KPO: The way to go?

by Nicolette Allen

Knowledge process outsourcing (KPO) has reached something of a revered status over the past year or two, hailed as the exciting progression of BPO into more specialist arenas. However, perhaps the sector isn’t quite as advanced as the hype would have us believe. At the NOA’s 2009 sourcing summit for example, a speaker asked the audience how many delegates could call their relationships KPO – and out of a room of 300, only two put up their hands. This doesn’t bode well for the sourcing industry’s new hope.

To gain a better idea of where KPO may move to in the future – and why it hasn’t taken off as quickly as one might hope - let’s go back to basics to establish where the sector is at now and what issues it is facing. How exactly do the experts see KPO at the present time?

“KPO is the next step in the evolution of BPO, and the natural progression of the value chain,” explains Ravi Shanker, vp BI and analytics at Capgemini. “It is the outsourcing of higher levels of judgment, deeper domain knowledge, and more complex decision making, which means that it can be applied to core tasks that directly impact clients.”

Patni Computer Systems’ Satish Joshi agrees with this definition: “The knowledge-intensive and judgment-based nature of KPO skills involve a higher degree of complexity and require specialist domain knowledge,” he says. “Examples include doctors, nurses, actuaries, pharmacists, lawyers, and architects. Such skills are short in supply or extremely expensive in the US and Europe.”

John Redfern, md, Inovis believes the sector is yet more specific than this: “KPO deals exclusively with the subcontracting of skilled work, such as B2B communications, to highly trained specialists,” he argues. “Project managers, migration experts and support teams with vast industry experience should be in place to provide a round-the-clock service.”

“The basic idea,” concludes Nigel Edwards, vp and European head of Cognizant’s BPO practice, “is that by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organisations can enable new services or capabilities that, in the past, could not be considered feasible, achieving a totally unexpected outcome.

“For example, one of our customers in the healthcare insurance industry has been taking advantage of skilled Indian labour to improve the effectiveness and extent of its investigation of fraudulent claims,” he explains.

But what advantages does this specialist sourcing offer to the greater masses, and to those doing the work themselves? Nigel Edwards believes that KPO arrangements give offshore workers a far greater degree of job satisfaction and potential for career progression – helping to address the high attrition rates and customer service issues associated with these processes.

“Tasks are typically analytical and require staff to be highly qualified, professional and mature,” he explains.

John Redfern adds that often, this level of service from highly qualified professionals is just not possible from an in-house team, which often has to divide its time managing a variety of different functions, with less specialist expertise in any one key area.

“By targeting individual business processes, KPO dispels the myth that outsourcing is for large multi-national organisations only, and proves that small and large business alike can benefit from this kind of service,” he believes.

“Whereas traditionally, outsourced contracts were often high-value, long term commitments, KPO contracts in today’s economy are targeted at a much wider pool of businesses and markets, and are just as likely to be low-cost contracts which run over shorter time frames,” he concludes.

If all of this sounds a little too glowing, the sector certainly doesn’t come without its drawbacks – one of which is organisations’ understandable reluctance at times to outsource key business processes – particularly if they are specialist to that company and require extremely specific skills. This could naturally cause some anxiety about the performance of the outsourcer from an end-user perspective – particularly if the operation is being moved offshore.

John Redfern goes further with regards to the outsourcing of specialist IT functions: “Perhaps understandably, many businesses have been uncomfortable with the prospect of third parties having access to company data.

“In addition, a lack of reliable IT infrastructure, both in terms of hardware and system availability has led to some apathy towards outsourcing,” he says.

This isn’t the only drawback, however. Satish Joshi argues that cost is another deterrent for those looking at KPO: “Because KPO skill sets involve specialised education, domain expertise along with analysis and decision-making as opposed to the more process driven and rule-based BPO, they need a substantial investment,” he argues. “In India context, KPO salaries could be 25-50 per cent higher than those offered to BPO professionals.”

Nigel Edwards disagrees with this hypothesis, however: “The wage differential between near and offshore skilled professionals with significant experience is greater than that of the graduates with lower levels of skill and experience traditionally hired into transaction processing operations,” he explains. “This means that KPO actually presents a better business case than the traditional BPO deals, albeit on a smaller scale.”

And what of the future for the KPO sector? Ravi Shanker argues the sector still has a long way to go before reaching a level of general acceptance to match BPO: “KPO is still an emerging market, which consists of a large number of niche players vying for sector specific opportunities based upon their own specialities,” he says. “By its very nature, the sectors and expertise involved make it a good fit for niche providers.

“That said, however,” he concludes, “there is certainly room for the major players in outsourcing and BPO to utilise their knowledge of existing markets and claim their position in this very exciting space during 2010 and beyond.”

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The outsourcing risk rundown

by sourcingfocus.com staff

Risk is a nebulous but vital concept that has been central to commercial transactions ever since business began. Assessing the likelihood of any decision yielding benefit versus possible negative outcomes is a complex and time-consuming process. In today’s competitive environment, such is the need to ‘insure’ companies as much as possible, risk has even spawned its own job role at many large companies – the risk manager. This person or department, must assess every key business decision or partnership, and influence the decision as to whether it should be allowed to go through.

When applied to outsourcing, the risk equation can become much more difficult. The unknown quantity is the outsourcing partner – another whole company to appraise and understand as intimately as possible to make sure almost nothing can go wrong. The challenges of risk-insuring a company against outsourcing failure are all too apparent and horror stories still abound. In late January this year one of the longest-running disputes in the outsourcing industry finally came to a head after a court ordered EDS to cough up for its failings in BSkyB’s CRM project. Outsourcing executives are still getting things wrong and there is always much to be learned.

One area where outsourcers go awry is in the reason for outsourcing in the first place. The most common adage is ‘you don’t outsource a problem’ on the basis that much outsourcing is process and service-led. An outsourcer is just as likely to have the same problem with something as an in-house department. However, outsourcing can be used to transfer risk itself on the basis of reducing reliance on full-time staff and fluctuations in requirement.

Ferenc Szelényi, MD of Dell Perot Systems, argues:, “Outsourcing can be very effective in transferring risk, especially in pricing and operational risk.”

The trouble is, outsourcers frequently appear wooed by the possibilities of reducing risk, costs and other headaches while important concerns are forgotten – not least ensuring that the outsourcing provider is equipped to deliver what it claims as with the EDS example.

“However, supplier management is absolutely crucial to make it a success and some companies don’t put enough emphasis on it,” continues Szelényi.

The difficulties associated with managing outsourcing suppliers are varied but most lead back to communication difficulties. TPI, the sourcing advisory firm, identifies risks associated with contracts, transitions to suppliers, delivery of requirements, financial mismanagement, capability to carry out work and misalignment of expectations. The vast majority of problems experienced by those engaging in outsourcing seem to emerge from poor relationships between buyer and supplier.

Despite this, the industry is currently seeing a change that increases the amount of suppliers many end users are using – multisourcing. The trend towards expanding supplier rosters for increased competition and less-risky deals continues apace. This is despite research from PA Consulting last year indicating that outsourcing end-users were relatively naïve about the amount of governance time and investment multisourcing entails.

Jonathan Cooper-Bagnall, member of PA Consulting’s Management Group, explained last year: “We are seeing more and more that multisourcing is a developing trend, making integration of services all the more crucial. However, many ‘tier one’ organisations have already had to invest heavily in teams of people to fulfil the integration role, simply through lack of an early identification of the need for service integration.”

The reduction in risk associated with a single large supplier is clearly reduced through multisourcing, but it seems organisations must cough-up financially to balance governance risks at the other end.

James Cockroft, managing consultant for Xantus Consulting, says, “Multiple outsourcing contracts can cause problems as they are often negotiated at different times through different in-house teams, even when using the same outsourced contractor. 

“This leads to ambiguities and can require more mediation.  It can be like marriage counselling between different suppliers.  This increases the size and nature of internal resource required to manage outsourced contracts.”

However, it appears the costs associated with this extra management resource may be beneficial to the overall sourcing equation. As end-users become more advanced at managing outsourcing, the risks associated with surrendering control to suppliers reduce. 

Ferenc Szelényi, MD of Dell Perot Systems, explains: “Over the past few years, in a bid to minimize risk for the customer, the trend has been towards IT outsourcing deals that are smaller in size and shorter in duration.

“Outsourcing has become mainstream and clients are more educated and sophisticated than ever before. They are, therefore, more comfortable managing multiple contracts with multiple vendors which also minimizes risk.”

Aside from simply investing in management across outsourcing deals, there are numerous other areas that end-users can also address to minimise risk in working with outsourcers. 
“Outsourced suppliers do a lot of things well, but what they are not so good at should also be recognised.  Strategy, commercial management, governance and contract management remain best suited to in-house departments.  After all, a company will always know its business better than anyone else, regardless of how embedded outsourced suppliers are,” comments Cockroft.

At the centre of almost all industry best-practice advice is a water-tight and coherent contract. Ensuring that all agreements, SLAs, KPIs and other metrics are appropriately enshrined in a clear legal document has become an important step in all outsourcing deals. Nowadays, most good suppliers will be as ardent about creating a clear contract as the end-user. Experience has taught the industry the importance of a good legal agreement and the contract usually provides key to ensuring everyone knows exactly what is going on. 

Phil Riman, partner at technology and corporate law firm, White & Black Legal, comments: “Relations between a company and its supplier often deteriorate for perfectly avoidable, but all too common, reasons. 

“These include the existence of unrealistic and inadequate transitional arrangements; poorly constructed service levels and flawed pricing structures which do not reflect trading realities.”

To ensure risk is reduced and chances of success, increased, industry experts advise a clear contract and in-depth due-diligence before any agreement is put in place. Systematic assessment of suppliers, and locations if offshoring, should uncover and possible future issues.

Iain Monaghan, partner at international law firm Pinsent Masons, adds: “ Whatever the contract might say, it will be difficult for a regulated company to claim that it should take no responsibility for a major security breach if a cursory examination of its supplier’s security arrangements would have shown they were inadequate.

When offshoring enters the mix, the traditional risk equation can change significantly. Though sourcingfocus.com’s investigation last year found minimal impact on outsourcing operations from occurrences like Mumbai’s attacks and Sri Lanka’s war, some countries simply never make the list of possibilities locations. Those that do are subject to further scrutiny in areas including data protection and cultural alignment.

Cockroft, believes, “Cultures and behaviours need to be carefully managed. In some cultures there is an automatic assumption by outsourced suppliers that the client is always right.  Sometimes they will say “yes” publically, even when privately they know they are unable to deliver.”

The onus is firmly on extensive supplier due-diligence whenever a company looks beyond its own shores. An end-user needs to be sure it can work effectively and efficiently with its chosen partner. However, those considering offshoring would also do well to examine the local macro-economic, legal and political environment to mitigate against further risks. Ferenc Szelényi explains that end-user should also look at governmental access to service providers as well as over the customer’s data. 

“Promising locations like South Africa, Columbia, Malaysia, Thailand and Mexico have done little in terms of Government initiatives or social change to allay client fears about their safety as an outsourcing destination. Some countries with more established IT export businesses, like the Philippines and Brazil, have been slow to progress.”

While it is clear that risk can never be entirely removed from outsourcing, there are certainly many areas a careful end-user can address to reduce it significantly. At the centre of everything says Szelényi, is starting early and ensuring all risks are assessed and understood from the start: “An organisation’s security staff should be at the table from the start of the process and throughout the lifecycle of the outsourcing deal.

“The security staff should be included in the operation’s management functions, working with the vendor’s delivery management staff, as well as the strategic planning functions where standards, architecture and integration decisions are made,” he concludes.

Only by investing intelligently in supplier-assessment and management, it seems, can end-users truly sway the outsourcing risk-reward equation firmly in their favour.

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The sourcing crystal ball

by sourcingfocus.com

As the business community settles into its post-festive comedown, it is customary to look to the future and guess at the brighter things to come. Visions of 2010 have been hitting the sourcingfocus.com newsdesk thick and fast and we have picked out the best of them including the much anticipated views of the National Outsourcing Association (NOA) board and membership.

Out of all areas the public sector has come through most forcefully in predictions, with the industry expecting some painful changes going forward. The NOA’s membership and board predict a big rise in public sector sourcing arrangements in an attempt to claw back the government’s huge budget deficit.

Phil Dawson, Managing Director, MDS Technologies, comments “As public sector cutbacks start to bite, government, local authorities and the private sector will all be challenged to increasingly make very real savings. Cutbacks of around ten to 15 per cent will become realistic targets, with nominal savings of up to five per cent being regarded, in many quarters, as insufficient.”

However, the sector’s ability to cut costs by traditional means, such as staff cuts, appears limited having already scaled back during 2009. If combined with the increasingly pragmatic-looking Tory government there could be nowhere left to turn, meaning that sourcing and shared service arrangements are two of a shrinking list of options. Growth in public sector outsourcing is one prediction already being proved correct, with Lancashire County Council’s recent £1.9bn shared service project announcement. 

NOA Offshoring Director, Mark Kobayashi-Hillary, commented, “The sector will need to explore more shared services and outsourcing options after the General Election than some currently believe. Efficiencies mooted in the Read OEP simply won’t be enough compared to the amount of government borrowing going on. The sector will be forced to explore extensive changes and new operating models rather than just efficiency drives if they want to escape from this increasingly large black hole.”

Another area high on the agenda this year is green and how business can adapt and innovate to combat global warming. Though Copenhagen was not as successful as many had hoped, the conference has certainly put green back on the media and business agenda. There are also some promising noises coming from the business world, for example an increasing adoption of green procurement requirements for new contracts. However, this year is expected to see environmental impact embedded further and deeper into sourcing than before. The NOA has launched a Green Steering Committee in a drive to guide the industry in ‘green sourcing’.

