Ron Walker (foreground) patiently waits for his KPMG colleague and former EquaTerra CEO Mark Toon (background)

Picture the scene… the first time I met Ron Walker was back in about 2005 at a Hawaiian Luau in Southern California (I think it was meant to be an EquaTerra “strategy” offsite).  From my recollection, the guy was clearly hungover, looked like he’d frequented one-too-many MickeyD drive-thrus as he schlapped around the States doing sales calls, and was sporting a Bermuda shirt and shorts to boot.

Seven years later, I find myself at some conference in Florida, when this suave, well-shaven, slimline gentleman approached me donning a sports jacket with brass-buttons and a consultant’s grin on his face.  Now there’s one transformation the outsourcing business can be proud of: Ron Walker as a Big-4 Consulting Partner.

Yes indeed – Ron Walker, one of the original EquaTerra founding executives has lived the sourcing dream… from start up advisors and providers right through to a global management consultancy.  So we thought it high-time we caught up with Ron to talk about his colorful career and how the EquaTerra/KPMG merger was faring over a year on… and how different the sourcing world is looking today compared to those crazy days of the outsourcing boom.

Phil Fersht: Ron – you’ve been around the sourcing industry for quite sometime now. Maybe you could get everybody a little bit of insight into your background and how you got into this industry and a bit about your early career. 

Ron Walker: Hey Phil – I actually started my career in the aerospace industry and was fortunate enough to work in the office of the president, where we did some initial shared services and outsourcing work. I then moved over to Arthur Anderson where I worked in the business consulting group and had a successful run working on both the consulting side and the outsourcing piece. I helped build the shared service centre that Arthur Anderson was setting up for General Motors, which was one of the largest finance outsourcing opportunities at the time. As part of that process, I made several key contacts and had the opportunity to ‘found’ the initial finance and accounting pure-play start up called LeapSource. I was part of that initial launch, until we transitioned it over and that didn’t quite go as successfully as we had quite hoped – it was during the Exult stage on the HR side.

After Arthur Anderson, I went to (order-to-cash provider) Creditek when the company was being openly courted by Genpact. I worked with the folks from TPI and ultimately connected with my former partner Mark Toon (who was at TPI at the time) and helped found EquaTerra in 2003.  So, I’ve been part of EquaTerra from the very beginning. I think I was officially employee number 6 in the line up there. Most of the roles were developing and I enjoyed multiple roles and activities during the EquaTerra experience. Ultimately, when EquaTerra became a part of KPMG, I kind of went full circle… now I’m running the F&A practice within the KPMG shared services and outsourcing advisory space.

Phil: Going back to those heady days when EquaTerra was founded, how would you describe the industry today compared to what it was like then?

Ron: When we founded EquaTerra, at the time outsourcing was definitely becoming the tool of preference for many the executives to help quickly and easily wring out costs in the organization. The challenge was that most of the business process outsourcing that was done at that time was really driven from an IT mentality, and people weren’t really taken into consideration the complexity of business processes. EquaTerra was actually founded as both a shared service and outsourcing advisory firm but because of the business trends at that time, outsourcing advisory was the predominant work that we did.

A lot of companies weren’t capable of understanding how to do a contract with a service provider on the business process side versus the IT side, which was much more mature and easier to measure as far as some of the service levels are concerned. We went to work creating governance models and service levels and really pioneered a lot of the thinking that is taking place today. What I’m seeing today, now we’re 8-10 years further on, is that shared services models are swinging back into fashion. Businesses are looking more at a blended model of how they are delivering services and –  in the back office particularly – they are looking at shared services and process improvements, technology platforms and some specific outsourcing – which isn’t only centered on driving out costs. It’s come full circle -particularly when you look at what happened during the last financial crisis: A lot of companies quickly went offshore or outsourced and didn’t do it quite the right way because they were trying to gain cost benefits – and their service delivery models and their quality of service have suffered since. I’d say most of the activity we’re seeing in the marketplace right now is related to fixing some of those service delivery quality issues that they have been experiencing over the last few years because they were really focused on cost versus quality.

Phil: Back in the day, we all really thought everything was going towards an outsource model, didn’t we?

Ron: Yeah, we really did. We were all looking at (basically) leveraging the global scale, capabilities and the platforms that the service providers were either implementing, or claiming that they were going to implement, to drive the future. That was what we really thought was going to take place. It just never quite took off. It certainly has a place and it’s quite effective in a lot of situations, but we haven’t seen the growth that we thought we would see – at least early on.

Phil: So what changed? Why did we move from the ‘everything should move to outsourcing’ to this blended approach we have today? We just completed a massive research study, we spoke to nearly 2000 finance professionals and only 10% of them felt that a BPO model was predominant for them, while 50% leaned towards shared services as their predominant model, with BPO being viewed as more of an augmenting capability for them.

Ron: If you go all the way back to why outsourcing was so attractive… we were in such a growth mode and companies growing hand over fist and just trying to keep up with demand and the gogo years of the Internet bubble. Outsourcing was the predominant way of getting folks in and the growth covered a lot of mistakes. Then many organizations went off and did just that, and they started scrutinizing their service delivery models and becoming less naïve – they started understanding that the service provider, although doing a good job for the most part, had their flaws and issues as well. It just didn’t quite work out for everyone, and we had several failures, which made other organizations a little bit wary as to what they were going to do going forward.

So they (buyers) started getting more intelligent, and in this day and age of information sharing is the ability of collaborating with colleagues and advisors and simply going to classes and looking up stuff on the Internet. They became a lot more knowledgeable about what the right things were to do. The promise of BPO never really delivered the full cost benefits and they certainly had their delivery challenges… and then they started looking at their own service delivery models and abilities to change. They did see things, the technology started to become cheaper, such as forms of cloud operating or software operating platforms that they could move to, and it became easier to just look at other options which hadn’t been available in the past. Where the outsourcing model had been attractive in the past it didn’t quite deliver, so companies started looking at options they could do themselves – or in pieces.

Phil: Do you think it is the same for IT as well or do you think the IT space has gone down to a much more aggressive model towards outsourcing?

Ron: Both are still growing, it’s not as if they are going away – they will still be a predominant option for many companies. I think IT has a larger implementation base than business processes, and it is more mature and easier to operate, particularly when you look at infrastructure. However, it’s still going to be a long time before companies reach their IT nirvana –  especially with the new opportunities presented by the cloud. They still have infrastructure support requirements and it is a relatively inexpensive option to go to an outsourcing provider. They’ve got they’ve got scale, capabilities and they’re a lot more able to measure the success of that versus the business processes, where it’s less tangible to define what success looks like. I think ITO will continue to be a predominant part of options and it provides significant cost advantage just because of the large scale, operability and the way service providers are able to offer their services.

Phil: Do you think the BPO space is ever going to get to the scale of the IT space or do you think it is too complex in nature at this point?

Ron: I don’t know. I know in several industries we’re talking about the business process platforms becoming more predominant. If you look at some of the financial services, health care areas that will be an option. It’s too early to tell whether it will be larger or not.  As some software providers start to offer different solutions, I think that organizations are going to look at that as solutions rather than these BPO (business) platforms – it’s simply a lot cheaper to implement a piece of software to improve a process, than to try and change the whole process and outsource the processing at the same time.

Phil: Do you think the key is really labour arbitrage? Let’s be honest, it worked in IT because you are literally subbing out specific onshore skills with the same skill offshore minus half the cost. It’s just harder to do that with processes that aren’t so cut and dried.

Ron: You can’t underestimate labour arbitrage but that’s a one trick pony. You get the labour arbitrage – it’s a one-time shot. This is where many organizations are challenged. They are able to take advantage of that labour arbitrage lets say up to 70 or 80% if they were just comparing labour, but where they fail a lot of the time, is to do the proper planning and put in the proper procedures, and that starts to add cost… and then you do loose efficiencies by putting in either offshore or offsite. That labour arbitrage begins to diminish over time. You can’t underestimate it because that’s an area where you can hide a lot of mistakes because you can get such a large cost-savings benefit from something initially. What we’re finding, is once you’ve done that, it is extremely hard to improve your processes or transform processes because service providers, or even your own captive shared service centers, are incented on maintaining their own FTE base, regardless of what your contract says. They measure their success on how many FTEs they have doing the process.

Some service providers are different than others, but what I’ve just described is the mentality of the majority of them.  This kind of labor arbitrage makes it very difficult to make business process improvements and add software components that can further streamline process and eliminate unnecessary FTE costs. Some of the highest activity we’re seeing with our clients (at KPMG) is that as they are reservicing their entire service delivery model – pulling stuff back onshore or pulling stuff back inhouse, because they simply can’t get the service providers to cooperate with them on a rational basis to put in new software platforms or to eliminate positions entirely.

Phil: So now you’ve moved into a management-consulting environment. Are you starting to see some of these issues differently than you did before?

Ron: Yes we are. Moving into KPMG and seeing the benefits of a much broader consulting organization, with much more diversified skillsets than we had at EquaTerra, we are seeing a much broader picture of what the options are for clients today. I don’t think that’s just the KPMG effect for us, I think that is truly where the market has been moving.

Phil: What have you heard from clients (particularly the larger ones) that they have too much dependence on offshore, and need to change the model. Is that something you’re seeing?

Ron: Balance is one of the discussions but its really about a value for services decision. Particularly the large organizations, a lot of them put a lot overseas to reduce costs and they just didn’t do it properly so their service delivery model is not as successful as they had hoped… so they are relooking at that and bring it back onshore. Bringing it back onshore is a lot cheaper now than it was, say, 5 years ago. Our onshore rates and ability to deliver services has become more effective these days, and then when you look at critical operating models, it just makes sense to keep some folks closer than others. And the other thing that we learned through our financial service clients is they had a hard time in rationalizing their own recruitment model and subsequent ability to train and retain staff so they can promote them through the ranks. So when they put so much offshore, they lose some of that ability.

Phil: Just to talk a bit about your experience, EquaTerra was such a heartbeat of the business during the last decade and externally the perception has been that it’s been embedded pretty successfully into the KPMG organization. But there was a very distinct culture in EquaTerra that had been developed over the years. Do you feel that has been maintained well?

Ron: It is different, there’s no denying that, but let’s just start with some of our numbers. We had a very highly experienced team at EQ (20+ years on average) and what we did expect, as we moved into KPMG, was a different culture …but I think it was the right time.

I think most of our folks have adapted and were looking for a change and many of our experienced senior people were looking for a career reinvigoration by sharing their experiences within the KPMG model. They are able to work within KPMG and leverage their knowledge and resources to younger folks and help them along with their careers. It’s been more positive than I ever expected and an easier fit than I expected. That’s not to say there are not challenges, there always are. KPMG is much more conservative than EquaTerra ever was and they have a lot more processes and policies to follow… and we weren’t accustomed to that as a startup. That has probably slowed some of our actions down but, frankly, some of that had to be done. It will probably take another 6-12 months to really shuffle everything out through the process.

I’ll ask you, you’ve been integrating with us on a frequent basis… have you seen us lose some of our EquaTerra culture through the businesses you’ve been talking to?

Phil: I have definitely seen some maturity in some of the EquaTerra folks that I bump into.  For example, there was a large gathering of (former) EquaTerra people recently in Florida and it really hit home to me how the group had been kept together. The feeling I came away with was they had retained much of that spirit and culture and were settling in well into a bigger, more mature organization and were gearing up very much to increase market share in the industry. And a lot of the former talent that had actually left the company had come back.

Ron: Right! I’d say that some of the KPMG leadership knew that there was an enthusiasm within our organization and a love of the work that we do and platform we have.  Today, the clients we can now interact with has  really reinvigorated some of the folks. I think we’ve done a great job of just looking at the current industry opportunity and how KMPG has provided us new pathways to keep our career fresh.

Phil: Ron, I wanted to talk a little bit about the future and this global business services framework – I know KPMG has been very hot on this topic. We just completed this study and coming out of the results, one of the things that really hit home to us was the increased recognition from finance leaders of the capabilities that providers brought to them – whether they operate shared services or outsourcing. What gets us scratching our heads is that this means service providers need to start to sell to shared services organizations more effectively, which means there needs to be a change in how this stuff (outsourcing) is actually talked about and positioned within an organization. At the same time I think clients have to understand more about how service providers operate in order to get more out of them. What is your take on this? Where do you really see this moving particularly from a finance perspective?

Ron: I think the challenge is that a lot of times companies don’t know how to get that best bang for their buck out of the service providers that they’re engaging with, which is why we see the dichotomy there. The other aspect of it that I still think is always the stopping point is technology. When you look at where you get true benefit: the people, capabilities and knowledge – that’s moveable but the technology is such a large component. Within finance, you’re pretty much stuck on the original ERP that the company has because its usually too expensive to replace or roll out, so service providers are either forced to utilize the legacy system of a company or if they want to go through a new implementation, its typically very expensive. What might change on that is NetSuite or Workday finance that is going to have the ability to make that a lot cheaper and offer a potential platform service for the service providers. In the end, I think it is an issues for every organization… although they say they want to do it, it is very difficult and challenging to try and integrate, whether it is a service provider or a new technology on a cost-effective basis, unless they are fully committed. There are easy things: for example, you can outsource T&E, AP, AR etc, but when it comes back to that legacy ERP system, until there is an option for fixing that, I don’t see a wholesale switch out.

Phil:  Finally, when you look back at your career, would you have done anything differently?

Ron: Probably everything, but I really enjoyed the journey so I don’t know. I have really enjoyed the career and the progression between Arthur Anderson and EquaTerra. Frankly, the first few years of my EquaTerra experience had been the most satisfying of my entire professional career but I’m having the same kind of fun and interest and professional growth within KPMG, so I wouldn’t have predicted this path, but I probably would have made it a little less tenuous in some cases (looking at some of the start ups I had done) but, overall, it has been a spectacular experience and I probably got 10x number of years of experience for my age just because of the things we’ve been able to do.

Phil: One final final question. If you were given 1 billion dollars tomorrow what’s the first thing you would do?

Ron: Probably a long vacation with my family because we’ve been working really hard for the last year or so. I need to think about what I would do with the rest of it.

Phil: Ron Walker, thanks for the time today – a frank and rewarding conversation I know many of our readers will enjoy! 

Ron Walker (pictured left and right) is Principal, Shared Services and Outsourcing Advisory at KPMG. Click for bio

Are we in the Cloud yet?

With all the quick-thinking and finesse of an Italian analyst in a Hollywood Hills salami shop, here’s HfS Research’s Tony Filippone imparting the scoop on why SAP just bought Ariba…

With its $4.3 billion cash offer, SAP answered every procurement technologist’s question, “Who is going to buy Ariba?” While this acquisition will rupture the procurement technology universe, HfS believes the real question that supply chain and finance professionals must ask is, “Now that SAP finally has a credible commerce network, can I eliminate and automate processes I’ve been busily outsourcing?”

It Didn’t Happen Overnight

Give credit to Ariba’s leadership. Over the last few years, Ariba’s CEO Bob Calderoni and President Kevin Costello bet the farm on cloud technology and the networked economy. With the introduction of cloud-based 10s1, they took their focus off gritty areas, like category management, usability, and procurement process management, and jumped into technology’s cloudy fray. This was a “check the box” exercise for any technology company. Yet, the real jewel was Ariba’s supplier network. With the help of procurement teams bent on mandating its use among suppliers, Ariba’s supplier network swelled to $319 billion in commerce transactions spanning 730,000 companies. Ariba’s network fees doubled. SAP noticed.

In the meantime, Calderoni sold Ariba’s services arm to Accenture 18 months ago. This clarified Ariba’s technology-focused strategy. It also eliminated the largest objection larger technology firms had about acquiring Ariba – the services. Technology firms want nothing to do with services as they can neither manage nor sell them effectively. In the end, Ariba became a feature-rich, cloud-based platform with one of the world’s largest B2B commerce networks.

What It Means to the Industry

SAP customers gain network capability that automates their O2C and P2P processes. With an installed license base of 190,000 customers, SAP enters the cloud technology world with a real commercial network. This exposes SAP’s industrial, manufacturing, and CPG clients to a modern method of conducting O2C and P2P business. SAP’s customers are likely to rapidly adopt the network. In the wake of SAP customers’ adoption of the Ariba network, business owners should seek to consider bolder, more transformations alternatives to outsourcing their finance and accounting processes. Quit emailing POs, and start electronically flipping them to eliminate manual effort and obtain the true contract value you negotiated.

Other technology players are left picking over the leftovers. SAP eliminated one its competitors, while IBM’s Emptoris acquisition eliminated another. Two heavy weights are gone, and in their wakes lay a large number of low-priced, niche procurement solutions that are left to fight it out. While buyers will always have some interest in pure play solutions, choices for enterprise buyers are more limited. Expect the smaller players to focus on usability and niche process solutions, like supplier relationship management. However, seamlessly automating a company’s global payables team through an established network dwarfs the differentiation of better-looking user interfaces.

Outsourcing service providers face a new landscape. With SAP customers poised to adopt a network, finance and accounting outsourcing service providers will face lower volumes of manually transactions. Service providers that can help buyers transform their processes are positioned best to service clients and win new ones. However, this isn’t a simple technology issue solved by templates. Supplier network adoption and onboarding is a complicated, tactical task and finance and procurement teams will need operational expertise to handle the transition. In addition, SAP’s partner model for its On-Demand services may open new opportunities for service providers that had previously relied on Ariba’s cloud suite.

Procurement and supply chain gets shoved into driver’s seat. With SAP’s sales force pushing Ariba’s network, expect CPO’s to feel the pressure to take more control of their firms’ end-to-end P2P strategy. Whereas few enterprises currently consolidate sourcing, procurement, and payables teams, Ariba’s network will force organizations to reconsider if they want to tap into the true value of seamless source-to-pay processes. More importantly, supply management executives will be given a better network to manage direct goods and services. As a result, CPOs and supply chain leaders will feel the pressure to manage source-to-pay in an end-to-end fashion.

Tony Filippone is EVP for Research, HfS Research (click for bio)

The Bottom-Line: SAP’s Acquisition is a Good One

After the dust settles and SAP integrates Ariba’s sourcing, procurement, and contract management capability into its suite (or vice versa, which could create quite a bit of dust, but represents a fine network-based model for B2B commerce), SAP and Ariba’s customers come out as winners. Customers will get better features, a more broadly adopted cloud-based delivery model, and a rapidly expanding commerce network that reduces the inefficiencies of manual P2P processes. However, despite all the hype SAP has created about its On-Demand solutions, can the German software firm really manage a network and B2B community-based solution?

HP may have had some war wounds inflicted on itself with the standardized services models of today, but there is still the opportunity to position itself to win the higher value engagements of tomorrow

However, I believe HP is a symptom of a commodotizing and standardizing IT/business services industry – it’s recent woes have forced it to take corrective action that many of its competitors will surely have to also take in the future.

The bottom line is that several providers of HP’s ilk are getting overbloated – and have been for a while – and simply can’t continue to remain competitive in today’s market under the old rules of yesteryear.  It’s time to trim the fat.  And while other analysts are claiming HP is an anomaly in the services business, I don’t agree – we’ll see several other service providers make corrections to their workforce sizes in the coming months.  The old “butts on seats” services model has to transform or we’ll all be on a race to the lowest common denominator.

Meg Whitman is doing what she was hired to do – straighten the ship, re-energize the management talent and getting HP on a roadmap to competitiveness.  However, this is the start of a long process to correct the utterly rudderless policies of Léo Apotheker’s short-lived, but very damaging, spell as CEO. While a 10% layoff is tough to take, this is likely not going to be the last workforce correction we’ll see from Whitman this year.

How has HP found itself as the first Tier One IT Services provider (since the recession) to start shrinking its workforce?

Léo Apotheker had left HP in a sorry state from which it is proving tough to recover.  During his ill-fated 10-month leadership spell leading up to his dismissal in September of last years, he’d helped wipe 40% off of its stock valuation and $30bn from its market cap.  His corporate leadership decisions were well documented in HfS, and the resulting financial performance has proven tough from which to recover, with little upward movement since Meg Whitman’s appointment as CEO.

HP is a victim of its own success as it helped create today’s commodity services market. The Tier 1 IT outsourcing providers (Accenture, CSC, HP and IBM) are slowly discovering their success in standardizing the IT outsourcing market is no longer demanding such bulky staff delivery requirements.  The movement away from asset heavy deals and heavy staff transitions no longer necessitates the mammoth-like deals of yesteryear.

HP’s previous leadership failed to build on its EDS acquisition, which has ceded much of its market position. EDS was one of the original pioneers of ITO, typifying the mega-million dollar IT infrastructure deals of the 80′s, 90′s and early 2000′s.  However, as that business suffered from squeezing margins and the focus away from heavy asset-transfer, EDS developed one of the industry’s stellar SAP development and maintenance practices. And when HP, also a major proponent of SAP services, acquired EDS in 2008, it was expected the combined outfit would go from strength to strength as a powerhouse enterprise IT/business services provider.  Instead, we witnessed the likes of Infosys, TCS and Wipro infiltrate the SAP services market; Accenture and IBM develop genuine offshore competitiveness to fight the Indian low-cost wave; while Deloitte and Capgemini have remained competitive as consultants and integrators.  HP, CSC and a few other “old school” ITOs became paralyzed in a state of denial as their market competitiveness was quickly eroded.

With Mark Hurd obsessing about HP’s hardware business, and his successor Apotheker seemingly trying to turn HP into a software firm (or at least we’ll credit him with trying to achieve something), HP clearly lost focus on its EDS business, while a global recession wasn’t exactly helping matters.  Additionally, HP’s BPO business has remained relatively stagnant since the EDS merger – and is only now showing signs of a resurgence with Whitman placing new management talent to energize its clients and refocus its staff.

The move to the Cloud has further leveled the playing field. Cloud computing deals are further placing the onus away from enterprises purchasing hardware assets and their related labor intensive services.  Moreover, the new wave of Cloud deals is signaling an end to long-term lock-in contracts and more choice to the enterprise buyers. We actually see this as an opportunity for the quality infrastructure providers, such as HP, investing in tech personnel who can develop Cloud-based apps and infrastructure environments for clients.  Cloud isn’t further commodotizing the game – it’s democratizing it, giving buyers more choice and easier access to talent, away from contract lock-ins and inferior services.  The commodity offshore players are scared of Cloud (remember our old friend, HCL’s CEO Vineet Nayar?), where you can’t compete simply by hiring armies of ABAP programmers fresh from college.

The Bottom-line: HP is addressing its problems – and it won’t be the only provider going down this path

Finding differentiation between standard IT services these days is almost impossible.  Armies of Indian delivery personnel and competitive rate cards provide the engine of today’s standardized IT services industry.  Those providers with the smartest pricing and personnel factories will win that game.  The real differentiation points are unraveling higher up the services stack with the development of offerings that achieve business objectives, based on outcomes that are tied to them.  It’s going to be those providers that can integrate services, with domain specialities to solve complex problems (not all businesses can slam in an SAP or Oracle and be done with it), and those companies seeking to make radical changes to their internal operations to compete globally, where they can take advantage of globalized shared services and outsourcing, and the disruptive potential of Cloud.  HP may have had some war wounds inflicted on itself with the standardized services models of today, but there is still the opportunity to position itself to win the higher value engagements of tomorrow.  That game has only just begun…

However,  in our spirit of forgiving even the unforgivable, here’s a replay of the event – just click on the image below:

And as usual, we’re giving far too much away for free, so…here’s your own copy of THE-SERVICES-SAVANTS-SLIDES.

And there’s more!  You can also access our good friend Ed Caso’s Wells Fargo Research Notes based on the discussion.

“Did you know that of the companies listed on the Managed Hosting Magic Quadrant referenced above, less than half would be capable of supporting a transformational infrastructure sourcing initiative with a multinational company, or that only 10 percent could support the same for a global company?”

Stanton then seizes the opportunity to pitch his firm’s own capabilities: “ISG is comfortable (and confident) in making this statement because we’re on the ground every day with both buyers and sellers of IT services. This unique position gives us unprecedented insight into what suppliers are really capable of delivering to clients — clients that trust us to help them vet providers in a fair, transparent way to make sure the vendor will help them solve their ultimate business problem.”

While I have no doubt that Stanton’s knowledge of providers’ IT sourcing capabilities is top-notch (I have always been impressed by the caliber and culture ISG’s people), I think we need to look at this accusation in a broader context:

1) ISG lives in a world where it’s all about outsourcing – how about the other 72% of enterprises?  Our recent studies show that only 28% of large enterprise rely predominantly on an outsourced model for IT infrastructure.  While Stanton correctly states that  ”less than half of these providers would be capable of transformational infrastructure sourcing initiatives”, he conveniently ignores that fact that most of Gartner’s clients – and the majority of large enterprises, probably don’t care too much about these capabilities.  They may just want a quick no-nonsense glance at managed hosting providers.  I’m sure Gartner’s clients who do care about “transformative sourcing cababilities” would call them up to find out more.

2) ISG makes the vast majority of its income facilitating and negotiating outsourcing transactions – doesn’t this bias its research?   I can speak from personal experience that it’s really tough trying to produce “unbiased” research when working for a company that makes most of its money from clients undertaking outsourcing engagements.  The bottom-line is your firm is vested in the success of outsourcing, and your research will always be pressured to advocate the benefits of outsourcing.  At the end of the day, the consultants want to wave research in front of their clients that supports the case for doing an outsourcing transaction, because that’s how they get paid.  However, for those companies who’ve already made the decision to outsource, or are renegotiating existing outsourcing contracts, ISG’s research is likely to be highly pertinent and relevant.

3) All quality consultants conduct good research and thought-leadership, but they’re not trying to badge themselves as research companies.  In sourcing, some of the best research comes from the likes of PwC, KPMG, AT Kearney, Deloitte etc – in fact, we even showcase some of it at our BPO Resource Center.  However, they do research to enhance their eminence and consultative credibility, and they make every effort to make it widely available and accessible to enterprise decision makers.  I don’t think I have ever read a detailed piece of ISG (or TPI) research in my entire career beyond their quarterly index calls.  I am sure it’s great, but it’s not easily accessible or widely available to the industry at large.  If they truly want to become a research firm, then let’s have a gander at some and we can all form our own opinions.

The Bottom-line: Outsourcing specialists need to base their business models more broadly than solely on outsourcing if they want to take on the traditional analysts

Love them or loath them, Gartner serves the vast majority of IT buyers, whether or not they outsource.  Moreover, Gartner is predominantly a research firm and IT strategy advisor, who I haven’t ever seen facilitate an IT outsourcing deal (I’ve seen them dabble in it in the past, but they never really got anywhere).   ISG is a great outsourcing consultant, and has consistently been the industry-leader for facilitating IT outsourcing transactions for the last couple of decades.

Stanton Jones is Analyst, Emerging Technology at ISG

While Gartner could clearly do a better job researching the sourcing transformational capabilities of providers, ISG could similarly do a better job producing research for the 72% of enterprises who haven’t done a lot of IT outsourcing.  If I’m a CIO and need some unbiased validation of my overarching IT strategy, I’ll be likely to call Gartner (among others) for an independent viewpoint.  If I was doing an outsourcing deal and needed specific advice and data around how to do my transaction and develop my shortlist, ISG will surely be on my list of experts to call.

As we have painfully laid out here time and time again… it’s not all about outsourcing!

Co-authors and offshore evangelists Basab Pradhan and Gaurav Rastogi (click to view their new book)

One of the most influential and popular figures in the development of India’s services business over the last couple of decades is Basab Pradhan.  I personally got to know Basab when he became part of the esteemed blogging syndicate “Enterprise Irregulars” last year, where I was impressed by his pragmatic and visionary approach to global sourcing, as he was finalizing his new book “Offshore:  India’s Services Juggernaut“.

Basab made his name in the industry by climbing the ranks at Infosys during its hyper-growth years, where he led the global sales and marketing function until 2005.  This year, Infy managed to persuade him to rejoin the firm to be instrumental in helping position the firm for this new phase of the industry.

So we managed to convince Basab to park his Chevy Volt electric car for  few minutes, which he passionately drives around the Bay area, and claims to have recently clocked 108 miles per gallon.  We were also joined by his colleague, co-scribe and Kindle-fanatic, Gaurav Rastogi, who’s spent the last nine years leading global sales effectiveness and learning for Infosys.

Phil Fersht (HfS):  How is the Chevy Volt doing?  If it blew up tomorrow, would you get another one?

Basab Pradhan: It’s doing great! I am up to 108 mpg. The news of it blowing up in tests were highly exaggerated. No such worries here.

Phil: So…tell us about your recently published, co-authored book, Offshore: India’s Services Juggernaut.

Gaurav Rastogi: The premise is very simple. While many books have been written about India and offshoring, very little has been said about how the Indian offshoring industry came to be, what it means for a company to be Indian, what impact this industry has had on the Indian economy, how it works, where it’s at right now, and what makes it successful. And the headlines you read about offshoring are the equivalent of bumper sticker stories. So we set out to characterize, demystify and explain the Indian offshoring industry.

Basab: We talk a lot about how the industry is changing, and the shifts are quite perceptible if you observe the industry. For example, at the early part of the 21^st century, it was all about the new offshore or global delivery model (GDM), and the cost savings, flexibility and other advantages it could bring to buyers, But it’s no longer about the GDM. In fact, buyers today, especially in the U.S. and U.K., assume a GDM is built into their solutions, and they don’t select service providers based on those they feel can safely take them across the GDM chasm. Now, they’re buying on the capabilities they used to before GDM came along – what’s the value, does the service provider understand my business, does it understand the particular solution, does it have the right people to lead the project, etc.

Phil: Where do you think India is going to go next with its development in the global sourcing industry? Which areas do you think are going to be most successful for the country, and where do you think we may be in a bubble?

Basab: There are quite a few interesting things coming along, such as offshoring of marketing processes in the life sciences industry and technical support offered directly to consumers. But while there are great opportunities in these types of emerging, non-hanging-fruit areas, you can’t just throw people at them. You need specialized skills and a delivery model solution that can address the advanced needs and requirements.

Phil: We’ve seen an increasing number of Indian providers open facilities across the U.S., in Massachusetts, in Michigan, and even your new center in Atlanta. How is this impacting the sourcing business for India?

The Chevvy Volt hybrid: lease one for the cost of 10 developer-hours per month

Basab: One of the chapters in our book, called India Versus Rest of the World, looks at your question from several different aspects. First, we believe that hiring in our clients’ markets will only go one way – up – because of many reasons. With the kind of work we do with clients, it’s getting to the point where the sophistication of the solution is such that you need people with industry skills, not just technical skills, and the sophistication of the industry and how it works in advanced markets is ahead of that in developing markets like India. Of course proximity matters and you want to be closer to your clients, and so you have to hire more in the markets. In-market hiring also reduces risk, and it’s just good business. In fact, we see that hiring in the markets is going to keep going up at a higher proportion compared to the growth of the company.

Gaurav: Another way we look at this question is the blurring of boundaries, how the company of the future is likely to have a global workforce, a global management structure and global ownership…none of it is Indian. We believe that the definition of what makes a company Indian is weak, that it will continue to weaken, and that it will be increasingly difficult to tell which companies are Indian and which are not.

Basab: Earlier this year you had a post on your blog about Indian companies being the New Phoenicians…and there’s a lot of truth in that. These firms, whether they’re headquartered in India or not, whether they’re largely Indian management or not, they are the new trans-nationals. They are companies that belong nowhere but are comfortable everywhere. That’s where I think a lot of this is headed.

Gaurav: A term we use in our book is “Frankenfirm”. A company with headquarters in one country, a CEO from another, the largest market in yet another, and the workforce in a fourth. That’s what companies that started out in India or have a big base in India are soon going to look like that.

Phil: In our view, the IT services industry has pretty much been ceded to India. While Western providers are trying to come in and undercut the Indian providers’ prices, the buyers are saying, “Look, these guys were smart, they got in 10 years ago, they have institutional knowledge of our processes, we like working with them, there’s an energy about them, and a ‘forgiveness factor’ has developed over time.” Do you think it’s going to be as easy for Indian firms in emerging BPO areas like those you mentioned earlier – such as marketing processes for life sciences companies – or will it be a challenge down the road?

Basab: Before the Indian IT industry made any headway into package implementation – SAP, Oracle, etc. – we had the same type of question. Could we have the same success with it as we did with ADM? But companies were doing 10’s of millions of dollars worth of implementation at the same client for a year, and lowering the cost of delivery by a tenth was just waiting to happen. So we had to build and hire the skills to be able to do it, we also did things our own way, e.g., establishing our own academies for training, and we built a thriving business out of it. So going back to the notion of blurred boundaries and what is an Indian firm… what differentiates a company is its ability to understand the business problem, create solutions and put value at a lower cost on the table for the client. It’s going to happen in emerging BPO areas as well.

Phil: Going back to our philosophy about the New Phoenicians, with which you agreed…we’ve seen over the last 50 years or more many nations, like Singapore and Japan and more recently China, rise in the industrial world with big economic growth spurts, largely due to development of a culture of hard work, effort and innovation. But many of these countries have become complacent, and are now struggling to find new growth. Do you think India runs the same risk of reaching a level of complacency, or do you think the culture, make-up and DNA is different?

Basab: I think it’s very important to recognize India’s success in offshore services has come about without the government’s support. Which means that it’s due almost entirely to alignment of demographics and market forces. That said, can India become complacent? Absolutely. But at this point the demographics are in the right direction, there are large companies now operating in India so the management culture you talk about has become prevalent, and there are hundreds of thousands of people working in and feeding this industry. So in that sense, the dynamo is beginning to roll and it will take time before it winds down.

Phil: We’ve spoken privately about the fascinating race going on between the big SWITCH* providers. How do you see this playing out? Infosys is one of the big growth success stories of the last decade, but you’re running into fierce competition from the likes of TCS and Cognizant, as well as Accenture from a Western standpoint. How can Infosys keep its edge and differentiate itself from the rest of the pack?

Basab: You’re very right that this industry has become much more competitive. In the early days, it was like there was this gold rush where there weren’t yet any stakes in the ground. But suddenly all the ground – or most of it – was seemingly taken, and what is left is harder to mine for gold. That’s kind of the situation we’re in. There’s hand to hand combat going on in every account, and we have to figure out ways to keep increasing the value we provide to our clients, and focusing on the right things such as the people in the company, how we organize our efforts in the market, how we continue to focus on quality and embedded IP. At the end of the day you won’t hear stories about quality. But that’s why clients give you business. If you fail at delivering something, no matter how fancy it was, you’re not going to get more business, because there are hungry competitors in the account waiting to take it up. So we are going keep our focus on quality AND a shift to business outcomes.

Phil: In terms of the next wave of growth for the big Indian firms, we’re seeing much greater willingness to invest in large clients, particularly in areas where there are significant domain requirements and business process needs. And in many ways it makes sense because you can take on a big client, make a profit and gain a lot of the domain skills you need to grow. It almost seems like the days of acquiring other providers are numbered. Do you think we’ll see big acquisitions come back into this space, or will growth come more organically from clients?

Gaurav: I think it will differ from company to company, based on their individual appetite for growth and what they want to do from a stock market and shareholder standpoint. Infosys has a lot of cash in the bank, so if we were to acquire more companies it would be to gain capabilities, skills and geographical coverage…not for growth.

Phil: Would you write another book?

Guarav: That is, if people are still reading books in the future. My guess is that people will have the patience to read essays in the form of Kindle Singles, but would not dare to consume too much non-fiction in one setting. Would want to write a series of inter-connected essays? Absolutely!

Phil: If you had to bet your mortgage on it, what will the outsourcing industry really look like in 10 years?

Basab: Big. Lots of technology mixed in. Much less hub-and-spokey compared to today.

Gaurav: The industry will be dramatically different from how it is today. Companies that are now beginning to look alike will separate once again into leaders and laggards. The blowback against globalization will become stronger initially, but will abate in the longer term. An economic boom or two would help with that. Meanwhile, the software industry is already changing dramatically, and that will have serious consequences for the IT outsourcing industry as well. India may still lead as a destination, but major companies will have a global footprint, which includes serious local hiring in major markets.

What I can’t resolve in my mind is how the companies will continue to manage an intelligent workforce of 200k-1 million people without resorting to an efficient bureaucracy (an oxymoron) or to a dictatorial style (and how long that can last). What may happen is that the larger companies may find their size untenable and, bacteria-like, choose to undergo binary fission into more manageable enterprises. Or, all of us may finally figure out how to make money from ideas instead of people’s time. We talk about this in the book in our chapter on hiring. Needless to say, these are purely my views, and do not represent the views of my employer, or to our clients.

Phil: Gents – it’s been a pleasure chatting with you both and I look forward to having our HfS readers load up your new book on their Kindle apps!

The book “Offshore: India’s Services Juggernaut”, is available in book stores and on amazon.com.

Click here for more information

Basab Pradhan (pictured top-left) is Senior Vice President, Head of Global Sales, Marketing and Alliances at Infosys – click here for bio.

Gaurav Rastogi (pictured top-right) is Head of Learning Services at Infosys – click here for bio.

*SWITCH refers to Satyam, Wipro, Infosys, TCS, Cognizant and HCL

In conjunction with global accounting body ACCA, We spoke to 682 large organizations currently running finance in either an outsourced or shared service framework (or both) – and the results are emphatic:  those organizations relying predominantly on outsourced delivery, or predominantly shared services, are viewing their finance delivery performance much more skeptically:

Why do these results signal the decline of the “predominantly outsourced” model?

1) Expectations are clearly higher with outsourcing… and they’re not being met.  Only the ability to meet compliance and regulatory goals (42%) is brushing up notably well with the outsourced finance functions.  Everything else is mediocre-to-average, in terms of meeting finance performance objectives.  This is because many buyers’ outsourcing environments are relatively nascent, and their expectations were likely set to a high level when they embarked upon their engagements.  In addition, most governance staff can clearly recall what it was like before outsourcing, and find their new environment a struggle to get things ticking over like they were in the old days.  Buyers are clearly finding it hard to make productivity improvements to their finance processes when they outsource heavily, with the main reasons being the cost and complexity of dealing with providers’ change-order processes and also the fact they the operational people running the engagements on both the buyer and provider side are too junior to make decisions.  Instead, they get absorbed into the table-stakes of meeting SLAs and running things on budget. Other reasons we will discuss further in our upcoming Sourcing Blueprint document.  Our concern at HfS is that if buyers and providers allow these relationships to stagnate, we could get left facing a dangerous commodozitation of operational process outsourcing.

2) Shared Services delivery models aren’t faring much better.  Those buyers sticking predominantly to a shared service model for finance are also suffering similarly mediocre performance levels to their outsourcing peers.  Only their ability to standardize processes is really coming though as a major plus, with 52% experience really effective results to-date.  Clearly, they find it easier to make tweaks to process flows and delivery quality issues.  However, when you consider that most of these buyers have been doing shared services for an average time-span of 10-20 years, compared with 1-7 years for outsourcing, you have to conclude that a pure shared services model is not the best answer for those buyers seeking to continually improve their finance performance.

3) Hybrid shared services and outsourcing frameworks are reaping the best results.  Those buyers operating hybrid SS&O frameworks are experiencing better finance performance in every single performance category.  Clearly a strong, centralized retained organization that augments its shared services processes with outsourced options are enjoying the best of both worlds.  Most notably, 54% of the hybrid buyers are finding genuine effectiveness with their ability to transform their finance functions, and similar proportions are encouraged by their ability to transform onto standard processes, meet compliance goals and even globalize their finance operations.  Essentially, those buyers that are retaining more of their talent and working with their providers to help with achieving broader finance goals (at least initially), are developing their finance operating structure much more effectively.  This indicates that buyers who leverage outsourcing to fulfill specific needs and blend it more effectively with their overall finance operations, are more comfortable with where they are going.  At the end of the day, it’s not all about outsourcing and it’s not all about shared services; it’s about focusing on how to globalize processes, how to transform finance (and other) functions, and how to govern it all in a global business services context.  There is no dominant model, it’s more about achieving the right balance across all delivery models to achieve the best goals.

The Bottom-line:  Many buyers have little choice but to find GBS partners, or face a purgatory of inferior BPO and shared services

Buyers need staff who are ready to embrace these new global services environments.  We’ve been hearing many buyers talk about populating their retained teams with staff who’ve only really ever worked in a globally sourced environment.  And on the service provider side, buyers need delivery teams which can work with these retained teams to meet their business objectives, in addition to cranking out the administrative work.  Should a provider fail to do much more than facilitate standard process delivery (yes, we all know they exist) the buyer needs to evaluate how to bring in external help to plug the gaps to globalize processes and work consultatively and strategically with the retained team.

We are now seeing the rise of Global Business Services partners to work with buyers in “process integration” roles, where they can help their clients’ retained teams manage their whole business services mix across outsourced, shared services and inhouse models.  This is not too dissimilar from the service integrator roles we have seen in the IT world, with some of the higher-value integrators stepping up to help their clients manage the whole morass of service delivery.  However, unlike IT where it’s easier to disaggregate services and run multi-vendor environments, it’s a lot more challenging when you deal with business processes, hence we expect those buyers with provider partners which have invested in domain capabilities to have a major advantage over those providers which really can’t do much more than provide butts on seats.

We see a true divide developing between the providers only focused on standard delivery, and those which have high-caliber process experts on their bench.  The problem is many buyers today do not discover how poor their provider is until after then signed the deal, and it’s not easy to put in requests for consultative help after they’ve outsourced.  However, for many buyers, they don’t have a lot of choice but to start campaigning internally for funds to improve their current sourcing delivery frameworks because they are far too beholden to the capabilities of the provider they signed up with.

Essentially, if your provider  is starting to sound and acts like a glorified staffing company, you might just want to open up conversations with GBS partners which can work with you to optimize what you have already invested in.  However, we recommend you’re MUCH better off finding this out before you give them the kitchen sink…

 Join us on May 17th at 12pm ET | 5pm BST

Our six panelists are primed to debate the issues and take your questions:

• Cliff Justice, Partner & U.S. Leader, Shared Services and Outsourcing Advisory – KPMG
• Phil Fersht, Founder and CEO – HfS Research
• Peter Bendor-Samuel, CEO – Everest Group
• Charlie Aird, Global and US Shared Services and Outsourcing Leader – PricewaterhouseCoopers
• Peter Lowes, Principal – Deloitte Consulting
• Ben Trowbridge, CEO – Alsbridge

Where we will attempting to divert them from shameless sales pitches to discuss the following topics:

Join us on May 17th at 12pm ET | 5pm BST

And a very big personal thank you for all you people who are supporting this initiative (you know who you are)

Deborah Kops, Research Fellow, HfS Research (after a couple of aspirin)

Not many people have marketed for providers, bought from providers and negotiated with providers as much as Deb Kops over the last 50 years or so.  She has heard more vernacular, more puff and fluff than anyone… and now it’s time to answer her plea:

I’m dreaming of a great provider website

When I’m trying to keep up with the latest sourcing trend, I take a look at provider websites. While I always learn a thing or two, and get a good sense for where the industry is going, I generally come away with a headache, not only trying to read what’s on the page, but more important,  grasping the message. I’d like to think I have at least an average intellect, but when some of these sites are written to try to impress someone with three PhDs in applied logic, I move onto the next search. And that’s not good.  

It bollixes me that the best thing to hit outsourcing marketing since offshore locations is the advent of the website — inexpensive, flexible, interactive, data-rich, with worldwide reach, and offering the potential for clear differentiation. Yet why are outsourcing providers’ websites such an abysmal lot when, for many, they are buyers’ first introduction to a provider?

After a casual perusal of a variety of websites, and a blinking headache, I’d thought I’d share the website sins against mankind that our industry regularly commits. They are such simple-to-fix transgressions that they are almost comical. But when a website is the front door for many buyers, it’s a serious matter. Read my list of most egregious transgressions:

Plain English. No, you don’t get extra credit for sentences that ramble on for ten lines, with a liberal sprinkling of every word ending in “tion” that’s currently found in the dictionary. And this is not just a diatribe against websites written in so-called Indian English. Many other sites — British, American, you name it — are equally guilty.

Speaking of plain English, if as a provider you have global aspirations, the lingua franca is American English spelling and syntax, just as it is for most global businesses. I know it’s hard to give up s for z, and use the term batch for class, or know more in place of learn more, but Americans are a parochial lot. If you are putting up only one website, it should be targeted to American readers. After all, rumor has it that we are the most aggressive outsourcers.

And since we’re on the topic of plain English, please don’t coin new words. I cannot find re-devising in the dictionary — or thoughtsharing, for that matter.

No jargon. If I were queen, I’d make it a criminal offense to use the following words:  enhance, enable, transform, partner, passion, and innovation. They are used so liberally, they either become meaningless or the reader automatically redacts them. Whatever happened to simple words such as improve, fix, change, speed, deliver? Do the writers of these sites really believe that the use of big words impresses the reader?

Many provider sites also manufacture acronyms as code for new nomenclature in order to appear more sophisticated. Does the reader take the time to understand an alphabet soup that is best used internally?

Fewer adjectives. As a corollary to the use of big words, look at the majority of outsourcing sites and you’ll see a liberal sprinkling of adjectives in an effort to impress. Please understand that all firsts are pioneering by nature, or that a 14-year continuous period is by its very nature sustained, or that if you are committed to excellence, then truly should go without saying. Marketers pushing pioneering firsts, sustained continuity and truly committed should truly be committed.

Unsubstantiated boasts. How many sites start out with “[company] is the leader in outsourcing?” And then the reader hunts through the site to find that mysterious third party that says it’s so. Suffice it to say, leadership is something that is not self-proclaimed, but recognized by the industry. If a third party says you are a leader, or superior to the industry in any way, it holds water. If there’s no independent attribution or accolade, tread very lightly. Braggadocio (an unfortunate big word) does not go down well with good clients.

Parity across offerings. Ok, 50 percent of your revenue is in utilities, while most of your solutions revolve around finance and accounting. But you want the world to know that you also have expertise in banking, higher education and retail; visitors should also be aware that you have an HR gig or two, and that you know your way around a trading platform. But your site is overwhelmingly devoted to your strengths, with a full complement of solution descriptions, white papers, customer accolades, webinar podcasts and other artifacts, often on a microsite, while the other industry or service solutions have a scant one or two paragraph description.

Convince me that you are serious about growing other verticals or horizontals by taking the time to invest in putting something of import on the site: some thought leadership or perhaps a webinar. Let me know you have some insight, or at least a point of view into the industry’s challenge — that if it’s important enough to invest in the target market, you’ve taken the time to invest in solutions and opinions.

“Lopsided” sites persuade no one. Don’t purport to be a full service, multi-industry provider when your website reads, to paraphrase the movie “Four Weddings and a Funeral,” like “Four Hobbies and a Business.”

News I can actually use. Now I am very pleased that xx company won the Silver Pigeon award (which I’ve never heard of), and very happy that they have the dosh to exhibit at the upcoming Source to Us symposium. I’m also delighted to know that the chief executive looks smashing in cricket gear, or that the company is sponsoring the gold cup at the World Mud Wrestling Finals. But I’d much rather know about the fact that the provider found a way to link a retailer’s order to cash process with that of his supplier, cutting out 10 days of AR,  featured prominently on the home page, or that there is a corporate initiative to bring more diversity into the management ranks.

Original branding. While I’m banning jargon, I’d also like to ban the use of iStockPhoto. Yes, it’s easy to use and free, but when I see the same graphics over and over again (you know which ones I am referring to — the one with the flow chart drawn by a hand on a transparency, and those Gumby-like creatures that either hold hands or march in formation to scream “team,” or various iterations of a spreadsheet.) If your brand is worth promoting, it’s worth thinking through a graphic idiom and investing in iconography that really encapsulates the brand.

White space and large print. There are no extra points awarded for packing 10,000 words in a remarkably small font onto one web page. And given the fact that digital is an inexpensive and flexible way to communicate, the cost should never get in the way. Give our eyes a rest, and invest in a little white space that frankly highlights some of the words of wisdom on the page. Regarding fonts: it may be my advanced age, but I cannot fathom why providers are so attracted to fonts that require someone with 20/20 vision to take out a magnifying glass.  It detracts from the message.

Easy navigation. Less is more when it comes to navigation. It’s not uncommon for outsourcing sites to have such a complicated wireframe that has enough dropdowns to fill a small stadium. By the time one has clicked five times, they’re finished — and may be missing out on something you really want them to know.

About Us sections that actually are about you. Locating a page describing the leadership is sometimes like looking for a needle in a haystack. For the life of me, I cannot find a friendly face on many outsourcing websites.

Like most of us, I’d like to know more about the people I am dealing with — in addition to CEO, the CFO and the chief counsel. After all, it’s not executive management who do the work, it’s the business line leaders and the solution heads. And when the provider is of offshore heritage but purports to be global, I’d love to see a roster of leaders that does not look like an IIM yearbook, with a stray foreign exchange student or two. And for those of you who think your brand trumps all, and it’s not necessary to post pix and bios, think again: we learn a lot from the type of people you hire, their level of experience, and how they complement each other. Ultimately, propinquity (another sesquipedalian noun, sorry) rules: people do business with people who are like them, so we look to see if there are leaders we can relate to.

Dynamism and currency. Don’t think websites are just a “put ‘em up and forget about it” task. A good website must be managed each and every day. Take off the archives of events that features webinars back in 2007. Solvency II may be last year’s issue, not front and center this year. What the CFO thought about the future of finance and accounting outsourcing in 2009 is no longer of general interest. If Joe is no longer with the company, take his title off your artifacts. Keep it current, make sure it’s relevant.

The Bottom-line:  This is easily fixable.  Now fix, please

The good news is that all of this is easily fixable — if management starts thinking about how the reader perceives the site. A wise partner of mine once told me that it’s not enough to focus on what you are saying — it’s how the listener hears you. Taking a cue from him, it’s time for the industry to start looking at their websites as buyers do.

Deborah Kops is Research Fellow, HfS Research (click here for bio)

Brian Robinson is Research Director, HfS Research (click for bio)

However, a more surprising move has recently transpired with iGATE Patni deleting the last fives letters of its name to call itself simply “iGATE”.  While you can understand Xerox preferring their more famous and recognized brand to ACS, and the procurement guys simply wanted to sound sexier, it’s curious why iGATE would drop the famous Patni brand barely a year after its merger.  You would have thought the lesser-known iGATE leadership would prefer to maintain the legendary technology services brand founded by three brothers, Narendra Patni, Gajendra Patni and Ashok Patni, in 1978?

So we asked HfS’ IT services guru, Brian Robinson to discuss why...

iGATE Patni to delist the Patni name from the Indian bourse

This month iGATE Corp announced that it had raised an additional $265 million to buy-out the remaining shareholders of Patni stock and to delist Patni from the Indian bourse. More importantly, the company will likely remove the Patni name from its future go-to-market and branding strategies.

This comes on the heels of what must have been a long year for the organization.  You will likely recall that iGATE announced its intent to take a majority stake in Patni in early 2011. At the time, industry and financial analysts were up in arms: revenues and key clients were at risk, attrition was a concern, and divergent cultures might not find equal footing. We first wrote about the acquisition in January of 2011. We then completed a 360 degree assessment of the organization in Q1 of this year distilling the company’s strengths and opportunities for future improvement. For our most recent assessment, iGATE Patni gave us unfettered access to both senior staff and clients.

So what did we find in our most recent study? 1) not a single client opted to leave iGATE Patni for reasons of change of control following the merger in January 2011, 2) the organization continues to impress it clients, which include some of the most mature buyers of services, and 3) they continue to meet financial estimates set by a broad range of financial analysts. Additionally, management has set an aggressive target to reach $3B in revenues by 2017. But, if all was going smoothly, then why would iGATE Patni splash out $265 million to tighten its marketing program?  Three reasons:

Control, Ego and Business strategy

1. Control: without full control, their management risks that an active shareholder could interfere or disrupt their future roadmap. Buying up the remaining Patni shares mitigates this threat and management opted to pull this trigger sooner rather than later.

2. Ego: iGATE is known to be an aggressive group of managers. They set high standards for themselves and their clients, and this attitude comes right from the top. Phaneesh Murthy, CEO, has done what many in the industry thought was impossible: acquire a larger service provider by levering up his balance sheet. The strategy has worked so far – iGATE Patni has surpassed the billion dollar revenue threshold. His team still has a lot of work to do, but first he wants to cement his role as leader.

3. Business strategy: In order to reach the 2017 target, management will need to integrate the two delivery organizations. The company could chose to do this while managing a dual-brand.  We think this option would simply confuse both clients and internal management. The better choice would be to integrate the company under one brand reducing the associated complexity, time and resources. Moreover, working a single brand will give management the runway they need to evolve the companies combined strengths into new value propositions and services.

Some pundits question why iGATE would retire the Patni name. Founded by three Patni brothers, the company is one of the forefathers of an industry that has helped transform India. Moreover, the company has an outstanding reputation for consistent service delivery to its clients. Both are qualities that many smaller organizations pay for dearly. Our research indicates that management may discard the Patni name, but not the strong delivery attributes that made it successful. As we note in our 360 degree assessment, the company will need to focus on several key areas beyond branding in order to reach its growth targets.

So here is our short list of predictions the industry observers will likely see at iGATE Patni following this recent announcement. The company will: 1) delist the Patni name from the Indian bourse, 2) drop the Patni brand from all go-to-market and branding materials, and most importantly 3) fully integrate the two company’s delivery organizations. To date, the union of iGATE Patni has primarily been client facing.

Clients’ and prospects’ reports regarding the changes will likely be mixed. iGATE Patni’s largest clients – in terms of revenue – will likely report little or only minimal changes to their services and transformation programs. These key accounts are critical to stable cash flows and to overall company stability. Any change here will trickle in over time. Prospects and smaller clients will likely see the introduction of the company’s iTOPS model for outcome based pricing. At the heart of iTOPS is iGATE Patni’s willingness to make investments in parallel with clients in order to produce continuous improvements. Many clients need additional time to transform their services to enable output based pricing, and iGATE Patni often invests along with its clients. These investments involve both process and technology and result in a business platform for the client.

The services industry will likely reflect positively on the announcement and the continued integration of the two companies for the following reason: continued success would highlight that mid-tier providers – not only the global majors – can integrate their acquisitions to bring new capabilities and scale to a broader brand name. Other mid-tier provides will leverage the iGATE Patni model as a precedent to qualify and build acquisition and integration plans. Most importantly, if the industry sees even a small uptick in consolidation stemming from this acquisition, then buyers will have a greater number of qualified global services provider to choose from.

Some observers may conclude that iGATE Patni management paid a high value to retire the Patni name. But further reflection shows that this investment is more about completing the process of integration started in early 2011 and positioning the company to reach its stretch 2017 targets.

Brian Robinson (pictured above)  is Research Director, Business and IT Services Strategies, HfS Research.  You can read his 360-degree assessment of the iGate (Patni) organization by clicking here.

David Poole (pictured left) somewhere en route back to the UK

Well, we can confirm the wild rumors that he turned up at Shared Services & Outsourcing Week masquerading as an analyst as completely unfounded.

He was, in fact, being steadfastly pursued by $7.5 billion Business Services giant Serco to head up their UK and European services operations.  While we were secretly hoping he was going to become the next Sheriff of Nottingham, he clearly couldn’t resist another chance to point his top-down shooter at the BPO business.  Or it may have been the salary, but let’s give him the benefit of the doubt.

So… without further ado, here’s the long-awaited third tranche, entitled…

Why do so many companies get SO hung up on technology decisions?

When it comes to technology, particularly when it comes to back office horizontal services like HR, Finance and Procurement, I’ve never understood why so many companies get SO hung up on technology decisions and so bought into spending huge sums of money paying consultants to reinvent the same wheel over and over again. Of course I can say that now that I’m not employed by a [Platinum] Partner of SAP, a [Diamond] Partner of Oracle or a [Titanium] Partner of Microsoft. Frankly it’s always been nuts to invest millions in bespoking the accounts payable screens or putting logo’s on the journal voucher entry screen so the accounts clerk remembers who he works for. Today, however, apart from core systems of record and arguably key master data systems it’s even more crazy. BPO providers can take care of practically all of the non-core system requirements using ‘one to many’ software as a service solutions that are significantly more functional (again due to much greater investment), efficient, connected, secure and most importantly at a fraction of the cost of providing those system internally. And CIO’s (hint: as long as they are credited with the decision) love to offload these complex sub systems to external knowledgeable providers allowing them to focus their overworked IT functions on keeping the core systems up and running.

The interesting development in this whole BPO technology arena is the increasing granularity that it allows. You see BPO providers know how to link and integrate their best practice process models to the supporting technologies. The smart ones can then only provide the technology actually needed to provide the processes. It’s a bit like a restaurant menu with a wine pairing. So not only do you get access to the best practice models, you only need to use (and pay for) the specific components of the technology that you need to deliver the specific sub processes that are being provided. This allows true fit for purpose service delivery delivered in the most efficient way possible.

David Poole is the recently anointed CEO UK & Europe, Global Services at Serco. You can read his full bio here

 And if you want to request a copy of the slides, please drop a polite email to Tom Ivory.

Rand Havens is Research Director, Global Business Services and Manufacturing Strategies, HfS Research (click for bio)

We’re delighted to announce we’ve added some significant depth to our global business services and manufacturing coverage with the hiring of Rand Havens.  

Rand is a unique brand of analyst as he comes with buyer, analyst and provider side experience.  Yes, he’s seen sourcing from all sides, having helped lead the consolidation of the shared services center for Ernst & Young in the U.S. and assisted in the spinoff of the consulting concern to Capgemini. He also started a greenfield shared service center for a leading manufacturer of car and truck parts, managing it through structural changes, ERP implementations and ultimately, outsourcing.  He then ventured into the analyst world, heading researcher NelsonHall’s F&A BPO practice before spending time with TCS as a key BPO strategist and client liaison. What finally got him over the line during the arduous HfS interview process was the fact that Rand is officially certified.  Certified as a public accountant.

Having known Randle (or “Rand” as he prefers to be called) for several years, we’re delighted to have an accountant with such a passion for process, sourcing and IT enablement on our team.  With two teenage boys at home we’re pretty sure he can handle it.

In any case, we’re already reaping the rewards of his prolific writing, when he’s not lounging by his pool, going to jazz festivals, or getting his butt kicked by his CEO at “Words with Friends”.  So let’s have Rand give you some of this thoughts on where the sourcing industry is heading…

Five forces influencing the evolution of… a new species of BPO

The concept of BPO is evolving into a new species.  However, while we wait for the new species to be captured and tagged, here are the five forces influencing its evolution and some of the resultant traits this new species will have:

1. Smaller needs for bigger staffs

Companies are changing their buying habits with respect to BPO because of the changes in the underlying needs.  One reality is that companies have increased productivity, whether through large ERP implementations or unnoticed incremental optimizations within an office.

• This means BPO deals will continue to be smaller and more focused.  Companies will be enlisted to provide greater skills in the vein of staff augmentation rather than true process outsourcing.

2. Increasingly fine-tuned customer service

The recent recession had two major impacts on the BPO market: 1) it shook the latest of adopters to move to BPO and 2) for everyone else, it caused a deep reexamination of the value of the work being processed.  Anecdotally, it seems many of the companies that rushed into a BPO contract in this “recession desperation” have been less than satisfied with the results.  The feedback from these buyers resonates a common theme:  the service provider did not listen to the expectations of the client.  For those companies who took a deep reexamination, they realized there was much more that could be improved in-house and that a BPO initiative, while not entirely not off the table, was not the panacea the late adopters assumed.  The problem is that BPO service providers seem to be moving further away from the types of solutioning the client wants.

