Top outsourcing correspondent, Stephanie Overby, last week ran a lively discussion over at CIO.com with a couple of Harvard academics, Professors David Pisano and Willy Shih, on that fine vintage topic “How Offshoring Can Kill Innovation”. However, unlike that case of ’86 Margaux in your cellar, we rather fear this argument is beginning to take on a tinge of vinegar. Time to change that ol’ record? Let’s ask HfS COO, Esteban Herrera…
Esteban Herrera (click for bio) may not have got into Harvard, but he sure knows more about outsourcing than them
Esteban Herrera’s take on whether offshore outsourcing is really killing innovation
The provocative interview of two Harvard Business School intellectuals in CIO Magazine is making the rounds and generating some interesting discussion. It will undoubtedly stoke the already heated fires of the sensationalist anti-outsourcing crowd and provide fodder to those who say that offshore outsourcing detracts from the “client” companies’ and countries’ competitiveness.
The problem is that the argument being made, that outsourcing higher-end, higher value business processes will lead to erosion of the ability to innovate is at once obvious and flawed. Professors Pisano and Shih promote the concept of the “industrial commons”, the ecosystem of companies that collaborate and compete in any given industry, I failed to get into Harvard, but I can tell you beyond shadow of doubt that if you outsource, say, R&D, over time your company will cease to be good at R&D. The professors themselves say they are not anti-outsourcing, just cautioning companies not to outsource the wrong things. Well, we wholeheartedly agree, and we also agree on something very simple, which the interview does not make clear: what you can and cannot outsource successfully depends entirely on your strategy! If you want to compete on manufacturing prowess, then you probably should not outsource manufacturing. If you really believe the way you pay your bills is key to that sky-high valuation, then you better stay away from F&A BPO. We at HfS would never advise any of our clients to outsource anything that is fundamentally and uniquely tied to their strategic success.
But the argument falls down pretty quickly, and Dr. Pisano himself provides the evidence: He remarks that because US PC manufacturers outsourced both design and manufacturing, they were left vulnerable to the Apple iPad—no tablet has been as commercially successful as the iPad. True. The problem, of course, is that Apple also outsources BOTH design and manufacturing, making it no different than its would-be competitors. That is because Apple’s strategy is not to win with superior devices (often their products are over-priced and under-featured), but to provide the platform, and thus be the infamous toll-taker, in which consumers can lead their digitally connected lives. Apple writes very little software for its devices. Apple does not write or record the music on iTunes. Apple does not provide the network for its iPhones. What apple does very well is provide me (and you) with the platform in which I can acquire and store my music, organize my personal and business lifestyle, play Words with Friends, write this blog post, watch movies and shows, etc. The remaining competitors fail not because their devices are inferior, but because they see themselves as device companies, not as content delivery companies. It has nothing to do with outsourcing and everything to do with sticking to a successful strategy—one which, in this case, fully embraces the outsourcing of some very high end activities.
P&G, one of the most innovative companies in the world (and one of the most admired for being well managed), deliberately outsources innovation. P&G understands that individuals and other companies will have infinitely greater ability to develop new ideas than themselves, even if they are quite good at new ideas. There’s just much more capacity to innovate outside the walls than inside, and P&G gets that. By being open to external innovation, P&G delivers on more innovations than any of its competitors, in part because it has ceased to see itself as a CPG company, and started to develop a core competency on harnessing and capitalizing on a broad network of innovations. One can use the exact same argument Professors Pisano and Shih make to describe their success. P&G believes so deeply in the concept of industrial commons that it has chose to expand its ecosystem globally, leveraging lots of partners and individuals to bring more (not less) innovation to its products and markets.
In the end, what strikes me about this argument is that it seems to give too much weight to geopolitical boundaries that have been eroding with globalization for three decades. The “industrial commons” need not be limited, today, to one country or one group of companies. The network effect of having suppliers give you room to innovate effectively, or even innovate on your behalf, in combination with embracing a sound strategy, generates more value, more wealth, and more benefits for all parties involved. I am very concerned that the Professors are lending their weight to an argument that erects artificial and unnecessary walls, stifling true innovation and growth.
