Captain Cliff Justice and his cohorts, Lieutenant Lepeak and Wing-Commander Walker, aboard the Sourcing Enterprise (pictured left)
During Part III of our interview with KPMG’s Cliff Justice, we talked about the demise of the “O” word from our vocabulary:
Outsourcing is a term that has been abused and politicized. It doesn’t have the same meaning to the general population as it does to those who are close to it. So I would certainly propose the industry find a different term for the use of third parties to create partnerships to provide services.
Cliff Justice, Partner and U.S. Leader, Shared Services and Outsourcing Advisory, KPMG, November 2012
So, without further ado, let’s boldly go to the final frontier of our discussion where Cliff talks about how the world of “outsourcing” has changed in today’s economy…
Phil Fersht (HfS): Cliff, looking back over the last 15 years, would you say we were really playing a short game with outsourcing? Wasn’t it all about “how do we take out cost, make things happen quickly and minimize disruption”? Isn’t it a long game today, because the quick hits are no longer there. Aren’t thinking about how to develop a 5, 10 or 15 year plan?
Cliff Justice (KPMG): Phil, in the early part of the 2000s, there was a herd mentality around cost take out. There wasn’t a strategy around large-scale outsourcing. Some companies had a short-sighted view that labor arbitrage was a value driver. Labor arbitrage by definition is temporary. Many companies executed long-term changes to their business purely on labor arbitrage; those companies suffered the consequences from this strategy.
That approach has changed as clients matured and grew more knowledgeable about outsourcing and the value of sourcing. I view that change as starting on a mainstream level around 2007. At that time some leading companies had epiphanies. They were visible enough to be vocal about those changes. You started to see the service providers alter their marketing and focus more on value within a business approach to differentiate themselves.
After the financial crisis, there was a lull. But now we’re seeing companies really start to take a long view of their services organization and how they can leverage their business cross-functionally (finance, HR, IT, supply chain and procurement). How can they leverage this asset to provide information and insight back to the business? This is much more about business value creation.
However, this is only happening at the leading companies. There are still companies that take a short view. The most prominent successes we’re seeing in the market are being achieved by companies that have taken the long view; they started that approach four years ago and are seeing the benefits today. They are able to control their portfolios, enter new markets, be pragmatic and get their products to market faster because of the way they’ve organized their services organization.
Phil: How is the current economic situation impacting thinking? We’ve been in a difficult situation for four years now and uncertainly still is rife, particularly with the European situation. Do you think this is impacting how clients are handling their sourcing planning?
Cliff: Absolutely. Companies are looking at their services organization for flexibility they can’t get in another way. Companies built fixed cost and had a structure that is hard to move around. Today, with the acceptance of the cloud technology platform and the as-a-service mentality, we’re in an era that is more flexible than ever. You’re able to scale up and down. Clients are accepting a more standard set of services than they have in the past. There has been a mind shift from a cap ex structure to more of an off expense mentality. Companies are trading high levels of customization for flexible technology and services packages. We are starting to see much more one-to-many arrangements.
That’s a big change from how large-scale outsourcing agreements were done eight years ago.
Phil: And finally… when you look back at everything you have achieved and all of your career’s challenges, would you have done anything differently if you could start all over again?
Cliff: I don’t think I would have done anything different. I’m fortunate to have had the opportunities that presented themselves and the good people I met along the way. I am certainly fortunate to have worked for KPMG and have built those relationships; without the EquaTerra and KPMG integration, we wouldn’t be where we are as a consulting firm today.
Phil: Cliff this has been a great discussion and I am sure the HfS reader will really enjoy your insights. Good luck with the journey!
Cliff Justice (pictured above) is Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG LLP.
During Part II of our interview with Genpact’s CEO NV “Tiger” Tyagarajan, we talked about the shape and pace of change we expect to see in the sourcing industry:
It’s completely dependent upon leadership and the leadership’s ability to drive change. It’s about the confidence they have, the risk they want to take and what they have at stake.
NV “Tiger” Tyagarajan, President and CEO of Genpact, October 2012
In Part III, we ask Tiger his views of the “57%”, the percentage of enterprise customers who feel their provider does not understand their business. So back to the discussion…
NV “Tiger” Tyagarajan is President and CEO, Genpact (click for bio)
Phil Fersht (CEO, HfS Research): Tiger, we recently published data that showed 57 percent of buyers today feel their provider and their staff don’t understand their business. What we really need to understand is what percentage of buyers actually care whether they provider understands their business or not.
How important is this? Do you look at a client and think, “They will be wildly profitable for us” or do you prefer to think, “We can grow with them – they have a real vision for their future and they want to take us on that journey.”
NV “Tiger” Tyagarajan (CEO, Genpact): Phil, we’ve been debating this question over the last 24 months. This question becomes incredibly important as you grow bigger. In 2005 the BPO industry was nascent. When we came out of the blocks no one knew us. Then they looked at us and saw we were different, so they decided to try us. People took the risk; we had good success and we got known. But we grabbed everything that came our way because we were small.
We learned through that process. We saw what worked in terms of growth and value creation for the client. In one of our early engagements we did help desk work for a large global corporation on consumer technology products they sold. Very quickly we realized what they really wanted was how many cents per call; how many cents per minute. That’s all they cared about.
