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….
Little outsourcing advisors. The outsourcing advisor debate continued on Deal Architect. We opened the debate here where we discussed the plethora of small boutique outsourcing advisors that continue to be influential advising on outsourcing engagements. We also kicked off a heated discussion thread when we discussed what enterprises should look for in an advisor. Vinnie makes some interesting comments on why many firms find advantages with the smaller players, especially when established advisors can suffer from Stockholm Syndrome and refrain from aggressive negotiation tactics with large vendors. Bottom-line, it’s "Horses for Courses" when enterprises decide what’s best for them… now where is that recurring theme from again?
Starbucks redux. Returning CEO Howard Schultz made a quick decision to perform a U-turn on the retailer’s HR Outsourcing (HRO) engagement with Convergys, which got debated here. HRO has proved too much of a distraction for the firm’s management and staff, as the firm goes through a major restructuring to improve its offering to its customers, close some US stores and slow down opening new ones.With the contract only eight months old, you cannot cite operational issues as a prime reason for this reversal of strategy.As only Convergys was involved in the initial blue-print deployment work, both parties can exit the agreement before any serious implementation efforts have started. With the press trying to find flaws in the HRO model, I have been at pains to point out that only a small handful of HRO deployments (3%) have actually been terminated. While comprehensive HRO deals may be under continual scrutiny, the demand for smaller scope HRO solutions in transactional areas is still healthy, with ADP announcing it is servicing payroll for 100,000 of Sodexo’s employees. The fifth annual HROWorld show this year should be interesting… and yes, I will be there.
Finance & Accounting (F&A) Outsourcing is bubbling again. There are a number of major F&A BPO pursuits well underway at the moment, with the market showing strong signs of a pick up this year after a slowdown in the latter half of 2007. Watch-out for my upcoming report on this market in May. My old friend Clarence Schmitz, who runs F&A BPO specialist Outsourcing Partners International, has also been busy expanding his company’s footprint. Only a week after he announced his firm had opened a new F&A service center in Gurgaon (New Delhi), I was invited to the opening of their new 280,000 sq foot facility in Bangalore in May. OPI now boasts three facilities in India (their other center is in Kochi), in addition to its Central European center in Sofia, Bulgaria. And if you ever wanted some excellent – and low-cost – skiing, don’t discount Bulgaria…
EDS is back onboard the public sector gravy train. It’s been an interesting few weeks for EDS, with its contact center outsourcing and government businesses. No sooner had it announced its joint initiative with Microsoft to develop its Dynamics CRM solutions for its call center business, that it announced it had been named one of the preferred suppliers to the General Services Administration’s $2.5 bn Indefinite Delivery/Indefinite Quantity contact center services contract. This comes hot on the heals of a mega $1.3 bn contract with the Singapore government’s iDA to provide desktop services across Singapore 74 public agencies both domestically and worldwide. Having lived and worked in Singapore, I can personally attest that the country is a true pioneer in developing Internet-enabled government services for its citizens. With EDS’ recent initiatives to restructure its SAP services practice and its renewed focus on developing its legacy integration services, are we looking at a new era for the Plano TX firm? My view is it needs to fill the F&A BPO gap in its delivery portfolio and it will have a completing array of BPO and IT services. Don’t bet against an acquisition this year to remedy this. Drop me an email if you want to speculate further…
And more from Blogsphere in March….
Hello Out There! Any Internal or External Auditors Reading the News? – Superb rendition of how accounting and regulations failed shareholders from Brian Sommer. We don’t need more regulation and accounting standards. We need innovation in the accounting industry and we need accountants willing to develop new forms of communication beyond the balance sheet, income statement and sources/uses of funds reports. Innovation and Accounting are two words that rarely exist in the same sentence but should.
Foreign Currency Considerations Should Not Be Foreign – TPI’s Ted Botzum discusses the impact of foreign currently fluctuations on outsourcing contracts. "Our advice is to keep the focus on practical issues from all sides involved in a complex transaction. Make certain that everyone is able to fulfill the financial setups that have been contracted."
Pro-Globalism View of Outsourcing and Outsourcing Critics – the view from the "school of hard outsourcing knocks". The savings are just temporary, as the labor arbitrage or a vendor contract negotiation will find equilibrium again. Consequently, outsourcing critics speak truthfully about the impact of outsourcing to local jobs, although most see only the short term impact. A company that outsources and does not invest in innovation or transformation misses the great value of that could be created by infusing the freed capital back into its operations. The long term impact of the failure to innovate is devastating because competition will, eventually, find balance again.
