Washington D.C.this week: I have the privilege of delivering a keynote address to Mercer's clients on the subject entitled "Creating a Strategic Enterprise Sourcing Strategy and Governing Change" (whatever will I think up next…). I look forward to posting some banter from their conference, where the central theme is "Successfully Managing the Global Journey". I am particularly interested to hear Jeff Miller and Juila Velixon discuss Mercer's recent study conducted with the Harvard Business School on global service delivery models. I promise to share the findings here. Am also looking forward to hearing Jason Averbrook (great blog by the way) attempting to tie together web 2.0, new HR technologies and outsourcing. Big topics – I love it 🙂
San Francisco and New York next week: I am more excited than usual at the prospect of attending Oracle OpenWorld this year. Both Oracle and SAP's signature events have fast taken-over as industry meets to anyone in the hi-tech and services businesses. If you are there and want to meet up, drop me a mail. What's exciting this year is the stage they are giving to BPO – come visit the panel discussion entitled the "The Good, The Bad and The Ugly", Moscone South, 307 at 5.30pm on Monday. I'll be joined on the panel with my long-time industry cohorts Stan LePeak (Equaterra) and Mark Stelzner (Inflexion Advisors). I'll be spending the latter half of the week in Manhattan where I have brought together some of the leading minds in the BPO industry for a behind-closed-doors round-table (no vendors allowed…sorry).
London and India: Am making plans to visit London and India later in November and December, so look forward to meeting up with many of you during my travels.
I received a very interesting synopsis from a senior executive at one of the major global IT-BPO providers on the subject of Poland as an offshore delivery location. From my own personal experience, Poland has proved to be a first-class location for high-quality, multi-lingual support, particularly for BPO functions such as finance and HR. No wonder providers such as Accenture, ADP, Capgemini, Genpact, HCL, HP and IBM have all made significant investments there, in addition to many captive centers that have been established there in recent years.
Siddhartha makes some excellent points, most notably that Poland is simply not an "alternative offshore location", as its value-proposition is not driven by scale and low-cost, but by highly-motivated and educated staff, and is a proven first-class hub for multi-lingual European language support. He also makes a bold assumption that Poland has the potential to be challenging the unique expertise of a country such as Israel, as Poland possesses far more potential that simply being a BPO / shared services location. In many instances, clients have not found significant cost savings using Polish delivery resources – they have used them because of the value and quality they bring to a global delivery model. Over to you Siddhartha:
“Move Over, India: The Shifting Geography of Offshore Outsourcing Creates New Challengers” stated an article published by the Wharton School, way back in 2005. Every now and then a prominent analyst, consulting or a research firms comes out with a report on alternatives to India as far as offshoring is concerned. Today, Latin America and Eastern Europe are integral to the Global Delivery Models of most organizations – both for their in-house IT/Business Processes as well as outsourced IT/Business Processes. In this context, it is interesting to analyze the case of Poland which is the largest of the new European Union member states.
Poland is not a substitute to India for anyone seeking scale:The fastest ramp-up that a company has achieved in Poland is about 500-600 FTEs during a year – this equates the average weeklyramp-up of some of Indian companies in India (26,000 during the year) and half of peak-day hiring (TCS last year and Cognizant this year made about 1000 offers at Anna University in a day).
Hardly Attractive for Outsourcing from the US:6-7% appreciation of the INR (Indian Rupee) against the USD created a hue and cry in India with NASSCOM almost portraying it as a threat to the industry (INR has already depreciated to be back to cheaper than earlier levels). The Polish Zlotych had appreciated in excess of 30% against the USD in 18-months! Even though there has been USD appreciation over last few weeks, I am not sure of many business models which can take a hit of 25-30% and still remain viable.
More a BPO than a ITO Destination:Poland's is essentially a BPO/Shared Services industry with ITO being restricted to smaller scale Polish players (even with significant presence of IBM and Cap Gemini, their ITO work is not that significant, and focus is more on BPO – primarily Accounting Services). Even among BPO/Shared Service centers, captives form more than half the industry which is very distinct from the India story.
