Our last debate about about "Platform BPO" got me thinking more about how outsourcing PMOs can be more successful at delivering these engagments, and reaching a desirable operating state sooner. While my good friend from SAP's BPO group, Gianni Giacomelli, makes an excellent point that service providers need to leverage economies of scale and process optimization ruthlessly to hit their targets, it also raises the question of how outsourcing PMOs within the buyer need to step up to the plate to take more owenership over their outsourced processes. (Gianni wrote an excellent piece here last year entitled "Why a good BPO provider is not enough for a successful BPO service delivery" on this topic).
Many BPO engagements are currently a lot more complex than IT outsourcing engagements, where there are many additional challenges from the buyers' standpoint, namely training personnel, mapping new processes, transfering knowledge, establishing realistic service levels, developing workable reporting models and understanding which processes can be offshored successfully, and which of them should remain onshore – on inhouse – with the buyer.
From the provider’s standpoint, it needs to work out how to help its customers reach their desired outsourced endstates, while meeting the pricing schedules and maintaining their own profit margins. In order for this to be successful for both sides, surely both parties need to take equal ownership of the solution development in order to meet their desired outcomes? I can’t tell you how many BPO buyers tell me the same story: that they didn’t start to find a successful operating balance until they stop being reactive with their provider and waiting for it to magically start sorting out their entire transition by themselves – they had to proactively grasp the bull by the horns, take control over the relationship, sit their operations people down with their service providers’ staff, and jointly work on knowledge transfer procedures, develop process flows that made sense for their existing staff and technology, and generally start working as a TEAM. When you go to your doctor, don’t you have to be specific about your symptoms, be open and honest about your lifestyle, then actually work to improve your health over a specific period, before you can start to feel the long-term benefits from your relationship and start judgeing her performance? You basically need to take ownership of the situation to get the best results.
Where some early BPO deals struggled, blame was commonly heaped on the service providers’ “operational defficiencies”. However, as outsourcing PMOs get more experienced, they realize that success lies in their own hands, and many of them are improving at working with their providers to drive more efficiencies into their relationships. You hear many buyers say today “we need to develop a strategic sourcing strategy” – they are realizing the world has changed and they need to change with it. Outsourcing is just one vehicle for change, and the onus is on them to drive it correctly.
What BPO buyers can learn from many of their ITO peers, who have been managing outsourced environments for several years, is the fact that experienced buyers today take far more ownership over their delivery that they used to. They realize their vendor can provide skills, resources, processes and technology, but arbitrage only works when the buyer takes on equal responsibility for delivery. You rarely hear and experienced ITO PMO complain bitterly about her provider – they talk about how they manage their retained organization and their provider’s staff as part of the same outfit. They view key project managers in theor service providers as critical to their success as if those people were employees of their own organization.
While several people have doubted the vailidity of HRO, IBM offers a strong ray of light for the sector by signing a $324m, 10year agreement with Bristol-Myers Squibb. As we mentioned here just earlier this week, leading proviers have been working hard to find a workable model for delivering using their global resources:
"As the global providers become increasingly proficient at deploying offshore resources to support these processes, they will generate more cost-savings and compelling business cases for their customers"
As a result of this engagement, IBM is leveraging its employee contact centers in Manila and Budapest, in addition to local US-based delivery faclitiles, to implement and deliver SAP-based HR services.
As we picked up on here a few weeks ago, the F&A BPO market has had a red hot 2007, and this growth is continuing into this year. The market saw a 30% growth in expenditure, a 20% growth in total contracts, and new contract expenditure totaling close to $4bn in contract value. So a record year and a critical mass is being reached. The barriers to entry in this market are getting harder and we're getting a clearer picture of how this could play out. So, what's driving this, and who are the key players? Read my aticle in the new issue of FAOToday magazine.
Following our recent discussions surrounding the successes and challenges of the HR Outsourcing (HRO) industry, I was sent a recent study from Erik Samdahl at the Institute for Corporate Productivity, which canvassed the opinions of 231 senior HR executives, mainly from large organizations, and has some telling stats on the future direction of HRO, which I wanted to share and interpret with you. There are two key observations from this study that standout in my mind:
1) HRO is massively under-penetrated outside of benefits administration:
72% said their organizations have elected to keep compensation functions in-house
58% say their firms do not plan to outsource their payroll function.
57% report that their companies do not plan to outsource employee contact centers
If you stick with the philosophy that dictates you should outsource when a 3rd-party can perform the work at significantly lower cost, and at an equal, or better, standard than you do already, then you have to conclude that these statistics point to plenty of future outsourcing opportunities for compensation, payroll and employee contact center solutions, due to the large majority of enterprises which have still yet to outsource these processes.
These are areas where HRO provision is constantly maturing and providers are working towards more common standards. As we see more of these “Platform BPO” solutions being delivered into the marketplace (I will be talking more about these in the coming weeks), I expect these three areas to form the centerpiece of future HRO activity. As the global providers become increasingly proficient at deploying offshore resources to support these processes, they will generate more cost-savings and compelling business cases for their customers.
54% say their organizations do not outsource for recruiting
46% of participants say training and development is kept within their organizations
Recruiting and training are processes where many companies need additional help, but the processes are often highly unique and finding cost savings and improved quality from a third-party can often prove challenging, if you cannot find an HRO provider specialized in your particular industry. This helps explain why many firms which outsource recruiting, often go with specialist providers with specific industry expertise (i.e. retails versus financial services).
Seventy percent report that their organizations either fully or partially outsource the administration of 401(k) plans, followed by flexible spending account administration (69%), COBRA administration (59%), and the administration of defined benefit plans (58%).
Unsurprisingly, benefits administration is the most widely-adopted of the HRO processes, where many firms have found significant cost savings by using a single outsourcing provider, in addition to high-quality solutions, with self-service hosted applications. No wonder firms such as Fidelity, Hewitt and Mercer have centered their HRO solutions firmly on their bedrock benefits services, where they can upsell their substantial existing client bases onto their existing technology and delivery resources.
2) Once outsourced, HR functions are rarely brought back inhouse:
Less than 2 in 10 companies have brought an outsourced function back into the organization
As we discussed here back in March, most companies which venture into HRO don’t go back. Of the 200 comprehensive end-to-end HRO adopters, only 6 have pulled services back, and not always for operational reasons. This 8/10 HRO-sustainability ratio, which includes single as well as multi-process solutions, indicates that once firms have moved into an an outsourced end-states for an HR process, the chances are they see little strategic value in internalizing it again, and will only bring work back if it no longer made business sense – normally due to a change in business strategy or volume, or the provider did a poor job satisfying the client.
Is Platform BPO the answer?
All-in-all, this data tells us that HRO is only really beginning taking shape, and both vendors and clients are learning what works, what doesn‘t work, and where to center HRO solutions in future. The move towards consolidating BPO solutions under a common platform layer is clearly taking center-stage among the major global outsourcers with transactional HRO functions proving core to these offerings. The key is finding new avenues for driving out cost, as this is still the major driver behind HRO, and it will be interesting to see how the new offshore-centric entrants, Infosys, TCS and Wipro fare as they push hard with their platform-centric BPO solutions to compete with the incumbent HRO providers.
I'm leaving for a tour of the sub-continent next week, stopping in Delhi, Mumbai, Hyderabad and Bangalore, where I will be speaking at the Nasscom BPO strategy summit chairing a CEO Panel looking at BPO competitiveness. Key discussion points will focus on:
The survival prospects of pure-play BPO providers to compete effectively with the IT and business process The importance of knowledge process outsourcing to the future of successful BPO solutions
Whether BPO vendors should take more responsibility for helping their clients establish stronger and more effective governance capabilities
Measures BPO providers should take to add more value-added servicesinto the engagements to ensure their clients receive ongoing quality
India's major strengths and challenges with BPO in the medium-to-long term and whether Latin America, China, and other regions could threaten India's current dominance in BPO
Drop me an email if you want to meet up while I'm at the show.
I am extending an invitation to HFS readers apply to join our new networking group on LinkedIn entitled the "BPO and Offshoring Best Practices Forum" – we already have 850 members signed up. This is intended to be a forum for leading outsourcing executives to share their experiences, views, opinions, best practices and lessons learned in the world of business process outsourcing and offshoring. You will also get a chance to participate in a "State of the BPO Industry" online survey next month. And it's FREE.
I'm currently on a three-week outsourcing excursion across France, UK, Belgium and then India… so I thought I'd entertain you all with some pictures and musings along the way. Am currently enjoying the hospitality of a outsourcing provider which owns this rather charming estate… can you guess which provider it is?
My friends over at FAOToday magazine (Crossing media) are staging an "FAO Summit" at New York's Union League Club on 2nd and 3rd June, entitled "The Art of the Deal". They have kindly offered free passes to the first 5 "Horses for Sources" readers to register: Register here, or email Adam Bleifeld for more information.
Unfortunately I will be in India at the time, otherwise would definitely have been there, but thanks for the award nomination chaps.
Having worked closely with both ICG Commerce and Genpact for the last few years, it was a positive step forward for the firms to announce a partnership, but I believe the companies should go a step further and merge. Partnerships like this are normally opportunistic; they help the firms team up for broader finance/procurement customer bids, as they can be vulnerable when competing with Accenture and IBM, which have broadscale finance & accounting (F&A) and Procurement BPO solutions.
BPO solutions that cut across finance/procurement and payroll functions, normally require process knowledge that can be shared across delivery staff and technology. How easy is it to transfer these processes to two separate suppliers, whose staff work in separate locations, work for different organizations with different cultures and may not be overly familiar with each others’ technology platforms? Your BPO services are only going to be as good as the people delivering them, so you need to know your provider is investing heavily in ongoing quality improvements, enhancing the technology on an ongoing basis, and constantly developing its personnel. I like partnerships where two parties set aside budget to co-invest in developing a platform, or jointly establishing a delivery center, as opposed to opportunistic arrangements set up for competitive purposes to win deals.
Both Genpact and ICGC are great masters of their areas, and, in-fact, resemble each other quite closely: Genpact was the rogue little guy that came along and upset the F&A BPO apple-cart and won multiple contracts away from the big boys, through a unique combination of low-cost labour underpinned by the GE culture and process methodology. The firm is now the third-largest F&A BPO provider and has recently gone public. ICGC has had to operate in a similar fashion, competing against much larger competition, but has enjoyed some notable blue-chip client successes, winining procurement engagements with companies such as Kimberly-Clark, Hertz and Nordstrom. F&A BPO is a much larger and more lucrative market, based on the major labor arbitrage advantages of moving transactional processes offshore, whereas procurement BPO has been a tougher sell to companies, with the challenges of moving work into low-cost locations and transitioning unique expertise sets in distinct category areas over to third-parties providers.
The business case for procurement BPO is based on future savings from managed spend, not on immediate savings from the bottom-line through moving hundreds of positions offshore. Moreover, procurement is one of those functions which has, in many firms, been cut to the bone, and the only means to find new avenues of optimization is through having better technology and access to skilled staff, who normally reside in the regions where the procurement transactions take place. Most companies moving into procurement BPO today are often motivated by the fact they have already outsourced transactional finance work, have become experienced with outsourcing, and want to take a longer-term and more strategic view of managing their global sourcing mix. Hence, ICGC needs to be close to the F&A BPO action to get into the procurement BPO discussions. Being joined at the hip with Genpact is a very smart strategy – and Genpact – at the same time – needs to have that procurement story.
However, when we look back at BPO partnerships, it’s difficult to find examples of ones which have genuinely worked. ARINSO, the Belgian-headquartered HR services firm, which was acquired by Northgate in May 2007, secured a famous reputation for becoming the “outsourcer to the HROs”. The firm was simply one of the best feet-on-the-street SAP payroll integrators in Europe and knew how to knit together complex pan-European payroll solutions. Firms such as ACS and Accenture subcontracted their European payroll work to them as part of several major HR BPO deals. They didn’t want to be European payroll providers, and ARINSO did, so this made sense for individual deals. These firms didn’t partner, they signed contracts to work together when their clients required it.
In Genpact’s case, the need for the major BPO providers to broaden their solutions across business processes tied to core ERP is intensifying. Many current BPO discussions are being dominated by the broadscale ITO/BPO suppliers pushing harder for bundled IT and business process options. HP now has EDS and should become a major force in broader BPO offerings, while Capgemini, Infosys, TCS and Wipro are all focusing on going after these broader engagements. They realize the risk of Accenture and IBM running away with the high-end market if they can’t scale up and bundle their offerings more effectively.
Let’s cut to the chase – we’re in a very competitive market right now, and the battle is on to take control over the top clients. Long-term BPO contracts are the way in – they give outsourcing providers the runway to build credibility and broaden their solutions in developing areas such as procurement BPO. BPO is not ITO, which is far more mature and clients have options to multi-source areas such as application development and IT infrastructure. BPO is not as cut and dried – processes blend across functions and it’s really more about people than simply machines and programmers, which is why we don’t see a lot of companies sharing out functions such as HR, finance and procurement to multiple suppliers and try and manage them all. We’ve seen some do this, laregely big brands with big resources – and to some extent this has worked, but it will take years for the majority of buyers to develop the internal governance skills to manage multi-sourced BPO environments successfully. We’re moving to a state where companies will select one major BPO supplier, and they will subcontract to niche specialists where necessary, but they will own the overall client relationship.
124 posts, 548 comments and ONE YEAR later, this blog continues to (somehow) prolong the dialog on the "O" topic. I have learned so much from some of the excellent views, opinions and insights from so many of you – I hope some of you have too.
Our last debate about about "Platform BPO" got me thinking more about how outsourcing PMOs can be more successful at delivering these engagments, and reaching a desirable operating state sooner. While my good friend from SAP's BPO group, Gianni Giacomelli, makes an excellent point that service providers need to leverage economies of scale and process optimization ruthlessly to hit their targets, it also raises the question of how outsourcing PMOs within the buyer need to step up to the plate to take more owenership over their outsourced processes. (Gianni wrote an excellent piece here last year entitled "Why a good BPO provider is not enough for a successful BPO service delivery" on this topic).