We explained to them their value proposition should be different. They should create customer satisfaction; that is a big wow! The goal should be to get the customer back to buy more products. We had enough examples to show them this could create value. But they wouldn’t budge. All they cared about was “finish the call fast so we don’t have to pay you much”.
Finally we said we can’t work with you. We ended the relationship.
Today we evaluate four things:
Is there real leadership buy in to drive transformation?
Does it have a connection to where the company is headed strategically? We have seen situations where the people we are dealing with are driving an agenda. They want to take all the cost out. Then we meet the senior leadership. All they are talking about is new product innovation. They don’t care about cost; this is not their focus. At some point these disconnects between agendas that are connected to the strategy of the company cause things to fall apart. We ask them to explain their agendas and how they relate to the strategy of the company.
What’s the culture of the company to drive change? We are perfectly fine if the company is slow in changing. Fifteen years into GE’s journey we are still growing. We know long-term growth and value creation is great. We are patient. The desire to get to the end and to discover a new horizon every time has to be there.
Are you going to be a partner in this journey or are you going to flip things across the wall and say, “Now you manage it and that’s it.” We don’t believe the latter will work. Because whatever we do is dependent on input we get from the organization. If we don’t have the ability to partner with the client, our ability to drive improvement and value creation is limited. Therefore, we prefer not to engage.
But it’s tough to say no to a client.
We have a process by which the senior levels evaluate every opportunity. We want to find a way to say yes or no quickly.
If we have done a good job for one client in an industry, others come to us. Pharma is a good example. It is reasonably risk averse. It is also highly regulated, so the companies are careful. They prefer to work with people who have done it before for people like them. They move as a flock.
It’s OK to say I am not going to play in this industry, geography or domain area. Deciding where you are going to play is one of the big choices you have to make. Once you make that choice, that drives your investment, your M&A, your resources and your intellectual capital. You look for the biggest leaders, the smartest people. Companies that do this well are successful.
Stay tuned for the final installment where Tiger gives his opinion regarding the branding of “outsourcing” and BPO…
NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact. You can view his full bio by clicking here
Folks – today we’re proud to announce the unveiling of what promises to be the ultimate sourcing showdown of leading enterprise buyers and providers… in Westchester County, New York, next Spring:
Following the unprecedented success of the 2012 Blueprint Sessions, 60 senior enterprise buy-side executives are being invited to represent their organizations at dreamSource, where HfS and the Sourcing Executive Council will facilitate private “buyers-only” sessions over three days of discussions, debate and networking. In addition, we will include selected executive leadership from top tier service provider organizations who are brave enough to grapple the following topics head on:
Designing and implementing the future operating framework for the global enterprise;
Aligning the workforce for global business services by developing our talent to go beyond tactical performance;
Changing the corporate mindset from cost-savings myopia to value-creation and growth;
Accomplishing innovation by improving enterprise and provider collaboration to achieve realistic business outcomes;
Leveraging analytics and technology as an enabler for smarter governance.
Here is some feedback from a few of the great contributors from the recent Boston HfS Sourcing Executive Council meeting:
“The HfS Sourcing Executive Council experience has provided a tremendous opportunity to be a part of changing the dynamics of this industry and I have no doubt that HfS’ efforts will go a long way to enhancing the value of global outsourcing. I look forward to our next session in New York”. Steven Jo, Head of Multisourcing, Silicon Valley Bank
“I have truly enjoyed the HfS Sourcing Executive Council sessions, and echo everyone else’s comment that being with the group of like-minded peers HfS has assembled is truly special. I am eagerly anticipating the next summit in the Spring. William J. Pappas, Vice President, Strategic Services & Initiatives, State Street Bank
“The HfS Sourcing Executive Council is one of a kind. Like-minded outsourcing buyers get together to discuss the key issues facing the industry, meet each other and share experiences and wisdom. 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. Also, it is fun to attend ;-)” Madelein Smit, VP Outsourcing, Finance and IT, CEVA Logistics
Thanks to all of you who have so passionately supported the HfS Sourcing Executive Council – we hope to see many of you back in the Spring!
There is an exclusive club developing in the Western World… “onshore” people who have experienced working for an offshore-centric provider, where all roads lead to Mumbai, or Delhi, or Chennai, or Bangalore… These folks quickly realized that this execu-life is an acquired taste – and either adapted or quickly bailed… or got fired. I personally know a multitude of executives now on their second, third, or even fourth (yes, fourth) offshore-centric firm.
What’s abundantly clear is the need to hire and develop quality onshore account management and delivery personnel is becoming the crucial differentiator in today’s ever-tightening outsourcing marketplace. Those that can win this talent war will be the ones who can truly move beyond yesterday’s flagging outsourcing model.
So who better than Deborah Kops, the doyenne of disruptive dialog herself, to expand on this topic in a way that, quite frankly, noone has dared put into print before…
Why offshore providers come up short onshore
Over the last few weeks, I must have had at least 10 calls from outsourcing talent currently looking –or being recruited for new positions–many of them by offshore providers. And that’s not counting the calls from search consultants, desperate to locate that buried diamond of a sales-accounts-or-solutions guy who can be persuaded to jump ship.
Deborah Kops, Research Fellow at HfS (click for bio)
Comparing their stories with my own recruitment experiences, it struck me that I’d been listening to a broken record. The tales were so very similar—even across a number of providers—that perhaps it’s time that someone called attention to the fact that in a war for onshore talent, offshore providers can unwittingly come up short. And that’s not good for the provider, for the talent, and certainly not for clients who increasingly demand that their providers become more globally and culturally adept.
Last week, yet another resume showed up in my email. Now, convinced that you can’t know too many smart people, I spent a few minutes with Mr. X, going over a very impressive list of qualifications: both buy-and-sell-side experience; a real track record in sales and operations; good communication skills and a great educational pedigree. When the conversation got to the stage where I was convinced that any number of providers would love to have him as part of the team, I started my usual ‘what about x? Or y?’ And then I got an emphatic “I won’t work for an offshore-legacy firm.” “Why,” I asked. “You’ve never worked for one. How do you know you can’t have a great career?” “Deborah,” he said, “Why would I work for a firm where the power structure is all overseas and doesn’t include me? And every time I’ve been recruited by an offshore firm, it’s been a waste of my time. They don’t seem to know how to run a good process. I am underwhelmed, and since recruitment is seduction, I’m not falling into bed with a firm that doesn’t know how to sell me on working with them.”
Offshore providers, please take note. With fewer and fewer good onshore sales/account management/solutions/operations guys and gals willing to switch horses, putting your best foot forward in the recruiting cycle is no different than courting a client. In fact, without the ability to attract the right onshore talent, it’s arguably impossible to grow and prosper.
What parts of the plot are offshore providers seemingly missing when they attempt to recruit onshore talent?
Onshore outsourcing talent is not fungible. Unlike talent pools in offshore locations, there may not be more than one or two really good candidates onshore, especially if that talent has an enviable track record in sales or solutions. And, as the market contracts, good talent has become more concerned about the quality of the brands they represent, paying more attention to crafting a career progression that underwrites their market worth by working for what the market sees as the “right” organizations. After all, names like Accenture and IBM on a resume act as career validation. Ask the search consultants; few candidates are calling them hankering after an introduction to an offshore player.
Onshore talent no longer sees the same risk/reward equation; the heady early days of get-in-on-the-ground-floor –and-make –a-few –million-bucks-at-IPO are over. With no new market entrants into entrenched process offerings such as finance and accounting, and more closely held offshore ownership in digital and analytics start-ups, the opportunity to make big bucks no longer justifies the perceived risk of working for an offshore provider that, quite simply, is less likely to trade career satisfaction for money. Talent now is more sensitive to finding—and staying with—the right employer, especially in light of economic uncertainty. Call it a flight to safety.
Onshore talent does not have the same linkages or ties to their employers as offshore talent Offshore providers that are not culturally savvy often forget that there is no one-size-fits-all approach when it comes to managing global human resources. The employee/employer relationship that underpins offshore personnel relationships simply does not translate onshore. For example, onshore employees tend to manage their careers more independently, and do not have the same sense of family…or indebtedness…when it comes to staying with their employers. In other words, loyalty barely plays in career decisions.
The press doesn’t help In a market where seven degrees of separation is quickly reduced to two, the tales of working in a legacy offshore firm quickly become part of urban legend. Stories (rightly or wrongly) abound about cultural insensitivity: staff retreats held in India close to Christmas or on Easter weekend; cheap travel policies including coach travel at all times and sharing rooms with colleagues; and being managed by buddies of the boss who have limited experience or skill. Potential candidates who are used to certain working conditions are scared off from seriously exploring a career with an offshore provider.
What can the offshore provider do to improve its talent value proposition?
It comes down to changing approaches to market and being realistic about what talent looks for when they consider new opportunities. It’s time to stop replicating very familiar offshore talent management constructs and approaches, and start to act like a local. Let’s dig a little deeper here:
Bear in mind that the provider is the seller, and the recruit is the buyer In a market bereft of a real deep talent bench, good candidates are the sellers. Unfortunately offshore providers forget that fact, sometimes approaching the candidate with a “you’re so lucky to be talking to me” attitude. In fact, sometime this is taken to the extreme; a recent urban legend has a partner in a global firm being offered a trial 90 day position which would convert to full employment if a real deal is identified during that period. The candidate approached the meeting with a high degree of interest, but walked out with a high level of disgust when the terms shifted from employment to trial.
Have an honest strategy to move to glocal management Onshore talent consistently complain about being managed offshore and through offshore practices, resulting in what they see as lack of empowerment, disenfranchisement, cultural insensitivity and lack of trust. While moving to a true global talent management model won’t happen overnight, offshore organizations that make good faith efforts to devolve leadership and in country operations to those in the know onshore will ultimately reap a number of rewards: reputation as a provider with deep local contextual knowledge; a strong reputation as a good place to build a career for onshore talent; and a brand as a truly global player.
Adopt local HR practices What goes for best practices in India, or even the UK, does not fly in the US. HR practices must be contextual in order to be effective. An offshore company may be able to compel someone in their home company to sign away certain rights, or work under certain conditions, or sell shares on their timetable, but it won’t work in the US or other onshore locations.
