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Passion

Building on Our Global Heritage
The Taj Mahal is acclaimed as a masterpiece of architecture and of the heart — an enduring testament to the power of love and a builder’s passion for creating beauty. At Genpact, we too, are passionate about our work and see beauty in managing and simplifying business processes for companies around the world. Our 31,700+ associates span 9 countries are united by a passion for excellence and commitment to work as a team. By combining our passion for excellence with teamwork, Genpact redefines what is possible, expanding from service to one company, GE, to more than 35 global enterprises in less than three years.

Working Together: IT-Enabled BPO
Enterprises are searching for ways to continuously improve what they do. An emerging trend is the integration of Business Process Outsourcing (BPO) with Information Technology Outsourcing (ITO) to create even greater value. Genpact’s propriety technology tools, coupled with domain knowledge in major industry verticals, transforms client cost structures while reducing complexity and risk.

A Passion for Excellence.
At Genpact we’re passionate about our customers, our people and the communities we serve. Our passion is a special energy that defines us and constantly raises the bar on what we can achieve as we strive to exceed customer expectations and drive business impact. Our dedication to this principle drives us to be the Employer of Choice wherever we operate. We recruit top talent, train and reward them to be their best and create an environment of learning, openness and respect. This passion for excellence is part of Genpact’s DNA, rooted in our GE heritage and fervent belief that the customer comes first.

Cultivating Quality: Lean and Six Sigma
As companies wrestle with growing global complexity and competition, they look to Lean Six Sigma and Reengineering methods to ensure consistently high levels of performance and service delivery. As part of their efforts to sustain customer and shareholder value, global leaders search for partners whose dedication to process excellence is part of their DNA. Like other great builders, Genpact has the culture and tools to get it right the first time. Our building blocks are the deep industry domain knowledge, technology know-how and multi-shore delivery that we combine with Lean Six Sigma to ensure process excellence with every customer engagement.

visit us at genpact.com and learn how we can work together to make the impossible possible
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August 2008

Global Services’ Definitive Survey of Sourcing Advisory Firms. l Find out key trends, vendor positioning, recent deals and legal firms in LPO.
l

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GlobalServices 3

The gateway to the global sourcing of IT and BPO services

A u g u s t 2 0 0 8 Vo l u m e 0 3 , I s s u e 3 1

FEATURES

By Imrana Khan

16

26
SOURCING CATALYSTS By Namita Goel
The downturn has supposedly worked well for the vendor-management tools providers as companies are increasingly opting for these performance-management and monitoring tools to manage complex multilevel and multivendor relationships

30
THE HR LANDSCAPE IN HURRICANE SEASON By Lowell Williams, EquaTerra
Today, every industry is feeling the pinch due to lack of liquidity, margin pressure, low U.S. dollar exchange rates and accelerating inflation, led by energy costs. It is against this backdrop of competing trends that we need to measure some of the larger developments in HR outsourcing

4 GlobalServices

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August 2008

24X7

COLUMNISTS
LISA ROSS

7 7 8

INDIA’S LARGEST CAPTIVE BUYOUT
Aviva Global Services, Finally, Sold!

THE 10 JUNE ’08:OF MONTH CONSOLIDATION WITH 40 M&As By Tholons

By Imrana Khan NO. OF DEALS GOES 10-YR HIGH IN H1 ’08 By TPI BOOK REVIEW: THE QUEST FOR GLOBAL DOMINANCE By Keerthi Nair U.S. FEDERAL GOVT. AGENCIES AWARD 3 LARGE DEALS IN MAY ’08 By Datamonitor BPM TOOLS = SPEED BOOSTERS + BIZ VALUE CREATORS By Imrana Khan A SHIFT FROM KPO TO MARKETING & CUSTOMER INFORMATICS By Imrana Khan

11

34% MORE FAO CONTRACTS TO BE INKED IN 2008 By Imrana Khan EVALUESERVE: TOP PATENT-SERVICES PROVIDER IN INDIA By Imrana Khan BPO IN EASTERN EUROPE TAKES OFF By Imrana Khan

Lisa is the CEO and founder of FAO Research, an independent research firm focused exclusively on the FAO and procurement outsourcing markets. As a leading analyst in the outsourcing industry for more than 12 years, she works closely with customers, advisors and suppliers of outsourcing services.
SHYAMANUJA DAS

12

8

Shyamanuja pioneered outsourcing journalism in India in 1998 with bpOrbit, a newsletter for the domestic Indian BPO industry. He is now Editor, Dataquest magazine, Cybermedia.
LORI BLACKMAN

13

8

14 OFFSHORING TO TALLINN
By Namita Goel

Lori is the Founder and President of DNL Global. DNL Global offers solutions across the entire lifecycle of talent management.
ALLAN SCHWEYER

8

15

Q2 ’08 POSTS 275,292 JOBS CUT By Imrana Khan

Allan is the President and Executive Director of the Human Capital Institute and author of Talent Management Systems.

EXPERT VIEWS

34
A COMPREHENSIVE TALENT STRATEGY By Pravesh Mehra and Navnit Singh, Heidrick & Struggles International

38
THE BATTLE OF AVERAGES By Jedd Fowers, EDS, and Scott Feuless, Compass

44
STRATEGIC SOURCING FOR INDIRECT SPEND By Paul Clayton, ProcServe

46
THE DIFFERENCE BETWEEN OBAMA & KERRY By Shyamanuja Das, CyberMedia
August 2008

47
CHOOSING THE BEST OUTSOURCING APPROACH By Lisa Ross, CEO, FAO Research

48
DODGING THE OUTSOURCING LANDMINES By Phil Fersht, AMR Research

50
COMPETITIVENESS OF RICH COUNTRIES’ WORKERS IN DECLINE By Allan Schweyer, HCI and Lori Blackman, DNL Global
GlobalServices 5

www.globalservicesmedia.com

EDITOR’S NOTE

Past the Half Way Mark

T
ED NAIR
Editor
ed@cybermedia.co.in

America on the other hand is more sophisticated; the leading trend here is that it has been moving away from umbrella deals by farming out smaller chunks of specialized activity.

he global outsourcing industry has had a record performance in the first half of 2008, both in terms of Total Contract Value (TCV) and Annualized Contract Value (ACV). It has been the best year ever since 2000. And, analysts find no reason to believe that the trajectory would reverse in the second half of the year. According to TPI’s Q2 ’08 and H1 ’08 index, the broader outsourcing market grew by 7 percent in terms of the number of contracts — 24 percent in terms of TCV, and 36 percent in terms of ACV. Good show. The last three quarters send a strong signal of Europe being the new center of gravity in large outsourcing deals. The region has seen an unbroken trend of strong contract activity quarter over quarter. And this is happening on its own; it’s not that America’s fall is Europe’s lead. The primary reason for this growth story is that Europe is in a different time and phase on the outsourcing curve than America is and, in many ways, it lags the trend that America follows. European contracts are larger in size, broader in scope, and have much to do with the management of IT and network infrastructure. And this trend is symptomatic of a shift from a shared services model that Europe has been following for years. America, on the other hand, is more sophisticated; the leading trend here is that it has been moving away from umbrella deals by farming out smaller chunks of specialized activity. All of this might suggest that the economic slowdown and the financial crisis in the U.S. have had no impact on the global outsourcing industry. For sure, the U.S. market has been exhibiting some softness. In H1, deals in telecom and manufacturing segments found favor while the financial-services segment in the U.S., especially the capital market, remained subdued. But in the broader context, U.S. corporations have been slow in taking up new outsourcing activity at the same clip as before. Perhaps that explains the alarmist posture adopted by and doomsday outlook given by some of the large Indian providers recently. But, given the overall strength of the outsourcing market, I would rather agree with TPI’s Peter Allen (www.considerthesourceblog.com) that there’s a lot of expectation management going on. GS

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BY IMRANA KHAN

Offshoring to Tallinn p. 12

India’s Largest Captive Buyout
Aviva Global Services, Finally, Sold!
fter grabbing immense media attention for the past four years due to its Build-Operate-Transfer (BOT) program, Aviva Global Services (AGS), the U.K.-based insurance giant, Aviva’s offshore unit, is again making headlines with its acquisition announcement. The company has been sold to WNS, an India-based Business Process Outsourcing (BPO) company. This is India’s largest captive buyout so far. The total purchase consideration paid to Aviva for the transaction is approximately $228 million, subject to adjustments for cash and debt. WNS funded the transaction through a combination of cash and a bank loan facility of approximately $200 million credit from ICICI Bank and $30 million in equity contribution from a buyout firm Warburg Pincus, which owns a majority of WNS’ stakes. Besides, WNS has also been selected as AGS’ prime BPO services provider to provide life and general insurance processing functions services worth $1 billion for AGS’ Canadian and U.K. operations for a duration of eight years and four months. Other providers will be capped on numbers and duration as per their existing contracts. “This [acquisition] bolsters our capabilities, not only across all our businesses, but also in every segment of the insurance industry including
August 2008

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property and casualty, life, annuities and health. The deal gives us end-toend process capabilities,” says Neeraj Bhargava, CEO, WNS. Following the agreement, WNS has provided revised guidance for the fiscal year ending March 31st, 2009. The company’s revenueless repair payments for fiscal 2009 is expected to be between $425 million and $435 million, up from the company’s previous guidance of $373 million to $378 million. Even the net income (excluding amortization of intangible assets, share-based compensation and related fringe benefit taxes,) for fiscal 2009 is expected to be between $46 million and $49 million, up from the company’s previous guidance of $44 million to $46 million. AGS has four operations in India (Bangalore, Pune, Noida and Chennai) and one in Sri Lanka (Colombo). In July ’07, WNS-managed Colombo BOT was transferred to Aviva. This was AGS’ second BOT transfer after the handover of the first one (at Bangalore, India) by 24/7 Customer. AGS’ third BOT facility, which was being build by EXL Services (at Pune), had just got finished a week before the acquisition’s announcement. Now for the Chennai and Pune facilities, AGS has issued transfer notices to the third-party providers to handover them to the company within 30 days. GS

No. of Deals Goes 10-yr High in H1 ’08
BY TPI

ccording to latest TPI Index released by TPI, a sourcing advisory firm, the global outsourcing industry finished the strongest first halves in more than a decade. This is attributed to the 282 contracts valued at nearly $49 billion in Total Contract Value (TCV), and nearly $10 billion in Annualized Contract Value (ACV). These were awarded in the first half of 2008, yielding a brisk year-over-year increase of 24 percent by TCV and 36 percent in ACV. Additionally, each of the past three quarters has topped the $20 billion TCV mark — the best three-consecutive quarter performance ever. The TPI analysis also reveals high number of “new scope” contract awards that factor out restructurings that reflect adjustments to existing relationships. The new scope increased in TCV and ACV at roughly 26 percent and 43 percent, respectively. While the America and Asia Pacific regions did not have an appreciable increase in market activity, Europe, the Middle East and Africa (EMEA) experienced 58 percent more TCV in H1 ’08 as compared to H1 ’07. This was due to greater average contract size in EMEA, rather than a surge in the number of contracts. In fact, 10 of the 13 mega deals — contracts in which the TCV is $1 billion or greater — awarded in H1 ’08 were awarded to EMEA, along with 16 of the 24 mega relationships. GS

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Tools&technologies

Bookreview

BPM Tools = Speed Boosters + Business Value Creators
BY IMRANA KHAN

Quest for Global Dominance
BY KEERTHI NAIR

ith cost savings still one of the biggest factors behind offshoring, customers of outsourcing services now expect quicker services. Thus, they are increasingly adopting solutions such as Business Process Management (BPM) to re-engineer, streamline and automate their business processes. “Companies are spending billions to renovate enterprise applications, especially to align company business processes with ERP application software. BPM software and services align an organization’s internal and external processes, while integrating with its existing IT systems,” said Santanu Paul, Senior Vice President and Head, Global

W

Delivery Operations, Virtusa Corporation, an IT solutions and services provider with expertise in BPM. However, BPM, like any other technology, should be used with care and good judgment. “Choice is usually good when those making choices are knowledgeable,” cited Paul. There was a time when companies implemented IT systems simply to achieve efficiencies by cutting operational costs. While that need will always remain, the focus is moving today on building businesses that can adapt rapidly to changing business conditions as market opportunities rise and fall. Speed is now just as critical as cost savings. That's where BPM comes in. GS

s soon as you read the first few paragraphs of the book, “The Quest For Global Dominance” by Anil K. Gupta, Vijay Govindarajan and Haiyan Wang, the extent of globalization sneaks up on you. You will be enchanted with the thoughtprovoking ideologies of the authors — Anil K Gupta, a world-renowned scholar on global strategy; Vijay Govindarajan, the Earl C. Daum 1924 professor of International Business at Tuck School; and Haiyan Wang, the managing partner of China India Institute, and the speaker on smart globalization in the age of China and India — as they charm you through the lanes of globalization fundamentals — the knowledge, skills and experience to navigate the company in a global environment — and the six major issues that a compa-

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News

A Shift from KPO to Mktg. & Customer Informatics
BY IMRANA KHAN

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exterity, an Indian IT and Knowledge Process Outsourcing (KPO) services provider to global market-research firms, is now shifting its focus toward rapidly growing marketing and customer informatics market. To tap the market, the company is now set to provide demand-side business processes through its business solutions — marketing and customer-data management, analytics, insight delivery and market research outsourcing. “We are utilizing our research and analytics expertise to increase our

hold on the marketing and customer informatics segment,” says Anantha R. Krishnan, Chairman and CEO, Dexterity. “We are also planning to set up offices in the U.S. and Europe. At present our 65 percent revenues come from the U.S., 30 percent from Europe and the rest from the Asia-Pacific region. And, we expect the share of Europe and Asia Pacific going up with 10 percent and 5 percent, respectively. We also see a lot of opportunities coming out of the Indian domestic market.” GS

ITdeals U.S. Federal Govt. Agencies Award 3 Large Deals in May ’08
BY DATAMONITOR

The largest deal of the month was signed between Bombardier Transportation and CSC. As per the terms of the deal worth $1,200 million, CSC will provide a range of infrastructure outsourcing services, including desktop and service-desk management. The win is CSC’s first worth over $1,000 million since Sept. ’06. The year

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Authors: Anil K. Gupta, Vijay Govindarajan and Haiyan Wang Pages: 320 Price: $22.02 Publisher: Jossey-Bass; 2 edition Published in: Mar ‘08

ny should consider in order to embark on the road to globalization. The flow of thought is lucid and one tends to get engrossed in the concept. The authors graphically explain the terms “simple globalization” of yesterday and “complex globalization” of today’s world and cleverly weave complex globalization with digital technologies. The journey continues with an extensive study of Wal-Mart’s global expansion and its global presence and this makes for a memorable read. An equally thorough study is presented on how a company can “convert global presence into global competitive advantage.” The authors’ stress on creating a global mindset and how a company can inculcate a global mindset

— “intelligent … at observing and interpreting the dynamic world in which it operates” — makes an interesting read. The topics smoothly take you from here on — how a firm can overcome the challenge of diversity and social ecology, and mobilize “… new knowledge faster and more efficiently than competitors”; how firms can operate “across borders” and embrace the “multidimensional perspective” in order to become a Global Business Team (GBT); and how “an increasing number of young ventures” can go global “early in their lives and increase the odds of success.” With self-explanatory charts and graphs at the appropriate places, the concepts emerge crystal clear. Last, but not the least, the authors analyze the rise of China and India, and offer guidelines on how companies can get “their China and India strategies right.” A very informative book; the best part being the practical approach adopted and supported with real-life examples from companies around the world. There is hardly any book in the market that can

give you a clear lowdown on the fundamentals of globalization and the reasons why globalization has to be at the forefront to build a foundation for lasting business. The focus is not only for startup ventures and the world leaders, but also for companies who wish to rework their business strategies and managerial styles. You get the feeling of the rigorous research that has gone into the compilation of this book from the perfect sequence of topics. With a smart cover and a good type font, this book will transform the way you think about global dominance — a must have in your collection. Coupled with examples, suggestions, guidelines, summary, a comprehensive index, extensive reference library, survey results and a more confident analysis for each chapter along with a list of questions to make your organization move towards a global mindset, the authors take the extra effort to present the world as an oyster and ensure that you have the right fork in your hand to savor it. GS

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2008 has seen it pick up 10 deals worth $100 million or more in the first six months of the year. The month also saw the formalization of another mega deal between China Mobile and Alcatel-Lucent. The French network-services provider was chosen by China Mobile to provide mobile communication equipment and services, as well as attempts to improve its network capacity and performance. A couple of other network services providers announced significant contract wins this month. BT Global Services was not only awarded a five-year deal worth $650 million to provide LAN and WAN management services to Procter & Gamble’s operations in 82 countries, but was also chosen to the Nationwide Building Society to

THE TEN LARGEST IT SERVICES DEALS IN JUNE 2008
Customer Provider Engagement(s) Infrastructure mgmt. Network mgmt. Infrastructure mgmt., network mgmt. Network mgmt. Maintenance/support Network mgmt. Business process outsourcing Network mgmt. Consulting Value ($ mn) 1,200 1,000 898 650 527 454 400 324 318 255 Duration (yrs) 7 — 9 5 7 5 5 10 7 5

Bombardier Transportation CSC China Mobile NASA Procter & Gamble Sunrise General Services Admn. Scotiabank Bristol-Myers Squibb Department of Defense Alcatel-Lucent BT Group Alcatel-Lucent SAIC Cable & Wireless IBM BearingPoint

Abacus Technology Network mgmt.

Nationwide Building Society BT Group

SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE

consolidate its multiple networks onto one global network. Meanwhile, Cable & Wireless secured a $400 million deal with Scotiabank in Jamaica to replace the bank’s existing telephony infrastruc-

ture with an IP-based service. Avaya will provide the hardware for the new system. Interestingly, three of the 10 biggest deals in June ’08 were awarded by U.S. GS Federal Government Agencies.

3

June ’08: The Month of Consolidation with
BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS MEGA M&As OF APR. '08
Acquirer
l General

Target VIPs IO15 Technologies Attenex Motive Project Performance GLP Medical Kintera Engineous Software Alphameric Hospitality OpenAir Insightful Openbit Solbourne Computer ThreeSF Municipal Solutions Coral –Tell Ideteknik Aspinova Onvaio LAWbase Business Applications Associates Visiprise Navic Networks ManhattanResearch Dynamic Business Consultants (DBC) Team Spirit Software and Headcount Services Matrix GOT Fortiva MacNeal Group (tMG) ACCENDRA NETWORKS DTS Systeme OSS Observer Captara Viewserve Systems OATSystems Skywire Software Managed Sol. Datum Legal Mason Leasing Sol. Resources

Area IT software IT software IT software IT software IT consulting IT services IT software IT services IT software IT software IT software KPO* IT software IT solutions Internet IT solutions Internet Engg. services Engg. services BPO IT software IT solutions IT software Internet KPO* IT Software IT Software KPO* IT services IT software Engg. services IT software IT services KPO* IT software IT software IT software IT software KPO*

Deal size ($ mn) 225 162 88 67.8 65 50 47 45 40 33.8 26 25 15.81 — — — — — — — — — — — — — — — — — — — — — — — — — — —

Dynamics Information Technology Software Consulting Technology Healthcare Systèmes (DS)

l Progress l FTI

l Alcatel-Lucent l AEA l Ultra l Sonic

Electronics Holdings ProLogic

l Blackbaud l Dassault l Torex

Hospitality Sol. Software Consulting Arts

l NetSuite l TIBCO l Tanla

Mobile Asia Pacific

l Deloitte

l Electronic l N.

Harris Computer Tech Holdings Group Group Global

l Tiger

l Tooltech l Tooltech

l TechTeam l Cognizant l LexisNexis l WNS

Technology Sol. Strategic Vision Consulting IT consulting

midst the turmoil in the global economic conditions, the global IT and Business Process Outsourcing (BPO) industry witnessed over 40 Mergers and Acquisitions (M&A) transactions in the month of June ’08 indicating no slow down in consolidation. The month witnessed $1.3 billion of deals from 40 transactions as against $1.8 billion of deals from 33 deals in May ’08 (excluding the HP-EDS deal). Though the total deal volume for the month is 18 percent higher than the previous month, the total deal value is 28 percent lower. The average deal size in June ’08 is around $32.5 million against the $53 million, which supports the argument that the acquirers are targeting the smaller firms mostly catering to a niche market segment. In June ’08, there was only one transaction exceeding $200 million, i.e. General Dynamics Information Technology acquiring VIPs, Inc., the U.S.-based provider of healthcare IT services for $225 million. This is a domestic deal initiated by the acquirer to diversify, penetrate and reach customers in the U.S. health-care market space. There are five other deals in the health-care sector, where target firms offer revenue-cycle management
TOTAL DEAL VOLUME BY ACQUIRER COUNTRY (%)

A

l SAP l Microsoft l Decision l CDC

Software

l Bond

International Software

l PharmaLinkFHI l Protus l Proofpoint l MSC.Software l Globant l MBB

Industries

4

l Analysys l Ecologic l Hexagon

Sweden: 3 China: 3 France: 5 Canada: 5 Australia: 3

Argentina: 3 Germany: 5 India: 9 U.K.: 12 U.S.: 52
SOURCE: THOLONS

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l CheckPoint l Oracle l Integreon

*Knowledge Process Outsourcing; SOURCE: THOLONS

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40 M&As
TOTAL DEAL VOLUME BY TARGET COUNTRY (%)

34% More FAO Contracts to Be Inked in 2008
BY IMRANA KHAN

T

HRO: 3 Gaming: 7 IT solutions: 3 IT software: 3 IT software: 3 IT software: 3

BPO: 3 Internet: 3 High-tech: 4 IT services.: 9 IT services.: 59

SOURCE: THOLONS

50 2004

66 2005

85 2006

109 2007

146 2008e
SOURCE: FAO RESEARCH

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solutions, business-process management solutions, health-care research and clinical services based out of geographies such as the U.S., the U.K. and Germany. The U.S.-based firms have continued acquiring firms for their inorganic growth strategy. The acquirers based in the U.K. made two domestic and three U.S. acquisitions, unlike India where all the four deals were cross border. Cognizant, the U.S.-based IT-services provider, acquired Strategic Vision Consulting, the U.S.-based provider of consulting and systems implementation services, for an undisclosed deal value. This acquisition is expected to complement CTS’s media and entertainment vertical by adding 60 employees with expertise in loyalty management, online data analytics and online advertisement operations. The U.S. was the main target destination for the acquisitions in June ’08. The firms targeted in the U.S. were mainly into IT software and Knowledge Process Outsourcing (KPO) services. The second most targeted acquisition destination was the U.K. with four transactions, followed by Sweden and Germany. GS

he year 2008 will witness considerable growth in the global Finance & Accounting Outsourcing (FAO) market activity. According to a recently released study by FAO Research, an FAO market research and consulting firm, the market will notice 146 FAO contracts (up by 34 percent from the last year when the market posted 109 FAO deals) inking new deals, renewals, add-ons and negotiations by the end of 2008. Nearly 25 percent of all FAO contracts that are set to expire “will be put out to re-bid and / or undergo some type of benchmarking exercise to ensure competitive pricing and alignment of service levels to the market,” finds the research report. FAO Research’s study also reveals that by the end of this year, the global FAO market will engage in an estimated 456 multiprocess, three plus year FAO deals, with a Compound Annual Growth Rate (CAGR) of 30.7 percent — CAGR stood at 28 percent in 2007 and 29 percent in 2006. The study also predicts that U.S. companies and governments

will continue to drive FAO market demand, with a noticable increment in the U.K. and other countries in the EU. The research report also suggests that as the demand for FAO activities increased in the health-care industry, gaining industry expertise and process knowledge will be a top priority for the FAO services providers. “We are convinced that 2008 will generate the strongest growth of FAO contracts in any single year yet,” says Lisa Ross, CEO, FAO Research. “Within our challenging economic climate, more companies than in any previous year are being driven to outsource finance functions to third-party suppliers to achieve greater cost savings, access better technology, gain industry best practices and facilitate global expansion.” However, attrition and retention will continue to challenge global service providers, especially Indian. Thus, to ensure the customer community’s confidence in their teams, providers’ strategies for minimizing turnover and increasing tenure will be GS used as differentiators.

NUMBER OF FAO CONTRACTS, 2004 – 08e (% increase)

34% increase 28% increase 29% increase

32% increase

5

Evalueserve: Top PatentServices Provider in India
BY IMRANA KHAN

BPO in
BY IMRANA KHAN

T

he $46 million Indian patentservices offshoring industry is set to bag a big share of the $2.2 billion global patent-services market in the next five years. It is expected to touch $206 million mark by 2012, according to a recently released study conducted by ValueNotes Research, a business intelligence and research firm. At present, there are 50 offshore patent-services providers in India with an employee base of 1,550 people. This number is expected to increase to 6,950 in the coming five years, cites the research report. In the current scenario, the third-party service providers account for 75 percent of the industry, while captives form the rest of the 40 percent. The research also names the top five providers in the Indian offshore patent-services industry of which Evalueserve wins the top rug, followed by Pangea3, CPA Global, Lexadigm and Cliarvolex.

The fundamental driver that affects the expansion of the Indian patent-services offshoring industry — generally patent searches, patent illustration, proofreading, patent drafting, patent analysis, patent asset management, patent litigation support and consulting — is the growth of the worldwide patent market. In 2007, more than 1.8 million applications were filed worldwide accounting for filing costs equivalent to $30 billion. The patent offshore of the U.S., Japan, China, Republic of Korea and Europe accounted for 83 percent of worldwide patent filing. The American companies form the largest customer base (nearly 60 percent) for Indian service providers. Other drivers that boost the offshore patent-services industry in India include increased offshoring of R&D activity, lack of manpower and the impact of the U.S. Patent Reform GS Act, 2007.

E

INDIAN PATENT-SERVICES PROVIDERS' DASHBOARD
Rank Player 1 Evalueserve Rationale for high growth
l An

established KPO provider in terms of manpower l Well formed senior and mid-level management team l Significant specialization within the patents segment l Multigeography delivery and marketing centers.
l Largest l Backed l An

2

Pangea3

by Sequoia Capital established provider with significant scale in IP services l Teams with specific domain expertise in patents l High-end services form the majority of their work.
l Early

3

CPA Global

mover in the IP outsourcing industry on-shore presence l Demonstrates capability to scale.
l Established l Established l Involves

4

Lexadigm

6

legal services provider several American attorneys in their mgmt. team l Establishes affiliate relationships with experienced IP practitioners in most major, global jurisdictions l Several onshore delivery centers and sales offices l Aggressive growth plans.
l Backed l Has

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5

Clairvolex

by established law firm, LexOrbis and Agnes

l Holdings l Aggressive

financial strength to scale growth plans.
SOURCE: VALUENOTES RESEARCH

astern Europe is one of the favorite outsourcing destinations for IT services across the globe. It’s also been counted among the toppers for a while now. When evaluating the region to source from, outsourcing services such as Business Process Outsourcing (BPO) is something to watch out for. Especially, for the Western European companies’ BPO services requirements, the region throws up good options in terms of cost savings, cultural affinity, language skills, talent availability and more. However, the price rise in some Eastern European countries is drawing concerns. With a full-time employee base of 20,000 to 30,000, the $1 billion BPO industry in Eastern Europe is expected to grow at a rate of approximately 35 percent or more per annum. This is according to a recently released research report, BPO Delivery from Eastern Europe, conducted by Technology Business Research, a Hamptonheadquartered high-tech market research and consulting firm. Since there are several opportunities for the BPO service provider in the region, many global companies, especially Indians, are fast setting up their BPO delivery centers there. The region houses several captives of many MNCs. Other findings of the study also reveal that even though outsourcing players have realized the benefits of delivering nearshore BPO services from Eastern Europe, many companies have also established their captive setups, which are known to be better paymasters in the region. Captives pay 50 percent higher salaries than the third-party providers. “As a result, there are captive groups for sale in the region that were not able to deliver the expected benefits. Failed captives are likely to be consolidated through acquisitions and / or the taking over of contracts and employees by third-party providers. Companies such as Proctor & Gamble (P&G), UPS, Volve, Lufthansa have their
August 2008

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Metrics

Eastern Europe Takes Off
SCOPE, SCALE AND MATURITY OF EASTERN EUROPE BPO PROVIDERS
Portfolio breadth Accenture Genpact HP Wipro Infosys Capgemini TCS 30 EDS IBM Employees of major providers

BPO EMPLOYEES IN EASTERN EUROPE BY COUNTRY
3,000 2,000 1,000 0
Slovak Republic
SOURCE: TBR

Czech Republic

0

5 10 15 20 25 Total years in Eastern Europe (sum of years at all locations)

Note: Size of bubble represents total Eastern European BPO headcount
SOURCE: TBR

Note: Only includes headcount for companies included in this study

captive setups in Poland, DHL, ExxonMobil, Siemens, Johnson & Johnson, Honeywell, InBev, Lufthansa, SAP in the Czech Republic, Dell, Kone, BASF, Checkpoint, KraftFoods, Checkpoint, Austrian Airlines, AT&T, Allianz in Slovak Republic, Avis, GE, Morgan Stanley, Nokia in Hungary, and Intel, Freescale, Microsoft, GE in Romania. Third-party providers such as Accenture (Czech Republic, Hungary, Poland and Romania), Genpact (Hungary and Romania), HP (Poland and Romania), IBM (Hungary and Poland), Infosys (Czech Republic and Poland), TCS (Hungary) and Wipro (Romania) also have their operations in the region. In high-demand countries such as Czech republic and Hungary, many providers including EDS, Capgemini are setting up small centers with less than 500

employees to avoid the risk associated with the maintenance of a large workforce. “Additionally, smaller workforces are more aligned to the smaller labor supply in tier-2 cities, which has added benefits of lower labor and facilities costs that can more than offset any benefits of scale in capital cities. EDS, for example, maintains operations in both the capital city and secondary cities in Hungary. Budapest is leveraged for higher-value work, while lower-level processing is accomplished in secondary locations that offer much lower costs and extremely lower attrition,” cites TBR’s study. Interestingly, all these providers give multilingual BPO services. Typical operations can cover 10 to 15 different languages, according to the study. For example, Ariba provides BPO services in 19 languages, ExxonMobil, Icon and Info-

EASTERN EUROPE — BPO SALARIES BY POSITION
Hungary Slovakia Romania Czech Republic Poland
Entry level Team lead Project manager
SOURCE: TBR

August 2008

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sys in 16 languages each, Accentrue and Symbol in 14 languages each, and Lufthansa and Schneider Logistics in 12 languages each. The study points out that Poland and Hungary have the highest number of BPO employees working for third-party providers followed by the Czech and Slovak Republics. “Romania is seeing fair amount of growth, and is likely to have levels similar to other countries within a short time,” says the research report. Lower salaries are the main driver for global BPOs to establish and expand their services in the region of Eastern Europe. The salaries in the region are 40 to 60 percent lower than the Western Europe continent. The study finds that Hungary, the Czech Republic and Poland have the highest average salaries while, Romania and Slovak Republic have relatively lower average salary levels. The study also reveals that the Eastern European region is a good source of Finance and Accounting Outsourcing (FAO) services such as accounts, payable, accounts receivable, credit and collections, general ledger and payroll. Besides these services, human resource, procurement, customer-care and business-support services are in high demand. Indeed, the BPO industry is fast gearing up in Eastern Europe. GS

Romania

Hungary

Poland

7

Fiveplaces to visit 1
The Old Town This is a prosperous center of medieval trade. The Town Hall, Raekoja plats, and the landmark of Tallinn, the sky-high St. Olaf´s Church are among the most popular tourist attractions.

BY NAMITA GOEL

T

2

Alexander Nevsky Cathedral This cathedral is the largest and grandest cupola cathedral in Tallinn, built between 1894 and 1900 when Estonia was still a part of the Russian Empire. The cathedral is atop the Toompea, a limestone hill that once was the center of Tallinn. Kadriorg Palace Build in 1718, tsar Peter-I named this outstanding summer palace Catherinenthal after his wife. This red and white adorned palace is home to the foreign art collection of the Estonian Art Museum. The palace has a lovely and splendid garden. Just across the flourishing garden is the office of the Estonian president.

3

4

The Cathedral of Saint Mary Though this originally wooden church on Toompea Hill survived the first wave of Reformation, it could not survive the fire that consumed the whole town of Toompea in June 1684. The cathedral was rebuilt. Today the cathedral — known as Dome Church — has a baroque spire, and the numerous gravestones and nobles' shield epitaphs speak about the abounding history of the region. Estonian Open-Air Museum The museum presents a unique collection of farm buildings, water mills, windmills and much more from all over Estonia. The Estonian Open-Air museum, situated outside the city, is a perfect place for picnics. This museum is not only home for celebrating folk holidays in a conventional style, but also a stage for traditional folk dance performances.

5

8

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Compiled by By Namita Goel

he capital and the largest city in Estonia, Tallinn is also evolving fastest in technical capabilities among cities in the European Union. Host to leading telecommunication companies such as Nokia and Elcoteq, Tallinn is one of the most important research centers in telecom. Tallinn’s gradual climb to becoming an important research outfit is remarkable. Skype entered the city in 2005 when Tallinn was nowhere positioned on the software and IT map. No sooner than Skype happened, the Tallinn airport was flooded with investors. The city used Internet to its advantage and attracted companies to set up manufacturing units that developed products. Companies such as Playtech, designed software for online gambling services. That’s how 2005 witnessed the growth of IT sector in Tallinn. Last year, Tallinn was part of the rankings in the study, titled Top 50 Emerging Outsourcing Cities, conducted by Global Services and Tholon. On May 16th, 2008, at the Broadband Economy Conference held in New York, Tallinn was honored the Intelligent Community Awards (awarded to the world’s top seven communities) for the second time in a row. The city has also been acknowledged for its e-services environment and for the development of specific operational applications. In fDi’s report on European Cities & Regions of the Future 2008/09, Tallinn appeared among the “Top 50 Europeans Cities” and the “Top 10 Best

Economic Potential categories.” Though the city is also home to many universities such as Tallinn University of Technology, Estonian Business School and Estonian IT College, Estonia annually produces less than 100,000 grads, as per Tholons. However to increase the number, the implementation of e-school application at all Tallinn schools has been given special emphasis by the local government. On the downside, the wages in the city saw a 20 percent increase in a short span of one year. Confirming this fact, Estonia has been ranked among the most expensive cities, in terms of labor costs, in the Central & Eastern Europe as per the study titled Central & Eastern Europe IT Outsourcing Review 2007, conducted by Ukrainian Hi-Tech Initiative with the support of information portal ITO News.eu, Baltic Outsourcing Association (Lithuania), Employers’ Association of the Software and Services Industry (Romania) and JNN Consult (Bulgaria). To tackle the labor-cost disadvantage, Tallinn is focusing on producing high-end technology to attract the attention of companies. The government has been upgrading its IT infrastructure periodically, which has been critical in attracting several U.S.-based organizations in the city. The local government too plays an active role in the technical development of the city by taking regular feedbacks from the people who are actively involved in the development process. GS
August 2008

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Jobscut

MONTH BY MONTH TOTALS
Month l March l April l May l June 2008 53,579 90,015 103,522 81,755 2007 48,997 70,672 71,115 55,726

Q2 ’08 Posts 275,292 Jobs Cut
BY IMRANA KHAN

s predicted in the last issue, Q2 ’08 a surge in jobs cut beginning last August registered a large number of layoffs as the housing collapse and financial cri(more than 75,236) in the U.S. than the sis began. However, while jobs cut previous quarter. The number of jobs cut did surge in the financial sector, most increased to 275,292 in Q2 ’08 from other industries remained stable and, in 200,656 in Q1 ’08, according many cases, were on the decline,” says to Challenger, Gray & John A. Challenger, Christmas, a global outCEO, Challenger, Gray placement consultancy & Christmas. OUTSOURCING firm. Since 1999, this is Further analysis sugWAS ONE OF THE gests that the financial the fifth biggest loss with LAST FIVE 585,188 jobs cut in Q4 industry went under ’01; 478,905 in Q1’02; REASONS BEHIND maximum downsizing. 426,435 in Q4 ’02; and The industry registered 390 JOBS CUT IN 19,227 job losses fol315,415 in Q4 ’04. While the jobs cut in lowed by the government JUNE ’08 — 39 June ’08 was 47 percent sector PERCENT DOWN / non-profit telecom higher than the 55,726 (10,797), FROM MAY ’08 job losses of June ’07, (10,797), transportation June ’08 downsizing (7,942), defense (7,043) WHEN 641 (81,755 layoffs) itself was and retail (4,973) to 21 percent higher than EMPLOYEES WERE name a few. The autoMay ’08 (when jobs cut motive industry regisLAID OFF. reached a 29-month high tered just 2,356 jobs cut, of 103,522). which stood at 30,011 Even though the sub-prime mortgage in May ’08. crisis bugged the real estate and financial Interestingly, outsourcing was one of sectors only in the second the last five reasons behind 390 jobs cut half of last year, jobs cut remained mod- in June ’08 — 39 percent down from erate throughout the year averaging to May ’08 when 641 employees were 62,461 layoffs. However, the impact of laid off. this crisis is now becoming more The company also analyzed that visible due to the increasing number CEOs’ departures during the month of jobs cut. As of now, companies have increased to 126 from 115 in May ’08 announced 475,948 jobs cut year — up by 9.5 percent. The departures to date. were even higher than June ’07 with 105 GS “Many people were expecting CEO exits.

A

MORTAGAGE / SUB-PRIME LAYOFFS
Month March l April l May l June
l

2008 4,112 21,145 15,505 18,936

2007 4,838 2,505 3,948 3,713

JUNE '08 JOBS CUT REASONS
Reasons Number of layoffs l Market conditions 37,363 l Cost-cutting 21,213 l Mergers & acquisitions 7,811 l Restructuring 3,896 l Closing 3,414 l Fluctuating sales 3,372 l Demand downturn 1,768 l No clear reason 1,084 l Legal trouble 520 l Reorganization / consolidation 420 l Outsourcing 390 l Bankruptcy 313 l Order cancellation/ reduction 122 l Voluntary severance 58 l Firing 11 Total 81,755
SOURCE: CHALLENGER, GRAY & CHRISTMAS

SOURCE: CHALLENGER, GRAY & CHRISTMAS

August 2008

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“The overall economy could continue to experience net losses for several months to come as large industries continue to shed workers amid rising costs and lower consumer spending. These losses probably will not match the number of jobs lost in the previous recession due to the fact that companies were more cautious when it came to hiring after the dot.com collapse. If this most recent period of job growth had matched the growth of the late 1990s, we would most definitely be seeing much heavier job-cutting now.”

9

Illustration: Abhimanyu Sinha

Special Report

By Imrana Khan
FIFTEEN YEARS AGO, AN international shipping company selected ACS, the U.S.-based technology company, to provide imaging and data capture on billing information. ACS bunched up 25 employees in Utah to work on this project. Things went well for some time, but then the customer’s demands gradually increased. A flourishing international shipping industry necessitated a solution that processed documents as fast and accurately, as they delivered the packages. So, to meet the customer’s increasing global document processing needs ACS chose what is now called a Global Delivery Model (GDM) — multiple document types in various languages to be turned around in record time. ACS’ multicountry strategy with 1,600 employees across the U.S., Mexico, India, Africa, Guatemala and the Philippines dramatically improved the cycle time from six-hour turnaround time to a seven minute turnaround. Even though ACS’ outsourcing relationship with this customer started a decade and a half ago, the trend of GDM caught up just a few years back. Currently, service providers such as IBM, Infosys, TCS, Satyam, ACS, CSC, Accenture, Genpact and Wipro are increasing their global presence to deliver services under GDM. “If you were to look at it five years ago, typically it would be an onshore or offshore model where you may have number of people onsite or in the country itself. Or may be 30 to 70 percent of the work being farmed out to an offshore location depending on the type of processes. Today, when you look at the situation, you are not looking at it for the higher percentage of work shifting overseas. You look at it from the ‘multicountry sourcing strategy’ where one particular process doesn’t necessarily have to be confined to one country. So, you might have a call center being based in the Philippines, you might have some of the back-office, analytics, application or support work coming out of India, or might have infrastructure services coming out of Malaysia,” said T. J. Singh, Research Director, Gartner Research. Is multicountry sourcing strategy feasible for all? How are such projects managed? How are the resources allocated? What are benefits? An inside look at such globally distributed projects.
Allocating Resources on a Global Scale

Thus, in order to tap the Indian talent pool, the global tech giants such as IBM and Accenture are fast scaling up their capabilities in India to pose immense competition to other firms — such as T-Systems, Atos Origin and Fujitsu — which have made huge investment to ramp up their offshore capabilities. Even as Indian services providers such as Infosys, Wipro, TCS and Satyam are heading to multiple geographies, especially to Latin America and Eastern Europe to reduce the increasing pressure on the workforce and to stay competitive, traditional global players such as EDS and CSC seem to be on an acquisition spree to expand their GDM capabilities. Other Indian players such as NIIT and iGATE are also forced to redevelop their strategies to face the increasing competition. Even the GDM equation seems to be shifting now. Between 2000 and 2005, it was based on the availability of cheap labor. Now, GDM is more inclined toward the availability and the quality of processes. And by 2015 it is expected to be based on value-added intellectual property, according to Forrester Research. As the service activities and the provider investments in global delivery centers increase, the way providers allocate resources globally would also change dramatically. At present, the process-driven approach of resource allocation is predominant across the globe while the location-driven (city — same country but different cities or multicountry) distribution of resources is the norm. In the case of voice-based Business Process Outsourcing (BPO) companies, languagebased resource allocation takes precedence. Generally, a process-driven relationship starts with one or a few processes from one or two site delivery model. Gradually, it spreads across multiple geographies. Even ACS’ example follows this trend. Infosys BPO also works the same way. “Most of our customers start with maybe a particular process or a set of processes. Actually, a GDM relationship doesn’t start being

THE SHIFTING GDM VALUE EQUATION (%)
5 10 30 50 35 85 2000 Cheap Labor 65 2005 Process 30 2010* 15 2015* 5 20 50

For IT and related services, India is the hub of GDM resources for onshore and offshore service providers. Therefore, by the end of last year, Accenture had 63 percent of resources based in India; Infosys and Wipro had 98 percent; TCS had 96 percent; IBM and EDS had 80 percent and 78 percent respectively, according to the companies’ reports and Forrester analysis 2007.
18 GlobalServices

Value-added IP

* FORRESTER ESTIMATE; SOURCE: FORRESTER RESEARCH

www.globalservicesmedia.com

August 2008

Special Report

globally distributed. When the customer’s comfort is there Building a Multilevel Governance Model in terms of the way we work, we start expanding to other It’s necessary to establish a governance model for each level global delivery centers. For most of our customers, we deliv- of a global delivery relationship with business outcome based er services from our six centers outside India — in Mexico, service-level agreements defining metrics, gainsharing / the Czech Republic, Poland, the Philippines, Bangkok and risksharing, costs savings, and such. But then the biggest China,” says S. Vaitheeswaran, Head, Order Management question “who should manage what” comes into reckoning. Practice and Manufacturing Unit, Infosys BPO. The customer is required to manage both the contract and IBM had been managing Unilever’s procurement oper- the provider, while the provider needs to focus on the cusations in North America, Asia, the Middle East and tomer as well as its expectations. Similarly, the former is Turkey. The deal got extended in 2007 to serve Unilever required to audit the provider’s performance time-to-time, from multiple geographies. Under the terms of the extend- and the latter is expected to educate the customer how the ed deal, IBM is now also providing the services to Unilever processes are being executed. from its global delivery center in Hortoliana, Brazil. “From a management perspective, governance Many companies engage in relationships wherein they is the key requirement. So put in a governance sign multicountry-based contracts at the structure, it reflects the customer’s expecfirst go. This is a far complex way of tations on one hand and on the other we engaging in a GDM engagement because look at how seamlessly can we put NOW, GDM IS MORE in such engagements, the providers never together the information. Let’s say, you INCLINED TOWARD have the advantage of replicating the have workflow giving you management THE AVAILABILITY knowledge of doing the process from one reports. So it really doesn’t matter if there site to another site — that’s when the is some work getting out of Guangzhou AND THE QUALITY complexity comes in. In such cases, the and some out of Bangalore. We are still OF PROCESSES. AND companies start with multiple geograable to get real-time stats giving you BY 2015 IT IS phies, and simultaneously expect them to management reports. However, having a perform at a particular process to meet good governance model is one of the EXPECTED TO BE service–level engagement within a specibiggest challenges, apart from the probBASED ON VALUEfied period of time. So it is necessary to lems related to culture and people, and balance how two or three sites, without the cost structure. At Infosys, we have a ADDED INTELLECTU‘Global Client Operating Head’ who is any prior learning curve, are going to AL PROPERTY. a one-point contact with the customer come up in terms of performance expectations within the same period of time. and who plans the governance structure. Depending on the customers’ So, in general, we ask our customers to tell us their requirements and leave it on needs, the providers choose the us where we deliver it from. To a cusapproach they would want to follow for the execution of their projects. So it tomer it really doesn’t matter where we is possible that a provider works on all deliver from. But there is always a challenge of a similar scale of delivery at three waysof delivering services globally — process-driven, location-driven different centers,” exhorted Infosys and language-driven program — at a BPO’s Vaitheeswaran. time for different customers. Wipro’s GDM model is run and managed as a virtual Currently, for example, 24/7 Customer, a Calif.-head- one with a single point of contact. Internally, the compaquartered BPO company, is working on all the three ny calls it “Virtual Delivery Model” — a virtual way of approaches of global delivery. “For a telecom and media delivering services across multiple geographies. “This company, 24/7 Customer provides customer services and enables Wipro to address changing business requirements, tech support from two Indian cities — Hyderabad and especially in the case of large global projects,” says Jethin Bangalore — while for an $8 to 10 billion software com- Chandran, General Manager, Wipro Technologies. “The pany, it provides services in 10 languages from three dif- governance is well established to take care of interfaces, and ferent countries,” says V. Bharathwaj, Chief Marketing communication and coordination. Large projects, which Officer, 24/7 Customer, a BPO firm. The company’s 11 would need working on multiple products, would also global delivery centers are located in eight locations — involve integrated working of customer and multiple four in India (Bangalore, Chennai, Gurgaon and partners. The customer also plays a role here being at the Hyderabad), one in the Philippines (Manila) and apex of the management structure with sub-management Guatemala (Guatemala City), China (Shanghai) and roles defined for each partner. The steering of the project Northern Ireland (Belfast) each. is done by a team with members from each partner / design
August 2008 www.globalservicesmedia.com GlobalServices 19

Special Report

center. The steering is done at both technical and management levels.” “As we practice at Genpact, a business outcome-based service-level agreement is a good tool of measuring the actual services delivered during the tenure of a GDM project. And, I believe, technology is another way of managing such engagements without slipping and making them successful. The usage of technology will increase in the coming future. At Genpact, we already use such tools, and are focusing on increasing the usage,” said Shantanu Ghosh, SVP and Business Leader, Genpact, a global BPO and IT-solutions firm. Case I: A Dutch banking giant, ABN Amro, with 3,000 branches in 60 countries needed a comprehensive outsourcing strategy that would capture inefficiencies and would mitigate risk. It had already outsourced some of its IT functions, but was seeking to take it to another level by engaging multiple tier-1 providers for application management, application development, infrastructure and other tasks. The bank selected TCS to be a central player in this strategy due to its ability to provide tailored services to its local business units and standardized services globally. More than 1,400 TCS professionals are delivering application development, maintenance, testing, production support, process and quality consulting, and re-engineering and migration services to ABN Amro from Brazil, the U.S., the U.K., Switzerland, Luxembourg, Netherlands, France, Germany, Hong Kong and India. These teams work with ABN Amro’s other providers to ensure success — performing tasks within the bank’s operational-level agreement framework and the RACI matrix. Through partnership, the customer achieved top-quartile IT cost efficiency, compared with peer banks, ontime account-level critical deliverables, large-scale transition in all business units done by or before deadline and savings and productivity improvements gained by leveraging TCS Innovation Labs methodologies. TCS worked on a strong governance model to deliver the massive services from 15 countries. The company set up infrastructure including facilities, communications and operational procedures setup in record time, and hired consistent hiring and induction practices across the globe. So in this case, some of the delivery benefits that the customer drew from the deal were: Business impact through integrated BPO and IT outsourcing services; improved “Bank Recs” process with better productivity; collaboratively with the customer’s IT team; providing knowledge services (from Genpact, Bangalore) out to improve employee productivity and reduce overall costs. Case II: American Airlines, the world’s largest airline, selected EDS to enable its major business functions, such as enterprise data, HR, finance, business operations, business to employee systems, reservations, loyalty programs, marketing systems, and maintenance and engineering. The customer decided that shifting support for some of these applications offshore would reduce the support costs. The airline targeted
20 GlobalServices

A Budding
Established in 2007, an Indian outsourcing setup called Anantara Solutions works as a virtual company. Backed by international venture capitalists including Helion Venture Partners, Walden International, The Silicon Valley Bank Group, Christian Wedell, a former senior Microsoft executive and venture capitalist, the company has geared up with a vision of radical transformation of the First Generation Outsourcing (FGO) model. It sees the implementation of Second Generation Outsourcing (SGO) — based on a partner-enabled global delivery model — across the globe. This model is now also getting attention in international forums. If it works out well, this could enforce the Indian hotshots to change the way they execute their global deliveries. Global Services’ Imrana Khan looks into the way this virtual company and its global delivery model runs
ith a customer base of 50 companies in 15 countries, Anantara works as an interface between its global partners from its ecosystem, “Anantara Ecosystem,” and customers. Anantara Solutions’ ecosystem has partners with various generalized and specialized outsourcing firms from various geographies. Anantara evaluates and chooses among its global partners. Being the prime contractor, it provides a business improvement solution — business strategy, process, IT performance, and change management — to its customers and ensures customers’ satisfaction by integration, program management and business value delivery. In partnerenabled model, Anantara gets paid for value received instead of charging for a fixed cost burdens of wages, real

W

select business applications for transitioning into the EDS GDM in Q4 ’05 and Q1 ’06. The plan focused on migrating work into the Latin America region where EDS provides applications services from its centers in Brazil and Argentina. To structure the global services transition, EDS established a migration process and a plan that emphasized knowledge transfer. The team from Latin America came to the U.S. to receive system orientation and training for American’s business applications. The U.S.-based American Airlines and EDS teams initially faced communication challenges across continents and languages. A lesson-learning session identified communication techniques that were added to each team’s communication plan, providing the means to ensure knowledge could flow across a globally diverse team. Next, American Airlines and EDS extended the successful global support model across the customer’s enterprise portfolio of business applications. EDS proposed an enterprise assessment framework to determine the readiness of each business application and associated work effort that could be transiAugust 2008

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Special Report

Global Delivery Model
estate, and such, as it happens in the case of established workflow and distribution of resources to keep some part Indian firms such as Infosys, TCS and Wipro. So it works on in-house and distribute the rest among the chosen partners. However, the company faced the challenge while value-based pricing and risk-reward based pricing. “Our business paradigm radically improves FGO, which orchestrating a global supply chain of companies to prois primarily based on cost arbitrage. So we provide busi- vide the customer with a seamless experience and tightly ness solutions to our customers to draw business value, focus on business improvement not merely high quality IT. and have a vision of transforming FGO soles to SGO,” says This model markedly improved the productivity and reduced the cost of procurement. G. B. Prabhat, Founder and CEO, Anantara In the second case, a leading Indian inteSolutions. “Apart from providing innovative grated multimodal supply chain provider value-based pricing and complete business chose Anantara to improve its productivity solutions, we also help our customers migrate and reduce in errors at customer warehouse. from data management to knowledge manAn immense increase in business volume was agement capitalizing on business-specific also required. For delivering a business soluorganizational knowledge.” tion for this problem, Anantara and its IndiaTo study the advantages and the capabilibased partner were responsible for solution ties, we studied some real-life cases wherein design and integration of client ERP with EDI Anantara has been the prime contractor. G. B. Prabhat, while the Canadian partner supplied EDIIn the first case, Anantara works for a Hong Founder and CEO, related services. And as expected, the Kong-based garment-manufacturing conAnantara Solutions improvement was noticed in productivity and glomerate. The manufacturer was facing challenges due to declining productivity and surging costs of the errors were also reduced. It is certain that if this model taps the world’s attention, procurement, particularly from the company’s supply chain partners in mainland China. Anantara’s SGO was it will enforce the tier-1 Indian outsourcing companies to applied to solve the customer’s problem. Anantara deliv- think over the way they work. Even the customers will ered its business solution while other services were dis- think over it twice before choosing partners from the FGO tributed among its partners from its ecosystem. and SGO lots. However, at this initial phase, this model may Significant parts of the procurement portal were out- also fetch challenges to Anantara in terms of establishing sourced and bought from a Chinese company and testing credibility among prospect customers in terms of assuring services were bought from a specialized Indian firm. To its partners’ ability to deliver services and managing a vast allocate the resources, Anantara also mapped out detailed ecosystem of partners from various geographies.

tioned into the EDS GDM. EDS conducted the enterpriselevel assessment in Q1 and Q2 of 2006. EDS established an assessment process that brought together the customer and EDS teams for each business area. The process evaluated the business applications in terms of complexity, technologies implemented, resource skill sets and experience levels. The data collected during the assessment process provided the customer a view into additional business applications that EDS could transition into the GDM, so American could further reduce costs. Based on migrating the initially selected business applications into the EDS GDM, EDS helped American reduce its IT spend, and the airline was able to realize these benefits throughout 2006. The global model has introduced a “builtin” means of providing cost-efficient services, and American has a proven methodology that’s ready for future outsourcing. Delivering Excellence “Traditionally services delivery has been done using Offshore Delivery Center (ODC) Model, wherein the ODC NetAugust 2008

work is physically / logically separated within a location. It had inherent inability to address issues like skills mismatch in locations — quality resources not available at ODC location at a short notice and scarcity of skilled resources at a particular location. GDM 2.0 removes the physical boundaries, and let people work in a virtual environment with all security controls and a right mix of collaborative technology at the same space. In a large project, it is critical to be efficient and also have dependency on expertise of various kinds. This comes out very well in the GDM — use the best resources available wherever they are and take advantage of the cost of the various centers,” Wipro’s Chandran added. Case I: For a Fortune 50 company, Genpact provided various services ranging from finance and accounting, IT, analytics services and content support from multiple geographies. In this form of engagement, Genpact had to tackle lots of complexities. The customer’s different ERP systems across geographies, leading to nonstandard processes across countries, was one of them. It also had nonstandard measurement sysGlobalServices 21

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THE THREE STAGES OF GDM DEVELOPMENT

Eastern Europe China India Philippines

Latin America

1980–2002: Point-to-point offshore model 2002–2010: Hub-and-spoke regional delivery model 2010 and beyond: Full global delivery model
SOURCE: FORRESTER RESEARCH

tems and criteria, and was facing complexities in statutory requirements and languages. To begin with, Genpact partnered with the customer for shared services and moved work from Continental Europe into the overall shared services umbrella. A few processes moved to the company’s captive center in Ireland and others moved to Genpact. These transitions were timed along with the Oracle implementation in the respective countries. Genpact leveraged its operations centers in Romania for all non-English work. For Asia and Australia, Genpact helped this company build their captive center in China. Both the company’s and Genpact’s shared services co-exist in China servicing Australia, New Zealand and Japan. Genpact is currently working on “rest-of-the-world” strategy to move finance and accounting processes under shared service. Joint initiatives around global process standardization and process optimization are being driven. Case II: When Ecuador’s largest private bank, Banco Pichincha, with operations across six countries, 1.5 million customers, 235 branches, $2.7 billion assets and $1.5 billion loans, initiated its outsourcing relationship with TCS, the bank had extremely high cost structure, and required a strategic consultation to improve its efficiency ratio and to change the business and operational model. In just two years, the bank’s ROE surged to 20.4 percent in 2005 from 11 percent in 2003, registering $50 million of annual gains in efficiency. However, the bank was also burdened with manual processes and poor time-to-market for products and channels. Re-engineering was required of certain systematic limitations mostly in IT and operation areas. At the same time, competitive pressure from global banks in LatAm also increased the
22 GlobalServices

need to improve efficiency index through cost reduction. The bank also decided to focus on core business and product development to achieve its international expansion plans. Under the five-year $140 million comprehensive outsourcing deal signed in Jan. ’07, TCS is responsible for the establishment of a new center with 500 employees in Quito, Ecuador, implementation of a new core banking solution, BPO services — back office, clearing, cash management, check processing, finance and accounting, customer care — data centers, application services, help-desk and infrastructure services. For the customer, this consulting-led engagement with TCS proved to be a huge cost savings tool. What's in Future? “The adoption of and investment in a low-cost global delivery model (GDM) has accelerated over the past 36 months. We’ve arrived at the “hub-and-spoke” stage, where even the multinational corporations such as IBM, Accenture, CSC and Capgemini use India as the main center for innovation, with other locations following its lead. This second phase in the development of a global delivery model won’t focus on hiring huge legions of programmers. Instead, it will emphasize the deployment of consistent processes to stitch together a burgeoning network of centers and the creation of a pool of solution accelerators that optimize the scarce management resources in locations such as India,” concluded John McCarthy, Vice President and Principal Analyst, Forrester Research, and the author of the study The State Of Development Of The IT Services Global Delivery Model. (For feedback on the story, please contact Imrana Khan at imranak@cybermedia.co.in). GS
August 2008

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The gateway to the global sourcing of IT and BPO services

EVENTS
Destination Central & Eastern Europe
Sept. 25, 2008 San Francisco

Destination China
Sept. 4, 2008 New York City

Infrastructure Management
Sept. 11, 2008 Dallas

FAO
Sept. 18, 2008 Chicago

Free regIStratIon Includes
l l l l

Session Flow
08:00 to 08:30 08:30 to 08:35 08:35 to 09:10 09:15 to 09:35 09:40 to 10:00 10:05 to 10:20 10:20 to 10:55 11:00 to 11:20 11:25 to 11:45 11:50 to 12:30 12:30 to 13:30 Breakfast & registration Welcome address Editor, Global Services Keynote address Event presentation 1 Event presentation 2 Networking Refreshment Break Guest Speaker Event presentation 3 Event presentation 4 Q&A Panel: Moderated by Analyst & Editor Networking Lunch

Event Sessions and Keynote Breakfast, lunch and networking breaks Event handouts Stipend of $100 towards travel reimbursement

about global Services events
The customers of IT and BPO sourcing services reckon Global Services Events as the conclave of thoughtleaders — technology leaders and line-of-business managers of large and mid-sized corporations in the U.S. Global Services Events will witness expert discussions and presentations on how customers of business and technology services can collaborate to derive maximum value from globalization. Networking with customers of services, sourcing advisors and global service providers will be the highlighting factor of the event that will help establish business value in outsourcing engagements.

www.globalservicesmedia.com/events
Produced by:

TM

The gateway to the global sourcing of IT and BPO services

The gateway to the global sourcing of IT and BPO services

PORTFOLIO
nCounter is an event series that connects 10 to 15 buyers of outsourcing services to five service providers in order to facilitate global outsourcing relationships. It is a closed room discussion where the providers present their perspectives on a pre-defined subject.

nCounter Series

Roundtable Series

A roundtable is a half-day formal gathering of qualified business technology buyers, and is a sole sponsorshipdriven custom event. It also provides a platform to sponsors for lead generation and insights from business technology professionals.

Destination Events

Destination Series is a dedicated event to educate the buyer community about the benefits of offshore or nearshore locations. Each event occurs for five hours with industry experts, including Global Services’ editor, an analyst, and sponsors.

GS Conference

The annual Global Services Conference offers sessions, peer discussions, workshops, and real-life case studies that highlight the latest outsourcing strategies, new and emerging technologies that enable seamless global services, and best practices. It is full-day event with parallel track sessions.

Outsourcing Summit e-Magazine GS 100 Survey

Outsourcing Summit is an annual, one-day event that encourages buyers of global IT and BPO services to discuss, learn and experience outsourcing trends with, and from, the renowned experts.

This is a user-friendly media tool that helps you to enjoy reading and downloading the entire issue of Global Services magazine in a digital format (available at www.globalservicesmedia.com)

A list of world’s 100 most innovative IT and BPO service providers, which are selected on the basis of an annual survey conducted by neoIT and Global Services.

PRInT

OnLInE

EvEnTS

CuSTOM

GS 100 Showcase

A print advertorial section that focuses on a category — highlighted in the Global Services 100 survey. This helps Global Services 100 Companies to showcase their leadership qualities that make them distinguished in their categories.

Microsites

Microsites are dedicated platforms for buyers developed on chosen subjects based on industry or process specific topics. It helps the buy-side decision-makers to observe the available content — features, experts’ comments, news.

newsletters

Global Services’ Newsletters (twice a week) deliver top stories, a blog, a write-up by an expert, upcoming events’ details, digital magazine, and exceptional features on the topics to the newsletter subscribers. The Global Services Team carefully chooses the newsletter content for its large base of opt-in subscribers.

GS Connect

Global Services Connect is a series of special, sponsored newsletters, which deliver top stories, a blog, a write-up by an expert, and exceptional features on specific topics. The connect also includes the best of Global Services’ print and online published content.

The OSourcebook Reprint Services

An annual directory of about 1,000 global IT and BPO services providers’ listing and profiles. It is available in four formats: Print, online (www.osourcebook.com), CD, and digital editions.

Article reprints are professional, customized, high-quality, printed copies of magazine articles. They are innovative and powerful marketing tools that feature your company, product, service or industry.

More information available at www.globalservicesmedia.com/images/Offerings.xls

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Catalysts
The downturn has supposedly worked well for the vendor-management tools providers as companies are increasingly opting for these performance-management and monitoring tools to manage complex multilevel and multivendor relationships

Sourcing

26 GlobalServices

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August 2008

Tools & Technologies

By Namita Goel

T

HE PROCESS OF OUTSOURCING might begin with choosing the right vendor; but the challenge is in managing the ongoing relationship with the vendor. And it continues till the goals of the projects are achieved. What transpires in between is the subject of the dynamics of success in outsourcing relationships and is driven by data. Data such as service levels, call volume, average-call handling time, attrition and likewise, are required to be maintained by both the providers and customers to evaluate the progress and resolve disputes. Traditionally, providers and cutomers used spreadsheets and documents for data storage, but maintaining them gets extremely tedious and sometimes untenable. Automating this process using vendor-management tools is the way out. Tools in the form of point products and product suites comprise functionalities such as service catalog, eProcurement, service-level agreement and contract management to name a few. But do these tools increase productivity and mitigate project risk? That’s the moot question that we will seek to answer by looking at the way these tools are used in some cases.

Greg Burnell, CEO, 6th Sense Analytics, an automated metrics solutions provider, “Visibility, transparency and ability to make decisions with real data as compared to fake data is one of the advantages offered by these tools.” “We see it as a trend by the enterprises — corporations globally, government agencies and commercial service providers. There is acceleration in the maturity of these enterprises. There is maturity in the way these enterprises think about running these services for their customers as a business. To manage these services offered by the vendor with more discipline is the reason why the adaptability of the vendor-management tools has risen,” added Schaefer.

CASE STUDY - I
Customers: Blue Cross Blue Shield of Rhode Island (BCBSRI) and Perot Systems Provider: Janeeva Challenges: The partnership between BCBSRI and Perot Systems presents all the complex challenges that go with outsourcing an entire ensemble of IT functions, including the crucial function of claims processing, and the associated suite of large-scale enterprise-wide software applications. The key concerns are performance management, financial oversight, contract administration and amendment, and issue management and dispute resolution. Solution: Janeeva Assurance provides a convenient mechanism for adding and modifying contract amendments, and submitting them for approval. This makes the process of managing contract changes fully transparent to stakeholders on both sides. Janeeva's Contract Amendment Tracker supports structured version management and amendment archiving, to manage multiple contract iterations and the institutional memory of the interests behind them. The party requesting the change enters all the relevant parameters, along with descriptions of the additional resources needed, and the associated charges are automatically calculated. The workflow engine routes the request to the right stakeholders depending on the towers affected and the amounts involved, for their comments and decisions. “With this ready visibility, we can maintain a consistency and discipline in all our processes that otherwise would be very difficult to achieve,” stated Kristine Klinger, Assistant Vice President, Initiatives Management Office, BCBSRI.

Reasons for Acceptability

Vendor-management tools providers have seen an upward trend in the last six months. What may be the reasons? “Maybe it’s because of the maturity of the vendor and cutomers. I have observed, more and more companies when they start to outsource are asking for the tools to be part of the decision process from the very beginning,” said Vinay Gupta, CEO, Janeeva, the U.S.-based provider of software for outsourcing relationship management. Maturity is definitely one of the reasons — be it maturity of the providers and customers, or be it maturity of the relationship between the two. “The outsourcing process itself has become lot more sophisticated over the last two years. And people are not managing the processes just within the IT department. So overall the processes and the people have matured,” further confirmed Erik Hille, Director, Product Management, Oblicore, a provider of service-level management software and service-level agreement solutions. Visibility is another reason as per Tom Schaefer, Executive Vice President, Marketing, Digital Fuel, a servicemanagement software provider. These tools can easily demonstrate the process and show that how the two parties are performing. Schaefer’s viewpoint is further supported by
August 2008

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GlobalServices 27

Tools & Technologies

CASE STUDY - II
Customer: Siemens Business Services (SBS) Provider: Digital Fuel Challenges: SBS entered into an IT outsourcing contract in the U.K. that required a large staff transfer from the customer. The challenge for SBS was to manage all the outsourcer's obligations as recorded in the complex multilevel contract. Solution: SBS chose to use Digital Fuel's ServiceFlow software to:
l Provide a single portal view into more than 450

The economic downturn is also one of the reasons suggested by T. Sivakumar, Group Director, India & South East Asia, Ariba. A slowing economy has accelerated the scope of outsourcing, and along with it has increased the importance of automation to monitor the vendor performance more accurately. “Sourcing and procurement process are no more a transaction job, it is more of a strategic job,” he added.
The Scope

separate service measures of IT, communications, applications, and compliance
l Develop templates to capture all the needed infor-

mation (including metrics), required service-level performance, data sources, reporting frequency, and financial impact for each contractual commitment
l Document all shared assumptions. Both firms can-

then sign off the final interpretation of each measure
l Enter all contracted service levels, deliverables,

thresholds for penalties or bonuses, audit requirements, and likewise into the ServiceFlow system
l Use the system for reporting and control, and then

comparing the current performance to the contracted obligations so that ServiceFlow can generate Web-enabled business, service-level management, and financial dashboards and reports on performance and compliance with obligations.

RANGE OF VMO RESPONSIBILITIES
Precontract (prenup)
Requirements gathering Manage RFP process

Strategy

Contracting

Post-contract (marriage)

Spend analysis

Compliance

Supplier scorecards

Vendor tiering

Research

Process rationalization

Risk management

SOURCE: FORRESTER

The need for automation has increased with the number of global delivery projects. Unlike a couple of years back, when providers had only one or two delivery centers from where they would operate customers’ processes, in the recent times the providers have to move to numerous locations to be able to provide cost-effective solutions. So for instance if “A” outsources its HR process to provider “B,” then B will further divide the process into sub-sections and send it to its “x” number of locations. Automating the process, controls the manual intervention and gives a clear picture to the customers. “Instead of spending 90 percent of the time in discussing the figures and moving data back and forth, these vendor-management tools help the customers and providers to spend only 10 percent time in data analysis and utilize the rest in strategizing for better productivity,” said Gupta of Janeeva. Take the case of Siemens Business Services (SBS); it has entered into a $1 billion contract with a U.K.-based firm. The larger the contract, the greater the complexities. Thus, the customer had very strict guidelines related to service levels. SBS decided to opt for Digital Fuel’s ServiceFlow software to manage the performance-related metrics. In the case, the benefits that this overall automation provided to the sourcing relationship were: l Predicting the financial viability of the deal in terms of profitability l Enhancing the service delivery quality as the software could determine the impact of the service level on the business and finances l Giving more time for the customer and provider to bond and discuss the steps for higher productivity, instead of pointing out the data discrepancies. These three points mentioned above illustrates the scope of service-level management tools. Here, in the case of SBS, the automation made more sense as it was a large deal, but the size of the deal alone does not determine the relevance of these tools. Along with automation comes accuracy, reality and time-saving. “The need to understand whether the vendors are actually as good as they are on paper has increased. The need to have some measurement of the vendor objectives to understand whether the vendor is meeting expectations has also increased. These tools help in determining that. They also assist the buyer in deciding whether the contract merits renewal.” explained Hille of Oblicore.
August 2008

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Tools & Technologies

The Limitations

There are two limitations. First, these tools cannot be a substitute for face-to-face interactions; it can only serve to monitor expectations that have been mutually agreed upon. Second, the tools are still evolving, and there is a learning curve and an adaptation curve associated with them. Faced with the downhill industry trend in the U.S. auto industry, a leading Detroit-based auto company, decided to get tighter in managing its provider. The provider had been month-after-month painting extremely positive pictures in the reports to the company, however the overall performance of the company didn’t seem to reflect those positive effects. The company’s management decided to automate the process and go ahead with Oblicore’s product, Oblicore Guarantee, to monitor the vendor performance. “One interesting thing we found right away is that providers are not performing at the levels they claimed. They, honestly, had different interpretations on how the metrics were calculated. The benefit of using the tool is that once you have systematized, automated the calculations, there is really no debate on how to calculate it. You don’t have to debate every month,” said Performance Manager, Sourcing Management and Governance Team of the automobile company. The company also points out further expectation from the tools, which Oblicore’s tools currently lack. “The time to get it up and running was not as fast as I would have liked it to be. Today in the auto industry, one or two months to get the product running is too long. A perfect scenario will be, something that is so flexible that it gets up and running in a couple of weeks instead of a couple of months.” Apart from the functional limitations of the tools, Sivakumar of Ariba points out three non-technical limiting factors for these tools: l They increase the transparency between the customer and provider relationship that might become a challenge l Today providers don’t want to measure inefficiencies. Unless one measures inefficiencies today, you can’t talk about the improvements tomorrow l The basic knowhow of these tools is the next factor. Sometimes when you approach the providers or customers, they cannot understand the benefits offered by these tools. These tools can be of great help for the new contracts or at the time of taking decisions related to contract renewal. But to include them in an existing relationship is a very difficult decision. Many long-term sourcing contracts that are already underway still use manual data. Moving to such tools midway would require tremendous effort and readiness to accept the kind of transparency these tools offer. Questions Sivakumar, “Are the provider and customer ready for it or they are happy with the fact that “ignorance is sometimes bliss?”. The answers have to come from the cusGS tomer and service provider themselves. (For feedback, contact Namita at namitag@cybermedia.co.in)
August 2008

CASE STUDY - III
Customers: A leading automobile manufacturer Provider: Oblicore Challenges: The U.S.-based automobile manufacturer had been receiving the traditional spreadsheets of data from the providers showing the service levels. The data always showed a very rosy picture and people lost faith in the numbers. Last year, they started talking to Oblicore but the contract was not signed until April this year. “About a year ago, our company went through lot of cost pressure, obviously being in the automotive industry lot of stuff is going on. Our scope of outsourcing tripled in size so when it comes to depending on a tool such as Oblicore, the decision took a lot of time,” explained Performance Manager, Sourcing Management and Governance Team of the customer. Solution “We have had past experiences where everything is always green, everything is always perfect. So with these tools we wanted to own the quality of data when it comes to SLA performance. Our vision with Oblicore was to maintain the standard way across all service providers, to report the data and it would give back to our people the confidence in numbers,” added the Performance Manager. Since the contract with Oblicore to use Oblicore Guarantee was signed in Apr. ’08, the product specifications were revealed after the signing. It took the manager and his team about two months to launch the product as per company’s specifications. It is too early for them to comment on the performance, but the experience till date has been quite fruitful. “When we flowed the data that we had received in the form of manual sheets from the provider in Oblicore’s software, we found that everything was not perfect as it was in the manual state,” said the company’s source.

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GlobalServices 29

“Gimme

Shelter”

The Human Resources Landscape in Hurricane Season
30 GlobalServices www.globalservicesmedia.com August 2008

Processes: HR outsourcing services

Today, every industry is feeling the pinch due to lack of liquidity, margin pressure, low U.S. dollar exchange rates and accelerating inflation, led by energy costs. It is against this backdrop of competing trends that we need to measure some of the larger developments in HRO

By Lowell Williams

H

R OUTSOURCING (HRO) IS an integral part of the overall business-process outsourcing landscape. Practically, every daily headline in the business pages reinforces the need to operate at maximum efficiency, control selling, general and administrative costs, and rationalize resources. We are seeing accelerating interest in assessments and HRO evaluations as customer companies begin exploring how the service model works and who the providers are in the marketplace. Companies are looking for rapid studies of the “size of the prize,” i.e. what can be saved through HRO and where they can realize the most immediate savings. Not surprising in this economic turmoil, there is a focus on cost savings. The turbulence is also creating a need to spinoff assets. Many of the companies spun off to private-equity firms are being forced into “shotgun marriages” with outsourcing providers. Privateequity firms understand the benefits of outsourcing and want to ensure they never have an internal payroll department, an accounts payable service center or internal benefits administration.
Dynamics of the HRO Market

The two hottest customer-side areas of focus for the first half of 2008 are recruitment and learning — content, administration, delivery and fulfillment of course materials. Different segments of a company often have their own
August 2008

training budgets, with corporate HR leading only one segment of the total activity. In recruiting, many companies still use numerous contingency fee recruiters, so in one respect the function is already outsourced. The overarching question becomes whether one new provider could deliver better service at a lower cost. The answer is often yes. Service providers are delivering excellent learning administration services, with some content, and they can also deliver excellent hiring results when measured by time to hire, cost to hire and quality of hires. Simultaneous to this burgeoning interest in sourced services, the provider landscape is undergoing rapid consolidation and contraction, plus new entrants are coming to market with HR services. Clearly, there has been a period of overexpansion and thin or non-existent margins during the period from 2002 to fall of 2007. Hewitt Associates took on the early HRO contracts signed by Exult, and has been in the process of rationalizing those contracts and trying to get to solid profitability. This has led to the contraction of HRO services and outlook outside the U.S., notably in the Glasgow (Scotland) and Krakow (Poland) service centers. Other providers have not been able to deliver on their early promise, and recent management changes at Excellerate HRO indicate some internal margin and growth problems in this joint venture between Towers Perrin and EDS. The fact HP has acquired EDS makes that issue even tougher because HP is itself in the payroll delivery business and has recently undertaken to provide
GlobalServices 31

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Processes: HR outsourcing services

some other HR services directly. In spite of this contraction and consolidation, there is still a broad spectrum of providers active in the marketplace offering services to companies of all sizes and in all price ranges: l Accenture l Arinso l IBM l Fidelity l Convergys l Savista l ACS l ADP. There are more than 20 providers that bill themselves as “full-service HRO providers” so the above list is not exhaustive. Instead, it is a list of major providers with extensive history in servicing different segments of the HRO market. Additionally, India-based Hexaware’s CaliberPoint and TCS, which were previously providing contract services to North American and European providers, have begun offering services directly to the European and U.S. markets. The advent of the Indian providers has led some analysts to predict a “race to the bottom” in terms of pricing or a commoditization of services and prices. But there is no reason to believe that competing on price is in the best interests of the Indian-based providers. Not only do they have to build out their service delivery capacity, they also recognize that many HR services require experienced employees and very complex technology. It should be noted that India-based providers often bring very strong systems and system-integration skills to their service delivery model. Several of the Indian providers have been supplying applications development, full number upgrades, enhancements and other IT-related services to the U.S. and European customers for a number of years. Consequently, Indian providers typically have deep IT benches with programmers who are expert at PeopleSoft, SAP HR, GEAC, Lawson and Oracle HR systems. This will be a substantial ongoing advantage for many of these providers as they expand into HR services within the U.S. and European markets. HR systems are fundamentally important to both clients and providers, and we see a steady migration toward two major enterprise suites — SAP and Oracle. SAP HR has been booming since Oracle purchased PeopleSoft, mainly due to Oracle’s initial announcement that it did not plan to support the installed base of PeopleSoft systems. Oracle has since then changed
32 GlobalServices

course, but it lost ground to SAP HR in the process. Meanwhile, new systems entered the HRIT marketplace. Workday, the newest one-to-many HR platform, has already captured some major clients. Of course, the productivity and performance of existing, smaller HR systems such as GEAC, Lawson, Tesseract should not be discounted.
The Drivers

CLEARLY, HRO IS CHANGING. THE RETIREMENT OF THE BABY BOOMERS WILL DRAMATICALLY SHIFT CUSTOMER NEEDS.

So what can be used to chart a course through this confusing maelstrom of critical needs, complex HR systems and shifting provider landscape? Several things are becoming clear: l The earth is flattening. More companies are building their own operations where it costs less to operate, enabling them to deliver HR services more efficiently. India, China and the Philippines are all locations with significant labor-cost advantages and substantial abilities to deliver quality services. Both companies and service providers should maximize the use of services from these areas. l Companies are under increasing pressure to reduce costs in this turbulent economy. Whether they outsource parts of HR or perform the services themselves, companies should look at the portion of every dollar of cost that is attributable to cost-advantaged service areas. This portion of dollar of spend is called the “Advantaged Service Cost Ratio.” Every major company should strive to have at least one-third of its total costs coming from lower-cost areas. l Many customers will continue their existing pattern of multi-sourcing, either because they’ve deliberately chosen a multiprovider strategy, or inadvertently because they are unaware of how many HR service providers are in place. Either way, effective management of multiple providers requires automation, aggressive service-level management and tailored overall performance tools. Unfortunately, many HR executives do not have the well-developed skill sets needed to manage multiple providers, especially in a global setting. To overcome these issues, many companies will capitalize on the natural alliance between their HR and procurement groups. l Multisourcing reduces the risk of large systems or service failure by one outsourced service provider. But the apparent advantage may be offset by the problem of multiple hand offs between providers addressing the same
August 2008

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Processes: HR outsourcing services

employee lifecycle event. The result is that service-level tracking becomes more difficult and complex. l Companies will increasingly opt not to own their own HR systems. The costs and resources attendant with owning the system, overseeing enhancements and upgrades, the constant cycle of investment and depreciation and the risk of systems failure are shifting to service providers. Companies will also leave the choice of which system to use to the provider as they adopt software as a service and ASP models. l A byproduct of the current wave of consolidation is the emergence of a more standardized approach to scope and services. Providers have often taken projects requiring high levels of complexity and iterative aspects of HR processes they cannot service well. Expatriate administration, for example, takes a number of iterations and interactions in both home and host country to get right, and is something that should not have been handed over to HR service providers. l Overseas providers will gravitate to provider lists for RFP as they demonstrate service capacity and sustained services from multiple continents. Many of these providers will have a very high “Advantaged Service Cost Ratio” right from the beginning, while other existing providers will have to work hard to increase the percentage of non-U.S. service costs to overall service costs. l Call centers will not be moved out of North America in HRO to the same extent as invoice processing or IT applications. The HR community remains protective of its pool of retiree populations whose cultural affinity for phone service — despite diminished hearing and problems understanding accents — will militate for HRO call centers to remain in North America. l Finally, with respect to European data-privacy laws, the only “safe harbor” will be the safe-harbor regulations we have in the U.S. Clearly, HRO is changing. The retirement of the Baby Boomers will dramatically shift customer needs. The challenges associated with choosing service providers and systems are formidable. Still, a number of ships are crossing the seas in spite of high waves and hurricanes. More than 100 companies have transitioned comprehensive HR services to providers and most of these companies are on track toward completing their HRO goals. So while there are risks, there are also substantial rewards, and a number of companies are learning to live with, and profGS it from, this dynamic marketplace.
Lowell Williams is the Executive Director of HR outsourcing and insourcing practice at EquaTerra. He has more than 26 years of international HR outsourcing expertise, including account management, contract management and executive-level HR project management. He has advised companies such as British Petroleum, General Motors, Goodyear, Marriott, Whirlpool and TXU.
August 2008 www.globalservicesmedia.com GlobalServices 33

xperts E
T
oday, for many of large multinationals, strategic global sourcing of services has become a major determinant of financial performance, customer service and market penetration. Many have set up their own offshore operations as captive centers, and are hiring their own workers. At the same time, all the major IT-services companies, including Accenture, Capgemini, IBM, Infosys and Wipro, have one or more delivery centers offshore. Business process outsourcing has also flourished offshore, with the Philippines, China and Russia joining India in the competition for market share. As a result of this rapid growth, an intense war for talent has developed throughout the outsourcing industry. Ultimately, the practitioners face significant challenges across a broad spectrum of human-capital issues: l Performance challenges exist at every level. The acute talent shortage is not only a shortage of people, but also a shortage of employees who have the key competencies and subsets of those skills to fill positions throughout outsourcing operations — from senior executives, to managers and team leaders, to individual employees. For
34 GlobalServices

A Comprehensive Talent Strategy
As of result of the fast growing strategic sourcing, outsourced services operations in India, China, and other developing countries face a war for talent that will ultimately determine their competitiveness. Savvy outsourcing operations can win this crucial contest by pursuing a comprehensive talent-management strategy
By Pravesh Mehra and Navnit Singh, Heidrick & Struggles International instance, senior executives may lack experience managing growth or businesses over $50 million in revenues, evaluating and developing talent, creating high-performance organizations, and managing in a matrix environment. l Critical leadership competencies will take time to develop. The leaders of outsourcing organizations must create a cadre of top executives, as well as the next tiers of executives and professionals, with the right competencies to succeed in complex and challenging business environments. The Heidrick & Struggles competency model, a proprietary tool validated by the firm’s experience of assessing thousands of executives around the world against the requirements of senior-level positions, typifies the competencies valued by global multinational companies. However, in many of the regions where outsourcing operations are located, some of the most important of those competencies — such as visionary leadership, the ability to create organizational buy-in, customer orientation and results orientation — are the hardest to find. n Recruiting problems have led to high turnover. Many outsourcing

COMPETENCY MODEL
Easier to find Harder to find
l l l l l l l

Best practice perspective Team leadership Creative thinking Openness of communication Managing innovation External awareness People development Analytical thinking Conceptual thinking Internal awareness

l l l l l l

Driving results Customer orientation Visionary leadership Organizational buy-in Modeling key values Delegating and empowering

l l l

l l l

Analytical thinking Conceptual thinking Internal awareness

Less important

More important
SOURCE: HEIDRICK & STRUGGLES INTERNATIONAL

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August 2008

operations lack sophisticated, scientific assessment processes. Moreover, due to cultural differences and attitudes, it is often difficult to obtain reliable references. Nevertheless, because of the shortage of talent, many people are hired and promoted into positions that are beyond their capabilities. Recruiting problems often result in severe mismatches of candidates and jobs, leading to high turnover either because frustrated employees leave or the company terminates them due to poor performance. n Cultural and company differences hinder the assimilation of senior-level executives into a new company. Such differences at an executive’s previous employer often make it difficult for senior executives to acclimate. Our research on leadership in China indicates that when someone takes a new job at a new company the probability that he or she will stay for more than two years is about 50 percent, but when someone who has been at one company for 10 years takes a new job at a new company the probability of staying for more than two years plummets to 20 percent. Moreover, when an existing team gets a new manager, only 20 percent of the team will stay after two years. The “employer of choice” criterion varies by country. Due to significant differences in cultures and values from country to country, some outsourcing operations, particularly captive ones, may have difficulty understanding the kind of company culture that is likely to attract employees at all levels. For example, American owners accustomed to an aggressive, action-oriented culture can unwittingly try to duplicate that culture in an offshore, captive operation in a locale that values humility and obedience, and thereby falls far short of becoming the employer of choice there. l Compensation continues to escalate unreasonably. In the desperate search for talent, many companies are over-titling positions and increasingly offering extremely high comAugust 2008

CRITICAL LEADERSHIP SKILLS TRANSITION POINTS
Truly global business

Major market player

Strategic investor

l General

Market entry

+ general management background l Local market experience l Manage large organizal Sales background tions, people l Pragmatic entrepreneurial l Expand/build relationships

l Technical

management + global experience l Local political experience l Effective communications, matrix management

International

Multinational

Transnational
SOURCE: HEIDRICK & STRUGGLES INTERNATIONAL

pensation. In India, for example, compensation has been rising at the rate of 16 percent annually in the IT-services industry. These large annual increases in employee compensation have forced companies to pay more for less value and to face an uphill battle for retaining employees who may be lured away by competitors offering even more money. With competition for talent among outsourcing providers increasing, these conditions will only worsen thus, intensifying the already daunting challenges of human capital.

A C O M P R E H E N S I V E TALENT MANAGEMENT STRATEGY
This wide-spread talent-management strategy consists of five proven principles intended to address the specific challenges of the services outsourcing industry. These are: l Build a result-oriented, performance culture. An organization’s leaders must do three things to drive results: n Define strategies and adjust them over time n Ensure that these strategies are translated into goals and tasks for individuals, and n Promote alignment and accountability to continue to generate results even under changing conditions.
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In defining strategies, the best results in an emerging, volatile market almost always come from open and active debates among a group of individuals that include people with a wide range of relevant experience and expertise. The next step — translating strategies into goals and tasks for individuals — is even more challenging because in order to translate larger plans into specific tasks, employees must apply judgment to determine what tasks will get the desired results. Developing plans demand real effort and dialogue, not simply handing down instructions from above. Instead of micro managing, it is more effective to communicate big-picture objectives relentlessly. At the same time, however, leaders must set clear, measurable goals tied to those objectives and delegate responsibility for achieving them. To keep everyone aligned and accountable, leaders need to model the required behaviors visibly and communicate them exhaustively, recognize and reward behaviors that matter most in the business, and align compensation with results. l Manage the talent pool actively. The cornerstone of a successful talent strategy is to identify the underlying capabilities that are most important
GlobalServices 35

for success (such as intelligence, flexibility and willingness to learn, motivation), as well as skills needed to do jobs immediately (such as English language ability, knowledge of key processes, technical skill). The strongest companies have articulated the capabilities they need and have created rigorous screening processes to ensure that they find them, and thus avoid mismatches of personnel and tasks. Leaders can also make a conscious strategic choice about how to acquire the talent they need and prepare to invest significantly — either through developing it internally or hiring from other companies. During a talent crisis, any approach to retention needs to address both, employees as a group and employees who show promise as leaders, to ensure that there is talent to lead the company in the future. For example, talent reviews can be used to track the career goals and development of high-potential leaders and provide career guidance to strong performers. Leaders need to develop approaches for more important business and “soft” skills for their organizations. Skills such as effective communication, systematic thinking, taking ownership and project management are likely to be part of the agenda. Many organizations seek to leverage the distinct capabilities of returnees and native talent. In either case, management teams should be assembled carefully, with an eye to ensure that executives with responsibility for operations are capable of

building a result-oriented culture. In many cases, the ideal management team may include returnees in roles that are significantly linked to the world economy. The best leadership teams have some productive tension in viewpoint and experience, and combine natives and returnees is one way to achieve this mix. l Rethink classic organizational models. Instead of adapting the talent to the organization, adapt the organization to the talent. Because precisely the right mix of competencies in individuals may be in short supply for filling roles in classic, functionally structured organizations, innovative companies can combine business units and functions in ways that fully leverage the competencies that those individuals possess. In addition, roles and responsibilities can also be combined to provide exceptional opportunities for personal development.

Outsourcing organizations can also address the talent shortage by doing some outsourcing of their own by having non-core or non-market facing functions performed in other countries in the region. Staff located in other nearby countries where the talent situation is less competitive may best fill basic research and development, IT, finance, and other functional roles that require advanced education and technical skills. l Innovate the HR function. Working with companies of all kinds in regions where talent is in short supply, it was found that the most successful organizations elevate the HR function to the highest level. Even, top leaders devote far more time to talent issues than ever before. Strong HR leadership can also reduce the executional risk for organizations by bringing rigor, consistency and quality to processes such as recruiting, training, succession planning and compensation that are essential to effective talent strategies. Further, leading companies customize these essential HR processes to align with their business objectives and create a results-oriented performance culture. As with every other function in such a culture, they hold HR leaders accountable for results and don’t hesitate to leverage outside help, if necessary. l Constantly evaluate capabilities of the CEO and the leadership team at every stage. As the outsourcing industry and individual companies grow, companies face difficult deci-

36 GlobalServices

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sions about what kind of leadership their operations require for their stage of growth. At one time, such operations evolved with the evolution of globalization itself — often moving almost naturally from international to multinational to transnational operations as global trade was gradually liberalized. Now, after more than two decades of globalization, outsourcing providers could find themselves at any of those stages of evolution and be saddled with leadership that is more appropriate to a different stage. Consequently, it is necessary to understand the evolutionary stage of the operation and ensure that a CEO with right skills for that stage is hired. Companies that fail to make those distinctions and hire accordingly can find themselves falling behind in one of the world’s fastest growing industries. At the early or international stage of development, when the goal is often simply to establish a beachhead in a given region or strategically invest there, the name of the game is sales. Outsourcing organizations at this stage of development quite rightly assume that they need a leader with a strong sales background in a similar market. Such leaders are pragmatic and entrepreneurial, with an ability to expand and build relationships. However, the question some companies often fail to consider is whether a candidate’s track record of success was built at a company that was at a similar stage of development. Someone who successfully led a company at the more advanced multinational or transna-

Co.s need to integrate local talent aggressively into their global talent-management processes to ensure that key employees are considered for global assignments that could help them develop the skills they will need.
tional stage of operations is not automatically well suited to run a company at the earlier, international stage. As the operation makes the transition from strategic investment to major market player, the leadership focus shifts to technical expertise, general management skills, and the ability to manage large organizations with many employees. Similarly, when the operation is at the truly transnational stage — as part of a seamless global organization — leaders should possess general management and global experience, local political skill, ability to communicate across cultures, and the ability to operate effectively in a matrixed organization. In fact, it is crucial to evaluate the CEO and the leadership team frequently and carefully, and undertake a disciplined, systematic search for talented leaders not just for outsourcing

operations, but also for the particular stage of those operations. In the end, companies in the outsourcing space need to integrate local talent aggressively into their global talent-management processes to ensure that key employees are considered for global assignments that could help them develop the skills they will need. Leaders of domestic companies, as well as multinational companies, will need to focus even more attention on managing talent, adapting global practices for recruitment, development and retention to changing economic and cultural conditions. Above all, senior business leaders should ensure that they are accelerating the development of rising generation of professionals — these are the mid-level managers and the team leaders, who are mobile, scarce, and may not have the skills that are required to drive results. The success of the outsourced services sector may ultimately lie in the outcome of this generational story. GS
Pravesh is the Managing Partner of Heidrick & Struggles International, a premier provider of senior-level executive search and leadership consulting services. He has more than 20 years of experience in management consulting, and has a proven track record of managing and growing businesses. Navnit is the Partner India of Heidrick & Struggles International. He has over 20 years of experience in HR, administration and facilities management, IT, legal, compliance, corporate communications and managing large firms.

August 2008

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GlobalServices 37

xperts

The Battle of Averages
Which way do you go when benchmarking your provider’s pricing? Global Services presents a point and a counterpoint on whether the average quartile is the right benchmark

Average — the New Quartile
By Jedd Fowers, Senior Benchmarking Consultant, EDS

I

t’s a common human trait: No one wants to be an average. Customers of outsourcing services are also no different. They want better than average services for less than average rates. Yet when it comes to pricing for IT services, making that better-than-average distinction is more challenging than it may seem for firms who measure it. As it turns out, outsourcing customers, service providers and thirdparty experts have changed the way price benchmarking is conducted in the outsourcing deals. These changes involve the realization that some former benchmarking practices, including the limited use of “top quartile” or “lowest quartile” pricing standards (i.e. best 25 percent), are not feasible in practice. Today’s improved methods allow for better, more accurate measures of an outsourcing deal’s price competitiveness. First, it’s helpful to understand how we reached the current situation.

BENCHMARKING HISTORY
Price benchmarking of outsourced IT services began in the late 1990s. Customers were signing long-term deals but were concerned that prices they agreed to today might later become decoupled from market rates, especially as technology advanced and drove down costs. To ensure long-term, competitive rates, customers began requesting the right to conduct periodic market-price assessments to ensure the outsourcer continued to deliver value for money. These contractual rights became known as a contract’s benchmarking clause, a provision giving the customer the right to engage a third party to compare the provider’s current prices against those in the prevailing market. If discrepancies were found, the provider might modify its rates to better align with the market. Often, a benchmarking clause will stipulate the level at which the price comparison should occur. As an exam-

ple, a benchmarker will typically select four similar contracts, or peers, as a basis for the comparison. After “normalizing” the peers’ prices to adjust for inherent differences, the benchmarker calculates the average of the peers’ adjusted prices to produce a market-competitive level. This simple average calculation is the basis for the comparison and is the industry-standard approach.

THE PROBLEM
Early on, a few customers requested better than average pricing in their benchmarking clauses. Statistical concepts such as “top quartile” or even “top decile” made their way into contracts’ benchmarking wording. Some outsourcers and customers agreed to these more stringent comparisons without a good understanding of the inherent limitations imposed by such measures. In some cases, actual benchmarking results using quartile-

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type comparisons showed radical and unexplainable discrepancies between an outsourcer’s price and the market; so different, in fact, that both the outsourcer and the customer agreed that something must be wrong. This caused frustration — even lawsuits — as the parties debated over confusing and unworkable benchmarking outcomes.

WHAT WENT WRONG
Since it is mathematically impossible for “all” customers to receive better than average rates, benchmarkers and industry thought leaders realized that a misapplication of statistical norms was the

main cause of confusion. Statisticians agree that for calculations such as quartiles to have statistical significance, the number of underlying observations (or peers) must meet some minimum. Most statisticians, according to the study titled Formal Benchmarking in Outsourcing Contracts, by Technology Partners International (TPI), the industry’s preeminent outsourcing advisor, in Mar. ’07, conclude that 60 or more observations are necessary to obtain a solid, robust result. Herein lies the problem: Most benchmarkers only use four to six peers in their benchmarking studies. These relatively small peer groups are a func-

tion of most benchmarkers’ modest database sizes, as well as the complexity and variation inherent in modern outsourcing deals. Indeed, it is rare for a benchmarker to find six contracts in its database that share enough similarities with the target contract for a reasonable comparison to take place. Since benchmarkers could not produce a statistically significant number of peers, a top quartile benchmarking result from a small group (say, four peers) often dictated that the outsourcer simply match the lowest-priced peer in the group. This statistically flawed approach often led to disagreements. Not only that, according to the said study, because the benchmarking process involves sampling — an attempt to derive the qualities of a population through a subset of that population — there is always some margin of error implicit in the result (a reasonable margin of error is plus or minus 10 to 15 percent). That margin of error is compounded when the results are further sliced through quartiling attempts from a small group of observations. In short, if statistical calculations are used, statistical norms must apply. That wasn’t occurring in the past — a problem that caused more than one sticky situation for customers and outsourcers. These challenges would continue without some course correction.

THE SOLUTION
Modern price benchmarking practices have coalesced around a workable comparison standard, one which is equitable to both parties. Leading benchmarkers’ price comparison products no

August 2008

www.globalservicesmedia.com

GlobalServices 39

Handshakes, Eyeballs Readers & Viewers
Empowering the Knowledge Nation

longer include quartiling (or other percentiling) approaches. Instead, benchmarkers use the normalized average (or mean) price of a group of peers as the optimal comparison level. TPI supports this approach and also points to the need for recognizing a margin of error in the outcome. Effectively, this process produces a reasonable price range within which the outsourcer’s price should fall. Does this mean that the post-benchmark customers are bound to get mediocre pricing and services? No! In fact, quite the opposite can occur. If done right, a benchmark can provide a good measure of the “right” price for the specific service in question, especially when the benchmarker uses peer data from outstanding outsourcing contracts. Also, pricing is

just one of the many factors that determine the overall health and competitiveness of an IT outsourcing deal. Customers could also consider broader questions such as “do we have the best operational solution for our needs?” and “how does our outsourcing governance practice compare to others?” Viewing and benchmarking a deal holistically — considering the “overall” value from a price, performance and relationship perspective — is the best path to achieving “best practice” outsourcing success.
Jedd is a senior benchmarking consultant with EDS and a veteran of the IT-services industry for 13 years. He has consulted over 300 clients on benchmarking and pricing matters.

Average isn’t a Good Enough Quartile
By Scott Feuless, Senior Consultant, Compass

B

enchmark analyses of outsourced IT services are a commonly accepted method to assess the value delivered by a provider. Typically mandated by contractual clauses in the agreement, and executed periodically throughout the contract term, benchmark reviews measure and evaluate whether services are being delivered for a fair market price and at the appropriate level of quality. Conducted in the context of prevailing industry standards, benchmarks can help manage the complexities and challenges of outsourcing contracts by providing a much-needed reality check in a rapidly changing environment. One longstanding point of contention in the benchmarking process is how best to define the measurement standard for the analysis. Specifically, should the contract in question be compared against a blended average of similar agreements? Or should a high-performing group of peer organizations constitute the point of reference in assessing the value of services delivered? Some recent reports argue that, for a variety of reasons, average levels of performance are the most appropriate measure to apply to a benchmarking exercise. One recent article in Global

Services states that it’s “mathematically impossible” for all outsourced customers to receive above average rates. But should customer organizations really be expected to invest significant resources in an outsourcing relationship just to achieve “average” performance? And how many providers would cite as their value proposition the ability to deliver only average pricing and service quality over the long term? A more specific problem with using averages as a comparative standard is that the deals that are benchmarked by third parties are often problematic to begin with. As such, using the average of a pool of benchmarked contracts is like saying that the average behavior of all the kids sent to the principal’s office should be used to define the standard for behavior of students at an elementary school. Some have also argued that benchmarkers use only a handful of peer contracts (four to six in most cases) to define a comparative reference group, and that such a small sample is a statistically inaccurate way to define top performers – specifically, “top quartile” or “top decile” peers. That’s a bit misleading. When “top quartile” is a contractual requirement, a benchmark applies “all” available and appropriate data for the particular serwww.globalservicesmedia.com

vice or operation being analyzed to define the category of top performance. So, depending on the specific operation, this might be, say, between 20 and 100 data points. All of those points are used to determine what qualifies as “top quartile” (or whatever criterion is specified in the contract). Once that is determined, four to six points are selected within the top performing range so that statistically meaningful average values can be extracted. An effective benchmarking analysis recognizes that it is unrealistic and counterproductive to expect every benchmarked function to fall within the “top quartile” or “top decile” category. In a real-world environment, high performance in one area is often offset by higher costs in another. For this reason, a big picture perspective is essential — a benchmark process that focuses too much on narrowly defined functional areas risks missing the forest for the proverbial trees. Ultimately, the debate over how to
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define categories of performance in quartiles, deciles, or other measures is of secondary importance. If the purpose of the benchmark exercise is to assess the value of existing services, then comparison against above average performers and leading practitioners — however defined — provides a clearer picture of performance, and, more importantly, of how to establish goals and priorities for improvement. The fact is, unit costs for technology products and services are continually changing. Top performers use benchmark results to adjust deals accordingly over time, while below average performers fail to keep pace with the rapid change of industry standards.

One recent article of Global Services states that it’s “mathematically impossible” for clients to receive above average costs. But should clients be expected to invest in outsourcing to achieve average results?
nizations comprising the comparative reference group are very similar to the customer organization, some normalization of scope, quality, and pricing of services will be required. These adjustment calculations can be based either on prices extracted from existing outsourcing contracts, or on costs incurred by internally managed organizations, but a database of costs that is granular to the functional level is an absolute requirement for use as a basis for accurate adjustments. Transparency: Both the provider and customer organization should have access to information regarding the reference group and the nature of any adjustments. Specifically, all parties must have a clear understanding of how pricing targets are defined, what goes

ELEMENTS OF AN EFFECTIVE BENCHMARK
It’s true that outsourcers, customers, and third-party benchmarkers are evolving in their approach to managing the measurement and evaluation process, with the overriding objective of using the initiative to enhance strategic value. Compass has defined the following criteria as essential to an effective benchmark exercise. Database or reference group: Establishing an apples-to-apples context for the comparison is critical. Specifically, the environments the customer is compared against should be reasonably comparable in terms of size, scope, complexity, and other factors. Adjustments: Even when the orga-

into the calculation of those prices, and if and how adjustments are made. However, as both parties must be willing to accept the benchmarker’s customer confidentiality requirements, transparency has limits. Profit motive: Customers must recognize that providers must make a profit for the relationship to be successful. This means that a provider who can deliver services for significantly less than prevailing market rates should reap the benefits. For example, if $10 per call constitutes a fair market price for help-desk services, then a customer should agree to pay that rate — even if a provider is able to deliver services for $5 per call with competitive quality. This type of stipulation is essential to motivate providers to support benchmarking initiatives and to invest in innovation. The ultimate objective of a benchmark initiative should be strategic and constructive, and not merely an opportunity to knock 10 percent off prevailing prices. The focus should be on how to deliver best value, maintain competitiveness, and identify new opportunities to innovate. With these objectives in mind, customers should never settle for “average,” because “average” can always be improved. GS
Scott is a senior consultant with Compass, a global management consulting firm that provides third-party benchmark analyses of outsourcing agreements.

Best Sourcing Advisory Firm
What value do the sourcing advisory firms bring? What roles do they play? How important are they to the success of a sourcing deal?

Find out in Sept. '08 issue!
For advertising opportunities, contact Satish Gupta at satishg@cybermedia.co.in
42 GlobalServices www.globalservicesmedia.com August 2008

www.osourcebook.com
The OSourceBook 2008 Web edition is now live. Search for global outsourcing providers by name, location, industry, services, and more at your fingertips.

B

xperts

By Paul Clayton, ProcServe

Strategic Sourcing for Indirect Spend
Despite a significant investment in eProcurement, eSourcing and such, not many organizations have been able to draw cost and efficiency benefits in indirect supply chains. However, as such systems become more sophisticated, how people use these systems to support their business process will also evolve

S

trategic sourcing can deliver significant cost and efficiency benefits in both direct and indirect supply chains. Whilst many organizations have achieved this for their direct supply chains, they failed to do so for their indirect goods and materials. Why did that happen? This is primarily because organizations are unaware about what they spend, with whom, when or how. This is despite the fact that significant investments have been made in eProcurement, eSourcing and spend analysis / management tools. So what has gone wrong? In our work with organizations, in both the government and private sectors, the common theme that runs is their eProcurement environments that are not able to deliver the basic data required to use a strategic sourcing approach. The provision of accurate content in a timely fashion linked with the use of electronic transactions for all parts of the procurement process are the keys to delivering this data. We believe that ondemand supply chain infrastructures are best placed to deliver this data, providing quick-win benefits and enabling strategic sourcing approaches for indirect supply chains.

CONTENT (AND IS KING

CONNECTIVITY)

ple claim that General Motors started the whole approach in the 80s. The reason they could use this approach was that they knew exactly how many widgets went into a car, where they bought them from and at what price; they had big manufacturing and Materials Resource Planning (MRP) systems that held the information. However, even today, whilst these companies can tell you how many washers they buy, they cannot tell you how many PCs they buy. The fundamental building block for employing a strategic sourcing approach to any commodity is data. You have to know what you buy, from whom, when and at what price, before you can even begin to think about employing this approach. A properly implemented eProcurement environment can help achieve this, but only if it has the capability to deliver this basic data. The components needed to achieve this are: l A purchase-to-pay tool to capture your demand l A correctly coded catalogue of goods and services l Integration to your providers for electronic purchase orders and invoices l A data warehouse for management information. The two most difficult to achieve are properly coded catalogues and provider integration into the procurement process.

Motor manufacturers were using strategic sourcing years ago for their direct supply chains; in fact many peo44 GlobalServices

PROVIDER ADAPTATION
That’s not a mistype. Provider adopwww.globalservicesmedia.com

tion is hard work, and there is no silver bullet to the process. For provider adoption to be successful, providers and their customers have to learn to adapt. The first thing to remember is that providers are businesses too with their own system and processes. The introduction of any new IT system to an organization can be a painful experience, but today providers are receiving an increasing number of requests to provide electronic catalogues and integrate their back-office systems to their customers’ eProcurement systems. They, like you, have limited IT budgets and have to prioritize their activities to suit. eMarketplaces have received some bad press over the years, but ultimately they represent the only long-term option for provider integration for indirect expenditure. They provide pre-populated environments with providers pre-enabled and — depending upon the commercial model chosen — offer the least cost and fastest route to adopt new providers as they are more likely to integrate with something that has the potential to connect them to many customers rather than just one. There are obvious parallels in the direct supply chain, where the EDI Valueadded Network providers still dominate rather than every customer and provider directly interconnecting their systems. At the end of the day, it comes down to working with your providers to help them adapt to electronic trading and make sure that they get benefits too.
August 2008

CODING – HOW LOW DO YOU GO?
The coding of products and services is important in two areas. Primarily it ensures that the management information is useable. Additionally, it makes these products and services comparable by the users making the purchasing decisions. However, coding catalogues for an eProcurement system is, to be polite, problematic. Firstly, you need to decide on a coding scheme / standard that is capable of meeting your needs in terms of breadth and depth, i.e. it covers a broad enough range of products / services to a sufficient level of granularity. Secondly, you have to get the items in your catalogues coded. You can ask your provider to do this or do it yourself, either way this is a significant piece of work, which, in our experience, is actually best left to the providers — they will know more about their products / services than you. Finally, you must decide to what level of granularity you want the products and services coded. This is a difficult balancing act between the need to have sufficient granularity to make meaningful and beneficial sourcing and procurement decisions versus the effort that it will take to code the products/services. For most organizations, the granularity required will vary between product groups.
ESOURCING HABIT?

talk about an eProcurement environment to enable strategic sourcing, we neither mention anything about eSourcing (eTendering, eAuction and eEvaluation) nor spend analysis / management tools. These tools can, without doubt, provide obvious cost benefits and process efficiencies — everyone loves to watch the prices plummeting on a reverse auction (particularly the Finance Director). However, they can lead to complacency. For example, spend analysis and management tools can only provide you with educated guesses at what you should spend your money on, if the basic data is not there. There is no doubt, however, that once a properly implemented Purchase-to-Pay environment is in place, they can provide substantial benefits to the sourcing process.

l What the provider agreed to send you and when (purchase order response / fulfillment advice) l What you actually received and when (goods receipt note) l What you were charged (invoice) l When you paid and how much (remittance advice / credit note). Managing a contract will not generate benefits. On the other hand, using contract management to help improve provider performance will.

THE FUTURE IS BRIGHT
As eProcurement systems, and in particular eMarketplaces, become more sophisticated, how people use these systems to support their business process will also evolve. Today, we are already seeing a small number of users looking at how eProcurement systems can be used to change their core business processes. The graphic represents how we are seeing this evolve. Starting on the left with basic procurement-process workflow, moving through the more complex provider integration of today’s more advanced eMarketplaces through to genuinely differentiating business processes underpinned with sophisticated eProcurement and eCommerce infrastructures. GS
Paul is the head of business development for ProcServe, an electronic trading and eProcurement Service Provider. ProcServe provides fast, flexible and secure managed services to help customers and providers trade more effectively with each other.

PROVIDER PERFORMANCE
Finally, there is the underutilized contract-management system. Most organizations today are using these sophisticated tools as a document repository for Ts & Cs and the closest they get to contract management is enabling you to work out how much of a rebate a provider owes you from the amount you have spend with them (this data normally being extracted from the general ledger). An eProcurement environment where providers are fully integrated can unlock the potential of contract management tools as it is easy to track: l What you ordered (purchase order)
EPROCUREMENT

— A DANGEROUS

It is important to note that when we

eProcurement

eMarketplace

Provider integration

Supply chain integration

Advanced supply chain

Purchase-topay workflow
only

Some electronic content, transactions by email and fax

Full electronic content and transactions for procurement

Integration of all supply chain systems including procurement, warehouse, ERP and finance

Inter-marketplace infrastructure, no touch fulfillment, BPO support services
SOURCE: PROCSERVE

August 2008

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GlobalServices 45

xperts

By Shyamanuja Das

The Difference Between Obama & Kerry
While Kerry was more vocal about offshoring, Obama has some real plans for creating jobs in America. That way he has a much better chance of making it to the White House. The outsourcing fraternity should plan for an Obama regime, rather than countering anti-offshoring slogans, as it did last time around

S

o far, Barack Obama has projected the fact that he is an outsider, and has played it to his advantage. So, while toeing the age-old democratic lines, he has given a fresh perspective on many of those issues, arguing them cogently, which has appealed to the common people and intellectuals alike. While he has intermittently referred to offshoring — or more correctly Americans losing jobs — he is yet to take it to the center stage. While many in the outsourcing industry like to believe that this indicates he has no plans to make it a major election issue the way the 2004 presidential candidate John Kerry did, one believes that is too simplistic an argument. There are two reasons why it has not figured prominently in his elections speech so far. One, of course is, so far, his agenda was to differentiate himself as much from the Republicans as from senator Clinton. The other, unlike Kerry in 2004, Obama is taking on a much more unpopular Republican regime, which has failed on all fronts. So his list of issues to highlight is much longer than Kerry’s. In fact, in 2004, even in an issue such as Iraq, the opinion of America was still divided. So, I think it is safe to assume that offshoring will get less attention than it did in 2004. But to believe that Obama has a fundamentally different viewpoint on offshoring would be naïve. One can safely conclude that
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While McCain as President will carry on with the policies of Bush, Obama as President will start afresh.
from his limited but not sparse comments about American job loss. Apart from the changed external circumstances, where Obama is fundamentally different from Kerry is that he has demonstrated an urge and ability to logically argue his viewpoints, rather than resorting to jingoism. Kerry, like most politicians in most democracies, took to jingoism. So, if and when Obama raises offshoring as an issue, it is safe to assume that he will ask fundamental questions, which are not taken from Lou Dobbs’ show. The question is: Is the corporate America ready with those answers? For example, quite a few businesses have taken to outsourcing to impress the analysts. They themselves do not understand anything beyond the wage of an American worker and an Indian worker. It will be difficult for them to explain why in the long term, outsourcing is a good idea, and why they need to go global. Obama could ask that. Obama, the democratic presidential candidate, however, has little time to ask those questions. (By this time in 2004,
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even Kerry was tired of these issues.) Barack Obama, the President of the U.S., will have no such time constraints. He has already outlined how he wants to tackle the issue of job loss. Instead of jingoistic slogans against offshoring, Obama has advocated tax and other incentives for corporations who create jobs in America. In fact, the reason he has refrained from too radical stances on many issues is because he knows he has a much better chance of making it to the White House than Kerry had. That is another difference between him and John Kerry. While McCain as president will carry on with the policies of Bush, Obama as president will start afresh. If he introduces tax incentives for creating jobs in the U.S., outsourcing per se will not be affected, but the economics of offshoring will change. Yes, for many reasons (including even cost) corporations will still offshore, but businesses of certain size and in certain sectors, will have to reassess their offshoring strategy. In India, the association of IT-services firms, Nasscom, has said that it does not expect the U.S. elections to affect the IT business that comes to India. One tends to agree. Elections will not affect the business too much. Can we say the same about the policies of the new GS U.S. president?
Shyamanuja CyberMedia. is Editor, Dataquest,

August 2008

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By Lisa Ross, CEO, FAO Research

Choosing the Best Outsourcing Approach
One of the latest trends in finance outsourcing is that CFOs are seeking an integrated service delivery approach to outsourcing, instead of a piecemeal approach, to gain greater efficiency, effectiveness, and control and compliance of their finance and accounting (F&A) business process

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or the purpose of this article – so that readers could get a sense of the current “best” approach to outsourcing – I sought the opinions of two global outsourcing service provider executives who deal regularly with CFO issues. I interviewed FAO Research clients Krishna Nacha, Chief Sales & Marketing Office of EXL Service, and “Tiger” Tyagarajan, Executive VP of Genpact. Both subject matter experts have daily interactions in a related landscape with CFOs and other sourcing decision makers seeking improvements in their operations. My EXL colleague, Nacha, believes that the next step jump in FAO is by integrating transformational F&A services with transactions outsourcing. Today, the transactions offshoring approach provides economies of scale that enable cost reduction. It enables integration with a set of uniquely defined finance function-transformational services, such as risk advisory, process excellence, research and analytics. The key to this approach is the ability to bring to the customer an Integrated Transformational Outsourcing model, through one contract, one set of SLAs, one program management and governance mechanism, and eventually one integrated blended price. Why does he believe that EXL’s integrated approach has worked for its CFO customers better than just the standard, labor arbitrage only model? l Process excellence is embedded into all stages of the process outsourcing
August 2008

Companies should strive for the best transformation via outsourcing in which they partner with a provider who shares common driven goals
l Don’t have to wait to “fix” a process before you can engage in outsourcing / offshoring l Knowledge sharing across the “consultants” and “operations” is inherent l Single point of responsibility for operations, ongoing improvements and transformation l Dual-shore global delivery model follow the sun model for integrated services. In my discussion with Genpact, Tiger believes that rather than transformation being a one-time, “Big T” event, it should be comprised instead of a series of “little t’s.” A multiyear roadmap with milestones of transformation has a better chance for success. By taking this approach, buyers could look at their businesses down the road and think, “Gosh, we really have changed things!” This latter model to FAO lowers risk, accelerates payback and delivers certainty of transformation. He believes that transformation

should be a continuous journey, one that Genpact has taken with its customers given that 80 to 85 percent of its growth comes from existing customers. His philosophy is that if an outsourcing service provider builds a successful relationship with its customers, then the customers are likely to continue to hand over additional responsibilities to the provider. When the provider has ownership of a larger process, it can “connect the dots” and help the customer achieve business impact. He believes that the more you undertake (as a service provider) – “to completely encircle the customer” – the more you can bring real value over time. My overall conclusion is that there is no one, “best” approach to outsourcing. Companies have different cultures, operating environments and industry requirements to warrant standards as related to the FAO lifecycle. Especially in an economically constrained environment, companies should strive for the best transformation via outsourcing in which they partner with a provider who shares common driven goals. The providercustomer relationship should always be viewed as a journey. GS
Lisa is the CEO and founder of FAO Research, an independent research firm focused exclusively on the FAO and procurement outsourcing markets. As a leading analyst in the outsourcing industry for more than 12 years, she works closely with customers, advisors and providers of outsourcing services.
GlobalServices 47

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By Phil Fersht

Dodging the Outsourcing Landmines
Execs managing outsourcing relationships have never been faced with more challenges. With growing reliance on their providers to deliver, greater scrutiny by boards and their auditors, and such, driving change deep into firms, execs governing outsourcing relationships have become a lightning rod for criticism

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he following recommendations provide a guide for today’s corporate executive to avoid multiple landmines, when considering or managing outsourcing environments: Make the board a stakeholder before outsourcing. Corporate Governance is on the mind of every CEO and board chairman. Audit committees are probing ever deeper into day-to-day operations and they are directing external auditors to increase scrutiny of controls. It would, therefore, seem ludicrous that senior executives fail to stakeholder board members before large outsourcing deals are executed, but many do. Once you have developed a strong case for implementing an outsourcing initiative, getting board-level buy-in is normally a straight-forward process. Building advocacy of outsourcing long in advance of outsourcing a department, is a best practice because outsourcing is truly about acquiring core competencies and building competitive advantage in pursuit of the strategic corporate agenda. Asking for forgiveness from a board that is angry about being excluded is certainly a risky proposition Manage your customers. An outsourced department services can have either internal customers, external customers, or both. Executives routinely fail to communicate outsourcing events effectively to key customers with sufficient detail to set and manage expectations. While it’s certainly not always essential to manage all external customers’ expectations, managing the
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expectations of key customers is vital. Almost as important, great executives remember that perception is reality, and they check-in with key customers on a regular basis. Constantly measure your progress against the initial outsourcing objectives. Whether intentional or not, many executives fail to track results against outsourcing objectives. This could be the result of failing to have concrete, measurable goals, or simply avoiding the effort. Managing an outsourcing relationship to achieve accountable goals is a tremendously arduous challenge because many forces work against executives, namely expensive change orders are often necessary to adapt to new business processes; providers continuously seek opportunities to increase pricing; and companies become frighteningly reliant on providers after knowledge capital has migrated to the provider. Successful executives have clear, measurable goals. They regularly measure against the outsourcing relationship and they manage their goals. When goals need to be changed, you should have formal, documented procedures for managing this change, which frequently requires you to build board or customer support. Hands-on provider management is imperative. Many executives are comfortable managing employees. Senior executives are familiar with delegating responsibility to a subordinate whose own subordinates will work hard to achieve the stated business objectives. Progress against these tasks is easy to
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obtain and measure. Well, managing providers is an entirely different, incredibly more complex proposition because the provider, although they would suggest otherwise, works for himself, and therefore has his own priorities, which may not be identical to yours’. Changing priorities now require change orders and lawyers. Progress cannot be easily measured, and significant challenges exist in gauging compliance with contracts, because the provider may operate from a foreign country. Executives who fail to employ handson provider management are likely to be surprised when service levels are not achieved, security lags, and objectives are not met. You must recognize the challenge and assemble a team of knowledgeable, experienced provider managers whose sole objective is to ensure the providers achieve their goals. And if you don’t have the right people to do this for you, you must go out and hire them. Be wary of the low-cost country bandwagon. The number of providers and countries touting the “next great outsourcing destination” can become overwhelming. What started off in Canada, moved to India and traveled to the Philippines and Costa Rica. Each country has experienced movement from “tier-1” cities to “tier-3” cities as competition for low-cost labor accelerates attrition and salaries. Argentina, Brazil, China, Eastern Europe, the Middle East, and a variety of developing companies now loudly tout their high unemployment, skilled labor and tax incentives. Remember, they, too, will
August 2008

experience similar cost increases and migrations to lesser-known cities. Constantly chasing incremental cost savings may be enticing, but the hidden costs of transitioning to new countries with the same or a different provider have bitten many outsourcing executives in the past. Also, to start-up provider fees, training costs and travel expenses, service is likely to lag behind current levels due to learning curves. The costs of all these elements can often eliminate most of the first couple of years’ of savings — at which point your new country may experience the same problems as your last country and price increases will eliminate your future savings. Make sure you have obtained exhaustive customer references and conducted diligent research over a period of time before moving services to new locations. And remember, outsourcing is a longer-term proposition, and not simply a series of quick cost-savings hits every time a cheaper locale comes along. Remind yourself everyday that your provider is not really your partner. Yes, you have to develop deep relationships with them, but, like it or not, providers are not partners. Developing a trusted long-term relationship is extremely important to the success of your outsourcing engagement, but ultimately their employees are loyal to their own management, not yours. Highly incentivized salespeople actively seek opportunities to deepen relationships in an attempt to head-off competitive RFPs by growing business “organically.” Many providers have dedicated contract negotiation teams and use specialized outside law firms in an attempt to maximize their profitability and minimize risk. Ultimately, you are buying a service the provider sells and a good executive never forgets that. No matter how well a provider performs or ingratiates itself, the only thing that matters is that the customer is receiving consistently high quality service provided with a smile. Negotiate contracts effectively and consider using a third-party adviser. Naïve executives fail to understand the complexity of outsourcing contracts. Under the pressure to “get the deal
August 2008

done,” many executives focus on key price terms, but neglect rest of the deal. Providers, on the other hand, negotiate outsourcing agreements for a living and their standard contracts (the ones they hand to you to start a relationship) are seldom written in the spirit of “partnership.” Provider sales executives are well-trained masters of creating negotiation leverage. Good sales teams mathematically predict the probability of winning a deal — that’s how experienced providers really are. Even more worrying are executives’ procurement and legal teams who are probably inexperienced with complex contract negotiations. Make sure you are properly equipped to negotiate these contracts. Engage a third-party adviser that specializes in negotiating complex outsourcing deals if you do not have the inhouse expertise or legal counsel to do this for you. Even if you are sole-sourcing an outsourcing engagement, a thirdparty adviser can help negotiation service levels that help drive quality, lower cost and higher performance into a contract, and not simply squeeze down the provider’s costs. Focus on driving value from your provider at every opportunity. While innovation is frequently a loosely used term, outsourcing does provide an opportunity to develop a long-term training ground for your company to access and acquire new skills, access process acumen and better technology, in addition to driving out cost on an ongoing basis. However, you must use the tools at your disposal to ensure your provider is constantly keeping your costs at a minimum and adding real business value to your outsourced department by upgrading your technology regularly and adding rigor to your business processes. This includes guarantees that they will devote Six Sigma black belts to your engagement, focus on refining process flows over the duration of the contract, and work with your staff to drive out costs and eliminate inefficiencies. Ensure they are keeping your technology applications and tools upgraded on a regular basis. As mentioned above, this is not
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going to happen simply through the spirit of partnership. Get key people on board your train across the enterprise. The impact of outsourcing reaches all corners of your organization. However, in an effort to maintain the confidentiality of an outsourcing initiative, many executives fail to communicate to key internal teams, including IT departments, HR departments, corporate communications, and public affairs. The result is that these teams are frequently left with insufficient time to support the initiative. Experienced executives assemble a small team of key resources to manage media relations, communicate with government officials and agencies, and determine legally defensible methods of selecting employees who will be impacted by outsourcing — and to manage their transition or severance packages. The best executives communicate with peers and key employees in order to seek opportunities to place key employees within other departments. Take your time to get this right. There is little doubt that today’s companies place a premium on achieving results quickly. Many outsourcing executives who seek quick cost saving opportunities will rush through the key assessment, provider selection, negotiation and implementation tasks. Invariably, implementations go awry and provider relationships sour. The reason is simple: Outsourcing is too complex, has too many stakeholders, and relies on too many resources within a company and the provider to skip tasks or avoid detailed analysis, planning, and testing. Conducting a business case to find costsavings is the easy part — executing on achieving this end state, a reality, is another challenge altogether and it is your job to do that. GS
Phil is Director of Research for BPO, offshoring and IT sourcing at AMR Research where he advises tbe buy-side clients on outsourcing strategy and vendor selection. In the past, he has worked with Deloitte Consulting as Senior Executive for Outsourcing Advisory Services, where he led numerous sourcing relationships with Fortune 500s.
GlobalServices 49

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By Lori Blackman and Allan Schweyer

Proposition: Competitiveness of Rich Countries’ Workers in Decline
There has been an ongoing notion that outsourcing causes dearth of employment opportunities for citizens in rich countries. They are becoming less productive and less educated than workforces in developing nations. How true is this fact? Let's find out

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he latest debate in the Economist magazine’s on the “Future of Work” starts like this: “A spectre is haunting the Western world. The spectre of fear. Fear that the middle classes are losing out, and while their economies may still be growing, the rising tide no longer lifts the majority of boats.” — Jacon Funk Kirkegaard, Peterson Institute for International Economics. According to Kirkegaard, the sky is falling on talent in the West. We cost more, are less productive and are becoming less educated than the workforces in developing nations. For reasons that are less than clear, he believes that “the recently freed markets of the East (namely Russia, China and India) are more than a match for those in the West:” “…the world economy is finally truly global and the implicit protection for Western workers from the self-imposed economic exile of billions of potential competitors is irreversibly gone”. I wasn’t aware that we ever needed protection. In this line of reasoning, wouldn’t the UK economy have contracted after Eastern European countries joined the EU? Or Canada and the US after NAFTA? As everyone knows, the opposite occurred in both cases. The proposition that globalization and the “offshoring” of work to developing countries is harming workers in developed “rich” economies is patently false. Employment levels in the UK,
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Ironically, today’s spiraling cost of energy is creating a reversal in the fortunes of rich nations’ manufacturing sectors
North America and Australia, for example, have been higher ever since “globalization”. And, while wage rates have been mostly flat in many rich countries, buying power, mainly due to the availability of cheap manufactured goods from China and elsewhere, has grown. Workers in rich countries, particularly “knowledge workers” and skilled technical workers, have remained competitive despite more than two decades of globalization and inter-continental free trade agreements. Their competitiveness lie largely in the advantages rich countries enjoy in language, infrastructure, technology, innovation, creativity, and in most cases, productivity. Since the modern services offshoring industry began in about 1997, unemployment rates for knowledge workers in the US have hovered between 2 to 3 percent, well below what economists define as “full employment”. Employers from Dallas to Manchester to Auckland have repeatedly and consistently bemoaned
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the lack of domestic talent — despite higher post-secondary enrolment rates than ever — even during the post 9/11 economic downturn. For skilled technicians and tradespersons, simple demographics in rich countries have driven down their supply, increased demand for their services and greatly accelerated their wages. Even for lower-skilled workers in the services industry, employment opportunities abound — it is difficult, after all, to offshore bartending services! Ironically, today’s spiraling cost of energy is creating a reversal in the fortunes of rich nations’ manufacturing sectors. The manufacturing that has remained in rich countries has created competitive advantages through automation, resulting in more highly skilled competitive workers, by focusing on higher end manufacturing. Perhaps the best evidence to close this argument once and for all is the fact that the US, Canada, the UK and other rich, Western European countries themselves rank among the top 40 worldwide destinations for offshore work — the US is 11th on the list according to a 2005 evaluation by A.T. Kearny. To join the debate, please visit: http://blog.thetalenteconomy.com/. Comments are always welcome. GS
Lori is Founder and President, DNL Global, a talent-management solutions provider. Allan is President and Executive Director, Human Capital Institute.
August 2008

GATEWAY
to the Global Sourcing of IT and BPO Services
Connecting the global buyers and providers of IT and business process outsourcing services. Global Services, your own global media platform, not only helps you to choose your partner but also enables you to leverage its media solutions to make your outsourcing relationship work. Global Services’ authentic and on-time content facilitates right outsourcing partnerships. Our portfolio includes a magazine, a website, newsletters, events and custom solutions.

The gateway to the global sourcing of IT and BPO services

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RNI No.DELENG/2006/17056 Posting Date: 29&30 of advance month. Posted at MBC/1B.

DPR No.DL(S) 01/3284/2007-2009

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