Warning: some bad language, but extremely funny…

Posted in : Absolutely Meaningless Comedy

Folks – we're honing in on the European sourcing industry in May, with Horses die-hards taking center stage at the 9th Annual Shared Services & Outsourcing Week in Budapest, Hungary.  It's Europe's largest shared services and outsourcing show, organized by the prolific SSON folks.   Yes – we're live in Budapest with a web-stream on Horses for Sources talking about "Survival Mechanics: defining a competitive sourcing strategy in today’s economy". 

If you can make it to Eastern Europe, it would be great to have you part of the show and take part in the debate.  And if you can't make it in person, log-on and blog your questions live to the panel.  You also get to hang out with the famous Emma Beaumont…

Horses readers can receive a 25% discount registering here, quoting promotional code MP23*.  For further information you can contact Liz McAleer. 

Oh – and check out the new look SSON website – very nifty.

Posted in : Outsourcing Events

Kevin O'Marah, AMR Research's Chief Strategy Officer, blogs a thought-provoking piece that highlights how so many retailers and manufacturers have failed to embrace collaborative supply chain models through fear of "giving more than they'll get".  Kevin argues that consolidation amongst suppliers will accelerate in this environment as major industrials drive cost out of their supply chains by reducing their supplier bases.  He adds,"what we have since seen is that cooperation takes a lot more than just setting up EDI, reverse auctions, or visualization.  It takes trust, which apparently is still in short supply." 

Kevin refers to a piece of analyst foresight from nine years' ago, where the logical next step in achieving supply-chain value was productivity gains across the economy driven by bilateral relationships (meaning win-win) between trading partners:

When some analyst designed that graphic, we'd just come through a major period of innovation where the Internet was forcing businesses to explore new business models – or face death by failure to change. So what happened to put the kibosh on businesses revolutionizing their supply/demand models?

When we look at the rise of global sourcing of back office support processes, namely IT support and finance, the common thread is cost-reduction, cost-reduction, cost-reduction.  Where immediate cost-savings are on the table, companies can't wait to disrupt their businesses.  However, where they need to work more closely with others to improve speed-to-market, control inventory, or access new geographies and markets, it appears that an unwillingness to take a "risk", and a lack of competence to embrace collaborative supply chain models are holding firms back.  Dare I say that our businesses are scared of innovation – of challenging the talent of their executives to embrace technology and global delivery models, and work more closely with their suppliers and partners to achieve this?  Moreover, if firms are incapable of embracing these models themselves, how long will it be before before business leaders reach out to third-party providers who do get it?

Something tells me it's been the recent years of easy credit, easy growth, a sense of entitlement and a fear of disrupting business models that has stagnated innovation in global business delivery.  However, fear of change can only last as long as these business survive.  As Kevin's headline emphasizes: "Consolidation and death".  Many businesses will only change when they are forced to, and it will require a new wave of firms which are prepared to embrace new collaborative business models that will form the next wave of growth in our economy. 

Posted in : Procurement and Supply Chain, Sourcing Best Practises

I wanted to share a few early snippets from our forthcoming market landscape on Supplier Management BPO services, which is due to hit the shelves next month.  The market surpassed a billion dollars in expenditure for the first time last year with a 30% hike in expenditure on new multi-scope BPO contracts.  Find out more over at Think Global…

Posted in : Business Process Outsourcing (BPO), Procurement and Supply Chain

One of the nicest guys in the BPO industry is Oracle's Roger Turnham.  He's been Oracle's brains-behind-the-scenes since BPO was a mere twinkle in Larry's eye four years' ago.  Many of you have been dazzled by Roger's Texan charm as the software giant develops its BPO partner program for service providers.  He also has some very interesting views on innovation strategies that can add significant value to a BPO engagement.  I am going to hone in on the "I" topic over the coming weeks, and asked Roger to kick off the discussions… over you you Mr T:

Innovation: What’s in a Name?

Over the past four years I’ve sat through BPO panel discussions on innovation, I’ve listened to some of the world’s largest BPO customers complain that they can’t get it, while BPO providers claim great success in delivering it. Either somebody’s lying or the word is like evolution: It’s so broad a word that it can mean anything you want it to. To extend the analogy: Evolution is a word that means everything from change over time to the origin of matter, to a cosmic explosion that created everything, to why some of us are big and others blond and – my personal favorite – how goo turned into you. If “innovation” is like evolution, it can mean anything, or everything, or nothing.

So, what is it?

 If you talk to a BPO customer, he wants his provider to “raise the bar” every year — to make him faster, more nimble, competitive, … He wants a better mousetrap every year. If you are a provider of BPO services, innovation can mean a point release upgrade, consolidating two customer divisions into one, getting rid of a paper form with a self – service applet, or changing an algorithm to increase subprocess efficiency. So, back to the original question: what is it?

I’ll contend that any of the above could be innovation – but only if they can be linked back to the CEO’s goals for the year. In my opinion, this is the only way the BPO executive sponsor remains relevant in the board room, how the provider gets his renewal and add-on services, and how the customer and provider can work together toward a common innovation objective. I’ll also suggest that the source of the objective each year be the second page of the annual report. The Big Guys usually put a letter there that, somewhere in the third paragraph, has three business imperatives for the coming year – the stuff they have to achieve to “raise the bar” to the next level. Thus, being somewhat simple-minded, why shouldn’t we use those three things as the subject matter for the next status meeting between the provider and customer?

In my next article, I’ll use a case study to illustrate innovation through this mindset and what has to be there to enable it.

Roger Turnham (pictured) is the Director of the Program Management Office for BPO for Oracle. His responsibilities include aligning Oracle’s business model to drive successful engagements in the BPO market.

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

Many of you whom I've been interacting with lately know I'm concerned by the degree of protectionism from some politicians and a handful of organizations; namely the TARP-funded financial services firms and a few from the healthcare sector.  We recently discussed many of these issues here. 

Professor Bob Kennedy, who heads up the William Davidson Institute, a non-profit research and educational institute that focuses on business and policy issues in emerging market economies, has been keeping very close tabs on these issues and I asked him to contribute his recent experiences and views with us.  Bob also has a new blog up and running entitled "Services Shift", and has recently released his new book, adorning the same name.  Over to you Bob…

Why No Regulation of Offshoring: Untangling the Gap Between Rhetoric and Action

Picking up on Phil’s April Fool’s day post, I wanted to share a few thoughts on why we see lots of anti-offshoring rhetoric from politicians, but (thankfully) very little actual policy.

There is certainly a heavy demand from the man on the street to “do something.” It’s easy to understand why. We have become accustomed to trade in manufactured goods and natural resources. But manufacturing accounts for only about 15% of US employment, and developing countries generally enjoy a fully-delivered cost advantage of 10-30%. This is disconcerting for developed country workers, and we frequently observe moves against trade in manufactured goods, such as spurious anti-dumping actions and “buy America” provisions in various pieces of legislation.

Services, by contrast, account for about 78% of U.S. employment, and developing countries enjoy delivered cost savings of 40-70%.

So developing countries’ advantage is much larger in services, and many more people are potentially affected. That explains the political heat and the politicians’ rhetoric, but not the lack of policy.

So, why haven’t we seen offshoring regulations? Because trade in services is incredibly difficult to regulate. Regulating trade effectively requires that two conditions exist:

1. The government can observe what actions firms are taking, and

2. Any proposed policy must be credible and enforceable.

To see why regulating offshoring is so difficult, consider the “offshoring” of auto components with that of IT services.

Auto parts. Trade displacement in manufacturing is easy to observe. If Delphi closes a component plant in Michigan and opens one in Mexico, it is easy to see what happened. 500 Mexican workers are now doing the same tasks in the same way that the Michigan workers did. Production from the Mexican plant now goes to the customers formerly serviced by the Michigan plant. It is easy and accurate to conclude that the Mexican workers replaced the Michigan workers.

Second, if the Congress chooses to regulate this trade, it is fairly easy to do. Don’t let trucks from the plant cross the U.S. – Mexico border, or slap a tariff on auto components from Mexico. (Note that 99% of economists would recommend that Congress not do this, but most politicians are immune to the logic of comparative advantage).

Offshoring IT services. IBM has been fairly aggressive about moving software support services offshore. In boom times, IBM is hiring many people in India and a few in the US. So, in 2006 and 2007, IBM hires SAP specialists, software testing, and wireless telecomm engineers in its India operation. These IT specialists work with other IBM teams in Australia, China, Japan, Germany, the UK, and the United States to service global customers.

Then, following the financial crisis in late 2008, IBM decides to lay off systems engineers, maintenance engineers, and COBOL programmers in the United States.

Is it in any way accurate to claim that the SAP specialists hired in India in 2006 displaced the systems engineers laid off in Philadelphia in 2009? Of course not. These are people in different functions, hired at different times.

IBM is a global firm servicing global companies. Except at the most aggregate level, the US government has almost no ability to independently observe whether IBM is “exporting jobs.” They could, of course, require that IBM report on what it’s doing. But there is no chance IBM would report in a way that indicts itself. There is simply no way a regulator could accurately observe what the firm’s 300,000 employees are doing, and who they are servicing.

Second, even if Congress wanted IBM to stop hiring people in India, what could it do? Would the Congress threaten to cut IBM off from the Internet? Or from communications satellites? Would Congress be willing to impose fines that are massive enough to cause IBM to withdraw from international markets, where it realizes 68% of its revenues? Unlike trucks crossing the US-Mexico border, regulators have no ability to monitor the bits and bytes zipping around the Internet, knitting various work teams together and allowing the firm to service global clients.

The bottom line is that politicians are nearly helpless in the face of offshoring. Firms have a tremendous incentive to locate service activities in low-cost, good quality locations. Doing so cuts costs, increases capabilities, and creates competitive advantage. Politicians would like to regulate this activity, but they can neither accurately observe what firms are doing, nor come up with regulations that can be credibly enforced.

So, expect lots more rhetoric and, perhaps, some efforts to require new reporting by firms. But the offshore trend will continue unabated, despite politician’s hopes. In the short run, offshoring will cause more dislocation and pushback. In the medium and long-run, it will continue to raise productivity and living standards in both the developing and developed countries.

Bob Kennedy (pictured) is the Executive Director of the William Davidson Institute and the Tom Lantos Professor of Business Administration at Michigan’s Ross School of Business. His new book The Services Shift: Seizing the Ultimate Offshore Opportunity, explores offshoring from a managerial and strategy perspective. He also has a new blog on offshoring entitled "Services Shift". 

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

You can spend hours analyzing how the global sourcing industry got to where it is today, but in today's climate it's more important than ever to reach out to the industry at large to get the real deal on what's going to happen next.  Your voice is crucual, so please spend a few minutes filling out my online survey and I'll share a summary of the findings with you in return.

CLICK HERE TO COMPLETE THE SURVEY

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

Yes, there is such a thing as a free lunch…

Horses For Sources' official LinkedIn Group, the aptly-named "BPO and Offshoring Best Practices Forum" has just passed its first anniversary, and 5,000 members. 

This is a forum for leading outsourcing executives to share their experiences, views, opinions, best practices and lessons learned in the world of business process outsourcing and offshoring.  You will also get a chance to participate in our forthcoming "State of the BPO Industry" online survey next month. 

LinkedIn has just expanded the group's capacity to 8,000, so we can start letting more of you in… whether you want to find out the cost of a mainframe developer in Buenos Aires, chit-chat with other services-nerds, or just can't wait to find that dream job (ahem).  You also get a free subscription to the Horses Digest.  And it's FREE FREE FREE.  Am I the most charitable person you know?

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Procurement and Supply Chain, Social Networking, Sourcing Best Practises

So there was a bit of Phil-bashing going on this week – from SaaS lovers – after my post that discussed some of the potential issues with SaaS delivery versus outsourcing.  I also got several messages of "thanks for nailing this one for us" from services folks.  To clarify my point, I would like to emphasize I am a huge fan of SaaS delivery and strongly believe that SaaS services will enmesh with some areas of BPO to create the genuine business utility models for the future.  BPO provides that level of business-customization for those business processes that are enabled by the SaaS app.  I believe the issues are more about IT folks understanding the basics of business service delivery – and vice-versa.

My concerns with SaaS delivery are how companies govern their business processes that are supported by SaaS application delivery.  It is a serious step

for companies to enter into an outsourcing engagement, with significant change management required to establish governance over those outsourced processes.  With SaaS, companies can sign up, flip a switch, and they're up and running with zero upfront investment.  Does this mean they are going to invest nearly as much attention on governing these processes? 

A well-crafted outsourcing contract stipulates where data resides, how it is protected, who has access, which measures are in place to accommodate political or natural disasters, and how data management complies with regulations. In addition, outsourcing providers are SAS 70 compliant, but not all SaaS providers are. With SaaS, data is being processed in the Cloud. But does the Cloud have parameters? Does a SaaS contract have any reference to where cloud is located?

The answer to many of these questions lies in the service contracts. As with any contract, exits should be considered in the case of poor delivery, security or compliance. The critical issue here is your ability to extract the database of information developed under the SaaS model, and ensuring it is compliant with porting to a different model, another SaaS service provider. For example, I recommend periodic delivery of a copy of the database and then an investigation into the portability of the data. The service contract should specify the data model and rules for how data is represented.

The core benefits for the customer is when the BPO provider takes responsibility for managing the SaaS application.  Then the service provider is taking on the governance headaches that SaaS can bring to the table, while offering a one-to-many process workflow to its clients.  The service provider can also work with its clients to transform its current processes onto the SaaS application model.

Let me reiterate that we're talking about BPO here, where the fundamental delivery is business process-based, and not IT based.  In an ITO context, the service provider is basing its revenue model on developing and supporting an application / suite of applications, hence SaaS can conflict directly in when it is eradicating the need for application customization.  BPO is a different ball-game, where common standards and common processes are the critical ingredient, and SaaS fits the bill beautifully.

Bottom-line, this is exciting.  It is the true coming together of application delivery and BPO, but that also means we are also witnessing the coming-together of the IT and business operations worlds.  Bundled BPO?  SaaS-based BPO?  Call it what you want, but we're finally seeing those barriers come down.

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

The hottest area for new BPO growth is over in Europe, and you can get a taste of the action at the forthcoming FAO Summit Europe in London on May 18-19. This is ideal for executives considering how to improve F&A’s impact on the total enterprise, including those actively engaged in F&A outsourcing and/or shared services.

There's also a compeling line-up of speakers, including a keynote address from Andrew Tinney, Deutsche Bank's CFO.  I will also be at the show and would welcome to chance to meet while am over visiting my homeland.

For more information please contact event organizer Faye Holland.  She promises special discounts for Horses readers…

Posted in : Finance and Accounting, Outsourcing Events