Be realistic about how the brand is viewed Despite the enormous success they’ve enjoyed in the outsourcing market, offshore players need to recognize that they’re starting with a of brand deficit when it comes to recruitment. When it comes to attracting a strong team, providers who think they are on a level playing field with the industry dominants onshore are kidding themselves. Offshore companies do not yet have the same local draw that the big globals—or even some smaller local players– have. When a company’s future success depends on globalization of talent, understanding the shortcomings of its brand, and then doing something to mitigate its implications in the minds of highly desirable talent, is critical.
Acknowledge that the network influences talent attraction Whenever a recruiting process takes excessive time, or is a market outlier, or is downright disrespectful, trust me– everybody knows. In a market where one or two calls obtain the full skinny on any company, talent is already armed with strong opinions of what it’s like to be recruited by or work for any provider. Remember that any experience—good or bad—will quickly be reported on the tom toms, and act accordingly.
Be realistic; don’t require talent to do the impossible Some of the job descriptions churned out by offshore providers are unrealistic; if a candidate has the ability to walk on water and rope in $10million ACV deals at the same time, it still would not be sufficient for many providers. People with deep relationships with multi-national CEOs, Master Black Belts, a degree from Harvard with an MBA from Insead, enviable thought leadership, and viewed as all around good guy and gal willing to travel 80 percent of the time do not exist. A full complement of skills is rarely contained in one individual; unfortunately offshore providers often become parsimonious and won’t make the level of investments in the right combination of positions. Stop trying to locate one onshore savior to change the fortunes of the business, and start thinking realistically about hiring a talent ecosystem.
Run a respectful, timely, transparent process Onshore talent often complain about the lack of respect demonstrated in the hiring process. I’ve heard tales of processes that ended up taking a year because of constant cancellations, or at the last minute requiring everyone from the chairman of the board to the offshore delivery leader to weigh in on the candidate. Flying into a city to suddenly find that the first meeting is delegated to junior, non-decision making staff is offensive. Or asking senior candidates to players to spend one or two cycles interviewing with a low level person, either in HR, recruitment or sales, before the actual hiring manager is even introduced sends the wrong message. Tell the candidate what the process and timeline is, being fully mindful of the fact that, if s/he is any good, by the time the second interview is finally scheduled, he or she will have probably be off the market. Open ended processes without closure frustrate the candidate, and shut the door on future engagement..
Pay market A guy making a base of $200,000 plus a good bonus is rarely seduced by an offer of $100k plus stock…”someday.” And if he is interested, it’s either because he thinks the upside is a pretty sure thing, or he’s about to be terminated by his current employer. Offshore providers that think that the opportunity to carry their card has a value beyond market compensation are sadly mistaken. Ensuring that compensation is competitive with the market is the first step in winning the talent game. And share the wealth. If Mr. X is so important to the growth of your business, make it worth his or her while with equity to make the switch.
Stop playing the tease Many talented folk have had calls from providers who are constantly testing the talent waters. Stories abound of offshore C-suite leaders calling onshore guys quarterly, thinking they can catch them at a weak moment by flattery. And when the candidate bites, there was no real opportunity. If there’s a real job, send the candidate the job description; don’t play the flirt. There are better ways to keep good talent warm.
Don’t make undue and unusual demands Recently I heard a story about a (reluctant) candidate being asked for his W-2s and references after an introductory recruitment meeting. And about another candidate who was asked for a copy of his rolodex during the first contact. Net outcome? They ran for the hills, badmouthing the provider at every opportunity. Onshore candidates share data when they see a viable opportunity, not before.
Look at the CV first, and in context of the position How many times have candidates walked into an interview to find that neither HR nor the business unit leader ever bothered to look at their bios? Or had any idea of the scope of the job? (True confession: I was once recruited by a provider who had not seen my CV, and thought I was a Black Belt continuous improvement type). Spend the time to evaluate the candidate’s credentials in advance and in light of business needs, not because you’re on a reconnaissance mission.
Global fluency clients seek starts with hiring the right team locally. But when providers are unable to start by hiring the right onshore team, the dial does not move very far. To paraphrase a recent bestselling business book—“change the recruitment process, change the game.” Growth depends on it.
Thanks for all the tales of woe I’ve heard from candidates and search consultants alike. Hope springs eternal that change is inevitable.
Deborah Kops (pictured above) is Research Fellow and HfS Research (click here for bio)
During Part I of our interview with Genpact’s CEO NV “Tiger” Tyagarajan, we compared the metamorphosis being experienced today’s by today’s business services industry with that of manufacuring 20 years ago:
Now most manufacturers don’t make all things that go in an automobile or an iPhone. Today, Apple does the intellectual capital of the what, the how and the design. They also do sales and marketing. But not much else. I think services are going in the same direction.
