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
As the role that the Cloud is playing in transforming the technology landscape continues to increase, it has become the topic that is on the minds of many within the industry, and with those that invest in both software and services. Given this, there isn’t a lack of research reports or bold predictions about how the Cloud will transform enterprises.
However, in covering this market we found that amongst the available research there was a lack of focus on what the effect of Cloud would be on providers of IT services. The companies who have largely been built by providing supporting services to non-cloud products, or to build custom applications and linkages between disparate systems, otherwise known as systems integrators.
What we tried to accomplish in this report was an understanding of what the current transformation could mean to these systems integrators, and what we found formed the basis of this report.
Download The Cloud’s Impact on IT Services [email-download download_id=”8″ contact_form_id=”9790″]
Are you wasting time at work?According to the results of the latest Salary.com 2007 Wasting Time Survey, you probably are. In fact, employees waste approximately 20% of a typical 8.5 hour work day. And guess what – younger employees (ages 20-29) waste anywhere between 10-25% more time than their older colleagues.
So what exactly are employees doing? * Using the internet for personal needs (34.7%) * Socializing with coworkers (20.3%) * Conducting “personal business” (17%)
And why do they do it? * They don’t have enough work to do (17.7%) * Their hours are too long (13.9%) * They are underpaid (11.8%) * Their work isn’t challenging (11.1%)
Personally, I thought the British went down the pub after lunch, while the Yanks spent all their time in boring meetings eating pizza….maybe times have changed?
Today, for the first time, I got middle-seated – in the back row – courtesy of Delta Airlines. Not only that, we sat on the tarmac in Atlanta for 2 hours waiting for the “traffic” to clear (heh?). So I got thinking about some of the things in life that irritate me…..
Being middle-seated – in the back row
LinkedIn invitations from people I don’t know, or will ever have the need to know
Being middle-seated – in the back row
Bacardi (ugh)
Victoria Beckham
Basketball…the first 59 minutes
Bowflex infomercials
Being middle-seated – in the back row
People who talk incessantly about themselves
Stale coffee in airports
Hotel room service charges
Bluetooth headsets
Just being middle-seated
Taxis with no A/C
Taxis that smell
Being middle-seated
The term ‘RPO’
Pay-for-play conferences
American airlines coffee
Trying to get anything with Best Buy rewards points
Disney
British tourists at Disney
Americanized Chinese food (you know the place)
People who stick on 16 when the dealer’s packing a high number
Macdonald’s salads (why?)
Boring blogs
That guy on Fox News (work it out…)
Cheap wine
American commentary on world cup football (soccer) matches
That arrogant Brit on American idol
James Patterson novels
Donald Trump’s sweep-over
Johnny Damon
Bad sales reps
People who pretend to be my friend when they want something
Using snail-mail
Subway
Doing expenses
Steely Dan ‘best of’ albums
Being middle-seated – ESPECIALLY in the back row
The last post on Horses for Sources – "Has the Lou Dobbs factor faded?" – certainly got several people voicing their opinions on the outsourcing of jobs to India (and please feel free to air your views publicly on this site rather than email them directly to me!). Personally, I think the whole argument about the pros and cons of offshoring services has been done-to-death, but one issue that has been raised, concerns the allocation of H1B Visas to offshore outsourcing suppliers looking to bolster their onshore workforces to improve their service delivery: Should offshore firms have the right to "import" their labor into the US in addition to "exporting" US jobs oversees?
I’m probably not the best person to provide an balanced argument here, being an H1B Visa-holder myself (but I don’t work for an outsourcing provider), so I am inviting you to cast your vote to the left of this post. Personally, I have thoroughly enjoyed my experience working in the USA and helping some US firms develop their services – and hope I am adding some value along the way – and I strongly encourage skilled US workers to apply for temporary work visas to experience working in the UK (my country), Europe or Asia, if they have the opportunity. Working in dynamic business environments across the globe is such a great developmental experience for people in today’s economy. However, the key issue now is whether the offshore outsourcing providers should be entitled to create onshore jobs for foreign workers to help run and develop outsourcing services. So have your say!
I did want to relay some key facts regarding temporary work visas that outsourcing providers typically use for skilled immigrant workers. There are two types of Visas outsourcing suppliers use to bring skilled immigrant workers over to the US:
1) The L1 Visa: This applies to an employee working within a foreign subsidiary of a global firm, has over a year of service with that company already completed, and wants to be transferred to a US office of that organization. The requirement is simply that the firm was unable to find a local US worker who could do that exact job, and that job required a specific qualifying expertise, or was a unique management position that fulfilled certain (strict) qualifying criteria. The sponsoring firm will have to prove they advertised the job first in the US and was unable to find a suitable candidate. There is no cap on L1s, and 7 of the top 10 L1 users in 2006, according to the US Senate – were Outsourcing providers that were either headquartered, or had their largest employment base, located in India.