In a statement the association commented, “Environmental concerns will come back to bite those who thought they had been forgotten in the recession. Some parts of CRC [the Carbon Reduction Commitment] will become law and suppliers will need to understand it and be aware of how it impacts the supply chain.”

It is also thought that 2010 will see more innovation in green services and products that impact an organisation’s credentials. Legislation such as the CRC, though it has some interesting side-effects in sourcing, comes with new BPO opportunities. FirstCarbon for example, a subset of ADEC launched last year, has been quick on the uptake. The company has seen the opportunity to use its BPO processing capacity to carry out ‘carbon accounting’. As companies race to work out, and reduce, their overall carbon footprints, such services look set to become increasingly popular. 

More positivity comes with signs of a possible economic recovery in the UK early this year. If this renewed optimism is believed, it will mean good things for outsourcing. Vendors should be especially happy, says the NOA, as their clients stop asking for reductions and ‘look towards expansion of capacity to support renewed growth.’
Farhan Mirza, principal at A.T. Kearney, comments, “Cost-cutting and contract renegotiation will continue early into 2010.  But businesses will also start to refocus on growth, and IT will need to quickly shift gears again.  With reduced internal capability following the headcount cuts in 2009, businesses will increasingly look to their outsourced services provider to support them in this area.”

TPI supports this too and expects to see a rise in the number of large scale contracts awarded both globally and in Europe in the next six to nine months. This, it says, is due to the clearing of a blockage in contracts that has built up since 2008 as decision makers refrained from making decisions on outsourcing.

Whether this change in focus will come to pass is still a moot point, as some industry experts still predict more cost cutting. Leading outsourcing lawyer, Belinda Doshi, comments, “The key trend for this year will be ‘how to do more for less’. Customers will continue to drive down costs from their suppliers - and will expect their advisers to be more innovative in finding ways to do this. Expect tighter management of procurement timetables, more gainsharing and use of frameworks to keep suppliers on their toes.”

Either way, the march of globalisation also looks set to continue this year as companies look at skills in an increasingly agnostic manner. The Hackett Group expects Global 1000 companies to significantly accelerating their movement of back office jobs to India and other low-cost labor markets.

According to the group, ‘over 350,000 jobs in corporate finance, IT, HR, and procurement will move offshore in 2009 and 2010 alone, bringing the total number of back office jobs in these key areas being done offshore to over 800,000.’ It looks set to be a good year for offshore vendors as they reap the rewards of European and American recession-fuelled cost cutting. 

Interestingly, 2010 could see a resurgence in finance outsourcing, as those at the centre of the financial crisis, straighten out their business strategies and look to the future. Many financial organisations, especially banks, pulled back from outsourcing as the recession set in, but this looks set to change.

Duncan Aitchison, partner and president for TPI EMEA, commented, “We are also seeing a renewed interest emerging from the financial services industry, particularly banking. Historically, this area has regularly been one of the biggest spenders on outsourcing and its decline in activity in the last 18 – 24 months has had a significant impact on the overall market.”

A relatively new entrant to the sourcing fray this year is the small to medium enterprise. Recent research by SLASSCOM, the Sri Lankan IT and services development body, found that almost one quarter (22 per cent) of UK SMEs are considering offshoring, while one in ten are very likely to offshore elements of their businesses in 2010.

Madu Ratnayake, General Secretary of SLASSCOM, commented, “Interest in offshoring in the SME sector is both a symptom of the need to cut costs and a recognition that one country doesn’t always have all the skills needed for success. SMEs are coming around to the globalised way of thinking that is now necessary for success. Those SMEs that think globally about skills and staffing are set to be increasingly successful in 2010 and beyond.”

Interestingly the research found IT services to be the most likely thing to be offshored. But offshore IT developers look set for increasing competition from cloud computing as prices continue to fall. Doing things ‘in the cloud’ was the hot topic of 2009 and this looks set to continue. Research from Easynet Connect, a business ISP, found that half of UK SMEs will have moved into the cloud by 2011, up two thirds in the last 15 months.

However, there are still sceptics of how rapidly cloud will be fully adopted. Currently investment in the area by SMEs and larger companies is frequently done in a piecemeal fashion or in rare, company-wide overhauls. The Guardian Media Group’s move to Google is an example of this. Easynet worries that SMEs aren’t doing the right groundwork to ease the cloud transition.

Chris Stening, managing director, Easynet Connect, comments, “As a company which itself has adopted cloud computing, we find it worrying that the vast majority of companies aren’t taking basic measures to prepare themselves for such a significant shift in their business operations, such as creating a formal migration strategy, increasing security, ensuring they have a reliable and good quality internet connection or considering the impacts on their bandwidth and data demands.”

So, though the move to cloud looks set to increase, it may not happen as rapidly as many ‘evangelists’ presume.

In terms of offshoring locations, the NOA expects many lesser names to come to the fore. China, the manufacturing giant, will gain ground as a call centre player, says the association. The body also expects the Philippines, and Russia to increase in prominence on the world stage and Brazil to take a bigger role in global ITO. On the SME front, lower-volume players should come to prominence such as Mauritius, Sri Lanka and emerging African countries. The NOA also expects more location specialisation, for instance focusing on finance or elements of IT delivery, as countries recognise that global outsourcing cannot grow interminably.

Outsourcing 2010 certainly looks to have a lot in store for the industry and it should be an exciting year. It now remains for us to see which of these predictions actually come true. With optimism rising in the private sector, will companies increasingly use outsourcing to seize growth opportunities and re-skill. Or will they continue to squeeze budgets and suppliers? Likewise, will the public sector bite the bullet and start outsourcing with a vengeance? Or will it stubbornly defy reality, cut staff and let standards slip? Whatever happens, it appears outsourcing and offshoring can, and will, be used positively in many areas so one thing’s for sure – 2010 could be a bumper year for sourcing.

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CRC – a bittersweet symphony for outsourcing?

by sourcingfocus.com staff

CRC are the three letters on everybody’s lips at the moment. There is certainly a lot being said about the UK Government’s upcoming Carbon Reduction Commitment scheme, but how much of this is translating into action, and what impact will the CRC have on the outsourcing and offshoring industries? The answers unfortunately are not all that clear but there’s a lot going on, and it is all going to become more and more relevant to us all.

Looking at CRC on face value, its aims seem noble and methods logical. At its most basic level, the CRC is one new weapon in the government’s mission to cut UK carbon emissions. The UK has ambitious targets in this respect having committed to cutting carbon emissions to 80 percent of 1990 levels by 2050. On this basis, whatever ‘sticks’ and ‘carrots’ are thrown at industry to get them moving, they clearly need to work very well.

The CRC programme is aimed at the UK’s larger and largest businesses; those that have both sizeable emissions and the scale to be able to take tangible and innovative steps. In April 2010, those companies consuming greater than 6,000 mega-watt hours – an estimated 5,000 UK organisations – of electricity per year, will need to be signed up to the scheme. In the following years, emission allowances will have to be purchased for energy usage, while those that do not comply with the scheme will face punishment in the form of scalable fines. As an additional incentive to act, the Department for the Environment, those in charge of the scheme, will publish league tables of the best and worst performers.

And there are further incentives to act quickly, says Gary Worby, MD at energy consultancy EnergyQuote, “Acting now to become an energy-aware business will give you a better chance of gaining a competitive edge and also deliver significant cost savings and an improved corporate image. The CRC even offers a bonus for early adoption if you can demonstrate three years of an advanced implementation plan to reduce energy and carbon.”

However, despite such incentives, there still isn’t the feeling of urgency that environmental science and the green lobby would like to instil. “Current studies indicate that as much as 10 percent of the CRC’s audience are not going to comply with registration,” comments Worby.

Despite this, mixed messages abound currently about the level of preparedness in the industry. For example, recent research from IMServ showed that, ‘Only two percent of UK businesses do not know whether they qualify for the scheme. This compares to figures of 20 percent in the public sector and 30 percent in the private sector a year ago…and…only two percent of organisations are ignorant of their carbon footprint in contrast to nearly 70 percent last year.’ It seems that the real story on compliance may only emerge when Defra releases initial registration figures in April next year.

A sizeable problem is that the confusion over preparedness levels is also mirrored in compliance with the CRC initiative. A recent poll from edie in September, an environmental business portal, found that ‘42 percent of companies said they were not totally up to speed [with CRC] and only 31 percent said they felt well prepared.’ If this level of unpreparedness continues until April next year, many will face fines and reputation damage. It is also a worrying sign so close to the initial registration deadline. Apparent deasons for this confusion range from not knowing how to measure overall energy consumption and difficulties with data gathering to simple lack of understanding as to what reporting will be required.

Mark Kobayashi-Hillary, Offshoring Director of the NOA and Chair of the NOA Green Steering Committee, comments, “I speak to a lot of companies about the fact that the green agenda is about to hit the top of their to-do-list in 2010, yet most executives seem to have forgotten that this is going to happen. It’s as if there was some interest in green business when Al Gore made it cool, then the recession came along and everyone had to focus on survival, no matter what. Well, 2010 is just around the corner.”

One area that does seem clear has invoked the ire of many in the outsourcing industry – that of the supply chain for products and services. This is an area the government seems intent on perusing. In his inaugural statement last month, the government’s new chief energy scientist, Professor David MacKay, commented, that “The UK’s apparent reduction in carbon emissions since 1990 is merely an “illusion”, because manufacturing has been outsourced to developing countries”. According to industry voices, the CRC initiative represents a bittersweet change for the outsourcing industry, punishing some for working hard while rewarding others out of circumstance.

Kate Craig-Wood, MD of Memsets, lays out a clear case against the initiative from the UK datacentre perspective in her blog on the subject, saying “The government’s scheme plans to allocate the entire carbon liability to the utility bill payer, irrespective of whether the bill payer is in fact using the energy, or a key player in the decision to use this energy.”

And this is where the problem lies. The CRC scheme appears to have been created with little thought to the outsourced, and increasingly offshored, business world we now live in. By targeting the company paying the utility bills, the CRC inadvertently both encourages outsourcing whilst penalising outsourcing suppliers for taking on work as they have to purchase further carbon emissions allowances from the government due to extra capacity requirements.

This, Craig-Wood says, “will actually be a good thing for my business, but I so firmly believe that the CRC as it stands will be detrimental to our emissions overall that I am speaking out against it.” So the extra business gained by outsourcers may actually outweigh the added costs they have to pay for emissions, but it may not aid the government in reducing overall emissions. However, as we know, with scale and specialisation comes both effectiveness and efficiency. So while the mass outsourcing of energy-intensive processes will inevitably drive the growth of environmentally friendly suppliers, it will be making sure the balance tips in the right direction that will overall ensure success for the government.

Kobayashi-Hillary comments, “It’s as if the concept of outsourcing was never really considered when the CRC was designed, because there is no clear way of managing carbon created through the entire sourcing supply chain. Let’s face it, every company sits in a supply chain somewhere because every company buys and sells products and services.”

Having said this, there is another industry that is also likely to benefit from the CRC – those in offshore outsourcing. The CRC, of course, is a UK-centric scheme, so will make offshoring increasingly attractive to UK companies. Likewise those outsourcers with both UK and offshore capacity will also be more likely to carry out increasing amounts of work offshore. This is a great trend for globalisation but also creates somewhat of a ‘pass the parcel’ situation in terms of global carbon emissions as UK end-users ‘dump’ emissions into Europe and elsewhere. It is also an interesting result in light of upcoming VAT changes that will see offshore providers paying VAT on the services they provide to the UK. This clash in UK government policy certainly create an interesting dynamic.
It’s clear that a more European and even global approach may be needed if possible. The National Outsourcing Association, for one, is supporting this goal. The Association lays out its thoughts in a green whitepaper from its newly created Green Steering Committee.

The document states ‘By creating one standard, organisations will have to meet a set of uniform requirements in order to classify themselves as green/carbon neutral. The ultimate green tick would allow organisations to conduct business with vendors, safe in the knowledge that they have met international regulations. Suppliers would also be able to tender for projects knowing that they have met the minimum green requirements established by the international community. This would create a safer and greener market for organisations to engage in, as any business that did not have this standard approval, would not be able to tender for work that demanded it as part of the selection criteria.”

The trouble is that the ability of global governments or business organisations to create such a standard appears limited. There are countless standards proffered by numerous professional organisations but the lack of standardisations causes sizable problems. The standards convey a sense of ‘greenness’ but still lack a sense of certainty, requiring a leap of faith on the part of customers and stakeholders. The future of green business is obviously global; it is now time for governments to catch up and make things work worldwide. The upcoming Copenhagen meeting provides the perfect opportunity for progress towards this goal. Thankfully the outsourcing industry has little time to wait to see whether the global community is up to the challenge.

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Nailing jelly to the wall - what does innovation mean to you?

by sourcingfocus.com

It’s been long enough since sourcingfocus.com last looked at the topic of innovation to warrant a return to the subject. Our last feature on this area looked into the reason for innovation and some of the precursors that should be in place to foster its development. To ensure we didn’t cover too much of the same ground, we asked key industry commentators and players what innovation meant to them. The results were as follows:

Dan Lieghio, managing partner at 4C Associates, explained that though some outsourcing can cost a little more, those costs can be offset in related costs. Procurement is a prime example where outsourced providers can develop economies of scale, streamlined processes and extra clout allowing them to drive down the costs of what is being procured, though their service may cost more.

“Interestingly, one of the fastest-growing areas of back-office outsourcing is the strategic procurement function, in which ‘innovation’ often means developing new ways of reducing costs.

“The provider’s remuneration is often linked partially to performance, and ‘innovation’ is often one measure.  Thus the provider is always on the lookout for innovation opportunities, and decisions are made jointly – based on a clear business case – when an innovative approach would require additional investment.”

Manoj Tandon, a director from CSC India, reiterated the importance of a close end-user supplier relationship in fostering innovation. He explained it is also up to the vendor to go above and beyond, to fully understand and regularly present new ideas to clients. However, the business case for any new innovation must be made very clear.

“A vendor should not restrict itself to what is written in the contract, as the world of IT moves so fast and vendors are often in a better position than the customer to know what is required.  For example, cloud computing, virtual desktop, data virtualisation are just a few advances.  All of the advances in the internet arena can be of immense help to businesses looking to increase collaboration and transparency throughout their organisation, as well as helping to integrate customers and vendors more fully within the company.  However, just suggesting these to the customer is not the way forward.  The vendor has to create a scenario of how this will benefit the business, make it clear how the business case stacks up, so that the customer can really see the benefits that can be gained.”

Douglas Scott, VP EMEA Services for Diebold, listed as one of the ‘worlds top outsourcing companies’, commented that in the financial sector, clients are looking to get more for less. They want added-value while reducing costs at the same time. Such demands put pressure on end users to both innovate for clients and internally to ensure such hybrid-product offerings can be achieved.

“During a difficult economic climate, long-term initiatives like redesigning branch networks look likely to continue but in the short term banks are looking for new systems and services to add value whilst reducing costs.  The future of outsourcing is allowing banks to respond quickly, strategically and accurately to as yet undiscovered trends.”

Douglas layed out some of the items on the financial sector’s innovation wishlist, which included:
• A more consistent experience across all banking channels
• The ability to link all types of accounts for various transactions
• Increased security through biometric identification and other ATM security measures
• The ability to set language preference on ATMs
• Quicker, faster, more automated deposit automation
• Check imaging and detailed receipts for cash deposits
• The ability to print statements, order checks, pay utilities and make address changes

Guy Kirkwood, a multisourcing transaction broker at Unisys, expounded the wonders of multisourcing for creating new innovative outsourcing relationships and results.

“Multi-sourcing arrangements are in themselves not new but they do lend themselves to an innovative approach to outsourcing and mitigate against outsourcing suppliers taking on work they don’t have the necessary expertise and capacity to carry out. By involving third party advisors and specialist sourcing companies it’s possible to establish a closer, more reciprocal relationship between the outsourcing provider and third party advisor, ensuring stronger governance and accountability. In this more heterogeneous environment, the advisor acts as a trusted advisor to the client, stringently reviewing the providers’ performance and ensuring that the outsourcing contract is open, honest and more flexible to business needs.”

An example of innovation in this area comes in Unisys’s work in one of the most promising public sector shared service projects to have been developed so far. If of course the benefits and savings are delivered as planned. The project is as follows:

“The Kent County Council shared services project unites numerous local public sector bodies to deliver the best services possible to its citizens, at the lowest possible cost. The new Kent Public Services Network connects approximately 1,100 public sector establishments including schools, council offices and libraries, across the county, offering improved bandwidth and inter-governmental collaboration. It is the first formal arrangement in the UK to bring local government networks into a single structure.

“A particular benefit of the KPSN will be a single link to central government. It is estimated this will save Kent’s public bodies £338,000 over the next four years. By adding the Ashford exchange to KPSN the cost of existing schools’ network connections in the town could be reduced by up to £70,000.
“Future plans for the KPSN include a single telephone service covering all participating public sector organisations and a single directory and extension number scheme. There is also a possibility for direct network connections for home workers, which could offer virtual office and virtual call centre opportunities. Video conferencing and multi media services could also be made available at all offices to help reduce travel.”

Dr Roger Newman of Mahindra Satyam, explained a project they are working on as an example of some of the cutting-edge IT that currently being developed.

“At Mahindra Satyam, we have developed an innovative web based video editing and publishing application where in end users can add, edit, add effects and then share their videos, thereby, providing a compelling user experience to the visitors of the social networking websites. This application has the ability to render widgets, rich internet application (RIA) artifacts – that are hosted separately and propagated across social networking applications such as Facebook and MySpace. It also enables end users to easily and quickly assemble motion and audio content, add tags, and with a click of a button, publish videos and music to social networking portals, making the whole experience more personal and customised.”

The trouble with innovation as readers may have gathered is that it is so difficult to pin down – ‘like nailing jelly to the wall’ as the saying goes. In this rough and ready rundown, rather than assess and discuss the relative merits of individual’s efforts, we’ve tried to keep it plain and simple. If you have your own views on innovation or want to pick apart any of the ideas above, feel free to post your comments below or start a forum topic to discuss.

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BPO – how far can you go?

by sourcingfocus.com

In human years the offshoring industry as we know it is getting close to the prime of its life. It has grown from bouncing baby when doting customer service managers and CIOs looked on, excited as their costs fell thanks to those happy offshore agents and developers. Then came the unruly teenagers as vendor attrition rose, customer service levels fell and those at the other end of the line rapidly became unhappy with their new far-flung customer service people. Data blunders and security leaks then worried executives about their sourcing decisions and some publicly advertised their UK sourcing credentials. But outsourcing still continues apace and most would say the mature providers have overcome their early bugbears to become a ‘safe pairs of hands’. Offshoring is now ‘fully grown’ and is out there looking for new challenges, developing new ideas and new services. As a natural progression of this, the offshore outsourcing industry continues to clamber up the value chain into more highly skilled pursuits.

“The approach of only outsourcing “non-mission-critical” processes has become dated,” comments Stan Lepeak, Managing Director of Research for EquaTerra.

Indeed, it seems a natural progression of globalisation that offshore locations and providers will seek to provide higher level services. The larger providers become and the better local educations systems become, it is logical that staff originally happy to tap out mundane code or sell low level products, will require new challenges.

“Individuals in these offshore locations are hungry to learn, grow and be promoted and will switch organisations to gain this exposure if they do not receive it with the providers they currently work with,” says, Kulvinder Reyatt, MD of Europe and Asia, for RR Donnelley.

Local skills gaps are also a big issue. In the UK for example the lack of domestic IT expertise is a very real problem. Recent research by Vodafone found that more than a fifth of companies say they lack the IT skills needed for their businesses to thrive.

“Domestic talent pools are not big enough and they need to focus more on performing higher value added activities. For example analysis not processing and decision making not paper shuffling,” said Lepeak.

Offshore vendors have spotted the obvious opportunities and are continuing to offer new services to their customers. It is almost impossible to find an outsourcing company that still offers only low-end, high-volume outsourcing. Providers want the specialists processes and want the extra kudos, business and income that comes with it.

RR Donnelly, an age-old printing specialist, is one company that has captured the BPO zeitgeist, moving originally into low level print 20 years ago but now taking on more traditionally in-house or on-shore tasks. Creative communications, legal processing and research and analytics all fall under their offshoring menu, delivered from India, Sri Lanka and the Philippines and many European locations. The company has also developed offerings in financial management such as accounting, credit card applications and insurance claim management. The company even offers ‘Pitch assistance centres’ for large corporate, investment banks, consultancies and the like

While many of the ‘new’ services being offered by outsourcers might not have always been done in house previously, it is the offshore element that is new. So are buyers ready to offshore their PowerPoint presentations or legal documentation for example? Clearly some are otherwise the companies would not be offering such services, but the offshoring of such processes is still not widespread. So should companies be weary of sending their high-end processes off-shore?

“As an outsourcer I can confidently say no. However, in some cases there is a longstanding hostility between customers and suppliers, with the gap widening in the current recession,” said Dr Roger Newman of Mahindra Satyam. “The reality is that businesses need greater intimacy with their suppliers and for the supplier to be integrated with their business models if there is to be the mutual benefit required for long term success,” he adds.

The subject of management in high-end offshoring is something not to be overlooked. The switch-on, switch-off mentality of large scale outsourcing no longer fits with the often close collaboration now required. For example, imagine trying to refine an important presentation being developed offshore without numerous phone/video conferences. Likewise management of financial processes and data requires new in-house responsibilities, procedures and security measures.

“To successfully manage multiple BPO providers, companies need to take a number of sophisticated and often culturally challenging steps. Companies that successfully manage offshoring core or mission-critical processes look to create collaborative management models that share responsibilities, risks, and rewards, enabling both sides to reach their objectives,” comments Lepeak.

Assessing the possibility of outsourcing high-end processes begs the question how far should one go. Obviously you cannot outsource everything so surely there needs to be a balance. “You can’t outsource everything - you need something on which to base competitive differentiation - but nothing should be “off the table” when it comes to considering outsourcing options,” says Lepeak.

The advice from providers is of course speak to them to gain a better understanding of what and how processes higher up the value chain can be effectively offshored. Even amongst old-hands at the outsourcing game, a reassessment of possible suppliers is likely to be a first step.

Sukhendu Pal, Principal Consultant at Centrix Consulting, comments, “All companies need to rigorously assess each of their functions to determine in which they have unique skills and sufficient scale and in which they don’t. Better assessment of competencies can improve a company’s strategic position by reducing costs, streamlining the organisation, and improving quality. Finding more qualified BPO service providers to provide critical functions usually allows companies to enhance the core capabilities that drive competitive advantage in their industries.”

The outsourcing industry has clearly come of age so end users must adapt to keep pace. However, in current economic circumstances, it will not take much to encourage executives to investigate what is now on offer. 

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BPO: The global playing field

by sourcingfocus.com

Cast your minds back a few years and think about which geographical locations were considered service providing power houses.  India, UK and the US were the big three, collectively making up a huge chunk of the global services market.  Fast forward to present times and the service landscape could not be more different. 

Countries previously only realistically able to trade within the agricultural, apparel or manufacturing markets are now finding themselves on a level playing field with the big service boys.  So which destinations are causing the change in landscape?  In true Columbus-esque fashion sourcingfocus.com sets sail to navigate the ‘New World’ of BPO.

The BPO market has slowed down, as Alistair Maughan, partner at legal firm Morrison and Foerster points out, “ The BPO market has been much quieter than the ITO market recently.  IT outsourcing gives immediate payback where as BPO has a longer ROI time and requires more investment.”

Despite a slow market, there are still a variety of upcoming locations hungry for a piece of that BPO pie. 

First stop, Asia.  This continent has been the epicenter for outsourcing.  India, is of course the region that instantly springs to mind when people think of call centers, IT support or back office processes.  In fact, for a while it seemed that so much of the outsourcing market was heading to India, it was hard to see anyone else really making headway in that space.  However, times have changed. 

Clive Longbottom, Service Director for Business Processes Facilitation at Quocirca, has highlighted a lot of to and fro in the Asian BPO market, “The Philippines has become really massive again for BPO.  It was essentially dead as American companies pulled out of Manila because prices rose and quality went down.  Organisations moved their operations to India, however as that market matured the same happened; prices went high and quality came down, so the Philippines became an attractive destination again.”

It’s not just the Philippines that has been making headway in the offshore market. Some of India’s closest neighborus have been quietly readying themselves for a push into specific service sectors.  Mr Longbottom highlights Sri Lanka as being one of the key destinations to keep an eye on for finance and accounting services.  Boasting the largest amount of CIMA qualified graduates outside the UK, as well as stringent data protection laws, the Asian ‘tear drop’ is set to be a key player in a niche market.

Looking closer to home, Eastern Europe is fast becoming a key destination for companies looking to keep closer tabs on their outsourced processes.  Mr Maughan, highlights Romania and the Czech Republic as key areas, “Romania and the Czech Republic have done particularly well within the outsourcing world.  Romania in particular offers a very attractive pan European solution, with good language capabilities.”

However, as Mr Longbottom points out, some of the previously socialist countries, which have recently converted to capitalist ways, are finding themselves in hot water.  The recession has meant that capitalist converts have found themselves without the necessary cash to invest in infrastructure vital to BPO success.

The recession has also forced some destinations to adjust their place on the value ladder.  Ireland was a location that quickly hoisted itself out from offering lower level services and positioned itself as a nearshore destination for high level BPO and IT.  Knowledge process outsourcing and product development were the markets which Emerald Isle service providers felt were right for them. 

These areas of outsourcing traditionally come with a high price tag and high price tags are traditionally something which companies refuse to work with during difficult financial times.  So we may see Irish providers slip down the value chain, lower their prices and return to their roots. 

Although there is a positive burst of activity from previously inactive destinations (Kenya, Malta and ,less prominently, Turkey) we are finding the same big vendors leading the field in the majority of these new locations.  In fact, in a bid to stay competitive, vendors such as TCS, IBM and Infosys are setting up shop in these emerging destinations and taking the cream of the crop from the labour pool. As Mr Maughan highlights, a Romanian IT graduate would be crazy not to start his career with IBM in favor of working for a startup. 

So, despite an exciting new landscape to explore, end users are essentially dealing with the same bunch of people.  The difference is that now a potential outsourcer can make a demand for processes to stay within a certain geographical region around the globe, regardless of whether they are dealing with a big Indian or American vendor.

There are those who have managed to carve a name for themselves within this competitive market.  KenCall, a Kenyan based service provider was particularly praised by Mr Longbottom as being a ‘shining beacon’ in the Kenyan BPO market.  There is potential for start ups to gain a foot hold in the industry, they just need to establish a niche, employ best practice and ensure high quality for a reasonable price – no easy task.

All in all, we have got an exciting, competitive landscape within BPO.  End users should always look to follow good practice when choosing a location and supplier. The old rules apply: don’t base your judgment solely on cost, get references and make sure you know what process you are outsourcing and which location/supplier is the best at delivering that process.