NV “Tiger” Tyagarajan, President and CEO of Genpact, October 2012
In Part II, we discuss the bifurcation occurring between the sourcing approaches of small and mid-sized organizations and today’s large enterprises… and the pace of change we can expect in today’s environment. So without further ado, let’s go back to Tiger’s Tales…
NV “Tiger” Tyagarajan is President and CEO, Genpact (click for bio)
Phil Fersht (CEO, HfS Research): Tiger, do you see bifurcation happening in the sourcing industry? We have a lot of small-to-medium-sized businesses quickly evolving, where IT is in the cloud; everything is outsourced unless they actually want to keep it in house, and many are morphing into increasingly virtual environments Then there are the larger enterprises which are moving at a snail’s pace – they don’t want to change, they seem to becoming more risk-averse, if anything. When we look ten years out, we’ll clearly have have a lot of smaller, more nimble companies, but will the enterprises really have changed all that much? How does a business services company like Genpact evolve in this type of environment?
NV “Tiger” Tyagarajan (CEO, Genpact): Phil – it’s a great question. Smaller companies are able to attack larger companies because they are structured differently. We have worked with a large UK healthcare provider for seven years. Two years back they decided to come to India and set up an insurance business. They formed a JV and set up the business.
The insurance market in India was new, young and growing with very large competitors with client bases of 20-30 million people each. This company decided they wanted to grow at rocket speed. And they needed a cost advantage that is incredibly crazy.
Insurance companies take time to break even because there are a lot of upfront costs that you recover much later. They decided they wanted a variable cost from day one. They just wanted to own their sales force, their product, their consumer, their policy and their intellectual capital. That’s it.
We set up their operation from scratch. We started with two people. They did everything on the cloud. Today, we have 200 people serving them. They have a CEO and a CFO, product designers, marketing people and a sales force. That’s it.
The result: They are the fastest growing insurance company in India for the last two year by factor of two to three X. They have a cost structure radically different from everyone else. We think this is an incredibly crazy model. What is fascinating is their competitors, even in a developing market like India, have 15,000 people with a legacy system with 15 million accounts.
How can the big companies compete with these guys? I think they have a chance because they are growing 25 percent. But what about a US insurance company growing at 1.5 percent? They will have to evolve. It will be a combination of data, technology and process. Companies like us have to be the solution providers to make these companies successful.
There will still be Wells Fargo, Procter & Gamble, Unilever. We will have to pick and choose who we want to work with. Who will change? Who will move fast? Who is the most innovative? Who will take the tough action?
Phil: Do you think companies will decide overnight they’ve had enough of clunky infrastructure and operations, enough of these tired old ways of doing things; that it’s time to change. Or, do you think this is a gradual, generational shift into the new way of doing business?
Tiger: It will vary company by company, which is fascinating because it shouldn’t. It won’t even be industry by industry. In each industry we see some companies move much faster. They create a burning platform to drive change. Sometimes it’s because a new leadership team comes in and rocks the boat. Or because they get pushed to the wall. It’s completely dependent upon leadership and the leadership’s ability to drive change. It’s about the confidence they have, the risk they want to take and what they have at stake.
But it is also industry dependent. Some industries are going to get pushed far harder to change faster. Look at the pharma companies. For so long they have done nothing. And why would they? They have had 85 percent gross margins in the last three years. But even now that’s not enough. Some of them still live in a fool’s world. Their profits are rapidly declining; last year it was 70 percent. But that’s not three percent!
Our view is it’s important to understand industry dynamics and the company’s cultural dynamics. It’s important to latch on to those companies that can move rapidly.
As we look across the IT landscape, especially the mature IT landscape, some are doing so well and some aren’t. I think part of the reason is their clients. I would argue some companies have chosen to play in industry verticals and client organizations that by definition drive change faster and harder, which enables them to grow. Other companies, unfortunately, have industries and clients that are not like that. They are stuck with them. When you go through turbulent times, they don’t grow.
We are big believers in selecting your clients properly. You can help clients change when they are able to drive change hard. We watch when companies undergo leadership changes. Because often it’s the leader. They come in with a fresh view. They have no legacy. They have no fear. Often they have a mandate to change. No one will really question them.
Stay tuned for Part III, where we’ll talk about how well providers understand their clients’ businesses…
NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact. You can view his full bio by clicking here
Captain Cliff Justice in action as Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG (pictured center)
Welcome back to the Captain Cliff chronicles. And since Part II, we have actually witnessed Cliff speak for a whole hour at an outsourcing conference and manage not to mention the “O” word once. That’s quite a feat, so let’s find out why…
Phil Fersht (HfS): Cliff, we’ve had a lot of debate, and even conducted a survey, on whether the term “outsourcing” should be forcibly removed from business vernacular, because it doesn’t make sense anymore. Is that something you would support? Do you think it conveys the right message about the industry?
Cliff Justice (KPMG): Outsourcing is a term that has been abused and politicized. It doesn’t have the same meaning to the general population as it does to those who are close to it. So I would certainly propose the industry find a different term for the use of third parties to create partnerships to provide services.
Phil: Would it be possible to take it away? We talk about the political damage it causes but you and I have been in situations with clients where people view any type of activity which involves global resources as outsourcing. Is it going to be possible even if we make a considerable effort to get away from the political ramifications of the globalization of business?
Cliff: I think over time it will. Globalization is a reality that will add and grow in popularity. The fact is globalization isn’t going away. Companies are starting to look at their third-party partnerships as a way to improve their businesses, their images and the value to their companies and shareholders. A term is not going to make or break that trend. You have the best-respected companies in the world deploying outsourcing agreements and they are not engaged in the political wrestling that goes on.
