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.
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?
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.
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.
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”.
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.
…when CIO.com starts picking up on your posts. They got the context a bit wrong, but it's good to know outsourcing discussions are hitting mainstream media these days. I'll leave you with an autumnal scene from the Public Gardens in Boston this afternoon…
I am delighted to introduce a long-time industry friend, and one of the pioneering executives in the world of financial services BPO: Michael Koontz.
Michael has spent most of his career (14 years, in fact) helping steer Wachovia’s BPO strategy, where he led over 130 transitions, managed over 1000 SLAs, over four countries and three service providers. He also served as Wachovia’s CFO for Banking Operations. Michael recently made his first foray into service provider world, leading the financial services vertical for up-and-coming BPO and KPO service provider Aditya Birla Minacs.
Michael is sharing his views with us on where he sees the banking sector going with its BPO strategies – namely a further sell-off of captives, service provider rationalization, growth in regional markets, and also the smaller banks opening up to BPO contracts. Over to you Michael:
What we are seeing in the financial services sector is nothing less than a major paradigm shift, as big banks struggle to survive the current financial crisis and many smaller, regional banks leverage this opportunity to play catch-up with offshoring.
Big Banking Trends
There are a couple of distinct trends among the big banks. First, they are moving away from captive models as they try to liberate capital and focus on their core activities. We will see the banks sell off non-core processes, or at least move them from captive operations to third-party providers. Citibank’s sale of its India-based outsourcing arm to Tata Consulting Group (TCS) is one recent example of this trend toward the “monetization” of captives.
Second, those already using a third-party model are rationalizing their current BPO/KPO providers, ensuring they have neither too few (which increases risk) nor too many (which can dilute the value of outsourcing, reduce scale, and limit their providers’ attention to the business). Two or three BPO/KPO partners is generally the right number to effectively segment work, benchmark results, and create healthy competition. Many banks arrive at this magic number as they attempt to achieve efficiency gains while mitigating risk. In addition to ensuring the right number of suppliers, banks are seeking strategic partners that can provide solutions across a spectrum rather than a productized offering.
Regional Banking Trends
Unlike the large institutions, regional banks have not done much offshoring or outsourcing. There are several reasons for this. First, the cost of entry was prohibitive when offshoring began—infrastructure, governance, and consultants, and more consultants drove up costs. Recently, this price tag has decreased dramatically—from 20% – 70%, depending on the service—as the market matured, technology costs dropped, and off-the-shelf options increased. In many instances, a bank can now start a program with very little outlay, and many providers will even cover start-up costs.
Scale was the other issue—most providers were not interested in small banks because they couldn’t provide the scale needed to support the FTE models dominant in the industry at that time. Transactional models are much more common today for many processes, and scale plays a much smaller role in these decisions.
Common Evolutions
All financial services companies will evaluate which processes they consider to be core; as the industry has matured, companies have come to realize that many processes once thought of as central and inalienable can be successfully off-shored. As this happens, we will see many more processes migrate outside the physical walls of companies.
Another big evolution is toward offshore enablers—technology solution providers that make it easier and more efficient for other companies to embrace offshoring. Imaging platforms are one example, as they enable virtual processing of paper-intensive processes such as check processing. With front-end image capture, many of the day-one activities previously conducted in locations across the US can now be centralized at one location anywhere in the world.
The Bottom-line: It’s the smaller banks moving the BPO needle
While the big banks remain distracted by the recent wreckages of the financial markets, many smaller banks have quickly moved ahead with creating and executing their offshore strategies. The outsourcing industry is more mature than it was three years ago, and many of these smaller banks have watched, learned, and are now looking for strong partners to help implement their strategies. Over the next two years, watch for the emergence of many smaller contracts for many more banks. As small banks join the game, they may in many cases surpass the results of the larger companies by leveraging past learnings.
Michael Koontz is SVP and Business leader for Financial Services at Aditya Birla Minacs.
This whole automotive situation is a microcosm of the broader issues facing the crumbling Western economies in this crisis market, and these issues require significant surgery to our very corporate DNA. And outsourcing and globalization are right at the heart of the issues.
