It can't be… surely not… is that… is that… a proactive bill that encourages businesses to invest in the US?
When is comes to “bringing US jobs back onshore”, we repeatedly seem to get all sorts of legislation that, quite simply, is focused on restricting our busineses’ competitiveness, when we should be looking at helping them invest in new talent and entrepreneurship, rather than penalizing them for trying to be competitive in today’s global environment. (Read our excellent discussion from last year: Who’s looking out for the US business these days?)
Senator Charles Schumer’s proposed new legislation, if passed, would tax U.S. companies that transfer domestic calls (at $.0.25 per call) to foreign call centers and require consumers be informed when their call is transferred outside the U.S. I assume by now most of you know the details of this, so let’s consider what good this does US businesses and the US economy:
1) The cost differential is not enough to warrant routing call center work back onshore. If the offshore call center is charging $18.00 per hour for each agent, who takes, on average, 20 calls per hour, this only knocks their costs up to $23.00 per agent/hour. A US domestic call center would likely charge clients $30 per agent/hour (or higher), so the cost differential still doesn’t warrant pulling the work back. Conversely, offshore providers are more nimble with price flexibility and can easily squeeze rates down if this became an issue. Benefit to US businesses: none, simply higher taxes. Benefit to US economy: additional tax income, but less competitive businesses.
2) There are an estimated 31 million business in the US, according to the latest government stats… er… that’s quite a lot of administration needed? Even the smallest of firms often use offshore call center support. The administrative organization needed to manage and audit this number of businesses to ensure compliance would be massive. You are talking multiple millions of dollars in investment that would likely struggle to be offset by the resulting tax returns. Benefit to US economy: none, simply government money wasted on bureaucracy.
3) Customers will be informed where their call is being taken, which will create negative overtones for businesses. This is probably the only “effective” component of this legislation, solely based on the fact it will educate the US masses that offshore workers are more competitive that they are, and run most of the call center work these days. However, what good will this do beyond stir up anti-offshoring attitudes? Yes, it may encourage a small proportion of businesses to move their work to US call centers, but if all calls are revealing the location, it will simply become an expected procedure and quickly lose its impact (such as the adverse side-effects warnings after pharmaceutical products commercials). Benefit to US economy: none, simply the creation of negative overtones towards companies offshoring.
4) US call centers are very good and becoming increasingly competitive. The Recession has only helped US call centers, with a lot more work being moved to centers in locations such as North Dakota, Michigan and Nebraska. Why not use some of this cash to give the US call centers tax-breaks to be more price-competitive, than penalize the offshore centers? Heaven forbid, why not support new center development in US locations? Benefit to US cell centers: a little more clout and a little more price competitiveness, but likely to be minimal overall.
5) Large enterprises may simply route calls to their offshore captives. Most mid-to-large US enterprises can simply shift call center work back inhouse and run from their own offshore/nearshore locations. Benefit to US economy: none.
6) This legislation also raises the potential of retaliation from other countries, under the recent Uruguay Round of WTO Agreements. Taxing international calls and not taxing domestic calls is a form of discrimination against foreign call center service providers that violates the basic principle of “national treatment”, with the exception of specific situations, such as national security, the environment, local labor, police, etc. Benefit to US economy: zero, and potentially negative.
All-in-all this legislation is reactive, not proactive. The old days of outsourcing backlashes are well and truly over. It’s clear that the way forward is to make the US an attractive location for call center, and other commonly outsourced work-types. Furthermore, it’s clear that the US needs to be an attractive environment where where firms simply want to function, where they can receive government benefits to help then get established, and to hire US-based personnel.
Other economies all aggressively support businesses to invest in their own locations (just go through the countries – they all do it, and some very effectively). This legislation does very little to help US call center jobs and will likely cost the tax payer more in implementing the plan than it can ever accrue from the tax. Government leaders need to be smarter about “protecting jobs”, which means actually helping to create work onshore, as opposed to scaremongering / taxing enterprises into forced activities that do not enhance their competitiveness. For example, the proposed “Entrepreneur’s Visa” is a fine idea – it is encouraging top entrepreneurial talent to set up shop in the US and employ US talent, and they will receive a Green Card. We need to see more schemes that drive the global entrepreneurial agenda for the US economy, not hold it back.
It can't be… surely not… is that… is that… innovation?
We get some great emailed contributions over here, and “Sumitb” (remaining anonymous for fear of a lynching from the marketing police) has a great perspecitve on some of the realities of today.
While I agree his educated viewpoint represents many of the the realities of today’s innovation “issues”, I do believe our new data reflects operational leaderships’ increasing onus on delivering new and creative ways to find value. The focus on innovation is starting to shift – and shift quickly. Anyway, here’s Sumitb’s viewpoint:
Innovation in BPO is more of a must-have cliché that features prominently in corporate presentations and RFP prefaces rather than as a delivered reality which significantly impacts business performance.
And the reason for this is easy to figure, but hard to fathom:
Neither the Client nor the Service Provider really wants it!