Skill Scarcity: If you sought help from any leading recruitment consultants for hiring people with 4-5 years experience even with common technology skills, they would suggest that it requires a ‘direct search’ as it is a "senior level" hiring placement. Initial offers from consultants mentioned rates of 20-25% of annual salary – you could almost hire a VP on those terms in India. I found this shocking but then it was easy to understand why. A software engineer, business analyst or a transition manager with 5 years experience is a European resource rather than Polish or a Romanian resource and hence cannot be source of any cost arbitrage.
Poland makes up its lack of scale through superior quality: Poland has 45% of its population, in relevant age groups, in its universities; compared to only 10% in India. Moreover, until recently, it did not have graduates, but only post-graduates - hence the quality of human resource in BPO and shared service centers is far superior to most such centers in India and other European nations. Most BPOs hire post-graduates in Economics and Finance from top institutes for their operations – a luxury which may not be available in India other than to some high-end KPO operations (see this earlier discussion).
Ability to attract a truly global workforce: In our organization we not only have a multi-lingual workforce, but a multi-national one which includes Portuguese, Spanish, Russian, Italian, Brazilian, British, Polish and Indian nationals. This gives it an advantage which most Indian operations do not have. While most companies currently leverage this facet largely to source language skills, it has the potential to be extended to other areas in the future.
Poland has far greater potential than simply being a multi-lingual hub: I have talked to outsourcing heads of two leading financial institutions – one European and other American – who acknowledge that their Global Operating/Delivery Model is almost a euphemism for an India-strategy backed by couple of other locations for work that cannot be done out of Indiaeither due to EU or local regulatory restrictions or foreign language requirements.
The language skills advantage is significant but if that remains the key driver of outsourcing to Poland, then some really bright Masters in Economics would be in an accounting operation for a German client – not because she knows econometrics but because she knows German. In fact this ‘alternative offshore location’ positioning is unfair to a country like Poland which offers really unique benefits. With the strength of its education system and ability to attract global talent, Poland should challenge the niche positioning of a country like Israel in high-end technology or other niche skills rather than be a generic offshoring destination.
Bristol Myres Squibb today joined a rare breed of enterprises which have bundled apps and business process to two suppliers across finance and HR towers, with the announcement today that Accenture has taken on a 10-year $550m engagement to take on the pharma giant's finance and accounting processes and related application development and management services. This follows on from their recent $324m 10-year deal signed with IBM that covered Human Resources BPO and related applications services.
This strategy builds firmly on our recent discussion on bundling apps, and the related business processes supported by those apps, under a single supplier. This deal is just the latest in a series of contracts where the buyer is clearly recognizing the synergies of tying together process design, knowledge transfer and governance across IT and operations "boundaries". Bundled outsourcing is not the answer for everyone, but it can provide a major spur for some companies looking to shake-up their back office functions, provided the vendor can demonstrate the skills and business understanding to drive this agenda. These "boundaries" shouldn't exist, and bundled BPO is one potential solution that can help eliminate them. (Much) more on this topic to follow…
We completed our survey looking at the world of third-party sourcing advisors this week, with the high-level results being discussed by my friend Ed Nair, over at Global Services Media.
One of the key takeways, which I wanted to share with you, is the importance of the sourcing advisor / vendor relationship. Of the 114 advisors who completed their section of the study, almost half of them revealed they frequently get business through their relationships with vendors. We always knew that vendors refer advisors in certain client instances, but not to this extent:
Normally, you would only expect a vendor to refer a third-party advisor to their client, if there was limited opportunity of a sole-source deal, and it needed an advisor to accelerate the process, with the hope their existing relationship would eventually win them the business. There is nothing sinister in that.
Naturally, a vendor prefers to refer an advisor with whom it prefers working, where it understands its downselection and sourcing methodology. However, the overwhelming extent to which this is happening gives me some pause for thought. Vendors have been referring their preferred consultants and analysts to their clients for years. Consultants can provide education and unbiased advice (which we discussed here), whether it's about outsourcing, software selection, governance, risk management, and so on. However, when you hear about some of the cosy industry relationships where one vendor is always referring the same advisor, you have to pause for breath and think "is this crossing the line between educating a client and overly-influencing a client?".
