Wake up chaps! Rocket-fuel Frank has saved the day…
It’s been quite a few days in the world of New York outsourcing events… first-off, the Global Sourcing Forum was cancelled over the weekend when the organizer had some sort of to-do with the Marriott hotel venue (I’ll never forget how they downgraded my status while I was on my honeymoon…).
Then, the most unlikely of heros, realizing everyone had already bought non-refundable flights, stepped in to save the day. Yes, Frank Casale, the rocket-fuel behind the Outsourcing Institute, has pulled together a last-minute event this Wednesday (tomorrow). I didn’t write this, so please forgive me in advance for the self-promotion 🙂
The details are as follows:
Date: Wednesday, October 13, 2010
Time: 9:30 Registration; 10:15 Start
Place: The law offices of Kelley Drye, 101 Park Avenue, New York, New York 10178-0022
Program Fee: Waived (that means free)
Exchange Best Practices, Exchange Experiences , Exchange Business Cards
Keynote Speaker: Phil Fersht, CEO for HfS Research, well-recognized outsourcing analyst, strategist, blogger, advisor, and practitioner across BPO and IT services worldwide. Phil will kick off the day with an industry insider’s commentary and analysis: “Desperately Seeking Innovation.”
ITO/BPO Case Studies: Actual Case Studies and Lessons Learned, from the people who lived them
Outsourcing Trends and Opportunities, and How your Company Can Leverage Them
Cloud Computing: Realities and Fantasies
Built-in time for networking and learning with senior level executives
If you would like to reserve your spot, please RSVP – ASAP by simply dropping an email to [email protected]
Ritesh Idnani is Chief Operating Office for InfosysBPO
Several people at Infosys have told me that noone spends more time traveling across the globe than the COO for their BPO business… Ritesh Idnani.
So when we teed up an interview with him, I asked him how many airmiles he has racked up, and his response was simply “am getting close to George Clooney’s character in the movie Up in the Air.” I assume he’s referring to the airmiles account…
Ritesh has been a constant energy behind Infosys’ development as a BPO provider for a number of years, leading both the sales and operations for the group, which has multiplied its revenues 10-fold during his five years tenure for the business.
It must have proven quite a ride to be involved with an aggressive market entry, a mini-boom, a Recession, and now a quickly-maturing business. We managed to divert Ritesh from his very fine single malt collection to talk about his experiences and where he sees this all heading down the road.
Phil Fersht: Thank you so much for spending time with us, Ritesh. I think we have come off the initial good feeling of coming out of the Recession, and a lot of the companies are grappling with the reality of today’s business climate. Are you seeing lethargy on the buy-side or are you beginning to see some momentum being built from your customer base with regards to growing business?
Ritesh Idnani: If I look at the last18-24 months, most of our clients have essentially focused on the cost side of the P&L quite extensively and done some of the standard things that they would do whether its around work force reduction, sale/ leaseback of real estate etc., all of which has contributed tremendously to the bottom line if you will. But if I would look at the one factor that is still a question mark for a lot of firms, it is the fact that the revenue side of the equation is still very sluggish for them. The new normal in some ways is the fact that unemployment still continues to be hovering around double digits.
The macro economic data still is a mixed-bag.. We saw some of the data on the the housing side, which came out last week that wasn’t very good.. The fact that revenues are still not growing meaningfully for our clients has meant that a lot of these folks are still struggling for where they are likely to get their next big jump. What that has meant is that service providers who have a suite of offerings that stretches beyond the G&A side of the P&L have been very, very relevant. So all the conversations we have been having are focused on the revenue maximization side and on impacting the cost of goods sold.
I think from that standpoint, while a lot of the firms have looked at what they can do, I think the revenue side of the equation is certainly something that they are looking forward to having discussions on. So we have been having many more conversations now on that than we did.. Fortunately, there are going to be people who are going to be listening to you at the C-suite of our clients
Phil: So where do you see the continuing challenges that are happening in the market right now when you look around the conversations you are having, both from the Infosys perspective but also from the clients’ perspective when it comes to BPO?
Ritesh: I think from a buyers’ standpoint there are two shifts that are there. One is that they want to start realizing business benefits very quickly and I think that is one part of the conversation that is there. Its not a question of saying lets give this four to eight quarters to kind of stabilize and then lets figure out how we are going to start realizing the benefits on our business case. Sometimes this has got a very close correlation with the fact that cash is king. It is also reflected today in the fact that you have 2.3 trillion dollars of cash sitting on the balance sheets of all of our clients. That says something in terms of how we are affording and preserving cash in this environment, which also means that our clients want to realize the business benefits sooner rather than later.
I think the second piece of it is the entire value equation itself. I think this has probably been more prominent as a discussion point than it ever has been in the past. I think discussion beyond labor arbitrage, beyond process improvement, is very much on the table. The ability to demonstrate business value far beyond these two value levers is certainly something that is relevant to a lot of buyers today. They want to understand how technology can influence a business outcome, “How can we leverage technology to drive a certain outcome itself? How can that impact and influence the business profits?” I think these are conversations that are very much on the table, much more so now, because everyone is looking at ways and means to variablize the cost structure to the maximum possible extent, and to the extent that you have solutions which address that, I think that is going well. It is one of the reasons why we believe that our strategy of converging operations and technology, and the things that serve the next big thing will drive a force to multiply the effect. One example of that is the heavy success that we have seen on the platform BPO side with the offerings that we have been taking to the market. One of the clear propositions with that is the fact that clients with minimal upfront investment are able to variablize their cost structure and they are able to realize the business benefits. It goes far beyond the traditional labor arbitrage and continuous process improvement.
Phil: One of the things that have been coming up in the recent conversations has been the tendency from a lot of the incumbent providers to over-complicate, be too difficult to deal with, try and always do things on their terms. We are seeing some of the emerging providers keeping it simple, really help the client understand what they are trying to do, and start off a contract in a much more simplistic fashion. Do you think that’s the case in BPO, where clients get scared of this our way or the highway approach, or they prefer an easy-to-work-with style?
Ritesh: A lot of it is really a function of the value drivers that are impacting the buy side at this point in time. For instance, if you find a particular company which is owned by lets say a private equity firm and there isn’t a quarter on quarter pressure out there around, there are interest covenants that need to be paid back etc., then the pressures to impact the business in a certain way may be higher. That could result in an all or nothing approach where what they are doing is to actually open the keys to the house and say, “See where you can impact me.” I think that kind of conversation has a significant play because they are looking to try and see what they can do in a fairly short period of time.
I think however it’s fair to say for most people, it is still a question of trying to improve the model. We want to still test the efficacy of the model in a small simplistic fashion, and then grow from there. Having said that, people also want to see the end of the road map. So you may end up starting with the head-count based model but I think people clearly want to see the path you will take to get them to a business outcome driven model where there is a greater skin in the game, where there is a higher risk shared with the service provider or the partner is willing to assume.
I think it’s important for the service provider to lay that out upfront, rather than just trying to play on head count or price because I don’t think that’s a winning proposition. I think that the other thing that the buy side is certainly looking at is. “Is this a partner for the long haul as opposed to the short haul?”
So you might look to outsource a process like AP to start with. But the question that the firm is asking is, “Do you have the capability to service me across both revenue and cost and not just on the F&A side for a particular process?” So as an example, a consumer packaged goods company today might be saying, “Can you assist us with great trade promotions from a field force effectiveness stand point?” A media company is saying, “How can you assist us on the long tail monetization side?” These are revenue side conversations rather than cost conversations.
They want to know that you have a way to support them on that at any point in time in the journey. They want to have the flexibility to accelerate the pace at which they do it, once the efficacy of the model is proven. I think those are probably the key things on the table. I think at the end of the day, it comes down to balancing out risk, economics, flexibility and scale, and assuming the right trade off between all of these elements.
Ritesh Idnani is Chief Operating Officer for Infosys BPO
In the second part of our interview, Ritesh elaborates on how clients want increased partnerships with their providers and specialized expertise in vertical industries
Ritesh Idnani (pictured here) is COO for Infosys BPO. During his time, the BPO business for Infosys has scaled ten-fold from a $40m business in 2005 to a $400m+ business in 2010 (the forecast is for Infosys to report revenues anywhere between $405m-$420m by end of current fiscal). He has led two of Infosys’s largest acquisitions in the last 4 years, McCamish Systems, a leading provider of life, annuity and retirement services products in 2009, and the shared service centers of Philips in 2007.
Prior to Infosys, he has held executive roles with PwC and Citigroup prior to Infosys. He lives in Basking Ridge New Jersey with his wife and twin boys. You can contact him by calling American Airlines and asking for “George”…
It's trunk-time for Ariba, as it sources its managed services business to Accenture
Procurement technology and services provider Ariba has found a heavyweight home for its outsourcing business with Accenture.
Having made the decision, in recent years, not to expand its outsourcing business beyond its not-inconsiderable client footprint, Ariba also attempted a partnership with HP’s BPO business which never got off the ground.
Today, Accenture announced a significant move to incorporate Ariba’s managed services business into its own global procurement and sourcing operations, which adds considerable category expertise to both Accenture’s existing European procurement services operation in Prague, Czech Republic, but also Ariba’s onshore procurement services center in Pittsburgh.
HfS Research views this move as significant for a number of reasons:
Many Ariba services and technology clients have been demanding additional global sourcing support for years, where Ariba hasn’t had the capacity to take on the additional business. Accenture provides the scale, technology implementation expertise, consulting skills and existing procurement delivery infrastructure (onshore, nearshore and offshore) to take advantage of this demand;
Procurement BPO clients are demanding more category expertise through direct (not solely indirect) procurement channels. Accenture have bolstered these capabilities with Ariba;
Accenture has significant added expertise and scale to deliver both direct and indirect sourcing for US-headquartered industrials, manufacturing, CPG, hi-tech, telco and retail customers;
Accenture now moves ahead of the pack with its Pan-European procurement BPO capabilities;
Accenture can more effectively stave-off aggressive competition for procurement BPO engagements, from emerging providers, such as InfosysBPO and TCS, which have been making inroads into global customers;
Acquisitions in services are more effective than partnerships – especially where institutional knowledge and deep domain skills are concerned. Accenture has picked up a heritage business to re-energize its existing sourcing BPO business, while much of its aggressive competition are settling for niche “tuck-in” acquisitions that add incremental value, but often do not bring the global scale and competency an acquisition of this magnitude can bring. It’s not always about buying technology, sometimes acquiring people talent is important – and procurement is one of those areas where you need people skills and ingrained domain knowledge to deliver complex engagements.
You can lose your sanity during a non-competitive transaction…
When a customer decides it has already found its provider-to-be, and wants to avoid the conflicting emotions of exploring what might-have-been with its competitors, it can inadvertently offset a spiral of sanity-losing issues for both parties, as they prepare to walk down the aisle.
One man who has lived the sole source experience – and survived to tell the tale – is HfS Research’s own Esteban Herrera, who’s new HfS Best Practice Report reveals some war-wounds most of you will definitely want to avoid getting…
The Trouble with Sole Source…
Consider the following two messages:
1) At the client organization: “Congratulations! As the senior functional executive for _________(fill in the blank : F&A, IT, HR, Procurement, Claims, etc.) you’ve personally been selected by the CEO to lead an exciting cost-reduction program involving outsourcing your very own department to a service provider! It gets better: the provider has already been picked for you based on their promise of superior service and bargain-basement pricing that has never before been granted to any client—really! Over the course of this important initiative, you will have to convince your peers and customers that this is a great idea; you will spar with lawyers, your own sourcing department, the provider’s sales staff, and possibly an advisor or two. You will need to collect terabytes of data and perform multiple analyses on it to then hand it over to our new partner so they can tell us how poorly we perform today. Oh, and your team will come to despise you, but we know you are the right person for the job! We are counting on you to double service levels and halve the cost. You have 30 days to get it done—what a fantastic career opportunity!”
2) At the provider organization: “You lucky dog, you! As the top performing sales executive last year, our chairman herself has decided to hand you the sweetest deal ever! After personally fostering the relationship with the CEO of Amalgamated Inc. for the last 18 months, she has secured a deal and all you have to do is shepherd the troops to a solution design and get a signature on the deal—it doesn’t get any easier than this! Of course, the executives at our soon-to-be new client have promised full access to their resources and their data, so it should take you no longer than two weeks to build the solution. We expect you to close this deal within the quarter. This is a fantastic opportunity to build our top line and increase our margins! Because this is so easy, you won’t have much of a solution team, but who needs it when the deal is already done? Oh, I am sure this goes without saying, but this is a career making deal for you. The chairman, the CEO, his pet parakeet, the EVP of Sales, each and every one of your insanely jealous peers, and everyone who stands to get/keep their job as a result of this mega-deal is watching YOU! Needless to say, if this doesn’t sign, well…
So begin most sole source deals. The problem, of course, is that these two messages are about the same deal. There is a lot of sole-source going on in the industry, and for good reason, but talk to anyone who has done one of these deals and they will regale you with tales of pain and suffering.
Reality, as they say, bites. Most of the seasoned sales pros I know in the industry have a war story or two about sole-source deals. Most begin with the story of the two CEOs of the parties meeting and agreeing to do a deal on a handshake. Then they turn it over to some “lucky” subordinates and tell them “make it happen.” Here the problems begin. The subordinate and his/her team may have no desire to make it happen. In all likelihood, no data has been collected, and it will need to be collected from the people whose jobs are at risk—so even if you get anything useful, it likely has some “omissions” that will come back to haunt you. The client has not had adequate denial time to get past the “…but my business is unique, and different from everyone else in the industry” objection. The provider CEO has promised “market” or “preferred” pricing but nobody stopped to define what that means. He also promised the deal would be done in about half the time it will actually take. And the poor sales pro assigned to the deal will be blamed for not closing quickly a deal that “was already done for you.” Blow a sole source opportunity, kiss your career goodbye. You get the picture…
I was thinking the other day that I have known of five outsourcing-related serious health incidents: three stress-related hospitalizations (2 providers, 1 buyer) and two heart attacks (1, provider, 1 buyer). All five came during sole-source deals. So this is a serious matter. Sole source drives people to do irrational things: A former client, against my advice, accepted an eleventh-hour offer from a provider when they magically reduced $27 million from TCV overnight, after an ultimatum that the deal would go competitive. Where did all that money come from? Was it margin? Risk? Services? More importantly, could this provider be trusted after this stunt?
In another sole-source war story, I asked the provider to come up with pricing for increasing FTEs in the deal above the deadband—what if we bought 75 instead of 50? They came up with a higher price for the increased volume! Similarly, I have seen a client CEO demand a “no-turnover” clause for the entire offshore team on the account. Who would like to sign up for that deal?
Despite what many believe, sole-source deals are not easy for either side. There’s little structure, unreasonable expectations, no understanding of how value may actually be created, usually a very recalcitrant client, scared provider delivery people and Lindsay Lohan-like visibility for everyone involved.
To read more about the complexities of sole source deals, and how you can keep your sanity (and stay out of the mental hospital) regardless of which side of the deal you are on, read the new HfS Best Practices Report, “The Trouble with Sole Source: Five ways to keep your sanity during a non-competitive transaction” (please click on the report link and register for our research, if you haven’t done so already).
With Leo Apotheker taking the helm at HP, all sorts of questions arise as to why they hired a software guy, who wasn’t exactly a wild success when he was top dog at SAP. Leo is the man you’d want if you are planning to acquire SAP. He knows the company inside and out and is savvy enough to work out some sort of game plan to integrate the German giant into the HP empire.
Firstly, I am not going (like so many others) to criticize this appointment – give the guy time to show what he can do. I always like to see someone have a second chance – especially when they can build on their previous experience and do things differently. Besides, when you’re trying to sell printers, servers, laptops and services – why not get a software guy to just pick it all up from scratch?
And secondly, I am not going to go into another diatribe about how he needs to develop a compelling ITO/BPO value proposition after Hurd had left that business to go stale (but you do wonder if he even knows what BPO is…).
And thirdly, doesn’t HP have a track record for buying up tech giants whose best days are behind them (Compaq… EDS), with the confidence to absorb them into their organization and perform miracles with their products and services?
HP and EDS are very strong SAP integration shops, and are very adept at doing the complex stuff. HP has never really done much with its software business, and its hardware and services lines are not exactly in high-growth mode these days. I think they fancy having a go at picking up SAP, and going headlong after Oracle and IBM. With Ray Lane supporting, he has the service chops to try and figure this out, while Leo knows how to push product.
While HP taking out SAP could mutilate its services business initially (who would want to have their lock-in software vendor providing its services), we are in a world where the rule book is being re-written. IBM seems to do just fine selling its middleware with its services, so why couldn’t HP at least try it?
Esteban Herrera: Research VP for HfS' buy-side enteprise sourcing practice
One element of sourcing which constantly baffles me, is the inability of firms to be open about why they’re doing it.
If I have a dollar for every outsourcing engagement which was decided purely on price, with a “nod and a wink” for the innovation that was going to be achieved in the future, I would be, well, about a grand better off! Our new enterprise sourcing dynamo, Esteban Herrera, expands further…
The expression barrier in outsourcing
Almost a decade ago, I had the honor of doing some research with MIT Sloan’s Peter Weill, one of the most influential voices in IT management in the world. Over the course of that project, I became exposed to many of Peter’s concepts, and I remember one in particular, which he called the expression barrier. I could never do it justice, but what I recall is that IT customers aren’t particularly good at telling their IT organizations what they need; and even when they do, IT organizations aren’t particularly well equipped to interpret it.
This should ring a bell for anyone who has ever tried to build, manage, or repair an outsourcing relationship. I think the expression barrier in outsourcing is a) even more prevalent than in IT and b) even more serious, as any breakdown occurs across enterprise boundaries rather than within them.
It starts during the sales cycle: If I had a dollar for every past client who declared that “price cannot or will not be the deciding factor” and then proceeded to make their decision almost entirely on price, I would have many, many more dollars. Providers, of course, have figured this out, and greet such statements with great skepticism borne from real and painful experience. The result, then, is that often when a client legitimately will pay more for a higher standard, they still don’t get it because their deal was built on price out of fear that anything different was a losing proposition.
When establishing the new relationship, the parties tend to be careful and courteous with each other. This is the wrong time for manners. In my first year of marriage, my wife was extraordinarily forceful in the correction of some of my bad habits. Alas, the ones I successfully hid during that period have proven far more challenging for her to rectify. Outsourcing “marriages” aren’t very different: yes, you will hurt someone’s feelings even if all you are criticizing is their work, but better early than late. Providers tend to want to protect the relationship and say “yes” to a whole lot of things that they weren’t expecting to have to do. Soon, this behavior becomes economically unsustainable and as it begins to change the client’s frustration tends to build.
Even in established relationships with a good track record one can see evidence of the expression barrier. I remember being close to some mature F&A deals as Sarbanes-Oxley became law. Clients got together in conference rooms and interpreted the requirements. Meanwhile, in a similar conference room but in another part of the world, their providers did the same. The work was performed, and client’s routinely sent it back as “non-compliant.” Not surprising, and the two groups had never agreed on what “compliant” meant.
The expression barrier shows up in every relationship almost every day—and it is actually fairly easy to diagnose. An outsider will typically see it within minutes of observation. The cure, however, is elusive. If we could solve it, we could make a world of difference in this industry. It seems like it should be as simple as “Say what you mean!” but after ten years of trying that, I’m ready for a new approach. How about we start the discussion right here, on the Horses for Sources blog?
Liz Campbell Evans is Managing Director of EquaTerra’s Governance and Transformation Advisory Services
If your outsourcing relationship is on the rocks, one person who can provide some tried-and-trusted therapy is EquaTerra’s Liz Campbell Evans, who actually does outsourcing marriage counselling for a living, running EquaTerra’s transformation and governance practice.
Now Liz is one of those people who just makes us depressed – she’s a triathlete, scuba diver, fluent linguist in both English and American, actually loves her job – and just gave birth to her first baby boy (and still managed to squeeze in this discussion with us). Her only flaw is she actually enjoys intervening in broken outsourcing relationships to earn her bread.
And before we go to the discussion with Liz, we’d like to invite you to meet Liz and the EquaTerra team in my home town of Boston on 14th – 15th October, where you’ll get some serious advice on how to work more effectively with your outsourcing partner. Click here for for details on an excellent agenda and email Alison Norman for more details.
Phil Fersht: Hi Liz – so how, on earth, did you manage to end up in this business as a governance expert?
Liz Campbell Evans: Good question and one a ponder from time to time. I’ve been involved in outsourcing for a number of years now, over thirteen and I soon realized that while the seemingly exciting part of the process was getting to the “deal” the rubber really meets the road post deal. I have spent much of my time in outsourcing focusing on help organization work better together within the boundaries they jointly agreed and established as part of the contract. The frameworks and tools that I use on a day to day base really help to enable effective governance.
Phil Fersht: Is it fun at all, or just lots of stressful clients, and sorting out strained relationships?
Liz Campbell Evans: I’m going to confess it’s great fun, I often describe my job as an opportunity to meet interesting people and help them solve tough problems. No outsourcing relationship is the same, different people involved, with differing experiences and expectations. As you would say, Phil, it’s a case of “horses for courses”! Having the opportunity to realign all of these difference and sometime, opposing perspectives is a challenge, especially to preserve a fair and sustainable way of working together. I also get to work across multiple functions / subject areas, IT, Procurements, F&A etc etc so I get to see how the marketplace is evolving and adapting to changes in deals. Helpful insights when you’re trying to fix things, believe me.
Phil Fersht: On a more serious note, are clients generally getting better at this?
Liz Campbell Evans: I honestly believe people are, mainly due to the focus on and expectation that the signature isn’t the final piece of the jigsaw. Look at any outsourcing conference and you’ll see a Governance or Relationship Management stream which was not the case even 5 years ago. Plus I must give the Service Provider credits, many of the more mature companies have done a good job in developing and refining their message to clients about how things will work, what’s normal, when pains points are likely to occur. As a result I believe that clients are more prepared and more willing to prepare themselves for the additional / new work of managing these agreements.
Phil Fersht: And how to do you typically advise client when it comes to multi-sourcing? When should they use multiple providers, and when’s it better to have a “single throat to choke”?
Liz Campbell Evans: Great question, from a governance perspective I am often told what the situation is, i.e. an organization is going the route of multi-providers. My job and the work many of the EquaTerra governance team is to make that solution successful. I see multi-provider environments commonly in IT. The key is for the clients to understand what they want and expect from each provider and the type of relationship they expect. I truly believe not all relationships are created equal, nor do they need to be for a successful outsourcing portfolio to function and deliver the benefits. Some of the most successful multi-sourcing arrangements are those that follow a specific strategy, often engaging multiple providers at the same time, perhaps in the Applications area. When the contracting is done in parallel there is an opportunity to align objectives and expectations of all parties regarding the interactions, hand-offs etc. However its more common for multi-provider environments to evolve over time, in my experience. They key for organizations engaging in multi-provider environments to know they have more work and more responsibility to ensure the interactions between the providers work effectively. This is a big responsibility and one that honestly a number of organizations do not give enough attention to before the new agreements are signed. So to actually answer your question, any multi-provider situation can be made to work, there is a different level of governance, effort and involvement needed from the client side.
Phil Fersht: How do you see governance models changing in the future?
Liz Campbell Evans: Great question and one I wish I had more time to contemplate. A couple of key changes I do believe will be needed in order to respond to the evolving services available in the outsourcing marketplace. As an example; Cloud computing and Software as a Service are very much commodity services, often associated with transactional types of relationships. Governance models will need to become leaning and adaptable to handle the true differentiation in the types of services being delivered. In today’s IT world (using IT as a good example); much of the outsourcing is a combination of staff augmentation on the applications side and varying degrees of traditional managed service in infrastructure. Introduce Cloud or SaaS and the nature of the interaction with the service provider changes. The time and access to managed, involved on the all service providers in supporting the IT organization plan for future needs etc. It may not be realistic for companies to expect the same levels of involvement and collaboration from all providers – that may not be what companies are paying for.
Phil Fersht: How can buyers get better at governing sourcing relationships? Is there a curriculum they can follow? Or it is more of a “trial by fire” experience for most?
Liz Campbell Evans: Clearly they could call EquaTerra 🙂 Seriously there are a number of key areas which come up time and time again that if done effectively dramatically improve the sourcing relationships;
Get your owner house in order: ensure the client side organization has established where decision making authority lies with regards the new agreement, including issue escalation and resolution. Ensure roles and responsibilities for interfacing with the service provider and providing oversight (governance) are clearly understanding and communicated. Ensure you have the right people in the role governance roles. Not everyone wants to or can be good in governance positions.o Agree governance principles are part of the contracting process: ensure the teams that will be responsible for working together are given the opportunity to consider the governance principles; meetings, roles, communications, processes etc. Agree this up front and include as part of the contract
Give yourself and the service provider the best chance of success: communicate what is and is not part of the agreement and services. Provide training for your team in working with outside provider, how to resolve conflict constructively etc. Take the time and give your team the team they need to adjust and be successful in the new roleso Timing is everything: walk before you can run. Give some thought to how the governance framework, new roles, processes etc are rolled out to compliment the transition process rather than confuse and things. There needs to be clarify in how transition will be governed and managed and how the ongoing relationship will be managed. Recognize these are two distinct phases of the relationship and organizations will be able to leverage their provider experience, communicate to the organization and governance effectively.
Phil Fersht: What has been the most successful governance experience you’ve had, and the least?
Liz Campbell Evans: I think this may sound a little basic, but honestly companies that invest the time to think about how they want to work with their outsourcer and implement a practical governance structure which they sustain are the most successful. Not all governance roles and structure look the same and it’s important for companies to design and implement governance that really fits in with their culture (not too grand such that it can’t be sustained from a time or financial commitment perspective. One organization I have the opportunity to work with on an ongoing basis keeps a keen interest (and continues to do so) in having external validation that their governance structure and relationship with the service provider is fit for purpose and maturing. They invest the time jointly with the Service Provider to annually review the way in which they are working together. As a result they develop action plans with jointly agreed improvement opportunities and target timelines for delivery.· I’ve worked with a number of companies that do not give their outsourcing agreements and relationships the “care and feeding” needed to be successful. Outsourcing relationships are to some extent are like an expensive car; you would not buy a brand new car, drive it off the sales lot and never take it for a service, or oil change or use the owner’s manual, or clean / wash the car.
Phil Fersht: And finally, will you be nurturing your forthcoming child to follow in your footsteps, or would you prefer he or she focused on another profession?
Liz Campbell Evans: At this stage with a 3 week old baby I am absolutely in the “care and feeding” stage – and lots of it 🙂 As for my little guy’s future career, who knows what the future holds. No early signs of preference at this stage other than potentially a food critic 🙂
Phil Fersht: Liz – congratulations on your new baby, and thanks for spending time with our readers this morning. See you in Boston!
As managing director of EquaTerra’s Governance and Transformation Advisory Services, Liz has more than a decade of experience working closely with organizations to establish appropriate governance mechanisms designed to ensure success in the management of long-term outsourcing relationships. In addition, she has led multiple transition initiatives, including global implementation. You can reach her at liz dot campbell at equaterra dot com.
The global insurance industry faces a challenging and unprecedented market environment; insurance premiums are falling, and insurance firms’ profitability is nowhere near the pre-recession era. Added to this, insurers in the US and Europe need to battle several regulatory and compliance requirements in the next few years.
The US healthcare reform calls for innovation in risk/price modeling for insurers who will cater to whole new segments of customers in 2014. Similarly, the Solvency II regime has brought risk management and disclosure to the forefront of the European insurance industry.
Compliance is already driving up documentation and administrative workload, and there is a shortage of risk analysts and actuaries to take on the higher level work. Insurers now have an urgent need to manage enterprise risk by harmonizing market, credit, operations and organizational security. In this scenario, outsourcing of select business processes is a highly viable strategy, as several insurers are discovering today. And expense reduction is only one angle; it is no longer the only important reason driving the insurance segment to outsource.
Providers are now business partners, offering to diagnose current and future resource requirements with a focus on efficiency, not cost arbitrage. Outsourcing is increasingly empowering insurers by integrating and transforming processes, tools, technology, as well as risk strategies. These are the major points of discussion we cover in this new HfS Research report, relating to global insurance BPO:
Western Europe and North America make up for more than two-thirds of the insurance market. In terms of outsourcing, while North America is by far the most aggressive, there is now greater traction from the UK and continental European insurers.
Primary insurers make up the majority of offshored business, followed by reinsurance companies and intermediaries.
The selection of processes to offshore is extremely strategic, and depends on the comfort, confidence and outsourcing maturity of each insurer, and their orientation of core and non-core processes.
At the outset, insurance companies were more open to outsourcing simple data entry processing, outbound sales, claims processing, billing and settlement, and policy servicing. Five years ago, the focus was to outsource task-based activities. Insurers are now viewing functional outsourcing as a viable option (e.g., entire claims administration process).
India and the Philippines emerge as the strongest offshore destinations. India will continue to maintain the top spot for the next five to seven years. Certain services within the voice segment are slowly moving to the Philippines, but it is a small component of the growing volumes of offshore business that India is witnessing.
Offshore BPO providers have evolved their insurance practices, and now possess strong domain expertise and technical know-how, coupled with great orientation toward foreign regulatory environments. This has encouraged stronger confidence among overseas clients, and in the last few years, major vendors have slowly moved up the value chain to address opportunities in customer support, underwriting, extensive analytics and actuarial support services.
There is a cautious loosening of purse strings by the insurance carriers this year as they seek solutions which will help augment their top-line and improve their bottom-line as well. Providers are seeing a renewed vigor by insurers, to bring about business process efficiencies and seek greater return on investment from their already outsourced engagements.
Insurers face a challenging environment in the coming years. A well-thought out sourcing strategy will serve their efforts of achieving process optimization and tighter efficiency. Even as they seek cost containment to ride out the recovery, insurers need to think long term about the implications of their outsourced work. Insurers would also be well advised to approach their negotiations with vendors with business outcomes in mind, in line with the move towards transaction/outcome based pricing. With Solvency II requirements being set in place, outsourcing agreements will face stringent supervision and review. European insurers need to prepare their internal process frameworks post-haste, as outsourcing to external vendors in the future will require a transfer of these controls, while maintaining low risk. Insurers must also engage with vendors that are amenable to audit checks by supervisory committees.
