We've had the privilege of hearing from a host of industry leaders over the last couple of years (just look under the Outsourcing Heroscategory), and I'm delighted to present an interview with Deloitte's Jason Geller. Jason has been instrumental in driving some of the largest and most complex global HR transformation initiatives over the last decade, and has gained a stellar reputation within the industry as one of HR's most prominent thought leaders and consultants. I also had the privilege of working with Jason, and discovered he's quite a bashful chap who frequently shuns the spotlight in favor of his colleagues, so I thought I'd do something about that…
PF: Jason, in a nutshell, what do you see as the major challenges and opportunities facing HR executives today – and what measures do you recommend to address these?
JG: In these uncertain times, it is more important than ever to focus HR on activities that create business value. That means having a HR Strategy/Business Plan laser-focused on business value drivers:
Revenue Growth: Business Transformation, Globalization, M&A, New Markets, Innovation
Talent Strategies: Workforce Planning, Learning & Development, Total Rewards, Mass Career, Customization, Global Mobility
Operational Effectiveness: HR Policy, HR Service Delivery, HR Operations & Technology, Change and Culture, HR Analytics, Compliance
HR must deliver the HR services needed to support business strategy, such as revenue growth, talent and operational effectiveness. HR must make sure it is doing the right qqwork at the right level within the organization: By the right person; At the right location; By the right entity; Through the right delivery method; By the right HR role, which will lead to improved alignment with business goals.
The economic environment adds a complicating factor to HR ability to deliver business. It must determine how to support the business strategy while at the same time maintaining, or even reducing, the cost base for HR services – that will require a hard look at programs and policies, not just process, technology, and sourcing.
PF: Being one of the behind-the-scenes pioneers of HRO delivery models, you've already experienced first-hand the opportunities and challenges of HRO. Where do you see the industry going in 2009? Are we really back on a growth path, and what will the characteristics of future HRO initiatives look like?
JG: The HRO industry has evolved, matured, and morphed over the past 10 years. The early lift and shift driven HRO model focused on cost first and value second. When it became clear that lift and shift was not viable, the focus moved to transformation based deals where cost mattered, but value was equally, if not more, important. As we head into 2009 I believe that the HRO industry will go through yet another round of maturation. With a smarter provider and buyer community, the industry will grow again.
Some key characteristics of the HRO initiatives moving forward:
HRO does NOT equal HR Transformation. In the rush to move away from the lift and shift HRO model, HRO and HR Transformation became synonyms for each other. While HRO can be an enabler of HR Transformation, organizations looking to transform HR need to do much more than just HRO. With better context and a more realistic set of expectations, the buyer/provider HRO relationships will be more successful.
Multiple HRO Providers and Multiple Contracts. In the past, organizations have always looked for the “one throat to choke” when constructing an HRO deal. Moving forward, there will be a greater openness to having multiple HRO and HR Consulting providers involved in a deal, each focusing on their areas of strength. Depending on the scope and nature of the deal, this may result in multiple contracts directly between the various providers and the client. This doesn’t signal the end of the “mega” deal, just another options for organizations to consider.
Client Side Solution, Implementation, and Governance Responsibility and Accountability. As HRO deals evolve, the role of the client during the solution design, implementation, and ongoing governance will become significantly more important. It is no longer about providing requirements for a single HRO provider to implement and operate. The client must now be intimately involved in architecting the solution, leading the implementation, and managing the ongoing delivery, particularly the coordination among the various providers. The complexity that was once the responsibility of the HRO provider now becomes the client’s to manage.
HRO Solution Definition. In the drive for standardization and commercialization of HRO, providers attempted to define and sell a “standard” solution to clients. Unfortunately, conceptual level standards discussed during the sales process actually end up creating a greater gap in expectations during the implementation. The understanding and implications of a standard solution sold by the provider and purchased by the buyer is rarely aligned. Moving forward, I expect a greater emphasis on embedding the true details of a standard solution in the contracting process, before the final deal is signed, with the main goal of reducing assumptions on either side to bring more predictability to the implementations.
