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Five "Gotchas" When Negotiating an Outsourcing Agreement

David Mitchell, Senior Consultant

While reducing cost is typically the primary benefit of outsourcing, you also want outsourcing agreements that allow you to realize your immediate and long-term delivery needs, provide contract flexibility and ensure that you receive maximum value for the money you will be spending. To meet those objectives, pay careful attention to the five “gotchas” noted below. Negotiating good outsourcing agreements involves much more than just achieving the pricing you desire. As you go through the process, you will go through the normal “give and take” discussions as you work with your potential provider(s). However, it is important that you do not focus solely on pricing. While reducing cost is typically the primary value proposition for outsourcing, you also want an outsourcing agreement that allows you to realize your immediate and long-term delivery needs, provides contract flexibility and ensures that you receive maximum value for the money you will be spending. To meet those objectives, pay careful attention to the five “gotchas” noted below. These areas of the agreement, if not carefully structured, can drain value from your business case and decrease the probability of having a successful and sustainable outsourcing agreement. 1. Statement of Work A Statement of Work (SOW), when created correctly, describes in great detail (typically 100+ pages for a full information technology outsourcing agreement) the services to be performed by the provider and also clarifies certain client responsibilities. The SOW describes WHAT will be done for the price. A few checkmarks in the wrong responsibility column or a handful of missing tasks can significantly change the amount of service the provider is to deliver and will result in misaligned expectations from the start of the contract. Because the SOW is the “meat” of what the provider will do for you, you need to ensure it fully describes the services you expect from the provider. 2. Service Levels Service levels work in conjunction with the SOW to scope the services that the provider will deliver. They describe HOW MUCH and TO WHAT EXTENT the services described in the SOW are delivered. Service levels and assumed labor costs are two primary drivers in a provider’s cost model. It is important that the service levels reflect what you need even as you are negotiating price. Importantly, you should realize that the costs go up exponentially as you get closer to a 100% performance target. Outside consultants with market information can help you determine a fair price for the service levels you require. Additionally, there are important service level terms that should be included to allow you the freedom to add and change service levels and to re-allocate service level credits as your business needs change. 3. Termination Language It can be hard to focus on termination language and termination charges at the beginning of an outsourcing relationship. Termination language is analogous to a prenuptial agreement – it is there “just in case” things do not work out as originally intended. As the final negotiations occur, you may be tempted to give a bit on the termination language in order to get to the price point you want. Depending on your starting point, some “give” might be acceptable but you first need to understand the ramifications if you need or want to get out of the agreement (or pieces of the agreement) in the future. Once the contract is signed, it can be especially difficult and costly to get out of it if the termination language is favorable to the provider. 4. Future Pricing There are a number of factors to consider regarding future pricing. On the whole, you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation, and so forth. Because each situation is different, there are no easy “rules of thumb” to apply, but pay close attention to these specific areas: Year-over-Year Pricing – You should expect the unit pricing for most towers (possibly excluding applications due to its labor-centric nature) to go down each year, with the provider accepting the risk of continuously improving and streamlining its operations to achieve lower price points each year. Cost of Living Allowance (COLA) – From your perspective, it would be ideal to not have a COLA, but the reality is that many providers will require it to give some risk protection in the out years. Any sort of cost of living increases should be tied to a well-known government index. Each tower should have a “COLA index” that indicates the portion of the unit pricing that can be affected by a COLA index. They should be country-specific if you will be receiving labor from an offshore location, and they should be capped to reduce your risk. Variance Pricing – Many outsourcing contracts contain variance pricing based on resource usage. An assumed number of resources are built into the annual price, and then adjustments are made up or down based on actual monthly usage. The concept is simple, but you need to watch for how that will work for you based on your future growth assumptions. For example, if a provider expects that your business will grow over time, they may propose a lower base price to meet your initial price point, but then have a relatively high additional resource charge, or ARC rate, for additional volume. 5. Delivery Locations In return for hitting your price point, a provider may want to include the freedom to deliver from whatever location they see fit. There are many risks associated with movement of work from one team to another, much less from one country to another. Because of the potential impact to your business, you want to make certain that you have some sort of approval authority prior to the movement of support functions. The provider may counter that they are accepting the risk because they are signing up for service levels. However, the potential business impact to you is much greater than their risk of incurring service level …

