Too many companies explain away their refusal to explore BPO as a “need to get their IT in order before we can consider this”. BPO actually is creating a great opportunity to transform IT in concurrence with the business process – with the bill footed by cost arbitrage, as opposed to the shareholder.

The earlier BPO deals were largely focused on transitioning the people and processes to work in an outsourced end-state, and the IT people needed to support that outsourced function were brought into the equation late in the game to get the existing systems to support the outsourced end-state. This often caused issues with data security, systems and application integration, and often resulted in the outsourcing buyer incurring far greater costs to re-configure their IT backbone to support the BPO strategy than they had originally budgeted.

Both business process and IT change should be driven TOGETHER – and BPO is a change agent that must also incorporate this philosophy – and several of today’s recent outsourcing buyers are leveraging BPO to transform their IT backbone at the same time. Gianni Giacomelli, who leads global marketing strategy for SAP’s BPO group, lives and breathes this issue on a daily basis and works tirelessly to create programs that support the BPO providers with deploying technology and resolving related problems – be them understanding how to better automate processes, finding shortcuts for implementation, sketching what is possible with technology innovation, or simply identifying solutions to operate the technology platform more cheaply. Take it away Gianni…

Two things explain much of the BPO industry’s uncertainties: one is about breaking bad habits, and the other about eliminating “blind spots”. The bad habits are the ones of the RFP cycle – where all the parties have traditionally played “sell-and-buy-a-product” instead of looking at operational synergies. The blind spot is the scarce use of joint process and technology redesign in unlocking those synergies. Ironing these wrinkles out will require substantial investments and change from all sides – but the stakes are high enough to give it a shot. I will argue that requiring a better alignment of customer, BPO provider and software vendor is a good way to change the game for the better.

While many early generation BPO deals showed patterns typical of system integration and process reengineering – both disciplines matured in the 90s – success in BPO is more than just process redesign and technology. It is about operational excellence and as such it must leverage both the operational and transformational skills of the provider – and should be driven by the respective stakeholders in both camps (that is, by the COO as well as the CIO). Some BPO providers, often pushed by end-clients and advisors, insufficiently supported by software vendors, and challenged by internal resource-allocation dynamics, have failed to realize this point in the past.

Structurally, many BPO providers were either born very good “operators” and excel at operating a given setup, or very good “implementers” who are good at designing and implementing innovation – but rarely both at the same time. The result in quite a few cases was a failure to leverage processes and technology solutions to fully harness the key drivers of BPO value: economies of scale, process optimization, and low cost labor. This explains a number of economically unsustainable deals that left customers and providers dissatisfied. Successful BPO providers make the most out of their technology investments by ensuring that these investments serve their service delivery needs. They integrate process and technology design with operational requirements, thereby creating replicable solutions that enable true scale leverage.

Gianni Giacomelli, SAP

The best service providers also seek the systematic and long-term involvement and intimate support of the software vendor they choose for their process/technology platforms to assist them in their quest for ongoing evolution and improvement. Catering for the providers’ needs is not a job a software vendor is typically structured to do – and requires substantial investment on his part, too. Customers looking for a sustainable BPO platform are therefore best advised to systematically verify the solidity of the service provider’ software vendor relationship backing it up, for each of the crucial parts of the service delivery they require.

It is dangerous to unduly restrict the service provider’s freedom in leveraging and fully harnessing the effectiveness of economies of scale and process optimization (for a more thorough discussion, see the article here). However, it is absolutely critical that the customer (complemented by expert advisors) “kicks the technology tires” of the provider through the RFP process. In the end, the customer and its advisors should check if the technology deployment the provider proposes is indeed going to enable the economies of scale and process optimization required to generate sustainable results. It is essential that the technology vendor heavily supports the BPO provider.

Gianni Giacomelli (pictured) is director of global strategy and marketing for SAP’s BPO business unit.

Posted in : Business Process Outsourcing (BPO), Outsourcing Heros

Kudos to Jason Corsello (aka the "Human Capitalist") for this brave and excellent post lauding the merits of HR software firm SuccessFactors.  Jason is fast-becoming the pre-eminent industry analyst in HR technology because he says what he thinks based on his informed judgement.  Having met Lars Dalgaard myself and having had a lot of exposure to the SuccessFactors product, I can attest to the fact that Jason is spot-on here with his synopsis.  It’s refreshing to have analysts unafraid to air their views.

Jason Corsello aka "The Human Capitalist"

Posted in : HR Strategy

An interesting article from tenacious HRO journalist Jessica Marquez at Workforce Magazine got me thinking more about the impact of private equity in outsourcing.   In mature markets, for example IT Outsourcing, the leading suppliers are all established longtime publicly traded entities (IBM, Accenture, HP etc).  The suppliers have established a critical mass of clients, all have vast offshore and onshore resources, and tend to compete more on reputation, innovation and established relationships.  Being publicly traded, they need to keep a close eye on maintaining acceptable profit margins, their contract strategies are more visible (especially when closely analyzed by Wall St) and there is less "secret sauce" around how they won the deal.  In BPO, however, the ball game is entirely different. 

The HR, Finance & Accounting and Procurement Outsourcing markets are all in rapid growth stage, suppliers are still attempting to get to a critical mass as fast as possible, while picking up referenceable name clients.  The HRO market accelerated too quickly for its own good after 9/11 and too many suppliers entered into situations where they allowed themselves to front-load deals to entice CEOs ambitious to demolish costs as quickly as possible.  Industry mammoths like IBM and Accenture can handle taking a few "at cost" deals to gain market share, but for smaller suppliers they simply cannot prosper from losing money on deals to grow a business if they are operating in a publicly-traded environment.  Wall Street is not tolerant of money-losing ventures unless the future upside can be quickly demonstrated.  Hence – why not find a private equity investor who genuinely understands the long-term upside of investing in an outsourcing supplier in growth mode?  They can ensure their incubated supplier is operating away from the Wall St radar and can cherry-pick the business they believe will be incremental for the future success of that firm by subsidizing operating costs to take out the competition.  ACS is one example of a firm which has enjoyed the early highs of the BPO boom and is now suffering from too much public exposure as it battles in ingest a huge array of global clients across several outsourcing towers.  The Dallas-based firm will surely benefit from an incubation period where it can ready itself for its next wave of growth away from the public spotlight.  The firm certainly has the business volume, brand and experience to rebound from its current predicament, and time away from the public spotlight is surely what it needs as it gets its act together.  Other firms like the ones mentioned in Jessica’s article (i.e. Ceridian) also have tremendous potential to refocus, re-arm and come out fighting – and need the shield of their private ownership to provide the time, resources and management acumen needed to take their business to the next level.

Perhaps the most interesting example of a privately-held BPO which fully maximized its private status has been Genpact – the firm went on a huge tear, picking up over 35 major F&A BPO clients in the space of 3 years before announcing its public intentions this year.  It took full advantage of healthy investment from its parent investors to price aggressively, while combining this with a powerful offering based on its GE heritage and Six Sigma and LEAN methodologies.  This company came from practically nowhere to become one of the top tier of firms as a result of shrewd management in a privately run environment.  It will be fascinating to see how the firm continues to perform now it’s operations will be far more exposed to Wall St.

So all-in-all, one can argue that being private in a high-growth and highly competitive industry like BPO is far more beneficial, provided the company is being carefully groomed by a team of investors who really know what they are doing – and really believe in the future potential of their industry.  Conversely, in fully mature industries like ITO, where everything is broken down into components parts to help investment analysts salivate at the profit margins, it makes more sense to be in the public domain where scrutiny is king.

Posted in : Uncategorized

I have been inundated in recent weeks with press releases, quotes, and data references to the The Black Book of Outsourcing.  "Great", I thought, "Now I can access a complete encyclopedia of outsourcing….".  So I decided to look up an area where I have some knowledge:

OK – all these guys do Accounts Payable to some extent, but wait… Genpact didn’t even make the list – and neither did ACS, InfosysBPO (Progeon), WNS, VWA, CGI etc etc.  And then I looked at sourcing advisors…ITO vendors…HRO vendors etc.  I realized if you don’t know much about an area, these lists can appear credible, but if you actually have some domain knowledge you quickly see that these rankings and selections of vendors make little sense.  What I’d like to know is who is reading these lists, and are business decisions being made on them?  Isn’t there some sort or body that regulates this "stuff" floating around the industry?  Can anyone shed some light on this?

Posted in : Confusing Outsourcing Information

My good friend and former colleague at the Yankee Group, Arijit "Apu" Sengupta (pictured) – who is now CEO of BPO quality improvement software firm BeyondCore – alerted me to a startup that reverse-offshored its development team from Bangalore back to the US: 

“Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first 5 years of his career to get from 1% to 10% of his equivalent US counterpart. He then jumped from 10% to 20% of his US counterpart in the next 1 year. During his time with us (less than 2 years) he jumped to 55% of the US wage.  In the next few months we would have had to move him to 75% just to ‘keep him at market. Once the salary rises to 75% of US salaries, the overhead cost differences between India and the US would overwhelm the financial viability. Consider the additional overhead of managing two offices, flying between the two centers, dealing with the cultural differences.  The costs of having two offices, which are twelve time zones apart, is significant. People in both offices frequently had conference calls at 10pm and midnight every night (as a result the office in the US didn’t get started until noon sometimes or people rolled in tired). We were all traveling constantly. Development and communication moved slower due to the distance and teams.”