Outsourcing provides an enabler for businesses to change, but ultimately we have to be put in a position where we have to change our corporate DNA and stop clinging to the inefficient ways of the past. That time is now upon us and we need to embrace new ways of working, and new ways of doing this smarter. And if it's fear that is driving us, some short-term panic, some short-term hardship, is a small price to pay to find new avenues of growth and value-creation further down the road.
And that doesn't mean businesses should go out and find outsourcing providers to save them a few dollars today, for the sake of making a quarterly target.
Once you take out some short-term cost, that cost is gone. You saved some money, but what are you left with? Where are the next avenues for further optimizing your business? Once companies move into a multi-year outsourcing engagement they are locked in with their service partner for the long-haul. Hence, selecting that provider which can help you achieve value across all four of these vehicles has never been as important as it is today:
Vehicles for change:
1. People: How can you ensure you have people who are creating value for your business, work with pride and energy, and are always looking at ways to improve their performance?
2. Processes: How can you constantly be finding new ways of achieving business outcomes more profitably?
3. Technology: How can you access all the data-points you need to understand how to drive better performance and constantly refine your business processes?
4. Global Sourcing: How are you embracing talent, process acumen and technology from third-parties, shared service centers, captives and partners around the world to produce cheaper, better products and services than those of your competitors?
And this change in our corporate culture isn't something that comes from the top-down – it comes from the bottom-up. An individual business can create its own culture, its own ways of creating products and delivering services by driving these four vehicles more effectively. If you don't want to work for that business, that's your choice, but the successful workers of the future will find companies that get the best out of them. Bailing out Detroit won't change these automotive businesses, unless the automotive leaders truly want to embrace changing their very DNA and use the vehicles at their disposal to make them more profitable, more innovative and more nimble than their competitors.
I trust you enjoyed the animated discussionon the woes of the US autromotive industry. My take was that these issues facing Detroit represent a microcosm of the problems facing many of today's flagging industries, with urgent needs to transform their business models, product-lines, management talent, labor unions, global supply chains and outsourcing strategies in order to survive. I wanted to share these comments from Rachel Geiger, who is a lead HR executive at Ford Motor Company, where she has held senior HR positions for both labor relations and procurment strategy. Rachel makes some interesting points regarding why Ford is a little different; namely it's focus on ongoing transformation and strategic outsourcing. Over to you Rachel:
"I agree that it is about changing their DNA, or "What does it mean to work at Ford?". Being in the organizational change business, and taking part in driving this cultural change, I can honestly say that I do see it happening.
"What people need to understand is that this is a change in the fundamental way we do business. It is about doing what is right for the long term for the enterprise as a whole. And you can see Ford making this shift. For example, we went to the credit markets before the credit crisis to fund a PRODUCT transformation – mortgaging basically even the Ford blue oval. We knew that we needed to invest in our product future, and we have maintained that course. At the LA Auto Show, we have introduced 5+ new products, all leaders in fuel-efficiency and technology that build on platforms that already are gaining parity with the Quality leaders in every segment. Other OEMs have withdrawn or drastically reduced their planned vehicle launches.
"In the past, it was all about short-term cost and profit. This is why the domestics AND foreign automakers focused on trucks and SUVs. Don't forget that both Toyota and Honda were and are making pushes into the truck and SUV markets. Past crisis brought cost-cutting on products, marketing, etc, relying on the profits of trucks and SUVs to see us through. We would "change plans" often, trying to convince ourselves that the next one would be a silver bullet.
"Now, however, Ford is investing in the future at a time when future investment also means tough decisions in the short-term, such as layoffs and debt on the balance sheet. But we are maintaining the course laid out in our business plan, and started to see the results with a profit in the 1st quarter of the year before the current economic crisis hit. Are we through transforming? Far from it. But I have seen change gaining momentum in key senior leadership and am starting to see it gain even more traction at lower levels.
"This is why strategies such as outsourcing only have their place at Ford now where it makes long-term strategic sense. Impact on emerging markets? Availability of skills and value-add of the work? We are looking at all these, but short-term cost cannot be the only objective – it must be balanced with the long-term competitive strategy."
Rachel Geiger is HRBO, Global Purchasing at Ford Motor Company
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.
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 
I trust you enjoyed the 
