Welcome to the New Relentless Economy. As the global economy creaks back into life, we’re looking around at this new environment and four factors are startlingly apparent:
Everything’s global
The quest for improvement has never been as intense
The tolerance for inefficiency has never been as low
We need to re-define our own roles in this environment
The opportunity for the service providers to help enterprises and their key talent achieve progress across these four factors is undeniable: some will step it up and become true consultative partners for their clients, while others will remain where they are and hope customer requirements will never really change. Tomorrow’s winning enterprises already know what they have to do, and they need service partners who can help them achieve their goals.
Genpact's President and CEO, Pramod Bhasin
In order to help us grasp how the global provider community is responding to this new relentlessenvironment, we have engaged a number of CEOs of the leading providers to share with us their frank views of the changing world, how they survived the Recession, and how they intend to shape their businesses to support tomorrow’s winners.
To begin this series, we caught up with Genpact’s President and CEO, Pramod Bhasin, and are delighted to feature some his thoughts from a very engaging discussion…
Phil Fersht: Good evening Pramod – thanks for taking time out to talk with Horses for Sources. Can we start by discussing Genpact’s approach to the recession and measures you took to get through the worst of it?
Pramod Bhasin: Our background as a company with GE (General Electric) really helped us. Especially their picking up signs that there was major problem ahead of us, frankly, in the last quarter of ’07. Seeing the nervousness in customers, the nervousness in the pipeline, and talking to those in our industry, all whom were a little jumpy about this. We at once began to put a lot of action into this, in fact, quite early in ’08. Clearly discretionary spending, etc. are all things that we stopped.
More importantly, from a customer perspective, we actually upped the ante and invested a lot more in getting better business development people onboard, getting stronger presence in the European market, actually putting more people out on the street in terms of talking to customers etc., as we felt that the worst thing we can do at a time of recession is pull back. Instead, we have to move ahead even more aggressively to capture, perhaps, other things that others may have left for us, as well as to make sure that customers understood that we were there with them. In many cases, we were willing to help, perhaps in helping them in projects by arranging a model of work that showed them that we were aligned with their goals.
There was a very positive effort to over-invest upfront and over-invest in managing the relationship in working with our current customers, which I think that this allowed us to hold the dam during that time. Otherwise, I think our results would have been worse.
Phil: So you used the recession to get closer to your existing clients?
Pramod: Absolutely. We actually sent a pin-point message out there some time in the middle of ‘08 that said a variety of things out of concern, like get closer to your customer, spend more time with them, invest more in business development, cut back on discretionary costs, focus on cash flows, and so on. We were ready for margin cuts also because we knew that others would come after us on price. But we were ready to tackle price with promises of full volume, come up with monthly billing structures, we changed some of ways we were billing with customers so that we could lessen some of the upfront blows that we know they would have otherwise seen from an outsourcing initiative.
Phil: How did you reinvest in the business in the last year, and how will this bear fruit in the forthcoming months?
Pramod: Our European and UK operation has more than doubled our business development headcount, and our pipeline is up by more than 75 percent. In addition, we have added more domain-specific people in the US in certain areas such as financial services, mortgages, loan modifications (and things like that) healthcare upping people by 25 to 30 percent in the US itself. We made more investments in China and in India, in new businesses that we wanted to purse. So it is pretty much all around the world, Phil. We felt very strongly that it was a great time to diversify to into other geographies that we may not have touched.
Phil: Where are the new opportunities for Genpact? Where are you doubling-down?
Pramod: A bunch of stuff is happening. Companies that needed to restructure have done so. People are more secure about their jobs – that in itself had posed a lot of problems for people. If people are that insecure, they are not about to make any more moves. In addition, IT spending is back somewhat, it is not fully back yet, but its back.
We are seeing a lot more traction in terms of mining new business with existing customers who are saying, “We know where we are at. The market seems to have bottomed out. Let’s get on with it. Let’s do what need to do to get our cost-base changed to adapt to the new reality.” So, that process is actually moving ahead pretty well.
We’re also diversifying quite well – our India business is growing at 100%, and I have just came back for an exhilarating trip in the Middle East and Latin America, which I think which I think offers tremendous opportunity for us which we will go to. Along with that are new areas where we are building our real expertise; for example healthcare, and our process capabilities in terms of what we are able to do to in terms of driving efficiency and effectiveness for companies across the board. All of those things are begining to play out very well.
Phil: In terms of the culture of Genpact emerging from the recession, what would you say has changed and what would you do differently in retrospect?
Pramod: There was a lot of learning, some good and some not so good, frankly. I think that we realized that we have to be a lot more commercially savvy, because companies were pressurizing us for price so on and so forth. I think that we could have come off potentially with different structures to solve some of those issues.
I think the need for (what I call) consultative selling and real expertise we can take to a customer, is very significant at these times. They want real solutions. The same old solution won’t work. So, you really have to have a way within your organization to help people find their solutions and to help them “think” into customers in a way that is different and meet their needs. Customers want to convert capital costs into operating costs. They want to reduce transition times. They want to reduce upfront costs. They need to figure out how to manage change. So out of the recession I am very certain that expectations have hit a completely different level.
Customers are clearly saying, “Bring me real expertise because I am hurting very badly, and I don’t want to hear same old, same old. I need real expertise and creative solutions.” That’s tough for companies like us with our mass of people, so that is something that we have to learn to do much better.
In the next part of this interview, Pramod discusses the competitive landscape, the development of new BPO delivery models and gives some practical advice for young executives. Stay tuned…
Pramod Bhasin (pictured above) is President & CEO, Genpact. Pramod established Genpact (formerly GE Capital International Services) in 1997. Pramod was earlier an Officer of General Electric (GE). His career with GE and RCA spanned 25 years across the US, Europe and Asia. He was most recently the head of GE Capital in India and in Asia, having earlier worked with GE Capital’s Corporate and Finance Group in Stamford, Connecticut, USA. You can read his full bio here.
We’ve been having, let’s say, some “interesting” interactions with folks, when we asked them to talk about their innovative experiences with finance and accounting BPO.
I'll show you some innovation…
What’s been a tad disturbing, is how many have tried to pass up any mild form of progress as “innovation”. Our lieutenant entrusted with plowing through these case studies is Bruce McCracken, who shares some of his recent experiences with us, when trying to explain what innovation actually entails. Over to you Dr Bruce…
Innovation?*!@?#!?
Ask six people what represents innovation and you will get half a dozen answers. Three people discussing innovation will consist of a couple of people talking about two different things while the eyes of the third glaze over. Innovation is a term that epitomizes the semantic differential. But regardless of how it is interpreted, it is a very important element for potential buyers of BPO services.
Innovation is the cornerstone of our forthcoming report, “Reaching New Performance Thresholds with Managed Finance Services: Real-world Experiences”. As we progress, our contacts with providers have shown considerable variance in the perceptions of what innovation entails.
Some providers feel that if a solution is new for a particular client, then it is innovative. But what is new to that buyer may not be new to the industry. An example would be digitizing documents utilizing OCR technology to move from a paper-based system. A late adopting client may see this change as transformational (which it is) and the greatest thing since sliced bread. But others in the industry may view it as being as old as sliced bread. In point of fact, I had OCR software on my Macintosh home computer in the early nineties.
The American Heritage Dictionary defines innovation as something newly introduced. Innovation has many synonyms: change, alteration, revolution, upheaval, transformation, metamorphosis, breakthrough; new measures, new methods, modernization, novelty, newness; creativity, originality, ingenuity, inspiration, inventiveness; informal – a shake up.
Irrespective of how it is defined, innovation is high on the priority lists of potential buyers, when it comes to selecting a future service provider, as shown in our March 2010 report, The IT and Business Process Outsourcing Industry Landscape in 2010:
When evaluating vendors, financial stability and operational excellence are the table-stakes. Business transformation capabilities are the differentiators
While on the surface, it may appear that transformation and innovation are only secondary considerations, when it comes to selecting a service provider. However, when you take into account that most service providers are offering similar solutions at similar prices, it is the providers’ proven ability to provide an innovative outsourcing experience that is fast-becoming a major decision-swayer.
So how are we defining it?
Innovation involves going beyond cost savings and transactional work to create added value to the client for business advantage, by deploying new and creative methods. There are many forms it can take, including:
Improving workflow to reduce the workload of buyer’s internal staff
Increasing buyer’s visibility through business intelligence to identify inefficiencies and revenue leakages
Unifying disparate systems across business units, product lines, geographies, and stakeholders
Creating global finance/account processes to support global operations and decision-making
As an example, the worldwide recession spurred a need for organizations to be nimble with the resources available to rapidly seize opportunities for expansion or soften the blow. Many companies and/or business lines were either diners or dinner. In the areas of mergers and acquisitions as well as divestitures, the agility of the service provider in producing innovative solutions to new challenges was critical as many companies would have been caught flat footed otherwise.
A major global financial institution saw a need to offload some business lines entirely and exit certain geographies in others. Their F&A BPO provider was able to take on much of the heavy lifting in transitioning processes to the new owners thereby sweetening the value proposition for the acquiring organization.
Conversely, a global communications provider was able to exploit the opportunities afforded in the dynamic marketplace with seven acquisitions. The F&A BPO provider was able to consolidate the disparate accounting systems into the ERP through extensive experience to significantly enhance efficiency in a reduced timeframe. The client did not have the internal capacity or expertise to do this.
Another aspect of innovation involves doing things differently or creatively within the engagement. A major global IT enterprise teamed with its provider to change the fundamental governance and relationship structure to adapt to potential changes in the business environment. Empowered dedicated teams manage the relationship that involves gain share mechanisms to encourage innovation. The SLA of the seven-year deal is reset annually to provide flexibility in adapting to changes in marketplace and the client’s business needs.
These examples will be chronicled in detail, as will others, in our forthcoming report, “Reaching New Performance Thresholds with Managed Finance Services: Real-world Experiences”.
When it comes to innovation, it isn’t a matter of whether the bread is sliced, but rather if it is fresh, nutritious and tasty.
We’ve certainly had some juicy discussion on here regarding the virtues of social networking for enterprises – especially those whose competitive differentiators are centered primarily on the intellectual capital and creativity of their employees.
Collaborate to Innovate? Don't be silly, let your firm do it for you…
Our latest study results already shows that specialist blogs are seriously becoming one of the most helpful sources of information and advice for outsourcing executives (stay tuned for some stunning data on this trend shortly), which begs the question whether “enterprise” social networks really deliver value, when they are only made available for the internal enterprise and its specific stakeholders.
One of the most attractive concepts I have ever come across is that of crowdsourcing. At no time in history have ordinary individuals possessed the tools that enable them to engage with such a huge variety of people and to tap such a vast amount of knowledge. Enabling ordinary people to create content and potentially share it with a global audience, using virtually no resources, truly is a massive step forward for mankind. Many of today’s emerging business titans such as Facebook have used ‘the crowd’ to build their businesses and to build fortunes for their founders.
For knowledge based workers, the use of these tools can increase their productivity enormously and engender innovation at a more rapid rate than would be the case for smaller, selected, teams and individuals.
In a traditional corporate environment, knowledge workers predominantly access corporate resources alone. Admittedly, in certain environments such as academic institutions, knowledge sharing and collaboration beyond a single institution has been the norm for centuries. However, today, knowledge workers within corporations as well as within academia have access to infinitely more resources than ever before by using social networking tools.
The massive benefit offered by social networking tools is obvious in some corporate functions such as human resources, marketing and customer care. But, for other activities, the benefits are also huge. For example, a specialist such as an engineer can source best practices or solutions to challenges using social networking tools. These professionals can use these tools to ensure that they are fully aware of the latest developments in their profession and they can do this anywhere in the world. Clearly, these tools can offer huge benefits to professionals ranging from aerospace engineers to zoologists. In fact, those that do not use social networking tools will soon find themselves isolated from the rest of their profession and risk coming across as having a seriously outdated approach to work, a bit like refusing to use word processing software and preferring to write by hand.
Horses for Sources has used social networking to build a business and to engage with a large community of professionals that share an interest in outsourcing. There are no restrictions on who can read the blog or follow Horses on Twitter. Provided, external content does not offend Phil Fersht, it can be added to the blog. But, the main point is that it is open to anybody, anywhere, who wishes to engage.
So what is enterprise social networking? Well, it is collaboration within the enterprise and with selected external stakeholders. To me, this is not social networking, given that if I use these tools, the people with whom I can interact and the content with which I can engage, are restricted by the enterprise. Enterprise social networking tools are the next generation of collaboration tools that are designed to overcome the thorny issue of insufficient collaboration within most enterprises. Intranets were, and in many cases, still are used to engender greater collaboration within the enterprise.
Andy Milroy, Industry Director, Frost & Sullivan
In order to improve performance within many functions within their organisations, management must embrace open, public social networking tools such as Twitter, Linkedin and yes, Facebook. They should not seek to use enterprise social networking tools as more secure or manageable substitutes of the open, public tools. They have very different benefits. Instead, they should use enterprise social networking to help them to address that on-going challenge that they face, namely getting people, within different teams (or within the same team), to work together more closely.
Andy Milroy (pictured) leads Frost and Sullivan’s Australasian ICT Practice. He has previously held senior analyst positions at both IDC, where he led its European IT services research organization, and at NelsonHall, where he started its US business. He can be followed on Twitter at twitter.com/andy1994.
George Kimball: author, outsourcing lawyer and father of three girls
I once swore I’d never have lawyers on here – that was until my old pal George Kimball decided to write his first book, which deserves a plug.
George is unique – he’s an outsourcing contracting lawyer with whom you’d actually enjoy a pint or two, and always has the uncanny knack of adding an air of practicality to the most stressful and dicey of situations. However, it may be the three daughters currently running (not ruining) his life that help him deal so calmly with the rigors of negotiating some of today’s toughest outsourcing contracts.
George has become one of the best known lawyers in the industry over recent years, representing both buyers and service providers on some of the largest and most pivotal engagements during his tenure at law-firm Baker & McKenzie, before recently joining the legal team at Hewlett-Packard (so read that small-print carefully next time you buy a printer).
I asked George to share his top tips for approaching outsourcing contracts with our readers; so go to the fridge, crack open a cold-one and take onboard George’s practical postulations…
George Kimball’s “over a pint” tips for first-time outsourcing buyers
Thanks, Phil, for the kind invitation to offer a little advice – “over a pint.” Here are a few suggestions for buyers of outsourced services – especially first time buyers.
Get good advice. Unless you have done this before, repeatedly and successfully, seek outside advice; but don’t just “turn it over to the experts.” No outside advisor can know your business as well as you do. You (and not the advisors) must live with the results. Proven methods, processes and forms have great value, but can be tailored to suit situations. One size does not fit all. Look for consultants and lawyers capable of thinking creatively, and willing to vary familiar forms and methods.
Focus on essentials. Details matter, but spend time and attention where it matters most: on scope, performance standards, pricing and adjustments, transitions, people, governance. “Worst case” scenarios and remedies matter, and must be provided for, but should not lionize attention. Seek long term results, rather than short term advantage. Today, there are great pressures to complete deals quickly, in order to reduce transaction costs and accelerate savings, but there was great wisdom in legendary UCLA basketball coach John Wooden’s maxim: “be quick – don’t hurry.” Err in haste, repent at leisure. Take sufficient time to get things right the first time.
Keep it simple, or at any rate, as simple as reasonably possible. Outsourcing is complicated. There are lots of moving parts – technologies, people, locations and much else. No one should expect to crowd everything on the back of an envelope. Still, contracts need not be as thick as telephone directories, or as inscrutable as hieroglyphics. Lawyers anxious to protect their clients tend to write rules for all eventualities – forgetting sometimes that life largely consists of surprises, and that few things ever happen quite as anticipated. Issues arise inconveniently and unexpectedly. When they do, good processes may be more useful than rule books. Seek clarity, simplicity, and ease of administration.
Service levels matter, but do not equal or assure quality. Service levels are a useful management tool, but easily overrated. Suppliers are rational business people. They never sign up for service levels that they cannot consistently meet or exceed, so credit dollars (“penalties”) are rarely paid (and for that matter, no one on either side ever wants to pay or receive them). Service levels are to success as vital signs are to health – necessary, but not sufficient. Customary measures such as system availability or response time are useful, but consider developing metrics for systems and processes that benefit the business. Users may not notice modest differences in usual metrics – a few tenths of percentage point here, a few seconds there. They do notice shipments, deliveries, payments, production and collections. Consider metrics that measure them.
Prepare to manage the contract and relationship. Weak governance – too few people, without sufficient clout, and accustomed to managing operations, rather than relationships – remain the single most common, avoidable error among customers. Begin building a team long before any contract is signed, and involve that team in making the deal. Build strong organizational consensus behind outsourcing. It is challenging enough when all sing from the same hymnal. When business units and headquarters have different agendas, failure is likely. No one will agree, except that it was a bad idea, whose sponsors should be hanged or at least put out to grass.
Risks have to be managed. This seems obvious, like the truism that contracts allocate risks. Despite the usual effort to shift risks in negotiations, both sides know (deep down inside) that risks can never be reduced to zero, or transferred entirely to the other side. Therefore, build good risk management – regulatory compliance, security, privacy, disaster recovery, and others – into the contract, and especially oversight and governance. Remember also that these same risks exist with internal operations, before outsourcing. Outsourcing may or may not increase those risks (although transferring operations outside or offshore may mean additional points of failure and different perceptions of risk).
Remember why contracts work. Contracts are more than armories of rights and remedies. Termination rights and the rest have their place, and may matter in some (let us hope) unlikely situations; but companies perform contracts for the same reason that nations observe treaties: because it is in their interests to do so. Good contracts motivate parties to perform through a reasonable equilibrium in the allocation of risks, responsibilities and incentives. Performance yields benefits – savings and service for customers; margins, opportunities and references for suppliers. Failures to perform have consequences sufficient to help keep everyone on the straight and narrow. Motivation matters, but fear alone can rarely motivate excellence. Outsourcing works best when both parties succeed. The customer receives good service for a fair price and saves money. The supplier makes respectable returns from good performance, with reasonable prospects for renewal, additional opportunities and good references. Unless both parties succeed, neither is likely to do so.
Propose reasonable terms. On both sides, too many start with “tough” terms – the sort that no one in his or her right mind would dream of accepting. Why bother? The unsophisticated or naive customers will be very cross when they figure it out (as they will, eventually). Suppliers are unlikely to sign harsh contracts unless they are desperate or inept. Time wasted crab-walking toward sensible middle ground is better spent on those important issues, or planning the transition. No one’s allegedly “standard” forms necessarily came down the mountain with Moses and his tablets. Start with something sensible, and remember the wisdom in the Golden Rule: do not unto others as you would not be done unto (especially when you have to live with them afterward).
Tone matters more than people suspect. Collaboration requires good working relationships built on candor, civility and trust. At the negotiating table, people are more willing to make concessions to others they like, respect and trust, than when they are squeezed. (If they are squeezed or bullied into something unfavorable, they will remember. If they should be fooled or misled, they will figure it out later. Depend on it.) Outsourcing is not a love feast. These are unsentimental commercial arrangements with many challenges. Even so, there are no known substitutes for clarity, courtesy, intelligence, integrity, common sense or good judgment. “Tough” methods and terms are not necessarily best. “Scorched earth” tactics singe everybody. In the long run, neither side will succeed unless both succeed. Kinder and gentler is often wiser. Simpler, reasonable documents take less time (and money) to negotiate – an added benefit.
Phil, I think we finished that first pint. Thanks for the chance to share one with you and your readers. Let’s have another soon. In the meantime, I hope that you and your readers enjoy the book:
Outsourcing Agreements: A Practical Guide
Click for more info on George's new book
George Kimball’s book (pictured right) is an accessible guide to the legal and practical issues arising from complex outsourcing deals. Written for non-specialist lawyers, executives and managers, the book explains the commercial, legal and contractual issues behind outsourcing. Kimball describes outsourcing as a part of a larger trend toward extended, global enterprises in a world with fewer boundaries than before. Companies outsource critical operations seeking superior performance, greater efficiency and lower cost. His book explains the competing interests of customers and suppliers, and how the contractual, financial, operational and other elements fit together into a coherent whole to deliver good results for both sides because, according to Kimball, “neither [side] will succeed unless both succeed.” Collaborative methods, he contends, yield better outcomes, while saving time and money in negotiations.
George Kimballis an attorney and long-time specialist in outsourcing. While in private practice, he was a member of Baker & McKenzie’s respected technology, outsourcing and communications practice, and ranked as a leader in his field by Chambers and Partners and Legal 500. He is a graduate of UCLA, University College London and the University of Michigan Law School with more than 30 years of legal experience.
Oh, the anticipation since Part I! Without further ado, let’s ask Peter Allen his views on CSC’s Cloud Computing strategy and whether some sourcing advisors can escape the hamster-wheel…
Peter Allen, President of Global Sales & Marketing, Computer Sciences Corp
Phil Fersht: Peter, CSC’s been making a very concerted move with its Cloud Computing offerings. How to you view the future of Cloud and what role can you see CSC playing in its development down the road?
Peter Allen: The principle reason I elected to join the CSC team was the vision, investments, and strategy relating to industry-specific business services. The talent that we’ve assembled to design and implement “new world” business models for our Clients is exceptional.
Central to our approach is embracing disruptive technologies that we can apply in order to accelerate and enable the business strategies of our Clients. The term “Cloud” means so many different things to people in our industry. For us, however, it’s the beneficial effect of virtualization, application modernization, enterprise data management, cyber security, and services integration. We believe that those five conditions are essential for the promise of public/hybrid/private Cloud architectures to be embraced.
Being the largest product-independent IT services provider, we see our role as serving as the expert architect of solutions in a world of fast-paced change. We are decidedly vertical in our thinking on this. We believe that buy-side executives want a partner to enable future-state business services that can move at the tempo of change that we are all experiencing.
So … you can find CSC-developed business applications designed for the mobile devices that are prevalent today. You can also rely on CSC to mange a global unified communications and collaboration fabric that supports flexibility in corporate business models.
To us, the “Cloud” implies an expectation for variability, flexibility, resilience, and security. And, those are business opportunities enabled by technology expertise and objectivity.
Phil Fersht: You were such a great spokesman for the advisor community before your big move, Peter, and you’ve definitely left a void on the advisor side. Do you see the advisor community successfully broadening the value of its offerings from deal transaction work, or do you see it stuck in the same hamster-wheel as before the recession? What do the advisory firms need to do to provide deeper, broader offerings across the whole sourcing life cycle?
Peter Allen: I appreciate those kind comments, Phil, but I was merely one voice among an exceptional cadre of our industry. I found the collegial spirit among the lawyers, Advisors, researchers, Service Providers, and Clients to be quite progressive.
In my mind, the Advisory community must recognize that the art of the deal is now, largely, a commodity. It’s a practice that has been implemented enough times over the years for there to be commonly-accepted norms that enable efficient and effective contracting. That’s not where the buyer-provider dialogue needs enablement.
Rather, the role of the Advisor is taking on a decidedly more forward-looking feel. Clients are looking for “what’s next” in terms of construction, integration and operation of enabling business services. There’s a technology prognostication element, and awareness of the investment profiles of the industry leaders. In fact, the tenor of the dialogue today takes on a feeling that more closely resembles M&A endeavors or joint-venture design. The contractual aspects are taken as secondary.
I am seeing the forward-leaning Advisors serving as sources of strategic design expertise to their Clients. They are sitting at the table to enable scenarios relating to business models of the future, and the roles of industry partners in those business models. It ought to be an exciting time for the Advisors that have the acumen for tomorrow, not yesterday.
Phil Fersht: Thanks for your time – we really appreciate hearing from you
Peter Allen: Phil, it’s always a pleasure to connect with you and your broad readership. Best to you, and Horses for Sources.
Peter Allen (pictured above) is President, Global Sales and Marketing for Computer Sciences Corporation (CSC). Prior to CSC, he most recently served as partner and managing director for TPI, where he was responsible for advisory operations for TPI’s CFO Services Advisory team, directing the TPI Index, and providing council to senior executives across a wide spectrum of TPI clients. He also served as one of TPI’s key thought leaders and frequently spoke at industry events as an expert on technology and sourcing trends. Previously, he was president and CEO of Data Dimensions, a Y2K consulting and infrastructure/applications outsourcing company. Prior to this, Allen worked for CSC in various capacities across the company’s U.S. federal and commercial outsourcing operations.
We’ve had some right ol’ rhubarbs on the “I” topic this year, so it’s high time we put the discussion to rest with a good ol’ survey. Yes – you are cordially invited to spend the next few riveting minutes of your life plodding through our latest surveymonkey utopia to air your experiences of achieving (or not achieving) innovation when you do some BPO.
We’ll be probing for the following nuggets of experience from you:
Buyers (customers): where have/haven’t you achieved innovation and where can you possibly achieve more of it in the future. What’s holding you back, and what measures are you taking to get more of it.
Service providers: where are your customers achieving innovation, and where can they achieve more of it in the future, with you as their partner. How are they stepping up (or not) to put measures in place to achieve it.
Advisors and consultants: how are your clients faring and what steps are they taking (or not taking) to achieve more.
We’ve also partnered with our networking partner,the Shared Services and Outsourcing Network (SSON) to reach the global sourcing industry at large with this study, and would dearly love to have you contribute your experiences with us, in full confidence. Please spend a few minutes completing the following survey:
In return for your time, you will receive a complimentary copy of the study findings. In addition, ten customer responses will be randomly selected to receive a free six-month subscription to Horses for Sources research, where you can pose questions to our motley crew on outsourcing, shared services strategy, Tibetan singing bowls or anything else that tickles your fancy.
In all seriousness, thanks in advance for your time – your opinions and experiences are incredibly valuable for furthering our research and this community’s shared learnings.
Many of you will recall some great dialogue in the past with one of the true thought-leaders in global sourcing: Peter Allen. Peter has been one of the most prominent and consistent figures in the world of global sourcing over the last decade, where he played a key role as the public face of sourcing advisor TPIduring the firm’s rise to prominence in recent years. Not only was Peter a such pivotal figure for TPI in the global sourcing industry, but he also was the driving force behind its Consider the Source blog, that was such a great complement for the Horses over recent years.
Since departing TPI last year, Peter has ventured into the service provider world, where he spent time earlier in his career, and now assumes the mighty role of President of Global Sales and Marketing for technology service giant, Computer Sciences Corp. I thought it time to drag Peter away from his latest culinary creation to shares some of his recent experiences with us since his venture over to the dark side…
Phil Fersht: Firstly, how are you finding life on the provider side of the fence? Has anything surprised you? What have been your main challenges and opportunities?
Peter Allen: After spending the past eight years serving as an Advisor to buy-side executives around the topic of shared services and outsourcing, I’ve found that the ecosystem looks very different from provider-side.
On a personal level, I’d start by saying that I am finding the challenges and opportunities as a service provider to be much more dynamic and creative than I appreciated from my prior tenure in the provider community (over 10 years ago). The energy around Clients and investment models, which are at the heart of any strategy to deliver the benefits of leverage, are quite progressive. The notion of business being defined at the level of a “deal” has, thankfully, been replaced by industry-oriented and client-driven strategies. Investments are being made in a much more targeted manner – on both sides of the relationships.
In fact, one of the biggest surprises for me has been around one of the more profound complaints that I commonly heard as an Advisor. Over the past several years, especially as the rise of wage-based sourcing took flight, Clients lamented the fact that the Outsourcing industry seemed geared around maintaining legacy business models at a lower labor-based price point. That was a real issue for many companies, but the realities of the recession left them with little recourse but to contract as a means of stemming the bleeding.
More commonly today, the propositions are being constructed around creating “new world” business models. That’s really encouraging to me – the promise of the industry is based around this premise, but I think we can look back on the past decade as one that was overly drawn into the gravitational pull of wage-based contracting.
Phil Fersht: Being such a respected market observer for so long, what do you see as the main opportunities and threats for the traditional incumbent providers in the face of tough Indian competition?
Peter Allen: There’s a real paradox at play here, with technology at the center of the risks and opportunities for the outsourcing services industry. I see a handful of substantial disruptive technologies converging to shape the form of our industry in ways that likely wouldn’t be possible on a discrete basis. These include virtualization of computing/storage/communications, off-premise hosting of business services (e.g., Cloud-based, SaaS), enterprise data management, cyber security, and holistic service integration.
Peter Allen and his eldest daughter, Emily, enjoying a Patriots game last December
Any one or two of these, alone, might be seen as merely tools for selective adoption, such as we saw around workflow and imaging technologies. But, taken together, I sense that the business models for outsourced services are poised to change in very significant ways. Many of the characteristics of the old ways of contracting for outsourced services are being left behind. The test will be in the forms of contracting that these services embody.
As for what these new model imply for the service provider community – I think that those companies that built their business around wage-based services have run out of runway with their legacy business models and now have the opportunity, and expectation, to turn domain familiarity into technology-enabled business services. That’s a steep hill, but I wouldn’t sell the India-based leaders short in this regard.
Conversely, the traditional technology-oriented providers must decide between commodity-oriented portfolios of components versus vertically-integrated business services. The path of least resistance might not be the path of greatest reward.
Both classes of providers have real decisions and investments to make in order to win in the market that is emerging. Indecision is not an option.
In Part II of this interview, Peter discusses the future of Cloud Computing and its role in future outsourcing models, and also shares his views on where his old stomping ground, the advisor business, needs to go. Stay tuned…
Mike Atwood, Expert Contributor for IT Outsourcing, Horses for Sources
There was some great discussion recently on why outsourcing in competitive times tends to lead to a redistribution of human capital, as opposed to a reduction. Companies during downturns get polarized on driving out cost (and none more so with the nasty recession we’ve just endured), while companies in times of renewed opportunity seek to invest in new growth opportunities – with as little cost to themselves as they can avoid.
Today’s current climate is all about renewed opportunity, but the ongoing uncertainty is driving firms to pursue the dual strategy of cost-elimination with increased focus on sharpening their competitive edge.
When the core issue is purely cost-elimination, the aging theory was to focus on outsourcing non-core processes and retaining the core, however, HfS analyst Mike Atwood invokes some interesting theory that the old core/non-core argument isn’t weighing up to much in this economy – it’s more about making outsourcing decisions based on your basis of competition.
What is your basis of competition? Or what can you safely outsource?
This seems like an easy question, but many people don’t seem to know what it is, or accept that it may be changing. Quite simply, your basis of competition is that reason why your customer chooses you over your competitor. It can be color, feature, function, style, availability or a host of other things. It is crucial that you know your basis of competition and then concentrate the resources of your enterprise into being the best in the world at whatever that is.
Using the automotive industry as an example, the car’s, features, function, and appearance were initially the most significant characteristics in the buying decision of most consumers. However, in the recent past the dealership experience and service after the purchase have become more important to a significant portion of the market. The American auto companies appear to have missed this shift. The big three still devote most of their capital and management talent to developing new products, when they should be concentrating a significant portion of those resources into making the dealership experience more “user friendly”; just as their competition has.
This “basis of competition” becomes the basis for making outsourcing decisions. This has often been confused with the idea of “core” and “non-core”. I think these designations are confusing. Core invokes images of support pillars and foundations and weight bearing beams, while outsourcing seems to imply that you don’t believe these things are important. Clearly this isn’t correct. They are important, they have to be done well, and they must be performed in a timely and transparent way to the organization. However, if a function isn’t your basis of competition, you still need to have it done the in the most effective and efficient manner that you can. Whether or not you do it in house or hire someone to do it for you doesn’t matter, as long as it is the most effective way of getting it done.
The beginning of any outsourcing project is a strategic plan for your business. You need to understand what markets you are going to be in both functionally and geographically. You also need to understand how you are going to win in those markets. Why is your offering going to be the most appealing? This may be as simple as no one else is in that particular market or it may be something distinctive about your product or service. Whatever it is, the distinction won’t last long and pretty soon someone will show up offering something similar, so you must plan the changes you will build into the offering going forward in time.
The forward looking plan will require capital, management attention, and an understanding that you will have to adjust when something unexpected happens. Given that you are in this rapidly changing game, you need to look at those functions that you are currently doing that take time, capital, other resources and determine if you can find a way to do those things with less. This is where outsourcing comes in.
Outsourcing isn’t new. It has been going on since the industrial revolution. The simplest example is electricity. The Ford River Rouge Complex built by Henry Ford to be a model of modern efficiency, generated its own power and fed it to every part of the complex, including Henry’s house. As local utilities developed, every company in America found it easier and cheaper to buy that power from the utility and not have its own power generating capability, other than for short term emergency situations. No one today would think of building their own power generating capability.
In the mid 1960’s, as computers were becoming a ubiquitous business tool, many upper and mid level managers were struggling to understand how to use these tools. Everyone wanted one or more of these tools; the expense was a new line item they didn’t understand and the budget requests were growing exponentially year over year.
Into this environment, companies like EDS began to offer what would today be called BPO services. They made the capital investments and more importantly had the technical management talent to not only manage information technology resources, but to take advantage of the capabilities that were offered. The interesting innovation here was beginning to sell services, rather than software. Initially, this was attractive to banks and insurance companies where the outsourcer processed claims or kept bank records.
As these companies expanded, they simply did not have the expertise to find more and more innovations to the processes of the industries they were try to penetrate. Eventually they began selling operating the computer infrastructure as a service, as well as larger and larger contract programming projects. This made the Information Technology environment a utility. Soon there were standard resource units and comparison shopping was facilitated.
In this IT example, the outsourcer provided value by having a best in class process (or set of processes) to deliver IT infrastructure globally. The outsourcer leveraged economies of scale to spread assets and scarce technical expertise across multiple clients. The underlying process was important to the business, but wasn’t a competitive differentiator. Quite simply, the computers need to run well, but no one ever bought an outsourcer’s client’s product or service because their files were backed up or the clerk’s terminals had a good response time. If the company didn’t have a good computer infrastructure the company would not function well, but the competitive differentiator is why people buy the output.
Once you have determined what you are going to compete on, then you need to develop a plan to be the very best in the world at delivering that competitive basis. There are many things that you’ll need to do to deliver, but only a few will be absolutely key. How you achieve that basis is something that you most likely will want to keep as secret as possible. You’ll clearly want to do that with your own employees and, preferably, ones that have a significant stake in the prosperity of the company. Everything else you need to do is important, necessary, and vital, but isn’t something that gives you a competitive edge. It isn’t core.
So, if there is a provider that can do those things for you at the necessary quality levels, then you need to evaluate if they are also less expensively, will allow you to avoid using your capital, and will give you more hours in the week to focus on delivering, and improving your competitive differentiation. If they can, then outsourcing is the best way for you to proceed and enhance your competitive basis.
Mike Atwood (pictured above), is Expert Contrubutor for IT Outsourcing strategies for HfS Research Ltd. You can access his full bio here.
I’ll agree that “blowing up” may have been a little strong of an adjective (but, hey, it made you all read the damned thing), and “shaking up” probably more appropriate. However, this doesn’t disguise the fact that too many technical folks fail to view the bigger picture when it comes to Cloud.
At a tactical level, when you look solely at Cloud as a hardware-capacity solution, it’s hard to see beyond how it can impact businesses beyond creaking ITO-only deals. However, you really need to look at the convergence of BPO, SaaS and Cloud in a broader outsourcing context to start to visualize how these three pillars of business delivery can – and are – coming together in a blended outsourcing model. Yes, it will take time (and I have called out a two-year time frame to see some real progress here), but it has to happen, and our recent “state of the industry” survey data supports this.
BPO provides labor arbitrage and the ability to personalize “standardized” solutions, SaaS provides the one-to-many process templates that underpin the BPO, and Cloud the delivery engine. Moreover, the virtualization that Cloud provides also adds a whole new dimension of cost-arbitrage for clients – the arbitrage of inefficient hardware infrastructure, the ludicrous wastage of energy costs (not to mention the impact on the environment), and the labor costs to maintain and support infrastructure that provides zero competitive advantage for organizations. The one anti-Cloud argument that keeps getting thrown out there is centered on data-security, but how this is really any different from those security issues surrounding the externalization of data in today’s outsourcing engagements, is beyond me.
I completely agree that this “blowing up of the traditional outsourcing model” is far more easily said than done, and we are seeing a huge resistance to this movement from many IT professionals threatened by these trends, but the bigger picture doesn’t lie: company leaders are constantly seeking new avenues of cost-elimination and Cloud – combined in an outsourcing context – can provide that for many companies willing to embrace it.
One other factor to consider is the push we’re seeing from the vendor-side. Yes, there’s tons of hype and fluff right now (that’s how the tech industry works), but the service providers, in particular, need to keep moving the needle to keep their margins high, and their clients’ productivity levels on a constant upswing. This relentless pursuit of cost-elimination is driving our world today, and the speed at which service providers need to keep sourcing new ways to help their clients find new thresholds of business effectiveness has never been stronger. Some providers will always remain content picking off low-end body-shopping work, but many are eyeing the bigger pie and will strive to make this outsourcing convergence a reality.
Whoever said Obama was going to be bad news for the outsourcing business? The outsourcing market has rebounded heavily with the economic recovery and the successful passage of the new Heathcare Reform Bill has both the IT outsourcers and BPOs on red-alert for a barrage of new business opportunities. For example, the need for payors to manage their administrative costs has never been as intense as it is now, with the fixed medical loss ratios.
We’ve sent our analysts Mindy Blodgett and Anthony Calabrese on the trail to find out exactly what this bill means to both healthcare provision and how it will impact the outsourcing industry. Our research starts now and we’d like both healthcare providers and outsourcers to get involved:
Healthcare Reform: The Scramble for Outsourcing Business Begins
The successful passage of the historic Healthcare Reform bill has sent eager BPO and IT services providers scrambling to be first in line to take on new business.
With 32 million Americans slated to join the ranks of the newly-insured, that’s going to create a major administrative headache for healthcare payors and providers. Increased business process requirements, in the form of new customer enrollment; customer service; claims processing, revenue cycle management etc. will soon be cropping up as the existing systems strain to cope with the major influx of new users. Moreover, the additional demand for IT services to support the increased data requirements is already pushing service providers to position their strategies for incremental business.
Healthcare insurance providers, leery of outsourcing processes, will have little choice but to seriously examine BPO as a way to quickly scale up to handle the new administrative requirements. When facing the new demand for services and the unpredictability that will ensue, the flexibility of a BPO partnership to support rapid expansion, while keeping costs down, becomes much more attractive than hiring new staff for an uncertain volume of new business. In addition, new regulations and requirements, still being understood and analyzed, will put increased pressure on healthcare and insurance providers, which are part of an industry that is already strictly monitored and tracked. Smart providers that can stay ahead of the new regulatory environment and to stand ready with relatively low-cost, quick-fixes to these issues, will be in a prime position to develop or grow their healthcare delivery footprints.
In terms of IT services, it has been estimated that the U.S. will need to spend some $2.5 trillion just to develop a new healthcare system. The bill allocates about $37 billion for electronic healthcare records (EHR), forcing healthcare providers to look at such activities as data conversion and the beta testing; installation and change management needed for a new system. Creating a standard for EHR and implementing it will be a huge challenge for payors and providers, and they will look to outside help to ease the cost and the headaches. Healthcare providers, like never before, will be interested in resource optimization; access to accurate data and will look to the third-party providers for low-cost effective solutions to help them quickly react to the larger, and more complex, healthcare provision needs. There will also be a need for analytics solutions to assess the needs and effectiveness of the systems.
The race to the negotiation-table starts now
While BPO providers scrutinize this looming opportunity, they are also assessing the pitfalls. Some BPO insiders worry that many of the providers are not prepared with the technology and services required to meet the growing needs. As providers ramp up their functional delivery capabilities in areas such as revenue cycle management; clinical supply chain management for clinical and affiliated businesses; there will likely be a time-lag while insurance providers consider their options. However, those which are engaging in the right conversations with the insurance providers today, will likely be at the negotiation-table when it’s time to select service partners for the additional work-requirements.
The offshore service providers, in particular, are salivating at the potential of this new market. But they face some challenges, including the fact that some of the work will be prohibited from being offshored. Such providers as Cognizant, Genpact, Infosys, and TCS and Wipro, just to name a few, are considering ways, therefore, to expand their onshore and nearshore delivery center presence or to broaden their partnerships. BPO providers are working on expanding, revamping and launching services to meet the need. Also well positioned to take advantage of the new market are incumbent BPO giants such as Xerox (ACS), Accenture and IBM. Moreover, Dell, with its recent acquisition of healthcare IT-BPO specialist Perot Systems, is on red altert to expand its footprint in the sector.
At HfS, we are committed to tracking, researching, analyzing and reporting on this developing healthcare challenge. The Healthcare Reform bill is not just a game-changer politically and socially – it has the potential to alter significantly the outsourcing landscape.
We’d love you to participate in our research, and want to talk with you:
As a supplier of healthcare-specific BPO services (or a potential supplier) – how are you gearing up to respond to the new needs, requirements and regulations?
As a practitioner working in the healthcare payer or provider industry, how is the bill impacting you, and how will it influence your outsourcing decisions?
Contact us and we’ll send along some specific questions we are seeking to answer as we put together a report on the changes in healthcare BPO.
Whether you’re a healthcare payor or provider or outsourcing service provicer in the healthcare sector, please email Research Director Mindy Blodgett if you wish to be a part of this pivotal research project.
