The Outsourcing Blog: Horses for Sources

Can IT overcome its credibility crisis?

There's little doubt about what's been providing the rocket-fuel behind the rebounding services business: IT outsourcing.  Simply put, there are plenty of eager providers to choose between, they have access to most of the technical skills companies need, and their rates are far cheaper than retaining or hiring staff inhouse.  Some are also getting pretty handy at becoming consultative business partners, and not simply low-cost body shops.   Our recent study tells the real story -  50% of enterprises are either kick-starting, or scaling-up, their ITO right now.  "So tell us something new", I hear you groan into your laptop screen...

What's different as we emerge from this crisis, is that the perceptions of IT from the other parts of the business are becoming increasingly cynical in many companies.  Many companies are hiring new CIOs with the mandate to "turnover half the department, or outsource it", and IT middle-managers are being seriously questioned about the value they are adding to the business.  While much of the bottom-layer of IT has already been contracted out, it's now the middle layer of IT professionals which is under threat.  CIOs are under pressure to prove the value of maintaining these heavy middle-layers, or move them out of the organization.  Some CIOs are already operating under the strategy of hiring a few people who "genuinely get it" to drive IT value. and outsourcing as much of the operational work as they can. 

Remember marketing in the '80s and early '90s, where firms had these bloated marketing departments doing multiplous tasks such as PR, communications, database management, which used to be so critical to keep inhouse etc?  Today, nearly all CMOs surround themselves with a handful of folks who "get it" and parse most of the operational work out to agencies.  That is the norm today, and no-one questions it. 

My fear for IT, is that it's going down a very similar path.  Or should this really be "fear"?  Maybe this should be "hope" of much-needed change?  CIOs can't exactly hire 20 people over night who "get it"; firstly, they may only know a couple of suitable people who'd be prepared to join them, and secondly, they'd likely have a hard time getting the requisitions for a lot of expensive high-end IT talent which can apply innovative-thinking and new technology to source fresh avenues of revenue and productivity for them.

So the middle-layer of IT has a shot  at saving itself - their CIOs need to pick talent that can prove their business value to the firm and mould them into the IT engine of the future.  I do not believe that IT is going the way marketing did, but it does need to step-up a gear and win-back credibility from the cynics who simply want to offload the excess fat in this economy.  That means CIOs need to train their staff to think out-of-the-box, to learn how to work more effectively with the business units, and to bring technologies into the organization that can truly impact the business and the corporate culture, such as virtualization, Cloud, video-conferencing and social media. 

I do believe we're genuinely arriving at a critical juncture in the IT world, where it's time for CIOs shape-up their teams, or look outside of the organization to regain the lost credibility.

Xerox-ACS: Cloud Services Potential, or Dinosaurs Huddling Together for Warmth?

Our recent discussion on Xerox's acquisition of ACS certainly served up some meaty discussion, and even got picked up by CIO.com, among other media.

My dear friend, and former colleague at AMR Research, Dana Stiffler(pictured), recently sent us in some of her views on the merger.  Dana actually got promoted today to VP and Head of Research for AMR's services research, where she will be offering clients "cashable benefits, or your money back" with her group's output.

Anyhow, thought this a good time to showcase her talent...  Over to you, Dana:

Xerox-ACS: Cloud Services Potential, or Dinosaurs Huddling Together for Warmth?

Xerox is the latest in a long line of technology manufacturers to realize that its future lies in services, not products, particularly in the B2B value chain. Once manufacturing and supply chain efficiencies have been wrung out, it’s time to turn to top-line opportunities: services that use product heritage as a foundation. The fastest way to acquire these capabilities is by acquisition. Xerox’s predecessors in this journey include IBM, Fujitsu, Hitachi, HP, and, just recently, Dell, with its acquisition of Perot Systems.

Eulogizing on the Eurozone with Principal Euan

Attend any European analyst meeting and there’s one character guaranteed to be propping up the bar. Scratch that, there are normally about 50 analysts propping up the bar. But in the midst of the throng you will undoubtedly find the stolid Euan Davis of Forrester Research.

I recall a conversation with Euan back in '95 when I told him “you should give this analyst lark a try” (If you want to know what he working on in those days, drop me a note…).  Anyhow, the story began from there, with Euan rising through the ranks at IDC’s European operation, making a curious detour to Yankee Group, before finally attaining new heights of stardom and adulation with Forrester.

Euan now boasts the words Principal Analyst in his job title and waxes lyrical about IT services in the Eurozone. Ask anyone in the industry and you’ll discover he’s fast becoming one of the most popular analyst figures on the European services circuit. And, despite the fact he once lost to me at tennis (a shameful occurrence for any man or beast), he still warrants an airing on the Horses…

Phil Fersht (PF): Euan, firstly, what are the main issues you’re hearing from your Euro clients these days? What are the main contrasts between now and before the economic crash last year?

Euan Davis (ED): The issues are many and varied but if I was to distill it down to what I see as the issues that clients are facing today then they fall into three categories: Some are “firefighters” and are looking to reduce costs wherever they can, pushing for discounts and getting economies of scale through aggressive supplier consolidation. Others are “explorers” and are directing energies into investigating a host of emerging options for IT service deliver—and business process outsourcing is one such area. The exciting ones to watch for my money are the “builders.” These firms are sinking the foundations that underpin a profound shift in their operating model architecture, IT/business redesign, and supplier engagement models. These firms are building hybrid operating models driven by a structured sourcing frame works, regulated through a retooled service management structure, and connected to a core set of suppliers. And the recession has speeded up the process of change.

The "new normal" in the outsourcing delivery business

 This truly has been a pivotal quarter for the outsourcing business.  As we've discussed several times here, many services contract decisions have been delayed during the economic crisis while organizations worked out the best course of action to get through the downturn. 

In Q3 we've started to see definitive action, with many service providers meeting, and some even beating, Wall St. expectations.  But while some providers are clearly delivering, others are struggling to compete in this "new normal".

So what is this "new normal"?

Operational service provision is commoditizing and leveling the playing field.  Coming out of the recession, there is a backlog of engagements which are largely labor arbitrage-focused and it's often a question of price balanced with the promise of delivery performance for most clients.  There isn't a lot of secret sauce these days for what many clients are currently demanding, where in the past, incumbent service providers could play the "capability game".  With many of these skills becoming mainstream, the competitive playing field has leveled out.

Taking a walk on the Wacki side...

If there’s one person who’s been a consistent figure closely tied to the development of Finance and Accounting sourcing over the last decade, it’s Paul Nowacki (or to those of us know him, simply “Wacki”), who today leads F&A transformation for leading sourcing strategy and implementation consultancy, Everest Group.

Paul’s advised on several of the largest engagements in the business (in fact, I do think he’s worked on the largest) and taught me a lot about the space when I worked with him at Everest a few years’ back. Never afraid to speak his mind, Paul is always a popular figure at industry events to talk about what our industry needs to do to get to that next level of performance. He’s truly a “been there done that guy” who’s seen it all… Anyhow, I managed to drag Paul away from his favorite past-time of tracking global financial indices and stock markets (no joke, he does that for fun) to talk to us for a while about finance transformation and global sourcing:

Phil Fersht (PF): Paul, firstly, what are the main issues you’re hearing from your clients these days? What are the main contrasts between now and before the economic crash last year?

Reminder: stop and smell the roses

Sometimes life becomes a converged morass of email, reading, writing, number-crunching, slideware-designing, talking, selling, firefighting, and so on - and more so these days than ever. Noone has time anymore to have a quick chat about anything non-important, read an interesting article (or more than 140 characters), have a cup of coffee with a friend, take a walk, read a good book...  My long-suffering wife keeps reminding me to take a deep breath, take a walk, and "smell the roses" - just thought I'd pass on her advice...

An Autumnal Sunday afternoon in Boston's Public Gardens

Randomly shout into the darkness and hope someone's listening

"None of you have any friends"... this little clip about that social networking tool we know and love just cracked me up -:)

Sitting on a shrinking business and afraid to change

"Most of our managers are happy sitting on a shrinking business" bemoaned a senior executive the other day.  Sound familiar?

I hate to say this, but too many senior executives I talk to these days adopted this survival mechanism during the economic crisis, and are clearly struggling to change their mind-set now it's clear that armageddon has been averted.  And the main reason seems to be that the last year has exhausted them, preventing fresh, bold decisions to be made.  Hey - it's exhausted everyone. 

Smart business leaders are now trying to re-energize their staff, take that deep-set panic out of the daily job, and find reasons to celebrate, like a not-so-bad-quarter.

I clung to the forlorn hope that a year-long economic crash, a transformative president, and new approaches to business ideology would encourage businesses to start thinking differently.  But, in many cases, I appear to have been naïve .  The result is that many businesses are going to have to force real change upon themselves to escape this malaise. 

From wanting change... to embracing  it

In reality, most businesses are coming out of recession having already cut visible costs to the bone, for example areas where cost can be directly extracted from the business without any form of arbitrage such as travel feezes, headcount reductions from non-critical areas, budget reductions across departments in areas such as marketing or IT, and so on.  The next steps are to explore cost arbitrage through labor (i.e. outsourcing), and ultimately process transformation that should accompany any form of outsourcing.  Simply put, it's nigh-on impossible to dig out further pockets of cost, without re-wiring the guts of business operations to find new efficiencies.  

Global sourcing provides one of those vehicles where businesses

can effect progressive shifts in their business models to approach things differently.  It can provide the change agent to make this happen, but only when our management talent has the energy and determination to look at things differently - and refuse to settle for sitting on that shrinking P&L. 

So where next for the Galloping Hooves?

"You are going to keep doing that blog aren't you?" seems to have been the most frequently-asked question I've had since I changed my day-job.

And a few people have asked whether I can still credibly run this blog, now I work for one of the firms actually tasked with delivering the services we have been talking about for the best part of three years.  Heaven forbid. 