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Latest from the legal world

by sourcingfocus.com

The law is truly an ass, to paraphrase that famous Dickensian line. Though outsourcing in its current form was not prevalent at the time Oliver Twist was written, Dickens could not have known how perpetually right his turn of phase would be. One of the areas keenly affected by the ins, outs and peculiarities of the law is outsourcing. The trouble is that the law in many countries is based on a body of legislature hundreds of years old while outsourcing as a business process has only come to prevalence over the last twenty years. In effect, the law is still catching up with the outsourcing world, and changes in ‘standard business’ legislation can have unexpected and costly effects on the industry.

A recent example hailed from the European Commission, the part of the EU responsible for new legislative proposals. An update to the 1990 Merger Regulation, which defines the Commission’s regulatory role for mergers, saw certain large outsourcing deals brought into the category of mergers and acquisitions. This means that where an outsourcing supplier is buying all or part of the IT assets being outsourced by a company (that has sales over $6.8 billion globally, $340 million in Europe and potential sales in excess of $340 million a year) could go to the European Commission for approval. This change extended certain deal negotiations significantly and even made it possible for suppliers to face anti-competitive scrutiny if they make too many acquisitions in the same sector

Phil McDonnell, head of competition at London-based law firm Addleshaw Goddard, comments: “You have got to build in some time into your procurement to give the supplier time to go through the hoops. There will also come a point where a regulator will say a supplier has too many deals in the same sector,” he said. “I don’t think we are at that point yet, but that is where it is heading.”

This is clearly a big alteration and there have been many other laws which also force significant changes. Another such area was TUPE, the employment legislation designed to protect employees from suddenly finding themselves out of a job when, for example, a company becomes overly reliant on one client and then the client transfers work elsewhere. The regulations stipulate that an employee that has been working entirely on that one client be automatically transferred to their employment. The employee does not have to go but can if he or she chooses. Of course such changes had and still have big implications on the outsourcing world, for example in wrangling over accommodation of staff transfers, redundancy payments, and pension arrangements.

“The application of TUPE can have a very significant commercial impact on the deal itself, both on entry and exit if there are a number of employees whose employment (and therefore the liability to pay wages) transfers with the outsource,” commented Duncan Pithouse, Partner at DLA Piper.

The fact that the outsourcing industry is still relatively young means there is not really any legislation that is specific to the outsourcing space. It is the sector-specific and overarching business legislation that outsourcers need to be aware of.

“Whilst traditionally there has been no “outsourcing legislation” per se…there is a raft of legislation and regulation that affects an outsourcing arrangement, and which can apply on a mandatory basis in all of the countries that are “in scope” of the outsourcing deal, and that differ from deal to deal,” commented Pithouse

Indeed, legal hotshots in the outsourcing space make it their business to stay on top of the implications of new legislature on the industry. Meaning there is usually a lot of speculation and commentary in the run up to changes which in turn helps outsourcers plan ahead. So what are the key issues that the legal world is currently seeking to address?

It’s impossible to get through an article nowadays without some reference to the financial crisis, and to do so would be crass. The impact of a lack of ready finance has driven big changes in outsourcing.

“We have seen that the fall-out from the economic crisis of the past 18 months, and its particular effect on certain vendors, has driven a much greater appreciation of the risks involved in outsourcing key functions to an external party, which in turn has led to a greater focus on appropriate contractual protection, especially in relation to supplier financial standing and termination rights,” commented Mark O’Conor, another partner at DLA Piper. 

Trust in business is a rare thing nowadays and outsourcing vendors are not escaping the spotlight. MiFiD, an update to the regulation of UK financial instruments that came into force last year again extended the necessary outsourcing due diligence process. 

“The Markets in Financial Instruments Directive (MiFID) has amended the Financial Services Authority’s rules on what constitutes a material outsourcing for a regulated financial services entity.  As such, certain sourcing and outsourcing arrangements must now feature all of the provisions listed in Chapter 8 of the FSA Handbook,” O’Connor added.

An additional effect of the financial crisis has been a resurgence in protectionist thinking brought on by continuing mass redundancies. The more prevalent redundancies become, the more they are covered in the media which puts outsourcing directly on the agenda. Many companies are being forced into more outsourcing and specifically offshoring, to ensure basic survival. Though outsourcing is a business necessity in most cases, the public do not generally like it and politicians follow suit.

“[We are seeing] a tightening of immigration rules - for example the new requirement that overseas applicants for skilled employment have increased levels of qualification (e.g. a Masters Degree in the case of solicitors). This inhibits the ability of outsourcers to move the most skilled people to the locations at which they will prove most effective except on a short-term basis,” explained, Partner, at Pinsent Masons: Iain Monaghan.

While such changes, this a UK example, do not block sending jobs offshore, they certainly make things more difficult for outsourcing and offshoring to operate effectively. The rules also necessitate an increased understanding of rules around visas and work permits in outsourcing circles.

Outsourcers have clearly had to deal with a lot to derive those wonderful cost and skill benefits they covet. But there is something else rapidly breaching outsourcer’s legal horizons that is possibly the biggest re-thinking of the business they have faced to date. Environmental issues have been bubbling away on business radars for a long time now but years of mass inaction from government and business have brought the law into play.

“The push towards “Green IT” brings in a whole host of European and worldwide legislation linked to environmental concerns and climate change.  These include the Batteries Directive, the suite of Directives known as REACH (concerning the regulation of certain chemicals) and the revisions to RoHS and WEEE Directives (the “lead directive” prohibiting certain non-biodegradable substances like lead solder in computers) which are relevant to ITO to the extent that these clauses need to be expressly included in the agreement.” Duncan

Legislation linked to the disposal of corporate purchases has been developing for some time and the WEEE recycling directive did cause some turmoil in 2008. The biggest impact of the green wave is still yet to come however. As governments finalise plans for carbon trading schemes such as the Carbon Reduction Commitment planned for 2010, challenges will emerge in the calculation of carbon usage across outsourced relationships. Increasingly green suppliers will likely also prove much more attractive to companies under green governments. 

It’s clear that legislative changes provide regular cause for change in the outsourcing industry and also create numerous extra costs. But are the changes all bad? Duncan Pithouse sees it as more of a two way street:

“To the extent the changes drive a greater appreciation of, and treatment of, the risks of outsourcing, the changes are for the better. This simply means that the better prepared both customers and suppliers are, and the more appropriate the contract terms are, the better the ultimate - and long term - deal will be.  On the negative side, the changes do mean that outsourcing becomes “harder” and organisations undertaking outsourcing, and those providing outsourcing services, need to have a deeper knowledge of legal landscape for their sector,” he said. 

The key then is preparation, preparation, preparation. Outsourcers need to become increasingly legal-savvy and understand exactly which parts of the law, in any country, they are operating in affect their outsourcing deals. An eye on the horizon as new legislation is laid out, is also increasingly important.

“Be as prepared as possible and as early as possible and make sure that the contract is robust enough to protect from a change in law but flexible enough to adapt to changes. Plus the contract should anticipate changes in law and deal with how those changes will be catered for, and paid for.  Without express wording, customers and suppliers may find themselves locked into protracted negotiations as to whether compliance with the new law should sit at the doorstep of the customer or supplier,” added Duncan.

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The importance of mature negotiation

by sourcingfocus.com

So, you have this process that you want to outsource or you may already have a supplier beavering away for you behind the scenes, it is a recession and you are thinking to yourself ‘I should get what I want for a hell of a lot cheaper’.  With that in mind you rub your hands together, step into the meeting room and so follows the loud noises associated with a supplier being hammered down on price. 

Now some may think that this is just the way the cookie crumbles during times of economic turbulence, where the ‘cost is king’ approach to outsourcing is rife.  This may be the case, but end users need to be wary of archaic negotiating. A spur of the moment decision to drum down outsourcing prices without any consideration of the overall outsourcing relationship could be cause for regret further down the road.

sourcingfocus.com has set out on a quest to find out the best ways users can get the maximum from their supplier whilst ensuring the people doing the work have enough incentive there to do it properly. 

Price is always a delicate matter that needs careful debate from all parties in an outsourcing deal.  End users need to ensure that value for money is being achieved and suppliers have to see a good incentive for delivering excellent service.  If the balance tips excessively in one direction then both parties will find that the relationship turns sour and ultimately fails. 

Martyn Hart, Chairman of the National Outsourcing Association, offers an example of the repercussions associated with a blinkered view point, “By focusing solely on reducing costs rather than maximising the potential benefits the supplier can provide, end users are putting additional pressure on suppliers to lower their bid to an unprofitable level in order to secure the business.

However, it should come as no surprise that suppliers attempt to claw back their initial losses as time goes on. No supplier wants to sell like this, but competitive bidding processes such as these leaves them with no alternative. Suppliers will use constant change requests and other variations to extract extra revenues from the contract without the scrutiny of a procurement process or comparative pricing mechanism.”

With this in mind, how can end users look to maximise an outsourcing deal without putting service delivery and relationship management at risk?  William Benn, Partner & Head of Public Sector at Alsbridge, an outsourcing advisory firm, believes that there are steps end users can take to maximise their outsourcing arrangements,

“Price is definitely an aspect of the outsourcing arrangement that should be discussed.  However, hammering suppliers down on price will result in the supplier looking for retribution and making back the costs further down the line.  Clients should look to sit down with the suppliers and talk about the issue of cost as a joint problem solving experience.”

Mr Benn does make the point that there needs to be a healthy relationship with the supplier in order for the negotiations to be worthwhile.  If there are any issues outstanding with the supplier then these need to be addressed and resolved first, there is no point in looking for price reductions for a service that you are not happy with anyway. 

The end user does not have to adopt the single approach that they want the same service for less. Mr Benn points out that there is a certain amount of give and take that can be done in order to achieve mutually beneficial results, for example clients could look to get less active processes put on hold and the resources either reallocated to more core services or the price of the overall service to reduce for a period of time. 

Clients could also negotiate a current saving whilst handing over more work to the supplier further down the line or extending an original contract.  If the outsourcing arrangement is going well then why not look to extend it in order to get more savings now?

Srikanth Iyengar, Global Head of Business Development for Strategic Global Sourcing at Infosys, believes that suppliers are there to help end users achieve their cost savings, “Suppliers would not want to damage their reputation by reducing service to clients looking to make savings.  There needs to be a partnership approach to achieving the cost savings needed, expanding an original commitment will allow suppliers to look at offering cost reductions now.”

Offering incentives to a supplier could also reap immediate cost savings.  Having lucrative bonuses available to suppliers who exceed long term SLAs could result in the reduction of day to day cost which may free up initial capital for end users whilst simultaneously ensuring that suppliers have sufficient incentive to carry out the work effectively.

According to William Benn it is a buyers market right now, however, users need to ensure that they are following the traditional best practices when engaging in new outsourcing deals.  Those looking to outsource for the first time may be better off if they seek external experience in the form of advisories firms or consultancies, not just as a way of internally assessing whether outsourcing is right for them, but these advisory firms will have an idea of which suppliers in the market place are prepared to negotiate in on price. 

Clear honest communication should be the first port of call for any end user looking to negotiate on price.  By being open with suppliers and actually working out a mutually beneficial strategy, end users will find that they get the best from their outsourcing deal.  Taking a hard nosed stance, not negotiating and forcing a supplier into a corner will result in a backlash that could involve higher costs in the long run and, possibly worse, a diminished service.

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The Indian (r) evolution

by sourcingfocus.com

The growth of the Indian economy has slowed somewhat over the last year to 5.8 percent compared to 8.6 percent for fiscal year 08. But amid the global turmoil, maintaining even this level of growth is still highly impressive. This especially in an economy heavily rooted in the provision of outsourced services. But, while the country may owe something of its continued growth to recession-led outsourcing deals, the industry is unquestionably changing. No part of the industry is evolving half as rapidly as in the provision of contact centre and BPO services.

“In the past two years wages have gone up by an estimated 75 percent,” commented Clive Longbottom, a respected analyst and outsourcing commentator from Quocirca.

The effect of this rapid economic growth and increasing prosperity in the region is of course, having a big effect on the outsourcing industry. The contact centre and BPO space is heavily price driven so the effect on these offerings is even more profound. The recent State of the Industry Report from Brown and Wilson, estimated that 94 percent of respondents planned to outsource BPO to the cheapest vendor in 2009-10, likewise in contact centres the figure was 72 percent. But with developments in the region, it does not appear that India will be meeting these demands, at least not in an onshore capacity.

The services that India provides are clearly changing in response to both economic and client-driven factors. Most industry commentators state the country has now reached a third generation of BPO outsourcing services.

“In the third generation the wheels really fell-off. Companies like Dell and others all started advertising about their UK-only contact centres. Indian providers are experiencing approximately 80 percent churn in employment. The problem is chasing labour arbitrage,” commented Longbottom.

It seems the sums simply no longer add-up selling the country’s services on price alone. India’s ability to offer straightforward, low cost, good quality call centre services, has significantly diminished and this is driving some clear changes.

“The US were initially using Manila a lot but then moved to India because it was cheaper. Now they are moving back,” said Longbottom.

Indeed, the trend of Indian suppliers starting to outsource is a pertinent example. Locations like the Philippines, Eastern Europe and Africa are all being looked at by some of the larger players as a way of still offering low cost call services. The expansion of the largest Indian contact centre providers in order to provide a ‘global footprint’ is compounding the trend. 24/7 Customer, an ‘Indian-born’ vendor is a good example. The company has expanded to almost all the outsourcing ‘hot spots’.

“We don’t view ourselves as an Indian-centric company,” commented, PV Kannan, CEO of 24/7 Customer.

24/7’s strategy appears to have been to tap the local markets for their individual skills and serve the most appropriate markets from these destinations.

