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
Jamie Snowdon is a long-serving and acclaimed veteran analyst of the European IT services and BPO industry for the last 15 years. As Principal Analyst for HfS Research, Jamie focuses on developing market size models, data analytics and forecasting, supporting ITO and BPO price benchmarking analysis, in addition to contributing to HfS written research.
Prior to HfS, Jamie spent seven years at analyst firm IDC, where he was the Director for IDC’s European services group, managing all of IDC’s bespoke research. Jamie specialised in delivering custom market forecast models and forecasting tools tailored to his client’s individual needs. In addition, Jamie ran IDC’s European outsourcing research, covering both IT and business process outsourcing. Jamie has wide industry knowledge covering IT consulting, enterprise applications, IT & business process outsourcing, desktop & network services, equipment maintenance, and business continuity.
Jamie began his research career spending four and a half years at the IT services research specialist INPUT in a combination of marketing and analysis roles. He left as the UK operations manager having spent two years as a customer services industry analyst. Jamie completed his graduate training at one of the UK’s leading electronic and IT distribution companies. He has degrees in general science, law and a post graduate diploma in legal practice.
Since 2006 Jamie has taken time away from the analyst world studying to complete his law degree, before making his return to the analyst fold with HfS.
Jamie lives in Teddington in England with girlfriend Clare, and can be reached at jamie dot snowdon at HfSResearch dot com
As Senior Analyst for Outsourcing Strategies, Brian Robinson provides support across many of HfS Research’s clients. His core focus is helping buy-side organizations develop smart global sourcing strategies across both IT and business processes, evaluate service providers and benchmark many pricing components of their sourcing options. With over 12 years of consulting and industry experience, Brian has lived and worked on four continents. He has also served clients across a number of industries including energy, banking and insurance, consumer products, and automotive.
Brian spent the last four years with the outsourcing advisory firm the Everest Group. Progressing from Consultant, to Senior Consultant, and then to Engagement Director, Brian advised a number of the world’s largest outsourcing buyers and providers. During extended engagements, he served clients onsite in the US, Australia, India, Japan, Canada, the UK, and the Netherlands.
Many of his client assignments included:
Defining buyer’s sourcing strategies and future service delivery models
Designing and negotiating IT and BPO transactions
Designing sales strategies for IT and BPO providers
Optimising back office operations
Brian’s career began with Disney – the global media and entertainment company. He spent over six years in a number of roles and geographies including more than two years in Paris. Yes, he left behind the world’s best <<pain au chocolat>>, but can still work and converse in French. After returning from France to the US for a graduate degree, he spent his summer internship in Thailand and Indonesia supporting an environmental start-up firm.
Brian holds a B.S. degree in Industrial and Systems Engineering from the University of Florida and a MBA from the Darden School of Business.
He is an avid reader of the Economist and enjoys a good surf or snowboard session in his free time.
Brian can be reached at brian dot robinson at hfsresearch dot com.
Reetika Joshi contributes regularly to HfS Research’s BPO research coverage, in areas such as analytics and vertical processes.
Reetika is a Senior Research Analyst at ValueNotes Sourcing Practice, based in Pune, India. She currently tracks the outsourcing industry, with a special research focus on the fast-growing technology-enabled learning segment.
Based in India, she has undertaken several research assignments across the outsourcing spectrum, including market studies in niche BPO and KPO areas such as medical transcription, research and analytics and e-learning. Over the last few years at ValueNotes, she has had the opportunity to work on multiple bespoke research services for outsourcing providers, including in-depth competitive intelligence, investment opportunity assessment and custom publishing.
Reetika’s work has appeared in many industry-relevant publications and websites, including Outsourcing magazine, Global Services Media and the Horses for Sources blog. She has presented her views on the state of the outsourcing at various conferences. A strong believer in the power of communities, she manages ValueNotes Sourcing Practice’s corporate blog, as well as an e-learning industry knowledge-sharing group on Linkedin.