As we have discussed at length, blogs and other social media have been a major game-changer with how we engage with issues, market dynamics - and each other. 

We live in a different world today, where the rules are changing and we are constantly seeking out new and innovative ways to reach our industry.  To sum up the new constant in a nutshell, credibility is in the eye of the beholder. 

So here are the reasons for keeping these hooves galloping:

Why you sometimes may need to fine-tune your innovation plans...

Efstathiou uncut: all aboard with the sourcing skipper

When I returned to these Western shores 6 years' ago, I was given the the unenviable task of working with the indomitable Andy Efstathiou. 

Now, analysts who have spent 20 years working in commercial banks are not to be messed with - and I quickly learned my lesson with Andy, who (literally) has an encyclopedic knowledge and perspective of everything that has gone wrong with the world.  I recall Andy warning us years' ago that this was all going to go horribly wrong... and did anyone listen?

Andy has since become a good friend over the years, and has always been one of my first ports-of-call when I want to understand anything about sourcing and the banking sector.  He now runs the Banking Sourcing Program for BPO analyst NelsonHall, but his real claim-to-fame is that he finished seventh in the US Olympic trials for sailing in 1988 (pictured).  Not many people knew that...

Anyhow, I caught up with Andy last week to pose a few direct questions on the current state of the banking industry, how sourcing strategies will evolve after the recession, and how banks can navigate these choppy waters (sorry):

Phil Fersht (PF): Andy, firstly, let's not beat around the bush here. What's the climate like in the banking, financial services and insurance (BFSI) sector these days? Do you expect things to continue improving, or are we in a false dawn right now?

Andy Efstathiou (AE): Banks will continue to do well as long as they are on performance enhancing stimulus. However, the banks are aware that some day they will have to stand on their own two feet. In order to do that they need to be able to scale operations in both directions without eating overhead on the downside or investing capital to expand on the upside. Therefore banks have been aggressively working with outsourcers to create engagements built around transaction based pricing.

Why I joined Cognizant

Folks -

Having spent 14 years on the analyst and advisory side of the sourcing industry, it's a natural move for me to join a service provider - for both professional and personal reasons.  Having considered several options (and some of them were truly awesome... you know you are), I decided to make the service provider move, and chose Cognizant.  To keep this brief, and avoid a completely blatant sales-pitch, here were my reasons:

• They're in high-growth mode
• They have a truly dynamic culture and offer something unique to their clients, in terms of value and energy (customers rarely lie...)
• They focus on genuine IT-BPO, leading with industry acumen, supported by global scale
• Their CEO reads this blog (well, that did worry me a little...)
• They have acquired the letter "C"... wait for the announcement

I'll be working in a strategy and communications role, so hope to continue stimulating the debate right here... please keep coming and we'll keep the story of this industry rolling.  And am always open to suggestions for topics to write about, or receive compelling insights from you, so email me here if you like. 

PF.

Business and friendship: it's all about professional respect

You can't understate the importance of relationships in business - especially sourcing, where it's all about cultural fit and working relationships.  In business, it's not always about liking people, it's about being able to trust - and work - with them.  Sometimes, you will actually grow to like someone, in addition to trusting them and working well with them - and that is special; but let's face it, it's quite rare.

In many cases, people you like are not always people you're going to work well with - and vice-versa.  You may not have any affinity or liking for someone at all, but you are straight with other in a working scenario, and have an effective working relationship.  You can always develop a professional respect for someone - and that is different from developing a personal relationship.

If there's one thing that irks me, it's those people who only bother to talk to you when they need something, but paint a facade that they're one of your real "friends".  I like to create a distinction between someone who is a genuine friend, and someone who is a colleague / industry contact.  It's like when you change jobs - you are often surprised by whom was really a friend, versus who was merely toadying up to you, to get you to do things for them...

Consulting the Oracle: Tibor's talktrack (Part II)

  In the second-part of this two-part interview, Oracle's Tibor Beles discusses how service providers can be successful at platform-BPO offerings, how the broader BPO industry can improve, in addition to discussing the shifting dynamics with software licensing models.  Tibor is also a blackbelt in martial arts (not the Six Sigma category), but spends more time hitting tennis balls these days with his teenage daughter. He also loves political thrillers, but he didn't elaborate whether that was through his day-job, or reading Le Carré novels -:)

Phil Fersht (PF): Do you see platform-based BPO as a major threat to the BPO pureplays which are not experienced in broad-based ERP enablement and implementation services?

Tibor Beles (TB):The first question calls for a long answer but I will try to keep it short. An aggregate BPO service provider must be passionately committed to process and IT excellence in its chosen function. Offshoring for labor arbitrage alone has limited benefits.

Consulting the Oracle: Tibor's talktrack (Part I)

We've had a number of discussions with some of the SAP executives over the last few years regarding its highly-publicized BPO partner-program.  Meanwhile, there's been a crack Oracle team quietly working on developing its own BPO strategy, led by its enigmatic commander Tibor Beles.  After being been educated on the nuances of Hungarian beer in a Budapest bar recently, I decided it was time to drag Tibor away from his Karate sessions to talk about his team's progress...

