Wouldn't it had been something if there had been some sort of interactive journal during the Great Depression, where we could have truly experienced the emotions of the time, peoples' ideas for change, the stark contrasts between desperation and hope?
It's been a geniune privelege to have hosted these emotional debates throughout the entire Great Recession of 2008-9. It's incredible how attitudes have changed over these tough months – I don't know about you, but I feel a little wiser as a result – and the great interaction I have enjoyed and observed with so many of you, has made this all possible.
Here's the whole story of the Great Recession and it's impact on the global sourcing industry (in chronological order):
Prolific blogster and all-round industry pundit Vinnie Mirchandani asks whether the IIAR's definition of the analyst is outdated. He also begs the question whether my good friend Ray Wang, who has recently left research firm Forrester, will repeat his honor next year. Unless old-school PR executives get with the changing times, somehow I doubt it.
Vinnie goes on to declare "seems like AR (Analyst Relations) folks want to cling to a narrow (and shrinking) definition of market influencers." I didn't even feature in the top 3 services analysts, despite the fact there are 45,000 RSS subscribers to this blog and my calendar is booked solid until well beyond Labor Day with client meetings (but I promised my wife to keep my ego in check, so will not venture further with my little dig here…). I haven't even heard of these "top 3" guys… but they seem to be "influencing" far more than I seem to be. Maybe I need to get myself double-booked next time?
To cut to the chase, our marketing agencies need to broaden their horizons beyond stale analyst models and look at who is really influencing the decision-makers. My firm AMR Research, for example, has a huge subscriber-base of Global 1000 clients and a deep vertical focus, but didn't get a single mention, while none of the sourcing advisors, such as Alsbridge, Equaterra, Everest or TPI get viewed as industry influencers, despite playing pivotal roles in influencing and brokering many of today's outsourcing and services engagements. Meanwhile, some analyst firms which focus predominantly on procuring vendor business - not buyers – get mentioned in these ratings. And none of the industry's top bloggers get so much as a mention. Analysts should be rated on the following criteria:
2) Vendor-selection influence (number of actual deal-flows influenced, number of user clients);
3) Quality of buyer-focused research (new ideas, unbiased thinking);
4) Respect from vendors;
5) Respect from buyers;
5) Proven industry longevity.
As many of the analyst "rock stars" leave the traditional analyst industry, such as Ray and, even more recently, star social-media analyst Jeremiah Owyang, isn't it time for marketing and PR folks to look further-afield to identify the new industry influencers? With the new era of social-media upon us, and new entities partaking in thought-leadership, isn't it time for new influencers to be recognized: those people actually communicating with – and enlightening – today's decision-makers?
I spent much of last week at InsofysBPO's customer summit in Baltimore. Infy always does a good job with their events – they bring their customers together and encourage open, unstructured debate, where the good, bad and plain ugly about BPO and ITO are openly discussed. They know the best way to win business is through baring their DNA to customers and encouraging them to trust and want to work with them.
They also invited some industry personalities to wax on about their vision for the future – and some predicted rampant "consolidation among suppliers". I say they are wrong – they are clinging to their knowledge of the past and are not re-adjusting their perspective to the present. I'd be surprised if we ever see
another merger like EDS/HP for a very long time. I don't even think we'll see a lot of smaller-scale service provider mergers. And you can call me on this one if I am wrong. I've seen a couple of providers hawking themselves on the market for a while, and they're struggling find a buyer. I don't believe this is about a price/stock-swap negotiation; I believe it's because they aren't bringing the right stuff to the table anymore for the new breed of service providers.
The way to win clients today is to show them what you're all about, what you stand for, what you believe in, and what your customers really think of you. I see this style being reflected by a handful of service providers today - and it's not a staged selling strategy: it's actually real. These providers generally want the platform to present their passion, energy, dedication, and willingness to improve to their prospective customers. And more and more these days, customers can detect real passion from service providers during a pursuit process, as opposed to the salemanship of "going through the motions". Today's branding in services is far more about the culture of the delivery staff customers will be working with, and less about tag-lines, sexy marketing and past reputations.
What I am also learning myself, is the future direction of our industry unraveling. It's no longer simply about scale. I still hear the daily rumors about whom is buying who, but I barely believe these anymore. ITO and BPO is about culture and industry specialization – tell me where you can buy that these days? You don't buy it, you build it – and you build it buy partnering with new clients and assimilating their knowledge and talent into your own culture.