• This means BPO service providers will become more successful by truly understanding what the customer wants, as opposed to what the customer needs. 

3. Verticalization

Technology has not only enabled the back office to be more productive, but the front office has become more dependent on the ability of ERPs to provide powerful data with minimal effort.  Salespeople can now readily check the status of customer accounts to know where they stand before they make customer visits.  Payables departments can confirm an employee’s status in an HR system before processing an expense report.

The general awareness of this data set has also increased interest within the front office for securing a competitive advantage through analytics.  Data mining has become increasingly popular and explains the uptick in bespoke analytic projects in BPO.

• This means BPO deals will contain increasing expectations of specialization within a given vertical and their subsets, e.g., energy will distinguish between upstream and downstream in oil and gas; media will focus on royalty calculations for books, music, or film rather than the composite.  BPO service providers are now actively looking to understand common needs within an industry and become “best-in-class” in that context.  The challenge for service providers, however, is that these deals are much smaller than the BPO deals of old. 

4. Increased competition

The original value proposition for BPO relied largely on economies of scale for labor arbitrage.  This included not only the comparative labor rates, but also the overhead burden of centralized housing.  In today’s market though, labor arbitrage is not a primary driver, and centralized housing is no longer required or even optimal.  See “omnilocation” below.

As a result, there is a market for small BPO service providers to offer services for back office processes.  The barrier to entry is getting even lower with the introduction of SaaS models.

• Notwithstanding M&A forces, this increased competition means BPO service providers will need to build competitive branding in their target markets.  The more successful Indian-based service providers will increasingly rely on the insight their locally hired sales force can provide to close deals more quickly.

5. Omnilocation

For the past several decades, back office processes experienced a pendulum swing between centralization and decentralization.  The BPO value proposition further perpetuated “centralization” by housing 300-500 employees in one location to leverage economies of scale.  However, many of the technological reasons for providing BPO services from a shared location are gone.

• This means service delivery will be literally from anywhere, subject to constraints of security and staff development.  Accordingly, service providers will enable more employees to work from home and from smaller local “branch” or “field” offices.

Rand Havens is Research Director, Global Business Services, at HfS Research, you can access his bio here and email him at rand dot havens @ hfsresearch dot com.  You can also tweet him at @aranddis

1) We don’t only serve clients within the confines of the CIO’s organization.  We believe  that business processes actually matter to organizations today, and while the likes of Gartner and Forrester invest all their analyst resources really just looking at IT, we get right into the weeds of business functions by developing analyst talent that covers industy processes, such as insurance, healthcare payor, utilities, energy and manufacturing, in addition to core horizontal markets, namely finance, procurement, supply chain and HR.  We believe IT enables process and we cover it through the eyes of the business function leader.

2) We’re building a team with real hands-on sourcing experience.  We really don’t believe you can only cover sourcing as an analyst sitting in an ivory tower, if you haven’t spent some pain-time in the trenches.  While it’s great talking about it, you’ve really got to have been there, to talk the language clients understand.

3) We’re a pure research firm.  We’ve never got sucked into the world of ranking suppliers or writing puff pieces to make our money – we’re focused on great analyst relationships where clients can have us as their partner all year round.  If a client is comparing vendor A with Vendor B, they call us up to learn the real deal.  Service relationships have many fine nuances that depend on culture, flexibility, consultative prowess – we don’t believe you can put them in a box like a piece of software, and start ranking everyone.  If suppliers want some puffery for their PowerPoint, they can either find someone else who’ll do that for them, or if they’re brave, have us meet their clients and write about them!

4) We’re not all about a “paywall”. We hate the fact you can never get anything free from most research firms.  They have a duty to educate, in addition to make money, so why not expose some of their wares to the public to enhance their reputations?  At HfS, we make a point of making about half our research freemium, as we believe clients will want to invest in an analyst relationship when they frequently read our research.  We’re now up to 20 people in shy over two years.  Maybe we’re onto something?

As always, we truly appreciated the support and readership of all 75,000 of you and welcome your comments and suggestions.

Unfortunately, some of these people had failed to read the full posting to figure out it was an April 1st wind-up, but, what the hell, it inspired some pretty good debate!

We liked this suggestion, from outsourcing evangelist, Bobby Varanasi:

Very interesting indeed. Wondering if the marketplace will accept the replacement term “augmentation”. Personally I think the term “augmentation” indicates – restrictively – that service providers only do that, augment and nothing else. However the marketplace has grown significantly on the back of “new” capabilities providers have brought to the table of buyers, not by augmenting but by “installing” or “instituting” practices, solutions etc and made the buyer organizations look smarter!!!

Good point Bobby. Let’s be realistic here:

a) “Augmentation of existing operations”. When a provider is “augmenting” a process (or cluster of processes), they’re improving it, they’re removing some unnecessary sub-tasks, or even tweaking it to work with a new software application.  Whatever they’re doing, they’re trying to make it function more effectively in an externalized environment that likely involves staff on both client and provider teams.

b) “Instituting new practices and capabilities”. The nirvana, to which most ambitious providers aspire, is to have their clients move onto “shared” solutions they bring to the table that have pre-configured quality process flows and technology underpinnings that they can implement across their multiple clients, resulting in more profitable engagements for them, increased price-competitiveness in the market and – hopefully – new capabilities and improvements to delight the end-customer and win even more customers.

The outsourcing industry is caught in a “chicken and egg” situation

Hence, we would class augmentation efforts as process improvement (i.e. labor arbitrage with a few tweaks), and what Bobby is suggesting – instituting new practices – as something akin to “innovation”, as this involves new, and often unique, methods and capabilities to make buyers be more successful.  There’s no doubt the industry wants to shift outsourcing engagements away from mere augmentation to the actual institution of new capabilities, however, the missing link is clearly whether the service providers can be incentivized to invest in their clients, with clients similarly being incentivized to make more radical overhauls of what they have.  Clearly, we have a “chicken and egg” situation going on in today’s outsourcing business.

Whatever we call “outsourcing”, one thing is clear: providers’ capabilities are the key to the future success for finance

Enough of this theoretical buffoonery; let’s go ask 436 senior finance leaders from organizations with current shared services and outsourcing (SSO) models about their current business objectives – and how those have changed since they originally embarked on their SSO adventure:

This brand new data, a sneak preview of what’s to come from the recent HfS Research/ACCA study, compares the importance of business objectives made by finance leaders when they initiated their SSO engagements with how those same objectives have changed today.  Let’s summarize the significant points:

Finance leaders really want to increase their access to capability and solutions from 3rd party service providers.  Finance leaders have viewed this criteria as increasing by 46% in importance since they embarked on their SSO.  This clearly implies they have seen what providers can/are bringing to the table up-close and have realized these attributes are what they need to reach new levels of success.  This is a significant cultural shift from years-gone-by, when they over-relied on inhouse  staff development and heavy ERP investments to improve finance with limited help from the outside. Most finance organizations today are tired of constantly fighting ERP dysfunction and poor process quality and are more focused on third parties to bring new ideas/best-practices/technologies to the table.  Moreover, as we have been seeing repeatedly at HfS, clients are increasingly recognizing the cultures and internal capabilities of their service providers and want to nurture these skills and learning environments into their own finance organizations.

Improving talent and flexibility to scale the finance organization is paramount.  While leveraging provider capability is the most significantly growing objective, improving finance talent and scaling finance are close behind. We see the desire from function heads to globalize processes and have their internal managers get a better handle on scaling finance to service the needs of the business, as critical goals of finance leaders today.  Clearly service providers, in addition to management consultants, are in increasing demand to help their clients develop smarter global delivery models that encompass their available talent across shared services, outsourcing and inhouse teams.  It’s no longer about clients managing each delivery model in silos – it’s about bringing them all together as one cohesive framework.

Standardizing process is desirable, but not a lot of companies are really doing it.  This objective only grew by 20%, which will disappoint some providers which are banking on pushing their clients into more radical overhauls of some of their internal processes to adopt their own workflows and best practices.  In many ways, this really is telling us finance leaders are more focused on augmenting what they have, than completely overhauling processes with better ones.  Everyone says they want access to best-in-class processes, they say they want to blow up non-core / not critical processes and have them standardized and made more efficient – so why, pay tell, do they not do it.  We use the payroll example a lot, the most commonly outsourced finance/HR process, whereby many CFOs / CHROs long gave up the ghost that there was any real strategic advantage keeping payroll inhouse, but even that case, barely a third of mid-large organizations have actually outsourced it?

The Bottom-line:  Service providers are in pole position to provide the value clients need, however, there needs to be some give-and-take on both sides to move beyond mere “augmentation”

The augmenting versus instituting argument really sums up where we all are as an industry at present; providers want to institute offerings that they can scale (standardize) and execute well, whereas buyers want the execution without the standardization.  They want providers to bring them all the goodies at competitive prices to make them look really good, but are yet to really embrace the internal change they have to go through in order to get the outcomes that they want.

The key is for the chickens and the eggs is to figure out together which ones came first.  OK – that makes no sense!  The key is for the buyers and providers to figure out the right ways to engage, so that both are incentivized to invest in the relationship and the outcomes together.  There has to be a bit of give-and-take – i.e. buyers need to understand that providers want scale and utility and would like to leverage their capabilities with other clients and not just them.  Similarly, providers need to understand that buyers’ needs are often complex and it’s not always “clear cut outsourcing”.  As our research will reveal shortly, far more buyers rely predominantly on shared services delivery models, and outsourcing engagements still tend to be treated as discreet, augmented support services.  In these cases, providers need to (at least at first) accept they need to work within the confines of their clients’ global delivery models that many not always suit them.

Both sides need to look at the bigger picture to work out how to really find future value from each other.  Providers need to stop managing each client like a P&L and clients need to be prepared to understand what will encourage providers to share more of their delights.

Stay tuned for Part II where we’ll take a deeper dive into the potential for Global Business Services across finance operations

With the amount of data flitting between hundreds of global locations and millions of servers -to how much risk are your operations, today, being exposed?  How many local and regional regulations are you flouting?  How does the introduction of multiple service providers and SaaS applications exacerbate the issues?

And that’s not all – what about your staff’s personal devices (and those of your providers’ staff) that get plugged into your corporate network on a daily basis?  And even that trusty Apple device you use to make your own IT experience that little but more pleasant?

Because that's where the money is...

At HfS, we have been quietly exploring what today’s organizations are doing (or not doing) to protect themselves, which is why we brought in security and risk analyst veteran Jim Slaby last year (read some of his research here).  While he’s been running the treadmill of the obvious security issues and threats, he’s also been uncovering those in areas such as your Apple device – yes – YOUR APPLE DEVICE MAY NOT BE AS SAFE AS IT APPEARS.

Over to you Mr Slaby to reveal more…

Flashback kicks the myth of Apple invincibility squarely in the jewels

Reporter: “Why do you rob banks, Mr. Sutton?”

Willie Sutton: “Because that’s where the money is.” *

Apple has long enjoyed a reputation for making computers that were largely immune to the viruses and other malware that have long afflicted Microsoft systems. Indeed, Microsoft practically created a hundred-billion-dollar security aftermarket — Symantec, McAfee, and countless other security vendors large and small owe their existence to the lousy job Microsoft did architecting its products to resist various security threats.

But good OS design was only one of Apple’s advantages; the other was that it only represented a tiny fraction of the enterprise and consumer markets for server and PC operating systems and applications. If you were a black hat, you developed malware to rob sensitive data from Microsoft machines because that’s where the money was. Of course, the world keeps spinning: Apple now has a market cap that seems destined to hit a trillion dollars, and everybody in your organization wants to connect their personal iPad or iPhone to your network. So the malware developers of the world have naturally turned their sights on Apple.

While this isn’t their first try, the bad guys are getting better at penetrating Apple’s once apparently impervious peel.  They scored a big, splashy coup last week when news hit the business press about Flashback, also known as Fakeflash, malware targeting the OS X operating system that successfully compromised more than half a million Mac desktops and laptops before Apple managed to issue a patch for it last week.

In its early versions, Flashback was a trojan horse that pretends to be an Adobe Flash installer or Apple’s Software Update tool. Users agreed to install Flash (to view some online video) or run an Apple software update, but the malware instead installed a backdoor that wreaks a variety of mischief like “click fraud”, generating fake clicks to boost revenue from pay-per-click and pay-per-impression ads (for which the bad guys collect a kickback). But it could potentially do other harm, like collecting passwords and card numbers for resale to identity thieves and credit-card fraudsters. Flashback kept evolving, and now exploits a Java vulnerability to deliver its malware payload via drive-by download; now all the user has to do to get infected is visit a poisoned website.

Flashback thus joins a small but growing collection of increasingly sophisticated malware threats like last year’s DevilRobber, a backdoor that steals passwords and electronic cash tokens from infected Macs. Apple is responding with new security improvements to defeat exploits like these, but as the Windows malware and mitigation seesaw has long demonstrated, this will inevitably become an arms race — attackers will keep uncovering new vulnerabilities in Apple’s security armor as long as they smell profit in it.

Add to this the growing pressure in enterprises to support the BYOD (Bring Your Own Device) trend, to let employees and contractors connect their personally owned smartphones and tablets to enterprise applications, and it’s easy to see that there’s a whole new Pandora’s box of endpoint security issues just beginning to crack open. And they’re not all Apple OS X or iOS devices, which are still relatively exploit-free: many of them run Google’s Android OS, itself the target of a growing and already better-established boom in malware development.

The IT consumerization trend, in which business partners and customers will want to transact online business with enterprises from consumer devices and mobile applications that the CSO’s team can’t easily monitor or control, will only make this issue more urgent. HfS Research examined these trends in more detail in our recent report, “BYOD in the Age of Cloud Services and IT Consumerization”. To recap one of its recommendations, CSOs need to stop hoping this issue will just go away, or pretending they can just say no to the new welter of mobile endpoints and applications.

Likewise, as BYOD and IT consumerization gather momentum, services providers ought to be exploring the opportunity to help buyers tackle the emerging challenge of mobile endpoint management, starting with consulting and managed security services. If there’s one thing that Flashback has taught us, it’s that the 21st-century Willie Suttons have figured out that there’s gold in them Apples, they’ve already cased the joint, and they’re coming for yours.

* Sutton robbed a hundred US banks to the tune of $2M over a forty-year criminal career that began in the 1920s. He claimed his most notorious quote was actually made up by a reporter, but became so famous for it that he eventually gave up arguing the point.

James R Slaby (pictured left) is Research Director, Sourcing Security and Risk Strategies for HfS.  You can view his bio and research here.

Pressure from buyers to create more accurate terminology for what we commonly, but incorrectly, term as “outsourcing” for IT and business processes has spurred dictionary publisher, Merriam-Webster, to remove the term from their next edition.

Instead, when firms purchase services from technology or business services providers, these engagements will be termed as “expertise augmentation” services.  The heritage dictionary publisher, which has provided language information since 1806, finally made the decision to remove the term, based on the latest survey conducted by HfS Research, where three-quarters of buyers emphatically declared their wish to drop the term:

HfS Research has been agitating to ditch the term since 2008, with our now-famous post “Is it time to dump the term ‘outsourcing?’” which first caught the dictionary giant’s attention.  However, it was our recent piece accusing the whole outsourcing industry of being a “sham” which finally forced the issue.

“When HfS first raised the issue back in 2008, we didn’t feel it was the right time, but that last piece, coupled with their latest study, finally forced the issue”, commented Ashley Webster, President and CEO for Merriam-Webster online. “The HfS team has been really helpful advising on these terminology changes with their research and insight into what people want to do with that awful word.”

And the exciting news is that we can give you a sneak-preview of the following changes, to be published for common use in the English-speaking business world:

As you can see, the term “augmentation” has been widely adopted for most of the major business functions that have endured “outsourcing” in the past, with the exception of HR.  ”When we looked at the data, we found that most companies didn’t want to augment HR, they just wanted to get rid of it”, added Webster.  ”So we felt it more appropriate to stay with the term “HRO”.

Ashley Webster is President and CEO, Merriam-Webster

We felt this move may be a bit of a political hot-potato, so we managed to catch some time with Republican presidential nominee-hopeful Rick Santorum, while we was canvassing voters in Yankton County, South Dakota.  ”This is simply Obama painting over the cracks of his failed presidency as our jobs continue to flood out of our country.  Removing ‘outsourcing’ from the dictionary is not going to solve the problem; removing Obama will.  When I am President, I will make sure these outsourced jobs come back home and the only outsourcing we do will be the current residents of the White House.”

Conversely, Democratic senator, Charles Schumer, whose political brilliance has been frequently lauded on HfS, welcomes the move.  ”Removing outsourcing from the dictionary is proof that all my proposed policies have worked.  Now outsourcing ceases to exist, I can go back to campaigning for the 35-hour working week.”

Just remember folks… you heard it here first!

Oh, and by the way….

Please tell us you didn't fall for it again?

And while we’re reminiscing about falling for April Fools’ gags, here is 2011′s classic:

Painsharing exposed: HfS to reveal the worst performers in the outsourcing industry

And 2010′s:

Horses for Sources to advise Obama administration on offshore outsourcing

Oh, and here’s 2009′s which I really hope you didn’t fall for too:

Horses Exclusive: Obama to ban offshore outsourcing

The question I now have is whether we have anyone here who’s been suckered by all three…

Outsourcing has an image problem, not a delivery problem. The intent of the blog was to deplore the shoddy image of outsourcing in today’s economy and the discuss the lousy job the industry – as a whole – has done in defining itself.  It wasn’t to slam the premise behind outsourcing, or the performance of engagements: the “industry” produces wads of cash and healthy margins while saving buyers lots and lots of money (our own research emphatically supports this fact).

Buyers and providers are desperate to alter the perception of “outsourcing”, it’s the intermediary businesses profiting from vendor marketing dollars which are afraid of change.  I have never had so many “Thank God you called it” emails from buyers and providers this week.  The only people we have upset are some of the events firms and advisors/analysts who take money from service provider marketing people, as this paints their whole modus operandi in a bad light. I even got some hate mail from a couple of entities, whose entire businesses survive on extracting marketing dollars from services providers, because they claim they would lose their identity if we stopped lauding the “outsourcing” vernacular.  They are worried that if outsourcing gets submerged into the business “mainstream”, service providers will park their marketing dollars with entities who are marketing/promoting/analyzing real business services and not only “outsourcing”.  While many intermediaries constantly complain that buyers wary of outsourcing are afraid of change, why don’t they practice what they preach and change their own philosophy – and then their clients will follow?

Buyer networks need to be focused on the business end-game of outsourcing, not the “act” itself.  “Outsourcing” as we call it today, really is a component of a business function, not the business function itself. It is a means to an end, not the end itself. It’s not dissimilar from the Cloud computing concept, except it’s about externalizing services, not IT infrastructure. Regardless of business function, Cloud has relevance as an enabler to achieve better things – and it’s the same for “outsourcing”. I would prefer to see us creating broader communities around business objectives and have process-externalization and expertise augmentation as a key part of each discussion. For example, you can’t go to a conference focused on creating better global finance operations, without discussing shared services and offshoring / BPO. However, the core focus of that network is about achieving more productive, relevant and global finance, where senior people can have rational and objective-led discussions on global operating models that can take better advantage of global talent and technology.

“Outsourcing” common interests should be segmented into two “industries”: 1) Labor Arbitrage and 2) Business Services:

1) The Labor Arbitrage Industry. Let’s face some home-truths here –  much of “outsourcing” as it exists today really is labor arbitrage for most of the lower value work in IT, F&A, Procurement, CRM etc. The common thread among buyers is more how to manage LABOR ARBRITRAGE effectively, than anything else. So why doesn’t that industry simply call itself the “labor arbitrage industry” and focus itself on how to improve processes once part (or all) of them have been moved offshore – essentially, “we’ve done our lift and shift, now let’s see how we can make it better, as opposed to running the same cr*p for less”. For some buyers today, all they really care about (sadly) is labor arbitrage and making a few adjustments here and there to make the experience more bearable for themselves.  Hence, if achieving little more than operational efficiency and low-cost delivery is all they care really about, then let’s have them flourish in their very own industry focused on this very practice.  A spade is a spade, so let’s stop bullsh*tting around the bush here.

2) The Business Services Industry. Conversely, when we get into the new generation of expertise augmentation engagements, the focus is on a broader range of processes where – in many cases – labor arbitrage isn’t really possible. For example, with pharmacovigilance, the chances are that “buyers” need added help with compliance and quality measures that they simply do not have, and there really aren’t any staff that can be laid off to offset the cost of the incremental services. Moreover, with even more commonly-used horizontal processes such as procurement and HR, most “buyers” don’t have excess fat to burn – they have already trimmed their inhouse teams to the bone (i.e. many firms have one HR rep to as many as 200 staff). They need new services and help, not a replacement of inhouse labor. So… for those of us who care about achieving new value and new productivity and feel we have a pretty strong handle on labor arbitrage these days, let’s focus on Business Services and the process acumen, domain expertise, technology and global delivery required to make this all happen.

The key is to bring the global services discussion to the real business table, and not create some oddball assortment of offshoring experts who are alienating themselves by creating their own little siloed network.The more the “outsourcing” industry (as we have been calling it) remains in its silo, the harder it’s ever going to be to have the global business model discussion with the real business function leaders.  We have to move the needle on this issue, or we’re going to become part of a dying breed. However, we need to start setting the new agenda on how business function leaders approach expertise augmentation. They’re the people we have to be talking to. Join us in our cause!

Too many people scan headlines and don’t absorb the real facts – you know who you are.  Yes, we sensationalized the headline to get the eyeballs this critical issue warrants.  However, if you actually read the bloody piece, you’d realize we were not debating the pros and cons of outsourcing itself, we were highlighting what the industry needs to do to become more relevant to the real business decision makers (i.e. less wedding-dress and more marriage).

When God created “outsourcing”, she/he/it clearly had a sense of humor.  I mean, how do you encourage people who offloaded a chunk of their low-end processes offshore to get together and form an “industry”?

Sure, you can pull together those providers and consultants who’ve made a fortune orchestrating the “offloading” to get together and feel good about what they do (or at least convince themselves they should feel good about it) but the reality is, outsourcing “networks” are strange concoctions of individuals striving to feel part of a “community” that doesn’t really exist.

Let’s cut to the chase here – “outsourcing”, for most buyers, is like purchasing a wedding dress – a one-time transaction followed by seven years of relationship struggles and future legal wrangles.  I mean, when was the last time the missus went to a wedding dress convention?

In this context, how can you encourage buyers to get together to spend days-on-end reliving that one-time purchasing experience with the fervor of a civil war battle re-enactment? Do service providers really think they are going to meet hordes of “outsourcing buyers” in wedding-dress selection mode when they splurge forty grand sponsoring the room keys at some event?  Of course they don’t – they just like the fantasy that if they flash their brand everywhere, something positive will happen.

What’s broken here is the fact that “outsourcing” is broken terminology and isn’t a real industry. Most of tomorrow’s deals are not going to involve major staff transitions from buyer to provider as part of the deal – today those engagements are on the wane as most of the bloated buyers have been progressively trimming their fat in recent years.  Moreover, most of the providers today have the capacity they need to service their clients and will only entertain major “lifts and shifts” of employees if these deals are strategic to their growth ambitions, and involve the transition of both domain expertise and technology assets.

Isn’t today’s “outsourcing” really “expertise augmentation”?

If your firm decides to select a new marketing agency, you don’t automatically declare “we outsourced marketing”.  Instead, you make the point that your firm is augmenting its expertise in marketing.  Noone alludes to the fact that your firm may have discretely offloaded a few marketing staff in the process, as they weren’t relevant with many of today’s marketing demands, such as advanced analytics and social business strategy.

Exactly the same applies with processes such as procurement, finance, claims management, software development etc.  Most firms rarely transition out more than a quarter of their functions in an outsourcing engagement, they are simply increasing their focus on being relevant with today’s needs.

At HfS, we are proud to boast a vast array of networks which actually total 130,000 individuals – but you can hardly classify the commonality across these people as “outsourcing” – that is just one component of many, which constitutes the orchestration of global operations. We have broad groups of shared services specialists, outsourcing governance pros,  finance and procurement executives, business analysts, customer services managers, IT leaders, systems architects and functional heads etc.  We have clusters of Big-5 consultants who focus on anything from outsourcing to tax advice and service providers who’d do anything to remove the term “outsourcing” from the Oxford English and  Webster dictionaries.

The Bottom-line:  Are you an outsourcing pro, or a global business pro?

So isn’t it high-time we stopped convincing ourselves there really is an outsourcing industry?  If you base your entire career living in a perpetual outsourcing transaction-cycle involving hordes of staff transfers and staff re-badging, then, fair enough – YOU REALLY ARE AN OUTSOURCING PROFESSIONAL.  However, if you want to focus your career on improving processes, finding new and creative ways to improve companies’ productivity and growth, and leverage today’s availability of global talent into the bargain, aren’t you probably what we are calling a GLOBAL BUSINESS SERVICES PRO?

Anyway, a special thanks to Esteban Herrera (HfS), Akiba Stern (Loeb & Loeb), Jeff Harvey (Hunton & Williams) and Jeff Andrews (Thompson & Knight) for one helluva lively discussion in the state of today’s outsourcing contracts.

Missed out on the legal ear-candy? Click below for the re-play.

And if you want to enjoy a fully interactive experience of having the slide deck to accompany their dulcet tones, click here.

Don't hang your advisor just yet...

I’ve been reflecting on the last three outsourcing contracts where we were asked to coach the clients (a partial answer for those of you who keep asking: how does HfS Research make money?)

As the resident complainer about stagnation and lack of creativity in our industry, I am immediately encouraged, but at the same time also dismayed, by what I’ve recently witnessed. Encouraged because I see clearly where we add value and I’ve been around long enough to see some things change for the better, dismayed because I see so many things still staying the same.

Without further ado, here is the good, bad, and ugly of recent deals where we’ve coached clients, with some critical names and dates obscured to protect the, er… guilty.

The Good

We have job security. The average savings on TCV for the last three deals we helped negotiate was 29%, as measured by total price of the winning bid on day 1 of negotiations and total price of the same bid upon completion of negotiations. This doesn’t even take into account improvement in positions like SLA risk pools and service credits, limitation of liability, indemnification, key personnel commitments, and the other myriad terms that matter to providers and buyers alike. All kidding aside, this shows that a competent advisor armed with data and a sound negotiating approach can still make a huge impact on an outsourcing deal. As a buyer, if your deal size is $50 million on November 15^th and $35 million one week later, the money you probably paid the advisor who worked that deal will seem like peanuts.

Even better, each of these deals has been negotiated in about a week, meaning we’ve saved clients money (attorney and consulting fees) while we save them even more money (provider fees). And even the providers are not that upset with us because at the end of the day they close their deal much quicker and save oodles of time and costs on protracted discussions, allowing their deal teams to focus on winning other business. Of course, this speed is predicated on following a certain process that we’ve used over years and years, but if an advisor tells you its going to take a ten weeks or more to negotiate your deal (as many still do), please, please call us!

At the end of the day, our clients are happy because they saved money, but just as importantly, all the finalist providers feel we treated them fairly and gave them every opportunity to put their best foot forward and win. In an industry where win-win is always talked about and rarely achieved, I get to go home with the knowledge that my company did right by everybody.

The Bad

Reflecting on this last batch of deals, I still see lots of room for improvement. To begin with, why the $%^& do some providers still lob in bids that are 30% higher than what they will ultimately take to do the work?  Do they still naively hope clients are that dumb?  Why do we spend so much time negotiating benchmarking when less than a quarter of the deals in the industry ever get benchmarked, and more importantly, when zero-termination fees has become the norm? Why is the contract still thousands of pages when the paper from one deal to the next resembles each other so much? And why are providers still insisting on shirking data privacy and protection accountability?

Buyers aren’t immune to irrational behavior—like double dipping on transaction-based pricing (where they pay only for successful transactions) and still expect SLA credits for failed transactions, or requesting levels of insurance that would have saved Enron. Or requesting exuberant and unnecessary SLAs. The industry could have fairly standard paper (in fact, it already does) if buyers did not insist on bespoke clauses and contracts for things that are at this point de facto standards.

Inevitably, someone will get emotional. While this makes for great happy hour conversations it’s a clear indication that an opportunity to take a valuable break was missed.  Emotion always, always compromises leverage, so it’s not even a good business move—some people think that getting angry is intimidating to the other party. It is the job of the advisor (or a designated even-keeled colleague) to diffuse the situation with humor, mediation, and/or a break in the action.

The Ugly

While “the bad” is passable and even to be expected, the ugly is a case-by-case example of incompetence. In the last few deals, I’ve seen the following:

• Provider’s lawyer refused to get on a plane to meet with the client and their attorneys, insisting on a conference call instead. When client insisted that he attend, provider answered that their attorneys “never” travel to negotiation sites. The advisor had sat in another client’s boardroom with that very same attorney eight weeks earlier.
• Provider insists that their delegation (an entire two people) is fully empowered to make all decisions, but negotiations drag on twice as long as with the other provider because almost every position has be “run up the flagpole”
• The lead provider executive had never met the client executive. He doomed his chances by addressing the (male) CIO the whole time when the decision-maker was clearly the (female) head of infrastructure
• Provider: “We cannot accept that position as a matter of corporate policy—we just don’t do that”

Advisor: “How long has that policy been in place?”

Provider: (possibly remembering another deal with the same advisor in which the position had been accepted) “Um, well, I don’t know—our policies fluctuate from deal to deal”

• Provider attempts to “educate” client and advisor on the IT outsourcing business when both have been in it for longer than he has. Even if he’s right, it’s an arrogant, offensive position

Again, clients aren’t immune from negotiating mistakes:

• After a tough two hour discussion in which the attorney and advisor secured an important concession, the client sympathetically gives it back.
• Client invites a provider to the negotiating table that has no chance of winning but doesn’t tell anybody that until negotiations are over. Or a similar one which hasn’t happened recently but happens all too often—after a grueling selection process the client executive’s boss overturns the decision to favor a fraternity brother/relative/neighbor/golfing buddy.
• Decision-maker pops in and out of room forcing the team to rehash and occasionally re-open closed (often hard-fought) positions

These are just some of the more recent “WTF” moments in over a decade of advising clients on outsourcing deals. There are many more, and some I won’t tell until we’ve had a couple of drinks. The good news is that there is still value in my profession for buyers and providers. The bad news is that a lot of advisors out there are taking advantage of both.

The Bottom-line: It’s time to speed up deals and build some mutual trust into the experience

"Go ahead... just one more bid 30% over the street price... make my day"

Outsourcing deals are still complex beasts, and savvy buyers can clients can capture tons of value by engaging experienced advisors and attorneys, but that advice need not have a six or seven figure price tag. Providers still make far too many mistakes at the negotiating table—things that cause their prospects to lose trust, which is the single most important buying criterion to begin with. There’s a lot to be done to simplify deals, but even if we don’t get there, as an industry, quickly, there are key behaviors and positions on either side of the transaction that can speed up the deal while building trust and creating a more strategic relationship.

Esteban Herrera (pictured here) is COO for HfS Research and leads the firm’s buy-side deal coaching.  You can hear him this coming Thursday at 11.00am ET at our Outsourcing Super Lawyer Web-Summit (click here for more details).

So who better to send to  the International Association of Outsourcing Professionals (IAOP) annual summit in Orlando than HfS’ research head, Tony Filippone, who has attended this event for several years running in his previous role heading up BPO for healthcare payor giant WellPoint.  Here’s his report on the proceedings…

Lack of Thought Leadership Leads to a Rerun Performance

After attending the 2011 and 2012 World Summits hosted by the International Association of Outsourcing Professionals (IAOP), we were left with a feeling that event organizers were ignoring the opportunity to assemble top-notch thought leadership to drive community discussion. While keynotes were remarkably better than 2011, the educational sessions seemed similar to discussions had at every other event and last year’s 2011 World Summit. Presenters share a background on their company, their journey to success, challenges overcome, and lessons learned. Service providers stand beside their clients as their clients endorse the service provider’s services. Panelists who are CEOs for different service providers argue for the viability of regions, niche categories of services, and the need for better contract terms.

Time to change that channel?

The formula for events has become rote. Lectures and panel discussions are the dominant format, which drives little communication among attendees. Sessions rarely focus on the need for our industry to change and instead focus on repeating what has already happened or promoting sponsor interests. In lieu of tools and templates, presenters provide business cards and collateral. There is an exhibition hall full of booths staffed by marketing leaders handing out tchotchkes. Sales people meet between sessions to assemble lists of leads.

IAOP events, in particular, create the impression that the event is formulaic. Awards are given to individuals and companies. Many of the same people moderate or lead IAOP sessions each year. New lists of top service providers and advisors are announced. In fact, for the second year in a row, these “top” lists exclude the likes of industry leaders Cognizant, IBM and Xerox.

It leaves us wondering whether the IAOP really intends to be a voice of the industry, or just another event company bent on rehashing the same themes. With a hefty $1,900 dollar price tag for the 2013 World Summit, we asked ourselves, “If I attended the 2012 IAOP World Summit, would I learn anything new in 2013?”

Billed as “The Largest of its Kind”

Over 780 “delegates” attended the IAOP 2012 World Summit held in Orlando, Florida. Roughly one third of delegates were customers or buyers, one third of delegates were service providers, and the last third were a mix of advisors, regional governmental representatives, academics, and press. The event spanned roughly two and half days, which were divided into the following types of content.

»        Main session presentations where keynote presentations were given to all delegates. These made up roughly eight hours of the World Summit. Three of those hours were held at the same time as other content.

»        Seven “educational” tracks where companies presented theory and experiences. These tracks focused on customer experience, outsourcing tools, “management science”, transition and governance, the “human side” of outsourcing, globalization, and the future of outsourcing. There were six 50-minute presentations in each track, which totaled nearly six hours of content.

»        Networking events where customers were sometimes separated from service providers and advisors. Besides structured “speed dating” networking where participants moved from table to table discussing different topics (about two hours), there were evening mixers sponsored by service providers who gave away prizes to participants.

»        Practicums were held on the morning of the last day where buyers and service providers were separated. Three hours of presentations were given to each group. Buyers heard ITSqc promote its CMI-like capability maturity model and presentations from P&G and McGraw-Hill on metrics. Service providers heard the findings from Duke’s 2011 outsourcing study, ITSqc’s promotion of its capability maturity model, and a sales effectiveness presentation from Pretium Partners.

In addition, several service providers sponsored dinners or drinks in the evenings. There was also a large hall filled with service providers’ marketing booths.

The IAOP also rolled-out the “Summit Hub”, an online portal for attendees to read detailed session descriptions, plan their schedule, and proactively network with other attendees. In fact, the IAOP allowed all participants to update personal profiles and “request” meetings with other participants online.

Benefits of Attending an IAOP World Summit

For the most part, IAOP puts on well-organized events with high attendance of a broad cross-section of industry stakeholders. Expect crowds full of buyers, sales people, and industry influencers. If you are a newcomer to outsourcing, a World Summit is an ideal event because it hosts sessions on nearly every conceivable topic, from contract metrics to outsourcing in China and from contracting for cloud technology to health care services. World Summits are a smorgasbord of outsourcing discussion. You’ll have an opportunity to listen to topics on subjects you may have never otherwise have considered. However, discussion is rarely more than a high-level summary. You’ll need to follow-up with presenters after the event to get the detailed information you need to execute.

Because of the breadth of discussion, there are great networking opportunities. You’ll meet a large number of new people if you introduce yourself to your neighbors in each session, during meals, and take advantage of the structured networking activities. Most attendees find this the biggest benefit of the event. Yet, the busy schedule and predominately lecture-style formats of sessions limit your ability to interact with attendees. See our suggestions below for advice on how to improve your networking activities.

The awards given at the World Summit communicates clearly that the industry is a community and that some industry participants are great examples of outsourcing relationships and skills. To those who are new or have suboptimal relationships, the awards can serve as an aspiration. To those with experience, the awards can remind them that they haven’t yet achieved all that they could. To those who win, awards are a wonderful recognition of hard work and industry contribution. More importantly, the community that assembles is full of people who achieved the same results, but cannot seek out recognition because their organizations do not want public recognition of their outsourcing prowness.

No Event is Perfect – How the IAOP and Sponsors Could Improve the Event

The problem with events as an information source is that event companies don’t vet the content that is presented for quality. Despite “calls for paper” requests and committees that are supposed to vet the proposed content, speakers are selected based on marketing spend instead of quality of content. As shown in Exhibit 1, those influential buyers with significant influence over outsourcing decisions know the game and they find event content far less compelling than other sources.

Exhibit 1: Where Buyers Get Their Information

This is the gist of the main criticism of the IAOP World Summit: The World Summit focuses too much on marketing and connecting sales people with buyers, and less on creating meaningful forward-looking momentum for the industry.  World Summits are trade shows, not thought leadership venues. And they lack enough networking opportunities to build strong communities.

In this vein of thinking, here are several key ways the IAOP World Summit could be improved:

»        Break with the old, bring in the new. Don’t rehash the same discussions with the same presenters and moderators in 2013. Require speakers to up the ante and bring fresh content. Vet the content for quality so that panel discussions and sessions presenters don’t come-off as marketing shills. Encourage sessions that drive participants to interact, so they come away with new ideas and better relationships.

»        Use a venue of the right size or limit attendee numbers. The organizers of the World Summit chose rooms that were too small on several occasions with major negative consequences. For example, the Tuesday lunch had insufficient seating capacity forcing people who paid $1,000 or more to attend the event to go to the cafeteria to eat and miss the keynote given at the same time. The breakout session rooms were almost always too small (or we attended the most popular discussions!). At times there wasn’t even room to stand in the back. Organizers need to do a better job of picking the right size venues or allowing people to pre-register for breakout sessions.

»        Shameless freebie giveaways devalue the perception of the event. At a number of sponsored sessions, service providers heavily promoted giveaways of wine, Kindles, portable projectors, and other gifts. While swag is great, its gives off an appearance of street hawkers trying to promote their services, not contribute to the industry’s knowledge. Organizations don’t select service providers or advisors based on the quality or quantity of wine they handout.

»        Let people network and stop threatening them when they do. During the Wednesday lunch and afternoon networking session, one speaker took to the microphone and ordered the entire audience to stop talking amongst themselves and instead listen to the droll introduction of chapters (he should have considered the poor quality of content, which was why the crowd ignored him). On at least three occasions, the same speaker threatened to embarrass people who weren’t silently listening to the hard to hear discussion. The speaker, a CEO of an advisory firm, accomplished only one thing: lessening the likelihood of people hiring him. The event organizers could have done a better job allowing time for people to network on their own or providing compelling content.

»        Increase the quality of content. Buyers sharing experiences and best practices gave only one third of the presentations. This is always the top area of interest to buyers, and more space in the agenda should be allocated to this. However, improving the quantity of high interest is not enough. Event organizers need to improve the quality of breakout session presentations. Some sessions were outstanding, but some sessions were lead by presenters who were not as well prepared and whose slides were too high level to address the level of interest and insight participants seek. Kudos should go to Accenture who used a graphics artist that drew pictures as presenters spoke. It was a fun way of keeping the audience’s attention and stood out among the throng of text heavy PowerPoint presentations that dominated the event.

»        Increase interaction among attendees. While the Summit Hub was an interesting social media experiment, it wasn’t actively used during the event. Evening mixers were sparsely attended. Presentations were generally given in lecture format. More can be done to generate interaction and create new relationships among attendees.

»        Consider smaller focused events because big events lose focus. Just as buffet-style restaurants lose quality by trying to be everything to everyone, a World Summit can seem overwhelming in the sheer diversity of discussions. Most buyers and service providers have great interest in niches of services and there will undoubtedly be a session or two that meets attendee’s interest. However, the lack of event focus limits the number of sessions that will appeal to attendees. Smaller, themed events can improve the focus and allow attendees of similar interests to network better.