2) The H1-B Visa: H1B visas apply to skilled individuals applying for jobs with US companies. As long as the US company is a registered corporation or LLC, the visa is dependent on the university qualifications of the individual to fulfill a specialist role within that US company. Unlike L1s, H1Bs are subject to a cap for commercial workers, and this allocation of H1B Visas has been dramatically reduced from 195,000 in 2003 to only 65,000 in 2008, with an additional 20,000 made available for worked with US Masters degrees. This is an exceedingly minute percentage of the US working population (of the fractions of a single percentile). Like L1s, 7 of the top 10 H1B users in 2006, according to the United States Citizenship and Immigration Service – were Outsourcing providers that were either headquartered, or had their largest employment base, located in India.
It was only three years’ ago that I recall speaking at an Outsourcing conference in New York…there were a couple of hundred vociferous protesters outside the hotel, journalists armed with stories of woe about impending doom for the US economy…and that Lou Dobbs guy stirring it all up on the TV at dinner time with his "Exporting America" feature. How times have changed…
In the last few days, we’ve seen both the New York Times and the BBC produce reports on outsourcing that compliment each other to drive a compelling argument: Western firms can embrace the global labor pool to focus on delivering higher-value services – which is not having a significant impact on domestic job losses. The New York times discusses the IBM business model:
“We couldn’t keep building out labor,” Samuel J. Palmisano, the chief executive, said. “The long-term strategic answer was not to have a half a million people working for I.B.M.”
Today, the company’s global work force is organized in clusters of business expertise and connected by high-speed communications links. Project managers can search worldwide for the right people with the right skills for a job. One tool is Professional Marketplace, a Web-based database of people and expertise.
The idea is to build networks for producing and delivering technology services much like the global manufacturing networks that have evolved over the last couple of decades. Look inside a computer or automobile and the parts come from all over the world. High-end technology services projects increasingly will follow that formula, combining skills from across the globe and delivered on-site or remotely over the Internet.
The Times also picks up on one very crucial point:
Jobs in technology services may be particularly vulnerable because computer programming can be described in math-based rules that are then sent over the Internet to anywhere there are skilled workers. Already, a significant amount of basic computer programming work has gone offshore to fast-growing Indian outsourcing companies like Infosys, Wipro and Tata Consultancy Services.
As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company’s American unit, for “the near-shore work that requires regular contact with clients in person.”
The Times makes a compelling argument that only certain IT jobs can be moved offshore and the offshore providers are having to bolster their onshore workforces to compete effectively for the high-end work, otherwise will be left competing for lower-value work on a price competitive basis. So while offshoring in IT created a wide pool of labor talent, it has only fueled the demand for the high-touch labor needed to work close to the customer. Creating these types of jobs onshore only serves to keep IT professionals on their toes to focus their skillsets on more client-centric work, while a lot of the programming work is done offshore.
Meanwhile, the BBC reports on a study by the Work Foundation, a not-for-profit body that aims to promote best working practice, which claims that job losses across Europe due to outsourcing to India are exaggerated:
"Concern over off-shoring has become a surrogate for wider issues about economic insecurity," said Work Foundation chief economist Ian Brinkley. "There is something about exporting jobs to foreigners that does press all the wrong buttons. Fears have been stoked by claims that the Chinese and Indians are coming to get your lunch, but the reality is that it is not happening." He said that figures showed that just 5.5% of all jobs lost across Europe in the first quarter of 2007 were due to work being sent abroad. "Self-serving claims from consultancies and aggressive PR from outsourcing companies themselves has tended to drown out the careful analysis of data regarding off-shoring," added Mr Brinkley.
Lou Dobbs is a first-class political commentator and personality, and there is no doubt he has the US’s best interests at heart. The early phase of outsourcing was clearly focused on body-shopping, with companies eager to slash costs looking to find providers to do the same work at a fraction of the cost through cheaper labor. Lou has every right to stand up to protect US interests in these circumstances. However, times have changed and businesses and governments are changing with these times. You can’t fight innovation, and the outsourcing model has evolved to the provision of business services, not products. Offshoring provides a cost-lever to enable providers to be more innovative and client centric, and while it does impact some onshore jobs in some cases, the wider picture is a developing global IT industry. Moreover, is the job market swamped with unemployed IT professionals? I don’t think so….The next big questions will be how outsourcing to China will impact the global engineering industry, and India the accounting profession. If these follow suit the way the IT outsourcing industry has developed, then it’s not going to be all doom and gloom for the future.
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:
