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.
One of those rare discoveries one makes in life, is that procurement people are (by and large) pretty cool individuals. When you think about it, when you spend your days negotiating deals, scouring for bargains and trade-offs, bonuses and discounts – and proving to your colleagues that you’re better at it than they are – having a bit of style about you can go a long way.
Alpar Kamber, Managing Partner, Denali Group
However, we did not know all this until we came across one absolute procurement-esque freak-of-nature, who loves to get very deep on sourcing execution issues while having a glass of Absolut Mandarin in one had and spinning some vinyl with the other. Yes, while Turkish-born Alpar Kamber is not shaking it on the dance floor, or doing a few backflips on his snowboard, or mixing Beyoncé with Lady Gaga, his prime love in life is discussing procurement process. (OK, we just made up the bit about Beyoncé and Lady Gaga – Alpar’s far too classy for those two…)
While we were having some in-depth discussions with Microsoft’s CPO, Tim McBride (don’t forget to read our paper “The CPO in 2011: The Toughest Job in the Global 1000“), it became apparent how important niche specialist BPOs, such as Alpar’s firm Denali, are to the global sourcing mix for many organizations. So we thought we’d take a few minutes to have a discussion with Alpar about the future of the procurement function and the role of the CPO…
Phil Fersht: Tell me a little about yourself, Alpar, your background, where you’ve lived and worked, and how you’ve winded up in the sourcing business?
Alpar Kamber: I grew up in Istanbul, Turkey and studied management science and accounting in College. I joined Arthur Andersen’s Audit and Business Advisory Group, with hopes to get my feet wet in various industries as quickly as I can. I got a chance to meet and interview almost every function in the company, look into business processes that drove the financial statements and how each impacted companies’ health and financial performance.
Procurement caught my eye as I audited various procurement functions as being very in efficient and lots of room for re-engineering (that was the buzz word in the 90s).
Moved to US to pursue my MBA in Pittsburgh, Carnegie Mellon. A young and upcoming start up company, FreeMarkets, caught my eye as they built and executed reverse auctions for corporations to secure goods and services contracts at true market prices. I decided to spend my summer there creating my first (and my client’s first) online auction for $5M global fasteners procurement. Identified over 30% in savings and got C-level attention at this Fortune 200 Company.
I went back there after business school and have done market making, program management, account management, consulting. Then, I moved on to start Denali Sourcing Services.
Phil Fersht: And based on your interactions with clients today, what are the key business challenges they are facing – and how are these challenges impacting the procurement organization?
Alpar Kamber: Procurement’s operating model is changing: the resource model and channels to reach the audience are becoming customer centric, service oriented.
Transactional procurement aside, companies are forming three major functions within their sourcing function: Relationship Management, Category Management and Execution. What’s missing today in many companies is a focus on execution and having a dedicated approach to solving that problem.
Let’s discuss a few tangible objectives that I see in today’s procurement environment.
A. They would like to increase the reach of their procurement organization – or some call it spend under management. Branded program approach: Very few companies embrace the concept of program management. Successful procurement organizations typically have several program managers running programs, launching new initiatives. Some fail, some have glorious success. Branded program rollouts help accomplish a number of things. It helps energize your audience (be it suppliers, company employees or executives) around your objectives and makes it easier for one to drive change and adoption. This is critical in achieving game changing results.
B. They would like to be as effective as possible in managing the spend that they reach. There are many tools available for procurement organizations. Yet, this abundance is confusing to some and convergence has yet to happen. Software, processes, best practices, methodologies, knowledge, market intelligence are all key elements. Most importantly though, skill set and capabilities are the greatest assets that an organization can have to be effective in how they manage spending.
B. Efficiency – do more with less or limited resources and do things much faster without much waste (reduce procurement waste).Today most procurement organizations ask their resources to wear multiple hats. They want them to build relationships and sell procurements’ value proposition to the organization. They want them to understand their categories, supply base and develop strategies that effectively manage spend globally. And finally they want them to write and execute RFPs, negotiate contracts and manage them. These are all very different tasks by nature. Using Adam Smith’s division of labor principles, it is very difficult to drive an efficient model when one is asked to do tasks that are inherently very different. One needs to separate operational execution tasks from those that are strategic and relationship based, and address them separately.
Phil Fersht: What’s different about the role of procurement today, compared to 10 years ago, and what does the procurement executive need to do, to keep adding value internally? How can procurement develop a stronger presence at the corporate table?
