I can’t help feeling we are entering into a critical phase of business globalization, due to a convergence of factors. We have seen these global dynamics in play for the last 30 years, but we are now in an economy where today’s CEOs are aware they need the tools at their disposal to become truly integrated global enterprises.
I was privileged to have a preview of IBM’s new study of 1100 CEOs this week at its analyst event in New York, and, while the findings are under embargo until next Tuesday’s public release, I can say they reinforced one thing for me: the vast majority of today’s CEOs recognize the need for change, and are more prepared than ever to be bold and adopt measures that can drive rapid change through their organization. So why is now different from that of 5 years’ ago, or 25 years’ ago?
1) Many enterprises began rationalizing and optimizing their infrastructures in 2001 during the last downturn, and they need to look further outside of their organizations to find further business efficiencies.
2) The Internet and global communications revolution have created unprecedented access to global talent, where you can have your mainframe computers managed from Brazil, your general ledger consolidated in Hungary and your logistics analytics performed in India.
3) Enterprises are moving ever-closer to developing common standards to support processes that can enable them to operate and compete as global entities. When you have rapid access to your global financial, HR, supply chain, customer and product information, you are in a position where you can make quicker informed decisions to enter new markets, sunset dwindling product or service lines and mobilize your resources and partners accordingly to respond to your existing and future customers. ERP platforms are far more globally-integrated now than they were a decade ago, which provide a crucial backbone for supporting global business initiatives, and developing technology standards such as SOA are helping firms re-use and optimize a lot of what they already have.
4) Global services providers are going through a marked phase of healthy growth despite a flagging econom: look at the latest quarterlies from Accenture, EDS, Genpact, Infosys, IBM, TCS , Wipro, at al. This is enabling them to develop further their global delivery infrastructures to accommodate talent across Asia, Europe and Latin America. The majority of today’s CEOs realize they do not have all the talent they need internally to take full advantage of global resources, and they are increasingly turning to services firms for support, whether it’s large-scale outsourcing of business and IT functions, or augmented staff support to provide them with scarce skills.
5) The current economic downswing has upped the ante for global companies. Business leaders are becoming increasingly knowledgeable about what they need to do to rationalize costs further, develop common business standards and integrate their businesses on a more global basis. Their challenge is executing, and they are realizing the exigence to make braver decisions to achieve the change they need on a more rapid track, as opposed to making slow, painful, tentative steps.
Bottom-line, the current downturn is magnifying the scarcity of managerial talent with the experience to manage offshore resources, develop metrics and service levels, possess the process acumen that eliminates waste and drives ongoing quality, and the global business intelligence to move into new markets. Yes, some of these are age-old issues for improving business performance, but the reality is that today’s CEOs need support like never before, and many are increasingly willing to make more radical decisions to avoid seeing their business underperform or sink in a troubled economy. Today’s leading service providers are becoming critical players in providing the assistance CEOs need to become globally integrated businesses, however, as we have mentioned many times before, while services providers provide the tools and skills companies need, ultimately it’s how effectively enterprises engage their services partners to develop their own talent inhouse to acquire the experience and tools they need to make their enterprises successful.
The Indian Government has clearly been reading this blog and bowed to our pressure to extend the Software Technology Parks of India (STPI) tax holiday. The Indian finance minister has now proposed to extend the STPI tax holiday to expire on March 31 2010, a year later than the originally stipulated March 31 2009 date.
This is a shot in the arm for the Indian offshore services sector, and the shares of Infosys, Wipro, TCS, Cognizant, WNS, Patni, Satyam, EXL Service, Genpact et al. are all expected to jump by up to 10% as a result. The additional year should give the Indian outsourcing industry the time it needs to stabilize its current issues with Rupee appreciation and wage inflation.
Thanks to all you for you great contributions on this issue.
Following hot on the heels of our recently debated issues regarding the future health of the HR Outsourcing industry, I was delighted to see Convergys renewed its multi-scope HRO engagement with Avaya today for a further five years. I have some personal experience of this engagement from its transition a few years’ ago, when Avaya moved onto a global hub-and-spoke model underpinned by SAP’s HR platform, that included a complex global payroll roll-out. Convergys is also in the midst of global transitions with both DuPont and Johnson & Johnson (both signed after Avaya), and the successful – and lengthy – Avaya renewal spells good news to these more recent adopters of HRO seeking reasurance that their firm chose the right HR deployment model.
In my view, you can only truly judge the success of an outsourcing business when the initial wave of adopters renew for long periods. We have discussed many of the issues this industry faces, but the ultimate proof is in the pudding, and so far, we are seeing the early adopters choose to remain in an HRO delivery environment. These are the companies which have worked through the early complexities and found their status quo with their service providers. I’d like to congratulate both Convergys and Avaya’s HR leadership for their renewed relationship and finding a successful balance.
Braving the annual industry HRO schmooze fest this year, I realized I was emulating Roger Federer’s extraordinary Wimbledon run by making it to my fifth-consecutive show.Only an elite few have made all six – at least I can’t claim that honor -:)
From the moment I stepped into Naomi Bloom’s Brazen Hussies event on Tuesday night and was ordered to eat a heavily-garlicked vol-au-vent with the instruction “we’ve all had one, and so should you”, I knew something interesting was in the air this year.
For starters, all the industry big-guns were there; the leading HRO providers with all had their head honchos; the sourcing advisors; both SAP’s and Oracle’s BPO teams espousing the virtues of outsourcing on their ERP platforms; every staffing, benefits, talent management, data-something-or-other firm you’d never heard of; and even a few mercenary analysts dotted around the place.We even had a new double-act to entertain us – the Elliot and Richard show, moderated by the vivacious and cabalistic Jay Whitehead.This was one networking event when you just had to be there.
So, in true HROWorld tradition, I slammed myself with 20 back-to-back meetings over the two days, supplemented with a constant supply of stale coffee and a constant stream of sales literature I will cherish for a long time (ahem).
My overall impression of the state of HRO is one of re-engineering to get this right.This was the resounding message I got from several discussions with the market-makers in this industry. OK, we’ve had a few non-startersrecently, but let’s emphasize these were projects that were cancelled before any implementation work had taken place, and in several cases, the contract had just never quite made it to fruition.This doesn’t imply that HRO is failing; it implies that some businesses have made strategic decisions that now isn’t the right time to undergo open-heart HR surgery on themselves.And do you blame some of these firms, when the bottom has fallen out of their industry and they might just have some other urgent priorities to rectify?
I wrote a year ago that the industry crystallized around the Convergys/J&J deal, and I was right.What I liked about this show was the serious discussion on what works in HRO versus what doesn’t.There was a refreshing honesty from almost everyone regarding the steps suppliers and buyers need to take to make this work…and so much less hype.In fact we had so little hype, we could have used some.Most of the suppliers are seriously focusing on what they are good at, and crafting HRO solutions based on their core strengths.The need for standards and common service levels was discussed at length, with several ongoing initiatives in the industry currently focused on the joint-development of common HR standards and technologies that enable a more robust, repeatable HR delivery model.
There was universal recognition that HRO works when solutions are crafted from the bottom-up, with services added incrementally and HR leaders having more time to develop successful governance practices, as opposed to some of these massive end-to-end “big-bang” deployments, that have often resulted in a misalignment of expectations and delivery.This isn’t failure or disaster; it’s a 9 year-old industry testing the boundaries of what works – and what doesn’t.I’ve been at pains recently to point-out that 97% of HRO deals have succeeded – and by succeeded, I emphasize that they are plugging away to get this right.
Let’s be brutally honest here, this is business process outsourcing – and this is a tough complex business, where things can only go wrong.You really cannot judge the “success” of any major outsourcing engagement until it’s at least 3 years’ along and transition has been completed.The day of the billion-dollar mega-HRO deal may be over for now, but take some time to look at the plethora of these “bottom-up” engagements taking place, where companies like ADP and Ceridian are racking up their HRO clientele at double-digit growth rates; look at Hewitt’s re-focused strategy on centering its core benefits outsourcing business as the kernel of its HRO delivery model; and look at Accenture‘s and IBM’s continuing efforts to optimize their global HRO engagement models, with HR service-delivery centers employing thousands of service personnel across several global locations. The seeds of this industry have been sewn, and we’ve had our reality check.Now it’s time to move on and watch some great companies make this thing work.
One of the toughest challenges for businesses today is trying to retrofit offshore operations once they have evaluated what work to send offshore or outsource. They can spend months – or even years – strategizing how to do this effectively. I am honored to welcome Uttiya Dasgupta discuss his theories on developing a phased approach to implementing an offshore outsourcing initiative. Uttiya is one of the industry’s first genuine offshoring pioneers, having set up and managed IBM’s first offshore dedicated center in Bangalore in the 1980’s, in addition to helping Texas Instuments and Samsung establish their offshore operations. He now heads up his own outsourcing consulting firm Omnispan. Over to you Uttiya:
Ask a company which has been outsourcing work offshore, maybe for a year, about how well things are going, and you are likely to get responses such as “Well, we did OK on some projects” to “It is still a new area for us” to “Execution is fine, but we need to figure out how to use this as a strategic tool”. Ask the provider the same question and you will hear responses like “We wish we could get more work” to “We need clients to manage more effectively” to “The client requirements keep on changing and we are held accountable for non performance” etc.
Over a few more years, the situation tends to stabilize or the contract is reduced in scope or discontinued. To an SME which does not have deep pockets and time on its side, such uncertainties can lead to irreparable harm.
Many companies are advised to invest time and effort to choose an offshore provider with the right technology, management and cultural skill sets, with cost reduction being a basic necessity. However if you have not developed a business strategy that incorporates outsourcing as a key enabler, isn’t it not true that you will use the provider more for tactical one-off projects? Will you be able to leverage the provider’s capabilities and build a strategic partnership?
Then again, you already have a running business. And you are trying to retrofit offshore outsourcing, so that it becomes an integral part of your business (or you might be taking a second chance at this). If you are an SME, you want to achieve your first success in a few months (not years), and continue from there. Does this appear as a tall order?
Fortunately, the answer is a No. A number of companies have adopted an evolutionary approach for their offshoring initiatives. Instead of spending endless hours up-front in strategizing, they have outlined three distinct phases. The first phase can be characterized as a Pilot in which simple and non critical work is offshored. If this is successful in a few months, they can move on to the next phase. The second phase can be characterized as reaching a steady state, in which more critical operational work is offshored. With consistency in operations, the next phase can be entered. The third phase can be characterized as a Partnership, in which the provider and client are well aligned to address critical and strategic business challenges.
To quote some examples – software companies have offshored test automation and software auditing in Phase I, these were internal tasks, not directly visible to clients. After a couple of months, they have gone on to Phase II and offshored product testing and software development of a few critical modules (not IP related). After a year in Phase II, they have moved on to Phase III, in which they have been doing joint design and development and testing on new products.
Some benefits have been a) progressive building of a strong relationship and management processes between client and provider, b) progressive buy-in of the client’s internal staff to offshoring and c) progressive enhancement in performance. The last point requires mention since the bar on performance has been raised on both sides – client and provider.While the provider is accountable for deliverables or outputs, the client is accountable for training, and specifications or inputs.
Where does the provider selection fit into all this? Well for one, the three phases should be identified up-front. As you do this, you will gain an idea about the kind of capabilities you are seeking in your offshore partner. Instead of having a straight jacketed RFP, include the phases as part of the RFP, and ask providers for any insights. Also quiz the providers on a lot of situational questions, keeping in mind that both of you need to resolve communication issues when work starts, or the “rubber meets the road”.
What about appropriate names for the three phases? Since you are progressively building your muscles for offshore outsourcing, how about using Crawl, Walk, and Run?
UBS has shelved their planned HRO engagement with ACS and IBM as a result of its issues with the sub-prime lending crisis, the economy and their internal business uncertainty. Like the recent Starbucks cancellation of their HRO engagement, plans have been waylaid to progress into a major HRO implementation due to changes in the business, as opposed to any operational issues.
What concerns me is the level of short-term-ism that some companies are currently adopting, with their looking only at the next quarter, as opposed to the longer-term picture. I do believe this crisis will provide the outsourcing industry with a mixed-bag of opportunities, with some firms viewing the bigger picture and moving more aggressively into outsourcing initiatives, and others, like UBS, deferring decisions over long-term initiatives such as HRO, as they monitor the current economic situation and figure out their survival tactics. Surely this is a perfect time to embrace changes to your business that will drive lower operating costs and new ways of doing things? I’d be interested in your views….
As speculated during our March recap, the F&A BPO market is bounding on. I can now confirm (and you heard it here first) there were 107 multi-process F&A BPO contracts signed in 2007 – that’s 20% growth over 2006. In addition, the average contract value stabilized at the $33m level. I’ll be delving more into this market in my research in the coming weeks. Strong performances from Accenture, IBM, Genpact, HP, InfosysBPO and Vengroff Williams were the prime catalysts for the record year. The outlook for this year is even stronger.
I have always been a believer in a robust business model for F&A BPO – it balances the benefits of offshore resources with financial workflow solutions, and – in theory – allows finance executives to focus more time on delivering their leadership information they need to base business decisions – and less time overseeing tactical process issues. However, like any solution involving the transition of labour and processes, the success of F&A BPO depends heavily on the buyer’s patience and ability to get the best out of their vendor, and their willingness to re-tool themselves to operate in an outsourced environment.
In any case, it’s going to be a fascinating period ahead for this market with the economic situation. Some companies will aggressively pursue outsourcing strategies, spurred on by the cost-savings, while others will adopt a short-term mindset of "getting through the next quarter", and the upheaval of a multi-year outsourcing engagement will be low on the priority list.
In these troubling economic times, most firms are tightening their belts to keep those unnecessary costs down while we look to ride out this recession. I used to charge $500/hour for dishing out this kind of advice, but I thought I’d give out some cost-cutting tips to Horses-readers as a gesture of economic goodwill:
1) Make all your senior managers and sales people fly Northworst. You’ll be amazed at how many of those "critical" business trips go away….
2) Reduce the "on the road" food budget to $30 a day. (Makes everyone order pizza to their rooms, rather than those terrible room service burgers);
3) Enforce a zero-tolerance policy on alcohol products to be expensed. This will automatically reduce 25-50% from your bottom-line. (Better than any outsourcing initative);
4) Send all your lowest performers on Six Sigma certification training. They’ll either disappear from your payroll completely, or have a complete epiphany and start delivering the goods;
5) Seek out the cheapest, most desperate outsourcing service provider you can find and get them to take on all your messed-up HR, finance, procurement and customer service processes. Hire a razor sharp sourcing attorney to include performance-levels you would never have dreamed possible – and which you would never have ever reached yourself in a million years. Wait one year, do nothing, and they are guaranteed to have missed every single performance metric. Now you can sue them for a small fortune for lost revenues that you would never have made in the first place. Genious;
6) Sign a corporate deal with Red-roof Inn for any off-plan sales reps. There is no better way to improve performance;
7) Completely refocus your entire business strategy on producing mind-numbing facebook applications. You can’t go wrong, trust me.
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Time to look at new means to lower those corporate costs -:)
360DegreeVendorManagement raises some real concerns regarding the Software Technology Parks of India (STPI) tax scheme which expires on March 31 2009. The scheme currently gives tax-breaks to new Indian organizations in the region of 10-20% for their first 10 years of inception, designed primarily to bolster India’s software industry. Established Indian firms are constantly spinning out new companies to keep enjoying the tax breaks. Today, exports by STPI registered units comprise more than 95% of the total software exports from the country, which include ITO and BPO exports.
Get more knowledgeable on this subject now. Talk with your attorneys, analysts and consultants. Do not wait for your vendor to “educate” you. There are many layers of taxes and your advisors will be able to separate hearsay from fact.
Negotiate your pricing terms to reduce your exposure to changes in Indian taxes.