From a client perspective Innovation is fine providing:
a. It’s the Service Provider’s dime and time
AND
b. it delivers the gain without any major internal pain in terms of change management
From a Service Provider perspective, to paraphrase ‘Me and Bobby McGee’:
‘Innovation’s just another word for something left to lose’ since usually the second or third word after ‘Innovation’ in a BPO contract is the dreaded word ‘reduction’
Enlightened clients have often asked me why as a BPO Service Provider I would drive Innovation if meant reduction of future revenues. At this point, I usually assume a beatific expression of sublime bliss and reverently chant the mantra: Gain-share…Gain-share
Unfortunately – like a lot of mantras – Gain-share ain’t the cure it’s cracked up to be because:
a. The Gain is often difficult to identify and measure in terms of realized business value
OR
b. The outcome of the Innovation often does not result in a tangible business gain – a classic example is improvements in C-SAT often do not correlate to Churn/Conversion/Wallet-share.
It is not surprising that Innovation is becoming the major differentiator for the first time BPO buyer not only because he can select proven BPO innovators but more importantly because he is may be inadequately aware of the real implications of the 3 C’s of Innovation: Collaboration – Co-investment – Change Management.
Even today, BPO is perceived as an answer to a problem rather than a solution for a business objective –i.e. reactive and tactical rather than proactive and strategic. Consequently, the selected Service Provider is perceived as a provider of services rather than a co-owner of defined business objectives.
It is this set of initial perceptions that shape the structure and remit of the engagement governance as well as tone and tenor of the relationship between the Client and the Service Provider. Consequently the subsequent value delivery – or the lack of it – in terms of measureable business impact and results is almost a self-fulfilling prophecy.
Bottom line is Innovation is like the Tango – it takes Two.
If anyone had told you a few years ago that Wipro would have a market cap of more than $30bn, you would have made a few discreet calls to their doctor, or perhaps their math teacher.
But today, the Bangalore-headquartered firm has firmly shed the tag of That Indian IT firm which makes the vegetable oil, to become a genuine leading global IT services and BPO enterprise, with 105,000 employees. And Wipro has not only become a tough top tier IT services competitor, but it also firmly holds its own in the BPO industry, with some landmark client wins in finance/accounting, HR and procurement/supply chain services, in recent times. The firm loves the process work and getting down to the minutia with its clients – just take a few visits to its delivery centers and you will see metrics you never thought existed.
So when we launched our recent series of Sourcing CEO discussions(more to follow folks), Wipro was on the first round of invitations, and we are flattered that Suresh Vaswani dragged himself away from his beloved TelePresence unit to spend a few minutes talking to us about how the firm has come through the tough times, and what are the plans for the future…
Phil Fersht: Good evening, Suresh, and thanks for your time today. How did Wipro tackle the recession when it first hit, and what measures were taken to ensure it came through the worst times?
Suresh Vaswani: There is always an opportunity in an adversity, the recession provided us with an opportunity to work closely with the clients. We anticipated the slowdown early, with first signs of the impending slow down coming from our Infrastructure business, much before we saw the impact on our IT business. We used this early warning to improve our operations and gear up for slow down and invested in solutions which were relevant to our clients as they looked at minimizing their operating and capital expenses.
The economic crisis called for strategies which could counter the negative effects of the slowdown to get businesses back on track. The challenge is in knowing how to be effective, ascertaining the future of business, learning to thrive under pressure, using techniques to motivate and promote innovation and employing innovative technologies or services to stay competitive.
We invested in Non Linearityand this is a huge movement within the organization and we are driving this initiative across the organization within Delivery as well on the Revenue side. We have created several tools, like Cigma, a tool for Business KPI measurement across application and BPO or in Productized services like the Cloud based mortgage loan origination system.
In difficult times it is even more important to understand the customer challenge and priorities. We put in place a team of people who understood the local market and most importantly the customer better. We are thrilled at the results of this move and continue to further expand this. Today, 56% of our sales force in US and Europe is local.
Phil Fersht: How has Wipro emerged as a company? Is the culture any different? What lessons were learned and what’s the company doing differently as a result with your people and your overall strategy?
Suresh Vaswani: We have emerged stronger than before, confident of our investments in the last two years, ready to reap the benefits of these decisions. Over the last two years we have invested in new technologies that may define the future of IT industry. These are Cloud, Collaboration, Green Technologies, Mobility Force, Social Technologies, Information management and Security.
As we emerge from the recession we are clearly focused on going up higher-up the value chain through our acquisition of domain competency and consulting capabilities. This approach is helping us address and transform customer business processes.
Our strategy now is centered on addressing the needs of the 21st century Corporation. Our view of the 21st century corporation is an organization that is taking a detailed look at core and non-core processes and is working towards value chain models where it optimizes what it does best and partners for the rest. The 21st Century Corporation model provides a roadmap to improve our clients’ speed, productivity, flexibility and financial performance. This model mandates that partners working as part of a customer’s value chain would have the business imperative to drive higher productivity and flexibility in the non-core processes and some core processes.
