I know I've been depressing everyone with calls for changeand 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.
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).
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.
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.
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.
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…
SincePart I of the Francisco D’Souza interview, I’ve been assured Frank has improved his golf handicap. Now he’ll discuss his views on how ITO service providers can differentiate themselves, the convergence of IT and BPO solutions… and a few other tidbits…
PF: How can ITO providers differentiate themselves in today’s market? Is it by vertical focus, or other elements?
FD: Given the extraordinary pressure that clients are under, I think that the key to differentiation is to focus on how to make clients’ businesses stronger. Rather than focusing on technology, process or methodology, I think providers need to really understand a client’s business drivers and then sell and deliver solutions that further those business objectives. As I said before, clients are facing both cyclical and secular pressures. As a result, depending on the client, their objectives of outsourcing will be very different. Some clients seek to improve efficiency or effectiveness. Others are looking to use outsourcing as a enabler of innovation. Still others are looking at outsourcing as a tool to gain access to the best talent in the world – regardless of where that talent is located. And of course, given the significant secular changes we are seeing, many clients are looking to outsource as a way to enable agility and transformation within the organization.
Against this backdrop, I think providers can differentiate themselves in a number of ways. First, vertical knowledge is key – you have to understand your clients’ business in more than a cursory way. Second, you need a world class, tightly integrated global delivery system – just having scattered delivery locations around the globe is no longer enough. Third, you need to have a full range of services and an organization that has the ability to put bundles of services together in creative ways to craft tailored solutions for clients – the old thinking of outsourcing “towers” is somewhat limiting in that it tends to consider outsourcing as a series of silos. Finally, consultative relationships with your client are critical – in today’s world, providers that rely on contracts and SLAs as opposed to consultative relationships don’t find too much success.
PF: How about BPO – how do you see this market developing, and are you seeing the worlds of BPO/IT coming closer together? Can you see more of the IT-centric service providers such as Cognizant developing more BPO-centric services?
FD: I think that the case of IT/BPO coming together is extremely strong. In fact, I’ll go as far as saying (maybe controversial) that BPO which is based solely on labor and process is not a sustainable model in the long run for most business process areas. The evidence of the synergies that can be unlocked when ITO and BPO are combined together is compelling. We have demonstrated this synergy in many cases and we continue to push the envelope on delivering IT/BPO synergies through automation of processes and also through development of common tools and platforms that we can share across multiple customers.
PF: And finally – you have had a very notable rise to prominence in the outsourcing industry over the last decade. What advice would you impart to ambitious executives today hoping to achieve success, especially in light of the economy?
FD: Focus, focus and focus. It’s been the simple mantra at Cognizant from the start. First, we focus on doing a small number of things – and applying all available resource (talent, management, finances) against those things. Our strategic plan is as much about the things that we will NOT do as about the things that we WILL do. Second, we have a relentless focus on serving the customer. In our culture, the voice of the customer is always the “true north”. And finally, focus on execution – the best laid plans are no use if you can’t execute against them…
PF: Frank, thanks so much for sharing your views with us.
Francisco D’Souza (pictured center, March 2007) is President and Chief Executive Officer of Cognizant Technology Solutions.
Observing the rise of the new wave of service providers over the last few years, the one that has scared the living daylights out of all of the incumbents is Cognizant.
Now a $3bn company with deep footprints in the world'slargest global financial institutions, consumer businesses, manufacturing and healthcare organizations, Cognizant can no longer be considered an upstart. It's now part of the industry elite; quietly and cleverly aligning its value proposition to the post-recession era. As CEO Francisco D'Souza points out, we're in a time of not only cyclical change, but also secular change.
I've had the pleasure of talking with Frank a few times over the last couple of years and have been impressed by his high-energy, thoughtful and common-sensical approach. I was even more surprised when I received emails from an "FDSouza" on the Horses… took a couple of times for me to realize who this guy was. To cut to the chase, Frank is one of the youngest IT and BPO industry leaders of the modern age, having risen through the management ranks of Cognizant to assume the role of President and CEO at the beginning of 2007 when the company was announcing its landmark Kimberly-Clark engagement. And when Frank isn't busy hacking his way around the local golf course, or playing with his kids, he managed to find some time to share some of his views of the global sourcing industry with us…
PF: How are your customers at Cognizant approaching ITO today? Do you see any marked differences since the days before the economic downturn?
FD: The years prior to this recession were years of growth, profitability and relative stability in the industries that we serve. The economy, the geo-political environment, our clients’ industries, their business models and their technology architectures were all relatively stable.
Now, we see clients grappling with change in many of these elements. This is not just a time of cyclical change resulting from an economic slowdown; this is also a time of secular change, where many of our clients are realizing that their businesses – and supporting technology environments – have to be rethought and changed. In many instances, these secular changes are being driven by technology advances. For example, Media companies are facing pressures to keep up with the demands and revenue generating opportunities an increasingly digital world presents. The digitization of the media industry has very little to do with the recession and is all about change in technology.
So what does this mean for ITO? We see clients approaching ITO simultaneously based on cost and on innovation/transformation. The cyclical challenges I spoke about are driving clients to look to ITO (in particular global sourcing) as a means to reduce operating costs, become more efficient and more effective. At the same time, clients realize that the fastest way to become healthy quickly and to capitalize on the secular changes taking place is to transform and innovate. And therefore, an equal number of our clients are seeking fundamental transformation and innovation as they look to enter ITO arrangements.
PF: What developments in the technology world are getting you excited today?
FD: I get most excited by technologies that have the potential to have significant impact on our clients’ businesses. These are some of the areas that I’m tracking carefully:
Web 2.0 Collaboration Technologies and Telepresence –I’m excited about these because, in my view, they demonstrate the ability to create a step function change in the productivity of knowledge workers. Some years ago, we developed a platform called Cognizant 2.0 for our own use within the company. We designed C2.0 to solve the problems of managing work and managing knowledge in teams of highly distributed gold collar workers. What we have found is that C2.0 (which incorporates many web 2.0 technologies) has substantially improved our overall effectiveness. I believe that our example is readily extendable to many businesses and process areas with high concentrations of knowledge workers.
Cloud Computing –Much of the discussion around cloud computing has focused on infrastructure on demand. Of course, Amazon.com, Salesforce.com and others are taking cloud computing well beyond the infrastructure layer. I think one of the most interesting cloud services is the Amazon Mechanical Turk which is trying to create a model for services on demand. Overall, I am following cloud computing closely because cloud will drive a complete re-think of client’s IT and operations cost structure. Over time, cloud will allow us to variable-ize cost structures and continue to drive cost out of “context” activities and into “core” activities. Of course, cloud computing is still early and issues such as access, security etc. still weigh on the minds of clients. But like with all technologies, these issues will be resolve over time.
Enterprise Analytics – Over the years, organizations have invested in technology to support business decision making within business units or functional areas Enterprise analytics is all about deploying enterprise-level, heavy-lifting analytical algorithms on data that cuts across business and functional silos. This is an area of convergence that I am really excited about — the emergence of an integrated analytical value chain that encompasses unstructured data management, text mining, business intelligence and text analytics. I think that this integrated space will create a new capability for organizations — the ability to go beyond traditional data warehouses and mainstream BI and ultimately lead to true organization-level analytics. This will provide business leaders with the ability to not just obtain individual line-of-business views and to achieve vertical integration, but to also increase the overall analytical footprint of a company across structured/unstructured data and achieve true horizontal scalability.
In Part II of this interview, Frank will discuss his views on how ITO service providers can differentiate themselves, the convergence of IT and BPO solutions… and a few other tidbits.
Francisco D'Souza (pictured) is President and Chief Executive Officer of Cognizant Technology Solutions.
One major service provider that has quietly – and very effectively – grown its US presence over the last couple of years is HCL. And behind the scenes is a very classy guy, Debashish Sinha, who pulls the strings across its US sales, marketing and operations units.
Anyone dealing with HCL these days is always glad to have Debashish around (despite the fact he organized their last industry event in Orlando). Prior to HCL, Deb has consulted for both Conscient Partners and NeoIT, in addition to being Gartner Group's principle analyst for IT services and sourcing. And when he's not comparing the subtle nuances of Malbecs or flying planes (not simultaneously, I assure you), he has some excellent views on the effectiveness of 6-sigma methodology in a sourcing environment. Over to you Deb…
About four hundred years ago, Galileo Galilei noted that “We must measure what can be measured, and make measurable what cannot be measured,” a philosophy now embodied in the well-tested axiom “You can’t manage what you can’t measure”.
So how about managing the Sourcing cycle? How do you actually measure Risk, or Internal Readiness, or even effective Governance?
One potential option could be to use Planning for Six Sigma tools to “make measurable what can’t be measured”. After all, it’s still one of the most prominent approaches for managing by measurement.
Outsourcers frequently use 6-sigma Quality Management tools to manage execution of BPO or ITO contracts. Can’t it be translated by buyers to the pre-engagement process as well? The six-sigma approach does have some special advantages – not only is it strongly focused on process management & improvement, it forces thinking around process control. Since outsourcing initiatives are long-term programs, an effective feedback mechanism, and a process for managing evolution of the program, can be critical to its success. Most other sourcing methodologies fail to consider this need upfront.
A brief, brief primer on 6-sigma
For the glassy-eyed – 6-sigma is the statistical definition of deviation from a mean. It signifies less than 3.4 defects out of a million opportunities. Implying, quite literally, that if there were a million things that could go wrong in a sourcing process, the rigor of Six Sigma will ensure that no more than 3.4 of them do.
