To emphasize the global nature of outsourcing, I downloaded this fancy "Feedjit" widget onto the blog the other day to show a regional map of visitors to this site (see left column). I was excited to see visitors from places as far flung as China, Belarus, Sweden, Malaysia, Brazil and Australia, but started to get concerned when I got a hit from….er…. CANADA?
What’s going on – I didn’t think that Internet thing had made it up there yet? I must complain to Feedjit about the accuracy of this tool "grin*…
OK… I didn’t get middle-seated today, but having had successive days of dental work, overdoses of Novocaine, followed by blood-work… then slipping on ice and spraining my ankle, I am a leetle beet cranky….. so here we go:
People who NEVER do any work, but always complain how busy they are;
People who pretend to be your best pal to get you to do them something, then you never hear from them again;
People who are constantly "selling", to the point where you have no clue who they are anymore;
Company politics…aargh (what more can I say);
Project managers;
People who hide the fact they have limited knowledge in something by gibbering a load of b******* to the point that everyone in the room switches off;
People who are constantly re-arranging a meeting, when the amount of time they spend re-arranging the damn thing, they could have just called you and had the necessary discussion (besides, how can their schedule be so packed if they are sitting in front of outlook all day);
People who cancel meetings at the last minute – ALL the time;
People who accept meeting invitations and blow you off with no explanation;
People who try to make you look incompetent;
Project managers;
Former colleagues who simply "must get together for a drink" and ALWAYS take a rain check at the last minute;
People who keep changing their mind to the point that you want to throttle them;
People with ADD (I may fall into this one too….);
People who fly somewhere for an internal meeting they could just have easily have had on the phone;
People who fly 1st class for sub- 2hour trips;
People who leave their cellphones on their desks when they wander off somewhere and subject you to a very cheesy ring-tone;
People who eat some stinky microwaved meal at their desk and pollute the entire area;
People who have to run to Starbucks every hour;
People who just aren’t very nice;
Sales people who take credit for anything that got sold, even though all they did was process the PO;
People who start using their Blackberry while you are talking to them;
Europeans who drop everything at 5.00pm… (I’m a Euro, so can get away with saying that…);
Project managers;
People who complain all the time, then claim that YOU complain a lot to someone else…..
My good friend David Sheinfeld, who wrote a great piece here back in May, has contributed some very forthright views regarding how an economic downturn will impact the BPO industry and the fact that cost reduction is not the only medicine many companies need in these times… take it away David:
So much has been made of the downturn in the economy and the credit crunch that it is hard to believe that any industry stands to gain over the short term let alone the BPO market.But as they say with every downturn, an opportunity is created.The traditional story line sounds something like this; the company’s outlook is bleak and its financial model is flawed.
Credit is hard to come by and even though many companies may have financing in place, the covenants and other requirements make it difficult to access those funds.The key executives are looking for areas to save money so the company can ride out the storm.Where do they go?Sure they can cut labor where possible but that may not be enough.Then they can look to cut capital expenditures.One of the areas that could experience this cut is enterprise spending.These are some of the questions being raised every day.Furthermore, the outlook for enterprise and other technology spending is bleak for 2008. This will undoubtedly affect many of the decisions companies will make in its business strategy going forward.While the cut in enterprise spending may help the BPO industry since many companies may turn to spending on projects that help them reduce costs and be more efficient I wouldn’t count on it being the reason to see a surge in BPO business.
I have no doubt that in the process of cutting costs that the BPO market should see an increase in the number of companies looking to outsource as a way to control or cut internal costs.But the reduction in costs is not the only medicine many companies need in these times.The company should be concerned about how to get its business back on the right foot rather than just looking to cut costs.In this time of scarce credit most companies will not be inclined to spend any considerable amount of money on systems or anything related to its infrastructure.If they are interested in outsourcing they will leave that to the BPO provider to provide whatever is needed as part of their proposal.The client will still require the provider to prove it can deliver cost improvement and quality processes all the while by reducing any measurable risk associated with outsourcing.And while the labor component may get the BPO provider invited to the party it may not be enough to land additional business even in this market.Assuming they even get invited to the party they will be up against an onslaught of many other BPO companies who are trying to feed their infrastructure and existing labor pool.The BPO provider should also be careful during negotiations with the client so as not to put itself in the position of affecting margins to the point of jeopardizing profitability.So what should the BPO provider do to take advantage of this downturn in the economy?For one, it needs to understand the markets it is going after.Certain markets are still in their infancy as far as utilizing outsourcing and hold great potential in the future.Second, the BPO provider needs to be innovative and offer more than just what comes with labor arbitrage.While labor was the main component that carried the day in the past it is clearly not the only reason to consider outsourcing even in these times.The provider needs to be able to deploy its own solutions to either compliment what the client has or to provide a solution that the client might consider when deciding to outsource.Third, with margins continuing to be under pressure the provider needs to make sure that its delivery model and infrastructure is efficient and can in fact withstand the pressures of competitive pricing from the market.
‘So while the economic downturn presents an opportunity for Outsourcing in the future it is by no means the only reason to believe that outsourcing will see growth.Like everything else there still needs to be value creation for the recipient of those services.
David Sheinfeld is a consultant and a Managing Director of Horizon Business Advisors, LLC which provides strategy, management and merchant banking services and can be contacted at [email protected] or [email protected]
A small handful of enterprises have pursued a strategy of "Build-Operate-Transfer" (BOT), whereby they engage a service provider to develop a captive service center (normally offshore) for them. The service provider will utilize its experience and resources to hire the personnel, source and acquire the infrastructure, develop the center, manage the knowledge-transfer activities and get it up and running – a process which will take 2-3 years to become fully operational and running in a stable state. The advantage of this model is that the enterprise has the future option-value to decide whether to retain the service center as its own "captive" operation, or sell off to an outsourcing provider to manage the services for them in a fully-outsourced arrangement. The disadvantage of this is the cost of doing so… outsourcing vendors won’t want to build service centers for other firms if they can’t leverage those facilities to service other customers – the model isn’t very scalable and doesn’t help them develop their delivery resources to expand their outsourcing business. Hence, they will only enter into these arrangements if there is a tidy pile of profit on offer for doing so. The enterprise needs to decide whether it is worth the investment, or, alternatively, explore the trade-off of moving down the less-expensive direct outsourcing route.
However, one high-profile foray into BOT – that of Aviva, the UK-based Insurance giant, appears to be turning into a highly lucrative venture for the firm, according to a recent article in The Economic Times. With the insurance sector poised to become a hot-bed of BPO adoption, Aviva finds itself in the lucrative position of having several top tier BPO providers vying for its service center, and thus acquire a quick-fire delivery capability to sell insurance BPO services to other customers. Aviva, could – of course – seek to commercialize its own captive to become a BPO provider in its own right (like Genpact did when GE spun out the business, and WNS from British Airways), or alternatively, the insurance firm could choose to focus on delivering insurance as its core business, and sell of its offshore operations at a tidy profit to an outsourcing provider, as the article suggests. Not a bad piece of business for Aviva, for being a pioneer in developing offshore delivery expertise before most of its competitors.
This will provoke some heavy thinking… if we could turn the population of the earth into a small community of 100 people, keeping the same proportions we have today, it would be something like this…..
Word on the street at the moment is that several of the leading outsourcing vendors are searching for clients who want to develop resources in Central and South America. This is especially the case for services that require a higher degree of staff interaction and time overlap, for example software development, HR and finance processes. I’m not unusually one for commercials, but I was sent this cute clip – for a small software development outsourcing firm called Nearsoft – which comes up with some very compelling arguments for nearshoring software development work to Mexico for Californian businesses; namely that Mexican nearshoring costs on average 65% of the US costs, compared to 85% for Indian costs for software development services. The principal reasons are as follows:
Wages rates are comparable
Little need to relocate staff into the US
No need for "bridge teams" which spend their time overlapping development work with both onshore and offshore teams
Productivity – for every 2 US engineers, 3 Indian engineers are needed to combat staff attrition and less experienced staff
Staff travel costs are far lower for nearshore
Staff attrition is lower in Mexico
IP protection is stronger under the NAFTA laws
Staff visas are easier and cheaper to acquire under NAFTA visas.
While many of these points make a lot of sense, Nearsoft overlooks the issue of talent availability in Mexico and other central American locales, which is my number one concern. Moreover, the productivity issue is debatable. But there is little doubt the LAT-AM nearshore argument is becoming more and more compelling by the day with an ever-weakening dollar and no slowdown with offshore staff attrition rates.
These are interesting times in the outsourcing world, as typified by Peter Allen’s post last week, where he mentions sporadic, stuttering growth as the leading Indian providers look to gain footholds in the market, and a slowdown in the number of mega-outsourcing deals being signed with the incumbent outsourcing behemoths. However, we have to look at the underlying drivers behind outsourcing to understand what is going on:
1) Large global enterprises are taking a gradual approach to outsourcing growth. Most of the FORTUNE 1000 enterprises have their own offshore captives and want to optimize what they have internally before moving more processes over to a third party provider. Whereas IT outsourcing is relatively mature, the approach of most global enterprises towards BPO is still cautious. Bottom-line, firms are still exploring which processes are appropriate for outsourcing, versus ones they should keep inhouse.
2) The service delivery landscape is still maturing. Whereas moving administrative processes like payroll, accounts payable, benefits admin, loans/claims processing is now a slam-dunk, the onus is moving towards companies sending out higher-value – and higher-cost – process to third-parties that require some degree of business insight, executive contact and critical-thinking. The financial business cases to outsource are normally very compelling when examined on a straight cost/employee basis, but the bigger issue is the capability of the outsourcing provider to take on these services, and the expertise of the buyer to execute an outsourcing transition successfully and design a retained infrastructure. While the value proposition is there, the service provider landscape is still in the phase of proving its capability do deliver. Remember, it took the ITO industry 20 years to get to a stage of relative maturity, and true BPO is barely a decade old.
3) The recent years of economic prosperity have eroded the urgency of many buyers. Each outsourcing "wave" has been driven by urgent financial needs of companies to curtail expenditure on SG&A. 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. BPO 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?
History has so far proven that outsourcing has been aggressively driven by companies in financial distress during economic downturns. This time, we may be about to witness the coming together of enterprise needs and service provider delivery capability. Have your say and vote on the poll to the left sidebar.
Is the outsourcing industry primed to grow in a downturn? Have your say and vote…
It’s taken several years, but Cap Gemini’s newly aquired center in Buenos Aires is a significant development for the country as a sourcing location. With GDP growth running at 4.7% this year (and expected to remain consistent in 2008 and 2009), inflation back under control, and IT and process skills on the rise, expect an increasing amount of work to shift to this location in the near term. EDS and Neoris have been reaping the benfits of centers in Argentina for some time now for IT services, but the greater significance of Cap’s investment should be ultimately for BPO services, such as procurement, finance/accounting and even HR. It’s going to be very tough for South American locations to attract significant IT work away from India in the medium-term, largely because of India’s talent base for IT, but expect to see significant interest in sourcing process work to the area, as a result of the language skills, timezone convenience for US firms, and ability to take on more judgement-based process which require critical thinking and analysis and employee-interaction.
To celebrate the return of Horses for Sources, I wanted to feature an excellent piece submitted by Deborah Kops, who is embedded in sourcing folklore, having led global transformation efforts at Deutsche Bank and Bank of America and was also one of the founding partners at PwC’s outsoucing division. Today, Deborah is Chief Marketing Officer for WNS Global Services, a leading offshore BPO provider. We will be featuring a lot of debate on the future of shared services / offshore captives and the road to BPO services over the coming months on this site, and Deborah’s insight here typifies the approach many world class organizations are taking with regards to their sourcing journey. Take it away Deborah….
The microscope is on the performance of the estimated +2500 shared services operations worldwide now reaching performance maturity. What’s next for these centers as the pressures of competition and globalization demand more and more…
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Three to five years in, and step changes in performance has been achieved by consolidating back office operations in shared services centers (SSC). Aggregation of processes has yielded the benefits of scale and scope. Near- shore locations have delivered cost arbitrage and language capability. Best practices have been implemented end-to-end, resulting in standardization across both business lines and geographies.Business unit customers have adopted new ways of working. And the paraphernalia of good business management—dashboards, service levels, KPIs–have been put in place, supported by reasonably efficient governance routines.Has nirvana been reached?
Yet the C-suite is demanding more out of the shared services organization. Since outsourcing is no longer a dirty word, all delivery options are now on the table for consideration in order to reach the next level of performance. Corporate strategy could allow a spin off of the one or more of the centers, ‘commercializing’ the captive. Or the time may be right to embrace full-fledged outsourcing as a next logical step?
There is another, less radical option to evolve shared services—onsourcing couldbe the right answer for many organizations.
Moving select processes out of existing SSC operations to a more cost effective near- or offshore provider may provide the solution.In this scenario, the SSC management identify those processes which can be either ‘lifted and dropped’, or further improved, to benefit from the advantages of labor arbitrage and/or consolidation.SSC leadership retains control of delivery, managing a portfolio of services provided to the business.
Why ‘onsource’ rather than transfer the entire operation to a third party lock, stock and barrel, either through a services contract or a sale?Onsourcing provides an approach to outsourcing that gives a comfort to those organizations for which full scale outsourcing is difficult from a cultural, process complexity or regulatory standpoint.Process delivery remains under the control of the company’s trusted services organization; services are then ‘retailed’ to the end user.
With control in the hands of the SSC, onsourcing results in a low risk, gradual approach to outsourcing, adjustable whenever.It can be structured within a framework contract and ‘gated’ according to the ability to manage the velocity of change.
A challenge of full-scale outsourcing is knowledge retention and customer intimacy. By itself, outsourcing a specific scope is not a difficult proposition; breakpoints come from the point at which the outsourced workflow connects to upstream/downstream client processes. Onsourcing preserves that knowledge because a client layer is still firmly embedded in the SSC, ensuring that corporate knowledge is retained, and delivery remains end-to-end.
Onsourcing alleviates investment in lower cost locations to sustain delivery economics. With a rapidly globalizing services landscape, corporations cannot afford an ongoing investment in program management, property, infrastructure, and local branding to attract qualified staff.
Successful outsourcing implementation requires a change in the capabilities of management.Good shared services managers have advanced their skills moving the corporation from vertical process delivery to consolidation. Onsourcing represents the next measured, step in evolving the capabilities of the retained team. Onsourcing managers become the ‘switching station,’ managing the expectations of the business by fitting the right ‘made or bought’ delivery solution.
Flexibility to adjust the speed of implementation of outsourcing is a key benefit. If business conditions change, the strategy can adapt.Alternatively, if the velocity or complexity of transactions increases, onsourcing becomes a flexible delivery mechanism.
Onsourcing also acts as a buffer to the inevitable politics surrounding the decision to outsource. Since the SSC is still the corporate provider of services, onsourcing can be implemented without angst to the business.
Who can argue with the benefits of transitioning quickly and containing implementation costs? Full scale outsourcing requires substantial investment in business case development, sourcing, and transition.Onsourcing can be implemented under a task order framework, justified by incremental business cases which can be approved quickly.
Onsourcing keeps the SSC competitive, and rate card increases static.More expensive, high touch, risky or complex processes can continue to be delivered by the SSC while onsourcing can offset increases in costs, reducing the inevitable noise that comes from the annual transfer pricing exercise.
Is onsourcing a new idea?No–just a simple term for the way in which many organizations would like to outsourcing business processes.Benefits to the SSC can be easily understood—continuous improvement at a digestible pace, avoidance of investment, lessened impact of change– with control in the hands of an organization with a strong corporate reputation. Many SSCs are seeing the virtues of incorporating selective or phased outsourcing into their delivery strategies. It’s time to give the trend a name.
Deborah S. Kops is Chief Marketing Officer of WNS Global Services