Providers must develop best practices in tandem with the new regulations/legislations, to provide maximum value to clients looking for expertise in their regulatory environments. They also have a strong opportunity to cross-sell high-value services to existing IT/BPO clients. For providers looking to compete for core volume-based BPO services, scale is paramount in the coming years. However, for companies vying for complex high-value services, it is domain expertise over scale that will work in their favor. The shift to knowledge intensive KPO services will entail lower number of transactions, coupled with much higher skill levels of workforce employed. Providers must balance their portfolios to accommodate for the significantly different service strategies.
HfS Research premium subscribers can access our new market landcape on the global insurance BPO industry over at our Published Research section.
Lots of frantic noise this week that Cog has been making romantic overtones to Genpact – with India’s press jumping on “speculation“.
Like any other industry observer, you can certainly see lots of romantic potential here – Wall Street’s darlings of BPO and ADM tying the knot to frighten the life out of Accenture, IBM, Infosys et al. However, while its seems like Brad and Angie Part II, I’m afraid this one just ain’t gonna happen anytime soon. And if it does, I will personally send a box of chocolates to Senator Schumer.
Here’s why this is highly unlikely:
Industry media is bored and yearns for big M&A across the new breed of services providers, but they’re not (quite) ready. Everyone’s been predicting major M&A for the last couple of years, but it’s only really happening in very mature industries (for example payroll and benefits administration) or with companies that have been around for many years and need to be acquired to have them broken up and re-balanced (i.e. Perot Systems, EDS etc.). Firms such as Cognizant and Genpact have been on such a high growth trajectory these past 3-4 years, they’re simply not ready to drive such a thunderbolt of disruption into their business operations. We’ll need to observe a significant slowdown of growth for at least two consecutive quarters, before mergers of this magnitude will be entertained by the leading offshore providers.
Both Genpact and Cognizant have been developing their own unique cultures and brands – merging them now is risky. The speed of development of these firms has been staggering, and much of the energy behind this, has been the unique cultures created by dynamic leadership of taking the offshore model to the global enterprise. The management style required to lead a BPO business is also different from ITO – the margins are often tighter, the skills needed to run certain processes often harder to attract, develop, train and cross-train. Taking a unique BPO culture and trying to shoe-horn it into a dynamic ITO culture could very quickly derail a secret sauce that took years to develop.
General Electric is an unlikely proposition for Cognizant to take-on. GE still dominates 40% of Genpact’s business (see earlier post), and Cognizant is unlikely to see major growth potential in this client. It also has a reputation for being a tough one to ingest.
The Indian-centric providers are more focused on cash-based “tuck-in” acquisitions. For several years, the leading Indian-centric providers have been looking at acquisitions that tend to be largely cash-based, relatively inexpensive, and ones they can pick up and grow with their scale-model. For example, InfosysBPO recently acquired the McCamish insurance platform, whereby it could look to turn $1m insurance clients into $50m clients with its BPO scale. Cognizant picked up the UBS Indian captive where it could start to develop BPO/KPO client opportunities based on the niche capabilities it had acquired. Genpact is frequently picking up niche deals that adds piecemeal process competencies. If these firms wanted to buy big, they’d need to entertain stock-based acquisitions, as once they shell out a few hundred million of their cash on one or two larger acquisitions, that money’s gone, and so does their room for future strategic investments.
The more likely M&A will be between a Cowboy and an Indian. As discussed here recently, the more likely M&A in the ITO/BPO industry will come from Western providers and Indian providers coming together, in order to benefit from each other’s competencies and cultures. And this could take many shapes or forms – there is no set way for providers to develop their solutions with the onset of Cloud computing, hybrid sourcing models and verticalization of IT/BPO solutions. Genpact is a highly attractive proposition for many Western firms seeking to take a market leadership position in BPO. And who would discount one company from Redwood shores with the reputation of making bold acquisitive moves, in casting its greedy eyes at the subcontinent?
With Leo Apotheker taking the helm at HP, all sorts of questions arise as to why they hired a software guy, who wasn’t exactly a wild success when he was top dog at SAP. Leo is the man you’d want if you are planning to acquire SAP. He knows the company inside and out and is savvy enough to work out some sort of game plan to integrate the German giant into the HP empire.