”Our single largest location is the Philippines for customer care and Latin America for medium services,” said Kannan.

So low-level contact centre services appear to be going elsewhere. Then what is India doing with itself nowadays if not the so frequently lampooned contact centre of the 90s? Due to the economic current in the country and the increasingly technical services required by customers, Indian outsourcers are rapidly climbing the value chain into higher-end services.

“I haven’t had one conversation in the UK in the last six months where the subject of social media hasn’t come up,” commented Kannan.

The proliferation of social media communication channels is predicted to be a big thing in the contact centre industry. And Indian players are taking advantage of their mature business models to start making headway with these technologies.

“We are mining through customer sentiment and feeding this back to clients then helping consumers with their problems. We are planning to launch a free tool so customers can find out what people are saying before they work with us,” said Kannan.

But these services can presumably be offered anywhere in the world with good written client-language communications. A degree is not required for chatting over Twitter. As a result Indian providers are continuing to chase the higher-level technical support and BPO services too. Contrary to what conventional wisdom would suggest, some contact centres are also looking at eliminating calls before they are even made.

“UK companies are ahead of the US in looking at where they can avoid and eliminate calls. We have launched a group called iLabs to work out why people call and what’s going to happen before it occurs. This way we can cut the overall number of calls and enhance customer satisfaction,” commented Kannan.

But this Indian evolution appears to be ongoing. The economic growth in India has been rapid so the changes will take some time to feed through. Ocean’s connect, a contact centre provider in India and the UK, told sourcingfocus.com that the labour pool for straightforward contact centre services is not completely defunct. 

“While it’s true that we no longer see queues stretching around the block of our Pune [Maharashtra] facility, as we did five or six years ago, our recruitment drives there are still yielding plenty of great candidates.  Increasingly, as other industries there, such as IT, shed jobs, we’re seeing highly qualified candidates coming from those industries to work as agents.  They can do that because the job is still aspirational—one can progress from answering phones to becoming a team leader to running the operation.  This doesn’t happen if you work in the call centre at Barclays.”

Those larger Indian players that are not growing their global delivery footprints could face some stiff competition however. As usual, there is any number of promising young locations itching to grab a piece of the call centre pie, China being a long-term prospect. 

“China has 350 million people learning English at the moment. When they come through a few years down the line, even if one percent goes into outsourcing, there is massive potential. Even as a communist state, there is a lot going on in China at the moment and we can’t write them off. The ability for them to really compete could still be three to four years away though,” commented Longbottom.

While the Philippines continues to resurge as India’s low-cost back-up, other smaller destinations still have some kinks to iron out according to Longbottom. Africa has prospects such as Egypt and India’s close neighbour too, Sri Lanka.

“Egypt has long term potential but the main problem with Africa has always been infrastructure. Sri Lanka has some political things to address after the conflict for example, questions of their handling of the affair and how to look after the large Tamil population. But the Tamil Tigers aren’t top of mind for outsourcers. India has survived Mumbai and people outsourcing don’t really seem to care.

The subject of service over location is an emerging theme as providers attempt to move focus to what is being delivered rather than where it is being delivered from. It seems logical that the increasing geographic footprint of the largest outsourcers will aid this service over location focus and the customer service shift is also changing things.

“Social media is making people focus more on the product because it really doesn’t matter where it comes from,” commented Kannan.
Indeed, Kannan goes one step further expressing his view that the subject of offshore/nearshore/onshore and so on, could soon disappear altogether.
“In five years, the whole concept of offshore will simply be irrelevant,” said Kannan.

In a globalised world, why shouldn’t the future of outsourcing be location-irrelevant? Who are end-users to make their outsourcing arrangements based on perceptions of geography-specific skill sets? It seems reasonable that these distinctions could dissolve as time goes on. But only time will tell whether end-users are really prepared to cast aside their location biases. 

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Public sector efficiency targets - Outsourcing’s angel or demon?

by sourcingfocus.com

The recent budget raised a great deal of eyebrows across the public sector community.  Alistair Darling’s efficiency targets for government organisations have been met with mixed reactions from both the private and public sector.  The UK chancellor announced £15 billion of efficiency savings to be made over the next three years.  For organisations such as the NHS, MOD and HMRC, notorious for haemorrhaging money, this announcement will have significantly increased the weight on managerial shoulders. 

The public sector holds significant power within the outsourcing community.  Service providers see public sector contracts as the Holy Grail in terms of monetary value as well as enhancing credentials. These efficiency targets may have a significant impact on how the public sector outsource as well as the amount of processes they look to dish out to third party providers.  However, there could be more sinister repercussions for the outsourcing industry to endure.  sourcingfocus.com spoke with a variety of industry experts to find out just what these efficiency savings will mean for the public sector and their outsourcing strategies.

Alastair Maughan, a partner at legal firm Morrison and Foerster, believes that there is not much more left to be outsourced within the public sector, “Departments such as DWP are already pretty heavily outsourced.  However, government departments [or local governments] may start to outsource processes that involve direct work with citizens, such as help desk services.”

The suggestion that the public sector may not have much left to outsource points to the likelihood of government organisation looking to renegotiate contracts in order to get more service for a lesser price, something which Mr Maughan agrees is a distinct possibility, “Public sector bodies will be looking to renegotiate existing contracts.  The sheer negotiating power the public sector has will mean that if one supplier does not accept a contract another will.  It is a buyers market,” he added.

Suppliers may have to prepare themselves for a cut back in prices and a more aggressive public sector procurement team.  It is understandable that price will be a factor in renegotiations however; excessive bartering may result in a supplier backlash where service quality diminishes because resources are allocated to more profitable projects.  Archaic negotiation teams, beware.

Staying on the subject of procurement, Richard Gibson, Account Director for public sector and charities at buyingTeam, believes that the public sector might not be doing enough, “The efficiency targets are modest and ambitious at the same time.  They are modest because the public sector could be doing a lot more to drive efficiency and they are ambitious because past performance suggests little chance for success.”

Indeed, the public sector has a distinct precedence of failure when it comes to sourcing the right suppliers for the best price.  However, all parties that sourcingfocus spoke to believed that the public sector has matured in some areas.  The NHS for one has significantly improved their outsourcing and procurement processes.

One area where the NHS has appeared to forge ahead in has been shared services.  David Turner, Director at Agresso, believes that this is marked for growth in light of these efficiency targets, however it is not a problem free strategy, “Shared services is also an option however the issue there is the giving up of control.  There is a huge amount of internal politics associated with shared services.”

Indeed local governments are notorious for continuous bickering when trying to implement a shared services strategy.  The notion of losing control does not sit will with council managers.  However, efficiency targets will force previously unsupportive local authorities to address the issue of shared services.

“There is a much stronger political will to push these strategies through.  The Gershon report in 2004 merely suggested that savings could be made in some areas.  Now there is a greater willingness from central government to push organisations to engage in efficiency strategies,” added Mr Turner.

A big push from central government will certainly help drive efficiency savings amongst all organisations.  Outsourcing is synonymous with streamlining processes and producing savings, the government will almost certainly support strategies that involve outsourcing to vendors on shore as well as shared services schemes. 

However, Mr Maughan believes that the only way to really reduce cost quickly is to offshore, a taboo that the government will be certainly wary of.  The public has been very hostile towards offshoring recently and it will take a bold public sector organisation to consider an offshore supplier, Mr Maughan points out that data security would be the main deterrent, we all know how much publicity lost laptops get.  The question is, when efficiency targets of this nature have been announced, how can the public sector ignore instant cost savings of around 15 percent simply because of possibly misguided public opinion?  It will be interesting to see whether this is explored further.

The outsourcing industry will get a mixed bag with these efficiency announcements.  On the one hand suppliers and consultants may have more work coming through, especially in the area of procurement, BPO and shared services.  On the other hand we may find procurement teams nailing suppliers to the floor on price, something which no vendor will be too pleased with.  Either way the public sector will have to meet its targets, failure would just be far too costly for everyone.  In a bid to meet the £15 billion target, we may see some work go to our European or possibly Asian neighbours.

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SaaS – time to jump-in?

by sourcingfocus.com

The SaaS undercurrent is growing at a rapid pace and looks on course to confirm its place as the true future of enterprise software delivery. The worldwide market for virtual IT delivery is forecast by Gartner to reach $9.6 billion this year and grow to $16 billion by 2003. The tide is clearly turning for IT and companies are investing more and more in virtual IT delivery. But what are the options in SaaS and how is it changing the delivery of outsourced IT?

Rob Lovell, CEO at Think Grid, commented, “Whilst these new models transform the way that business purchase and manage IT, the point is that there should be no need to change actual working practices. Employees must be able to continue to work in exactly the same they gotten used to and remain completely ignorant of the fact that behind the scenes, virtualisation and SaaS is making their company that much more efficient.”

But SaaS is definitely changing the way companies think about implementing new IT. The possibility of cutting infrastructure investments, accessing constantly up-to-date systems and taking the weight of maintenance off an organisation’s shoulders is a highly attractive prospect for end users.

Gartner’s research into SaaS found the market for SaaS in ‘communications and collaboration’ to be approximately $2.5 billion with CRM close behind at $2.1 billion. Applications like Salesforce.com and Sugar CRM are of course at the forefront of driving adoption of SaaS in this area. However, the adoption of ‘core IT’, those systems that pertain directly to the central operation of the business, is proving a harder nut to crack. The predicted market for ERP, though a seemingly large figure at $1.4 billion, only represents a $100 million growth on 2008. Likewise, Springboard Research expects the Asia Pacific SaaS ERP market to reach just $193 million by 2012. Either of these figures would quickly be overshadowed by some of the IT infrastructure outsourcing deals that are still being signed on a daily basis.

Though the Asia Pacific region is clearly looking at SaaS, it appears that it is mainly smaller companies and smaller deals. And the fact ERP is not leading the total market value in Gartner’s index suggests a similar trend worldwide. News of large core IT SaaS deals are still hard to come by and the market is still dominated by Salesforce.com’s CRM system as the shining example of SaaS success.

So what is putting the larger companies off looking at more integral IT through SaaS? A lot of the reticence seems to come from current perceptions of SaaS IT.

Sharon Mertz, research director at Gartner, commented “Certain factors can work to impede adoption of SaaS including: concerns about data security, a perceived lack of competitive differentiation, increasing concerns about scalability, questions about vendor longevity, and the fact that existing investments in applications capital and organisational expertise limit SaaS growth.”

However, industry feeling indicates that many of these concerns are becoming less valid as the industry evolves. “The Impact of virtualisation on outsourcing IT services in general and alternative delivery models actually causes an increase of offerings created by different providers,” said Claudio Da Rold, Vice President of Gartner.

The security question is also put down by vendors on the reasoning that they can be more foolproof in an outsourced capacity. They evidence the fact that through economies of scale, their back-up, physical security and business continuity offerings are much comprehensive that can be maintained in-house. Indeed, SaaS could ultimately prove more secure than maintaining an in-house datacentre. 

However, due to differing revenue models, cost bases and development priorities it seems unlikely that SaaS vendors will be able to match their offerings to a company’s needs as effectively as a custom-developed IT project would.

Mikhail Bykov, Managing Director of Manufacturing and Enterprise solutions at Luxoft, a large Russian ITO player, commented “SaaS may not support unique business process of an organisation that may be achieved with custom solutions. This needs to be considered if your core IT supports critical and unique business processes.”

So for some end users, trying to implement core IT over SaaS, may simply be unfeasible due to lack of customisation.

The fact that many larger companies are tied into long-term, high-expense outsourcing deals is another factor hindering SaaS adoption identified by Gartner. A certain amount of the growth over the next few years then is likely to come from outsourcing deals ending and companies looking at new delivery and billing models.

Rob Lovell, CEO at ThinkGrid, commented, “In essence, gone are the days where IT needs to be a heavy, upfront Capex investment.”

The attractiveness of SaaS to larger companies is also likely to increase as the big IT players get in on the act. Springboard Research’s report on the Asia Pacific market found that: “Growth in SaaS ERP market is also constrained by the limited presence of large, well-established SaaS ERP vendors in Asia and the lack of robust and mature solutions that cater to the specific needs of the market.”

This is still largely true for the Western world too. The SaaS market is currently dominated by best-in-class, single-function products where many large companies will be looking for a more complete enterprise product. When the larger players manage to modify their offerings to the on-demand world, there is likely to be a big leap in the takeup of such services. SAP, as one example, is still struggling with the concept as it attempts to get its Business ‘ByDesign’ SaaS suite ready. The company is also struggling to make money from SaaS as it has been built on the ‘large upfront cost, implement, leave and update’ model of software management.

Also, in a recent interview with Information Week Bill McDermott, SAP CEO and president of global field operations, said that large organisations would ‘never’ be able to run their core business IT using SaaS. This kind of comment from one of the biggest IT vendors in the world has to affect the way larger companies look at SaaS.

If the larger players like SAP take longer to develop SaaS than expected, the profusion of high quality specialist SaaS packages is likely to continue and this could lead to different management models for SaaS products.

Martin Banks from Bloor Research recently described his vision of ‘reintermediation’, where end-users will purchase an end-to-end service from a single service provider with the different components delivered by a number of companies. This new SaaS intermediary will manage the relationships necessary to deliver the end-to-end service that a business signs up for. This model certainly seems plausible if larger vendors do not make the grade. It also negates worries over integration over various important business SaaS IT services. Any intermediary would naturally want to work with its preferred SaaS vendors to make sure their products worked seamlessly together. For example if a CRM system cannot integrate with financial IT to feed projected sales into financials data, its utility is much reduced.

The third possibility is of course that of a mega vendor rising from the younger 21st century IT companies. Google, for example, is always a threat to the bigger, less agile players. Salesforce.com’s ‘Force.com’ cloud computing platform also has much potential for delivering a wider reaching service. CODA, a UK based financial software specialist has developed CODA 2go, which offers full SaaS accounting capability represents the first cloud accounting application built Salesforce.com’s cloud computing platform. The likelihood of end-to-end ERP offerings being built through such platforms is high and could prove an attractive option for many companies in the future.

Maria Cappella, CEO of Vialtus Solutions, commented, “With the rise of new uses of technologies like cloud computing, virtualisation and SaaS, procurement professionals will increasingly look for a single provider to provide an end-to-end service, rather than using one provider for their hosting, another providing security (as a service), a third for the connectivity and network provision, and fourth that provides applications like CRM, e-financials/payroll, ERP and e-HR etc.”

Amid the bustle of what is still a very nascent market, It seems the SaaS world is ripe for experimentation by end users. However, it is still geared largely for the smaller IT user. Indeed, the SME market can take advantage of various benefits by implementing SaaS such as: subscription based pricing taking the initial financial liability away and the ability to access world-class software at a relatively ‘young business stage’, enhancing growth as a result.

However, due to the fact the market still has a lot of growing to do and maturity is low, many signal a word of caution.

Andrew Heather, General Manager EMEA from Tripwire, commented “We must remember that management will always be responsible for protecting company and customer data. It is therefore essential, when moving towards cloud computing that businesses consistently ensure the health of the cloud-provided services.  This includes gaining complete confidence that the cloud provider is a viable, stable business with assurances and protections, such as comprehensive risk and security defences in place, to safeguard business data.”

It is clear that, as with anything new, companies must conduct appropriate research and due diligence into the problem, concept and provider before diving in. The movement towards SaaS however, seems set only to increase. But Gartner predicts that “through 2011, fewer than one-third of investments that vendors are making in the cloud will pay off, causing further market consolidation and forcing some providers to go out of business”. 

The message is coming across loud and clear. Until the market matures to a greater extent, end-users should keep their wits about them when entering the world of SaaS. 

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Olympic Procurement

by sourcingfocus.com

It was a proud time for all of Britain when the International Olympic Committee agreed that London would hold the 2012 Olympic Games.  I, like many others, felt a great deal of excitement on that day in July 2005 and the London streets were abuzz with anticipatory chatter on what benefits the Olympics will bring to the nation.  Today, it appears that this buzz has almost entirely disappeared.

The Olympics has almost become a dirty word, conjuring up thoughts of mismanagement of public funds, escalating costs and increasingly unlikely completion targets. There have also been grumblings coming from the outsourcing community, especially when the subject of the Olympic Games IT programme is discussed.  sourcingfocus.com investigates what all the fuss is about.

The infrastructure needed for a successful Olympics is vast, the Olympic Delivery Authority (ODA) aims to get every spectator to the events by either bike, foot or public transport and the IT systems needed to effectively implement the event are extensive.  These targets pile unprecedented pressure on public bodies to deliver the work needed for 2012 and of course, outsourcing (currently another dirty word) is playing a large part in the Olympic forge.

Focusing on IT, the 2012 games will need to have a system in place robust enough to handle information from 94 venues issuing 200,000 accreditations all across 900 servers.  That’s not to mention the 200,000 hours of testing that is planned before the Olympics even take place. 

So who is handling all of this?  Well surprisingly the IT service provider was chosen back in 2002 when the IOC decided that Atos Origin would provide IT services for future games.  This is either a mammoth display of forward thinking from the IOC or an utterly bizarre procurement process for arguably the biggest event in the world.

sourcingfocus.com spoke with Lee Ayling, Managing Director of IT and communications outsourcing at advisory firm, EquaTerra to find out what his opinion was on the procurement of services for the 2012 games. 

“The ODA has awarded a set of contracts aligned with the partnership network that has discrete amounts of Benefit In Kind to cover service provision.  There is some question as to whether these providers [Atos and BT within the UK] have the capability and performance track record in the UK to deliver the full IT services required as effectively as using niche/best of breed providers for certain activities.”

It appears that Mr Ayling is less than convinced that the procurement process for the Olympic Games is the most effective way of ensuring value for money and service quality.  Essentially the London ODA has a big pot of money allocated to service providers selected via a completely separate entity, the IOC.  How do the IOC know which service provider will work well for 2012?  Surely the homeland development committee would be in a better position to judge?

There is also the question of value.  Essentially Atos can charge £1m for a particular service, knowing full well there is money in the pot, where as an independent niche vendor may charge £500,000 for that same service. The problem is that the niche vendor does not have a chance to tender for the business because the service providers have already been chosen and the money already allocated.

However, Michèle Hyron, Chief Integrator for the London 2012 Olympic Games and Paralympic Games does point out that Atos’ prior experience is something that would make them an appealing partner, “Atos Origin has been the worldwide IT Partner for the Olympic Games since 2002 and involved in the Olympic Games since Barcelona in 1992. From each Olympic Games we learn valuable lessons for the next. From our experience, success of each Olympic Games relies and depends on knowledge and experience being transferred from previous Games. It also helps to be more efficient, keep costs down and to lower risk.”

The experience Atos has certainly cannot be ignored, however public spending is under the microscope now more than ever and it is essential that tax payer’s money is spent in the most efficient way.  Choosing the right partner for the right job is paramount in a venture as crucial as this.

Of course, we are yet to see Atos’ progress and we are all holding our breath to see whether BT come through with the goods.  MPs are due to report on the progress of the London Olympics IT programme in July and sourcingfocus.com will be analysing the report for all our readers.  In the mean time, we can feel relatively comfortable that a service provider that has had nearly two decades of Olympic experience is handling our IT.  Let’s just hope that we are getting value out of every precious public penny.

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The evolution of the contact centre

by sourcingfocus.com

As we all know, business process outsourcing (BPO) has taken off in recent years and now we are seeing this form of outsourcing overtaking ITO in growth.  The BPO sector has evolved into a vibrant and competitive market and we have seen many new players from all corners of the globe enter the fray.  Contact centres are synonymous with BPO and contact centre vendors provide the most customer centric service of the entire outsourcing industry. 

As a result, contact centres have a love/hate relationship with the public (more hate than love usually) and end users tend to do as much as they can to hide the fact that they outsource their contact centres (especially if that service is offshored).  As the outsourcing industry changes shape and technology advances, contact centre providers are evolving and adjusting their service offering.  So, how are contact centres changing?  What has technology done for the contact centre industry?  And above all, what does all this mean for the millions of customers than engage with contact centres every day?  sourcingfocus.com spoke with various industry experts to find out.

Chris Hancock, Managing Director of GasboxDMG, a high tech contact centre service provider believes that there is a “diversity of opinion in the business world on what contact centres can do.” Mr Hancock goes onto highlight that some use contact centres to provide “support in the most cost effective way possible”, this type of cost centric service lends itself to offshoring and is the type of service that first springs to mind when the words call centre are mentioned.  However, Mr Hancock also identifies a modern, more sophisticated, contact centre, one which “best develops a relationship with the customer” and in turn can “determine the customers emotional attachment to the organisation.”

The contact centre has certainly evolved from low level outbound sales, such as the famed dinner time double glazer (although he still seems to call).  Simon Gresswell, Director of ProtoCall One, believes that contact centres have become more intrinsic to a client’s business, “We are offering more.  We are using different media to interact with our customers and we are finding that customers are expecting contact centres to have the information they need.”

Technology has obviously been key in the evolution of the contact centre and vendors are incorporating multi-channel communication into their service offering.  As a result, innovative technology such as automated self service or voice recognition are being rolled out and, according to recent research from BT and Nortel, this is not to the detriment of customer service.  The study found that 71 percent of US and UK consumers would be happy to receive a call that used voice recognition to inform them that their plane, train or bus will be late while 80 per cent would look favourably on automated calls that informed them of the time of delivery of goods to their homes.

Ruth Rowan, Head of Global Propositions and Marketing, CRM at BT Global Services believes that this form of automation is becoming more accepted, “Automation has been one of the success stories of the last few years.  The research looked at 1000 consumers and found that customers were happy to interact [with automated services] where appropriate.”
This was echoed by Mr Gresswell, “ProtoCall One’s SMS offerings tend to be of an outbound nature such as SMS for travel alerts and other useful information.”

Mr Hancock believes that contact centres have become “much more diverse in the way they communicate with people.  In the early 90’s it was purely voice-led communication.  Now contact centres can use any number of communication channels including web-chat and instant messaging.”

However, despite this automation and plethora of technological advancement one fact remains, when a customer needs something a little more than information, voice wins every time.  The BT and Nortel research revealed that 53 percent of UK respondents are happy to check timetables through voice recognition but only 23 per cent felt happy enough to use the same interface for actually purchasing tickets.  We may all just want a quick automated service that allows us access basic information fast, but we want to speak to real people when we have anything more serious to address. 

Customer service should be the first thing on the boardroom agenda, although it rarely is. But, the cost savings associated with automation are just too good to be ignored.  According to Ms. Rowan and the BT/Nortel research it costs £6.50 for an agent to handle a base level inquiry, compare that to £0.70 for an automated interface and you would be pushed to find a financial director who doesn’t leap at the opportunity. 

It’s clear that the contact centre has evolved into a more sophisticated offering.  But, voice still remains intrinsic to a call centre’s service.  SMS, web chat and instant messaging all add to the customer experience however they need to be implemented intelligently to work well.  We are still a long way from a voice-free service offering as human contact is simply just too influential on customer satisfaction.

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Innovate or die

by sourcingfocus.com

Innovate or perish. There are few businesspeople today who haven’t heard this simple but powerful aphorism. For years immemorial strategic thinking has said that, as time goes by, points for differentiation inevitably end up looking somewhat mediocre. What happens when the reason your business was different, your USP, has been replicated by every man and his dog? Well, that’s the whole problem – if the business is not constantly looking forward and searching out new, ever ‘shinier’, skills and USPs, its ability to win and impress new business will diminish significantly. A business standing still is usually destined for failure.

But how does this apply to outsourcing? Surely if you’re outsourcing a boring back office function no innovation is needed? It’s a simple commodity-esque relationship of payment and service. Not so; the outsourcing business is also inextricably bound by these three words. In the competition to bring in the best clients, create great relationships and hold on to them, innovation is flourishing. The outsourcing relationship, the services and the products suppliers offer are all benefiting from this competition-fuelled inventiveness. But what’s on offer and what do end users stand to gain?

For a long time many outsourcing providers have tried with all their might to move up the value chain. Creating higher value services and partnerships has traditionally been seen as the way to engrain relationships and by doing so, justify a more productive, more profitable relationship for all. HCL, the IT outsourcer, is one company continuing to push this approach. Its ‘Co-sourcing’ model shares out risk and reward between ‘partners’ and ‘leads to HCL innovating above and beyond the letter of the agreement, helping to transform the businesses of its clients, rather than only reduce their costs’.

The innovation that can spring from this close partnership approach does not usually stray beyond internal IT and process transformation. However, there are some cases, though few in number, of outsourcing partnerships taking things further. Luxoft, the top Russian ITO provider, provides one key example in its work with Deutsche Bank. The companies managed to develop a CRM system (Client First) they valued so highly that they subsequently planned to take it to market for other banks and share in the revenues. While this type of occurrence is rare, it does demonstrate the innovation that close outsourcing partnerships can create.

At the centre of good partnerships is usually an element of collaboration and information sharing. The advent of web 2.0 technologies in the consumer space is quickly feeding through businesses and appears to have found a perfect home in outsourcing. In an industry characterised by geographic and time-zone separation, tools allowing the seamless coming together of minds, transcending boundaries is a perfect fit.

Cognizant 2.0, a platform developed by leading IT outsourcing provider, Cognizant, is a tool used both internally and externally to facilitate communication. “It allows outsourcers to develop new levels of customer closeness and satisfaction, and if correctly implemented, can result in dramatically reduced interaction costs but with an improved result,” a spokesperson for the company said.

The Cognizant example is a good one as it conveys the importance of using these tools to enhance a suppliers offering rather than just for the hell of it. “Consultants across the globe are encouraged to collaborate to solve specific business problems using their best delivery resources regardless of location,” added the spokesperson.

Internal collaboration is one thing but what of clients? How is innovation helping keep clients in the loop? Bravosolution, a kind of supply management intermediary outsourcer, has taken things a step further. Its BEN (BravoSolution Education Network) provides a platform for public sector procurement managers to pool and share information on their own sourcing and as a result become more effective.

“The network has proved to be a goldmine for collaborative information sharing for UK Public Sector procurement professionals. With more than 1,100 users from local & central government and the NHS, it has enabled people to share information around Standard Policy Documentation from EU Directives, local legislation and best practice for organisational procedures. [It’s] a sort of Wikipedia for public sector professionals,” commented John Shaw, Director of Education for BravoSolution.

The benefits derived from this kind of platform are not only one-way, however.

“BEN enables us to take on board feedback from public sector procurement professionals and tailor our services to meet their exact requirements. This evolution of sourcing practices based on the recommendations of the buyers is enhancing relationships with suppliers and also enabling clear cost and efficiency savings through shared best practice methods,” he added.

The wide availability of collaborative tools and other new technology could also be having an affect on the nature of deals themselves. One thing on the lips of most IT professionals is virtualisation and SaaS (software as a service). The increasing possibilities of not needing all software systems on the corporate network are having a knock on effect on both the cost of outsourcing and the size of deals.

According to a recent report from Gartner, the number of outsourcing deals worth less than US$50 million increased in 2008 while those of more than US$50 declined. There appears to be a trend towards smaller deals and this is only likely to increase throughout 2009.

