Globalizing the business is the key to outsourcing today

By Phil Fersht

As we discussed last week, it's clear that many companies will continue to move into outsourced business environments, despite the recession and political pressures to keep work onshore.  While some firms find it hard to make radical decisions in a downturn, others are clearly seeing how critical it is to operate as a global business.   If there's one thing this recession taught us, it's how integrated global economies and markets are today, how businesses need to adapt to move in and out of diverse regional markets, and how they must make rapid decisions to invest or divest global service / product lines in order to prosper. 

Outsourcing doesn't provide all the immediate answers, but it does help create the vehicle for clients to become more nimble and capable at a global level.  The following data from our new survey reveals some key indicators that help us unravel how outsourcing adoption will take shape over the next couple of years, as business adapt to this new market environment:

Reducing operating costs:  obviously, the overriding factor when companies outsource.  And while there's a clear land-grab on for new client contracts by service providers, they all offer varying degrees of cost-savings these days.  Most smart businesses are evaluating service partners based on what they bring to the table beyond mere cost savings.  Once they are evaluating a short-list of 3 or 4 partners, 5% price differentials are unlikely to swing the balance. Hence, the real differentiators move to other core factors, namely business transformation acumen, and finding the right global partner to help establish more effective global business operations.

More effective global operations:  using outsourcing to globalize business operations more effectively is becoming much more widely discussed during outsourcing evaluations today, with over half of the enterprises interviewed specifying this as a very important driving factor.  Moving onto a global HR platform, whereby companies have a much better handle on their global employee-base, or having a much more integrated global cash-flow cycle, or leveraging customer service support in foreign markets, are all examples of how outsourcing services can add global value to businesses today.  Service partners which can demonstrate they are first-class global operators themselves are in a great position to find clients eager to benefit from their global delivery resources and experiences.  At the same time, clients need to fully evaluate their overall global business goals and test their potential service partners to determine whether there is a good cultural fit and overall understanding of their business. 

Transforming processes:  The "T" word has been banded around lightly in recent years, but getting one's base process in order is vital when outsourcing successfully. 50% of enterprises now see this as a very important driver when considering outsourcing. We've seen far too many "lift and shift" outsourcing engagements whereby clients transferred their existing back office to a service provider, and all the things that were being done badly were (and still are) magnified several times over in an outsourced model.  Many firms have used the recession as an opportunity to focus much harder internally on eliminate wastage and streamlining poor process flows, which has effectively put them in a much healthier position to move into outsourcing environments that can be underpinned by robust ERP and standardized processes.  Other firms have not been so diligent, and are looking for providers to take on their back-office baggage and grant them cost-savings.  In these situations, there is a strong onus on the service provider to help its clients refine their processes, otherwise they will struggle to realize any savings, and the provider will struggle to develop a common set of processes it was delivery to multiple clients via a utiliy model.  The provider needs to develop structured process re-design programs, it can deliver services to these clients without the need for costly consulting resources. If the service provider fails to help drive the transformation in tandem with the client's governance leadership, the engagement is unlikely to reap many rewards for either party.

All-in-all, businesses are clearly thinking about driving out as much cost as they can, but the onus is moving towards real business transformation as a follow-on objective.  There are a host of service providers out there which can deliver a quick cost-saving scenario, but only a small handful which can truly go beyond that to deliver ongoing quality and cost-optimization.

You comments are - as always - more than welcome.  We will be drawing on more findings from our new survey over the following days.

Wipro and Oracle partner to blow-up the BPO delivery model

Folks - we can exclusively reveal to you today that Wipro BPO and Oracle are shortly going to announce a partnership dubbed "simPlify", whereby Wipro will deliver PeopleSoft HR to both mid-market and high-end clients via a hosted utility BPO service, that will cater for 20 major countries.  They will also partner with The Hackett Group as part of the arrangement to provide performance benchmarks for HR processes.

The mid-market play is a true move towards "one-to-many", whereas the enterprise play will be a more customized approach.  Clients will need to invest a minimal initial outlay to move into a "pay as you drink" model, based on a per-employee-per-month pricing, to receive PeopleSoft-based HR delivery services, most notably payroll.  The industry has been crying out for this for years, and Wipro and Oracle have broken the mold by putting together a delivery model for the mid-market that clients can move onto without huge upfront costs. 

Moreover, the yawning chasm of mid-market HR service delivery, which has been under-serviced for PeopleSoft-based HR services in a utility BPO model, is now being filled.  ADP, Ceridian, NorthgateARINSO and others will look warily at this move, which threatens to blow-up the traditional model, that has been often plagued by expensive implementations, long inflexible contracts and poorly integrated software.  Not to mention Wipro's services competitors which are vying for increased share in the HR BPO market, namely ACS, HP, IBM, Infosys and TCS. Clients in this environment simply cannot shell-out multiple millions to get global payroll and HRMS - managed services with limited Capex is their only real choice today.  Bringing hosted software into the BPO model is the answer, and this is a true game-changer in the industry. 

Wipro will absorb much of the client implementation costs as they move onto this solution, which they will host across their delivery hubs in India, Latin America, the USA and the UK.  They will look to roll-in China and Japanese delivery later in the year.  Wipro will provide clients with Level 1, 2 and 3 support, with Oracle level 4.  The pair have also incorporated benchmark data from The Hackett Group to help clients assess their performance levels, which is embedded in the software at no additional fee.

More to follow with this trend... the next question is how the incumbent service providers will react, and, interestingly, whether this will put more urgency on Workday to make its BPO partnership move.  In addition, we can certainly expect similar BPO/hosted software partnerships to spring up in other BPO disciplines, notably supplier management and finance.

Pictured left-to-right:  Puneet Chandra (Wipro), Tibor Beles (Oracle) and Ashwin Bhatia (Wipro) announcing the partnership to a certain analyst at the European Shared Shared Services and Outsourcing Week show in Budapest earlier today.

Exclusive: Outsourcing poised to rebound

By Phil Fersht

I wanted to share a few early snippets from our global sourcing adoption study, which we've been running over the last 2 weeks.  And thanks to Global Services Media, Vinnie Mirchandani, Jason Busch, William Mougayar and Dennis Howlett, who have all contributed in helping us reach close to 700 respondents, of which we had 127 enterprise buyers for IT, supply chain, finance, HR and other BPO services.

Here's the high-level view on where enterprise buyers will be investing / dis-investing over the next 12 months:

Sourcing plans over the next 12 months 

Key trends of note:

Applications outsourcing (AO) to resume similar uptake as pre-recession era, with 8% of buyers moving into AO deals for the first time.  42% if existing AO buyers will increase scope, with only18% decreasing.

IT infrastructure outsourcing shows a similar aggressive trend to AO, with a similar number increasing/decreasing scope.

Finance & Accounting BPO will resume it's pre-recession surge, with 13% looking to make their first venture in an F&A BPO model, 30% of existing buyers increasing scope, and only 17% decreasing.

HR Outsourcing will be more modest, with 10% looking at payroll-based HRO for the first time.  However, the same number of current HRO buyers that are increasing scope will also be decreasing.  Clients who have adopted HRO seem to be sticking with what they have already outsourced, as opposed to bundling more processes.

Procurement shows steady potential, though a lot less pronounced than F&A BPO, and KPO is being evaluated by 8% of buyers.  KPO seems to be more project focused still, which buyers working out what works as opposed to increasing scope at this stage.

Thanks to all of you who took the time to complete the study.  You will receive an article highlighting the main findings shortly.  Comments/questions always welcome.  pfersht@amrresearch.com