This new HfS report (click here to view) dives into the experiences and expectations of a selection of today’s most experienced enterprise Finance and Accounting (F&A) BPO buyers, when it comes to achieving innovation.
We spoke to a collection of major F&A BPO customers which have achieved some form of innovation as they went through the F&A BPO experience with a major service provider. Here’s what we cover:
– We look at Microsoft’s BPO experience with Accenture, as the software giant leveraged a global BPO model to consolidate and transform multiple global finance and procurement operations.
– Then we examine Cognizant’s work with a major multi-billion dollar grocery retailer, which had doubled in size through an acquisition in June 2007 and needed to make its post-merger finance organization more effective.
– We investigate Genpact’s endeavor with a global manufacturer to deliver process improvements to improve days to pay.
– We look into Wipro being called in after two multi-billion dollar retailers merged, to help consolidate and modernize the disparate financial operations.
– We examine how Infosys worked with McClatchy Newspapers to develop a custom application to manage advertising billing, accounts receivable, and scheduling of ads for newspapers.
– We take a look at how Vengroff Williams & Associates worked with a US manufacturer to improve its collections processes, which were previously held back by its technology.
– And finally, we see how WNS worked with Ally Financial (formerly GMAC) to accomplish dynamic corporate objectives against a backdrop of economic peril.
Ritesh Idnani is Chief Operating Officer for Infosys Airways
When last we left Infosys BPO COO, Ritesh Idnani, in Part I, we were discussing the priorities of businesses in today’s sluggish economy.
In Part II, Ritesh explains the changes in the BPO industry from his perspective – with particular emphasis on the advantages providers can gain by investing in industry-specific nuances to their BPO offerings.
Between parts I and II, he actually purchased an airline with his airmiles account…
Phil Fersht: Some people have joked, in the past, that Infosys is the Indian Accenture. But for our readers, how do you view Infosys as differentiated from your prime competitors? If you have to really put a nail on it in a couple of simple point forms, how do you do that?
Ritesh Idnani: We certainly have a lot of respect for Accenture, we hold them in very high regard. Having said that, we do believe there are three or four things that differentiate us from the rest of the pack. We have a broad array of solutions that we believe will allow us to enable client outcomes that extend far beyond cost reduction and business efficiencies. Our ability to address all ends of the spectrum be it impacting client revenues, gross margin or net margins – these are critical differentiators because a lot of our competitors don’t necessarily claim that state. There aren’t too many companies out there who have been able to effectively converge operations and technology, and demonstrate a business benefit that is tangible. We have more than 90+ proven case studies in the system that quantify the business value that we have been able to drive in the client ecosystem I don’t think our competitors have nearly the same kind of capability that we have in terms of demonstrating this across different ends of the spectrum whether it is technology solutions and process that can address a specific area within a process toPlatform & Cloud-led BPO that addresses an end to end spectrum in the client process matrix.
Our ability to maintain a high degree of nimbleness and responsiveness to the market place despite a rapid growth in size and scale is another key differentiator . I think that’s something that allows us to differentiate ourselves very rapidly because we are able to be much more adaptable to clients needs and yet, at the same time, call a spade a spade if you will. I think that is something that is different from a lot of our competition.
In some sense the first battle was on global delivery and I think that was something that we won on our terms. The question is how do you extend the full suite of offerings that we have and ensure that you can scale the business at a much more rapid pace. So today, in some cases, it’s really up for the incumbents to defend and protect their turf. Can they demonstrate to their clients that business benefits that never materialized in the past can now happen just because there is an Infosys knocking on the doors making it a difficult conversation for them? I think these are some of the things that have helped us.
I think the last piece of it is a very high degree of customer centricity in our interactions and also the very easy access to the leadership of the company.. We are a very flat organization. People are empowered. I think those are some of the things that have helped us as we have grown extremely rapidly. I think these are some of the elements that people saw of our culture that are helping us in our journey to grow at a pace which is faster than the rest of the industry.
