Lee Ann Moore sent me this interesting analogy of Slumdog's Millionaire's success at the Oscars, and whether it could enhance India Inc's image in the wake of the Satyam scandal and the "Buy America" protectionim we're seeing at the moment…
The post-Academy Award media has declared 2009 the year of India. Will that hold true for outsourcing and Indian workers? Perhaps this push is just what our political leaders need to keep protectionism policies at bay. It is too late to impact the recent bailout package that bans recipient companies from hiring H-1B workers, many of whom are well-educated Indian nationals. Can this Oscar favorite change our attitude toward work in India?
How could our sentimental side not cheer for all the Jamal’s and Latika’s of India who grew up in an impoverished country and work every day to create a better life for themselves and their family? Granted the movie presents a well-written yet fanciful tale, but it helps us understand a unique and beautiful culture. Only time will tell if Hollywood can help the American worker minimize his fear of losing a job to India or perhaps treat the tech support personnel with a bit more respect. Shall we track the call center escalations pre and post-“Slumdog”?
There are many challenges in understanding how a global economy will benefit the American worker and corporations. Thomas Friedman’s recent post, The Open-Door Bailout, provides a compelling argument for open borders and challenging Americans to focus on innovation over fear or job loss. Perhaps the emotional appeal of “Slumdog Millionaire” will allay the fears of the American worker and challenge Washington to think and act global.
When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities. In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition. However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated. That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.
To this end, an old friend of mine, Bill Rieke, shared his experiences with CFOs of mid-market firms trying to drive cost-efficiencies into the financial processes. Bill is a respected veteran of the BPO industry, having worked on multiple international engagements with Convergys and subsequently Genpact. He now works independly with firms as an advisor with BPO and process optimization. Over to you Bill…
In American Heartland, Optimization Finally Brings Hope of Accounting Transformation
I have been networking with several mid-market companies in Cincinnati, Ohio, and the surrounding states in the American heartland during our economic downturn. The concerns expressed by CFOs are not unlike the rest of the country or the world – lack of demand, availability of working capital, etc.
However, these heartland CFOs appear to be tackling their concerns not by outsourcing finance and accounting and other back office activity but rather by eliminating activities. They are doing so by optimizing the integration of their sunken expenditures in information technology, i.e., ERP platforms, and by reengineering their legacy internal business processes.
Let me explain
The Sarbanes-Oxley Act of 2002 (SOX) mandated a range of new standards from Corporate Board responsibility to new accountability by external auditors. SOX also dictated dramatic increases in internal control assessment and enhanced financial disclosure.
To implement SOX provisions, consultants were engaged to document business processes, assess the risks of these processes and then implement new procedures to cover internal control weaknesses. The goal of these efforts was not based upon efficiencies but rather rigid compliance. In fact in 2004, the SEC Advisory Committee found that 2.55% of revenue was spent on SOX 404 compliance for small public companies.
So while attention was devoted to SOX compliance, the global economic boom ushered lots of cash and corporations used that cash to acquire new ERP platforms such as JD Edwards, Oracle and SAP. These systems brought the promise of integration, streamlined operations and improved working capital management. But often, the value of these platforms fell well short of the marketing literature. Sometimes this was the failure of the systems themselves (thus the age of application wrappers) and at other times, it was the failure of legacy internal business processes surrounding these ERP platforms. And yes, consultants were used to implement these platforms – often without the skill or knowledge to optimize the business processes as well as the platforms themselves. And there is one well-documented Ohio company whose decision to outsource a new ERP platform was later rescinded.
So as we entered early 2008, we had business processes around legacy operational departments with incremental, SOX-mandated internal controls. We also had newly deployed ERP platforms whose actual financial benefits were far short of those promised. And finally we had very few heads of finance and very few heads of operations seizing control of costs and operational efficiencies. In short, we had profit leakages in a so-so economic environment, but now have significant working capital holes in a down economy.
Late 2008 – Today
Progressive CFOs in the heartland have now engaged a handful of very skillful, business savvy niche consultants and consulting firms to merge, integrate and optimize their technologies and business processes. These niche players are bringing six years of SOX experience combined with practical working knowledge in ERP deployment thereby quickly monetizing value that ERP specialists and working capital improvement consultants had promised. Outsourcing is still an agenda item especially in a handful of non-core functions and periodic analytical projects – but the financial improvements from optimization are now quickly being harvested to bring forward true accounting transformation.
Bill Riekeis a seasoned veteran of the BPO industry and advises CFOs on BPO and process optimization
My colleague Dana Stiffler had some fun in Egypt this week, as a guest of Egypt’s Information Technology Industry Development Agency (ITIDA). Check out her observations at Think Global.
We had a great discussion a few weeks' ago regarding the USA's potential to take on more sourcing work, with increasing unemployment and downward wage pressures. I've made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work. And where better to start than the call center?
Bottom-line, President Obama should take a leaf out of Margaret Thatcher's book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline. I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM – she closed down unprofitable coalmines during the 80's recession, and encouraged businesses to set up call centers in depressed British cities. Now there are over 650,000 call center employees across the UK.
Wages in the UK are competitive for qualified staff – and they don't command ridiculous healthcare premiums. (One major healthcare insurer just increased its premium by 20% this year). While there are some good investment ideas inthe stimulus package, I would have liked to have seen some focus on business service support areas – as we discussed here.
Protectionist sentiment is swelling. The Buy America provisions in the stimulus bill are symbolic of the increasing resentment towards jobs and work going overseas. I have already seen this provision included in some sourcing RFPs from healthcare organizations and other companies benefiting from bailout money, or with significant public sector influence.
With over two-thirds of Americans filing first-time unemployment claims for the week ending February 21 to bring the total to over 5.1 million, this tide will surely rise. Over the past decade there had been considerable leakage of domestic customer service agent seats to offshore locations. Customer service is returning back to the country, literally. Inspired by the Canadian model and technological advances, customer care is increasingly being delivered from rural America.
The customer service rep is the organization’s ambassador to the caller. The human voice provides the company’s human face. Much of the time when the customer calls it is because something has gone wrong. If the caller cannot understand the agent due to accent issues and/or communicative styles, the problems are compounded. The caller can become agitated and the company may wind up losing a customer. In the present economic environment, just hearing a foreign accent could trip the trigger. Losing dollars chasing dimes is not wise.
Earlier in this decade, there was a mad dash for the low-wages on offer in India – and more recently the Philippines and low-cost Latin American countries such as Peru and Nicaragua. Everything was thrown over the wall once telecommunications technology and the associated costs became less of an issue. A Mercedes Benz owner was furious when connected with an offshore agent, “How can somebody help me with problems related to my car when they have probably never even driven one?”
Like Britain in thn 1980's, Canada has also explored ways to grow its economy, concludingthat the stability of the nation and its people were major assets. It was determined that the call center industry to serve the American market presented an excellent opportunity. Beginning in the late eighties, strategic initiatives were put in place involving tremendously unified efforts by all levels of government and higher education. These efforts were initially intended to address economic woes of unemployment in traditional industries and leverage the value of the Canadian dollar.
The programs proved to be successful, particularly in more rural areas. The Canadian turnover rate was consistently a third of US. As there was less competition in rural areas from other industries for workers, there was far greater retention and a seasoned experienced workforce developed.
American providers have noted the formula along with being able to take advantage of the lower cost of living in many rural areas. Additionally, wages are lower with a reduced turnover rate adding to the value proposition. Human resources consultant FurstPerson reports in its 2008 Call Center Recruiting and Compensation Survey that the average cost of attrition per agent is $5,466.32. Consequently, call center providers are increasingly leveraging opportunities in areas with smaller cities, particularly in the Midwest.
One such provider is West Direct headquartered in Omaha, Nebraska (the oft-dubber "call-center capital" of the US). The business model is based on having 39 contact centers around the country, mostly in cities with populations ranging from 50,000 to 150,000. West Direct also employs home-based agents.
By offering telecommute positions; a much wider net can be cast to attract agents in outlying areas. The employee saves time on commuting and the cost of fuel. The employer is able reduce the costs of a seat in a brick and mortar center while frequently attracting high quality employees at a lower wage. It is common for the churn rate to be in single digits for home-based agents.
Technology, high-speed connections, and Web based applications has enabled companies to tap into rural America with its strong work ethic. Customer care can be domestically delivered at an attractive price point with callers being greeted by a fellow American. I'll wager $100 we have new call center development in Michigan before 2009 is over.
As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial. I am inclined to agree with them. The BBC's Robert Peston just put out an excellent analysis of HBOS's final earnings report as a discreet entity:
This corporate division generated losses of £6.8bn in 2008 from loans and advances to businesses of £116bn. It has had to write off an average of 47% of those loans in this area that have gone bad. Almost 12% of all its corporate loans are now classified as impaired or damaged. And as a percentage of the total corporate lending book, the impairment charge is just under 6%. On the basis of those statistics, HBOS appears to have left a big bag of money open on the pavement with a sign saying "borrow what you want".
How can you give out over $100 billion in bad loans? In Spain, for example, their banking system, which has been one of the least affected by the crisis, operates using dynamic provisioning, where each loan mustbe underwritten with capital in the banks' reserves.But what has transpired in the US and UK banks is tantamount to executives knowingly driving their businesses into the ground at the expensive of getting fat and happy themselves. It's like hundreds of these executives were riding tigers without knowing when to get off. If I hear one more jingoistic anti-offshoring argument about the fact that a whole industry should be tarnished because a single service-provider was caught cooking the books… how about a whole industry cooking its books?
I've been getting an increasing number of service providers talking up the growth of Legal Process Outsourcing (with the mind-blowing acronym "LPO"). Personally I'm a bigger fan of PPO (Political Process Outsourcing), but it seems like we could have some onshore/offshore complications with that one, so let's talk about LPO.
Having had a few discussions with clients and service providers in this space, it's clearly an area for major cost-efficiences for businesses. I've even had one service provider bragging he was making a killing doing liquidation administration offshore. Bottom-line, several of the fat law firms are already offshoring their own legal support work to low-cost locations, whilst still billing their clients top-whack rates, so smart corporate legal buyers are focusing on engaging with LPOs, as opposed to highly-expensive law firms, for a lot of legal work, while retaining expensive lawyers for critical activies that require deep experience. And did you know Mahatma Gandhi was a barrister? I'd use him anyday overDenny Craine 🙂
I've recently had the pleasure of interacting with the industry's one full-time LPO advisor (if there are others, here's your chance to make yourself known), so I asked him if he can educate us more regarding what LPO's all about. Step up Matt Sullivan who lived in Pune, India, for two years, where he managed the risk management & regulatory compliance practice for a global IT outsourcing company as part of a 20 year career in services and outsourcing. He now plies his trade atRed Bridge Strategy, where he's teamed up with some very smart and friendly consultants who focus on global sourcing issues. Over to you Matt:
Changes Ahead in Sourcing U.S. Legal Services in 2009
Businesses have traditionally relied on a combination of in-house legal departments and outside law firms for all of their legal work. During the past few years, maturing processes, technologies, and legal-services-delivery-perspectives have created an environment where corporations now have a spectrum of choices from which to source legal services.
General Counsels can globalize in-house legal departments by consolidating legal staffers in low-cost jurisdictions or outsource legal work to Legal Process Outsourcing firms (LPOs) at significantly lower costs than traditional U.S. law firms can offer.
The delivery of legal services from offshore locations, primarily India, has grown dramatically in the last few years, and will continue in 2009. While LPOs are compelling, they are not the only option. Whether delivered through globalized in-house functions (international, legal, shared services functions) or LPO firms, mature legal processes now make it possible to deliver high quality work from across the globe despite the unique legal challenges of privilege, supervision and conflicts. Some large law firms have created their own “captive” units to offer lower cost legal services to their clients.
Why Now?
The availability of global legal processes has arrived. During the past five years Business Process Outsourcing (BPO) vendors have provided human resources and accounting services, and as a result, shown that many types of professional services can be successfully outsourced. More recently, the recession in the U.S. has forced a more vigorous evaluation of legal costs than ever before, while, the volume of legal work, particularly e-discovery, has been soaring. The American Bar Association (ABA Formal Op. 08-451) and several regional bar authorities have implicitly authorized legal outsourcing. Finally, major BPO players such as Infosys and Wipro have entered the LPO market and the major independent LPOs (Pangea3, Mindcrest, Quislex, UnitedLex, and the Clutch Group) have announced significant growth plans for 2009. Given the clear economic drivers, the removal of previous barriers, and the stated intentions of many of the major service providers, globalization of legal services will certainly quicken in 2009.
Implications for Corporations
To take advantage of the relatively new legal services sourcing options, corporations must organize and optimize legal services like any other shared corporate services. For example, a corporation that operates in the U.S., the U.K. and India, may need attorneys in each of these jurisdictions, but may choose to concentrate the bulk of its legal team in India instead of London or New York; thereby taking advantage of resources that cost 50% to 80% less. Multinational corporations, such as Accenture, DuPont, GE and Oracle, have already taken advantage of their global presence to consolidate some of their common legal functions in lower cost jurisdictions like India.
Some organizations may not have sufficient legal work or sufficiently predictable volumes of certain types of work to warrant global shared legal services. These organizations have traditionally retained outside law firms when they become parties to litigation or acquisitions. These situations, that create sudden, large volumes of documents to review, are exactly the circumstances for which LPO vendors are well suited. Many LPOs have the ability to quickly deploy large teams of young lawyers using the latest technologies to assess the responsiveness, privilege, confidentiality of litigation-related documents or to review the assignment and termination clauses of acquisition-related contracts. Indian LPOs can typically deliver these services for $20 to $50 per hour as compared to $60 to $100 or more for legal temps in the U.S. Low cost legal services sources are also emerging in such places as Israel, the Philippines, South Africa and Costa Rica.
For many corporate legal departments, the prospect implementing and managing a global legal operation can be a daunting. Combining the practice of corporate law with business process redesign and outsourced vendor management requires a new set of skills. Working across cultures and time zones with a business in India or other distant countries adds to the complexities. There will be both stories of success and tales of woe, but the advantages of moving to new legal sourcing models are compelling, and the trend towards both corporate global shared services models and legal process outsourcing will increase significantly in 2009.
Matthew Sullivan (pictured) is a founder and principal at Red Bridge Strategy, Inc., a management consulting firm that helps organizations design and implement global strategies to reduce costs and improve performance. Matt has more than 20 years of business consulting experience, and lived in Pune, India for two years. He is also a member of the Massachusetts Bar.
Being an analyst, you get a broad view of all the entities competing for the same service provider dollar. You also get a good perspective on how service providers can get the best bang for their marketing buck. And being a blogger, you also pick up a strong sense for the effectiveness of media outreach, but I'll save that discussion for another time.
There is no one-stop support shop for vendors to find and attract new clients, and influence the market – they need to gauge where they need to build influence, using both direct tactical measures – i.e. speaking at conferences or advertising, and indirect measures – i.e. influencing influencers or subliminal branding. The current pull-back in discretionary spending from vendor marketing budgets is seriously exposing the bloated array of firms feeding off the vendor marketing-dime, and with a lot less to go round, we're going to see some firms exit the market, some market consolidation, and others simply going out of business. We'll also see some boutiques linger around the industry because their owner has no idea what else to do, and his only costs are living and travel expenses, and maintaining a website. Desperate times call for desperate behavior and none more so than for many of those entities forging their living selling to IT services and BPO firms.
And spare a thought for the outsourcing vendor - it has to tackle razor-thin margins with being the smartest, the most innovative and the most operationally efficient; while having a great brand, a great corporate culture, a credible Green strategy, an advisor relations strategy, great analyst write-ups, spotless client references; while being incredibly visible to business decision-makers… and be able to do this with smart media outreach with its market-makers speaking at the best conferences.
Long gone are the astronomical sales and marketing spending-sprees of yesteryear. Now, every expenditure is scrutinized, and vendors have to demonstrate actual lead-generation attribution for every dollar that flows out of the organization – especially with firms with whom they do not have an existing relationship. Moreover, those vendors which can successfully manage the right marketing-ecosystem within a reasonable budget outlay are likely to be emerge from this slump in a much stronger market position than those who are incapable of changing their ways and learning how to tackle their market-management. So let's take a look at the current marketing ecosystem facing vendors in the outsourcing industry:
Today's marketing ecosystem for the outsourcing vendor
Marketing, Branding & PR: There are a few discreet firms which specialize in marketing strategy and tactical PR outreach. Vendors need to make tough
decisions whether to retain much of this work inhouse, or slim down its internal marketing function to use a third-party. Most vendors will not be able to afford both. With some vendors, they are going to benefit far more from a third-party marketing firm that has a deep understanding of the industry and can execute programs and campaigns that are measurable and actionable. My advice is to put prospective marketing agencies to the test and challenge them on how exactly they can bring both direct and indirect influence and visibility to the organization. Many vendors could actually save money outsourcing many of their marketing activities to a nimble marketing agency, but they need to ensure they handpick the right marketeers who can drive their marketing agenda in this climate.
Information Providers: In the past, some vendors have spent a lot of money on research firms (some call themselves "analysts", but they are really in the information-provision business). In this market, much of the information vendors need on their market and their competitors is freely available. If you have a couple of smart inhouse analysts, you can do a lot of the information gathering you need inhouse and avoid spending a lot on expensive information that you could have pulled off the web yourself. Besides, are your competitors really dumb enough to expose their competitive secrets to firms which produce publicly available competitive profiles? Like the former category, vendors should decide whether to retain this work internally, or use a third-party firm. Having both is likely to be wasted money.
Industry Analysts: Like it or not, some industry analysts have a significant amount of influence over your prospects and customers. Most of the FORTUNE 1000 relies heavily on analyst validation – they trust their advice. Analysts can be a very influential indirect channel. However, that means you need to focus on analysts that spend a lot of time with buyers, and have a lot of buyer-clients. The more you can convince them you are the real deal, and the more happy clients you can deliver up to bear all about their experience with you, the more assured analysts will be of your delivery excellence. However, that means you need to conduct some due-diligence on which analysts are actually influencing, before investing a lot of executive time with them. Some branded analyst firms only have vendors as their clients; they are not really influencing anyone, besides you and your competitors. They will really struggle in this recession, as their only real value to you is market insight, which might be superb, but is – at the end of the day – a discretionary cost. My advice: invest in analysts who influence your prospects and clients. And one easy rule-of-thumb: if they fail to impress you, they probably also fail to impress your clients…
Sourcing Advisors: As we have discussed here on several occasions, some sourcing advisors can play a pivotal role in managing outsourcing evaluations and escorting clients through to a contract. Investing in a couple of executives to mine relationships with some of the key advisors in a no-brainer: you need to ensure you are on the radar-screen of advisors when they send out an RFP. In addition, you have probably also noticed that most of them are now targeting vendor marketing dollars to supplement their revenue streams in this market, with services that can help your marketing and sales strategies. However, my advice is not to confuse investing money with sourcing advisors with influencing their "favor" with a deal they may be running – it doesn't (and shouldn't) work that way. Project directors in advisors who run individual deals are highly unlikely to pay any attention to (or have any knowledge of) the fact you have invested funds in one of their training, marketing or research programs. Judge their vendor-offerings on face-value: if they provide you with critical support, then evaluate them like any other third-party service offering, like those described above.
Media: Gaining visibility with decision-makers has never been so challenging in today's information-cluttered market place. However, in cost-constrained times, not everyone can afford sporting-heros or prime-time commercials. Moreover, broad-sheet business media (the most read by C-suite execs) is still very expensive, and the cost of buying up mindshare in the Journal is going to significantly eat into other areas of your marketing budget. Laser-focused targeting is required to capture mindshare through the media. My advice is to use micro-targeting to pinpoint specialist media that has the readership you want (which may be a step or two down from the C-suite) and also research which social media is impacting your client base (i.e. LinkedIn / Google / popular blogs). Again, evaluate niche marketing boutiques that can take on this task for you – they should know exactly where you should invest, and have the negotiation experience to get you some good media sponsorship deals.
Conferences: This is a tough year for the conference circuit. Many vendors are opting to pay entry fees to network with clients and prospects and avoid buying up expensive booth-space or paid speaking spots. This is a time to get a good discount from your conference provider. However, having the right prospect see you present could net you millions of dollars. Tough times these may be, but being at the right conferences is still a great way to meet people. Just take time to ask around which conferences will get you the client access you need. Avoid mass-marketed trade shows which tend to only attract other vendors and junior folk from clients in this market. Moreover, a good conference should still get you access to multiple advisors/analysts/clients that you can schmooze in one quick-hit, so these are still a good use of your time and money. In addition, really ramp up your webcasts this year – clients are much more accustomed to desk-based discussion is this market, and the cost-effectiveness of driving a compelling presentation and Q&A to a few hundred prospects is the best bang you will get, provided you promote it right and have interesting stuff to talk about.
Industry Associations: Some are good, some are jaded, some were jaded and have bounced-back, and some never were any good in the first place (but never seem to go away). I'm not going to "out" any on here, but ask around the industry to find out which associations still attract new members, have good leadership with passion and energy, and are respected throughout the community at large. You may be surprised…
Client Hospitality: Investing in your loyal clients and hot prospects in this market is money well-spent. It's time to get tighter with what you have, in addition to going after new business. Investing good money in entertaining your clients, have them network with each other, and meet other industry experts who can offer insight and value is very smart. I've been to several vendor-client dinners this year and can honestly say the goodwill gained from the host vendor easily outweighed the cost of the shmancy restaurant bill. Plus, who turns down good food and booze in this economy?
Direct Sales: You can't fault the old fashioned way of bringing in business, but you can't just call up firms and ask to "talk with whoever is in charge of outsourcing". Save your money and send your market-makers to the right conferences where they can talk to those "outsourcing executives".
While many firms are hunkering down tryng to ride out this turbulent year, we're also seeing an increasing number of multi-national companies use this time to develop business support infrastructures that can scale quickly with the needs of the business. It's not all about cost-reduction – it's about being nimble, and having a firmer handle on accessing critical data on your staff at a global level. You can view the full post over at Think Global.
Lee Ann Moore sent me this interesting analogy of Slumdog's Millionaire's success at the Oscars, and whether it could enhance India Inc's image in the wake of the Satyam scandal and the "Buy America" protectionim we're seeing at the moment…
When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities. In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition. However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated. That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.
We had a great discussion a few weeks' ago regarding the 
As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial. I am inclined to agree with them. The BBC's Robert Peston just put out an 
