Mindy Blodgett, Research Director, Horses for Sources
One of the facets of outsourcing that always challenges industry observers is fuguring out the timing of when (or if) companies will take the plunge. Delivering a value proposition for outsourcing isn’t enough – it’s proving that those processes can benefit a company’s competitive position if they are externalized in a managed services environment.
For example, most companies would never have dared move the management of their entire recruiting function over to a third party, but the squeeze of this post-recession economy, combined with fresh thinking from company leaders and a willingness to explore global sourcing models in business functions that can benefit from added expertise and flexibility, is moving services such as Recruitment Process Outsourcing (RPO) up the corporate agenda for many firms.
We’ve decided to take a deeper-dive into the RPO market, and have asked our new research director for HRO, Mindy Blodgett, to tee up her research into this area for us. In fact, taking a closer look at Mindy’s bio, I see she likes “eating at expensive restaurants”, so hopefully you’ll like what she’s working on enough to sign up for our research program and help her maintain this past-time… over to you Mindy:
Can RPO empower a flexible and scalable workforce?
Although the global financial picture is still unclear, the signs of an economic recovery are tentatively drifting into view. However, this isn’t your typical cyclical post-recession market: industries are facing fundamental shifts in their very make-up and competitive dynamics, and this is impacting how many firms need to approach their recruiting strategies.
Many firms, fearing the worst, laid off staff aggressively in the crisis months, and now have to readjust their talent resources quickly to meet the business demands of a recovery that is – in many industries – appearing faster than many had anticipated. Without an agile recruiting strategy, vital market opportunities could swiftly pass by those firms with talent shortages. But there is risk in taking a bold recruiting stance; no one can be sure that the economy will not take another nose-dive, and the need for greater workforce flexibility has never been so strong as it is in today’s environment.
Staffing back-up in the midst of uncertainty – Four critical questions to address
2010 is a year that threatens to expose many firms. Uncertainty drives some to be conservative and hold back on major re-investments; others to be bold and use the conditions to forge ahead in their respective markets. Whatever stance firms choose to take, they need to answer these questions:
How best to add qualified staff – and what should an expanded workforce look like? Which talents make sense in an uncertain economy going through such secular change?
How to meet the new demands for a flexible workforce, capable of expanding and contracting quickly?
How to meet a growing demand on the part of workers for a more “1099 “ work culture, one where employees have contracts and are not bound by long-term commitments?
How to take advantage of the latest recruiting techniques, for example, social networks such as LinkedIn, as well as the latest talent management application suites, to source talent quickly and at much lower cost than dated recruiting models?
Those who fail to answer these questions and define a coherent recruiting strategy could well find themselves left dog paddling as more nimble competitors surge ahead. Enter the concept of RPO, which attempts to help firms tackle these issues without significant upfront investment and business risk…
Is now the time for RPO to finally emerge?
Recruiting, onboarding and training a global workforce is a daunting challenge for companies of all sizes and industries, and enterprises have traditionally invested in large inhouse recruiting functions to manage this process. However, many HR leaders today do not have the bandwidth or focus needed to keep up with the latest in recruiting management technologies and best practices. Maybe it’s finally time to use a third-party specialist to help manage this process?
Therefore, the increasingly smart answer for a number of enterprises is to turn to Recruitment Process Outsourcing (RPO) to manage some or all of their recruiting processes.
At Horses for Sources, we believe that RPO, one of the HR functions that has historically lagged in the HRO space, is now poised to finally come of age in this growing, but uncertain, recovery.
Hot off the presses survey data tells the interesting story. Data from the Seeking the New Normal in Outsourcing Delivery survey, conducted by Horses for Sources in January of this year revealed that in the coming year, close to 50% of respondents report they are either likely to increase or are already increasing their participation in some form of HRO.
The survey also showed that there is a growing interest in RPO, whereby some 35% of buyers said they were actively evaluating the outsourcing of some aspect of their recruiting function, while another 12% said they were actively interested in pursuing RPO. More importantly, some enterprises are moving into RPO immediately, with 6% reporting that they are engaging in RPO in the 2010-2011 timeframe.
So while RPO is still relatively low on the HRO totem pole, it is occupying a more significant piece of the total HRO pie. As enterprise leaders are increasingly scrutinizing RPO as a viable, and potentially formidable, weapon in the HR arsenal.
Why RPO claims to make sense:
Managing the talent life cycle has always been an intimate process for many firms, and finding staff which are a cultural fit, as opposed to simply filling immediate task-oriented and transactional needs, has been a major reason why enterprises have clung to managing the bulk of this process inhouse. However, in today’s maturing outsourcing environment, both providers and buyers are vying to become more sophisticated at working together to achieve common business outcomes. RPO is no exception, and there is no reason why a quality RPO provider cannot work with a client today to understand its culture and work in a personalized manner to meet its recruiting needs. In an ideal world, an RPO provider should be able to deliver:
Faster time and lower cost to hire
Easier requisition management
The potential of better talent retention
Standards that meet the need for regulatory or corporate compliance
A more organized, focused, modern and swifter hiring process that should lead to improved service quality and lower cost-per-hire
Removal of some non-core and low-value functions, allowing greater focus on developing talent, as opposed to acquiring it
Access to the latest in technology, applications and recruiting best practices, including such benefits as updated skills and behavioral assessments
Breaking old habits is hard, and many enterprises cling to the belief that their recruiting needs are unique, not easily adapted or standardized into universal templates. Hence, a rapid increase in RPO adoption is not yet a sure bet as many HR leaders will continue to resist transferring such processes into the hands of a third-party. Still, it’s clear that RPO is now firmly on the agenda for many firms ready to embrace new recruiting strategies that add agility, and do not cost the earth to deploy. Enterprises pursuing RPO need to be committed to change and to effective outcomes – but the goal of finding a true service provider/partner is not easy to attain.
At Horses, we’re committed to tracking RPO in addition to many other developments in the wonderful world of HRO – stay tuned! We’ll be asking the hard questions about adoption challenges, analyzing buyer successes and failures, as the markets mature.
If you are an organization engaging in RPO, are interested in RPO, or if you are a service provider with an RPO solution and a strong message for how these relationships are working to build a new global work culture, we want to hear from you. As part of our research efforts in the near future, we will be surveying buyers; analyzing service provider offerings; conducting case studies – you name it, we’ll be doing it.
So please email me if you’d like to participate in our RPO research, or whether you have some suggestions or questions. It’s an exciting time to be watching the RPO space, and we look forward to sharing our insights and hearing about your experiences.
Mindy Blodgett (pictured), is Research Director for Horses for Sources, her prime focus being Human Resources services and Business Process Outsourcing areas. Mindy’s role is to deliver research analysis and thought leadership for Horses clients and readers in areas related to recruitment process outsourcing, total benefits outsourcing, workforce analytics, talent management and broad HR areas, such as compliance, payroll and compensation. You can read more on Mindy’s background and expertise by clicking here.
Horses for Sources and the Shared Services & Outsourcing Network (SSON) Create Alliance to Provide Unique Analyst Insight and C-suite Forums for Senior Operations Executives
Horses for Sources to provide research for SSON’s buyer community
So you may have noticed a few changes around here over the past week… not only did we retire those rather plump horses on the old site, but we went out and turned ourselves into a fully-fledged research analyst firm.
We’ll be introducing you to several of this motley crew who are feverishly working on their new research schedules over the coming days and weeks, but we did want to talk some more about why we’re doing this and why we believe we’re significantly different.
Essentially, we are providing the customer of outsourcing services with rapid, engaging, no-holds-barred insight into what BPO and global sourcing is all about, how they need to think about governing it, and how they should go about selecting service partners that can actually help them do more than merely cut costs doing operational work. What’s more, we’re using our social networking capability to keep us close to the industry and engage you all so quickly and readily.
For example, our little piece on the NorthgateArinso/ConvergysHRO deal received 14,000 web-visits in the space of 24 hours. That was caused either by NorthgateArinso’s CEO Mark Ettling repeatedly admiring his handsome features, or it may have simply been the fact that we have found unique ways to engage our industry, via our Digest, via our LinkedIn Group, via our Subscribers and via RSS feeds.
Anyhow, as part of our goal to reach the executives who are grappling with the whole outsourcing quagmire, we are delighted to announce that we a formerly creating an alliance with our long-standing friends at the Shared Services and Outsourcing Network (SSON). Not only have we run a terrific survey with the assistance of their network, but we’ve also streamed a global live panel over the blog and also conducted some of our discreet buyers’ groups in secret rooms at their venues. Here’s the full announcement which is going over the wires tomorrow:
Horses for Sources and the Shared Services & Outsourcing Network (SSON) Create Alliance to Provide Unique Analyst Insight and C-suite Forums for Senior Operations Executives
March 9th 2010. London, New York
Horses for Sources, the leading analyst advisory organization focused on outsourcing strategy support, has teamed with the Shared Services and Outsourcing Network (SSON), to provide a unique platform for senior outsourcing buyers to access knowledge and peer advice.
As part of the new alliance, senior operations executives in SSON’s premium community can benefit from research being provided by Horses for Sources, including all aspects of Business Process Outsourcing, shared services and governance strategy. Under the terms of the agreement, the “Horses” expert analyst team are available to support SSON’s members with their outsourcing and shared services decisions.
In addition to the research analyst support, SSON’s buy-side executives can benefit from C-level discussion groups, which will be facilitated by Horses for Sources analysts on-site at SSON’s premium events. Upcoming groups will be featured at the forthcoming Shared Services and Outsourcing Week events in Orlando and Edinburgh.
The Horses for Sources organization has been working informally with SSON for the last two years. The success of previous buy-side discussion forums served as the impetus for the formation of a more formal partnership.
Phil Fersht, Founder and CEO of Horses for Sources, stated, “Our goal at Horses is to deliver unbiased insight, research and advice to senior BPO and shared services decision-makers. We have found the community at SSON great to work with, and are excited to engage with their executives on a regular basis. Based on our long-standing relationship, we feel that SSON has the broadest and most comprehensive network of senior operations executives in the sourcing industry, and we are excited to be supporting them with some of the toughest – and most complex – decisions of their careers.”
Sarah Clayton, Global Head of Strategy at SSON added, “The proven depth of insight provided by the Horses for Sources team is exactly what our members demand, and their ongoing popularity and influence with many of our senior executives has driven us to formalize our partnership with Phil and his team. Our goal is not only to provide our community with great knowledge and networking opportunities, but also to help them benefit from the best and brightest minds in the industry. We believe Horses provides that for us, and are delighted to have them with us on this journey.”
Horses for Sources is the foremost social networking community and advisory analyst firm, focused on helping enterprises make complex decisions with their global outsourcing strategies.
Horsesprovides the most impactful and frequently-visited collaborative community platform in the global services industry, providing rapid and insightful commentary, analysis and debate of enterprise outsourcing dynamics. The organization is unique in the fact that it integrates personable social networking with market research and advisory services.
Horses’ mission provide a unique environment for collective research, opinion, experience and knowledge across the global outsourcing industry to help enterprises explore new performance thresholds. Led by industry expert Phil Fersht, the Horses for Sources team is a multi-disciplinary group of analysts and experts with deep domain knowledge in Business Process Outsourcing, Industry Specific Process Outsourcing and Cloud Computing.
Launched in 2007, the Horses for Sources blog has more than 80,000 regular visitors across the global outsourcing industry, and is widely recognized as the leading destination for collective insight, research and open debate of industry issues and developments. The Horses LinkedIn community is thriving with 9,000 industry professionals sharing views and information daily.
SSON is the largest and most established community of shared services and outsourcing professionals, with over 18,500 members and more than 350,000 visitors to the community portal per year.
SSON provides the roof under which key industry experts and organizations share their experience, knowledge and tools, and practitioner peers connect with other all over the world, both face to face and online.
SSON focuses on developing its members through providing training, tools, and networking opportunities. Its staff works from international offices in New York, London, Singapore, Sydney, Berlin and Dubai to research current trends and developments in shared services.
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Jeanne Achille
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In Part I, cabinet-maker, gentleman and Fellow of Research, Lee Coulter, spoke about the misalignment of the sourcing relationship when the business objective and strategy becomes polarized on one aspect: cost.
Everyone loves to save some money, and often the misalignment isn’t felt for the first couple of years. Striking a deal that optimizes cost generally sub-optimizes other aspects. As I like to say, you can have speed, quality or cost; pick any two. This principle applies to the balancing of business objectives in an outsourcing relationship as well.
A study was released last year showing that more than half of the largest 2000 companies in India actually outsource parts of their back office to other Indian service providers, often at a slight price premium. Why? Top answer is focus. Sure, these companies have access to the same low cost labor and could keep the processes in-house, but chose to do so because their business objective is focus. The message here is to spend the time to build strong linkage from the business objective to the business strategy to the outsourcing strategy and finally to the deal structure with an outsourcer.
Avoiding sourcing catastrophes, continued…
Catastrophe strikes when the strategic misalignment becomes profound enough for the client business to suffer strategic restrictions because their outsourcing relationship was optimized for a different business objective and can’t change fast enough to meet the needs of the business.
Second on my list is what I call the Mutual Assured Destruction (MAD) versus Mutual Assured Success (MAS) conflict. The simple fact is that there cannot be a single winner in an outsourcing partnership. This implies that if both parties are not actively holding (and working toward) the business objective of both parties as their own objectives, then the relationship runs the very real risk of MAD. Whatever issues exist with one party will eventually become issues for the other party – it is only a matter of time. At the time the partnership is formed, both parties believe there is commercial success potential.
However, things change and change fast; often before Day 1 of the active service relationship. Economics change, companies change, strategies change, and people change. It is the leadership challenge to constantly keep in crystal clear focus the ever shifting set of goals the parties each have. More importantly, both management teams must overtly discuss, integrate, and feed back into their own organizations a unified set of objectives. In the absence of working for mutual success, the default behavior is to place your own interests over those of your partner. That does not imply bad intent. That is just what happens. It doesn’t take conscious decision to find you are on a mutual destruction path. Think of the mutual success path as one that takes constant effort to maintain, and the mutual destruction path as the default long-term path.
Real business partnerships do not come naturally to most organizations. The vast preponderance of experience companies have with other companies is of a more tactical nature. When I speak on this topic, I use an analogy to human relationships. Most B-B relationships fall into the “Friday night hook-up” category and occasionally evolve into a “serial dating” type of relationship, but rarely ever turn into a marriage-like long-term partnership. How do you manage this new kind of partnership? All too often, organizations revert to the only methods they know and when all you have is a hammer, everything is a nail.
It is unnatural for most organizations to do kind of work necessary for the health of a long term relationship. As anyone who has been in a long term relationship knows, the interests of both parties must always be held together, and often, one party must place their needs subordinate to the others’ to ensure the relationship endures. I do a lot of talking and coaching on this topic. I will again say that this is the leadership challenge in outsourcing. This cannot be legislated, although you can build governance structures and processes that are more conducive to it. To make matters more difficult, when it is working as it should, outside observers on both sides are critical of this new kind of behavior. The service provider account team might hear their own organization tell them they have “gone native” and the client management team might get the question of “who are you are working for? Us or them?”. Not easy words to hear.
Because of the depth and length of most outsourcing relationships, anything other than results that enable both parties to be successful over the long term, will eventually end in a significantly disruptive way that result in great loss and misfortune. Most (but not all) other symptoms of troubled relationships can find their root cause in either strategic misalignment, or the lack of committed action to keep realigning and adjusting the mutual goals and doing the work necessary to change the relationship to be able to deliver for both parties.
Lee Coulter is Research Fellow and Distinguished Analyst for Horses for Sources. Lee supports Horses for Sources’ enterprise customers with their outsourcing and shared services strategies – you can read his fill bio here.
So one of the worst-kept secrets in the HRO business finally came to fruition today, when the British HR services provider NorthgateArinso acquired Convergys’ HRO business for $100m.
By our calculations, that gives the newly-formed entity a 15% market share of the enterprise HRO market (engagements with firms greater that 15,000 staff). We’ll confirm this fact when we update our HRO market landscape in a couple of months.
The merger effectively moves them above IBM, Accenture, ACS and Hewitt into the leading position in the market from an employees-served perspective; not a bad day’s work from a British payroll firm that acquired an upstart Belgian SAP-payroll integration shop. This also elevates NorthgateArinso firmly into the high-end of the enterprise HRO business, in addition to the mid-market scrap with the likes of ADP and Ceridian.
Why this merger makes a whole load of sense
Payroll-centric HRO is in high demand. As we revealed in our industry study last month, there is renewed appetite for HR services as businesses limp their way out of recession. This is especially the case where payroll is at the heart of the customer requirement and customers need a solid mix of software implementations expertise, backed up by low-cost processing capability (near shore and offshore) and HR domain expertise. So this acquisition is timely. It’s also been a long time in the works, and NorthgateArinso has clearly thought long and hard before making the plunge.The US market was the gap in NorthgateArinso’s armoury. NorthgateArinso could have made an alternative play into the benefits outsourcing arena and bid for the likes of ExcellerateHRO or ACS’s HR business, but it’s decided to stick to its knitting and fill out the one yawning gap in its armory – it’s ability to win US business. “We were winning too many of the international components of deals, and customers kept the US services inhouse”, CEO Mike Ettling (pictured) told us earlier today. Convergys gives them US strength and depth in spades. The highest concentration of multinationals are still in the US and their expenditure dominates the HR services market. Moreover, Convergys’ international presence is quite a snug fit with NorthgateArinso’s business (the addition of Sao Paolo and Budapest, along with a promising Asia/Pac benefits business are good additions to have for the future).
Convergys’ woes appear to be behind them. Only two of Convergys’ 21 clients had contrived to be unprofitable, but these are now in a much healthier position, having been ring-fenced and restructured. NorthgateArinso will have the challenge of delivering on Convergys’ promises, but they’ve looked long and hard at the issues here, and know what they’re letting themselves in for. Moreover, $100m is a great price for a strong book of business. Even if one of those two remaining deals is problematic, they can deal with it.