A lot of the politicization is how a company handles the outsourcing image. You can change any politicized term to something that seems innocuous today and then that term can be politicized tomorrow.
Phil: We’ve been getting a lot of questions from our clients around their global distribution of operations. Some particularly large organizations are starting to question whether they have too many resources based out in locations such as India and the Philippines. Is that consistent with what you are hearing from companies in general or is this just a general feeling that has been going on for awhile?
Cliff: I think that’s true, especially in the manufacturing sector.
Actually, it is not location specific; it’s more about control. Some of that has to do with proximity to leadership and where the company’s innovation cluster is. In the manufacturing sector we are talking to CIOs who are focused on bringing their innovation capabilities closer to the vest. Today, if their innovation capabilities reside with third parties in remote locations, those CIOs are starting to say they need them closer to the cluster they’ve established. If that cluster is in the US, then that means bringing some of that back to the US.
As the business needs change, these portfolios are going to change. Companies that are becoming more mature in this extended enterprise model have the ability to manage these services like a portfolio; when their needs change, they shift a little bit on the portfolio.
I don’t see a radical trend to bring everything back in house or onshore. It’s going to be like adjusting your financial portfolio as your business needs change. A lot of third party service providers are able to give companies capacity they would never have otherwise. So the CIOs and CEOs are looking at their overall portfolio of capabilities and sourcing those capabilities appropriately whether it is internal or external.
Stay Tuned for Part IV, The Final Frontier…. coming soon
Cliff Justice (pictured above) is Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG LLP.
Outsourcing has always been about people, process and technology. Scratch that. It’s about process and technology, with people an optional extra. So without any further explanation of this amazing trend where people will no longer be needed, let’s dig into to this new phenomenon: Robotic Automation.
“Listen and understand. Robots are out there. They can’t be bargained with. They can’t be reasoned with. They don’t feel pity, or remorse, or fear. And they absolutely will not stop, ever, until you have knocked another 50% off your outsourced labor costs.” (With apologies to James Cameron.)
Stop me if you’ve heard this one before:
“Chief, I need to add ten FTEs to handle the additional order-entry and logistics workload we anticipate once our new product launches in six months.”
“Oy. You know we don’t have the budget for that. What about automating the process?”
“IT quoted it at 18 months and $1M to do under their standard SOA and BPM development approach. Even if we had the money, that wouldn’t come close to meeting our launch deadline.”
“So what are our sourcing options?”
“We can hire 10 FTEs for $800K in the States, or $300K India.”
“Right, India it is.”
“Actually, I have one other option. We can do it for $120K in Robotistan”
“Robotistan? Where the hell is that?”
“It’s right here. I’m going to have my own business process analysts create software robots to do the work. We can get the robots up and running in five months. The robots will do the work for less than half the cost of Indian FTEs. And nobody’s job gets shipped offshore.”
Oh, you hadn’t heard that one? Neither had HfS until recently, when we started researching a UK startup by the name of Blue Prism. It makes a software development toolkit and methodology that lets non-engineers quickly create software robots to automate rules-driven business processes.
Think about this for a moment. If you were a buyer, how fast would you jump at the option to hire FTEs at rates that undercut the Indian body shops by 50% — without sending jobs offshore? (“Hire” isn’t the right word, of course: it’s “create”.) If you were a BPO services provider, how would you like to build a software robot to automate a business process for one client, and then resell copies of that robot to a dozen other clients in the same vertical? If you were an Indian outsourcer, how great would it be to hand off your dullest, most rote outsourcing work to robots so your human workers could take on more engaging tasks, thereby reducing your horrific churn rate – and by the way, undercutting your competitors on price?
Naturally, there are caveats. Not every business process is going to be well-suited to robotic automation: the more rules-driven it is, the better. Think of any rote, repetitive back-office process that does not require human judgment or much exception handling: swivel-chair data entry into multiple systems, account review and maintenance, creation of online access credentials (user IDs and passwords), general ledger account maintenance.
Furthermore, you’re going to need some buy-in from IT, and they may find the project a little fishy: what are business process analysts doing developing software? You may have to build a modest pilot first to convince them it works, as you’ll need their help with necessities like putting together a virtual machine cluster to run the robots on. (Getting your executives on board should be considerably easier once you show them the eye-popping business case in which not only does nobody’s job get shipped to India, but you may save enough to protect some onshore jobs or reshore some higher-value work.)
There is a learning curve on the environment, typically two to four months to master the tools to model, automate, test and optimize your new robots. But after the initial ramp-up, development time drops dramatically for each new business process, in part because new robots may be able to reuse components created for earlier ones.
Naturally, HfS didn’t take Blue Prism’s word for it: we studied two of its early adopters, a large wireless carrier and a major BPO services provider. Having successfully built very cheap robots to automate a variety of business processes, these people are true believers, avidly looking for new processes to automate. We outline their experiences in the report “Robotic Automation Emerges as a Threat to Traditional Low-Cost Outsourcing”.
In it, we take a long look at the business cases that led these well-known companies to explore the technology, the obstacles they faced selling it to internal stakeholders, how they identified suitable processes for robots to do, what learning the Blue Prism tools and methodology was like for their business-unit staffers, and how the resulting robots now fit into their existing IT and security infrastructure and governance.
