Posted in : Absolutely Meaningless Comedy, Sourcing Best Practises

I was having a little joke yesterday, where the premise was: "So what do we do once all the jobs have been offshored?"  My initial solution was:  "That's easy -  we create great low-cost skills here, and we bring them all back".  The other partaker in the mirth added:  "Wrong – we will still be offshoring, as all our business headquarters are moving out too.  In effect, we'll be offshoring jobs to America". 

As we rolled around on the floor in uncontrollable laughter (OK, it wasn't that funny), it did hit home how unattractive the US is becoming for businesses. 

• US corporate taxes are among the highest in the world.

• The cost of living and wages in business centers such as New York, Philadelphia and Chicago is off-the-scale.

• The cost of healthcare is a killer – and, despite the excellent intentions of this new proposed healthcare reform, the tax burden on the US business is going to get even worse.  For the cost of one years' benefits package in the States, you can hire a full-time ABAP programmer in your offshore captive for that entire year, or pay for half of one (for the entire year) with a service provider.

• Other Western countries are far more corporate-friendly.  I was helping a friend with a business plan the other day, and the cost of hiring qualified graduates in London (yes, London) is half that of New York (and getting even cheaper in this market).  Why even consider setting up a global business in the US these days in this virtual environment?

As much as I admire all the efforts of President Obama to drive reform and economic stimulus into the US economy, I just don't see the environment for the US business to thrive and create new jobs being created.  I'd like to see stimulus money being allocated to helping businesses create new knowledge-jobs that are competitive with those on offer from India, Europe, China etc.  The way things currently stand, the US business environment has never been so ripe for outsourcing – not just for accessing lower-cost skills, but also for our businesses themselves.

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

After our recent banter surrounding Executive ADD, I thought I'd share this hilarious venn diagram from Despair.com's blog on social media:

"A gorgeous, 8-color masterpiece which captures ever so brilliantly the three behavioral disorders propelling the continued phenomenal growth of today’s most widely-trafficked social media sites. And at the intersection of the dysfunctional forces of Narcissism, ADHD, and Stalking resides today’s fastest growing social media experiment of all- Twitter…"

Posted in : Absolutely Meaningless Comedy, Social Networking

One of the grandfathers of the outsourcing industry is Peter Allen (see his recent interview with us), who has established himself over the years as one of the pre-eminent thought-leaders, practitioners and faces of the industry.  Peter has also been one of my closest industry companions in blogging on global sourcing issues, with his popular "Consider the Source" blog-journal.  He has also been the consistent face of leading sourcing advisor TPI. 

Yesterday, Peter resigned from TPI to pursue other opportunities in the industry, after many years with the firm.  There is no shortage of suitors for his services… and I look forward to hearing where he lands.  Peter wanted to share his personal thoughts with Horses readers at this time:

"The global outsourcing and offshoring industry needs to step up to a new level of performance. The sources of leverage that can bring value to companies far transcend wage arbitrage. I want to help bring to reality a new class of leverage – of investments, platforms, and solutions."

"It has been a privilege to work alongside my colleagues at TPI. A twenty-year record of great outcomes for clients and providers alike is the product of commitment to a culture of value creation for all participants. We do that."

"The current global recession is an awakening for the industry – as much opportunity for redefinition as it is risk of irrelevance. I really believe that the winning equation is one that maximizes the power of leverage to the benefit of productivity. That means that buyers and providers adopt new models for partnership to weather variances in economic conditions."

These are critical times for the outsourcing advisors. The process of managing outsourcing transactions has increasingly commodotized over the last couple of years, and the recession has only exacerbated this issue.  The sourcing advisors need to focus on helping clients disrupt their current global business infrastructures, help them execute after the transaction and manage the ongoing outsourced environment. 

People like Peter understand this, and I hope advisory firms like TPI continue the work he has done in helping drive these new areas of competency, and hiring consultants who have other skills than solely deal negotiation.  Those that focus purely on cranking out transactions will struggle to grow in this new environment.

Good luck Peter - I know many people in the industry join me in wishing you well on your future journey.

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

As we've predicted, based on our surveys, many tough discussions with buyers and general chit-chat, sourcing evaluation is now picking up, and we can expect to see a wave of deals in Q4 this year and Q1 next year (and beyond). 

First, the sourcing advisors, management consultants and analysts get busy with their clients showing much more urgency, and then we can expect to see some deals happen.  Based on my conversations with the advisory community over the last couple of week we're now in that former category.  I've even had a couple of people come to me with the question "Is this 2001 all over again".  My answer is:  "In some ways yes, but the types of deals and the global delivery execution is markedly different this time". 

Now why is this?

Post 9/11 we saw a major spree of ITO, call center and end-to-end HR BPO wave.  ITO worked, call center is stuttering with offshore value, and HR BPO – in its past form – failed 

The IT infrastructure outsourcing deals were onshore mature contracts with established providers such as IBM, CSC and HP, experienced at driving economies of scale with their delivery models. The application development and maintenance deals back then were among the first to truly leverage offshore

resources, and many have blossomed as clients learned how to managed their service provider relationships and re-train their internal IT organizations. 

