Jason Busch is regarded as the industry’s supreme authority on all issues spend-management and procurment.  Jason picks up some interesting points on the slow growth of Procurment Outsourcing on his blog SpendMatters (you must subscribe to this by the way).  Vinnie Michandani, on his Deal Achitect blog also pipes in with his views. Go visit!

Posted in : Procurement and Supply Chain

Thanks to all of you who took the time to vote in our poll "Who whould you LEAST like to see in the White House in November 2008".  We’ve had over 100 responses back, so I thought it time to update you all that Hillary, on the back of her sensational comeback in New Hampshire, is again leading the charge… yes, she is currently the overwhelming favorite NOT to be the next President.  McCain is the least offensive, but the Obama vote picked up recently, as several of you started to panic at the thought of this guy in the oval office.  Anyhow, keep the votes and comments coming (just click on your least desirables on the poll on the left-hand scrollbar).

Posted in : Business Process Outsourcing (BPO)

Got the best piece of advice all of last year from my wife: "Just stop and smell the roses"… so tonight I did, taking a walk through the snow on Boston Common 🙂

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Boston Common in the snow

(taken with a 2 mega-pixel camera phone)

Posted in : Absolutely Meaningless Comedy

Firstly, thanks to all of you who contributed to the lively debate following the recent post "Will the HR function have a seat at the corporate table in 2008?".  I was merely highlighting some interesting thoughts from the Inflexion blog, and didn’t expect such feverish input from so many of you!  (And before I continue, I promise this will be my final rendition using the corny phrase "seat at the table").  Anyway, I have been under pressure from several people to put forward my opinion in this topic, so here we go:

HR used to be  merely "personnel" and looked after the administrative activities related to basic employee needs.  It wasn’t until the ’80s when the wider berth of "Human Resources" was developed where HR would be activity involved in all issues people within a firm, and not just the basic admin, i.e. recruiting, organizational design and development, corporate culture, compensation, career planning and counseling etc.  The challenge of HR leaders was to get taken seriously at board level and prove their worth to the business.  Not an easy task where you are not directly related to revenues and there are always more "critical" issues to be discussed before people strategy.  The HR struggle had begun. 

Then came the onset of HR suites like Peoplesoft, whereby it became vogue for HR executives to apply metrics to their organizations to help base management decisions.  Where else in the company was there a more comprehensive view of staff profiles, compensation, attrition-rates and performance than in the HRIS? Hence, where finance departments could show the board how to budget and forecast the business to aid decisions, HR could (in theory) link employee performance with the business.  Part of the problem has been that HR (unlike finance, for example) hasn’t done a good enough job of embracing technology to demonstrate real value metrics to the business.  It has been stuck in the weeds of blocking and tackling, and not focused enough in areas that get real board attention.

And then the wave of HR outsourcing hit after 9/11.  All this achieved was a very public dissection of the "strategic value of HR" as several high-profile companies grabbed at reasons to move out as many HR people as they could into service providers, or out of the firm altogether.  It has taken a few years for HRO to iron out its issues, but it had the impact of alienating many HR leaders within firms, and driving them further away from the corporate table.  However, I am convinced the HRO industry has now found its balance and the real HR issues are back at the forefront of many organizations’ agendas.

My view is centered largely on the skillset of the HR professional today – it’s too focused on the legal issues, compliance, managing the basics… and not enough on delving into corporate data to provide real input into driving a talent strategy into the organization.  Moreover, we need more "business managers" in HR – people who understand the real business issues, and how to help their firm hire, manage and retain key talent.  HR is the most important function in today’s organizations, but it has simply not been developing in the right manner.  Hence, my thoughts are around HR helping to instill world class HR principles and practices into today’s managers.  I once managed a team of 14 senior people and it was one of the toughest challenges of my life.  I needed support, advice – and a venting outlet – to help me do this effectively.  The success of my whole business function centered on my ability to be a good manager.  This is where HR, in my opinion, comes into play.  It is there to support today’s managers, who are under ever-increasing pressure, to get the best out of their people.  I have seen so many positive examples of where this works in firms… and, unfortunately, some less successful examples.

Will it get there in 2008?  Professor Dave Ulrich, with whom I have enjoyed discussing these issues on several occasions,  outlines  excellently the roles HR departments must fulfill to deliver value.  His mantra is simple:  HR must play a role in implementing state-of-the-art strategies that are tailored to the needs of the business... an "operational executor role".  In a world of rampant change, where firms are constantly globalizing, restructuring, outsourcing, divesting and acquiring, the need for the operational executor has never been so intense.  It is my belief that we will see the roots of this happening in 2008 – otherwise businesses will struggle to survive and change in these complex times.      

Posted in : HR Outsourcing, HR Strategy

"Best Practices" are formed through the experiences of firms innovating and trying out new ways of doing things.  So – in reality – that means they’ll tell you where they messed up and give advice on how they got it right (or how they would do something differently second-time around).  BPO is no exception… in fact, it’s probably a shining example of how to learn from others’ mistakes 🙂

Here, in my experience, are the most common mistakes companies have (and many still are) making when evaluating BPO:

1. Poor communication to key staff:  if a company is going to explore outsourcing its business processes, it needs to evaluate how it is going to gather the information it needs to support its decision-making.  If – as in most cases – it is going to bring in a consultant/adviser to develop a business case, then the advisor will need to talk with key staff to access data, conduct interviews etc.  The minute staff get wind of the fact consultants are in discussing the "O" issue, panic will spread and all sorts of strange behavior can occur.  The rumor mill, staff turnover, politicking… believe me, when staff start worrying about their jobs, all hell can break loose. You must identify which of your key staff is needed to conduct the business case, and be open with them from the get-go about what you are evaluating.  You have to explain their jobs are not on the line, if you want their support.  And you need their support because resistance from staff can destroy the process.

2. Failing to weed out the dissenters:  I cannot tell you have many BPO evaluations have led to "no-go" decisions because some key people simply were not onboard with the process.  If a function leader is highly resistant to the BPO, he / she will attempt to derail the process at every possible opportunity – and it will most likely fail.  If you try and transition a function where no-one is playing ball, you are in serious trouble from the get-go.  Constructive criticism and healthy discussion of the issues are important, but some people will be against change… and will never change.  Have open and honest talks with key staff about BPO – many simply will not understand much about it.  Having a group workshop – perhaps with an independent expert present – will be very helpful in educating your staff.  BPO is not rocket science and you will quickly understand who is onboard and who will never be.  Then you can make whatever decision is needed to get over that hurdle. You may find your company simply does not have people who will allow this to happen – so why not save everyone’s time and money and call a halt to the proceedings before a load of time and money is wasted?

3. Not involving HR:  BPO is all about people, job roles, staff reductions, knowledge transfer, training and change-management… hmmm sounds like something HR should help with to me.  Too many companies get excited about the economic benefits about BPO and fail to devote enough time and resources towards dealing with the human capital issues regarding how they can execute.  And if HR isn’t onboard, you have another serious problem….

4. Not involving IT:  BPO always involves a certain amount of process re-design and standardization, and there are always critical issues with data security and privacy that need addressing.  Any changes you need to make, will need to be supported by your existing technology platform and IT staff.  This doesn’t mean you need a major IT evaluation from stage 1, but having a firm understanding early on of the IT issues and opportunities a BPO engagement will create, can save many headaches down the road. I am actually seeing many companies explore BPO as a result of all the work they have done rolling out new ERP software.  When you need to invest so much money in re-designing process and re-training staff, wouldn’t this pose the ideal time to look at outsourcing some of it?

5. Not using a good advisor:  You will likely need an advisor to help facilitate the various stages of the BPO process.  Beware of any advisor which fails to tell you any of the points above.  You must make sure you use one who is going to do more than merely facilitate a transaction, and can talk from experience on how to avoid making these types of mistakes.  Get them to tell you how they can help you work through these issues.

At the end of the day, evaluating BPO can pose several issues for firms if they do not address these issues correctly.  Yes, BPO can offer firms cost savings and the opportunity to add rigor and standardization to their processes.  However, if you don’t go about evaluating it correctly, you may never get the chance to find out.

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Evaluating BPO… it’s all about avoiding pitfalls early on

Posted in : Finance and Accounting, HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, Outsourcing Advisors, Procurement and Supply Chain

Folks – incase you hadn’t seen it – check out the discussion thread for the recent post "Will the HR function have a seat at the corporate table in 2008?".  Some true heavyweights from the HR world have chipped in with some great insights.

