June 18th, 2008

Outsourcing highlights for June

Posted by Phil Fersht @ 8:00 am

Categories: Business Process Outsourcing, Finance & Accounting Outsourcing, Human Resources Outsourcing, IT Outsourcing / IT Services, Infrastructure Management Outsourcing, Offshoring and Captives, Outsourcing Locations, Procurement Outsourcing, The Future of Outsourcing

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Click on these links for recent happenings in the outsourcing world:

A final word from India: moving beyond “old BPO”

Musings from abroad: Futuristic BPO

The Legacy of Global Sourcing – What is (Y)our Legacy?

NASSCOM dispatch: “We’re now past the era of BPO” (Pramod Bhasin)

How do you feel about Human Resource Professional Organizations?

Musings from abroad… dispatch #3… Indian drivers

BPO: It’s all about taking ownership to get results

IBM/Bristol-Meyers: a shot in the arm for HRO

Finance and Accounting BPO continues its growth path

HRO Redux: 8/10 buyers don’t look back, while the vendors look ahead

BPO partnerships are opportunistic, rarely strategic

Will the EDS acquisition spark a BPO feeding frenzy?

Can this Marriage Be Saved?

Bored? Look no further

HP/EDS redux

Whom do you trust for balanced outsourcing advice?

Is it time to dump the term “outsourcing”?

Are we reaching an inflection point of business globalization?

Quest for an Organic Approach to Offshore Outsourcing

Is the sub-prime lending crisis placing outsourcing engagements on the backburner, or providing an impetus to proceed faster?

Cost-cutting measures for troubled companies in these tough economic times

Blog-culture is ripping up the rule book for the outsourcing services and technology media industry

Taking control of your vendor relationship

Can outsourcing be a catalyst for driving down the cost of healthcare?

May 3rd, 2008

Are we reaching an inflection point of business globalization?

Posted by Phil Fersht @ 9:40 am

Categories: Business Process Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing Locations, The Future of Outsourcing

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Are we reaching an inflection point of business globalization?

April 25th, 2008

Outsourcing highlights for April

Posted by Phil Fersht @ 1:52 pm

Categories: Absolutely Meaningless, Business Process Outsourcing, Human Resources Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives

Tags: Outsourcing, It Operations, Business Operations, Outsourcing & Subcontracting, Phil Fersht

Highlights from the award-winning outsourcing blog Horses for Sources for the month of April:

Is the sub-prime lending crisis placing outsourcing engagements on the backburner, or providing an impetus to proceed faster? 

Quest for an Organic Approach to Offshore Outsourcing

Cost-cutting measures for troubled companies in these tough economic times

How severely will the expiration of India’s STPI tax scheme impact the Indian outsourcing industry?

March madness: little advisors, Starbucks redux, F&A is bubbling back… and EDS gets active

HROWorld 2008: An industry re-inventing itself

Blog-culture is ripping up the rule book for the outsourcing services and technology media industry

February 25th, 2008

Outsourcing in a downturn

Posted by Phil Fersht @ 11:22 am

Categories: Business Process Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing & Politics, Outsourcing Locations, The Future of Outsourcing

Tags: Phil Fersht, Outsourcing economic downturn, recession, IT outsourcing, eWeek

Podcast:  Outsourcing in a Downturn:  Yours’ truly discussing the potential ramifications of an economic downturn on outsourcing trends with AMR Research’s CEO Tony Friscia. 

February 16th, 2008

Should your firm offload its offshore operations to an outsourcing provider?

Posted by Phil Fersht @ 10:46 am

Categories: Offshoring and Captives, Outsourcing Locations, Shared Services Strategies, The Future of Outsourcing

Tags: Outsourcing Company, Outsourcing, It Operations, Business Operations, Outsourcing & Subcontracting, Phil Fersht

Some interesting debate going on regarding whether firms which have already established offshore service centers (termed as “captives”) are better off selling these centers to outsourcing providers.  It would be interesting to hear your views - especially if you work with offshore staff within your own firm - on whether you’d prefer to have these staff work directly for a service provider, where they are contracted to perform stipulated services, as opposed to being part of your organization.  The following 10 questions are posed to help firms understand what is the best option for them:

1) Is the work being performed in the captive truly core to our business, or could we move it over to a third party?

2) How much risk are we exposing to our business by transitioning the captive operations over to an outsourcer?  Can we work with the outsourcer to manage the transition process to ensure there is a smooth transition of people and operations?

3) By selling off our captive, how much can we save over a 5 year period?

4) What is our option-value in the future if we want to take some of these operations back in-house?

5) How severe is our attrition rate, and how does  this impact running costs and quality?

6) Is the captive truly a part of our global organization, or is it really a distant support center that doesn’t play a core role in day-to-day business operation?

7) How much management time, and how much cost, is spent flying senior executives over to offshore locations to oversee low-value processes such as accounts payable, help deck support etc.? 

8′) How much experience with offshoring do our firm’s senior executives currently have, or are they learning it by trial and error and substantial cost to our organization?

9) How complex is it to transfer knowledge from our parent operations over to our offshore operations?  Wouldn’t it be cleaner and easier to move the work to a third party outsourcer, who will take on the work they are contracted to do?

10) Is it worth keeping our captive, but re-locating it to a more appropriate location?  And what are the costs / benefits associated with doing that?

February 9th, 2008

Has Europe lost the offshore war?

Posted by Phil Fersht @ 10:58 am

Categories: IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing Locations, The Future of Outsourcing

Tags: Chief Executive Magazine, Cognizant, Europe IT Services, India Offshore IT Services, Offshore strategies, Peter Schumacher, Phil Fersht, Value Leadership Group

Peter Schumacher, President and CEO of the Value Leadership Group sent me a very interesting article he wrote on the failure of the European IT services industry to compete effectively with the new wave of offshore outsourcing firms, and cites Cognizant’s recent growth surge (a 98% revenue increase for its European business in 2006) as a prime example of European’s IT services providers inability to cope with this competition.  This is not dissimilar to the failure of the US IT services incumbents to recognize the growth surge of Infosys, Wipro and TCS in the late ’90s.  The five key reasons discussed for this failure are:

European IT services firms…

1. Have failed to see the emerging competitive scenario

2. Face revenue deflation pressure from a smart arbitrage strategy

3. Have not addressed the holistic transformational challenges posed by offshore IT firms

4. Lack the financial resources to challenge offshore firms head-on, which are now driving the game

5. Will need to compete with powerful rule-breaker companies funded by private equity and venture capital firms

You can download the full article here.

The article has been sent courtesy of Chief Executive Magazine (thanks Steve)

January 2nd, 2008

Is Bangalore no longer a cost-saving location?

Posted by Phil Fersht @ 10:29 am

Categories: Business Process Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing Locations

Tags: Apu Sengupta, Bangalore, IT Outsourcing, Offshoring, India, Phil Fersht, BPO

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

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

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

December 28th, 2007

Is India adapting to the Night Shift?

Posted by Phil Fersht @ 8:19 am

Categories: Business Process Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing Locations, Shared Services Strategies, The Future of Outsourcing

Tags: Associated Press, China, HR Issues, ICRIER, India, Offshoring, Outsourcing, Phil Fersht, Worker Health

A new report released by the Associated Press is highlighting the issues of outsourcing jobs on Indian workers’ health.  While the report lacks any hard evidence and focuses on a handful of individual cases, data released by the Indian Council for Research on International Economic Relations estimated the cost of these increased health issues, namely sleep disorders, heart disease and depression, could amount to $200bn for the Indian economy over the next 10 years “if corrective action is not taken quickly”.

As discussed here a few weeks’ ago, the business case for organizations outsourcing certain services to locations closer to home (or even at home?) is becoming increasingly appealing - especially for those services that require a high degreee of interaction between the organization and its outsourced workers (for example software development).  For those services where the offshore workers need to be operating at the same hours as US companies, for example customer support / help-desk services, the Indian workers must adapt to working swing-shifts and unsocial hours.  My concern here is that Indian culture is very family and social-centric, and these types of jobs are becoming increasingly less desirable for many workers who go into these jobs initially to enjoy the increased compensation on offer, but are quickly realizing the trade-off with their lifestyle, health and family / social issues.  As long as outsourcing providers are servicing US businesses from India that require a large degree of worker overlap, they are going to be faced with increasing issues of attrition and rising wages to keep workers in these jobs.  This is the chief reason why the Latin America region is on the cusp of a major upswing of taking on outsourced jobs that benefit from the time overlap.  At the same time, it increases the appeal of UK and European-centric services being run out of India, where the time differences are far less oppressive on the offshore workers. 

These health and social issues are very symptomatic of a developing economy like India - and my only surprise is the speed at which they happening.  I believe these issues will only be magnified when work is outsourced from US businesses to China, where the time differentials are even more brutal, and the language issues much tougher.  That is one of the principal reasons why China is (and will continue to be) far more successful at taking on services such as engineering and manufacturing, where these worker interaction issues between offshore staff and Western organizations and their customers are less crucial. 

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Is India growing up too quickly?

December 20th, 2007

Outsourcing Predictions for 2008... in a nutshell

Posted by Phil Fersht @ 9:09 am

Categories: Business Process Outsourcing, Finance & Accounting Outsourcing, Human Resources Outsourcing, IT Outsourcing / IT Services, Infrastructure Management Outsourcing, Offshoring and Captives, Outsourcing Locations, Procurement Outsourcing, The Future of Outsourcing

Tags: Oracle Corp., SAP, BPO, Business Process Outsourcing (BPO), Phil Fersht, 2008 Outsourcing Predictions, Economic Downturn, FAO, HRO, IT Outsourcing

 Let’s not beat around the bush…here’s what happening next year in the “O” world:

1) Offshoring panic will continue, but will force providers to innovate. Concerns over the appreciating rupee, weakening dollar, wage inflation and employee attrition will continue to have a powerful impact on the global outsourcing industry.  The onus on the leading outsourcing providers is to focus on building constant ongoing efficiency and dynamic working environments for their staff, price their engagements on business services as opposed to offshore staff wages, and expand their delivery centers into other low-cost global locales like Latin America, Philippines and South East Asia to minimize the risk from their offshore delivery models.

2) The standardization of technology platforms within Business Process Outsourcing (BPO) engagements will take center stage.  You have to take your hat off to SAP for recognizing the significant opportunity BPO is providing for the leading ERP vendors.  They invested significantly in implementing programs for the BPO service providers to deliver outsourced services on their platform three years’ ago, recognizing that the future success of BPO lies in standardizing processes across business functions and global regions.  And how else can you do that without having common processes underpinned by standardized technology platforms?  Oracle has also followed suit more recently, as it too has realized it must compete for business with firms looking to moved towards an outsourced end-state.  To put it quite simply, when you are moving processes into the hands of a third party, or offshore, it is much easier to train staff to manage these process for you if they are well documented and are underpinned by software that staff can be quickly trained to use.  It is much easier to find staff who are, for example, familiar with running reports from Oracle financials, or SAP R/3, which significantly lowers the risk of staff attrition, and also allows for outsourcing providers to hire fresh graduates and train them on standard tools and processes, many of which they already gained experience with during college, or in their previous employment.

3) Intense competition among the IT Outsourcing vendors will drive the uptake of Remote Infrastructure Management (RIM).   Up until this year, the growth of RIM - the management of a company’s databases, desktops, servers, networks, security and applications from a remote location - has been timid.  However, with the majority of IT infrastructure now manageable from a remote location, it is making less sense for firms to engage in outsourcing engagements where the vendors supply all the kit.  Of course, vendors can command higher fees if they are also supplying the hardware and applications, but they are also footing the bill for asset depreciation and renewal.  With so many vendors competing for a piece of the ITO pie, RIM provides an aggressive entry point for the ambitious offshore providers, for example Satyam, HCL, Patni and Cognizant, to compete with the traditional incumbent ITO vendors.  These companies will be prepared to bid for much smaller contracts to gain a foothold in the market and build operational scale (remember the 90’s when the US IT services giants unwittingly let Wipro, Infosys and TCS jump into the IT services game…).  What’s more, enterprises can explore RIM solutions on a piecemeal basis and do not have to go for a “big-bang” approach;  outsourcing solutions have often proved more successful where firms can try out one or two processes to begin with.

4) Adoption of Business Process Outsourcing will continue to grow, but at a slower - more cautious pace.  The early wave of Human Resources Outsourcing (HRO) deals was centered on multiple processes across multiple geographies being bundled in a single contract, where the HRO provider delivered multi-lingual services and often multiple technology platforms.  2007 pretty much signaled the end of an era, with the J&J / Convergys HRO engagement being the only end-to-end HRO global mega-deal of note.  However, we did see a plethora of smaller-scope engagements which covered payroll, benefits administration and HR-IT areas.  Expect these to continue in 2008 as providers refine their delivery models and include more offshore services to support HR processes, but the day of the large, global, complex HRO engagement is very much fading.

Finance & Accounting Outsourcing (FAO) has enjoyed unprecedented growth over the last three years as firms take advantage of low-cost offshore services.  However, 2008 will see a slowdown in the 30%+ growth spurt as the leading providers ingest a lot of the recent business they have taken on, and look to build efficiencies in their delivery models that take advantage of better technology, more standardized processes, and incorporate new locations - namely Latin America.  Expect more modest growth in 2008, in the region of 10%.

Procurement Outsourcing (PO) will continue to be adopted at a slow, but steady pace, and will be increasingly bundled onto existing FAO engagements as many of the more experienced adopters seek to add more indirect spend management processes into their outsourced portfoilio of services.  Like HRO, the offshore vendors are learning how to service these processes more effectively, and expect this to be a driver for more adoption next year.

5) An economic downturn will accelerate some outsourcing adoption.  As we discussed here, each outsourcing inflection point has been driven by urgent financial needs of companies to curtail expenditure on general and administrative functions.  The waves of ITO deals in the early ’90s, HRO and ITO deals after 9/11, were primarily driven by the need for buyers to experience a “quick fix” with their costs, combined with ambitious provider pricing designed to have immediate financial benefit to clients.  The more recent wave of FAO deals has been driven by manufacturing, automotive and consumer businesses under serious competitive pressures.  However, the relative economic comfort of recent years has allowed many enterprises to take more time over their sourcing decisions, and adopt a more “start-small” exploratory approach to understand what works for them.  When you look at the anatomy of outsourcing expenditure over the last couple of years, we have seen a surge in smaller contracts that do not make the media radar.  Outsourcing is a complex business, so why should a company enter into huge multiple-process outsourcing engagements, when it can afford to take it’s time a move out select functions on an incremental basis.  However, as we stare hard at the prospect of an economic downturn in 2008, will we see companies step up their urgency to cut costs?  Is the maturing provider landscape ready to take on a new wave of more complex services?  I believe it is…

One of the toughest years to predict?

December 16th, 2007

Will an economic downturn spark a new wave of outsourcing growth?

Posted by Phil Fersht @ 1:50 am

Categories: Business Process Outsourcing, IT Outsourcing / IT Services, Offshoring and Captives, Outsourcing Locations, Shared Services Strategies, The Future of Outsourcing

Tags: Business Process Outsourcing (BPO), Phil Fersht, Economic Downturn, FAO, HRO, IT Outsourcing, Offshoring

These are interesting times in the outsourcing world, as typified by Peter Allen’s post last week, where he mentions sporadic, stuttering growth as the leading Indian providers look to gain footholds in the market, and a slowdown in the number of mega-outsourcing deals being signed with the incumbent outsourcing behemoths.  However, we have to look at the underlying drivers behind outsourcing to understand what is going on:

1) Large global enterprises are taking a gradual approach to outsourcing growth.  Most of the FORTUNE 1000 enterprises have their own offshore captives and want to optimize what they have internally before moving more processes over to a third party provider.  Whereas IT outsourcing is relatively mature, the approach of most global enterprises towards BPO is still cautious.  Bottom-line, firms are still exploring which processes are appropriate for outsourcing, versus ones they should keep inhouse.  Read the rest of this entry »