We also make some predictions about how this technology has the potential to dramatically shake up the outsourcing industry, especially those players whose value proposition largely rests on labor arbitrage. The workers of Robotistan have arrived, and they have the potential to thump their human counterparts at their own game. HfS urges BPO buyers, services providers and advisors alike to look at the jaw-dropping economics of robotic automation, and put together a strategy to accommodate and exploit it today.
When better than Halloween, than for HfS Research to – yet again – spook the analyst industry by winning the new “Innovative Analyst Firm of the Year Award for 2012” by the International Institute of Analyst Relations, ahead of the likes of Gartner, Forrester and IDC.
And not only that, we finished third among independent analyst firms as Analyst Firm of the Year. I managed to get our hands on the top 10 list so share with you all – and a big shout out to my good friend Zeus Kerravala, whose firm ZK Research, a specialist in communications technologies, topped the 2012 charts. HfS managed to beat out all the other sourcing and services research firms – most of whom were hawking their wares a decade before HfS even existed:
NV "Tiger" Tyagarajan is President and CEO, Genpact (click for bio)
If you thought the business services industry was hurtling along at break-neck speed, read our first-ever blog post over 5 years’ ago entitled “Beyond Labor Arbitrage: The New F&A BPO Frontier”. However, while it does sometimes feel like it’s taking an age for this industry to progress, we have to remember that the widespread adoption of global process sourcing, incorporating remote delivery from offshore and nearshore locations, is barely a decade old.
The good news is that the conversation has clearly advanced, and services buyers today are much, much more in tune with their needs and desired outcomes from business services, than they were in the aftermath of the 2008 crash. Anyone attending last week’s HfS 50 Blueprint Sessions in Boston was blown away by the intense level of dialog from 35 leading enterprise buyers, brought together by the common desire to improve their talent and define their careers, move beyond a cost-centric delivery model, and work more effectively with their sourcing partner to foster innovations for themselves.
So…where is the future of business services heading?
Well… now is a great time to reconnect with one of the great pioneers of the global business services model. This chap has been personally involved in many of the largest engagements this industry has seen over the past decade and beyond. Noone has been closer to the buyers over the years to observe the changing conversations, the growing awareness of their needs and apply these to the ever-competitive provider marketplace. Yes, it’s time to touchbase with NV “Tiger” Tyagarajan, now 18 months into his tenure as CEO of Genpact.
Tiger is now settled back into New York – a short train ride from his son’s university in Georgetown, Washington D.C., and also within easy reach of the Wall Street analysts, eager to fathom how his upstart firm continues to outpace the leading providers in the business services industry, with consistent annual growth at the 20% level and shortly going to surpass the $2 billion revenue mark…
Phil Fersht (CEO, HfS Research): Good morning Tiger. It’s been well over a year in the hot seat. What’s it been like? And did you always want to be a CEO?
NV “Tiger” Tyagarajan (CEO, Genpact): Phil, it doesn’t seem like more than a year has already passed! It seems like just yesterday that I took over. But other times it feels like I have been here forever. After all, this is my 15th year in the company; 19 years with GE. I have now gone through seven quarters announcing results. The world has continued to evolve and change throughout this time. These have been interesting times.
Phil: You’ve had a really colorful career. Where did you start out in life and how did you end up leading this $2 billion company?
Tiger: I started 27 years back in sales at Unilever selling soaps, detergents and cosmetics in India after I got my MBA. It was all about execution, daily action and real-time monitoring sales and salespeople. I learned a lot from that results-and-action-oriented company.
Then I worked for Citibank for three years on the consumer lending side. I had six jobs in three years. The consumer banking industry in India was going through turbulence and change. Delinquencies and losses happened in a short span.
I was one of the first employees of GE Capital to set up the consumer financing business. As part of the regular leadership rotation, I joined GE Capital and Financial Services, which had 300 people. It was a fascinating run. By 2002 we had 14,000 people in 3.5 years.
I wanted to commercialize the business but GE said no because they wanted us to focus on serving GE’s businesses. So I came to the US to work for GE Commercial Lending as a global leader.
Then, three years later, when GE spun off the division, I came back. I have always loved this business and the people. I believed this would change how companies would run in the future. I came back as the head of sales and marketing; I had to set up the function. Then, three and half years later, I became the COO; it was a grooming ground.
Sometimes my career was a natural progression and sometimes it just happened. I wanted to take over the job when Pramod Bhasin retired, but things like that are never given in a public company.
Phil: What kind of skills did you have to develop as a CEO that you didn’t expect when you took on the role?
Tiger: I was involved in every strategic decision and direction that we took. I had the advantage of being in marketing and sales. So I had the market feedback and direction; I knew what clients and customers were saying. I knew operations inside out because I had run that segment of the business earlier. And I knew all the people even though I was in the US.
Pramod (read earlier post) and I ran the business as a partnership even though he was the boss. In many areas I ran it on my own and he didn’t interfere. To some extent I had the luxury of the last seven years where I wasn’t the CEO but it was just a shade different. I have been doing the job in any case. That made it easy for me to step into the job. So what’s different?
What’s different is clearly I can’t delegate the decision-making to someone else. That hits you when you are at crunch time and have to make a decision. Should you go right or left? You are looking at an acquisition and everyone has put everything on the table and you turn to the team and they say what they think. But you have to decide.
Given the fact we are now so global with global operations, clients and investors, it makes it tough to manage your time. How can you be in all places at all times? How do you use technology to connect? Particularly in our business where holding one culture and being felt and seen the same by our clients is so important. This is important since culture is a big differentiator to us.
How do I deal with the Street? It takes time to do a deal. It takes time to get revenue. But the Street unfortunately functions quarter by quarter. So, how do you manage the long and short term?
Phil: When we look back to the 2008 crash, what does it look like from a provider perspective? Do you feel clients’ needs have changed radically in the last four years?
Tiger: Yes. I see three changes. First, there has been a natural evolution as more and more clients see examples of where outsourcing works. Therefore they have a higher degree of comfort that it can be done. Now the conversation is less about “Can you do this?” especially in traditional areas and more about “How are you going to do this? What do I have to do?”
The other thing [second] that has changed: a lot of clients understand this is not just about labor arbitrage or efficiency. It’s also about effectiveness; how do you drive better outcomes? Clients are more educated. We have been educational in this journey.
The third thing is the recession. It has changed the lens people use. Earlier, it was “Let’s do the whole thing in a three-year journey.” Now it is: “Yes, I want to undertake that journey. I am going to evaluate you on whether you can handle that whole journey. But I am going to break it up into three parts because I want an immediate payback.” That’s the tough part.
Today, large corporations are dividing up the work to get a faster payback. They want a bigger bang for the buck.
A lot more companies that have never outsourced before are jumping in, especially in Europe where people have been pushed to the wall. Companies that wouldn’t have thought about outsourcing in the normal course of affairs are thinking about it now and want to do it.
There is a range of changes in client expectations and how suppliers are providing solutions. Clients are now cleverer. Many more people know how it works. This is still a small group. Sometimes they undertake this key journey with outsourcing advisors. That can be good or bad. It’s bad when it takes a long time.
Our focus is: How do we get maximum value and outcomes for our client using end-to-end and smart enterprise processes? It has made a huge difference about how we think about what we do. It’s made an even bigger difference in how clients think about their journey. It’s taken on a different transformational agenda.
Phil: We have been through so many secular changes. When we look out to 2020, what do you think the world will look like? What will our industry look like?
Tiger: The fundamental belief we have—which is why the industry is so exciting—is this a long term, secular direction where most global corporations are going. They are asking: What are the core competencies and intellectual capital I need to hold on to? What are the things I don’t need to do?
This is no different than the transformation that manufacturing did 20 years back. Now most manufacturers don’t make all things that go in an automobile or an iPhone. Today Apple does the intellectual capital of the what, the how and the design. They also do sales and marketing. But not much else.
I think services are going in the same direction. But it will be a long journey. Today we do complex work for some clients, but some clients are not there. We think the world will get to a situation where services are bought and sold between corporations where each has a core competency around a set of services that it sells. Those corporations are focused on their own intellectual capital.
A focus on outcomes and business income will soon gather momentum. It will be how expectations are set. It will take time to really be the way that services are sold and delivered.
This is a very segmented industry today. But there will be some bigger winners. But it won’t happen in a hurry. There is such a wide range of services, industries and geographies. Consolidation isn’t going to happen in a hurry. It’s just too nascent. But it will happen at some point. The strong will become stronger.
This will change the way companies compete. There are companies we deal with in emerging markets. They have an invention that they want to start selling. They want to focus on that product and keep improving it. They want to buy everything else from someone else. They buy best of class from day one. They go to the cloud because they don’t have any legacy IT. They have incredible speed because they are not hampered by finance, HR, IT or procurement. They become a highly virtual organization.
This gives these new incumbents in certain industries structural advantages older companies don’t have. New incumbents in emerging markets and new incumbents in established markets with new technologies will aggressively take out the older companies in a far faster cycle.
Data. The ability to capture it, keep it and use it will get better and better. Then the question is: How do you get insights from it? How do you help corporations make better decisions? Some companies are going to get much smarter at making decisions using these insights.
Some companies will use all these as levers to become far more successful than others. This will benefit them hugely. For us, it’s important to position ourselves in some of these services and be part of the solution and be part of the innovation in the space. We need to be the reason to drive this change. This will also change the way companies run.
Stay tuned for Part II, where we delve deeper into the pace of change in today’s sourcing industry…
NV “Tiger” Tyagarajan (pictured) is Chief Executive Officer for Genpact. You can view his full bio by clicking here
A room packed full of buyers and providers… and very little powerpoint
During the first day (buyers only) we revisited the Four Industry Challenges to take the discussions into the weeds of how to address them.
Day two, the providers rolled in to join the discussion – and they quickly dropped their sales facades to get stuck into some great debate and conversation around what we can do as a group to shift the focus of this industry away from its cost-obsession and towards its need to develop its talent.
On day three, we concluded the discussions by peering into the global operating model of the future, before we went Gangnam Style (stay tuned…).
We can’t wait to synthesize our findings with the group and share the definitive Blueprint roadmap. Watch this space.