Call center outsourcing was the first non-IT area (outside of manufacturing) to leverage offshore.  And while the call center providers have got far better at improving their global delivery models, leveraging voice resources from locales such as Nicaragua and India, I do not expect this area to significantly grow in the near-term, as business levels are slow, and the quality (and decreasing cost) of onshore is often negating the cost-savings of using offshore.

HR BPO, on the other hand, focused on mass aggregation of HR functions such as payroll, benefits, compensation and staffing, which were not unified on a single HR platform, and involved very little offshore arbitrage.  Some experimented with nearshore delivery (i.e. Costa Rica and Brazil) but struggled to generate any significant cost savings for clients and often resulted in poor delivery.  In addition, the old HR BPO value proposition challenged the very role of the HR professional, and the HR media, associations did a first class job in ensuring many engagements did not do well.

The 2009/2010 outsourcing wave will focus on areas with heavy offshore arbitrage and mature service delivery models from service providers:  namely application outsourcing and F&A BPO 

Most large clients which can benefit from outsourcing their IT infrastructure services have already done so.  However, we will see many increasing their scope, especially in areas such as Remote Infrastructure Management, where offshore labor can drive out further cost.  The major IT area which still has a lot of runway is in application development and maintenance.  Less than half of the large companies we surveyed have yet to outsource any of their ERP maintenance / support, application testing, or development.  With the plethora of IT service providers hustling for clients, expect apps to lead the wave over the coming months.  

The other area is F&A BPO, which seems poised to bounce back after a quiet few months as many firms stagnated over actions plans in this recession.   Like apps, we have a host of maturing service providers ready to take on new business.  Moreover, several enterprises have already outsourced as much IT as they can handle and need to look and new waves of cost take-out.  As several executives have privately admitted:  "we need to be seen to protect jobs, but the reality is we have no choice – we need to drive out cost and use offshore outsourcing as the lever to do that".

Also expect to see some activity with these SaaS/BPO models, which will center on helping mid-market clients move onto SaaS delivery underpinned by low-cost process support in areas such as HR, finance and CRM, where these is a need to upgrade technology platforms and there is room to drive out more cost.  This, however, will likely take longer than a couple of quarters to materialize, but we can expect to witness the first tranche of clients experiment in this delivery model.

To conclude

The similarities with 2001 are simply the need to drive out more cost and pressure on CIOs and CFOs to look at the outsourcing vehicle to execute on this.  This time, we've had another 8 years to experiment with this stuff and the realization is here: you need offshore to take out the cost, you need process acumen and technology to drive common standards and ensure ongoing cost-optimization, and you need buyers to be smarter at realigning and re-training their internal organizations

Posted in : Business Process Outsourcing (BPO), Finance and Accounting, HR Outsourcing, IT Outsourcing / IT Services, Outsourcing Advisors, SaaS, PaaS, IaaS and BPaaS

My industry chums Larry Janis and Lowell Williams are conducting a survey of BPO sales professionals to get the buzz on the current economy, your views or lawyers and advisors, and how much moolah you currently rake in.  They claim you can do this while sipping a venti in Starbucks.  They also claim to be giving away a couple of iPod shuffles to random participants (as if you don't already have one…).

Please complete the survey by clicking here

Posted in : Business Process Outsourcing (BPO)

I know I've been depressing everyone with calls for change and for our flagging companies to step up and disrupt their business models.  But did I ever say I was here to make you happy?

However, one shimmer of light amidst this gloom is the increase in activity of service providers buying up business' captives or shared service operations (often under the guise of a new "client win"). 

EXL's acquisition of Schenider Logistics' Czech operations is yet another recent example of a service provider making a strategic move to add scale and expertise to its delivery portfolio.  In this case, EXL is cementing its European presence in a unique and attractive sourcing location, enhancing its F&A BPO business and bolstering its multilingual capabilities, in addition to incorporating supply chain and logistics management process expertise – an area of increasing importance in the industry.

So why is this good for industry?

1) Businesses are saving money as service providers have to make it attractive for them;

2) Businesses can avoid laying-off a lot of staff as they will be re-badged under the service provider (true, some will get let go, but only a small percentage in most cases);

3) Service providers have to work out how to make money out of this.  They will be forcedto optimize their processes in order to remain profitable.  And they are likely to do a better job of this than the host company would have.  Yes, they can make some inroads developing utility across multiple clients, but they can also drive efficiencies from developing better workflows underpinned by intelligent applications; 

4) Service providers will develop their newly-acquired talent to drive innovation in their clients.  By absorbing talent from these captive buyouts, and combining their skills with their existing process experts and training schedules, they are the catalyst for driving innovation for many businesses incapable of doing it themselves.

All-in-all, the more captives that are absorbed into service providers' global delivery infrastructures, the more we will see a maturing sea change in the global services industry.  And the better the support our businesses can receive from their global IT and business process, the more they can focus on being more competitive themselves globally.  The 2009 recession may have some positive ramifications for accelerating the development of global services after all…one can only hope.

Posted in : Business Process Outsourcing (BPO), Finance and Accounting, Procurement and Supply Chain, Sourcing Best Practises

Folks – we're staging a webinar entitled "Supply Management BPO: Why Business and Technology Transformation is Critical for Long-Term Success". 

Joining me will be Ruby Jivan, BP's Global Procurement Operations Director, who has a lifetime of experience with global procurement delivery and more recently with BPO; Mickey North-Rizza, AMR's supplier relationship management guru (who also has a lifetime's experience in procurement).

Date:  Wednesday 22nd July

Time:  12.00 EST, 5.00 PM GMT, 6.00 PM CET.  1 hour.

Speakers:  Ruby Jivan, Procurement Operations Director BP; Mickey North-Rizza, Research Director, Supply Chain Management, AMR; Phil Fersht, Research Director, Global Business Services & Outsourcing, AMR.

Register here

Abstract:  Phil Fersht and Mickey North-Rizza will discuss the latest market dynamics in supply management business process outsourcing, based on data from over 200 live engagements and multiple demand-side customer studies. They will discuss the challenges facing enterprises with supply management today as they tackle global delivery issues and whether outsourcing is a true option for them to provide access to new technology and process acumen. They will also touch-upon the service provider landscape and competitive dynamics fueling market growth. Ruby Jivan will talk to her own experiences with Supply Management BPO as head of global procurement operations for global energy magnate British Petroleum.

Attendees will be afforded time to pose questions after the webcast.

We look forward to hosting you on 22nd July.

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, Finance and Accounting, kpo-analytics, Outsourcing Events, Outsourcing Heros, Procurement and Supply Chain, Sourcing Best Practises

2009 is going to be remembered as the year of cost-containment. Most client discussions are not very sexy – it’s largely about cost, as opposed to innovation or revenue generation. McKinsey recently revealed 70% of its current client engagements are cost-reduction focused, only 30%focused on revenue-generation (the opposite of a year ago).

I strongly believe our businesses, while being diligent about cost-containment, must use this opportunity to make fundamental changes to their business operations in order to emerge more profitably in the future. Simply ripping away cost elements and failing to improve access to global corporate data and processes, is a massive wasted opportunity to be more competitive over the long-term.

I wrote recently about how the lay-off culture that has afflicted both the US and UK in recent years, where many firms treat their labor as a variable cost that can be scaled-up or down at will, depending on the next quarterly forecast. I cannot stress enough the damage this can cause to businesses as the economy recovers. One common theme that has dominated discussions with business leaders recently has been their surprise at the amount of visible cost they have been able to take out of their businesses as they move from a revenue-generation to cost-containment strategy.

It’s not solely the cost of labor that is highly visible – it’s the costs of technology, travel, infrastructure, real-estate etc. that can often be easily driven-down in a desperate business climate. Less visible are costs associated with poorly-integrated business processes and procedures, of dated analytical tools, of ERP systems incapable of supporting global process templates, and so on.

Focusing too heavily on labor take-out polarizes a corporate culture on visible short-term quick-hits as opposed longer-term innovative strategies that will ultimately help the company become more productive and profitable. Doing things the same way as before, but with less resources, is a slippery-slope to corporate failure in this environment. The same slippery-slope scenario applies to outsourcing, where companies fail to drive any business transformation, and simply focus on the quick-hit of using low-cost labor.

And whether or not a firm outsources IT or business processes, its operations leaders should be examining how to make these processes more efficient, and how they can span global business units more effectively. This short-termism causes a general stagnation where anything that causes change to peoples' roles and responsibilities scares them. Our recent survey shows “business disruption” as a major impediment to outsourcing. I read this as “fear of change”:

Fear of disruption holding back outsourcing

Outsourcing in a tough market is a powerful lever to drive business transformation, improve workflows and associated technology, provided it is managed with process innovation as the ultimate goal. Yes, it often involves some layoffs, but never as many as when companies go through downsizing exercises with no other goal in mind other than cost-reduction.

Operations executives are capable of driving change into their processes, their technologies, their own roles and their employees' roles, but many of them are simply not incentivized to flirt with change. They are so scared of what change means to their job security, they opt for more of the same, normally with less resources or staff to do it.

Ultimately, if companies fail to shed this stagnation mentality, they will become increasingly uncompetitive globally, if their competitors embrace global sourcing models to drive out excessive cost and improve their global business operations.

So what do we take from all this? Simply put, short-termism drives negative and anti-innovative corporate behavior. Business leaders need to find ways to develop their management talent more effectively to cope with change and disruption.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, IT Outsourcing / IT Services, SaaS, PaaS, IaaS and BPaaS, Sourcing Best Practises

I wanted to share some recent dynamics from our new survey of outsourcing adoption intentions in mid-2009.

While the onus on firms today is to drive out as much cost as they can from their businesses (close to four-fifths view cost-reduction as the primary driver for outsourcing), other factors are becoming crucial for companies’ planning as they evaluating outsourcing business models, notably globalizing their businesses more effectively, re-engineering business processes, and accessing expertise from service partners.

If there's one thing this recession taught us, it is how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper.  Read more over at Think Global…

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