Our recent State of Outsourcing study, conducted with the Outsourcing Unit at the London School of Economics, has revealed that nine out of every ten enterprises will be increasing or maintaining their reliance on either, or both, outsourcing and shared services over the next three years. The key is to identify, at the industry level, what factors are influencing these increasingly aggressive approaches to global sourcing strategy.
The study has uncovered many home-truths about why some organizations are more motivated to externalize their support operations to third-parties, while others prefer to focus on their own shared services investments. We can also evaluate organizations within specific industries that are seeking to assign equal significance to both outsourcing and shared services as they pursue a holistic governance framework across both models.
So we’ve taken a closer look at how 250 large organizations, with annual revenues greater that $1 Billion, are intending to make significant planned investments in either, or both outsourcing and shared services models over the next three years:
It’s plain to see that it’s organizations within those industry verticals experiencing fundamental shifts to their economics, which are more prepared than ever to admit they need to look outside of their current organizational boundaries to keep their business operations competitive. Simply-put, secular changes to industry environments are crystallizing options for businesses and driving more radical and actionable behaviors from executives under pressure to deliver continual productivity improvements. The radical impact outsourcing can potentially have on business performance is clearly becoming more attractive to those businesses in the throes of tackling fundamental challenges and opportunities to their business environments.
Buyers are getting savvier at focusing their outsourcing plans to improve their competitive advantage
Increasingly, we are seeing a realization that retaining some processes internally isn’t – in any shape of form – bringing organizations a competitive edge, and these sourcing decisions are no longer only about cost – they represent a fundamental change in the way business leaders now view outsourcing as an integral function of their operations.
For example, many of today’s leading banks do not lead their markets because they process mortgage applications better than their competitors. Their management teams typically prefer to find a services partner to process them at lower cost, using industry-standard process flows and technology, while it focuses its internal competencies on business functions that can help the bank gain marketshare, such as smarter customer targeting, or upselling new product through customer support channels etc.
Similarly, most of today’s leading insurance providers have already embarked on long-term engagements to have their claims processes managed, processed and adjudicated by third-parties, allowing their internal talent to focus on market-leading initiatives, such as competitive advertising strategy and new service development that can help them gain an edge over the competition. Customers do not care about how their claims are processed – they care about how much their policies cost, the additional benefits they can receive as customer and the brand and reputation of the insurance carrier.
In addition, does a retailer really need to maintain its entire application portfolio inhouse, when it can devote its internal talent and IT resources to improving its customers’ online shopping experience, where it can actually grow its business?
Today’s buyers are getting a lot smarter at figuring out how they can improve their organizations by using the resources and knowledge available through third-party relationships.
The five most bullish industries planning significant increases with outsourcing, are not only basing their planning on achieving ongoing cost-reduction outcomes (read here for more on this topic), but also because the fundamentals of their industries have dramatically shifted in the recent past, for example:
» Entertainment, media and publishing: The crash of newspapers and network news; The Web 2.0 impact; Radical new distribution and business models.
» Software and Hi-Tech: Rapid commoditization of packaged software models; Impact of Cloud computing on licensing and pricing dynamics; Dominance of India, China and other low-cost nations to drive out the cost of development; Willingness to “Eat their own dog-food” as providers of outsourced services themselves.
» Energy & Chemicals: High price volatility for oil products; high capital costs of oil exploration projects; Shortages of talent; Aging infrastructure and constantly-changing compliance requirements.
» Insurance: New compliance measures (Solvency II, ObamaCare) causing unprecedented administrative cost and workload; Shortage of risk analysts and actuaries to take on the higher level work.
There are just a few examples of major industries, being shaken to their very foundations, where we can discuss secular shifts driving unprecedented demands on organizations to remain competitive. HfS believes it is no coincidence that it is these industries that are today the most aggressive with embracing third-parties to redefine their global operations? Secular changes drive bolder, more radical behaviors, and it is already clear that a more aggressive approach to outsourcing is high on these organizations’ agendas.