So… while the smart vendors and advisors are investing in their mutual relationships – which is critical in this industry (there would be no outsourcing industry without the investment of vendors in their global delivery infrastructures), buyers need to be aware of these dynamics and ensure they have other validation points to underpin their decisions. The need for independent forums, research and informal peer networking has never been as great as it is today.
Great Britain's Andy Murray (OK, he's a Scott, but we'll have him anyway), goes for our first major tennis tournament victory in 72 years tonight against the mighty Fed Express in the US Open final. The player, whom our former tennis icon Tim Henman recently described as a "miserable git", proves that being a nice guy doesn't always win you trophies…
I seem to get pulled into daily discussions from people trying to get a blog off the ground. There appears to be a common misconception that all you have to do is post something and thousands of people will flock to your site, eager to listen to your rhetoric and add their own views. I have literally lost count of the number of bloggers who put out a few posts, only to leave the thing stranded gathering web-dust. Cyberspace is littered with blog-junk that clutters web-searches and gives the impression their owner fell off a cliff or experienced some other inexplicable disappearing occurrence. Bottom-line – if you're going to start a blog, stick with it.
Those blogs today that now get substantial traffic and almost cult-like followings are those that developed a personality and kept at it. Let's be honest, you'll pick up a copy of a magazine if there's a story advertised that interests you. However, if the article fails to keep your interest beyond the first paragraph because it is:
a) telling you nothing new,
b) boring, or
c) has little relevance to your interests,
the chances are you will not pick up that magazine again.
The same applies to blogs. Readers are operating entirely under their own volition to click on a blog posting and read it. If any of the three categories above apply, you are likely never go to that blog again. Hence, bloggers need to captivate their audiences quickly, be consistent with content, originality and humor, and post regularly, to have any chance of developing a blog-brand.
Here are some hi-tech/services blog "categories" and how they tend to fare:
The Independent consultants: Tend to be among the most successful bloggers. Good consultants tend to have a lot to talk about and (on occasion) good content, and always a point of view. In addition, many consultants need an outlet to expound their views, especially when they have been on client-site in the Midwest for 4 months with the client from hell. Prone to blog-failure – have seen several big-shot consultants blog for a few weeks and give up (usually with good reason).
Pros: Plenty of content, always a viewpoint. Tend to be prolific.
Cons: Prone to waffling, and going off-point. Occasionally get caught in issues that only they find interesting. Can be sporadic with posting frequency. Often lacking in humor
The Journalists: The most natural bloggers. They know a good story when they see one, and are skilled at attracting attention to their story. Particularly effective where they have comments feature under theire articles.
Pros: Always well-written and eye catching. Punchy and entertaining.
Cons: Can often lack a viewpoint – good at reporting news and inviting commentary from others, but not always the best at delivering pointed opinions themselves.
Analysts: A mixed bag. Analysts expect the world to stop and listen to what they have to say (as an analyst myself, I can get away with saying that). However, a blog post is not a research article – it is an outlet for discussion and needs to be punchy, sometimes creative, informative and amusing. Not in the DNA for every analyst, unfortunately.
Pros: Great content, often prolific, sometimes edgy and thought-leading. Great to stimulating debate and cultivating ideas.
Cons: Can drone on too much, doesn't often invite opinion, prone to being dull and lacking in humour. Occasionally falls victim to an earth-shattering proclamation that is it a little off-base.
Anonymous folks: Can be excellent! These are often practitioners or suppliers who choose to remain anonymous due to the need for confidentiality, or the simple fact their firm won't let them blog (respect to them).
Pros: Untethered, unafraid opinion. Usually have cult followings and great discussion
Cons: Their author(s) get paranoid that they will be outed (they usually get found out…). Often hard to develop a personality when noone knows who the author really is. Can get too focused on the micro-issues of the blogger and miss the bigger picture. Many anonymous blogs have failed.
