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Six Ways BPO Looks Different

Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

  The BPO industry landscape is changing as fast as the colors on the leaves as summer turns into fall. Why now? Professor Ilan Oshri, Professor of Technology and Globalization at the University of Loughborough, says the maturity of the BPO industry, experienced buyers gained with both captives and third-party service providers, and the providers use of technologies are major influencers. Oshri, the Director of the Loughborough’s Centre for Global Sourcing and Services, says  these forces “have been in play for some time now but have become quite influential recently.” Here are six ways the BPO industry in 2013 looks different. Buyers and providers are: Automating lower-end processes Opening new geographies Transforming higher-end processes Creating new deal structures Re-badging 2013 style Moving work back in house A little history: BPO grew up in silos. Companies cut their teeth on outsourcing by sending pieces of a process to an outsourcing service provider. Outsourcing today, however, increasingly cuts across an organization horizontally, not vertically. Many enterprises have moved to hybrid model: The in-house department works with the shared services department that in turn works with a global business service provider. Together they provide the service to every department in the company. Automating low-end processes According to Xchanging’s Guy Kirkwood, the BPO industry is bifurcating into low-end and high-end process provision. Typically, a service provider can automate the simpler work, sometimes “taking out people entirely.” Kirkwood, head of channel, says today service providers are increasingly able to automate a single process end-to-end. Automation also increases efficiency. Opening new geographies Even the Indian service providers, who built their business model on labor arbitrage, are now looking for what Cathy Tornbohm, vice president, BPO research for Gartner, describes as “cheaper fingers.” Kirkwood says even the Indian BPOs are offshoring to less expensive locales like China because of wage inflation and high attrition rates at home. Professor Oshri adds, “At the same time, competition between attractive locations has intensified in recent years with about 140 countries bidding for offshore work.” He lists South Africa, Morocco and Bulgaria as three of the latest rising offshore locations. Transforming high-end processes After 30 or more years of outsourcing, enterprises are comfortable with it. That comfort is encouraging them to outsource ever more complex processes. “The complexity of the processes we manage is on the rise,” the Xchanging executive says. Outsourcing buyers are keen to transform these processes, Kirkwood observes. (We define transformation as doing the same thing but more effectively.) One way to do this is to harness new technologies to drive the transformation. Here is an example from Lloyd’s and the London market. The reinsurance market actually started 325 years ago in coffee shops where the brokers would gather to put together deals. Until recently many Lloyd’s agents carried around manila folders so they could underwrite the risk in red ink, just as the founding underwriters did. Xchanging is currently rolling out a wireless network within the City of London, London’s financial district, so agents are able to do their business anywhere with their iPads. “This will transform the service and actually move Lloyd’s back to the coffee shops,” Kirkwood says. Evolving deal structures After decades of surprising large outsourcing failure rates—sometimes as high as 50 percent—the overarching attitude is changing, according to Kirkwood. Now both the service provider and the client are focusing on buyer outcomes. Kirkwood says the global market today is much more dynamic. “The outsourcing contract can—and often does—become out-of-date on day two. By year three what clients contracted for is not what they need now,” he says. Service providers today are creating contracts that allow them to spend less time writing change control tickets, much to the appreciation of their buyers, he has noticed. This has created a major change: outsourcing deals are much more flexible. “Today, service providers can’t say ‘Our way or the highway.’ Provider flexibility is critical to successful outsourcing deals going forward,” he says. Outsourcers are now creating new commercial models to mirror buyer needs—and not just wants. Kirkwood says Xchanging, for example, has nine different commercial models for buyers to choose from. Professor Oshri adds that “the tremendous change in how technology plays a major role in delivering certain BPO functions has resulted in an emergence of new commercial models as well as far more flexibility in how buyers consume these services.” He observes another type of new commercial model is where clients and providers set up joint ventures “to ensure the provider delivers value beyond the one-off cost savings.” Also, Kirkwood adds service providers are accepting more risk in their deal structures. “Gain sharing has become more attractive,” especially if the buyers are far along on the outsourcing maturity scale, he reports. That’s because enterprises that have successful shared services organizations or captive operations have already taken the excess cost out and are effectively efficient. “They ask us what else they can do,” says Kirkwood. These buyers are ready for gain sharing, he continues, because that gives both parties economic incentives to experiment and innovate. The new kind of re-badging Historically, re-badging happened when an outsourcing service provider added its buyer’s employees to its payroll when the buyer outsourced the process these employees handled. Today’s buyers appreciate the cost savings and knowledge outsourcers provide. But some don’t want to ship jobs offshore. So the service provider sends its employees on site to work with the company’s existing employees. The goal: the blended group performs the outsourced business process better, faster and more efficiently. Professor Oshri says the recent trend of re-badging “results in providers ramping up operations onshore.” For example, he says BPO providers in the UK have recently set up delivery centers in northeast England “to ensure proximity to clients while benefitting from access to local skills and an attractive cost base.” Moving work back in house Professor Oshri conducted a survey this year that found 44 percent of the firms surveyed back-sourced at least one offshore function during their outsourcing experience. These include contact …