Phil Fersht (PF): Tibor, why does Oracle have a group dedicated to BPO? What's the game-plan here?

Tibor Beles (TB): Our customers demand more choice when it comes to leveraging Oracle software. In addition to the traditional on-premise deployment and hosted/managed applications our customers expect us to offer BPO services powered by the software they like and are familiar with. As we don’t want to be a BPO provider, we have created the BPO powered by Oracle choice by partnering with leading service providers. Our goal is to place Oracle software under the hood of their offerings.

Insecurity is the modern corporate disease

In 1597, Sir Francis Bacon coined the famous phrase "Knowledge is Power".  While knowledge does create power to the beholder of that knowledge, it can rarely be harnessed effectively until is it shared with other entities.  In today's business world, I'd broaden that phrase to "Sharing Knowledge Creates Value".

Let me explain my thinking here.  Too many employees today have a tendency to hoard their nuggets of knowledge, for fear of fear that giving them away will weaken their value and, ultimately, their job security.  This can sometime be as rudimentary as documenting a business process, through to sharing knowledge of a particular market, discovery or idea. 

It never ceases to amaze me how much better businesses could perform if their employees were better at sharing their knowledge with each other, and - ultimately - with their trusted partners.  We can talk for hours (and have done) about how you can develop service levels, contract stipulations and incentive plans to drive more value into a service-contract.  But ultimately it's the spirit of collaboration and knowledge-sharing that wins the day.

How can firms create this spirit?  Can they go out an buy some software to enable it?  Can they call up McKinsey or PwC and pay for them to create it for them?  Sometimes; these are measures that can help, but ultimately it's about corporate leadership driving change throughout their organization that is likely unprecedented for them.  And sadly, it's a change that is likely abhorrent to the culture that has blighted  so many organizations in this modern business world.  This change is about making talent feel secure about their jobs and their futures.

Let's take some examples from across the sourcing industry where knowledge-sharers succeed:

Stop Press: meaningful use of Twitter discovered

Just as I was about to close down my Twitter account, I discovered a perfect use for the tool:

Bittersweet

As many of you close to me already know, after 14 years in the analyst and management consulting community, I am going to take a little break and make a few changes.

I'd like to thank publicly AMR Research for a wonderful couple of years, where I got to spar with some great people, service more clients that I care to remember, and have a lot of fun bantering with so many of you who frequent the Horses.  I'd especially like to mention some great analysts with whom I'd had the pleasure of working: Dana Stiffler, John Hagerty, Simon Jacobson, Bruce Richardson and Mickey North-Rizza - a real credit to the analyst industry (and will, hopefully, be featured here in the future).  I'd also like to thank Helen Scott for her sheer perseverance... 

If you're wondering how to get hold of me, you can always mail me here. Onwards and upwards my friends -:)

Xerox copies Dell's example and acquires ACS, but again, where's the fit?

Is there a recurring theme here?  US-based giants with faltering commodity business models from yesteryear, making very late plays to get into the IT-BPO services business?

While I could see some synergies between Dell and Perot, this one's even tougher to fathom, unless Xerox has further plans to marry ACS with a stellar IT services acquisition. 

ACS was one of the early darlings of BPO, and was right at the top of the competitive tree in the early 2000's whenever a large Finance & Accounting, HR or call center deal was up for grabs.  It would always give Accenture and IBM a run for their money in BPO pursuits, and had a compeling culture and engagement methodology for many of the old world BPO engagements (i.e. a lot of lift and shift and staff re-badging). 

Sadly, ACS has rather fallen away in recent times, and has struggled to cope with the aggressive entry of the Indian-centric global competitors into the BPO space.  The new generation of global services providers are bringing passion and combined IT-BPO prowess into the mix, in addition to global sourcing models that are driving down the price-points.

Xerox, on the other hand, has been eyeing broader business services for a while, and I can see why they'd find part of the ACS portfolio attractive - a broader client-base, great presence in healthcare, government, hi-tech and consumer business, a strong BPO brand and global delivery presence.  ACS also has a strong IT services business, but not on the same scale as the top tier. 

The real challenge for this combined entity, is to cope with the new throng of competitors in this space:  Cognizant, Genpact, Infosys, TCS et al., and not solely the incumbents such as Accenture, Capgemini and IBM.  The combined Xerox-ACS business will have a short-term potential to consolidate a commanding position in back-office BPO areas such as document management, call center, payroll, benefits admin and accounts payable. 

However, clients today are spoiled for choice with other service providers which can offer the same services at lower cost.  Xerox also needs to make a quick move to push a utility delivery model, based on common processes and standards, with compeling industry-alignment.  Continuing to push old-world BPO, where the customer shifts existing processes with limited transformation, is not a recipe for success. 

My take?  If this combined entity were to merge with a strong IT services provider and develop a coherent IT-BPO strategy, then we really have something to talk about.  Funnily enough, if you combined the new Xerox with the new Dell, then you'd be looking at a company with a lot of future potential...

Forget Platform BPO, it's really about the Business Services Cloud (Part II)

We inspired a lot of offline debate when we discussed the challenges facing BPO providers delivering so-called "Platform BPO" solutions.  Bottom-line, if BPO service providers are competing for commodity services engagements which are underpinned by software platforms that are widely deployed by several other service providers, they face a major challenge of differentiating themselves to win new clients and avoid a price-war for new business.

At the enterprise level, selecting a BPO provider to process transactional business services for a major Oracle or SAP-based engagement is dependent on the providers' global scale, brand and competency.  For these large-scale transactional BPO engagements (i.e. accounts payable, payroll etc), it's largely a commodity market these days.  However, the battle is on to provide industry-specific solutions, such as health insurance processing and revenue-cycle management, banking-specific services (i.e. netting, lock-box services), retail merchandising, legal services, healthcare informatics etc etc.

For example, I had a great conversation last week with Mark Stiffler, CEO of sales compensation provider Synygy. He was faced with two choices for his business:  either to provide an on-demand managed service to his clients, or license his software through BPOs in the channel.  Sales compensation is an area that can be delivered on a set of standard processes, with some unique personalization to the client.  It's also an area where there's a hell of a lot of value an outsourcing provider can add

Swine Flu can impact your service levels

If you wake up looking like this...

Scale the peaks of FAO... in Tampa

As a wise man once told me, "there's nothing  quite like visiting Tampa in late October".  Many years on, his prophecy is coming true, with the second annual North American "FAO Summit", being held in the Saddlebrook resort, 20-22nd October. 

Anyhow, come and meet a compeling line-up of speakers, panelists, hobnobbers and politicians that include several outsourcing PMOs (for some strange reason they managed to attract several from beverage producers...), former senator John Sununu (one of the five panel members responsible for the oversight of TARP funds), a bunch of advisors, service providers and some crazed blogger.

As usual, a large discount is offered to the cheapskates who visit here, so click on the icon to the left to register quoting the code "FERSHT2".  If you are on the buyside and evaluating BPO strategy, drop me a note.

The Dell finally tolls - but is this the right fit?

So Dell finally made its major play into the IT services enterprise arena announcing a $3.9bn deal for the Texas-based Perot Systems.  Unlike the HP/EDS mega-merger of last year, there is a lot less overlap between the merging entities, however, you have to assume this is more of a play by Dell to transform its commodity hardware business by refocusing its future strategy on services-led engagements.

However, while there isn't much overlap, there also isn't a lot of synergy.  Why should Perot customers want to buy Dell equipment all of a sudden?  Most CIOs today are looking to move away from hardware-centric IT delivery models, and onto more on-demand cloud computing models.  If anything, it's more of a play for Perot to push services onto Dell's customer-base.  It also opens up the lucrative healthcare IT market to the newly-merged entity.

While I applaud a bold move by Dell to transform its business model, work has yet to be done to elevate Perot's IT/BPO services business to the top echelon of service providers at a global level.  Namely, Perot hasn't  yet fully exploited its presence in healthcare to position leading edge IT/BPO offerings in that space, especially with the market ripe for exploitation in light of the new government initiatives, namely ICD-10 compliance and digitization of patient records.  If Dell can quickly leverage this merger to make a further strategic acquisition in this space, then you can see a new player emerging.  However, if they spend a whole year trying to restructure these firms and take their eye off the ball with regards to broadening the service offerings, this could present a window for several of Perot's services competitors in the healthcare space to step in...

You also have to wonder whether the largely US-dominated vendors are going to continue to consolidate in light of fierce competition from the Indian-dominated global providers.  ACS-CSC anyone?

The art of blog: credibility is in the eye of the beholder

Mark Stelzner roused some passions last week with a great blog post discussing how some traditional media are highlighting the need to regulate bloggers with possible "conflicts of interest".  For example, Workforce Magazine's online article discusses the impact of controversial HR bloggers, such as Cheezhead's Joel Cheesman.

At the heart of the debate are the issues surrounding which industry entities are more credible for regaling information to the marketplace.  My take is that

Stephanie Moore's Law

One of the most prominent industry analysts in sourcing over the last decade-plus has been Stephanie Moore.  Steph started out at Gartner, before spending time at Giga, and most recently Forrester Research, where she built an industry-wide reputation as an outspoken and respected figurehead of the IT services and outsourcing world. 

Earlier this year, Steph made her first venture over to the service provider side, and when she's not busy entertaining her three kids, sailing around the Westport beaches, or regaling stories of her junior golf open triumph (she swears they had color-TV back then...), Steph assumes the role of Chief Marketing Officer for IT services firm, UST Global.  I thought I'd take this oppountunity to grab a few words with Steph to share some of her views on where the industry is headed, and how she's finding life on the vendor-side of the fence...

PF: Stephanie, how has the world of offshoring changed over the last decade?

SM: Phil, it has changed dramatically. In 1999, people were using offshore outsourcing to save money, but also to execute on very low-value tasks. There were also a lot of people scrambling to fix the Y2K problem. Today, it couldn’t

Derail the Healthcare gravy-train: introduce competitive multi-sourcing

Being a relatively recent immigrant to US society, it's fascinating to observe the political games corporations and politicians play to reach their desired outcomes. 

What I find a little absurd is how easy it is to decipher the real political motives behind all the rhetoric; especially those ridiculous commercials sponsored by insurance companies trying to protect their monopolistic positions and keep their gravy-train chugging along.

Working in the sourcing industry forces you to cut quickly through complex issues to find sensible solutions, and healthcare doesn't seem a whole lot different - despite the sheer scale of the issues and requirements.  Trust me,

Forget Platform BPO, it's really about the Business Services Cloud (Part I)

The recession has upped the ante for today's BPO providers: the move to providing business services in a cloud-like model is accelerating, and the real challenge for today's service providers lies in answering the following questions:

1) Do we want to play in the BPO space? 

2) How do we play in this market?  What's our angle?

3) How can we compete?  What's our differentiation?

The challenge today is whether a provider is adding value beyond low-cost processing services.  If you are only really providing an arbitrage solution, someone is going to come along and offer it for even less money, and someone else will eventually come along and provide it for even less.  It's a no-win game, unless you want to become the lowest-cost provider in town and make a razor-thin profit margin.

What's interesting is this coming together of the IT/BPO model.  And it's becoming much more sophisticated then simply providing a platform and some low-cost processing services.  It's about  integrated business services where the provider delivers the hosting, the application skills and the business services needed to help clients achieve specific business outcomes.

IT services providers have made a living differentiating themselves by providing expertise in technical areas that allowed them to charge a premium to their clients.  However, as technical skills became a commodity, some IT services providers are moving up the value-chain by providing expertise that apply technical skills to specific business needs, while others have opted to scrap around for the low-cost "price per developer per hour" commodity business.  Those IT services providers which think they can get away with charging a premium for commodity development services are having a rude awakening in today's post-recessionary marketplace.  Most clients today are insisting on greater transparency with the costs of services. 

This is where BPO gets interesting,

Join the world's largest social-networking sourcing community

Yes, there is such a thing as a free lunch... Horses For Sources' official LinkedIn Group, the aptly-named "BPO and Offshoring Best Practices Forum" now has 7,000 members. This is a forum for leading sourcing practitioners to share their experiences, views, opinions, best practices and lessons learned in the worlds of IT Outsourcing, Business Process Outsourcing, Shared Services and Offshoring. You also get a free subscription to the Horses Digest. And it's FREE...

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Mixing it with the big boys: A Tea-interval with Tiger

Not too many service providers have had a bigger impact on the world of Business Process Outsourcing in recent years than General Electric’s former offshore captive, Genpact. And much of this rapid growth to a billion dollars of revenue and a global delivery network, can be credited to one individual – the tenacious “Tiger” Tyagarajan (simply known as Tiger to anyone who knows him).  And what an apt name for the wee fellow.

I can recall, just a few short years’ ago, when Tiger was fronting Genpact’s US business and taking on the major incumbent BPO providers such as Accenture, ACS, HP and IBM, with tales of Six Sigma excellence and Virtual Captives; dazzling firms such as Kimberly-Clark,

Wachovia and Cadbury Schweppes in the process. And when he’s not absorbed with cricket statistics

Facebook: the twenty-to-one rule

I just read yet another media article, this time in the WSJ, on the downsides of using social media tools such as Facebook.  While the theme of this article is spot-on, it's merely journalistic negativity to bash a new way of doing things. 

Facebook is a great tool because you control how you use it.  Yes, it's rude not to accept a friend-request from a colleague, but you can do so in a way that they will never see your updates and you can choose not to see theirs'.  They are essentially becoming an addition to your contact database where you can view their contacts too.

And if you find my status updates irritating, then turn off my updates, or de-friend me.  I don't want you... if you don't want me.  For every 20 great interactions I have, one person may get annoyed, or I may get annoyed by someone else.  That person can then remove my updates, of I can remove theirs', so that ratio now moves to thirty-to-one, and so on.  Yes, Facebook

New-age influence peddling: Ray and Jeremiah join Charlene's Angels

After our little debate the other day about who is influencing decision-makers these days, I found Ray Wang's new career move worth mentioning...

Ray's joined former Forrester Research "rock star analyst" colleagues Charlene Li, Jeremiah Owyang at consulting outfit Altimeter Group, headed by Internet pioneer Deborah Schultz.  They also announced the launch of "The Hanger," a physical space intended to bring together the ecosystem of emerging technologies, thought leaders, business and service providers to innovate and bring new ideas to life.   I asked Ray (pictured) this morning why he's doing this:

"Because the rate of technology obsolescence now outpaces the pace of technology adoption, organizations need new enterprise strategies to cope with the massive forces of change they face".

