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…
With the recent announcement that Starbucks and Convergys have mutually agreed to terminate their HRO engagement after only eight months, serious questions are being muttered about the future direction of enterprise-wide HR outsourcing.
I, for one, have always been a strong advocate of the potential business value of HRO. The opportunity for enterprises to aggregate multiple suppliers of HR services under a single "throat to choke", take advantage of self-service tools and have their retained HR team aligning themselves more closely with driving higher-value HR initiatives, are compelling. However, a number of factors have created serious issues with HRO:
1) Inability to take advantage of low-cost offshore labor. It has proven very difficult for HRO providers to take a great deal of the operational work offshore, which has prevented suppliers offering more sizeable cost reductions for their clients. Having offshore service staff handle direct issues with onshore staff for many HR issues is simply not workable, not to mention the political, data privacy and compliance issues restricting the movement of sensitive employee data offshore;
2) An HRO engagement affects the whole enterprise. It hasn’t been possible for any HRO deal to be kept under the public radar. Any HRO deal impacts the whole organization, and is immediately held to public scrutiny. Other outsourcing initiatives, for example finance and accounting, procurement, or some aspects of IT outsourcing, are typically engagements between a service provider and a single company department. It’s far easier for enterprises to keep these engagements away from the public radar and give themselves time to get it right;
3) HRO engagements are not given enough time to reach a steady-state. All outsourcing initiatives are painful at first and take at least 2 years to move through transition to a steady state. The Starbucks engagement was only 8 months along… that is not enough time to get near a fully operational state for the firm;
4) HR staff have been largely resistant to HRO. When executives resist outsourcing, it makes it extremely challangeing in may cases to execute effectively through the complex transition. HR trade press have been constantly on the alert throughout the last few years to find the next "HRO tragedy" to dramatize. In reality, there have been close to 200 enteprise-wide HRO engagements, and barely 6 of these went back in-house. That’s a 3% failure rate.
5) The costs of benefits management have proven greater than suppliers anticipated, which have eaten into their projected profits;
6) The absence of a common one-to-many HR platform. This has plagued HRO since its inception 10 years’ ago. The complexities of HR technology integration have driven up the costs of broadscale HR transformation and have clearly slowed adoption over the last year.
What I see happening, is an industry going back to basics. While the mega-HRO deals have dried up, the amount of less complex and smaller-scope outsourcing engagements in core transactional processes such as payroll and benefits admin are still experiencing healthy growth. Moreover, recruitment services are growing in adoption and interest, and the focus on talent managemt is at an all time high, as we discussed here recently. HR consulting services are booming like never before. Moreover, HRO offerings have the future capability to deliver the value that enterprises unlimately need – we’ve simply reached a juncture in this market where the current flock of adopters need to be left alone to work this out and deliver their success stories in the future. I predict a quiet year for HRO, but enough enterprises have taken the plunge, and there are some highly capable providers out there (both services and software) quietly working on getting this right.
p.s. a big hat-tip to the Inflexion man for tipping me off on this one….
Outsourcing has proved to be a major "hot potato" for the US healthcare industry. Coming from the UK, the healthcare system in the US is like comparing a Porsche with a Lada, but the British National Health Service (NHS) has, in recent years, been resorting to outsourcing major pieces of its back office infrastructure in efforts to slash cost, centralize and standardize processes, and access skilled IT services it simply does not have inhouse. I don’t believe the NHS would have dragged itself from a 1950s infrastructure to something vaguely resembling a modern-day organization, if it wasn’t for the outsourcing services that have been provided by Accenture, EDS, IBM, Steria (Xansa) and others. Outsourcing provided a shock to the system that forced reform and modernization it was never going to achieve on its own.
When you spend time studying the improved efficiencies and cost saving opportunities from which hospitals, managed healthcare providers and ambulatory services can benefit, simply by centralizing and standardizing their operational processes, you will scratch your head to understand why this industry has been so resistant to change. These operational functions include specific healthcare processes such as revenue cycle management, contract management, clinical data management, patient accounting system management, in addition to the classic general and administrative processes such as application management, payroll, benefits admin, transactional accounting and management reporting services. I have seen cost savings opportunities well in excess of 50% from original budget (and sometimes even more) that many healthcare providers can take advantage of, by outsourcing many of these processes to providers such as ACS, Perot Systems or Vengroff Williams, which specialize in taking on healthcare processes from both onshore and offshore locations. Perot, for example, has significant medical coding resources in Bangalore, which comprise qualified medical personnel to take on routine revenue cycle processes such as medical insirance coding. Vengroff Williams has service centers located onshore within the United States for healthcare providers nervous of taking processes offshore.
So why is this industry one of the least willing to adopt third party services? Much of the problem is cultural – healthcare managers tend to stay with organizations for very long periods, and if they do switch jobs, will move into other organizations with similar infrastructures. Things do not change much. Most of the administrative functions are layered with top-heavy management structures that are highly resistant to change and argue that outsourcing will severely disrupt the quality of their services, and ultimately the quality of healthcare. Perspectives of third-parties are that they will never be able to deliver the quality of services as well as they do themselves. The healthcare industry has also been, on the whole, highly profitable, and the onus to take on "disruptive" strategies such as outsourcing has never been as strong as it is for highly competitive industries such as manufacturing and consumer business. And I can tell you from experience, that outsourcing is rarely successful where the resistance is deep and senior managers simply will never buy in.