Top Five Reasons for IT Directors to Outsource IT Services

Mark Walker, Business Development Director, Ubertas

Fear of surrendering control is probably the main factor holding many IT directors back from realizing the benefits you’ll reap when you outsource IT services. But if you can find an IT services supplier who will work with you in a genuine partnership, understanding the specific needs of your business, it soon becomes clear that this fear is misplaced. It is perfectly possible to retain your strategic power while outsourcing the fundamental and mundane elements of your IT service and support. By opening the door to outsourcing some niche services or even your entire application or database management infrastructure, you can generate a host of business benefits. The top 10 benefits of outsourcing IT services Reduced service and support costs within a managed and predictable budget Better quality of service, fewer IT failures and less downtime thanks to well-defined service level agreements (SLAs) Access to the latest applications without high up-front license costs Access to accredited engineers, skills and technical expertise without having to train your own staff Reduced risk of employees leaving and taking their knowledge with them Round-the-clock access to a help desk primed to resolve problems remotely and rapidly Compliance with the latest regulations Guaranteed data security at remote, hosted data centers Real accountability via contracted commitments from a third party supplier partner that wants to keep your business rather than reliance on an in-house group that is hard to pin down Remove high IT staff costs from your balance sheet and shift to an opex budget For some time, there have been signs that IT directors in smaller enterprises are increasingly receptive to these benefits and are even embracing them with greater agility than their global counterparts. A survey from Computer Economics suggested that 27% of businesses now outsource applications management, while 21% outsource database management. According to Information Week, as this level of outsourcing gains credibility and trust among SMEs, the benefits quickly accumulate in terms of greater flexibility (particularly for companies that are growing rapidly); access to cost-effective expertise, techniques and programs; access to third-party resources such as the help desk, which liberates IT staff to focus on more productive business-focused activities; and the wider savings achieved by not having to invest in infrastructure and licenses. Take email services as one example: Gartner estimates that outsourcing just this one application could save businesses with fewer than 300 employees a significant amount because an outsourcing partner has the dedicated infrastructure to manage it at a much lower cost. Five reasons to outsource IT services Here are five good reasons why you should outsource IT services: 1. You could save significant staff costs. Not just on the recruitment and hiring front.  Skilled people with strong application-based credentials don’t come cheap and have long-term costs. Why spend time and money training somebody to support a core business application, only to see them poached by another employer and taking their expensively-acquired skills with them? Or send them to costly training to keep their skills current? And why not liberate your in-house IT staff to focus on projects that add value to the business rather than spending their precious time on firefighting duty? 2. An outsourced call center/help desk frees your resources. Providing round-the-clock support for your users in-house is expensive. Depending on the size of your business, you might need a dedicated facility that is operated by key IT support staff and is a significant cost center in terms of facilities management overheads. Even in a smaller IT operation, somebody—it might even be you—has to be on call outside office hours to provide IT support for an increasingly mobile workforce. Thanks to greater economies of scale, a dynamic IT services partner should provide a superior help desk at a greatly reduced cost. 3. You can save money all around – with the right outsourcing strategy and partner. A good IT services partner will work with you to identify the pressure points that make sense for you to outsource. These can vary tremendously from one business to another.  Toolbox.com points out that cost savings vary with the number of employees who need support and to what degree, the number of devices involved, the types of applications that you use, the ratio of employees using office space to remote workers, and even your geographic location when it comes to the price of on-site support. These are complex calculations that deserve patient analysis. 4. Your business will be more flexible in its use and consumption of IT services. Infrastructure is expensive. Why invest in servers, complex networks and other hardware just to deliver vital but everyday applications to your users when you can have those applications managed and distributed as a service direct to the desktop without the expense of hardware maintenance? Because your applications are being managed and hosted by a third party, they can be scaled up or down to meet fluctuating demand, and your costs will be more tightly controlled as a result. 5. Peace of mind. Why let worries about more complex issues such as data security or disaster recovery keep you awake at night when they can be managed and supported by a third party who has all the necessary expertise and infrastructure to meet your security and business continuity requirements? Yes, they are important, but by choosing the right partner to provide relevant support services, you are prioritizing them rather than allowing them to become distractions that need constant attention from your in-house IT team. Getting Started Negotiation is the key to getting your relationship with your IT services supplier off to the best start and making sure you realize the business benefits that you expect. And it starts long before the contract is signed. As Forrester analyst Wolfgang Benkel says in his useful report, Negotiate a Successful  IT Service Outsourcing Contract, ‘Renegotiating during an existing outsourcing relationship requires time and effort, decreases agility, and is always based on less competition, which influences the provider’s motivation and the price.’ In other words, you’ll get …

The Flexi-pricing Route to Cloud Innovation

Outsourcing Center, Karthik Nagendra, Business Writer

I’ve got a little story about cloud solutions. A wealthy looking woman entered an optician’s shop, pointed to a very stylish frame and declared to the shopkeeper, “I’d like to buy that. How much?” Gauging at a glance her capacity to pay, he replied: “$500.” When she didn’t bat an eyelid, he added quickly, “for the frame.” “And the glass?” she asked haughtily. “$1000,” said the shopkeeper, tremulous at his own boldness but looking for any sign of outrage. When he saw none, he quickly added, “for each.” There’s often a thin line between flexi-pricing and fleecing, as the joke above illustrates. But the truth is that sellers often try to gauge how much a buyer is willing to pay, and fix rates accordingly. The sensible buyer is happy to pay a price that reflects the value received from the product. Reaching that balance is an age-old dance, with new moves still being added. One such move borrowed from other industries is flexible pricing. Airlines have for long sold seats for a higher price on dates closer to the date of travel. We also have witnessed airlines offloading unsold tickets at throwaway prices some three hours before take-off because an unoccupied seat on a flight is nothing but a complete waste of opportunity. Flexi-pricing sends shoppers into frenzy during ‘Sale’ periods—it tempts people to spend more by asking for less. The origins in tech sector In the technology industry, flexi-pricing was embraced by the outsourcing industry pretty early in the day, with service providers billing their customers on a cost-plus basis—and the bill amount could differ from month to month, depending upon the number of people the service provider hired to carry out the work. Flexi-pricing evolved a notch when service providers started to add value and were rewarded for it accordingly. When product development was outsourced, service providers asked for and began to receive a percentage of the royalty on product sales. BPOs (business process outsourcing firms) too got into the act, charging clients per transaction rather than per employee. The higher the number of transactions handled, the higher the payment received by the service provider, while the cost per transaction fell for the buyer of the service. This acted as an incentive to automate processes, leading to better performance and enhanced income for the BPO, but also shorter resolution-time for clients. Evolution leads to innovation With Cloud computing taking off, flexi-pricing has become the new norm, in turn setting off a chain of innovations. Those opting for cloud solutions are paying only for the amount (of server space, virtual desktops or package software) used without having to actually buy anything. Some decades ago you could only order an entire pizza even if you could consume only a slice. With evolved pricing, you can now ask for just a slice at many pizzerias. But can you pay for a bite at a time? If it was a digital pizza, you could—and that is what Cloud computing has made possible. Of course, this has made the payment collector’s life incredibly complicated. Keeping track of who’s using what and how much and for how long is the challenge. Fortunately, tools automatically keep count, measure out billable events and so on. Improved process automation will lead to further evolution of transaction-based pricing—and a lot of new products and services in the following areas: Management tools: Cloud solutions already deliver intelligent governance that allows customers to consolidate and virtualize resources, allocate and manage applications, improve service levels, and reduce operational costs. This will reduce manual monitoring drastically and allow for the monitoring to happen from remote locations at lower costs. Predictability tools: How much of that particular software are you going to need in the future? How much server space? Will your needs change from month to month, day to day? New tools will be able to estimate future demand based on historical usage and your own business plans. Analytical tools: While large companies are making their business intelligence and predictive analytics solutions available on the cloud, we could foresee startups offering a newer and more nimble way to analyse data. Innovation takes over It’s a virtuous cycle that will lead to further innovation on the Cloud platform, fuelling early-stage funds inflow into this sector. IDC has predicted earlier this year that over $25 billion will flow into acquisitions of companies with cloud service offerings until perhaps the end of 2014—a big jump from the $17 billion in acquisitions during the previous 20 months. A whole set of innovations are also likely to be industry specific. Take, for instance, the healthcare industry. With doctors using mobile phones to receive photos of ailing patients, then remotely diagnosing the condition, or using collaborative platforms to share patient notes, x-rays and MRI images with the patient himself or with another expert, it’s almost certain that HIPAA-compliant cloud-based collaborative platforms are on the horizon. Similar stories will be written in other fields, such as education, manufacturing, hospitality, automobile, aviation, and nearly any field really. Could the sky be the limit for cloud solutions?  

The Do’s and Don’ts of Payroll Outsourcing

Outsourcing Center, Patti Putnicki, Business Writer

Payroll outsourcing is an excellent way to improve accuracy, streamline processes and offload time-consuming, often tedious tasks to a proven specialist. While the service is designed to simplify life for the client company (and the people in it), without careful planning or adherence to some best practices, the whole thing can get a little complicated. We spoke to some industry experts on both the provider and client side to pinpoint common stumbling blocks and identify best practices – essentially everything you need to enter this type of engagement with eyes wide open. DON’T Dissolve Your Entire Payroll Department While it is true that a great motivator for payroll outsourcing is FTE reduction, slashing to the bone will only hurt you. “One of the biggest mistakes companies that are moving from in-house to an outsourcing relationship can make is getting rid of all of the internal payroll experts when they outsource,” explained Jim Adams, executive director of payroll services at OneSource Virtual. “It’s critical that companies keep one, preferably two, hands-on payroll professionals who understand payroll laws, how the calculations work and can check for accuracy. Every outsourcing partner needs that type of company liaison.” According to Adams, client companies still have to take an active role in some parts of the payroll process. “Outsourcers do a lot, but we can’t do everything. We can’t check for timecard accuracy, or make sure every work site actually entered their employees’ time in the system,” he said. It’s like leasing a car versus buying a car. “Even if you don’t own the vehicle, you still have to fill it with gas, change the oil and turn on the ignition, or it’s not going to take you anywhere,” Adams said. “You have to do something to make the car run, whether you own it or not. The same is true for payroll outsourcing.” DO Identify Your “Out of the Ordinaries” and “Special Cases” Up Front Here’s the reality: if you lift and shift a payroll operation with issues, those problems won’t get solved in outsourcing. If you don’t communicate your company’s unique payroll idiosyncrasies before the migration, you’re sure to hit a roadblock. “You have to take an honest look at your ‘special cases’ and document your ‘issues’ — everything that causes you pain,” explained Beth Jung, a veteran HRIS consultant who spent a good portion of her career on the client side. “Those are the very things that will bite you in implementation.” Larry Dunivan, chief information officer, for Ceridian HCM, adamantly agrees. “If you have unnecessary problems that add complexity, the problem is not the process – so outsourcing won’t be the panacea,” Dunivan said. “For example, let’s say someone has negotiated a union contract with some odd overtime calculations, and unusual vacation accruals. It’s a tactic that probably got the contract signed, but also created a tremendous administrative burden, because, by its very nature, it can’t be built around best practices.” Translation? You’re just not going to see the efficiency gains. “In that situation, there are really two choices: you can go back and renegotiate the union contract, or you can keep the contract, realizing that you are going to pay more for your payroll processing,” Dunivan said. “In this case, outsourcing makes a lot of sense, but it is not necessarily going to save you money.” DO Seek Out Your Outsourcing Partner’s Advice Although the union contract example is pretty black and white, Dunivan is quick to point out that there are other, easier policy changes that could increase efficiency and reduce cost. So, it’s important to use your outsourcing provider as an advisor as well as an executioner. “Your provider is a payroll specialist, who understands processes, knows how to scale and has a wealth of knowledge gained from previous engagements. Let your provider guide you on the best way to reduce complexity or deal with recurring issues. Chances are, we’ve seen that issue before,”  Dunivan said. The “easy” fixes are typically internal policies that exist because “this is the way we’ve always done it.” “It could be something as simple as altering the way an employee is onboarded or making sure employee self-service requirements are enforced,” Dunivan said. “Sometimes, what seem like very minor things can make a big difference in efficiency and ultimately impact your pricing. The right partner can help you be more efficient and reduce costs where you can.” DON’T Spring the Change on Your Employees According to Jung, one of the biggest factors in a successful payroll outsourcing transition can be summed up in two words: Change Management. “Communication is extremely important, on all levels,” explained Jung. “Your HR team has to understand that the change will make their jobs easier and take away redundant tasks. They also need to understand and become excited about what their new positions will be. Talk to them about what they will be doing instead of all the manual work you’re taking away with outsourcing,” Jung said. “That way, they’ll stay focused on the transition and not on whether or not they’re losing their jobs.” It’s also important to start talking to employees early, educating them on how to use self-service portals and easing their fears about anything that will look or work differently in the new environment. “If your employee is going to get paid by direct deposit instead of paycheck, start talking about that early on,” Jung said. “If they’re going to use a self-service portal for changes instead of picking up the phone and calling HR, explain how everything will work and let them see for themselves, before the change.” Jung recommends identifying change agents – employee advocates in the trenches to keep everyone positive about the changes to come — while keeping the rumor mill at bay. “It’s important to keep employees not only informed, but to talk about the features that will make their lives better. For example, if the change means mobile portal access –talk about that 24/7 access. If it’s …

Why is Outsourcing Innovation So Hard? Here’s How to Make the Impossible Possible!

Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

Talk to most outsourcing buyers at the outset of their engagements and innovation is always on their wish list. Talk to them two or three years later, and the one thing they wish they had gotten is innovation. The lack of innovation in outsourcing seems to be one the few things they are unhappy about. Why is innovation so difficult in outsourcing relationships? Differing perceptions are major part of the problem, according to KVL Somayaji, Global Transition & Transformation community leader for IBM. “While outsourcers provide ROI and can demonstrate tangible savings, buyers are interested in its impact on the ground. That is a matter of perception, making innovation difficult to prove,” he explains. Another problem may be the definition itself. “Disruptive innovation may not fit into a business process management context,” says Keshav Murugesh, Group CEO, WNS Global Services. That kind of innovation, which appears at regular intervals at Google and Apple, “while not impossible, will be few and far between” in a typically outsourcing engagement, he says. The importance of trust and collaboration for innovation Instead, innovation that is possible in a BPO or ITO relationship is “more of a two-way street,” Murugesh observes.  And he believes partnership is the requisite foundation. “If the engagement model is built around partnership, then innovation is more likely to happen,” the WNS executive believes. “Openness, trust and the will to collaborate,” are the key drivers to innovation, adds Rich Jaso, vice president, Global Operations, Unisys. These behaviors create an environment where both sides “have the freedom to display new ways of thinking.” Buyers and providers in adversarial mode, on the other hand, can count on no or minimal innovation, he has observed. “Both sides have to keep each other honest,” adds Subramanian Gopalaratnam, group head of innovation for Xchanging. And the will must be there on both sides for innovation to happen. The WNS executive believes innovation can happen if it’s “an aspiration for both sides.” He says it can’t be lead by service level agreements or by pressuring the service provider. “Innovation happens in a relationship of equals,” he says. In addition, the relationship’s maturity determines the level of innovation possible. “Some innovations may seem very risky at the start of a relationship, especially when dealing with non-linear models,” according to Murugesh of WNS. How do you define innovation? Murugesh equates outsourcing innovation like viewing the hour hand of a clock. “It does not move if you keep looking at it. It’s only after a point in time that you see it has moved,” he explains. Somayaji of IBM adds that the concept of innovation changes from industry to industry, even from process to process. “If there is a concept that is used in different contexts by different stakeholders with different meanings at different times, it probably is innovation,” he says. Yet he took a stab at an all-encompassing definition: “any project or process that can deliver significant tangible and intangible benefits by using emerging technologies that are ahead of industry standards.” Gopalaratnam says innovation requires “a different thought process.” In his experience, innovation “is not about shiny things. It’s about a sustained effort to think differently.” Murugesh of WNS adds innovation in outsourcing comes in many forms:  Completely new, disruptive business idea A  never-seen-before, high-impact business outcome that may create a new revenue stream A dramatic idea that changes the way the client engages with its end customer An idea that can change the direction of the client’s organization internally Jaso of Unisys adds an innovative idea doesn’t have to be completely new. It can be “an old idea used in a new way.” How buyers can aid innovation The experts say both parties are equally at fault for not producing the desired innovative outcome. Outsourcing buyers serious about innovating should do the following: Get everyone on board. Sandeep Malhotra, associate vice president, industry solutions, HCL, observes that the biggest hindrances to innovate are getting  buy in to the idea and dealing with the inertia to change. He says it is often easier to deal with both issues if the new idea has a measurable business impact, either revenue upstream or margin improvement or both. “You have to start a change management initiative early in the game,” he suggests. Look both upstream and downstream too. Jaso of Unisys says clients frequently ask his team to innovate a certain segment of an IT process. But things are also happening upstream and downstream. He says clients have to look at the entire process and be willing to work on all the pieces if they want to solve the problem. “Tangential things impact processes. You have to address those too,” he says. Invest. Somayaji of IBM says buyers need to invest both time and money if they desire IT innovation. Time is just as important as money, he adds. “Buyers can help by spending significant time in planning, so the long-term strategy is the culmination of several near-term strategies.” Ask insightful questions. Murugesh says clients can help by asking insightful questions, like: What more can I drive into my processes to make the outcome more dramatic? What kind of analytics can change the way I work? How can I generate a new revenue stream with my existing sales and marketing force? Stop focusing on the”how.” Jaso of Unisys believes the real focus should be on the “what.” He says focusing on the “how” is an inhibitor to change. He believes the ‘how’ “should be open to adopting best practices and better ways of doing things.” Adopt a long-term perspective. Somayaji of IBM believes any innovation road map must be long term, “while not losing sight of the low-hanging fruits: the near-term benefits.” Don’t fixate on cost reduction. “This inhibits innovation,” says Jaso of Unisys. Clients who live and die by their outsourcing contracts “don’t have the right mind set for innovation,” he says.  “You have to look broader than just this month’s SLA or KPI.” Stop thinking in silos. Real innovation …

The F&A Forecast: 14 Challenges and Six Solutions

Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

The finance and accounting function, along with HR, have traditionally been the BPO processes that companies testing the waters of outsourcing get wet with first. Today “transactional outsourcing has been leveled to a simple commodity,” says Michael J. Alfonsi, Managing Director, BancTec Financial Transaction Services. So what are FAO’s challenges 20 years later? Processes are seasoned and systems are humming. So what keeps CFOs up at night these days? We interviewed four of the industry’s leading experts to find out. The biggest change is those demanding buyers. You know, the ones in their third generation of outsourcing.  “As F&A buyers and providers continue to mature, so do buyers’ demands,” observes Sanjay Jain, head, Global Transformation Practice, WNS. These experienced buyers are putting the pressure on their service providers to perform.  They are demanding that their service providers “finally come up with the famous and ethereal ‘value add,’” notes Alfonsi, who is responsible for the BancTec’s portfolio of outsourced financial solutions,  But this time, he says, “they need real value, like analytical tools, crisp process improvement tools involving fact-based reviews and strong business cases.” Knowledge process outsourcing is one way to produce that value add. In addition to these demands, according to Amit Sharma, general manager, Corporate Business Services for Wipro, pressures on the finance department have intensified over the last five years and not just because of the global recession. “More stringent regulatory regimes and a changing demand from the business to have finance become a true partner have created a need for faster information and a more agile response to change, particularly with mergers, collaborative ventures and divestments,” he says. And if that’s not enough, Sharma adds buyers now expect the finance function “to provide greater business insight, give more relevant decision support and make recommendations regarding business opportunities.” Oh, and buyers still insist their service providers meet routine expectations like closing the books on time. In fact, V. K. Raman, global head, Domain BPO Services for TCS, says this year CFOs who want to “sleep better” have to adopt a completely new mind set. They have to “stop considering themselves the custodians of the financial records and the monitors of internal financial controls.” Instead, they are in the process of morphing into trusted advisors to the board and top management. “CFOs are required to anticipate risks and develop scenarios to meet them,” he says. 2013’s current challenges The experts call out five different issues they have to conquer this year to be successful. They are thorny all and include: Access to working capital. Alfonsi of BancTec says “just because the first shock waves of the financial crises have eased doesn’t mean real concerns about cash flows, payback periods and access to capital have changed. Instead, they are actually “more important now.” He notes organizations that are still capital constrained are “pressed harder than ever,” and companies sitting on cash “require a preponderance of evidence before they deploy it for a project—and even then in small increments—because the atmosphere is still risk adverse.” Sharma of Wipro wonders how business can grow and maintain competitive advantage “when they are faced with an environment where funding and equity are scarce and expensive pressures remain on cost reduction.” How do you grow without the money to grow is the existential question. IFRS compliance deadlines. Jain says EU countries must finally implement the road maps they established to comply with the international financial reporting standards (IFRS) this year and next. “The next phase of challenges is translating the strategy into clearly actionable plans,” he says. Many companies this year are creating partner ecosystems of technology providers and outsourcers “to help them navigate the next few years.” Add SAS-70 and SOX (Sarbanes-Oxley) to the pressures of regulatory compliance in the US. Staring down regulators is a task CEOs want to avoid. FAO executives have to be on their toes here. Technology. In 2013 new technologies like cloud and mobility “pose a threat to the agility of those organizations that are locked into traditional technology delivery methods like mainframe licenses and at-desk-only work situations,” says Sharma of Wipro. 2013 might be the year they are forced to move into the 21st century, kicking and screaming. The emphasis on accuracy. Jain says CFO organizations have “increased their glare on internal and statutory auditors alike.” This means they expect their F&A suppliers to “ensure transactional accuracy and strict compliance in a highly visible and transparent manner.” For that reason, Raman of TCS says buyers are increasing their demands for regulatory risk-related services, especially around financial reporting. “Because of the recent global financial crisis, governments and regulatory bodies around the world have become more stringent in enforcing rules and reporting requirements,” he says. More global operations. More customers that have global operations are turning to it for help with managing reconciliations, maintaining books in multiple currencies and formats, and identifying areas of potential risk, according to TCS. In addition, companies are facing “market pressure with global competition,” he adds. And global expansion can only increase because that is one of the surest ways companies can grow in today’s economic environment. The pace of change. Rajashekaran Gokulan of Xchanging adds the pace of change “continues to pick up speed, which impacts many of the above. For example, governments are introducing regulation “at an uncompromising rate, companies are launching new technologies on an almost daily basis and business models are rapidly evolving in almost every industry sector,” he points out. Inhibiting issues Many CFOs are finding a range of issues inhibit their ability to master these challenges. The experts say these roadblocks include: Accurate and timely information is difficult to get. Sharma of Wipro says this is “because systems are inflexible and fragmented.” TCS adds disparate systems running financial applications add to the complexity. The wrong focus.  The Wipro executive believes too many business units are preoccupied with transactional and tactical issues. This prohibits the finance department from providing “innovative, forward-looking strategic tools.” So processes stay “inflexible and inefficient,” …

What Causes Outsourcing Failures?

Outsourcing Center, Karthik Nagendra, Business Writer

One of the questions that continue to hound buyers and providers of outsourcing is how to mitigate the risk of failure. This is despite a longer history of outsourcing than you would suspect—outsourcing can be traced back to the Industrial Revolution. For 150 years, until 1900, industry in Europe outsourced its requirements. Functions like accounting and legal were near sourced. The creation of raw materials like cotton and oil seeds was outsourced to different nations (and is done even today). Before the IT revolution as we know it—largely pivoted around Y2K—the US was outsourcing manufacturing to countries like Mexico and Canada. Naturally, the last 200 years have created an equal amount of confidence in outsourcing as well as a fear of failure. Outsourcing is much more complex today—an increasing number of companies are uncovering three key reasons to outsource: The skills or projects that are outsourced cannot be procured/ done in-house for a variety of reasons, including cost, the lack of appropriate talent and time factors The outsourced task requires quality processes that are not achievable in-house The outsourced process does not have much value when done in-house and requires more management overhead than it justifies It isn’t surprising that outsourcing budgets are on the rise. One study, IT Outsourcing Statistics 2012/2013 , shows that IT budgets for outsourcing services is up 23% at the median in 2012 over the prior year. Outsourcing will obviously fail if the reasons for it are not well thought out. But despite having the right reasons, outsourcing fails due to a number of key factors. Seven Reasons Why Outsourcing Fails No strategic objective. There must be a clear goal for outsourcing. While cost reduction is a legitimate goal, it should not be the only one. Saving is an end outcome of outsourcing, not the primary reason. When cost reduction becomes the primary objective, the outsourcer is often driven to select the cheapest provider regardless of capability or resources. It’s only when strategic objectives are me that outsourcing finds continued success. Unclear requirements/expectations.  When a company outsources, for example code development, it must be clear about the process, tools, talent, SLAs, timelines, testing, outcomes, ownership, IP and commercials. For example, once a programming requirement is frozen, the outsourcer cannot ask for a mid-development demo if it was not included as an original requirement. Poor transition. Requirements and processes are often moved thousands of miles away from where they were originally carried out. Bridging the distance means the transition process should be rugged and accurate. Agreeing on the terminology, identifying the processes and capturing the metrics make the difference. The role of quality in transitioning cannot be overstated. However, tools to manage transition (for all types of outsourcing needs, not just IT) are becoming better as outsourcing grows. Ensure that your provider uses updated tools and quality standards that are suited for your industry. Rapidly changing needs of the buyer. Outsourcing begins with small steps but quickly acquires giant strides. When the buyer’s needs change, the provider is sometimes unable to change as quickly. A provider who is not nimble and flexible and does not understand your business environment can lead to failure. Poor communication. It is extremely difficult to keep tabs on teams that are spread out. But it is even more difficult to keep tabs on a team that is not under your direct supervision and is located perhaps 5,000 miles away and follows completely different works norms, ethics, standards, etc. from your own. Communicating frequently and clearly and sharing all business-related information is essential to keep the relationship healthy and therefore improve the outcomes of outsourcing. Buyers often feel that “communication” is a task for the provider. The provider settles down to the mandated reporting schedule—which could be a weekly presentation of performance metrics or reviews of development followed by some cursory remarks—and views this as “adequate communication.” When this happens, expect misalignment of missions and failure to follow. People factors. The provider has difficulty retaining talent. This means that either the provider will not have the team required to deliver the task or the constant churn will create teams that have no sense of loyalty or purpose. Such teams will lose focus and disengage. Over management/micromanagement. The provider may often have excellent skills and capabilities, but outsourcers are naturally paranoid and tend to over manage or micromanage. For the provider, this can become a real headache and over a period of time its patience will erode. You could be headed for a flash point that can destroy the outsourcing relationship. By no means is this list of reasons complete, but paying attention to these is a vital starting point. Preventing failure depends on sensitive team managers who are both competent and determined to find business success in outsourcing. The overarching reason for outsourcing failure is the lack of will in top management.  

The Pros and Cons of Single and Multiple IT Providers: Competitive Tension versus Accountability

Frank Usher, Managing Consultant

When considering sourcing alternatives for IT services, buyers must make a fundamental decision on structure. Do you want a single IT provider or multiple IT providers? Both have their pros and cons. Neither of the approaches is wrong. But each presents unique challenges, both in operations and in provider management. When IT outsourcing initially evolved, very few buyers gave any thought to splitting the provision of services and using multiple providers. The big focus was on handing all of internal IT to a provider because that decision came with end-to-end accountability. The biggest concern was to ensure that the client did not interject itself into the workflow processes to the extent that it abrogated provider accountability. Benefits of multiple providers Recently, splitting the service provision among two or more providers has gained popularity – it’s a way to provide “competitive tension” between two or more providers. Buyers can compete any addition or change to their services so they can receive the best pricing. It also permits the movement of scope between providers who have current knowledge of the client environment and have contracts in place, should there be service issues. Today, buyers use a multi-provider solution to gain “best-of-breed” providers for specific portions of the overall scope. Perhaps one provider is better at applications support than infrastructure or another has a specific strength in a particular area such as SAP services. Benefits of a single provider Awarding all IT service provisions to a single provider means the provider has full accountability. The provider is responsible if a service fails, regardless if the failure is caused by problems with an application or the infrastructure. Buyers can require the provider to commit to an “end-to-end” SLA for application availability, and that accountability will be most closely aligned with the user experience. In this model, hand-offs within the support process are all within the control of a single provider, so delays in response and resolution should be minimized. A single provider monitors the management tools that evaluate both the application and infrastructure performance, so trouble shooting and fault isolation are more effective and quicker. From an operational perspective, all the operational hand-offs between applications and infrastructure are internal to a single provider. So there is no vested interest in finding another party responsible for a failure. The provider just has to remediate the problem and restore the service. Challenges of a multi-provider approach Using a multi-provider service environment means the providers are only accountable for the scope of services they provide. If there is a service failure, the service desk must do a more thorough level of triage to determine which provider should get the initial incident ticket. That initial diagnosis may or may not be correct, and there may be subsequent hand-offs between providers until all parties work together to determine the actual cause of the failure. This activity can present issues in actually getting incidents resolved in expected time frames. For example, if the restoration of service SLA is within two hours, the clock starts ticking only when the final owner of the incident gets the ticket from the resolution queue. Any time spent triaging where to assign the incident ticket does not count against the provider resolution time. Importance of provider management Because of the characteristics of each approach, provider management will be significantly different. With a single provider, there is a one-to-one relationship between the client and the provider with very clear lines of accountability. In a multi-provider environment, there is a need for someone to own overall accountability. That responsibility generally falls to the client unless leadership contracts an additional party to be an integrator that will have operating level agreements with each provider and be held accountable. With multiple providers there is also a need for a multi-provider council that meets frequently to provide proactive oversight of operational issues that transcend providers. This ensures there are no breakdowns in workflow and assures operational continuity. This oversight is not trivial and will take significant effort on an ongoing basis. It is not always easy to make sure there are no issues between providers that can affect the end-user experience. Buyers need to give the structure of their IT sourcing serious consideration before embarking on the sourcing journey. Left unplanned and unprepared, you can face  continuing operational and user satisfaction issues.  

A Pioneering HR BPO Engagement Succeeds through "The Simplicity of One&quot

Outsourcing Center, Patti Putnicki, Business Writer

16th Annual Outsourcing Excellence Awards—Best BPO: International Paper and Aon Hewitt “Instead of communicating by change requests and contract management, we can sit down and talk. That is what makes us successful.” Scott Lacy, Manager of HR Operations, International Paper It was the 1990s and the paper and packaging industry was dramatically evolving. To keep pace, International Paper (IP) found itself in a cycle of acquisition and divestiture, all of which took a toll on the company’s HR operations. By the late 1990s, IP had seven different payroll systems, an aging HR information system and an HR-to-employee ratio of 1:90. The HR cost per employee per year had escalated to $1,600. “We knew we had to centralize, standardize and streamline our HR processes, implement and leverage the SAP HR module, and move HR transactions and administration out of the field HR organization. This move would also enable HR to shift from administrative and transactional activities to become Human Resources business partners,” explained Scott Lacy, manager of HR Operations for International Paper. After getting its internal HR house in order, International Paper outsourced the centralized HR process operations to Exult (which was later acquired by Aon Hewitt) for payroll, benefits and workforce administration. At the time, it was one of the first HR BPO engagements in the industry. Navigating a Few Initial Hurdles Like any outsourcing relationship—particularly a pioneering one—IP and Aon Hewitt had a few ups and downs along the way. For example, although the transition of IP’s employee service center in Memphis, Tennessee to Aon Hewitt’s operations center in The Woodlands, Texas was well-planned, critical knowledge transfer and transition execution did not occur. “We discovered that the basic Aon Hewitt model, at the time, wasn’t flexible enough to meet some of IP’s unique requirements. Once we made this discovery, our companies worked to identify how we could, together, correct the problems and support the initial IP vision,” Lacy explained. “By working as partners rather than adversaries, we were able to overcome this initial hurdle, strengthen our relationship and, ultimately, realize all the benefits we hoped to achieve with the transition.” This success didn’t come without a concerted effort by both parties involved. Aon Hewitt employees visited IP mills to better understand the company’s business and the people it served, and established a full-time resource on-site at IP’s office in Memphis. Aon Hewitt representatives met with International Paper’s HR leaders to get insights on the company’s objectives and initiatives and to get to know them better as well. Most importantly, there was quite a bit of listening, “give and take,” and collaboration. “In my experience, reticence to collaborate and jointly resolve issues and to commit to developing a partnership can severely hamper progress and foster an adversarial relationship. I have a background in labor relations and, honestly, a problematic HR BPO relationship can make labor negotiations look like recess,” Lacy said. “But what we have with Aon Hewitt works because there’s a willingness, on both sides, to work toward generating alternatives, thinking outside of the box, and finding solutions that work for both parties.” Taking the Partnership to the Next Level Throughout the course of the contract, both International Paper’s and Aon Hewitt’s businesses have fundamentally changed. So, managing the relationship by the original contract alone just wasn’t feasible anymore. “International Paper has changed dramatically over the past five-to-ten years. We needed the flexibility to address developments that were not envisioned when we signed that initial contract,” Lacy said. “Both IP and Aon Hewitt had a genuine desire to shift paradigms and evolve the partnership instead of managing by change requests and contractual parameters alone.” But how? “We defined a set of guiding principles and behaviors and a structure that we both could formally commit to and then utilized this to form the basis for the partnership,” Lacy said. “We created a Partnership Steering Committee that meets several time a year to review progress and to make sure we’re upholding these original principles or sets of behaviors.” The behaviors included things like “treating each other with dignity,” “actively participating in the partnership,” and a commitment to judge the engagement’s success by a candid assessment of the companies’ collective efforts. The overriding mantra became “The Simplicity of One.” “We wanted to elevate our work beyond issues management to an environment of real collaboration and partnership” Lacy said. “The easiest thing to do in BPO is manage according to the contract. In a real-world BPO relationship, both partners’ interests must be considered. There’s more of a commitment because each party has to sign up; each party has to participate.’ It also means that, when there’s a problem, it’s no longer “us” against “them.”  It’s “how can we collaborate to resolve this?” Aon Hewitt now has a Solutions Team in place to resolve some escalated issues by not only focusing on the individual incident but also identify and remediate process gaps, and identify any impacts to other domains and upstream/downstream processes. “If there’s a payroll escalation, a payroll-only resolution may be easily accomplished in SAP. But, because SAP is integrated and impacts a number of with HR processes, it’s important to take the time to assess how the change being made to solve the payroll issue could negatively impact other areas, such as benefits, for example.” Lacy said. “Now, if an escalation occurs, our Solutions Team looks at the entire solution so we can solve the problem without making a change that causes an issue in another area.” Reaping the Rewards This collaborative partnership has delivered some very impressive results—proving that “the Simplicity of One” is also “the Power of One.” “At one point, we were down to an average of four escalations per day. Now, you may think that this is pretty good for a company with 50,000 employees. Then, we got down to 2 escalations per day. That’s as good as it gets, right?” Lacy said. “Now, we have approximately one escalation every 20 days—that’s .05 percent—and that’s pretty impressive.  …

What is Outsourcing? It’s Our Past, Present and Future

Outsourcing Center, Karthik Nagendra, Business Writer

What is outsourcing? It is not a new or alien phenomenon. Almost every organization outsources some aspect of its business. A paint company may outsource the manufacture of its paint cans; a mobile network may outsource its billing activity; a hospital may outsource medical waste disposal; an auto manufacturer may outsource servicing; and an IT company may outsource its janitorial services. Outsourcing is really about letting experts do what they do best, leaving the business to focus on its core strengths. This means that paint companies, mobile companies, hotels, auto manufacturers and others would do well to consider outsourcing their peripheral requirements while they focus on their core strategy. The most popular forms of outsourcing are information technology outsourcing (ITO) and business process outsourcing (BPO). The advantage of both is fairly clear. Outsourcing can improve the quality of service since experts provide it using specialized tools, facilities and talent. Organizations that outsource their IT requirements don’t have to spend on recruitment, training and retention of the talent that may not necessarily see a robust future in a non-technology company. As an added benefit, outsourcers find that it enables them to stay nimble. IT outsourcing is about acquiring high-quality services that are predictable and reliable at costs that won’t break the bank. However, the salient feature of ITO and BPO is the access to service innovation. Service providers have the time, talent, industry understanding and investments to explore innovations. Outsourcers have the luxury to leverage those innovations. Practically every aspect of IT can be outsourced — from the humble and low-tech IT helpdesk to cutting edge technology R&D. Product design, architecture, coding, testing, integration, localization, support, maintenance and end-of-life functions can be outsourced. Measures for effective outsourcing Outsourcing IT is not quite as simple as it sounds. There are five steps to effective outsourcing — an organization should: Consider what to outsource and the expected returns from the outsourcing Create an outsourcing strategy that addresses safe and manageable steps to ensure effective outsourcing without affecting business continuity Create a strategy for outsourcing that protects IP Decide on an appropriate outsourcing partner Develop appropriate contracts that allow flexibility, define SLAs and management and governance practices However, success in outsourcing does not depend on the above five steps alone. Project management skills and leadership support are the foundation on which great outsourcing practices are built. But success comes from organizational and cultural alignment between the outsourcer and service provider and from effective communication between the two. The future of outsourcing IT outsourcing as a business is not about to shrink. If anything, the market for IT outsourcing will continue to grow, even as what gets outsourced keeps changing. The logic is simple — businesses like those of Walmart and Nike, Citibank and KFC will not want to turn into IT hotbeds. They will want to continue to focus on their core business such as retail, sporting goods and apparel, banking and fast food and let their IT partners largely provide the IT infrastructure and services. However, outsourcing is not what it was in 2000. Today, the mega deals have vanished. While the average deal value in 2000 was $360 million, today it is a third of that. While the number of mega deals and mid-range contracts has more or less continued to remain at the levels of 2002, deals valued at $100 million or less have grown three times. There are two reasons for this trend. First, smaller companies are getting a handle on outsourcing processes and are leveraging the cost benefits. Second, large companies are breaking down their outsourcing requirements and farming them out to different providers in a bid to minimize risk and increase savings. The downside in a multi-provider model is increased governance focus, but the trade-off in terms of bottom line gain is worth the effort. The global recession has increased the quantum of outsourcing as a response to short-term cost pressure. Providers have also had to innovate to bring down costs and provide better pricing models. This has given way to flexible pricing, outcome-based pricing and revenue sharing models. The biggest gain for outsourcers has been the emergence of an increasing number of standardized solutions from IT infrastructure, consulting and service providers so that differentiation is clearly visible in performance and price. This has given rise in turn to shared services that not only reduce prices because of higher efficiencies but also deliver better quality of service. Considering the dramatic changes forced by recession, the future of outsourcing looks much more robust than ever before. Yes, deal sizes are a matter of concern. But the number of businesses that can leverage outsourcing is bound to go north.  

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