Firstly, thanks to all of you who contributed to the lively debate following the recent post "Will the HR function have a seat at the corporate table in 2008?". I was merely highlighting some interesting thoughts from the Inflexion blog, and didn’t expect such feverish input from so many of you! (And before I continue, I promise this will be my final rendition using the corny phrase "seat at the table"). Anyway, I have been under pressure from several people to put forward my opinion in this topic, so here we go:
HR used to be merely "personnel" and looked after the administrative activities related to basic employee needs. It wasn’t until the ’80s when the wider berth of "Human Resources" was developed where HR would be activity involved in all issues people within a firm, and not just the basic admin, i.e. recruiting, organizational design and development, corporate culture, compensation, career planning and counseling etc. The challenge of HR leaders was to get taken seriously at board level and prove their worth to the business. Not an easy task where you are not directly related to revenues and there are always more "critical" issues to be discussed before people strategy. The HR struggle had begun.
Then came the onset of HR suites like Peoplesoft, whereby it became vogue for HR executives to apply metrics to their organizations to help base management decisions. Where else in the company was there a more comprehensive view of staff profiles, compensation, attrition-rates and performance than in the HRIS? Hence, where finance departments could show the board how to budget and forecast the business to aid decisions, HR could (in theory) link employee performance with the business. Part of the problem has been that HR (unlike finance, for example) hasn’t done a good enough job of embracing technology to demonstrate real value metrics to the business. It has been stuck in the weeds of blocking and tackling, and not focused enough in areas that get real board attention.
And then the wave of HR outsourcing hit after 9/11. All this achieved was a very public dissection of the "strategic value of HR" as several high-profile companies grabbed at reasons to move out as many HR people as they could into service providers, or out of the firm altogether. It has taken a few years for HRO to iron out its issues, but it had the impact of alienating many HR leaders within firms, and driving them further away from the corporate table. However, I am convinced the HRO industry has now found its balance and the real HR issues are back at the forefront of many organizations’ agendas.
My view is centered largely on the skillset of the HR professional today – it’s too focused on the legal issues, compliance, managing the basics… and not enough on delving into corporate data to provide real input into driving a talent strategy into the organization. Moreover, we need more "business managers" in HR – people who understand the real business issues, and how to help their firm hire, manage and retain key talent. HR is the most important function in today’s organizations, but it has simply not been developing in the right manner. Hence, my thoughts are around HR helping to instill world class HR principles and practices into today’s managers. I once managed a team of 14 senior people and it was one of the toughest challenges of my life. I needed support, advice – and a venting outlet – to help me do this effectively. The success of my whole business function centered on my ability to be a good manager. This is where HR, in my opinion, comes into play. It is there to support today’s managers, who are under ever-increasing pressure, to get the best out of their people. I have seen so many positive examples of where this works in firms… and, unfortunately, some less successful examples.
Will it get there in 2008? Professor Dave Ulrich, with whom I have enjoyed discussing these issues on several occasions, outlines excellently the roles HR departments must fulfill to deliver value. His mantra is simple: HR must play a role in implementing state-of-the-art strategies that are tailored to the needs of the business... an "operational executor role". In a world of rampant change, where firms are constantly globalizing, restructuring, outsourcing, divesting and acquiring, the need for the operational executor has never been so intense. It is my belief that we will see the roots of this happening in 2008 – otherwise businesses will struggle to survive and change in these complex times.
Got the best piece of advice all of last year from my wife: "Just stop and smell the roses"… so tonight I did, taking a walk through the snow on Boston Common 🙂
Thanks to all of you who took the time to vote in our poll "Who whould you LEAST like to see in the White House in November 2008". We’ve had over 100 responses back, so I thought it time to update you all that Hillary, on the back of her sensational comeback in New Hampshire, is again leading the charge… yes, she is currently the overwhelming favorite NOT to be the next President. McCain is the least offensive, but the Obama vote picked up recently, as several of you started to panic at the thought of this guy in the oval office. Anyhow, keep the votes and comments coming (just click on your least desirables on the poll on the left-hand scrollbar).
Jason Busch is regarded as the industry’s supreme authority on all issues spend-management and procurment. Jason picks up some interesting points on the slow growth of Procurment Outsourcing on his blog SpendMatters (you must subscribe to this by the way). Vinnie Michandani, on his Deal Achitect blog also pipes in with his views. Go visit!
You may recall the feisty debate on the H1B Visa and outsourcing issue here and here last year. With the 2008 campaigning now in full swing, the "O" issue is noticeably absent from the candidates’ agenda and our old friend Lou Dobbs is waiting in the wings to shoot pot-shots at any of the candidates who say anything that remotely supports offshoring, outsourcing or increasing H1B visas. Step up Hillary Clinton (see video clip below, taken from Lou Dobbs’ CNN show last year).
Yes, she’s supporting Silicon Valley businesses and has them contributing substantially to her campaign, but at least she’s openly discussing the issue and – more importantly – attempting to tie together the realities of outsourcing, offshoring, immigration and the need for the US government to invest in developing technical and engineering talent. I respect Lou Dobbs a great deal – he’s a passionate man who sincerely believes in his vision for American workers, has a great sense of humor, and conjures up some excellent – and entertaining – political discussion. However, this H1B argument just isn’t holding up.
One key reason is the fact that the average salary differential between a "domestic" worker and his/her supplanted job to an H1B worker is….$12,000 per annum. Having advised on several offshoring and outsourcing engagements over the last three years, I can state categorically that I have yet to see companies go through an offshoring or outsourcing process – driven by the goal of cost containment – at such a low cost-saving per FTE. Most companies will not entertain outsourcing business cases if they cannot achieve cost savings in excess of 25% from their original budget – it’s simply not worth the transition cost, complexity and risk to many firms. I would add that some companies have moved into outsourcing engagements at cost-savings lower than 25% from original budget, but their reasons for outsourcing were nearly always driven by motives beyond mere cost-reduction (for example, the need to re-design and standardize processes and drive rapid change to their enterprise that an outsourcing environment could bring). Bottom-line, most companies can’t be hiring H1B workers for the sole purpose of saving a few bucks… they generally need these staff. More key points regrading this issue:
Clinton’s policy is to increase the current (and already reached) H1B Visa cap from 65,000 to 115,000. Er… is this a big deal – will this type of increase in temporary workers cripple the US economy?
Clinton wants to increase the H1B Visa fees for sponsoring companies. The current cost of sponsoring an H1B Visa for an organization is about $6,000 – which covers USCIS fees and typical attorney costs. Clinton wants to re-invest these fees into grants for training and education of US graduates in these specialized professions. Why not raise these fees to $10,000? This would have the effect of nullifying any minimal "cost-savings" of bringing in a skilled immigrant worker, and would incent the sponsoring US organization to focus on sponsoring higher caliber staff which are really worth the effort of bringing over (normally US firms will have to cover relocation costs, flights home for their H1B staff and devote HR time to administering the whole process).
H1B is "legal immigration" and represents a very small fraction of the total number of immigrants in the US.
The H1B cap is a year-by-year renewable policy. It provides short-term solutions for businesses which need skilled staff.
Dobbs makes the argument that "7 out of 10 H1Bs are going to Indian companies for outsourcing". Let’s not beat around the bush here, but most of the FORTUNE 1000 firms have been outsourcing some elements of their IT services or business processes to firms that have offshore staff in India. As discussed here on this site on many occasions, outsourcing providers – and firms that have their own captive offshore resources, must have strong "bridging" teams that can help manage the work being carried out offshore, particularly for complex tasks such as application development, implementation services, and BPO processes such as accounting, claims processing etc. These bridging teams need native staff from the offshored location who can communicate effectively with the offshore staff, oversee the day-to-day operational issues and manage the knowledge transfer activities, and understand the cultural, management and communication issues that are crucial for ensuring the ongoing success of the offshore work. Without many of these H1B staff, US businesses will suffer as a result of poorly managed outsourcing and offshore captive work. If Lou Dobbs is so desperately unhappy about this high ratio of Indian-centric staff holding H1Bs, then he needs to focus his attacks on the vast majority of today’s FORTUNE 1000 leadership, which made the decisions to use Indian offshore staff in the first place. This high proportion of Indian staff is not the cause of the problem, but merely a symptom of what is happening. The root causes of US firms needing to use offshore resources are set deeply in the culture of corporate America, and the political and educational manifestations of the Unites States over the last three decades. I’m going to tackle the key issues the government needs to address in my forthcoming post "the Outsourcing Equalizer", if it wants to accelerate the development of local IT and business process services centers.
Away from the outsourcing topic, I watched the Democratic debate (or should I say "slugfest") last night on CNN. Being a citizen of the old country, I am used to opposing political parties viciously going at each other… but never the politicians from the same party. If two British MPs (Members of Parliament) from the same party threw accusations at each other in public anything like Obama and Clinton were doing, their party would have thrown them out, because the only winners from my perspective were the leading Republican candidates. The Democrats should be celebrating the fact they have, for the first time, both the first African American and woman candidates leading the race for their presidential nominations, but instead we are subjected to them trawling through each others’ backgrounds on live TV digging up dirt on each other.
Please can we see their campaign leaders clean up their act for the remainder of the campaign?
I found myself embroiled in a debate with a colleague today, who covers software markets. 2008 promises to be a year of unprecedented consolidation in many niche software markets… because supply usually outstrips demand in new innovative areas (where software products tends to live), software products often complement each other, and software companies like to buy each other to hoover up more clients. Software is an acquisitive industry, which is so well highlighted over at the Human Capitalist with the example of HCM vendor Workstream hawking itself around potential suitors. (I know several software entrepreneurs who spend all their time trying to find someone to buy them out…. that’s their end-game).
So why do we see zero action happening with the large outsourcers? True we, see growing outsourcers like NCO buying up specialist process vendors like OSI to build out their global delivery model and broaden their process scope, but what ever happened to Accenture buying Hewitt, or IBM buying Genpact, or Infosys buying CapGemini (the list goes on….)? So here’s my reasoning:
Outsourcing industries let themselves flesh out naturally… remember HRO? The only large acquisition of any note was ACS buying Mellon’s HRO business, which seemed like the right move at the time, but did little to bolster their HRO business. After that episode, the leading players saw the market for high-end engagements dry up and they simply watched as the second tier took itself out of the enterprise market.
Well-resourced ambitious outsourcing providers prefer to grow organically and acquire new clients they want to grow their long term business. This way, they can shape the type of services and global delivery model they want. Moreover, why buy up a rival, when many of its clients are not particularly (if at all) profitable, and you will pay an inflated premium to acquire all its assets? As outsourcing solutions mature, each deal is (normally) structured better than the last, buyers get smarter, and the risk of failure decreases. It’s fascinating to observe the leading Indian-HQed providers competing aggressively with the Tier 1 incumbents for high-end clients – they want to build up their client infrastructure their way, and not simply inherit clients whose engagements may not be optimum.
Outsourcers like to acquire firms that bring something new to the table to enhance their outsourcing offerings – for example new technologies, or a niche expertise that gives them competitive advantage. Too many large outsourcers are too similar… they overlap too much and a merger would often end up as an unprofitable exercise and result in a mass exodus of key talent.
The market for IT outsourcing and F&A BPO, which tend to derive from companies which have both offerings (namely IBM, Accenture, Infosys, CapGemini, Wipro, Genpact), are doing well and there is enough business to go around for the time being.
However, I would add that the new tier of Indian outsourcers, namely Satyam / Nipuna, Patni, HCL and Comnet are potentially disruptive to the Tier 1s. They have the capability to aggressively undercut pricing with offerings such as Remote Infrastructure Management, which can drive significant downward pricing pressure on an engagement, and eat into the lifeblood of CSC, EDS et al. Some Indian-based firms are already claiming a 50% cost decrease from original budget with their RIM offerings. It’s not inconceivable that some other Tier 1s will look to take these firms out of the market as a strategic move to protect their market share.
All in all, I don’t expect any major acquisitions in the outsourcing space in 2008. With a likely recession poised to spike demand, there will be enough business to go around. I can see the industry reaching saturation in 2009 / 2010, and then we may see some strategic moves, but at the end of the day, outsourcers simply don’t like the taste of each other.
I am returning to my analyst roots with AMR Research, where I will be studying Outsourcing and Implementation Services markets for AMR’s enterprise clients.
Those of you who know me well, will remember I spent the first 10 years of my career in the analyst community, before moving into the outsourcing advisory world three years’ ago. I have found the practical experience of working on outsourcing and offshoring engagements extremely valuable, but always wanted to go back to my analyst roots at some stage (it kinda gets into your DNA…). AMR sets such a high standard with its research, has some of the finest analyst minds in the industry, and is in my adopted home town of Boston. Moreover, I am delighted to end my days of waking up every morning in airport Marriotts, stuffing free beer from the concierge lounge in my laptop bag each evening, and getting back to what I love doing best 🙂 But I do have some pretty decent frequent flyer status…..