PF: Do you see the economic challenges impeding investments in strategic HR initiatives? And what's your advice to HR executives in this environment?
The bar will certainly be higher as HR request funding from a smaller pool of corporate dollars to support investments. HR must provide a measurable contribution to the growth and profitability of the organization and to each business segment. Additionally, HR must provide greater access to HR services, resources, tools, and information to focus on the business, its employees, and the more effective deployment of talent for business growth. The key is to demonstrate the business value of their HR initiatives.
Organizations will have to carefully balance short term HR and people related cost savings against the longer term strategic needs of the function and the organization overall. The economy will rebound and the war for talent will be back in full force – not simply isolated to key positions, but talent broadly.
PF: And how do you see the role of HR technology impacting the HR function in the next few years? Do you see a rosy future for the best-of-breed HR applications, or a move towards more holistic services-led talent services from the HR service providers and consultancies?
JG: HR technology has been and will continue to be an important enabler of an HR functions ability to meet its objectives. Organizations have more options than ever before – traditional ERPs, Software as a Service ERPs, Point Solutions, HRO Provider Delivered Solutions, etc. With more options, comes more complexity. The integration of these various components into a holistic HR technology platform becomes essential to deliver the promised value. The integration needs to take place from the data level to the HR service center/help desk level and all the way to the end user experience level in the portal. The architecture of the HR technology platform and how it works within the context of the overall HR service delivery model is absolutely critical. They must be designed together, not separately.
With respect to the Talent technology marketplace, there is still a significant opportunity for improvement. The term Talent is used very broadly in an attempt to sell services, technology, and outsourcing. The term is inconsistently used and the solutions pitched by vendors vary greatly creating confusion in the marketplace.
There is a clear business demand for a comprehensive approach to Talent – Talent Strategy, Talent Solutions, and Talent Infrastructure. Talent technology is an important part of the equation, but not the total answer. Just like the marketplace learned that implementing an ERP or signing an HRO deal was not the same thing as HR Transformation, the marketplace is learning that implementing a Talent technology solution is not the same thing as having a true complete, business driven approach to Talent.
Jason Geller is a Principal in Deloitte Consulting's Human Capital practice where he leads the Northeast HR Transformation service line and is responsible for Deloitte's global HR BPO competency. He primarily consults to global organizations on their HR transformation initiatives.
A great quote to cap a sad story for Satyam’s Ramalinga Raju, who resigned as Chairman today.
Following the recent issues regarding Satyam’s financial irregularities, India’s IT-BPO services industry finds itself under increased financial scrutiny from Wall St analysts and corporate clients. However, while Satyam has a major challenge ahead to maintain its market position and is a likely takeover target, we do not believe this fiasco will have longer-term ramifications for the Indian services sector as long as Satyam’s creative accounting turns out to be an isolated incident and not a more pervasive problem across the sector.
Satyam’s existing customers will ask questions but are unlikely to switch suppliers unless Satyam loses a large number of crucial operational staff in the coming weeks. However, Satyam is now at a disadvantage in winning new business in the short-term as it struggles to shake off the current controversy. Plus, some customers renewing existing agreements will be evaluating alternative service provider options, in the wake of the uncertainty surrounding Satyam’s future. Its new leadership needs to move fast to right the ship and placate corporate accounts, and likely prepare the firm for an imminent takeover – the firm’s stock just hit a new all-time low. With Satyam’s strength across software service areas, particularly high-margin enterprise application services – we believe potential suitors include
HP, Wipro, IBM, and possibly Genpact, whose major investor, general Atlantic Partners, may want to marry Satyam’s IT services strength with genpact’s BPO offerings. etc. Satyam also has a growing BPO competency, largely centered on procurement and supply chain support functions, which increases its potential attraction to some acquisitive competitors, as few large service providers today have a strong supply chain outsourcing portfolio.
Regarding India’s outsourcing scene, while customers from the US and Europe will (and should!) ask questions about the health of specific IT-BPO service providers headquartered in India, this current predicament is Satyam’s alone. While other Indian-HQed suppliers need to be prepared to answer tough questions from clients and Wall Street as scrutiny on the sector hots up, we do not expect this to be a sustained issue in the medium-long term.
It's time for people to stop panicking about next year.
On January 5th it's business as usual, companies will be selling and delivering their services, looking for new avenues that will provide them with competitive bite, operational excellence and new ways of surviving in a tough business environment. We are part of that.
Yes, some of us will get laid off – several people I know already have, but we'll find new jobs, or new career opportunities – we always do. We may get a little poorer, but so will everyone else and the cost of living will get cheaper.
End of the day, we function in a world where we have much better technology and communications than we had 6 years' ago, much more mature global delivery models, and a truly global marketplace in which we operate. The future opportunity for our careers and our businesses has never had so much potential in the long-term, once we get over these short-term hurdles and adjust to a more challenging business environment. Challenges and change breed new opportunities – and the world won't stop while we try to embrace them.
We have exciting new technologies being developed and a fledgling new industry for developing alternative energy sources. And we have a new President arriving with fresh ideas and a fresh energy… in just 3 weeks.
It's time to shake off the gloom. 2009 here we come.
Our super-charged discussionon using more relevant terminology to describe global services delivery took on another twist yesterday, when the WSJ published yet another pieceabout how the outsourcing market is "taking a hit", citing TPI’s large-deal data for 3Q08. This follows on from another recent articlefrom the same journalist, who appears determined to announce the demise of "outsourcing" to the world.
My colleague Dana Stiffler lends her weight to the argument:
"The number of $25M+ deals signed
in that quarter was the lowest in six years, a disturbing factoid indeed. If you stick to the old-school definitions of outsourcing, it’s easy to understand why headlines like these are so prevalent these days. They’re alarming, and we’re drawn to them. But the demise of large, traditional outsourcing contracts is a trend that’s been underway for years. Stories like the Journal’s – and broad-brush analyst research on outsourcing for that matter — makes coverage of these markets suspect, in good times and in bad. Are we all even talking about the same thing?
"Well, no. The headline refers to a contract size and type that is in decline. And other points in the piece were spot-on: less project spending, more delays in big-ticket decisions. But the article does not mention that this has been counterbalanced by sustained interest in expanding IT support relationships. Broader resource pressures, particularly around ERP, continue to force spending in the mid-market. I guess there’s not much of a headline in the fact that the third-party business and IT services market continues to grow, albeit more slowly, or that global delivery of services is now a structural requirement in companies’ global operations, and that there’s no escaping it. Problem is, none of this fits tidily under a traditional “outsourcing” heading. It’s time for the “O” word to go."
Well said Dana. The "O" terminology is clearly misunderstood in many circles. As Dana points out, "global delivery of services is now a structural requirement". The politically-charged issues surrounding the offshoring of US-jobs is clouding the real issue regarding what businesses need to do to be effective competitively on a global level. Businesses need to take advantage of global talent and resources to be competitive, and should not be penalized in this vein. The challenge for the incoming Obama administration is to create incentives for US businesses to deploy US staff, and not penalize a global services strategy. That means the US needs to be more competitive within a global context – something Detroit's automakers might need to focus on if they want to find a way out of their current predicament.
Update: Peter Allen clarifies TPI data:
Dana and Phil … seeing as how that article formed a conclusion based on data published almost three months ago, and covering one Quarter in the year, one might have hoped for a bit more journalistic thoroughness.
Yes, Q3's contract awards were the softest in quite some time. Dramatically soft.
But, Q4 picked up quite nicely. Like most Q4's tend to do. In fact, while the numbers aren't completely tallied, I am estimating that 2008's full-year record of TCV awarded will surpass that of 2007. (To wit: while Q3 yielded only around $14B in TCV, the month of October alone surpassed $15B!)
Many of us have tried for some time to differentiate between "true outsourcing" (mine: defined services, delivered at defined prices, at defined levels of service quality) and "effort-based contracting" or similar forms of wage-arbitrage staff augmentation. Alas, the broader market is still confused between these two.
I think that 2009 will see continued expansion in the use of "true outsourcing" while the appetite for arbitrage-driven staffing models will suffer. This latter slice of the market is what gave rise to much of the India-based provider community.
Some will have the wherewithal to taste the lemonade, while many others might just find themselves sucking on the lemons of a rapidly changing market.
Much more fascinating than trying to predict what, on earth, is going to happen in global sourcing in 2009, is trying to make some sense of 2008's non-stop chain of events. However, emerging from the rubble has been the maturing of the BPO industry, as several global service providers have striven to consolidate their market positions, anticipating further growth in BPO services in 2009. The premise being that buyers are quickly becoming more accepting of radical change to their global business models that not only drives down operating costs, but also enhances their competitive position.
How has BPO emerged as a vehicle to achieve these goals?
BPO matured as buyers took on a bottom-up approach to adoption. For the first time, we have started to see BPO engagements being adopted in the right way.
Rather than companies hurling their existing mess over the fence to a service provider (or politely dubbed "a transfer-transform strategy"), we've finally started seeing companies focus initially on transitioning the less-complex administrative processes, that can be supported by offshore/nearshore delivery and underpinned by tried-and-tested applications. HRO's comeback has typified how this should work, after 7 years of trying to be too clever, with most recent buyers making their initial forays into a global HRO engagement based on a global payroll delivery model, augmented with an HR systems implementation and supported by regional employee contact centers. This enables incremental HR processes, such as compensation, talent management and workforce management, to be integrated into the payroll hub, within a global model. F&A BPO services have already proven to be workable where buyers adopt the cash-cycle administration processes as an initial step, where offshore arbitrage is immediately available, and technology-enabled workflows can be plugged into the engagement. We are also beginning to see similar strategies with new procurement initiatives where firms are moving administrative support offshore, such as minor negotiations, supplier scorecard prep, market intel and data gathering, before taking on higher value work.
The emergence of the Indian-headquartered providers as competitive global BPO options. The last year has borne witness to a host of global Indian-headquartered service providers continuing to move aggressively into the BPO industry. With the exception of Genpact, all the other Indian-headquartered providers in the BPO industry had previously developed considerable presence in global IT services, namely Cognizant, HCL, Infosys, Wipro, Satyam and TCS. They clearly view BPO as a natural extension to application services, that gives them deeper, more intimate client relationships, additional revenue opportunities, a differentiated solution and a much stronger client "lock-in" opportunity. Moreover, if they fail to develop a BPO story, they run the risk of slipping behind the competition. In fact, several firms entered into ITO engagements this year, where the future promise of expanding into BPO with that supplier proved to be compelling differentiator in the down-selection process. Their general approach has been to start with less-complex engagements where they build client trust and confidence through proving their worth and capability, as opposed to winning these "big bang bake-offs" with their illustrious US-headquartered competitors.
The emergence of workable governance models has been a key ingredient. The major impediments to the success of past BPO engagements have been both the inexperience and resistance of buyers to develop a workable governance structure, in addition to the reactive nature of many suppliers to deliver services only to the letter of the contract. In many cases, companies have failed to restructure governance roles and responsibilities effectively, often creating a negative competitive dynamic with the service provider, and a resistance to change. Simply put, there is no defined curriculum for effective BPO governance; clients need to grasp control over their engagement and work pro-actively with their service partner – and vice-versa. The move towards a bottom-up approach to BPO is helping buyers experience managing their transactional work effectively in a global delivery environment, as opposed to finding fault with their provider providing higher-value services from the offset.
Companies are looking to decrease IT and operations budgets, in addition to expensive business transformation projects. BPO offers a business transformational opportunity for firms, with the investment underpinned by cost-arbitrage and moving onto a global operating model. Moreover, many firms have implemented a new technology platform alongside a BPO initiative, with the incremental cost being absorbed over the course of the agreement. This new-look wave of BPO engagements, with the focus of deploying operational processes and technology as part of the initial scope, is going to provide real opportunities for companies in 2009, looking to find new levels of optimization at a global level.
I've been so inundated with spammed e-cards this year, I'm putting out a generic "Happy Holidays" post that you can pretend I put together especially for you 🙂
In all seriousness, it's been a lot of fun interacting with so many of you this year – let's do more of it in 2009.
You may recall the discussion we had earlier this year regarding whether it is time to stop using the term "Outsourcing". The general consensus among many of you (including myself) was that we are stuck with the phrase and we shouldn't go out our way to dress-up global sourcing with other, more relevant, terminology:
"However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor"
With the dramatic changes in our corporate climate and political attitudes in recent months, I believe it's now time to change our well-worn phrase. The core issues being:
1) Poor comprehension of global sourcing. Too many people associate "outsourcing" with greedy corporate leaders only interested in slashing costs, with little regard for employee livelihood. They have pre-conceived notions that organizations have forgotten about their people, and only care about the bottom-line. I can assure anyone that is not the case with the majority of companies with whom I speak with daily.
In fact, the prime reason why many firms haven't ventured into wider-reaching global services delivery models, is because they care about their people too much and worry about the turmoil a global transition would have on staff morale and retention of key talent.
2) Guilt by association. The current recession is fuelling political passions regarding job protection. I have had a couple of occasions recently where I have been drawn into hard discussions regarding what I do. I have to explain that most my clients are going to "outsource" whether I like it or not, and my job is to help them approach it correctly, and not simplyjump at the lowest cost solution. The simple fact that I am associated with "outsourcing" paints me in a poor light with some idealists, which, quite frankly irks me. I see myself as a realist, helping real businesses deal with the hard realities of surviving in todays challenging business environment. I know many of you who visit here regularly feel the same way (and 20,000 of you do), whether you are a consultant, practitioner, analyst or service provider.
3) Many companies need to make hard decisions or risk going under. As we discussed last week, 2009 is asurvival of the fittestacross almost all industries. Enhancing global market penetration while reducing operating costs has never been as critical in this long corporate winter. Putting tough decisions on hold is no longer an option and simply shaving a few percentage points off pockets of cost is unlikely to have a dramatic impact on many struggling businesses. Global sourcing clearly provides a vehicle to help make radical changes, but is only part of the answer. The other ingredients are the ability to make smart business decisions and deliver great leadership through your managerial ranks. This simply isn't "outsourcing", it's smart global business strategy.
4) Skills at affordable prices. The talent available across the globe to help drive competitiveness is so much more developed than it was 5 years' ago. The incredible advancement of the Internet has completely changed the game in bringing international markets close together. Global sourcing is so much more than using a low-cost call center rep these days – and too many people are not aware of this yet. It's about supporting complex ERP systems, analyzing accounts, clinical data, logistics, investment research, engineering etc. In so many cases, it's easier to find many of these skills engaging with global sourcing partners than hire them yourself. That's not "outsourcing", it's smart business strategy. We work in business of global service delivery, which is tied directly to global business strategy. Hence, we are "global business services" executives.
Love to hear your prolific thoughts on this topic (as per usual). PF
We've had the privilege of hearing from a host of industry leaders over the last couple of years (just look under the Outsourcing Heros category), and I'm delighted to present an interview with Deloitte's Jason Geller. Jason has been instrumental in driving some of the largest and most complex global HR transformation initiatives over the last decade, and has gained a stellar reputation within the industry as one of HR's most prominent thought leaders and consultants. I also had the privilege of working with Jason, and discovered he's quite a bashful chap who frequently shuns the spotlight in favor of his colleagues, so I thought I'd do something about that…
However, emerging from the rubble has been the maturing of the BPO industry, as several global service providers have striven to consolidate their market positions, anticipating further growth in BPO services in 2009. The premise being that buyers are quickly becoming more accepting of radical change to their global business models that not only drives down operating costs, but also 