Corporate blogs: Good, but often lack edge. Most companies feel the need to have a "blog" option on their website, and there's always a willing employee who wants to churn out a few musings.
Pros: Professional quality content is guaranteed. Most posts are vetted / edited by marketing and generally have good information. Can be highly educational and informative. Tend to work better for the corporations's own staff to opine their views, as opposed to external people.
Cons: Bias is inevitable in many cases. People like to go to blogs that are run by individual personalities, not corporates, hence discussion is often restrained and tepid. Often not timely to respond to industry news as they have cumbersome review procedures internally before being released.
Blogger stables: Mixed bag. These are "stables" of bloggers, usually brought together by an online publication that has decided its best blogging strategy is to get a collection of individuals to blog for them and compensate them based on traffic flow them cab generate. Creates a potentially-powerful content-medium for online media who want to embrace the blogshere, rather than risk getting run out of town: see Blog-culture is ripping up the rule book for the outsourcing services and technology media industry. Works for the aspiring blogger who wants to blog, but isn't so bothered about developing a unique personal portal of her own.
Pros: Good traffic, and easy to get a blog up and running on this platform. Easy to introduce new content, concepts etc. Plenty of choice and content for the reader. Usually get some unique, unfettered opinions from bloggers vying for headline posts within their stable. The stable culture drives some "blog-petition" across their bloggers, and improves the quality of some of the laggards, who need to keep pace with the thought-leaders.
Cons: The blogging platform is standardized to the look-and-feel of the online publication, lacking that individual personality. Some of these stable bloggers are likely to be using the stable as a back-up blog to their individual one. Other stable bloggers use these platforms as they do not have the know-how of confidence to run their own blogs – often the content is less punchy or informative and can prone to too much waffling. The traffic is normally from bored web-surfers, often not particularly engaged with that blog and are one-time visitors – hence can be tough to develop a loyal network of followers to that blog.
So HP’s $13.9Bn acquisition of EDS became official this week – the largest-ever merger between two IT and business services providers.The merged services entity resembles a reverse-takeover of the combined services business, with all the management positions remaining in Plano, with the exception of application services.
Overall, there were few surprises in the deal-finalization announcement. However, the fact that there seems to be no initial definitive plans to integrate the businesses at a service/product level beyond the newly-outlined organization structure, gives me some cause for concern, especially considering the fact that HP/EDS has already had three months to draw up a merger-strategy. We're operating in a market where crafting and developing a global delivery strategy quickly is critical. We've seen far too many failures in recent years from services providers that have sat on their traditional revenue streams, while others have pushed aggressive services agendas to win over clients looking for vendors with new thinking and focus on driving innovation into engagements.
From a BPO perspective, there are no plans announced to go-to-market with broader IT-BPO bundled offerings across finance, HR and other vertical-specific functions.In addition, the fact that EDS’s “ExcellerateHRO” service line has been absent from the announcement is notable, especially when you consider the massive investments EDS had previously made in developing that offering. A lack of continued investment and management focus on ExcellerateHRO could well be a missed opportunity (which we discussed here) when you look at the major strides Infosys, TCS, and Wipro have made to enter this market in the last couple of years, not to mention the determination of Accenture, Capgemini and IBM to lead this bundled IT-BPO market, which many of us see as the future of IT-BPO.HP needs to work swiftly to integrate these service lines more effectively, or risk slipping behind the competition.
I'll be commenting more on the ramifications of this merger over the next few days… stay tuned. And feel free to chip in with your views – it's a huge sea-change in the competitive landscape and the next few months are critical for the newly merged entity.
The software industry has – for decades – dealt with the whole "best of breed" versus "integrated application suite (ERP)" quagmire, the scenario centered on whether clients are better off trying to manage a whole variety of individual products themselves, via-à-vis having a ready-made integrated suite of applications. These arguments are surprisingly similar to the debates raging in the outsourcing industry today.
While a best-of-breed (b-o-b) approach can provide the client added quality (or functionality) and control over its suppliers, the prohibitive cost of managing multiple service providers (or applications), combined with the increased need for unique skillsets to integrate them into the business, favor the multisourcing (integrated-suite) route. And, while many enterprises have persisted with a b-o-b software strategy, both Oracle and SAP have been vacuuming up many of the niche application products, whereby presenting the client with the integrated-suite strategy, whether they initially wanted it or not. While outsourcing providers are generally not as acquisitive as software providers for a number of reasons, their need to add process depth, industry expertise, technology enablement and scale to their global services offerings naturally narrows down the playing field over time, as outsourcing engagements become more global and complex.
The crux of the b-o-b versus integrated-suite debate isn't centered on the client receiving the best technology, or the best functionality, it lies in its skills to integrate the applications into the business and create a training ground for its staff to continually optimize the platform to help the company keep costs at a minimum, streamline processes to eliminate efficiencies on an ongoing basis, and operate in a global economy. It's alarmingly similar when we examine clients' outsourcing strategies. While in the ERP world, everything centered on the capabilities of IT to support the business direction with the optimal IT backbone, in the sourcing environment, a similar onus is being placed on all the operational leaders with an optimal global sourcing backbone.
While many companies have gone down the path of selecting one "b-o-b" vendor for applications development and maintenance, another for HR BPO, another for F&A BPO, another for procurement BPO etc., an increasing number are now looking to narrow the playing field, realizing that where synergies exist on the vendor side across applications and processes (often termed as "bundling"), deliberately driving breakages between these synergies creates an extra layer of governance to piece these together. And while the client may have more control and contractual leverage over its vendors in these situations, it is often adding increased inefficiency to the overall process, in addition to the incremental cost of having a larger governance team to manage it. Moreover, acquiring and developing those governance skills is a tall order for most companies today.
In most sourcing instances, one ITO provider may be more accomplished at application development and maintenance than the BPO provider providing the corresponding business processes, or vice-versa. However, if one provider can demonstrate its application staff will be working in tandem with its business process design and operation delivery team in an organized and orchestrated knowledge transfer process, then the odds are the client will be better off deploying that single provider for a bundled engagement.
As the ERP experience taught us, it's often not the quality of the individual components that deliver the ultimate business value, but more the synergies and integration points between those components. In outsourcing, those integration points are delivered by a combination of people, technology and processes, so why should a client separate these out in instances where these integration points will be made less efficient and harder to manage?
When I arrived on these Western shores a few years ago from the Old Country, I made it a personal mission to ensure (some) Yankees around me learned that special brand of humor termed as sarcasm. This habit of mine seems to have spilled over into my blogging… My recent post “The Calamity Clients Awards, 2008” enticed a couple of people to contact me – one person asking where she should submit her vote, the other kindly advising me to find a way to scrap the vote before I offended someone.
For clarification, the purpose behind the Awful Outsourcing and Calamity Client awards was to
1) Make you laugh;
2) Have a subtle dig at some of the awards being banded around the outsourcing industry;
3) Raise some real issues concerning some struggling outsourcing engagements, and the fact it actually takes two-to-tango in this business (both vendors and clients).
Thanks for the many, many messages I did receive from those of you who did realize all three of the above points – very much appreciated, and makes me feel my original mission to induce sarcasm into the North American outsourcing industry is largely working 🙂
Anyway, I’ll lurch back to more serious stuff next week… peace out
Washington D.C.this week: I have the privilege of delivering a keynote address to Mercer's clients on the subject entitled "Creating a Strategic Enterprise Sourcing Strategy and Governing Change" (whatever will I think up next…). I look forward to posting some banter from their conference, where the central theme is "Successfully Managing the Global Journey". I am particularly interested to hear Jeff Miller and Juila Velixon discuss Mercer's recent study conducted with the Harvard Business School on global service delivery models. I promise to share the findings here. Am also looking forward to hearing Jason Averbrook (great blog by the way) attempting to tie together web 2.0, new HR technologies and outsourcing. Big topics – I love it 🙂