Both SAP and Peoplesoft (Oracle) clients can be serviced. While Northgate has enjoyed expanding the Arinso EuHReka business, which focuses on an SAP-based SaaS/BPO delivery model, the Convergys element really does beef up the company’s Peoplesoft capabilities. And, unlike the unrealistic promises being made by some of its competitors, Northgate is being refreshingly realistic that it will not attempt to develop genuine multi-tenancy around Peoplesoft. That would be no easier to achieve than healthcare reform…
The Bottom-line: Great buy for NorthgateArinso at a great price, but the hard work begins now
Noone denies that old-world HRO turned into a bit of a train-wreck, where many contracts became unprofitable and providers struggled to ring-fence them and re-structure them. Convergys and others were guilty of taking on some deals that brought down executives, upset Wall Street and cast a dark shadow over the HRO industry. However, smart firms like NorthgateArinso are sticking to their knitting and focusing on global client work they know they can deliver profitably. The global payroll market opportunity is massive – CFOs cannot function properly when they can’t have a handle on their global employees, and our research repeatedly reinforces this desire to improve the effectiveness of global operations.
NorthgateArinso now truly has a strong foothold with multi-national opportunities, however, their real challenge starts now. They now have to compete even more aggressively with the likes of IBM and ADP, where they will need to bring the best out of their existing client portfolio to prove they can truly take on that missing piece – the US market. Convergys gives them a bigger engine, now they have to fine-tune it to a performance level noone’s really attaining in the HR services industry right now. Here’s a chance to make HR services history – they now need to shore up their management and delivery talent to achieve it.
We received a few messages yesterday requesting we stay “provocative and edgy”, now that we’ve declared that we should be taken seriously as a cohesive group of professional analysts.
So without further ado, I went and dragged our new Research Fellow, Mr Lee Coulter, out of his woodwork shed to lay it on large with some strong words on sourcing catastrophes, and some steps enterprises can take to try and avoid them… over to you, Mr Coulter:
Avoiding sourcing catastrophes
An event resulting in great loss or misfortune. That’s how Webster defines catastrophe. In the world of outsourcing, the stories of catastrophe are legendary, and the statistics on how often it occurs are not very reassuring. What is it about the strategic services sourcing space that makes it so prone to issues? Even if things don’t end in public catastrophe, the stories of mutual success are just not that numerous. The question remains: how does one avoid catastrophe?
To use Six Sigma jargon, my own analysis tells me there are a “vital few” contributors to catastrophe. When I analyze the laundry list of visible symptoms of outsourcing catastrophes, I keep coming back to two root causes. Not surprisingly, these same factors, when included in the process, are often the elements that advantage an outsourcing relationship for success. So what are they?
Strategic alignment is first and foremost. There is a lot to say about this, but let me put it in simple terms: Outsourcing is not a strategy. It is a strategic enabler to meeting business goals. What goals you ask? I use a list of six (there can be more) potential business objectives that can contribute to a strategy that includes the tactic of outsourcing:
– Scale – leveraging the size of a service operation
– Scope – using end-to-end process thinking to optimize a service
– Quality – using operating model and relevant metrics to improve the business result
– Cost – reducing costs in one of three ways: arbitrage, efficiency, and effectiveness
– Control – using better systems, process, and metrics to improve control of a process
– Focus – reducing (but not eliminating) leadership distraction on non-core business processes
When working with organizations contemplating outsourcing, I can – and do – spend hours talking about each one of these six business objectives, and how they can be possible motivators in a decision to outsource. Too often though, organizations turn to outsourcing without doing the essential diligence of first establishing the business or functional strategy that brings the right blend of the six potential business benefits of outsourcing into clear focus. That results in misalignment of the sourcing relationship with the business objective and strategy. There are specific and different ways of implementing an outsourcing deal to meet different business objectives. If the specific outsourcing methods and structures are not constantly realigned through the sourcing process, then when the organization strikes a deal, the business objectives have a tendency to be reduced to one: cost. Don’t get me wrong. Everyone loves to save some money, and often the misalignment isn’t felt for the first couple of years. Striking a deal that optimizes cost generally sub-optimizes other aspects. As I like to say, you can have speed, quality or cost; pick any two. This principle applies to the balancing of business objectives in an outsourcing relationship as well.
To illustrate the point, a study was released last year showing that more than half of the largest 2000 companies in India actually outsource parts of their back office to other Indian service providers, often at a slight price premium. Why? Top answer is focus. Sure, these companies have access to the same low cost labor and could keep the processes in-house, but chose to do so because their business objective is focus. The message here is to spend the time to build strong linkage from the business objective to the business strategy to the outsourcing strategy and finally to the deal structure with an outsourcer. Catastrophe strikes when the strategic misalignment becomes profound enough for the client business to suffer strategic restrictions because their outsourcing relationship was optimized for a different business objective and can’t change fast enough to meet the needs of the business.
Stay tuned for Part II… which will touch upon the risks of Mutually Assured Distruction if a relationship isn’t centered on common business outcomes for both stakeholders
Lee Coulter (pictured) is Research Fellow and Distinguished Analyst for Horses for Sources. Lee supports Horses for Sources’ enterprise customers with their outsourcing and shared services strategies – you can read his fill bio here.
So H-Day has arrived, and we can finally reveal what it actually means. It’s the day Horses for Sources became more than a blog… today it becomes an advisory analyst organization focused exclusively on researching global outsourcing strategy.
So why on earth do this?
A natural and logical progression. Simply put, it’s a natural progression for Horses. Having developed such an effective community for collecting so many opinions, having such strong outreach to all the key stakeholders in the outsourcing business (buyers, vendors, intermediaries, investors, academics etc), leveraging the three-year development of Horses as the platform for a new research organization is the logical next-step.
The outsourcing buyer needs a pure analyst organization. While there’s tons of great content floating around out there, there really isn’t one entity that has brought together researchers and real practitioners, with real experience, to focus purely on researching BPO and global sourcing as a pure analyst organization, that doesn’t broker deals or write vendor white papers. Some of the sourcing advisors deliver excellent thought-leadership, and they deserve credit for driving the sourcing industry over the last few years. The large analyst shops have stuck to their IT knitting and have largely overlooked BPO – they service IT vendors and IT users. Investing heavily in sales and research to service finance, HR, procurement and other operations professionals desperate to learn more about outsourcing (not solely IT), is not something any of the large traditional analyst firms have done. You can read, in detail, the challenges and opportunies we face over at SageCircle.
The Horses won’t change, we just expanded
Firstly, the blog remains, and will have even more content and contribution. We’ve exported all the content from “fersht.typepad.com” over to this new site < www.horsesforsources.com > and the blog will continue as a front-end to the analyst organization. We are producing a series of premium content reports that you will need to be a client to access, but the blog will continue to deliver opinion, and discuss many of the key findings from our research. I am encouraging our analyst team to set up their own personal blogs in time (if they want to), and several of them will be sharing snippets of their research on the Horses. And we’ll continue to invite industry guests to be interviewed and submit articles.
A big fat personal thank you
Bottom-line, this wouldn’t have been possible without the ongoing support and participation of so many of you over the last three years. I am amazed at the sheer quantity of email and comments I get on a daily basis from people all over the world who visit this thing. All I ask is that you continue to lend your opinion, respond to our surveys, and continue to pass on the good word. End of the day, I choose research because I enjoy learning how we can constantly get better at being global, savvy organizations. I do not profess to know how the world will look in 3 years’ time, but if we all continue to debate the issues, the future will gradually unravel.
We're still recovering from one of the longest discussion-threads in the history of outsourcing when we asked whether some outsourcing vendors had thrown in the innovation towel.
This also inspired my old friend Bob Cecil to reach out and ask us to work with him to provide some practical advice to the industry on how to achieve some innovation; without coupons, promotional discounts, or even early-bird specials. Just plans old advice, practical thinking, and – heaven forbid – maybe even some patience. "But wait! If you call in the next 10 minutes, we'll also throw in…"
Bob, simply-put, is "Equa-Man" – one of the original champions of BPO who has been a key figure in helping mastermind the growth of outsourcing advisory firm Equaterra since its inception. If there's ever a complex BPO engagement in the works, Bob's usually somewhere on the scene (and likely holding up a warning sign). He's also hard to track down, as you have to drag him off a basketball court or ski-slope when he's not on a plane somewhere, but we did manage to grab a few minutes with him earlier this week…
Phil Fersht (PF): Bob, firstly, what are the main issues you’re hearing from your clients these days? What are the main contrasts between now and before the economic crash last year?
Bob Cecil (BC): We’ve seen a significant shift in the fundamentals of how companies are looking to compete. Before the economic crash, a large number of companies were competing based on taking cheap capital and deploying it to growth opportunities such as acquisitions. When capital dried up and consumers stopped spending, these companies had to reorient themselves to compete on factors such as cost and balance sheet strength. All of this has fueled initiatives such as outsourcing and shared services on a broad basis. Before, we often saw these initiatives launched for an individual function or geography. Now, companies are looking more broadly across all support services, all geographies, and all business units. The question they are addressing is how do I fundamentally change how I deliver all of my support services to have a significant business impact?
PF: Our joint paper talks about the challenges facing buyers today to achieve innovation when they move into a BPO environment. In short, how would you surmise what they need to do to get beyond achieving merely “operational” results?
BC: It starts with expectation setting. Buyers often go into a BPO relationship stating they want innovation, but in reality they haven’t thought through what innovation may mean for them, what business benefits they are expected to achieve from innovation, and what the costs are to achieve innovation both in terms of hard economics and softer change management. Once buyers define what innovation they need, both at the beginning of a BPO relationship and as the relationship matures, there are a variety of techniques (as outlined in our joint paper) such as innovation boards, risk/reward pricing models, and the like that they can use to ensure they gain the innovation desired.
PF: And what do service providers need to do to help their clients achieve innovation in BPO?
BC: Many of the service providers have moved beyond the traditional “lift and shift and continuously improve” models and have built out real innovation capabilities. Unfortunately, the highest level of innovation discussion only happens during the sales and bid cycle. The provider teams “go operational” very quickly once the contract is signed. The mantra becomes stability at all cost and creating “no noise.” While this may be appropriate during the early transition stage, it hardly engenders innovation over the long haul. Incentives need to be realigned and skilled staff knowledgeable about innovation need to be deployed beyond the pursuit teams.
PF: We’ve also seen advisors try and step up and deliver governance services, but many have found this challenging (clients don’t exactly ring up and ask to “buy some governance”). What – in your experience – is working, and what isn’t?
BC: I think it is hard to outsource governance on a wholesale basis, although we have had some clients ask. In reality, particularly when you are dealing with more complex outsourcing relationships that need to evolve over time, the client should maintain ownership over the relationship. That doesn’t mean clients can’t offload some of the transactional work of governance such as invoice verification. Right now you see clients building governance teams internally and deploying more sophisticated governance software to help them manage the operational aspects of the relationship. Over time this could evolve toward more of a software as a service (SaaS) offering.
PF: And finally, you’ve been a figurehead for finance BPO and shared service delivery for many years now. What are the three key developments you expect to see in the next couple of years, based on your vast experience of this industry?
BC: I see a greater movement toward standardization for transactional and pseudo-transactional activities under a variety of forms. For pure transactional services with few integration requirements, I see SaaS continuing to grow as an alternative. This will appeal to mid-size clients as well as larger clients who are willing to take their transactional processes to a true common standard configuration offered by a SaaS provider. For those processes that don’t lend themselves as well to a pure cross-industry solution, we will see instead greater emergence of industry standard process, technology and location BPO platforms. A second trend is a continued focus on higher end value-added services in BPO and shared services as companies become more comfortable with how to manage and outsource more global and multifunctional shared services relationships. These services will take the form of analytics and what were formerly considered “close to the core” processes. The line between knowledge process outsourcing (KPO) and business process outsourcing (BPO) will quickly blur. Where the first generation BPO focus was on cost efficiency and service levels, the next generation will include broader business results and impact. Finally, I see clients grasping the importance of governance to manage complex, internal shared services and outsourcing relationships. They are setting up enterprise-wide governance teams with the right blend of skills and enabled by more standard processes and tools. These groups are becoming increasingly sophisticated in not only managing the service-provider-to-client relationship, but also in managing the internal relationship with the business units to avoid the creep of “shadow staff.”
PF: Thanks for your time, Bob. Am sure everyone who visits the Horses appreciates it.
Bob Cecil (pictured) is Executive Director, Business & Financial Processes Advisory (Global) for outsourcing advisor Equaterra. He has advised on some of the largest sourcing engagements in the industry over the last two decades.
Phil Fersht is Founder, Chief Executive Officer and Research Director of HfS Research, the leading global research analyst organization covering global sourcing strategies. He was named “IIAR Analyst of the Year 2010” by the Institute of Industry Analyst Relations (IIAR). This is the most coveted global award for industry analysts in technology and services. His specialist coverage areas include finance, HR and supply chain BPO, and he also focuses on industry-specific issues and the convergence of BPO, SaaS and Cloud in a business utility context.
He is an acclaimed industry analyst, practitioner, advisor and strategist across Business Process Outsourcing and IT services worldwide, having worked extensively in Europe, North America and Asia. During this time, he has advised on more than 100 major outsourcing and offshoring engagements and consults regularly with senior operations and IT executives on their global sourcing strategies. At HfS Research, Phil directs and contributes to the firm’s research and social media strategy, in addition to administering the global finance operations.
During his career, Phil has worked at AMR Research (Gartner Group), leading the firm’s BPO and ITO practice. Previously, he served as market leader for Deloitte Consulting’s BPO Advisory Services, where he led numerous outsourcing and offshoring advisory engagements with Fortune 500 enterprises. He also worked for outsourcing advisor Everest Group leading the company’s BPO research practice. Phil began his career at IDC across its European and Asia/Pacific operations.
Phil is a frequent author and speaker on IT services, Finance, HR and Procurement Business Process Outsourcing trends and issues. He was named both an “FAO” and “HRO Superstar” by FAOToday and HROToday Magazines for 2005, 2006, 2007, 2008, 2009 and 2010 and was featured as the cover story for the December 2006 issue of FAOToday as one of the outsourcing industry’s most prominent advisors. He was also nominated for “Advisor of the Year” at the FAOSummit 2008. He speaks regularly at industry conferences, which have included The Conference Board, NASSCOM, IDC Directions, the Sourcing Interests Group, the Shared Services & Outsourcing Network and the Council of Supply Chain Management Professionals. He is also a regular columnist for several industry publications, including Global Services Media, SSON, FAOToday and Finance Director Europe.
