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.
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?
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.
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.
Here is the movie clip taken from my recent presentation "Creating a Strategic Enterprise Sourcing Strategy and Governing Change". A special thanks to John Fisch for supplying some great content, and Mike Brown at AMR for mixing up the clip with this great soundtrack. Enjoy.
The current financial crisis is driving many of the leading financial institutions to sell their Indian captive operation to third-party service providers, typified by Citigroup today offloading its Indian banking services operations to Tata Consultancy Services for $505 million. Most of these offshore captives were established in recent years to cater for growth in the financial services sector, and with the current climate, many of them have little choice but to sell them off.
I was having an interesting discussion just yesterday regarding Securities/Capital Market BPO (back office operations of Investment Banks, Asset Managers etc.).
Most of the outsourcing in this sector here is to captives, for example, JP Morgan, Lehman, DB, UBS, Goldman Sachs and Morgan Stanley each have between 1500 – 7000 employees in Indian captive operations. The trading volumes in some instruments are practically negligible in this economic climate. Take OTC Derivatives Confirmations and Settlement processes – these teams were significantly ramped-up towards the end of 2005 to meet regulatory requirements, in view of very high-volume spikes in demand. Now, in some cases, 60-70% of team members are literally twiddling their thumbs. Attrition has reduced significantly as there are not many jobs on the market offering higher salaries. Moreover, the back-office-cost-per-trade ratio continues to rise as this economic situation fleshes out.
Hence some of these captives are in a quandary; large scale lay-offs are not an easy option in India as they significantly impact the brand. Redundancies in India have generally been of two types – small 100-150 employee operations closing shop or industry giants letting-go less than couple of percentage points of their workforce under ‘under-peformance’ or some other pretext.
The theoretical argument in favor of third-party outsourcing is that it provides flexibility to scale-up and down and keep the cost-per-trade at a minimum. This segment of the industry went mostly captive over-looking this argument in a high-growth period, with control and regulation being the over-riding factor. One large operation is already on sale, and there are some of the largest third-party outsourcing deals in discussion – is this the beginning of restructuring of this segment, and is the day of the offshore financial services captive in terminal decline?
This argument is strongly supported by today’s largest-ever buy-out of an Indian captive operation. It was a widely known fact in the industry that Citigroup had been contemplating selling its Indian banking operations to a third-party for over a year now.The fact that is has finally made that decision so quickly after the recent financial meltdown is telling of the changing attitude towards outsourcing, and the fact that these captive support models do not work well in a volatile economy.
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. 
* Only 16% of financial institutions surveyed have actively sought to pull-back their 
