Rarely has a debate aroused so many emotions, yet failed to reach any conclusions, which was precisely what transpired when 900 of us duked it out over whether to drop the term “Outsourcing”. However we view this debate, outsourcing is centered predominantly on one constant: talent.
Talent costs money and brings capability. Outsourcing is about helping enterprises get better capability without increasing costs. It’s about tinkering with enterprises’ talent bases to deliver improved services without increasing costs. So how – pray tell – can enterprises improve their talent without going through the considerable expense of hiring new people and training their existing staff? The answer is simple: find someone else to help you do it – and good luck with it!
Of course, better workflow and process, better quality and innovation are vital ingredients to achieve greater productivity and increased revenues, but you have to start with the most critical ingredient: your talent.
If the industry known as outsourcing can prove consistently over time it can improve clients’ access to talent and new capabilities without increasing costs, then we won’t call it “outsourcing” any more, we’ll just call it “IT”, or “Finance”, or “Insurance” (and so on) services. However, when the central component of the industry is to swap out local staff with foreign staff, the first question the general public (92% of whom – in the US – are actually employees) will ask is “Can these people do IT, finance or insurance better than we can”.
Fortunately, HfS has been able to reach out to close to 700 key stakeholders in the industry, 215 of whom are from predominantly large-sized US corporations, where we were able to ask them how they rated the attributes of their local talent to the overseas talent being provided by their service provider:
Where outsourcing is performing well
In terms of work ethic, process competency and overall value for money, service providers’ non-US staff are matching the local staff. If these staff are 30-50% cheaper, that’s a pretty good return on your investment if that’s all you really care about.
Where outsourcing needs to close the gaps
In terms of business understanding, initiative, innovation and culture, the non-US staff being provisioned are miles behind local staff. For example, only 43% of buyers feel their non-US staff understands their business, when compared to 88% of local staff. Yes, this gap will surely close as the industry matures, but I find this talent-chasm unacceptable in today’s global marketplace.
The Final Word: Service providers need to improve their talent mix and use more local talent, however, buyers need to demand it
Outsourcing has earned a largely crappy reputation because it’s become so focused on providing rules-based models that can enable offshore staff to get the job done. Many clients, for whatever reason, have been convinced they can do this with 90% of their delivery staff sitting offshore, or some simply didn’t care and wanted to make the numbers work.
However, our research clearly tells us that most clients care passionately about innovation and process improvement, so why are we persisting with these imbalanced delivery models, where the outcomes are performing miles from what we want to be? Why aren’t today’s buyers training their own staff to manage their global resources more effectively, so that more of them do understand their businesses? Why are service providers so insistent on sending offshore managers onto their clients’ sites to manage their own staff, when they should be training their clients to be more self-sufficient?
I believe this industry has become skewed – too much work has been shifted to offshore locations, when their needs to be greater investment in improving local talent. Providers need to be more global with their focus and provide more balanced location options for their clients, even though clients will have to pay more for it. A more balanced onshore/offshore mix will lead to better development of offshore personnel and help bridge the current talent-chasm that is plaguing today’s outsourcing industry.
There’s no doubt that developing, educating and – quite simply – having the right talent, has become the number one issue in the world of outsourcing and shared services. In fact, HfS Research has found that companies now place twice as much importance on having the right talent, compared to when they began their outsourcing and shared services initiatives.
We are inviting you to participate in a brief survey to explore today’s talent management challenges facing both your executives and staff – and you could win an iPhone 5 into the bargain (gasp), in addition to a complimentary copy of the study findings.
Rest assured that your contact details will be treated with the strictest of confidence and only used for the purposes of sending you the optional executive report and entering the iPhone 5 prize draw.
This will take no more than 10 minutes to complete and will give you some food-for-thought on your organization’s own talent needs, while you cogitate your answers. Click here to complete our survey
As always, we truly appreciate your supporting our research – which we always share with the industry to further our collective learnings.
HfS Research VP Jonathan Yarmis (pictured right) putting in the hard graft at the Dreamforce show
We can’t understate the importance of social media on the enterprise. Hey – we bet our whole business model on it! And that’s why we hired one of the best thinkers in the social sphere to help us understand how social will impact business processes and how enterprises will operate in this new social world we live in.
So we coaxed Jonathan Yarmis from his Dreamforce-induced hangover, where he was living it up with 90,000 other technology geeks, to tell HfS why social actually matters….
Phil Fersht (HfS): Jonathan – why the hype over social? should enterprises care? what is hype versus reality? is this just the tech industry jumping in the next soundbite, or is there something real here?
Jonathan Yarmis (HfS): The hype over social is very simple and I can capture it in one statistic: 950 million people are on Facebook. Social is transforming the way we communicate with each other, and the way we discover and share things.
Enterprises should care at so many levels. First, we’re in an era when consumer technologies move quickly into the enterprise market so consumer social trends presage changes that are coming in to the environment. Second, you should care if you want to reach and communicate effectively with your employees, partners and consumers. Your customers are already sharing insights and information via social channels. All organizations will have change brought on them by these stakeholders. Savvy enterprises will capitalize on these changes to build better connections with their communities. We just came back from Salesforce’s Dreamforce user conference, where the whole theme of the 90,000 person event was building the social enterprise. Microsoft paid over $1 billion to buy Yammer. Enterprise vendors are making real and substantial investments to build out their social portfolios. Oh yes, there’s something real and building here, and the vendors continue to double down on that investment and belief.