Alpar Kamber: This is a pretty common theme that I discuss with procurement executives at various round tables and occasions. Expanding Procurement’s value… If I look at 10 years ago and today, I don’t think the purpose of procurement as a function has changed. The purpose has always been to help improve company profits. What has changed is the perspective and awareness of this purpose among company executives and the tools and resources available to get the work done. Today procurement certainly takes up its place in executive agenda. I even heard that a few company CPOs are joining their earnings calls with the street and making commitments about taking cost out. This is significant. Ten years ago it was still considered back office. This is changing drastically, and at a fast pace.
As my father told me once, “You make money while you are spending money”. I think that has got to sink in within corporate functions as we continue to influence our spending culture. Everybody that spends money in the organization can have a direct (tangible, quantifiable, one-to-one) impact on the company’s financial health and earnings.
The second part of your question – what should the procurement execs do to add value: They need to take risks. Break away from the status quo and try new ways to create efficiencies and effectiveness. They need to listen to their stakeholders for ways they can add value to them, engage with them and continue to align their objectives with procurement’s even if they are different. Roll out new programs, challenge the status quo, ask tough questions, innovate. Also, tap into the existing wealth of knowledge and experience of service providers — partner with them to deliver more value. It all boils down to improving reach of procurement, effectiveness and efficiencies.
Phil Fersht: In terms of broader operational strategy, how can procurement proactively support overall governance of outsourcing and shared services initiatives – i.e. once the routine work is outsourced, what are the strategic initiatives that procurement should be involved with to drive continuous innovations and added quality to the organization?
Alpar Kamber: Look, from an outsourcing perspective, procurement should continue to play an increasing role. Some companies created Chief of BPO roles. While I think that’s fine (due to managing sensitivities and organizational disruption) from a focused approach perspective, to me it’s no different than the procurement function at its core. I think we will see BPO becoming one of the core category management functions under Procurement. Procurement is in the business of managing all external resources (similar to how CFOs and CIOs are managing financial and informational resources) including governing these complex supplier relationships and resources.
The next chapter in procurement is figuring out Vendor Management at an enterprise level. I’ve yet to come across mature enterprise-level vendor management organizations. I think this is due to focus and skill set. As an analogy, in sales organizations you see a group of people (hunters) that is tasked with going out and getting new deals signed (contracts). These are then handed off to account managers (farmers) who make sure that contracts are fulfilled and managed to their full potential. Not only that, but also ensure they grow in value to the company. This mentality needs to transfer to procurement. WThey need to be putting in people with a different mindset (farmers) for managing company contracts and vendors, to ensure optimum value is created and retained. We only work with the tip of the iceberg when we put complex deals in place. It is when we start implementing and actively managing our contracts and vendor relationships that we start going deeper in value creation.
Phil Fersht: How can procurement execs receive the training and education they need to drive strategic sourcing initiatives more effectively and proactively – is there a defined curriculum for this, or do they learn it “as they experience it”?
Alpar Kamber: As I mentioned before, procurement executives need to take risks. They need to hire a few good program managers –- generalists that might have a procurement background but know how to effectively design and execute various programs and drive change. There is still lots of legacy to overcome in todays procurement organizations. Procurement needs to take a leap of faith in launching programs towards changing the legacy. Whether the purpose is to educate the internal audience (employees) about why they exist or to streamline their delivery operations. They each need to be managed under programs that have cross-functional teams. They need to think big and act big to get recognized.
The best training is by doing. Certainly this is an investment on everybody’s part but if you put people with the right skill set on the job, most often value is there.
I’ll give you an example of a company we work with. It all started four years ago with an idea, and a courageous executive willing to allocate the resources to try an innovative operating model and see how it could change the value procurement can bring to the organization. Four years later, after touching almost every employee in the organization that is spending money, his program drives the procurement execution at its core, allowing more senior resources to focus on macro-level problems like relationship building and category management, and the execution team to apply macro-level strategies to project spending.
Phil Fersht: So, if you could define the perfect role for the CPO, what, exactly would that look like?
Alpar Kamber: The perfect role for the CPO is to be the coach of a procurement organization. They need to pick good sourcing athletes, train them well through rigorous but challenging activities and goals, and make sure they put the right people in the right job. Also they should not be afraid to make the right transfers from third parties. But most importantly they need to put out the best game strategy out there. From what I’ve experienced, there is no best practice strategy that will work for the masses. Every company is different. Culture is different, bottlenecks/challenges are different, clock speed is different. Procurement executives that are able to drive effective organizations understand these differences and cater a game plan and an operating model that fits the organization, rather than try what made the person next door successful. It is also very important that services providers understand this difference.
Phil Fersht: And finally, what advice would you give to sourcing professionals today, seeking to further their career development? When you look over your career, what would you have done differently?
Alpar Kamber: I was fortunate enough to see procurement from various lenses. I was an auditor, I was a market maker, I was a contractor bidding for my salary in a reverse auction, I was a program manager building global sourcing programs, I was a program manager receiving procurement services from a provider and now building a company that focuses on sourcing execution. A multi-angle experience.
Today’s procurement professionals need to understand their audience and that there are many — the budget holders, vendors, executives and the company (shareholders). Once they understand the agenda this audience has, they need to think about what is the best way to create net customer value. Value while minimizing waste and effort spent getting there.
And lastly, change. While there has been significant change over the last 10 years within the procurement function, there is still a lot more ahead of us. And the pace is not slowing down. So if you need to be successful in this function, embrace and champion change.
Alpar Kamber is a Managing Partner with Denali Group and the Practice Lead of Denali Sourcing Services. After graduating from Tepper Business School at Carnegie Mellon University, Alpar joined Ariba, formerly FreeMarkets, to build strategic sourcing programs for Fortune 500 companies. You can read more about Alpar and the Denali Group by clicking here.
Download The CPO in 2011: The Toughest Job in the Global 1000 [email-download download_id=”1″ contact_form_id=”2″] HfS Research will share the information you submit with Denali Group, with which we partnered to produce this valuable research.
As outsourcing becomes increasingly commonplace, buyers are relying more and more on their own means by which to make tough decisions.
In the past, outsourcing was still a unique, foreign and scary activity, and it was always easier for buy-side executives to bring in consultants to make their decisions for them – especially as there were so few trusted data-points and information sources widely available in the industry to support decision-making. Executives didn’t want to get fired for making bad decisions. However, today they know they’ll get fired for the wrong decision regardless of who made it – whether it was theirs’ or McKinsey’s. Mess up outsourcing and your head will be on the block in no time – it’s not like an ERP implementation that can take years for everyone to figure out what was going on, by which time the original selection team had already left, in any case.
Today, buy-side executives are increasingly seeking out the views and experiences of their peers in other organizations, as opposed to putting all their trust in the views and suggestions of consultants. Outsourcing has hit the mainstream and there are many educated people – and prolific information sources available – to provide experience and insight.
167 of the respondents to our new State of Outsourcing Study conducted with the Outsourcing Unit at the London School of Economics have significant influence over outsourcing decision making, so we asked them where they were seeking information and advice for help with outsourcing decisions:
Buyers overwhelmingly want to hear from each other to further their learnings, with 86% viewing this medium as influential, eclipsing even the influence of consultants and advisors, whose job it is to give advice. This is, by no means, a discredit of the consultant, especially as his/her advice is viewed more highly than researchers, conference content and other media – but it does indicate that buyers trust the experiences of their peers the most.
In most cases, buyers will turn to consultants first and foremost, but will want their peers to validate their decisions. HfS also believes this move towards greater peer reliance is because it’s getting harder and harder to tell providers apart – and – in many cases – cut through the PowerPoint and buzzwords to get to the reality of the business. Hence, buyers are increasingly trusting their own investigatory skills and instincts to make the right decisions, as this graphic illustrates:
With close to a third of decision-makers increasing their reliance on their peers and more than a fifth increasing their focus on research and social networking, it’s abundantly clear that buyers are doing more of their own homework when it comes to outsourcing.
Let’s examine further…
Availability of peers is much more commonplace: it’s so much easier today to find other buyers to talk to. Smart providers are working hard to bring their clients and prospects together – they know it’s much more powerful to have their clients sell for them. Moreover, it’s easy to go online and seek out other buyers and experts in LinkedIn Groups, or join niche forums, where you can connect that very day with a kindred spirit whose advice is often worth ten times that of the $700/hour consultant who just left the building.
Ability to access research and data is much easier: whereas in the past you most likely had to drop fifty grand (or more) to get even a “quick and dirty” analysis of your outsourcing options performed, that is no longer the case if you know where to look. Smaller consultancies and advisors can now swing by and get you the “back of the cigarette packet” evaluation you wanted, as they should have loads of data from similar evaluations they can leverage. They don’t have to start from scratch each time there is a request for a benchmark, or a quick-fire analysis of suitable providers. Why spend a fortune to arrive at the same decision-point? You can now access the price-benchmarks, the provider capability assessments and the market data you need, for far less than you had to spend in the recent past.
Smarter buyers have different needs and are more self-sufficient: we can tell you from our own experience that smart buyers today often even know even more than consultants and providers, when it comes to figuring out how much a landed ABAP developer with 3 years’ experience should cost. And it doesn’t take a genius to figure out what you should be paying for a level 2 accountant in Chennai. And most buyers would prefer to find out for themselves whether they’d prefer to work with an IBM or an Infosys. Most firms today have some experience of outsourcing – and can often transfer internal governance talent to help with related initiatives; for example, we’re seeing several firms have their experienced ITO executives lending their support with less mature BPO disciplines.
The bottom-line
Outsourcing is all about real people, real processes, real business decisions. The secret sauce is applying this to your own business and figuring out the right end-state – and the smartest way of achieving it. Buyers ultimately know their institutional processes, politics and warts themselves – so having them more proactively involved in sifting through today’s socially-networked business environment is only going to help them get the advice and datapoints they really need.
Our resident travelling HRO impressario, HfS Research Fellow Keith Strodtman hit the road earlier this month to head to Milwaukee. Top of his agenda, other than sampling Milwaukee’s finest cheese and ale, was ManpowerGroup’s industry analyst and influencer day. As the headline on this post may indicate (and Keith’s RAPIDInsight shows), Manpower is more than a staffing company now. It is?
Keith files this blog report. Take it away, Keith…
Manpower Group held its industry analyst and influencer day on June 9, 2011 at its headquarters in Milwaukee, WI. ManpowerGroup is the third largest staffing company in the world based on revenue and the largest based in the United States. It operates in 82 countries, has more than 30,000 full-time employees and places 3.5 million people in permanent, temporary, or contract positions. That’s a lot of staffing.
While much of the day was devoted to business overviews and strategy updates, the company’s executives and analyst participates also spent a lot of time discussing the changing dynamics in global workforce. ManpowerGroup has an extensive research group that studies workforce trends with its customers, economists, governments, and think tanks. Instead of covering the business overviews in this blog post, I’ll share some of the thought leadership discussed at the event. More details about ManpowerGroup’s businesses can be found in the HfS Research RAPIDInsight ManpowerGroup – A Whole Lot More Than A Staffing Company.
While some of the language and buzzwords used by ManpowerGroup rivals those of the big consulting firms, I found the company’s research and positioning to include thought provoking views that HR and other business leaders would be well served to be thinking about. Many of the observations made by the company align with some of the topics I covered in my blog post on The Future of Work. ManpowerGroup has encapsulated many of their views on the future of talent into a thought leadership piece they call “The Human Age”, an era where unleashing the human potential will be the key driver of global economic growth.
Keith Strodtman, HfS Research Fellow (click for bio)
It may seem a little strange to think about talent shortages when many of the leading economies have high unemployment rates, but the reality is there is a growing talent “gap”, where the people available to fill a role lack the specific skill required for the role. An example is the shortage of software engineers in India. Most of us probably think that India has an unlimited supply of engineers. The reality is that it is estimated that India will experience a shortage of software engineers just six months later than the United States will experience the same shortage. In fact, India ranks second, behind Japan, for overall difficulty to fill key skilled positions.
People with the skills most desired by companies will have more power to dictate the terms under which they will work for a company. In response, employers will need to be more creative and agile to attract skilled individuals. ManpowerGroup believes that companies that are able to create environments that unlock the creativity, innovation, empathy, passion, and intellectual curiosity that sits at the heart of the human spirit will be the companies that win in the marketplace.
Technology plays a big role in “The Human Age” by enabling communication, collaboration, and the ability for people to work together virtually – allowing companies to tap into diverse talent pools to fill critical skill gaps.
This type of thinking tells me that ManpowerGroup is not our grandparent’s staffing company. However, like many other firms in the HR services space, they need to continue to invest in thought leadership, marketing, and of course talent to get the word out in the marketplace. I think they are off to a good start with “The Human Age”…but then again, I like buzzwords.
Tim McBride, Microsoft's Chief Procurement Officer
Think you have a tough job? Imagine one where only flawless execution is acceptable, despite the piles of paperwork, scads of emails, phone calls and faxes to plow through every day.
Try being a CPO for a day. It’s a straight shot to failure… unless you can find execution support that makes your function indispensable – and actually appreciated by your executive peers and colleagues.
Tim McBride lives that life at Microsoft, and we talked with him about his procurement execution and BPO experience as part of a case study in a paper Tony Filippone and Phil Fersht wrote in partnership with Denali Group.
Tim’s a 15-year veteran of Microsoft, and has lasted 4+ years as CPO. So he must be doing something right. To get a sense of how he handles his job, and what the key challenges are for CPOs, read our new paper: The CPO in 2011: The Toughest Job in the Global 1000 by filling out the form below (we’ll email you a link to the file).
Download The CPO in 2011: The Toughest Job in the Global 1000 [email-download download_id=”1″ contact_form_id=”2″]
Having been blogging for over four years, I’m used to putting down my thoughts and concerns about things I care about. I normally don’t think about it too much, I just write and enjoy the banter and discussion it creates. It’s like having a “virtual pint” with friends, peers and colleagues.
So when I received many notes, emails, calls and comments after my weekend rant (which I barely categorized as a “rant” when I published it on Sunday), I suddenly realized this thing was going “viral” – especially when dangerous Dennis Howlett picked it up! How had I managed to hit such a raw nerve? I throw the outsourcing business under the bus everyday, and noone bats an eyelid!
By Monday morning, several analysts informed me that the piece had been all over Forrester, Gartner and IDC, among other places. So why, pay tell, did only one Gartner analyst openly dare to contribute a comment (and a good one), while several consumers of research (buyers and vendors), in addition to analyst relations professionals, were only too keen to chip in? The fact that they all read it and pinged it around so prolifically suggests they care – but why they are not willing to defend themselves sends another – very clear – message.
I never said the analyst industry was going to be “dead”, I simply (admittedly) followed blogger-protocol of throwing out a slightly bonkers and controversial headline to get you to read it. I wanted us to debate whether it would be “dead” if it failed to keep apace with such unprecedented shifts in the way research is developed and consumed in today’s society. And, oh my, did it work…
I do have very real fears – to which there has been violent agreement – that some of the traditional analyst business practices are in trouble and the business is going stale. My genuine fear is that some of the large firms are so consumed with meeting financial targets and complying with internal processes, they are taking their eye off the essence of their product – influencing, informing, analyzing, and staying ahead of the industry with real insight and thought-provoking topics – and in real time. Only one or two firms can get away with standardizing their research product so they have a cookie-cutter delivery model, a 1-800 analyst support-line and a common brand (not individual brands). The rest will fall away, or desperately feed off of scraps that probably don’t constitute real “research” anymore (dare I mention some famous old analyst brands which are on life-support today).
And if you want to hear more on this little 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.
Having been in and around the analyst business since 1996, I’ve never been short of an opinion or two about the industry. And neither are most people I know… love them or loathe them, analyst firms and their unique individuals stoke the emotions of many who come in regular contact with them. But are the days of the traditional industry analyst firms numbered?
I’ve been both analyst and consultant during my career and work with many buyers, sellers and intermediaries of both technology products and professional services. I’ve worked with the best and worst analysts on the planet. I’ve seen great research developed that was truly unbiased and objective, and also – sadly – been witness to some that was, quite frankly, not.
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.
Yes, the analyst business is a strange place, creating all kinds of weird and wonderful individuals, fueling all kinds of emotions from their respective spheres. However, the world has changed so much these past five years, that it gives me real concern whether there’ll be much of an “industry analyst” business left in another five. Here are my reasons for concern:
Short-term attention-span theater has taken over, and some analyst firms are oblivious. Very few people have the patience, or inclination, to read detailed reports any more. Even just five years’ ago, many people only checked email two or three times a day, allowing them to focus on tasks that required a lot of deep-thinking, reading and writing. Nowadays, most people are checking email constantly, scanning tweets, Facebook status updates, LinkedIn invitations and contributing to whatever social group or network with which they like to spend time. Research needs to be served up in bite-sized chunks to stand any chance of being read. The analyst firms are slowly becoming aware that few people read their stuff anymore, but persist in “checking the boxes”, forcing their analysts to meet their report quotas each year. Their problem is that their product and revenue model is based on numbers of reports and hours of enquiry time – they are serving up expensive macro services, where their clients now want the micro.
There’s too much “research” being produced that’s not telling us anything new. I am actually hearing major IT/BPO providers and C-suite buyside executives declaring that today’s “traditional” research “isn’t relevant to them anymore”. They just don’t see the point in a lot of it. They’ve figured out how to sell/buy their products and services, and dont need some primadonnas in their ivory towers telling them what they already know, using big words such as “ecosystem” and “agility”. They view analysts as useful sounding boards and occasionally get some competitive intel out of them, but that’s really all the value they currently get, beyond favorable positions in scatterplot charts and after-dinner awards.
Too many analysts are following the hype and avoiding reality. How many analysts haven’t started using the word “Cloud” at every opportunity? How many have actually had the stones to challenge the hype and go against the marketing dollars of their paying vendor clients? The more analysts persist in following the hype, the more they are turning off the punters.
Buyers don’t read research these days. Fact. I can tell you from years of experience that buyers will only read a research report if their job depended on it and it’s forced down their throats. However, buyers love learning things that help them do their job better – they like listening to real experts and learning from each other. Analysts need to spend as much time as they can talking with buyers and becoming a focal point for idea-sharing, knowledge, data and validation of their strategies. While some analyst firms know this, many of their analysts rarely have more than two or three buyers in their Rolodex.
"This sums it all up perfectly" (courtesy of Ray Wang)
The large analyst firms lack rock-star visionaries. In years gone by, there were countless big personalities emanating from the Gartners, IDCs, Forresters at al. Sadly, that number has dwindled as these firms felt the need to control and scale their corporate brands and keep their payroll under control. Moreover, the last thing they want are clients calling up demanding to talk with Bill, not Ben. Innovation is bred from people with vision and personality – and the more analysts are “standardized”, the more the personality is drained from the product. Analyst firms need to create new visionaries for clients – and maybe even dust off a few of the old ones knocking around somewhere in the blogosphere. Hell – the retirement age is 70 now, so let’s bring some of the old egos back!
The bottom-line
So there we have it – one guy’s view among many – and am sure many people will get upset with me for calling it how it is, while others will just say, “tell me something new, Phil”. I chose research and analysis as my chosen profession and believe passionately in the value that good expertise, broad thinking and data-driven guidance can bring.
My firm, HfS, couldn’t survive alone merely peddling research reports – we have to deliver products, data and networking opportunities our clients need, to help them do their jobs better. Research has to be about bringing together the voices shaping industry, providing real data to help guide decision-making, and also forcing people to stop, think, and take notice.
At the end of the day, research is discretionary spend – we’ll have another recession one of these days and we’ll have further secular changes to industries, like the last one. Just look at what happened to the worlds of media and journalism. I fear that the analyst business could fall victim, should it fail to keep apace with these fast-changing times.
And if you want to hear even more on this little 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.
Outsourcing is like ripping off a Band-Aid. Do it slowly, it’s a slow and painful experience. Do it quickly, and the pain is gone before you know it…
Outsourcing of IT and business process has always been a game for large enterprises, where well-executed large-scale employee transitions have resulted in profitable endeavors for both providers and buyers. But while the large buyers like saving the money (see Part 1), it’s actually the mid-market sector ($1bn-$3bn revenues) which is getting a lot more out of the experience:
This graphic shows where outsourcing has been very effective for organizations. And the mid-market buyers have been enjoying considerably more success in every area – from cost reduction through to global effectiveness, through to getting better business process improvement and technology.
HfS believes much of the reason for this is that mid-market buyers are forced to jump into outsourcing more aggressively to attract a quality provider, which, in turn, is forcing them to transform their operations much more rapidly to incorporate the provider’s global delivery infrastructure. Let’s examine this further…
Why mid-market buyers are enjoying more successful business outcomes when they outsource
Mid-market firms appreciate the global scale, expertise and process acumen providers bring to the table
In the mid-market, organizations are less well-resourced – they often have legacy IT and can’t often afford to have well-paid top-notch finance, procurement, HR and operations talent. Hence, having skilled service providers take on their stuff has been – by and large – a positive experience for them. Their bigger counterparts tend to have more sophisticated ERP and empires of IT, finance, procurement and HR. When the large firms outsource, they don’t really want to change the way they do things – they simply want to run them the same way at a lower operating cost. While a mid-market organization may not wield the same level of aggressive cost reduction through large-scale labor arbitrage as larger enterprises, they clearly enjoy the benefits of accessing improved technology and process expertise.
Mid-market buyers initially outsource a greater proportion of their staff and processes to make the economics work, which is leading to more positive business outcomes
Enterprises usually have a lot more staff supporting business functions, and many of them are today outsourcing in increments, perhaps starting, for example, with accounts payable, before extending to receivables, reporting, procurement and analytics. They are large enough to be able to dictate to suppliers their preferred pace of outsourcing. Many mid-market firms may only have, for example, 150 people in finance and 25 in procurement. They’re pretty much going to have to bundle as many staff into the first deal to attract a top tier provider and don’t have the “luxury” of outsourcing step-by-step.
Moreover, the fact that most of the mid-market buyers have to outsource more processes and staff faster correlates with the increased satisfaction ratings – a more rapid transition to an end-state clearly helps drive transformation and improvements in process.
Many enterprise buyers are outsourcing in an incremental fashion, which doesn’t encourage business transformation
Large enterprises continue to dominate the lion’s share of current outsourcing activity – because they are tending to outsource in smaller increments which, in turn, is inhibiting change and encouraging them to muddle through with their existing processes, which are often inefficient and not very effective in a global outsourcing delivery model.
The following graphic illustrates the fact the enterprise buyers are far more active increasing the scope of their existing engagements:
As this data plainly illustrates, large buyers are not holding back when it comes to expanding their outsourcing engagements in established areas where they have eager suppliers swarming all over them to take on more work. For example, 40% of large buyers already outsource parts of their finance and accounting and are looking to grow their engagements, half of them are doing likewise with document and print management, and two-thirds in application development and maintenance.
It really does beg the question: why continually look to increase scope, when you could have outsourced a load of these processes years ago? What were you waiting for?
The bottom-line
Let’s be realistic here – organizations outsource processes that probably aren’t very well run in the first place. Why persist is continuing to run them poorly and take 5 years to reach a point where you finally admit you have to change?
HfS believes the whole “softly, softly” approach to outsourcing that we are seeing from many enterprises, is prolonging the disruptive change a buyer needs to go through to reach its desired global operations end-state. Enterprises clearly struggle to achieve the business benefits of smaller organizations which are forced to bite the bullet and take on new ways of running processes when they outsource.
Moreover, the mid-market is clearly becoming the testing ground to develop more standardized outsourcing models that can be implemented quickly and incorporate quality process workflows. Moreover, the opportunity is clearly there to bring together much more “industrialized” outsourcing solutions that incorporate software IP, analytical outcomes and BPO. HfS strongly believes that providers need to attack the middle market, in addition to the “easy dollars” at the enterprise level, in order to develop a balanced portfolio of clients: enterprise engagements will serve up profit and delivery scale that can be invested in middle-market clients which are road-testing these industrialized solutions of the future.
Outsourcing is a cyclical business – when economies nose-dive, organizations batten down the hatches and wait for the uncertainty to clear, before making decisions that are longer-term in nature and potentially disruptive to the business. Recessions drive short-term behaviors, namely immediate cost-cutting, re-orgs and layoffs. Hence, shaking up the finance, HR and procurement functions with complex, stressful outsourcing initiatives could well detract from the short-term tactical measures to ride-out the economic misery.
Having come through the worst Recession since the bubonic plague, it’s little surprise that much of the outsourcing energy dissipated between 2008 and 2010. Lots of low-risk application development and support work was moved to low-cost providers during this time, as it fitted the “cost-out-quickly with minimal disruption” mentality of many organizations. Consequently, many enterprises still operate their core general and administrative work much the same way they’ve been doing for the last decade or more, and most business function leaders know they have to change.
Our State of Outsourcing 2011 study of 1,335 industry stakeholders, conducted with the Outsourcing Unit at the London School of Economics and supported by our friends at SIG, points to a marked turnaround in outsourcing intentions as global economies reach a period of sustained (albeit limping) recovery. For many organizations today, clearly the short-term counter-recessionary measures have been executed through to fruition, leaving business function leaders under renewed pressure to seek out new operational strategies for driving out cost and improving global effectiveness.
Yes, it’s time to dust off those old outsourcing plans, call your hapless account rep who’s likely given up hope you’ll ever get serious about this, and request to re-examine the delights and possibilities of that promised outsourcing land. And – oh my – are companies revitalizing their interest:
Let’s examine these dynamics:
IT Outsourcing
Well over half of enterprises today are outsourcing a proportion of their apps and infrastructure, and the overwhelming majority (58%) are adding scope to their engagements. Clearly, this is a maturing and (dare we say it) commodotizing marketplace, where buyers are getting increasingly experienced and looking to squeeze more out of their existing service provider portfolios and further reduce their onshore staff numbers. As Part 2 illustrates, many firms still have plenty of IT support still inhouse or in shared services. We expect a heavy polarization by the leading service providers to soak up this high-end enterprise demand, while the less-profitable scraps in the middle market will get fed to the lower-tier providers, and those slipping top tier providers now struggling to maintain their enterprise presence.
Business Process Outsourcing
Procurement BPO: Finally, Procurement BPO is on the table, with 18% of organizations seeking their first forays into an outsourced model over the next 12 months. Organizations are coming off the Recession knowing they have to globalize their procurement processes and leverage the indirect sourcing competences of providers to tighten-up the cash flow. Moreover, providers are aggressively pushing gainshare, risk-sharing proposals at buyers in order to develop scale and category expertise across procurement BPO functions. Procurement BPO doesn’t bode too well with the labor arbitrate-only model – most procurement departments have already been cut to the bone – and merely lumping messy procurement work offshore isn’t, by itself, going to deliver benefits that are going to make this a worthwhile experience. However, there is lots of money to be saved (or gained) when you use more effective procurement technology and have access to category experts. With such a large number of buyers already bedding down their F&A engagements, procurement is the natural next step for may organizations.
Finance & Accounting BPO: As we discussed during our recent F&A market analysis, F&A BPO has emerged aggressively after being back-burnered considerably during the Recession. With 17% of enterprises expecting a first-time move into F&A over the next year, we can anticipate several new engagements to come to fruition, with a projected market growth of 15%. However, we would also add that 85% of F&A discussions currently on the table are being sole-sourced with limited (if any) advisor presence, which makes it challenging for providers to get their clients over the line to take the plunge. There isn’t a lot of education and experience in the market for buyers to get the discipline and data they need to move into an engagement via a sole-source, and we anticipate that many of these engagements will take a lot longer than a year to get finalized. And many will likely never happen.
Human Resources Outsourcing: There are two dynamics driving a healthy growth in the HRO space – the desire from many enterprises to globalize their payrolls, and the need to help with the new compliance and regulatory measures being introduced by ObamaCare. Very few enterprises are still looking at multi-process HR BPO strategies, instead electing to look at single process engagements, often with a diverse mix of providers. We are also seeing increased interest in recruitment process services, as many business seek more flexible staffing models and increased proportions of contingent workers.
Other process areas: “Traditional” BPO areas, such as call center and document and print operations, are clearly on an upswing as business volumes improve and buyers need more support. And with many large enterprise already having existing service contracts in-place, increasing delivery volume and scope is already underway. We’ll dig deeper into the nuances of these more traditional markets in Part 4, coming to a LCD near you very soon.
Industry-specific processes are currently dominated by several high-end insurance companies and banks with a lot of activity in areas such as claims processing and management, compliance support, payments processing and capital markets services. In addition, we are seeing increased interest from some of the big pharma, in areas such as clinical data management and pharmacovigilance services. New BPO markets, such as LPO, marketing operations and analytics are also featuring as areas of planned investment from buyers.
The bottom-line
The outsourcing market is hotter than it’s ever been from an interest and activity perspective. There is barely an unemployed or benched sourcing advisor to be found, and providers are hunting like dogs for new sales reps to develop their bulging pipelines. However, lots of bubble and fizz doesn’t always translate into long-term action. As we discussed during parts 1 and 2, buyers struggle to get a broader picture of outsourcing beyond cost-reduction, and many distrust the providers to mitigate their risk.
Moreover, many buyers clearly struggle to get to a decision-point about such a sensitive and potential disruptive phenomenon as outsourcing. We predict that existing buyers will follow-through with their intentions to increase scope of existing engagements, but many of those intending to outsource a function for the first time, will either fail to make decisions internally, or their expectations with regards cost-savings, are not going to be met – especially the more resource-constrained buyers in the mid-market. We’ll see most activity over the next year with the experienced enterprise-level buyers, while the mid-market takes time to digest its options and seek out providers that can really deliver a business case that makes outsourcing compelling enough for them.
Having been blogging for over four years, I’m used to putting down my thoughts and concerns about things I care about. I normally don’t think about it too much, I just write and enjoy the banter and discussion it creates. It’s like having a “virtual pint” with friends, peers and colleagues.
Having been in and around the analyst business since 1996, I’ve never been short of an opinion or two about the industry. And neither are most people I know… love them or loathe them, analyst firms and their unique individuals stoke the emotions of many who come in regular contact with them. But are the days of the traditional industry analyst firms numbered?
Let’s be realistic here – organizations outsource processes that probably aren’t very well run in the first place. Why persist is continuing to run them poorly and take 5 years to reach a point where you finally admit you have to change?