I also asked Ray if he'd say exactly the same thing after a few shots of tequila... This ecosystem development of today's influencers and thought-leaders is the culmination of the impact social media has had on the technology industry.  People want immediate relevant, impactful advice and information - and from people whose opinion they trust.  The question now is how consulting and advisory firms can make money providing it, and where today's decision-makers go to be "influenced".  Interesting times... let's keep the discussion rolling.

The entire Great Recession of 2008-2009: Blogged for the outsourcing industry

Wouldn't it had been something if there had been some sort of interactive journal during the Great Depression, where we could have truly experienced the emotions of the time, peoples' ideas for change, the stark contrasts between desperation and hope? 

It's been a geniune privelege to have hosted these emotional debates throughout the entire Great Recession of 2008-9.  It's incredible how attitudes have changed over these tough months - I don't know about you, but I feel a little wiser as a result - and the great interaction I have enjoyed and observed with so many of you, has made this all possible.

Here's the whole story of the Great Recession and it's impact on the global sourcing industry (in chronological order):

So who's peddling "influence" these days?

Prolific blogster and all-round industry pundit Vinnie Mirchandani asks whether the IIAR's definition of the analyst is outdated.   He also begs the question whether my good friend Ray Wang, who has recently left research firm Forrester, will repeat his honor next year.  Unless old-school PR executives get with the changing times, somehow I doubt it. 

Vinnie goes on to declare "seems like AR (Analyst Relations) folks want to cling to a narrow (and shrinking) definition of market influencers."  I didn't even feature in the top 3 services analysts, despite the fact there are 45,000 RSS subscribers to this blog and my calendar is booked solid until well beyond Labor Day with client meetings (but I promised my wife to keep my ego in check, so will not venture further with my little dig here...).  I haven't even heard of these "top 3" guys... but they seem to be "influencing" far more than I seem to be.  Maybe I need to get myself double-booked next time?

The future of the sourcing industry: DNA and industry knowledge trump scale

I spent much of last week at InsofysBPO's customer summit in Baltimore.  Infy always does a good job with their events - they bring their customers together and encourage open, unstructured debate, where the good, bad and plain ugly about BPO and ITO are openly discussed.  They know the best way to win business is through baring their DNA to customers and encouraging them to trust and want to work with them.

They also invited some industry personalities to wax on about their vision for the future - and some predicted rampant "consolidation among suppliers".  I say they are wrong - they are clinging to their knowledge of the past and are not re-adjusting their perspective to the present.  I'd be surprised if we ever see

Crash and Learn: is TPI's "quartus horribilis" reflective of the sourcing industry at large?

There were a few alarm-bells ringing in the outsourcing industry with TPI's shaky Q2 results.  As our recent buy-side survey data indicates, in addition to the multitude of service providers and consultants, outsourcing interest and uptake is on the rebound, so what should we read into TPI's 38% drop in revenues from Q2 2008? I spoke to leaders of all the key sourcing advisors to get their candid input on how their firms were faring, and whether TPI’s results are reflective of the sourcing industry in general.

Rival Equaterra, which is currently privately held, reports to us that its Q2 results have increased 10% over 2008, expects Q3 to perform well, and is encouraged by strong IT outsourcing activity, with on-plan BPO advisory business. Another rival, Alsbridge, added: “First half revenues are up 40% on a 1st half ‘08 to 1st half ‘09 comparison. Across the board, we see good demand

Proof that you can stabilize your operations eventually...

Introducing new-age BPO: the standardization/personalization balance

The new wave of BPO deployment has arrived quicker than many of us anticipated. The recession has driven some common-sense into a BPO value-proposition that was previously centered predominantly on some form of labor arbitrage, with many service providers muddling their way through to attempt to run their clients' process for less cost - and make some sort of profit.  Sometimes they pulled it off, other times they failed.  Many are currently in a state of semi-transition, with the success of their BPO engagement still hanging in the balance. 

Now we've clearly arrived at a turning point in BPO development, which we can put into the following three categories:

1) Straight Lift and Shift:  the antiquated form of BPO where client takes "as-is" processes, hands them off to a provider, which subsequently attempts to run with lower staff costs.  In many cases it's a simple "re-badge" of existing personnel, with the provider simply employing smaller numbers of the existing delivery team to make a profit on the deal.  In most modern cases, the provider will supplement onshore staff with offshore.  There is little (or no) enhancement of software applications to standardize workflows and add a modicum of transformation into the engagement.

Likely outcome:  Inefficiencies with processes are magnified considerably, change-orders and procedural changes are cumbersome and expensive, client finds it challenging to reduce onshore headcount, and anticipated cost-reduction is not reached.

2) Lift, Shift and Transform:  Same as Lift and Shift, but the client and service provider work together to re-map existing processes onto a pre-defined new set of processes. 

The Alamo comes to HR Tech... get your front row seats here

Anyone from the world of HR, who cares about the impact technology has on their existence, is congregating at the infamous HR Technology show in Chicago on September 30-October 2, hosted by the legendary columnist Bill Kutik (pictured), the undisputed captain of HR controversy. 

It is the world’s leading event in the HR sector, and each year attracts 2,000+ high-level HR practitioners, software and service vendor CEOs. In addition, most of the HR sector's industry analysts, bloggers and foghorns will be there - including such celebrities as Jason Corsello, Mark Stelzner, Naomi Bloom and Vinnie Mirchandani. They come for the excellent no-sales-hype conference sessions, the largest show floor of 250 exhibitors, and Bill Kutik’s signature vendor Shootout session, which this year features software giants SAP and Lawson taking on their smaller rivals Salary.com and Plateau.  I am also assured that the word "Cloud" is to be officially banned from the festivities...

Here’s how you can get the $470 discount off the $1,645 regular registration rate:

Type FERSHT in the Promotion Code box in the online registration at www.HRTechnologyConference.com

Is this a good climate to take a career "risk"? Or is it riskier staying where you are?

My definition of corporate failure in this market:  "We're gonna ride out 2009 and go for it next year."  What are you going for?  What are you riding out?  If you want to remain successful, you better get your act together now and formulate a game plan. 

Too many firms are sticking to their old business models, in denial that they need to do anything different (besides firing a few people), and cling to the vein hope that their fortunes will dramatically turn around in 2010...by doing NOTHING.  And I can be 100% sure that everyone reading this is either working for a firm with that attitude, or knows someone who is.  Smart executives sense stagnation, and a lot of top talent is re-thinking whether their current employer has what it takes to prosper in a post-recessionary economy.  (P.S. a prize is available for the first person to reveal this icon of executive innovation from the '80s...).

And the top tier isn't always offering the most appealing place to work in this market - am seeing several top executives broadening their horizons for unique companies geared for growth in this new economy.  Start-ups and small companies, for example, which are plugged into the new economy are becoming vogue.  Many people are realizing that no job is particularly secure anymore, so if you're going to take a risk, why not now? 

Ever wondered about Brazil?

And just when you thought you were in the clear, here's another webinar for you...

 

In recognition of recent shifts in the global economy many global sourcing executives have determined a more “risk averse” approach toward their global outsourcing portfolio is a prudent and necessary means to ensure supplier stability, less volatility in certain markets and enhanced skill-set options vis-à-vis regional workforces.

Many executives are asking, what are the Near-shoring advantages? What are the trends in Outsourcing and how are emerging destinations (such as Brazil) affecting this landscape?

Join us for an insightful and interactive discussion where we will discuss Latin America, and how a near-shoring strategy in an emerging destination will benefit your IT Outsourcing portfolio.

Date: August 4th, 2009 Time: 11.00 AM PDT / 2.00 PM EDT

Cost: Free!

Click her for more information

Analysts Phil Fersht and Dana Stiffler, ITO & BPO Services, AMR Research, will join Mr. Bob Mejerle, VP – Outsourcing Practice, North America of Politec Global IT Services to on this LIVE Executive webinar.

We’ll also be joined by our Moderator, Frank Casale, who will host an open Q & A session after the briefing. If you are a C-level Executive, Vice President and Line of Business Owners responsible for: Global Sourcing, Program Management, Finance, Information Technology and Operations, then this webinar is for you.

Click here to register  

 

The next stage of industry development: Co-learning partnerships, not mega-mergers

The industry's next phase of growth is unlikely to be dominated by the mega-mergers of the past (DEC/Compaq, HP/EDS etc.).  It's going to be focused on service providers moving into partnership engagements with clients, where they can develop specific IP and industry process competence.  

I see this trend escalating in the application development arena, as this area is now approaching significant scale and maturity, but also believe this will pave the way for future BPO development, as service providers find new opportunities to layer on business process services that compliment their application development work.  It's really about learning specific industry process, how they can be enabled and optimized by smart applications, and processed by smart people who add value.

This isn't simply lift and shift where the service provider does the same with less - it's where the service provider brings specific expertise to the table that allows the client to scale its business globally.  It allows the client to focus more heavily on its core competencies, which provide the real value for its own growth.  And it allows the service provider to develop specific industry process knowledge of its client's industry that is can replicate across its own knowledge workers.  The maturity of the application outsourcing marketplace is now going down this path, where the leading service providers have the lions' share of the talent - and the scale - to provide the technology development services that allow clients to invest in their core industry services that make up core value proposition.  Why invest their scarce resources in IT development when they can find a third-party to do this for them and invest in areas that will improve the front-end of their business?

One prime example of this is the new partnership between UK-based industrials magnate Invensys and service provider Cognizant.  Invensys wants to focus on on its core competency of product definition and architecture and developing its industrial automation platform, with Cognizant being its technology partner for product development. 

Invensys can focus on where it's best, and Cognizant can make a surge into the manufacturing industry.  Invensys will learn from Cognizant's technology skills and Cognizant from Invensys' manufacturing process and operations prowess.  Jobs are not lost, and existing employees are going to enhance their careers with new industry and technology knowledge.  If this partnership works, both firms will end up creating more jobs to support their expanding business portfolios. 

 You can read more about this partnership over at Think Global.