James R Slaby is Research Director, Sourcing Security and Risk Strategies, HfS Research (click for bio)
How many different ways can you spin the wonders of accounts payable outsourcing… or the delights of application testing services? Yes, folks, the outsourcing talk-track can get a little wearing these days. With 97% of enterprises today outsourcing varying degrees of IT and business support operations, the discussion about effective global sourcing needs to move to areas that have a broader business impact, such as how sourcing environments can help or hinder greater finance effectiveness, or more innovative technology, or better talent development… and especially a more secure, risk-effective global environment.
It’s this last area we’ve been intensively focused on bringing to the global sourcing discussion table – with the onset of Cloud, the additions of new sourcing locations, the political and economic instability in today’ world, the quagmire or new regulations and compliance standards.
I’m personally delighted to unveil a very special talent to the sourcing industry – a respected veteran of the infrastructure security world and now seeking to ply his knowledge and experience to supporting global sourcing environments: Jim Slaby. Jim can frequently be found chitchatting with the finest cocktail bar staff in Boston, both before and after (and these days during) a miserable experience enduring the Boston Red Sox. Anyhow, without any further introduction, let’s hand over to Jim himself to explain why he’s joined HfS and what we can expect to see in the coming months…
“The game done changed.” “Game’s the same, just got more fierce.” The Wire, Season 3, “Amsterdam”
As a newly-minted member of the fast-growing HfS Research team, I’ve been asked to share a few thoughts about my coverage area, Sourcing Security & Risk Strategies. I’m thrilled to have a chance to delve into the area of security and risk as it relates to sourcing, which HfS CEO Phil Fersht has been urging me to investigate since we worked together some years ago. In a sentence, I aim to help buyers and providers to better understand, quantify, and mitigate the security threats in sourcing engagements, and find ways to size and share appropriately the concomitant risks among buyers and providers.
In my Giga and Forrester days, I was stubbornly focused on security in the traditional enterprise data center and network environment. But in my most recent stint prior to HfS, running the security and networking practices at tech research firm TheInfoPro, I spent a lot of time interviewing senior IT budget-holders at Fortune 500 companies. One of the most resonant themes that emerged from those conversations was how their enthusiasm for cloud services was muted by their uncertainty about measuring and managing the associated risk. Time and again, security came up as the number one obstacle by a wide margin among large enterprises to moving to the cloud.
So when Phil called me this summer about joining HfS, the timing seemed right. The research community has not paid enough attention to the intersection of sourcing and risk, which suggests an ugly, multi-car pileup is in the offing there. It’s a hotspot that HfS feels uniquely positioned to explicate. Not to pander like a stadium rocker here (“Thank you, Kansas City, you really know how to party!”), but I’m also excited about gaining access to HfS’s subscriber base, the 60,000 highly-engaged business and IT professionals working at the front lines of this issue. Throw in the talent on the HfS Research team (like IT outsourcing maven Robert McNeill, whom I worked with in our salad days at Giga Information Group and Forrester Research), and I feel like I’m not spelunking this particular cave without some very solid backup.
So what are the foundational sourcing security issues that buyers should focus on when evaluating their overall sourcing options and considering service providers? The evaluation framework I intend to build will start with table stakes: assessing a provider’s physical security regime, its mechanisms to quash insider abuse, and its infrastructure for mitigating attacks against the network, the virtualization layer, applications, access controls and mobile platforms. I’ll also be delving into compliance issues across regulatory domains, ensuring we understand where data resides and how it is protected in transit and at rest. In the wake of April’s Amazon EC2 outage, there also appears to be new urgency around understanding provider architectures in reliability and disaster recovery terms. In addition, I will be assessing the global risks of operational interruptions that can be caused by many non- IT factors, such as industrial action, natural disasters and – perhaps most pertinent today – political risk.
Jim and wife Heather enjoying better times at Fenway Park
I believe (or at least fervently hope) that most buyers grasp the fundamental security and risk trade-offs in sourcing projects, that exploiting their advantages in cost, flexibility, and service time-to-market requires placing a lot of trust in providers. As important, I hope we’re crystal-clear that no matter how much operational control you hand off to a provider, you still own the risk. In the event of a breach, regulators and customers will come looking for your head, not your provider’s. Monetary damages can be cold comfort if your provider’s security failings corrode your company’s brand and customer relationships, to say nothing of your career prospects.
This suggests that buyers need to demand better visibility into how their providers are delivering on their contractual obligations around security and risk, ideally in the form of credible audits, monitoring and reporting tools, and other mechanisms to build trust in their ability to protect your data from a welter of threats. Many buyers are finding new issues to worry about, too: attacks from state-sponsored actors, the rise of activist cracking groups like WikiLeaks and Anonymous, and data leakage via social-media channels like Twitter and Facebook.
So I look forward to working with you, the HfS subscriber, to understand your hopes and fears around security and risk in the sourcing arena, to hear your war stories on how providers have succeeded or failed at meeting your expectations around those issues, and to learn what tools, processes, and contractual tactics might improve your trust in them. Uncertainty and opacity around security and risk remain among the thorniest thickets on the path to sourcing; I look to your insight and experience to help me take a chainsaw to them.