Use the risk as another reason to diversify your offshore vendors and locations. Multi-location, multi-vendor strategies mitigate a wide variety of risks.
Recognize that this change will not kill the Indian industry – it will just level the comparative costs among countries. India will likely become just as expensive as the Philippines.
Adjust your financial plans now as you enter into 2009 budgeting and planning.
To compound issues with the competitiveness of India’s outsourcing exports, Ted Botzum at TPI discusses the issues with foreign currency fluctuations and their impact on outsourcing contracts. Ted pushes the point that firms looking at outsourcing need to invest in scenario development to balance the financial risk.
Hence, there are a number of variables that must be built into the Indian outsourcing scenario:
Rupee appreciation
Weak dollar and potential weakening of the Euro
Impact of the STPI tax scheme elimination
Impact of Indian wage inflation
By taking away the tax break, the price-playing field will be leveled considerably between the Western outsourcers and the Indian-centric firms. The Indian firms are now competing for the majority of top-tier enterprise outsourcing contracts, both BPO and ITO – which was not the case five years’ ago. Firms such as Infosys, Wipro, TCS, Genpact and Satyam (as we discussed here last year) are constantly having to evolve their human capital strategies to retain and develop quality staff over longer periods and keep wage inflation to a minimum. Moreover, they are moving increasingly towards volume / service-based pricing models and relying less on FTE-based pricing, which leaves them vulnerable to these pricing pressures. Incumbent global outsourcing firms such as Accenture, ACS, HP and IBM, which have large employee-bases in India, are also facing similar challenges to keep spiraling costs to a minimum, but benefit from having a larger proportion of their employee resources in other global locations, and are not going to be impacted when this tax break is eliminated.
My view is that the Indian-headquartered suppliers have arrived on the global stage and are now seeking to take their services to a new level by investing in higher-value services and greater onshore presence. By taking away their tax-break, the Indian government is only serving to harm its star performers at a time they need greater support to maintain their market surge. With the current economic downturn, outsourcing deals are more competitive than ever, and next couple of years will lay the groundwork for the global sourcing industry for years to come. I’d be surprised if the Indian government doesn’t relent on extending the STPI tax break, but maybe it’s decided the time has come to cash in on its most successful export?
I spent some time at HP’s industry analyst event in Boston today, and was surprised to hear its leadership openly embracing BPO as one of the company’s strategic initiatives. Having witnessed the firm quietly picking up several large – and complex – BPO deals over the last 3 years, I have been disappointed that CEO Mark Hurd has, until now, chosen to talk up other product lines of his company – i.e. its infrastructure and printer businesses, leaving its promising BPO service line to take a backseat. Meanwhile, several of HP’s services competitors have been aggressively touting BPO as a major strategic arm for their businesses, despite the fact their BPO market presence is far inferior to that of HP’s.
I will be writing a lot more about bundled outsourcing solutions in the coming months, as I firmly believe the future of outsourcing lies in outsourcing vendors’ abilities to deliver hybrid business process and IT solutions in a managed services model – either under a single vendor, or under a well-governed combination of best-of-breed players. HP’s new outsourcing client, Molson Coors,is a bundled F&A, HR and IT engagement, which can make sense for many mid-size firms of a similar size, where having a single throat to choke, combined with the fact that their provider is transforming business processes in tandem with their corresponding business applications, can prove to be the right way to go. However, I do emphasize the "can" here, as it’s really all about how effectively buyers govern their vendor relationships, and understanding what works best for them. Again, it’s a question – in every instance – of Horses for Courses….
The Indian Government has clearly been reading this blog and 
Following hot on the heels of our recently 
Braving the annual industry HRO 
UBS has shelved their planned 
As speculated during our 
In these troubling economic times, most firms are tightening their belts to keep those unnecessary costs down while we look to ride out this recession. I used to charge $500/hour for dishing out this kind of advice, but I thought I’d give out some cost-cutting tips to Horses-readers as a gesture of economic goodwill:
Having witnessed the firm quietly picking up several large – and complex – BPO deals over the last 3 years, I have been disappointed that CEO 
HP’s new outsourcing client, 