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.
One of the most enthusiastic leaders in the BPO industry is the man who has overseen Wipro’s rapid rise in recent times: Ashutosh Vaidya. In-between playing squash, watching cricket and clocking up a ridiculous quantity of airmiles, Ashutosh has overseen a series of Finance & Accounting, HR and supplier management wins that have moved the service provider into the BPO industry’s top tier. I asked Ashutosh to share his views of the current state of the BPO industry and what steps need to be take to ensure the continual growth of the business in these times.
PF: Ashutosh, we’ve been through a tremendous development in the world of BPO over the last decade. What, in your opinion, has worked, and what hasn’t?
AV: Indeed the BPO world has come a very long way over the past decade. In fact, 2009 really marks the 10th anniversary of the meaningful 3rd party BPO industry emerging out of India. We have seen significant change in the market, both from buyer and supplier perspectives. Buyer requirements have evolved across the board to enhance the range of processes that they outsource and the way they structure the engagements and what they demand out of a BPO partner. Providers have evolved to keep pace with buyer interests, and in many ways have also influenced the same by creating and demonstrating capabilities which have strongly contributed to the evolution of the buyers’ thoughts. Overall, from my perspective here is what that has worked and what has not:
What has worked well:
• Seamless transition and execution of a broad spectrum of processes across various functions and industries – from simple rule based processing to complex decision/judgement based work.
• Replicating the Services Factory model into BPO services, replicating and further evolving the overall quality models; leveraging concepts like Six Sigma, Kaizan and Lean into BPO services to bring about continuous process improvements. Customers started outsourcing for cost saving but stayed on because of better quality
• Scaling up the people factory in lower cost locations like India, Philippines and establishing Global Delivery models with the inclusion of East European centres in the delivery mix.
• Raising the bar on Risk/Compliance practices – in most cases exceeding the standards in the client’s home country
• Development of a very strong support eco-system (hiring, training, transport, facilities management, etc.) to facilitate 24*7 BPO
• Redefining the concept of ‘Shared Services Centers’ by setting up world class delivery centers – greatly enhancing the concept that started with just the notion of putting people doing similar work under one roof.
What has not worked well:
• Scaling up on the domain knowledge for vertical domain processes… moving up the value chain faster
• Building transformation capabilities – in addition to the process improvement capabilities
• Platform play – it is still in the infancy
• Moving seriously into business benefits, outcome based pricing and a good model of sharing gains.
PF:We’re clearly at an inflection point in the industry as the fog lifts from this Great Recession. Do you see companies approaching BPO any differently? And which areas of BPO do you see developing in the near/long term?
AV: I believe what companies expect out of BPO engagements is going to change. The objective is no longer going to be only – “my mess for less”. Instead, it will more and more get into asking “can you solve this business problem for me”? Companies are going to view BPO not just as a means of cutting costs, but as a way for changing the operating model for the organization. A stronger need for flexibility, speed, variability of costs as well as a sharper focus on risk/reward is going to come up from the buyers.
Customers are also realizing that to achieve the transformational gains, the business, IT and the Ops have to collaborate on a regular, proactive manner. Pure play BPO is no longer going to be enough.
TCO plays could become more important – partnerships where client + providers work towards reducing the TCO of clients and trying to make it win-win for both parties. Vendors will try and increase the “stickiness” factor by executing different types of deals – ‘5/10 year outsourcing with YoY productivity and penalties for breakage / partial termination’, ‘end to end outsourcing – ITO, Operations, Infrastructure’, ‘Platform BPO plays – where the customer gets hooked on to the providers platform’ etc.
We’ve experienced a significant surge in client requests for BPO services over last few quarters. There is a very serious and determined mindset in the client groups to make this happen in accelerated time frames. This is reflected by the fact that we are seeing outsourcing initiatives being driven hands-on by leadership of line functions and CFOs in several cases rather than the procurement team.
As far as areas for Outsourcing are concerned, the focus is going to be on horizontal functions which impact business metrics and results – both in current BPO relationships and new ones. E.g. how do I reduce my OTC cycle? What can I do to manage WC better? Etc. On the other side, there is keen interest in areas in the true vertical processes which are domain/ technology intensive.
The other trends would be a level of Protectionism – the way this pans out could alter the business projections and business models – e.g. larger share of local delivery centres and near shoring instead of full off shoring to low cost locations. One interesting aspect here is that the this will not keep the offshore vendors out. Unlike in the early stages where labour cost saving was the key driver of the business case, the vendors are now very capable and mature. Even though a local delivery centre may mean no saving due to labour arbitrage, there would still be significant gains from process standardization and transformation that the good vendors can offer.
PF:Do you really see this concept of “Platform BPO” taking off, or are you expecting a lot more of the classic “lift and shift” deals in the coming couple of years? Do you really believe we’re going to see a strong inter-linkage between IT and BPO service delivery in the next three years?
AV: Overall, ‘lift and shift’ deal demand continues to be larger part of outsourcing opportunities. For these cases, the degree of disruption from as-is process environment is relatively lower and clients seek to realize business case built on technology investments e.g. ERP platforms and other applications. However, we are seeing movement away from this to other models like “transform, lift and shift”, “lift and shift with accelerated transformation”, “platform BPO” and “ITO+BPO” type deals. In the last 10 deals we have done, 4 of them are the non-lift and shift areas. Hence, while “lift and shift” will continue, over the next 3 years the % of deals will increase in the favor of non-lift and shift deals.
We really believe we’re going to see a very strong inter-linkage between IT and BPO service delivery in the next 3 years due to the following reasons:
i. Most deals today have a fair amount of transformation or YoY productivity improvements baked in. While six-sigma, lean, shared service creation can give improvements for the first 12 to 18 months, over a 5 year horizon it becomes increasingly difficult to give significant benefits without a technology play. Technology change/rationalization is an extremely important aspect of transformation.
ii. By having both ITO-BPO, the deal size increases, hence making the commercials more attractive to both the client and to the vendor and therefore sharper focus from the vendor.
iii. Monetization of IT / process assets is becoming a reality with the vision of forming industry utilities – giving even more potential benefits to clients and to the providers (at-least a possibility exists)
iv. Cost of Governance – due to large deals, the costs of vendor management comes down for the clients AND the management attention they get from the provider organizations goes up.
v. Change management – often in the clients organization IT and Operations work in silos – but these silos can be more effectively broken in provider organizations…. hence conceptualizing, rolling out and sustaining change initiatives become far more possible.
The potential down side is single vendor concentration risk – but this can be mitigated in multiple ways.
PF:How do you view India’s role in the continual development of BPO, and what is your opinion of the emerging Latin countries as nearshore hubs for US-driven BPO? Do you see China playing a more influential role in delivering BPO services in future? Are there other sourcing locations you believe have a pivotal role to play?
AV: I believe that India based providers will continue to provide thought leadership and retain the pole position from a location perspective at least for the next 5 years. There is significant lead that exists today in talent pool, process maturity, leadership capabilities etc. that the Indian providers will build on and enhance their capabilities for delivering BPO services. This includes an expanding footprint in terms of the scope of services, how they are delivered and from where. The expansion of service delivery from LatAm countries is a natural progression, not just to serve US driven BPO, but also to deliver BPO services to the businesses in those geographies.
It is not only about having good BPO capabilities now – it is about domain, transformation/change and IT-Ops integrated capabilities that will be important. Though other countries are becoming interesting areas from a pure play BPO perspective, India is ahead in though leadership in domain, change, platform and IT…. hence I think India will play a ‘hub’ role. We are also seeing a host of best practices being transferred to other geographies as each of the Tier I players opens up delivery locations in other countries – so to that extent, India will influence/champion best practices globally.
The other countries/continents such as Latin America, central / eastern Europe and China/Asia will play a role for 3 reasons – language, proximity, comfort (for MNCs – a European office will be more comfortable with central European operations than India) and cross country BCM/BCP for critical operations.
Over a 5+ year horizon, non-Indian countries could become important from the perspective of diversification of people (cost inflation) and currency concentration risk ….. this needs to be monitored closely.
China could play a more influential role in the future – not necessarily in 3 years – but in 5 to 10 years due to the talent availability and education focus of the govt. For the next 3 years it will primarily service Japan, Korea and the growing local need from MNCs operating in China.
We also believe that several locations including new emerging countries like Egypt will play a role – in a Hub and Spoke strategy – there would/could be several spokes.
PF:And finally, how do you see the service provider landscape playing out in this market? Has this recession come at a good or a bad time for the leading Indian-headquartered providers?
AV: Obviously the service providers have been impacted significantly in the downturn. I believe that the jolt which the industry has received due to the recession can be looked as timely! The industry has seen a phenomenal growth rate over the past few years and most of the providers have not really experienced a difficult and tough environment that we face today. In my view, this jolt is well timed as it provides significant learnings to the India based providers to cope with this environment and learn from it when they are still relatively small in comparison to global peers. This will hold them in good stead the next time the business cycle goes south and they are much larger in size!
Due to the rapid growth, the industry had picked up some negative characteristics over time. Attrition, wage inflation along with a strengthening rupee was starting to be a concern. This recession has given us breathing space to start focusing on our core processes as an organization (e.g. training quality improvement) and building new capabilities (such as platform BPO, IT-Ops integration)
From employee perspective in India, The other aspect which I think is going to be beneficial overall is expectation management. We were getting to a situation where 23 year olds were managing teams (15+) of younger 20/21 year olds! …. And if a promotion did not happen every year, then these same young folks would switch jobs . The current scenario will act as a good wakeup call and will be which is going to be good for the future of our people and the industry.
Valuations have become very attractive, while the ability to invest has also been eroded. As the market improves, we could be seeing some consolidation as smaller niche players may get acquired by the larger ones as they look to expand footprint and build wider capabilities. Some small /medium players will also exit as they will run out of cash. The big 3/5 in India and the big 3/5 non-India behemoths like IBM/Accenture will get bigger due to economies of scale and wide variety of offerings which they will bring together to add incremental value to customers. Having said this, there will be niche providers focusing on specific domains who will also do well if they have differentiated products and good management.
For Wipro, our sustained focus and early decisions on delivering services out of most economical delivery locations has proven to be an asset in a challenging economic environment.
PF: Thanks for your time, we really appreciate it Ashutosh.
Ashutosh Vaidya (pictured) is Sr. Vice President & Head – Wipro BPO Solutions. Industry veteran of over 23 years, Ashutosh is the Head for Wipro BPO Solutions. In this role he reports to the Joint CEO for Wipro’s IT business. His rich experience in the IT industry includes leadership roles in a variety of businesses including Products, Solutions and Services for Global markets. He has spent over 13 years at Wipro and has handled multiple responsibilities in diverse businesses.
Vinnie Mirchandani has his latest take on the constant controversy of third-party researchers, consultants and associations compiling rankings of service providers. This time the IAOP's Global Services 100 is being questioned.
We've also had some banter about the Black Book of Outsourcing on this site, which made such a noise with its constant rankings of service providers, that Datamonitor decided to buy them to hop on this bandwagon. And we've never even got to discussing the Global Services 100, or several other rankings that come out periodically. Moreover, some "analyst" firms make a living ranking service providers, while barely bothering to talk to their customers, and selling white papers to the winners so they can flout their success (you all know who you are).
Personally, as an analyst and advisor, I find these lists useful – I sometimes find out about some provider I didn't know a lot about, and they draw attention to who's doing well at the
moment. But that's all I care about. If these entities produced a directory of service providers, it would be a valuable resource to the industry at large. But that isn't really the case; why produce free information of you can't sell it as marketing collateral?
What worries me is the following:
These entities make the majority (or all) of their revenues from service providers;
However accurate these rankings may be, they always make errors which can cause buyers to make poor purchasing decisions, or service providers to be unfairly discounted from a down-select process
So what can entities to do make these rankings more credible?
If I am advising a client in an area where I need some additional input or validation, I want to talk to the resident expert in that field. At the end of the day, it's the recognized experts who have withstood the test of time that can give you the real deal when it comes to rankings. A true expert in a niche area, for example application development services, would be in constant contact with all the service providers, their clients' successes and traumas, and have a unique view on who really is delivering the goods, versus who is struggling. And we don't really want some fluffy top-ten score, we want to know exactly where each service provider has scale, expertise, language, technology and process acumen. That's the real info customers need. The only benefit of rankings is for service providers to send out press releases boasting about their "performance" and add more marketing vapourware to PowerPoint decks. Oh, and they need to pony up significant cash to whomever compiled the list. But it's cheap point-scoring, so what do they care?
Hence, in my world, a service provider ranking is only really credible when the expert's personal name and brand is attached. Someone is being held accountable, as opposed to some faceless corporate brand, which masks any real accountability. At least an analyst firm is attaching an analyst's name to that ranking list, so that analyst has some skin in the game. A good analyst will normally produce correct performance indicators. A poor analyst will make mistakes, or simply not have good industry connections or guidance, and likely not last long in this economy.
Strong stuff I know, but it has to be said… your views are more than welcome.
So it's coming again this week… the 7th annual HRO schmooze-fest in New York's plush mid-town Hilton. Yes, I've been to every bloody one and I swear this will be the last :)
This time I am assured there will be:
No rubber chicken
No dodgy awards
Lots of buyers
In fact, with the industry enjoying something of a revival, this should prove to be an interesting experience, with focus on the core elements of HR operations: payroll, benefits, recruiting, talent management and HR
technology. They even recruited yours' truly to talk about the latest trends in the BPO industry, and the important role of HR in broader BPO engagements. I'll also reveal some early results from our current survey on outsourcing adoption trends. Come and swing by my session at 1.45pm this Tuesday.
Other things I am looking forward to (with baited breath) are:
Congratulations to our friends at the Black Book of Outsourcing, who have been rewarded for their years of entertaining us with a nice little buy-out by British research firm Datamonitor, which also owns boutique outsourcing advisor Orbys.
It speaks volumes for the Brown-Wilson group
that the leading outsourcing research firm (Source: The 2009 Black Book of Outsourcing "Top Advisors and Consulting Firms") chose to integrate them into their operation:
To quote Mark Meek, Chief Executive of Datamonitor, "I am thrilled to be announcing this acquisition which is exactly in line with our international growth strategy. The Black Book of Outsourcing is a world-leading brand, with a reputation for independent research and a first-class client list. This acquisition provides excellent synergies and strengthens Datamonitor’s position as a key provider of sourcing research and advice, at the critical juncture between vendors and buyers. The counter-cyclical nature of sourcing means it is an excellent acquisition for the Group at this time."
306 posts, 1445 comments, 12,000 subscribers and 30,000 RSS-feeders later, "Horses" today makes it to 2 years' old.
Moreover, some "analyst" firms make a living ranking service providers, while barely bothering to talk to their customers, and selling white papers to the winners so they can flout their success (you all know who you are).
