same question over and over again, from every conceivable angle, and always arriving at the same conclusion.