Lawyer Lists Five Ways RPO Can Minimize Risk and Liability

Michael Marino, HR Consultant

For most companies, the desire to reduce costs or improve efficiencies (or more likely, both) drives the decision to explore Recruitment Process Outsourcing (RPO) options. However, cost and efficacy issues aside, risk management is one of the most important (and perhaps least understood) value-adds of the RPO arrangement, especially when the definition of risk includes not just potential financial loss but also the potential downside in such areas as legal compliance, attracting and retaining talent, geographic and regional differences in recruitment practices, employee liability, and the company’s brand. 1. Legal compliance In terms of mitigating risk in recruitment-related legal compliance (i.e., Form I-9, EEO, and background, and credit checks), RPOs are the experts. Not only can an RPO recommend and implement fully compliant sourcing, application, and interview and selection processes, but they are also adept at creating and maintaining all the required record-keeping and analysis. In some instances, the RPO can even propose solutions for remediating past non-compliance (for example, if “applicant flow” has not been properly documented — or if it hasn’t been tracked at all — the RPO might be able to assist with recreating past applicant flow using existing data). The potential risks associated with legal non-compliance are fairly significant. Liability can include monetary fines and other sanctions such as future monitoring of a company’s hiring practices by a governmental agency. In some areas (Form I-9 compliance, for instance), non-compliance can expose the company and/or its employees and officers to criminal prosecution. 2. Attracting and retaining talent Many quality employed candidates are staying put until things pick up. They are not actively job hunting and thus are off the market; at the same time, quality candidates who are out of work find themselves heavily courted and scooped up fairly quickly. The talent war continues. RPOs are positioned to have a pulse on the candidate market and niche recruitment, including tapping into the passive candidate pool of applicants (which is often where the “super stars” are found), thus helping ensure companies hire the right candidates. The risk of hiring the wrong candidate goes beyond the overall replacement costs for an employee, which can range anywhere from one-third to one-half of an employee’s salary. Bad hires result in higher turnover, lower productivity, bad morale, and are a disruption to the operation. 3. Geographic and regional differences in recruitment practices It’s often difficult for companies hiring staff in different U.S. regions or in other countries using internal resources to stay current — and compliant — with constantly evolving local employment trends and laws. RPOs that do business in different regions have a working familiarity with local labor markets and help mitigate the risks associated with doing large-volume, multi-region, and multi-country recruitment. Caution: some RPOs are not truly global but, instead, subcontract work when they don’t have a presence in a particular region or country. This can be fine, but employers must to do their due diligence in qualifying the sub as well as the RPO they retain. “Some providers can exaggerate degrees of operational viability and maturity in regions, so be sure the true global presence and scope of the contract is well defined,” counsels D. Zachary Misko, Global Director at KellyOCG, a talent management solutions provider. 4. Employee liability When hiring needs flex up, employers often augment internal recruitment resources with temporary employees versus hiring more in-house staff, which can be costly and risky, especially when hiring needs flex down and the company has to terminate them. However, temporary employees and agencies come with risks of their own. “Some employers count on temporary staffing firms, which could imply a co-employment situation. With the RPO model, there is always clarity regarding the employer and employee relationship,” explains Kathleen Quinn Votaw, CEO, TalenTrust LLC, an RPO specializing in the small to midsize market. Indeed, some longer-term temps have successfully argued that they were, in fact, employees entitled to the same terms and benefits as regular employees. The RPO arrangement helps mitigate against these kind of risks. 5. Brand Poor recruitment practices not only make hiring and retention more difficult but, in the long run, can also result in the unintended consequence of harming a company’s overall brand (image). Companies turn away more applicants than they hire. Declined candidates can be ambassadors for an employer (“I wish I had gotten that job; it seemed like a great company”) or an employer’s worst nightmare (imagine an applicant declined employment with your company tweeting “they treated me like garbage. Rude. Place looked dull as dishwasher. Wouldn’t take job if they begged me!”). This kind of buzz can make it difficult to attract top talent. Such buzz can also bleed over and hurt a company’s overall brand. (Think WalMart and the negative PR caused by its well-publicized employee violations. Many shoppers boycott the chain because of these issues). Not only can RPOs handle the nuts-and-bolts portion of recruitment but, by utilizing best practices and their real-time knowledge of what others in a client’s market, industry, or space are doing, they also can help better promote the client’s employee brand throughout the recruitment process. Accordingly, when evaluating RPO or other recruitment options, companies are wise to look more broadly at the pros and cons of the various arrangements so they can include in their evaluation not just costs but also risk management and avoidance. Mike Marino is a senior-level HR consultant (and “reformed” employment law attorney) with a specialization in RPO and HRO implementation/management. www.mikemarino.com   [email protected]  

