Being ineligible to vote in this country, I’ve been an amused observerof one of the the most enthralling and contentious elections in years – and trying to understand how each candidate will impact the future of the global outsourcing industry.
What is clear, is that shipping jobs offshore isn’t necessary very good for the local unemployment rate – the age-old argument of focusing US staff on “higher-value” work is wearing a bit thin these days. What’s more, many offshore service providers are now focused on taking on more higher-value work activities for their clients, in addition to routine transactional work. For example, once you have your general ledger run from a service provider in, say Chennai, what is now stopping that provider taking on higher-value accounting services, such as budgeting/forecasting and business intelligence? That provider basically owns and understands much of the revenue cycle of that client, hence the natural next step is to move up the process value chain. And if your current provider won’t move up the value-chain, there is a proliferation of KPO providers willing and ready to take on higher-value offshore work. Moreover, while a firm may have been enjoying good quality COBOL programming from Brazil, what’s stopping that provider offering systems architecture work for their client, which is among the costliest onshore IT services?
We’ve now been sucked into a global employment war for sourcing services, and from what I was hearing from Mr Obama today, he intends to give US firms tax-breaks to source work onshore. I’m not sure exactly how he plans to do this (he seems to have a lot of good intentions without getting specific on how he plans to execute), but it wouldn’t surprise me if he plans to initially incent buyers, as opposed to the providers, to source work to onshore US locations. This is the opposite strategy of the Indian government’s STPI tax scheme, which gives tax-breaks to new Indian organizations (mainly suppliers) in the region of 10-20% for their first 10 years of inception, designed primarily to bolster its software industry, but also directly applies to its service providers.
Look at it this way, you can hire staff in low-cost US locations for a low as $25K a year for back-office administrative work. If you can reduce that further, to $22K a year as a result of tax incentives, and the cost of health-care is reduced/subsidized, the price differential with locations such as Lat-am and India is minimal. IT, on the other hand, is significantly cheaper in locations such as India and China for all levels of services.
Here’s my take:
For BPO services, the US is still in the game. The issues surrounding client / employee contact still favor onshore services (even though offshore services are improving by the day), plus the fact that there is still a great supply of mid-level executives who will be anxious to keep their jobs in the forthcoming months. With significant incentives to keep work onshore, I can see the US stepping up as a serious BPO location. Not a bad thing for the BPO industry, as long as the service providers invest wisely in attaining the right onshore/offshore balance within their delivery infrastructures. Moreover, the onus on sourcing we’re going to see from the restructuring financial services industry is going to entail a delicate balance of onshore/offshore BPO work. If the major financial services firms struggle to sell off their Indian captives, we may well see several of them scale-down their offshore dependence and seek onshore services as an alternative.
For IT services, it’s looking a bit late to pull much of this back. In India, for example, IT services have become the life-blood of the country’s economy, and the skills in basic programming are widely available for mainstream applications. Even if US wage rates for programming work come down significantly, there is also a major issue with the fact that the quality of many IT services delivered from offshore locations is now consistent. The core battle is with services needed from business-process architects and staff with deep industry-specific expertise. We have seen many of the leading offshore providers invest in their onshore deliver centers over the last year – and we can expect to see continued significant competition between the incumbents and offshore providers in the coming months for onshore-related work.
Thanks to all of you who took the time to complete our recent poll of the financial crisis and its impact on the outsourcing strategies of financial institutions. Below is a snippet of the findings:
* Only 16% of financial institutions surveyed have actively sought to pull-back their outsourcing expenditure plans, while 39% are now looking to increase expenditure in light of recent events
* 45% have not made any changes to their planned outsourcing expenditure on ITO and BPO services
When we delve deeper into the data, it's the major US banks which are clearly the most aggressive with ramping-up their plans to pursue outsourcing strategies. The main service-lines where they are focusing are banking-specific BPO services, application outsourcing, IT infrastructure outsourcing and Finance and accounting BPO. Insurance companies also stated a strong focus on adopting insurance-specific BPO services in a 6-12 month period.
Service lines not being so aggressively pursued are primarily HR outsourcing and IT staff augmentation projects. More thoughts to follow.
Many thanks to the folks at Global Services Media for their help in sending the survey to its readership.
More on the recent survey we ran (to which many of you contributed) on the immediate outsourcing intentions from the beleaguered financial sector.
The financial services sector has held back from many outsourcing opportunities in recent years through a stubborn resistance to change and a fear of losing control over non-core business processes.However, with this current tough financial climate, executives have little choice but to embrace global opportunities that afford both short and long-term cost-savings, access to process acumen and new technologies.When we delve deeper into the new survey data,
the major banks are clearly the most aggressive with ramping-up their plans to pursue outsourcing strategies:
Figure 1: Over the last month, has your firm been looking to increase / decrease your expenditure on outsourcing services (IT and BPO)?
n= 44 Major US Financial Institutions
It is those outsourcing services where initial investment outlays can be offset by a heavy labor arbitrage component that are now top of the agenda for the beleaguered banking sector.
To this end, the main service-lines where banks are focusing are banking-specific BPO services, application outsourcing, and Finance and accounting BPO (see Figure 2).Insurance companies also stated a strong focus on adopting insurance-specific BPO services in a 6-12 month period.Service lines not being so aggressively pursued are primarily HR outsourcing and IT staff augmentation projects:
Figure 2: How do you foresee your demand changing for the following outsourcing services over the next 6 months?
n= 29 Major US Banks
“Tough times call for tough measures, and outsourcing fits the bill for some financial organizations”
This data supports the position that banks are now seriously evaluating the lower-hanging fruit right now – they are looking to find solutions that can support their changing business models, and the more they can be supported by cost arbitrage, the more likely they are to move into an outsourcing transaction.
While current leadership discussions in this sector have clearly been dominated by mere survival strategies, the sourcing strategy talk will follow soon afterwards, whether they are going into an M&A situation, or simply looking to strip out cost. I predict a very bury Q1 2009 in this sector. What do you think and what are you seeing?
Julia Velixon at Mercer recently presented a new study conducted with the Harvard Business School, based on interviews with senior HR leaders from 60 global corporation, focused on the challenges of HR leaders moving from local to global roles within an global HR function.
Key findings from the study:
Workforces are becoming more globally-dispersed. The increased globalization of many of today’s businesses, both in terms of their penetration into new international markets, in addition to their adoption of global sourcing models across IT and corporate support functions, is significantly increasing the need for global HR practices. More than 50% of respondents’ workforces reside outside of their corporate home country – the pressure to standardize policies and processes, manage increased workforce mobility and manage compliance needs is greater than ever.
Many senior HR executives are stepping up into global roles, but are failing to divest of their localized issues. 45% of the executives have moved into global roles over the last two-to-three years, many of these transitioned in the last year alone. However, while roles are being structured globally, most of the executives have been struggling to get away from dealing with local and regional issues. For those working in global roles today, 9 out of 10 have less than 3 years experience and a failing to move away from their previous localized job roles:
HR… stepping up into global roles?
Lack of standardization. The lack of a consistent approach to governance and compliance, especially in Europe and Asia – where employment and tax laws vary widely in different jurisdictions – creates further challenges for HR leaders. There is also a lack of standardization around the approach to global mobility, which hinder’s HR’s ability to apply consistent procedures to the compensation and benefits of a workforce that has been growing rapidly. It is becoming increasingly important for companies to properly manage the logistics of moving there employees from country to country.
The BPO and Offshoring Best Practises Forum was set up a few months' ago on LinkedIn to allow senior executives in the sourcing industry to share views, news, best practices, discuss current industry issues and network. We already have close to 3000 members active in this group.
The most dominant discussion thread I constantly have with clients today is about change management, and this is massively relevant in these times of rampant globalization, and this uncertain climate.
Companies today simply cannot go out and hire teams of executives with deep outsourcing and offshoring experience – they are hard to find, expensive and often don’t understand your specific business needs (horses for courses…). There simply is no defined curriculum for managing change. Companies need their change leaders to lead from the front and bring out new qualities and skills from their existing people. To this end, I am humbled to receive this guest article from one of the most respected practitioners in sourcing folklore…and certainly the finest to hail from Canada 😉
In her recent past, Linda Tuck Chapman led the sourcing efforts at Fifth-Third Bank (as Chief Sourcing Officer), Scotiabank and BMO Financial Group and now runs her own boutique strategy firm called ONTALA Performance Solutions. Linda also studied under the tutelage of my father-in-law during her MBA, and claims to have been a model student. Anyway – over to you Linda to discuss executing a change strategy in this economy:
In all companies, 15% of employees are change leaders. To successfully implement change in your company’s culture or operations, you’ll need to find this amazing 15% and recruit them as your champions of change. Unleash them and you’ll find the energy and power necessary for effective change management.
At the heart of any change are people helping, hindering or indifferent to the change agenda. So how will you lead them?
Most business leaders are familiar with change guru John Kotter’s eight step change management process. These steps …. 1) create a sense of urgency 2) pull together a guiding team 3) develop the change vision and strategy 4) communicate for understanding and buy-in 5) empower others to act 6) produce short-term wins 7) don’t let up 8) create a new culture….. will guide your journey.
Chaos in financial markets and a looming recession create a burning platform for change. It can just as easily paralyze organizations. Your people, your customers and the market are looking for leadership. For your organization to survive and thrive, they need to find it.
As a leader, you must be decisive. You also need to trust your own judgment and accept advice from people who have proven to be reliable. Fact-based decisions are critical, but you can never have all the answers and may have to act before you’re ready. In an orderly world, “ready, aim, fire” makes sense. Today’s order may be “ready, fire, aim”.
