BPO Collaborations – There is a pressing need for them, but are they possible?

Dynamics of doing business in the BPO world are fast changing. Clients are increasingly seeking –
·         Global delivery with emphasis on near, mid and offshore locations comprising both established and new geographies,
·         Solution driven approach that requires a platform play in lieu of the classical lift & drop approach,
·         Combination of services covering different spectrums of BPO and KPO.
Given these requirements, it is impossible for several service providers to offer the same on their own, except for the few fortunate large service providers who possess Consulting, IT and Process Design & Delivery capabilities.
If this is the case
·         Should the new versions of BPO and opportunities there upon a prerogative of only the large and full service players?
·         Do the small and medium players invest substantial resources in time and money to develop these capabilities organically?
·         Or do these players invest capital on inorganic pursuits to fulfill the requirements.
No doubt the options mentioned above are valid. In addition to these, an important option could be BPO Collaboration. Some possible collaborations could be
1)       Niche IT companies with out BPO play collaborating with K/BPO providers. This will help IT companies introduce annuity revenue streams over the existing revenue streams that may be primarily project based and also help them deepen their client engagements. Collaboration with K/BPO service provider can also help IT companies pioneer services model (SaaS) which seems to be finding favor with the buyers of software services
2)       BPO service providers with delivery centers in a particular geography aligning with the BPO service providers in other geography to expand / create a global footprint on a win-win basis. This will also help BPO service providers to introduce new language capabilities in addition to the existing ones
I have listed just couple of possibilities above and there could be several others. Also, if we look at any IT company a small one though, they talk of partnerships either for system integration or software implementation etc. It is not uncommon too see a very large / marquee IT company collaborating with a small IT company for mutual benefit. This leaves me wondering why the same concept cannot be applied to the K/BPO companies.
Is the revenue potential a limiting opportunity or are there other compelling reasons? It will be interesting to obtain views from the readers of this post.

2008 – And Beyond

Happy New Year. I’m adding my voice to the year-ahead punditry – but taking a different approach by looking further out. The views are based on a look through the end of 2010 and represent my own thinking as well as the input of several of my colleagues. I’ll be concentrating primarily on demand trends today, with more thoughts on provider trends in a later post.

With those parameters in mind, here are the top six issues to watch in services sourcing in the months ahead. We know these are already on the minds of many corporate executives.

1.   A desire to address the global dimension of the business strategy – i.e, the land of tomorrow’s customer:  More companies are talking about outsourcing and offshoring — almost interchangeably — as part of an overall globalization agenda.  Cost savings still matter, of course, but the desire to participate in emerging new economies is also gaining import.  This, in turn, is affecting the time horizon of the initiatives.

2.   A growing preference for selecting sourcing alternatives within the context of a multi-year strategic agenda. We’re already seeing fewer acts of desperation in the sourcing initiatives being launched. To many of us, this implies that the low-hanging fruit of labor-based sourcing has been harvested.  Companies are now looking for more partnership-minded relationships. (Yeah, many of the words are the same, but the contracting tactics differ).

3.   A push to evaluate sourcing options through the 3C paradigm; total value orientation. I’ll write more about the “3C Framework for Sourcing” in a coming post, but suffice to say it’s the balanced consideration of costs/capability/capacity.  The prior overemphasis on near-term cost reduction is giving way to a new equilibrium.  Providers that won under the former rules may not be positioned for the future orientation toward total value.

4.   Assessment of existing service delivery relationships for alignment with strategic direction – i.e., not a tactical move. Many of our clients tell us that they have awoken to find a veritable nest of service provider contracts existing within their companies. It seems that each business unit and corporate function has two to three different providers doing work for them. A serious rationalization is in the offing for the coming quarters, with a weeding out of the cost-only providers for those that align with the strategic direction of the client. This, of course, gives rise to …

5.   Considering outsourcing options for all technology-enabled, people-intensive work processes i.e, go big and fast. Looking hard at work and asking whether activities couldn’t benefit from scale and automation. We’re seeing wall-to-wall reviews of work processes and serious scrutiny of the efficiency of the delivery models. There is no slowdown in the consideration of sourcing alternatives.

6.  Looking at the role and value of captive offshore operations. Captive centers are showing great value, and we see expansion plans being deployed for those operations in the coming quarters.  While the make-versus-buy decision is complex, we’re sensing a continued desire to move knowledge-based work to locations that offer lower costs and greater capacity, with equal or better capability.  Look for a continued desire of some larger conglomerates to monetize their captive operations, but those will be a handful, at best.

Unto the (Data) Breach: A 2008 Topic

Concerns about data privacy are rising in the sourcing industry, and I expect the issue to get a real workout in 2008.

Which is fine. But first a couple of points: From the earliest days of outsourcing there have always been third parties involved in processing client information. More to the point, data breaches can and do happen with in-house operations, too.

Still, the data issue is gaining traction in light of legislation aimed at protecting financial and medical data. Both clients and providers are feeling the heat.

The sourcing industry has already adopted safeguards and best practices to protect information, but the question remains in the mind of many: Does sourcing mitigate or exacerbate data risks?

Companies are calling us seeking advice on the capabilities of service providers to help reduce the perceived risks relating to data protection. At the same time, providers are starting to squirm at contractual terms aimed at allocated damages due to breeches in data security policies.

We shall see whether the sourcing industry is a source of extra risk or solution. But there are two things we already know: Whether data are processed in country or offshore doesn’t matter, so don’t believe in headlines about “outsourcing” as a culprit. And the market can and will play a regulatory role, as it always has, because reputations and bottom lines will suffer if customers suffer.

End (to End) Game: Managing the Multi-Provider Service Chain

Sometimes best of breed can be a headache.

In today’s “multi-sourcing” marketplace, organizations seeking the best service often break into parts what had been a harmonious business operation, particularly in the IT space. They do this in order to achieve focus and efficiency in the management of various elements of technology services.  The challenge for the executive overseeing the sourcing relations: How to maintain a high level of service across the process now that you’ve got myriad providers – including both internal and external teams – doing the job?

Said differently, the benefits of cost efficiency can erode quickly if the result is increased risk of disintegration.

I tend to agree that fracturing a business operation (such as claims processing, order management, settlement reconciliation, or even accounts receivable management) across many different service providers invites some real risks. Indeed, we tell our clients that job No. 1 is maintaining integrity across the service chain.

This demands that the architects of the sourcing strategy think both horizontally (that is, within a service category like servers, or help desk, or networks) and vertically (e.g., a business process such as claims administration, order management, and the like).

Companies often ask us about using contractual mechanisms to manage and mitigate the risks of divvying up responsibilities among multiple providers. We tell them from the beginning that service providers generally aren’t keen to sign “end-to-end” service-level agreements (SLAs), because the providers are rarely responsible for each and every service element in the chain.

That said, a well-designed sourcing strategy can help achieve the desired results. The goal is not to push providers to be responsible for service elements outside their direct control but rather insist that they are at least responsible for managing those service elements on the client’s behalf. They need to play as good citizens and have skin in the game.

You need structure. That means baselining the service levels expected so that providers can measure and manage them. It also entails applying certain rules of the road for being a provider within the corporate family.  There are ways to achieve integrity and responsiveness without prescribing each situation via contractual terms.

It’s less about gaining confidence because of an elegant contractual framework than it is about setting the tone and tempo of operational cooperation within the governance mantra of the participating organizations.

October Surprise: Deal Surge, and India Goes Large

The past year has brought a striking slowdown in new outsourcing contracts, but October appeared to break the trend. I offer some commentary on that month here, doing so in the context of the entire year.

Providers got over $15 billion of total contract value (TCV) in October, the highest TCV tally for a single month in the past two years and almost twice the TCV as the next highest month. Three mega deals accounted for almost $8 billion of the TCV, and one — IBM and AT&T – accounted for $5 billion. Business-process deals figured prominently in the month.