Jim Slaby is Research Director, Sourcing Security & Risk Strategies. You can view his bio here.
For those of you who enjoyed Part I of our Charlie Aird interview and our webcast with Charlie and Nick Atkin last week, let’s move on to the second tranche, where we talk about the future of the sourcing industry, the Global Business Services framework he’s spearheading, and a little insight into how he views the changing environment for Big 4 consultants and boutique advisors.
Oh… and click here to catch a recording of last week’s webcast, here to download the slides and here to download our recent research paper on Global Business Services.
Charlie Aird speaking at a recent conference in Nanjing, Jiansu Province, China
Phil Fersht (HfS):So in terms of “Global Business Services” — which we discussed in our recent paper[i]— can you discuss the concepts and principles behind this? Why this is something you are driving so heavily at PwC?
Charlie Aird (PwC): In the past, organizations sourced ad hoc; by business unit, by country, or region. And they suddenly found they have 40 sourcing arrangements around the world, all with different standards, different governance, and different management and so on. Now they’re saying, why can’t our back office be as efficient as our manufacturing organization? When they are developing a product they usually have some sort of global standard and they have R&D prepared and they link marketing into it; so why should IT, finance and accounting, or HR be any different?
Manyorganizations have seen other companies successfully implement a global model and, and want to see if they can do the same. They find they have different processes all across the world, with different IT infrastructures and applications, and different cultures even in the same corporate environment.
Some clients keep tons of spreadsheets to track this; and you ask them, OK, who is company XYZ? Are they your clients in Brazil, or China? And they don’t know. How many staff do you have doing a particular function around the world? They don’t know. They don’t have visibility into this kind of thing. Then this becomes another special project.
Phil:I think what we’re seeing with organizations today is that their approach to sourcing their global operations is changing, and changing quickly…
Charlie: Absolutely. Todayorganizations are starting to address how they can build something to go into Brazil, for instance, that can be replicated and rolled out in other emerging markets such as China, India, or Eastern Europe, without having to reinvent these things each time. They put together this conceptual model with a set of principles and standards and often manage that from the core, but with global governance having a say in what it does.
From a global perspective, we’ve found that about 20 percent of any requirements — whether they’re statutory, regulatory or about cultures of a particular region or country — have to be taken into account individually. About 80 percent of these factors, they have in common. Some of that 20 percent are things like taxes, for example, a client recently put a lot of work in Costa Rica because of a tax incentive. They are actually taking things out of Brazil and outsourcing to the other country.
Often it takes management consultants to move them into that more standardized environment to help them with change management. One of the major things we do with major sourcing arrangements is change the culture of the organization. I wouldn’t say that sourcing or changing systems is the easy part — but it certainly is less difficult than changing the culture.
Changing and modifying systems, standardizing processes, and doing the project management — there are a number of initiatives associated with all of these. These all are undoubtedly difficult to manage, and quite often people in an organization have their daytime job, and they want experienced people to help them take care of the change management and that is how we are positioning ourselves.
Phil:You have been in advisory services and outsourcing for most of your career but especially in the last decade. How do you see it changing? We’ve had the pure-play boutiques for the last several years, and now we’ve got the management consultants really moving heavily in the space. Do you think the pure-plays will continue, or do you think the management consulting firms will really start to dominate over the next decade?
Charlie: Well, if our thinking is correct, it’s really no longer a transaction but a combination of many functions, and I think the major players like the Big Four, with a consulting heritage, are going to be the ones clients look to. I think it’s clearly not just running a procurement, which some of these organizations are extraordinarily good at — but it takes a multi-faceted approach. I am not sure the boutique guys will have the skill sets to do all of those things.
Phil:In terms of managing transactions, though, this seems to be a pretty lucrative business for the TPIs and all the Alsbridges of this world. Do you think we will see more boutiques enter that space now, or do you think this is getting pretty much commoditized and what we see is what we are going to get?
Charlie: I think it is commoditized, and some firms are trying to transition into other things. The smaller guys will try to at least incorporate some of the things that the big guys have. I have seen some of the smaller players getting more into research, going forward. There are a lot of transactions to be done, and we are finding a lot of organizations that were small- to medium-sized companies are starting to do more of the sourcing. The boutiques are more in the middle-market space. The Big Four organizations are starting to grow their practices and are scaling up, and it is becoming much more difficult for the boutiques to survive.
Phil:When you look at the global business services focus of your firm and the way it is developing, what do you think when you have to look at the industry today, and everything we have been through particularly in the last three or four years? What do you think we will be talking about in five years?
Charlie: It is hard to predict, but it seems like organizations are going back and looking at what they have done for the last five, eight, 10 years, and deciding what to do going forward. I think finding the next low-cost labor arbitrage for sourcing or shared services will be important, whether that is South Vietnam or Indonesia or some place in Africa. Because I think countries like India are quickly moving with price inflation. When I was first there in the early 90s we were paying programmers $100 a month, and now it is significantly more. Cost is always an issue. People will tell you it is compliance and visibility and all those types of things, and that is important — but cost will always remain a major driver.