Fed up with all the puff and fluff? Comatosed by the motherhood and apple pie? Ready to get the real deal? Well, your pain will be over on August 4th, as we bring you the ultimate unfiltered schmaltz-free one-hour debate on the future of the outsourcing industry.
Join us for a special web-event where four senior provider and four senior buyer executives will lock horns to debate the burning issues of today’s outsourcing business.
The line-up:
The Buy-team:
Simon Newton, VP, Shared Services at Kimberly Clark
Lee Coulter, CEO of Shared Services at Ascension Health
Kevin Judice, CIO at PNM Resources
Jay Desai, SVP of Global Sourcing at Northern Trust
The Sell-team:
Tiger Tyagarajan, CEO at Genpact
Malcolm Frank, SVP, Strategy at Cognizant
Peter Allen, Global Head of Sales and Marketing at CSC
Anoop Sagoo, Global Head of F&A and Procurement BPO at Accenture
The Referee:
Phil Fersht, Founder & CEO, HfS Research
The discussion topics:
How is the role of the provider changing (or needs to change) to help clients find new value?
How is the role of the governance office changing (or needs to change) to move engagements beyond “operational”?
What are the core challenges facing buyers today – and how can they be met?
What are the core challenges facing providers today – and how can they be met?
What are the future technologies and innovations that are going to change the outsourcing game?
Now we know what Cloud Computing is (do we?), what next?
What does the future hold for ITO and BPO? What will it look like in 5 years?
What’s wrong with our business, and what do we – as buyers and providers – need to do to change it?
Donniel Schulman is GM for F&A and Supply Chain Global Process Services at IBM
One chap we’ve been trying to get on here for years is known simply as “The Don”… to anyone who knows him.
There aren’t too many people who shun the media spotlight to discuss the intricacies of the ideal end-to-end expense management process. Nor are there too many senior executives who will quantify exactly how many hours, minutes and seconds they shaved off the time it took to execute that process for a client – and demonstrate exactly how they did it.
However, as IBM’s Donniel Schulman’s reputation and influence in the BPO industry has grown in recent years, we’ve finally persuaded the chirpy New Yorker to share some of his story since IBM entered the BPO industry via its 2002 acquisition of PwC Consulting, which included a number of large-scale F&A contracts. Today, Don leads all the finance and accounting, procurement and supply chain managed services, combined under his leadership as an integrated unit.
Phil Fersht (HfS): Don, I’ve described you as one of IBM’s “best-kept secrets”. You’re not on every podium speaking, but instead you tend to be operating behind the scenes running a lot of the F&A and procurement work at IBM. Would you please tell our readers about your background, where you came from and how you got to where you are today?
Don Schulman (IBM): Thanks very much Phil. I’m humbled by your compliment. My career began in banking and financial services, serving primarily in operations roles. After that, I had a boutique consulting firm in the working capital management space, and eventually broke into PwC where I was fortunate enough to be able to lead its financial management businesses worldwide I came to IBM via its 2002 acquisition of PwC Consulting. I actually worked for a while on IBM’s own internal transformation, reporting to the Chairman’s office. And then six or so years ago, after the BPO business had been formally kicked off they asked me to come in and lead this F&A and procurement business. And now I’ve had the terrific opportunity twice in my career to help create a new consulting industry, first in the world of shared services and then in outsourcing.
Phil: So what is it like being one of 400,000?
Don: Interesting question. Let me alter it a bit to what’s it like working for IBM. I think there were two big changes for me in becoming an IBMer. On one hand, it’s like being a kid in a candy shop, having all this accessibility, all this unbelievable stuff- technology, client base, investments. On the other hand, IBM is one of the most disciplined corporations in the world, which is nice to have as a benchmark in my back pocket for my clients. With that discipline, quarterly reporting requires a framework and a frame of mind that in private partnerships and private equity companies you just don’t need to deal with, so it’s been an education process for me. I’m delighted that I’ve been able to work through it, and I actually have a lot of respect for the process. At the same time, my group is a “tip of the arrow” business model. It’s one of the fastest growing businesses in all of IBM, and we get a lot of investment support, both in terms of acquisitions and homegrown investments. We also have a lot of flexibility and freedom – much the same as you have in running your own business – because we’re not the typical IBM technology business. So it’s a nice balance.
Phil: So when you view the current state of the BPO industry today, what do you see the core differences compared to when you first became part of IBM?
Don: I think the most important difference is that BPO began with a focus on consolidation, offshoring, and labor arbitrage,, and the associated efficiencies. But now, the marketplace has really begun to appreciate that it’s really about business process, effectiveness, and intent. There were different fits and starts in this space. I think there are some companies that are here for the long run and really “get” the big idea. And I think there are other companies that hear the rhetoric but can’t get past the “I just want to offshore.” Analysts like you are helping to drive where the industry really needs to go, which is really about effectiveness and business outcomes, and not only about efficiency.
Phil: HfS Research has revealed new demand-side data (see earlier post) showing the market is rebounding quite aggressively coming out of the Recession – particularly with indirect procurement, F&A and strategic sourcing – . What’s your take? Is the market rebounding as quickly as we think it is, or do you think it’s more evaluation?
Don: My first observation is that we thought we were in a Recession-proof business and we were wrong. The business did decline, and we also see that it can come back. But we see it being significantly different than it was in the past. In the past, outsourcing was all about putting out big RFPs, picking up your business, responding to the RFPs, holding people a little bit at arm’s length to figure out who the lowest cost provider was. Now, relationships are changing dramatically. Companies are coming to us saying, “We’re looking for a transformation partner. We want you to partner with us, to consult with us, to help us drive our transformation agenda, and maybe even define our transformation agenda. We want you to provide the big innovation ideas that we need to drive ahead, and take the risk with us as we go down that path.” We see this as a dramatic shift. We see deals becoming much larger because they had been on downward journey, and they’re getting much more complex. They’re not about headcount. They’re about transformation and innovation.
Phil: IBM had been one of the first of the providers to bring together procurement, supply chain and F&A services into one integrated unit. What was the thinking behind that, and how are the areas blending?
Don: There were both strategic and tactical reasons for bringing them together. Strategically, we realized that a lot of the outcome-based kinds of deliverables we’re providing – whether it’s working capital or sourcing – are actually the same in both functions. Also, the operational proficiency in procurement and F&A are actually very similar. Therefore, the investments we make, the way we approach the business model, the way we approach the value propositions and even the way we deliver the operations all become very similar. However, the biggest thing by far was the concept of end-to-end source to pay, going what I call “inside-out” from sourcing a vendor all the way out to the payables, and from the payment all the way back in. And by combining procurement and F&A in what we call collaborative commerce, there’s a real opportunity to drive end-to-end. In fact, we’re forcing the end-to-end.
Phil: In the supply chain space, I was excited when IBM acquired Sterling Commerce, in addition to several other tech companies with specific supply chain competencies. How is that fitting into a broader sourcing context for you?
Don: With the acquisition of software like Sterling, there’s some overlap we’re trying to sort through, but we’re very excited about it. We believe it gives us a unique opportunity to take a piece of middleware like Sterling and modify, codify and configure it very uniquely to the supply chain market with the tactical kinds of activities that we do in our operations, and provide it to our clients on a need-be basis. And Sterling is just one example of many pieces of software that we’re doing this with.
Stay tuned for Part 2 (you can read here), where we discuss whether shared services is really dying, how Don views the changing role of advisors, and where he sees the BPO industry moving in the future…
Donniel “Don” Schulman (pictured above) is General Manager, Global Finance & Administration and Supply Chain Management for IBM’s Global Process Services (GPS). He is responsible for sales, solutions, delivery and profitability of IBM’s F&A, Procurement and Supply Chain Management GPS worldwide.