For more on Apu’s story, go to the CIO Magazine website

Posted in : Captives and Shared Services Strategies, Sourcing Locations

Lisa Ross is a long-time respected analyst in the BPO world and runs her own research organization, aptly-named “FAO Research, Inc” which has taken the industry by storm over the last couple of years. Lisa has spent a lot of time talking with the advisor, supplier and end-user communities to understand the role China can potentially play in BPO – and most notably Finance & Accounting Outsourcing, which has some a heavy offshore component… In advance of the G8 Summit, take it away Lisa:

A sentiment we hear often from buyers, suppliers and advisors in the outsourcing space is that China is fast becoming the next India – but is this really an accurate statement for the Finance & Accounting Outsourcing (FAO) space?

Let’s first look at the glass half empty:

• China’s physical infrastructure, although improving, is light years behind technology centers in India.

• Same with human resources – workers are available and growing in number, yet their proficiency in foreign languages and cultures and process expertise is lacking. For voice-based BPO services, only Japanese businesses are being serviced currently from cities like Dalian which has a high Japanese-literacy rate; however, most Japanese businesses do not like the Japanese being spoken with a Chinese accent, so few of them actually use China-based services.

• There are roughly 220 million middle-class Chinese many of whom are learning English compared to 350 million Indians (more than the US and UK combined). Moreover, Indian pop culture – most notably movies – adds new elements to the Indian English language, which China seems to lack.

• Privacy laws are a mess, causing great security concerns, specifically around F&A issues.

• Financial development has yet to keep pace with the country’s growth, as the Asian Development Bank (ADB) also struggles to reinvent itself.

• Knowledge management – a key ingredient to foster business and process innovation – has yet to be proven in large scale.

And now for the glass half full:

• China is moving from mass poverty as a whole to middle-income living, so the need for overall economic reform is tremendous – the need for FINANCE reform even greater. Enter FAO.

• China has LOTS of money to spend – aside from being a massive exporter of capital, it’s currently a magnet for private capital inflows. And with Chavez angling to unseat the U.S. as Venezuela’s partner in the oil business, etc.

• Many F&A processes require minimal customer contact and are data-centric. With many of the Indian-based sourcing models encompassing 10% of delivery onshore for voice-work and 90% operating offshore, there is every reason why the Chinese can replicate this model.

All-in-all, it seems that China will prosper in the short term with its engineering, manufacturing and technical acumen, but is still someway off becoming a major force in BPO services – namely Finance and Accounting and contact center . Once the middle class populous develops stronger language skills and supplier resources become more sophisticated – which will happen eventually – we can expect to see them compete more prominently in the BPO arena.

Lisa Ross is Chief Executive Officer at leading BPO analyst firm FAO Research, Inc. and can be reached at [email protected]

Posted in : Sourcing Locations

• You can’t understate the importance of the 10-year $1bn Johnson & Johnson HR Outsourcing contract to the long-term sustainability of the HRO industry. When discussions began within J&J back in the summer of 2005, the key question bouncing around J&J’s leadership was “can we really do this?”. For a company that has grown largely through acquisition, J&J today boasts a couple of hundred businesses operating under the flagship brand. You can only begin to imagine the challenge of standardizing this global business on a common HR platform, across multiple countries, supported by centralized HR organizations. I recall times it looked doubtful the deal would happen with all the negative publicity surrounding HRO, the contractual issues of some of the earlier engagements, and the financial difficulties experienced by some of the ambitious providers who bit off slightly more than they could initially chew. It became abundantly clear over the last 6 months that J&J would prove to be the bellweather of the HRO industry – its very survival hinging on whether this would actually happen.

• What is transpiring in today’s industry, is that outsourcing (BPO and ITO) is providing the lever for companies to go through major change (hey – I managed to avoid saying “transformation”). And what’s more, HR outsourcing drives business change with the investment footed by labor arbitrage, process automation and self-service technology (contrary to the mega ERP implementations of the ‘90s where the cost was borne by the shareholders). For many global organizations, they simply cannot drive the scale of change necessary through organic process re-engineering – it’s often far too expensive, far too slow, and often far too political. Many companies do not have the required management experience to do it either. Going through outsourcing drives shock into system, forces change quickly and usually reduces administrative costs. Yes, a handful of companies decided it was not for them, for various reasons, but the vast majority would never go back. They want to work with what they have achieved and make it better, through better governance and constant innovation.

So what’s next for the HRO industry? – here are my snapshot predictions:

• Global deals will continue to slow as the major providers reach capacity and absorb what they have already taken on
• The upper middle-market will open up aggressively as firms with 5,000 – 10,000 employees pursue broader outsourcing strategies across SG&A and IT functions. Interest in outsourcing is at an all-time high and companies are vigorously exploring sourcing models that work for them – i.e. captives / hybrid models / full scope outsourcing
• The “Transform first, then outsource” myth is beginning to fade (but slowly). The common plea of “we can’t do this right now until we get our act together internally first” isn’t washing as well as it used to, with more and more companies fixing their internal process and technology requirements while going through outsourcing transition. J&J is a perfect example of that, and a bellweather for many more organizations to follow who desperately need to change.
• HRO will become more accepted as a standard outsourcing practice, like ITO, F&A and Call Center.  My post on the Human Capitalist blog in December 2006 lays out the issues the HRO industry has had to contend with, unlike other outsourcing towers:

  Holding HR Accountable

Posted in : HR Outsourcing, HR Strategy

Great post from Mark Stelzner’s "Inflexion Point"….

http://www.inflexionadvisors.com/blog/

"I was looking over my contact list yesterday evening and came to a stunning (but not shocking) realization. I could only identify five people that are happy with their current job. Virtually everyone I know would jump if a better opportunity presented itself, and most are either actively or passively pursuing side interests and opportunities with the hope that one day soon, that “perfect job” will rear its glorious head.

"Many years ago, a mentor and friend suggested that employment nirvana required three significant attributes – 1) doing something you enjoy and truly believe in; 2) the opportunity for advancement; and 3) decent cash. I would argue that a majority of my former and current colleagues can check at least one box, less than fifty percent can check two, and an increasingly small minority have found that perfect combination of passion, pay and promotion.

"In the industries in which I’ve worked (human resources, the public sector, outsourcing, call centers), attrition is ridiculously high. Industry events turn into reunions as thousands of former colleagues emerge with new logos and titles beneath their names. Thousands more troll the trade show floor hoping to find the next job that just may be the “perfect fit”. It’s well-known lore that many industry executives use such events to lure dissatisfied workers from their current employ.

"Paying the price in all of this are employers and families.

"The gap between the recruiting pitch and life in the trenches approaches Grand Canyon-like proportions as employers become increasingly desperate for talent. Recruiters are typically incented on volume, not retention, so forcing a square peg into a round hole is second nature. Hiring managers are often too busy to perform proper due diligence and instead need a warm body in seat as quickly as possible. And executives stand to lose precious dollars from their P&L if preapproved headcount are not onboarded in a timely fashion.

"Unfortunately, families pay the biggest price. Forced to endure the 24-hour lifecyle of their loved ones, the mirage of work/life balance and predictable employment is more ellusive than ever. With the new job “high” fading ever faster, loved ones must suffer through the sad realization that this, alas, was yet again not the job everyone had hoped for. And the cycle continues….

I want to blame someone for this mess but I struggle to identify who. The job boards and recruiting technologies simply present what is entered – garbage in, garbage out. Employees feel the grass is always greener – and is often is – but everything comes at a price. Employers are not evil-doers yet cannot clearly convey what life is really like behind closed doors. This forces us to put our trust in our friends who know these firms well. And when that fails, our gut instinct is the only remaining barometer."

I’d like to add to Mark’s comments:  the work environment has changed dramatically over the last 4-5 years.  Executives are expected to check their blackberries every 30 minutes – right up to midnight, email checking is now commonplace over the entire weekend.  The work environment intensity has magnified significantly as employees become tethered, accounted, and measured like never before.  Some employees are just getting burned out and employers are getting increasinly expert at playing the "churn and burn" game.  In my opinion, the employee/employer "trust" has hit an all time low – it’s all about "what can you do for me today"…  Companies need to work harder at enforcing work-life balance, or we will see increasing employee burn-out in the workplace.

Posted in : HR Strategy

Some recent notable power moves in the F&A Outsourcing suppliers worth mentioning:

HP:  Steve Stubitz, who led Americas sales for HR and F&A BPO has gone out on top and into the private equity world.  Steve – you will be missed.