There are a lot of organizations that probably have not looked at more than just the transaction processing part of this, and so they are looking toward more of the analytics part. Some global companies have moved their financial planning and analysis process offshore. Others have moved a lot of their product and development activities offshore, and others have dabbled in doing that. But this means giving thought to what other things we can put into an offshore environment. And I think we have gained enough knowledge that companies feel more comfortable taking more knowledge-based processes and putting them offshore, so I think there will be significant growth in that area.
Phil:When you look back on your career is there anything you would do differently?
Charlie: Probably try to plan it better. It has seemed so unstructured. That is a tough question, because I have enjoyed all parts of it. It has been interesting and that is what keeps me going. I’m well beyond retirement age and it has been so interesting and I’ve just been having fun doing it, working with all the clients and different cultures. So it has been an exciting ride and I am not sure I would change anything.
Phil:One thing you have talked about is your global experience and living and working in other regions of the world. How strongly do you recommend this to younger executives today? What is the importance of getting global experience and really living in other cultures in your career?
Charlie: When we are recruiting and we see people who have never been out of the United States, we know they are going to go to India or San Palo and see different cultures and it will smack them in the face. We are seeing universities putting people in their MBA program internationally for six months in an overseas environment, so I think as multinationals continue to expand in emerging markets, they expect their consultants will have global experience.
I think it is an absolute necessity to have at least worked if not lived in an international environment, and I would encourage people coming up through the ranks to take an international assignment. For one, it is a great experience. My wife and I just had a fantastic time living in the different environments, and both of our children were born in Saudi Arabia. My daughter went to junior high in India, and she’ll tell you she had the best time of her life there. My wife and I would say Saudi was a great place to raise our children and the sports and all the different actives they have around there were absolutely fantastic.
A lot of partners and directors at PwC come to me with that question. I had a guy who was asked to go to India and his family was really concerned, then I saw him a few months ago and he said it was fantastic. They tell me, “Charlie, everything you said was right, but it was hard to convince my family of that.” So I think it is a great opportunity both professionally and personally to do this kind of thing.
Phil: Charlie, it’s been a pleasure – and am sure our readers at HfS will enjoy reading this discussion.
[i] Fersht, Phil, et al. “The Evolution of Global Business Services: Enhancing the Benefits of Shared Services and Outsourcing.” HfS Research, July 2011 http://www.hfsresearch.com/node/520
Charlie Aird (pictured above), (pictured above) is Global and US Practice Leader for PricewaterhouseCoopers Shared Services and Outsourcing Advisory. He’s been CEO and COO for several industry organizations, and a senior player with Big Four management consulting. He’s an internationally recognized expert on evaluating companies and markets for sourcing. You can view his bio here.
Reetika Joshi joins HfS Research as Principal Analyst, BPO and Analytics Strategies (click for bio)
Did you hear the one about the bubbly young Indian woman from Pune who started working with a bunch of cranky old American and British analysts? Well… after a year of contributing to our research, we’re delighted to announce that Reetika Joshi has joined our full-time team to crank up our – already cranky – BPO and analytics coverage.
Reetika’s been a delight to work with as she’s contributed to our research reports on analytics, insurance, banking – and more recently marketing analytics, retail BPO and the European BPO market. Having her on our team fulltime as we expand our operations in India is a great advancement for HfS, and having her “on the ground” perspective where most of these services are delivered is proving invaluable to our coverage. Anyway, over to you Reetika, for a few words on why you made such a curious career move…
Working with HfS Research as a contributing analyst over the past year has been a great experience for me, prompting my decision to join full-time. HfS brings a practical, powerful and unique voice and approach to the sourcing industry. I have found the research themes to be very relevant and to-the-point; a zeitgeist of the real ‘burning’ issues and opportunities facing the industry today. I’ve always enjoyed being an analyst in this field, and there’s never been a better time – the next few years look to be transformational. I look forward to contributing with an ‘HfS’ perspective on things.
What’s great is, being one of the first team members based in India, I’m excited about covering the next phase of growth for India as an outsourcing hub. The lines are surely blurring for ‘India-based providers’ versus the multinationals. Major providers, whether they are headquartered in India, the US or Europe, have realized the inherent benefits of multiple delivery locations spread across offshore, nearshore and onshore locations. Accordingly, we’re seeing some of those investments over the last few years bear fruit, with increasingly globally dispersed workforces – for ‘India-based providers’, and otherwise. There’s now talk of outsourcing to India slowing down, with the Euro-zone debt crisis and US credit downgrading tightening the major markets. But instead, we’re hearing that the hiring targets for India are on track, and the pipelines are still strong. We’ll leave it to the results of the HfS survey to find out the actual degree of impact, but I think there’s a lot more going on that will dictate growth for these providers. There’s a host of targeted, verticalized solutions (across all major verticals), technologies (cloud, to say the least) and newer markets (APAC, SMEs, mid-market) that will make the difference…and this is where my confidence with HfS comes from. The research agenda packs in just these topics to explore in the next year.
Apart from the third party players, the captive market is also continuing to expand in the country (despite being written off by many). In addition to new setups, several existing captives are in the midst of knocking out new services (allied service areas, high value services such as analytics, etc.) for their parent firms. And they’re not viewing themselves as hidden-away backoffices either. A recent conversation with the strategy team of the captive arm of a global insurance giant sealed the deal for me. When every team member is able to share the collective vision, mission and goals of the parent company, in terms of new markets, products, positioning, etc. and the innovative services and processes needed in the future to get there (and how they can/will contribute as an Indian captive) – that’s when I get the feeling that things are certainly on the right track, and concepts like ‘global delivery’ aren’t just nice to have phrases in the industry vocabulary.
Through HfS, I’ve had the opportunity to have many such interactions, with a wide range of outsourcing buyers, providers (the mammoths and the start-ups), and allied influencers, and I believe this is the driving force of things to come for them. The powerful community that they’ve built up over the last four years is a great source of strength. Dialogue between the buyer and provider community is definitely the need of the hour, and in my view HfS is a pioneer in this field, through initiatives such as HfS 25, power-packed webcasts, and definitely not the least, the debates on this blog! I am very excited to come on board a company that is revolutionizing the way sourcing research is created, distributed and debated, through collaboration and innovation, and I look forward to interacting with you all.
If I had a Euro from each person who’s crowned themselves as the Sovereign of Sourcing, the Czar of Shared Services, or the Bastion of BPO, I’d be able to help Greece pay its next bill. On second thoughts, make that a Dollar…
However, one distinguished gentlemen who’d be embarrassed to even consider making said claims, was involved in setting up shared services and outsourcing frameworks for organizations long before those concepts even existed… and long before many of today’s sourcing professionals were even born.
The Sourcing Skipper himself… PwC's Global and US Leader of Shared Services and Outsourcing Advisory
In Dr. Charles Aird’s four decade-plus career, he’s been a math professor, organized a state supreme court IT system, did business process outsourcing before it was BPO, and pioneered Global Business Services.
For Charlie (as he’s known in the business), it’s really all about planning and structure. He’s been CEO and COO for several industry organizations, and a senior figure in Big 4 management consulting. He’s crafted his career as an internationally recognized expert on evaluating companies and markets for sourcing potential, having lived and worked all over the world — including spells in Saudi Arabia, India, and Singapore, in addition to working in the United States and Europe, Latin America, Asia-Pacific and the Middle East.
Today, he’s avidly shaping the Global and US Practice for PricewaterhouseCoopers Shared Services and Outsourcing Advisory, where he’s clearly not lost his appetite for global travel and working with clients right across the world. In fact, I cannot recall a conversation with him where he wasn’t scrambling to find a quiet corner of whatever airport he happened to be passing through at the time.
Oh… and before we begin our interview, please remember to sign up for this Wednesday’s webcast, where Charlie will join us in discussing the Evolution of Global Business Services.
Part I of this interview focuses on Charlie’s early career and how he’s arrived at his current role in PwC, leading the firm’s US and Global Shared Services and Outsourcing Advisory.
Phil Fersht:You have been a veteran in this industry for many years now. Who is Charlie Aird? How did you get started, and how did your career develop to bring you where you are today?
Charles Aird: To start with, I was ‘outsourced!’ I was a university professor and I got outsourced to Saudi Arabia. Ahmed Zaki Yamani ((Minister of Oil and Mineral Resources from 1962 until 1986 for Saudi Arabia) worked with the King Fahd University of Petroleum and Minerals back in the early 1970s and built the university with help from several American universities such as CAL Tech and MIT. I set up the mathematics department, and helped set up the College of Industrial Management.
When I came back to the US, the Supreme Court of Virginia had consolidated 330 courts under one umbrella. They had no central system — no consolidated HR, finance, you name it. I was the CIO, and brought in project management skills, so we worked with the functional groups to set up shared services — we didn’t call it “shared services,” but that is essentially what they were.
Next,some guys from the university in Saudi set up a computer company and asked me to come back and help them get it off the ground. We ended up doing a lot of the systems work for petroleum companies, putting in systems and centralizing their finance and accounting and HR processes.
Then I went over to Arthur D. Little when it was a major consulting company, actually doing outsourcing advisory. Again, we didn’t call it that, we were just helping the oil industry put in systems and processes around finance, accounting, HR, training, and indirect procurement and also centralizing the marketing of both crude and refined products. Three of us were asked to come and run this whole process — and we weren’t systems integrators — and we managed the process of selecting organizations for these very major projects. I lived in Saudi for a total of 12 years; three years for the university and nine years working on systems during the 1980s.
Phil Fersht:It sounds like a lot of these experiences were the foundations of your outsourcing work?
Charlie Aird: I started doing outsourcing then, from Saudi. I actually tried to outsource to India in the late 1980s, and it was just extraordinarily difficult. Communications in India were very difficult; there was not a great deal of access to what is now the Internet. You had to write specs and then go there; and it was so much back-and-forth that even with the inexpensive resources, it just was not worth doing. So we started bringing staff in from Egypt and Pakistan and the Philippines and primarily doing body shopping into Saudi instead of outsourcing from Saudi.