Reetika has completed her Master’s in Marketing Management with distinction from Aston University, UK, receiving Beta Gamma Sigma honours. She was awarded the Accenture prize for Best Student on her course. Her final year dissertation was titled ‘Learning from Management Mistakes: Are Today’s Top Business Students Prepared for the Flawed Realities of the Business World?’. Prior to this, she received her Bachelor’s in Business Administration with distinction from Symbiosis International University, India.
On a more personal note, she enjoys reading (fantasy series in particular). She loves listening to music, you’ll always find her with headphones on – her all time favourite band is Radiohead (who she had the great fortune to see in concert). Not quite the sportsperson, but she gets her fix from adventure sports and scuba diving (when she’s lucky). Her other interests include travelling, watching the odd foreign/independent film, and lastly, rooting for Google Android and the open source community.
If you have any questions regarding her work, would like to exchange ideas, or just say hello, do reach out at reetika at valuenotes dot com.
We are delighted to be associated with Deborah Kops, the “doyenne of outsourcing” and managing principal of sourcingchange.com. Deborah recently left one of those high powered corporate jobs to focus on the challenges of change for outsourcing and shared services through www.sourcingchange.com, the only dedicated industry resource. HfS Research is now the first analyst firm to recognize the implications of change management on sourcing success by collaborating with Deborah, who will be contributing her analysis and insights for HfS subscribers and research clients.
Deborah acknowledges that she learned about the challenges of sourcing change management the hard way—by failing. As a result, she is able to deliver results in situations where change is required and the rules must be rewritten, focusing on elimination of barriers to adoption, and helping stakeholders acquire new skills to effectively adopt, embrace and expand new business models such as outsourcing
With experience as a corporate managing director, consulting partner and provider, Deborah has a unique perspective on the major challenge to outsourcing and shared services implementation—effectively and sustainably changing the way people work in light of the myriad implications of sourcing—new relationships, different cultures, enhanced technologies, different delivery locations, new cost structure, changed workflows, focus on the customer, increased quality, introduction of commercial structures, and other considerations.
As a client, Deborah had end-to-end responsibility for global sourcing implementation at two financial institutions. At a global investment bank, she served as the transformation leader for a market-first global procure-to-pay outsourcing implementation, and set up an enterprise-wide “smartsourcing” initiative. For a top 7 US bank, now part of Bank of America, she managed and sourced administrative processes, increasing customer satisfaction of the all-important retail banking division.
Formerly an executive with one of the largest offshore business process outsourcing (BPO) companies, and a founding partner of PricewaterhouseCoopers’ pioneering outsourcing line of business, Deborah saw the implications of change management issues from the provider perspective first hand. And, as advisor, she has honed consulting and communication techniques that help clients institutionalize change leadership, working with major corporations in North America, Europe and Asia.
Deborah is a prolific writer who currently writes columns on change management for SSON Network and Outsourcing Today. She is an occasional columnist for Global Services and is a contributor to the Human Resources Business Review, a journal of the Human Resources Outsourcing Association, Business Trends Quarterly, and the European Outsourcing Review. Deborah has presented at industry forums sponsored by such organizations as Deloitte, the Financial Times, Corporate Research Foundation, SSON, Das Shared Services Internationale/ Management Circle , The Conference Board, HROA, and Global Services. She has delivered workshops at institutions such as University of Pennsylvania Wharton School of Business, Carnegie-Mellon University, and Lancaster University School of Management.
Deborah is probably the only graduate architect in the sourcing world. Late nights at the drawing board earned her a bachelors degree at the University of Illinois and a masters from Virginia Tech. After six years of hard graft in the design world, she thought there were better ways to make a living.
Deborah is married to an Englishman who is a dead ringer for Samuel Beckett, is a hiker and after many years of airline lounges, still likes to travel.
Deborah can be reached at deborah dot kops at sourcingchange dot com.