Posted in : HR Strategy

• Everyone In the West Wing will have to work until 9PM every night so taxpayers feel they are getting their money’s worth
• He will have walked every congress member through the “State of the Union” address prior to presenting it In order to gain consensus and avoid any political land mines
• The US Budget will be delivered as one large spreadsheet full of pivot tables
• All official White communications will be done in PowerPoint
• White House meal budget will increase six fold
• Cabinet members will need to have a hypothesis prior to engaging in any official business
• The President’s salary will be done through a SOW
• The US will have the greatest strategy, but none of it will ever happen
• He will start planning reelection immediately as a means of “follow-on work”

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…. have a great 2008 to readers of Horses for Sources 🙂

Posted in : Absolutely Meaningless Comedy, Outsourcing Advisors

There has been a considerable amount of hype around the China’s potential as a BPO power-house, typified by this recent article by Sridhar Vedala and Vibhash Ranjan of sourcing advisor Equaterra, which claims the China BPO market reached $1.3 billion last year.  The definition of BPO is somewhat vague, so I will refrain from commenting on this figure, but am sure the economic climate out there is capable of commanding this level of BPO work.  The article has some excellent points regarding the advantages and potential of China as a BPO destination, namely:

• China’s BPO market will be driven by (1) companies from Japan, Korea and Hong Kong outsourcing low-end services; (2) foreign investors that have thousands of employees in China (i.e. Danone and Fuji);  and (3) domestic companies that outsourcing within China.  American and European firms are “rarely sourcing” BPO services from China.
• Global BPO firms, such as IBM and Genpact, are developing a presence in China (even thought IBM is the only firm that has surpassed 1000 employees for BPO services);
• New BPO locations, such as Chengdu and Tianjin, are 30% cheaper that the mainstays of Beijing and Shanghai, and their attrition is only running at 5%, as opposed to 30% in the big cities (this really fills me with confidence);
• “China offers multi-region support to the surrounding customer markets, which sets it apart”.  I am assuming these are for regions that require Chinese dialects, such as Jin, Wu, Hui and Pinghua, in addition to Taiwanese, Japanese and other Asian languages.
• Multinationals are shifting their Asia/Pacific regional HQs to China and establishing shared services centers or outsourcing local firms.
• De-regulation of the Chinese banking sector.  It is now much easier for foreign investors to offer retail banking services in China – a real drive for BPO.

Look beyond the hype….here’s my take on China and BPO:

The Asia/Pacific region has been crying out for more comprehensive shared services and outsourcing structures for years.  Singapore and Hong Kong have traditionally assumed the role of “regional hubs” for most multi-nationals over the last 20+ years, but are now far too costly for running shared services, or outsourced operations.  China is offering potential, not too dissimilar to India 5 years’ ago, for multi-nationals to invest in servicing their Asia/Pacific regional businesses.  Many Pan-Asian businesses, or regional hubs of global multi-nationals, have shied away from shared services or outsourced models as they didn’t really have low-cost options available, and the Asian business culture has traditionally centered on inhouse models for its administrative support functions like HR, finance and procurement.

So while there is an obvious opportunity for a BPO industry to develop in China, I have several reservations that it will develop into anything more than a local hub for supporting Chinese-speaking business and a handful of multinationals:

1) China is in a time-crunch.  China is already touting it’s Tier 2 cities, such as Xi’an and Chengdu, as it’s mainstays of Beijing and Shanghai are already suffering from chronic job attrition (30%) and wage inflation.  At least in India, and other offshore locales such as Philippines and Eastern Europe, they enjoyed a stable period of a few years to develop their BPO infrastructures before these issues crept in. With China, it is moving into BPO with little breathing space to establish its infrastructure and build critical mass.  It is easier for BPO firms to combat attrition and wage inflation once there is critical mass of staff and infrastructure available (see this post from earlier last year that contrasts the typical approach being taken by the leading Indian outsourcing providers).

2) Wages are already high. Wages in China are not much lower than in India, which has more experience in BPO and much better English language skills.  As a side note, you can actually get cheaper accounts payable done cheaper in Mexico that China…

3) The India experience all over again.  With all the initial teething problems firms had sending out BPO services to India, why would they want to go through all this again with China?

4) China’s core competency is engineering. China is more of a manufacturing / industrial powerhouse… I cannot see it being so adept at doing back office work, with the exception of Dalian, which can service Japanese and Korean-speaking businesses.  Engineering services are in the Chinese DNA, rather than BPO services… this is the direction I see China taking, for example industrial design work, contract manufacturing, biotech services etc.

5) Movement away from mere labor arbitrage.  BPO is moving away from the “body shopping” game, and more towards value-services and innovative offerings. Moving more work to China seems like a regressive step for many multi-nationals.  Having said that, experienced BPO firms can claim to have learned from past mistakes and seek to rectify then in a Chinese delivery model.

6) China’s English-competency is a major minus for BPO.  Whereby Singapore and Hong Kong adopted English as their mother tongue many years’ ago, China is still a good decade away from being able to boast good English-speaking competency.   Beyond the Chinese-speaking languages, and some surrounding Asian languages such as Japanese and Taiwanese, it is difficult to see China becoming more than a local hub for it’s domestic economy and some of the Asian-speaking countries.   To run truly pan Asia/pacific services, not having a strong English-speaking competency is a major issue with BPO.  When running the vast majority of BPO services, there needs to be elements of close interaction between the outsourcer, or offshore worker, and the mother company outsourcing the services. 

