We’ve scoured the globe to source the finest talent, and are delighted to unveil some unbridled expertise…

Posted in : Absolutely Meaningless Comedy

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;
• Ariba’s personnel adds valuable institutional knowledge to bolster Accentures sourcing consulting capabilities;
• 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.

Posted in : Business Process Outsourcing (BPO), Procurement and Supply Chain

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).

Posted in : Sourcing Best Practises

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?

Stranger things have happened…

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services

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?

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services

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.

Posted in : Business Process Outsourcing (BPO), HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Heros, Sourcing Best Practises

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.

Posted in : Business Process Outsourcing (BPO), Financial Services Sourcing Strategies, Healthcare and Outsourcing, kpo-analytics, Sourcing Best Practises

Cog and Gen earlier… denying any romance

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?

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Procurement and Supply Chain

Mike Salvino, Group Chief Executive for Business Process Outsourcing, Accenture

One of the great double-acts in the early years of the BPO business was always the Kevin Campbell and Mike Salvino show (read our interview from last year).  …And it still is!

Not too many people have been on the front lines of the BPO business since the very early days (remember Exult, anyone?), so it was no surprise when Kevin yanked Mike out of Hewitt Associates in 2006 to have him join him at the helm of Accenture’s outsourcing business.

Now, neither of these guys are your typical silky-smooth Savile Row-clad consulting partners – they’re wholesomely direct and open about the trials and tribulations of succeeding in a very complex global environment.  Their impact on Accenture is notable – not only among many industry observers, but also many of their clients.

Mike Salvino – or simply “Sal” to his friends and colleagues, has brought a real air or pragmatism to Accenture, where he now leads the firm’s global BPO business.  And while everyone else was getting carried away with mixing Cloud computing with nanotechnology (at a recent analyst meet), Mike’s response was simply “well, how about those clients who are just trying to get some results out of their business process deal today”.  I realized, then, it was high-time to have Mike on here to grace us with his views of the real world, and he kindly ducked away from his son’s basketball practice to spend some time with us…

Phil Fersht: Mike, since you’ve been on the front lines of the BPO industry from the early days in the 90’s, how do you think things have changed in the last decade? What’s different today compared to 10 years ago?

Mike Salvino: Let’s look at this across a number of different factors. If you dial the clock back 10 years, BPO was about pure cost savings and non-core transaction activities. So in 2000, clients were supposed to define what was core to their businesses and then get rid of everything that was non-core.  In the early days of HR BPO I remember having debates that there was no way service providers could do things like recruiting, learning or even expatriate administration because clients viewed those processes as core and would never want to give them up.

The early deal shapes were around having the service provider take on people from the client and try to scale them, versus leveraging the provider’s assets for the client’s benefit. From a geographic standpoint, it was unheard of to have processes delivered from India, the Philippines or Eastern Europe. People wanted to keep their processes close, and were mostly just trying to get it right using onshore resources.

Moving the clock ahead 10 years…any time I see a “take the people”-type deal, I see a red flag. If a provider is pursuing this type of engagement, it is either just trying to get the business or flat-out doesn’t have the capability to do it — and it’s really hard to win business-wise doing those types of deals. The major players in the BPO industry are not taking on large numbers of people from clients.

In addition, BPO providers have proven they have moved beyond the “core vs. non-core” categorization as we’ve been able to push our offerings all the way into the front office. A great example is Navitaire, Accenture’s wholly owned subsidiary for the airline industry. Through Navitaire, our robust solutions are providing the leading edge to nearly every phase of low-cost airline industry.  We’re the back office for these airlines. We’re their middle office, which is the scheduling of flight crews and planes from end-to-end. And we’re their front office, running their reservations, ticketing and customer loyalty systems. Ten years ago this would have been unheard of. Now, people are more attuned to looking at these kinds of processes if somebody else has a better mousetrap.

Finally, this is now clearly a global business. Back in 2000, I wasn’t sure how global it was ever going to be. Was BPO just about taking people from a client and going to a different location in the same city? Or could you get leverage and scale and do it globally? In 2000 “following the sun” meant that we could do the work for our client before our client woke up, depending on where the client was. Now with a global footprint, we can literally move the work around the world as we need to. We clearly do this today while before it was just a concept.

Phil Fersht: So now, at present day coming off the recession, we seem to be moving into a new era where some of the deals are getting smaller, more incremental. A lot of clients seem to want to move piece by piece rather than the whole ship at once. How are you seeing the landscape changing?

Mike Salvino: I think things went a little over-the-top before the recession. Billion dollar deals were being done and we are just not seeing that right now. Today it’s all about the client’s business case, the dollars and cents. We can choose any process we want as long as we can show a business case. Then, obviously, if we show a business case, we need to follow up with the delivery capabilities and referenceable clients. This makes it hard to get into potential new areas, but some clients are very focused on what they want us to deliver to them. So they are willing to go into those new areas, such as clinical-data management or engineering services, processes you could say are going to be the core of BPO. Whatever the process, clients want us to help define the business case, and then they want us to put skin in the game around delivering on that business case. And that’s fine, because I think they are clearly separating the pretenders from the real contenders.

We do see the deals getting smaller, but we also see the deals being more bundled in terms of F&A, procurement, sourcing and even some HR. We also see them more bundled with IT. But we’re seeing clients more frequently wanting to first do a “pilot”, and then scale from there.

Phil Fersht: Accenture has made a lot of noise in recent talks around bundling processes across towers. You mentioned you’ve been doing deals where you’ve seen alignment among procurement, F&A and bits of HR. Do you see this mixed bag continuing to proliferate? How is that developing?