Firstly, thanks to all of you who have sent me best wishes – both privately and on the site. I am currently in the throes of rolling out a research agenda that aims to fill a significant gap in the industry to advise buy-side clients on how to approach their complex sourcing issues, particularly in light of this mooted economic downturn. This will focus more on the how to source than the what, based on multiple ongoing discussions with enterprises that have been through the process and are continually looking to optimize what they have on a global basis. I wanted to invite regular visitors to this site to contribute their ideas and views on what the industry needs to see from a research perspective. Feel free to share your views here, or email me directly.
As I’ve mentioned before, I admire people with the dedication and focus to write a book… especially one about their experiences of offshoring. Step up Utkarsh Rai, who heads up India operations for Infinera, an optical transmission equipment supplier, after starting his career working for Siemens in India in the ’80s and spending time in Germany and Silicon Valley in various roles. Uktarsh has a deep and unique experience of setting up offshore operations in India and has kindly offered to share some of his views here, taken from his book Offshoring Secrets. I found the book an extremely informative and refreshing read about the trials, tribulations and best practices behind developing successful offshore operations . Over to you Utkarsh:
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Global corporations, especially those with large operations in the west, are constantly seeking to reduce costs, improve bottom lines, and create “quarterly results” magic in the least possible time. There are many secrets to make an India operation successful, to name a few:
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Leadership skills: It is not appropriate to expect that one person should be able to provide both management and technical leadership with equal ease. During the initial setup time where around 60-70% of the time of the leader spent in non-engineering activities, it is very important to have someone coming from parent company to provide the technical direction.
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People Management: The Indian IT industry is marked for their heavy dependence on people. People issues can arise due to any of the following: career crisis, appraisal, pay hike, designation & promotion, work content and many more. It is important to understand that people management demands a good amount of time & attention from people managers.
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Attracting Talent: There are many ways by which one can attract right talent: Few of them are: Rejected candidates sometimes help in spreading the word if they are impressed during the interview process. Providing an excellent work environment, a challenging work and a competitive compensation and benefits package are important in attracting the talent. Reference checkshould not be treated lightly and should not be left to the recruitment agencies or HR. Hiring manager or engineering head should personally undertake this activity as it will help in positioning the company better. Senior management should spend time with prospective candidates and last but not the least Ex-employees as company ambassadors so one should treat them well.
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Attrition and Retention: The widely held believe that most of the people leave because of salary is not true. It is mostly the manager.
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Cost of operations:For the last three four years the salary raises have been given to India employees in the range of 15-20%. But this does not translate into the payroll cost. The annual payroll cost increase can be around 5% or so, depending upon the type of growth in the headcount. Also the cost should be compared against the average experience level in the center, which can provide the correct data about cost escalation. Initial years might see a higher experience level and higher cost, which will lower with the expansion of team.
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Communication: There are many ways in which any surprises in execution can be avoided. Frequent voice contact is a must. Status report should state assumptions and facts clearly. Early identification of risks and its tracking is important. In order to get better result, it is imperative that engineer to engineer interaction should be high by travel and by voice contact.
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Cultural differences: Though there are many cultural differences between India and the West, but to name a few ones:
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“Compare and contrast” culture: The compensation and other personnel details are discussed freely leading to multiple people issues.
“Social” culture: The work environment also becomes a social network which on one hand helps in better teaming but on the other hand fuels “compare and contrast” culture.
“Seniority” culture: In Indian society, age and knowledge are important factors in commanding respect. Age usually takes precedence over knowledge.
“Difficult to say no” culture: Saying “no” means different to different people. It can be interpreted as impolite or disobeying or doubting ones skill etc.
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Commitment: This is the fundamental question which should be asked to the person responsible in the parent company for the offshore team in India. Most of the time the decision to open an offshore center or team is forced upon him and he has no other option for the lack of alternative plans for achieving the desired goals.
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Trust:The offshore center that is being setup or is operational will not be successful if the core ingredient of trust is not present between the parent organization and the India operations.Trust is mutual and plays a significant (but hidden) role in the success an Indian office.
Firstly, thanks to all of you who contributed to the lively debate following the recent post "Will the HR function have a seat at the corporate table in 2008?". I was merely highlighting some interesting thoughts from the Inflexion blog, and didn’t expect such feverish input from so many of you! (And before I continue, I promise this will be my final rendition using the corny phrase "seat at the table"). Anyway, I have been under pressure from several people to put forward my opinion in this topic, so here we go:
