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The Next Generation Shared Services through BPO

Dennis Winkler, Director, Jim Matthews, Managing Consultant, Alsbridge

Executives are all asking similar questions of their shared service organizations (SSO): “How do I get to the next level of shared services and realize more value?” “How do I change my SSO model to expand services and go global?” “How do I drive continuous process improvement initiatives?” “How do I deal with social media and big data?” Depending on timelines, costs or politics, many first-generation SSO initiatives started out with a goal of centralizing business processes to meet short-term budgetary goals primarily through FTE reductions. With today’s business environment, executives are now aligning their shared services goals with overall long-term corporate goals, and the SSO’s vision is expanding to a broader strategic role in sourcing. With the demands and opportunities of globalization, companies are developing new sourcing models with a focus on outsourcing transactional processes under control of the SSO as well as adding more value-added processes to it. SSOs are moving to the next generation by implementing the following processes and capabilities: New operating models – new services and new geographies First- generation SSO operating models started as a consolidation of processes such as finance and accounting into a central location. Then many SSOs evolved to a consolidation of multiple business processes in an entrepreneurial, separate business unit, stand-alone shared services operation. Next generation SSOs are now shifting to global integrated service delivery models with regional hubs and centers of excellence. Many multi-national companies are creating regional service centers in lower cost areas, and the majority of large corporations have more than one shared service center. There has been significant growth lately in Latin American centers (serving US and Canada), Eastern European (serving EMEA), and China and the Philippines (serving Asia Pac). Other SSOs are blending their offerings into hybrid models (shared services and BPO) providing back-office, transactional services through BPO arrangements. The BPO provider already has established operations in the geographies that the SSO and its business units are looking to grow into. By leveraging the BPO’s existing infrastructure, the SSO can improve speed to market, avoid start-up costs and still take advantage of labor arbitrage savings. The types of services SSOs are offering are expanding to include not only the typical transactional processes but also: True end-to-end services, such as procure-to-pay More cutting-edge services around big data analytics and social media Customer-facing and competency-based processes, such as vendor management Again the BPO advantage of having pre-existing infrastructures and an experienced team providing these services is causing more SSOs to leverage their service provider for these higher-end services instead of building it themselves. This is especially true when they require technology investments and specialized skills that may not be available in the local SSO market. Continuous improvement process The first generation of SSO typically took a project approach to implementing process improvements with the focus often on reducing specific operating costs and/or achieving a stable level of operating maturity. To move to the next generation, SSOs must implement a continuous improvement strategy. The next generation SSO has its own in-house consulting group with Lean Six Sigma skills that is constantly analyzing the SSO business processes against benchmarks and best practices and determining the best path to achieve process optimization through standardization and process re-engineering. Successful SSOs recognize that “going live” is only the beginning—to continue to add value, they must persistently standardize, consolidate and re-engineer. Mature SSO organizations that have a BPO relationship typically align their provider with developing and executing their continuous improvement strategy. The SSO and BPO provider teams typically work together on certain end-to-end process improvement initiatives and separately on other initiatives where each respective party owns the cost/benefit. For example, a BPO provider that has guaranteed certain on-going process improvements as part of future reduced fees may take the lead and own implementing middleware that would provide a standard data-entry screen that could then feed various client systems to enable more efficient processing of data by the provider team. Continuous improvement departments are the driving force for not only cost-cutting process efficiencies but also operational and relationship improvements. The continuous improvement team should be focused on proactively addressing change management issues-identifying, communicating and transitioning the cultural, technology, personal and process changes that are an inherent part of the shared service and outsourcing lifecycles. Service management First generation shared services management focused on cost controls and basic operating metrics for the shared service center portfolio management, being a blend of resource allocation, risk assessment, and balanced scorecard analysis. The benefits of developing service management include optimizing customer service, improving customer satisfaction and reducing overall service costs. Companies are expanding their sourcing options. As a result, their make/buy decisions are leading many SSOs to sourcing strategies that include outsourcing as an enabler of standardization and process reengineering as well as a way to drive on-going continuous improvement strategy across all functions and geographies. In order to move to the next generation, the SSO should establish a service management framework and processes for those services associated with supporting the shared services organization. New generation SSOs are managing both the internally-provided functions and the business process outsourcing relationships of sourced functions. The SSO must drive optimization and management of its mixed services portfolio by developing a strong governance organization, with a focus on compliance and measurement. The commitment must be to best practices and benchmarking KPIs that have a direct business impact. There should be an emphasis on innovation, not just cost and quality. A strong service management framework will allow the SSO to manage its BPO providers through a shared scorecard that rewards the BPO providers that are achieving the SSO goals and proactively manages the lower performers to raise the bar or have their workload/future opportunities erode over time. Relationship management The key to relationship management is building stakeholder consensus. The SSO director should continuously leverage key stakeholders to understand customer requirements. With BPO providers focused on quality of processes, the SSO is now able to work with the business units to coordinate process …

Mobility’s Coming of Age: All Grown Up and Changing Business for the Better

Outsourcing Center, Patti Putnicki, Business Writer

Before cloud, mobility was in its infancy—a means of obtaining email, calendar and contacts on the go. People who relied on desktop computers for communication were unchained. For salespeople, this was awesome. But, for the rest of us, the business apps we needed required too much processing power to travel with us. Then, along came cloud. “The emergence of cloud enabled mobility, making it possible for people to access more types of applications and transactions on their smartphones and tablets, “said Danny Nguyen of Xerox’s ITO group. “Because of cloud, mobility simplifies access to information. That’s why we’re seeing such a mobility explosion across all vertical markets—one that shows no sign of slowing down.” According to Nguyen, the mobile market has moved from one driven by employees bringing their own devices to work into one that is driven by business itself. And that’s changing everything. “Now, we’re seeing a more holistic approach to mobility. Companies are not just looking for Mobile Device Management (MDM) and security, but they’re also looking for mobile application development services to help them optimize their business, in addition to telecom expense management to help them drive down cost. Mobile is an integrated part of the total business strategy.” Providers Move Fast to Support Changing Mobile Needs Enterprise mobile adoption is increasing so quickly that providers are already adapting their initial services to meet evolving demands. “In the past, providers offered MDM solutions as well as a separate, private company app store where employees could safely download the appropriate business applications,” explained Craig Johnston, senior manager, mobile strategist and evangelist of NTT DATA’s mobile practice. “Now, instead of offering these services separately, vendors are building these secure app stores within their MDM solution. As adoption increases, I believe you’ll see more of these bundled mobility offerings. Vendors are consolidating where it makes sense for the customer.” According to Johnston, an alternative to MDM called Dual Persona is emerging, giving companies a choice in how they manage those ever-increasing, employee-owned devices. “In some companies employees are pushing back against the concept of MDM, saying that these solutions give their employers too much control over their personal devices,” Johnston said. “Unlike MDM, which is all-inclusive, Dual Persona sections the personal data and the company data in two secure silos. This separation enables companies to control and manage the corporate information and apps but makes it impossible for them to delete personal apps, games and media.” Clearly, there are pros and cons to each of these device management solutions. But now companies have a choice of how to best handle the new mobility onslaught that will only get bigger from here. The User Experience Is Everything In their earliest iterations, mobile apps were primarily adaptations of existing desktop/laptop applications. Now that has changed. A successful mobile app not only has to deliver functionality but also provide a great user experience. It has to look good and function well—regardless of the device’s form factor or the user’s geographic location. This focus on the user experience has spawned newer, more creative ways to test applications before these are released into the market. A Massachusetts-based company called uTest, for example, is taking application testing out of the lab and into the real world. “A traditional testing environment involves bench testing in a QA lab. Although you can test functionality and usability to an extent, you certainly can’t determine how the application will perform in different parts of the world on every device model, carrier and OS version,” explained Matt Johnston, chief marketing officer of uTest. “Our model provides in-the-wild testing services that span the entire software development lifecycle—including functional, security, load, localization and usability testing. We engage 60,000 professional testers from 190 countries who test on real devices under real-life user conditions.” These 60,000 non-employee testers aren’t just tech lovers with too much time on their hands. Seventy-five percent have full-time jobs as software developers or quality assurance pros, and another 20 percent are QA contractors. uTest keeps intricate profiles on each of its testers, including what kind of browser, operating systems, anti-virus software and devices they own, so the company can precisely match the project to the right selection of testers. “For these people, spending a Saturday afternoon testing new applications is nirvana. Plus, they get paid for what they do—and get paid well,” Johnston said. In addition to testing for functionality and usability, uTest offers localization testing to validate that the app’s content is saying what the developer thinks it’s saying in any given language. They can test for security and perform load testing to make sure the app won’t degrade under a heavy traffic load. “Essentially, we’ve found a way to take a portion of a company’s testing and move it outside the QA lab, closer to where end users work, live and play,” Johnston said. Mobility Gets Down to Business In a very short time, mobility has penetrated the very depths of industries of all types. Once a tool for unchaining the traditional white-collar salesperson from his or her desk, companies are now engaging mobile solutions to supercharge the entire workforce—including those who weren’t formerly technology driven at all. New applications for internal productivity and customer connectivity are quickly making their ways to all vertical markets—from hospitality to healthcare, from manufacturing and retail to the service industry. “Companies of all types are engaging mobility to solve a problem—to make a manual task or inefficient way of doing something more efficient,” Nguyen said. “It’s not one industry or one area that’s getting the greatest benefit. It’s about asking the default question: how can we optimize business through mobility?” A new age of efficiency has begun.  

Business Applications Get the "Cool" Factor

Outsourcing Center, Patti Putnicki, Business Writer

Admit it. We all loved getting emails on our Blackberries when mobility first burst on the scene. And back in the day (maybe four years ago), most of us thought of our smartphones as portable computer Mini Me’s, giving us things like mobile banking, mCommerce and a means to book a reservation or check for flight delays while we sat in pre-airport traffic. With the convergence of cloud and mobility, coupled with the new functionality of smartphones and tablets, everything has changed. Today, nearly every type of business or organization is looking at mobility from a different angle – finding new ways to gain efficiency, improve processes or connect with their customers more intimately. These solutions take advantage of the breadth of imbedded mobile device technology – like Bluetooth®, GPS  and camera – to transform “business as usual” into a more agile, efficient, engaged environment with the potential for big benefits. Augmented Reality Apps Get Down to Business One emerging trend is the use of augmented reality applications. If you don’t know what augmented reality apps are (or don’t have a teenager to ask), they’re a means of gaining a virtual view of the real world that can be extended with graphics, video, text, gyroscopes and GPS data. Basically, it’s technology that builds a virtual world on top of the real one to provide a little clearer view. Let’s say you’re on vacation and see a structure or statue and want to know more about it. If your smartphone has an augmented reality application, you can enable the app and point the smartphone’s camera, as if you were taking a picture, at the structure itself. The application retrieves a whole plethora of information on what your smartphone (and you) are “seeing.” This same technology is used in golf apps, where users can point their phone down a fairway and identify where hazards are located, distances, and various obstacles on the way to the green. Augmented reality is also bridging the gap between past and present at a Canadian museum’s  dinosaur exhibit. Visitors point their smartphone cameras at markers strategically placed throughout the museum, and the dinosaurs come to life on the phone screens. iPads are also mounted throughout the facility to give a clearer picture of how these dinosaurs moved or would have behaved when they roamed the earth. Cool, right?  But, does this technology really have a place in business? “Augmented reality has huge business potential,” explained Erik McMillan, president and CEO of BestFit Mobile. “Although most people think of these applications as ‘fun,’ I think the success will be in real business cases.” Think store planograms, for instance. “You work in a nationwide retailer and you’re putting together the window display. With augmented reality, you can hold your tablet up to the window, see the layout of products from corporate, as well as instructions for exact set up,” McMillan said. “It makes life easy for employees, while adding a level of consistency you can’t get with instructions alone.” McMillan also sees great potential in warehouse environments. “Imagine an iPad secured to the front of a forklift in a warehouse. Using low-energy Bluetooth® on the iPad, in conjunction with RFID (radio-frequency identifiers) throughout the warehouse structure, this technology can tell forklift operators where to place and retrieve inventory,” McMillan explained. “There’s a huge business potential with this technology that we’re just beginning to explore.” Every Industry Has a Mobile Story Nearly every industry is getting creative with mobile – and gaining big results. The retail industry was the mobility front-runner,  engaging this technology early on to drive customer loyalty and to better connect the shopper with the store employee.  The service industry added tablet computers to technician’s toolboxes, enabling them to do everything from accessing repair manuals to closing out a ticket electronically. But, that’s just the starting point. “Mobility is a natural for realtors,” explained Craig Johnston, senior manager, mobile strategist and evangelist of NTT DATA’s mobile practice. “Realtors can take pictures of properties with their iPads, schedule their lives in real time, and integrate social media. A new house comes on the market; the realtor sends a Tweet to prospective buyers. A realtor goes to meet a new client and finds out more about him or her on Facebook, Twitter or Linked In for faster relationship building.” The hospitality industry is also seeing the light at the end of the iPad – transitioning many employees from a clipboard to a tablet that’s practically as easy to use. “In the hospitality industry, the iPad is beginning to replace the clipboard and the walkie-talkie,” said Danny Nguyen of Xerox’s ITO group. “These verticals are engaging mobility to track how fast rooms are being cleaned, how long customers are waiting in the registration lines, then pushing back real-time, dashboard analytics so the managers can take action to get productivity back up to the benchmarks.” According to Nguyen, hotels, resorts and entertainment venues are also using technology to enhance the customer experience, from pushing out offers based on preferences or where they are in the facility to identifying ways to make their stays more memorable. Car dealerships are exploring the use of tablets to improve close rates and alleviate the dreaded back-and-forth with the sales manager. With the tablet as the conduit, salespeople and customers no longer move to the back office, instead staying in close proximity to the “dream car” during price negotiation, purchase and loan application. Even hospitals are engaging mobility in new and unusual ways.  Think iPad mounted on the wall of the operating room. “The operating room is the most profitable room in the hospital, so starting surgery on time is critical. Mobility can be used for asset checking – ensuring the doctors, nurses and equipment are all there, ready to go,” explained McMillan of BestFit Mobile. In this application, the nurses, anesthesiologists and doctors all sign in on the mobile device. When everyone and everything is there, the device sends a message that the procedure …

Automation: the Key to a Successful Dynamic Enterprise in the "Now Economy&quot

Simon Shah, Redwood

There’s a reason automation solutions are on every business owner’s mind. Today’s business enterprise is in a state of continuous change—the pressure to optimize performance while lowering costs is enormous. The real-time expectations of the ‘now’ economy is no longer limited to manufacturing and shipping but is driven by information services, an increasingly mobile workforce and time-sensitive legislation. This means that quick response, transparency and real-time reporting are essential. So with all this going on, how do you manage your business processes to make sure you stay ahead of the competition?  When the left hand doesn’t know what the right hand is doing One flipside of a growing business is that processes and technologies tend to evolve on a piecemeal basis. This creates business processes that are designed, structured, supported and run totally independently of one another. It becomes a case of the left hand not knowing what the right hand is doing. As you would expect—and probably know only too well—this leads to duplication in technology and manpower. Best practices are nigh-on impossible. Enterprise-level integration is expensive, painful and time consuming. Your business becomes more susceptible to security and compliance risks and less agile, less innovative, less informed and less able to manage costs. So what’s the solution? Hands off for a hands-on approach Bill Gates said: “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency.” The multi-billionaire knows what he’s talking about. It’s shocking how many enterprises still undertake critical processes manually.  Fear of change seems to hold back many people who are in a position to transform the system. In the insightful words of Belasco and Stayer in their management tome, The Flight of the Buffalo: “Change is hard because people overestimate the value of what they have—and underestimate the value of what they may gain by giving that up.” So if, for example, if your financial close takes 20 days and your competitor is doing it in half the time because they’ve automated, you really should be thinking about the value behind making a change. Enterprise-bridging solutions that tie up every process, end-to-end, under one ubiquitous automated platform do now exist. What’s more, you can go for a process-as-a-service option run from the cloud so your business critical processes become easy, agile and cost-effective, freeing you to focus on your core business. It’s no longer a question of ‘Can this be done?’ but of ‘How do we get this done?’ Case studies Here are some examples from our own client portfolio here at Redwood, in which automation solutions have saved companies millions of dollars: A U.S. electricity supplier increased cash flow receipts by $10 million per month through connecting and automating their meter -to-cash process. A Fortune 50 aeronautics and defense company improved its bottom line for every single contract, and reduced its financial close from two weeks to two-and-a-half days. A Fortune 500 industrial supply company eliminated latency and reduced the time to process order-to-cash transactions from 36 hours to six hours, which allowed them to comply with the mandated 24-hour GAAP standard requirement. Automation solutions or nothing It’s never easy to step out of your comfort zone, but as corporate budgets remain tight post-recession, it’s important to consider that the upfront costs and inconvenience you might associate with switching to an automated system will be wiped out quickly by the costs saved by streamlining many manual processes into one automatic one.  Automation solutions aren’t only about efficiency; they’re about responsibility. Saving your company money that can get passed on to other departments (or even to the customer) will, in the long run, more than make up for any short-term drawbacks to change.  

Cloud Computing: Four Legal Pitfalls to Avoid

Outsourcing Center, Samuel Crow, Senior Business Writer

Part of the charm of cloud computing for many corporate leaders is its seemingly simple set up: sign on the dotted line, flip a switch, and the service is up and running. But taking that first step too lightly can lead to complex and costly problems down the road for cloud buyers – that is, there is a risk of legal traps. “Many customers look at these deals in the same light as signing up for Gmail,” says Edward J. Hansen, partner at Baker & McKenzie. “In some respects its unfair to expect CIOs and CFOs to fully understand the implications of the cloud.  Many of the issues can be hyper-technical from a legal standpoint but can profoundly impact operations and integrity.” Cloud computing vendors are quick to point out that standardization is at the core of the value proposition for “as-a-service” offerings, right down to the service agreement itself. But that standard boilerplate cloud contract—an ostensibly innocuous one- or two-pager—has actually been carefully hammered out to the provider’s favor, and potential customers would be wise to approach it with care. But behind that basic façade are often complex calculations the provider has made that could prove detrimental to the client, says Hansen. Some common hidden time bombs in standard cloud computing contracts include provisions that disclaim liability if confidential information is published, make access to data at the discretion of the vendor upon termination, or require the customer to change its security policies to match the cloud providers, points out Pamela T. Church, partner and head of the intellectual property group in the New York office of Baker & McKenzie. “There is a lot of pressure for companies to quickly move to a cloud computing model to realize the cost savings, gain access to new technology, and achieve higher levels of service,” adds Todd Fisher, partner in the outsourcing and commercial transactions practice of K&L Gates. “That pressure can cause some customers to focus on the upside, while not adequately accounting for the risk.” Just because the total value of a cloud computing contract may be lower than a typical outsourcing deal doesn’t mean it requires less caution and scrutiny. “Too many times the business associates risk with dollar value,” says Hansen. “That is not the correct analysis, and procedures should be put in place that assess risk in a more sophisticated manner.” Here are four legal traps to watch out for before signing on the dotted line for a cloud-based service. 1. Intellectual Property Exposure Every company has valuable intellectual property and trade secrets. From a legal perspective, it’s that company’s duty to protect those knowledge assets, not its vendors. “When moving trade secrets to the cloud, the customer must ensure the cloud provider has adequate protections in place to maintain the secrecy of the information,” says Fisher. “The customer needs to fully understand the protections in place to protect its proprietary information, processes and services, and then make a determination as to whether it’s an acceptable amount of risk to accept.” Don’t settle for a provider’s standard contract when there are IP issues at stake, says Fisher. “Intellectual property is the lifeblood of many companies, so it is important to understand exactly how the customer will use the cloud computing services and whether any intellectual property will be developed.” Potential cloud buyers should take care with the contract to make sure they retain ownership of all their own data and the provider uses it only to deliver the service, particularly IP-related information. An explicit provision preventing the vendor from misusing or disclosing customer IP is also a good idea. In addition, new intellectual property can be created in the course of a cloud computing engagement and the customer may want to add provisions that give them ownership of assets created in the course of the deal.  When a client hires a vendor to run a private cloud for them, for example, the vendor may create customizations and other intellectual property. Or a cloud provider may develop buyer-specific interfaces to access services. A customer may want to include a clause to retain ownership of such IP or preclude the vendor from using it with other customers, Fisher explains. 2. Bait and Switch Terms It may go without saying to never sign a contract before reading it, but when it comes to cloud computing, many first-time customers sign on the dotted line based on what they’ve read about the offering or claims on the vendor’s web site. Always read the contract in front of you, not the vendor web site, says Church. It’s not uncommon that vendor advertising contradicts their actual agreements. Equally as troubling is any cloud contract that’s as vague as the vendor’s marketing collateral. Terms that merely require conformity to “industry standards” or performance that is “appropriate,” “sufficient” or “best practice” are legal traps that are practically waving a red flag. Cloud computing customers should define specific standards of performance such as results, services levels or tasks to be achieved. 3. Weak Disaster Recovery and Business Continuity Processes This is one of the cloud computing legal traps with the worst ramifications. There has been no shortage of high-profile cloud computing failures and service disruptions in recent years. Yet business continuity and disaster recovery continue to get short shrift in cloud computing agreements. It’s in a cloud provider’s best interest to have robust disaster recovery and business continuity plans, but customers can’t simply rest on vendor good intentions. Instead, cloud clients can contractually require cloud vendors to meet certain data back up and recovering requirements. They can even specify as a service level a recovery point objective (RPO)—the point in time to which the provider must recover data—and recovery time objective (RTO)—the speed with which the provider must restore the data, says Fisher. When a service disruption or disaster occurs, many cloud computing clients are surprised to find their contracts silent on disaster recovery and business continuity and the cloud provider operating under a much less stringent RPO and …

The Impact of the U.S. Patriot Act on Cloud Data Privacy: The Myths, the Rumors and the Reality