In the words of management guru Peter Drucker “start with the end in mind”. But any road will take you there if you don’t know where you’re going. So, do your homework, make decisions, commit to those decisions, and then get on with it! Indecision is a killer, and wrong decisions still produce better results than no decisions at all.
It is surprising how frequently leaders are unable to articulate what the end state should look like. Whether you call it a vision, a strategy, or an action plan the organization is looking to you for leadership, and followers can’t follow if they don’t know where they are going.
The first step, working with a handful of trusted advisors, is to describe what success looks like. What are your guiding principles, timing and expected outcomes? Be clear, be concise, be brief. This is the elevator speech, rallying call and beacon for the organization.
Once your vision is clear, work backwards to establish the milestones that will mark progress. Your guiding team should be that magical 15%, and should be drawn from all levels in the organization. They know the landscape and will establish meaningful milestones. At this point, you should build the 10 minute synopsis of the strategy and key action steps. You’ll need them to sell the change agenda across the organization.
Next, subject matter experts and leaders will need to develop a detailed execution plan. You may have to begin executing the plan before it’s finished, so make sure you articulate key milestones. This will ensure you stay on track, size the effort, can celebrate successes, and keep moving forward. In cases of significant change, establishing a program office to enable momentum, deal with issues and sustain gains.
The most common cause of a failed change agenda is a failure to adequately communicate. A comprehensive communication plan addresses internal and external stakeholders will determine what they need to know, how to communicate, and how often they’ll need information. In times of change, no matter how well and how much, it is rarely enough.
People fear the unknown. At a deeper level, they fear it will adversely affect them personally. Can you tell the difference between fear and a healthy sense of urgency? Here’s an easy test. People who are overwhelmed or gripped with fear stop blinking. When they regain control, they start blinking again. Look around, you need everyone to be engaged and contributing.
As a leader you must be open, be truthful, deal with conflict and personally deal with people issues. Especially when outsourcing. Especially at this time when many people have lost their savings and are worried about their future, the future of the company, the future of the economy. An outsource service provider recently told me that a client company transferred employee terminations to them when the contract was awarded. Imagine their reputation within the client company after the terminated employees were transferred to them, then immediately terminated. What were they thinking?
Make use of communication vehicles like company news letters, which are read from cover to cover during turbulent times. Executive Steering Committees can have a powerful influence on change laggards. No one wants to see their department or division sitting in last place on a scorecard. Nor do leaders enjoy explaining to peers why they are so far behind. When outsourcing, have you thought about introducing two-way satisfaction surveys? They can shed a light on progress and issues if you invite your service provider to score business units and relationships.
As change is implemented, bring visibility and transparency to the results. Quarterly scorecards that mark progress against milestones should be published and discussed. Highlight successes and recognize change leaders and their accomplishments. As a leader, try to let your people to “fail forward”. Listen when they bring forward viable new ideas. Help them to become change leaders and support them even if things don’t turn out quite as planned. Mistakes are essential to progress, and the objective is to succeed, not to count mistakes. Don’t turn your tigers into turtles.
Under thoughtful and decisive leadership, your magic 15% will lead by example, bringing about positive change. Their example will motivate the next 15%, who will soon catch fire and embrace change. And so on, until change leadership becomes part of your culture.
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Linda Tuck Chapman is CEO and founder at Ontala Performance Solutions Ltd. and can be emailed here.
With the US Treasury yesterday making an initial $125 billion stock purchase of nine beleaguered financial institutions, it makes me think seriously about how these colossal investments also could be deployed to create new jobs, better technology investments, and more efficient support processes.
Our recent survey shows that many financial institutions are ready to grab the low-hanging fruit of outsourcing offerings, where they can make quick cost-savings and transition costs are offset by arbitrage.
However, while outsourcing clearly has its benefits, what about the
significant costs of integrating these merging institutions, the systems integration costs, the re-drafting of contracts with suppliers, the divesting of bloated captive operations etc.?
How about investing 1% of that $125 billion in setting up a shared services facility to support banking services in areas such as systems integration, application development, HR services, finance support, customer service, global trade processing, compliance support, image processing, risk analytics, mortgage processing, credit checks and so on. Each bank could initially be allocated a fixed number of staff, based on business volume, and service providers can take part in a tender process to help set up and support the center.
This would have the impact of:
1) Creating new jobs;
2) Saving banks a lot of money in a very tough market;
3) Making M&A activity less complex.
Guess I'm not the best lobbyist…I can't even vote…but I can blog -:)
Being ineligible to vote in this country, I’ve been an amused observer of one of the the most enthralling and contentious elections in years – and trying to understand how each candidate will impact the future of the global outsourcing industry.
* Only 16% of financial institutions surveyed have actively sought to pull-back their 
With the US Treasury yesterday making an initial 
