• 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 🙂
There has been a considerable amount of hype around the China’s potential as a BPO power-house, typified by this recent articleby 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.
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).
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.
Am going to start following the main candidates for the 2008 Presidential Election closely to dissect what (if anything) they plan to do to promote / restrict outsourcing services if they get elected. While they all need to be seen to be openly "protecting" US jobs, they also need to protect the motives of business leaders, many of whom have a vested interested in outsourcing and fund the campaigns of the hopeful candidates. In the meantime, I thought it would be interesting to have a "reverse poll" and get your take on who you would LEAST like to see in the Whitehouse next year (as we’re so spoiled for choice, you can select your two most unlikeable candidates). Vote on the scrollbar to the left.
Let’s not beat around the bush…here’s what happening next year:
1) Offshoring panic will continue, but will force providers to innovate. Concerns over the appreciating rupee, weakening dollar, wage inflation and employee attrition will continue to have a powerful impact on the global outsourcing industry. As highlighted here earlier this year, the onus on the leading outsourcing providers is to focus on building constant ongoing efficiency and dynamic working environments for their staff, price their engagements on business services as opposed to offshore staff wages, and expand their delivery centers into other low-cost global locales like Latin America, Philippines and South East Asia to minimize the risk from their offshore delivery models.
2) The standardization of technology platforms within Business Process Outsourcing (BPO) engagements will take center stage. You have to take your hat off to SAP for recognizing the significant opportunity BPO is providing for the leading ERP vendors. They invested significantly in implementing programs for the BPO service providers to deliver outsourced services on their platform three years’ ago, recognizing that the future success of BPO lies in standardizing processes across business functions and global regions. And how else can you do that without having common processes underpinned by standardized technology platforms? Oracle has also followed suit more recently, as it too has realized it must compete for business with firms looking to moved towards an outsourced end-state. To put it quite simply, when you are moving processes into the hands of a third party, or offshore, it is much easier to train staff to manage these process for you if they are well documented and are underpinned by software that staff can be quickly trained to use. It is much easier to find staff who are, for example, familiar with running reports from Oracle financials, or SAP R/3, which significantly lowers the risk of staff attrition, and also allows for outsourcing providers to hire fresh graduates and train them on standard tools and processes, many of which they already gained experience with during college, or in their previous employment.
3) Intense competition among the IT Outsourcing vendors will drive the uptake of Remote Infrastructure Management (RIM). Up until this year, the growth of RIM – the management of a company’s databases, desktops, servers, networks, security and applications from a remote location – has been timid. However, with the majority of IT infrastructure now manageable from a remote location, it is making less sense for firms to engage in outsourcing engagements where the vendors supply all the kit. Of course, vendors can command higher fees if they are also supplying the hardware and applications, but they are also footing the bill for asset depreciation and renewal. With so many vendors competing for a piece of the ITO pie, RIM provides an aggressive entry point for the ambitious offshore providers, for example Satyam, HCL, Patni and Cognizant, to compete with the traditional incumbent ITO vendors. These companies will be prepared to bid for much smaller contracts to gain a foothold in the market and build operational scale (remember the 90’s when the US IT services giants unwittingly let Wipro, Infosys and TCS jump into the IT services game…). What’s more, enterprises can explore RIM solutions on a piecemeal basis and do not have to go for a "big-bang" approach; outsourcing solutions have often proved more successful where firms can try out one or two processes to begin with.
4) Adoption of Business Process Outsourcing will continue to grow, but at a slower – more cautious pace. The early wave of Human Resources Outsourcing (HRO) deals was centered on multiple processes across multiple geographies being bundled in a single contract, where the HRO provider delivered multi-lingual services and often multiple technology platforms. 2007 pretty much signaled the end of an era, with the J&J / Convergys HRO engagement being the only end-to-end HRO global mega-deal of note. However, we did see a plethora of smaller-scope engagements which covered payroll, benefits administration and HR-IT areas. Expect these to continue in 2008 as providers refine their delivery models and include more offshore services to support HR processes, but the day of the large, global, complex HRO engagement is very much fading.
Finance & Accounting Outsourcing (FAO) has enjoyed unprecedented growth over the last three years as firms take advantage of low-cost offshore services. However, 2008 will see a slowdown in the 30%+ growth spurt as the leading providers ingest a lot of the recent business they have taken on, and look to build efficiencies in their delivery models that take advantage of better technology, more standardized processes, and incorporate new locations – namely Latin America. Expect more modest growth in 2008, in the region of 10%.
Procurement Outsourcing (PO) will continue to be adopted at a slow, but steady pace, and will be increasingly bundled onto existing FAO engagements as many of the more experienced adopters seek to add more indirect spend management processes into their outsourced portfolio. Like HRO, the offshore vendors are learning how to service these processes more effectively, and expect this to be a driver for more adoption next year.
5) An economic downturn will accelerate some outsourcing adoption. As we so colorfully debated here, each outsourcing inflection point has been driven by urgent financial needs of companies to curtail expenditure on general and administrative functions. The waves of ITO deals in the early ’90s, HRO and ITO deals after 9/11, were primarily driven by the need for buyers to experience a "quick fix" with their costs, combined with ambitious provider pricing designed to have immediate financial benefit to clients. The more recent wave of FAO deals has been driven by manufacturing, automotive and consumer businesses under serious competitive pressures. However, the relative economic comfort of recent years has allowed many enterprises to take more time over their sourcing decisions, and adopt a more "start-small" exploratory approach to understand what works for them. When you look at the anatomy of outsourcing expenditure over the last couple of years, we have seen a surge in smaller contracts that do not make the media radar. Outsourcing is a complex business, so why should a company enter into huge multiple-process outsourcing engagements, when it can afford to take it’s time a move out select functions on an incremental basis. However, as we stare hard at the prospect of an economic downturn in 2008, will we see companies step up their urgency to cut costs? Is the maturing provider landscape ready to take on a new wave of more complex services? I believe it is.