Today's battle-ground is largely focused on transactional deals, but the new differentiators are centered on industry knowledge and expertise. Most of the leading service providers today can put on a good show for basic application development, or transactional finance / procurement / analytics work. But which of them can boast genuine industry expertise where they can align specific business knowledge with process transformation, underpinned by technology integration expertise?
The only way these service providers can develop this expertise is through smart client acquisitions, where they can re-badge personnel with intimate industry knowledge and share this intellect across other delivery staff. You can only acquire this knowledge when you invest in new clients, as opposed to buying up new scale with transactional contracts, accumulated from yesteryear's' engagements.
It's time for new thinking, not the same old mentality of biggest is always best from the old-school…
There were a few alarm-bells ringing in the outsourcing industry with TPI's shaky Q2 results. As our recent buy-side survey data indicates, in addition to the multitude of service providers and consultants, outsourcing interest and uptake is on the rebound, so what should we read into TPI's 38% drop in revenues from Q2 2008? I spoke to leaders of all the key sourcing advisors to get their candid input on how their firms were faring, and whether TPI’s results are reflective of the sourcing industry in general.
Rival Equaterra, which is currently privately held, reports to us that its Q2 results have increased 10% over 2008, expects Q3 to perform well, and is encouraged by strong IT outsourcing activity, with on-plan BPO advisory business. Another rival, Alsbridge, added: “First half revenues are up 40% on a 1st half ‘08 to 1st half ‘09 comparison. Across the board, we see good demand
for the final half of 09. No really new areas. Same old ITO, F&A, multi-process BPO and SSC.”
However, it’s not a rosy picture for everyone. Another competitor volunteered: “We’re seeing some new ITO opportunities, but these are contingent on clients securing the funds to pay us. Many are choosing to go it alone. This has been a terrible year so far.” Another added: “Since March, each month is looking better. July and August are stronger than most summers”.
Other advisors report a soft Q2, but consistently view a much improved pipeline of business for Q3. Some are enjoying a ramp-up of F&A BPO business, while all see strength in IT outsourcing evaluations. While payroll outsourcing is still hot, demand for end-to-end HR Outsourcing appears very weak across the board. In addition, several service providers have stated increased aggression from advisors looking for consulting income from the sell-side, as they seek to fill revenue holes created by the weak market.
So what can we read into all this?
Customers having other priorities during “shellshock spell”. We’ll all look back on the time between Oct 2008 and June 2009 as a period of shell-shock for most commercial organizations. This hasn’t been a usual recession where firms carve out some costs, make a layoff and move on, it’s been a time for deep business reflection and structural change to the way we do business. This recession has proved that many firms took their time before making decisions that result in business upheaval, and most have been extra careful about hiring consulting help until they are sure they know what route to take. Only now are we starting to see a rebound in widespread outsourcing evaluation activity, and this is reflected in the uptick in business from several of the advisors. This has been a tough period for the consulting period in general, and nearly all major consulting firms have endured widespread layoffs. One management consultancy partner confessed (after several martinis), that his firm made such a deep cut, it even managed to sever consultants who were on billable client engagements.
Deals are smaller and hefty consulting fees are hard to justify. This is probably the biggest issue for sourcing advisors – it’s easy to justify spending $1m for engaging an advisor to broker a $50m deal, but it generally requires a similar effort when you’re evaluating a $10m deal. TPI (and others’) traditional consulting model is simply not geared up to the smaller engagements – how can you perform work of the same quality with significantly less resources and expertise? Customers are resorting to using lighter-touch models (i.e. a retainer service), analyst “on-tap” services, or simply muddling their way through themselves and pounding whomever then can for information and advice. What worries me is the influx of some lawyers who are driving clients straight to a contractual negotiation with service providers, and bypassing much of the due diligence necessary to make the right sourcing decisions. They focus far too much on punitive contracts and not nearly enough on supporting smart governance models and outcome-based approaches.
Other players are stealing marketshare. To be fair to TPI, it has been a victim of its own success, and has found itself defending a substantial marketshare lead during a very tough period for sourcing advisory firms. Any market weakness is going to be much more visible for this publicly-held firm. With revenues in the region of $200m, their nearest competition enjoys barely half this amount. To cut to the chase, they’ve been on a hiding-for-nothing of late.
The increasing presence in this space of most of the leading management consultants, lawyers, boutiques, one-man-shows, analysts and other intermediaries, is spreading the business across an increasing number players. Firms such as AT Kearney, Deloitte, KPMG and PwC have no choice but to embrace smart outsourcing advisory, as most of their enterprise clients need help and support – especially those looking to break out of expensive shared service models. Many distressed firms who know little about outsourcing, but are now having a serious look, tend to gravitate to the bigger brands, as they simply are not aware of specialist advisors, such as Alsbridge, Equaterra, Everest, TPI and W Group.
The nature of advice and support customers need it quickly changing. Simply put, buyers are getting smarter at this and many have their own smart PMOs which know how to conduct a lot of the sourcing evaluation work (or at least think they can). Remember all the consultants who made a packet doing ERP evaluations in the ‘90s? Well, commodity outsourcing isn’t a whole lot different when service levels become standardized, and pricing information much more readily available from multiple sources. Today’s advisors need to demonstrate more business consulting acumen and less of the operational process-focused stuff. The next generation of winners in this space will be those with industry-specific expertise, have access to relevant and credible research and benchmarks (either their own, or from credible analysts), and can develop sourcing strategies that are outcome-based, not simply driven from cost-inputs.
What a crazy market, but you can’t say we’re left with a dull moment these days… comments and insights always welcome,
The new wave of BPO deployment has arrived quicker than many of us anticipated. The recession has driven some common-sense into a BPO value-proposition that was previously centered predominantly on some form of labor arbitrage, with many service providers muddling their way through to attempt to run their clients' process for less cost – and make some sort of profit. Sometimes they pulled it off, other times they failed. Many are currently in a state of semi-transition, with the success of their BPO engagement still hanging in the balance.
Now we've clearly arrived at a turning point in BPO development, which we can put into the following three categories:
1) Straight Lift and Shift: the antiquated form of BPO where client takes "as-is" processes, hands them off to a provider, which subsequently attempts to run with lower staff costs. In many cases it's a simple "re-badge" of existing personnel, with the provider simply employing smaller numbers of the existing delivery team to make a profit on the deal. In most modern cases, the provider will supplement onshore staff with offshore. There is little (or no) enhancement of software applications to standardize workflows and add a modicum of transformation into the engagement.
Likely outcome: Inefficiencies with processes are magnified considerably, change-orders and procedural changes are cumbersome and expensive, client finds it challenging to reduce onshore headcount, and anticipated cost-reduction is not reached.
2) Lift, Shift and Transform: Same as Lift and Shift, but the client and service provider work together to re-map existing processes onto a pre-defined new set of processes.
These can often be standard and may adhere to a particular ERP template, of could be customized to requirements specific to the customer. The client and provider need to determine the incremental transformation costs and price them accordingly over the course of the contract (or as a single fixed fee).
Likely outcome: Initial challenges as processes are moved offshore, but standardization on new technology should create new efficiencies and the opportunity to eliminate unnecessary process steps. Initial cost savings may not be as much as a pure process play, but the aggregated savings over a multi-year period are almost always greater.
3) Tranform onto a standard offering with some degree of personalization: My good friend at SAP, Gianni Giacomelli, sent me in some of his thoughts on this standardization/personalization balance, so am going to hand you over for his thoughts here. Over to you Gianni:
I argue that a few service providers can and should get smarter at executing on the key vision the industry was built on: service provider being better (read: cost, quality, risk) than each individual client because it syndicates practices and scale across customers.
Trouble is, this is not “business as usual” for many service providers with a technology system-integration background, where you get paid for the extra frills you do on each customer. And it is not easy for those coming from small-scope services, who struggle with the intricacies of a consultative value-sale cycle. It will take guts and smarts, but it can be done – like it has been done in many industries where process and technology maturation suddenly help business models change. Here are some key tenets.
Decide scientifically what scope you really want
Here the concept is simple but the analysis is not banal – which means that the right people, if well determined, can build a competitive advantage out of this.
Scope decisions mean analyzing which processes benefit from standardization, i.e. for which ones the cost per unit decreases when volume goes up, or which ones can be optimized from “typical practice” to “best practice” even if at the same level of scale. In both cases providers need to standardize the way they do certain things – otherwise they do not attain the required scale, or are not able to achieve the transformation required to reach “best practice”.
Standardization can happen along two dimensions: processes (e.g. invoice management, dunning, garnishments, …) or delivery layers (automation tools, self-services, tier-1 contact centers, tier-2 global experts, tier-3 local experts). There are methodologies that can help this exercise – again concepts are simple, but implementation not trivial. First, identify what is material: forget about the “long tail” of small subprocesses, especially the ones you know are guarded by anxious stakeholders, as they might distract you from the big picture. This is not banal, as often the cost of service delivery is not well understood at single-process level. Effectively, the provider will need to perform a BPO-specific activity-based costing (ABC) of the design, build, run phases of the service.
Then: providers can start top-down with benchmark-type data to determine the economic behavior of such processes/layers when scale or best practices are applied, or (if you suspect external benchmarks are inappropriate) they can benchmark different client organizational units of the same company and ultimately get to the same result; alternatively, they can work bottom-up and identify processes where resource utilization is poor because of demand volatility (a perfect candidate for pooling resources, thereby increasing utilization), or where fixed costs (e.g. automation, implementation of self-service portals, setting up physical facilities) are substantial and therefore scale becomes key.
This exercise will also help pinning down what should NOT be standardized, and either left to the client retained organization or kept in the outsourced scope but allowed to be personalized. While these processes may dilute the overall “provider advantage”, they can be valuable for horse-trading when it comes to agreeing with the client.
Gianni Giacomelli (pictured) is Head of Strategy and Marketing for SAP’s BPO business unit.
Anyone from the world of HR, who cares about the impact technology has on their existence, is congregating at the infamous HR Technology show in Chicago on September 30-October 2, hosted by the legendary columnist Bill Kutik (pictured), the undisputed captain of HR controversy.
It is the world’s leading event in the HR sector, and each year attracts 2,000+ high-level HR practitioners, software and service vendor CEOs. In addition, most of the HR sector's industry analysts, bloggers and foghorns will be there - including such celebrities as Jason Corsello, Mark Stelzner, Naomi Bloom and Vinnie Mirchandani. They come for the excellent no-sales-hype conference sessions, the largest show floor of 250 exhibitors, and Bill Kutik’s signature vendor Shootout session, which this year features software giants SAP and Lawson taking on their smaller rivals Salary.com and Plateau. I am also assured that the word "Cloud" is to be officially banned from the festivities…
Here’s how you can get the $470 discount off the $1,645 regular registration rate:
My definition of corporate failure in this market: "We're gonna ride out 2009 and go for it next year." What are you going for? What are you riding out? If you want to remain successful, you better get your act together now and formulate a game plan.
Too many firms are sticking to their old business models, in denial that they need to do anything different (besides firing a few people), and cling to the vein hope that their fortunes will dramatically turn around in 2010…by doing NOTHING. And I can be 100% sure that everyone reading this is either working for a firm with that attitude, or knows someone who is. Smart executives sense stagnation, and a lot of top talent is re-thinking whether their current employer has what it takes to prosper in a post-recessionary economy. (P.S. a prize is available for the first person to reveal this icon of executive innovation from the '80s…).
And the top tier isn't always offering the most appealing place to work in this market – am seeing several top executives broadening their horizons for unique companies geared for growth in this new economy. Start-ups and small companies, for example, which are plugged into the new economy are becoming vogue. Many people are realizing that no job is particularly secure anymore, so if you're going to take a risk, why not now?
We're now seeing the fog lift, and several smart service providers are dipping into the market to pick up top talent… and naturally this starts with sales execs. In industries such as payroll and HR outsourcing, it's all about relationships, and the recent hiring of Kephanie Landess by British upstart HRO service provider Patersons, is an example of top talent focusing on joining upcoming providers with a unique vision.
Kephanie could have handpicked many of the leading HR services or software brands for her next career move, but she chose a firm that isn't that well-known, but has great potential for future growth in this market. I keep a close eye on the payroll/HRMS outsourcing market and have been initially impressed by Paterson's SaaS-based multi-tenant HRO solution, with the firm beating out tier 1 competition to win new business with major corporations such as Wachovia, Interdean and Henderson. With 10% of mid-large firms looking to move onto managed payroll outsourcing services over the next year, this is not a bad market to be in. You just need to make sure you're working for one which can service clients globally, and has a proven Opex-based model that doesn't necessitate huge upfront transformation costs.
I asked Kephanie to let readers here know why she made this decision. Over to you Kephanie:
"Here is a quick summary (well I intended it to be quick) of why I joined Patersons:
"I wanted to work for a company that is not “set in their ways” and have ability to make an impact in moving from status quo offering in market to what the market requires;
"I wanted to work for a company that is not “set in their ways” and have ability to make an impact in moving from status quo offering in market to what the market requires Work for a company that is focused on critical niche solution as opposed to “jack of all trades” approach;
"I have been seeing an increasing trend of organizations trying to act like global organizations due to the increasing demand of having employees stretch globally, but didn’t have the means necessary to support all populations as it relates to Payroll & HR (the market has tried and tested what's out there and it's not adequate);
"I was looking for an organization that is proactively responding to the needs of the market for a truly global Payroll & HR technology (need alternative to other providers–which can meet needs of certain segments, locations, solution tiers, but not holistic approach to all global HR & Payroll needs);
"The market requires the same single provider that can offer global integrated Payroll & HR solutions whether they have one employee in one country and 10000 in another country and scalability for growth strategy– (other providers can offer bits and pieces to accommodate various populations but not single solution across whatever populations/countries necessary)."