Infosys:  Devesh Nayal, who led their BPO business, has moved on to an – as yet – unnanounced company… expect to see him back soon.

Genpact:  Regina Paolillo, the Queen of Order-to-cash, has moved to  one of their parent investors, General Atlantic Partners.  Don’t think we’ve seen the last of Regina somehow….

EXL Service:  Has recruited former EDS and ACS BPO veteran Matt Appel as CFO, and Pramode Metre – (who seems to be able to be at 6 US cities at the same time in between a trip to India) as head of sales and marketing. 

Xansa:  Worth mentioning David Hirst, who has seemingly managed AR, CR, IR, MI and Marketing all by himself (and a thoroughly nice bloke too).  Anyway Dave’s moved on…but I’m not allowed to say where 😉

And finally… Accenture:  Mike "Sal" Salvino (who still comes up as Hewitt on my Outlook) has already been promoted to uberlord of Accenture’s Procurement and Customer Contact Services in addition to continuing to have oversight for Accenture Finance Solutions.  Something about "capitalizing on the natural synergies"…nice work if you can get it.  Nice one Sal!

F&A dude..it’s where it’s all happening

Posted in : Finance and Accounting, Outsourcing Heros

David Sheinfeld is one of the best-kept-secrets in the outsourcing world… he operates behind the scenes on many major deals doing the real down-and-dirty technical and contractual stuff to make these things work.  The man is a walking encyclopedia – need I say more?  The following is a snapshot of his thoughts on how dramatically the industry is changing….

• It used to be that Outsourcing was reserved for the name companies in the marketplace. That was not long ago. After Y2K and the spending spree, corporate America embarked upon it, and it became clear that many functions could be handled more efficiently and less costly by having someone else do the work. We saw contracts orth billions of dollars being awarded to the likes of IBM and EDS. Then along came companies such as Accenture, ACS, CSC and HP. Together, these six companies became known as the Big Six of outsourcing companies. That was just a couple of years ago. How things have changed in such a short time period. The latest reports showing dollar volume, growth and the number of outsourcers seem to question whether the term Big Six is even applicable today. Over the past few years many other companies, especially those companies located outside the U.S. and whose Global delivery model has gained traction, have diluted the market share of the Big Six. A recent report by TPI states that over $100 billion dollars worth of contracts were coming due in 2006 and 2007, with almost 50% of those dollars concentrated in two companies, IBM and EDS. Now there is a whole group of new companies coming up the chain to provide the same services and solutions as do the larger companies. Outsourcing has become a commodity and is experiencing the same pressures that many other commodities go through as they become mature market players.

• As in any commodity business, the more choices you have, the more pressure the commodity has in the market.  The Outsourcing Industry is in a sea of change. The client is more knowledgeable today than in the late 90’s when those original contracts were signed.  The client appears not as concerned with outsourcing and has a more expanded view of what the outsourcer should provide –  and it’s not just cost savings.  The client is requesting more in terms of value-added services and solutions as part of the outsourcing transaction. The outcome of all of this is more choices, more competition and therefore greater price pressures on those providing the services.

• Depending upon which offering the outsourcer is pursuing will determine what services are offered and the price for those services.  For example, call center services and the pricing for those services may be more generic and the processes more uniform than Finance and Accounting or Human Resource processes.  Each specific area requires a particular expertise not only on the human side but also the technology side.  Some areas have the potential for large transition and start-up costs which are likely to cause greater margin pressures during the life of the agreement.  Now with clients breaking up the contract scope to more than one provider, there is less margin dollars and less opportunity to make up losses if they should occur in the beginning of the contract.  Furthermore, with smaller contracts in place there is a greater emphasis by the outsourcing company to try to hold back transition and start-up costs as the ability to recoup those costs becomes that much more difficult.  The new contracts may also require more services or other value added solutions that increases not only the requirements under the terms of the agreement but also increases the risk to perform. Thus, the provider needs to be prepared to give more for less!!

David Sheinfeld is currently a strategic partner with Becton Schantz, Inc., one of the largest application service providers in the country.  He is a Principal of Horizon Business Advisors LLC, a strategy, management and merchant banking firm.  He is also the founder and CEO of MKJ Advisors, LLC, a merchant bank and advisory firm specializing in strategic planning and mergers and acquisitions.  Previous to this David was a founder, Chairman and CEO of Fresh America, Corp., one of the largest distributors and manufacturers of value-added food products in North America.  David can be reached at [email protected]

Posted in : IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Heros