One of the nicest guys in the BPO industry is Oracle'sRoger 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.
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.
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.
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?
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.
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.
TPI's Bill Huber was busy on the blog all last week at the Sourcing Interests Group show and has good summaries of some of the key sessions. For any of you who missed the show, I suggest you follow the progress of the group under the excellent stewardship of Dawn Evans. To pack a place as well as she did – in this market – is a phenomenal achievement. The fact the event was organized in Baltimore was a master-stroke… people don't feel guilty going to events in Baltimore 🙂
SaaS is effectively the same as outsourcing – you're handing control over business processes to a third-party service provider. However, while SaaS delivery shares many similarities with outsourcing as a delivery model, there are serious caveats buyers need to consider. Read more over at Think Global.
I had the pleasure today of having lunch with former Speaker of the House Newt Gingrich, who is also widely rumored to be a possible Presidential candidate in 2012.
While I do not share many of his political views, Newt does have some nailed-on perspectives on globalization, outsourcing, and some measures the US needs to take to get its act together to remain the world’s economic superpower. Plus, he’s very funny.
Here are some soundbites from his keynote speech at the excellent Sourcing Interests Groupconference in Baltimore from earlier today:
"We’re spending trillions to cover up really stupid policies, violating every fundamental principal of economics. These congressional leaders are people who know nothing – our Founding Fathers deeply mistrusted politicians. Bush was wrong for all of 2008. Paulson the worst ever Treasury Secretary, even though Geithner is now rivaling him."
"We’re at the end of a 50 year period of being really sloppy and self-indulgent.
"There is not one living being that can accurately predict the outcome of this crisis, all we can do is continue the dialog and the answers will slowly unravel.
"There will be four times as much new science created in the next 25 years than last 25 years, and four times as much will come from outside of the US. We’re actually further away from 2034 than we are from 1880 to present day.
"We need to create a country that’s continuously evolving and agile: a country where someone invented something when I was asleep.
"China and India are real. You can pretend all you want, but if we’re going to compete, the minimum conditions to become the most successful country in the world are as follows: We mist reform taxation, litigation, regulations, education, healthcare, energy and infrastructure. We are facing the biggest decisions since the Civil War. There’s no pearl harbor this time, we have to look deep into our hearts and make a decision. We’re acting against the tide of history.
"Those that make the fewest mistakes will come out the most prosperous. Swedish government decided not to save Saab. The French are not doing a stimulus package. Now we are the most left-wing government in a G20 meeting
"Reagan in ‘79: a recession is when your brother-in-law is employed; a depression when you’re unemployed; a recovery is when Jimmy Carter is unemployed
"Policies matter. This is the worst crisis since the 1930s. We have no experience-base, and none of us really understands what us going on. It is so enormously complicated. It’s like white water canoeing… you don’t know what’s around the bend and where the next rapids will be.
"It really is this simple: what is it our customers want so bad they’ll pay for it? And will their checks clear? Entrepreneurs invent value, customers define value
"Cash is king. Shortest period of economic difficulty is 3 years, and longest is 12 if we make dumb policies. But there’s a desire for caution: big dreams, bold plans, but wise wallets. You can’t afford to make mistakes in this environment.
"Our bureaucracy has been declining for 50 years. Our last great government manager was Eisenhower.
"Barring a catastrophy: In the next 25 years the a richer, healthier, greater connectivity and will travel more safely, but will the US
"Capitalism is a rough and tumble system. It makes the customer king. At its core is a cultural fight where you are reduced to being a client. It’s a hard tough business
"And what does Sarbox do? Costs $3.8 to $5 million per company to become compliant. Find me a single example of how Sarbox triggered information that was helpful.
"The last 3 years of Greenspan were incomprehensible. He pumped money out, literally begging banks to get in trouble. Billions of dollars at low interest rates. Of course they’ll bite.
"But we’re a long way from panic. We have the most energy in the world: 27% of world’s coal and huge oil reserves. We’re like a patient that keeps hitting himself with a hammer: but once he stops, the headaches will go away"
I'm still getting emails / tweets and calls from all sorts of people wanting to talk about the "sensational news" yesterday, on what was a record traffic day on the Horses. And if I haven't already made it plain enough, it was an April Fools joke. And while it was kinda funny, what hit home was how believable the story was.
Yes, protectionism already is the number one impediment to outsourcing growth over the next few months, but we're never going down anything like the crazy lines outlined in the post. What's nervy, however, in this era of rapid change, is the fact that so many people fell hook, line and sinker for that little prank. It made me realize how prepared so many people are for sensational changes to their way of life. And if you feel I went too far I do apologize, but everyone seems to have taken this in a good spirit. I really feel we need a sense of humor and a few laughs to help out out of this tough time…
The soon-to-be-appointed head of the outsourcing disciplinary committee
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:
So there was a bit of 
I had the pleasure today of having lunch with former Speaker of the House 
