My old friend Raj Sajja, who works for Oracle in Singapore, picked this up on video-camera during a recent visit to New Delhi… innovation at its best

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Will one be wanting fries with that?

(Thanks Bruce McCracken for this little piece of humour…)

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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.

Posted in : Business Process Outsourcing (BPO), Finance and Accounting, HR Outsourcing, IT Outsourcing / IT Services

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.

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.

Posted in : Business Process Outsourcing (BPO), Finance and Accounting, HR Outsourcing, IT Outsourcing / IT Services, kpo-analytics, Procurement and Supply Chain, Sourcing Locations

Posted in : Absolutely Meaningless Comedy

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.

Click to Play

Posted in : Business Process Outsourcing (BPO), HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Events

Vinnie Mirchandani picks up on a great posting from Christian Today on ten cyberspace commandments to give bloggers a "moral edge in a virtual age":

• You shall not put your blog before your integrity.
• You shall not make an idol of your blog.
• You shall not misuse your screen name by using your anonymity to sin.
• Remember the Sabbath day by taking one day off a week from your blog.
• Honor your fellow-bloggers above yourselves and do not give undue significance to their mistakes.
• You shall not murder someone else’s honor, reputation or feelings.
• You shall not use the web to commit or permit adultery in your mind.
• You shall not steal another person’s content.
• You shall not give false testimony against your fellow-blogger.
• You shall not covet your neighbor's blog ranking. Be content with your own content.

I recently ran my own analysis on what makes a blog compeling, but this takes cyber-guidelines to a new level -:)

Posted in : Absolutely Meaningless Comedy, Sourcing Best Practises

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.

Posted in : Captives and Shared Services Strategies, kpo-analytics, Sourcing Best Practises

We've been talking a lot about consolidation in the outsourcing industry and when/how/if it will happen.  We can debate for hours the strategic benefits of service providers of adding niche competences, industry specialization, process acumen and global scale, and whether they should merge, acquire captives, or grow organically through client acquisition to achieve this.  However, the financial crisis is creating a compelling event to accelerate M&A between service providers. 

The amount of consolidation we're seeing in the financial sector, which is likely to have knock-on effects into other industries, will drive new client needs for global sourcing models. Many clients are worried about making large initial capital investments in outsourcing engagements – especially ones which have complex transition and transformational needs, hence those service providers which can help streamline these costs over the course of a contract will be successful. Complexity, disruption and increased globalization drive change, and outsourcing is one vehicle that can help many companies reach a global support infrastructure quickly.  Hence, those service providers with the global scale, competency and financial resources to deliver this quickly will be the winners in this market.

While this industry has ramped-up beyond the wildest expectations over the last 5 years,

the healthy demand for outsourced services has held back a lot of M&A between larger providers, for the simple fact that there has been enough business to go round to enable many service providers to remain independent.  The recent haggling over Axon Global by both HCL and Infosys is a signal of the increased stakes for dominance and scale in this market, as the top tier look for larger acquisitions to scale-up even quicker, and valuations drop to more realistic levels.

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, IT Outsourcing / IT Services

In case you missed it…last night’s hilarious skit of the VP debate on Saturday Night Live:

Posted in : Absolutely Meaningless Comedy