Our new study of 1350 outsourcing industry stakeholders, conducted with our friends at the Outsourcing Unit at the London School of Economics, continues to reveal home-truths about what’s really going on in the business. Quite alarmingly, we can also reveal that many providers are not entirely in synch with what their customers actually want from them.
We asked a cross-section of buyers with significant influence over outsourcing decisions, to reveal the critical attributes they seek in a provider. At the same time, we asked providers what attributes they believe their clients deem critical. And – guess what – their are significant gaps between what clients want and what providers think they want:
Providers are underestimating the importance buyers (34% compared to 49%) are placing on their ability to help address their change management and governance challenges. This indicates a significant communication problem is going on in industry – buyers are clearly realizing they need a ton of help and are actually looking to providers to deliver it. We believe some providers are simply unaware of the extent to which buyers are concerned about these issues, and are over-focused on being price-competitive, demonstrating operational delivery capability and risk mitigation.
Moreover, to prove further this communication gap between buyers and providers, 40% of buyers see the culture of a provider’s delivery organization as a critical attribute, compared to only 20% of providers. This begs the question whether many providers ever stop to examine seriously their delivery culture and how it gels with their clients. How can so many miss the importance their culture has on their clients’ decision-making? Again, the answer has to be a lack of good ol’ communication.
Analytical insight is also becoming increasingly important to buyers (27%), with many providers – again – underestimating the extent to which those decision-makers want to learn more about their capabilities. Are providers simply convinced their clients and prospects are only interested in the basic table-stakes of outsourcing?
The bottom-line: understanding and communicating service-culture is the critical component of successful outsourcing
HfS believes that the knowledge and intentions of providers’ clientele is quickly maturing, and they need to find smarter ways to communicate with them, understand what’s really important and invest in their services to respond to their needs. Currently, the outsourcing industry has a problem – providers either aren’t listening to their clients, or simply aren’t being given the environment to listen.
Let’s face facts here – outsourcing has historically been far too reliant on contractual terms, to the detriment of the softer elements that are needed to foster better provider/buyer relationships. And it still is. However, what’s transpiring is that buyers are increasingly looking for more from their provider to help them better manage their outsourcing engagements. They don’t want continually to spend millions each year on consulting support to improve their governance capabilities, their processes, their analytics, their innovation roadmaps etc.; they want this stuff embedded in the day-to-day service-culture of their partner.
HfS ultimately sees three root causes inhibiting this development:
Buyers need to try harder to get the message to providers about what’s really important to them;
Advisors, consultants and intermediaries need to help facilitate (not restrict) more communicative environments for buyers and providers (pre and post contract);
Providers need to spend more time demonstrating how their service-culture is the right fit with prospective buyers, and how they can help them with all the painful change and governance issues they are going to face over the long-haul.
The one thing that has always baffled me about the European Union, is how they try and unite a hodge-podge of countries which despise each other, when all they really want to do is carry on doing things their way and never take orders from anyone.
They clearly have three goals within the EU:
1. To make pots of money from that expensive Euro (what a great excuse to raise the price of a coffee from 50 cents to $10);
2. To have a powerless European governance system and keep things exactly as they have always been at the local level;
3. To beat the Americans at golf every two years (even though the Irish don’t need any continental help in that regard).
And when you look at the individual outsourcing intentions of continental Europeans versus the other regions, from our new study that we just conducted with the Outsourcing Unit at the London School of Economics, exactly the same philosophy seems to apply:
So what’s really driving outsourcing decision-making across the world?
United States: Let’s save some money, but also use this as an opportunity to globalize operations, transform processes and gain access to compliance standards and business process acumen that we – let’s face it – simply don’t have. Let’s take a realistic view of what we can get from the experience: use it as an opportunity to manage our ropy processes more effectively, but let’s not go overboard with the “forcing change” stuff, or having any fancy new technology thrown at us – as there’s never such a thing as a free lunch, folks.
Britain: Please can we shed the costs and change the bloody processes – but our existing bunch are going to be smart enough to figure it out – and we certainly don’t need to be told what to do – especially by our former colonies. We used to run the world, you know…
Continental Europe: 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!
Asia: You mean we can offload all our terrible back office stuff and have you lot run it for us cheaper and better? Take it now – ALL of it!
So there you have it: HfS sums up world politics and culture in a single chart and blog post.
Remember Cassandra? She was that character in Greek mythology who was granted the gift of incredible insight by the gods, but in the same instance, the gods cursed her so that no one would ever believe her. Welcome to the world of Deborah Kops, as she articulates the findings of our HfS Research / Sourcing Change study. Over to you, Debs…
Shortchanged!
Ever wonder why you have that sinking feeling that your outsourcing program isn’t quite delivering on its promise, despite the fact that your provider is hitting every SLA out of the ballpark? Why most benefits expected in the business case are within reach, yet the business lines’ grumbling continues unabated? Why the retained team just doesn’t “get it,” engaging in guerilla warfare when it’s time to start the next phase of transition? Why the leadership team rejects the concept before you even launch the PowerPoint presentation?
Deborah Kops is taken away before convincing the world of the perils of ignoring change management
Very likely, you’ve been shortchanged. Whenever an organization outsources, it triggers a myriad of changes—organization, process, workflow, technology, and service levels, among others. Change management often gets short shrift because it has to cope with often irrational reactions, may require a “touchy feely” response model, and ultimately forces sourcing sponsorship to confront an uncomfortable truth— compelling business cases alone will not persuade stakeholders to give up control or adjust the way they work. So praying that the noise will just abate over time becomes the default approach.
HfS Research and Sourcing Change have uncovered, for the first time, how buyers really attack outsourcing change management in the groundbreaking study, “Change Management—Not an Imperative for Sourcing Success?” Study results confirm that the secret sauce that makes outsourcing deliver—a structured approach to the adoption of changes resulting from implementation—is still being sidestepped. While most buyers– and providers– give lip service to the need for change management when sourcing, there’s still a lack of understanding of the skills and capabilities that make change management strategically important to an outsourcing deal.
Confusing PowerPoints, email newsletters and town halls with effective change management. DIY approaches to resourcing. Providers who think they support their clients’ change management initiatives. Read all about these observations—and more.
Click here to read the study “Misunderstood and poorly handled: change management for outsourcing”, and stop being shortchanged by outsourcing!
Earlier this year, HfS Research leveraged its vast network of global enterprises to solicit the opinions of buyers and providers of outsourcing attempting to understand how they view the role and importants of change management for outsourcing engagements. The web based survey was completed by 237 respondents with 96 buyers and 141 service providers.
Deborah Kops is Research Fellow for HfS Research and leads her own boutique firm www.sourcingchange.com dedicated to all issues sourcing change management (click for bio)
Wouldya believe it, the Swiss, in their typically punctilious fashion, now have an “Anti-PowerPoint Party” with the self-stated goal of having the number of boring PowerPoint presentations on the planet to decrease and the average presentation to become more exciting and more interesting.
The party aspires to become the fourth-largest political party in the country, as you don’t need to be Swiss to join a Swiss-based political party. Clever, eh?
So as I was busily enrolling myself in such a worthwhile cause, I quickly realized that if such a political goal was achieved, the whole outsourcing business would be in serious trouble. For example:
How else could sourcing advisors justify their millions of dollars of fees to develop a 250-strong slide deck, designed to pummel everyone into submission by slide 23?
How else would providers be able to pilfer each others’ decks and claim to be the first to have coined their branded transformation methodology?
How else could management consultants charge clients for change management workshops? Seriously, you think people want to change, as opposed to having hundreds of polished slides describing change processes that executives can discuss for hours?
How else can lawyers send everyone to sleep while that $750/hour clock ticks along?
How else can buyers convince everyone into submission that their procure-to-pay processes are just so un-outsourceable?
How else could analysts bombard everyone with reams of data telling you what you already knew, but at least make you feel better about paying for their services?
So please, please, please do not encourage our Swiss friends to destroy everything we have strived so hard to achieve. Long live PowerPoint and the incredible business benefits it provides!
We are in the midst of exciting times in the world of work. Never before has the world’s economy seen such dynamic changes occurring at a rapid pace. These changes are being driven by growth in emerging economies, new enabling technologies, talent gaps, mobile workforce, and perhaps even new motivations in the global workforce. HfS Research, in conjunction with Human Resource Executive Online, is conducting a study to help gain a better understanding of how the future of work is impacting organizations. You can help by participating in a short survey and providing your thoughts on how the future of work is impacting your business or your client’s businesses. The survey can be found here: Future of Work Survey.
In HfS Research Fellow Keith Strodtman’s blog on this topic, The Future of Work – Who Will Lead, we listed some of the future of work drivers that we see in business today. We also suggested that the most successful companies will be those which figure out how to capitalize on the future of work by unleashing the innovative talents of their employees and partners. This of course takes strong leadership. We’d argue that the command-and-control model of management will not be as effective at unleashing innovation as would a decentralized model that puts more information and control into the hands of the people closest to the customer. Doing so will increase an organization’s ability to quickly respond to customers and the market. I think we can all agree that speed to market has never been more important.
Back to leadership, who will lead this type of change in successful organizations? Who are the visionaries that can spot the changing dynamics of work? Who knows which of these dynamics are most important to their company? What role will HR play in all of this? Will they be a change leader? These are just some of the questions that we will try to answer with the results of the Future of Work Survey. It should be interesting to look at some of these questions broken down by respondent group, industry, and organizational size.
So please take a few minutes (it should only take about 7 or 8 minutes) to complete the survey. This is just the beginning of what we at HfS Research hopes will be a long series of insights into how companies can be successful in the Future of Work.
Folks – we constantly get accused of not “blowing our own trumpet” enough and showcasing our research, so today, we’ll have a go!
Back in April, we published our landmark report, The F&A BPO Market Landscape in 2011: Re-emerging from the Recession, re-focusing on Business Outcomes. In that report, we made some predictions on the market, for example:
"Louis, have we got some bed-time reading in store tonight…" (Click to download)
* OPI: “Needs to look at M&A opportunities if it wants to compete effectively for larger engagements”;
* Intelenet Global: “Could be effective at winning small-scale engagements with some smart investment in a go-to-market strategy. However, a small client base, limited brand and its late arrival into the US market makes this a hard task. Merging with a larger entity may be a better move.”
Since we published, OPI was acquired by EXL and Intelenet by Serco. Read between the lines and you can start predicting other likely things to happen in the not-so-distant future. It’s as it HfS is your very own self-perpetuating crystal ball (gulp)…
Anyway, in response to the multiple requests for more trumpet-blowing, you can download our blockbuster report absolutely FREE, right here! No forms to fill, no signing your life away to a torrent of daily spam – just plain, free, no-holds-barred research! Yay!
Gideon Gartner blogs HfS' views about the analyst business (click to read)
So the Grandaddy of great big research, and (arguably) the founding father of today’s IT industry analyst business, Gideon Gartner, picked up on our recent post “Will the industry analyst business be dead in five years?” (Check out his post here).
Gideon’s opinion must be the most sought-after on this topic, and he does a great job being non-committal with his blog on HfS’ piece. However, you do get the distinct impression we struck a chord with him:
“Perhaps his conclusions were overstated, but perhaps not; some version of today’s Advisories will undoubtedly survive. But the comments seem to support his views”
And while the “analyst” industry is unlikely to be buried in a coffin in five years, the amount of attention this discussion has invoked clearly signifies one thing: the traditional analyst business desperately needs to change. We’ll let Mr Gartner have the last word on the topic… for a while anyway.
And if you still haven’t had enough on this topic…
Our friends at the International Institute of Analyst Relations (IIAR) are going to feature a live debate on 13th July at 11.00am ET, where I will be discussing this “crisis” live and taking questions. Click here for more details, or email info at analystrelations.org.
