We've had some serious - and sometimes passionate - discussions on "Horses" these last few weeks, and I laud so many of you for chiming in with your feelings and thoughts.
We've examined the impact of our current predicament on the outsourcing industry, how globalized delivery has such a pivotal role to play in improving businesses' competitiveness, and even how struggling industries and faltering economies could embrace global delivery to create new jobs and industry. It's proving to be a time for many of us in the outsourcing industry to reflect on how this business has developed over recent years, and why we must focus on helping enterprises compete more effectively at a global level, than simply stripping out short-term overhead.
To sum things up, my old friend Lowell Williams sent me his thoughts yesterday on the current economic situation.
For the few of you who don't know Lowell, he is, without question, the most respected voice of HR service delivery and leads sourcing consultancy Equaterra's HR advisory services, after a long and distinguished career leading HR service innovation. Over to you, Lowell:
Phil: your cri de coeur is well taken. We are in a terrible state with hollow revenue jacking up false P:E ratios, debt obligations that separate risk of payment at maturity from underwriting and spreads, failed product leadership in Detroit and elsewhere and a political unknown elected because he was the farthest thing away from the current President we could find.
I don’t think we will “get it right this time.” Such is not the fate of men. What we can and should do, however, is to get it right for a long time and for the global labor and product markets in which we find ourselves. While finding our way out of this, there are certain rules we should follow:
1. Ignore instant economists who tout the new world order. From the Tulip Bulb Bubble forward, there is a fairly constant ratio of greed, innovation, herd instinct and financial panic. Every time we hear we have found a “New Paradigm” let us remember that the man uttering those words will shortly not have a Pair of Dimes to rub together. Expansion and contraction are certainly constants of the modern industrial age, and we should focus on getting the fundamentals right for the medium- and near-term.
2. Reward product leadership, innovation and correct growth. The bailout of Detroit should contain strong sanctions for those who brought their companies to ruin. No one either told GM leadership to keep producing SUVs nor the American consumer to buy them, but since GM wants my tax dollars to keep their factories running, I have no problem going after them to pay back bonuses, cancel stock options and give them a very short runway to get new products to market. Washington needs to show genuine leadership here as the price of assisting jobs preservation and labor leadership needs to sing a new song as well.
3. The ABA and Wall Street need to reach down into the pile of bankers who were punished by the Street for not exposing their banks to short-term “profit” run ups that undermined the solvency and stability of the lender. The analyst community called them stodgy and ill-prepared when Countrywide was helping finance a building boom throughout the nation, but those same women and men who were shunned by Wall Street are now at the helms of the banks who will lead us forward into a genuinely sound expansion when we hit the bottom of this collapse and start rebuilding.
4. Washington and state capitals need to lead. Each of them has a role to play in charting a national and local energy policy. Tremendous innovation will come in the US in environmental matters, and Thos. Friedman is postulating that green innovation will equal the software and networking businesses of the last eight years. Government needs to help where it can but stay out of the way.
In sum, we are condemned to cycles of expansion and contraction, but we can make sure that the next cycle is built on solid innovation, education, and creative fundamentals.
Spending the day with Accenture at their annual analyst presentation, it helped put a lot of our current predicament into perspective.
We can debate, for hours, the finer points of whether outsourcing is currently helping the wounded US economy, but what is abundantly clear, as Accenture’s CEO Bill Green points out, is the need for the US economy to be competitive globally – and to be competitive as a nation, we need our businesses to be competitive.
We also had the pleasure of listening to one of outsourcing’s legendary figures, Kevin Campbell, who runs Accenture’s $10bn outsourcing business. For those of you who don’t know Kevin, he was a pivotal figure behind the industry growth of HR outsourcing at Exult, before moving over to Accenture in 2005 post Hewitt’s acquisition. He is one of the industry’s most straight-talking and colorful characters, with a seemingly infinite supply of energy (evidenced by the 4.00AM emails he shoots off periodically).
Kevin makes some great points that outsourcing can – and is – providing many enterprises today with many more business benefits than simply slashing administrative costs. However, you need to engage a service partner which can deliver
a lot more to your business than a short-term cost-reduction.
He sums up the core benefits of outsourcing in three key areas:
1) Freeing-up cash-flow. A good F&A provider can add discipline to your collections and speed up your cash-flow, eliminate bad debt and free up a more timely cash-supply. On the flip side, quality procurement processes help you keep the cash you currently have.
2) Enabling growth. The need to enter new global markets quickly has never been as pressing as it is in today markets. Having a ready support infrastructure that can support foreign payrolls, accounting procedures, local regulations etc. can save your company months of painful work to set up shop in new markets. Moreover, service partners can also help you grow your business globally; Accenture uses the example of how they helped Unilever hire 10,000 sales staff in China, which has already contributed to 400% growth in same-store sales in the region.
3) Cost-cutting. A good outsourcing partner should be able to help you sustain cost-savings over a long period, not simply at the onset of an engagement, through ongoing quality and process improvements. Kevin points out, “Costs are like hedges – they keep growing back after you trim them”
My take? it’s all about outsourcing smartly these days, and not simply acting in desperation. Too many clients I speak to are locked into outsourcing contracts that are miserable experiences they can’t escape for years. And many companies today simply don’t have these years to sort out their global delivery issues.
In many situations, clients have jumped at the lowest cost option, and now live to regret their decision – we all know some in this predicament. It’s not a good time to go to your board and ask for another $20m dollars to bring a new provider into the mix, or rip up your current contract. Outsourcing clients have to think more smartly and strategically about how to create an outsourcing experience than can help drive new growth, can deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.
Even though you are probably more interested in the breed of puppy Barack is going to buy his girls, I have had a chance to ponder the realities of the recession.
In a nutshell, we have reached a crucial juncture in our economic history: gone are the days we can borrow whatever we want to subsidize ambitious business ideas, buy houses we cannot really afford, or fritter money away on expensive holidays. Walking down Boyslton Street at 7.30pm on Friday night – one of Boston's prime restaurant areas – every restaurant had vacant tables and was taking walk-ins. It really hit home to me that things have finally changed. Years of over-spending have finally caught up with us and we're now feeling the pinch. But whether this was to be a rapid banking meltdown, or a long painful slowdown, this had to happen eventually.
I recall sitting on a panel at at outsourcing conference in New York City back in 2004
, and there were protesters outside, demonstrating their frustration about US jobs "moving offshore". In response, a sourcing attorney declared, "outsourcing provides a great opportunity for the US – we can offload low-value jobs and focus on higher-value, more innovative work". I recall thinking to myself, even then, that that argument didn't quite add up.
While it sounds like a nirvana, the reality is we're competing globally for labor, for making cheaper, better cars, for delivering good quality IT services, for delivering quality finance, HR and supply chain support. If the US is to truly deliver "higher-value", the government needs to invest in education programs that develop this talent. The reality is that the rest of the world caught up. People in Chennai, Manila, Bucharest, Guatemala City, Guangzhou etc are being trained to compete with American, British, French and German workers, and the Internet and new technology have been a huge enabler to make this happen. A good friend who works for one of the leading India-based BPOs confided in me recently, "we should bring over the training leaders from the top Indian outsourcers and have them work with US businesses to get their act together".
What continues to irk me, is the fact that industry has become so focused on making its quarterly numbers that it has taken its eye off the long-term picture. We saw this financial meltdown coming – and did nothing (wasn't the Asian crisis of the '90s warning enough?). We are seeing further deterioration of the environment – and still do little. We saw the US automotive industry grind down to its current predicament – and have done nothing. And we are seeing the IT and BPO industry rapidly develop across the globe – and have blissfully ignored it to meet these cost-containment targets.
And how to we respond? Bailouts. We're now talking about bailing out the flagging automotive industry. How did it come to this? Years of greed, a deterioration of our work-ethics, and eager developing nations determined to get a taste of what we have. It's as if we had a major cardiac arrest and are now hoping we can recover fully from open-heart surgery.
And this time when we do recover (and we will), we simply have to make sure this never happens again. Some will argue this is all about natural economics of globalization and a free market – and they are probably right. However, this time we have truly reached an inflection point.
It's about accepting we now operate in a global economy and that we are competing at a level where we need to work as hard, and as smart, as the next nation. I hope President-Elect Obama can help instill a new work culture in the US. The US people have spoken that they want change, and they have voted in a President promising change. The core question now is whether they are really prepared to change.
Wipro has continued its aggressive surge into the BPO world by announcing plans to open a BPO delivery center in Curtiba, Brazil, to service it new client, AmBev, the South American bewing giant, and subsidiary of global brewing giant InBev. InBev recently had its merger with Anheuser-Busch approved to create a global beer monolith – not a bad industry to be developing your outsourcing business, in this economy (to quote a CIO at a major brewer recently: "we love the good times, but we REALLY LOVE the bad times"…)
Following on from Capgemini's agreement to take over Unilever's South American BPO operations, we are clearly seeing signs – as we discussed last year - that Latam countries have great potential for delivering BPO services, such as finance and accounting and HR, in addition to supporting IT engagements (particularly with the legacy development skills that have sprung out of the Latam financial services sector). This latest development further augments the discussions that the leading outsourcing providers see Latam as a major addition to a global delivery framework, especially when you consider the investments Accenture, Genpact, IBM, Infosys, TCS and others have also been making in Latam resources.
Moreover, this announcement follows on from several major recent BPO wins from Wipro, which has been performing a stellar job taking on multi-tower BPO services for a number of global clients across finance, HR, customer care and some industry-specific domains.
I had a distressing conversation regarding the future of the US automotive industry today with a guy from Detroit. Their main concern these days is the widely-speculated acquisition of Chrysler by General Motors.
The expectation is that if GM buys Chrysler, it will only retain the Jeep and Minivan businesses, close all the other Chrysler plants, and lay off 75% of Chrysler's engineering staff, for a direct loss of 90,000 jobs – not including ~6x more jobs at suppliers – throughout North America. If no merger happens, one or more of the "Big 3" will go bankrupt, resulting in a total loss of all jobs – more than 120,000. One of his neighbors is putting his house on the market tomorrow, anticipating losing his job soon. Several other friends and neighbors expect to lose their jobs by the end of the year.
This reminds me of the situation in the UK in the 1980's when
the majority of the British coal-mines had to be shutdown due to unprofitability. Entire cities were left with mass-unemployment, leaving the British government with little choice but to invest in attracting new business and investment to cities. One of the most notable success stories has been the development of 650,000 call center and BPO jobs across many of these cities where old industries were dissolved. Many of these jobs are also in the financial services sector, supporting such businesses as MBNA and Sun Life.
Whomever gets elected on Tuesday night is facing a massive task to redeploy workers in consolidating and declining industries, such as automotive manufacturing. As we discussed so animatedly last week, could creating BPO jobs we an answer? Could the USA become a competitive BPO location?
With the ever-closing barriers between ERP strategy and BPO – which we discussed at length back in August, it's important to understand enterprises' activities with their ERP maturity in order to get a solid picture of future potential outsourcingactivity. The performances of both SAP and Oracle are now a sure-bell-weather for the IT and outsourcing industries at large.
Bruce Richardson, AMR's Chief Research Officer, offers some keen insight into SAP adoption in his recently launched blog "First Thing Monday", which is an extension of his popular e-newsletter that hits the wires at the beginning of every week.
Bruce points out some key indicators of what we can expect in the coming months:
Many SAP customers he is talking to are continuing to expand their footprint at present and are still planning for further upgrades;
SAP is not planning any labor reductions, despite heavy growth in recent years, and will reduce costs with a hiring freeze and travel restrictions;
SAP is likely to push new programs in the short-term to encourage mid-size business to move into SAP environments.
While we're clearly moving into a difficult economic climate, it's encouraging that many enterprises are continuing to invest in their ERP backbones. I anticipate that as we see more companies seeking cost-containment outsourcing avenues, many will be able to benefit from upgraded (or new) ERP platforms as they evaluate their options. Common ERP standards ultimately support more scalable and lower-cost outsourcing strategies.
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 -:)
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.
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.
We've had some serious - and sometimes passionate - discussions on "Horses" these last few weeks, and I laud so many of you for chiming in with your feelings and thoughts. 
I had a distressing conversation regarding the future of the US automotive industry today with a guy from Detroit. Their main concern these days is the 
With the US Treasury yesterday making an initial 