So all-in-all, China has potential to develop a compelling BPO industry, but there are many obstacles the country needs to combat, in order to develop this beyond an industry that is merely serving a sub-region.  Moreover, it is tempting for people to get over-excited at anything “China-related” these days… it is important to look beneath the surface to get a dose of reality.

Posted in : Finance and Accounting, HR Outsourcing, Procurement and Supply Chain, Sourcing Locations

Mark Stelzner, author of organizational-development blog Inflexion Point (and did that gravelly voice-over for Southwest Airlines) sees 2008 as a make or break year for the role of Human Resources:

"Like Toby on NBC’s The Office, HR continues to have a bad name in the eyes of business units, managers and employees.  Often viewed as either enforcers, legal risk mitigators or transactors, the human resources department is not the first place business leaders turn to for advice and guidance in meeting strategic goals and objectives.  They are generally perceived to lack basic business acumen (root cause analysis, business case skills, comparative analytics, etc.) despite years of trying to shift internal and external perception.  I believe this is a make-or-break year for HR.  If consistent, demonstrable examples of strategic value add do not break the glass ceiling in 2008, we will see the continued absorption of HR responsibilities into legal, finance, IT and outsourced service providers, effectively resurrecting the “personnel department” of old."

The HR function has been under increasing scrutiny in recent years, typified by the now-infamous 2005 Fast Company article "Why We Hate HR", by Keith Hammonds.  Stelzner does hit upon a very important point that HR strategy is becoming a core competency that is needed by managers in all corporate departments.  Any successful business manager today should have a solid grounding in HR skills when managing talent, in addition to a degree of understanding of finance to allocate and determine budget for his/her area, and some understanding on the IT needs of his/her function.  Hence, "HR strategy" is not something that is silo-ed into a single HR department, but is pervasive across an organization’s management.  The HR department should be the driver and facilitator of sound HR practice across the management team, and ensure these HR practices are aligned with their organizations’ strategic goals.  By demonstrating this alignment between solid HR and business performance (i.e. linking customer metrics with employee performance), HR will regain it’s "seat at the table" when corporate decisions are made.  Moreover, with many businesses undergoing complex change with outsourcing, globalization and this predicted economic downturn, the role of HR has never been so important as it is today (I outlined the role HR needs to play in a company’s outsourcing environment in this article for the IAOP earlier this year).

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‘    ……not yet free to have a seat at the table

Posted in : HR Outsourcing, HR Strategy

A new report released by the Associated Press is highlighting the issues of outsourcing jobs on Indian workers’ health.  While the report lacks any hard evidence and focuses on a handful of individual cases, data released by the Indian Council for Research on International Economic Relations estimated the cost of these increased health issues, namely sleep disorders, heart disease and depression, could amount to $200bn for the Indian economy over the next 10 years "if corrective action is not taken quickly".

As we discussed here on HFS a few weeks’ ago, the business case for organizations outsourcing certain services to locations closer to home (or even at home?) is becoming increasingly appealing – especially for those services that require a high degreee of interaction between the organization and its outsourced workers (for example software development).  For those services where the offshore workers need to be operating at the same hours as US companies, for example customer support / help-desk services, the Indian workers must adapt to working swing-shifts and unsocial hours.  My concern here is that Indian culture is very family and social-centric, and these types of jobs are becoming increasingly less desirable for many workers who go into these jobs initially to enjoy the increased compensation on offer, but are quickly realizing the trade-off with their lifestyle, health and family / social issues.  As long as outsourcing providers are servicing US businesses from India that require a large degree of worker overlap, they are going to be faced with increasing issues of attrition and rising wages to keep workers in these jobs.  This is the chief reason why the Latin America region is on the cusp of a major upswing of taking on outsourced jobs that benefit from the time overlap.  At the same time, it increases the appeal of UK and European-centric services being run out of India, where the time differences are far less oppressive on the offshore workers. 

These health and social issues are very symptomatic of a developing economy like India – and my only surprise is the speed at which they are happening.  I believe these issues will only be magnified when work is outsourced from US businesses to China, where the time differentials are even more brutal, and the language issues much tougher.  That is one of the principal reasons why China is (and will continue to be) far more successful at taking on services such as engineering and manufacturing, where these worker interaction issues between offshore staff and Western organizations and their customers are less crucial. 

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Is India growing up too quickly?

Posted in : Captives and Shared Services Strategies, HR Strategy, IT Outsourcing / IT Services, Sourcing Locations