The multi-sourcing approach is symptomatic of this trend. The model, where numerous suppliers are used in quasi-competition for various parts of a businesses outsourcing, is an innovation in itself. According to its proponents, the increased competition will drive innovation whilst driving down costs at the same time. The best of both worlds it seems.

“By drawing on and shaping an outsourcing partnership with one or more suppliers, a dependent and supportive ecosystem can be created and leveraged. An ‘Outsourcing 2.0’ approach will in theory simplify the outsourcing process, by getting the job outsourced to third parties with mutual business interests, and align business goals with the servicing parties,” commented Simon Ormston, Head of Outsourcing at BT Global Services

Along with innovations emerging organically and through supplier competition, there are various macro-factors affecting the focus of today’s outsourcers. After the recession, to which outsourcing is a natural answer, green initiatives are sparking some interesting developments. Green, unsurprisingly, is the thing of the moment and many western governments, including the UK, are increasingly putting green on the agenda where procurement is concerned. Currently directives are in place surrounding green suppliers but it won’t be long until legislation follows, forcing organisations to outsource sustainably.

Patni, an Indian BPO firm, is one company ahead of the game in this respect, having spent a whopping $14 million on a low emissions, low impact delivery centre. The company is planning many more centres across India to cope with the future demand. With public sector organisations increasingly needing green suppliers, innovation in the green space only looks set to grow. The importance of good environmental credentials will also inevitably feed into private sector procurement more fully as time passes.

In a time when budgets are heavily under threat, many suppliers obviously have their ears to the ground where their customers are concerned. Making sure new innovations are forthcoming with their associated advantages is clearly central to continually impressing clients and gaining new ones. The benefits to be gained by tapping the needs of markets, experimenting and implementing new initiatives, cannot be underestimated. Some suppliers seem to be doing it and succeeding while others are not. The question is can a supplier afford not to innovate? After all, standing still is dangerous. 

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Virtual Growth

by sourcingfocus.com

From the moment we wake, to the moment we shut our eyes for the day, our ears and senses are bombarded with the buzz of new media, web 2.0 and now virtualisation.  The stats machine that is Gartner, recently announced that they (along with the rest of the world) expect virtualisation to grow over the next couple of years.

Despite economic doom and gloom virtualisation software revenue is expected to increase by 55 percent, in 2009, in the EMEA region.  Gartner highlighted Europe as leading the way in adopting virtualised platforms, with UK, Germany and France representing 89 percent of the total EMEA revenue in 2008. 

So, what does virtualisation mean for the outsourcing industry?  What structural changes will end users have to go through? Do virtualised platforms carry with them a new breed of security risks?  sourcingfocus.com spoke with a variety of industry experts to find out what the virtual market has in store for the outsourcing industry.

Mark O’ Dell, Director of new technology at IT outsourcing provider, Connect, gives a brief summary of why companies are turning to virtualisation, “Virtualisation is on the increase due to a need to save money, save space and go green.”
All companies are tightening their belts and it is more than likely that money and space are much more of a catalyst for switching to virtual platforms than a burning desire to go green. 

Ashish Gupta, Associate Vice President of HCL’s European Infrastructure Services Division, pointed out that the streamlining of IT managers work is also a driving force behind virtualisation’s growth, “It [virtualisation] is one of the main factors enabling IT managers to remotely manage and trouble shoot distributed or fragmented resources within the enterprise.”

So, the benefits associated with virtualisation are evident; cost savings, streamlining and consolidation are all words which would put a smile on the face of the toughest CFO. So what does this mean for the outsourcing industry?  Adrian Polley, CEO of Plan-Net, an IT transformation provider, commented, “Outsourcing should become a much simpler proposition as hosting desktops from a central location and deploying to a wide variety of devices becomes commonplace.”

Companies looking to outsource aspects of the infrastructure will find it far easier on a virtualised system, good news for the industry surely?  Cloud Data’s (a provider of hosting and business continuity services) MD, Karl Robinson, thinks so, “As more companies strive to make cost savings by embracing virtualisation, there will not only be an increase in companies outsourcing their IT infrastructures but also in the management of these infrastructures.”

Suppliers have cottoned onto the fact that virtualisation could lead to easier management of end user’s infrastructure and are now incorporating virtualisation in many of their ITO solutions, Mr Gupta comments, “More and more it is the case that outsourcing, at the infrastructure level, includes elements of virtualisation as standard.  30 to 40 percent of customers require virtualisation as part of the services HCL supplies.”

Mr Polley also supports the idea that vendors are turning to virtualised offerings, ”Hosting companies which would typically have just offered rack space in their data centres are now offering to run customer servers in virtualised environments.  Also, typically managed service providers who take over the running and operations of a company’s servers are looking at virtualising those servers as part of the package.”

This all seems like a win-win situation for suppliers and end users, however, data loss and IT security is more of a concern to CIOs than ever before.  Do these virtual platforms pose a bigger security threat to companies?  Mr Robinson feels that “security in a virtualised environment is no more of an issue than security in any traditional IT department”.  This may seem a little over zealous, it is true that virtual platforms make disaster recovery processes a lot more efficient however there are still significant threats.

“A quarter of a million malware threats are virtual aware” says Mr O’ Dell, these malware threats will certainly grow and become more sophisticated, it is therefore up to IT management to ensure that security measures are in place that deal with virtual threats and all staff are well trained on protecting the virtual environment. 

Data loss is also a concern as Mr Polley highlights, “In theory, staff from the hosting company may have access to the systems – is this appropriate? Is this being adequately controlled?  Often customers make assumptions that the hosting company has implemented strong security measures to protect data and systems, but this may not be the case.”

This comes back to the age old issue of setting strict SLA’s, security requirements and responsibilities at the procurement stage.  Outsourcing of any kind needs SLAs in place, end users will end up getting their fingers burnt if they find out mid way through a contract that a supplier is inadequately monitoring the security of their new virtual platform.  Better to sort this out at the start, if the supplier cannot replicate in-house security measures then they may not be the right bunch for the job.

Virtualisation is set to grow, there is no doubt about that.  The outsourcing industry is responding and evolving to accommodate this trend and virtualisation may even spur on growth in an already booming outsourcing market.  End users looking to switch to virtual platforms will need to make sure that they choose the right supplier for the job, or have the right team in house. 

If outsourcing the virtualisation process, the same best practice principals must apply.  Users have to ensure that vendors can replicate any security protocols they have in place.  Vendors, ultimately, must provide a more efficient and cost effective infrastructure than the one the end user already has, there is no point in going virtual just for the sake of it.  However, with the ongoing growth of virtualised services, it seems that it won’t be long before we see the majority of companies (from SME’s to large corporates) using some form of virtualised platform.  The future could be closer than you think.

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Howdy partner

by sourcingfocus.com

Get the outsourcing basics right and it will be fine they said. Define your SLAs, dole out responsibilities, agree on deadlines stick ‘em in a contract and you’re away. Time to sit back and relax. But it was never really this easy to start with, and it is certainly not that easy now. Of course the basics still matter, but times have also undoubtedly changed. The SLA of yesterday may not suit today, the contract of yesteryear no longer fit for purpose, likewise the entire way companies approach outsourcing deals could be changing as we speak.

Deborah Kops of outsourcing expert WNS, thinks the industry needs to take account of the current economic situation, “In good times, the outsourcing of business processes can take a year or more to go from initial concept to implementation. However, in today’s environment, time is the enemy; the process can no longer be linear. If moving quickly to implement BPO is not seen as vital to the basic survival of the company, it will not produce the desired results.”

The importance of being able to implement new outsourcing arrangements rapidly is obviously vital in economically uncertain times. But what other changes are being driven through the outsourcing relationship to cater for today’s environment and what’s moving the deals from long-term to non-linear?

“The BPO industry has moved well beyond volume-based voice and data work into highly complex industry and insight processes - think securities trades, claims management or marketing analytics,” commented Ms Kops.

Ms Kops sees a rise in complexity of services being taken on by the outsourcing industry as a key change factor but also recognises the importance of cost is increasing in tandem. But if end users are increasingly demanding more complex services, will vendors be able to move to this level while end-users and the economic environment are demanding an increased focus upon cost? Trying to offer a more comprehensive strategic offering does not immediately seem to fit with the necessity of cost reduction. Such a deal would not appear very attractive to a vendor – becoming more important to clients whilst not getting paid more does not seem to make sense.

Research from BravoSolution, a provider of supply chain management services, found that 74 percent of organisations had seen an increased need for cost savings over the past 12 months. While a somewhat predictable research result, it does indicate that end users may be looking to ‘have their cake and eat it’ when it comes to their outsourcing suppliers. End users seem to be looking to squeeze suppliers on price whilst asking for higher value partnerships at the same time.

However, while vendors would appear to be getting a raw deal here, it seems that end users are prepared to put in the man hours to make the cost/value dynamic work. The BravoSolution study found that 38 percent of the 400 purchasing/procurement heads interviewed anticipated increased strategic input in procurement over the next 12 months. So end users are prepared to step up to the plate, where increased value is concerned, to work with suppliers rather than expect all strategic value to come from the vendor side. But are suppliers ready?

End users are certainly looking for a different kind of arrangement. Another study from Civica found that virtually all of 102 UK local authorities they asked view ‘partnerships with specialist providers as high priority or significant in local service delivery’. But Peter Lunio Associate Director of Baker Tilly, a management consultancy, commented, “Client organisations, and their CEOs, still expect too much from ITO/BPO vendors, and not enough from themselves.”

The industry is expressing a clear need to redress the balance of responsibility in outsourcing relationships - the outsourcing partnership, where each ‘partner’ is more heavily invested in a deal, may provide this opportunity. Complexity and heightened strategic value has been a theme running through the entire outsourcing industry for some time now. The move up the value chain (addressed in a recent sourcingfocus.com news analysis), represents a clear strengthening of specialised outsourced expertise and the increasing realisation of vendor aims to become almost indispensible to their clients.

Sanjiv Gossain, UK MD of Cognizant, explained where he thinks the industry is today, “Today we’re seeing a fourth-generation model [outsourcing relationship], which puts long-term business impact at its core. Characterised by seamless integration between provider and customer, IT providers taking this approach combine the cost-effectiveness of offshore production and the on-the-ground expertise needed to manage projects at the highest level, delivering the revenue generation support required by today’s CEOs.”

There are various new ideas floating around the industry that support Sanjiv’s ideas. One that seems to be taking hold is co-sourcing. The co-sourcing approach displays just those characteristics the industry seems to be searching for.

“Co-sourcing is based on a collaborative approach – creating an ongoing partnership between the client and the service provider. The client retains the strategic decision making such as technology refreshing, policy definition and architecture issues, IT strategy etc. The service provider takes over the day to day running of IT operations and provides recommendations on strategic aspects,” comments a spokesperson from HCL.

HCL developed a project along these lines with major pension provider, Skandia. The company used HCL to move from a legacy network to a next-generation SOA system. The co-sourcing approach allows Skandia to retain strategic control while HCL manages the network on a day to day basis. On an ongoing basis HCL also advises Skandia on strategy and technology investment decisions. HCL explains that co-sourcing is ‘changing outsourcing from a colossal process to one that is more piecemeal and flexible, moving away from the traditional monolithic models of outsourcing’.

It’s appears that with each new partnership-focused outsourcing deal, the dynamics of relationships are changing from both an end user and vendor perspective. Strategic involvement needed from both parties is needed. However, what comes with this is the need for increased trust, less stringently defined arrangements and the ability to develop and alter relationships rapidly to adapt to the business environment.

Peter Lunio, Associate Director of Baker Tilly, commented, “In my experience contracts with well-managed relationships based on trust - rather than stringent SLAs and penalties - are more likely to lead to a ‘trust dividend’ for both parties. Real trust is not naïve. It comes from planning, is steered by the right people, structures, processes and measurement, and is earned from performance.”
Whether the end users and vendors will be able to create these high-value, low cost relationships is a question that still needs to be answered. There will certainly need to be more focus on shared goals to drive changes through. As Udayan Kelkar, Senior Vice President of Sales and Business development, at Perot Systems, explains, “Despite the challenging economic climate, this is a buoyant time for specialist outsourcers as more companies look to outsource functions to strengthen their bottom line.”

He adds, “We’ve moved on from the days when defined contractual agreements were set in stone for the lifetime of a contract. We are now seeing a lot more outcome-based pricing decisions being taken by the outsourcing company from the outset. In reality, both the vendor and the customer need to have a symbiotic relationship where joint problem solving and working in collaboration is the norm.”

As Sanjiv Gossain of Cognizant mentioned, the industry is arriving at the ‘fourth generation’ of outsourcing deals. So, while there are few clear examples of this kind of outsourcing relationship, it’s likely a fair few are being signed now. A good thing for the industry is that all parties appear to be aiming in the same direction. The path to the strategic partnership is now laid, all that remains is for more vendors and end users to walk it.

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NHS Shared Business Services

by sourcingfocus.com

All organisations are reining in their expenditure and focusing on the bottom line.  During the current economic climate, the public sector is particularly prone to hefty cutbacks and ambitious saving targets.  The UK Government announced in the autumn of last year that the public sector needed to make £35bn of savings by 2011.  This created a mammoth task for those organisations.  How can public bodies, such as the NHS, deliver services, as well as meet their savings targets?

Shared services has been a streamlining strategy implemented by the private sector for some time.  It is a relatively simple concept.  Essentially, you take away non-core functions and wrap them up into a single specialist service.  This service can then be used by a group of organisations, rather than each organisation having their own in-house team.  The bodies involved can benefit from economies of scale, greater efficiency and cost savings.  Many would agree that streamlining repetitive back office processes, such as invoice processing and purchase orders, in order to release funds for core activity, is a wise business strategy.

