Small, Shorter Term Deals in HRO Pg 20

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Human Resources Transformation

Pg 28

Sourcing Strategies, Trends, and Observations Pg 32

July 2011

The gateway to the global sourcing of IT and BPO services

Special Report

So Old, Yet So New

HRO

Software Paradise, Hangzhou Sourcing

Demonstration City of Chinasourcing Hangzhou

Hangzhou was defined as the China Service Outsourcing Demonstration City in February 2009. Hangzhou is also the one of eleven software industry base cities in mainland China. It has currently formed the several industries including telecommunication, software, integrated circuit, digital TV, animation games and E-commerce. The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at 460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the key software enterprises name list of the national strategic planning. In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352% compared to the same period of last year (2008). Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end outsourcing industry, Hangzhou now is creating to become the financial delivery center.

International Financial Outsourcing Center

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Directory of ServiceS
NewSletter A regular digest of key industry happenings. DiGital MaGaziNe The fortnightly digital magazine features research reports, articles and experts views. Available on www.globalservicesmedia.com webiNarS Global Services web-based seminars aim to impart useful information related to outsourcing industry in the form of presentations and discussions by industry specialists. reSearch We deliver indepth analysis and research reports on sourcing subjects. MicroSiteS Online resource center designed to provide focused content on special subjects to the outsourcing community. eveNtS From multi-day, high-level, resort conferences to intimate breakfast discussions we offer a number of opportunities that connects the outsourcing community. cUStoM ProGraM Customized services rendered through different media platforms. oSoUrce booK A directory of global outsourcing service providers. www.osourcebook.com

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April 2011

features

16 HRO: SO OLD, yET SO NEW

[COVER STORy]

by Prerna Tandon
Outsourcing and offshoring of HR presents many opportunities and challenges, what is needed is for more HR professionals to have outsourcing business skills (namely process, operations, project management) and for more outsourcing professionals to have a greater understanding of HR issues and its impacts.

DEALS 20 SMALL, SHORTER TERM IN HRO SETTING NEW TRENDS

[HRO]

by Smita Vasudevan
HRO providers are not seeing too many opportunities for multi process deals, but there lies a clear opportunity in transforming small, shortterm deals into longer strategic outsourcing relationships.

8 DESTINATION EuROPE
[SPECIAL REPORT]

NEARSHORING CONTINuES TO DRIVE DEMAND by Smita Vasudevan

Emerging markets within Europe will be seeing significant nearshore activities this year, with niche IT capabilities and multilingual skills offering new opportunities.

TRANSFORMATION IS OuTSOuRCING A SOLuTION? by Kumar Parakala, KPMG

xperts 28 HuMAN RESOuRCES

32 THE FRENCH BANkING SECTOR: SOuRCING STRATEGIES, TRENDS,

AND OBSERVATIONS By Nigel Hughes, Global Services Director, Compass Management Consulting

GlObal SeRvIceS DIGITal MaGazINe

Next Issue:
software develoPment

Editors NotE

Ticking Again
sluggish trend through the entire period of recession and the time thereafter. In the GS100 survey we found that there was a y-o-y growth of 8.3 % in terms of number of BPO customers signed on during 2010 despite a fall in total contract value (TCV). This clearly points at a fall in contract sizes for BPO contracts, accompanied by fall in contract periods also. HRO seemed to be sunset segment in BPO. Large end-to-end deals in comprehensive HR BPO services have slowed for the past 12 to 18 months. A revival will surely be marked by disruption and then a reinvention would happen.

his year is seeing a resurgence of interest in BPO, based on the level of contract activity and contract values. The BPO market had a

Ed Nair
Editor
ed@cybermedia.co.in

A revival will surely be marked by disruption and then a reinvention would happen.

The good news is that HRO is regaining its lost momentum. Demand for global expertise in HR, integrated HR services, and technology innovations in HR service delivery are the drivers. There has been a rise in single service HRO contracts. A recent IDC report states that HR BPO market would grow at a CAGR of 4.4% through 2015. Specific segments like RPO, employee data management, talent management, and learning have robust demand profiles. HR technology itself is on the rise and with the availability of subscription-based models for software the adoption is going to increase. Increasingly, many of these sub-segments in HR would be driven and delivered using technology. The cover story this month encapsulates these trends very well. The other main story focuses on Europe as an outsourcing destination, despite all the economic woes faced by the region. In fact, the services industry can be an instrument for overall economic development for a lot of countries in Europe. Enjoy the summer !!! GS

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CONTACT US:

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Special Report

destination Europe Nearshoring Continues to drive demand

Emerging markets within Europe will be seeing significant nearshore activities this year, with niche it capabilities and multilingual skills offering new opportunities. Smita Vasudevan

n the post recession phase, when low cost countries like India, China and Philippines remain the most attractive destinations on the global outsourcing map, Europe, at the other end of the spectrum, is also capturing good amount of attention. Although costlier, numerous other factors are driving demand to Europe. Experts are of the opinion that nearshoring activities in both IT and BPO space will have a significant impact on the market this year. Ian Marriott, Research Vice President, Gartner Research, says, We see lots of opportunities in Europe for services to move within the region and much of the work is going nearshore from uk or uS. An increasing number of companies are choosing to keep work closer to home and nearshoring is thus being seen as

the biggest trend for Europe in 2011. With a huge IT talent pool, multiple language skills and favorable time zones, Eastern European markets can be seen as the destination of choice for nearby countries and for the uS. Alexander Semenov, Head of Sales Department, Reksoft, says, Europe still retains its strong position for outsourcing high-end solutions development. Lots of new IT trends and developments are reshaping the European ITO space. Cloud is influencing the market in a big way. According to Forrester Report Market Overview: European IT infrastructure Outsourcing (2011), cloud services remain the most discussed service in the infrastructure outsourcing market. Resistance to the cloud will change as enterprises realize the flexibilities that cloud offers.
July 2011

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destinations compendium

a one stop resource on outsourcing destinations

Destinations compendium brings together the myriad dynamics of the outsourcing locations. It covers research report on top 100 outsourcing cities, countries-in-focus, regional dynamics, city profiles, experts opinion on location assessment.

http://microsites.globalservicesmedia.com/destinations
Don't miss this opportunity! Book your space now! Contact Niketa at niketac@cybermedia.co.in

2011

Special Report

Nearshoring to Europe is thus on a high and will be driving demand significantly in the future. Marriott points out, Offshoring looks at a balance of low cost and low risk. When enterprises try to drive down costs, the risks tend to go up. Offshoring to countries like India, China and Philippines can regional Dynamics be a low cost alternative to nearshoring, but there are other factors that balance out or overshadow the cost benefits. When companies start outsourcing, they prefer keeping it closer to What Makes Europe Attractive? home and work with companies that speak the same language countries becoming members are: Shortage of resources in one region can drive demand to and have a cultural compatibility. This is reason why more Political stability and greater integration other regions where resources are available in plenty. This is percentage of work is going nearshore than offshore adds Increased trade where Eastern Europe scores big. As per studies and surveys Marriot. This holds true especially in case of mid-market com Increased inward investment conducted by IT Sourcing Europe there is a huge gap in panies that are new to outsourcing. Social policies and subsidies IT talent and resources in the Western Europe. Interestingly, Another factor adding to its global appeal is a mature Eastern Europe has attracted a lot of investments from service providers and cliEastern Europe has seen a significant surge in its IT resources legal framework.Benefits from privacy legislation and alignents (captive operations) in the last 3-5 years making it a strong offshore cluster over the last couple of years, which justifies the large number ment with legal systems offer high confidence to enterprises and a skills cluster of Western European enterprises outsourcing to countries within the European union says queuing up to this region. Dmitry Marriot. These regions come out as safer alternatives, especially Global Clientle Loschinin, President & CEO, when data protection and security laws may not be that strong With 63 percentage of all developed countries in Western other parts of the world. Luxoft, says, Eastern European in Europe, it is the largest cluster of buyers across the world. This attracts large business firms from across countries have shown a signifithe world to have centers risetheeducatedto cater to the domestic markets in these cant in in region and qualified The Opportunities Within developed economies.IT talent. Romania, for examPoland, ukraine, Czech Republic and Romania are some Eastern Europe henceple, has seen global clientele12 of the this has countries in the European outsourcing space. caters to the more than a indirectly, leading successfully built a strong brand for Nearshore to Eastern Europe, offering cost differential Serbia, Slovakia etc are also percent growth in the number Emerging ones like Bulgaria, of 15-20 percentage compared to Western Europe. of experienced IT professionals capturing lots of attention. Semenov says, Customer inter Clients say productivity per employee higherproviding Europe than offshore development centers continue to move employed at companies in Eastern est and the providers locaDmitry Loschinin, tions like India, Philippines and China. IT outsourcing services. In addi- eastwards. This interest is closely connected with the level of President & CEO, Luxoft High skill sets available for ukraine islike Product Development (Turkey, Ukraine, tion, processes another Eastern technical education and resources availability in these counRussia), Regional has witnessed similar growth,56 locations of There are many new locations coming to the fore. The Multilingual Skills (top a nearly tries. previous list), and European country that R&D increase and 2008. 10 percent (Russia sinceacross the region). Central & Eastern Europe IT Outsourcing Review 2010
Europe: Centers of Excellence
Region/ Country/ City Core Specialization Companies Established SAP, Quest Software, IBM, Microsoft, Accenture, Marino Software, PMI Software, Infosys, Deloitte, Amazon Barclays, Accenture, InfoTech, HCL, Capgemini, HP-EDS, KPMG, Xerox, ECOM, First Data Google, IBM, Motorola, Fujitsu, HCL, Capgemini, ACS, Hewitt, Quantum, Sabre Sun Microsystems, Accenture, GE, SAP, Google, Intel, Capgemini, Mahindra Satyam, IBM SAP, Microsoft, Sun Microsystems, TCS, Genpact, Cognizant, Canon, Mahindra Satyam, SCA Intel, Motorola, Sun Microsystems, Boeing, HP, Auriga, Google, Luxoft, EPAM, Arcadia

BPO activities, especially voice operations continue to see significant momentum. This is fairly justified, as there is hardly any other location currently that can support six to eight languages within a single city. Emerging markets like Serbia and fairly established ones like Poland and ukraine are offering huge potential for growth due to the availability of multilingual skills and good quality resources.

Figure 1 Europe: Centers of Excellence.

Western Europe

Ireland

Dublin

Specializes in R&D, Infrastructure

Services and Custom Development Application

High value processes in Financial

U.K.

Belfast

Analytics, R&D and Applications Development Management

Business Analytics, Finance and

Poland

Krakw

Accounting Outsourcing, multilingual Contact Support, HR Outsourcing

Eastern Europe

Czech Republic

Focused on HR Outsourcing, R&D

Prague processes and emerging destination for Engineering design services

Focused on HR Outsourcing, R&D in

Hungary

Budapest

Software Development and Testing

Russia

St. Petersburg

Specializes in Engineering Design and

R&D services.

Source: Global Shore 2010 webinar Europe: Showcasing the Challenges and Opportunities

Page 10

PRIMARY VALUE PROPOSITION

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July 2011

It is a viable nearshore destination for Western European clients for several reasons:

Destination Europe

identified Croatia, Moldova, Latvia, Slovenia and Albania as the newly established markets. Marriot points out, If we take a broad look at locations within Europe, there are application services, remote infrastructure and business processes being outsourced. MNC service providers are moving to Poland and Czech Republic for infrastructure services and there are also significant BPO Western Europe has done a significant amount of nearshoring to Eastern Europe. centers being set up in Poland. Over the years, the gap in GDP between Western Europe and Eastern Europe has Numerous service providers are rushing into the scene widened instead of declining, which has helped in attracting clients from the former to capture the untapped to the latter. This has helped in making nearshoring to Eastern Europe an attractive Prominent nearshore options: opportunities and to opportunity. expand their footprint Eastern Europe It has been a destination of choice for Western Europe for more than a decade and within Europe. Sitel has 6 poland: krakw, Warsaw, this attractiveness has become stronger over the years. extended its European Gdansk, Wroclaw operations with its new 6 Czech Republic: Prague, Brno CHALLENGES call center location in Clients face dilemma- No single country can take care of all languages. But 6 hungary: Budapest Serbia. The company sees Estonia can take care of the 5 major languages. 6 Russia: St. Petersburg, lots of opportunities in Most smaller countries do not offer scale Moscow, Nizhniy Novgorod, the region and considers Rostov-on-Don, Novosibirsk it as a major step in its ADVANTAGES 6 Romania: Bucharest, strategy to double opera Europeans are conservative businessmen compared to their American counterparts Cluj-Napoca tions in Eastern Europe in and are more comfortable keeping work closer to home. Thus nearshoring is a 6 Ukraine: kyiv, Lviv the next three years. But favored option. why Serbia ? Tim Schuh, 6 Belarus: Minsk Considering a cut off population of 10 million, only Russia, Ukraine, Poland, General Manager, North 6 slovakia: Bratislava Romania, Belarus, Czech Republic, and Hungary have the advantage of a sizable EMEA, Sitel, says, We talent pool Bulgaria: Sofia have always tried to be Multiple factors enable to be perfect nearshore options for Western Europe like: 6 slovenia: Ljubljana early adopters in the mar1. Financial Attractiveness 3. Trade laws (European Union) 6 serbia: Belgrade ket. Sitel has significantly 2. Cultural compatibility 4. Excellent Education expanded its operations 6 estonia: Tallinn in Nicaragua and Poland. 6 Croatia: Zagreb Major clients nations in the region are: We wanted to be the first 6 Latvia: Riga United kingdom Denmark global outsourcer in the Spain Finland 6 Lithuania: Vilnius Serbia market. Its deci France Germany 6 Malta: Valletta sion to expand into Serbia Italy Norway Source: Global Shore 2010 webinar was based on lots of fac Sweden europe: Global Shorethe challenges and Source: Showcasing 2010 webinar tors like language abilities, Opportunities Europe: Showcasing the Challenges and good quality labor, work Opportunities REGIONAL DYNAMICS ethics, infrastructure and so on. Hungary, Romania and European Union member countries in Eastern Europe have significant advantages, Slovakia are the leading locations for voice operations. Poland providing them the edge to become nearshore locations of choice is the popular location for Non-voice BPO work like FAO and A recent trend is of clients preferring to send work onshore or to nearshore locatransaction processing. tions. This is true for US itself. This is not necessarily because of a language prefIndian service providers are also waking up to the erence. This is being preferred even at a higher cost than offshore locations. This realization that having a nearshore presence in Europe trend is favoring Eastern Europe. is increasingly important, both in the ITO and in BPO Being a part of the EU makes the smaller countries offering cost arbitrage very space. Mphasis is the recent one to join the bandwagon. attractive nearshore destinations, some other benefits for Eastern European Gopinathan Padmanabhan, Head Global delivery unit, Mphasis, commented in one of its recent press releases, 32 GS Destinations Compendium 2010 www.globalservicesmedia.com Poland offers ability to service clients in most continental European languages and is well connected with other Western European business centers. The availabil-

Europe: Showcasing the Challenges and Opportunities

The Emerging Nearshore

we are predicting that more and more enterprises will consider eastern europe as a strategic outsourcing destination.
July 2011

11 Globalservices

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COUNTRY-IN-FOCUS
A special feature for countries to showcase their uniqueness

Ensuring Global Visibility

Inviting Countries to showcase capabilities that accentuate their uniqueness.

There are numerous outsourcing destinations that exist as great alternatives to India and China.

Examples of Country-in-focus feature

Egypt Philippines Jordan

JORDAN

For more information write to satishg@cybermedia.co.in

Destination Europe

ity of talent, language skills and an established business infrastructure in Poland made it a natural choice for us. What benefits do these locations offer to service providers? Luxoft that has operations in the Eastern European countries like Romania and ukraine believes that there are many advantages. Loschinin says, Because Luxoft maintains operations in both countries, we are able to tap into the abundance of IT talent available, and as a result, our Eastern European business is booming. For our global customers, the deep expertise of our engineers and software developers results in higher-quality products and services, and an overall competitive advantage. Will it be a Future Destination of Choice? When it comes to low cost alternatives, Europe has a long way to go, but it will surely be a major contender in selective areas that require better language skills and good quality. Salil Dani, Research Director, Global Sourcing, Everest Group, sums up In the next couple of years demand is likely to increase with countries coming out of debt crisis. Easter Europe will continue to see demand for high order IT skills and niche capabilities, though the overall scale of operations would be lower than that in India and Philippines.

For service providers, scaling up can also be an issue in the long run. General Manager, Andrei Pronin, Auriga, comments, The providers tend to be of a smaller scale, and can put together large teams slower than competitors from other locations. However, for traditional R&D projects thats not a problem, as big teams are rarely needed. Service providers would invest more in the near future, especially in the Tier 2 cities. Different regions will have their own specific requirements and service providers will have to adopt a combination of strategies to make use of the opportunities. Pointing to future prospects, Schuh says, It is little bit of a mixed bag. The countries are in different phases in terms of their recovery from the recession. There is very positive momentum in the Eastern Europe. But its a little tougher in countries like France and Spain. Although experts have mixed reactions about the potential that Europe holds, service providers seem to be very positive. Loschinin reveals, We are predicting that more and more enterprises will consider Eastern Europe as a strategic outsourcing destination and we are expecting significant business growth for our operations within Eastern Europe. GS

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HRO

So Old, Yet So New

Prerna Tandon
Prerna has been one of the pioneers in the HRO space in India. She led the HRO practice in Infosys BPO as VP and SBU Head for over two years growing the business profitably. Later, she joined ANZ Bank as the Global Head of Payroll & HR Operations, responsible for global strategy and execution in this area.

Cover Story

Hro: so old, Yet so New

outsourcing and offshoring of Hr presents many opportunities and challenges, what is needed is for more Hr professionals to have outsourcing business skills (namely process, operations, project management) and for more outsourcing professionals to have a greater understanding of Hr issues and its impacts. Prerna Tandon

uman Resource Outsourcing (HRO) or Human Resource Services (HRS) is one of the oldest areas to have been outsourced in varied and different models, in bits and parts, especially areas such as recruitment, payroll and benefits and learning/training. This has resulted in large and very successful specialized and localized outsourcing firms in the HRO space. The advent of offshoring has lent a different flavor and new opportunities, but there are numerous challenges that buyers and providers are still struggling with. The Sum of the Parts Most are still searching for the magic formula of success. In fact, to club all Hire to Retire (H2R) or Search to Separation (S2S) processes under one roof is a mistake in

itself because each of the hire to retire processes is unique and has a unique set of characteristics that need a different strategy both from a buyer/providers viewpoint. Some of the differentiating characteristics are: Recruitment: There are sourcing and search functions within recruitment, especially at junior and middle levels that lend themselves to being operated out of a shared services environment which is location agnostic. Needless to say that technology enablement is a critical factor for this to be successful. This has only been possible in the recent past, with internet becoming an important medium for job seekers. However, there are still aspects of recruitment that are better performed on shore, especially that require face to face interaction and allow really experienced recruiters to add value based on their experience of the sector and the geography (including networks and contacts).
July 2011

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HRO: So Old, Yet So New

Payroll/benefits: These functions, especially transactional aspects are most easily done in an outsourced and offshore environment. Once again a robust and country compliant technology is the key enabler. However, there is a very thin layer of knowledge that is required which best resides with on shore staff. This mostly pertains to regal regulatory filings and compliance related activities. The question about does this fall into the finance or HR function is still being discussed. I have seen several organizations where payroll is part of finance function and equal number where it is part of the HR function. Wherever this might lie, but what is certain is that its important to recognize the finance and HR components of this sub function and address them appropriately with the right owners. International mobility: This HR function impacts a very few number of employees of any organization, but most of these employees are prized high profile talent, hence most firms endeavor for this service to be best provided by specialist organizations, for instance immigration services firms, moving companies etc. However, internal staff provide coordination and administrative type services, which, though small in numbers are suited for offshoring. learning: Training and Development as this function was previously called, now has signification components that can be outsourced and can be better performed by specialist firms (offshore or on shore), especially if online learning or e learning is a significant part of a companys strategy. Learning, again is being increasingly used as a differentiator by companies. Administrative tasks, e learning related components such as content design, development, instructional design, project management, conversion, administration, testing and tracking are activities that are increasingly being outsourced and even offshored. Employee Data Management and Queries: These functions are mostly the ones that can be completely outsourced and are location agnostic. Employee Self Service and Manager Self Service, ESS or MSS enablement, very widely being adopted, restrict the scale at which these functions need to be performed. However, query handling, again mostly pertaining to compensation and benefits still remains a significant proportion of activities that can be outsourced/offshored. talent & Performance Management: These activities are very niche, mostly periodic in nature, usually centralized
17 Globalservices

with the HR function, closely linked with Learning and Recruitment and other than administrative tasks do not have high scale. Importance & Complexity of HR Processes HR processes and activities in any firm, though fragmented and small as far as number of staff performing a single process is concerned, are mostly the most sensitive processes and have the opportunity to impact each and every employee of the company at some point of time during the hire to retire lifecycle, as compared to any of the other shared services or functional areas. Additionally, experience with HR processes is crucial to maintain employee engagement and morale and one bad experience has the ability of becoming the topic of coffee corner conversation and experience sharing, thus disrupting the agenda of HR managers. Often, I have found that tolerance for errors in HR processes is extremely low. Additionally, from a providers standpoint, HR Processes have a degree of unparalleled complexity, primarily because of zero tolerance from buyers end, the relative importance as described above, coupled with diversity of processes in a limited scale that require varied levels of skills and knowledge ie both voice and transactions, simple data entry to judgment based, local/geography specific knowledge as well as knowledge of company specific rules and policies. The Organizations Viewpoint: Enablers for Offshoring The three tiered model, implemented well and consistently, is the key for designing the HR function in a cost efficient manner that not only enables a global organization to grow and operate in different countries, but also
July 2011

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Cover Story

ensures that through transition to shared services (global, cost effective and scalable), provides consistent employee experience. Briefly, the three tiered model consists of HR Strategy, policy and design components at the top, business partner HR as HR support to business and conduits for change management and implementation of HR strategy in the business and shared services at the base, almost as the strong foundation on which the HR function resides. This model is being increasingly adopted as HR functions transform themselves in an effort to support increasing demands and complexities of businesses in a cost efficient manner. HR technology is the next fundamental pillar which enables the creation of HR shared services which can then be outsourced/offshored, with adequate change management and knowledge transfer routines. Mostly, in the case of HRO, buyers are HR managers and not sourcing departments. Often, I have found that this translates into greater importance on factors such as competence and experience in HR, home grown HR technology and its functionalities and lower consideration on
18 Globalservices

factors such as competence in delivery, offshore capability, knowledge management, SLAs etc. Also, most buyer organizations and HR managers, when asked would normally state that they intend buying superior service, and not lowest cost. Service performance even if its at a wee bit higher cost is more important in the buying decision. Service Providers- Key Success Factors Bundled HR technology in the solution set is the single largest enabler for success in not just delivery but also in winning more and new business. Cost and time involved in an in house HR ERP implementation can act as deterrent and can work hugely in favor of the provider who can provide a BPaaS (Business Process as a service) model. Most large outsourcing providers who have added HRO in their basket of services have now realized this and have partnered large ERP like Peoplesoft/SAP and provide HRO service using the underlying technology platform. Traditional HRO firms have their own home grown, highly customized technology platforms that has resulted in client stickiness.
July 2011

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HRO: So Old, Yet So New

Provider organizations have to realize that business process management techniques and disciplines, if used well can enable them to be successful in this space. A recognition of how HRO comprises several smallish processes, and treating each one, however small in scale it might be, as a process that requires strict process discipline of mapping (SIPOC), training process staff, escalation matrix, what if scenarios, knowledge transfer/management are all very critical. Competent and skilled staff, like in most other areas is just as important. Service attitude, higher skilled staff capable of performing multiple processes are more important in the HRO space. For complete end to end outsourcing, mix of onsite and offshore in the solution mix can be a differentiator and important. Specific geography compliance. legal/ regulatory knowledge can be additional advantage in the overall delivery capability. Enablers for both Buyers and Providers Just as in any outsourcing, both buyer and provider need to invest in setting the foundation of this relationship that can enable the future delivery of superior service to the employees of the business. One key area is to invest in process standardization along with policy streamlining. A complete analysis of process and policy anomalies and standardizing them prior to outsourcing can assist a seamless transition and on going delivery. It is broken processes, too many exceptions in smallish scale of operations, backed by several policy variations that pose delivery and knowledge management constraints from a providers standpoint. Also, process and policy variations that may have crept in over time, are also in the interest of HR organizations as they attempt to build scalable, consistent employee policies and practices. Hence addressing this aspect is of mutual interest. Often, this aspect is over looked, and technology is awarded greater importance. However, the point to note is that policy, process standardization can enable cleaner smoother technology implementation with fewer customizations that can be a boon for any technology/application implementation and maintenance professionals.

Change management, the discipline that HR professionals are entrusted with for all major transformation projects in any business is just as important for HR Outsourcing projects. This area, since it happens in HR functions own backyard, is also, most easily ignored and overlooked. But due to the nature of HR Outsourcing as it has the potential of impacting every employee several times during their employment with the company needs to be adequately addressed through various change management techniques and communication. Emerging Trends & New Model Anyone who has viewed and been a part of this industry has witnessed trends where HRO has moved from processwise specialist in country outsourced mode to complete function deal based list and shift to now generalist offshored. Newer trends in this space (both technology ie Workday and process) are now looking at closer integration of all shared services functions that creates scale, which was the drawback with HR shared services alone. Creation of scale then enables investment justification both at providers and buyers end. If one has to adopt the customer centric view then this trend makes eminent sense to have all internal shared services processes that impact employee lifecycle (not just HR, but even finance, ie employee reimbursements, travel and expenses etc) all reside under a single shared services umbrella. From an operations and delivery standpoint, these processes can then be classified by skills required to perform them i.e. voice, numeric ability, end user service etc. While from a purist standpoint, this makes a good model that addresses the strains that exist in the current model and combines ease of delivery and greater end user satisfaction, the challenge that this poses is that of functional territory and operational control within the structure of any organization. GS
Prerna has been one of the pioneers in the HRO space in India. She led the HRO practice in Infosys BPO as VP and SBU Head for over two years growing the business profitably. Later, she joined ANZ Bank as the Global Head of Payroll & HR Operations, responsible for global strategy and execution in this area.]

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HRO

small, shorter term deals setting New trends in Hro

Hro providers are not seeing too many opportunities for multi process deals, but there lies a clear opportunity in transforming small, short-term deals into longer strategic outsourcing relationships. Smita Vasudevan
s the economy is reviving, the HRO market to look forward this year. GIAs Human Resource is regaining its lost momentum. The number Outsourcing: A Global Strategic Business Report of deals has gone up over the last few quarters (2011) expects united States and Europe to continue and adoption rates are improving. According dominating the global HRO market. to krishna Baidya, Industry Manager, Frost & Sullivan, The HRO market has received a great boost as increased Going Strong number of multi-process outsourcing deals, involving HR In 2010, the Multi Process HRO (MPHRO) marservices such payroll, recruitment, training and develop- ket grew by six per cent to reach an ACV of $ 3.07 ment etc have started pouring in. Exhibit 2: After dipping sharply in 2008, new-deal A major chunk of the demand is After dipping sharply in 2008, new-deal activitymarket the MPHRO market activity is back in the MPHRO is back in coming from public sectors across Number of new Number of employees deals signed added each year regions, as pressures to cut costs are New deals Number of employees added each year mounting. Sectors like financial Number of deals Number of employees (000) services, pharmaceutical and man2,000 70 57 61 ufacturing are some areas that are 1,750 60 50 1,500 46 currently high on HRO adoption. 50 43 1,250 Everest Groups Human 40 1,000 28 30 Resources Outsourcing Annual 750 20 Report 2011 points out few notice500 10 250 able trends for this year. Demand 0 0 for global expertise by buyers, 2005 2006 2007 2008 2009 2010 integrated HR services, technology Growth curve of MPHRO new-deal activity Number of deals innovations and preference for sin80 gle service contracts will be major 60 factors driving the HRO market 40 20 in 2011. Increased buyer prefer0 ence for offshore service providers 2005 2006 2007 2008 2009 2010 as a low cost HRO partner will Sample size: 285 deals signed between 2005 and November 2010 Source: Everest Research Institute (2011) most likely be an important trend 2
Copyright 2011, Everest Global, Inc. ERI-2011-X-X-XXXX

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B. More than 40 new deals were signed during this time and there were also significant number of extensions to the existing ones, says Rajesh Ranjan, Research Director, Everest Group. This coupled with reduction in the number of contract terminations indicate improved buyer satisfaction. As enterprises are becoming more careful in their outsourcing strategies and are reevaluating partnerships, there are some notable changes in the types of HRO contracts being signed. The visible trend is that the size of contracts is reducing and the contract period is going down. Enterprises are also including lesser number of processes in the MPHRO deals. Commenting on this, Michael Custers, VP Marketing, Northgate Arinso, says,We are seeing fewer big bang outsourcing contracts combining finance, HR, and procurement outsourcing, in favor of a more controlled and smarter approach focused on a select number of HR processes and rapid financial and quality returns. The idea behind this is to start slowly and later move to bigger deals if the deal appears to be paying off. Such change in customers mentality is keeping vendors on their toes in the increasingly competitive market. Through such outsourcing, buyers are seeking to scale up quickly or gain access to contingent workforce with the required skills, gain cost advantage at various geographical presences they may have and deliver consistent experience, says Baidya. Payroll has traditionally been the most outsourced function in HRO, considering its complexity and specialized knowledge required in the domain. Typically, enterprises are initially starting with outsourcing transaction intensive functions like payroll and over time, they move to other areas like learning and recruitment. The opportunity service providers have here is to transform short term agreements into long-term strategic relationships by offering competitive services combined with innovative technologies that suit specific enterprise needs.
22 Globalservices

The influence of software-as-a-service (SaaS) will be fairly visible on the global HRO industry. The rise of SaaS is likely to popularize Hybrid HR models. According to Custers Hybrid HR allows enterprises to leverage their in-house infrastructure for workforce administration, seamlessly integrate it with an outsourced multi-country payroll solution (HRO), and deploy your talent management processes in a SaaS/ OnDemand model. RPO is Hot Recr uitment Process Outsourcing (RPO) is relatively new as compared to most other areas in HRO, but it has matured fast. The segment is growing, though certain areas are still not developed fully. In terms of global RPO, there hasnt been much of development as there are not many service providers capable of delivering a comprehensive global offering. This apparently is the reason why buyers have been depending on multiple service providers for their global RPO needs. Employment branding is an RPO area that is increasingly gaining focus. Enterprises are looking for service providers for their employment marketing and communication initiatives as they find it cost effective to outsource these rather than doing it in house. Technology for recruitment processes are evolving and enterprises are looking for providers who are able to offer sophisticated technology solutions. These technologies include mobile platforms, and employment marketing and recruitment CRMs. Integrated technology offerings is most likely to be one of the major service provider innovations to be witnessed in 2011. In terms of the geographical demand, North America accounts for more than 50 per cent of the global RPO deals. Service Provider Strategies The Everest Report had classified ADP, Aon Hewitt, Northgate Arinso (Convergys), IBM and Accenture as the leaders, while Genpact, Xchanging and Neeyamo are categorized as the emerging players.
July 2011

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Small, Shorter Term Deals Setting New Trends

Service provider strategies are also changing in line with the changing demands of the industry. Many providers are trying to strengthen their offshore presence and add single process offerings to their line of services. Growth is most likely to be achieved by way of inorganic routes like mergers and acquisitions. The recent spate of M&A deals amongst HRO service providers clearly highlights this. One prominent one is the aqcuistion of Convergys HRO business by Northgate Arinso. Commenting on how this has contributed to their business, custers says, NGA and Convergys HRM business have been fully integrated now. We have invested a lot in building strong ties with our customers and exceeding quality standards. We believe that both our customers and our employees have benefited significantly from this transaction. NGA believes that the need for higher employee engagement, continuing globalization, openness to process standardization, automation of transactions, and focus on core strategy to be the most important elements of a successful HRO strategy.

Services need to be scalable for any size employer with the ability to grow as mid-market organizations grow and their needs expand. we are prepared to meet their needs in all service lines and grow with them as the economy recovers.

ACS, says, As the first wave of mega-deals come up for renewal, we expect organizations to look for a best of breed solution, rather than a comprehensive solution.

Emerging Models Typically, the pricing models are based on headcount utilization by enterprises. This is usually the same for both single-process and multi-process HRO. But as cloud-based and SaaS offerings are becoming more popular, utility based pricing models are likely to be seen more. Mid-market enterprises will be more open to such kind of a model as it offers them access to technology applications without having to pay a high initial cost for deployment. Pointing to the growing demand for smaller deals, Ann Vezina, Executive Vice Ann Vezina, Executive Vice President and Group President and Group President of HR Services, ACS President of HR Services,
23 Globalservices

The Power of the Mid Market The mid market segment is expanding the growth opportunities for global HRO service providers. Today a large chunk of the business is coming from these enterprises and providers are developing specialized strategies to tap this exploding potential. A research paper by katrina Menzigian, VP, Research Relations, Everest Institute How Mid-market HRO is Emerging as a True Growth Platform, 2011 states that the mid-market companies have increased their adoption of integrated MPHRO and this segment is becoming the growth platform for many of the leading HRO service providers. Of all the MPHRO deals signed in 2010, 61 per cent came from the mid market. Cost saving objectives, access to advanced HR technology and improvements in overall business efficiency are the major factors driving these companies towards outsourcing. Commenting on their mid-market strategies, Vezina says, Services need to be scalable for any size employer with the ability to grow as mid-market organizations grow and their needs expand. We are prepared to meet their needs in all service lines and grow with them as the economy recovers. Drivers Cost reduction remains a top driver of MPHRO. Other important drivers include managing compliance risk, greater alignment between HR and business strategy and access to better technology, says Ranjan. Enterprises are depending a lot on service providers in areas other than cost saving and are looking for partnerships that bring a little extra in the form of innovation and guidance. Experts believe that providers have a big opportunity here. They may not be seeing too many opportunities for multi process deals but there lies a clear opportunity in transforming small, short-term deals into longer strategic outsourcing relationships. A multiple location strategy can play a vital
July 2011

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Small, Shorter Term Deals Setting New Trends

role for service providers. Custers says, Multi-country What Lies Ahead? Outsourcing led HR transformation presents process is a great entry point into multi-process HRO, and we consider it a major driver for growth in several challenges that enterprises must overcome the overall HRO industry. Enterprises are targeting to achieve desired results. Everests research indiimprovements in different strategic business areas, and cates that service provider selection, managing providers that are able to offer this will have a visible the outsourcing partnership, stakeholder engageExhibit 3: ment and alignment, cultural integration, overall advantage in the long run. New deals continue to be smaller in size

and duration
New deals continue to be smaller in size and duration
TCV of deals over time Average TCV (US$ million)

101 64 59 52
Average TCV = US$66 million

27 Upto 2005 2006 2007 2008 2009

14 Nov-10

Term of deal over time Average number of years

8 7 6 5 4 3 Upto 2007 2008 2009

Average term = 6.1 years

2010

Custers says, we believe that together with multi- change management, and transition-related issues country payroll and learning, recruitment represents an are that have a TCV of more than challenges faced in such Note: Analysis does not include contracts some of the major US$1 billion Sample size: important area of expansion for381 deals signed between 2005undertakings. Service providers and buyers both HRO. However, we and November 2010 Source: Everest Research Institute (2011) strongly believe in process integration for HR.RPO can be need to be cognizant of these challenges and take 3 Copyright 2011, Everest Global, Inc. deployed as a stand-alone process, to deal more efficiently appropriate measures to overcome these. says ERI-2011-X-X-XXXX Ranjan GS with the transactional part of recruitment.

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Case Studies
That Define Global Sourcing

one STop reSourCe

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Lanit-TERCOM Creates Comapping for A Joint Venture Between Area9 & Lanit-Tercom
The Client:
I can see the service being of real use for those looking to tap into the valuable resource of other points of view while putting together projects, proposals and presentations. (Collaborative Online Presentation Planning - Michael Pick ) Comapping has been a cost effective solution and has provided us the structure and overview that we need to run a successful organization (CopenFysioterai) I was so pleased to find a Company dedicated to thinking outside of the box for project management () For the first time, my team can think together! Comapping will be on my list of needs for any project I run without a doubt. (SERMONSPICE.com)

at a GlaNCE
Client

Founded in 2006 as a joint venture between Area9 and Lanit-Tercom: Area9 (Denmark) is a provider of educational software solutions, and an expert in educational computer simulators LANIT-TERCOM (a member of LANIT group) is one of the leading Russian outsourcing providers of software development services. (300+ employees and >uSD 10M in turnover).
Situation Analysis:

A Joint Venture Between Area9 and Lanit-TERCOM

Service Provider

Lanit-Tercom Ltd
Service Provided

Comapping
The smart collaborative tool Intelligent Autofocus From left to right organized mind map No need of installation Intended for multiple users

The idea behind the project was to create an online collaborative tool for mind mapping. This tool allows people to organize their ideas, notes and documents as a mind maps and then share them with other users and work on them together. The primary features of the applications include online use, live collaboration, and support for large maps.
Solution:

SucceSS MetricS
In first 2 years the service has gained more than 10000 users. The users can access theirs maps from any computer connected to the Internet. users can also work with theirs maps offline by using a desktop client for the service. The solution can be utilized as a standalone server and integrated into a company network allowing for corporate usage. Focus corporate knowledge in one place and transform it into usable business intelligence Stimulate collaborative thinking by increasing individual and group focus Increase communication effectiveness through a logical and clear structure for any content Increase effectiveness of brainstorming sessions through Comappings unique collaboration feature

RIA is a common trend nowadays. Lanit-Tercom Inc. has been developing Rich Internet Applications since early 2005, since the earliest stage of the concept. Lanit-Tercom team delivered the unique web application named Comapping Fully Internet-based

FOR MORE iNFORMATiON ON COMAPPiNg CONTACT TO MiCHAEL PLiskiN, TECHNiCAL DiRECTOR

michael.pliskin@lanit-tercom.com

CASe STuDIeS
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xperts Human resources transformation is outsourcing a solution?

NassCoM estimates the global BPo industry spend to grow at a CaGr of 6.1 percent between 2009 to 2014

by kumar Parakala, kPMg

a shared services center or outsourcing Introduction The current scenario The concept of human resources Today, as the global economy con- to a third-party service provider or a (HR) transformation or the exten- tinues to gain further stability, a large combination of these models. Most sive restructuring of corporate human number of organizations worldwide of the organizations trying to transresources departments (HRD) took are expecting HR transformation by form HR have chosen outsourcing hold in the last decade or so. Prior to reducing their total cost of ownership as a major portion of their Human that HRD staff was seen as adminis- (TCO) for human resources. With Resource transformation strategy. trators managing the mundane and a focus on achieving this, strategic not involved or responsible for stra- HR seems to have taken a back seat. Organizations will continue tegic decisions. However, as compe- Several HR surveys done so far have to invest heavily in HR tition increased so did the demand indicated that Cost remains a top Outsourcing (HRO) NASSCOM estimates the global for human assets and a need for priority that an enterprise seeks to BPO industry spend to grow at a attracting, retaining and growing the reduce in case of HR too. This could best talent. This required a change be achieved either through in-house CAGR of 6.1 percent between 2009 in the mindset of the HRD and tak- cost reduction initiatives or setting-up to 2014, while the HRO spend which ing on more strategic role Figure 1: Worldwide HRO and Total BPO spend bearing in mind the larger business goals and objectives. Soon organizations began to relook their HR departments and its functions. HR transformation took root and HRDs started getting influenced by ideas on modern HR practices of HR specialists and gurus of the time like Dave ulrich. Shared services center (SSC) for HR, outsourcing HR, and HR business partners/ leaders and other similar concepts and models started getting implemented. The P = Projected key idea of HR transforma- Note: HRO spend includes spend on routine HR services and services delivered during the initial tion was to set HRD free design and implementation of the HR solution as well as on an ongoing basis. This includes servfrom the administrative tasks ices consulting, system integration, training and education, application outsourcing, etc. Source: NASSCOM Strategic Review 2011 and focus on the strategic.
28 Globalservices www.globalservicesmedia.com July 2011

HRO

is 43 percent of total BPO spend, will grow at a slightly lower CAGR of 4.8 percent during the same period to reach around uSD 83.6 billion by 2014 and still contribute nearly the same percent to the total BPO spend pie. These numbers reaffirm the fact that organizations worldwide will continue to spend a significant portion of their revenues on managing their human resources. This also indicates the continuous commitment of enterprises worldwide to their HR outsourcing plans and the strategic intent behind it. Scope for Outsourcing Human Resource Services While human resource outsourcing continues to grow, it is still a very long way from full-scope HR outsourcing in comparison to what we have witnessed in IT outsourcing space.
Figure 2: Potential scope of HR services outsourcing (illustrative list)

Source: KPMG Research and Analysis

What started more than a decade ago still continues today. Most of the HRO contracts have transactional HR work getting outsourced, for example; payroll processing, employee background check, staffing, training, benefits administration, etc. Organizations choose to retain more strategic HR initiatives like organization development, change management, etc. in-house. A few organizations hire external consultants to offer such services, but typically its a one-off case in the
29 Globalservices

Figure 3: Transactional vs. strategic HRO services

Source: KPMG Research and Analysis

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July 2011

Experts

large extent, most of the metrics chosen do not indicate any HR transformation happening in reality. This only indicates that purely outsourcing or setting-up an HR SSC or having n number of HR business partners will not ensure HR transformation. The how-to of HR Transformation A perspective It is quite evident that outsourcing an organizations HR functions will certainly do the ground work for focusing on strategic issues as the routine, low-end and transactional tasks will no longer eat-up HRDs time and energy. At the same time certain processes or systems must be paid attention or be in place to expect real HR transformation. Some pointers in this direction are mentioned below:
n Partner with the right service

Global ServiceS MaGazine Past Issues 2011 May issue The Promise of iaaS New Opportunities in Global Sourcing: IaaS and Analytics
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history of that organization rather than a cyclical or regular activity. At a high level, todays HR is seen as a more strategic department seeking answers to issues relating to multi-cultural complexities, leadership development or change management which are core to the organization and hence the reasons for keeping them in-house. Probably they will always remain in-house and only more mundane and transactional processes will continue to be outsourced. However, thats not a concern when it comes to using outsourcing for HR transformation. The Big Question: Are organizations transforming their HR by outsourcing? To my mind the top few reasons why organizations outsource HR are; they get the opportunity to reduce costs, get access to external HR expertise, ability to focus on strategic HR priorities, relieved of possible labor regulatory issues, and a possibility of improving service quality. However, the following parameters are typically measured by these organizations to determine the HRO engagement success; operational efficiency, operating costs, service quality, employee satisfaction, HR staff reduction or changes, etc. While a vast majority of business leaders will quote of having achieved their HR outsourcing objectives to a
30 Globalservices

2011 april issue

provider - The degree of buyer satisfaction in a HRO engagement varies according to certain key attributes while evaluating vendors. These arel Per-employee costs l Staff Quality of service provider and their expertise l Technology capabilities Those companies which underestimate these key attributes and focus more on the overall cost savings remain typically less than satisfied or dissatisfied with their HRO vendor, leading to spending time and energy in managing vendor relationship and service related issues. Service providers offering a combination of competitive pricing and strong key attributes typically create long-term customer satisfaction. It might sound clichd but partnering is the key. The idea is that if the parties involved in the deal work closely together as partners they both
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The new rules in bPo Learn about what will drive the BPO sector in this special report.
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2011 March issue

contact center industry: where do You Go From Here? Contact Centers and the Challenge of Social Media
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July 2011

HRO

can learn in the process and forge a win-win relationship, instead of the iterative negotiations thought to characterize a typical transactional HRO engagement.
n Establish HR transformation

n top Management role crucial for

metrics - As the saying goes what cannot be measured cannot be improved. While this is true, it is virtually impossible to list out how to measure HR transformation, the ultimate metric being how much value is being created? In the context of HR this could mean- establishing HR metrics based on input, efficiency, effectiveness and outcome based metrics, establishing the correlation between HR and business scorecards. Examples of such metrics could be; on-boarding vs. attrition, which could help in prioritizing HR resources to make maximum business impact. Others like revenue per employee or profits per employee could give a financial perspective to HR value creation. in the retained HRD based on business initiatives to serve Due to off-loading of administrative work, HR roles need to be redefined within the organization. But instead of doing that first, what is essential is to identify the critical business needs and initiatives of the business units and then realign the HRD with suitable roles and responsibilities that will add maximum value to the unit and deliver business results. HRD also needs to probably reskill its retained staff or employ new staff to suit the new and more strategic roles. A failure to redefine HR roles will only mean that the HR spends more time on keeping a check on the outsourced service provider which will ultimately lead to the failure of the transformation initiative.

successful HR transformation - ultimately the success of HR transformation lies with the top managements involvement and drive. They need to believe and propagate the notion within their organization that talent leads to superior corporate performance. At the same time understand that HR is not the only one accountable for employee and employee processes but it is every business leaders responsibility.

2011 February next & best issue Practices in Global Sourcing Thoughtleading Practitioners Viewpoint Client priorities are shifting and there is no consistent correlation of the benefits of outsourcing to business impact.
click Here To read

n Redefine new HR roles with-

Conclusion Outsourcing to a third-party vendor or setting-up an HR SSC or any other model will not guarantee successful HR transformation. Its only the beginning and demonstrates a change in the delivery mechanism while possibly allowing the HR to focus on strategic issues that will add business value. What happens later will be the crucial part to determine success. Management has to realize its role in empowering the human resources department in taking itself to a new level to realize transformation in the true sense. HR business partners should redefine their staff roles to enable them to think and act in a more strategic sense in line with the business units top priorities. HR transformation should be measured with appropriate metrics so that effectiveness of the process is tracked and suitable and timely measures are taken to make the process more robust. HR transformation will change the way organizations behave and deliver. Success lies not in in-sourcing or outsourcing but in the synergies between the transformation objective, implementation and the key stakeholders drive to achieve it. GS
Kumar Parakala is Head of IT Advisory, KPMG EMA & India and Chief Operating Officer, Advisory in KPMG in India. He is also a global head for Sourcing advisory.
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2011 January issue

Utility computing: The reality check In the decade that went by, the outsourcing industry had many momentous shifts
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2010 archives www.globalservicesmedia. com/e-magazine

July 2011

31 Globalservices

xperts

By Nigel Hughes, global services Director, Compass Management Consulting

the French Banking sector: sourcing strategies, trends, and observations

French banks outsource about 20 percent of their it costs. approximately 80 percent of French banks now outsource facilities management, though not as part of a comprehensive it services agreement.

rench financial services organization have in recent years undertaken some new and noteworthy approaches to sourcing strategies, including a focus on consolidating operations through captives, and forming partnerships both within and outside the banking sector to manage growth My Paris-based Compass colleague Guillaume Almeras recently compiled a series of observations of sourcing strategies among French banks. First off, from the French perspective, outsourcing does not necessarily mean a relocation of activities. When relocation does occur, it is often through a captive model. In addition, sourcing strategies tend to encompass a comprehensive range of objectives, and dont focus narrowly on cost reduction. Overall, French banks outsource about 20 percent of their IT costs. Approximately 80 percent of French banks now outsource facilities

management, though not as part of a comprehensive IT services agreement. BPO with the European banking sector has traditionally been limited to HR and accounting. However, this is changing as close to 70 percent of French banks now outsource check

processing, with other functions such as securities and electronic banking following suit, as evidenced by a joint BNP Paribas and Natixis platform.
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In terms of metrics and performance improvement strategies, the concept of activity-based invoicing in internally-managed operations is gaining increasing attention. By allowing each discrete activity to be assessed as it would be with an external provider, this trend suggests growing interest in outsourcing. Customer support activities (including call centers) are generally neither outsourced nor relocated, and during the past few years some banks have undergone a wave of re-inshoring. Credit handling is still highly centralized, even within the major banking groups. In recent years large-scale partnerships have been used to help French banks manage expansion. Four specific examples stand out: In 2010, Crdit Agricole SA took over asset management activities from
July 2011

32 Globalservices

The French Banking Sector

Socit Gnrale through the creation of Amundi, a new joint subsidiary that is 75 percent owned by Crdit Agricole SA. In addition, Crdit Agricole SA took over HSBCs deposit activities. Newcomer Banque Postale has used joint ventures as a core element of its development strategy in key sectors such as consumer loans, casualty insurance, and health insurance. (LBP Financement, 65% owned), damage insurance (LBP Assurance IARD, with Groupama), health insurance (Efprimo with Mutuelle Gnrale). New ventures with LBP Financement, LBP Assurance IARD (with Groupama), and Efprimo (with Mutuelle Generale) complement Banque Postales longstanding life insurance offering partnership with CNP Assurance. With Socit Gnrale, LBP also has a shared electronic banking platform (Transactis). Through these initiatives, Banque Postale is leveraging partnerships to offer customers a wide range of service offerings, rather than developing them all in-house. While this model has been used around the world, it is new to France. Interestingly, Socit Gnrale has started to adopt a similar model for some of its activities.
33 Globalservices

In 2002, Socit Gnrale, formed an equal partnership with Axa to handle employee saving plans through a common platform. In 2009, Socit Gnrale entered into a partnership with the Banque Postale for consumer loans, at the same time handing over European and Asian asset management to Amundi, in which they own just a 25 percent share. Together with Crdit Agricole CIB, Socit Gnrale set up a 50/50 joint venture in the Newedge brokerage. Finally, the recent financial crisis saw Banques Populaires and Caisses dEpargne enter into a joint venture through the co-purchase of a common investment banking subsidary Natixis, thus forming the group BPCE. If this pattern continues, the French banking sector will likely be transformed over the next decade, as a clear distinction will emerge between the production and distribution of services. In addition, banks will likely offer customers a range of products developed by competitors. An example of this trend already exists, with Caisses dEpargne offering consumer loans
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through Cetelem, a BNP Paribas product. Lacking a competitive advantage in a particular offering, banks can purchase that offering from a competitor and sell it through their network, under a custom brand name, or under the competitors name. Assuming these trends presage an increase in merger activity, the new entities will likely turn to outsourcing to reduce costs within the combined organizations. A final observation: over the past decade, French banks have fallen behind their global peers in terms of operational efficiency and productivity. The main factors driving this gap have been exceedingly high staffing levels, including a high proportion of managerial staff, and a lack of process automation and standardization. Based on these findings, it can be concluded that significant operational improvement opportunities exist within the French banking sector. GS
Nigel Hughes is Director of Global Service Development at Compass Management Consulting. Bill Huber is Partner and Director of CPO Services at TPI.
February 2011