An interesting study conducted by WorldatWork, one of the leading HR executive organizations for F500 companies, has cited firms’ abilities to deploy a global strategy towards its workforce, the advancement of technology and the increase in outsourcing as having core implication for workforces in 2008.
"Organizations will look for ways to pull jobs apart to find pieces to outsource. Thought must be given to the motivation of workers assigned “pieces” of the work."
No great surprises here, but hearing the "O" issue becoming so prevalently and openly debated by one of the most reputable HR bodies is a step forward. The majority of other leading HR bodies are still sweeping the importance of outsourcing under the carpet, so it’s a significant mind-shift to see it reaching the top of the HR agenda. I discussed here the crucial role HR strategy must take on when companies go through the outsourcing process (earlier this year).
Burger King is certainly stepping up its customer retention initatives, as typified with this creative new campaign highlighted by the Human Capitalist. Not only is the fast food giant driving customer loyalty, but it also is leveraging the latest sourcing models to drive down costs and improve the customer experience….
It’s been quite a year in the world of FAO, with a current of deal activity, new entrants into the industry and a lot of new faces to drive the business and address the market (some of whom we highlighted back in May). I wanted to mention a few characters who are making some waves:
Accenture has accepted the cultural divide across the pond and put Tony Chambliss in charge of the Americas and Jean Pierre Bokobza, Europe. When I learn more about these guys, I will embarrass them further.
Cap Gemini is still refusing to admit there are any such cultural issues and has flown Brit David Poole in from the UK to get some traction with Uncle Sam. David likes burgers and cold windy weather – so Chicago it is for him….. David uses the title "Deputy CEO" for Cap’s BPO business, so I guess he’s being positioned as some sort of Sheriff. Not to be outdone, David Kaminski has also joined Cap’s US business to drive their F&A solutions, previously leading Microsoft’s global financial services business line.
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David Poole (before his first Chicago winter)
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ACS has made a sharp appointment in Ron Gillette to "lead and transform its global F&A Outsourcing business". Ron comes from Accenture, where he was a senior partner for its outsourcing business. Ron’s headshot is in black and white so assume he’s 10 years’ older than this…*grin*.
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Gillette… the best ACS could get
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Ritesh Idnani has played a particularly active role leading Infosys BPO’s market and business development, including closing their major F&A engagement with Philips earlier this year. Ritesh is a keen racer of fast cars and loves rock music, so quite what he’s doing in accounting services is beyond me….
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Idnani… accounting for life in the fast lane
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Ritesh’s former colleague, Devesh Nayal, is now CEO for his own offshore FAO and KPO firm, CompassBPO. Anyone who agrees to have a briefing with me at a Dunkin’ Donuts deserves a mention…
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Devesh Nayal… Dunkin’ it with the best
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Cognizant has been making a move into BPO of late, and has installed Kaushik Bhaumik to lead its charge into this space. Kaushik is based on the West Coast and comes from McKinsey.
WNS has also made investments in new senior personnel, and has brought Deborah Kops on board to lead marketing and strategy. Deborah contributed a great piece here a couple of weeks’ ago.
And finally, I wanted to give a mention to Rob Sherman, who is market-maker for Vengroff Williams and Associates, one of the FAO industry’s best-kept secrets, which delivers AR BPO solutions to a plethora of F500 firms. When not modeling, Rob likes boating and ice hockey. Again, a great fit for accounting services… *grin*.
Going pretty much unnoticed last week was the acquisition of receivables management firm Outsourcing Solutions Inc by the global market leader in Collections BPO, NCO Group, to create a combined accounts receivable (AR) BPO giant with revenues of $1.5 billion, and adds nearshore service center capability in Puerto Rico, Canada and Mexico to NCO’s current global delivery portfolio, which includes the USA, UK, India, Australia and the Philippines. NCO has steadily been focusing on developing offerings in reporting, analysis and budgeting areas, and now only needs to acquire a major capability in accounts payable services to boast a pretty impressive full-service F&A offering. What’s impressive about this expanding portfolio is the multiple geographic locations being developed, and the avoidance of over-reliance on India. The added capabilities in the Philippines and Latin America put the firm in a strong position to compete for global AR contracts, service all the necessary major languages, and jostle service delivery across several low-cost locations to accommodate multiple time zones, combat attrition issues and the appreciation of currencies such as the Rupee. NCO boasts several high-profile clients, where it delivers outsourced AR services, often as augmented offerings to existing shared services operations.
NCO’s expansion into F&A BPO is not dissimilar to the approach taken by Human Resources services giant ADP, which developed its HR solutions around its global payroll business, which grew up through multiple acquisitions of payroll bureaus across global locations over many years. ADP developed a comprehensive HR outsourcing solution in the middle market, based on its strengths in delivering administrative areas of HR – notably payroll and benefits administration – before adding HRIS and workforce administration to complete end-to-end HR capabilities with its GlobalView solution, underpinned by SAP. The company is now competing for global high-end HR BPO contracts, and has multiscope HRO engagements with clients such as Carmax, IKEA and Rhodia.
NCO’s approach of focusing heavily on centering its capabilities on receivables management is putting the firm in a strong position to take on middle-market F&A contracts, but it does need to develop a competency in accounts payable before it can effectively compete for the higher-end multi-scope F&A engagements. With several accounts payable services firms currently ripe for acquisition, surely this is not a far flung reality for the firm in the near future…
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:
