If you participated in our State of Outsourcing 2011 survey (see here and here), you may have been anxiously monitoring your inbox for a notification that you’d won the iPad 2. Well, the anticipation is over, and we can announce that the winner of the drawing is Stephen Kincanon, Vice President – Shared Services at Sara Lee Corporation. Congratulations, Stephen!
We managed to get a moment to talk with Stephen once he’d settled down from the excitement…
iPad 2 winner Stephen Kincanon, Vice President of Shared Services at Sara Lee Corporation
HfS Research: Congratulations Steve on winning the iPad 2. Can you share a little about your role and your involvement with outsourcing?
Stephen Kincanon: At Sara Lee, I am responsible for shared services for North America and the overall relationship with our BPO provider (IBM). As related to outsourcing, I was involved in the business case development, RFI, RFP, vendor selection and transition of Sara Lee’s activities to the BPO provider.
HfS Research: Based on your experiences to date, what would you say are the biggest opportunities and challenges for today’s organizations looking at moving into a global outsourcing business model?
Stephen Kincanon: I believe one of the biggest challenges for today’s organization is making sure there is flexibility with your BPO provider due to the number of changes within the organization such as mergers, acquisitions, divestitures, restructuring, etc. Having a provider that is willing to work with you during these time is critical to the success of your outsourcing and shared services.
The opportunity that comes to mind is finding a single delivery center that can meet the global needs of a company. If a company can have a single location providing BPO services it will reduce overhead costs for both the provider and customer. One of the challenges in this area is finding a low-cost location that has the language capabilities for a global company.
HfS Research: Is there any advice you would share with peers in other organizations, thinking of outsourcing?
Stephen Kincanon: The advice I would share would be: “make sure you select a provider that will be flexible in time of change and willing to work with you in creating solutions and not be focused on contract terms”.
HfS Research: What are your views on HfS and the work we’re doing? Anything we can improve upon?
Stephen Kincanon: HfS provides an unbiased view of the suppliers and trends with outsourcing and helps buyers understand what is coming in the future.
HfS Research: And finally, what will you do with the iPad 2?
Stephen Kincanon: Hide it from my 18 year old daughter.
HfS Research: Thanks Stephen – enjoy the iPad, oh and the BPO experience too 🙂
During Part 1 of the largest-ever study that’s looked at outsourcing across both IT and business process, we revealed – beyond any doubt – that outsourcing is now a proven business model for reducing operating costs, with 95% of buyers reporting positive outcomes. Moreover, our study also reveals huge untapped potential for future outsourcing right across both IT and business functions, so surely this means the market is set to explode and we can wield new hockey-stick growth projections? Perhaps… but a few things need to happen first. Let’s investigate…
Strong outsourcing growth potential exists across both mature and virgin outsourcing areas
Established outsourcing areas have a lot of runway. As our data across global enterprises illustrates, as many as four-out-of- ten enterprises still primarily conduct mature outsourcing-friendly processes such as IT support, ERP maintenance and application development, payroll and benefits administration inhouse. In fact, with the exception of IT help desk, more enterprises still predominantly manage these processes inhouse than choose to outsource them. This seems unfathomable – right?
Maturing outsourcing processes are poised for heavy growth. For maturing outsourcing areas such as purchase-to-pay, accounts payable/receivable, general accounting etc., 50-60% of enterprises still adopt an inhouse sourcing model, roughly a quarter house them in shared services, while under a fifth have chosen the full outsourcing path. That’s a lot of administrative work still being run at unnecessarily high cost – right?
Emerging outsourcing functions are only just at the beginning of their growth curve. With emerging outsourcing areas, such as record-to-report, strategic sourcing and supply chain management, barely 10% of organizations have chosen to outsource, with the vast majority still clinging to inhouse delivery. OK – these are more complex processes, but not many enterprises are dipping their toe in the water – right?
So with these proven cost-savings on the table, why is outsourcing still in its infancy for so many business support functions?
Buyers are distrusting of providers’ capabilities and haven’t been convinced of the proof-points
Clearly, many buyers have not been convinced by providers that they can deliver the goods:
Four out-of-ten cite they have yet to be given genuine proof-points that providers have the know-how to produce long-term business benefits for them. So why are they unconvinced?
The industry is polarized around cost. We believe a main reason for slower adoption of emerging outsourcing areas, lies with the fact that outsourcing has becoming polarized around cost as opposed to business value. Advisors and lawyers are too often brought in to develop watertight contracts and swathes of SLAs, which in turn diffuse much of the trust and relationship energy from the relationship before it’s even been signed. In far too many cases, it takes years to establish the level of trust that should have been established before the onset of the contract.
If you’re just inking a help desk deal and want your lowest price per help-ticket, that’s fine, but if you’re looking to globalize your procurement processes, or improve the quality and timeliness of your management reporting, you really need to see what’s under each provider’s kimono before you tie the knot with them.
Many providers lack proof-points and the ability to communicate effectively with buyers. Part of the reason for this, is that many areas of outsourcing are barely a decade old and there aren’t actually a lot of proof points available. Even so, some providers do a lousy job relating to buyers and providing a listening environment where they can have other clients share their experiences. Several providers still have archaic channels to market, whereby they simply fail to communicate with business function leaders who want to learn more about outsourcing and global business operations. Smart, creative relationship energy is required to influence the right business executvies and convince them of what can be achieved in a well-executed global sourcing environment.
The bottom-line
As Part 1 highlighted, buyers are only seeing modest business benefits in areas such as achieving new business process or technology delights. We believe this polarization around cost-reduction is manifesting a distrust among buyers to increase their outsourcing scope into new areas. It’s not about moving jobs out of the country – the core issues are about trust and demonstrating real business value and competency. Moreover, many organizations take a long time to accept such disruptive change as outsourcing – and they require a softer, more value-based and consultative approach to sourcing than simply hard metrics. Cost pressures have dictated much of the growth in outsourcing over the last decade, but it’s clear that many organizations want to see more before they will take the plunge. Remember, today’s corporate decision makers are unlikely to be schooled in the world of global sourcing – they usually come from finance, legal, sales or operations backgrounds. They want to see how outsourcing will really impact their business, and many of them are still yet to be convinced providers are going to deliver business value to which they can relate.
Stay tuned for the next installments in this series, where we will look at trends by industry, company size and by region, in addition to anticipated outsourcing adoption. And your comments and debate are always welcome!
FINRA is the largest independent regulator for all securities firms doing business in the United States and its recent proposed rule changes are rattling the world of outsourcing. So what happens when you mix these proposed FINRA regulatory rule changes, a well-known outsourcing partner from law firm powerhouse Loeb & Loeb, LLP, and the HfS Governator?
Well, today’s discussion, reserved especially for your weekend reading pleasure, is co-authored by Akiba Stern and Tony Filippone and focused on getting the dirty, detailed work of governance done right. And for any of you who have the good fortune of never having met Akiba, he is the most feared sight for any service provider around the negotiating table. Don’t let the Jewish jokes and Manhattan charm fool you – this rabbinic lawyer can lobotomize the lox and matzah balls from any proposed litigation. Apologies, Akiba, but when you send us in a picture of Charlie Sheen for your mugshot, you’re asking for trouble 🙂
Anyway, who knew that you could have this much fun making regulations meaningful…
Libertarians, Outsourcing and Lobotomies (LOL) and FINRA
Akiba Stern
There is a vocal group of “anything goes” executives that say crazy things like, “It’s not my problem anymore. It is my vendor’s problem.” and “You hired us to manage this. Don’t stick your nose in my business.” These executives are the libertarians of outsourcing.
For some bizarre reason, they view an outsourcing contract as a lobotomy. Apparently, they believe that, upon signing a contract, they instantaneously have no responsibility to ensure their vendors have the expertise to perform the work or to ensure the outsourced function performs as expected.
Year after year, the buy-side responsibility-lobotomized libertarians do as little work as possible. They look at SLAs and assess performance credits, and angrily call with complaints. Their site audits are international junkets, resembling the Fiesta Bowl marketing “events”. These libertarians eschew statistical methods of quality auditing and rigorous, frequent performance management processes in favor of annual qualitative bitch sessions performance appraisals. The effort to compete renewals is too internally politically overwhelming and the thought of a vendor-to-vendor transition is stroke inducing, no matter the level of incompetence.
Stephen Cohen
The sell-side responsibility-lobotomized libertarians are no more motivated. They direct services to new facilities their clients have never seen, to team members their clients have never met, and subcontract the services to vendors their clients have no idea exist. They use systems that are supposedly best in class and used by other “leading organizations”, but are surprisingly feeble and the reporting is rarely insightful. If a performance hiccup occurs and service credits are given, service credit earn back clauses give these lazy people a chance to paper over damage done to their customers’ customers next month.
Get Hands On, Get It Done Right
We come from the school of “hands on governance and vendor management.” It’s not good enough to be a coach, field the team, and hope for the best. You have to run the sidelines. You have to be the referee on the field ensuring you’re always close to the action. Sometimes, you even need to suit-up and play the game to get a first-hand understanding of the pace, effort, and activities of a real athlete.
So, we have a different perspective: You cannot lobotomize yourself when you outsource a function. You cannot hand over your function to a service provider, structure a nasty limit of liability clause placing the onus of regulatory fines and customer lawsuits on your service provider, neglect your outsourced operation, and then punish your service provider for failure to perform. No matter how core or non-core your outsourced function, you have a fiduciary responsibility to proactively ensure it operates as it should.
And … how hard is it really? Why can’t you have a set of critical metrics you review with the service provider month after month? Why can’t you have the service provider’s key players (their operations team, not their snake oil salespeople) meet with their counterparts EVERY MONTH and go over those metrics, variances from budget, services problems, overbilling, opaque billing, negative trends, etc. Okay, maybe it’s boring but that’s why you are making the big bucks (Or at least that’s why you got saved from being riffed or moved to Bangaluru by your Rabbi in the executive suite. So you really need to do some work and add value to justify your cost – which otherwise reduces the business case results!)
Regulators Mandate Hands On Governance
Apparently, US regulatory bodies agree with me. Most recently, the Financial Industry Regulation Authority (FINRA), which is the securities industry’s independent regulator, proposed for comment a rule change that states:
1) Outsourcing doesn’t absolve you of the responsibility for the outsourced function’s outcomes. You keep responsibility to ensure your vendors perform, no matter what contrivances you write into your contract. When the government auditors come, they will don’t care what your contract says about responsibility. They’ll be coming to your cube and asking you the uncomfortable questions, including why you wrote contrivances into your contract.
2) If your employees need certain qualifications and licenses to perform the work, so do your vendor’s employees. Your work still needs to be performed by people who are legally qualified, licensed, and registered to do the work. You need to be sure they are.
3) You must have a detailed governance and vendor management program with sufficiently rigorous processes that, in the words of FINRA, “should include, without limitation, conducting a due diligence analysis of all of its current or prospective third-party service providers to determine whether they are capable of performing the outsourced activities” and ensure compliance with regulations.
4) Some activities are so important to the stability of your company and the industry that you have to supervise, review, audit transactions, and in some cases, even independently review your vendor’s systems to ensure that they apply the right calculations and processes to your work. The FINRA rules go so far as to say that you’re not only responsible for all the above, but when the auditors come, you, not your vendors, have to explain the details to the auditor. Statements like, “At a high level, I know what they do, but if you want the details, ask my vendor” or “My vendor says its systems are used by many other leading global institutions” are not going to be accepted by the auditor. You must have a rigorous, statistically-based approach to quality audits and you need to independently verify that your vendor’s systems and processes comply.
5) All the same rigor described above applies as much to the subcontractors as it does to the contractors. So, that means if your vendor subcontracts to three other vendors, you, not your prime contractor, have to exercise the detailed governance and vendor management approach to all the subcontractors.
6) For Carrying and Clearing Member Firms, FINRA needs to be notified within 30 days of entering into an outsourcing agreement. In essence, the regulator needs to be quickly made aware that your organization intends to outsource. This includes locations (and changes to locations).
FINRA is not alone. The various banking regulators (Federal Reserve, FDIC, National Credit Union Administration, the Office of the Comptroller of the Currency (OCC), and the (soon to be disbanded under Dodd-Frank) Office of Thrift Supervision), and URAC (health care management accrediting body) all limit delegation of oversight and place strict standards on the clients outsourcing.
What This Means to You
Regardless of your opinion of extending the reach of regulators or our (maybe) tongue-in-cheek perspective on lobotomized outsourcing libertarians, FINRA, and other regulators, are really asking companies to do what they already should be doing:
If your company outsources, you should get actively involved in the governance necessary to ensure outsourced services meet expectations. This means investing in the personnel, processes, and tools required for sound governance.
If your company provides outsourcing services, you should actively involve your customers in the delivery of the services. This means opening the kimono on your staff, processes, and systems to give your clients an unprecedented level of involvement in ensuring your services meet expectations.
We are interested in your perspective on governance. Please leave a comment here or get in touch with Tony “The Governator” Filippone, HfS Research Vice President, Governance and Sourcing Strategies.
If you’re interested in more information about the implications of FINRA’s proposed changes to your outsourcing environment, we encourage you contact Akiba Stern or Steve Cohen, partners at Loeb & Loeb.
Stern has advised clients for 30 years in all aspects of business law, both as in-house counsel and at law firms. Stern concentrates his practice on outsourcing, technology-enabled business transactions, e-commerce, technology transfers, licensing, intellectual property and joint ventures. He also specializes in transactions involving the commercialization of intellectual property.
Cohen focuses his practice on broker-dealer regulation and the securities markets. Cohen advises broker-dealer clients on a wide variety of regulatory and transactional matters, including federal and state registration and compliance issues and SRO membership and compliance issues, including FINRA (formerly NASD), the stock exchanges and the clearing corporations. His clients include major international banks, domestic and foreign investment banks, full service and boutique brokerage firms, clearing firms, transfer agents and hedge funds.
We would like to thank personally all 1,335 of you who took the time to compete our State of Outsourcing 2011 study we’re conducting with the London School of Economics Outsourcing Unit. This is the largest ever study that’s looked at outsourcing, which included all industry stakeholders (buyers – both business ops and IT practitioners, service providers and advisors). A special shout also goes out to our partner, the Sourcing Interests Group, for inviting their members to participate, in addition to our 53,000 loyal readers.
We’ve been sifting through the findings these past few days, and let’s start here:
Engagements struggle to deliver business value beyond cost reduction
Whatever the motives buyers have when they outsource, the first critical metric they must reach is to save the money they were promised at the onset of the engagement. And we have spectacularly good news for the entire outsourcing industry – the cost savings targets are being met – and being met well, with over 95% of current buyers viewing the engagements as effective for reducing their operating costs. And half of them are really pleased with their cost-reduction progress, the other half seeing progress as “somewhat effective”. However, that’s pretty much where the good news tapers off, as the rest of the results are pretty modest…
After cost-reduction, how is outsourcing faring?
Business Process improvements. Barely one-in-five buyers feel they are experiencing significant improvements from accessing new expertise and transforming processes with their current outsourcing initiatives. Half of them do see some effectiveness gains, while more than a quarter are seeing no effectiveness gains at all with their business processes. Considering many of these processes were likely non-core/non-strategic to begin with, which is why they outsourced them in the first place, it’s unlikely buyers are clamoring for process improvement in the initial phases, instead waiting patiently for their providers to serve up experts, process maps and best practice examples to harmonize processes. As many buyers quickly discover, if process improvement is not in the contract, it will unlikely materialize without additional investment.
HfS believes those providers looking to develop real utility across their clients, proactively need to encourage them to adopt common best-practice process workflows. This means they need the availability of process consultants to drive the agenda with their clients. And these consultants should largely be based onshore (spending time onsite) to work with the retained team. This should be a major differentiator between providers – those that can quickly help clients to evaluate improvements, versus those who simply want to shift as much of the work offshore as quickly as possible and keep margins to a maximum.
Introducing new technology. This is an area where buyers should be experiencing far more effectiveness than they currently are, with 56% only seeing modest progress and 31% none whatsoever. Too many engagements are still largely centered on shifts in labor-based services, as opposed to any genuine technology transformation. It’s hard to gain improvements in processes beyond a certain point if they are not IT-enabled, and clearly most outsourcing clients still run the same processes off the same technology platforms that they were using pre-outsourcing. Like above, clients quickly discover if it’s not in the contract, they needed to budget for it – whether it’s the latest SAP upgrade, or implementation of a new expense management tool. If providers want to build true utility, they not only need their clients to have similar processes, but the more they can be enabled on the same technology, the more replicable and scalable their services will become. And if these technology platforms can be delivered in the Cloud (even for components of functions), the easier they are to provision for clients.
HfS believes providers need to aggressively introduce new platforms to their outsourcing clients, and drive the IT-enablement of their business processes. Those providers which can acquire or develop unique technology IP to support their outsourcing clients are at a clear advantage. If clients are using highly customized IT platforms, for example in the capital markets industry, providers need to have the consultative skills to IT-enable the outsourced business processes effectively.
Innovation. As we discussed last year (read post here), at least 50% of clients take innovation very seriously when they outsource. And where they may be struggling to achieve innovation with their outsourcing engagement today, they at least see the potential to achieve it in the future. Innovation is a progressive goal, once clients have got their processes operational and are in a position to explore new and creative ways to improve growth or productivity. Providers need to work with their clients to develop an innovation agenda as they operationalize their outsourcing model, and their clients need to be encouraged to plan and budget for an innovation strategy from the onset of their engagement. Turning around to the board after two/three years to request budget for “innovation” is going to be a lot harder than if it was embedded into the initial agreement with some contractual provisions to cater for future innovation needs. Once the ink on the outsourcing contract has started to dry, corporate leadership has likely already turned attention to other priorities.
HfS believes innovation needs to be addressed front-and-center – right from the onset of an outsourcing initiative, and not as an afterthought. It’s like changing the wheels of a care while your driving – the world isn’t going to stop suddenly to allow for an innovation plan to be developed. It needs to be in the works constantly as the engagement matures.
The bottom-line
HfS views this data as an important success factor for the outsourcing industry. The initial goal of outsourcing – to drive out cost – has succeeded, and succeeded with flying colors. However, the findings also point out that the sequential business needs that need to be addressed are falling short. Our concern at HfS is that costs are like hedgerows – once trimmed they always grow back. Providers cannot afford their clients to struggle. After their transition to a working operational outsourcing model, corporate leadership isn’t going to keep reminding their shareholders about “that stellar 30% we took off the bottom-line three years ago”. They are going to be looking for their next improvement metric. And the only way to achieve that, is to constantly look at harmonizing process and enabling it with better technology. Outsourcing should provide an opportunity for buyers to take advantage of the talent acumen and IP their provider can deliver. If buyers really do care about continuous improvement, then they will seek out a services partner which can prove, through multiple client experiences, that they have the discipline, culture and motivation to work with them over the long-haul.
Let’s face it: Outsourcing is one of the most difficult businesses where you can charge a premium. Margins are constantly squeezed, and the only way to increase profit is either to become more efficient, or win lots of new business (lots is important, because the cost of sales is through the roof, too). CSC, with its latest results, has failed to do either, with flat revenues and declining profits.
It’s hard to be CSC. A perennial subject of acquisition chatter, it has built in poison pills in the form of gnarly government contracts with lots of limitations on who can own them and what can be done with them. This represents a disproportionate part of their revenue when compared to their competitors. This is not all bad. Government work tends to be stable, durable, and high margin, if notoriously slow to close. But acquiring government work is expensive, and if CSC has operationally squeezed out all the margin that it can out of its behemoth public sector contracts, then investors should prepare for many more quarters of bad news. An outsourcing company that is not getting more efficient at constant revenue might just be in trouble.
Again, its hard to be CSC. It lacks the scale of IBM and HP, the brand and loyalty of Accenture, and the relatively low overhead of the leading Indian IT providers. It is, effectively, stuck in the middle, similar in size and approach to European competitors that most of the time don’t bother to compete with these companies we listed. But even those European competitors have a more defined brand and mission in the enterprise world (as opposed to strength in the public sector).
So what can CSC do to show the world better numbers three months from now?
Be absolutely ruthless in streamlining operations. Review every account for opportunties and have the difficult conversations with the clients and account managers.
Turn on the enterprise sales engine. If the excuse for poor performance is “government contracts are slow,” well, then, get out there and win some non-government business!
Invest in the brand, especially in the enterprise market.
Study larger acquisitions that will create a splash while adding scale, new capabilities and price competitiveness. Heaven forbid, maybe it could even start to look at developing some BPO expertise that could be very effective in some of its core industries such as healthcare and manufacturing. It could even look to support public sector shared services initiatives as it seeks to streamline operating costs.
CSC is a capable, trusted veteran of this industry, and it need not disappoint the market—but it does need to refocus and find a new direction, if it is going to keep pace with the competition.
No single business function has been as discombobulated in recent years than marketing. The profound shifts to digital media, the rapid evolution of social media and intensifying globalized business environment, have raised the pressure on CMOs to unprecedented levels.
The answer’s simple, my dear Watson…
The CMO’s job has become a poisoned chalice – he or she is left trying to bring together many disparate functions and processes and report to their leadership how to measure, monitor and plan for future business success. Marketing is all about satisfying customer needs and wants profitably, and delivering a first-class customer experience, and HfS believes that marketing optimization is going to become a growing value-service than the BPO industry needs to deliver: from lead generation through to churn management, from maketing operations though to campaign management.
Bottom-line, the C-Suite cares passionately about how their products and services are marketed: this is not a business function (like others we can mention) which they are prepared to see its effectiveness decline.
HfS analyst Euan Davis, who is examining this secular shift in the world of the CMO, recently took time out to digest IBM’s new bumper CIO survey, and has some takeaways on how the CIO needs to get really close to the CMO to help them through their current predicament. Over to you , Euan…
IBM’s Institute for Business Value (IBM Global Services’ executive research group) announced findings from its huge CIO survey undertaken every 2 years (click here for more details). It’s a massive piece of work involving 3000 one hour face-to-face interviews with CIOs from around the world—this year it has some great news for CMOs.
Basically the CIO study segments CIOs into four main mandates—Leverage, Expand, Transform and Pioneer. Each mandate delivers on a set of goals to the enterprise such as streamlining enterprise operations and increasing effectiveness (leverage); Refining business processes and enhancing collaboration (expand); Changing the industry value chain through improved relationships (transform) and; Radically innovating products markets and business models (pioneer). Most of the CIOs are in the expand mandate and focus on driving better decision making across their businesses—process and product simplification and analytics are top priorities ( 82% of them lead on simplifying internal processes; 72% on driving better real time decisions and 71% looking to take advantage of analytics).
Where the study gets really interesting are the implications that the CIO mandate has for stakeholders around the enterprise—and in particular the Chief Marketing Officer. The CMO still warily eyes the CIO after a history of technology squabbles (we have to use Siebel? You’re kidding me right?); They also remember the promise heralded from its flexible CRM systems that ultimately proved to difficult for the old IT model to deliver on. Social media really has put a rocket under the CMO office—reams of online data needs sorting, categorizing and given meaning to unlock the value that it holds. Digital content sits in all sorts of places with vendors, agencies, removable hard drives and CRM folks as content management systems struggle to cope with workflow. CMOs need support and guidance from their CIOs like never before: Support figuring out how analytics can help them and where they get the IT insight around data management, warehousing, search capabilities and virtual dashboards so they can get closer to their customers and figure out which channel has the best ROI; Guidance into how to build an effective digital platform so that they can track and manage digital assets around the business cost effectively and share them with creative agencies and other external parties when they need to. CMOs need CIO support like never before.
The CIO study suggests both sides are coming together to understand which technologies and tools can best meet the needs of the customer— which tools can extract the highest value from data to enhance knowledge of the customer and which platforms can manage a firm’s digital assets more effectively. At last there is some clear common ground opening up between the CMO and the CIO. The CIO study highlighted what the major innovation plans for CIOs were in 2011: Business intelligence and analytics—83% of CMOs see this as a priority in 2011. And if any member of the C suite needs to use these tools it’s the CMO. Check out IBM’s CIO survey here.
Euan Davis (see bio) is Managing Director for HfS Research’s European Research and specializing in Marketing Optimization services
As HfS Research Fellow Keith Strodtman continues to shake the world of HR Outsourcing from its malaise, his next stop was benefits outsourcer Mercer’s analyst sojourn at the sumptuous Starlite Motel, Jersey City. Oh wait – my apologies – I am getting confused with the HfS sales offsite – the Mercer do was at the Mandarin Oriental in D.C. (which, in my opinion, doesn’t really have the personality of the Starlite…). Over to your Keith…
Mercer Analyst Day Report Out
Mercer kicked-off its annual customer conference with an analyst and influencer briefing at the lovely Mandarin Oriental Hotel in Washington D.C. on May 9, 2011. Mercer generates $3.5 billion in revenue from it HR consulting, outsourcing, and investment services businesses. It operates in over 40 countries and has more than 20,000 employees. Mercer executives presenting at the event included Jeff Miller, President and Group Executive – Outsourcing, Pat Milligan, President – Human Capital, Michael Sternklar, US Business Leader – Outsourcing, Mary Tinebra, Global Head of Business Development and Alliance – Outsourcing, and Kim Seals, Global Leader, Human Capital Operations and Technology Solutions. In this post, I will provide a few of the key observations from the event. For a comprehensive report of the day’s information please read my HfS Research RAPIDInsight.
Mercer has three primary business units. Consulting is the largest of the units with about $2.4 billion in revenue. Outsourcing brings in $700 million in revenue and Investment Services brings in $400 million in revenue. The outsourcing unit, which serves 10.1 million employees across 2,800 customers, is comprised of:
Defined benefit administration
Defined contribution administration
Health benefit administration
Absence management
Outsourcing services are delivered from fourteen service centers around the globe, including the largest centers in Gurgaon, India and Norwood, Massachusetts.
Mercer has a large number of large and mid-sized, well known customers across the outsourcing service lines. Last year, the company acquired a long-time benefits co-sourced software partner to expand its presence in the mid-market. The mid-market offering is often bundled with benefits strategy consulting and benefit brokerage services. The company believes that outsourcing value proposition will become even more attractive to companies as they grapple with an increasingly complex legislative environment, especially health care reform. I agree with this view and have seen evidence of sales growth from several providers in the benefits outsourcing market.
In the retirement outsourcing market, the company has developed a number of tools and alliances to help plan participants prepare for their financial future. During the event, product specialists demonstrated some of these tools and they appeared to be intuitive and filled with useful information. One of the web tools called RetireTALK is a public web site. Product executives indicated that mobile apps are on tap in the next six to twelve months. Clearly, mobile apps are an important channel if Mercer hopes to reach busy professionals and younger workers who rely heavily on their mobile devises for information.
Health care reform was also a big topic of discussion at the analyst day event. Steve Raetzman from Mercer Consulting provided an overview of the legislations and the potential implications for businesses. While there are many unanswered questions regarding the legislation, it is clear that there is a lot of work ahead for benefits leaders to determine how to best optimize their company’s benefits offerings. The reform will drive increased enrolment in health plans and lots of questions from employees. Organizations will have to determine if company sponsored plans, insurance exchanges, or some combination offer the best solution given the organization’s business and talent strategies. Benefits consulting firms such as Mercer are sure to see a surge in demand for benefit plan design services as companies grapple with these complex decisions.
Mercer’s Human Capital Consulting business has also seen an increase in business activity since the recession ended. Pat Milligan proclaimed that the global war for talent is back. CEOs are shifting their focus from recession-induced cost cutting to growth and innovation. This shift is happening at the same time that employee confidence and loyalty has taken a hit. Therefore companies need to take a fresh look at their talent strategy and talent management programs. Mercer’s consulting business is helping companies develop engagement, performance management, mobility, and leadership programs in addition to pay and benefit programs to meet the talent challenge.
Human Capital Connect is a new Mercer solution aimed at helping companies manage talent. The solution is a bundle of technology, powered by Peopleclick Authoria, and consulting to support implementation and adoption of the solution. Initially released nine months ago, the company reports a lot of customer interest in the solution but the buying process and time to contract has been slower than anticipated. I believe this could be an important solution for Mercer and will be watching to see if market adoption accelerates going forward.
After that taste of the study, we’re sure you’ll want more. So we’ve assembled a stellar panel to delve into Latin America in a special HfS Research Webinar at 11:00 am ET on June 2.
Join HfS Research Founder and CEO Phil Fersht as he’s joined by:
The paper explores challenges and pitfalls for Procurement BPO — from initial design to sourcing, transition and steady-state operations. We make a number of recommendations, including:
Do more in change management before and after the outsourcing. In hindsight, nearly all BPO adopters say they should have done more.
You wouldn’t select a fabulous viola player to teach you guitar; process experience (metaphorically knowing a “string instrument” in this example) matters little compared to deep domain knowledge from the provider.
Think about all of the stages of the BPO process both disparately and as one — from initial sourcing and strategy development to transition, steady state, and ongoing vendor management, each stage brings critical nuance and importance in getting the most from relationships and avoiding potentially costly missteps.
After 14 years, the effervescent Pramod Bhasin, now in his 60th year, is handing the reins to “Tiger” Tyagarajan, the company’s current COO, and long-serving member of the leadership team.
There was never any secret that Tiger would eventually take the helm from Pramod, however, this is interesting timing following its Headstrong acquisition, recent staving off of acquisition speculation, and its successful emergence from the Recession.
Firstly, HfS would like to express its best wishes to Pramod on his new non-executive role, and congratulate him on building a unique BPO organization that took on the likes of Accenture, Capgemini, HP, IBM and Xerox (ACS) when it was merely a commercial spin-off of GE’s F&A captive, to become one of the “Big 4” F&A BPO organizations today, with revenues now well past a billion dollars. You can read a dynamic three-part interview we ran with Pramod last year here. However, it so often takes one type of leader to get a firm to one billion and another to get it to five. The politics change, the amount of “hands on” involvement the CEO can have with clients and staff becomes very challenging, and the role often requires a different type of personality.
HfS believes the forthcoming appointment of Tiger is the right timing, and Tiger is the right man for the job for the following reasons:
1) Bringing in an outsider to a unique culture such as Genpact’s would have been risky. There are few executives in this industry who have a unique understanding of the Genpact culture, and how it has evolved from its GE roots. There are also very few executives who truly understand the operational issues behind successfully delivering, evolving and growing a finance-centric BPO business. Other BPOs which have tried to bring in executives from the outside have not – on the whole – been faring well with the change.
2) With the BPO industry now entering a period of renewed growth and Genpact’s immediate future assured, now is the right time to make this change. As we will soon reveal with the results of our 2011 State of Outsourcing Study, BPO demand in areas such as finance and accounting, procurement and industry-specific processes is rebounding strongly, after many companies’ plans were put on hold during the Recession years. This is not a time for heads-down cost-control and survival tactics, but a time for reinvigorated strategy, for new thinking, proactive client interaction and renewed growth.
3) Tiger has all the right ingredients internally within Genpact for the leadership role. Tiger’s energy and popularity within the Genpact ranks, and intimacy with the US, European and Indian organizations, places him on the right footing to transition seamlessly into the role. Moreover, Tiger has been very close to the heartbeat of the company, its management and investors, since its inception. He’ll implement new ideas and changes to the organization that he’s likely been thinking about for a long time and bring some fresh perspective to the organization.
4) Tiger has the right ingredients externally to lead Genpact. While Pramod has been a vocal and popular figure within India for Genpact over the years, Tiger has spent much of his recent career based in the US, where he has been a visible speaker, thought-leader and recognizable face of the firm, where he is well known by enterprise buyers, investment and industry analysts, sourcing advisors and other industry stakeholders. He has also been close to Genpact’s UK and continental European clients. Provided Genpact identifies a strong COO to support Tiger, HfS sees him an excellent ambassador for the firm as its CEO, especially when he’s freed up from so many of his current day-to-day operational issues.
So what are Tiger’s key challenges?
Evolving Genpact into a truly global firm, and not have all roads lead back to India
Installing a global management team, especially with the integration of the Headstrong acquisition
Investing in the industries where Genpact can lead the market, as opposed to having a “me-too” offering and relying on its GE heritage. This will involve developing both onshore and offshore acumen with industry and process depth. The seeds have already been sewn in consumer goods, manufacturing, life sciences, healthcare, banking and insurance. Now the challenge is to move beyond horizontal F&A services.
Setting the right acquisition path for the future, with the support of the Genpact board. Clearly this entails adding consultative skills, technology platforms and IT-enablement skills in the industry domains that are important to the firm’s growth.
As HfS Research Fellow 
