We were very saddened to learn that Joe Vales passed away this morning peacefully in his sleep. Joe was a pivotal and hugely popular figure in the outsourcing marketplace for many, many, years (long before we were around), and graced many events and occasions with his charm and wit. He was also a highly accomplished and respected marketing veteran, having been pivotal in helping position PwC’s BPO business for a decade, until 2001. Instead of retiring, Joe set up his own advisory firm, which he was still running until his untimely passing this morning. An avid fan of HfS, he will be sorely missed by us, and am sure many of you will be equally saddened by his passing. He was a sweet and lovely guy, who loved his work.
He was most loved by his wife, Louise, five children and grandchild.
Joe’s daughter, Kerryann, adds the following:
“He loved watching people he worked with years ago, when BPO was first getting attention, become the power houses that are shaping the industry today. He considered the nickname given to him “Father of BPO” an honor and working in this industry to this day a privilege.
“For Notre Dame, he was a Varsity letterman for the basketball team and has a plaque on the Hall of Champions out there for his excellence on the team. What college you went to would seem like something most people would let go of at a certain age, but ‘once a Notre Damer, always a Notre Damer’ – and he was always finding a reason to talk about the blue and gold.
“There are so many things that made my dad great. But his favorite word for people he valued was “special.” If he called you “special” you were in his circle for good. I would say my father is without a doubt, special.
“His passion and dedication to his craft was just unparalleled.”
What’s your New Year’s resolution? Watching Service Integration too, we bet…
HfS analyst Euan Davis, fresh from his recent escapades with Cloud Business Services, is dedicating 2011 to exploring the synergies created by the acceleration of Cloud Computing and Service Integration. His journey begins with a look at an “intriguing” partnership just inked between Logica and Microsoft… over to you, Mr Davis
So what’s your New Year’s resolution beyond enjoying yourself less and working more? Mine is to shape the debate around Cloud and watch how some IT services firms morph into “Service Integrators.”
Looks like I am in good company too, as I hear Europe’s Logica begins its New Year by inking an intriguing partnership with Microsoft. What, at first glance, looks like a rather mundane partnership really signals something else: That its going to be the business driving Cloud—Logica gets this and so does Microsoft. And each needs the other.
Our latest report shows Cloud Services triggering potentially large-scale business transformations and opening up demand for new operating models as firms look to source, rather than build for Cloud. But who’s going to integrate the services? Will it be the internal IT shop making the complex integration across cloud based services and applications work? My take is that those IT shops that can’t quite cut the mustard face a tough choice—learn how to do it quickly, get someone else to do it, or end their days as a cost centre managed out of existence.
The larger system integrators (like Logica and its peers) are betting that you, the buyer, will look to them to be your “Service Integrator.” That means they get to work with you to set-up and monitor an operating model with each step in the service delivery process mapped out and marked as it crosses out to the Cloud and back again, process by sub-process, right down to the data packet itself. Microsoft’s platform-as-a-service offering Azure certainly helps here with the architecture but Logica is in the driving seat to make Cloud a reality with its customers through its domain expertise and a collaborative DNA (must be its weirdly Nordic DNA) that pulls in a wider ISV community that can innovate and create cloud enabled industry solutions to solve business process problems. My research points towards business thinking the same way about service integration as it makes its journey to cloud—governance, transformation and change management are in the bag of tricks that business executives are looking for to make Cloud a reality—check out what sort of third-party support they are looking, from our recent cloud report:
Click to enlarge.
Mark my words—2011 is going to be a very interesting year and it’s one set of resolutions that I am going to be able to keep.
In her latest contribution to HfS Research, contributing analyst Deborah Kops of sourcingchange.com delves into the trials and tribulations of shared services leaders tasked with selling the value to their internal customers…
“In most organizations, believe it or not, shared services delivery models (read: centralization of operations through outsourcing or shared services…or both) is still optional. While the C-suite huffs about new business models and efficiencies, they often espouse the “Build it and they will come” approach, neglecting to use their considerable clout to really change the way the organization works.
“So the poor shared services team is left holding the bag, thinking they’ll get good air cover from the top brass, yet finding out very quickly that they are no different from a third party provider when it comes to sales and marketing. Yet few have the experience or the expertise to go out hat in hand, selling the model as a truly compelling proposition.
“Ultimately, shared services success is simply about growth. If, like a provider, the model can scale across the enterprise, it’s a raging success. But getting there is the trick. In her latest article for HfS Research, Deborah likens shared services growth to eating sushi—most people will eat the ingredients individually, but few like the wrapper…”
Find out more by downloading the article How do you get them to eat sushi over at our Research Page.
mmmm… some tasty ADM here, with a sprinkling of BPO
As if he didn’t have enough on his plate already following his rapid rise to HfS fame and glory, we sent Esteban Herrera to mingle with the elite of iGate and Patni to take a closer inspection of the first billion-dollar sourcing marriage of 2011…
At one point, there were over 200 investor-backed ITES providers in India. Today there is one less, as iGate has entered in an agreement acquire a majority stake in Patni. The world does not need 200 ITES outsourcing companies in India, so on that level this is a good thing.
In fact, as mergers go this is a fairly synergistic one: a high-growth, innovative company acquires a bigger but staid, stuck competitor. The vertical strengths of the two companies have little overlap, and the two companies together will sell a respectable billion dollars, giving them some clout in this hyper-fragmented market.
That said, a billion dollars ceased to be a big deal in this market about six or seven years ago, so like much of the other M&A activity we are seeing, this feels like too little too late. iGate has been making the right noises for some time, with outcomes-based pricing and combined BPO/ITO offerings, but one has to wonder why it hasn’t made even more of an impact—if those two characteristics alone are real, they should be eating the lunch of their larger competitors who don’t know how to spell risk and could not break down their organizational silos with a battering ram. But they aren’t. To be sure, adding Patni’s 16,000 or so employees will add scale, but everyone knows that’s not what makes a merger work.
A significant source of concern is the Achilles heel of all acquisitions—will the cultures fit? If you listened to the two company’s calls to brief analysts, it was hard to believe they had actually spoken to each other during the process. Then, this nugget from Patni: “Management, as you know, was not involved in the transaction.” Say what? It appears Patni’s owners and investors pulled the rug out from under their management team, and the mood was palpable even through the phone line. On paper and in principle, this acquisition makes a lot of sense, but execution is what separates the successes from the abysmal failures, and the Day 1 coordination does leave something to be desired. Printed materials and Patni suggest that it will be run as an independent P&L within iGate, but the message from the iGate folks was integration all the way. HfS Research is still wondering why the two companies even had separate calls.
In typical HfS Research style, let’s take a quick look at what this means to the various impacted constituencies:
Customers
iGate’s customers will generally benefit from a more disciplined delivery method espoused by Patni. Patni customers may well take advantage of iGate’s more innovative commercial models to transfer some risk and better align goals. This is all dependent, however, on the delivery teams from both sides being willing to work with each other, teaching, coaching, and knowing when to hold back. If you are a dissatisfied Patni customer (and we don’t know many), this is, of course, an opportunity to trigger your change of control clause.
Shareholders
Patni’s founders and General Atlantic had a decent day. $1.22 billion is not a huge multiple, but given that Patni had its “For Sale” sign out longer than a Nevada foreclosure, it was to be expected. iGate suddenly finds themselves in the world of leveraged buyouts—perhaps not where they intended to be. Debt changes a company’s behavior and iGate is going from having almost none to speak of, to carrying a large burden. There is nothing wrong with debt per se, but management of debt-ridden companies requires a different skillset than managing cash cows. Similarly, investing in leveraged companies requires a different stomach than investing in pristine balance sheets.
Employees
Patni employees can be heard breathing a huge sigh of relief—two plus years of uncertainty have ended. And except for those in the redundant functions (a decided minority) they appear to have pretty good job security post-transaction. iGate has cultivated a decent employer brand and will likely bring some energy and enthusiasm to the ranks of Patni, but it would be unreasonable not to expect turf wars and resentment, especially amongst long-term employees on either side who see themselves as “losing” in the transaction.
Overall, this is a synergistic, common-sense transaction and HfS hopes the combined entity will make a bigger dent in the marketplace, especially with innovative commercial models that better match risk and reward and simplify end-to-end services. At the same time, we doubt that this acquisition is sending shivers of fear into any of the larger competitors. We’ll be monitoring the situation and keeping our readers apprised.
How can enterprises find unbiased coaching, advice and data to help them make the right sourcing decisions, but then also have the expertise they need to transition into a sourcing environment?
The role of consultants claiming to provide these services has been under constant scrutiny in recent years, as the outsourcing of IT and business processes become a mainstream component of organizational strategy.
Boutique outsourcing advisors have roamed industries for over two decades, providing structured roadmaps for taking enterprises into an outsourcing transaction. Enterprises usually bring them in, once the “O” decision is made, to perform the operational tasks necessary to develop a scoping document, find an appropriate provider, negotiate an agreeable price for themselves, and take it to a transaction. Most of these boutiques tend to be small and specialized, existing in a little world of their own where they hobnob with providers, frequent the same events, speak the same language and regurgitate the same slideware year after year, as not a lot really changes in the world of number-crunching outsourcing deals.
However, in the last couple of years, the major consulting firms have finally realized they need to cater for the demands of an increasing majority of their clients, which have chosen to go down the outsourcing route. The results has been too many competitors chasing advisory engagements that enterprises are increasingly finding too costly. Hence, the outsourcing advisory market is embarking on a wave of consolidation that is likely to result in a different landscape of competitors by the end of the year.
The outsourcing advisor consolidation kicks off with TPI and Compass being paired up
To kick off 2011, the first acquisition involves outsourcing benchmarking consultancy Compass by TPI’s sole investor, Information Services Group (ISG), essentially creating an outsourcing consultancy of several hundred consultants with global breadth, armed with benchmarking capability.
With the increased focus on outsourcing advisory services from management consultants such as Deloitte, KPMG and PwC, the souped-up TPI/Compass creates a super-boutique that can compete effectively in the market for the complex enterprise engagements that require a lot of hourly-billable heavy-lifting. There’s little doubt this merger helps bolster TPI’s credentials as a serious player, now the big boys fancy their piece of the action.
However, when we look at the current enterprise needs for outsourcing support, we see a dire need for enterprises to receive a mixture of consulting advice and data, served up in a less expensive, easier-to-digest format, than the $500-per-hour model. With deals across ITO and BPO getting smaller in scope, and enterprise buyers getting increasingly familiar and knowledgeable about outsourcing, we question whether this latest merger is really addressing the changing market, or whether its merely a continuation of consolidation in the intermediary space.
HfS Research has been alerting its readers and clients for months about the limitations of benchmarking data and the need for a practitioner’s interpretation. From that perspective, the acquisition of Compass by the largest sourcing advisory consultancy makes sense, especially given TPI’s lack of a credible source of industry data. The combined capabilities of the two companies bring them closer to delivering real market intelligence to their customers. However, the economics will be tricky: each is a premium-priced participant in their space. There is a potential for conflicting philosophies too: Compass never succeeded at deal advice, so it could afford to advise clients not to do a deal, whereas TPI, like any advisor, effectively kills the most profitable part of its pipeline if it advises against a deal. You may recall this datapoint from Compass in 2007, which the firm was only too happy to release to the market:
“65 percent of outsourcing contracts terminated before the actual date of termination over the past two years…Two thirds of outsourcing contracts worth more than £20m are ‘unravelling’ before the end of their contract terms.” Compass, 2007 .
What this transaction will mean to industry constituencies
If you are an IT outsourcing buyer, one of your potential advisors just got more formidable, in the sense that they now own data they didn’t before. However, this combination of capabilities is not new: Alsbridge acquired ProBenchmark over two years ago and Everest went the in-house route building the Everest Research Institute, though its mission is more “research” than “data”. Buyers should also beware of the cost of benchmarking. Keeping the databases current and relevant costs money—it may be tempting for buyers to think that they are getting “free” benchmarking with an outsourcing advisory engagement, but sometime, somehow, somebody is going to have to pay for the benchmarks or the business isn’t viable.
If you are a BPO buyer, there’s nothing new for you here, unfortunately. The dearth of reliable industry data is not made any better by the mere combination of two companies. Perhaps this is something the enhanced TPI will seek to address. But there is only so much any company can do given the wide range of BPO solutions on the market today.
If you are an outsourcing provider, your nemesis at the negotiating table has a new weapon. Because Compass’ IT data is relevant and current, it may be used as additional leverage. The benchmarking clause, already a bane of your existence, becomes even more crucial in a TPI deal, because they can actively seek to re-engage every year through Compass’ benchmarking offering, so expect even tougher negotiations. The counter-arguments haven’t really changed, though, and a strategic judo-like move might be to push for greater transparency in the benchmarking methodology, which remains quite obscure across all benchmarking firms today.
If you are a competitor to either one of these companies, you probably should not expect much change. Certainly TPI will bring a more complete and compelling offering to the table, but its competitors by and large have had similar capabilities. HfS does not expect this acquisition to swing more deals one way or the other, and there were probably very few deals in which the two companies went head to head. As TPI and other advisors add benchmarking and research capabilities, it does increase the pressure on the big-firm advisory units (KPMG, PwC, Deloitte, Pillsbury) to add these offerings in order to compete for new business. If you play in the benchmarking space, you can expect to see a push for Compass to benchmark TPI-advised deals, perhaps raising your barriers to entry at some accounts.
Overall HfS Research thinks this deal plugs part of the data gap for TPI and most of the consulting gap for Compass, and in that way is synergistic. However, we do not see major market movement or new offerings as a result. In many ways, this is two of the bigger players, in their respective slices of the industry, coming together to do what many of their smaller competitors have already done.
We’ve been wallowing in white papers, plied with PowerPoint and overwhelmed with oratory, but despite all the chest-pumping, the very latest market picture of F&A BPO sends us one very clear message:the market remains dominated by a small handful of established service providers, while the market entrants of recent years have struggled to make a major impact.
Our forthcoming market analysis of the global F&A BPO marketplace, which breaks down 788 current multi-process engagements, to be released shortly on HfS, delves deeper into these market dynamics.
Not a lot has changed in recent years, as over half the market expenditure for all live engagements sits in the hands of three providers, and several of the multi-billion dollar IT services market entrants are clearly struggling to take any significant share away from the “Big 4” incumbent providers; Accenture, IBM,Genpact and Capgemini. HP and Xerox (ACS) have lost some ground, especially in light of their recent mergers, while the smaller pure-plays WNS and EXL are impressively holding their own against the likes of multi-billion dollar offshore giants Wipro, Infosys, TCS and Cognizant.
But won’t this situation change, as deals continue to get smaller?
The prime reason why the “Big 4” F&A BPO providers dominate marketshare, is their ability to pick up multiple deals in the $50m+ range over recent years, increase the scope and renew them – with Accenture proving the most adept at wooing large enterprise clients and cultivating their portfolio. The newcomers, over recent years, have struggled to win many (or, in some cases, any) mega-deals, and have aggressively sought to grow their respective footprints by taking on much smaller-sized engagements – many of which fall into the sub-$5m TCV category.
However, the following data shows the deals steadily decreasing in size, with this year’s average falling below $20m for the first time, so isn’t this shifting the advantage to the newer market entrants, more eager to take on small, less profitable engagements and grow them?
Bottom-line: people-scale is still the key to creating a “plug and play” BPO model
The IT services offshore goliaths, which have recently entered this market, are quickly learning that BPO isn’t IT, and you can’t scale from 10-to-200 employees within each of your clients within a couple of years. Most will be lucky if they can scale from 10-to-30 FTEs over the course of a five-year engagement.
Scaling a global BPO business based on multiple small client engagements is wearing on resources – and profit margins, and the providers scrapping for their share of the smaller business, are faced with a simple choice: Either stick with it and view this as a 10-year journey, or if you simply don’t have the patience or appetite to put in the investment, then get out and refocus your services on other activities.
For those who stay the course (and we expect most will), they need to keep putting in the grind to win small engagements, and attempt to scale their BPO delivery resources, while trying to turn some sort of profit. An acquisition or two along the way wouldn’t hurt, either. However, for the established providers, the simple fact they have much larger delivery resources working on bigger, and – in many cases – significantly more profitable engagements, puts them in a stronger position to compete for the small stuff. They can literally plug in new clients, reallocate personnel, and balance resources – often without having to invest in a lot of additional personnel to service the client. Moreover, having a broad F&A staff-base also helps providers expand into related BPO areas where staff can be trained to work on different processes, for example insurance claims processing, order management, merchandising support, and so on.
Common technology platforms, common process workflows and Cloud provisioning, are all tools to increase the multi-client shared-service capability for providers, but you can’t escape the simple fact you need flexible, ample, people-delivery resources to win the business in the first place.
The one common theme that kept cropping up, was their overwhelming admission for more effective change management and communications, business transformation and governance programs. To put this all in a nutshell, many customers must radically change their whole approach to sourcing to break free from inflexible old-world business models, IT strangleholds and rate-card purgatory.
So this year, we are putting a major research emphasis on what measures customers need to address to get moving with their sourcing agendas. And, as if by some higher form of sorcery, we’ve been graced with the presence of Deborah “Sourcing Change” Kops herself to help steer our sourcing change research agenda this year. Over to you, Mrs. Kops…
Happy Sourcing Change Year
My friends at HfS are forecasting a meteorologist’s dream for the sourcing industry— high pressure combinations of Cowboys and Indians, a blizzard of new deals, and very Cloud-y days. In the face of these anticipated patterns, how should buyers prepare for the stormy weather that ultimately impacts results for their organizations? Perhaps it’s time to prepare for the change sourcing represents a bit differently. Here are my top five recommendations for staying warm and dry in 2011.
Approach sourcing as “disorganizing event” Buyers usually restrict their ambition for sourcing to make existing conditions a bit better, faster and cheaper in a more scalable structure. Yet the act of sourcing is a profound opportunity to make indelible changes to the way the organization works—enabling work in new ways, setting new rules, delivering different outcomes, even changing the culture. Think about how you want to change the organization, and solve for it, rather than build a better mousetrap. What do you want sourcing to enable you to do?
Focus on “worst practices” Think about it–the best practices always take care of themselves, yet the worst practices fester and fester. Want to delight your customers by making their lives better? Stop painting a picture about a sourcing nirvana where 200 basis points of the cost of an invoice will solve all ills, and design a solution to get rid of their biggest headaches—inaccurate data, late close, lackadaisical staff on boarding, excessive system downtime. First fix what is inexcusable and downright awful, and customers will start to believe the vision.
Allay all fear The aim of sourcing is about as altruistic as corporate initiatives get. Few dare to argue that the business case benefits aren’t exceptionally compelling. Yet what stops it in its tracks is fear—fear of pushing too fast or treading on important corporate toes on the part of the sponsoring team, fear of not performing on the part of the delivery team, and fear of loss of control on the part of the business lines. If you can allay your own fears, and those of your internal customers, you’re halfway there.
Ditch procurement Is traditional procurement deeply involved in M&A activity? Corporate strategy?Business transformation? Not a chance. While our friends in the CPO’s office have an important role to play in procurement process and governance, they cannot be the major arbiter of taste when it comes to sourcing true corporate change.
Deborah Kops, Contributing Analyst, Sourcing Change Management, HfS Research (click for bio)
Get moving The mantra for sourcing change is the opposite of “speed kills.” Take it as a given that you’ll never please everyone nor get all aspect of the solution right. The sourcing exercise is not a proxy for singing a kind of corporate “kumbaya”—sitting around until everyone holds hands around the campfire. Obvious change is like a revolution—there is a before and an after. Everyone may not like the after, but there is movement, ostensibly to something better.
During the course of the year, Sourcing Change will be working closely with HfS Research to not only help you think about change management differently, but also dimension similar challenges. You’ll know when to put on those boots, and when to put on sunscreen, when an umbrella is in order, and how to batten down for a tornado.
As the world prepares to hibernate and recharge its lithium batteries in anticipation of a frenetic 2011, we take a look back at the highlights of 2010, as seen by your friends at HfS Research™…
The year started out as one would expect: with resolutions. Did you keep yours? We tried. But we’re sure a few “transformations” slipped out over the course of the last 12 months. Look back on this post and see how you did: New Year’s outsourcing resolutions for service providers. Anyway, here are some HfS highlights from 2010:
In 2009, we were officially the first to coin the term “New Normal”, only to see every other Joe Schmo latch onto it, but in January it didn’t stop us from revealing the results from our “Seeking the New Normal in Outsourcing Delivery” study…in a six-part blog!
In February, we asked the musical question: Are you Ready for H-Day? Just what was H-Day? Well, if you must know, you’ll find the answer here. That’s right–H-Day was the day HfS Research was borne out of the Horses for Sources blog. Will they make it? Many asked… several doubted, but we’re still here aren’t we, calling out the nonsense… and readying to add some new faces in 2011.
What on earth's an "oxymoron"?
And when it comes to nonsense, we like to give you some answers. So, when a term like Private Cloud comes across our screens, we have to ask: Is it the new Jumbo Shrimp? You know, is a “private cloud” an oxymoron?
As spring arrived, so too did a new healthcare law in the States. We investigated and found a scramble was under way to fine new sources of productivity. See our report here.
Innovation is a word that’s tossed around a lot. And most early adopters of BPO are a tad underwhelmed with what little innovation they’ve achieved, as our survey of 588 shared services and outsourcing executives revealed. However, most buyers realize they need to up their game before they can throw the gauntlet down to their provider – and they also see huge potential for achieving innovation with their BPO endeavors… if you read our “Innovation Purgatory” series.
Happiness is a relative term, isn’t it? But it’s not fun to be unhappy, especially when you’re spending money on the thing that’s displeasing you–namely and outsourcing vendor. So, we wanted to get to the root of it, with Why aren’t I happy with my outsourcer?
It's all about those regular delights…
As the dog days of summer approached in the Northern Hemishpere, we started thinking about, you guessed it, BPO’s billion dollar best-kept secret. In two posts (here and here), we talked with David Andrews, CEO of UK-based pureplay BPO vendor Xchanging plc, which has revenues in excess of $1.1 billion.
You thought we were done with innovation? Not even close. In July, we released a report (Desperately Seeking Innovation in BPO: Enterprises Speak Out), which dug into the results of our earlier survey of 588 shared services and outsourcing executives.
Old buddies Ray Wang and Phil Fersht got together for a wide-ranging discussion. Although there is only one Ray Wang, there are two parts to this discussion (here and here).
Did you know that 110,000 home-based call center jobs were created in the past three years here in the US? We did, thanks to Philip Peters over at Zagada. So NPR came calling and Phil Fersht was on All Things Considered, the American radio network’s afternoon show, in August.
Good things come in threes, right? Well, we found that to be the case as we added Esteban Herrera, Euan Davis and Mark Reed-Edwards to the crew here at HfS Research in September.
No sooner had we been joined by Esteban, Euan and Mark than we turned to marriage counseling, with triathlete, SCUBA diver and outsourcing marriage counselor Liz Cambpell-Evans, who desribes her job this way: “It’s great fun, I often describe my job as an opportunity to meet interesting people and help them solve tough problems.”
George Clooney was Up In The Air, but he’s got nothing on Ritesh Idnani, COO of Infosys’ BPO business. Over a three-part discussion (here, here and here), we got a glimpse at life in the new normal BPO environment, as well as a 35,000-foot view (literally) of his Infosys world.
Negotiations can be tough going. HfS analyst Esteban Herrera has seen weeping, object-throwing, suicide threats, uncontrollable roll-on-the-floor laughter, walk-outs both staged and unplanned, and even a handstand. In October, he detailed the Strange Things Happen at the Negotiation Table.
Euan Davis traveled to Prague in October to attend a CSC analyst event. In that ancient city, Euan liked what he saw. And the CSC event, which outlined twin strategies for dealing with the short- and long-term realities of how customers buy IT and business services, was pretty good, too.
Vineet Nayar, CEO of HCL Technologies, was typically outspoken about Cloud at HCL’s analyst day in Boston in early December. Tweets were flying about madly in the wake of his comment about Cloud being bullsh*t. But don’t be concerned about figuring out just what he meant by that. We went to the source to get an explanation.
And while we were busy examining various forms of animal deposits with Vineet, Deborah Kops, delightful doyenne and describer, was joining the HfS research family to bolster our contributing analyst talent. Debs took little time to wax lyrical about all issues sourcing change with two perceptively poetic and pragmatic pieces: “Imperfect Arbitrage: The implications of generational shift resulting from the globalization of work” and “Outsourcing: no fun for the soon forgotten”.
Not much fun for the soon-forgotten?
So, you’re a sourcing leader looking to discuss your challenges, successes and strategies with your peers? Short of bumping into someone in the Admiral’s Club, where will you be able to do that? With HfS Research, of course. In December, we created the HfS 25™ Sourcing Executive Council. And leaders from far and wide are clamoring to be part of this exclusive forum.
We all like prognosticating. Thinking about what will happen tomorrow, next week, next month or next year is an interesting occupation. Although we’re not futurists or bookies, we gave it a shot in a post here and a podcast here. Check back with us in a year and see how we did.
HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services
It’s been one frantic escapade here on HfS to keep track of all the core issues impacting our sourcing world, and we’re already knee-deep in our 2011 planning for more to come. However, this wouldn’t be at all possible without your collaborative support… and we hope it may long continue as we embark on our journey to bring Research 2.0 to the kitchen table 🙂
Have a terrific holiday, and all the very best wishes for 2011, from the HfS team.
Most people in the sourcing business have been exposed to the cheeky grin and affable sense of humor of EquaTerra’s Ron Walker. He’s always been at the front end of wheeling and dealing big deals – so most of us were left scratching our heads a couple of years’ ago, when he informed us he was going to focus his energies on developing an advisory practice around Real Estate and Facilities Management Outsourcing (REFMO).
Real-estate Ron wrestles with a Yellow Fin
“People outsource that stuff?” We all asked. Apparently, managing and maintaining global real-estate infrastructure is a big deal and a major overhead for businesses, and they can save a boat-load of money integrating and sourcing the management of these services (Click here to dowload an overview of the market) . So we grabbed some time with Ron to have him explain more to us about REFMO…
HfS Research: Ron, What is REFMO all about, and why should today’s sourcing professionals be interested in it?
Ron Walker: Sourcing professionals should be very interested in REFMO because it is the second or third largest spend category of any company. Only recently has there been an opportunity to integrate the function. Most strategic sourcing organizations have focused on cost reduction via standard procurement techniques. New tools, processes and service provider capabilities have come to the market over the last 2-3 years that have dramatically changed the opportunity to improve service and reduce costs.
The REFM opportunity is similar to where supply chain was 15-20 years ago when executives realized that if you can integrate the entire supply chain, the cost and service improvements are exponential.
HfS Research: Which are the main service providers operating in this market, and typically, who are the main executives on the buy-side which deal with managing these functions?
Ron Walker: The service provider market has changed dramatically over the last several years with many organizations adding both capability and an expanded geographic delivery footprint. Much of the improvement in capabilities and footprint was accomplished via M&A activity. I would say the three providers with the largest capability or geographic footprint are CB Richard Ellis, Johnson Controls and Jones Lang LaSalle. Although there are many regional and/or geographic service providers who are equally qualified for the right circumstances– for example, Sodexo, Veolia, Cushman & Wakefield).
One of the challenges with integrating the REFM function is that the leadership can be fragmented. There is seldom one person responsible for end-to-end REFM. The executive(s) we typically work with include VP/director of facilities, VP/director or real estate (sometimes combined) and often the strategic sourcing executive is involved and/or leading the initiative. We have seen great results when the CFO, COO or CAO have been directly involved because they understand that silos are usually less efficient.
HfS Research: Why has it become increasingly adopted over the last couple of years? What are the main drivers or inhibitors for enterprises?
Ron Walker: There are a number of reasons why organizations are evaluating REFMO. First, REFM is a large spend category that has been under-managed but offers a large opportunity, which means large savings with low capital investment. Second, service provider capabilities have significantly improved. Third, regulatory and risk management requirements have changed, which requires accelerated implementation. Fourth, space optimization requirements have changed through M&A, rationalization and consolidation. Finally, there are added service capabilities like green/sustainability energy programs.
HfS Research: From your hands-on experience of these delivery models for REFMO, what are the typical cost-savings / ROI?
Ron Walker: Typical savings can be anywhere from 7-20% with some organizations exceeding 20% when they include strategic space optimization. If you consider that REFM represents 20-30% of an organization’s cost base, the savings potential is enormous. (Note to readers – you can access some excellent research and information on the REFM market by clicking here)
HfS Research: What are the main hurdles enterprises need to overcome, from your experience, to move into an ideal REFMO end state?
Ron Walker: Many of the hurdles are the same for REMFO as they are with ITO or BPO. However, because this has been a low profile area, we experience additional challenges. The challenges include local/business unit ownership requirements. For example, local plants and campuses like to manage their own space. Then prioritization conflicts with internal strategic sourcing organizations–they get credit for reducing cost by tower while the REFM executive tries to improve service and reduce cost across the entire process. Of course, there’s always the general lack of understanding of sound outsourcing practices, and service providers need to continue down the path of expanding capabilities and footprint while improving overall operational delivery, including governance.
HfS Research: And finally, Ron, what inspired you to lead this practice for EquaTerra?
EquaTerra's Ron Walker (click for bio)
Ron Walker: Since the beginning of EquaTerra, one of my specialties has been to identify and launch new service offerings. With double-digit growth in a fragmented marketplace, we decided it was a great opportunity for me to build the team. There is nothing more exciting than being a part of a rapidly expanding service line!
HfS Research: Ron, thanks for enlightning the HfS community on this market – best of luck devleoping the practice.
When he’s not leading the Real Estate & Facilities Management Advisory, EquaTerra’s Managing Director Ron Walker (pictured here) can usually be found watching his kids on the various sports fields of the Houston area. And when he’s not doing that, you just might find him playing a round of golf or trying to snag a yellow fin tuna off the Pacific Coast. You can contact ron at ron dot walker at equaterra dot com.
Esteban Herrera is appointed Chief Operating Officer, HfS Research
Dear Folks,
As the year draws to a close, I can barely get my head around what we’ve achieved at HfS in 2010:
We’ve built a global team – with more characters joining next year;
We’ve developed a phenomenally ambitious research agenda (stay tuned for the official launch);
We’re about to launch a super-sexy new research website in the New Year;
We were named “Analyst of the Year” by our industry peers at the Institute of Industry Analyst Relations;
We’ve now reached 40,000 subscribers, 40% of whom are sourcing practitioners. We’ve never even thought about buying a list – everyone just found us!
We’ve surveyed the views and buying intentions of more than 8,000 enterprises;
We’ve added 20+ research clients across buyers, advisors and providers of sourcing;
We’ve launched an elite group of sourcing buyers, dubbed the HfS 25, which we’re already having to look at re-branding the HfS 50, due to the enthusiastic interest from so many of you.
And one person who’s really stood out, as we’ve romped through all these milestones, is the most poker-faced advisor-turned-analyst of them all: Esteban Herrera.
Despite my inability to spell his name, plus the fact that he has to put up with me (daily), and his giving up a big-bucks job to help steer this thing, he actually seems to like it here (or that’s what he tells me…).
We are very pleased to announce the promotion of Esteban to the role of Chief Operating Officer for HfS Research. His vast experience advising sourcing customers, combined with his energy, enthusiasm, sense of humor and entrepreneurship will make him a popular pundit and analyst for HfS readers, as we venture towards a very exciting 2011 for our growing organization.
Esteban Herrera (pictured) is Chief Operating Officer for HfS Research. You can access his bio here and reach him at esteban dot herrera at hfsresearch.com. He can also be found on twitter: @eherrerahfs