Six Ways to Get the Most Out of Your Attendance

Given the variety of topics and the sheer quantity of presentations, most of which occur concurrently, participants at an IAOP World Summit need a strategy to get the most out of the event. Here are five strategies you can use to improve your experience:

»        Network in advance. The problem with an event like this is that everyone you’d likely want to meet is busy scheduling time with people with whom they’d like to talk. Given the sheer size of the event, participants find it hard to serendipitously run into individuals they want to speak with. IAOP’s Summit Hub makes it even harder to find these people because participants felt inundated with requests from individuals they had never heard of – especially individuals who gave their marketing teams access and used the Summit Hub as a lead generation tool. If you want to talk to someone of interest, reach out to presenters and participants in advance of the summit and ask to speak with them. Use the Summit Hub, but also reach out to them using LinkedIn or through colleagues. A particular challenge will be to find time to meet given the busy event schedule. You simply wont have a lot of available time for a meaningful conversation. So, use your meal times as opportunities to meet and greet, as well as offer to meet at mixers or other organized social events.

»        Give yourself time for unexpected connections. You will meet a variety of people you hadn’t anticipated to meet. Don’t book yourself solid with event presentations and offline networking discussions. Leave yourself time to meet people and start or continue new conversations. Don’t be shy about meeting people – everyone is there to meet others. Most importantly, don’t spend the time you have with others telling them about you. Instead, ask questions and build a relationship that will allow for a follow-up discussion after the event ends.

»        Avoid repeat presentations and veiled sales pitches. If you have previously attended a World Summit, skip the sessions given by the same presenters. There were several presenters who repeated highly similar content presented at the 2011 World Summit. A few sessions were nothing more than thinly veiled sales presentations focused on a portion of a service providers’ capabilities. These discussions do not provide meaningful content that you’ll easily be able to take back to your company. You’re better off to call these companies directly and schedule time to meet with them outside of the conference. Buyers and researchers lead the best presentations, as they generate discussion full of useful information.

»        Select panel discussions carefully. One of the great things about the World Summit are panel discussions where three or more experts are supposed to be selected to discuss a particular topic. It theoretically offers an excellent opportunity to hear multiple perspectives on the same topic. However, panel discussions are notoriously poorly prepared and low on content. Panelists usually meet once beforehand to review questions and “coordinate” responses. Attendees hear little more than opinionated soundbytes with little tangible content. Attending a panel discussion should be left for newcomers to the content where the variety of small sound bytes provide introductory content. More interestingly, fellow attendees often have greater expertise than the panelists and are a great source of the same information. So, arrive early and introduce yourself to your neighbors. Alternatively, bring a perplexing issue to the moderator’s attention and request the opportunity to ask the panelists their opinions.

»        Manage your business cards. You’ll have a stack of business cards at the end of the event, but you’ll have a hard time matching faces with names. Be sure to write down action items on the back of every card you receive so you don’t forget. When you get back to your office the following week, block out two hours to follow-up with every person you met. This process will make sure you leverage the event for long term networking relationships, not just the content presented in the sessions.

»        Meet new talent you can hire. All organizations can improve their talent, and events offer excellent opportunities to network with practitioners at other companies. Use networking opportunities to identify talent your organization can use.

The Bottom-line:  Heavy marketing and overt sponsorship may be a sign of the times, but limits serious dialogue on industry challenges

Events are important opportunities to improve attendee general knowledge of industry trends and build broader peer networks. IAOP World Summits achieve that objective and are ideal events for industry newcomers looking to improve their knowledge and networks. World Summits are also ideal opportunities for experienced industry veterans to take a break amidst their busy global responsibility to reflect on their achievements and opportunities to improve. If you prepare properly and apply some basic principles, these well-organized events are goldmines of opportunity.

However, the repetitive format of the event, the too-common lecture-style format of sessions, and repeat topics can lead many attendees to feel a bit like a character in Groundhog Day if they attend year after year. The lack of event focus on any one theme assures attendees that they’ll hear a little about everything and not enough about their specific areas of focus. Heavy marketing and overt sponsorship may be a sign of the times, but limits serious dialogue on industry challenges. In fact, the combination of a jam-packed agenda and lecture-style sessions limits networking opportunities to brief windows between sessions. Because the repetitive nature of events, event goers are probably better off broadening their industry knowledge by alternating between IAOP and SSON events, or even seek out more focused process or industry events, like ProcureCon, SIG, and AHIP or regional events held in Latin America, Europe, or Asia.

Tony Filippone is Executive Vice President of Research for HfS Research.  You can read his full bio here

And if you really want more, click here for the slide deck.

The days of enterprise buyers dropping millions to view their favored (and less favored) providers strut the catwalk and have their contracts hammered out by some baseball-bat wielding former ITO salesman are rapidly fading into the past.  That ship has, thankfully, sailed.

However, a new ship is now dropping anchor in the sourcing harbor, promising riches beyond your wildest dreams to re-vamp your shared service centers, re-craft your entire governance framework and ensure those outsourcing engagements fit seamlessly into the overall mix.  But are these new-found riches all they appear to be, or another crafty way for consultants to sneak that MBA bus back into the visitor’s car park?  Who better than Deb Kops to investigate further…

Source to stay

The aggressive push of the big name management consultancies and the Big Whatever into sourcing advisory is in many respects a good thing. These organizations bring a wealth of resource—from an acute understanding of corporate strategy, incredibly deep domain knowledge, regulatory requirements, organizational design and development, and all shades of expertise in between…plus strong ties to the c-suite (the power of which should never be underestimated when hiring a consultant). After all, the sourcing decision encompasses so much more than a market study, a location analysis, writing a good RFP and implementing a rigorous selection process.

But to any shared services and outsourcing conference these days and you’ll hear many of these white shoe guys express a decided preference for shared services as a model. And the traditional sourcing transaction firms are now following close behind, echoing the same refrain.

The guidance from the podium sounds something like this—“Be safe and smart. Alternative delivery models are tricky no matter what. Consider outsourcing but only after you’ve fixed, consolidated into captive centers, and operated until stable. Then think about outsourcing that transactional stuff to a provider to tap into transaction pricing/gain flexibility/leverage investment/free up management bandwidth.”

What’s the implicit message? “Outsourcing is risky. Outsourcing is not the first step on the journey. If you want to fix the mess, do it yourself (with our help). Outsourcing is not transformational. Outsourcing is a commodity—pursue it only after you ring out every penny of cost, then throw it over the transom to a specialist factory.”

Now, shared services very well may be the right answer for many of current crop of organizations investigating or evolving alternative delivery models. First, despite what the pundits say, Western companies are reacting to pressure (or at least thinking twice) to keep jobs onshore and in-house—ergo a captive. Second, what value outsourcing or a simple shared services implementation is capable of delivering at this point in time is pretty well understood. And some organizations are now getting comfortable revisiting their strategies with the view that the trick is no longer fixing the factory, but getting closer to the business—perceiving shared services as the better ticket. But these trends alone cannot account for the noise from the consultancy bully pulpit, and the number of firms renaming outsourcing advisory “shared services” or “global business” or “enterprise advisory”, putting the “O” word in awfully fine print.

Why the push for shared services rather than outsourcing from some of the biggest  consulting names in the industry?  It might be driven by the fact that, post the 2008 recession, major corporations invited in consultants by the tens of thousands, asking them to broadly transform their enterprises post a 2008 near death experience. And these good folk, rather than the more deal-oriented outsourcing advisors, had a superb opening to evaluate sourcing as one out of many in a transformation bags of tricks, building up legions of consultants on engagements.

But, as a former consultant, I can’t help wondering whether this trend also results from the need to grow consulting revenue, making it engagements sticky as possible. Is it merely a coincidence that shared services is actually tout the right model for the majority of  organizations given their maturity at this point in time–or could it be a manifestation of enlightened self interest on the part of consultants–what I glibly am calling “source to stay.” After all, if full-on outsourcing becomes the model of choice at the beginning of the sourcing journey, chances are pretty high that consultants will be cut out of the equation early unless the buyer has resource or expertise issues, or is looking to for an insurance policy in the event something goes wrong. With providers now equipped with cookbooks full of methodologies, choosing the outsourcing route usually reduces sourcing consultants’ fee earning potential. That means a material difference in fee magnitude—a hundred thousand or two as opposed to engagements closer to the million mark and more.

Deborah Kops, Research Fellow, HfS Research (click for bio)

I’m not saying that  consultants push shared services rather than outsourcing merely because they are concerned about growing wallet share and feeding their legions of junior associates. A good consultant—and we are gifted with many in this industry—understands what the client needs to achieve through a sourcing strategy, and helps him understand the benefits and challenges associated with each option accordingly. But when the consultants are falling over each other to differentiate themselves as business services globalizers and enterprises extenders, while the traditional outsourcing advisors are actively rebranding themselves as shared services advisors, it suggests that the “O” word may be falling off the table.

The Bottom-line: Buyers must identify the right model for their particular organizations, and not fall prey to source to stay

• Be honest about speed to implementation. If you want to move fast and have the skills to outsource, you can move the dial more rapidly. Shared services implementation often moves at a tortoise’s pace as compared to tapping into the existing infrastructure and network of a provider. But if time is on your side, perhaps a first foray into shared services is optimal given other considerations.
• Evaluate how your organization will best take on the change culturally. If the organization will not take kindly to, or have much trust in, third party delivery of any stripe, outsourcing might be better staged later in model evolution.
• Gauge the value of a commercial relationship in moving the dial. Some organizations are better off moving right to outsourcing because the formality of a contract gives them the discipline they need to make any sort of change.
• Be honest about what the rub is in outsourcing. Assuming you select the right provider, getting to better for the business is rarely the problem.  Given the evolution of providers, it’s not the quality of the delivery, it’s the business’s ability to adopt new ways of working and get over their loss of control. Recalcitrant business lines don’t discriminate—they’ll resist both outsourcing and shared services.
• Think about whether your organization is more comfortable as builder or buyer. My research indicates that buyer companies are better managing providers as part of a supply chain, while builder companies like to make change internally, seizing any opportunity to innovate by inventing and implementing new models.

At the outset of any sourcing advisory engagement, it’s important to be very clear about what you want out of it—a true design exercise, air cover to underwrite the decision, handholding through the process, or deep expertise (and arms and legs) from strategy through implementation. Pushing a one size “fix-it-first-internally-than-flip-it-over-the-transom-to-a-provider-when-there-are-a-few-more-pennies-to-wring-out” approach is like prescribing heart surgery without first assessing the patient’s history and symptoms. Consulting expertise can be critical to making the right decision, but the best consultants never source to stay.

Jui Narendran is Research Director, Business Services, HfS Research (Click for bio)

We’re really excited to announce that respected business services analyst, Jui Narendran, has joined the fulltime HfS team as Research Director, based out of Pune, India. Jui’s been a good friend of HfS for a couple of year’s now, having worked on several research projects with us… but that still didn’t discourage her from joining our rumbustious rabble of research reprobates.

Prior to joining HfS, Jui headed the outsourcing research team at ValueNotes, a boutique research firm in India, leading several custom engagements and also worked on creating thought leadership research in the BPO and KPO domains. Jui has also worked for advisory organization TPI, where she led the offshore research team, which supported the consulting team with real time research and insights into the client industry and business issues. Additionally, she has worked for service providers Accenture and TCS. Jui brings a deep knowledge of the business services domain and will be focusing on several specific areas of BPO, namely the retail industry, KPO and legal services outsourcing. And when she’s not cranking out content for HfS, she is spending much of her spare time honing her new found talent for oil painting… but before we start airing her fledgling masterpieces, let’s hear about her recent analysis of the legal services outsourcing market.

Legal Services Outsourcing:  India’s next growth market?

We’ve been doing some funky math over at the HfS data factory, and we’ve estimated that corporates splurge at least $1 trillion a year on legal services, which includes their internal General Counsels and their lawfirm partners. We’ve been keeping tabs on this space for a few years now and we believe the time is ripe for this market to really start kicking into gear.

Traditionally, the law firms engaged with Legal Process Outsourcing (LPO) providers for specific services, such as document review and other litigation support. However, over the last three years, large corporations have been signing comprehensive deals with LPO service providers. The following are some examples:

»      In 2009, Microsoft engaged with Integreon, one of the larger pure play LPO services providers to provide exclusive e-discovery and document review services. The contract was subsequently extended to include contract review services.

»      Also in 2009, Rio Tinto signed up with CPA Global, another large legal services provider, to provide contract review and drafting, legal research, and document review services. The engagement is also geared to expand to additional services.

»      Pinsent Masons, a leading UK based law firm, signed up with South Africa based LPO firm, Exigent in 2009 to provide initial data review and e-disclosure services.

»      Clifford Chance, a UK based law firm and member of the “Magic Circle”, procures legal support work from its shared services center in Gurgaon, India.

»      Nixon Peabody, a Global 100 law firm outsourced its e-discovery review work to Pangea3, an LPO and a part of Thomson Reuters.

To learn more about why we believe Legal Services Outsourcing is poised for significant growth you can click here to access Jui’s new RapidInsight “The Exciting Evolution of LPO” at the BPO Resource Center (for a limited time only).

Jui Narendran (pictured above) is Research Director, Business Process and KPO Services, HfS Research.  You can access her bio here and email her at jui @ hfsresearch dot com.

The study has uncovered many home-truths about why some organizations are more motivated to externalize their support operations to third-parties, while others prefer to focus on their own shared services investments. We can also evaluate organizations within specific industries that are seeking to assign equal significance to both outsourcing and shared services as they pursue a holistic governance framework across both models.

So we’ve taken a closer look at how 250 large organizations, with annual revenues greater that $1 Billion, are intending to make significant planned investments in either, or both outsourcing and shared services models over the next three years: 

It’s plain to see that it’s organizations within those industry verticals experiencing fundamental shifts to their economics, which are more prepared than ever to admit they need to look outside of their current organizational boundaries to keep their business operations competitive. Simply-put, secular changes to industry environments are crystallizing options for businesses and driving more radical and actionable behaviors from executives under pressure to deliver continual productivity improvements. The radical impact outsourcing can potentially have on business performance is clearly becoming more attractive to those businesses in the throes of tackling fundamental challenges and opportunities to their business environments.

Buyers are getting savvier at focusing their outsourcing plans to improve their competitive advantage

Increasingly, we are seeing a realization that retaining some processes internally isn’t – in any shape of form – bringing organizations a competitive edge, and these sourcing decisions are no longer only about cost – they represent a fundamental change in the way business leaders now view outsourcing as an integral function of their operations.

For example, many of today’s leading banks do not lead their markets because they process mortgage applications better than their competitors.  Their management teams typically prefer to find a services partner to process them at lower cost, using industry-standard process flows and technology, while it focuses its internal competencies on business functions that can help the bank gain marketshare, such as smarter customer targeting, or upselling new product through customer support channels etc.

Similarly, most of today’s leading insurance providers have already embarked on long-term engagements to have their claims processes managed, processed and adjudicated by third-parties, allowing their internal talent to focus on market-leading initiatives, such as competitive advertising strategy and new service development that can help them gain an edge over the competition.  Customers do not care about how their claims are processed – they care about how much their policies cost, the additional benefits they can receive as  customer and the brand and reputation of the insurance carrier.

In addition, does a retailer really need to maintain its entire application portfolio inhouse, when it can devote its internal talent and IT resources to improving its customers’ online shopping experience, where it can actually grow its business?

Today’s buyers are getting a lot smarter at figuring out how they can improve their organizations by using the resources and knowledge available through third-party relationships.

Industries experiencing dramatic secular shifts are developing long-term aggressive outsourcing strategies

The five most bullish industries planning significant increases with outsourcing, are not only basing their planning on achieving ongoing cost-reduction outcomes (read here for more on this topic), but also because the fundamentals of their industries have dramatically shifted in the recent past, for example:

»        Entertainment, media and publishing: The crash of newspapers and network news; The Web 2.0 impact; Radical new distribution and business models.

»        Software and Hi-Tech: Rapid commoditization of packaged software models; Impact of Cloud computing on licensing and pricing dynamics; Dominance of India, China and other low-cost nations to drive out the cost of development;  Willingness to “Eat their own dog-food” as providers of outsourced services themselves.

»        Energy & Chemicals: High price volatility for oil products; high capital costs of oil exploration projects;  Shortages of talent;  Aging infrastructure and constantly-changing compliance requirements.

»        Banks: Massive de-leveraging; Re-regulation; Unprecedented debt/credit pressures.

»        Insurance: New compliance measures (Solvency II, ObamaCare) causing unprecedented administrative cost and workload; Shortage of risk analysts and actuaries to take on the higher level work.

There are just a few examples of major industries, being shaken to their very foundations, where we can discuss secular shifts driving unprecedented demands on organizations to remain competitive. HfS believes it is no coincidence that it is these industries that are today the most aggressive with embracing third-parties to redefine their global operations?  Secular changes drive bolder, more radical behaviors, and it is already clear that a more aggressive approach to outsourcing is high on these organizations’ agendas.

Industries that have already experienced much of their secular changes in the past are more focused on investing in shared services frameworks

These businesses are typically reactive to market conditions and often radical long-termism doesn’t fit as well with their mentality, especially when faced with uncertain times ahead. In addition, many of them have already shaved their operating costs to the bone, hence digging out new productivity benefits via outsourcing is often challenging – and mistakes can prove fatal in a low-margin business.

»        Industries such as retail and manufacturing, one can argue, have already been through their secular shifts over the last three decades or more.  While they have had to experience much fundamental change, for example mass globalization of markets and volatile changes to consumer spending behaviors, the very essence of these industries is still the same – their organizations are focused on inventory management and supply chain optimization, maintaining operating margins and accurately predicting demand.  To them, outsourcing has always been an option, and has been readily explored over the years to find more pennies to save. So while economic conditions may have been vicious, focus on short-term cash-flow has clearly been the priority for many in these sectors, and radical overhaul of operational infrastructure clearly not an attractive option.

»        Utilities are also proving to be more conservative with outsourcing, with a strong shared services focus.  While many of the large utilities organizations have been among the earlier adopters of hybrid outsourcing and shared services models, many of them have not felt such secular change as many of those industries that were more dramatically impacted by the 2008 crash and many of the fundamental shift mentioned above.

»        While there are many active outsourcing engagements – both existing and new – in telecom and wireless, HfS sees more these engagements as relative small in scope as these firms opt for more incremental, conservative ventures into outsourcing.  For example, several major telecom firms are evaluating smaller BPO initiatives in areas such as sourcing and transactional accounting, and still prefer to engage in several smaller multi-vendor engagements in the ITO space.

Hence, it’s no surprise that these organizations are more conservative with their long-term operational planning.  Moreover, many have proven to be heavy outsourcing adopters in the past, and we expect these sectors to remain focused on maintaining their outsourcing initiatives, but with a large proportion opting for a more reserved approach, with increased focus on improving, and in some cases expanding, their internal shared services competencies.

The Public Sector: Facing up to unprecedented challenges

One industry which is going through more secular change than any today is the Public Sector.  Quite simply, national and local government bodies are under unprecedented pressures to drive austerity measures and make long-term plans to drive new productivity programs.  This explains why 55% of public sector bodies actually foresee some moderate increase in outsourcing activity over the long-haul.  Huge political bodies, such as the US Navy, NASA, the UK Inland Revenue and National Health Service – and even the FBI – all outsource elements of their operational support functions to varying degrees. With increased onshore delivery resources becoming available from several providers, this could well turn out to be a surprisingly large growth sector for outsourcing.

The Bottom-line: New fundamentals are creating new rules to manage one holistic and comprehensive outsourcing and shared services strategy

Outsourcing is entering a new era – one where organizations can no longer afford to ignore its benefits. As these radical and secular changes to many of our core industries take hold, business leaders simply cannot overlook the competitive advantage outsourcing offers: enabling them to focus on developing competitive advantage.  These secular shifts are threatening the survival of many businesses, but at the same time are opening up major opportunities to build smarter, more globalized and leaner organizations. Business leaders can no longer afford to cling to many of the methods of yesteryear to steer their organizations, and this data points to a more bold, radical approach to embrace the benefits of global sourcing.

However, most smart organizations are no longer evaluating shared services and outsourcing strategies in silos; while these initiatives are singularly successful at providing benefits to that individual function, our research has shown that these initiatives have failed, in many situations, to improve comprehensively the broader corporate strategic objectives of these organizations.

"Please mind the innovation gap"... click here to find out what Business Platforms are and they represent the future of outsourcing

You may recall we first started introduced the concept of the “Business Platform” a few years ago, when we discussed a “Business Services Cloud” where SaaS-providers could start building a BPO capability to deliver their solutions to clients and ensure they were making maximum use of the application.

We also made the point that if BPO providers were merely selling commodity processes on commodity packaged software, they were going to get sucked into a race to the bottom, where the focus was all about low-cost and delivery-scale.

Hence, those providers wanting a competitive offering, need to provide distinctive services that can help their clients transition effectively to new processes that really work with their businesses.  Simply selling packaged software through various channels, with minimal business transformation support, is not going to help clients take full advantage of what they have – and often leaves them only using a fraction of the functionality of the software.  However, the very concept of leading with BPO capability is simply too alien for many software providers to grasp – they still live by the stack ‘em high and sell ‘em cheap concept of pushing out license sales as aggressively as they can through whatever channel partner that will sell for them.

However,  one software provider which has gone against the grain is Sales Performance Management provider Synygy, which quickly realized developing its own BPO delivery competency would create a major competitive advantage over its competitors, and also help it develop deep, sticky relationships with its clients.  We recently investigated how three clients organizations are improving business outcomes using this Business Platform solution for their sales compensation management, which has direct impact on their top-line. The paper entitled Drive Revenues and Lower Costs by Outsourcing Sales Performance Management outlines the business benefits and return on investment (ROI) achieved by three multinational companies that have outsourced the end-to-end management of their sales compensation programs—inclusive of technology, people, and processes—to Synygy.

We caught up Mark Stiffler the founder and CEO of Synygy recently to get his take on what Business Platforms mean to his company and ask him about some of the shifts that are occurring in the market.…

HfS: Good morning Mark – can you please give us some back ground on how your company got started?

Mark Stiffler is CEO of SPM Business Platform provider, Synygy

Mark Stiffler (CEO, Synygy): I started Synygy 21 years ago, which was after a stint at management consulting and graduating with an MBA from the Sloan School of Management at the Massachusetts Institute of Technology (MIT).

I actually began Synygy as a services company, more management consulting, focused initially on analytical work and then compensation design, which in turn led to the creation of software, and eventually a transition to being much more of a software company.

More recently we have balanced ourselves back along the lines of what HfS presents as a Business Platform: software, implementation, expertise, and continuous improvement—all offered as a singular managed service.

HfS: Moving from a software provider to a services provider business model has proven incredibly difficult. Can you share with us some of your views on this?

Mark: Software and services are very different types of businesses. For us, software has been  a relatively transactional relationship versus a BPO service that is a daily relationship with the client.

Synygy today for the most part has two distinct types of clients: software and BPO clients (with some in the middle). Software-oriented clients want to run their sales operations and processes on their own while at the other end of the spectrum—BPO—it’s Synygy that’s running the sales operations department of the client.

What is different between our software clients and BPO clients is the degree to which they benefit from Synygy’s expertise in complex business processes like sales compensation management.   As was seen in the case studies you conducted, real value is being derived from the expert services that are being provided on top of the software.

But it is interesting to see that costs savings were also a considerable benefit for those same clients. That is not a value driver that we typically lead with!

HfS: You don’t pitch cost savings? Why is this?

Mark: All of our clients are recurring services relationships, which is the basis of BPO. Until recently we treated software clients with the same level of services as our BPO clients and, frankly, we gave them too much support on how to make best use of the software. We now have moved many to a Managed Support contract (think of it as half way to outsourcing) where they pay to receive more services than from their software relationship. When we stopped giving-away expertise and advice for free to software clients, many realized that there was real value associated with the provision of that and decided to buy the managed support.

HfS: So what market are you really going after: Software, Services or Business Platforms?

Mark:  All of our competitors have driven towards SaaS and cut their implementation services teams to drive a higher ratio of subscription revenue to total revenue.  We want to drive a more balanced approach along the lines of Business Platforms, i.e., SaaS, software hosting  services, best practices in process design and continuous improvement so that the processes remain relevant.  We call this ‘Sales Performance Management.  Above the Cloud.’

HfS: When you look at your company’s evolution do you see any changes as to why organizations are outsourcing SPM?

Mark: What has changed is that companies like Salesforce.com have shown how SaaS can be used to deliver software from the cloud and this has allowed us to have a conversation about managed support and outsourcing services on top of SaaS.  Software in the cloud is still just software and if you want to take advantage of expertise to optimize your business processes you need to think about more than software. Outsourcing is a good solution for a very complex problem like sales performance management.

HfS: Are you very rigid in terms of moving client onto your processes?

Mark: That has shifted as well.  For many years it was a blank slate approach in which we would redesign the client’s processes from scratch. Now we strike a balance between standards and flexibility, combining industry-wide commonalities with client-specific requirements. We are also changing the way we perform implementations.  While we still do them as a fixed fee based on an estimation of work effort, we are significantly changing the way we work with a client through the implementation. We are using a far more interactive process, with continuous feedback from the client as we implement the solution on a daily basis.

HfS: What do you think of your competitors that develop the software and create partnerships with service providers to provide the services? What is lost in a partnership that Synygy can provide as a singular managed service? 

Mark: This is the key differentiator for Synygy. Does a client want to pick a piece of software, do a detailed vendor comparison, and then do the same for an implementation services firm? There is a lot of cost and risk for sourcing from two providers and then what?  You are left to manage it on your own?

We provide the software, datacenter services for hosting the software, implementation services, and then the managed support or outsourcing services to get the most out of the investment. The cloud makes software more of a commodity as value is shifted to the services.  Services are the key differentiator against the software companies and Synygy’s outsourcing services are its key differentiator against the services implementers.

The Business Platform concept encapsulates this, which is exciting since it dovetails with Synygy’s move to a more balanced SPM offering. The ‘above the cloud’ approach to sales performance management has caught on within the company and we are looking forward to the reception in the market.

HfS: Would you do anything different if we were to start up again?

Mark: We feel that we are almost like a start-up. We have seen three iterations of market development and collapse through acquisitions of competition and competitors going out of business. This market iteration is coming together nicely with SaaS, implementation services, and outsourcing services enabling Business Platforms.

HfS: If you were given $1 billion, would you switch careers?

Mark: I don’t know about that (laughter), but I am fascinated about changing old things into new things and that is why we have our worldwide HQ in a former power plant. Pursuing historical projects like that would be of interest.

HfS: What advice would you give to your peers that are seeing increasing commoditization?

Mark: I would rather not give advice. We have the formula and we will keep that a secret.

HfS: Lol! That was a great answer.  Thanks so much for your time today, Mark – we are excited to share your story with our readers.

Click here to download your complimentary copy of “Drive Revenues and Lower Costs by Outsourcing Sales Performance Management”

Essentially, David argues that a new breed of providers are seriously trying to figure out the added value they can provide so they can share it to create a true win-win with their future engagements.  He also points out that providers paid by results or so called business outcomes is little more than jargon, and frankly the evidence of this in practice is pretty slim.

So in reality, we know where the industry is heading, we just haven’t reached the point where these new developments are really happening in practice.  However, one core trend that is clearly going to kick-start the process of venturing versus actual outsourcing, is the fact that most providers today no longer need to “lift and shift” client staff into their organization to effect the knowledge transfer – they can now use their existing delivery staff.  Hence, the actual process of “outsourcing” operations is fast becoming moot – this transfer of labor, technology and domain acumen is no longer needed in many of these business process engagements, because the provider already brings these qualities to the table.  So let’s zone-in on the patter-tastic protagonist himself, David Poole…

Virtualized Delivery – The “O” is not a prerequisite

Providers really are getting extremely good at providing services better, faster, cheaper and with greater value added than even the biggest companies, with the most experienced shared services organizations, can achieve.  It stands to reason because providing back office services IS their business.  They invest in best practice process models, they have far greater scale, they invest in technology, work management, risk management, provide unparalleled career opportunities.  I predict however that there will be a huge blurring of the boundary between provider and client.

Still today there are many situations where outsourcing is a bad word, where legal or regulatory constraints exist or frankly where political and / or Political boundaries prevent an outsourcing decision.  The fact is that providers don’t just provide cheap people these days.  That other stuff, the technology, process knowledge, analytics, work management, methodology and leadership capability is highly value adding.  I predict that we will see deals emerging where these are provided and applied to the clients own staff.  In the new World of Business Process Venturing the O is not a prerequisite.  The provider can manage services using client staff and still share in the value added outcome.  There are some notable examples of niche providers today that operate this model extensively and extremely profitably.  Accretive Health from Michael Cline’s stable is a great example.

I think the future mainstream of our industry will see deals that are hybrids of traditional onshore, nearshore, offshore and increasingly client staff will be in the mix. Another twist to this point is the growing potential, aided by technology, of utilizing home workers, often self-employed to deliver processes.

David Poole ponders

This area is growing very fast in the customer service arena but why not in a host of other process areas.  It’s politically extremely attractive, provides access to a highly educated and motivated sector of the work force and work management tools, methods and technology now available to manage home workers in truly impressive.

David Poole is a distinguished veteran of the BPO industry having previously led Capgemini’s Americas BPO service line. He was also a founding member of PwC’s global BPO business prior to IBM acquiring their operations. He can be emailed here.

We’d love to meet you at the Hilton, Orlando, March 7th-9th, where you’ll get the usual deluge of panels, G6 big-thinking debate, session break outs and every single possible angle you can ever attribute to shared services and outsourcing.  We’re also excited to feature on the analyst discussion with our good pal Stephanie Moore of Forrester Research (read her HfS interview here) and to have an on-stage interview with Microsoft’s Chief Procurement Officer, Tim McBride (read his interview and HfS case discussion here).  And yes… you may even discover a morsel of innovation before resorting to scourcing the bottom of your wine glass.

And… of course… our friends at SSON are extending a special discount to our loyal cynical HfS readers, who have been so cruelly brainwashed against the magical delights of Orlando and its sourcing magic…

Just click here and type in the code ’SSOW12_HFS’ to take advantage of our special “Orlando we are ready to try again” 15% discount

Have a magical day folks…

Buying Team becomes "Proxima", ICG Commerce,"Procurian"

Did anyone see this day coming?  Yes indeedy, the day procurement gets a makeover has finally arrived, with brand-spanking new liveries and catchy brand names for both the Buying Team  and ICG Commerce who’ve renamed themselves Proxima and Procurian respectively.  

No – they aren’t venturing into wonder drugs or high-end restaurant chains – they are simply sexing-up their procurement with more P’s and less Zzzzz’s… so why now, and – in fact – why at all?  Let’s leave it up to a man who once counted paper clip purchasing by the million-load, HfS research’s Tony Filippone himself.  Over to you, Tony…

Pure-play procurement outsourcing heats up, triggering two name changes among procurement-focused service providers

You’d think that down-to-earth procurement guys (and gals) would avoid the expense of renaming a firm, but within the span of less than five days two procurement outsourcing service providers did exactly that. Yet, the rationales behind their name changes are quite different.

Proxima (formerly Buying Team) based its new name on the need for procurement to leave behind its cost savings heritage that has always marginalized its value in the eyes of its internal customers. In the place of cost savings, Proxima wants to focus on developing procurement’s “proximity” and “intimacy” with the broader objectives of its business unit. Proxima hopes to position itself as a company that will elevate the position of procurement within an organization through “management control and visibility of costs.” In effect, Proxima team is leaving behind the heritage of “buying”, which connotes boring “P2P” in the eyes of procurement executives, to become closely aligned sourcing organization. “During the last two years we have repositioned our business as an end-to-end procurement services business, with a clear vision and a strategy to achieve our ambitious goals,” explained Guy Strafford, Proxima’s Chief Client Officer. “Having done this, the next logical step was to refresh our brand, which included challenging the appropriateness of the buyingTeam name.” Frankly, based on their capabilities and services provided to their clients, which is heavily focused on strategic sourcing, this name change makes tremendous sense.

Procurian (formerly ICG Commerce) based its new name on the need for procurement to exert sourcing and category management excellence. Based on our research in the procurement space, category management is a differentiator, but clearly its old name didn’t describe the business Procurian is in. As, Shannon Parish, Procurian’s Marketing Leader, explained, “We realized that we needed our name to bring additional meaning to who we are and what we do.  By combining ‘Procur’ with the suffix ‘-ian’, that denotes a specialist or doer, we are able to better project our specialized focus and long-standing commitment to procurement.”

Snazzy new names really reflect the changing focus the procurement outsourcing market

The Latinate marketing explanations for renaming these two firms belie what is really triggering two procurement organizations to rebrand. The real driver is that these two niche firms are challenging the two stalwarts of the procurement outsourcing industry, IBM and Accenture, because the nature of the procurement outsourcing market has rapidly changed. As shown in exhibit 1, procurement outsourcing used to be driven by multi-tower shared services and finance and accounting outsourcing initiatives. In the last three year, the procurement outsourcing market has become a market where buyers strongly prefer standalone procurement outsourcing contacts. Of the $2.5B procurement outsourcing market, standalone outsourcing contracts represent 56 percent of the entire market – and this number is clearly growing.

Standalone Procurement Outsourcing Captures the Attention of Procurement Executives

Source: HfS Research, 2012; n = 430 procurement outsourcing contracts

For example, while all of Proxima and Procurian’s contracts are 100% focused on procurement and 80-90 percent of Accenture’s procurement outsourcing services (fueled by its Ariba Services acquisition) are standand alone, only 30-40 percent of IBM’s procurement outsourcing client base contracts for standalone procurement outsourcing services. Proxima and Procurian have positioned themselves squarely in the headlights of chief procurement officers looking for procurement expertise. And, if they are going to challenge the category titans, they need to ramp-up their marketing exposure with procurement executives.

In fact, at the 2012 ProcureCon Indirect East event held last week (which had a solid showing with over 30 CPOs and well over 200 procurement experts, excluding service provider marketing and sales teams), only one procurement outsourcing service provider was actively marketing. We expect that to change dramatically in the coming year, as event attendance at both ProcureCon and SIG events has been on the rise.

But what makes marketing most important is the message. While the rest of the outsourcing industry deals with FTE-based lift and shift, procurement executives are really interested in gaining expertise. That’s the message these firms need to impart to their audience. Nearly 75 percent of the discussions at ProcureCon’s novel all-day “practitioner-only” day (no sales people allowed – the procurement executives were thrilled!) focused on talent management: the difficulty of finding category experts and procurement leadership. As we explain in more detail in our RapidInsight, “Broadening the CPO Mandate Through Procurement BPO” (download it here), procurement outsourcing has to be positioned as initiative geared towards improving spend management by leveraging service providers’ deep, experienced benches.

And that is exactly what both Proxima and Procurian are doing.

The Bottom Line: Differentiated, specialty services matter to CPOs

At ProcureCon, one CPO for a major manufacturing company took the main stage and said, “We want to keep it internal.” This speaks to the uphill battle that procurement outsourcing faces. CPOs simply don’t know that procurement outsourcing is different than other forms of outsourcing. They are used to the labor arbitrage comparison, and simply are unfamiliar with the ability to leverage outside expertise apart from expensive strategic sourcing consultants (see our report discussing the models here: “The CPO in 2011: The Toughest Job in the Global 1000”). Service providers have to educate CPOs on why procurement outsourcing is different to open a procurement executive’s mind.

Tony Filippone is EVP for Research, HfS Research (click for bio)

Moreover, the CPO may be the one executive who is immune from service provider marketing rubbish. While relationships may (force) open a door, CPOs are most likely to turn any friendly discussion into a competitive bid exercise. If a service provider is going to win mindshare in a procurement executive’s objective RFP process, it will be on the basis of “why can you save me more than your competitors” and “how can you help me execute better”. Cool logos and fancy names aren’t going to convince prudent buyers of capability and CPOs know how to sniff out P2P players that are masquerading as strategic sourcing experts. Highly specialized procurement services catered to the CPO is what the market demands, especially those that can help the CPO rapidly mature his or her delivery. Proxima and Procurian have the mettle and are sharpening their message.

David Poole, Process Protagonist and Prognosticator

Many of you will remember one of the legends of BPO, Deputy David Poole, who’s spent much of his career fighting BPO crime on the streets of Chicago for Capgemini (where he actually rolled up with the job title “Deputy”).  

He was also a founding member of PwC’s global BPO business prior to IBM acquiring their operations, having made a significant contribution to the development of the global BPO industry, crafting several major global engagements since the early ‘90s.

David’s thought to have skipped town, after a shootout at the Outcome-based Corral and is rumored to be trawling the streets of London seeking out errant processes in dire need of transformation. In the meantime, we managed to track him down somewhere in the ethernet to share some of his thoughts on where the BPO market is heading.

So without further ado, here’s Part I, where he discusses future of BPO having less to do with outsourcing and much more to do with venturing – a blurring of the lines between the client and the provider…

Venturing – Sharing of risks and rewards between clients and providers

Imagine a World where providers actually put their money where their mouths are.  I don’t mean just putting their margins at risk (tied up with so much legal jargon there actually isn’t any risk).  I mean really working out the added value they can provide and taking a share of that to create a true win – win.  This will be a world where providers will do as much due diligence on their clients as clients do on them to analyse and dig out the true joint opportunity.  Sound familiar?  Well certainly not in the BPO World we know today, but much more like the venture capital world.  In fact, perhaps Business Process Venturing has a nice ring to it?

So far, providers paid by results or so called business outcomes is little more than jargon, and frankly the evidence of this in practice is pretty slim, perhaps with the exception of more knowledge-based and directly financially measurable processes like in collections or procurement.  The lucrative BPO market of the past few years has been extremely cosy and risk averse but this is all about to change.

I predict a new breed of deal and provider will emerge in the coming years, sending shivers through the current providers risk management processes but forcing the type of change and commitment to process excellence that the buyers always thought they were getting but in fact were not.  I don’t think it’s a bad thing for the providers either because it creates the opportunity for the best ones to truly monetise the return from the investments they have made in processes, analytics, technology and facilities.  This is because the overall influence providers will have over the delivery in this much more collaborative environment will be far greater and less bounded by the restrictive contracts we as an industry have over time developed to protect clients from the big bad providers.

Stay tuned for more of Poole’s patter, which pinpoints the potential of virtualized delivery, utility delivery models and the end of consulting as we know it (gasp)…

One year on and the HfS 50 just got bigger and badder than ever

Over the last year, our elite peer group of sourcing buyers has doubled in size – making this our biggest, baddest and most discussion-rich meeting to date. And in response to the high-demand, we have managed to extend an extra ten invitations to the event – so if you are a client of BPO or IT services, a shared services or governance leader, or a senior service provider executive and would like to get involved with the HfS 50, please contact Tom Ivory for more information.

This exclusive event will include the development of a 2015 Blueprint for the sourcing industry, culminating in a tempestuous vendor/buyer face-off that will include leaders hand-picked from several of the top tier service providers.

Key discussions will include the following titillating topics:

• What do we want – and what should we expect – from the vendor account manager?
• Outsourcing higher value processes – what’s feasible and how options should be evaluated
• Re-energizing the governance function
• Blending shared services and outsourcing into a productive, manageable governance framework
• Vendor management and performance management strategies
• Forward-thinking and productive pricing strategies that can actually work
• Globalization’s impact on today’s sourcing strategies

 Please contact Tom Ivory for more information

The conference will feature over 20 speakers, including top CIOs, sourcing advisors and also welcomes delegates from more than 15 countries in the region. Special features include:

• Keynote presentation by Mr. Alvaro Uribe, Former President of the Republic of Colombia (2002-2010).
• A “Buyers’ Super Session”, featuring deep analysis of costs, contracts and benchmarks, led by our own Esteban Herrera, COO at HfS Research.
• Panel sessions on Vendor Management in a multi-provider, multi-geographic environments; selecting sites for new operations in Latin America and overall drivers and risk around doing business in Latin America.
• Dedicated sessions on Sourcing to Mexico and Sourcing to Brazil.
• Nexus “After Dark” featuring live entertainment at the conclusion of the conference.

Kirk Laughlin is beaming up the nearshore superstars in New York on April 19th... click to register

The Venue:

April 19, 2012  at the Crowne Plaza, Times Square, New York City

The Full Agenda:

Please click here to see the full agenda

Special offer for HfS Subscribers:

Outsourcing clients and decision makers can obtain an all-access conference pass at no charge! In order to register, click here to go to this web page and type in code: MDUX10

For full conference information, visit: www.nearshorenexus.com

For smart services buyers, they are spoiled for choice to keep their providers on their toes to get as much attention, talent, technology and inspiration that they can squeeze out of them.  And if they only care about low-cost, there are plenty of providers who’ll kill themselves to do their work as cheaply as is humanly possible.

When I watch Oracle and SAP rapidly clean up whatever application is left on the market worth buying, my heart sinks for the future of the enterprise software business.  For Oracle and SAP, it’s all about maintaining the status quo and growing their considerable license revenue streams.  They know they have to be seen to embrace the Cloud, but all they really care about is protecting their customer bases and preventing upstart vendors sneaking in to disrupt their revenue model.  And can you really blame them?  It’s economics 101…

Microsoft won the office apps game well over a decade ago and today largely focuses on milking its massive customer base.  I mean, have you seen anything radically different with Word, Excel and PowerPoint over said period?  No competition means limited innovation, and that is my fear for the enterprise software business, which is rapidly running out of worthy independent applications that can help business managers run their functions better, have access to more relevant data to help them make decisions, and be provided on a more affordable pricing model that allows them to pay for what they need, when they need it.

Companies buy software because they want standard process that can be automated with as little human intervention as possible.   For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash.

Unless Oracle and SAP decide to enter the services game, they are not going to provide enterprises with that kind of innovation – they are merely pedlers of automation.  Once they own all the apps on the market, they will own all the automation, and my huge concern is whether there is really any more room for innovation spurred by this automation.  Essentially, have these enterprise apps pretty much reached the peaks of their capabilities now they are owned by the 1600-pound ERP gorillas?  I mean, seriously, how much further can you improve a companies’ recruiting processes by making some tweaks to the software code?  Yes, I hear all the techie purists voice their fury because all software products can have their architectures improved, but at the end of the day, most of these software apps support pretty standard business processes today.

We’ve arrived at a juncture where the next wave of value that enterprises can derive from their business processes isn’t going to be purely from upgrading to whatever software platform is next available on the market.  It’s actually going to be having real help in improving the quality of those process elements that cannot be automated, require real context and judgement, and real analytics.  These are requirements you can’t download via an email from your SAP rep – they are where you need real consultative support from experts who’ve gotten to understand your business.

The Bottom-line: Packaged software alone is no longer providing innovation for buyers

SAP and Oracle don’t need to try to hard to differentiate from each other these days – there are only two of them and they pretty much own the enterprise packaged software markets between them.  The consolidation of the software apps business is firmly placing the onus of innovation and process improvement in the hands of today’s service providers.  Those business services outsourcing providers that can coach their clients on an ongoing basis as part of a managed services relationship, will be able to differentiate themselves in the market.  We are already starting to observe service providers handpick industries where they really think they have an edge and are eager to demonstrate it at every opportunity.  Our new research on Business Platforms already shows that today’s leading service providers have already leveraged over 15o packaged and custom-built applications to underpin their services. The apps provide a process framework that can help improve an enterprise’s current state, but the actual innovation will only come from the introduction of new and creative methods that can’t be embedded in a piece of code.

India’s Sourcing Leaders — the New Phoenicians

"Maximo innovation at unbeatable prices... hurry while stocks last"

At a sourcing conference cocktail party in Singapore, I was chatting pleasantly to a gentleman who– Indian by nationality, Kenyan by upbringing—was leading a global sourcing strategy team in Dubai for one of the largest of multinationals. As he politely tried not to blow smoke in my face, I had one of those eureka moments— I was speaking to a Phoenician!

(Be patient with me, readers…I’m drawing an analogy in order to make a point. Perhaps a little history lesson might be a diversion from treatises on governance or the consolidation of the outsourcing industry. I’ll try not to be too much of a bluestocking.)

For those of you who are not familiar with Phoenicians, it’s not a dirty word. Phoenicians —the “red people”—that dominated the regions proximate to the Mediterranean from the ninth to the six centuries BC, were a significant cultural and political force. They grew rich trading the commodities of the time—olive oil, wine, timber and precious metals, and were unmatched city builders, developers and stonemasons, hydraulic engineers and superb mariners.

But their greatest contribution was as globalizers of the only region that mattered in the ancient world. As developers of the modern alphabet (yes, without Phoenicians who knows how you’d be reading this), and acting as cultural middlemen, the Phoenicians disseminated ideas, myths, and knowledge. As a result, the Mediterranean arguably became the first example of a world economy.

So much for togas, olive oil and wooden ships. When I talk to the likes of an Anirvan Sen of GE, a Jay Desai of Northern Trust, a Vinoo Mehra of Colt, or any number of executives from the likes of  Genpact, Accenture, Infosys or EXL,  I am chatting with the progenitors  of those ancient globalizers. Born in India, perhaps degreed in the US or Europe, climbing the career ladder in a range of industries, holding a breathtaking number of increasingly challenging positions in multi-national corporations, these folks are the true evangelizers of process globalization, whether they are on the buy or sell side, or even advising and warning as consultants. Builders of outsourcing companies and shared services platforms, masters of process excellence, spokespersons for global delivery—they do it all. And today they are found in Indian-legacy outsourcers, global outsourcers, consultancies and a myriad of corporations.

The Bottom-line: our Indian industry colleagues play the role of globalizer so well

–Common ways of working. Although often castigated as being too “Indian” in approach, their shared, monolithic code of conduct actually supports implementation of globalization. Whether located in Manhattan, Manchester or Mumbai, our Indian colleagues know the  handshakes and the rules when they work together, and have the ability to cut through the chase to get things done. In effect, the sourcing industry benefits from  a common way of working.

Take this a step further, dear reader. Contrast the results when an American, a Brit, a German or a Swede (or all of the above) work with an Indian to source processes. First, they have to study Culture 101, spending sufficient time to understand that when a German says no, he means that the case for change has not been made, or that to a Brit, a meeting is not where decisions are taken. Overlay an Indian on the other side of the table, and you get a cultural stew of nuance, decision-making style, sense of timing, and hierarchy. But with a number of savvy Indian leaders in the room, with shared experiences, it is generally possible to develop a commonality of understanding, bridge the cultural divide and keep moving on.

--World citizenship. As a group, the Indian members of our industry have substantially more experience working globally than our country compatriots. Perhaps they left at 18 to study in the US, the UK or Switzerland, quickly absorbing local ways of working and living, knowing that Yankees and Red Sox are the ultimate in sports rivalries, that May is the time to eat spargel in Germany, or that passing out red envelopes to children is the done thing at the Chinese New Year. Cultural understanding and experience are underrated attribute in the sourcing world; the ability to straddle and translate two or more cultures is golden to the implementation and operation of a global operating model.

–Strong networks. Global operating networks are even more successful when they are underpinned by effective professional networks.  Our Indian colleagues went to college and university together, and have many shared experiences; their ability to collapse the proverbial game of “seven degrees of separation” into two or three is awesome. Seemingly, everyone knows who has what expertise, who is looking for new talent, where the latest innovations are occurring, and who is developing leading-edge applications. Now you might think that this is a bit of an over-the-top characterization, but in an increasingly more complex world, networks matter; often, they are the best way to get things done quickly and efficiently.

Deborah Kops, Research Fellow, Sourcing Change Management, HfS Research (click for bio)

–Understanding how destination economies really work. Despite many trips to places such as India and The Philippines, most of us never develop a deep understanding of their inner workings—specifically cultural values, acceptable mores, and how to get things done. Because they do not evaluate a situation through a wholly western lens, our Indian colleagues are able to bring a level of local understanding which is so critical to global sourcing success.

Some say that we’re entering the age where it’s very cool to be a non-Indian in the outsourcing industry, or in the words of one of my sourcing industry headhunter friends, “ American companies  want Americans. Indian companies want Americans. Everybody wants Americans.”  And to my mind that’s a good thing; after all, successful globalization involves leaders from all cultures and geographies, not to mention that every decision can’t be made by dialing +91. But I’ll place my bets that our Indian friends cum/Phoenicians will continue to play an outsized leadership role the sourcing world.

Are you achieving sourcing success for your finance function? Click to take part in our survey

Members of the ACCA global membership and HfS Research’s own network of finance and sourcing professionals are being surveyed over the next couple of weeks across organizations of all sizes, industries and regions.

We will gain an unprecendented global picture of finance and accounting sourcing from well over 1000 organizations:

• What CFOs and senior finance executives really think about shared services and outsourcing;
• How organizations’ adoption patterns of finance and accounting sourcing are differing across industry sectors and countries;
• What are the experiences of  finance professionals to date and how they rate their sourcing performance in terms of both cost control and productivity improvements;
• Whether today’s finance functions are realizing finance transformation improvements with the right level of finance talent and technology they need;
• Whether finance leadership’s business objectives are being met by a shared service or outsourced finance delivery model – and have these business objectives changed since they started on their transformation journey;
• How finance leaders are measuring sourcing success.

Does your organisation use finance shared services or outsourcing? If so, we would like to hear from you.

Your feedback will be aggregated with that of others and will be a key input into our series of research and insights looking at finance transformation by both ACCA and HfS. At the end of this survey we welcome you to register for a copy of the report findings from this survey and enter a free prize draw for an iPad 2 as a thank you for time and feedback.

Please click here to take the survey

Wonder if I'll get an invitation to Nasscom?

As per usual, election year brings up the age-old argument about how to combat the “threat” of outsourcing.  However, let’s not forget this is nothing new..I recall in 2004 when an HR Outsourcing conference was subjected to a vociferous demonstration by anti-outsourcing protesters  (I mean – seriously  - HRO?  Most of it is onshore in any case).

Today’s angry hoards of protesters are (and quite rightly so) expressing anger at the obscene wealth generated by Wall St, and barely even notice the fact that real “American” companies, such as Apple, employs 500,000 people in Chinese factories and that lovely “American” Hanes underwear brand employs thousands of people in Vietnamese sweatshops.

Yes, the argument is boring, flawed and jaded, and while politicians need to be seen to be against it, they do little to prevent it.  However, one major stride of progress that Obama emphasized during his recent State of the Union speech has been how the US automotive industry has been brought back from the brink:

“This blueprint begins with American manufacturing. On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.

“We bet on American workers. We bet on American ingenuity. And tonight, the American auto industry is back.

“What’s happening in Detroit can happen in other industries. It can happen in Cleveland and Pittsburgh and Raleigh. We can’t bring back every job that’s left our shores. But right now, it’s getting more expensive to do business in places like China. Meanwhile, America is more productive.”

Why is the experience of the resurgent US automotive industry significant to resurrecting its flagging IT industry?

Let’s not beat around the bush here.  The US onshore IT industry has ceded much of its dominance to India in recent years.  While three-quarters of ERP development work was performed onshore in 2008, the proportion has today decreased to 65%:

I’m not going to get into the tedium of this latest wave of toothless “protection” acts aimed at creating tax incentives / disincentives, and other various penalties and inconveniences for US organizations which dare to employ foreign labor outside of the country to service their business operations and manufacture their wares.  Simply put, there are already US IT services firms, such as Systems in Motion,  pushing services at US enterprises with wage rates comparable, and often even cheaper, than those of Bangalore – especially those which leverage resources in low-cost onshore locations such as Michigan.  And while some niche onshore providers are finding pockets of business and growth for themselves, you can’t ignore the bigger picture that the US onshore IT industry is on the decline.  At HfS, we’ve even seen enterprises actually declining to use onshore US IT services firms which underbid their Indian competition, because many of these buyers of services are so invested in the Indian IT brand.  Today, many senior IT executives within US organizations actually prefer to invest in their Indian IT relationships than their US ones!

The Bottom-line:  It’s time for government to help re-brand US IT services

While the US IT services industry is nowhere near the state of distress that the US auto industry found itself during the last Recession, isn’t it now clear that the only way for the government to stimulate the success of its onshore industries is to invest in them, to aggressively help them, to encourage them to hire locally with real investment? By investing so heavily in their automotive industry, they also re-branded the entire American automotive business. Nothing’s worse than a business in financial decline, and by giving automotive a helping hand, they also improved the perception and credibility of the entire US automotive industry.

The Chinese and Indian governments, as examples, constantly invest in their local business to help them grow and be successful – so why can’t the US government do the same for its flagging IT industry, that it did for automotive?

I, for one, would be happy to see my tax dollars being re-invested in stimulating local industries and job creation in growth industries like IT services and Cloud computing, BPO, social media and medical research, so why not follow the example of how the US automotive industry was salvaged and do the same for IT?  Invest in some local companies… hire train and their local workforces to support our organizations’ IT systems.  Small measures never work, waste everyone’s time and allow our more aggressive foreign counterparts to advance further ahead in industries such as global IT services. Isn’t now the time, in an election year, to stop the rhetoric and actually make commitments to growing local industries that have a direct impact?

Two years into its $6.4 billion acquisition by Xerox, management has finally decided to phase out this famous old brand… HfS Research’s Tony Filippone and Phil Fersht take a closer look into why Xerox brass has now decided to do this, what it means to this heritage business, and where it needs to focus in the future to strengthen its market position.

ACS finally gets its re-brand as Xerox zeros in on integrating the businesses and cultures

Corporate-naming consultants must have pitched ACS a dozen better names, but none better than the one it interred today. The fact is, straight-talking ACS has never spent the billions its competitors have on branding. In fact, even their unremarkable logo remained nearly identical for the company’s 24-year history. All this makes us believe that today’s announcement that ACS will now market itself as Xerox, rather than “ACS, a Xerox company” is a sign of opportunity and synergy.

As its branding has reflected and its customers know, ACS’ success is not because it is smarter than everyone else.  Rather, ACS simply outhustles its competitors. Its Midwest American values make the company the likeable, down-to-earth service provider that gobbles up government deals one after the other. Moreover, it is focused on technology-based outsourcing solutions, not headcount. Its vertical experience is a marvel, with strong positions in government, healthcare and financial services.

The acquisition announcement had analysts everywhere wondering exactly what the offspring of a toner cartridge mother and a call center father would be like. Mixing this capability with Xerox’s traditional business has clearly not been easy. Our discussions with buyers suggest that Xerox’s aggressiveness has put off clients who don’t want to hear sales pitches, while Xerox’s recent acquisition of the Breakaway Group indicates that Xerox is supporting ACS’s industry-focused approach. However, we’ve also heard that Xerox’s rigid financial management process at times conflicts with clients’ needs for flexibility.

When the acquisition was announced, it was obvious that Xerox saw Dell’s Perot acquisition and HP’s EDS acquisition as examples of technology manufacturers entering the services business. “With ACS, we take another step forward, expanding our leadership to include business process outsourcing that helps simplify document-driven work,” claimed Xerox CEO Ursula Burns at the completion of the acquisition.

Well, a lot has happened over the last few years that shows just how difficult corporate transformations can truly be:  IBM’s transformation from a manufacturing company to a services organization continues to much ballyhooed success, HP’s public leadership brouhaha has held the firm back, and Dell Services (formerly Perot) continues to grow, but it’s clear that Dell remains a technology product organization.

Xerox’s 2011 Q4 earnings release held a mixed bag as it relates to services revenues. While its BPO earnings increased 8 percent, its ITO earnings dropped 6 percent. When compared to its competitors in the BPO arena, Xerox has slipped further from the top tier into the middle of the bunch since the Xerox buy-out.  Accenture and Infosys’ recent quarters featured increases of at least 20 percent in outsourcing revenues, while IBM showed a 3 percent improvement and HP stayed flat.

The easy story this tells is simple: printers and ink relationships aren’t going to win you an outsourcing engagement given the aggressive ADM marketplace and sophisticated sales approaches of their competitors.

The harder story to decipher is the development of the marketplace for document management outsourcing. While companies clearly don’t want to print more, they certainly want to redesign processes in a manner that eliminates the need for documents to manage. Based on numerous discussions with buyers, we’re confident that buyers want to redesign their processes to reduce the source of costs, instead of simply managing them more cost efficiently. The question is how Xerox will cope with the more complex projects this shift generates.

The Bottom Line: The hard work starts now for Xerox

Having two names confused the marketplace and hid any synergies from view. Having one name suggests that there aren’t two different teams providing services to buyers (buyers hate multi-party deals and the politics they cause). The elimination of the ACS brand will clarify Xerox’s account management strategy and should encourage groups to continue to work together. Xerox also needs to complete the naming soon and eliminate the decision to keep the ACS brand in Asia Pacific. This sort of decision confuses the marketplace of global buyers.

Xerox needs to pursue the vertical focus that its competitors, such as Cognizant, have mastered. Xerox has long maintained a geographic focus, but they need to refocus on global industry leadership as ACS does (did). The elimination of ACS’s brand is one step down this path, but it would be a mistake to stop here.  Xerox should organize its services team by vertical and focus its effort on strengthening vertical expertise through acquisition and internal development (Xerox is well-known for its R&D capability).

Document management isn’t a growth horizontal, it’s a cash cow. If Xerox wants to demonstrate leadership, it will need to develop strong consultative skills to help clients alleviate their reliance on documents as part of solutions. Positioning ACS’s industry leaders and improving their internal thought leadership is a critical step. Hard work is important, but this effort takes the type of intelligence the Indians love to exhibit – and Xerox will compete against them heavily. ACS needs to focus on thought leadership to battle the brainy Indians and smart consultant-wielding Accenture and IBM. They need to hire more consultative resources, invest more in their services leadership team, and be bold in their R&D efforts.

Build on ACS’ strengths in healthcare, government and financial services.  Xerox needs to bring more consultative skills and technology to the table, beyond what it inherited from ACS. While its competitors are hurriedly investing in developing business platforms that combine their business process and technology (Cloud) capabilities, we are yet to see Xerox put a stake in the ground to develop solutions beyond document management that can set the industry alight.

Revitalize ACS’ horizontal BPO businesses.  While ACS’ position in F&A BPO has slipped in recent years, it has a great chance to leverage the Xerox brand and significant customer base in document management to open up more client conversations and opportunities.  Adding more consultative capability in finance transformation would help elevate Xerox’s differentiation  from much of the competition- solely relying on brand isn’t going to fly for many customers.  Xerox has also inherited a stellar HR outsourcing capability, with the respected Buck consulting division helping cement its position in the market in recent years, while also developing a strong business line in benefits administration services. Like F&A, Xerox needs to give its HR business plenty of investment in terms of sales acumen and market awareness, but is well positioned to challenge for market leadership with many of the leading HRO providers struggling to grow their businesses in today’s environment.  Procurement BPO is also a market where Xerox has a belated opportunity to make a push, with such strong internal manufacturing competency, but needs to make some specific investments in platform development, category expertise sales and marketing to make up for lost ground against the likes of IBM and Accenture.

Its ITO business needs a serious overhaul. Losing revenues in a growing market indicates a real weakness. While ACS still had a strong ITO business two years ago, today’s ITO environment is too commoditized to be a “me, too” player. Xerox needs to differentiate its ITO offerings through development of business platforms, build on its strong US domestic capabilities, get aggressive in search of strong acquisitions (such as Genpact’s acquisition of Headstrong), or exit the business. ITO cannot be built on the back of toner cartridges and multifunction devices, while other service providers show aggressive tenacity to win marketshare.

Xerox has a market awareness problem when it comes to services.  When you talk to Xerox, what are you talking to them about?  What is the company focused on today – are they selling a machine or a business platform?  Xerox needs to develop some real thought leadership in the markets it chooses to go after.