Outsourcing Center, Patti Putnicki, Business Writer

There’s a rumor circulating in Europe, igniting fear and paranoia among businesses and consumers alike: Big Brother is alive and well and living in a U.S.-based cloud. That is, cloud data privacy is in jeopardy.  Allow us to explain. Two European companies announced the creation of the first fully European “Database-as-a-Service” cloud offering – one that provided a “safe haven from the reaches of the U.S. Patriot Act.” The press release goes on to say, “Under the Patriot Act, data from EU users of U.S.-owned cloud-based services can currently be shared with U.S. law enforcement agencies without the need to tell the user.” Wait. Stop. Can what they’re saying be true? We all remember the Patriot Act – the post-9/11 legislation that was designed to help the U.S. government more efficiently track terrorists.  We know it was created to help catch the bad guys, but does this act impact cloud data privacy for the rest of us in the cloud? We went to our legal experts to get some real answers. A Patriot Act Primer The Patriot Act was signed into law by George W. Bush. It did not give U.S. law enforcement brand new ways to get data for its terrorist investigation. What it did do was expand the ways in which law enforcement could obtain that data. “The common misperception is that the Patriot Act created new tools for data collection. In fact, it simply beefed up a few things to remove obstacles in following terrorist activity,” explained Alex Lakatos, partner with Mayer Brown LLP. According to Lakatos, there are two expanded mechanisms that could directly relate to cloud data privacy: namely, the Foreign Intelligence Surveillance Act (FISA) and National Security Letters. Let’s look at the “befores” and “afters.” Before 9/11, the FISA Act required the FBI to get an approval from a special court to obtain the business records of suspected terrorists or terrorist groups. But, this data was limited to car rental, hotel, storage locker and common-carrier records. Title II of the Patriot Act enabled the FBI to petition that same court to obtain books, records, papers, documents – including data in the cloud – to protect against international terrorism or clandestine intelligence activities. To get an order, the FBI has to specify what they’re looking for and explain why the documents are relevant to their investigation. Under Section 215, it’s also true that the party receiving the FISA order (which could be a company or cloud provider) can’t disclose the fact to the individual under investigation, unless they contest that order after a one-year hiatus. “The reality is the government rarely uses FISA orders […],” Lakatos said. “That’s a very minimal threat to cloud providers.” National Security Letters are administrative subpoenas that enable the FBI and other government agencies, without court authorization, to obtain certain records relating to their terrorism investigations. Before the Patriot Act, the FBI and Secret Service already could get bank records, securities brokerages, and information from car dealers, pawn shops, casinos and realtors. These agencies could also gain information from credit bureaus on the names and addresses of the financial institutions at which a suspected terrorist had an account; plus name, address and employment history of that person. The FBI could also use a National Security Letter to access subscriber information from service providers and electronic communications records. The Patriot Act now enables the FBI, and other relevant agencies, to access full credit reports when conducting investigations related to international terrorism. It also imposes a gag order on persons receiving a National Security Letter. Again, that means that the provider can’t inform the individual under investigation that such a letter was submitted, nor the information provided to the agency. “The types of data that the FBI and other authorities can gather through cloud providers with a National Security Letter are limited,” Lakatos said. “For example, they can request ‘envelope’ information from Internet providers but not actual message content. And again, I think it’s important to reiterate that what these government agencies are looking for is information to help them protect the U.S. against terrorists.” The Reality Check Although in recent months the topic is making a lot of headlines, in Lakatos’ perspective, it’s much ado about nothing. “Those European providers are indicating that, through a U.S. cloud, our government has access to your data. But, guess what? It does anyway. If a suspected terrorist has pertinent data stored in a physical location or cloud in another country, if that country is an ally, that information can still be obtained,” Lakatos said.  “You can’t avoid the issue by avoiding U.S. service providers.” Here’s the other key point: the United States isn’t any different than other countries when it comes to pursuing data for terrorism investigations. Meaning, if prosecutors in Europe need data held in the United States for the same kind of terrorism monitoring and tracking, they can probably get the U.S. to seize that data for them. That’s how governments work with their allies. So, what about all that talk about providing a “safe haven” from the reaches of the U.S. Patriot Act? “It’s marketing,” Lakatos said. “There is fear and ignorance in the market, and consumers may just avoid U.S. Cloud service providers without asking questions.” It’s like putting a ‘no fructose’ label on a product that contains corn syrup. Both ingredients, and the risks associated with each, are virtually the same. But, by putting the right spin on it, the seller can change the buyer’s perception. “The fact is, merely avoiding U.S. cloud service providers based on concerns about the Patriot Act provides no assurance that that cloud data is beyond the reach of the Patriot Act, nor does it provide protection against the risk that non-U.S. governments will access that data, either on their own initiative or in response to a request from the United States,” Lakatos said. The net-net? Don’t make a vendor selection based on the home country of the provider alone. “Look at all …