Decision-Making Insights for Companies Outsourcing HR Functions

Outsourcing Center, Kathleen Goolsby, Senior Writer

Outsourcing HR went through a shake-out over the past two years due to the continual issues around scope and other challenges that buyers and service providers encountered over the past decade. The dust has settled from the revamping efforts, but there are new challenges on the horizon. Here’s what your company needs to know for decisions in HR outsourcing through the next five years. Drivers for change Several current trends as to service demands from buyers of outsourcing services will change service providers’ offerings and required expertise. Those demands will also necessitate a change in buyers’ approach to services decisions. ADP cites the following drivers for these demands: Government-directed/mandated controls across the North American and EMEA markets in the areas of finance and data privacy Government healthcare mandates, especially the U.S. Patient Protection and Affordable Care Act (PPACA) Changes in workplace employment laws Services that consolidate and standardize systems and processes across geographic boundaries (thus requiring that service providers have a core competence in managing regulatory requirements in and across markets from which they operate) Changing workforce demographics and user expectations (for instance, a growing reliance on new technologies such as mobile applications/devices, social networking/collaboration, and 24/7 access increasing an anytime-anyplace approach to performing work) One of those drivers stands taller than the others. “We believe that the industry’s ability to effectively respond to the changing global regulatory environment will be the most important change that service providers will need to respond to in the next five years,” says John A. Haslinger, Vice President, Product Marketing at ADP. There will be consequences with these five market forces, whether from buyers’ demands or regulatory changes. Terrence McCrossan, Division Vice President, Marketing & Strategy at ADP, believes consequences will include: Increased emphasis on cost control, reporting/analytics, process efficiency, and flexibility Increased demand for improved decision-support tools to assist employees, managers, and executives in making informed choices regarding workforce management, employee development, employee engagement, cost management, and total cost of ownership Necessity (especially for large organizations) for thinking globally and solving productivity issues globally rather than taking region-specific approaches Regarding the globalization demands in recruitment process outsourcing (RPO), Angela Hills, Executive Vice President at Pinstripe, says enterprise clients want a partner that can scale with them globally “even if they begin a partnership exclusively in one theatre of the world.” She predicts the five market forces described above (especially changing workforce demographics), combined with economic uncertainty and slow recovery, will propel growth in RPO. Recruitment outsourcing also meets buyers’ demands for solutions that switch fixed costs to a variable-costs model. The need to ramp up recruitment after the recession, combined with the tremendous unpredictability in workforce demand and need, will also drive growth in RPO. Katrina Menzigian, Vice President, Research Relations at Everest Group, an advisory firm on global services, says service providers increasingly will face the need to drive true business value for clients. “In HR (and in other areas of outsourcing such as finance and accounting, IT, and procurement), providers already established their ability to successfully deliver operationally compelling solutions,” she says. “The source of competitive differentiation going forward will be linking outsourcing outcomes with a client’s overall business objectives. HR clients from first-generation deals continue pushing for more value, increased savings benefits, and outcome-based pricing models.” Impact on HR outsourcing from U.S. healthcare reform mandates ADP expects an increase in HR outsourcing, especially over the next two years, due to the U.S. healthcare legislation and the significant complexity and reporting requirements it creates. McCrossan predicts the increase will occur especially in payroll, HRMS, health and welfare benefit administration, time and attendance administration, and leave administration. The increase will come from companies of all sizes that are already outsourcing some HR functions as well as those that have not yet outsourced. He adds that the effort to conform to the PPACA requirements will lead to employers standardizing HR policies, plans, and processes related to employee benefits and workforce management in order to facilitate reporting and compliance. On the provider side, Haslinger says the market forces will cause a shift to pay-as-you-go as the predominant service model as providers seek to standardize services onto Software-as-a-Service (SaaS) platforms. Six decision-making risks What risks will buyers of outsourced HR services face in their decision-making over the next two years? Pinstripe and ADP cite the following risks: Choosing the most effective model (standardization, customization, local or global, and single or multi-process scope) Finding the domain expertise needed to manage change and drive consistency globally across an organization Ending up with a payroll service provider with limited scale or expertise in a particular market or region Being motivated to sign an RPO contract that places a higher premium on flexibility rather than on aligning the proper resources; focusing on flexibility can lead to ending up with a provider that has challenges in scaling to meet a buyer’s growing needs Taking a “procurement” approach to an RPO decision; Hills warns this can lead to “devaluing the more subjective and ‘soft’ factors in decision making” Missing the opportunity to create real process improvement when implementing the outsourced solution because of not giving enough attention to change management Navigating the changing HR service provider landscape Menzigian points out HR providers are entering and exiting the market due to increased demand on core competencies, broader sets of capabilities, and differentiation. Hills expects that new leaders will emerge in the RPO space “as buyers’ growing sophistication causes buyers to shift which criteria they most value.” She also anticipates a lot of mergers, acquisitions, and exits in the space. Provider consolidation can cause declines in operational effectiveness when integrating acquisitions, she warns. To ensure effective service delivery, she says buyers should prepare for this possibility and maintain open communication and clear management of expectations. Buyers need skills in understanding the factors that go into building outsourced solutions, or they will need to use consulting/advisory firms. “Solutions range in complexity, and understanding the factors is key for trying to make a multi-year …

