Ever since President Obamaproposed to change the IRS tax codethat regulates how US corporations declare income from international activities, I've been thinking about other measures governments can take to slow the recession and help businesses become less myopic with how they navigate these rough waters.
Reading between the lines, he appears to be targeting a revenue grab, while making political overtones against companies which use offshore resources. However, he's simply penalizing firms from being more productive with their exports. Sure, there are issues with tax fraud from havens such as Bermuda or the Caymens, but this is primarily an issue with individuals, not large enterprises.
Why penalize a US conglomerate for manufacturing diapers in Brazil for the
Brazilian market? It saves a fortune in both production and shipping costs. If that firm produced those same diapers from the US, it opens the door for competitors to take away their business. Without going deeper into this proposed legislation, the point I am trying to make here is that we live in unprecedented times where major banks are effectively nationalized and governments are printing money to stimulate broken economies.
Why not go a step further and intercede with firms' rampant layoff tactics? One of the reasons why our corporations are failing is this culture of knee-jerk reactions to adverse circumstances, without an eye on the long-term. Surely this recession provides an opportunity to change this mentality?
Meanwhile, the majority of US and British firms have developed an alarming mentality to cut staff as quickly and deeply as they can, as opposed to taking measures to get to the root cause of their uncompetitiveness, namely poorly integrated business processes and an inability to operate as a global enterprise. Laying off vast numbers or workers often impedes development in becoming more globally effective and more efficient at streamlining business workflows on a global ERP backbone. Why not give firms incentives for retaining the vast majority of their workforces? If firms are encouraged to look at other measures beyond laying off, they will be forced to dig deep into their internal operations to eliminate waste, drive out hidden costs and explore innovative methods for doing things more efficiently.
Simply eliminating workers is far more harmful to an economy than offshoring some labor: it harms the culture of that firm for being focused on developing long-term careers for its staff, and immediately adds to the unemployment ranks. By retaining staff and exploring outsourcing as an alternative, the firm is broadening the experience and value of its staff, in addition to globalizing the support operations. This data point from our recent study shows why firms are motivated to explore outsourcing in this environment:
For example, one company I have spent time with has recently rolled out a new procure-to-pay platform, which has helped it manage its expenditure far more effectively, and enabled it to standardize its processes at a global level. The firm now finds itself in a far better position to explore outsourcing these processes at a far more beneficial business case then prior to its internal transformation. Hence, firms should use this market as an opportunity to get their internal processes and global operations in order. Laying off staff is simply preventing them from being more competitive – I wish politicians were focusing their anger on eliminating jobs than "shipping a few overseas".
Folks – if you happen to be drifting around New York City on 3rd June, swing by the Philippine Cultural Center to hear some interesting discussions, including my friend and colleage Dr Stephen Stokes (pictured), author of the infamous piece "The Green Transformation of Indian Outsourcing: Heading for the Clouds, But Doing So on a Low-Cost and Carbon Budget".
The event entitled "Global Sourcing After the Meltdown: In Search of Sustainability" is being organized by my good friends Christine Bullen and Wanda Lopuch at the Global Sorcing Council. For more information click here. You can also contact Wanda directly here.
Talk tracks for the day are as follows:
Authentic Sustainability in the Supply Chain
Confronting Business and Financial Impact of Supply Chain Risks in Global Sourcing
Decoding the Green Leadership
Impact for the Obama Administration Policies on Global Sourcing
Social Responsibility in Sourcing – The State of CSR in Sourcing
Green Technology – Walking the Talk
Finding a New Balance: Can Global Sourcing Be Commercially Viable and Socially Sustainable?
IT as an Enabler of Sustainability in Global Enterprises
Trends in Global Sourcing in Post-recession Pharmaceutical Industry
When I got a call from the Shared Services & Outsourcing Network crew back last Fall (Autumn) to run a session at their European Shared Services Week in Budapest this month, my immediate response was "how the expletives are you going to convince operations executives under severe cost restrictions to show up at a 3-day boonie in Budapest in the midst of the worst recession since Harold got clipped by an arrow in Hastings in 1066?"
One of my favorite jokes (and I do have a rather strange sense of humor), is "How can you get two whales into a Mini"… and the punchline is "Along the M4 Motorway and across the Severn Bridge". If you don't understand this joke, click here. I am going to add to that one:
"How do you get 400 senior operations executives, 200 of whom lead shared services operations, to show up in Budapest in the middle of the worst recession in post-biblical times?"
Yes, they managed to defy gravity, common sense and many other undefiable factors
to achieve the unachievable. Namely, two dedicated ladies, Emma Beaumont and Sarah Clayton, personally convinced each and everyone of these people that they should beg borrow or steal to find a way to attend their conference. Some execs will even pay out of their own pockets if the networking opportunities are that valuable for them.
Normally, you just walk away and think "that was a good show", but this one deserves special recognition. This market is horrible for the events business in general. Sponsorship dollars and euros are at a premium and most firms have strict travel policies that only allow for essential travel. While some conferences have held up remarkably well, many of them have disappointed with their ability to attract senior executives.
So how did these folks pull it off? Obviously, a compelling program and speaker line-up is vital, but there are two other ingredients that these people have in spades:
1) Focus on the role of the senior practitioner. While many events will just focus on the buzz-line their sponsors plaster on their marketing collateral (i.e. "outsourcing", "BPO", "Transformation", "Cloud"), SSON focuses on all the aspects of the day-to-day role of their target practitioner; in this case shared services strategy, how outsourcing impacts shared services and their function, how technology impacts the role of the operations executive, how consultants can (or cannot) help, and which service providers are out there whom they should get to know. Plus, they even involve the occasional analyst to add his tuppence…
2) Focus on the network – with tenacity. End of the day, it's all about the network, the side-groups, the private discussions and the peer debate. It's also about peers having a good time networking with like professionals in other organizations. The key is to ensure these core groups all come along, and the rest will follow. Moreover, sponsors have savvied-up on which events are getting the customers along. Having the events organizers make their show impossible to miss is the secret ingredient.
End of the day, this recession is quickly fleshing out the survivors from the lower-value players. The quality associations which invest to survive this year will find less competition around next year, and will ultimately have more of the pie for themselves when budgets loosen up and confidence seeps back. The SSON seem to have found their M4.
During Part I of Lee's interview, he talked about the development of the global sourcing industry and how companies were now approaching sourcing strategy in today's economic climate. In more Blackberry-smashing style, Lee goes on to discuss his theory of "innovation" within outsourcing relationships, and delivers some tips on how operations leaders can improve the performance of their service providers (without resorting to baseball-bats, water-boarding or enforced transition workshops at Epcott).
PF: Lee, what is your theory of "innovation" within outsourcing relationships, and are we really seeing it in today’s engagements?
LC: I have a pretty simple theory of innovation. We aren’t seeing it today because most of the clients today didn’t buy it. Somehow we believed that
innovation would occur without investment (client and provider) despite the fact that when the services were internal, we had to be very mindful of reserving money to spend on innovation and chances are, we even had dedicated groups to make sure this work got done. In most (not all for sure) engagements, the price gets worked to the absolute minimum so the provider can win the deal. Often, there is one round of service innovation baked into the deal to get the prices to the point where there is a business case. This might last the first three years, but the term of most of these deals is 5 or 7 or 8-10 in some cases. I think in general, we do not contract and plan for investing in mid-contract and late contract innovation and we get frustrated that it is not there for free. I think I can safely say that most clients see one round of innovation that occurs somewhere in the 12-24 month timeframe. Past that, I don’t think there is the presence of mind to plan for another round at 36 or 42 months, and I don’t think we typically govern in a way that brings this topic back to the table in a meaningful way. Add to that the continual cost pressure on all sides; you’ve got a pretty harsh environment for innovation to live. I believe that if you want innovation, contract for it, be prepared to pay for it, and build it into your business case, and ensure your governance organization is ready to lead it.
PF: What steps should senior operations leaders take to improve the performance of their outsourcing providers?
LC: Great question. Simple answer. Make better performance pay out for everyone, not just the client. Ensure your contracts make this sort of thing possible (and fix them if they don’t), and then create programs that deliver what I call the Southwest Airlines success model. These programs should significantly transform the service experience, while dramatically reducing BOTH the cost to deliver and the price to consume. It might sound difficult, but if that is the starting position, then it is not that hard to create, and then everyone gets to put the productivity in their respective future operating plans. It just doesn’t work when there is only one winner.
These are shared services, and many people don’t know the origin of the term. It is a common misconception that the sharing part means that two or more clients share from one provider, but in fact, the sharing that is intended by the term shared services was intended to mean that accountability for delivery of mutually satisfying services is shared between client and provider. What is your theory of innovation within outsourcing relationships, and are we really seeing it in today’s engagements?
Lee Coulter is SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth". He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities.
In Part III of this interview, Lee Coulter will discuss how he goes about evaluating service providers, and also some advice for budding sourcing executives today.
306 posts, 1445 comments, 12,000 subscribers and 30,000 RSS-feeders later, "Horses" today makes it to 2 years' old.
There's never been much of a plan, just a platform for good discussion, sharing of ideas, and open debate on tough issues for the global sourcing industry – and all with a hint of cranky sarcasm. And we try to keep it unbiased…
Drop me a note if you have any suggestions on what you would like to see more/less of on here – your input is always welcome. And a special thank you to all of you who come here regularly and support this site (you know who you are).
Here are some favourite posts from the last 2 years:
As we discussed last week, it's clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore. While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business.
If there's one thing this recession taught us, it's 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. Outsourcing doesn't provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level. Check out our thoughts based on new survey data over at Think Global…
There is only one Lee Coulter. Service providers tremble at the very sound of his name, consultants run for the hills… practitioners flock for advice. And when he isn't performing carpentry or attempting cordon bleu, Lee has the small task of being SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth". He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities. He even once threatened to smash up my blackberry.
On a more serious note, Lee has a practical and experienced perspective on how enterprises today should approach global sourcing, and we have enjoyed his exuberance and candor in our buyers' group meetings. Today, we are blessed with the first part of a lengthy interview with Lee, where he is discussing how practitioners should approach global sourcing in this economic climate, how to select and engage the right service partner and how to decipher and execute innovation (yes, I said it) in a global sourcing environment…
PF: Lee, we’ve been through some major developments in the world of global sourcing over the last decade. As a senior operations leader in one of the world’s largest multinationals, what, in your opinion, has worked, and what hasn’t?
LC: Let me start by saying that the global sourcing industry has proven its most basic value proposition, and that is a huge success. There are many skeptics of
this industry, however I’m seeing that they are starting to agree that BPO adds value, and is here to stay. Now within that primary success, there are a few areas that need some attention. I have a top three in terms of growing pains in the industry:
– The global mega deal. Simply put, there is very little truly global scale advantage. In almost every BPO vertical, the synergies stop at regional pairs (by regional, I mean North America (NA), Latin America (LA), European Union (EU), Asia-Pacific (AP), and Central Europe/Middle East/Africa) (CEEMA). There are lots of pairs that you see frequently in BPO: NA-AP, NA-LA, NA-CEMA, EU-CEEMA, etc. It is rare that there is any advantage to including more than two regions either as a client or a provider. All the trends today support a regional best of breed approach. So I would say the global mega deal didn’t work out so well, and the regional best of breed strategy is working pretty well. Now we need to spend some time getting more modular and better at managing the interfaces between providers.
– Multi-client, public utility (MTPU) based services. This has long been a promise of all kinds of BPO services. Generally, companies that have enough scale to benefit from BPO at all, are usually capable of creating single-tenant, dedicated (or private) utility (STDU) based services. While there are exceptions, generally a BPO provider is only capable of the minor scale advantage over the client’s capabilities that comes from running many STDUs for many clients. There are a lot of reasons for why MTPU based services have been difficult, but this is one area that I don’t think has worked so well and I believe it is key to the future of the industry. (btw – I made up the acronyms, but if no one else coined it, they work for me)
– Contracting for successful partnerships. Despite literally thousands of relationships that exist in the BPO industry, the industry as a whole has not cracked the code on how to contract for a successful relationship. It seems there is little science here, and mostly art. If you look at the long term success of BPO relationships (getting completely through the originally intended contract term), it is a bit disappointing. I am certain it’s more about client and provider behavior than anything that is written in the MSA, but I think we should have come farther in being able to predictably create sustainable and satisfying relationships.
PF: We’re clearly at an inflection point in the industry as the fog lifts from this Great Recession. Are companies approaching outsourcing any differently as a consequence? Do you believe companies are investigating more in-house models, namely captives or shared services operations as a result?
LC: I believe there are some basic and unchanging (despite a recession) rules that anyone looking at shared services should consider to make the best delivery model decision. I don’t make a distinction between shared services and BPO. BPO is simply a choice to use an external provider for your delivery model. All the essential components of shared services are present in both models. In BPO, the service agreements and chargeback methods might be more complicated, but aside from that, they are very similar. Regardless of the economic climate, any company should examine process capability, client organizational readiness, short and long term financial goals, level of automation and technology, and risk to make the decision on in-house, captive, modified captive, or outsourcing models.
The limits or thresholds of these key dimensions might change slightly because of the recession, but I don’t think they change the basic questions you need to ask to choose the right answer. I will go one step further by saying that I think there is a natural progression (in-house, captive, modified captive, outsourced) that makes a lot of sense. There are times when skipping a phase is the right thing to do, but generally I recommend anyone looking at shared services get the basics in place as a shared service before looking to turn it over to an external. That doesn’t need to take five years either, but to give yourself the greatest advantage of succeeding in outsourcing, implement a shared service first and move up the sophistication spectrum.
In Part II of this interview, Lee will discuss innovation strategies for global sourcing and service provider management
Folks – I can exclusively reveal to you today that Wipro BPO and Oracle are shortly going to announce a partnership dubbed "simPlify", whereby Wipro will deliver PeopleSoft HR to both mid-market and high-end clients via a hosted utility BPO service, that will cater for 20 major countries. They will also partner with The Hackett Group as part of the arrangement to provide performance benchmarks for HR processes.
The mid-market play is a true move towards "one-to-many", whereas the enterprise play will be a more customized approach. Clients will need to invest
a minimal initial outlay to move into a "pay as you drink" model, based on a per-employee-per-month pricing, to receive PeopleSoft-based HR delivery services, most notably payroll. The industry has been crying out for this for years, and Wipro and Oracle have broken the mold by putting together a delivery model for the mid-market that clients can move onto without huge upfront costs.
Moreover, the yawning chasm of mid-market HR service delivery, which has been under-serviced for PeopleSoft-based HR services in a utility BPO model, is now being filled. ADP, Ceridian, NorthgateARINSO and others will look warily at this move, which threatens to blow-up the traditional model, that has been often plagued by expensive implementations, long inflexible contracts and poorly integrated software. Not to mention Wipro's services competitors which are vying for increased share in the HR BPO market, namely ACS, HP, IBM, Infosys and TCS. Clients in this environment simply cannot shell-out multiple millions to get global payroll and HRMS – managed services with limited Capex is their only real choice today. Bringing hosted software into the BPO model is the answer, and this is a true game-changer in the industry.
Wipro will absorb much of the client implementation costs as they move onto this solution, which they will host across their delivery hubs in India, Latin America, the USA and the UK. They will look to roll-in China and Japanese delivery later in the year. Wipro will provide clients with Level 1, 2 and 3 support, with Oracle level 4. The pair have also incorporated benchmark data from The Hackett Group to help clients assess their performance levels, which is embedded in the software at no additional fee.
More to follow with this trend… the next question is how the incumbent service providers will react, and, interestingly, whether this will put more urgency on Workday to make its BPO partnership move. In addition, we can certainly expect similar BPO/hosted software partnerships to spring up in other BPO disciplines, notably supplier management and finance.
Pictured left-to-right: Puneet Chandra (Wipro), Tibor Beles (Oracle) and Ashwin Bhatia (Wipro) announcing the partnership to a certain analyst at the European Shared Shared Services and Outsourcing Week show in Budapest earlier today.
This Tuesday, we're holding a "World Exclusive", with a distinguished panel of Horses-readers being webstreamed live from the 9th Annual European Shared Services and Outsourcing Week in Budapest Hungary. For those of you unable to make the conference, you will have a chance to take part in the debate via a live blog-cast streamed to a computer near you. I do hope you can partake in the banter.
*World Exclusive* Horses For Sources – Live From Budapest
Deciphering The Business Value Of Tomorrow’s Sourcing Strategies In Today’s Economic Climate
TIME: 8.00 AM Eastern Time, 2.00 PM Central European Time, 5.30 PM Mumbai/Bangalore, 8.00 PM Beijing
I wanted to share a few early snippets from our global sourcing adoption study, which we've been running over the last 2 weeks. And thanks to Global Services Media, Vinnie Mirchandani, William Mougayar, Jason Busch and Dennis Howlett, who have all contributed in helping us reach close to 700 respondents, of which we had 127 enterprise buyers for IT, supply chain, finance, HR and other BPO services.