Phil: Is “social” just being over-hyped like cloud was, or is there some real substance here?
Jonathan: Of course social is being over-hyped. That’s the nature of the technology business. But let’s understand the nature of that overhype. It has been recent history that we overhype in the short-term but actually under-hype in the medium term. Think back to the days of Pets.com and Webvan. Perhaps we were a little ahead of ourselves in the short-term. But fast forward 10 years. If I had told you a decade ago, that if the Internet shut down, we’d just go home because we can’t get our work done; if I told you a decade ago that governments would be toppled in large part because of social media; you would have laughed. Yet here we are a decade later and those are our realities. Yes, there’s substantial substance here but even more significantly, we’re still in the very early stages of realizing the business value to be derived and the significant opportunities that exist, not to mention the changes that social will bring about to the way we work.
Phil: What’s next for social beyond Twitter and Facebook? Are we already at maturity stage for social, or is there still a long way to go?
Jonathan: We’ve just scratched the surface of the changes that are going to be wrought by social. Phase one has largely been a consumer phenomenon and our functionality has been limited, largely constrained to the creation of what we’ve taken to calling activity streams (your Twitter or Facebook news feeds). In the second phase, we’re going to start mining those activity streams for more business insights, from sales indications to customer support requirements and more. And amplified as these streams are by the deployment of mobile technologies and the proliferation of sensors and other forms of intelligent devices, social platforms will become more intelligent, more real-time and more active.
There’s a recurring pattern with new technologies. First, we enhance existing processes through the incorporation of the new technology, in this case social. Only later on do we ask “what can we do that we haven’t been able to do before?” We’re about to embark on that exciting second stage with social, which is where we realize the greatest value of a new platform, albeit with the greatest change and threat.
Phil: How is this going to impact the global services industry?
Jonathan: Social may well prove to be one of the most exciting technological changes in history in terms of how it impacts the global services industry. For service providers, there are large opportunities in the short-term. Customers are dealing with an unfamiliar challenge and so many opportunities that they’re often paralyzed. Call it the tyranny of opportunity. Into that breach, service providers can help customers make meaningful advances in terms of helping clients to build a “social business.” But that’s not the big opportunity. More profoundly, rearchitecting businesses around social processes creates opportunities for service providers to facilitate significant process improvement. Service providers can incorporate themselves deeply into a client’s business process, sharing knowledge, driving insights through analytics and otherwise becoming integral parts of their clients’ business processes. Some service providers will be challenged by the emergence of social businesses, fearing loss of account control. Far-sighted service providers will realize social platforms actually enable deeper connections with their clients, enabling the providers to better add value to all areas of their clients’ processes.
This is one of those lead, follow or get out of the way moments for service providers, except it’s more like lead or wither away into irrelevance. Your clients are changing their business processes; you’ll either facilitate those changes or fall victim to them.
Phil: Jonathan – thanks for the feedback from Dreamforce! Now for your next futuristic gig at the HfS 50 in Boston 🙂
Jonathan Yarmis is Research Vice President, Social Business Services Research and Disruptive Technologies at HfS Research, You can view his bio here and email him here.
Is there no stopping the colossal Kops crusade to conquer the world? Or at the very least, award merit badges to outsourcing clients? She’s now threatening to show up at the HfS 50 next month with merit badge T-shirts… Oh what a wonderful life we all lead…
Deborah’s top 10 outsourcing client meritbadges
In my last article I listed the merit badges that any outsourcing provider professional worth his salt must earn before they consider themselves a bona fide member of the fraternity. But the clients of the world doubly deserve their very own merit badges, earning their stripes not only by dealing with providers, but also herding the cats we call “internal customers.” And together, that’s no mean feat.
In this, the 100th anniversary of the founding of the Girl Scouts, an organization that measures character growth and skills attainment by the number of badges on a sash, it’s only right and proper to award badges to those trusty folk who step into the unknown every day, putting their careers and their internal relationships on the line in a valiant effort to change corporate business models. Give kudos to those who perform a balancing act between relationships and service levels, cost and quality, the needs of the business with the goals of the enterprise, and even venture out to push for a little innovation from time to time.
Outsourcing clients of the world: examine your experience to see if you’ve earned Deborah’s top 10 client meritbadges. And if you find some that I’ve missed, I’ll lean on my personal badge maker to design some more.
MIA BADGEYou’ve been assured of executive sponsorship, nay pushed into outsourcing with the promise of sufficient CXO air cover to ensure that you don’t become the poster child for dystopia (in plain English, that’s a pretty dysfunctional organization). And when the outsourcing strategy is first mooted at the top of the house, you truly believe that you’ve got great support. But if your sponsor is “missing in action” when the going gets rough, you quickly realize you’re holding the bag when it comes to selling and managing the change.
Most C-suite guys prefer to leave a legacy of growth, not “I outsourced the place.” So whether your sponsor thinks he’s Moses (“comes down off the mountain to deliver the Ten Commandments, then beats a hasty retreat”), or has been watching too many Soprano reruns (“communicates like a drive-by shooting”), the net effect is that you’ve no choice but to go it alone.
Automatically win your badge if you can put together a coalition of like-minded business unit leaders who are convinced that outsourcing is the way forward despite the fact that your sponsor is nowhere to be found. Earn 10 points if you don’t need body armor when you go to sell to your internal customers. And next time, get it written in blood that you’ll have the full force of the C-suite behind you.
PIGGY IN THE MIDDLE BADGE Your provider is screaming unfair as you lay the number of exceptions and too much red on the dashboard at their feet. And your customers, who have never really moved on from the good old days of internal delivery, blame the provider (and your team, by association) for every snafu, big and small, regardless of the fact that their invoice wasn’t paid because the cost wasn’t authorized by the business.
The blame game reaches a fever pitch as you try to locate the root cause of the noise. Is it the direct result of a provider that boasts of client-centricity, but it’s really his way or the highway? Is it a customer who refuses to drink the Kool-Aid of globalizing services? Is it due to fact that you made insufficient investment in change management? Or can you blame the problem on a corporate culture that lets every business line to do whatever they darn please?
If you can manage to survive the squeeze play between the two parties, and still maintain your sanity, give yourself five points toward the badge. If you can keep the invectives down to a stray expletive, award yourself another 10. If your personal performance review is still good, you win the badge. And if you can go out and play golf with either party on the weekend without any mention of outsourcing, you are a candidate for Secretary General of the United Nations.
“HELL, NO , I WON’T GO” BADGE All your internal customers are aligned…or so you think. You’ve just spent a year (and a lot of scratch) with a white shoe advisory firm to come up with a strategy you think is fairly foolproof. Solutioning with the business lines or geographies is starting to look like successful shuttle diplomacy. The CFO has debited corporate budgets to account for forecasted savings. You’ve negotiated with IT to put off the ERP upgrade until you stabilize outsourced operations. Providers salivating over the prospect of a 1000 man global deal have just completed a six month RFP process, giving you pricing that is a throwback to the days of penny candy.
You are just about ready to rock and roll with your chosen one at the negotiating table, and then the head of the largest geography in scope says he’s out of the deal—“pending further analysis,” until you run a successful pilot in an insignificant geography, or because he’s decided to set up his own shared services operations.
Suddenly the business case isn’t looking very pretty, and the rest of the customers in scope are threatening to jump ship. Your boss is complaining because you couldn’t keep your stakeholders in line. But there’s a bright spot—your provider isn’t going anywhere; the sales lead calls you every day to see if they can “help.” Award yourself a badge if it’s only a momentary delay and your boss comes out of the woodwork to impose the deal. Give yourself two badges if the deal goes away and you find yourself a better job.
YOUR-CEO-PLAYS-GOLF-WITH-MY-CEO BADGE You are committed to running a fair and objective provider selection process. You’ve finally gotten your procurement team to understand that you’re not buying airfares or pencils, and that quality, relationship and value are just as important as price when it comes to choosing an outsourcing provider. Your customer panel has eagerly participated in the sourcing process so you’re optimistic that the provider you select will work effectively with the majority of stakeholders. You’ve seen through the advisor’s bias toward a certain outsourcing firm, and are comfortable that you’re making the right choice. You’re about to pick up the phone to inform the preferred provider…
…when you get a call from your boss. Turns out that a global outsourcing player that screwed up in the proposal process is a major customer of your company, and that your respective CEOs have not only been playing golf together for years, but are also godfathers to each other’s first born. Player’s top man is now bending your CEO’s ear about the synergies he can deliver because of the companies’ IT partnerships, and promises of most favored nation pricing. The boss says he isn’t trying to bias the selection process, but wants to ensure that said global player has gotten a fair shake at the deal. So you spend the next week justifying your process in writing.
Immediately award yourself the badge if your selection documentation and evaluation criteria are so bullet-proof that you never hear from the boss again. Take five points if you have to give said player another chance by bolting on a best-and-final process, and your decision still stands. But if the global player ultimately ends up with the deal, refrain from telling the team you initially selected through your sourcing process that relationships are all that matter.
THAT’LL COST YOU BADGE You only thought that your contract was designed to flex to take into account your ever-changing business conditions—a few additional company codes here, a small process there, a pick up of three heads in the Ivory Coast, and even a change in application that will ultimately make your provider’s life much easier. During the pitch, the provider team assured you that they understood the vagaries of your business, and committed to be flexible.
But when the rubber meets the road, the provider’s “that’s out of scope” starts to sound like a broken record, and it becomes difficult to maintain the spirit of partnership upon which you started the relationship in the first place. Ten change requests quickly boomerang to over 200, a number that won’t decrease to single digits until the proverbial cows come home. One day each week is now dedicated to managing a change control process, choreographed like an elaborate game of gotcha with each side keeping copious score.
Look at the bright side—if charge requests were frequent flyer points, you could go to the moon and back. Give yourself one point toward your badge for every request over 50, and get double miles over 200.
BAIT-AND-SWITCH BADGE The provider’s leadership promises you that you’ll be a foundation client, and your business will earn you care and feeding from the CEO Himself as your executive sponsor. You’ve been assured that the A team is assigned to your gig, and that the sales guy that you like so much will continue to serve as relationship manager as long as you want him.
But after the contract’s signed, all bets are off. You haven’t seen or heard from the CEO since the day he begged for your business. Or your provider is now angling for a bigger fish, and your client service team (which happens to be the only one with domain expertise) is now being reassigned. The supervisors assigned to your gig suddenly have a lot of life events that cause them to rotate off the job.
Give yourself the badge if you contractually obligated the provider to seek your permission before reassigning team members. Count yourself lucky if your client relationship manager is a real advocate for you. And next time the provider’s CEO drops into town for an impromptu meeting to sell you more scope, conveniently take the day off.
THIS MARRIAGE CAN’T BE SAVED BADGE The relationship started life out as the sine qua non of all outsourcing relationships; it was “vested,” or “aligned,” or a “strategic partnership,” with governance meetings looking like holding hands and singing Kumbaya around the campfire. But after a few months of missed deadlines, cost overruns, transition team attrition, and recalcitrant stakeholders, the new relationship is an exercise in Olympic-class finger pointing. Where there were once brief agendas, there are now 80 page PowerPoint decks with a lot of red. Governance meetings are so crammed with experts from both sides that the conference room looks like a mosh pit. You need three hours to brief your boss before every come-to-Jesus session. And document, document, document is now the name of the game.
Tick off the boxes if you can still make small talk with your provider transition lead. Pat yourself on the back if you can still look your client partner in the eye. Give yourself extra credit if you can get through a meeting without throwing a hard copy of the contract against the wall. And immediately sew on the badge if a bit of marriage counseling (aka “outsourcing health check”) saves the day.
ACQUIRED PROVIDER BADGE Noise levels are low. Dashboards look like golf greens. You’re invited to your provider’s MVC (most valued client) retreats in exotic places. Life is good.
Then, even though your provider’s CEO has heretofore been able to successfully dispel every acquisition rumor headlined in The Times of India, the press release finally comes out. Said provider is now either part of a proverbial “merger of equals” (despite the fact that only one guy wrote a check), or the deal is a modern adaptation of the parable of Jonah and the Whale. And Jonah didn’t swallow the whale.
The soon-to-be-former CEO assures you that nothing will change… with his fingers crossed behind his back that you won’t walk and reduce the valuation. The buyer execs knock on your door, assuring you that you are a valued customer (because they intend to build a new vertical around your logo).
Give yourself a pat on the back if you remembered to put a breakup clause subject to acquisition in the contract. Count yourself lucky if the new buyer was a close second in your selection process, and you like them. Give thanks if the client relationship executive you can work with decides to stay. Pray that this is the only Acquired Provider Badge you’ll ever earn.
VOLT-FACE BADGE After months of sourcing strategy development, market studies, business case development, and provider selection, the man at the top decides that outsourcing is no longer in the cards. Suffice it to say that the rumor mill has already taken its toll on productivity; your top talent is walking out the door; and even the provider community thinks calling on you is a waste of time.
In the meantime, your internal customers are breathing an audible sigh of relief while feverishly planning to build out shared services centers as fast as possible before there’s another flip flop on the outsourcing policy.
Count yourself lucky if you’ve invested less than seven figures of your budget in advisory and legal fees. Award yourself the badge if the volt-face was only an April Fool joke.
BAIL ME OUT BADGE Your provider had an extreme case of logo frenzy. Having stretched so far to get your business—pushing a solution to the edge of the envelope, promising heretofore unheard of results, and buying the business at a ridiculous price point—the deal is a mess. Transition is six months behind schedule, service levels are being missed left and right, and the folks on the help desk don’t know the difference between Austria and Australia. Your company’s role in falling for the hype aside, you are now experiencing everyone’s worst nightmare: an un-implementable solution, screaming customers, and a provider begging for mercy.
You call out whatever troops you have left to shadow delivery. Ten global managers hop expensive last-minute flights to India, The Philippines, Latin America or Eastern Europe. You’ve got a contract out on the lawyer who pushed the pricing to ridiculous levels during negotiations. And you slowly reset expectations to more reasonable levels while you spend part of each day taking an internal bashing.
Thank your lucky stars if you get performance back on track in a few short months. Consider yourself also blessed with extraterrestrial powers if your provider is humble enough to agree that they are out of their league, and will work with you to make it right. Don a Superman cape with the badge prominently displayed if you’re still with the company at the end of the crisis. And apply for a lucrative job as a turnaround expert.
How many of these badges have you earned? If you’ve sewn five or more on your sash, you have achieved the rank of sourcing leaders whose ability to demonstrate consummate good sense and grace under pressure will certainly earn you a place in the pantheon of particularly perspicacious professionals. The job of CEO is a cakewalk compared to what you live with every day…
Deborah Kops is Research Fellow and General Disruption Artiste, HfS Research (click here for bio)
Our world at HfS has been dominated by the need for organizations to upscale their talent and capabilities to improve their operations – and how the majority are turning to their service partners to access these delights.
However, our trusted friends, over at the HR department, haven’t given up the ghost when it comes to helping their organizations close these capability gaps either… and they look beyond service providers alone as the solution: they want to invest in better technology.
Last year’s survey which we conducted with Human Resource Executive, canvassed the views of 407 senior HR executives, who view accessing new technologies as trumping all other workforce needs when they look to the future:
So where better to spend your time than at the HR technology in Chicago from October 8-10, 2012, where Bill Kutik, Naomi Bloom et al will put on their annual ode to the world of…. HR technology. This event has 15 years of history behind it and has consistently delivered break-through debate and insight, including the now-famous session where Dave Duffield’s first explained to the world – in detail – what Workday was all about.
This year has Mark Hurd, Oracle’s President, discussing the dynamics of his HR software customers. The matriarch of HR technology herself, Naomi Bloom, one of HfS’ board advisors, is also presenting and hosting some excellent-looking sessions, including the intriguing “Bringing HR Into The Cloud” master panel that includes leading minds from the likes of Salesforce.com, Workday, Oracle and SAP. The is also a not-to-be-missed session being delivered by Gartner’s Thomas Otter – a great guy with some serious insight into how to avoid getting burned when doing a SaaS deal.
For those of you who have not previously attended, the conference is not deep techie stuff; instead it covers process, operations, and consulting, as well as technology, where HfS has, in the past, has presented and debated the trials and tribulations of HRO. The conference also has a reputation for actually having loads of clients and enterprise folks, not just vendors with their sandwich boards, plastic pens and booth bunnies. If you can make it to the conference, you will witness the whole wide array of HR providers – from software firms to RPOs, HROs and PEOs, in addition to the provocative sessions and panels.
Hfs followers should use the following link: www.hrtechconference.com for more information and to register. HfS registrants should enter the promotional of HFS12 code to secure a $500 discount from the full registration fee. This will get you entry to all the working sessions, as well as the vendor Expo. The conference hotels are fully booked as of this date; our suggestion is to secure accommodations near the conference hotels to be able to use the conference provided shuttle system.
HfS’ Research Fellow for HR technology and operations, Pete Ackerson will be representing us at the show and is happy to meet and greet HfS followers – email him here to set up a time to meet with him.
We look forward to seeing you at the tip-top HR Technology conference in the world!
The Windy City braces for a new storm coming from across the Atlantic…
Eighteen years ago, one man had a vision to take on, improve and ultimately manage the procurement function for British companies.
And what better to call his firm, than the “buyingTeam”? I mean, what else are you supposed to do when you’re in the procurement services business? However, when the affable Matthew Eatough decided to expand his business into the United States, a little whisper in his ear convinced him it was time to sex-up the name and relaunch his firm as ‘Proxima‘ (you can read more here about the relaunch) as they settled into their new Chicago digs.
Today, Proxima has earned a reputation for going far beyond the administrative indirect procurement activities to delivering category management and strategic sourcing solutions for clients such as British Airways, Universal Music and Prudential, with a reputation for tailoring solutions for clients in dire need of improving their procurement processes. Now the firm’s challenge is to broaden its unique brand of procurment expertise into the US market, so I managed to grab some time with Matthew to find out more about the grand Proxima plan…
Phil Fersht (HfS): Matthew, can you tell us a little bit about you and your background and how you came to lead a procurement outsourcing company?
Matthew Eatough (Proxima): It has been a long journey, 18 years. My original move into this business was a slightly odd route. I was involved in the management of a turn-around situation for a relatively small retail and manufacturing business, which was subject to a buy-out in the early 90s.
A large portion of the financial impact of turn-around t was focused around negotiating supplier terms and putting some professionalism into the procurement processes. I don’t think we fully understood what we were doing at the time and I think it was just something we did because it was a financial necessity.
Continuing this cost reducing approach, we gradually became a cost management business which has developed over the years with the latest iteration being from buyingTeam to Proxima.
In many ways, I’ve learned most of what I know about Procurement ‘on the job’ over nearly two decades. The business turn around entry path is quite important and is probably still in my professional DNA. Many elements of Proxima’s methodology, approach, mission and vision look at procurement from a business perspective – which means not only making the procurement function better, but also delivering true value back to the business, enabling the business to achieve its strategic goals and objectives.
PF: Okay, so you’ve been around for 18 years but you’ve only recently decided to make a move into the US market. Why did it take so long… and why now?
ME: In the early 2000s we were much more in the consulting arena than outsourcing. I therefore see the business as a 7 or 8 year old start-up rather than an 18 year old start-up. In terms of ‘why now’, we were very keen to attain critical mass in the UK before expanding into the US.
Matthew Eatough is Chief Executive Officer of Proxima
In order to make our expansion a success, it was necessary to have US fulfillment capabilities to effectively service our blue-chip client base (we have been delivering procurement services for UK based clients in the US for 5 years). Further to this, we needed 2 or 3 stand-alone US reference clients because although I think the US market will respect what’s being done overseas, a US based CFO / CPO will probably be more work with an established business with US clients. We’ve been fortunate to acquire 3 clients in the last year and we are now making a major push to build our capability depth and breadth in the US.
The US is clearly the largest single market, and the most advanced in terms of its appetite or business services and outsourcing. We are also seeing an interesting development in the US in that the market seems to be splitting into several distinct approaches. One approach is of a very standardized, efficiency focused and arguably slightly industrialized approach to procurement. You have the operational BPO firms that really seem to be all about lowering the cost of service delivery which, we think, leaves a large untapped opportunity in the US market for us. Our approach is different; we focus far more on how a company strategically embraces the management of its third party suppliers to power the business. I strongly believe our approach will enable us to succeed in the US.
PF: What are the top two things that you feel differentiate Promixa in today’s market?
ME: A major differentiator is that we fundamentally believe that for procurement to be a transformational experience, there is a level of ‘intimacy’ that needs to be imbued in the client/provider relationship. This intimacy needs to be at both at a delivery level and a senior management level – to really bind and sustain the procurement transformation as opposed to simply running a remote BPO operation. I think that if if this is done well the client gets a whole range of benefits including savings.. However if a business wants to go from immature to world class in the management of procurement to help drive its wider strategy then it also needs to have a more sophisticated approach than simply measuring savings.
Our further differentiator is that our overall USP has nothing to do with labour arbitrage. One of our core strengths is our ability to concentrate the types of processes that are managed better into a shared service delivery centre to drive effectiveness and efficiency whilst at the same time allowing us to invest more of our overall margin into having top-end, on-site client facing resources truly driving change and achieving excellence for our clients giving all of the scale benefits of an outsourcer with all of the intimacy benefits of a top class in-house procurement function…
PF: Our research has shown that it is stand-alone procurement outsourcing deals that have fueled the market growth. We saw 23% growth in the last year and we’ve seen 430 multi-process procurement outsourcing contracts now in play. Would you class yourself specifically as a pure play procurement firm at this point or are you getting involved with broader deals with multi-tower aspects?
ME: We are focused on (and very clear believers in) the benefits of being a pure play procurement provider. We think not being a pure play has business compromises at almost every turn. Multi tower deals often disguise the exceptional ROIs available in procurement. Multi tower providers often use procurement results to hide otherwise mediocre business cases for wider F&A mega deals.
PF: We were talking earlier about some of the differences between the business cultures in the US and the UK… as you move into the market here, how would you classify doing business in the US compared to the UK in the outsourcing space?
ME: I think there is at least one book to be written on that subject so I’m not going to attempt to cover that whole ground. In my experience, the differences are that obviously regional geography and local culture is much less of an issue when dealing with US companies.
I think a complexity is that we are divided by common language and you have to be extremely careful to make sure you have fully understood the situation – particularly when we are talking about the softer elements or the HR issues associated with procurement outsourcing. I think there is also an issue that (at least superficially) US corporate management appears to be much more value seeking from its supply base than many Europeans. As such, I think it is much easier to engage with them around understanding the procurement transformation and outsourcing approach.
From my perspective, a big difference between the markets is that certainly at initial stages of discussion, US corporates are far more interested in how we deliver the benefits whereas in Europe they are far more interested in what the benefits are going to be.
I think this is best shown through things like attention given by US executives around what technology is being used and what procurement methodologies are being applied. Whilst in Europe, greater attention tends to be given what they are going to get.
PF: Our recent research with over 500 buyers of outsourcing across the UK and the US found that US businesses understand that they need to transform processes and they need to access new talent caliber to get results. Conversely, a lot of the continental European businesses don’t feel they need change what they do, or their talent. Why do you think there is this differently mentality?
ME: I think that, at its heart, this isn’t just a procurement issue and this applies to the whole outsourcing journey in the US, which is probably 20 years older than it is in Europe. You also have to remember that outside of the UK, the difficulties in actually effecting organizational change as it relates to talent or organizational structure is very constraining for management.
PF: How do you intend to service the US clients from a global nature? Are you looking to increase delivery and capability category in the US or are you going to try and deliver a lot of these from other locations?
ME: We have a strong global category strategy with local category directors supporting this across all our clients. Our fundamental belief is that we are not simply bringing a labour arbitrage solution to clients, what we are bringing is a relationship and deploying intimate market relevant expertise. In order to do that you have to offer local capability. We are busy developing our US team out of Chicago to deliver this.
PF: Tell us a bit about your facility in the UK. How many clients do you service out of that today, and how do you see that evolving over time?
ME: Currently we service 20 large, blue-chip clients out of our on-shore facility in South Wales (United Kingdom). We have about 100 people based there who are entirely focused on running the various category related events and data/analytical processes plus managing many of the various technology solutions and systems for these clients.
The centre offers our clients deep category expertise and a broad range of capabilities that are internationally scalable. We are trying to segment most categories into higher added value (which we seek to deliver very close to the client) and lower added value (which may very well be some of the lower levels of category expertise and are more simpler or homogenous categories).
PF: Who do you find is your ultimate client in the enterprise? Is it the CPO is it the CFO, is it shared services executives? Where do you typically find the new opportunity for yourself?
ME: I think we typically only have two economic buyers – split 50/50 in terms of CFOs and CPOs. Both tend to use our services in slightly different ways.
I think CPOs typically are looking for an augmentation of what they do. The CPOs that we work with generally managing the entire supply chain – and are looking to effectively outsource their indirects.
The CFOs that we work with are responsible for providing end-to-end capability to the business. We really become accountable as a CPO in those environments.
I do think it is an interesting differentiation and the underlying deliverables are very similar but it’s a different message to the client’s business.
PF: The final question I have is around technology. Are you being very technology agnostic around your approach and focusing much more on the process at this point, or are you looking to get more involved in some of these platform-based deals?
ME: I think we, the provider community, is on a journey and I don’t think any one is getting this 100% correct right now. If you look at the history of the major providers, their origins were in the dot.com era during the late 90s, early 2000s in which they invested massively in technology and automation systems and I think ultimately they probably got very modest returns. Capgemini made the acquisition of IBX and in my mind it is unclear that this has given them any positive differentiation as a procurement outsourcer… I’m not sure anybody, including IBM, has the greatest technology narrative in this market. I don’t think anyone has yet cracked the correct positioning of technology in procurement outsourcing.
Also, through our multi-client shared services model, we are running a very large procurement function. Getting the technology, work load, customer relationship management, supplier relationship management and specific procurement application right is absolutely essential. That’s increasingly where the market seems to be moving at the moment. That’s increasingly about Proxima and how we use technology to provide a great service rather than how we use technology to embed ourselves in the client.
I think there is another side to the technology question which is where we have much more of a position, which is how CRM can help with stakeholder management.
So in answer to your question, we are really technology agnostic and we are very happy to operate client’s platforms or happy to provide them with our own technology. We really don’t want technology to be any sort of barrier to engaging with a client in anyway. To do that I feel we have to be both flexible and agnostic.
PF: When you look at how you are building a procurement services firm, what would your advice be for procurement professionals… some of them might be a little nervous about outsourcing. What would your advice be to them in terms of how they can develop their career paths and get involved in more strategic decisions within the enterprise?
ME: I think you have touched on something that is very intriguing and that probably exists more in the procurement world than in any other functional discipline and whilst I think there are signs that it’s changing it’s still noticeable issue in procurement that there is a distrust with many in-house procurement professionals about the career merits of outsourcing providers. I find that genuinely a backward looking view of the world. If I were a young procurement professional I would think some time working on the provider side would be great for my development regardless of whether I intend to stay there forever. I think you can get a completely different set of experiences in a provider environment than you can get in-house..
I think you can accelerate the level and range of experiences you get probably on a 3 or 5 to 1 ratio – I think two years of provider experience is equivalent to 6 years in-house in the early stages of a professional career.
PF: Do you think this use of the word outsourcing in the vernacular and the perception it implies is getting a bit dated? In the old days outsourcing was really about ‘lift-and-shift’. It was moving IT staff, it was moving F&A staff out of the organization and using offshore augmentation, but today most of the providers don’t want to take on a lot of new staff – its more about a service. It is really about “business services” today and not “outsourcing services”?
ME: I think you touch on something really interesting. One of the problems we collectively have as an industry is when we say outsourcing, we mean added value and services but the client often hears BPO, which is fundamentally labour and technology arbitrage and cranking a handle. I think there is a really interesting analogy around marketing services agencies (which in essence is an outsourced industry). These agencies don’t call themselves outsourcers because they would contend that they are really about having a value adding partnership with their customers over many years. However, because they are marketers they have been much cleverer about avoiding the BPO label. I do think we need to find a new collective description of this sector which clearly positions us somewhere between a consulting and BPO proposition.
PF: Matthew – it’s been a pleasure hearing our story and am sure many of our readers will be wishing you the best as you expand your business Stateside.
Matthew Eatough (pictured) is CEO of Proxima. You can read more about Proxima by visiting their new website.
Cindy Carpenter is Research Vice President, HfS Research (click for bio)
So the providers are upping the ante with their acquisition push of late, with Accenture augmenting its regulatory capabilities in pharma with the pick up of Octagon, and IBM making a strong move into recruiting services with Kenexa. Infosys now pipes in by focusing on the tech consulting side with the acquisition of global SAP consulting shop Lodestone. HfS new Research Vice President, Cindy Carpenter joined this morning’s analyst call to investigate further…
Will Infosys Be Able to Get the Lodestone Horses on the Right Track?
Infosys’s acquisition of management consultancy and SAP integrator Lodestone Holdings lines up perfectly with their long-term strategy of moving to higher value services, but this acquisition is a risky way to grow these capabilities. Management consulting firms are usually seen as poor acquisition targets, because the assets go home every night. If they’re not happy, they can usually find plenty of opportunities elsewhere, and the value of what you’ve bought may decline very rapidly. This goes double when the acquiring company is in another country from the acquiree. (We need only look at Capgemini’s struggles with consulting acquisitions in the U.S. to underscore this point.)
Infosys understands the challenge of managing consultants well. On the analyst call discussing the transaction, Infosys Consulting CEO, Steve Pratt, commented that “good consultants are like thoroughbred race horses” – they can be temperamental, but get them excited and point them in the right direction, and they’ll do great things. He also noted that they need a “collaborative environment” and a lot of freedom. This is a very different culture from the culture of most Indian IT outsourcing companies, which tend to be structured and hierarchical, with an emphasis on following methodology, process control and predictability. So how has Infosys grown its integrated consulting and technology business? Very carefully. From its inception in 2004 until just this past year, Infosys Consulting has been a separate company, incubated and nurtured along different rules, operating models and margins. Infosys Consulting is now up to 30,000 employees and part of the parent company, but it still has a distinct footprint (mostly United States) and delivery model (about 30% onsite/70% offshore) compared to the legacy Infosys technology business.
The key to success in this acquisition will be bringing the same kind of understanding of different organizational cultures and models to the integration of Lodestone into the Infosys business. Lodestone’s 750 consultants operate from 17 countries today, but India is not one of them. The company has 200 clients, which means either that their consulting engagements are very small on average, or that they are claiming past and active clients. Contrast this with Infosys’ 711 clients to about 150,000 employees, averaging about 210 employees per client, mostly for ongoing, multi-year engagements.
If Infosys wants to reap downstream revenues from Lodestone’s consulting engagements, it will have to teach Lodestone employees not only about Infosys’ services, but also introduce them to their global delivery model and how to work effectively with their new colleagues in India. Ronnie Hafner, Lodestone’s CEO, has no concern about his employee’s inexperience in this model, but Infosys does plan to groom Lodestone consultants to cross-sell the Infosys offerings and provide training in the Infosys methodology. Remember that they are thoroughbred racehorses – mostly German and Swiss – and give them plenty of room to run.
Key Takeways:
On the positive side, this acquisition fits Infosys’ strategic goals beautifully:
It continues to grow Infosys’ management consulting capabilities and ability to deliver higher services, moving from commodity software maintenance to integrated business platforms.
It adds onsite management consulting teams in Europe (and adds a few consultants in Asia-Pacific and Latin America).
It adds domain knowledge and experience in the verticals of life sciences, auto and manufacturing, where Infosys has a relatively small footprint.
It strengthens Infosys Consulting’s SAP’s practice, bringing it up to 10,000 employees and $1 billion in revenues.
Points for caution:
Infosys will have to bring some of its best consulting and business transformation skills to its own acquisition, if it wants to reap the synergistic value for its global services strategy.
Lodestone’s consultants are widely dispersed, increasing the challenges of integration and retention.
Take the claim that Infosys is acquiring 200 new clients with a grain of salt. Infosys will have an opportunity to introduce itself to these companies, but they may be past clients, too small, or uninterested in India-based services.
Recommendations for Infosys:
Acknowledge that you are bringing together three very different cultures in this acquisition: the EU management consultant culture of Lodestone, the global systems integrator culture of Infosys Consulting, and the India-based technology firm of the legacy Infosys business. You’ve just paid about $450,000 per consultant – now is not the time to waste that recruiting cost. Consider:
Making it a goal to get 1/3 to 1/2 of all Lodestone clients to one of your India delivery centers in the first year, to meet their new colleagues and learn about the Infosys global delivery model and capabilities.
Assigning a buddy from Infosys Consulting to each consultant in Lodestone, whose job it is to provide coaching about their new organization and learn about Lodestone’s capabilities
Bringing together delivery managers from Infosys Consulting, Lodestone and Infosys India to build out new, integrated offerings by vertical. Support new relationships among counterparts with face-to-face working sessions in different geographies.
Cindy Carpenter (pictured above) is Research Vice President at HfS. You can access her bio accessed here.
“How do we re-brand outsourcing” was the rallying cry at the NASSCOM BPO Summit in Gurgaon, India, this week. Easy – let’s call it something else… with two-thirds of the buyers and providers voting to drop the term, all we have to do now is agree on a super cool new set of words, and the industry’s current image problems will soon become old wives’ tales.
So let’s take a look at the renaming options each industry stakeholder group has voted for (this is for BPO – we asked about ITO separately) :
The beauty of this table is that it doesn’t require a whole lot of analysis. Buyers are so at a loss for alternatives, they couldn’t think of much else and “Outsourcing/BPO” actually came top. Most of the providers just want to swap out “outsourcing” for “services”, while most advisors stuck with BPO, with a growing number, mainly the management consultants, pushing the Global Business Services badge (even though GBS is supposed to represent all forms of sourcing being managed under a holistic governance framework).
The outsourcing industry has a lot of work to do, if it wants to “re-brand”
There is far too much “believe our own bullshit” going on and this industry needs to change how it perceived before it can effectively “rebrand”. People in the industry are complaining that the ignorant masses confuse “outsourcing” with “offshoring”. Well, I hate to be the bearer of bad news, but isn’t the vast majority of ITO/BPO dependent on offshore labor to make the economics work? We should probably just call it “offshore outsourcing” to be even more accurate (eek!).
Look – we all want non-linear growth, to focus on business outcomes, value creation and innovation. We desperately want this industry to be making fast progress in overcoming the four challenges of the HfS 50 Blueprint Document.
The Four Blueprint Challenges facing the outsourcing industry:
» Challenge #1: How can we overcome this singular focus on cost that strips the industry of its value?
» Challenge #2: How can we leverage outsourcing as one of a variety of vehicles to achieve business objectives?
» Challenge #3: How can many of the service providers invest smarter in their account management teams?
» Challenge #4: How can buyers and providers really partner to foster innovations into business process outcomes?
Until these four challenges can be tackled, rebranding the word “outsourcing” is a futile task. Re-branding is all about changing perception – hence, today’s business leaders must be able to associate “outsourcing” with business value creation and true value-partnerships with service providers which are instituting new capabilities into their businesses.
The Bottom-line: Once the outsourcing industry can prove to the world it is evolving, we can use smarter terminology
Yes, “outsourcing” as a term doesn’t convey business value creation, or innovation, or achieving nimble global operations, but this industry needs to demonstrate it is genuinely moving away from the labor arbitrage model, before we can rightfully name it something different. Yes, many new client/provider relationships are now moving in this direction, but we need to see more of it – and have more of it communicated to industry.
Personally, I like the term “business services partnering” as – in many cases – the entire function is not actually outsourced – only elements of it, so in effect these engagements are partnerships with providers to deliver operations, not the outsourcing of operations. Don’t get me wrong, the “O” word will go away – and we – at HfS – will only use the term when we have to , but the industry needs to prove it is winning the battle of the Four Blueprint Challenges before we can genuinely use new terminology without feeling like we just applied some more lipstick to Ms Piggy.