Choking in China? India’s Worse – Jason Busch comments on India’s pollution issues, in comparison to China’s. A person suggested that when he was there in recent months during a particular dangerous pollution day, he swore that he could visually make up the individual particulates in front of his eyes causing a dense smoke fog across the capital. The thought of it makes me want to cough.
FedPitch – How Would You Improve Federal Workforce Management? – Hilarious. It’s just you, five prominent judges and hundreds of audience members in a tent on the National Mall in Washington, DC. Your goal? Come up with an innovative idea or approach to attract, engage, motivate, lead, develop and reward the nearly 2 million members of the nation’s federal workforce.
The end of the software suite? – And finally… Dennis Howlett’s retort on this article on whether the on-demand software suite might replace the behemoth systems usually found today. As an exercise in futility, the piece reminded me that regardless of how much you or I might believe in a particular approach to software, there is always the risk of believing your own…. I worked with Dennis back in the ’90s when I was a 20-something analyst… and he hasn’t changed much…
AMR Research’s CEO, Tony Friscia, delivered a superb analogy that software and golf are more related than we may think:
"A large percentage of golfers bought new golf clubs every two to three years. Yet the average golf handicap hasn’t dropped one point… for either you or me. But in the hands of Tiger Woods, that technology makes a tremendous difference, which is why some of these technologies are prohibited on the pro tour"
I’d even go as far as using this analogy to describe the relationship between an enterprise and its outsourcing provider. The provider provides the golf clubs, but ultimately it’s the buyer who is making the shots…
The rapid maturing of blog-culture is radically changing the way media is being delivered to people in the hi-tech, services and outsourcing industry. Suddenly, opinionated experts (I do use this term lightly) have access to the industry which they never had previously. Long-gone are the days where they needed regular columns in trade magazines to get their views across, or a press quote that could be used out of context. Why wait a month to get your latest opinions to the world when you can get them out in minutes?
The lower-tier trade publications are getting a hammering. Why go to some of the traditional trade magazines and websites, when there are a plethora of blogs out there with up-to-date news, and great debate – and from people who generally know their stuff. What’s more, YOU get to be part of that debate and YOU can decide whether these blogs are worth reading. The threatened media firms argue that blogs are de-regulated and provide unsubstantiated information, however, most journalists are experts at placing their own spin on stories to get attention, and often provide us with unfounded opinions and views for the sole purpose of carving out their piece of the airspace. Even on this blog, for example, we’ve had opportunities to pick out inaccurate media stories and try and add a dose of realism to the world, which otherwise would have left people with serious misinformation. Not all bloggers have the polish of journalists, but they can get their point across just the same.
Most of the top-tier media brands get this and offer bloggability on their websites. I predict the top media brands, such as Forbes, ZDNet, Businessweek, Wall Street Journal and Investors’ Business Daily, will continue to embrace the media of blogging and continue to be successful. However, the choice of websites to visit to get the latest scoop on industry events, technologies, deals, mergers, or even general opinionated banter has ripped the media industry apart over the last couple of years – and this is escalating. Some media firms are building stables of their own bloggers to combat the threat and deliver their own blogging-style media, but are often restricted to people who tend to be independent and not work for large organizations.
What’s more, some of my friends who are now pro-bloggers would never have become journalists, however, blogging has provided them with a medium to deliver their insight to industry in their own conversational style. Several of them even make a living doing this… vendors – and even some trade press – are sponsoring their blogs if influencers, clients and prospects go there. The trade-press now competes with these individuals, many of whom are delivering regular content at no cost. In the past, many bloggers would have provided the trade-press with their insight, but they now prefer to preach from their own, personalized pulpit. What blogging provides is a medium for experts, analysts, academics, consultants, marketeers and practitioners to convey their views of the industry, so we don’t solely rely on journalists for information, whose media firms are dominated by the whims of their advertisers and parent organizations.
All-in-all blogging has completely changed the media game in our industry. Whereas mainstay publications believed it was their right to own the delivery of information, they are quickly getting a nasty shock that they are no longer the prime vehicle for delivering news and content to their industry. Just visit Google finance and check out Microsoft – as an example. Scroll down the page and you’ll see the latest blog posts on the firm. While the trade press still cling on to delivering the news, the bloggers are delivering most of the color commentary…
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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, 
Little outsourcing advisors. The outsourcing advisor debate continued on 
AMR Research’s CEO, Tony Friscia, delivered a 