While we are moving up the value chain, we are also simplifying the ‘run the engine’ work we do by automating several tasks and de-skilling these tasks. These moves impact our people mix. On one side we are hiring extremely talented, high end specialized resources and on the other hand we are working out ways to deploy non engineers for many of the lesser complex tasks. This has impact on our recruitment, training and talent engagement processes.
Phil Fersht: From your perspective, how is the IT-BPO industry different today than it was prior to the downturn and how is Wipro adapting? Where do you see continuing challenges, and what do you see as the prime opportunities for the firm, where you are making your future investments?
Suresh Vaswani: The first 12 months of the downturn clients focused hard to driving down cost. Over the last 6-12 months we are seeing clients make more fundamental shifts to their products and business processes to drastically improve their agility, flexibility and cost variability. When clients do this invariably, they have to look at BPO and IT together. This is the same transformation we have undergone in our go-to-market strategy over the last 18 months.
We have integrated the BPO and IT value proposition, taking a process transformation approach. Given the fact that we are one of the leaders in BPO and have the whole stack of IT, we are in a unique position to deliver that sort of transformation to customers. Our joint HR platform solution (with Oracle, Hackett) simPlify, is delivered on a Software-as-a Service (SAAS) model allowing employers to pay for what they use and reduce complexity, time and investment. Wipro’s next generation service management platform, Cigma, enables the integration of BPO, IT and Device Management Services. Cigma enables customers to manage IT outsourcing engagements through business linked KPI’s.
Clients are now more comfortable with outcome-based contracts, making the non-linearity model stronger. The aim is to double fixed, outcome-based, kind of revenues in the next 12-18 months. Consulting, more than a role of advisory, is giving us downstream revenue. While it’s only about 4% of our topline business, its downstream contribution will be three or four times that.
Our strategy going forward is to invest in our large accounts, is to invest in our growth accounts and when I say invest, we are talking about strong client engagement investments, strong business advisory and consulting investments, co-innovation with them in terms of driving some transformation and the cost structure and the business models.
Long story short, the economy is slowly recovering, Customers have decided to move on, to make the investments, to build their future based on the new reality. Wipro’s opportunity is in delivering lasting value by being a transformation agent and virtual corporation partner of discerning clients worldwide.
Phil Fersht: And finally, what is your advice for today’s young practitioners in the sourcing industry? If you were to start all over again in this business in today’s environment, would you do anything different?
Suresh Vaswani: Young professionals in the sourcing industry should look beyond rates and start thinking about value and the Total Cost of Ownership (TCO). They should build a strong understanding of Business KPIs, Outcome based models. Risk Management frameworks and Governance should be high on the agenda too.
Phil Fersht: Suresh, we thank you so much for your time, at Horses. Our readers will appreciate reading your views.
Suresh Vaswani (pictured top right), is Chief Executive Office of Wipro technologies. He jointly carries the overall responsibility for the strategy and business operations of Wipro’s IT Business. Suresh has been with Wipro for more than 24 years in various leadership positions across differentiated IT Services and has provided a strong platform for growth and leadership in emerging markets for Wipro. He is very passionate about the themes of ‘Green’ and ‘Diversity’ and is the executive sponsor for gender diversity at Wipro. Suresh is married to Sonia and they have two sons. You can also follow him on twitter @sureshvaswani
Aside from airline strikes, ash clouds, oil leaks and Sarah Palin’s plea to “drill baby drill” (what a brilliant faux pas that was), global media attention was briefly diverted to Edinburgh, last week, as some of BPO’s top buyers and providers bravely duked it out under the lilac-neon lighting at SSON’s European Shared Services & Outsourcing Week.
The occasion was the “Thundering Hooves”, where HfS nervously stood between two aggressive teams of buyers and providers eager to prove they could thunder more thunderously. Moreover, with the incentive of a coach-class ticket to tour WNS’ facility in Mumbai, with only a 20 hour-layover in Nairobi and Dakkar (industrial action and political unrest permitting), the tension was akin to a frenzied iPad queue with fast-depleting inventory.
The thundering victorious "Buy Family" (pictured left-to-right): Graham Russell (Astrazeneca), Simon Newton (KimberlyClark) and John Transier (Unilever)
The deliberations began well for the Sell Family, comprised of Genpact’s Smooth Operating Officer Tiger Tyagarajan, WNS’s Chief Mischief Officer, Deborah Kops, and PA Consulting’s Huw Grant-Watkin. Could they come back after their catastrophe in Orlando in February? The vast crowd watched on with baited breath (it had to be with all the haggis and smoked-salmon vol-au-vents floating around) as they second-guessed how hundreds of shared services and outsourcing executives answered the following questions:
The Buy Family: What phrase from your service provider makes your blood boil the MOST?
The Sell Family: What phrase from your clients makes your blood boil the MOST?
The Buy Family: How important is achieving innovation from your service provider in BPO engagements to your operational leadership?
The Sell Family: How much importance are your clients placing on achieving innovation in their engagements beyond cost-reduction?
The Buy Family: To what extent has your primary BPO service provider met your expectations with its provision of quality resources (i.e. personnel and technology) to your current engagement to help you achieve innovation?
The Sell Family: To what extent has your primary BPO client / clients met your expectations with their provision of quality personnel and resources to help them achieve innovation?
It looked like the Buy Family, comprised of the global finance shared services and sourcing leads from Astrazeneca (Graham Russell), KimberlyClark (Simon Newton) and Unilever (John Transier) were struggling to recover from the previous evening’s deluge of bagpipes and sourcing advisors. However, they dug-deep through the cerebral fog and summoned up the inspiration to take the fight back to the Sell Family, by pulling level on points after the remaining questions:
The Buy Family: What is the primary reason your provider thinks is preventing you from achieving innovation?
The Sell Family: What is the primary reason your clients thinks is preventing them from achieving innovation?
To both Families: Which outsourced business processes have the most innovation potential over the next 24 months beyond standard operational delivery?
To both Families: What attributes are enterprises looking for these days when selecting a BPO provider?
The Buy Family: What is the worst clause in your contract?
The Sell Family: What clauses do you hate the MOST among your clients’ contracts?
To both Families: Where can we honestly go for IMPARTIAL, UNBIASED, UNFETTERED, and BALANCED advice?
So it all boiled down to a tie-break question:
Who announced their acquisition of ExcellerateHRO today?
“ACS!” buzzes Deborah Kops. Realizing she’d forgotten to name ACS’ new owner, John Transier, (quicker on the buzzer than a British Airways cabin staffer at an any excuse to take another month off despite the fact we already earn twice what our competitors get paid meeting), added “Xerox”. With this sudden-death deft play it was all over… the Buy Family had, once again, prevailed to thunder over its providers. We did try and get John to comment on how he was celebrating the victory, but a Nigerian prison warden explained he was currently indisposed…
The not-so-thundering Sell Family (pictured left-to-right): Deborah Kops (WNS), Huw Watkin (PA Consulting) and NV 'Tiger' Tyagarajan (Genpact)
It's a Thundering Family Affair, with your hosts (left-to-right): Phil Fersht and Lee Coutler from Horses for Sources
43% of decision-makers now see it as a critical element of BPO
Half of today’s enterprise buyers are disappointed with the innovation they have currently achieved
The potential to achieve innovation across many core business processes is huge. This was notably cited in industry-specific process and analytics areas, in addition to some maturing BPO domains, namely procure-to-pay, supply chain and recruitment
So why aren’t half of today’s enterprise buyers achieving innovation?
When we asked those executives with significant influence over BPO decisions their prime concerns for failing to achieve innovation in BPO, they cited the following reasons:
It is abundantly clear that enterprises buyers recognize that the blame lies a lot more in their camp than their provider’s, with well over a third citing poor change management and communications as a great concern, coupled with the fact that their current governance team has little juice internally to drive an innovation agenda. If they were going to blame primarily their provider’s lack of innovation prowess, much more than a fifth of buyers would have cited “the wrong composition of skills among their governance team and the provider’s relationship team” as a major concern.
In the next installment of this innovation saga, we will reveal what buyers are planning to do to achieve innovation, but here are a few clear areas they can work on:
Create a aggressive innovation agenda and a plan to keep that agenda fresh over time. Buyers need to stipulate the need to explore new and creative ways to improve productivity and top-line growth as a core element of their BPO endeavor and communicate this aggressively, on a repeated basis, to their entire retained operations organization.
Communicate this innovation agenda to both governance and provider teams. Talk to any buyer beginning to achieve some innovation success with their engagement, and they will tell you the same thing: “We recognized what we needed to do internally, and communicated aggressively with our provider to start delivering it with us”. Until buyers take the bull by the horns internally and communicate to their partners the new direction they are taking, they will never escape from innovation purgatory.
Create an innovative contract with their provider. Buyers need to incentivize their provider financially to help them achieve gains in both productivity and growth. This is already beginning to happen with several recent BPO engagements, where the provider has demonstrated the confidence to insert productivity incentives as high as 20% in some of today’s recent contracts. Providers will step up to the plate with the right approach, if they have the financial incentive to do so.
Stop playing providers off in a low-cost bake-off. If the buyer simply squeezes the life out of their provider with a cost bake-off, they are unlikely to get much in return beyond operational delivery to meet the contracted service levels. Some of the leading BPO providers are now inserting gain-sharing elements into their deals in order to beat off competitors dropping their prices, because it is desperate to win the deal. The better providers now have the advantage of knowing where they can offer innovation incentives to gain ground in tough pursuits. In any case, most of the providers are now operating within a similar price band, so focus needs to move away from simply price, and more to which ones are better prepared to be incentivized financially for driving innovative results.
All-in-all, we are encouraged that many enterprise buyers have recognized the need to get their act together and start driving the innovation agenda. The future for innovation is bright, and many of today’s enteprises are figuring out how to make some progress towards it.
*For the purposes of this study, Innovation was defined as “the customer going beyond transactional / operational work to achieve new productivity gains and /or new revenue streams by implementing new practices through unique, creative methods.”
Zach Nelson, CEO of NetSuite, a.k.a The Admiral of Cloud BPO
“First gain the victory, and then make the best use of it you can.” Admiral Horatio Nelson, before the Battle of the Nile, 1st August, 1797
“The cost of managing IT infrastructure is four to five, or even ten times the license cost. It’s enormous. We’ve eliminated all the cost to manage this stuff, so that’s a huge advantage for BPOs.” Zach Nelson, CEO of NetSuite, before the Battle of Cloud BPO, 25th May, 2010
So without further ado, let’s do Part II…
Phil Fersht: Zach, there’s been a lot of talk in our industry around business-process-as-a-service, or business as a utility, with an entire business process being accessed by a pay-by-the-drink model, hosted in the cloud. How do you see BPO, SaaS and cloud all coming together? Is it going to be a reality?
Zach Nelson:I don’t think there is any question that service providers will have to move their infrastructure into the cloud just as end users are starting to do. There’s no stopping it from a cost and productivity standpoint. Also – and what I believe is really driving this revolution in how IT services are delivered – is that customers are demanding it. So the Tata’s of the world and the people that are really tied to the SAP boat-anchor will begin to acknowledge that even though they have a lot of business with SAP, the customer wants a cost reduced environment, and something that is faster to deploy, SAP is a bad answer, and they have to transition their business model. We all saw IT budgets shrink during the downturn, and more was spent on the Cloud because of the cost reduction capabilities. Now the Genie is out of the bottle, they saw the benefit they got from the Cloud, so the Genie isn’t going back into the bottle. The customers are beginning to demand services like what Genpact and NetSuite are aligning to provide. That’s the shift you see going on now.
Phil Fersht: We’ve seen a lot of SaaS/BPO partnerships spring up in the last year, but some of them just don’t make sense. We’ve seen, for example, some providers partner with PeopleSoft to deliver it in some form of pay-by-the-drink environment, but it simply doesn’t work because getting to multi-tenant scenario with PeoplSoft is just too challenging. What makes your partnership with Genpact a game-changer?
Zach Nelson:Our model is very different than theirs. We are effectively replacing an on-premises instance of Oracle or SAP with a BPO-enabled offsite version of NetSuite. This is a new and different way to replace those Stone Age on-premises applications.
The reason the other model doesn’t work is that it’s the same model that failed in 1998. You take an application that wasn’t designed to be hosted or managed in a hosted environment and you do it anyway. It’s just too expensive. So you’re just shifting all that from the customer’s premise to the provider’s premise, and now the provider has to deal with the cost. It doesn’t go away. And as you know, the cost of managing IT infrastructure is four to five or even ten times the license cost. It’s enormous. We’ve eliminated all the cost to manage this stuff, so that’s a huge advantage for BPOs.
And from the customer’s standpoint – the challenge with serving the mid-market is how to deliver SAP-like complex functionality with a few zeros missing off the purchase order. We figured out how to do that, and we’re transferring that knowledge to Genpact so they can deliver the same sort of efficient, streamlined implementation that we’re delivering to our customers. That’s a very important part of the equation. By transferring that knowledge, Genpact can take it to the next step of adding BPO capabilities on top of NetSuite.
I can’t really envision a future where this isn’t the dominant way BPO is done, but the legacy approaches and legacy relationships definitely hamper the rate at which this stuff is being taken up by clients. Now with that said, a client that Genpact enables on NetSuite with their business process knowledge built on top of it, will have a mass advantage over someone, such as Tata, may implement with the same old SAP methodology. The cost model will be completely different, the productivity model will be completely different. So what you’ll see is the companies moving to Genpact will have an enormous competitive advantage over their competitors that are stuck in the traditional outsourcing model, and that could accelerate the way in which companies demand a solution that looks more like Genpact’s.
Phil Fersht:One of the biggest issues we’ve seen with the software-to-market channel has been with the value added resellers which see BPO as a threat to their business, where they make all their money supporting finance applications, etc. Are you seeing this dynamic in play where the VARS are very nervous about the BPOs coming into their domain? Is this something you think is going to be a conflict, and will it impact your relationship with the VARs with whom you work?
Zach Nelson:The VARs we deal with are not that worried about it, because most BPOs have not moved down market to the point where they threaten that classic mid-market VAR. Now, with Genpact’s strategy, that collision may happen at some point. But this sort of mid-market VAR spans a 10- person company to maybe a 1,000 person company, so you’re talking about a big market there.
I think the mid-market VAR is more concerned with two things: first is how they make money in the Cloud, and second is who the new competition in the Cloud for that dollar. What they are looking at, is how they transform their model from this on-premise, one-time license to this new sort of recurring revenue model. That’s their big issue today. And we’ve put together a number of programs that assuage that part of the equation so they can first make the transition and then worry about who they compete with.
Phil Fersht: Zach, it’s been a real treat to have you guest on Horses for Sources – our readers will really enjoy hearing your story.
Zach Nelson (pictured above) is President and Chief Executive Officer for NetSuite with more than 20 years of leadership experience in the high-tech industry, where he has held a variety of executive positions with leading companies such as Oracle, Sun Microsystems, and McAfee/Network Associates. Zach has been CEO of NetSuite since 2002. One of top 10 visionary CEOs in the Silicon Valley, he led NetSuite’s successful IPO in 2007.
“Gentlemen, when the enemy is committed to a mistake we must not interrupt him too soon”.Admiral Horatio Nelson, 1795
“This is a new and different way to replace those Stone Age on-premise applications.”Zach Nelson, CEO of NetSuite, 2010
Hot on the heels of its recent alliance annoucement with Genpact, we caught up with NetSuite CEO Zach Nelson to get his take on Business Process Outsourcing delivery, and how he intends to leverage that channel to oust incumbent ERP platforms from midmarket businesses with his Cloud Computing business management software suite.
Zach is a legendary figure in Silicon Valley, where he held exec positions with Oracle, Sun Microsystems, and McAfee/Network Associates, before taking NetSuite to IPO in 2007. He now finds his firm at the forefront of this new movement to leverage on-demand applications in a BPO model, or what we term at HfS “Business Process as a Service” (BPaaS). Anyhow, we dragged Zach away from the love of his life (his job, not the golf course) to get a few soundbites on how they are approaching the BPaaS model…
Phil Fersht: Good morning Zach. Let’s get straight to the point here…Fill us in on your alliance with Genpact.
Zach Nelson: The real starting point of our relationship revolves around enabling Genpact to take NetSuite and customize it to provide a platform for clients’ financial business processes around procurement and some of the other core processes Genpact is really proficient at. Our target market is upper mid-market companies, or divisions of large enterprises, which are legacy version-locked on ERP platforms such as SAP or PeopleSoft. And I believe that’s how we came together with Genpact. I think Genpact realized the inefficiencies of the traditional BPO model for the mid-market, and had a vision to change the market and the delivery model with a rich, cloud-based enterprise management platform on which other applications can be built.
Phil Fersht: Which of you will lead discussions with prospects? You with an outsourcing-interested client, or Genpact with a client it feels may benefit from the NetSuite platform?
Zach Nelson: Due to our joint target market, Genpact will be pulling us in, more than we will be pulling it in. While our companies have some overlap in the mid-market, Genpact will have more opportunities to court organizations that want to outsource their business processes. NetSuite, as a separate provider, will continue to secure opportunities from companies that want to deliver their services in-house.
Phil Fersht: One of my philosophies in BPO is that if you are focused purely on running processes at lower-cost labor, another provider will always come along and do it cheaper, and yet another cheaper, and you ultimately get down to the lowest cost denominator. We’ve seen it with some service providers offering SAP BPO services, for example, where they were simply processing invoices and paychecks at lower prices than their competitors. My stance has been if you can build some underlying software IP into your service delivery, that’s going to give you a whole new level of value capability. So,Genpact pushing NetSuite sounds great to me on paper, but my concern is what happens if you get every Genpact competitor doing the same? Is Genpact protected with any form of exclusivity in this alliance, or will you work with any provider that comes along?
Zach Nelson: Genpact has a “natural” exclusive in that I don’t think most BPO providers actually want to change their business model to give their clients a more efficient and cost-effective cloud-based solution. They want to stay on the SAP gravy train and keep harvesting that revenue. But again, I think Genpact has a different vision and strategy which will be able to deliver three-fold client value from NetSuite…cost reduction due to cloud-based delivery, the ability to embed existing IT software into the NetSuite SuiteCloud platform, and multi-country consolidations that can be achieved in as little as three months.
Phil Fersht: How will licensing of your software work?
Zach Nelson: Customers will have a single contractual touch point with Genpact. Genpact will in effect pay us for the NetSuite application and build it into the service it provides to the customer. Our initial implementations will likely be jointly managed to ensure successful knowledge transfer. But since Genpact is an extremely high quality organization, NetSuite will very quickly become part of its packaged offer.
Phil Fersht: How many client engagements are currently in discussion or underway with this partnership at this point, and what sort of energy are you sensing with the alliance?
Zach Nelson: Today, at the beginning of our alliance, we have about 10 active, big, opportunities. And of course we have to get the first ones under our belt and successfully service them. We’re seeing a lot of energy on Genpact’s side. It’s seeing great opportunity in the cloud/BPO-marriage space, and is betting on us to get them there. A great thing you’re going to see, and we’ve seen it in the mid-market VAR channel, is the companies who bet on this early have a huge competitive advantage over those who join in later. There is no stopping SaaS as the future of the way all applications will be delivered, including outsourced applications. The faster you engage, the sooner you’ll gain an insurmountable competitive advantage.
Phil Fersht: When you look down the road at your own go-to-market strategy, are you hoping the outsourcing services channel will be your next big outlet, or do you still think it will be primarily through direct sales, and this alliance with Genpact is just a little incremental play?
Zach Nelson: NetSuite has always believed the channel would be important to deliver our application’s value to the customer. When we started the company we created a program that enabled service providers of all types to deliver NetSuite as we felt strongly about giving others the ability to gain from recurring revenue. That said, the services channel has historically been reticent to fundamentally transform how they run their businesses. The direct channel is something we had to build early on because the channel was not very excited about SaaS, but we have always had in place a rich series of partner programs, and we’re very flexible in terms of how we deal with partners. Genpact is a one-off relationship in which we felt we could both alter how we market to our mutual advantage, and that of our shared customers.