Phil received a Bachelor of Science, with Honors in European Business & Technology from Coventry University, United Kingdom and a Diplôme Universitaire de Technologie in Business & Technology from the University of Grenoble, France.
When he’s not running this business, Phil spends his time watching Tottenham Hotspur (a mediocre British soccer team), the Boston Red Sox (less mediocre, but not by a lot), reading, running, playing chess and sampling single malt whiskies.
Phil can be reached at phil dot fersht at HfSresearch.com. He can also be found on twitter: @pfersht
Esteban Herrera is COO at HfS Research, where his prime focus is developing and delivering compelling and rapid research, data, insight and practical advice for our buy-side enterprise clients. He also over sees the company’s commercial operations.
Esteban focuses on the issues and challenges of outsourcing buyers, ensuring they have the best insight to create and manage their outsourcing relationships. His responsibilities include providing outsourcing buyers with solid research that leverages both deep expertise and the power of social media.
A committed globalist, Esteban is an outsourcing thought leader who is passionate about the opportunities of globalization and specialization in the industry. A popular speaker and author, he advises organizations on issues of business process and IT outsourcing on- and offshore. Through his involvement in hundreds of enterprise outsourcing initiatives, he has developed unique insight and the ability to ask the right questions to set an organization on the correct outsourcing path.
A respected practitioner, adviser and researcher, Esteban has worked with Global 2000 companies in the United States, Asia, Latin America and Europe, helping them manage the entire lifecycle of back office transformations. He has lived and worked on four continents and is fluent in Spanish and Portuguese.
He has run outsourcing delivery organizations in India, North America, Latin America and Europe, and has advised on over 100 ITO and BPO transactions.
Esteban started his career at Accenture, delivering “offshore” enterprise solutions before that was a common term. At Infosys, he was responsible for delivery of services to major Fortune 100 clients. He has spent the last decade as an outsourcing advisor to global enterprises, founding and managing The Concours Group’s Outsourcing Advisory practice and most recently as a Managing Director with Alsbridge.
Esteban’s work has appeared in publications such as MWorld and Directorship. He is a co-author of the influential book Outsourcing: The Definitive Point of View, Applications and Implications published by Wiley & Sons in 2006. In 2003 he led the landmark Research Life after Outsourcing, which was the first to comprehensively focus on the behaviors and processes that can make or break outsourcing success.
His chief pastimes involve his wife, Patricia, and baby son Lucas. And when he’s not wasting his time watching the Dallas Mavericks he can be found tuning into Speed TV to watch Formula 1 racing.
Esteban is a graduate of Babson College, where he majored in Entrepreneurial Studies and Marketing.
Esteban Herrera can be reached at esteban dot herrera at hfsresearch.com. He can also be found on twitter: @eherrerahfs
Euan Davis is Managing Director, European Research at HfS Research, where his prime focus is overseeing a leading-edge research agenda in the areas of services integration, IT services and Business Process Outsourcing. He has a specific focus on the European region, in addition to having a global mandate.
Euan is globally-recognized as a long-standing expert in IT services and sourcing-related issues, bringing more than 14 years of analyst and consulting experience to HfS Research.
Based in London, he assumes responsibility for a broad range of sourcing and services governance topics, namely supporting clients develop their multisourcing/multiprovider strategies, recommending service provider selection and evaluation criteria, supporting clients through their outsourcing deal negotiations, and offering insight into the evolving ecosystem of services providers for IT service and BPO delivery.
He frequently advises executives into the dynamics surrounding the European marketplace and their impact on the sourcing role. Euan frequently keynotes events or assumes the role of session chairman at international conferences that focus on IT services, BPO and sourcing-related issues.
Prior to joining HfS, he was a Principal analyst for global IT research firm, Forrester Research, where he led the firm’s coverage of IT services and BPO for the pan-Europe region. He also served as Yankee Group’s European IT services domain expert for two years, following a five-year spell at IT analyst IDC, where he was a research manager for IT services. There, he managed the research agenda, directed custom consulting projects, and wrote syndicated research papers covering all aspects of the European IT services industry. He has lived and worked extensively in Europe, including six months in Madrid setting up a Spanish IT services research practice — other relevant skills include Spanish language capability.
Euan has a B.A. degree from Portsmouth University and lives in Cambridge, UK.
In his spare time, Euan is a formidable skier and avid gardner. He is father of Rosa and Oliver with his long-time partner Hannah.
Euan Davis can be reached at euan dot davis at hfsresearch.com. He can also be found on twitter: @euandavis