Industries that have already experienced much of their secular changes in the past are more focused on investing in shared services frameworks
These businesses are typically reactive to market conditions and often radical long-termism doesn’t fit as well with their mentality, especially when faced with uncertain times ahead. In addition, many of them have already shaved their operating costs to the bone, hence digging out new productivity benefits via outsourcing is often challenging – and mistakes can prove fatal in a low-margin business.
» Industries such as retail and manufacturing, one can argue, have already been through their secular shifts over the last three decades or more. While they have had to experience much fundamental change, for example mass globalization of markets and volatile changes to consumer spending behaviors, the very essence of these industries is still the same – their organizations are focused on inventory management and supply chain optimization, maintaining operating margins and accurately predicting demand. To them, outsourcing has always been an option, and has been readily explored over the years to find more pennies to save. So while economic conditions may have been vicious, focus on short-term cash-flow has clearly been the priority for many in these sectors, and radical overhaul of operational infrastructure clearly not an attractive option.
» Utilities are also proving to be more conservative with outsourcing, with a strong shared services focus. While many of the large utilities organizations have been among the earlier adopters of hybrid outsourcing and shared services models, many of them have not felt such secular change as many of those industries that were more dramatically impacted by the 2008 crash and many of the fundamental shift mentioned above.
» While there are many active outsourcing engagements – both existing and new – in telecom and wireless, HfS sees more these engagements as relative small in scope as these firms opt for more incremental, conservative ventures into outsourcing. For example, several major telecom firms are evaluating smaller BPO initiatives in areas such as sourcing and transactional accounting, and still prefer to engage in several smaller multi-vendor engagements in the ITO space.
Hence, it’s no surprise that these organizations are more conservative with their long-term operational planning. Moreover, many have proven to be heavy outsourcing adopters in the past, and we expect these sectors to remain focused on maintaining their outsourcing initiatives, but with a large proportion opting for a more reserved approach, with increased focus on improving, and in some cases expanding, their internal shared services competencies.
The Public Sector: Facing up to unprecedented challenges
One industry which is going through more secular change than any today is the Public Sector. Quite simply, national and local government bodies are under unprecedented pressures to drive austerity measures and make long-term plans to drive new productivity programs. This explains why 55% of public sector bodies actually foresee some moderate increase in outsourcing activity over the long-haul. Huge political bodies, such as the US Navy, NASA, the UK Inland Revenue and National Health Service – and even the FBI – all outsource elements of their operational support functions to varying degrees. With increased onshore delivery resources becoming available from several providers, this could well turn out to be a surprisingly large growth sector for outsourcing.
The Bottom-line: New fundamentals are creating new rules to manage one holistic and comprehensive outsourcing and shared services strategy
Outsourcing is entering a new era – one where organizations can no longer afford to ignore its benefits. As these radical and secular changes to many of our core industries take hold, business leaders simply cannot overlook the competitive advantage outsourcing offers: enabling them to focus on developing competitive advantage. These secular shifts are threatening the survival of many businesses, but at the same time are opening up major opportunities to build smarter, more globalized and leaner organizations. Business leaders can no longer afford to cling to many of the methods of yesteryear to steer their organizations, and this data points to a more bold, radical approach to embrace the benefits of global sourcing.
However, most smart organizations are no longer evaluating shared services and outsourcing strategies in silos; while these initiatives are singularly successful at providing benefits to that individual function, our research has shown that these initiatives have failed, in many situations, to improve comprehensively the broader corporate strategic objectives of these organizations.
"Please mind the innovation gap"… click here to find out what Business Platforms are and they represent the future of outsourcing
You may recall we first started introduced the concept of the “Business Platform” a few years ago, when we discussed a “Business Services Cloud” where SaaS-providers could start building a BPO capability to deliver their solutions to clients and ensure they were making maximum use of the application.
We also made the point that if BPO providers were merely selling commodity processes on commodity packaged software, they were going to get sucked into a race to the bottom, where the focus was all about low-cost and delivery-scale.