This strategy is now being put into effect within public sector organisations. The NHS, in particular, has wholly embraced the concept and as a result partnered with service provider, Steria, to form the NHS Shared Business Services.  sourcingfocus.com spoke with John Nielsen, Managing Director of NHS Shared Business services (SBS), to get an idea of how the initiative works.

Mr Nielsen summarised the aim of the NHS SBS, “The NHS Shared Business Services is a unique 50-50 joint venture between Steria and the Department of Health and aims to deliver savings and value so that more can be invested into frontline services.”

A venture that aims to save money must come as welcome news after growing concern over the way the NHS seems to continuously leak vast sums of money.  In fact, the NAO predicts that this shared services strategy will reap savings of £250 million over 11 years.

The NHS strategy focuses primarily on providing financial and accounting support and, more recently, payroll.  These processes have been traditionally done in-house at each individual NHS trust, creating a vast duplication of roles throughout the organisation. The costs associated with training and maintaining each F&A team would have been extensive. By buying in a service, the various trusts would be benefiting from long-term cost savings and, as Mr Nielson points out, expertise and technology. “It is not just about direct [cash] savings; we are able to provide better technology and expertise.  Over the last three years, we have had 86% of our clients recommend us.  We process, on average, 4 million invoices a year and have handled over £26bn in payments on behalf of the NHS.”

So, not only are there cost savings associated with sharing services, but perhaps more importantly, there are real benefits to service.  It appears that shared services could be the NHS’ savior; however, there have been some recent chinks in the shiny shared services armor within other areas of the public sector.

The Department for Transport was accused of “stupendous incompetence” by the House of Commons Public Accounts Committee (PAC) for its HR shared service centre in Swansea.  The service centre was rushed through to completion in order to meet deadlines and, as a result, experienced severe systems failure.  This systems failure led to huge delays in services, as the IT needed reworking, which resulted in a bill of £81m, £24m above the projected savings the centre would have brought in the first place.

What is the key ingredient that makes the NHS SBS successful and avoid catastrophes such as the one mentioned above? Mr Nielson puts a large proportion of the success down to the “high quality group of people” that make up the SBS board.  Consisting of senior representatives from NHS Trusts, Department of Health, and Steria, the board obviously has a wealth of experience and knowledge, which has resulted in an effective entity.  The NHS SBS also benefits from the “rigor of a commercial company” (it is set up as a standalone profit-making entity), which will also push those involved to ensure client recommendations and a high quality of service.  As it has no financial support from the government, if NHS SBS does not provide adequate services then they wont be able to survive, the NHS Trusts will simply not use them. 

So what next for shared services in the public sector?  Mr Nielson believes that the NHS SBS model can be replicated over a variety of other public sector services, the police and councils to name a couple.  Of course, with the massive duplication of roles throughout the public sector, it is easy to see why shared services strategies would be of benefit. 

What lies ahead for the NHS SBS?  Mr Nielson summarises, “We want to expand our service line, incorporating more back office processes and ultimately provide a bigger impact.” If the NHS SBS continues to be successful, expands its range of services and delivers substantial savings, as well as enhancing processes, then it would not be far-fetched to think that, in a few years, we will find private organisations purchasing services from NHS SBS or other public sector shared services providers.

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Going green worldwide

by sourcingfocus.com

Being green has gone through many stages over the last ten years. For some time simply paying lip service to environment was enough to get by. Token projects and initiatives followed in all their PR-able glory. Exposures for ‘astroturfing’, bad press and grassroots and governmental pressure inevitably moved the corporate world forwards on green issues. Drip by drip the real importance of minimising impact on the environment has filtered into organisations and many companies now appear to be doing some impressive things. Carbon footprints, carbon offsetting, low-impact building and numerous other concepts have all followed. But as yet there is still much to be done about green issues in globalisation - what of those companies that outsource and offshore large chunks of processes and development?

Outsourcing and offshoring as an industry has reached relative maturity and many companies now contract out a large amount of work. This is creating an almost global carbon footprint largely hidden from their domestic corporate personas. What the company’s call centre is doing in India with its offshore IT developer in Russia, is becoming increasingly important to recognising a company’s global green impact. ‘Greensourcing’ is the answer being put forward by the outsourcing industry to help companies lower their outside impacts, but what is it and how’s it going to help?

Jeremy Hammant of LCP Consulting, a management consultancy firm, offered his explanation, “Alongside the financial and commercial elements of the procurement process we’re starting to see clients looking more at the intrinsic green and CSR credentials of potential partners. This is true in pretty much every sector we’re working in. Now, as part of the selection criteria there is a set of evaluation criteria around green, sustainability, CSR, call it what you will, meaning green is becoming part of the selection process.”

The drive towards green is certainly evident in consumer-facing businesses as customers continue to vote with their feet and wallets on environmental issues. But is this force strong enough to feed through into the B2B space, to those companies far-removed from end consumers?

“There’s certainly a desire from consumers to understand what are an organisation’s green credentials. I think this is permeating all the way down through the supply chain,” commented Mr Hammant.

The force of the green end user is not to be underestimated, recent figures from the carbon trust found that two out of three people think it’s important to buy from environmentally responsible companies and approximately one in seven had decided to use a different supplier due to a shabby environmental record.

So the green wave is clearly getting bigger but what are outsourcing suppliers doing to meet the rising tides? Patni, a large global outsourcing company, is an example of a company that seems some way ahead of the curve in this respect having invested millions of dollars in a new ultra low environmental impact delivery centre. The ‘Patni Knowledge Centre’ seats around 3,500 staff members at any one time and takes every possible step to reduce the amount of energy it uses and waste it puts out. The use of natural light wherever possible, intelligent air conditioning, minimal sewage output and ‘Lead Platinum Building’ (a certification for exceptional environmentally rated buildings), no name a few of the innovations, appear to give the centre bragging rights over most other outsourcer’s green efforts.

The importance of companies developing initiatives like this cannot be denied. But we asked Saurabh Karora, a Patni spokesperson, about the current demand for greensourcing.

“I think people are becoming more and more aware of green issues as a social responsibility. This is impacting big businesses hugely and they’re asking themselves and their suppliers how they can reduce their carbon footprints. Towards this goal end users are increasingly looking at leveraging vendor relationships with those that have invested heavily in green. Patni has invested around $40 million dollars in this facility and we are planning to construct more similar centres around India. As a corporate citizenship strategy this is how we’d like to look forward.”

Evidently greensourcing could be big bucks if supplier investment is anything to go by. But it’s not just lowly consumers that will make this sustainable globalisation a reality. There seems to be a green storm brewing around today’s companies that will increasingly and more forcefully begin to push the envelope on green issues.

Arthur D. Little, of the Sustainability & Risk Practice, commented in a report, “While carbon and environmental footprints are a growing concern, much of the footprint that can be attributed to a company lies in other parts of its supply chain. As stakeholders become increasingly insistent that “promises made” by the CEO should be “promises delivered”, CEOs will need to extract more innovation from suppliers as well as the company itself to deliver on commitments to sustainable performance”.

The drive from investors, consumers, canny companies and forward thinking suppliers could soon be augmented by the law. The EU Emissions Trading Scheme, introduced in 2005, is an early example of the direction governments are heading. Though focused on the high-emissions industries such as energy and transport, carbon footprint reduction driven by government is only set to grow. The sheer necessity of meeting the 2012 Kyoto Protocol and its successor will necessitate heavily polluting countries to get tough on companies.

“The regulatory environment is in a state of determination at the moment. You have the UK Government Office of Climate change inviting responses on a climate change bill. Regulatory conditions and emissions trading haven’t yet fully landed. We’re in a position where the game has opened but we’re probably still playing on the first morning of the test match,” commented, Alan Braithwaite, a Professor at Cranfield School of Management and founder of LCP.

Mr Hammant added “I think as regulation starts to kick in green principles will become much more important in procurement.”

Companies and outsourcing vendors may groan at the thought of compliance with new green legislation but there are also clear benefits to those taking the lead.

“Very often if something is green it’s also cheaper due to the reduction of energy consumption,” commented Alan Braithwaite, a Professor at Cranfield School of Management.

The Sustainability & Risk Practice report identified various other attractive reasons for going green including costs factors ranging from enhanced compliance with government regulation, lower consumption of energy and other resources, to enhanced return from capital investments. Greensourcing could also lessen risks to a business, for example, by a strengthened brand, enhanced reputation, improved community relationships, and/or reduced grounds for litigation. According to the report, the risk of supply discontinuity can also be lowered by applying environmental performance metrics and targets into the supplier performance assessment or contract renewal process.

Saurabh Karora sees Patni reaping the rewards of their bullish investments, “I think increasingly companies are also looking to green vendor partners to make a positive difference to their bottom lines or even their top lines.”

However, Mr Little’s report is also quick to warn of the difficulties of driving green into suppliers, “Many companies underestimate the difficulties of controlling supplier standards at long distance. The longer and more articulated a supply chain is, the harder it is to control entirely. This becomes especially true when a ‘low-cost-country sourcing’ (LCCS) strategy is pursued”.

So, the fact that some outsourcers are proactively addressing green will be heartening for end users. Certainly attempting to drive green into existing outsourcing relationships in far flung locations could be painful to say the least. And measurement processes are also a long way from clear definition. 

But the risks are clear to those that ignore the trend, “A reactive company develops its business and product/service strategy without any consideration of sustainability issues in the supply chain. Monitoring of suppliers is piecemeal and lacking predetermined targets for sustainability, leaving the company open to risks,” said Mr Little.

Greensourcing is clearly going to become much more important over the coming years as the various forces encouraging sustainability intensify. The take-up of greensourcing services certainly is not yet fully established and it’s likely to be a while before an outsourcing deal is won on green specifications. However, like it or not, the green wave is coming and it’s up to companies to decide if they will act early to ride it or wait and be swept unceremoniously into a brave new green world. 

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Service Effect: The future of outsourcing contracts?

by sourcingfocus.com

Outsourcing is an industry which thrives in a recession. Now more than ever end users are focusing on the bottom line, making slashing costs a decisive factor in the procurement process.  However despite this ‘cost is king’ approach, we are seeing the rise of a particular outsourcing model that treats suppliers as strategic partners rather than external cost cutters. 

The ‘service effect’ model is being used by end users in an effort to detach themselves from how a supplier delivers their services, which allows the user to focus on end objectives.  This outsourcing model has become prominent enough for the National Outsourcing Association, the UK outsourcing trade association, to hold a seminar dedicated to the topic.

So what is service effect?  How can end users feasibly sit back and let the supplier work their magic?  Essentially the service effect model boils down to end users identifying exactly what their strategic outcome should be in an outsourcing arrangement.  The supplier’s job is to then meet the outcome using whatever tools are needed.  Srikanth Iyengar, Global Head of Business Development for Strategic Global Sourcing at Infosys, summarises, “In service effect models, customers focus on an overall outcome which helps us run our operation in a very efficient way.”

It seems like an interesting way of conducting an outsourcing deal and it means that both supplier and end user must, above all else, trust each other to work towards the agreed objective.  Mr Iyengar highlights the importance of the end user trusting the supplier and adds that “setting clear expectations and objectives for the supplier to work to is essential” he also goes on to say that the supplier becomes much more of a “strategic partner” rather than just simply a vendor.  This strategic partnership is salient for both user and supplier.  Suppliers will need to ensure that teams working on the end user account are fully briefed on the way the user operates and well versed on the market the user operates in.  End users will need to incorporate the supplier in key board-level decisions in order to properly align the strategy or modify objectives. 

This level of trust and partnership surely would not be obtained over night.  Mr Iyengar reinforces this by saying that “prior relationships help”, so do service effect models fall into the realm of contract renewals rather than brand new outsourcing contracts?  Suppliers and end users would certainly be taking a bigger risk entering into these contracts. Suppliers could be left with a bloody nose if objectives are not met, end users could face a situation where money has been ploughed into a partnership with nothing to show for it, so surely a prior relationship is essential rather than helpful; And what of ongoing communication to ensure things are going to plan?

Service effect models have the potential to work well.  However, as with any outsourcing deal they need to be thrashed out properly in order to reap the benefits.  George Wheeler-Carmichael, partner of law firm NABARRO LLP, warns end users that only focusing on outcomes can lead outsourcing deals into trouble, “Contracting for an outcome or a ‘service effect’ puts a new perspective on an old issue with outsourcing contracts, rather than creating an entirely new challenge.  Whether a customer is starting out on a new outsourcing relationship or is renewing an existing one, if the aim is to achieve a business outcome, scoping the service requirements is still as important as ever.  Focusing on the end point of the journey and allowing the supplier greater flexibility in the technical means of getting there must not distract the parties from setting out required characteristics of the journey and from contract and service management in general.”

Mr Wheeler-Carmichael also commented that there needs to be regular ‘touch-points’ where users can monitor the progress of the outsourcing arrangement, he also commented that key milestones should be set and reached in order to properly maintain the relationship.

What does the future hold for service effect models in outsourcing?  According to Mr Iyengar, clients switching to service effect models with Infosys are in their tens rather than hundreds suggesting a gradual change rather than a sharp shift. While Mr Iyengar expects these types of contracts to be more prominent in the future, it remains to be seen which vendors have built sufficient trust with clients to make such a strategic leap.

So the service effect model is one to keep an eye on as a trend for the future.  It appears that there are those who have felt comfortable enough to adopt this strategy with their suppliers; however, the model may not be for everyone.  Those in multi vendor relationships may find the service effect model very challenging and possibly not the right solution.  The model does add another dimension to outsourcing and it will be interesting to see whether those that begin their outsourcing journeys through downturn cost cutting, find themselves in a service effect relationship a few years down the line.

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