Hot Spots for Growth in Outsourcing

Outsourcing Center, Kathleen Goolsby, Senior Writer

Which industries will experience growth in outsourcing in the next few years, and what risks will buyers of those services face? Are there business processes or functions that will begin turning to outsourcing in the next two to five years? What value opportunities and risks will they bring? In what geographic regions will companies begin adopting the outsourcing model? Outsourcing Center asked leading service providers for their predictions about these hot spots for growth in outsourcing. Here’s what they shared with us. Nearshore, offshore, onshore, best shore Although “nearshore” is a favorite model and buzz term bandied about in outsourcing news and advisories today, it will soon fall by the wayside. First of all, it’s a misnomer. “Nearshore” to Japan, for example, is China or Vietnam; but those two service delivery locations to U.S. and European businesses are “offshore.” Brazil is a nearshore provider but also a large onshore provider. Genpact predicts nearshore service delivery centers will likely continue to grow, but not as significantly in dollars or percentages as the offshore centers. According to Robert Pryor, Executive Vice President of Sales, Business Development and Marketing, we’ll likely see an increase in the use of onshore centers. “Federal, state, and local governments will drive this growth in terms of the attractiveness of incentives they create to stimulate domestic job growth.” Deepak Patel, CEO, Aditya Birla Minacs, says the decision between nearshore, onshore, or offshore is “not so much about achieving scale but, rather, is about delivering the right value to companies by providing the ideal mix of the right delivery destination and the right knowledge set available. In the coming years, newer geographies will emerge, but smart outsourcers will choose the destination that brings the most value.” John A. Haslinger, Vice President, Product Marketing at ADP, says, over time, he expects labor arbitrage advantages will remain but increasingly companies will balance them against the need for particular skill sets. In HR, for instance, “companies will balance labor arbitrage with the service provider’s ability to foster long-term relationships.” Allied Digital Services’ President, Kevin Schatzle, believes nearshoring will increase over the next two years because outsourcing in general will increase. He predicts that in five years, as the industry matures, Canadian pricing will start to approach U.S. costs. Gordon Coburn, Chief Financial & Operating Officer at Cognizant says globalization initiatives are evolving “from a point-to-point delivery model to a many-to-many model where the provider delivers from many locations in the world to a client’s locations in many other parts of the world.” Rajan Kohli, CMO, Wipro Technologies, adds that “best shore is the way to go. That may mean a combination of nearshore and offshore, or it may mean just offshore. Buyers will need to make decisions based on cost, business value, and business availability.” Ritesh Idnani, COO, Infosys BPO, says “the trend of nearshoring will continue to gather steam. But the global economic landscape has definitely mooted the call to a more protectionist outlook by countries, and that trend will continue in the short term. They will, however, have to bear the brunt of continuous monitoring to ensure they continue to be cost effective and build in efficiencies. The ‘offshore train’ left the station several years back; hence, offshore will continue to grow in volume and market share.” Dina Kholkar, Head, BFSI, TCS BPO Services, predicts that the definitions of onshore, nearshore, and offshore will blur over the next couple of years because providers “will increasingly expand their base to build a global network delivery model to address the diverse demands. There will also be an increasing creation of Centers of Excellence by function,” she states. The future shift from focusing on nearshore / offshore / onshore debates is nowhere more evident than at HP where there is now a “Best Shore Services” division. Even so, Jeff Womack, Vice President Global Enablement, HP Best Shore Services, says HP believes that nearshoring will “continue to have a seat at the global delivery table because companies – especially in the European Union region – will want the cultural affinities and languages as well as aspects of data privacy.” Womack also points out that some nearshore locations are already maturing to the point that they no longer meet the requirements to qualify as a true nearshore location because costs begin to reach parity with major markets such as the United States, Western Europe, and Japan. Yugal Joshi, Senior Analyst, Everest Group, says that, “with offshore suppliers seeing their tax exemptions going away, the cost-effectiveness of their large offshore centers will reduce significantly, which will prompt them to go nearshore.” Don Schulman, General Manager, Global F&A and SCM, IBM, predicts nearshoring will grow in the short term because organizations will continue to perform high-level activities (such as budgeting and corporate tax) discretely and locally – regardless of whether shared services or outsourcers are doing the work. “This is less about nearshoring and more about growth due to more complex work moving into a shared-services environment,” Schulman explains. “Success in outsourcing has led to this kind of work moving to a centralized environment. Organizations are beginning to look at their shared-services strategy as a hybrid model. It is not an either/or decision but, instead, a multi-dimensional approach that leverages both internal shared services and outsourcing.” Industries with increasing growth in outsourcing Nearly all of the service providers whom we tapped for insights anticipate that the U.S. healthcare industry will experience a dramatic increase in outsourcing over the next two to five years. Pryor at Genpact says the significant cost pressure and large number of additional people that will need coverage will require that the industry adapt rapidly in leveraging technology, outsourcing, and reengineering to change business models and cost structures. Most of the executives we interviewed also predict a large uptick in government outsourcing in the next few years. Schatzle at Allied Digital Services says government and education will migrate to outsourcing for IT support and “will receive great benefits of modern approaches.” He advises …

Seven Action Areas to Strengthen an Outsourcing Relationship

Outsourcing Center, Kathleen Goolsby, Senior Writer

An outsourcing provider’s quality of services and the achievement of the agreed-upon mutually beneficial objectives are essential to success. But there are additional actions that service providers and buyers can take to boost the return on investment and increase the life expectancy of their relationships, that is, strengthen outsourcing relationships. To identify these relationship-strengthening actions, Outsourcing Center conducted a survey among 66 of the buyers and providers participating in its Outsourcing Excellence Awards program. We asked the providers to list the actions their customers took, which resulted in strengthening their relationship. We asked the customers to identify their own actions that they believed boosted the effectiveness of the relationship as well as the things their providers did to deepen the relationship. They identified the following seven types of actions to strengthen outsourcing relationships. At the heart of each is a mindset that focuses on looking out for each other’s best interests. 1. Testimonials One hundred percent of the service providers stated that the most valuable action of their clients was testimonials. Sixty-five percent most appreciated their clients providing testimonials in the form of references to the providers’ prospective customers. Thirty-five percent said their clients’ testimonials in participating in conferences, seminars, client forums, webinars, awards programs, and articles was the most effective action. Eight percent of the surveyed customers said they appreciated their provider’s invitations to participate in testimonials at industry events as it gave them an opportunity for their peers to see them as leaders in their industry. 2. Increasing business An overwhelming majority (68 percent) of both buyers and providers stated that increasing the scope of service demonstrated long-term commitment and was one of the most important ways to strengthen their relationship. This action includes: Adding scope to reward the provider for excellent service or to compensate for process improvements that reduce the buyer’s cost but also reduce the provider’s margin Raising the bar and giving the provider more challenging work higher up on the value chain Providing opportunities for other business units (or government entities) to consider the provider for outsourcing initiatives Providing opportunities for the buyer’s external customers to consider the provider for outsourcing services Renewing a contract 3. Skin in the game Although gain-sharing or other financial incentive programs often are the “skin in the game” in outsourcing relationships, the surveyed participants discussed a different kind of action that demonstrates commitment and strengthens a relationship. Examples of such actions are as follows: A provider invested in a Black Belt program for both the provider’s and customers’ teams supporting the contract. A provider kept its employees’ salary increases low during an economic crisis to help ensure the buyer could continue to do business with the provider. When a buyer informed its provider of a large budget cut due to the economy, the provider (voluntarily cutting into its margin) came back with a proposal that fit the buyer’s new budget yet delivered high-quality services. Buyers also put skin in the game in order to strengthen a relationship. For instance, a surveyed provider stated that its customer developed an incentive / bonus system to enlist the buyer’s staff’s proactive transfer of more tasks to the provider. Another provider cited its customer’s actions in sponsoring financial incentives for the provider’s top performer and long-tenured employees. 4. Increasing expertise This action is a mutual undertaking and takes shape in several ways. Buyers do the following activities: Help the provider gain capabilities in applications and technology platforms that the provider can then take to its other customers. This occurs either with the buyer’s proprietary technologies or through the buyer (as a pilot user) providing feedback on technologies the provider is developing Help deepen and broaden the provider’s domain knowledge of the buyer’s industry and keeping the provider apprised of trends Make sure the provider has visibility into the buyer’s IT strategic road map From the provider’s side, actions include bringing in outside experts to help the buyer in an area of interest, regarding what worked or didn’t work elsewhere. (New healthcare legislation in the United States is an example). The surveyed buyers reported that their providers frequently provide these resources at no cost. Similarly, some outsourcers provided extra resources upon request for special initiatives and did so at great risk since no agreement or statement of work was signed for the initiatives. Buyers also stated that it strengthened the relationship when providers proactively kept them advised as to new technologies. 5. Crisis management Buyers include in these types of actions the provider’s effort to continually minimize impacts to the buyer’s business as well as spending extra money or going outside the realms of the contract (at the provider’s cost) in order to deliver services on time – even if the delay in services is not the provider’s fault. Another action buyers said strengthens a relationship is the provider being flexible regarding issues that arise because something was not clearly stated in the contract. Providers, on the other hand, said it deepened their relationship when their customers proactively brought an issue to their attention for discussion without waiting for a scheduled formal governance meeting. One survey participant described an incident where it grossly underestimated the effort it would take to implement its solution in a particular geographic region. Negotiations were all the more difficult because there was employee resistance to the outsourcing initiative in that region. The provider stated that the buyer demonstrated its commitment to deepening the relationship by being flexible and understanding the financial constraints facing the provider because of the miscalculation. The buyer was flexible enough to get the negotiations out of deadlock and begin moving the project toward a mutually acceptable resolution. 6. Relationship management Other actions to cement a relationship include a customer’s effort to improve its management of the relationship. Examples of such actions that the survey participants cited include: Learning how to prioritize projects given to the service provider Adding an experienced outsourcing manager (instead of just a project manager or the former manager of …

Dataprise Becomes the Outsourced IT Department for Small and Medium Businesses

John Harney, Business Writer

Companies both large and small often choose to outsource their IT departments so they can concentrate on their core businesses. But small and medium businesses (SMBs) have additional challenges. Danya International, a public service company that delivers solutions to government and commercial clients addressing pressing social issues, is a good example. It wanted to focus on its core business, not manage a large IT department. It decided it needed an outsourcing partner that could deploy multiple personnel that would be on site and hands-on. In addition, the SMB was rapidly growing. Some of its key technology components required uptime maintenance support beyond the capability and availability of current staff. Also, its network was rapidly increasing in size and becoming unwieldy to manage. And the company, which creates behavior-change strategies to empower people to lead healthier lives, decided it didn’t have the skill sets to properly address these problems. With only a few in-house IT people, the options were to either hire more in-house IT staff or to outsource. An outsourced IT department for SMBs Later that year, Danya International outsourced its IT department to Dataprise. David Eisner, President and CEO of Dataprise, sums up his company’s value proposition in a sentence: “We are an outsourced IT department for SMBs.” Eisner explains that he built his business model especially for SMBs “because traditionally outsourced technology support operates on an hourly rate. It’s very difficult for SMBs to budget and understand what they’re paying for in that model. So we’ve put together packaged deals that allow clients to forecast what they’re going to spend and that are holistic one-stop shops.” It used to be SMBs could afford one technology consultant to fix and install computers for an hourly fee. Eisner says “that works for a while when a business is small. But as the challenges grow, IT people generally get overwhelmed. They may be expert in one area, but when the problem is off their menu, they don’t have a deep bench to pull from. Often they leave after a couple of years, which leaves the SMB holding the bag.” Eisner says Dataprise’s support plans are a holistic way for an SMB to engage a partner to handle the IT function. The firm offers its Signature® Network Support plans with tiered support levels for SMBs of different sizes and requirements. SMBs choose plans that most clearly fit their needs. Known as Bronze, Gold, Platinum and Platinum+, the plans include various levels of on-site technical support, remote help desk support, and on-call server support. In addition, Dataprise offers managed services such as remote network monitoring, security service, remote data backup, and Web hosting. Dataprise will also customize tiered plans. According to Raj Gulati, Vice President, Information Technology Services and Solutions at Danya International, “Several people provide on-site and remote support on a day-to-day basis to keep our network running.” The company’s servers are co-located at a remote network operating center (NOC). Dataprise also manages all the PCs, the hardware upgrades, and the application patches. Dataprise also does the IT technology inventory tracking and handles the IT purchase order process when employees need something that’s technology-oriented. Dataprise also assists in getting the right quotes and insuring it orders the products,” Gulati adds. The benefits of IT packaged deals and one-stop shops Danya International is a fast-growing company, so it needed IT capabilities that could grow with the company’s requirements. This was especially the case with the company network, says Gulati, which was built for an SMB. Dataprise provided Danya with a flexible, scalable solution that solved this problem. The outsourced mode of staffing that can grow or contract as needed meets Danya International’s needs better. As opposed to having only a few staff in-house from nine-to-five, five days a week with benefits as part of their salaries, Danya International now has more outsourced staff 24×7 whose cost is rolled into the Platinum+ service plan. The staff operates as an on-site team with a broad spectrum of expertise. As Eisner says, “If you have a Macintosh problem, you get a Macintosh person. If you have a Microsoft problem, you get a Microsoft person. If you need a high-level consultant to do CIO/CTO stuff, we give you that, too.” What’s more, if a problem arises that the on-site team can’t handle, it taps into Dataprise’s entire out-of-house brain trust and comes back with an answer fairly quickly, he adds. Remote managed services round out Dataprise’s offering. The industry has largely shifted to remote managed or cloud-based services, says Eisner, so Dataprise provides a cadre of them that supplement its outsourced live-body service. These include virtual hosting that can yield cost savings on off-site data backup, anti-spam, anti-virus, security services, and so on. Gulati says Danya International pays an annual fee for its Platinum+ plan and an additional amount per year for its managed services. Gulati says the service from Dataprise represents an affordable cost for doing business.  

How the PwC BPO Team Continues to Shape the BPO Market

Joseph Vales, Senior Partner, Vales Consulting Group

When someone writes the definitive book on the growth of the global outsourcing market, there will be a chapter on how the Pricewaterhouse Coopers (PwC) BPO group shaped and drove the BPO marketplace in the late 1990s. Started in 1996, the PwC BPO group grew to $520 million in annual revenue by the end of 2000 with an annual run rate of $710 million when the firm sold the North American business to IBM in 2001. In just five years, the PwC BPO team grew from a core group of 15 executives to several thousand. It’s no surprise that today PwC BPO alumni are in senior leadership positions at several top outsourcing firms such as Accenture, IBM, Capgemini, NorthgateArinso, Sutherland, ACS, Ceridian, WNS, OCE, and Wausau. Alumni are also financial and strategic consultants to many of the top providers and are leading breakthrough research programs across the globe. The industry considers them outsourcing industry influencers in North America, Western Europe, Eastern Europe, and Asia Pacific. They are board-level advisors to firms in both North America and Europe. It was and is a special group of professionals who have led the industry for over 15 years. PwC BPO was blessed with extraordinary leadership during its five-year run. Tom Beyer founded the group in 1996 with an ironclad vision that consulting firms needed to do more than just advise on strategies or implement systems. Beyer saw BPO as a new way for consulting firms to take responsibility for their recommendations by running operations and, in the process, redefine how corporations managed their businesses. He saw BPO as a revolutionary/radical approach to corporate management. Beyer brought together a leadership team that shared his vision. He convinced PwC management they needed to invest at least $50 million in the business and that the BPO group needed to be a separate service line of the firm — just as important as audit, tax, and consulting. This was an extraordinary accomplishment that gave the BPO group the freedom to invest in its success and create a special kind of organization. Beyer passionately drove the early growth of the business and then retired. But after Tom Beyer, there was a seamless transition to John Barnsley, the legendary head of the UK practice who, like Beyer, was a brilliant visionary. Barnsley was the type of leader that just about everyone would go through walls for. He led the explosive expansion of the BPO business with a series of breakthrough contracts that built the BPO market across the globe. He was a brilliant communicator who understood the power of thought leadership and the importance of working closely with the leading research firms and influencers. Today, Barnsley is a director on several boards in both the United States and Europe. He is special. I would do anything for John Barnsley. Prior to 1996, much of the focus of the outsourcing market was in ITO. Working closely with industry influencers, PwC BPO redefined the market to give BPO equal attention. But to succeed in the outsourcing market, PwC also needed to redefine the BPO market to mirror its strengths as a service provider. PwC built its business around a multi-process value proposition. It anchored its positioning with F&A and the claim that “F&A R Us.” We wanted PwC to be known for its finance and accounting excellence. We connected other processes to F&A in a hub/spoke delivery solution that no other service provider could match. It was brilliant positioning. Prior to PwC, the BPO market was mostly defined as a single process like payroll. PwC BPO redefined the market to focus on multiple processes bundled together. The corporate market led by transformational CEOs responded to the positioning and sought out the PwC big-bang approach to BPO. The big early deals of the BPO market followed this approach of bundling multi-HR or F&A processes together for an integrated solution. The size of contracts increased significantly, bringing more attention to the BPO market and helping PwC BPO land a series of ground-breaking contracts such as: The largest F&A contract in the history of outsourcing serving BP in multiple geographies The largest HRO deal on an annual basis with Nortel in Canada The large Equifax deal, which integrated HR and F&A The Delta deal that brought best practices to revenue accounting. It was the first deal that integrated F&A and procurement in Europe The integration of applications with processes that powered transformational change at BP The real estate outsourcing deals in Australia where PwC BPO was the dominant provider of government services The European deals that integrated F&A and procurement for the first time The many deals in the UK and Western and Eastern Europe that were the early proof points for outsourcing’s ROI Selling BPO contracts is always tough, but serving clients from scratch was even more difficult. PwC BPO took its $50 million war chest and invested heavily in building out its breakthrough Centers of Excellence in locations such as Rotterdam, the industry’s first Pan-European service center; Krakow, the industry’s first F&A center in Eastern Europe; and Tulsa, where we served BP and the energy industry with over 1,000 F&A professionals. We overcame political uncertainties and built world-class Centers of Excellence in Columbia and Venezuela. Our HRO team invested several million dollars developing the prototype for the industry’s first self-service portal. In F&A, we formed a consortium with BP and Oracle to develop a radical framework to transform F&A to take out 70 percent or more of F&A costs. The pace of change was breathtaking. We did this all in just five years. PwC also invested millions in thought leadership through not only its series of white papers in each of the process domain areas but also through sponsorships of outsourcing information portals such as the Outsourcing Center, industry and association conferences, and industry research. PwC also conceived and sponsored one of the industry’s first awards program) — The Outsourcing World Achievement Award. If there was a conference or event, PwC …