Phil: With clients increasingly wanting you to expand your services that require real domain specialization in their industry, how do you plan on accommodating their needs as far as staffing in acquiring the expertise that you need within Infosys?
Ritesh: Actually, one of the things that we were probably first off the block to do as an organization more than five years back was to actually verticalize our BPO. Back then, the industry was predominantly focused on G&A (general and administrative) process – and a large part of our competitors still operate predominantly on the G&A side of the P&L, offering F&A, HR, procurement , offerings primarily on the horizontal side.
I think we ended up doing a couple of things. One is verticalizing our offerings. Our ability to contextualize the G&A offerings from a vertical standpoint holds us in good stead Let me give you a few examples of that and how we manage it in our day to day practices. If you take the media and publishing space as an example, royalty accounting is a big pain point for the industry today, specific only to the media industry. You are not going to run into it in another industry. In the insurance sector as an example, regulatory reporting, whether its yellow book reporting or blue book reporting etc., is going to be extremely critical and those are very industry specific conversations on the G&A side.
Second is the ability to impact the cost of goods sold side and the revenue side of the equation.. We built out a wide variety of offerings – as an example, we have close to about 35 vertical led offerings for different industries that we operate in. Let me give you few examples of that. I gave one example a little earlier in response to a question, the media side. In that industry, for example, we are talking about the long tail monetization that you have in that sector, but not so much in others. On the manufacturing stage, we are talking about how we can assist in the warranty administration side. On the consumer package goods stage, we are assisting companies to improve their field force effectiveness? These are very specific to those particular sectors and because we had the orientation right from the last five years, I think that is something that has helped us stay ahead in the game
The impact of verticalization for instance has a huge import on our ability to leverage domain and build relevant industry skills in our people,.We have also consciously made it mandatory, from a promotion and progression standpoint, for all of our associates, to obtain different industry certifications. For instance in the insurance industry, we look at the types of industry certifications that are there(We have five levels of mandatory training that are specific to each vertical that we operate in so that people get oriented and familiar with the specifics for that industry. So when they walk into a mortgage environment, they are not going out there and asking, “What is origination?”, “What is default management?”, “What are the different rules and regulations that are there?”, “What are the latest norms that are coming in the form a regulatory standards?” These are things that people are already familiar with before they go because of the training that we are providing. It is also a combination of internal and external orientation.
In their performance management systems, people have to list out the trainings they will take for every six months. This is essential because the appraisal system is not complete unless they do it. We have tried to ensure that every employee has a certain amount of training which is vertical led with both internal and external certifications. This mandates the promotion and progress. Managing both of those steps is helping us to provide offerings that are largely differentiated in the market with a very strong vertical orientation.
Phil: So when we talk about verticals, many of your competitors have structured their businesses by very distinct industry segments, with several of them operating almost in vertical silos – there are a lot of differing voices in the industry on this issue. We wrote a report on this, recently, to show that a lot of clients are much more willing to innovate and collaborate with other clients who aren’t in their direct industry sector. How is Infosys tackling this, and what’s your own view here? What’s the best way to service clients across industries in the future, and how should providers really structure themselves to service them?
Ritesh: I think a lot of innovation that is out there can come from the business and operations mandate in one industry and how you reflect and imbibe that in another industry sector is something that’s a very important question. For instance, today you look at the marketplace; we are focused on basically a few strategic themes to an organization. We believe these seven strategic themes cut across industry sectors.
The first one is centered on what we call the power of one. Our belief is that our clients’ customer is increasingly getting micro segmented and therefore you need to have specific product offerings, which are geared towards that particular consumer. How you actually create offerings which are addressed to that particularly individual rather than treating everyone in a uniform way is something that is going to be extremely critical. I think that’s a common challenge that a lot of our clients across industry sectors are facing.
I think the second piece of it is the changing demographic of the work force. The fact that you have a lot more Gen Y people coming into the work force is creating a lot of challenges in how people orient themselves to a new work environment and the fact that people are used to doing things in a different way. That’s a common challenge that we end up seeing across industries. The third one that we are seeing out there is centered around the impact of social media.
How do you monetize the impact of social media? I think it’s again a common challenge that a lot of our clients across industries are facing. While technology is buildings various solutions to address this, our ability from a BPO standpoint to monetize information through the complex social media space helps clients drive deeper industry understanding or analyse diverse stakeholder feedback. That knowledge is critical to drive business impact enabling differentiation in the market place.
The fourth one is mobility. Again, if you look at the impact of mobile technologies today, you can do all kinds of transactions whether it is using the iPhone, the iPad, the Internet, any medium that allows access remotely. How do you create applications and solutions that are geared for that is something of a challenge that a lot of our clients are facing across industry sectors. (We may want to add seamless mobility into this. For instance our ability to load on applications that can impact business not only from our customer;s point of view but also enhance client;s brand experience )
The fifth one is that as organizations have grown, they have become more complex and not as smart as they ought to be. How do you actually simplify these organizations from an operations, process and technology standpoint? I think that’s a challenge that a lot of our clients are facing.
The sixth one is centered around what I would characterize as the potential of emerging markets and the ability of clients to penetrate and create relevant differentiation in these markets.. This is where a lot of our clients today are looking to operate given that the rates of growth are slowing down in the more mature markets The requirements in emerging markets BRIC countries are widely different from the more mature markets. There are also industries in the BRIC countries that are growing not just at the GDP level at the seven to nine percent rate, but also every company that has its operations out there is growing at 30 to 40 percent. I was with a client recently in Sao Paulo and that client has grown in the last three years in the Brazilian market at 40 percent compounded and they expect their business to grow to being a ten billion dollar business from one billion dollars in the next ten years. That’s the kind of potential that’s there and providers need to be able to modify their solutions to build scale and account for locational business complexity We have built solutions that allow them to tap into the specific needs of emerging markets
Last but not the least is the entire question on sustainability. Every organization is trying to say “How do I do all of these themes, yet be environmentally conscious, in a manner which is sustainable in the longer term?” I think we have got solutions that are addressed to that.
These are the seven broad areas of focus that we believe will address the question on, “How can we take practices from one industry sector to another, and be able to apply them successfully to enhance the business value of the equation.
Phil: Are you getting more involved with your clients’ customers?
Ritesh: The nature of outsourcing has evolved to being very strategic especially in conversations that we have been having with clients where either the duration of the relationship has achieved considerable length or where there are large areas of business operations being outsourced . This I believe is the second level of innovation, in that that we find ourselves a lot of times at the center of the ecosystem. For instance, you may be working with a consumer goods package company, but that company has a bunch of retailers who are its customers. We end up finding ourselves supporting both the consumer package goods company as well as the retailer and, therefore, be at the center of the ecosystem. We can see supply chain inefficiencies on both the consumer package goods side as well as on the retailer side. How do we actually tie these together being at the center of the ecosystem and how do we get them to talk to each other? So we can be in a very unique position today from an industry standpoint because we are working with our customers and their customers at times, especially in a B2B context. We may have visibility having worked on applications and processes at both ends that a lot of our clients may not be able to directly see.
That, in turn, raises different states of innovation that might become visible. So those are some of the things that we are working on very well, very consciously with our clients. We believe that there may be opportunities out there for benefactors sharing across industries as well.
In the third and final part of our interview, Ritesh expands on communication, networking through social media, and career advice for those entering the industry. Don’t miss the conclusion.
Ritesh Idnani is COO for InfosysBPO
Ritesh Idnani is COO for Infosys BPO. During his time with the firm, 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, Ritesh has held exec roles with PwC and Citigroup. He lives in Basking Ridge NJ with his wife and twin boys.
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.
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.
