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MAGAZINE WINTER 2014 • RESEARCH FEATURE

Should You
Outsource
Analytics?
Outsourcing analytics can o/er bene2ts — but
requires a carefully constructed relationship.

Topics David Fogarty and Peter C. Bell • December 19, 2013 READING TIME: 15 MIN
What to Read Next

Data & Analytics Analytics & Strategy

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become more eTcient and improve overall competitiveness. Analytics Revolution
Companies with superior data analytics capabilities have found
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ways to build long-term advantages. FedEx Corp., for example, has Changed World

for years used its team of analytics professionals to create and

maintain a competitive advantage through enhanced revenues and
lower costs. One of the factors that has helped Wal-Mart Stores
Inc. become one of the world’s largest and most successful
retailers is the strength of its analytics.1

Assembling analytics teams, however, is diTcult. For one thing,

many companies lack the in-house knowledge and experience
needed to put together an analytics team. What’s more, the labor
market for analytics professionals has grown increasingly tight.
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Fortune recently reported, “Online help-wanted ads for data
analysis mavens have shot up 46% since April 2011, and 246%
since April 2009, to over 31,000 openings now, according to job-
market trackers.”2 The shortage of analysts — particularly those
capable of developing and leading world-class teams that can
enable a company to create a competitive advantage from its data
and analytics — is driving organizations to consider outsourcing
their analytics activities. However, choosing analytics providers
and structuring e/ective working relationships that deliver value
require managers to have a clear understanding of what they’re
looking for and the potential risks involved.

One of the factors that has contributed to the

Analytics is the latest in a string of activities companies are
growth and success of Wal-Mart Stores Inc. is the
outsourcing to business process organizations (BPOs). As the strength of its analytics.
telecommunications boom that began in the late 1990s led to Image courtesy of Walmart
improving communications with emerging markets, Fortune 500
companies began shifting call centers o/shore to locations such as
India and the Philippines to take advantage of less expensive labor.
India was especially attractive because of its large English-
speaking population and highly educated labor force.3 Once call
centers were established to handle customer service and telesales,
companies began identifying other activities that might be suitable
for outsourcing or o/shoring: IT services, computer programming,
legal research, application processing and accounting.

Analytics was a late arrival to the business-process-outsourcing

menu of services. It was a natural for places like India, due to the
country’s traditional strengths in mathematical and statistical
training. Many of the o/shore analytic BPOs started as captives of
multinational companies that already possessed infrastructure in
emerging markets. While some remain as captives (Dell Global
Analytics is an India-based captive analytics division of Dell Inc.),
others were spun o/ or acquired by other companies and began to
o/er services to third parties. By the turn of the 21st century, the
birth of the analytics BPO was 2rmly established. A number of
well-known Fortune 500 companies outsource and o/shore at
least some of their analytics.

There has been very limited research on corporate use of analytics

BPOs, although there is, of course, an extensive research literature
on IT outsourcing and other BPO operations. Among other things
that earlier research on IT outsourcing and BPOs found is that, in a
rapidly changing market, o/shoring allows organizations to
increase eexibility by making 2xed costs variable, which in turn can
boost other success factors. Researchers have also reported that
the success of BPO partnerships is dependent on such factors as
the geographic distance between onshore and o/shore hubs, the
existence of adequate infrastructure and connectivity, adequate
language and technical skills and proper contingency planning.
Potential customers need to conduct thorough and appropriate
research in advance of the project, and management needs to fully
communicate the important decisions to all a/ected parties.4
Customers must also be careful not to lose their expertise or their
core intellectual property (IP), which suggests that companies
should 2rst do a thorough job of identifying which capabilities are
core and which could be better served by an o/shore provider.5

While these 2ndings relate to the o/shoring and outsourcing of IT

activities, there are some obvious similarities to outsourcing
analytics — such as the importance of care in making decisions
that will a/ect IP ownership and access. However, there are
features of analytics outsourcing where the comparison with IT is
less obvious. For example, companies can create a long-term
competitive advantage from their use of analytics.6 What is the
role of analytics outsourcing in creating and maintaining that kind
of competitive advantage? And, while there are companies that
have world-class in-house domestic analytics functions, other
companies are looking at analytics for the 2rst time. Should such
companies approach outsourcing or o/shoring analytics
di/erently?

Addressing Capability Gaps

We studied four multinational companies that used one or more
o/shore analytics BPOs, as well as four o/shore analytics BPOs
operating in India. Two of the client companies had skills that we
judged to be “analytically superior”; the other two client
companies had skills we found “analytically challenged.” (See
“About the Research.”) The analytically challenged companies saw
analytics BPOs as a way to obtain the resources and training
needed to manage and execute their analytics and to gain quick
access to important insights. As an executive at an analytically
challenged company told us, “Investing in an in-house analytics
team is always an attractive proposition but is expensive and
diTcult to convince management to fund without fully knowing the
future bene2ts. Outsourcing is an easier way to get capabilities
quickly and at a low cost.”

About the Research

We examined four oEshore analytics business process

organizations in India and four multinational clients of these
Hrms, following established case study methods.i Two of the
four multinational companies using one or more of the
oEshore analytics BPOs were deemed “analytically
challenged.” The client companies in this study were
classiHed as being “analytically challenged” versus
“analytically superior” through a series of interview questions
that allowed us to qualitatively rank them according to a
maturity model based on how they managed their data, how
they hired and managed their analytical talent, the overall
penetration and sophistication of the analytics they applied
to their business and the extent to which they incorporated
analytics into their core business strategies.

READ MORE +

The analytically challenged companies we studied had business

units in markets where it was diTcult to obtain skilled knowledge
workers with quantitative skills. They recognized that they were
de2cient in analytics and that it would be diTcult to establish the
necessary capability internally: The cost of setting up their own
analytics teams and the risk of failure if they invested too little
made setting up o/shore analytics teams appear too risky. As a
result, they looked to the analytics BPO to provide analytic
resources and training for their own people. Outsourcing analytics
was seen as a way to achieve advantage over competitors. In some
cases, they selected an analytics BPO based on size, speci2c skills
and domain knowledge. As a manager at one of the client
companies observed:

Some of the larger BPO analytics 5rms are just body shops that
just provide low-level analytic services and not much in the way
of innovation. However, some of the smaller 5rms with founders
from particular industries have unique skills and knowledge that
can really add value to our business. They are also very
interested in winning our business and competing with the big
5rms, so they go out of their way to provide superior services.

At analytically challenged companies, competition between in-

house and external analysts seemed largely to be a non-issue: The
client companies themselves had few internal analysts, and the
employees who were involved in analytics seemed to welcome the
professionalism of the o/shore analytics BPO. “We have too much
work and not enough analysts to handle this, so we welcome the
help from our Indian o/shore partners,” one employee of a client
company said.

We found little evidence of coneicts about intellectual property

ownership that we thought could be a source of tension between
analytically challenged companies and o/shore BPOs. Analytics
BPOs that have developed successful applications with clients
have an incentive to market their knowledge and experience to
other clients — even direct competitors; this is particularly true
when salespeople receive commissions for booking new business.
However, on issues of intellectual property ownership, managers of
analytically challenged companies said they lacked knowledge
dealing with this area; managers at both analytically challenged
companies that we studied indicated openness to sharing
intellectual property with analytics vendors.

How Analytically Sophisticated

Companies View Outsourcing
In contrast to analytically challenged companies, which are usually
happy to outsource their analytics requirements, analytically
superior companies wanted to expand their internal analytic
capabilities. For the most part, they used o/shore BPOs to perform
low-level analytics (for example, reporting on automated tasks
such as keeping track of maintenance programs) and did not
contemplate outsourcing all of their analytics to an o/shore
provider. As one manager we interviewed explained:

We have to develop our own intellectual property and

capabilities in analytics because our competitors are doing the
same. In this business, those with the best analytical capabilities
can capture market share and run their business more
eFciently. We cannot outsource this to our oGshore analytic
partners due to the fact that this component is critical to our
competitiveness.

However, having our oGshore analytic partners helps us with the

generic analytics and reporting frees our internal analysts to be
able to focus on the more advanced techniques, which will allow
us to stay ahead of the competition.

Many analytics-oriented BPOs, including those we studied, were

spun o/ from large corporations. As such, they combined features
from the original corporate culture with more innovative business
practices. For example, in an e/ort to serve clients in a more
integrated way, one o/shore analytics company teamed local
analysts with global representatives. A manager at an analytically
superior company told us that he and other managers have been
able to identify best practices in the course of working with an
o/shore BPO that they can then apply more broadly throughout
the organization. This company was attempting to become more
global by integrating its international operations into two new
business units made up of both U.S. and international subsidiaries;
the managers looked to the analytics BPO as a thought leader to
guide them through the transition. As one of the managers told us,
“We have a lot to learn from [the analytics BPO] about going
global.”

Our interviews with o/shore analytics BPOs working with

analytically superior multinational companies uncovered some
potential points of tension. Some of the BPO managers felt that
their knowledge was not being fully utilized: If only clients had
more advanced internal capabilities, they said, they could deliver
more sophisticated services. Apparently, however, the BPO
analytics managers were overlooking the possibility that their
clients might consider their analytics to be intellectual property
they did not want to share with outside businesses. Indeed, there
appears to be a potentially serious point of coneict between
companies and analytics BPOs over knowledge transferability.

Analytics BPOs see their experience working in di/erent industries

as an advantage that deepens the value of their knowledge.
However, paying clients aren’t always so happy to see their
experience (and insights) shared with other companies at a lower
cost. One analytics BPO manager noted:

We know we can add a lot more value to our customer’s

analytics program if they came to us with a more strategic
outsourcing arrangement, where we could be responsible for a
certain aspect of their competitive analytics program that our
capabilities have shown to be superior. If we suggest this to our
customers, they usually become threatened, and this can put
the overall relationship at risk.

O/shore analytics BPO managers agreed that the services they

provide to their customers could be enhanced through more open
relationships between their organizations and those of clients.
Typically, companies treat analytics BPOs as vendors and analytics
engagements as stand-alone projects rather than as components
of an overall strategy. As one analytics BPO manager explained:

Even though we do have better analytics than our competitors, it

all usually comes down to who can oGer the generic service at
the lowest cost. This commoditization of oGshore [analytics
BPOs] leaves much white space in terms of how we can work
together strategically with our customers to help them build
excellent capabilities in analytics.

Based on the previous comment, which we found both surprising

and interesting, we did follow-up interviews with one of the
analytically superior multinational companies. Speci2cally, we
asked how o/shore analytics BPOs might be able to improve the
business of the analytically advanced multinationals if given the
opportunity to have closer, more strategic relationships. One
manager replied:

These [oGshore analytics] 5rms all say they want to be more

innovative, but I just don’t see it happening in practice. The
statistical analysts they hire are inexperienced and are usually
right out of school, with great statistical skills and training, but
they just don’t know our business well enough to make a more
strategic contribution. Most of the time, we end up really
training the oGshore analysts ourselves. … However, I will say
that once told what to do, they have done a fair job at innovating
around existing properties. However, to come to us with
breakthrough ideas in analytics, it’s just not going to happen, in
my opinion.

In this case, the analytics BPO manager’s perception of what the

organization could contribute did not line up with what advanced
multinational customers saw. Indeed, multinational customers
may have made up their minds about whether the o/shore
analytics BPOs are able to contribute at a higher level — in e/ect,
creating a situation where the perception is the reality.

In addition, there are concerns about potential merger and

acquisition activity in the o/shore analytics BPO industry.7 A
carefully nurtured strategic relationship between two parties could
be blown apart in a merger, and there is a risk that a client’s
“strategic analytics” might then become broadly available.

Creating Successful Analytics

Partnerships
With analytically challenged companies, we found that companies
that perceive the need to grow their analytic capabilities can gain
advantages by using an o/shore analytics BPO. By choosing the
right analytics BPO to match their culture and business
requirements, such companies can develop competitive and
unique analytic capabilities that can lead to competitive
advantage. However, to achieve this result, companies need to be
careful about how they structure relationships with o/shore
analytics organizations. (See “Six Questions to Ask an Analytics
BPO.”) Among other things, they should try to maintain a degree of
control over the analytics BPO’s marketing e/orts and avoid giving
the BPO too much credit for their joint work.

Six Questions to Ask an Analytics BPO

Outsourcing analytics requires a carefully constructed

relationship, and the negotiation and evolution of this
relationship needs to clarify who does what, who owns what
and how each party can use the information it has. A few of
the questions to consider asking are:

READ MORE +

For analytically sophisticated companies, the equation is di/erent.

The bene2ts of working with o/shore analytics 2rms go beyond
receiving low-priced analytic services and tax advantages. An
interesting 2nding from our research was that these o/shore
analytics BPOs have something additional to teach and provide,
even to the more analytically sophisticated clients. However, the
analytically sophisticated companies we interviewed either already
had, or planned to establish, their own internal analytics teams and
had no desire to outsource all of their analytics to o/shore
providers. Of course, one bene2t of a company doing analytics
internally is the ability to develop and protect intellectual property.

For any company considering outsourcing analytics, accessing

high-level skills and knowledge from an analytics BPO company
requires a carefully constructed relationship that recognizes the
di/erent motivations of the two parties and the possibilities of
merger or takeover activities. The negotiation and evolution of this
relationship needs to clarify who does what, who owns what, how
each party can use the information it has and what happens to the
work, information and knowledge in the event of a merger or
acquisition of the analytics BPO company. With companies relying
more and more on using analytics to compete in the marketplace,
these issues relating to intellectual property ownership create an
important consideration for both the clients and the customers of
analytics services — and they must converge on a solution that
bene2ts both groups.

ABOUT THE AUTHORS

David Fogarty is an instructor at the University of Liverpool in the United

Kingdom and has led business analytics organizations at Fortune 500
companies for more than 25 years. Peter C. Bell is a professor of management
science at Ivey Business School at Western University in London, Ontario.

REFERENCES (8)

1. P.C. Bell and G.S. Zaric, “Analytics for Managers: With Excel,” (New York:
Routledge, 2012).

2. A. Fisher, “Wanted: Data Scientists. No Math Chops? No Problem,” Fortune,

May 10, 2013, http://management.fortune.cnn.com.

Show All References

TAGS: O/shoring, Outsourcing

REPRINT #: 55216

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Comments (2)

Peter Klausz • February 23, 2014

First oE I would like to say I really enjoyed this article. Based on my experience as a management
consultant. Most companies don't have enough analytics (or at least complex analytics like
predictive modeling) because they are unlikely to use insights from analytics to make a
transformation. I always ask a Hnal follow up question to executives after a conversation about
analytics.

"What are the chances that your company would change it's current operations if advanced
analytics should you that you should?"

More often that not they love the idea of analytics but dislike the potential outcomes. In supply
chain strategy this could mean moving major facilities to more appropriate locations and many
businesses can't stomach it.
Peter Klausz
operationconsultinggroup.com

Giannigiacomelli • January 03, 2014

Great article. Based on my work as CMO and Product Innovation leader of Genpact (the GE
spinoE that also happens to be one of the largest analytics players with global - including India -
operations), your summary seems factually correct.

I would however argue that you should consider a very signiHcant key to understanding the
strategic value of using outsourcing - that the analytics "process", just like many other business
processes that have increasingly "gone global", can be broken down and parts of it done by
outsourcing partners - complementing the in-house teams.

This is by now a standard feature of advanced process operations. Large in-house shared
services, while they do not operate at the same scale as the largest BPO houses, do the same -
slice the process into components that can be delivered at scale globally by tapping into global
resources. The preparation of the data, as well as the testing of a large range of hypotheses, is
something that "industrialized analytics" can do.

Of course, that is not the same as asking a few co-located and context-rich analysts to do
creative jam sessions to solve for speciHc new problems. The two types of work are diEerent - and
both economically viable. Mixed them up makes little managerial and interpretive sense.

I am happy to continue the conversation on gianni.giacomelli [at ] genpact.com

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