There key principle to understand in the six-sigma methodology is that you can only control output quality by focusing on it root causes and managing those. In other words, if you’ve controlled all the major input and process variables, the output will take care of itself. In order to do that, the six sigma methodology requires you to go through the following steps:
a. Clearly identify all the elements (input or process) that effect output;
b. Develop a measurement framework for analyzing the causal relationship between those elements and the output;
c. Prioritize the elements based on the level of impact on the output quality;
d. Put in place a system for managing the highest priority elements; and
e. Develop a feedback loop to continuously measure output in case variations begin to show, or process changes are required.
That it. Simple, isn’t it? Yes, there are all kinds of other things like VoCs, CTQs, Pareto Charts, etc. that we can go into later if anyone’s interested. But the above really covers all the fundamental principle.
In the real world, while the statistical relevance of six-sigma is limited, the concepts and approach can actually be quite effective, if properly adapted. Let’s take the example of managing Internal Readiness (IR); clearly, a critical element in managing an effective sourcing relationship, and among the more common causes for an enterprises’ inability to get their sourcing initiatives off the ground.
Internal Readiness is the degree to which an enterprise has the necessary organization and technology capabilities in place to enable a successful outsourcing program.
The first step in developing the framework is to understand the variables. Internal Readiness can be separated into two categories, each defined by a number of key attributes.
1. Organizational Readiness – the ability of an enterprise to manage change resulting from an outsourcing initiative. This will include, among several others:
? Executive sponsorship
? Clarity of vision
? Stakeholder buy-in
? Familiarity with cultural diversity
? HR issues (redeployment, severance, re-skilling), etc.
2. Process/Technology Readiness – or the ability to manage the performance of the outsourcing initiative. For example:
? Requirements documentation
? Process for managing distributed teams
? Methodologies/sourcing management platforms
? Change control systems
? Quality control processes, etc.
(This is by no means extensive list).
The next step is to create a measurement technique to analyze IR. A simple, yet effective way used to measure and analyze Internal Readiness could be through an ‘Internal Readiness Index (IR Index)’ that scores each attribute on its maturity or completeness on a scorecard.
For example, assessing Executive Sponsorship could be based on a checklist:
Attribute
Index Question
Yes/No
Executive Sponsorship
Does the initiative have an executive sponsor?
Is the sponsor directly impacted by the initiative?
Are objectives for the initiative tied to compensation?
With each attribute scored, the sourcing team can pretty clearly tell if the organization is ready for to engage in a significant outsourcing initiative, or if not, what gaps need to be plugged before going too far into the initiative. Enterprises with a low readiness on either axes should seriously reconsider their outsourcing initiative. In other cases, identifying the gaps and developing mitigation plans to execute over the subsequent phases of the sourcing cycle will go a long way in ensuring a smooth transition into the outsourced environment.
Interested in diving deeper into this morass? Leave a comment, or email me. I’d love to hear from you.
Debashish "Cruise" Sinha (pictured) is Vice President and Head of Marketing at HCL America, Inc. He has 18 years’ experience in IT Services Sourcing, working as a practitioner and advisor to large enterprises, service providers, and government entities across the globe. Before joining HCL, Debashish was Founder and Partner at Conscient Partners LLC, Managing Director for Global Advisory at neoIT, and Principal Analyst for IT Services & Sourcing at Gartner Research.
I never knew that one day I would get to co-host a webcast with the great John Hagerty, but tune in on June 18th at 2.00pm ET to hear about Transforming the Global Finance Function in Today's Economy. Click here for full details, or register directly here. And like everything else here, it's FREE FREE FREE.
John is a true legend in the analyst world, where he delivers insights in the world of finance transformation, performance management and corporate governance. He could also convince Newt Gingrich to vote for the communist party in 2012. In addition to the great "Hags" and myself, you'll also get to hear from Joe Spears, senior finance executive at eBay, and Dominick DiPaolo, BlackLine Systems.
John Hagerty (pictured) is Vice President and Research Fellow for AMR Research. He is the recognized worldwide authority in business intelligence and enterprise performance management. This picture also reveals the wear and tear of the analyst life -:)
It's easy to get excited with high-growth markets, but supply management BPO's different.
While the market has grown exponentially, and a 30% increased expenditure last year is eye-opening, the nature of these engagements doesn't give me confidence that this market will sustain its growth trajectory unless customers think beyond short-term labor arbitrage, and service providers introduce significant process and technology enhancements to the early adopters to help them optimize their delivery. This "lift and shift" model could well result in customers losing more than they save. Read more at Think Global.
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?
Attendees will be afforded time to pose questions after the webcast.
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). 
One major service provider that has quietly – and very effectively – grown its US presence over the last couple of years is 