Hence, those providers wanting a competitive offering, need to provide distinctive services that can help their clients transition effectively to new processes that really work with their businesses. Simply selling packaged software through various channels, with minimal business transformation support, is not going to help clients take full advantage of what they have – and often leaves them only using a fraction of the functionality of the software. However, the very concept of leading with BPO capability is simply too alien for many software providers to grasp – they still live by the stack ’em high and sell ’em cheap concept of pushing out license sales as aggressively as they can through whatever channel partner that will sell for them.
However, one software provider which has gone against the grain is Sales Performance Management provider Synygy, which quickly realized developing its own BPO delivery competency would create a major competitive advantage over its competitors, and also help it develop deep, sticky relationships with its clients. We recently investigated how three clients organizations are improving business outcomes using this Business Platform solution for their sales compensation management, which has direct impact on their top-line. The paper entitled Drive Revenues and Lower Costs by Outsourcing Sales Performance Management outlines the business benefits and return on investment (ROI) achieved by three multinational companies that have outsourced the end-to-end management of their sales compensation programs—inclusive of technology, people, and processes—to Synygy.
We caught up Mark Stiffler the founder and CEO of Synygy recently to get his take on what Business Platforms mean to his company and ask him about some of the shifts that are occurring in the market.…
HfS: Good morning Mark – can you please give us some back ground on how your company got started?
Mark Stiffler is CEO of SPM Business Platform provider, Synygy
Mark Stiffler (CEO, Synygy): I started Synygy 21 years ago, which was after a stint at management consulting and graduating with an MBA from the Sloan School of Management at the Massachusetts Institute of Technology (MIT).
I actually began Synygy as a services company, more management consulting, focused initially on analytical work and then compensation design, which in turn led to the creation of software, and eventually a transition to being much more of a software company.
More recently we have balanced ourselves back along the lines of what HfS presents as a Business Platform: software, implementation, expertise, and continuous improvement—all offered as a singular managed service.
HfS: Moving from a software provider to a services provider business model has proven incredibly difficult. Can you share with us some of your views on this?
Mark: Software and services are very different types of businesses. For us, software has been a relatively transactional relationship versus a BPO service that is a daily relationship with the client.
Synygy today for the most part has two distinct types of clients: software and BPO clients (with some in the middle). Software-oriented clients want to run their sales operations and processes on their own while at the other end of the spectrum—BPO—it’s Synygy that’s running the sales operations department of the client.
What is different between our software clients and BPO clients is the degree to which they benefit from Synygy’s expertise in complex business processes like sales compensation management. As was seen in the case studies you conducted, real value is being derived from the expert services that are being provided on top of the software.
But it is interesting to see that costs savings were also a considerable benefit for those same clients. That is not a value driver that we typically lead with!
HfS: You don’t pitch cost savings? Why is this?
Mark: All of our clients are recurring services relationships, which is the basis of BPO. Until recently we treated software clients with the same level of services as our BPO clients and, frankly, we gave them too much support on how to make best use of the software. We now have moved many to a Managed Support contract (think of it as half way to outsourcing) where they pay to receive more services than from their software relationship. When we stopped giving-away expertise and advice for free to software clients, many realized that there was real value associated with the provision of that and decided to buy the managed support.
HfS: So what market are you really going after: Software, Services or Business Platforms?
Mark: All of our competitors have driven towards SaaS and cut their implementation services teams to drive a higher ratio of subscription revenue to total revenue. We want to drive a more balanced approach along the lines of Business Platforms, i.e., SaaS, software hosting services, best practices in process design and continuous improvement so that the processes remain relevant. We call this ‘Sales Performance Management. Above the Cloud.’
HfS: When you look at your company’s evolution do you see any changes as to why organizations are outsourcing SPM?
Mark: What has changed is that companies like Salesforce.com have shown how SaaS can be used to deliver software from the cloud and this has allowed us to have a conversation about managed support and outsourcing services on top of SaaS. Software in the cloud is still just software and if you want to take advantage of expertise to optimize your business processes you need to think about more than software. Outsourcing is a good solution for a very complex problem like sales performance management.
HfS: Are you very rigid in terms of moving client onto your processes?
