Thanks to our friend Matt Heffron of Sourcing Sage for sending us another classic

Posted in : Absolutely Meaningless Comedy, Business Process Outsourcing (BPO), IT Outsourcing / IT Services

Would you kindly stay on the line to complete a brief customer satisfaction survey?

The main feature of 2011 was all about the demise of quick cost reduction as prime driver behind global sourcing, and the focus on enterprises establishing a flexible global operational framework that can be effective in today’s environment.  

Yes, cost prudence is always an ongoing concern, but it’s no longer the differentiator; today it’s embedded in all forms of operation strategy and planning. Hence, this means enterprises’ prime focus is fast becoming global and not solely about being low-cost.  This also means providers need to service their clients as global partners with global delivery capability.

To this end, HfS Research Fellow and Sourcing Change protagonist Deborah Kops completes her investigation into the dominance of India in the world of outsourcing, and whether or not the game’s up for non-Indian providers to come back into the picture.  Over to you, Debs…

You don’t have to be Indian to be a global outsourcing provider!

In The Sourcing Raj Part I, I ticked off the reasons why non-Indian providers have had a hard time cracking the offshore outsourcing market. Indian players not only have a good 10 years’ head start penetrating the market, a brand that makes India and outsourcing virtually synonymous, and an unparalleled onshore network of buyers and influencers that all know the secret handshake. But the good news for non-Indian providers is that the global economic map will continue to evolve, making it imperative to implement a portfolio approach in response to changes in markets, availability of talent, cost and other considerations. Those players with the stomach to check nationalism at their borders and follow a few simple rules can nip at the feet of the Sourcing Raj.

You may not be familiar with the iconic 1970’s ad featuring a Native American in full regalia eating a sandwich on dark bread. The tagline, “You don’t have to be Jewish to love Levy’s,” did more to get Americans to eat something other than squishy packaged white bread than giving out samples in bakeries. Non-Indian providers have a legitimate role to play in global delivery, but it means they must approach the market differently. The market has evolved since the first Indian firms came onshore, requiring a different approach to an industry where offshore is frankly synonymous with India. It’s up to the others to convince the market that it’s possible to be a viable provider without a home base in India.

Brand as a global, not a (name that country) provider. Take a page out of the book of several leading Indian providers. They no longer call themselves Indian; they proudly declare they are global players. They push very hard to emphasize their network of operations in a range of geographies, of which India is just one. Their mission statements no longer contain the aspiration to be India’s number one (or two or three). They focus their messaging where their clients are, at the same time paying sufficient attention in their home markets to build enough brand to attract the right talent.

Yet many offshore players doggedly play their country card in their branding. While having pride in the home office location is important, understanding that parochialism is the enemy of globalization is critical to getting on a revenue growth trajectory. Clients seek good delivery from markets with sufficient scale, talent and reputation to underwrite their decisions, and that perform as strong cogs in a global delivery model. At the end of the day, that’s what matters. Providers that shed the trappings of their legacy location have a good chance to grow and prosper.

Rapidly devolve management control. To be honest, it has taken the Indian firms far too long to realize that true globalization is more than locating cheeks in seats in other geographies, retaining tight control in India. Even today, look up some of the Indian majors and note that every key management position is occupied by someone in Gurgaon, Chennai, Mumbai or Bangalore. Many Indian providers talk the global talk, but often when it comes to making a decision, it requires a call to country code 91.

Non-Indian providers have an opportunity to send the right globalization message now, leapfrogging the Indian providers by quickly devolving control into exporting markets. Clients increasingly look for leadership across geographies, signifying that the company’s management is truly global, evaluating the provider on the extent to which there is local decision making authority. Take a page out of the books of the global majors such as Accenture or IBM—locate key execs with real decision making authority in a range of geographies. It’s the smart way to grow a business in a global world.

Move quickly to develop a strong base of local sales and account management staff. For years, Indian providers parachuted in sales and account management staff, thinking they were saving money, or even believing that local hires were incapable of understanding and selling the offshore value proposition. However, the industry now “gets” offshore; there is increasing recognition that one no longer had to grow up in India to sell or manage clients.

The non-Indian player should aggressively seize the “glocal” high ground, declaring we’re both global and local by hiring prodigious indigenous talent. Clients still prefer to do business with people they believe are fundamentally like them so putting a local face on the client interface goes a long way in establishing credibility.

Declare your hand. The market’s far too mature and competitive to entertain provider neophytes who are continuously and publicly testing the market. The market looks for providers who can draw a line in the sand, saying what they can do, why they can do it, and for whom they have already delivered results. Do your homework, pick your service offerings and industries, and settle on an approach before you blitz the market. Trying to be all things to all people is a recipe for disappointment.

Invest in marketing. Jobs exporting markets cannot be conquered with a website that says little, an exhibit booth staffed by a smiling young lady,  a thumb drive with a logo, or an occasional banner ad in a third tier industry publication. Assuming because you as a provider are the best in Wroclaw or Wuxi that the market will beat a path to your door is massively misguided. Sitting offshore and second guessing your target market is not only revenue-limiting, it’s sheer hubris. Spending marketing funds sporadically tells the market you are not serious players.

If it is not important enough to invest the right amount of money in effective marketing, why bother to enter a market? There’s a direct line of sight between spend and results—spend little, especially in the wrong areas, get nothing. Spend a lot on the wrong approaches, get little. Spend the right amount on channels that matter and it’s a game changer. Figure out the right channels, the right approaches and spend the right amount of money, and the payback can be more than 25 times investment over time.

Develop superior English language skills. It’s not enough to rely solely on state investment in English training when the provider’s future is dependent on speaking the world’s premier business language. Ensuring that everyone who interacts with the client at every level has a command of clear, contextual business English is not only an imperative and differentiator, it eliminates unspoken objections inherent in client teams. Playing the non-language dependent card no longer works.

The Bottom-line: many non-Indian providers have the opportunity, but have a lot of work to do

Deborah Kops, Research Fellow, Sourcing Change Management, HfS Research (click for bio)

Can non-Indian outsourcing providers end the sourcing raj? Certainly geopolitics, the state of the global economy, currency movements and, more specifically, the positioning of the IT/ITES industry within India will affect the course of events. And it will take some time before the Chinese or Brazilian equivalent of the sourcing network becomes as insidious as that of the Indians. But much of the answer lies within the direct control of the non-Indian players. Will they play a global game? Will they place a bet on a few services, and make the requisite investment? Will their nationals start to appear on the rosters of client teams? Will they devolve management to other geographies? Will they spend the amount of money necessary to create a brand? Will they invest in training superior English speaking capability? Only time will tell.

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Sourcing Best Practises, Sourcing Locations, sourcing-change

A special thanks to Sutherland’s Matthew Heffron for sending us this little ditty.  Check out his excellent BPO video blog Sourcing Sage.

Posted in : Absolutely Meaningless Comedy, Business Process Outsourcing (BPO), Sourcing Best Practises

One of the highlights of 2011 was that great web-debate on the Future of BPO where 1,100 people across the globe dialed in to hear from our buy and sell families.  Like any typical extended family at Thanksgiving, they cussed and discussed about the trends and challenges buffeting BPO. They passed the peas and offered some pretty unbridled opinion and insight. Visit the BPO Resource Center to download the highlights…

Click to download the highlights

Posted in : Finance and Accounting, HR Outsourcing, kpo-analytics, Outsourcing Events, Outsourcing Heros, Procurement and Supply Chain, Sourcing Best Practises, sourcing-change

Here are some “horses” memories as a big chubby thank you for all of your support this year… Oh – and turn up the volume 🙂

Posted in : Business Process Outsourcing (BPO), horses-for-sources-company-news, IT Outsourcing / IT Services

“Is nothing sacred anymore”, I thought, as I received my 200th holiday greetings e-card from some person I have never heard of, trying to use the opportunity to have me tell me about his company’s incredible achievements in 2011. Buddy – if you want to sell me something, or tell me how great your company is, just send me a pitch claiming you’re the best – and I may even read it.  But pretending you know me and using that as the guise to get my attention, just incites me to press that delete button and not give you a second of my time.

This is just one example of how social media is driving the human element out of our business interactions.  There’s just too much interaction out there, too much opinion, too much self-promotion and – let’s face it – too many bloody people with seemingly nothing better to do. Come to think of it, I don’t think there has been a time in my career when I’ve known so many people who I can’t figure out what is it they actually do all day, how they make any money for themselves, or others.  And I can’t figure out, for the life of me, why some companies pay some people to do what it is they supposedly do all day.

In fact, I probably spend more time avoiding people these days than trying to network with them – few seem to have anything interesting to say, any new ideas about where the world is going and simply are following the commonly agreed set of “industry trends” that most people have been force-fed by industry influencers who are running out of sexy new ideas (or ran out a while back, and are bumbling along on empty until they find something new to grab onto).

What happened to the times when peoples’ opinions mattered – even if they were wrong, or were just plain off-the-wall?  Economic and political paralysis, exacerbated by inane electronic social networking has sapped so much of the passion, creativity and enthusiasm from our professional lives.  I find myself increasingly spending time with people who are interested in sport, music, movies or just playing with the kids, because at least there is enthusiasm and passion there.  But going out for dinners with faceless executives to talk about cloud-bloody-computing – and how it is going to change the world… without being able to explain why, just that it will, because they need to sound cloudy… don’t get me started!

What we need is a dose of renewed optimism, that our world has an exciting future, that there will be areas for renewed growth, renewed innovation, renewed opportunities.  That we have exciting careers where we can constantly find new challenges and invigorating things to do.  Have you ever known a time when so many people cling to the job they hate because it’s the only way they know how to make a paycheck these days, and are too nervous to even consider a new challenge?  Too many people are stuck in a professional status quo – and have been since the 2008 crash scared the professional lives out of so many.  I have lost count of the number of people who are just plain miserable in their jobs, have lost confidence in their management and their companies’ offerings and directions, and are losing that spark and desire to find something that will give them that renewed energy and that passion?  Many people seem to be so jaded these days, and it worries me that they will struggle to ever be truly energized and passionate about what they do again.

So let’s make 2012 the year of getting passionate again!  Let’s dig deep to be honest with ourselves about what gets us up in the morning – what will make us look forward to going to work again.  Paralyzed politicians won’t come with the answers, and neither will directionless corporate managers – only you can summon up the courage and passion to make a difference.  Take a risk – jeez, take a pay cut if you have to – but if you lose your passion for what you do, you’ll find it harder and harder each year to get it back.

Posted in : Absolutely Meaningless Comedy

Well, another year goes by and HfS yet again escapes any legal action, terrorist attacks at our office, or disappearing bodies, for being thoroughly unafraid to call the industry on its issues. So let’s reflect some of the defining outsourcing moments of 2011…

January

Ditch Procurement!

Deb Kops began the year in feisty fashion by declaring war on the procurement function… Is traditional procurement deeply involved in M&A activity? Corporate strategy? Business transformation? Not a chance. While our friends in the CPO’s office have an important role to play in procurement process and governance, they cannot be the major arbiter of taste when it comes to sourcing true corporate change.

RIP Joe Vales

The nicest guy in sourcing – and one of the best marketing guys you’d ever met – Joe Vales, sadly passed away… An avid fan of HfS, he will be sorely missed by us, and am sure many of you will be equally saddened by his passing.  He was a sweet and lovely guy, who loved his work.

Impatient Premji plays catch-up

You won’t see a CEO being removed after achieving a double-digit growth rate too often, but that’s just what happened, when Wipro’s co-chiefs Suresh Vaswani and Girish Paranjpe were replaced by TK Kurien…  So will Premji’s impatience to produce numbers as stellar as his competitors be rewarded, or has he already missed this phase of hyper-growth in offshore services?

February

EquaTerra + KPMG – a new era, or a new error for outsourcing advisory?

KPMG became the only “Big 5” management consultant to buy a boutique sourcing advisor… The outsourcing advisory business is all about talented people, experience and relationships. It would have been extremely messy if KPMG had tried to hire away these folks one-by-one. They have retained the top talent and have created careers for them within their organization. Quite simply, there is a really bad (and worsening) talent shortage in our industry, and KPMG has just snapped up a good portion of it in one full swoop.

March

So what on earth does the future hold for sourcing advisors?

Esteban Herrera doesn’t hold back when he declares, “Twenty-five years at EDS may have made you an expert at outsourcing IT, but it did not teach you how to run a recalcitrant back office environment that is just plain hard to optimize.”

HfS takes a deep look into Latin America’s sourcing capabilities

Clients attest to lower attrition levels and fewer site visits, and when they were required, these site visits as part of the governance were much easier to do—these and other soft factors impact the total cost of ownership.  Download your copy of the report here.

How 10-year-olds explain Cloud Computing

The most concise way anyone has succeeded in describing it.  One has aspirations to make a video game that features a villain with a head made of cheese puffs. 

April

Are you ready for… The HfS Private Cloud Challenge?  Answer = No

Not a single provider or buyer could answer Esteban’s warcry to prove they had a “Private Cloud”. Private Cloud makes my blood boil. Private Clouds are a cynical oxymoron. The whole point of a Cloud is that you share resources and don’t have to own the capacity you need, because its available on demand, so you can pay by the drink. Well, if you own the resources and the capacity, it is inherently limited to what you own, and you’ve already paid for everyone’s drinks at the bar whether they consume them or not! 

Forget the Magic Quadrant, you can now get covered in the HfS Research Painsharing Paradox

At HfS, we’d had enough of service providers and their clients raving about how bloody wonderful they all are.  Enter the Painsharing Paradox.  We figure out which providers have the biggest budgets, and then produce a draft PP – the bigger the marketing budget, the further they are positioned over to the upper-right corner of the grid.  Then the bidding process starts.  Depending on how much we like them, how many first class boondoggles we’ve been treated to, and how much hard cash they’re prepared to pony up, we’ll maneuver them down the grid towards that hallowed lower-left quadrant, where everyone wants to be.

HP’s strategy: is it plotting, or losing the plot?

Phil Fersht takes no prisoners when questioning Léo Apotheker’s curious decisions.  Was he onto something? If HP isn’t plotting a radical move to buy SAP, or some other ERP business, it seems to be letting itself down badly – the firm needs new thinkers who can drive innovation and a new direction into the business, because right now, most industry observers are left scratching their heads trying to figure out what the game-plan is.

May

Buyers are saving money, but aren’t seeing a whole lot more

Our “money slide” of 2011, where 347 buyers revealed they were happy with their outsourcing cost-savings, but the other business benefits were proving elusive. A defining chart for the outsourcing industry. Our concern at HfS is that costs are like hedgerows  – once trimmed they always grow back.  Providers cannot afford their clients to struggle.  After their transition to a working operational outsourcing model, corporate leadership isn’t going to keep reminding their shareholders about “that stellar 30% we took off the bottom-line three years ago”.  They are going to be looking for their next improvement metric

It’s hard to be CSC

A perennial subject of acquisition chatter, CSC has built in poison pills in the form of gnarly government contracts with lots of limitations on who can own them and what can be done with them. It lacks the scale of IBM and HP, the brand and loyalty of Accenture, and the relatively low overhead of the leading Indian IT providers. It is, effectively, stuck in the middle. It’s hard to be CSC…

June

Will the industry analyst business be dead in five years?

Phil Fersht rocked the troubled analyst world with this defining post that even inspired Gideon Gartner to chime in. I’ve seen analysts ride waves and become rock stars, and then lose the plot somewhere along the line before either exiting the industry altogether, or plodding along on the vendor-briefing circuit, eking out their paychecks towards retirement.  I also know level-headed analysts who quietly go about their job and produce decent stuff – never making a lot of noise, but effectively doing their job.  I’ve also worked with egomaniacs who pander to paying clients and scare the living daylights out of anyone who dare criticize them – or refuse to buy their services. I’ve also worked with absolute numb-skulls who somehow remain employed, despite knowing very little about anything.  And I’ve worked with analysts who really know very little, but somehow persuade the world they are visionary thought-leaders.

July

Europeans love money, but hate change

We managed to upset some Europeans with this one. Ah… mes amis!  Let’s rip out ze costs, but for ‘eaven’s sake, don’t make any changes to our mother-ship.  By all means, sack all the expensive foreign staff in the vorldvide offices and sheeft ze vork to India or Les Philippines, but – we repeat – don’t CHANGE anything!  Judging by the Eurozone paralysis, how wrong were we?

August

Is the outsourcing industry really still that clueless about cultural issues?

Esteban lets loose once more, this time at Brandi Moore’s revelation in Outsource Magazine that the outsourcing industry doesn’t understand cultural issues.  She manages to disparage an entire industry, ignore the facts, offer tired examples as brilliant self-aggrandizement, and demonstrate a poor understanding of her supposed field of expertise (culture). Brandi declined Outsource Magazine’s offer to host a debate between Esteban and Brandi to discuss the issues openly.

September

Just because buyers aren’t always in a rush to outsource, doesn’t always mean they are too “short-term focused”

Our latest research revealed that many buyer executives are, in actuality, in violent disagreement with many provider and sourcing advisor executives that their business leaders are too “short-term focused”.  You do start to wonder whether many advisors and provider executives really have much understanding of their clients’ business pressures beyond cost-reduction – and our recent survey data, discussed above, supports this viewpoint.  

October

70% of buyers are sitting on the fence with their outsourcing plans in the current climate

The rocky economy isn’t helping drive definitive behavior, with seven-out-of-ten buyers expecting either little change in focus when it comes to outsourcing, or they simply do not know what they are going to do. Are companies panicking and screaming: ”Help! We must hurl as many of our fixed administrative costs out of the window asap and deploy as much low-cost service delivery as we can, regardless of the consequences”?  Of course they aren’t…

The major driver behind outsourcing is no longer immediate cost reduction

New research reveals what is motivating buyers to outsource in this current climate, and while eliminating cost is still is a core fundamental, buyers are even more focused on achieving greater flexibility to scale their global operations. Many buyers have some version of “failed lift and shift” on their unofficial outsourcing resumés today – they’ve realized that once they’ve shifted it, there’s little money, or board-level volition, left to invest in improving process and technology. They know that their chance to rip out the rot is with the lift and shift – not at some divine point in the future when corporate leadership is suddenly going to issue a holy decree that they are going to make process optimization their number one prority..

HfS is awarded IIAR Analyst of the Year for second year in succession

HfS Research won the individual award for “Analyst of the Year” for a second year in succession (some individual called Phil Fersht now sporting an ego so insufferable, it’s rumored he can’t even stand his own company). In addition to the individual analyst award, HfS Research topped the charts for “Outsourcing, BPO and Maintenance Analyst Firm of the Year“. And this time, HfS Research was a runner-up for the overall “Analyst Firm of the Year”, behind the formidable Gartner. Over 260 analyst and influencer relations specialists took part in this year’s survey – by far the greatest number to date, who voted on all the major research analyst organizations, such as IDC, Forrester, Ovum and so forth. We would like to offer anyone who voted for us a cocktail on us when you see us at some upcoming conference, which we will be able to pay for out of the 20% price hike we’re gonna add to our services.

Eight top tips to prevent outsourcing providers committing harakiri 

It simply had to be said… Dear Providers – we love you. Without you there would be no outsourcing industry and we would not have jobs. More than anything, we want to see you succeed. Why, oh why, must you insist in compromising your own success by practicing death by PowerPoint on your prospects?

November

HfS and Sylvan advisory launch HfS Consulting 

HfS Consulting is a unique coming together of acclaimed research, benchmarking analytics, market insight and strategic consulting expertise.  It is revolutionary in the fact that enterprise clients can access ongoing analysis, data and expert advice via an annual, affordable and on-demand subscription relationship model, as opposed to solely buying costly “hourly billable” consulting services. We lead with our proven research brand and analytical capabilities and have the ability to apply these to our clients with consultative advisory programs.  So we strategize, we apply our unique data and insight and then we execute.

 Why outsourcing professionals must stay in touch with the 99%

Phil Fersht fires a warning shot to the outsourcing industry that it faces a backlash if outsourcing executives are overly-complacent. These issues are going to move beyond buyers simply improving business processes and cutting costs – they are going to become  centered on how companies are managing their workforces. Governments are very capable of passing measures very quickly to restrict outsourcing if things get really bad – and they won’t have much choice if the 99% demand it.

December

@The_Whole_Outsourcing_Industry: Labor arbitrage built your house of cards. #Bubble What’s next?

And what better way to cap off 2011 with HfS’ EVP of Research, Tony Filippone, simply calling it how it bloody is.  The road to our future is unclear.  As buyers begin to line up for higher value services, their shift in demand will dramatically affect the marketplace.  Service providers that cannot develop IT-enabled BPO platforms, provide insightful analytics, or drive high value business outcomes will lose market share and be relegated to second tier “tactical” supplier status.

Well… that’s pretty much all from HfS Research for 2011.  Hopefully, we can continue to keep you entertained, and drive more topical debate in 2012.  

Peace out!

The HfS Research team

Posted in : Business Process Outsourcing (BPO), horses-for-sources-company-news, IT Outsourcing / IT Services

Do you procure this Australian as your lawfully wedded category specialist?

As we discussed recently, these are pivotal times for Infosys’ BPO division, as it looks to surpass half a billion greenbacks in revenue this year.

And when you look at the overall performance of Infy’s development in BPO, surprisingly only a third is coming from the foundation horizontal of most traditional BPO providers – finance an accounting.  Impressively, Infy has developed its strengths in less mature BPO markets, such as financial services and, surely the jewel in its recent performance, sourcing and procurement.

Moreover, Infy has been growing footprints in its clients by linking together supply chain and customer management processes, such as supply chain visibility, inventory management, logistics optimization, integrated service management, demand planning, order management and aftersales services – bolstered by its analytics competences.

With its sourcing and procurement (S&P) practice up to $40m this year – not an insignificant size in this immature market, especially when you bear in mind they have built this service line from practically nothing in four years – Infy has made its first substantial investment in the sourcing and category management space, picking up the lead Australasian provider Portland Group for $37m.

Why is this significant?

Pits Infosys firmly against Accenture and IBM in the Australasian markets.  Portland has 42 clients, including two of the four major Aussie banks, a major airline, some oil and gas companies and a major retailer.  Previously, Infy’s only major client in the region was Rio Tinto.

Gives Infosys significant sourcing expertise.  Only a third of Portland’s revenues are derived from managed services (indirect procurement). The rest comes from strategic sourcing and category management services, which is exactly where Infosys need to invest to move up the sourcing value chain.

Gives Infosys considerable cross-vertical expertise.  With the many of Infosys’ competitors’ businesses centered in semi-conductor, hi-tech and manufacturing clients, this acquisition branches into other verticals where sourcing BPO is still nascent, such as retail and transportation.

The Australasian market is in high growth mode with BPO.  HfS sees considerable opportunity for providers such as Infosys to take advantage of the growing ANZ market for BPO services, which is in a similar position to the UK market a 3-4 years’ ago, before it took off.  Moreover, having a strong footprint in ANZ should make it easier to go after deals from the pan Asian multi-nationals headquartered not only in Sydney and Melbourne, but also Singapore and potentially even Hong Kong.

The Bottom-line: Infosys now raises the sourcing game, but needs to look at further acquisitions to compete globally

Infosys now boasts a plethora of impressive brands under its S&P BPO portfolio, which include the likes of Verizon, Caterpillar, Charles Schwab, Rio Tinto, BP and a couple of major pharma. However, in order to increase its percentage of sourcing work over lower-value indirect procurement services, it needs to acquire more niche providers like Portland in other geographic regions, such as the US, China, the UK and various continental European countries. It’s very challenging to hire and train sourcing experts, hence acquisition is the logical way forward to grow quickly in the S&P market.  Infosys already has 30% of its S&P staff located outside of India, and we anticipate this ratio may need to grow as high as 50% if the practice continues to expand at this pace – something of a cultural shift for the Indian headquartered providers.

We expect Infy to pass $100m in sourcing and procurement next year, and there are a number of niche sourcing specialists it can consider to fill out the global portfolio.  The big question now is whether Infy’s top brass stop here, or whether they have the appetite to keep investing.  The next six months should prove very telling.

Related post: As InfosysBPO reaches the $500m mark, is it ready for the big-time?

Posted in : Business Process Outsourcing (BPO), Procurement and Supply Chain, Sourcing Locations

In case you missed our joint webcast with Ed Caso of Wells Fargo Securities on Friday, fear no more, as here’s the replay.  You can also download your copy of the slides here.

And if you can’t be bothered to listen to any of it, here were some of our predictions* highlights:

1. Outsourcing Providers will shy away from mega-mergers

2. European market going to be in limbo for first half of 2012 with limited major outsourcing contract signings, due to economic paralysis

3. Threat of recession will hold back one-in-four buyers from signing contracts until current economic uncertainty lifts

4. Buyers are looking more broadly than simply outsourcing to drive productivity improvements in today’s climate

5. Buyers will seek assistance from advisors with sourcing strategy, governance and Cloud

6. Focus shifts from cost savings to standardization, global flexibility and better technology

7. Many Advisors and Providers will still be overly-focused on Cost-Reduction for their clients, as opposed to process improvement and innovation

8. Global Companies need more Global Support

9. 2012 to be Year of the Mid-Market

10. Account Management of outsourcing to take Center Stage

* All these predictions have already expired and no longer valid

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Finance and Accounting, Financial Services Sourcing Strategies, Healthcare and Outsourcing, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Advisors, Outsourcing Events, Procurement and Supply Chain, Sourcing Best Practises, sourcing-change

There will be technical weenies that exhort today’s acquisition of Emptoris by IBM as yet another acquisition that will cause cosmetic commerce IP networks to collide in a dizzying array of cloudy business models. With $20 billion allocated to their acquisition war chest, IBM’s incoming CEO clearly intends to accelerate commerce particles until a thick blue fog settles around us all.  The most technical of these weenies will explain this acquisition with their aaSes (PaaS, BPaaS, and SaaS) leaving procurement geeks with an impression it is all a stinky game of charades.

And then there will be the procurement weenies that scratch their heads and wonder why anyone would want to run a reverse auction for enterprise software on a platform managed by the service provider competing in the bidding. Especially when eRFX management, Emptoris’ bailiwick, is widely available from a long list of competitors who are busy pricing themselves out of business. Frankly, it wouldn’t be surprising to see a $0.99 iPhone app for strategic sourcing. Except, they’d soon be confronted with the king patent troll of all patent trolls, the so-called inventor of competitive bidding. LOL.

So what’s the skinny on this marriage of Emptoris and IBM and why should you care?

The story begins with Procurement BPO. For a long-time the red-headed stepchild of the $50bn Finance and Accounting BPO market, Procurement BPO has silently grown into a respectable market with more than 400 deals with an estimated expenditure of of $2.5 billion this year. It is primed to be the most widely-adopted virgin BPO category at the enterprise level, with a fifth of them exploring first time adoption over the next year (Exhibit 1).

Exhibit 1: Procurement BPO tops Enterprise buyers’ outsourcing intentions for new areas of adoption

Procurement BPO is a real winner in the marketplace because service providers have proven capabilities that internal procurement executives have toiled against all the odds to create. Casting off the shackles of labor arbitrage, Procurement BPO service providers bring heavy category expertise to bear in sourcing events and category management. The results are impressive – the average Procurement BPO deal creates a ROI of almost 200% per year.

However, despite the rise of procurement technology and the hubbub with the likes of Hubwoo, SAP, Coupa, and Ariba, technology is simply not a major factor in most current Procurement BPO engagements. Our data shows more than 73% of procurement BPO deals neither upgraded the existing system or implemented a new system (see exhibit 2).

Exhibit 2: Percentage of Contracts that Excluded New Systems or Upgrades by Procurement Process

Source: HfS Research, 2011

Our research has concluded that there are many reasons for the lack of investment.  Namely, the technology is expensive, the ROI is perceived to be low, and most buyers have existing applications that are under-utilized.  Possibly more importantly, few technology partners have built successful, monogamous alliances with outsourcing service providers. In fact, technology service providers like Ariba, SAP, and Oracle will happily kiss anyone who has licensing dollars to spend. This confuses buyers who think these messy arrangements are all about marketing dollars and kickbacks.

Capgemini saw through this and acquired IBX to bolster its procurement capability – and more recently VWA in accounting.  Other Procurement BPO service providers white label their technology to keep their stories straight.  We view the acquisition of technology platforms, such as Emptoris, which providers can deploy as part of an integrated “Business Platform” offering, as the future of driving productivity and growth for their services lines as they seek to break from a heavy reliance on labor-based pricing models.  In some specific processes and functions, ownership of the technology by the service provider is proving to be a major differentiator, and we see procurement and sourcing as one of these with real potential.

What we think IBM is really up to: Becoming the intermediary overlord of B2B commerce.

IBM is already one of the two largest service providers of procurement outsourcing services, outdistancing the nearest competitor by more than 70 deals. Not only do they pack the punch of their mega billion dollar global procurement spend, but they bring together billions of dollars from their clients.  While Accenture’s acquisition of Ariba’s Freemarket’s team created an extremely competent sourcing factory, IBM is likely heading down the path of creating a marketplace where buyers can leverage RFX tools built by sourcing gurus, request category assistance on demand from IBM’s procurement gurus, and allow buyers to participate as desired in the services.  Whether buyers want to make a single vehicle purchase, develop a category strategy for fleet management and execute competitive bids, or ask IBM to manage this non-core purchase on their behalf, IBM will have the capability to support clients.  This is a lot different than how most Procurement BPO deals are constructed and will allow IBM to rapidly move into the long tail of middle and small markets, which has been largely ignored (see exhibit 3).

Exhibit 3: Size of Buyers’ Companies which have adopted Procurement BPO

Source: HfS Research, 2011

Bottom-line: IBM made a smart acquisition to advance its B2B commerce and procurement market leadership

Emptoris’ well-regarded user interface and strong brand recognition among the procurement crowd make it an idea mate for IBM’s technology-driven focus and market leading Procurement BPO capability. While the integration of Sterling, DemandTec, and Emptoris will take some time to become “smarter commerce” (IBM’s catch phrase), there will be some immediate upsides.  Emptoris’ Rivermine telecommunications capability will be a boon to infrastructure outsourcing clients.  Emptoris’ Xcitec brings IBM strong supplier relationship management capability that chief procurement officers need.  And, of course, IBM customers will get Emptoris, a leading sourcing and contract management toolset. Down the line, we expect more benefits of this acquisition as IBM develops a cloud business platform in the procurement category. Meanwhile, we wonder if Ariba’s valuation just went up as they remain a major player capable of competing with IBM’s technology advances.

Tony Filippone is EVP, Research at HfS Research (see bio).  He can be reached at tony dot filippone @hfsresearch.com

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Finance and Accounting, IT Outsourcing / IT Services, Procurement and Supply Chain, SaaS, PaaS, IaaS and BPaaS, Sourcing Best Practises