The US healthcare industry is plagued by high costs throughout its value-chain – from the drugs companies, through to the doctors’ salaries and finally through to the heavy administrative costs of healthcare services. My view is that we need to see a knock-on effect throughout this value chain to reduce the overall cost of healthcare in the US, and outsourcing is just one catalyst to enable this. The pharma industry is going to be the spark for change ultimately, as competitive dynamics, globalization and low-cost generic products are forcing the incumbents to look towards new ways of stripping out cost and driving efficiencies. GlaxoSmithKline, Novartis, Bristol Meyers Squibb and some other leading pharma giants have recently entered into BPO engagements, and last week Astra Zeneca announced a significant engagement where Cognizant will provide clinical data management services. At the end of the day, competitive dynamics drive change, and this is the prime vehicle for outsourcing adoption in pharma. With increased competition and pressure to reduce costs among healthcare providers, surely it’s only a matter of time? Perhaps the next occupant of 1600 Pennsylvania Avenue will have a say in this?
I’ve just returned from an excellent InfosysBPO customer event in Philadelphia. Was refreshing to have a services firm allow industry experts, its customers and prospects talk freely about the industry and the burning issues. I especially enjoyed:
TPI’s Sue Danino, leading a panel discussing pricing models;
Wayne Mincey from the Hackett Group treated us to some confidential new data on world-class performance (a lot of vigorous note-taking during that one…);
Jason Busch on top form discussing the exorbitant price of zinc and how this impacts procurement BPO;
Micheal De Zeuw, Infosys’ VP in charge of their Philips BPO engagement, discuss their journey;
One of the key issues that came out of the AMR panel was the discussion centered on whether "your vendor is really your partner". Sunil Narang, VP of Finance for Level 3 Communications, vehemently argued the case that his firm would have never achieved the success it has with its BPO, if it hadn’t developed a partner-style relationship with its provider, based on a great deal of mutual trust and working together. On the flip-side, I have had many discussions with other sourcing executives who claim their vendor relationship is definitely not a partnership, but a contractual agreement.
My view is you really have to take control over your vendor relationship and drive the agenda, and it often takes a couple of years to get to the stage where you and your vendor feel you have a good understanding of what you need. If you can develop a relationship which feels like a true partnership, then you must be doing an great job, as this is not the case with everyone. Much depends on the skill of the sourcing leader within the buyer to create a mutually workable outsourcing environment. However, this is a skill that most executives need to learn "on-the-job" through real-life experience. So if you have not lived and breathed an outsourcing relationship, treat the situation like a marriage with a very solid pre-nuptual agreement. Love to hear your views on this….
Is there such a thing as being over-networked? While it’s practically impossibly to get finance professionals, for example, to do anything but worry about their work and pry them away from their offices, HR folks can’t seem to get enough of seeking out the next shindig where they can listen to best-practices all day long and hobnob with their peers from other firms.
My good friend Mark Stelzner, over on his blog Inflexion Point, has hit upon this issue with his coverage of the litany of member-based HR associations and consortiums. I have never witnessed an industry which is as networked as HR. Everyone knows everyone, and senior HR personnel seem to spend an exhorbitant amount of their time traveling to these conferences:
It’ll be interesting to hear your views on associations you frequent and whether your industry has the peer networking you need to do your job more effectively.
I’ve been deluged with many private emails and comments since I posted "The low-cost outsourcing advisors are on the march". Some passionate views out there, but one thing’s for certain, there has never been as great a need for sourcing advice as there is today… and there has never been such a plethora of advisors competing to give their advice. And whether you are a highly-sophisticated enterprise with your sourcing experience, or a complete novice in this domain, you will most likely have to engage a third-party, whether it’s simply to administer and negotiate a complex contract, or to hold your hand through the entire evaluation process, contract signing and beyond. At the end of the day, it’s "horses for courses" with every firm… you should know best what help you need, so make sure you engage an advisor with experience in those areas who will give you value for money. If your enterprise has been through complex outsourcing in the recent past, the chances are you will need a lighter-touch approach, but if this is a first-time experience, my recommendation is to seek expert help throughout the whole process.
My view?
On the whole, you get what you pay for. However, I have seen situations where enterprises paid top-dollar for third-rate advice, and others which received great service from one of the smaller, cheaper firms. Buyers are also getting smarter and better educated with sourcing issues, and I am also seeing more firms (mainly FORTUNE 500) trying to do more themselves and rely less on advisors. This is a natural control mechanism when companies take themselves through such sensitive change.
I am getting questions almost daily from buyers asking who/how they should approach selecting a third-party. It’s becoming almost as important as which vendor to select. I’ll be expanding more in a forthcoming research article on sourcing advisors, which will focus on the core competencies enterprises must look for in a sourcing advisor firms.
An advisory firm’s competences, in my experience, must include the following:
1) The ability to share IP internally to leverage for its client engagements;
2) The depth of experience of its advisors within the firm.Harvard MBAs are a nice-to-have, but this is largely deep operational work conducted at a level below the ivory tower;
3) The advisory firm’s mix of experience – this should be include talent which has come from operational backgrounds who have experienced sourcing from the receiving end, not simply staff with outsourcing provider and previous sourcing advisory experience;
4) The firm’s ability to "advise" and not just "consult". I’ll expand more on this in the forthcoming article;
5) True "independence" in achiving the optimum outcome for its clients.They must be focused on YOUR best interests, and not their’s;
6) A deep focus on IP, benchmarking data and research – their own and from reputable research firms. An advisory team of 3 or 4 people will never know everything… they need additional knowledge and support;
7) The operational business focus and experience of its advisors beyond simply negotiating contracts: i.e. post-transaction support, retained org design, vendor governance support
8) A sensible, proven and flexible process for business case evaluation and vendor selection
9) Having the respect of vendors – vendors will work well with advisors when they know they will get a fair crack of the whip. The last thing you want is an advisor who can’t rally vendors to propose on your business;
10) Multiple client references with whom you can talk to directly and discreetly.
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?
AMR Research’s CEO, Tony Friscia, delivered a 
With the recent announcement that 