Mark: That has shifted as well. For many years it was a blank slate approach in which we would redesign the client’s processes from scratch. Now we strike a balance between standards and flexibility, combining industry-wide commonalities with client-specific requirements. We are also changing the way we perform implementations. While we still do them as a fixed fee based on an estimation of work effort, we are significantly changing the way we work with a client through the implementation. We are using a far more interactive process, with continuous feedback from the client as we implement the solution on a daily basis.
HfS: What do you think of your competitors that develop the software and create partnerships with service providers to provide the services? What is lost in a partnership that Synygy can provide as a singular managed service?
Mark: This is the key differentiator for Synygy. Does a client want to pick a piece of software, do a detailed vendor comparison, and then do the same for an implementation services firm? There is a lot of cost and risk for sourcing from two providers and then what? You are left to manage it on your own?
We provide the software, datacenter services for hosting the software, implementation services, and then the managed support or outsourcing services to get the most out of the investment. The cloud makes software more of a commodity as value is shifted to the services. Services are the key differentiator against the software companies and Synygy’s outsourcing services are its key differentiator against the services implementers.
The Business Platform concept encapsulates this, which is exciting since it dovetails with Synygy’s move to a more balanced SPM offering. The ‘above the cloud’ approach to sales performance management has caught on within the company and we are looking forward to the reception in the market.
HfS: Would you do anything different if we were to start up again?
Mark: We feel that we are almost like a start-up. We have seen three iterations of market development and collapse through acquisitions of competition and competitors going out of business. This market iteration is coming together nicely with SaaS, implementation services, and outsourcing services enabling Business Platforms.
HfS: If you were given $1 billion, would you switch careers?
Mark: I don’t know about that (laughter), but I am fascinated about changing old things into new things and that is why we have our worldwide HQ in a former power plant. Pursuing historical projects like that would be of interest.
HfS: What advice would you give to your peers that are seeing increasing commoditization?
Mark: I would rather not give advice. We have the formula and we will keep that a secret.
HfS: Lol! That was a great answer. Thanks so much for your time today, Mark – we are excited to share your story with our readers.
Click here to download your complimentary copy of “Drive Revenues and Lower Costs by Outsourcing Sales Performance Management”
In Part I of Poole’s patter, we heard from BPO veteran David Poole sharing some of his thoughts on where BPO is eventually heading- and he began the conversation by discussing the fact that “outsourcing” will gradually been replaced by “venturing”, where providers will do as much due diligence on their clients as clients do on them to analyse and dig out the true joint opportunity.
Essentially, David argues that a new breed of providers are seriously trying to figure out the added value they can provide so they can share it to create a true win-win with their future engagements. He also points out that providers paid by results or so called business outcomes is little more than jargon, and frankly the evidence of this in practice is pretty slim.
So in reality, we know where the industry is heading, we just haven’t reached the point where these new developments are really happening in practice. However, one core trend that is clearly going to kick-start the process of venturing versus actual outsourcing, is the fact that most providers today no longer need to “lift and shift” client staff into their organization to effect the knowledge transfer – they can now use their existing delivery staff. Hence, the actual process of “outsourcing” operations is fast becoming moot – this transfer of labor, technology and domain acumen is no longer needed in many of these business process engagements, because the provider already brings these qualities to the table. So let’s zone-in on the patter-tastic protagonist himself, David Poole…
Virtualized Delivery – The “O” is not a prerequisite
Providers really are getting extremely good at providing services better, faster, cheaper and with greater value added than even the biggest companies, with the most experienced shared services organizations, can achieve. It stands to reason because providing back office services IS their business. They invest in best practice process models, they have far greater scale, they invest in technology, work management, risk management, provide unparalleled career opportunities. I predict however that there will be a huge blurring of the boundary between provider and client.
Still today there are many situations where outsourcing is a bad word, where legal or regulatory constraints exist or frankly where political and / or Political boundaries prevent an outsourcing decision. The fact is that providers don’t just provide cheap people these days. That other stuff, the technology, process knowledge, analytics, work management, methodology and leadership capability is highly value adding. I predict that we will see deals emerging where these are provided and applied to the clients own staff. In the new World of Business Process Venturing the O is not a prerequisite. The provider can manage services using client staff and still share in the value added outcome. There are some notable examples of niche providers today that operate this model extensively and extremely profitably. Accretive Health from Michael Cline’s stable is a great example.
I think the future mainstream of our industry will see deals that are hybrids of traditional onshore, nearshore, offshore and increasingly client staff will be in the mix. Another twist to this point is the growing potential, aided by technology, of utilizing home workers, often self-employed to deliver processes.
David Poole ponders
This area is growing very fast in the customer service arena but why not in a host of other process areas. It’s politically extremely attractive, provides access to a highly educated and motivated sector of the work force and work management tools, methods and technology now available to manage home workers in truly impressive.
David Poole is a distinguished veteran of the BPO industry having previously led Capgemini’s Americas BPO service line. He was also a founding member of PwC’s global BPO business prior to IBM acquiring their operations. He can be emailed here.
You may recall we’ve been a tad harsh on the municipality of Orlando over the years here on HfS, once even going as far as equating being middle-seated en route to the Floridian enclave as being stuck in purgatory all the way to the gates of hell. After many lost nights’ sleep trying to seek out that elusive morsel of innovation, it has finally dawned on us: where better to look than the Magic Kingdom? So after writing a personal letter of apology to both Jeb Bush and Mickey Mouse (was an easy copy/paste) we are delighted to announce that HfS is making an Orlando tribute tour to SSON’s magical 16th Annual Shared Services & Outsourcing Week:
We’d love to meet you at the Hilton, Orlando, March 7th-9th, where you’ll get the usual deluge of panels, G6 big-thinking debate, session break outs and every single possible angle you can ever attribute to shared services and outsourcing. We’re also excited to feature on the analyst discussion with our good pal Stephanie Moore of Forrester Research (read her HfS interview here) and to have an on-stage interview with Microsoft’s Chief Procurement Officer, Tim McBride (read his interview and HfS case discussion here). And yes… you may even discover a morsel of innovation before resorting to scourcing the bottom of your wine glass.
And… of course… our friends at SSON are extending a special discount to our loyal cynical HfS readers, who have been so cruelly brainwashed against the magical delights of Orlando and its sourcing magic…
Just click here and type in the code ‘SSOW12_HFS’ to take advantage of our special “Orlando we are ready to try again” 15% discount
Buying Team becomes "Proxima", ICG Commerce,"Procurian"
Did anyone see this day coming? Yes indeedy, the day procurement gets a makeover has finally arrived, with brand-spanking new liveries and catchy brand names for both the Buying Team and ICG Commerce who’ve renamed themselves Proxima and Procurian respectively.
No – they aren’t venturing into wonder drugs or high-end restaurant chains – they are simply sexing-up their procurement with more P’s and less Zzzzz’s… so why now, and – in fact – why at all? Let’s leave it up to a man who once counted paper clip purchasing by the million-load, HfS research’s Tony Filippone himself. Over to you, Tony…
Pure-play procurement outsourcing heats up, triggering two name changes among procurement-focused service providers
You’d think that down-to-earth procurement guys (and gals) would avoid the expense of renaming a firm, but within the span of less than five days two procurement outsourcing service providers did exactly that. Yet, the rationales behind their name changes are quite different.
Proxima (formerly Buying Team) based its new name on the need for procurement to leave behind its cost savings heritage that has always marginalized its value in the eyes of its internal customers. In the place of cost savings, Proxima wants to focus on developing procurement’s “proximity” and “intimacy” with the broader objectives of its business unit. Proxima hopes to position itself as a company that will elevate the position of procurement within an organization through “management control and visibility of costs.” In effect, Proxima team is leaving behind the heritage of “buying”, which connotes boring “P2P” in the eyes of procurement executives, to become closely aligned sourcing organization. “During the last two years we have repositioned our business as an end-to-end procurement services business, with a clear vision and a strategy to achieve our ambitious goals,” explained Guy Strafford, Proxima’s Chief Client Officer. “Having done this, the next logical step was to refresh our brand, which included challenging the appropriateness of the buyingTeam name.” Frankly, based on their capabilities and services provided to their clients, which is heavily focused on strategic sourcing, this name change makes tremendous sense.
Procurian (formerly ICG Commerce) based its new name on the need for procurement to exert sourcing and category management excellence. Based on our research in the procurement space, category management is a differentiator, but clearly its old name didn’t describe the business Procurian is in. As, Shannon Parish, Procurian’s Marketing Leader, explained, “We realized that we needed our name to bring additional meaning to who we are and what we do. By combining ‘Procur’ with the suffix ‘-ian’, that denotes a specialist or doer, we are able to better project our specialized focus and long-standing commitment to procurement.”
Snazzy new names really reflect the changing focus the procurement outsourcing market
The Latinate marketing explanations for renaming these two firms belie what is really triggering two procurement organizations to rebrand. The real driver is that these two niche firms are challenging the two stalwarts of the procurement outsourcing industry, IBM and Accenture, because the nature of the procurement outsourcing market has rapidly changed. As shown in exhibit 1, procurement outsourcing used to be driven by multi-tower shared services and finance and accounting outsourcing initiatives. In the last three year, the procurement outsourcing market has become a market where buyers strongly prefer standalone procurement outsourcing contacts. Of the $2.5B procurement outsourcing market, standalone outsourcing contracts represent 56 percent of the entire market – and this number is clearly growing.
Standalone Procurement Outsourcing Captures the Attention of Procurement Executives
Source: HfS Research, 2012; n = 430 procurement outsourcing contracts
For example, while all of Proxima and Procurian’s contracts are 100% focused on procurement and 80-90 percent of Accenture’s procurement outsourcing services (fueled by its Ariba Services acquisition) are standand alone, only 30-40 percent of IBM’s procurement outsourcing client base contracts for standalone procurement outsourcing services. Proxima and Procurian have positioned themselves squarely in the headlights of chief procurement officers looking for procurement expertise. And, if they are going to challenge the category titans, they need to ramp-up their marketing exposure with procurement executives.
In fact, at the 2012 ProcureCon Indirect East event held last week (which had a solid showing with over 30 CPOs and well over 200 procurement experts, excluding service provider marketing and sales teams), only one procurement outsourcing service provider was actively marketing. We expect that to change dramatically in the coming year, as event attendance at both ProcureCon and SIG events has been on the rise.
But what makes marketing most important is the message. While the rest of the outsourcing industry deals with FTE-based lift and shift, procurement executives are really interested in gaining expertise. That’s the message these firms need to impart to their audience. Nearly 75 percent of the discussions at ProcureCon’s novel all-day “practitioner-only” day (no sales people allowed – the procurement executives were thrilled!) focused on talent management: the difficulty of finding category experts and procurement leadership. As we explain in more detail in our RapidInsight, “Broadening the CPO Mandate Through Procurement BPO” (download it here), procurement outsourcing has to be positioned as initiative geared towards improving spend management by leveraging service providers’ deep, experienced benches.
And that is exactly what both Proxima and Procurian are doing.
The Bottom Line: Differentiated, specialty services matter to CPOs
At ProcureCon, one CPO for a major manufacturing company took the main stage and said, “We want to keep it internal.” This speaks to the uphill battle that procurement outsourcing faces. CPOs simply don’t know that procurement outsourcing is different than other forms of outsourcing. They are used to the labor arbitrage comparison, and simply are unfamiliar with the ability to leverage outside expertise apart from expensive strategic sourcing consultants (see our report discussing the models here: “The CPO in 2011: The Toughest Job in the Global 1000”). Service providers have to educate CPOs on why procurement outsourcing is different to open a procurement executive’s mind.
Tony Filippone is EVP for Research, HfS Research (click for bio)
Moreover, the CPO may be the one executive who is immune from service provider marketing rubbish. While relationships may (force) open a door, CPOs are most likely to turn any friendly discussion into a competitive bid exercise. If a service provider is going to win mindshare in a procurement executive’s objective RFP process, it will be on the basis of “why can you save me more than your competitors” and “how can you help me execute better”. Cool logos and fancy names aren’t going to convince prudent buyers of capability and CPOs know how to sniff out P2P players that are masquerading as strategic sourcing experts. Highly specialized procurement services catered to the CPO is what the market demands, especially those that can help the CPO rapidly mature his or her delivery. Proxima and Procurian have the mettle and are sharpening their message.