In the second part of this interview, Zach will discuss how this new BPaaS model will be a game change in the industry. Stay tuned.
Zach Nelson (pictured above) is President and Chief Executive Officer for NetSuite with more than 20 years of leadership experience in the high-tech industry, where he has held a variety of executive positions with leading companies such as Oracle, Sun Microsystems, and McAfee/Network Associates. Zach has been CEO of NetSuite since 2002. One of top 10 visionary CEOs in the Silicon Valley, he led NetSuite’s successful IPO in 2007.
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Sue Marks, Chief Executive Officer, Pinstripe Talent Acquisition Solutions
Without any doubt, the best known figure in the world of Recruitment Process Outsourcing is the all-tweeting, i-pad-wielding, champagne-supping, serial entrepreneur herself, Sue Marks, CEO of high performance talent acquisition solutions firm, Pinstripe.
As we ready ourselves to produce the results of our new RPO study in conjuntion with Human Resources Executive magazine, who better to have a conversation about the future state of RPO than Sue herself? So we sent our roving HRO analyst, Mindy Blodgett, out to catch up with Sue the other day…
Here at Horses, our research reveals that C-level executives are showing heightened interest in the potential of Recruitment Process Outsourcing (RPO). Prior to the deep economic downturn, many enterprises resisted handing over their recruiting functions to a third party to manage – many saw recuiting as something they could manage better themselves. However, the demands of a fast moving, post-recession economy are nudging business leaders towards exploring RPO as a means to add talent acquisition expertise and flexibility in a fast, cost-effective way. Many are faced with the need to scale their operations faster than they had envisaged, and they simply to do not have the internal resources to cater for these requirements in this market.
However, misconceptions about what RPO actually is continues to muddy-up the marketplace and confuse the buyer. We talk with Sue Marks, the CEO of RPO provider Pinstripe, about trends in this slice of the HR universe and whether it might even be time to retire the phrase “RPO” in favor of something that might better describe what companies get when they outsource their recruiting process in all or in part.
An unabashed workaholic and gadget geek (she loves her new iPad, we at Horses can attest to that) – Sue Marks is the founder and CEO of Pinstripe, Inc., a privately held, venture backed HR and Recruitment Process Outsourcing firm serving large and mid-sized domestic clients, as well as the Global 5000. She sits on several profit and not for profit boards and is President of Competitive Wisconsin, Inc. She literally grew up in the recruiting business, as her Dad was a recruiter for Management Recruiters (now MRI). She is an evangelist for the RPO model, a thought leader and frequent speaker and can honestly be called one of the industry’s pioneers. Take it away Sue!
Mindy Blodgett: Is the increased interest in RPO due to the new realities of the financial explosion and the slow recovery?
Sue Marks: It’s certainly a big factor. What we are experiencing now is a period of relentless change. This economy compels organizations to adopt very agile structures. I think that when you dissect some of your functions into components, and are able to plug those pieces into a service delivery model, you can be more flexible and scalable – up as well down. This allows the operating cost structure to better align to the customer’s business needs. You can also respond better to market forces That is what well-designed RPO does the best – rather than being a monolithic outsourcing model that does not allow users to use the pieces they need, when they need it – a good RPO deal,provides flexible, scalable components.
Mindy Blodgett: While there is increased interest in RPO, there is also a good deal of confusion out there about what RPO means and what it does. Why is that?
Sue Marks: What we call RPO (and what I like about the term) is that it distinguishes us as firms that are reengineering the process with technology, rather than just providing volume recruiting services. Unless the combined BPO and technology piece is there, it’s not truly RPO. A lot of people confuse RPO with volume recruiting. In reality, though, I think we should be talking about HR and Talent Acquisition Service Delivery Models that are architected to be “plug and play”, or componentized, both domestically and globally. Because in today’s world of relentless change, we have to be architects of flexible, rather than one sized fits all, monolithic service delivery models.
This gets me back to the right “components” of a company’s Talent Acquisition Service Delivery Model. I think the suppliers who will be successful in this RPO space are those that have flexible modules with some capacity for customization. One size doesn’t fit every client but there has to be an effective way to customize within that service delivery platform while also retaining consistency at a high level.
Mindy Blodgett: Back to the term: RPO…should we be coming up with a better phrase or acronym?
Sue Marks: I am hearing more strategic thinking on the part of companies looking at their recruiting needs. It’s not just about “this project” and the need to get human resources support– it’s about “resourcing” and the supply chain of talent. Perhaps we could call it Human Capital Supply Chain or Talent Sourcing Supply Chain… but then you wouldn’t have RPO fitting nicely in with the other ‘O’s’.
Mindy Blodgett: What else are you thinking about these days?
Sue Marks: I’m disappointed by little process improvement has occurred in our space. Think about recruiter requisition loads … most people I talk to still have about 20 reqs per recruiter as their standard. If American manufacturing and service industries had spent the last decade with zero productivity gains, we’d be at the bottom of the global food chain. If you think about HR and look at “broadbanding” in terms of talent acquisition, that may help. You also have to look at the entire system and not just the applicant-facing pieces of it. How do you reduce demand on the system the way you reduce pressure on a call center by not having software that breaks down? We need to be working on these things.
I’m also hearing a lot of “change fatigue” from all levels of staff. The best organizations are really worried about how they can help their employees to recharge. This gets us back to the pace of relentless change: how do you help your organization regenerate now that things seem to be improving? People are also talking about the “invisible competition”, which refers to the unpredictability of competitive forces in every aspect of our profession and our business. One of our roles is to help our clients “think around the corner” to be anticipatory, rather than reactive. To get ahead of the wave, instead of being drowned by it. It’s what keeps me up at night on one hand, and keeps me excited and optimistic about our business and our future on the other.
Mindy Blodgett: Thanks so much for your time, Sue.
Sue Marks (pictured above) is Chief Executive Officer for Pinstripe. You can access her full bio here, and follow her on Twitter at @SueMarks.
If you’re an HR practitioner with recruiting responsibility, your opinion is vital for our research. Horses for Sources and HRE have teamed up to run the following survey assessing whether HR departments are using RPO, your current experiences and attitudes towards RPO, and whether you plan to explore RPO as a recruitment enabler in the future. Please click on the following link to share your views and experiences with us:
Forgive me father, for I hath missed gain-share opportunities…
While there’s a lot of puff coming from several providers, expectations are not being met when it comes to the actual achievement of innovation within many Business Process Outsourcing (BPO) engagements. Consequently, this improves the options for the first-time BPO buyer to select a provider that can demonstrate a proven track record of innovation, but what about the second-time buyer, firmly-rooted in BPO purgatory?
Our brand new survey* of 588 shared services and outsourcing executives, studying the current achievements of innovation within BPO, serves up a major does of realism to the global sourcing industry: buyers want it, but they are not working effectively with their providers to achieve it. And many buyers and providers are pointing the finger at each other. So why should we care?
Innovation is becoming a critical component when it comes to BPO
In the past, many buyers shied away from innovation because they were so laser-focused on achieving operational stability within their BPO environment. Many claimed that they would have to sacrifice meeting service levels if they tried to tinker with their processes to find new ways of achieving better outcomes. However, when we look at how those buyers with significant influence over BPO decisions are viewing innovation today, the importance being placed on innovation is distinct:
Close to half of enteprises’ operational leadership today now view the achievement of innovation as a critical component of their BPO strategy. With most providers operating within a similar price-band today, this is clearly becoming the major differentiator for the first-time BPO buyer, as we first discussed in our “New Normal in Outsourcing Delivery” study, ealier this year.
First time BPO buyers can select proven innovators, but the second-time buyers have a challenge on their hands to escape BPO purgatory
As the following data illustrates, both buyers and service providers of BPO services are equally disappointed with each others’ provision of resources and technology to meet their expectations of achieving innovation. Considering 38% of enterprise customers view innovation in BPO as critically important to their operational leadership, with a further 50% viewing it as quite important, this is becoming a major concern for the future of BPO services:
While the present disappoints, hope for future innovation is abundant
While buyers are clearly not seeing a lot of business value beyond operational delivery today, they see abundant potential for innovation in both generic processes and industry-specific domains.Major findings, which will be featured in a forthcoming HfS Research report, include the following dynamics:
More innovation has currently been achieved across industry-specific, analytics, supply chain and general accounting processes. Customer care, recruitment, payroll and management reporting are noticeably failing to meet customer expectations.
The potential to achieve innovation across many core business processes is huge. This was notably cited in industry-specific process and analytics areas, in addition to some maturing BPO domains, namely procure-to-pay, and payroll and recruitment.
Major impediments to buyers achieving innovation included unempowered governance teams, and ineffective change management and communications.
The Bottom-line: escape-plans from BPO purgatory are bring hatched, but the hard work starts now
All-in-all, an increasing majority of buyers are aware they can achieve innovation, and know the potential is there to do exactly that. Moreover, most realize the blame doesn’t always sit with their service provider – it rests with both parties to work together to a well-crafted plan that introduces innovative goals and milestones over time, that do not derail from meeting service levels that actually matter. This involves developing more partnership-oriented relationships with their service providers, increased IT-enablement of business processes, and developing gain-sharing metrics based on business outcomes.
Stay tuned for Part II, which will take a look at the specific processes where innovation is currently being achieved, and – perhaps more importantly – where their is real innovation potential in the future…
* The survey, entitled “Are you Achieving Innovation in BPO”, was conducted in May 2010 by HfS Research, in conjunction with the Shared Services and Outsourcing Network’s (SSON) network of senior finance and operations executives. It received 588 participants that encompassed senior decision-makers within buy-side enterprises, BPO service provider executives and outsourcing advisors.
For the purposes of the study, “Innovation in BPO” was defined as “the customer going beyond transactional / operational work to achieve new productivity gains and /or new revenue streams by implementing new practices through unique, creative methods.”