Combating the “Hidden” Costs of Managing Outsourcing

Outsourcing Center, Kathleen Goolsby, Senior Writer

Industry media, especially over the past two years, often points out that a significantly high number of outsourcing arrangements do not deliver the promised cost savings due to “hidden” costs associated with managing the relationship. This is especially true, the reports state, in outsourcing relationships with an offshore delivery component, where administrative costs increase due to travel, communication workarounds, attrition, and other factors. However, there are numerous industry studies also finding a high number of companies that are very satisfied with the results of their outsourcing arrangements, some even achieving greater return on investment (and higher cost savings) than anticipated. Why the two drastically different outcomes? What makes the difference? What can buyers of outsourcing services do to boost their chances of achieving their desired objectives and eliminating or minimizing the “hidden” costs? Outsourcing Center studied these questions in the context of 14 outsourcing relationships that each have been in existence for a minimum of eight years (and several for 12 years) and achieved more than they anticipated through outsourcing – including the level of cost savings. The study found some commonalties in the way these outsourcing relationships were structured at the outset as well as how they were managed over the long term, which are major factors in overcoming “hidden” costs. The study participants Nine of the 14 relationships originated in 1998 or 1999, which is significant because the industry did not have as many widely recognized best practices and risk-mitigation factors back then. Also of note, four of the 14 buyers are government entities, significant because government outsourcing arrangements have some unique characteristics that usually create challenges in managing the relationship cost-effectively. Four have offshore components. In addition to the public-sector relationships, the other buyers in the study represent the following industries: energy, telecommunications, healthcare providers (hospitals), pharmaceutical, banking, and insurance. They include multinational enterprises and midsize companies. The service providers in the study are Tier-1 and Tier-2 providers.  All 14 relationships were participants in the Outsourcing Center’s Outsourcing Excellence Awards program. The processes outsourced in the studied relationships include Finance and accounting Data center / IT infrastructure Real estate Inbound/outbound mail processing and document management HR benefits administration Application development and testing Provider selection matters The first commonality the 14 relationships share is their criteria for selecting their service providers. Other than “value proposition,” which was cited as the top criterion by almost all the buyers, “the provider’s superior processes and methodologies” was ranked most frequently as the #2 criterion. In describing how they manage or govern their relationships, several buyers pointed out they experienced fewer management challenges because of the provider’s superior expertise not only in performing the outsourced work but also because of its methodologies for managing through risks and issues that arise. The study also revealed that, with the exception of the government deals, nearly all of the buyers included “the provider’s willingness to put skin in the game” among their criteria. With the exception of the government deals – which are bound by laws that usually prohibits the use financial incentives in services agreements – all of the relationships studied established either incentives tied to service level agreements (SLAs) or a gain-sharing initiative. In each of these cases, the study participants cited the incentives as a significant factor in driving behavior in both companies. Particularly with gain-sharing mechanisms, the incentive plan is an influencer of how flexible the parties are and how openly and proactively they communicate – which then lessens the challenges that can cause a need for increased relationship management (and resultant costs). The buyers in the study also described the kinds of information they sought (in the due-diligence phase) about a potential service provider in references from the provider’s clients or in the demonstrations of a partnering approach during the solutioning and negotiating process. These include such characteristics as the following: Always looking for win-win solutions Communicating early and often Teaming, collaborative approach Accountability Governance assures desired behavior from both parties The second commonality the 14 relationships share is a set of characteristics within the governance framework that each established to manage their relationship. These governance elements include the following: An issue-resolution process that ensures both parties address challenges in real time and from a fact-based analysis A communication structure that includes frequent (even daily), candid discussions about goals, visions, capabilities, solutions – especially around ways to save money – in addition to the more formal governance meetings Access to both companies’ top management levels to assure timely provision of resources necessary to execute on the planned objectives, especially when exploring new ideas to respond to changing dynamics Each of the 14 relationships established a framework for governance meetings that includes meetings to review the relationship itself separately from the operational issues and strategic objectives. Five of the relationships meet on a monthly basis to discuss strategic issues, one meets twice a year, and the others meet quarterly. The study reveals a major finding regarding the participants’ belief about the value of checking the “health” of their relationship. One-half of the 14 have relationship governance meetings on a weekly basis. Of the remaining seven, five meet monthly and two meet quarterly. The extent and formality of the relationship governance meetings varies, but clearly the majority of them place high value on discussing their relationship frequently. In addition, several of the studied relationships include team-building activities in their governance structure on at least a quarterly basis. Factors producing cost savings Each relationship in the study achieved a level of cost savings at or above their agreed-upon objectives. When asked to rank various contributing factors to the cost savings achieved, all 14 participants identified two factors as a driver yielding their cost-reduction: Technology implementation Standardization and/or centralization of process and resources The four relationships with offshore components cited “offshore labor arbitrage” as one of their top two drivers. It is important to note that all four faced the potential for greater “hidden costs” eroding their cost savings because of the characteristics …

How an Offshoring Relationship Grew from a Low-Cost Provider to Strategic Partner

Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

Barclays Global Retail Bank wanted to consolidate its Indian suppliers. It bought a 50 percent share in Intelenet Global Services to accomplish that. By the time it sold its share, the two had developed such trust the bank allowed Intelenet to handle some processes end to end. That’s when the strategic value occurred.

How Outsourcing Helped a New Company Deal with a Major Challenge

Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

Talecris was a spin-out. The new company had a drop-dead date to separate its IT systems from its parent. This was a complex challenge with much risk. Three weeks after the cut-off date, Talecris faced a business challenge that easily could have put it out of business. Together the partners weathered the storm.

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