David Poole, Process Protagonist and Prognosticator
Many of you will remember one of the legends of BPO, Deputy David Poole, who’s spent much of his career fighting BPO crime on the streets of Chicago for Capgemini (where he actually rolled up with the job title “Deputy”).
He was also a founding member of PwC’s global BPO business prior to IBM acquiring their operations, having made a significant contribution to the development of the global BPO industry, crafting several major global engagements since the early ‘90s.
David’s thought to have skipped town, after a shootout at the Outcome-based Corral and is rumored to be trawling the streets of London seeking out errant processes in dire need of transformation. In the meantime, we managed to track him down somewhere in the ethernet to share some of his thoughts on where the BPO market is heading.
So without further ado, here’s Part I, where he discusses future of BPO having less to do with outsourcing and much more to do with venturing – a blurring of the lines between the client and the provider…
Venturing – Sharing of risks and rewards between clients and providers
Imagine a World where providers actually put their money where their mouths are. I don’t mean just putting their margins at risk (tied up with so much legal jargon there actually isn’t any risk). I mean really working out the added value they can provide and taking a share of that to create a true win – win. This will be a world where providers will do as much due diligence on their clients as clients do on them to analyse and dig out the true joint opportunity. Sound familiar? Well certainly not in the BPO World we know today, but much more like the venture capital world. In fact, perhaps Business Process Venturing has a nice ring to it?
So far, providers paid by results or so called business outcomes is little more than jargon, and frankly the evidence of this in practice is pretty slim, perhaps with the exception of more knowledge-based and directly financially measurable processes like in collections or procurement. The lucrative BPO market of the past few years has been extremely cosy and risk averse but this is all about to change.
I predict a new breed of deal and provider will emerge in the coming years, sending shivers through the current providers risk management processes but forcing the type of change and commitment to process excellence that the buyers always thought they were getting but in fact were not. I don’t think it’s a bad thing for the providers either because it creates the opportunity for the best ones to truly monetise the return from the investments they have made in processes, analytics, technology and facilities. This is because the overall influence providers will have over the delivery in this much more collaborative environment will be far greater and less bounded by the restrictive contracts we as an industry have over time developed to protect clients from the big bad providers.
Stay tuned for more of Poole’s patter, which pinpoints the potential of virtualized delivery, utility delivery models and the end of consulting as we know it (gasp)…
We’re gearing up for our HfS 50 Sourcing Blueprint Sessions, taking place April 24-25 in New York City for a two day spectacle of sourcing-savvy soliloquies:
One year on and the HfS 50 just got bigger and badder than ever
Over the last year, our elite peer group of sourcing buyers has doubled in size – making this our biggest, baddest and most discussion-rich meeting to date. And in response to the high-demand, we have managed to extend an extra ten invitations to the event – so if you are a client of BPO or IT services, a shared services or governance leader, or a senior service provider executive and would like to get involved with the HfS 50, please contact Tom Ivory for more information.
This exclusive event will include the development of a 2015 Blueprint for the sourcing industry, culminating in a tempestuous vendor/buyer face-off that will include leaders hand-picked from several of the top tier service providers.
Key discussions will include the following titillating topics:
What do we want – and what should we expect – from the vendor account manager?
Outsourcing higher value processes – what’s feasible and how options should be evaluated
Re-energizing the governance function
Blending shared services and outsourcing into a productive, manageable governance framework
Vendor management and performance management strategies
Forward-thinking and productive pricing strategies that can actually work
Globalization’s impact on today’s sourcing strategies
When it comes to nearshore, anyone in the know knows Kirk Laughlin and his nearshore news site Nearshore Americas… and we’re excited to let you know that HfS is being beamed up to lead the key session at Kirk’s annual nearshore sourcing shindig, aptly named Nearshore Nexus:
The conference will feature over 20 speakers, including top CIOs, sourcing advisors and also welcomes delegates from more than 15 countries in the region. Special features include:
Keynote presentation by Mr. Alvaro Uribe, Former President of the Republic of Colombia (2002-2010).
A “Buyers’ Super Session”, featuring deep analysis of costs, contracts and benchmarks, led by our own Esteban Herrera, COO at HfS Research.
Panel sessions on Vendor Management in a multi-provider, multi-geographic environments; selecting sites for new operations in Latin America and overall drivers and risk around doing business in Latin America.
Dedicated sessions on Sourcing to Mexico and Sourcing to Brazil.
Nexus “After Dark” featuring live entertainment at the conclusion of the conference.
Kirk Laughlin is beaming up the nearshore superstars in New York on April 19th… click to register
The Venue:
April 19, 2012 at the Crowne Plaza, Times Square, New York City
Outsourcing clients and decision makers can obtain an all-access conference pass at no charge! In order to register, click here to go to this web page and type in code: MDUX10
Thank God services providers don’t like buying each other very much. There are scores of IT services and Business Services providers today competing for every help desk, invoice processing, app dev, clinical data management (etc.) deal.
For smart services buyers, they are spoiled for choice to keep their providers on their toes to get as much attention, talent, technology and inspiration that they can squeeze out of them. And if they only care about low-cost, there are plenty of providers who’ll kill themselves to do their work as cheaply as is humanly possible.
When I watch Oracle and SAP rapidly clean up whatever application is left on the market worth buying, my heart sinks for the future of the enterprise software business. For Oracle and SAP, it’s all about maintaining the status quo and growing their considerable license revenue streams. They know they have to be seen to embrace the Cloud, but all they really care about is protecting their customer bases and preventing upstart vendors sneaking in to disrupt their revenue model. And can you really blame them? It’s economics 101…
Microsoft won the office apps game well over a decade ago and today largely focuses on milking its massive customer base. I mean, have you seen anything radically different with Word, Excel and PowerPoint over said period? No competition means limited innovation, and that is my fear for the enterprise software business, which is rapidly running out of worthy independent applications that can help business managers run their functions better, have access to more relevant data to help them make decisions, and be provided on a more affordable pricing model that allows them to pay for what they need, when they need it.
Companies buy software because they want standard process that can be automated with as little human intervention as possible. For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash.
Unless Oracle and SAP decide to enter the services game, they are not going to provide enterprises with that kind of innovation – they are merely pedlers of automation. Once they own all the apps on the market, they will own all the automation, and my huge concern is whether there is really any more room for innovation spurred by this automation. Essentially, have these enterprise apps pretty much reached the peaks of their capabilities now they are owned by the 1600-pound ERP gorillas? I mean, seriously, how much further can you improve a companies’ recruiting processes by making some tweaks to the software code? Yes, I hear all the techie purists voice their fury because all software products can have their architectures improved, but at the end of the day, most of these software apps support pretty standard business processes today.
We’ve arrived at a juncture where the next wave of value that enterprises can derive from their business processes isn’t going to be purely from upgrading to whatever software platform is next available on the market. It’s actually going to be having real help in improving the quality of those process elements that cannot be automated, require real context and judgement, and real analytics. These are requirements you can’t download via an email from your SAP rep – they are where you need real consultative support from experts who’ve gotten to understand your business.
The Bottom-line: Packaged software alone is no longer providing innovation for buyers
SAP and Oracle don’t need to try to hard to differentiate from each other these days – there are only two of them and they pretty much own the enterprise packaged software markets between them. The consolidation of the software apps business is firmly placing the onus of innovation and process improvement in the hands of today’s service providers. Those business services outsourcing providers that can coach their clients on an ongoing basis as part of a managed services relationship, will be able to differentiate themselves in the market. We are already starting to observe service providers handpick industries where they really think they have an edge and are eager to demonstrate it at every opportunity. Our new research on Business Platforms already shows that today’s leading service providers have already leveraged over 15o packaged and custom-built applications to underpin their services. The apps provide a process framework that can help improve an enterprise’s current state, but the actual innovation will only come from the introduction of new and creative methods that can’t be embedded in a piece of code.
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