“I was doing a consulting gig for Shiv Nadar, who was Chairman of HCL, and still is, as a matter of fact. They had started operations in 1976 and were in the manufacturing of PCs and other IT products and wanted to be more of a services company. I did the initial study on the transition. Over time they refined the plan, and came back to me and asked me to be the president of HCL. I spent three years in India and I set up the organization. The sales organization was trying to do early contract manufacturing and couldn’t compete against Taiwan, Thailand, and Malaysia. In India they could do tens of thousands of boards, and the other countries were doing millions — and they couldn’t get the scale out of India.
HCL sold a big deal to a large multinational company and after six months the client became comfortable with our staff in San Diego and South Carolina. We went to them and told them “We can give you half the rate if you move this work to India”, and obviously they liked that idea. We were building the foundation for today’s HCL, now one of the largest Indian service providers. In fact, according to the March 2011 Forbes’ List of the World’s Billionaires, Shiv ranks 182nd with a fortune of $5.6 billion and is the 14th richest person in India.”
We were approached by Ernst & Young about a joint venture in the 1997 or 1998 timeframe, primarily around ERP. We were doing a lot of Y2K work in India, and we weren’t able to pull the venture off. But the guys at E&Y asked me to join them to set up parts of their consulting in India. We built the organization up to more than 300 people in the year I was with E&Y in India, and did a lot of the ERP work for Oracle, SAP and JD Edwards across the world.
I next went to Singapore as an energy partner because of my background, and started a new company as a subsidiary of Ernst & Young’s global client outsourcing organization. I sold more and more outsourcing deals supporting large global companies, not large centers though, because they were just starting to take off in the Asia Pacific region.
Mark Schwartz, who is now with Oracle On Demand, asked me to come back to the states to run global BPO for Deloitte in 2001. AtDeloitte Consulting I was a partner responsible for outsourcing across Asia. I started a center in Singapore, and another in Brussels to pull one particular client. It was difficult because most of the work from Singapore was coming out of the US and Europe. Later, as Deloitte and Touche, they decided to get out of the BPO business and sold it to Convergys. After that, I spent about two years at EquaTerra with Mark Hodges. He and I knew each other, and he asked me to join him as he was starting that company .
Then Paul Horowitz had been starting up the technology group at PwC, and asked me to help set up an outsourcing advisory group focused on ITO. We quickly expanded, but it was obvious that we needed to do BPO work. I convinced the guys that we should include shared services, because our clients would naturally assume that PwC would know how to do finance and accounting and shared service consolidation. We started the shared services and outsourcing group four or five years ago now. I was part of the board, and developed common methodology, processes, pipeline and practices that worked together.
We started selling a number of global deals and expanding rapidly. Today I run both the US and the global Shared Services and Outsourcing Advisory group, which kind of leads into what we call our Business Services Transformation which enables companies to develop global business services. We have seen the market transition from a traditional outsourcing environment to businesses finding they need a combination of outsourcing, shared services, and an organization to manage that.
Our role, our impact on the industry, and ultimately our competitors as a result will go this way — it is now broader, and it is management consulting instead of just running a transaction. Clients are looking for you to help them decide what they should do and help them do the transformation work. They need to change the organization in such a way that they can manage it centrally, so they can standardize processes and have truly global standards. As they plan to roll these things out on a regional basis, you can incorporate the statutory, regulatory, and cultural aspects into the regional organizations that have all been managed from a central core.
Join us shortly for Part II, where Charlie Aird shares his vision of the future of the sourcing industry, the Global Business Services framework he’s spearheading, and a little insight into how he views the changing environment for Big 4 consultants and boutique advisors.
No sooner did they rip it off, they put on another one…
We gave Léo Apotheker a strong benefit of the doubt when he recently ripped off HPs proverbial Band-Aid and made a series of tough announcements that could steer HP on a more coherent enterprise path. Sadly for Léo, his board is clearly in a position where they are unhappy with the progress made under him and want to bring in a very different personality in eBay’s Meg Whitman. Coming so soon after the quickfire announcements last month, this can only indicate the HP board are divided on whether Léo was doing what they wanted for the business. They may also have felt that Léo was making decisions without consulting them. Bringing in Whitman indicates they need a strong personnel leader and a consensus builder to repair their fractured leadership and try and come up with a strategy with which they are all comfortable. Whitman is unlikely to be a strategist – she is the type of personality to reset the current position of the firm – and could possibly even reverse some of Léo’s recent decisions (although Autonomy seems like a done-deal).
HfS Research’s COO and SVP of IT Services Research, Esteban Herrera, elaborates further on the situation…
Here at HfS, we do, however, watch one of HP’s businesses very closely—its outsourcing unit. Phil has blogged in the past about the confusion and challenges faced by HP, and let’s face it, it’s never easy to run a company that big, that diversified, and that volatile. There are rampant rumors emanating from several sources that Léo is out and Meg Whitman is in. I don’t know if Mr Apotheker will survive this crisis, but its clear that the outsourcing business has been neglected by two successive CEOs. Within the same week, different HP executives told us that “BPO would be their growth engine” and that “BPO was an afterthought, a business we’d rather not be in.” Within the same week.
Here’s a simple prescription which probably will not save anyone’s job but will likely save HP and its services unit. Instead of spinning off PCs (or in addition to it), spin off services. EDS was once a proud brand and completely dominant. It had its issues, but clarity of mission was not one of them. A lot of the talent that rules our industry was groomed there. HP should package its own services unit with what’s left of EDS and sell it back to the Perot family—hey, I’m not suggesting anything that hasn’t been done before!
I’ve written, somewhat harshly, that HP/EDS represents the past of the outsourcing industry. But it doesn’t have to be that way. The installed base is enormous, and they would love to have a reason not to switch providers when the contracts come to term. But right now, IT buyers are nervous—they see a rudderless division of a troubled company that is insisting on 40-year old commercial models while sticking its head in the sand to avoid modernizing the way services are delivered.
Finally, HP’s problems are not all Léo’s doing. This is an obviously dysfunctional board—they might as well invite WikiLeaks to their supposedly “secret” meetings. There is discord about the direction this company should take, and it is being aired publicly by one or more members of the board. Not even St. Meg of California can fix that.
Newsflash: just because buyers aren’t always in a rush to outsource, doesn’t always mean they are too “short-term focused” or simply “missing the big picture”.
Our latest study shows 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”:
When you talk to some (and the operative word being some) advisor and provider executives, they are convinced that every company needs to outsource as much of their operations as they can – and as quickly as they can – so long as they can make the numbers work. It’s this attitude that – in my view – has been holding the outsourcing industry back. Too many provider and advisor executives are overly myopic in their view that business leaders must be “short-term focused”, simply because they don’t pull the trigger on deals fast enough.
Yes – corporate politics is a critical component of any outsourcing deal, but today’s smart operations and IT leaders all know that the short-term benefits of outsourcing are – by and large – centered on achieving short-term cost-savings from the bottom-line. Our recent State of Outsourcing study reveals this dynamic in spades. Moreover, the data also blatantly demonstrates that buyers are yet to be wholly convinced of the long-term benefits of outsourcing beyond cost-reduction:
What’s more, many business function managers are under intense pressure these days to drive out more tangible cost wherever then can, so their resisting outsourcing (or taking time to do their due diligence) actually implies that many of them are justifiably avoiding rushing into a potentially hazardous irreversible scenario for their organization, if not executed correctly.
So if a business leader was genuinely short-term focused and had done their homework, they’d already know they could score some points with senior management and save mothership a few shekels by doing some outsourcing.
Additionally, only 13% of buyers are concerned about the disruption caused by outsourcing – much less than the third of providers and advisors who believe they are – which tells us the issues holding them back are more a lack of conviction about the benefits of outsourcing, than the sheer horror of the prospect that their help desk ticketing schedules and accounts receivable remittances are going to disappear down a sewer in Chennai and destroy their company.
The Bottom-line: Those providers and advisors which can demonstrate a genuine understanding of their clients’ business pressures, will win out
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.
When you look at the people some providers employ today, they are often young, hungry sales people who are only focused on “selling cost-reduction”. It’s all they really know and are not experienced enough (or confident enough) to develop and demonstrate a genuine understanding of their clients’ true business pressures. Seeing as many of them previously were trained to sell ERP licenses, or web-development projects, it’s little surprise that they bring this mentality to their clients and end up frustrated that they can’t close deals fast enough.
What’s more, this also makes you question the mentality of several advisor executives, who clearly are laser-focused on pressuring an outsourcing deal negotiation onto their clients, as opposed to investing time to get closer to their overall business dynamics and pressures.
Providers need to start spending less on pointless marketing and investing more in hiring and training higher-caliber consultative client-side executives, who can develop much stronger affinities with their clients. Moreover, advisors which want to do more than number-crunch deals, need to hire a balanced team of business consultants, in addition to deal negotiation specialists.
All-in-all, if buyers only see outsourcing as a cost-reduction lever, they are going to place it in a pecking order of other cost-reduction measures… and it’s not always going to the most effective short-term measure in a tough economy. It’s the job of advisors and providers to educate and demonstrate to buyers the benefits beyond cost-reduction, as opposed to sitting back and complaining that most buyers are short-term focused and paranoid about disruption and change.
Let’s hope this data opens a few eyes before we end up in a depressing race to the bottom, where the lowest cost and very basic operational performance capability, is all that clients can expect from many of today’s providers.
Thanks to all of you for your contributions to this research – your views are articulating loudly and clearly what this industry needs to do raise its game,
(From left-to-right) Report authors Phil Fersht & Robert McNeill (HfS), Kenneth Adler & Akiba Stern (Loeb & Loeb)
We just released a brand new report entitled “Getting Smart About Sourcing for Cloud”. Simply-put, we kinda got the impression that no-one had written a concise document that outlines what on earth is Cloud Computing, why we should care, what hundreds of IT and business leaders think about its impact, what the service providers are developing and offering in the space, and – once you know all that – how you need to think about contracting and executing for it.
So we called up some legal-eagles who are knee-deep in this stuff at Loeb & Loeb, and co-wrote this lovely little report for the benefit of the entire sourcing industry – whether you have interest in buying, advising or servicing Cloud services, this really is a must read for you!
Simply enter your details here and a little pdf will come sailing its way to your inbox…
[email-download download_id=”4″ contact_form_id=”2″]
As we push our Outsourcing in a Double-Dip study, we couldn’t resist a quick sneak peak at the data at the half-way point, to get an early indication of how buyers are behaving in this market. And when we ask them where they’re foraging for help and information with outsourcing strategy-making in the coming months, the results are simple: they are turning to whatever sourcing are most easily-accessible and inexpensively-available to them:
Providers – once in a relationship provide a constant source of information. Buyers really start to leverage leverage their providers for help once they start working with them and their destinies become intertwined. Since most organizations today are already in outsourcing relationships, it is very easy for buyers to call up their provider contacts and ask for help and information, even though their experiences are usually limited to only those of their other clients. Moreover, our recent State of Outsourcing Survey revealed that 40% of buyers are yet to be convinced that their providers have the know-how to help produce long-term business benefits for them. In fact, an increasingly large number of providers are asking HfS to help their clients – they have the greatest urgency to educate and keep them informed with objective, credible data and advice.
Analysts – they make themselves accessible. Most large firms already have subscriptions in place to access reports and tee-up calls with analysts to bounce around ideas. Whether the advice is any good is another issue, but the fact that the leading firms make themselves accessible and (relatively) affordable keeps them top of mind when critical decisions need to me made. The downside is that it’s pretty tough to help clients with such complex and sensitive issues such as outsourcing over the one hour phone call, but smart outsourcing buyers know how to leverage these firms to get the datapoints they need.
Management Consultants – have upped their outsourcing game. Consultants have really made their presence felt, with several of them having developed comprehensive expertise to support their clients when the “O” questions start popping up. Smart clients can also squeeze a lot of info out of the without having to summon the MBA bus to their parking lot. Moreover, some of the leading consultants are much better equipped to run small-sized engagements these days, especially with experienced clients who don’t need to overhaul their entire operations strategy to understand which service provider can process their invoices best. Furthermore, buyers see the cost savings opportunities, but realize they need more than $20/hour Indian programmers and $15/hour Filipino call center agents (as we recently revealed here). They need re-engineering, better systems, etc, so many turn to the consultants for help, because their providers haven’t been able to deliver much more than the cost savings.
Social Media – becoming a significant channel for advice. The surprise package here, with close to 60% now leveraging the likes of LI groups (we have more than 14,000 in our group alone), blogs, Google Plus and other tools to get help. Essentially, there are a lot of knowledgeable sourcing folks getting connected these days, and they’re getting easier to seek out.
Associations – ongoing interaction proving valuable. Not to be undone, these entities provide some pretty decent networks to help well over 50% of buyers gain knowledge, and also access experts. For example, our network partner the Sourcing Interests Group hosts a regular stream of interactive webcasts and special interest group discussions to complement their events. They even make our research accessible to their members. Not bad huh?
Outsourcing Advisor Boutiques – great for deal negotiations, but less so for the other stuff. Many clients today are turning to these guys once they are ready to pull the trigger on a deal, but it seems they aren’t being as heavily utilized for general information and advice. Moreover, boutique advisors don’t produce a lot of data and insight that is easy to digest, or freely available. Much of it is written in industry-jargon and their online content often reads more like they are writing to each other than their actual clients. Don’t get me wrong, their content is often superb, but you sometimes need a PhD in the school of outsourcing hard knocks to understand it. The bottom-line is that many advisors simply don’t see the revenue incentive to give anything away for free, and employ too many hard-nosed deal guys that can negotiate an indemnification clause and chaperone site visits during a selection process, but simply don’t know how to evolve a sourcing strategy.
The Bottom-line
Buyers are savvying up on sourcing. There’s a lot of information and advice out there today and a whole array of individuals and firms are willing to provide it. The common theme is that if someone wants the price of a SOX expert in Slovakia, or certification as to whether they’d be nuts handing off their paper-clip purchasing to a Polish procurement provider, they want that knowledge right away. The secret sauce that once obscured outsourcing information has long evaporated, and the challenge now for buyers is to make sure they have consistent, ongoing access to people whom they trust to provide it, without it costing the earth.
A lot has changed over the last five years in the outsourcing business. Has it really? I hear you cry. OK – you may have a point, but one thing is evolving – the emergence of some of the major Indian service providers as credible HR delivery firms.
When Indian service providers were originally mentioned as budding HRO providers, many HR executives would respond “we couldn’t possibly entrust such sensitive HR processes with offshore firms”. Since then, many Indian service providers – and other global organizations with large Indian captive organizations, have become exemplars of how to develop, manage and motivate talent.
Nissan liked Genpact so much, they bought their HR…
One US C-suite executive even recently broached the topic of bringing Indian service provider leadership over to the US to help educate US firms on how to develop a competitive talent development culture.
Genpact has been working with Nissan for more than six years, providing finance and accounting, procurement, customer service, supply chain and analytics services. So adding HR services seems a natural extension of these services – even though Genpact has limited client experience of multi-process HRO. Moreover, this is also the reemergence of what we started to see in the pre-Recession days – increased bundling of business processes with a single provider which has a developing knowledge of a client’s institutional processes. Once they have lived their clients’ quirks, challenges, ideals and best-practices, surely the opportunity to broaden into new process areas is a natural extension of the relationship? So let’s hand over to our own HRO provocateur, Keith Strodtman to elaborate further…
Why Genpact has some serious chops to do well at HR Outsourcing
Genpact may not be a well-recognized name in HR circles but in the business process outsourcing (BPO) world they are a premier BPO provider, especially in finance and accounting (F&A), procurement, IT, and other process areas. That said; the company’s recent acquisition of the HR services subsidiary of Nissan Motors in Japan is a significant statement about its ambition in the HR BPO market. According to Anju Talwar, Head of HR services at Genpact, we should expect to see Genpact sign several more strategic HRO customers in the next couple of years. Talwar says Genpact plans utilize the capability gained in the Nissan deal to offer HR services to other customers in Japan and other Asian countries.
Nissan, who had a previous F&A and procurement BPO relationship with Genpact, has expanded the relationship to include HR services to 54,000 employees in more than 20 offices in Japan and other parts of Asia. In all there are about 200 Genpact staff supporting the HR processes. Many of the staff are located in Japan but some work is also processed from a Genpact center in Dalian, China. Genpact has more than 3,000 employees in China. The scope fo the Nissan deal includes: payroll, benefits administration, career development, portions of recruiting, an employee call center, and other HR processes.
Genpact got its start in the 1997 as the internal shared services arm of GE Capital. Know then as GECIS, the Indian captive shared service center served as the back office for many divisions of GE. In 2004, GE sold a share of GECIS to two private equity firms and it became independent in January 2005. This enabled the company to diversify its customer base beyond GE. It changed its name to Genpact and the company went public in 2007. Many of it early non-GE customers hired Genpact to manage finance and accounting transactions like accounts payable, account reconciliations, and payroll. The company now has more than 51,000 employees, $1.26 billion in revenue, and offers a broad range of BPO services.
Payroll was the process the got me talking to Genpact when I was leading the HR outsourcing business at Ceridian. I was looking to increase the efficiency of our managed payroll business and sought a partner to support several payroll processes from an off-shore location. This occurred in 2006 and even then it was clear to me that Genpact wanted to expand into other HR BPO services. In fact, had it not been for the “great recession” we might have seen several more HR BPO contracts signed by Genpact in the last few years.
Payroll is not the only credential that Genpact has built upon to develop its HR BPO business. Its GE heritage has left a deep and innovative HR culture at the company. Talwar points out that many of their HR service engagements begin with a conversation with customers who are interested in emulating some of Genpact’s internal HR programs. This comes as no surprise to me. When I was traveling around India in 2006 talking to several Indian BPO providers, I recall being very impressed with the Genpact’s talent management practices.
HfS Research's HRO Maxima, Keith Strodtman (click for bio)
Its recruiting, performance management, and training processes rivaled the best I had seen anywhere in the world. The GE heritage also embedded a vast Six Sigma competency that is not only used to increase operating efficiency in the outsourcing centers, but is also used extensively in client process improvement engagements.
The outcome of this deal could have a significant impact how much progress Indian outsourcers make in the HR BPO space. In addition to Genpact, Infosys, Wipro, Caliber Point, TCS, and some smaller Indian providers have active HR BPO practices. Each has customers in the North American market but none have experienced rapid growth here. If Genpact has success with the country/ regional model that it has with Nissan, we may see others follow with similar approaches.
Genpact certainly has a lot of skills to employ in the HR BPO market. The Nissan engagement could very well be a significant proof-point that will help propel the company to higher prominence in the HR services marketplace. We should see in the next couple of years if Genpact does indeed continue to “drive” its HRO business to significant growth.
Today marks an exciting day in the development of HfS Research as a global advisory analyst organization – we have selected sourcing and software PR and communications specialist Gutenberg to orchestrate our global research communications to the Americas, European and Indian markets.
Why this is meaningful
Gutenberg's CEO, Harjiv Singh… beaming after the HfS tie-up
Communicating what global sourcing is all about to real business people is broken. We believe that the biggest problem with the sourcing industry today, is a broad failure to communicate the challenges and opportunities posed by global sourcing to mainstream business people. Accountants, technologists, procurement specialists, operations experts and so forth did not go to outsourcing school and likely never will. Most of today’s providers, advisors, analysts, academics etc are so wrapped up in their own vernacular that they end up marketing and talking to each other as opposed to the people who really matter: the buyers. Our goal at HfS has consistently been to cut through the jargon and explain to business and IT professionals what global sourcing is all about. To do that, we need to take our insight and get it to the broadsheets, the politicians, the lobbyists, the investors, the big business media.
This partnership will tackle the communication challenges of sourcing in a coordinated global fashion. Gutenberg is entrenched in the sourcing industry and understands the core industry communication challenges. In addition, they have prominent teams in India, in addition to the US and Europe. Much of the heartbeat of the sourcing industry is emanating from India, with a feverish media industry – and their issue has often been to get the issues discussed globally. We believe our combined global teams can work together to change this dynamic. With the growing HfS presence in India and Europe, in addition to the US, we believe this is an ideal partnership to bring together the global story.
We have also invited Harjiv Singh (CEO, Gutenberg) to contribute to our blog to drive some lively discussion on the core communications issues plaguing our sourcing industry today. He can get away with saying anything with that smile 🙂