Mike Salvino: It’s not developing the way we once thought it might. Before the downturn, we felt we could do bigger deals by bundling all the services together at the outset. But what we are seeing is, if we successfully deliver F&A for a client, it gives us the door to swim upstream into procurement and extend that into an F&A and procurement deal. Then, if we’re good at doing the procurement, it allows us to get into the sourcing strategies, which then allows us to get into the demand forecasting and demand generation areas.

Bundling is happening, but over an extended period of time.  We are not going in with a huge bundled deal with all these processes at one time.  What we’ve seen over the last 18 to 24 months is many of our new bookings are extensions. Extensions are not just expanding the existing work, but instead extending our clients into new work. So for example, we are Microsoft’s back office. We are touching HR, we are touching procurement, we are touching F&A and we’ve done that over the course of four years. But you aren’t really seeing RFPs hit the street for everything under the sun, unless it’s someone trying to sell its captive operations.

Phil Fersht: We’re hearing a lot of noise, particularly from the ITO sector, on developing BPO competency around these IT/BPO synergies. We’re certainly seeing them in vertical areas, like your Navitaire example. How are you seeing this coming together of technology-enabled BPO? Is it more hype because you’ve got IT services companies trying to develop pockets of BPO, or do you generally see this as a way solutions are going to develop in the future?

Mike Salvino: I think it’s real. It’s hard to ignore, because we have existing IT and people are buying new ways to deal with that IT. Then you’ve got newer technology coming down the pipe…cloud, analytics, mobility. We have to figure out how that’s going to affect BPO and whether or not it’s going to be another game changer. But no matter which direction the IT companies go, they still have to process transactions. You can’t be in this business without processing transactions.

BPO companies know how to process transactions, and are trying to apply technology to those processes. But some of the IT companies are saying, “We have technology and are trying to get it into the BPO business. We can naturally jump into BPO.”  However, it’s not that easy. If you don’t have the processing knowledge, it’s very hard to figure out how you’re going to make the technology work. I think the biggest effect on the industry from a technology standpoint is as much about the cloud and mobility as it is about analytics. Most people continue to talk about analytics, which is important, but cloud and mobility could change the whole game.

In Part II, we’ll ask Mike about his view on the future direction of the industry and the emergence of industry-focused offerings and Cloud Business Services

Mike Salvino (pictured) is Group Chief Executive for Business Process Outsourcing at Accenture.  He is responsible for the firm’s BPO growth platform, and its comprehensive portfolio of cross-industry and industry-specific business process outsourcing (BPO) services globally.  He rejoined Accenture in 2006 from Hewitt, where he served as global sales and accounts co-leader for Hewitt’s HR outsourcing group. He also served as president of the Americas region for Exult Inc., responsible for the company’s business in the United States, Canada and Latin America, prior to that company’s acquisition by Hewitt.  You can access his full bio here.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Finance and Accounting, HR Outsourcing, Outsourcing Heros, Procurement and Supply Chain, SaaS, PaaS, IaaS and BPaaS, Sourcing Best Practises

Horses for Sources and the London School of Economics to collaborate

Folks – we’re delighted to announce that today we launched a groundbreaking study, in collaboration with our friends at Outsourcing Unit at the London School of Economics, to gain real insight into how business plan to adoption Cloud Business Services. 

When we spent time with Professor Leslie Willcocks and Dr Will Venters to discuss their research work with CERN and it’s parallels with a Cloud business environment (see our recent blog interview), we realized the industry was in dire need of a definitive study that looks at how Cloud computing will impact the future of work for both business and IT professionals. 

Key dynamics being surveyed will include those aspects of Cloud that appeal to both business and IT professionals, inhibitors that are holding back adoption, current intentions and future plans, intended use of third party service providers and consultants, and determination of specific organization functions where Cloud will have the most impact.

Professor Leslie Willcocks, The London School of Economics

Professor Leslie Willcocks (pictured), Professor of Technology Work and Globalisation at the LSE, and renowned expert and author on global outsourcing and technology dynamics, is leading the initiative for the LSE. He added, “In our 2002 book Netsourcing, we predicted a strong move towards renting applications, services and infrastructure over the Net. It seemed to peter out with the bursting of the e-business bubble but in fact we are now witnessing the ten year convergence of streams of technology and capability that pose the question: how do we leverage this strategically for business advantage? That is one thing we want to investigate. The other is the longer game – is this going to be a dominant trend, the only game in town, or, if not, what sort of hybrid futures are likely?”

CEO of HfS Research, Phil Fersht, who will co-lead study, commented, “There’s been so much noise focused on the technology implications of Cloud, and not enough attention placed on how business executives intend to apply Cloud services within their own business environments.  At the end of the day, some firms will succeed in driving down IT infrastructure costs using Cloud models, but the real momentum will come from the business processes that can be delivered to organizations that have all the associated application workflow and infrastructure already provisioned in the Cloud.  This study will be the first in industry to draw out these dynamics to help us visualize the future of work.”

HfS is inviting readers to take 10 minutes to complete our online survey.  Respondents will receive a report on the report findings, co-written by both HfS Research and the LSE study teams.

CLICK HERE TO ACCESS THE SURVEY

Posted in : Business Process Outsourcing (BPO), Cloud Computing, horses-for-sources-company-news, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Heros, SaaS, PaaS, IaaS and BPaaS, Sourcing Best Practises