In case Kephanie's boss, Karen Paterson, reads this, I can assure her that Kephanie contributed about 10 further points attempting to justify why Patersons is the greatest offering since the feeding of the 5000, but I do have to draw the line somewhere 🙂
Kephanie Landess (pictured) is Vice President of Sales for Americas for global HR services provider Patersons. She can be contacted here if you want to buy some SaaS…
And just when you thought you were in the clear, here's another webinar for you…
In recognition of recent shifts in the global economy many global sourcing executives have determined a more “risk averse” approach toward their global outsourcing portfolio is a prudent and necessary means to ensure supplier stability, less volatility in certain markets and enhanced skill-set options vis-à-vis regional workforces.
Many executives are asking, what are the Near-shoring advantages? What are the trends in Outsourcing and how are emerging destinations (such as Brazil) affecting this landscape?
Join us for an insightful and interactive discussion where we will discuss Latin America, and how a near-shoring strategy in an emerging destination will benefit your IT Outsourcing portfolio.
Date: August 4th, 2009 Time: 11.00 AM PDT / 2.00 PM EDT
Analysts Phil Fersht and Dana Stiffler, ITO & BPO Services, AMR Research, will join Mr. Bob Mejerle, VP – Outsourcing Practice, North America of Politec Global IT Services to on this LIVE Executive webinar.
We’ll also be joined by our Moderator, Frank Casale, who will host an open Q & A session after the briefing. If you are a C-level Executive, Vice President and Line of Business Owners responsible for: Global Sourcing, Program Management, Finance, Information Technology and Operations, then this webinar is for you.
The industry's next phase of growth is unlikely to be dominated by the mega-mergers of the past (DEC/Compaq, HP/EDS etc.). It's going to be focused on service providers moving into partnership engagements with clients, where they can develop specific IP and industry process competence.
I see this trend escalating in the application development arena, as this area is now approaching significant scale and maturity, but also believe this will pave the way for future BPO development, as service providers find new opportunities to layer on business process services that compliment their application development work. It's really about learning specific industry process, how they can be enabled and optimized by smart applications, and processed by smart people who add value.
This isn't simply lift and shift where the service provider does the same with less – it's where the service provider brings specific expertise to the table that allows the client to scale its business globally. It allows the client to focus more heavily on its core competencies, which provide the real value for its own growth. And it allows the service provider to develop specific industry process knowledge of its client's industry that is can replicate across its own knowledge workers. The maturity of the application outsourcing marketplace is now going down this path, where the leading service providers have the lions' share of the talent – and the scale – to provide the technology development services that allow clients to invest in their core industry services that make up core value proposition. Why invest their scarce resources in IT development when they can find a third-party to do this for them and invest in areas that will improve the front-end of their business?
One prime example of this is the new partnership between UK-based industrials magnate Invensys and service provider Cognizant. Invensys wants to focus on on its core competency of product definition and architecture and developing its industrial automation platform, with Cognizant being its technology partner for product development.
Invensys can focus on where it's best, and Cognizant can make a surge into the manufacturing industry. Invensys will learn from Cognizant's technology skills and Cognizant from Invensys' manufacturing process and operations prowess. Jobs are not lost, and existing employees are going to enhance their careers with new industry and technology knowledge. If this partnership works, both firms will end up creating more jobs to support their expanding business portfolios.
Prolific blogster and all-round industry pundit 
The new wave of BPO deployment has arrived quicker than many of us anticipated. The recession has driven some common-sense into a BPO value-proposition that was previously centered predominantly on some form of labor arbitrage, with many service providers muddling their way through to attempt to run their clients' process for less cost – and make some sort of profit. Sometimes they pulled it off, other times they failed. Many are currently in a state of semi-transition, with the success of their BPO engagement still hanging in the balance. 
My definition of corporate failure in this market: "We're gonna ride out 2009 and go for it next year." What are you going for? What are you riding out? If you want to remain successful, you better get your act together now and formulate a game plan. 
In case Kephanie's boss, Karen Paterson, reads this, I can assure her that Kephanie contributed about 10 further points attempting to justify why Patersons is the greatest offering since the feeding of the 5000, but I do have to draw the line somewhere 🙂
