Some excellent feedback and comments from you regarding our recent discussionabout the cost and delivery models sourcing advisors need to deploy with cost-constrained clients. Lee Ann Moore of sourcing advisory firm Equaterra, has shared some experiences her company has been finding in this market, and offers some alternative services advisors can deliver, beyond trying to crack a wall-nut with a sledgehammer. Lee Ann is one of the behind-the-scences brains behind the rapid rise of the firm since 2003, being the company's first employee and Chief Marketing Officer. Over to you Lee Ann.
"Corporations are in a state of flux and uncertainty. Many of our clients are announcing layoffs and going through divestitures, mergers and acquisitions – activity that places pressure on their sourcing organizations that often exceeds capacity and capability. These companies must demonstrate productivity improvements and cost savings now. Doing nothing is not an option, and many organizations avoid a doom loop by using flexible advisory services when they cannot afford full-time employees or consultants for business transformation projects.
"Sourcing advisory firms are adapting to the client demands. They are offering more flexible services, and are trying door-opening tactics to help client’s begin engagements. One offered a $500 research report for clients to get the inside story on the Satyam situation. Many firms are staffing engagements with a single sourcing advisor, and these projects may feel more like a staffing model than a consulting project. In other instances we see advisory firms providing only tools and templates with limited or no advisory support. Other projects are workshops and training sessions to support knowledge transfer for the client to tackle the project on their own. Fixed fee arrangements are much more popular this year than last. We have seen gain sharing projects with fees tied to cost reduction. The list of options goes on.
"As an advisor, the market has driven us to be more creative and we have introduced software into the sourcing and governance processes to help clients reduce costs. We also offer flexible pricing models several that spread advisory fees over the life of an engagement to help our clients incur the cost as they achieve savings. We deliver the sourcing and governance support through the software we developed with Microsoft and the savings result from automated processes and streamlined decision-making and reporting.
"Advisory firms continue to support clients on complex engagements with multi-person teams that possess a cross section of skills and expertise. But, all advisory firms have been forced to modify their approach and cost structure to provide the flexibility clients now require. Questions remain on global sourcing, service delivery options, flexible contracting and right-sizing the back office. Analysis of those questions and the format for rationalizing the answers continues to change. Companies are forced to demonstrate results yet have leaner staffs now than they likely did a few months ago.
"With staff reductions, and limited consulting budgets, who is going to do this work? The advisors who respond with service offerings that flex up and down and demonstrate a strong ROI will be best positioned to meet these new demands."
Lee Ann Moore is Chief Marketing Officer for Sourcing Advisory firm Equaterra
I have never (I repeat never) witnessed such an intense level of interest in global sourcing than the current environment. I simply am struggling to find the time to do anything but take calls from companies in deperate need of working out their sourcing options. In fact, if anyone wants to send me compeling guest posts, be my guest, as this thing is creeping into my weekends far too much these days 😉However, I have been alarmed with the recent retrenchments that several of the leading sourcing advisors are being forced to make. Their problem is simply the cost model – if large engagements close out with nothing immediate to re-staff the advisors, they simply cannot afford to keep them on the bench. What worries me is how buyers are getting their advice and direction.
Bottom-line, buyers are being forced to avoid spending on consultants unless deemed absolutely essential, and investing a few hundred grand on getting the support, methodology, data, ideas, knowledge and experience they need, seems to be beyond many firms at the moment. So what are they doing? The answer is scratching around for snippets of wisdom, being courted by service providers offering "free" evaluations, turning up at industry events hoping for free info and joining LinkedIn groups hoping for a silver bullet solution for helping them through the sourcing maze.
So what's the answer?
Advisors need to be onsite with their clients at least two days a week. The "do it yourself" sourcing model doesn't work, unless the buyer is extremely exprienced with the outsourcing process, or has hired a former advisor to manage an internal program. As an analyst (and former advisor), I can tell buyers what they need to do, but I don't have the time to hold their hand and execute their sourcing agenda for them. They need consultants who can come in and do it for them. Moreover, it works much better to have an external party run a sourcing evaluation, than an inhouse staff member, due to the sensitivity of the situation. So the cost model needs to change, and it probably will, with more unemployed advisors looking for work (and there are some really good ones coming onto the job market at the moment).
I can see most of the sourcing advisors moving to "billable-only" compensation models for their consultants (some already are), and away from having them on full-time salaries, which they simply cannot afford when they are not being utilized. In addition, the rates need to change to a retainer model, and away from a billable-hour model, which simply gets too expensive for clients. Yes, the FORTUNE 500 can still shell-out for Big 4 consultants, but outside of that I see the need for a more cost-friendly advisor model that leverages the advisor talent in the market and doesn't cost the earth for buyers with severe spending restraints.
I know many advisors frequent here regularly, so please chime in with your views…
There’s currently a certain sense of déjà-vu within the IT community, as companies look at shaving even more cost out of a function that has been battered since the 2001 dot-com bust. However, when we look at the lessons of the past, you do have to question companies which decide to sharpen their knives once more when they address their IT costs. Companies need to offset the cost of every layoff with the cost of replacing that talent when the economy improves. It is not so much who is left standing, but rather who is in position to grasp the brass ring of prosperity when it returns.
If economic conditions improve in 2010, then the amount of costs saved by releasing an employee may only be $50-100K by the time all the lay-off costs are incurred. How can you put a price on replacing the inherent business knowledge of that staff member when you re-hire a replacement? It may take another year or two to get the replacement up-to-speed, and will not only end up costing you more, but may also impede your executives from accessing critical data in a timely fashion. The overall cost of replacing that staff member could easily be three times the costs saved by laying her off. And these easily-identified direct costs are only the beginning; the costs incurred to your culture and morale can prove even more damaging.
There are lessons to be learned from those who did it right and those who failed to do so during the recession of 2001. The frequently cited observation by George Santayana warrants consideration, “Those who do not remember the past are condemned to repeat it.” Furloughed IT employees in the RIF of 2001 were often reluctant to return to their previous employer. Having been viewed as expendable, the trust and bond between the two may have become a casualty. Often the company belatedly discovered the employee was not at all expendable.
Companies often failed to realize that internal technology is an ongoing work in progress with parts of the past moving forward into the future. With essential team members no longer on board, projects bogged down due to a loss of internal expertise. If new employees were brought in, there were reduced capabilities with a learning curve to scale brought on by a unique IT environment.
IT is the glue that provides the connectivity within an organization and stakeholders. Every environment is unique, often featuring proprietary software and customized legacy systems. The complexity and diversity that results are best left in the hands of those who understand and are familiar with it. In 2001 firms laid off across the board only to discover that when times improved and IT projects resumed, many key people needed to implement them were no longer available. When entering into new engagements, some companies discovered that the chickens had come home to roost and that they were in the coop.
Whether outsourcing or aligning with business partners, management teams are built involving IT. And while outsourcing provides access to technical skills to support your tactical software support and maintenance, it rarely provides the inherent understanding of your business processes and environment that several of your key staff have.
Companies facing the challenges of 2001 with the foresight to prepare for renewed business opportunities in the future fared well. Instead, being reactive to the recession, they became proactive in their business. As opposed to across the board cuts, they applied due diligence and root cause analysis into their business. They prioritized strategically. In so doing, they were able to make adjustments to reduce unneeded expenses. Much of this involved taking advantage of global labor arbitrage for routine work. They also invested in initiatives to improve the business, often involving technology. It became apparent that the success of these initiatives was very much tied into keeping their key IT in-house people on the team.
There is a form of a parable concerning competitors who are prepared and those who are not. Two friends were walking in the forest when a bear came after them. They both turned and fled. One was not in very good condition and he breathlessly called out to his fit friend who was jogging along ahead, “You need to outrun the bear!!” “No I don’t,” came the reply. “I only need to outrun you.”
The current economic morass will not produce winners, but it will produce companies that are in more favorable positions to take advantage of opportunities at the expense of their more sluggish competitors when times improve. Cutting people that shouldn’t be cut can be cutting your throat.
We are priveleged this year to have AMR's own Dana Stifflerat the NASSCOM show in Mumbai. What a time to be at the heart of the Indian services industry with the recent Mumbai terror events, the Satyam sagaand the current economic crisis… How is India Inc. responding? Over you to Dana:
NASSCOM President Som Mittal opened the group’s 17th annual leadership conference with praise for the resilient city of Mumbai, as the packed house observed a moment of silence for the victims of the city’s terrorist attacks last November. It’s a watershed moment for NASSCOM and the industry in general and Mr. Mittal struck just the right tone in his opening comments: cheerful, welcoming, resolute. Addressing the attacks and Satyam’s challenges up front, he told us it was time to reset expectations.
As for specifics, Mr. Mittal announced that NASSCOM will reconvene its ethics and governance committee. He also highlighted green technology
as a new opportunity and responsibility for NASSCOM members, and reminded the group that NASSCOM’s work is now truly a global affair. Members from 22 countries are participating this year.
Cisco CEO John Chambers delivered the event’s keynote. Mr. Chambers proved the ideal man for the task, given the ups and downs he’s experienced in his tenure at Cisco. His umbrella topics were global competitiveness and collaboration, accompanied, naturally, by a big plug for Cisco’s TelePresence technology. But it was his anecdote about Jack Welch telling him that “you’ll never have a great company until you have a near-death experience” that probably resonated best with the audience, most of whom have never been through a major downturn.
Indian Minister for Commerce and Industry Kamal Nath came next, charging NASSCOM to use the global economic crisis as a time to look inward to the Indian market opportunity. India’s IT sector has been heavily export focused, the largest players even more so. This has left much of the Indian IT opportunity, especially at the enterprise level, open to rivals IBM and HP. I agree with Minister Nath that Indian IT needs to be stronger domestically for another reason as well: the multinationals we work with all have emerging market IT strategies. Today, Accenture, HP, and IBM are better-positioned to advise on and support these operations than Indian service providers.
Then, finally, the session I had been anticipating the most: a panel discussion featuring Vineet Nayar, Nandan Nilekani, and S. Ramadorai, top executives of HCL Technologies, Infosys, and Tata Consultancy Services, respectively. TPI’s Dennis McGuire was there for buyer insight and color commentary as well. I was less interested in what the panel had to say than in how they would said it. Indeed, it was fairly predictable, if reassuring stuff – there is no question these companies will be around for the long haul. All agreed that there is a lot of efficiency to be wrung out of current operations and that uncertainty and volatility are the new normal. Mssrs. Ramadorai and Nilekani talked about deepening client relationships and helping them leverage existing scenarios while Mr. Nayar made no bones about aggressively seeking market share, i.e. “eating someone else’s lunch.”
Presumably it is Satyam’s lunch that we are talking about. But we didn’t talk about Satyam — none of the panelists even mentioned the company’s name, though the moderator did in a few joking asides. Of the ten or so questions from the floor, none were about increased client concerns with vendor financial transparency and viability. The panel missed a major opportunity, perhaps the event’s only main stage opportunity, to address the biggest elephant in the room.
And so, while NASSCOM’s first day was reassuring, even inspiring, on many levels, there’s a lot more that needs to be said. I look forward to your comments and questions as the event unfolds — tomorrow brings the likely emergence of said elephant as I’m having breakfast with NASSCOM leadership and participating on two panels. Stay tuned.
IBM is now offering employees, who would otherwise face layoffs from their North American jobs, the chance to work abroad through 'Project Match'. Destinations include Argentina, Brazil, China, Czech Republic, Hungary, Mexico, Poland, Romania, Slovakia, Slovenia, South Africa, Turkey, and United Arab Emirates. IBM will also help with moving costs and provide visa assistance. While some cynics will sneer at this scheme, at least Big Blue is doing something proactive to support at-risk staff, and also promote moving much-needed onshore talent into their emerging country delivery centers. Furthermore, maybe they'll pick up some good work habits and bring them home to the States when the economy improves?
As we discussed last month, the Business Process Outsourcing market is maintaining double-digit growth as we move into 2009, fueled by increased uptake of source-to-pay, analytics, finance and accounting, HR and industry-specific services. WNS Global Services, one of the largest pure-play BPO providers, with revenues in excess of $500m, has posted a 15.9% increase in revenues for Q4 2008, over the corresponding quarter in the prior fiscal year. WNS's main competitor Genpact is due to report on 18th February, and I would expect to see a similar revenue increase from them. It really appears that BPO is finding its feet and
the troubled economy is not impeding growth, although you would expect some sectors, namely retail and manufacturing, will be delaying long-term commitments until the economic outlook stabilizes in the coming months.
Key contributors to WNS's growth included:
Acquisitions in July and April 2008 of Aviva Global Services(AGS) and Call 24/7 Limited, respectively;
Contract renewal for five years with SITA, a global specialist in air transport communication and information technology solutions, to enhance supply chain management and customer service;
Contract renewal forthree-years with Centrica, to provide BPO services for its subsidiaries, British Gas and Direct Energy;
Contract renewal for six years with SAS Airlines, the largest airline company in Scandinavia, to deliver passenger revenue accounting processes.
Reasons for this uptake are primarily cost-savings on offer from lower-cost offshore labor, largely in India and Philippines, but also increased maturity in delivering BPO services underpinned by common technology platforms, which enables better process efficiencies. Moreover, the uptake of customized offshore services, namely in analytics and data management services has contributed to this market growth.
As the US recession deepens, and downward pressure is applied on US wages, we anticipate increased BPO uptake in lower-cost US locations, for example Albuquerque (New Mexico), Cincinnati (OH) and El Paso (TX), which are already benefiting from outsourcing service providers providing onshore BPO services that are primarily customer, employee and supplier-facing. I also believe the Obama administration will deliver legislation that encourages US firms to source work to onshore locations, which may slowdown BPO adoption, but will provide new employment opportunities to the flagging US economy.
Like many of you, I have been waking up in the middle of the night wondering what's going on with the global economies and how the world will look in a few months when we adjust to the new economic reality. I started thinking about about the world when people lived within their means, took a job for a job's sake, and could plan for the future. It then hit me hard – things have simply fallen out of proportion.
When I graduated in '94 there weren't a lot of high-powered careers available to graduates – you took what you could get and worked at it until something better came along. I actually started off in customer relations for a burglar alarm firm… doesn't make my LinkedIn profile, but it actually started me off on a track that somehow got me here (and I did have some hilarious conversations with London celebs with their alarms wailing in the background).
Let's talk about proportion and focus on the two staples in life - food and shelter. By 1996, I was flying high as an analyst earning a whopping $30K a year (about the same as an Oracle developer in Bangalore today). I also purchased an apartment for $100K. In those days you could borrow 3 times your annual salary – that was it. The cost of groceries was about $40 a week, and a good restaurant meal was never more than $35 a head. I'll stop there. While my salary seems terrible by today's standards, I didn't build any debt and I had a mortgage that was manageable for a property that was fairly valued. Life was good, and I slept well at night.
Take 2008. The equivalent salary for a graduate-level analyst is about $50K. The cost of that equivalent apartment is $300K (6 times the salary), weekly groceries $75 and a good meal $60 (if you're lucky and the wine's cheap). There's no feasible way you can enjoy the same quality of life without mortgaging yourself way beyond your means and delving deep into credit-card debt. What's worse is that debt has become part of life for so many people. And that's precisely what happened, and now everyone's paying the price.
The optimum way out of this crisis is for these proportions to be redressed, however painful it may be.
I've been avidly following Robert Peston's coverage of the economic crisis. Peston is the BBC's business editor and has built a stellar reputation for reporting the key facts on what went so massively wrong and what we can do to emerge from this crisis. His recent BBC radio discussion with Robert Wolf, Financial Times's chief economic commentator, Richard Lambert, director general of the CBI and Roger Carr, the chairman of Centrica and Cadbury, is well worth hearing. Key points discussed:
The UK is the most vulnerable economy, due to its unprecedented housing bubble and over-reliance on the financial services sector.
The strong sense of denial is fading – there aren't going to be any winners out of all this, just relative advantage.
Not everyone yet grasps this is a massive structural change – we're not going back to 2006. The massive consumer-led debt boom cannot be repeated. We might go back to fast growth, but the whole pattern of global demand will have to be different for that to happen. The world economy will have to be re-balanced in different ways.
We've done a very good job of driving short-term stimulus and saved the banking system, but the long-term solution has to be the restoration of healthy private sector demand across the world: that is the next stage of getting back to a healthy economy…but does the private sector understand this? There is an increasing awareness that we are interdependent. Unless the strong support the frail we will have continuing difficulty.
We must protects the emerging economies now and change the way we finance them. The IMF resources need to be bigger to protect developing economies.
We need to have serious intelligent dialog with the Chinese on how to make their growth more compatible with global stability.
All-in-all, you can really start to guage how crucial the role global sourcing has to play as we emerge in a new economic structure. The inter-dependencies across economies and businesses can be managed more effectively by firms adopting multi-cultural, multi-lingual and multi-regional delivery models. Both governments and businesses need to embrace both local and global talent to restore private sector demand over the long-term. What is abundantly clear is that we don't fully realize how this structure will ultimately develop, but we are quickly understanding the basics of what needs to change. The next stage is for both governments and business to work together on stimulating long-term demand and making these inter-dependencies really function effectively.
Folks – it's challenging cherry-picking which events are worth going to this year with everyone cutting back on the travel costs, but one you should definitely have on your calendar is IQPC's Shared Services Week, where I am hosting their F&A BPO session entitled Going Beyond the Letter of the Contract: Deriving Business Value From Your F&A BPO Experience, where I will be joined by my industry BPO friends Graham Russell (Astrazeneca), John Transier (Unilever), Mike Monaghan (Wells Fargo) and Sunil Narang (Level 3). Check out the session at 3.35pm on March 24th.
And even if you can't make the week, you can still catch the highlights here, with the Horses being the official blog for the show.
IQPC have offered Horses readers a discount offer: 2-for-1 Special – Bring a colleague FREE when you purchase a main conference pass at standard pricing. Reference code IUS_HFS_#1 to receive this discount. *Open to end-users only.
So why attend?
*A focus on quick wins for your shared services organization, with highlights on meeting short-term immediate gains and cutting costs without jeopardizing service levels
*An expert speaker faculty, including 4 Chief Economists, to demonstrate how to use survive the economic downturn and come out stronger on the other side
*Easy-to-customize conference experience: Choose between 7 tracks, including HR Transformation, Sourcing, Talent Management and Blue Sky Innovation Room, 3 Master Classes, 4 site tours and 16 workshops
*Expanded Exhibition Hall, networking opportunities and an exciting new year for the Annual Shared Services Excellence Awards.
4 Chief Economists will be speaking
Gregory Miller, Chief Economist, Sun Trust Banks Brian Fabbri, Chief U.S. Economist for North America, BNP Paribas David Wyss, Chief Economist, Standard & Poor’s W. Michael Cox, Chief Economist, Federal Reserve Bank of Dallas
"Corporations are in a state of flux and uncertainty. Many of our clients are announcing layoffs and going through divestitures, mergers and acquisitions – activity that places pressure on their sourcing organizations that often exceeds capacity and capability. These companies must demonstrate productivity improvements and cost savings now. Doing nothing is not an option, and many organizations avoid a doom loop by using flexible advisory services when they cannot afford full-time employees or consultants for business transformation projects.
I have never (I repeat never) witnessed such an intense level of interest in global sourcing than the current environment. I simply am struggling to find the time to do anything but take calls from companies in deperate need of working out their sourcing options. In fact, if anyone wants to send me compeling guest posts, be my guest, as this thing is creeping into my weekends far too much these days 😉 However, I have been alarmed with the recent retrenchments that several of the leading 
As we 
