Posted in : Uncategorized

When I returned to these Western shores 6 years' ago, I was given the the unenviable task of working with the indomitable Andy Efstathiou. 

Now, analysts who have spent 20 years working in commercial banks are not to be messed with – and I quickly learned my lesson with Andy, who (literally) has an encyclopedic knowledge and perspective of everything that has gone wrong with the world.  I recall Andy warning us years' ago that this was all going to go horribly wrong… and did anyone listen?

Andy has since become a good friend over the years, and has always been one of my first ports-of-call when I want to understand anything about sourcing and the banking sector.  He now runs the Banking Sourcing Program for BPO analyst NelsonHall, but his real claim-to-fame is that he finished seventh in the US Olympic trials for sailing in 1988 (pictured).  Not many people knew that…

Anyhow, I caught up with Andy last week to pose a few direct questions on the current state of the banking industry, how sourcing strategies will evolve after the recession, and how banks can navigate these choppy waters (sorry):

Phil Fersht (PF): Andy, firstly, let's not beat around the bush here. What's the climate like in the banking, financial services and insurance (BFSI) sector these days? Do you expect things to continue improving, or are we in a false dawn right now?

Andy Efstathiou (AE): Banks will continue to do well as long as they are on performance enhancing stimulus. However, the banks are aware that some day they will have to stand on their own two feet. In order to do that they need to be able to scale operations in both directions without eating overhead on the downside or investing capital to expand on the upside. Therefore banks have been aggressively working with outsourcers to create engagements built around transaction based pricing.

PF: What's different with regards to IT investments in BFSI after the crash? How do you see this changing? Do you see more firms moving to broader outsourced/managed service models, or a continuation of project-based spend?

AE: Global banks have been standardizing their IT environments so that processing is done in fewer regional operating centers. During the crash most investments were frozen. Q4 2008, Q1 and Q2 2009 were way down from historical averages. Q3 2009 has been very strong (up 15% seasonally adjusted) and Q4 is shaping up to be stronger still. Savings are coming from internal consolidations and from greater use of outsourcing in select processes and geographies.

PF: Do you see more BFSI firms moving into BPO models and selling off their captives these days? What do you see as the drivers / inhibitors? Which processes are going to fuel growth for BFSI-specific BPO in the medium-long term?

AE: I think essentially all captives will be sold off over the next 3 years. Most captives never made their business case because they remain subscale. The remaining captives reach a point of diminishing gains when they do achieve scale. Interestingly the captives currently sold or for sale are the ones that have achieved scale economies (e.g., Citi and AMEX). Cognizant's recent acquisition of UBS' India Service Center is the continuation of a trend for global enterprises with Indian captives to sell those captives and source the services from India based 3rd party vendors.

The captives getting sold now are those that have reached economic scale. This is due partially to the need for financial firms to raise capital and partially to the fact that once a captive is at scale further high growth rates from cost cutting in operations is limited by the lack large pools of transactions which can be on-boarded.

PF: Has the fact that several of the major banks received such a large quantity of TARP funds held them back from outsourcing IT/Business Processes? When you talk to banking CFOs/CIOs today, are they less focused on outsourcing as a result, or more?

AE: No one with TARP money wants to be quoted. However, CFOs/CIOs are focused (appropriately) on conserving capital and reducing cost. None of them will commit to an outsourcing project that requires capital from the bank (such as setting up a captive) or reduces cost over the long run (pay back periods have been reduced aggressively in the past year). To the extent outsourcing helps put capital back in their pocket and reduces overall cost (especially if volumes swing unpredictably) then they are very interested in outsourcing.

PF: With regards to protectionism, are you seeing offshore-centric initiatives being put on hold? How long will these protectionist attitudes remain, or do you see them as more bravado than reality?

AE: Offshoring has been on hold because financial institutions were not sure whether they would be here or how much they would have to shrink operations. Now they know the answers to those questions and they intend to aggressively offshore in the next 12 months. In September we asked 480 institutions what their plans for offshoring were in the next 12 months. Only 2% intend to shrink offshore operations. 37% expect to increase offshoring activities.

PF: Do you see the surge from the newer break of service providers continuing in this climate, or are you anticipating the incumbent western providers coming back strongly?

AE: The incumbent western providers will all be bought up by product companies. Most product companies still have war chests to buy even more services firms. It is more likely that new firms will spring up with private equity money to fill the demand void for product agnostic services. I also expect more U.S. activity to come from European services firms.

PF: Do you anticipate a lot more consolidation in the BFSI space?

AE: Yes. As FDIC fees increase, fewer consumers borrow, regulators close more banks, and eventually interest rates rise (bad for interest margin) more banks will be forced to merge or simply close up shop.

This means banks will process work in fewer, larger centers delivering service across North America. States hardest hit by the crisis (e.g., California, Nevada, Florida and New York) will see the highest loss of operations centers. In short, for finance, what happens in Vegas, won’t be processed in Vegas.

PF: And finally, if you are seeking a sourcing career in the BFSI sector today, what advice do you have?

AE: Avoid at all costs the credit and risk based businesses. The credit crisis has killed chances for much growth in credit over the next 5 years. What will grow in the financial sector is non-credit or operational services. Examples of these include payments, asset management, depository services, channel based delivery. In insurance these would include: annuities, retail insurance (e.g. car and home insurance). The biggest opportunity today is in payments which is consolidating old delivery mechanisms and creating new delivery mechanisms (such as mobile payments).

PF: Thanks for your time with us today, Andy. Your views here are very welcome to many who are closely observing this sector.

Andy Efstathiou (pictured) has responsibility for the development and delivery of NelsonHall's research and advisory services in banking processes and the application of business process outsourcing in the sector. Andy has 25 years' financial services experience, having worked for money center banks, including Citibank and Bank of America, in key roles managing the customer and counterparty operations with other financial institutions. You can email him directly here.

Posted in : Business Process Outsourcing (BPO), kpo-analytics, Outsourcing Heros

You can't understate the importance of relationships in business – especially sourcing, where it's all about cultural fit and working relationships.  In business, it's not always about liking people, it's about being able to trust – and work – with them.  Sometimes, you will actually grow to like someone, in addition to trusting them and working well with them – and that is special; but let's face it, it's quite rare.

In many cases, people you like are not always people you're going to work well with – and vice-versa.  You may not have any affinity or liking for someone at all, but you are straight with other in a working scenario, and have an effective working relationship.  You can always develop a professional respect for someone – and that is different from developing a personal relationship.

If there's one thing that irks me, it's those people who only bother to talk to you when they need something, but paint a facade that they're one of your real "friends".  I like to create a distinction between someone who is a genuine friend, and someone who is a colleague / industry contact.  It's like when you change jobs – you are often surprised by whom was really a friend, versus who was merely toadying up to you, to get you to do things for them…

My real industry colleagues are those folks who I have learned to work with over the years, in various capacities.  In some cases, I didn't (immediately) like them much on a personal level – and they probably didn't like me either, but we learned to function together and create a collaborative working relationship.  And now, I know I can call on many of these folks for favors – and they me. And we can even enjoy a pint or two together these days.

And those folks who come crawling out of the woodwork every few years just because they want something under the guise of "friendship"? Give me a break…

So what can you take from this?  Simply-put, developing professional respect for someone can form the start of a career-long relationship.  In today's economy, having workable, trusting professional associations with people, who know your business value and credentials, is a lot more valuable that having random shallow friendships based on self-interest.

Posted in : HR Strategy

  In the second-part of this two-part interview, Oracle's Tibor Beles discusses how service providers can be successful at platform-BPO offerings, how the broader BPO industry can improve, in addition to discussing the shifting dynamics with software licensing models.  Tibor is also a blackbelt in martial arts (not the Six Sigma category), but spends more time hitting tennis balls these days with his teenage daughter. He also loves political thrillers, but he didn't elaborate whether that was through his day-job, or reading Le Carré novels -:)

Phil Fersht (PF): Do you see platform-based BPO as a major threat to the BPO pureplays which are not experienced in broad-based ERP enablement and implementation services?

Tibor Beles (TB):The first question calls for a long answer but I will try to keep it short. An aggregate BPO service provider must be passionately committed to process and IT excellence in its chosen function. Offshoring for labor arbitrage alone has limited benefits.

I believe platform-based BPO is the best path to transformational excellence. The provider who supports every lift-and-shift platform its customers started with has higher costs, fewer best practices, and less value to its customers. All it can provide is low cost labor and marginal process improvement.

Yes, platform-based BPO is a threat to pureplays. While the traditional service BPO might be a good enough solution for a short-term it has a limited process performance and cost improvement potential.

Legacy platforms of the pureplay BPO providers are often stretched to their limits in the new BPO world. Buyers increasingly expect service providers to add new services and to innovate. What can you expect from a provider running multiple obsolete service delivery platforms?

PF: If the software licensing model is shifting from the customer to the BPO provider for several enterprises, will this be a win-win for Oracle, or do you see good opportunities here for niche software providers to get into the BPO game here?

TB: The outsourcing market can be an opportunity for every software company capable to develop the right product and to offer licensing model(s) meeting providers’ needs. We will continue creating offerings in all relevant markets where all the three market constituents can win – the buyer, the supplier and Oracle. Oracle offers a unique proposition, with the breadth of our offerings, our commitment to open standards, and the integration we provide. Niche vendors may have a functional focus that brings depth to their products, but they can’t match our integration and breadth.

PF: Tibor, all-in-all, what does the BPO industry need to do next to improve, both from the client and service provider standpoint?

TB: This is a huge question. I will try to keep my answer simple and short. Two thoughts only:

I believe platform BPO is the future delivery model. I would like to see buyers to leverage the lessons learned from the ERP market, to make the choice of the service delivery platform part of the sourcing process rather than an afterthought, and also to avoid proprietary and customized software. Configure, don’t customize.

I hope that a provider-buyer relationship will become a partnership more often than it was the case in the past, as it is critical for enabling innovation. The term means many things to many people. It can range from a software upgrade, through introduction of self-services, process retooling, up to a complete process transformation or a long-term, continuous best practice improvement program. I leave it to the readers to define what the term means to them personally.

PF: Tibor, it’s been a pleasure hearing your views on the industry, and am sure our readers here appreciate your time today.

Tibor Beles (pictured) leads Oracle’s Business Process Outsourcing (BPO) globally. Oracle's BPO strategy seeks to expand the "Oracle economy "by placing its applications, technology and ancillary services under the umbrella of BPO provider offerings. Prior to Oracle, Tibor has been with SAP and IBM. He is a graduate of the Harvard Business School.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Outsourcing Heros, SaaS, PaaS, IaaS and BPaaS

We've had a number of discussions with some of the SAP executives over the last few years regarding its highly-publicized BPO partner-program.  Meanwhile, there's been a crack Oracle team quietly working on developing its own BPO strategy, led by its enigmatic commander Tibor Beles.  After being been educated on the nuances of Hungarian beer in a Budapest bar recently, I decided it was time to drag Tibor away from his Karate sessions to talk about his team's progress…

Phil Fersht (PF): Tibor, why does Oracle have a group dedicated to BPO? What's the game-plan here?

Tibor Beles (TB): Our customers demand more choice when it comes to leveraging Oracle software. In addition to the traditional on-premise deployment and hosted/managed applications our customers expect us to offer BPO services powered by the software they like and are familiar with. As we don’t want to be a BPO provider, we have created the BPO powered by Oracle choice by partnering with leading service providers. Our goal is to place Oracle software under the hood of their offerings.

We have 35 BPO partners operating both in horizontal and vertical (industry-specific) markets, serving all sizes of companies.

PF: SAP also has a large investment in a BPO program – are there significant differences in Oracle's strategy and approach?

TB: From the very beginning our aim was to create BPO offerings in every relevant market and geography. While our partners compete often with SAP-based service providers in horizontal BPO domains – payroll, complex HRO, or procurement – we see them a lot less or not at all in transportation management, billing, loyalty program management, clinical trials or demand planning BPO deals. The more industry-specific the BPO service is or the closer it is to the core process, the more we compete with niche software vendors, not with SAP.

PF: With this move towards hosted business services – i.e. the aggregation of hosting+application+BPO services under a single delivery model, what are the pros and cons for the buyer? Will they lose their ability to differentiate?

TB: Aggregated services present a complete, integrated offering. On one hand they limit buyer’s flexibility to pick and chose the service elements and providers individually. On the other hand the relative disadvantage can be richly compensated by a greater opportunity to cut cost, to shrink time-to-deployment and to improve process performance. Isn’t this a similar situation the ERP market was going through in early nineties? Haven’t we resolved the suite vs. point solutions or product vs. project dilemmas then?

BPO providers offering aggregated business services can differentiate on all the service tiers. Their operating model determines their cost of operation, the user experience, time-to-deployment and the innovation potential.

In the second-part of this interview, Tibor will discuss how service providers can be successful at platform-BPO offerings, how the broader BPO industry can improve, and we'll delve into the shifting dynamics with software licensing models.

Posted in : Business Process Outsourcing (BPO), Outsourcing Heros, SaaS, PaaS, IaaS and BPaaS

In 1597, Sir Francis Bacon coined the famous phrase "Knowledge is Power".  While knowledge does create power to the beholder of that knowledge, it can rarely be harnessed effectively until is it shared with other entities.  In today's business world, I'd broaden that phrase to "Sharing Knowledge Creates Value".

Let me explain my thinking here.  Too many employees today have a tendency to hoard their nuggets of knowledge, for fear of fear that giving them away will weaken their value and, ultimately, their job security.  This can sometime be as rudimentary as documenting a business process, through to sharing knowledge of a particular market, discovery or idea. 

It never ceases to amaze me how much better businesses could perform if their employees were better at sharing their knowledge with each other, and – ultimately – with their trusted partners.  We can talk for hours (and have done) about how you can develop service levels, contract stipulations and incentive plans to drive more value into a service-contract.  But ultimately it's the spirit of collaboration and knowledge-sharing that wins the day.

How can firms create this spirit?  Can they go out an buy some software to enable it?  Can they call up McKinsey or PwC and pay for them to create it for them?  Sometimes; these are measures that can help, but ultimately it's about corporate leadership driving change throughout their organization that is likely unprecedented for them.  And sadly, it's a change that is likely abhorrent to the culture that has blighted  so many organizations in this modern business world.  This change is about making talent feel secure about their jobs and their futures.

Let's take some examples from across the sourcing industry where knowledge-sharers succeed:

1. Service providers which share best practices across clients.  The service providers are in powerful positions to offer industry process blueprints, application accelerators, workflow tools, knowledge-sharing workshops etc. with their clients.  However, in order to do this, they need to create these collaborative behaviors across their client service teams.  Hence, they need to create environments for their key client managers to collaborate with each other, otherwise they will fail to develop true business utility services to scale thier businesses profitably.

2. Clients which document their workflows and operations effectively.  Getting employees to tell you exactly what they do, how they do it, and at what frequency, is probably one of the greatest challenges for operations leaders today.  And when you outsource, having access to this level of operational information is critical.  Staff are so protective of their jobs, in any case, and when they get a sniff of outsourcing, many will become even more protective over documenting their world.  Clients who fail to pull together their current operational inputs and outputs effectively, will struggle to develop a realistic business case and establish an effective governance model.  Hence, they need to create an environment where their employees feel secure enough to share their current operational knowledge.  If an employee can effectively source work elements over to a third-party, they can then focus on developing their skills to deliver higher-value work for their company, and develop their own career trajectory.

3. Analysts which share their key insights and data in their reports.  How frustrating is it when an analyst doesn't have a single report which encapsulates all the key datapoints you need to make decisions?  The issue here, is that analyst is afraid to give up their knowledge for fear it will weaken her/his position.  As a result, they will normally stick to covering only that one solitary market and fail to broaden into new areas.  They constantly protect their little patch of power, and only deliver their insights in one-one customer meetings.  However, when the market they ruled eventually became less lucrative, that analyst has become so tied to this one little area, it becomes almost impossible to branch into new lucrative areas.

Conversely, if that analyst had dared to encapsulate all those key datapoints and insights into a concise report, many more people would think "wow – this is great stuff… how can I call this person to apply this insight to my needs".  The analyst immediately gained credibility by demonstrating their knowledge to the world, and created a launchpad for expanding their knowledge and coverage.  By sharing his/her knowledge, that analyst has generating empathy with clients, respect, and a platform for future growth.  Hence, that analyst needed an environment which made him feel secure to do this.  Those analyst firms which encourage their analysts to share their knowledge in their reports will scale their businesses far more successfully, and will also possess analysts with broader knowledge and insights across multiple domains.

4. Consultants which pool their IP with each other.  The best consulting firms incent their consultants to share information and create repositories of IP.  The more they share, the easier it is to take on new projects when their IP is so readily accessible for their consultants.  Anyone who's worked in consulting firms has experienced the successful collaborators and the hoarders… many of those that made partner tended to be those skilled at embracing the talent and knowledge at their disposal.   Those consulting firms which make their consultants feel secure to share their IP with each other will find their ability to take on new work much more enhanced.

Bottom-line:  The common thread here is centered on job security.  In each scenario above, people who fear for their jobs will be inclined to hoard their knowledge, for fear that sharing it will weaken their job security.  In this post-recessionary environment, this fear in magnified. Where staff are encouraged to share their work in a clear, documented fashion, the advantages to their employers are huge. 

The solution is clear to business leaders today:  identify your key talent; make them feel secure about a long-term career path in your company, and keep executing this strategy until you create a secure collaborative work culture.

Posted in : Business Process Outsourcing (BPO), HR Strategy, IT Outsourcing / IT Services, Sourcing Best Practises

Just as I was about to close down my Twitter account, I discovered a perfect use for the tool:

Posted in : Absolutely Meaningless Comedy, Social Networking

As many of you close to me already know, after 14 years in the analyst and management consulting community, I am going to take a little break and make a few changes.

I'd like to thank publicly AMR Research for a wonderful couple of years, where I got to spar with some great people, service more clients that I care to remember, and have a lot of fun bantering with so many of you who frequent the Horses.  I'd especially like to mention some great analysts with whom I'd had the pleasure of working: Dana Stiffler, John Hagerty, Simon Jacobson, Bruce Richardson and Mickey North-Rizza – a real credit to the analyst industry (and will, hopefully, be featured here in the future).  I'd also like to thank Helen Scott for her sheer perseverance… 

If you're wondering how to get hold of me, you can always mail me here. Onwards and upwards my friends -:)

Posted in : Business Process Outsourcing (BPO)

Is there a recurring theme here?  US-based giants with faltering commodity business models from yesteryear, making very late plays to get into the IT-BPO services business?

While I could see some synergies between Dell and Perot, this one's even tougher to fathom, unless Xerox has further plans to marry ACS with a stellar IT services acquisition. 

ACS was one of the early darlings of BPO, and was right at the top of the competitive tree in the early 2000's whenever a large Finance & Accounting, HR or call center deal was up for grabs.  It would always give Accenture and IBM a run for their money in BPO pursuits, and had a compeling culture and engagement methodology for many of the old world BPO engagements (i.e. a lot of lift and shift and staff re-badging). 

Sadly, ACS has rather fallen away in recent times, and has struggled to cope with the aggressive entry of the Indian-centric global competitors into the BPO space.  The new generation of global services providers are bringing passion and combined IT-BPO prowess into the mix, in addition to global sourcing models that are driving down the price-points.

Xerox, on the other hand, has been eyeing broader business services for a while, and I can see why they'd find part of the ACS portfolio attractive – a broader client-base, great presence in healthcare, government, hi-tech and consumer business, a strong BPO brand and global delivery presence.  ACS also has a strong IT services business, but not on the same scale as the top tier. 

The real challenge for this combined entity, is to cope with the new throng of competitors in this space:  Cognizant, Genpact, Infosys, TCS et al., and not solely the incumbents such as Accenture, Capgemini and IBM.  The combined Xerox-ACS business will have a short-term potential to consolidate a commanding position in back-office BPO areas such as document management, call center, payroll, benefits admin and accounts payable. 

However, clients today are spoiled for choice with other service providers which can offer the same services at lower cost.  Xerox also needs to make a quick move to push a utility delivery model, based on common processes and standards, with compeling industry-alignment.  Continuing to push old-world BPO, where the customer shifts existing processes with limited transformation, is not a recipe for success. 

My take?  If this combined entity were to merge with a strong IT services provider and develop a coherent IT-BPO strategy, then we really have something to talk about.  Funnily enough, if you combined the new Xerox with the new Dell, then you'd be looking at a company with a lot of future potential…

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services

We inspired a lot of offline debate when we discussed the challenges facing BPO providers delivering so-called “Platform BPO” solutions.  Bottom-line, if BPO service providers are competing for commodity services engagements which are underpinned by software platforms that are widely deployed by several other service providers, they face a major challenge of differentiating themselves to win new clients and avoid a price-war for new business.

At the enterprise level, selecting a BPO provider to process transactional business services for a major Oracle or SAP-based engagement is dependent on the providers’ global scale, brand and competency.  For these large-scale transactional BPO engagements (i.e. accounts payable, payroll etc), it’s largely a commodity market these days.  However, the battle is on to provide industry-specific solutions, such as health insurance processing and revenue-cycle management, banking-specific services (i.e. netting, lock-box services), retail merchandising, legal services, healthcare informatics etc etc.

For example, I had a great conversation last week with Mark Stiffler, CEO of sales compensation provider Synygy. He was faced with two choices for his business:  either to provide an on-demand managed service to his clients, or license his software through BPOs in the channel.  Sales compensation is an area that can be delivered on a set of standard processes, with some unique personalization to the client.  It’s also an area where there’s a hell of a lot of value an outsourcing provider can add to optimize their clients’ sales performance management processes.  Hosting the software provides the utility offering that can enable a high-value growth engine for the business.  However, when enabling clients to make the most of out these services, they need some quality support that understands both their industry and their business.  How many times have you heard of clients who buy a software package and only use a fraction of its functionality?  The BPO channel should be there to enable clients to maximize the process flows on offer.

While Mark has pursued this managed services (BPO) strategy, some of his nearest competitors have opted to pull-back from a services-delivery model and push their software package through BPOs in non-exclusive agreements.  While the latter strategy might make sense for the software vendor in reducing its own cost-of-sales, the BPO providers are unlikely to invest a great deal of money in high-quality support for a standard software package they don’t own.  They’ll simply add the hosted software into a broad portfolio of adjunct services.

Today, we don’t know whether Mark’s strategy will ultimately win out in his market, but sales compensation is an area where most clients need quality support, so you have to assume Synygy will continue to grow organically as a managed services provider, and could ultimately become an attractive acquisition candidate for one of the BPOs.  You have to applaud Mark’s firm for making a successful transition from a software to a managed services provider.  Too many other software providers simply find that shift in business model too much of a cultural change, and often too much of an initial investment to stomach.  My fear is many software providers will go out of business if they fail to choose the right managed services strategy for themselves and invest in making that cultural shift.

In commodity markets, such as payroll, the scale-game through the BPO channel is clearly the way forward (for example ADP/SAP) because the managed service will normally cover all the key areas the client needs for successful delivery.  Once you have your payroll and accounts payable up and running, how much “innovation” do you really need, if you’re happy with the performance and price?

However, for business areas where clients really could really benefit from best practices, especially when they can be tied to industry-specific scenarios, the “Business Cloud” model is clearly the way to go, where the provider can deploy the computing, business support and alignment services its clients need to maximize the use of the software in a on-demand model.  And will we be even be talking about “software” in a few years?  It’s the process IP that software supports which is really what’s at stake here.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, SaaS, PaaS, IaaS and BPaaS