November doesn’t look nearly as good, but more about that month in a moment.

India-based service providers inked several mega relationships in October, in keeping with a recent trend: While many consider 2005’s ABN Amro/TCS/Infosys deal as the high-water mark for Indian providers, since then we’ve seen these providers expand their client list to other large customers. And, in some cases they have done so without employing the relatively slower “penetrate and radiate” method that involves getting a foot in the door then selling the client more services over time. Rather, the India-based providers are showing their ability to win some truly big deals.

While the Indian providers may still be buying market shares (think deals like TCS-Pearl, Genpact-Citigroup and Philips-Infosys) or winning business with a long-time captive client (BT-Tech Mahindra), they also are starting to compete and sometimes win on very large deals that don’t involve clients they’re already working with.

The next trend to surface may find smaller India-based service providers (EXLService, FirstSource, WNS, HCL) starting to look outside their captive client base for a big deal.

Now the cautionary kicker: We have not seen many deals in November, and if this month and December revert to the pattern of the rest of 2007, October could prove to be a blip.

Look for lots more detail when TPI hosts its next Index call in January.

Managing Global Development Risk

I couldn’t be happier to announce on Consider the Source that two of my colleagues and friends at TPI, Jim Hussey and Steve Hall, now have their labor of love in bookstores: Managing Global Development Risk.

There are tons of books on offshoring and global services delivery. Some address up-and-coming offshoring countries that have the education, labor arbitrage and political stability to move your organization to the next level. Some help you define your service delivery framework, others tell you how to conduct an RFP process, and yet others guide you in managing your sourcing relationships. However, this is the first book that I’ve seen that is a resource and reference tool to apply project management to an offshore component.

Overseeing a project management team in which some members are offshore is much different than traditional project management. This book is a practical “how to,” offering sound project management principles to help the software development managers to best execute development when its people are all over the globe. I’d recommend Managing Global Development Risk to anyone in the sourcing community that wants the tools, techniques, and knowledge necessary to achieve project success with offshore resources.

Congratulations Jim and Steve on a job well done!

The F&A Paradox

A number of Finance and Accounting (F&A) functions are similar from company to company, as are the goals: Most companies want to tackle costs, improve performance, efficiently spend money and manage revenue cycles, in addition to undertaking the required accounting and reporting.

The relatively standard processes imply that technology can lend a big hand as long as the people who perform those F&A functions have a fair degree of functional expertise and conform to common processes.  That said, tax complexities, revenue-recognition policies, industry specific requirements among other factors present challenges, but these issues are almost always under the watchful eye of an executive who is highly motivated to achieve the desired accuracy and compliance.

Now contrast this situation with what you see in most Human Resources departments of organizations where it’s not uncommon to find many nuances relating to the geography, business-unit operating models, and various employee programs. One might think that achieving common ways of doing things in HR would be more problematic.

The difference between the two functions raises the question: Why is it that the predominant sourcing model for F&A is labor arbitrage? We see much more standardization and “managed services” orientation in HR outsourcing than we do for F&A functions. Whether companies are using a captive operation or outsourcing, F&A has become the poster child for effort-based sourcing.

So far, the promise of a vibrant market for F&A outsourcing is unfulfilled. The contracts are labor-oriented and the investments made by many of the leading service providers to standardize offerings aren’t being employed. Which leads one to ask: What will it take to change this? Why aren’t CFOs more receptive to a managed service around accounts payable? Might this be a situation whereby service providers are not providing comprehensive solutions to F&A executives? Perhaps it a case where finance managers cannot relate to “managed services” offerings? Or maybe it’s a relatively higher degree of integration among and between finance processes that is making standardization so elusive?

Whatever the cause, today’s outsourcing landscape offers a much higher degree of maturity for HR services than F&A services. Is the lure of cheap labor so compelling that the promise of a managed service for F&A is just not worth the effort?

Insulting calls from Britons make them sick “All’s not well at call centres in India”