Under the Radar: A Look at Oft-Overshadowed ITO Trends

Outsourcing Center, Patti Putnicki, Business Writer

If information technology outsourcing (ITO) were a movie, cloud, analytics and mobility would be the headliners. Although this trendsetting triad is having a dramatic impact on how services are consumed and how companies operate, a number of other significant trends are emerging in the information technology outsourcing space. This article focuses on those unsung heroes and the impact they’ll have on the industry moving forward. Changing Expectations In a previous article, we talked about the coming demise of the long-term, single-provider contract. Today’s engagements are shorter, more specialized and far less relationship-based than we’ve seen in the past. Governance is less granular, focused more on results than day-to-day transactions. In almost every way, expectations have changed. “In the past, our clients wanted to know the number of incidents and problems that occurred and how many of these we resolved. That was the benchmark,” said Vijay Balasubramanian, vice president and global head of CPG and eCommerce for HCL Technologies. “Now our clients want to know how much value we added. Instead of just resolving incidents and problems, they rely on us to link the business processes to applications landscape and identify value. In the olden days of information technology outsourcing, the support person didn’t know the impact of the incident on a business process. Now, providers are starting to map business processes to applications and business structures, so front-line support personnel don’t just respond to issues but identify ways to solve these permanently. Instead of contracts built on service level agreements, companies are beginning to base these contracts on output. Innovation has also moved from a value-add buried in the depths of a proposal, into a position of prominence. “We used to spend six months explaining who we were and what we did. Now, customers care more about how providers do ITO; how they bring innovation and how quickly they can do it,” Balasubramanian said. “Innovation is now a critical component to any ITO engagement.” The innovation is in the HOW rather than in the “who” or “what.” A Surge in Desktop Virtualization Desktop virtualization is also on the rise, driven in part by increasing numbers of remote users and contract employees. Desktop virtualization gives these users secure, anytime, anywhere system access from any device they choose – from laptop to tablet to smartphone. “Desktop virtualization offers a number of benefits to companies and their users,” said Harish Krishnan, general manager and head of the End User Computing Services Practice at Wipro Technologies. “Because the data resides in a central location, it is much more secure than data housed on individual devices. The updates and patches can be easily done as the virtual desktops are in the data center as compared to geographically dispersed physical desktops. This lowers the management costs”. According to Krishnan, thin clients significantly reduce power consumption by as much as 80 percent. It also lowers refresh costs. “A thin client is cheaper and the refresh cycles are longer,” he said. “In a traditional environment, a refresh lasts three or four years, whereas a virtual refresh lasts six or seven years. Provisioning is easier as well, because you’re not working with a physical desktop.” Today, companies are recognizing that the real value of virtualization isn’t lowering cost. It’s more about the value virtual environments bring to the table. For similar price as a traditional environment, virtualization delivers increased security, availability, agility, flexibility and a better user experience. However, like cloud, virtualization isn’t an “all or nothing” proposition. “It’s important to note that it’s not feasible to virtualize everything. Companies need to segment users and virtualize what makes the most sense,” Krishnan said. “While power users on legacy systems aren’t strong candidates for virtualization, general office workers and contract workers are. It all comes down to the business case and so it is important to have the right virtualization solution based on the categorization of users.” Consolidating IT Support This new virtual environment has prompted companies and outsourcing providers to re-engineer the way they deliver support. Historically the desktop and service desk were combined functions. But in the last 10 years, these functions have largely been broken out, operating as separate units. “In the past, when someone called the help desk, 20 percent to 30 percent of the calls required someone to physically go to the device to correct the issue. Now, with the widespread adoption of high-performance desktop operating subsystems and remote monitoring capabilities, that’s no longer the case,” explained Chris Pattacini, director of benchmarking for Alsbridge’s benchmarking division. According to Pattacini, more companies are identifying the service desk as the source for problem resolution and desktop/help desk support for more “install, move, add or change” functions. “We’re seeing more organizations bringing these two functions back together and no longer treating them as separate functions,” he said. “As desktop virtualization adoption increases, this more centralized support structure will increase in popularity as well.” Converging Technologies Companies are also getting more innovative in how they promote their product and brand to the consumer market. For example, because of a promotion that involves music downloads, a large, U.S.-based soft drink manufacturer is now also the third-largest music distributor in the United Kingdom. “We’re seeing a huge convergence of media entertainment, consumer packaged goods and retail,” Balasubramanian said. “Instead of investing in television advertising, companies want to engage consumers through social media, music downloads, digital coupons and other digital media. They’re turning to outsourcing partners to take advantage of digitization.” More Complex Skill Sets The advent of cloud, the increase in virtualization and the transformation of IT in the digital age are all changing what a traditional IT department looks like, from the CIO on down. “Fifteen years ago, a CIO’s job was making sure the system worked. Since that time, the CIO’s role has changed as IT is now more closely mapped to business strategy,” Pattacini said. “With that evolution continuing and new delivery models increasing in significance, the CIO of the future will become an aggregator of suppliers and …

How Cloud, Competition and a Maturing Market are Transforming ITO

Outsourcing Center, Patti Putnicki, Business Writer

In the world of IT, Cloud has been the media darling, taking center stage in every conversation and publication. While it’s true that Cloud is a major trend in and of itself, its adoption has caused a domino effect in the industry as a whole. The advent of utility-based pricing, in combination with a more savvy outsourcing customer, is dramatically impacting the way IT services are purchased and consumed – with far-reaching ramifications. Let’s take a look at the trends. The Decline of the Mega-Deal; The Rise of Fragmentation In recent years, ITO was a “partnership,” characterized by long-term, mega-deals with arduous sales cycles and complex pricing structures. Smaller companies rarely had the breadth to compete. Today, all of that is changing. “We see ITO morphing into something that’s more fragmented, ” explained Ben Trowbridge, founder and CEO of Alsbridge, Inc. and author of Cloud Sourcing the Corporation. “Instead of the mega-deal, single-provider contracts, clients are starting to break up deals based on competencies.  Two, three or more providers will become the norm.” According to Trowbridge, today’s outsourcing client is now well-equipped to manage the complexities of governance in a multi-sourced environment. “You have to remember that clients are maturing in their use of outsourcing, so they’re starting to govern the outcome instead of overseeing every tactical step,”  Trowbridge explains. “This approach makes managing multiple ITO providers far more feasible.” This new breed of client is engaging the advisor community differently as well. “Buyers are more informed, they’ve gone through the process – and service standardization has given them price transparency they didn’t have before,” explained Chris Pattacini, director of benchmarking for Alsbridge’s benchmarking division.  “Rather than coming to us to identify what and how to outsource, clients are engaging us to benchmark existing deals to make sure they’re not only getting a good price but are maximizing the value of that relationship.” Service-level agreements (SLAs) are no longer enough to secure client satisfaction. “We’re seeing a lot of ‘value leakage’ – clients who are seeing red when they should be seeing green. Their outsourcing partners are meeting the SLAs, but the clients just aren’t happy for a variety of reasons,” Pattacini said. “Clients ask us to do a ‘health check’ to identify what’s really causing the dissatisfaction.” An Expanded Provider Landscape At the same time the ITO market is transforming, new competitors are emerging. India, which historically competed in the space with applications, is now entering into the ITO market with a noticeable price advantage. “Years ago, most U.S. ITO providers started out as a body shop – order takers – then developed a solution around service delivery,” Trowbridge said. “The same transition is happening with Indian providers. They’re teaming with organizations that have rack space and creating a solution that capitalizes on the fundamental advantage of the Indian market – an extremely low cost of labor.” Other smaller, more specialized outsourcing providers are appearing worldwide. At the same time, many established providers are re-vamping their delivery models to compete, including going to market with new, “Cloud-like” service offerings. “On the server side, we’re going to see traditional data center services look more like Cloud solutions, so these providers can protect market share and provide a viable alternative for applications that don’t really ‘fit’ within the Cloud model,” Pattacini explained. For example, a traditional environment may have 100 servers, 30 operating systems and five or six platforms, making it difficult to manage cost effectively. A Cloud-like, more standardized solution enables clients to reduce costs, without following a pure Cloud model. “In Cloud, the client goes to the Internet, buys server capacity with a credit card, and acquires the needed capacity. In Cloud-like solutions, there’s no self-provisioning, but the client has the cost benefit of solution standardization,” Pattacini said. “It’s like renting a car, leasing a car or buying a car. Cloud is renting, Cloud-like is leasing and the traditional approach is like buying. The truth is, not every application needs the flexibility provided by Cloud.  That’s where Cloud-like delivery can be a viable, lower-cost alternative.” So, what does all of this mean to traditional, legacy providers? “The lower cost options will undoubtedly create some turmoil in the market, and we anticipate legacy providers responding in a couple of very significant ways,” Trowbridge said. “Traditional ITO providers will start offering more granular solutions – more of an ‘a la carte’ menu of sorts — as opposed to one, big mega-solution.  They’ll start to match the market’s move toward specialization, providing a broader range of very specific, very focused services.” The real game-changer could be when providers, like Amazon, begin making enterprise sales calls. “Today, if you want to procure ITO with Amazon.com, you log in, view a video and purchase what you need,” Trowbridge said. “But, consider what would happen if Amazon committed to deploying an enterprise sales team. That alone has the potential to turn traditional ITO upside-down.” A New World Order Although opinions vary on where the market will go or what will happen next, one thing is certain: the world of ITO as we know it today will never be the same. That goes for customers as well as ITO providers. Gone are the days of ‘an IT partner for life;’ in are the days of multiple, smaller, shorter contracts with a variety of specialized providers. India-based outsourcers are expanding their service portfolios beyond applications and programming to provide more traditional ITO services at significantly reduced rates. A more mature client base is taking a new approach to governance, managing by outcome and benchmarking to ensure they get the greatest value from their combined service provider partners. In short, the times they are a-changing – and the transformation is starting right now.  

The Retail Revolution: Big Changes in Store

Outsourcing Center, Patti Putnicki, Business Writer

The past few years have not been kind to the retail industry. Sluggish economies, shrinking margins and a more cost-conscious consumer have taken their proverbial toll. “We’ve seen retail sales increase by 5 percent to 6 percent, yet profits declined from 3.5 percent to 2 percent.  So, even though stores are selling more, they’re making less,” explained Tanmay Agarwal, global operating leader, Consumer Goods and Retail for Genpact.  “At the same time, consumer behavior has changed. Those who use to buy in bulk are opting for smaller quantities. Those who use to purchase items at full price now wait for promotions and discounts. To survive, retailers have to find new ways to reduce costs.” But making up for shrinking margins is just one part of the challenge.  The rapid proliferation of mobility is redefining how retailers interact with their buyers. A static website with an e-catalog is no longer enough, nor is a standalone buying channel. In this always-on world, the lines between the physical store and digital world have blurred, and the speed of change is turning the traditional retail model upside-down. No question, the retail industry is in the midst of a revolution, fueled by consumer expectations and changing market dynamics. However, few companies have the expertise or resources to make this transformation on their own. As a result, retailers of all types are turning to outsourcing with an urgency we haven’t seen before – with engagements that range from supply chain optimization to BPO; from online enhancements to data analytics – and everything in between. We spoke to some industry experts to gain their insight into the emerging trends. The Convergence of Physical and Digital Worlds Not too long ago, a retailer’s online channel was little more than a digital version of a static print catalog. Consumers could browse at their leisure, compare price and eventually head out to the desired store to make their purchase. Online and in-store were two distinct experiences, with two different purposes. With the proliferation of the smartphone, all of that has changed. “In the last few years, we’ve seen a significant shift in the way consumers engage with retailers. Now, instead of doing a search online, then driving to a nearby store to make my purchase, I can be in the store, see something I like, Google the product or scan bar codes to find the best price or product information, then purchase that product from someone else online, using my mobile phone,” explained Sunil Oberoi, global head of marketing for Consumer Services, HCL Technologies.  “Today, physical store activity is no longer the source of power. Instead, multi-channel commerce, consumer-centric experiences are becoming the benchmarks of success.” With today’s advanced mobile technology, the consumer doesn’t even have to be in a physical store to see and research an item to buy. “Imagine a consumer walking down the street who notices a blue shirt on a person passing by. She points her mobile device at the garment to retrieve product information, including brand, pricing and availability. To purchase, she adds the shirt to a shopping cart, hosted on the cloud, and has it shipped to her home overnight,” said Bhanumurthy B M, senior vice president and chief business operations officer of Wipro. “The barriers of time and location have been eliminated.” This new “see and search” approach to shopping has prompted the retail industry to take another look at their online catalogs, often going to experienced outsourcing providers for a cyber makeover. “Retailers have to take existing product descriptions and make these more appealing to the consumer, while at the same time optimizing key words to generate more hits,” explained Rahul Kanodia, vice chairman and CEO of Datamatics Global Services. According to Kanodia, the retail industry must apply technology to quickly decipher what the customer is looking for so the appropriate items are displayed. For example, a “timepiece” could be a watch, a wall clock or a travel alarm. Smart technology and more accurate descriptions could alleviate the confusion. Retailers also must look beyond the actual word to understand the emotion of the consumer who keyed the word in. “If a person searches for information on a particular cancer drug, he or she may be a patient who is nervous or afraid, or that person could be a student whose biggest worry is finishing a research paper on time,” Kanodia said. “By reading into the emotion behind the search, companies can better propose appropriate options. There’s a whole science behind that capability that we’re just beginning to explore.” Extreme Target Marketing and Advanced Analytics The question becomes: if consumers now have the power of price comparison at their fingertips, and online buying options are a click away, how can retailers differentiate themselves beyond the cost of goods? Oberoi expects an increase in private labeling and more exclusive branded products at the store level, an approach that’s already proven successful for electronics and soft goods retailers alike. Some department and discount stores are partnering with high-end designers to create limited, “one time only” lines of clothing, accessories or home furnishings to keep consumer interest high. More importantly, retailers have to find a way to truly engage the customer in this brave, new multi-channel world. “As consumers, we all have distractions — a multitude of messages. The challenge is, how can a retailer get the consumer’s attention when he or she is already bombarded with data and information, both wanted and unwanted? We believe the answer is personalization — focusing messaging on what is important to each individual consumer,” explained Bhanumurthy. “For example, retailers can provide consumers with an online mechanism to identify what they like and customize subsequent messaging appropriately.  When that customer walks in a store, the phone screen is populated with information or specials around those identified items.” Although on the surface it appears that this new multi-channel, mobile world makes it difficult for retailers to build relationships and get to know their customers, quite the opposite is true. “In …

CyberSecurity Professionals and Compliance Officers at Odds Over Cloud Security

Outsourcing Center, Staff Writer

Enterprise IT and compliance groups agree on one thing for certain: their cloud environments could use some work on the security front. Less than half of the 1,018 IT security practitioners and enterprise compliance officers surveyed by the Ponemon Institute, which conducts independent research on privacy, data protection and information security policy, believe their organizations have adequate technologies to secure their infrastructure-as-a-service (IaaS) environments (35 percent of IT practitioners and 42 percent of compliance officers). Beyond that, the two groups differed wildly on issues of IaaS security—from whether the cloud is as secure as on-premise data centers to who is responsible for cloud data security to what security measures should be put in place to prevent unauthorized access to data. Just one-third of IT security practitioners said that cloud infrastructure environments are as secure as their own on-site data centers, while half of compliance officers rated IaaS as secure as on-premise infrastructure. There was  also significant disagreement about whether their organizations had sufficient processes in place to enable the secure use of cloud infrastructure. Only 34 percent of IT respondents believed that there were sufficient procedures in place, while 52 percent of compliance respondents were satisfied with their security policies. Both groups thought encryption was important to protect against unauthorized data access, although they differed on who they were trying to keep out of the systems.  IT practitioners said encrypting data to make it unreadable by cloud service providers was the most important IaaS security measure to take, while compliance officers said encryption should be used to prevent IT administrators from accessing data they do not need to perform their jobs. Yet, according to the study, few cloud vendors offer encryption to their customers. Only 31 percent of respondents said their organization’s major cloud providers use encryption to protect data from insider threats. The majority of respondents were more likely to employ firewalls, anti- virus and anti-malware software, and identity and access management technologies to protect sensitive or confidential information exposed to the cloud. On the subject of vendor due diligence, 59 percent of IT respondents say that security was either a low priority or not considered at all when evaluating IaaS providers, while 56 percent of compliance officers said it was a very high or high priority. As for who is in charge of cloud security, the greatest number of compliance officers (21 percent) said that they are responsible for defining security requirements in the cloud, while the greatest number of IT security respondents (22 percent) believed business unit leaders are responsible for defining security requirements in the cloud. Both groups did agree, however, that business unit leaders are responsible for enforcing cloud security and no single person or group maintains responsibility for the actual implementation of security measures. That, says Ponemon Institute chairman and founder Larry Ponemon, gets to the heart of the matter: ownership for security in the cloud is dispersed throughout organizations, further clouding the security issues surrounding as-a-service offerings. As a result, enterprise-wide cloud security strategies are difficult to implement. And while IT and compliance haggle over security strategies, tactics, and ownership, internal audit groups are sitting on the sidelines. More than half of respondents said their organization’s internal audit review does not provide any feedback on the security of cloud infrastructures. Security concerns do not seem to be slowing down cloud adoption, however. More than half (56 percent) of IT practitioners surveyed stated that security concerns would not prevent their organizations from implementing cloud services. Companies were most likely to store unstructured data, such as emails, files, and documents, in IaaS environments, according to the study. In addition, cloud services accounted for approximately 20 percent of the IT budget of those responding to the survey, and their cloud budgets are expected to increase approximately 31 percent in the next one to two years. Not surprisingly, however, the two groups quarreled over the real benefits of cloud computing initiatives. IT respondents cited business agility, speed to roll out new services, and fewer personnel and management requirements as their biggest cloud drivers. Compliance respondents said cloud adoption lowered operating costs, improved compliance, and provided better quality infrastructure.  

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