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ISSUE 29

AUTUMN 2012 MULTISOURCING HEAD-TO-HEAD OUTSOURCEXPLORES How to optimise your Ian Moyse and Daniel We launch new in-depth series supplier portfolio Thomas go into the cloud with Logica and Luxoft outsource

Issue 29 Autumn 2012 www.outsourcemagazine.co.uk In association with PEOPLE | TCNLG OUIN www.outsourcemagazine.co.uk TECHNOLOGY | SOLUTIONS Call me maybe? Challenges ahead for the customer contact space

DIGITAL BY STEERING THE FUTURE DEFAULT THE FLOW OF BPO Mike Havard Madelein Smit Cathy Tornbohm on the need for looks at continuous gets out her crystal multichannel improvement for ball and predicts excellence lasting progress extreme times…

FC29 pop art.indd 2 19/9/12 13:19:39 P2-3 21000/102260 Beijing Great Idea DPS.indd 2 17/9/12 12:59:08 P2-3 21000/102260 Beijing Great Idea DPS.indd 3 17/9/12 12:59:17 p4-5 21000-102527 Aviva DPS.indd 4 18/9/12 11:29:00 p4-5 21000-102527 Aviva DPS.indd 5 18/9/12 11:29:07 P6 21000/101753 OCE UK Ltd FP.indd 6 17/9/12 13:03:24 editor’s letter CALL CENTRE CHALLENGES; PROCUREMENT OUTSOURCING; LEGAL TRANSFORMATION; CUSTOMER ENGAGEMENT; OUTSOURCEXPLORES; VESTED OUTSOURCING; outsource HEAD-TO-HEAD; LEGAL VIEW AND MUCH MORE

Editorial Editor Jamie Liddell hese are interesting times indeed for the customer [email protected] Editorial Assistant Jessie Bland contact arena; before the confluence of new technology, Contributors Hugo Aaldering, Przemyslaw Berendt, Edward Brooks, Tom Cave, Frank changing customer behaviours and challenging D’Andrea, Danny Ertel, Ralph Geertsema, John Gorrell, Chris Graves, Mike Havard, macroeconomic and sociopolitical conditions, are the Matt Heffron, Tom Lawrence, Natalia business models, infrastructure, skill sets and operating Levina, Harry McDermott, Stuart Mills, Kavitha Nair, Brian Nolf, Lou Oliver, Tphilosophies upon which the industry has been founded and Duncan Pithouse, James Rees, Andy Rogers, Madelein Smit, Peter Smith, flourished increasingly irrelevant? We investigate some of the biggest Rachael Stormonth, Ning Su, Cathy Tornbohm, Kate Vitasek, Eleanor Winn challenges facing the space in our lead feature, starting on page 12.

art Challenges also lie ahead for the broader BPO space – along with Art Editor Andrea Mitchell plenty of opportunities, too, as Gartner’s Cathy Tornbohm points out Designers Conrad Holding, Ellie Allen-Eslor Images Getty Images, PA Photos, in her glimpse of the future (page 34).On the subject of opportunities: Shutterstock we check out the blossoming procurement outsourcing space in an copy Head of Production Dahlia Cuby extended feature beginning on page 42. Production Controllers Lucy Mouzouris, Elsewhere this issue we look at optimising a supplier portfolio Athena Demetriou (p20); what law departments can and should learn from outsourcing DIGITAL AND MARKETING Head of Digital Al Tepper (p70); and, in our Legal View, how to terminate for convenience Marketing Manager Dave Louca Multimedia Developer Kyri Theodorou (p94). We also present a great Head-to-Head on the state of the

commercial cloud industry (p90); our first report from research giants NelsonHall Advertisement Manager Daniel Butcher (p100); two fantastic new entries into our OutsourceXplores series Sales Executive Tom Allen featuring Luxoft and Logica (from p82); your chance to get your corporate Head of Sales Mark Gordon hands on Kate Vitasek’s latest book for free (p74); and of course our Account Director Dee Anderson Accounts Manager Tara Rahman regular input from our partners at the NOA (p56). Circulation Manager Roma Katten If all that’s not enough, we’re launching a very special survey on published by the state of outsourcing with Emp Media Ltd, EMP House, Pembroke Road, Muswell Hill, London N10 2HR DLA Piper: read the introductory Publisher/Managing Director Daniel Cuby PA to Publisher/MD Filippa Woolf article from p78 or go straight Telephone 020 8444 3401 Fax 020 8883 9504 to the survey at http://www. Customer Services 020 8442 0178 outsourcemagazine.co.uk/ Website www.outsourcemagazine.co.uk outsourcedlasurvey subscriptions outsource is published four times a year. A one-year UK subscription costs £50 (UK). See website for full details or email Enjoy! [email protected] ©outsource magazine All rights reserved. No part of this publication may be copied, reproduced, transmitted, photocopied, recorded or stored on any retrieval system without prior written consent of the publishers. It is not the intention of this magazine to print any matter that discriminates on the grounds of sex, race or disability. The views expressed in this publication are not necessarily those of the National Outsourcing Jamie Liddell Association (NOA) or the publisher. Editor

outsource magazine Published by EMP Media

outsource magazine Total average net circulation: 11,159 | Jan - Dec 2011

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ed letter JAMIE SEEN.indd 7 19/9/12 15:34:37 21000-102932 Wipro FP.indd 1 19/9/12 13:27:27 This Issue Contact Centres; Supplier Management; Procurement Outsourcing; Legal; Continuous Improvement in this issue

cover storIEs 52 52 Are you voloreetu cotet secure – or is ip vel dolrt t 12 your head in at. Sed Call Me Maybe? the sand? The call and contact centre space faces challenging times, and only the fittest organisations will survive. We report on an industry on the brink of a paradigm shift. 20 Optimising Your Supplier Portfolio NYU’s Natalia Levina explains that whilst multisourcing may avoid the issue of single-sourcing lock-in, too many 20 providers can be equally fraught with Are you operational risk. managing your suppliers 34 optimally? The Future of BPO Gartner’s Cathy Tornbohm looks ahead 36 at what could be extreme times for Is your outsourcing… organisation becoming 36 digital by Digital by Default default? Mike Havard examines the disconnect between organisations’ digital contact strategy and customers’ requirements. FEATURES 62 26 42 Steering the Flow Application Development Outsourcing Procuring Excellence Madelein Smit, CEVA Logistics, explains The first in a two-part series looking at the Our experts present a snapshot view of the why continuous improvement is much like hows, whys and whats of a huge and critical procurement outsourcing space as it stands the Amazon Delta… industry. today. 82 & 86 30 52 OutsourceXplores Are You Fat? The Importance of Being Secure We launch new in-depth Xplorations into Edward Brooks reveals why organisations Organisations need to assess their security big data (with Luxoft and ACCA) and how with shared service operations for finance responsibilities, and not opt for minimum to escape the HR jungle (with Logica). need to look at the 2012 outsourcing provisions, says Razor Thorn Security’s business case… James Rees. 90 Head-to-Head 40 66 Workbooks’ Ian Moyse and The Face of Finance Changing Shape CompareTheCloud.net’s Daniel Thomas Ralph Geertsema and Hugo Aaldering Economically straitened times are driving pick apart the nomenclature of cloud, and examine why finance is no longer simply a organisations to seek quality not quantity why a lack of education is holding it back. back-office function. from their providers, says Kavitha Nair.

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9-11 contents final.indd 9 19/9/12 12:35:39 App outsourcing: Why PSS Ltd chose Omnext

WHEN Margaret Baker, Director of However, reality and daily life were Things got so bad, Research & Development of Public Sector completely different, as Margaret explains. said Margaret, that she Software Ltd, decided to outsource the key decided to bring the applications maintenance and development “Productivity declined with the supplier app(lication) maintenance of her market-leading asset management stipulating that, in fact, more resources back in-house, which then system, PSSLive, she thought that she was were required to deliver the functionality we brought about its own making the right strategic decision. required and, as a result, costs increased. challenges. Transition Our executive team ended up conducting back to the team did not By outsourcing she believed she would macro management with even the simplest provide a sound basis for be getting access to a wide skill base of of concepts taking days to explain. the further development developers supported by industry best “Management of software development of the code. The new team did practice, providing increased productivity went from just an hour per day with the not have full system documentation; version and agility to change and, more importantly, previous in-house team to FULL TIME with change activities not logged; complex deliver the innovation and modernisation she several simultaneous Skype chats running areas were not defi ned; and maintaining was committed to deliver to their customers. continuously from 07:30 to 22:30 every day. redundant code and clones was too time- For over 20 years, PSS has strived to “Dealing with people that say ‘yes’ when consuming, meaning that key new business harness information technology to the best of they should be saying ‘no’ was frustrating functionality was not being delivered quickly its abilities and deliver high quality software and soul destroying. Lower quality followed, enough. Even more important was the products and services to government and with far too many bugs being coded within morale of the in-house developers, who local authorities. the core application and too much missing didn’t want to be bogged down repairing functionality. There were no suggestions legacy code. Although Margaret was happy Some of the key areas and positive sell were regarding software components and for her developers to start with a clean sheet improved productivity; more developers; functionality. Not a single idea was put for the Windows Phone 7 and Windows 8 less time to deliver; lower cost; cross- forward. This is the opposite of in-house versions of PSSLive, she was reluctant to fertilisation of knowledge; and idea transfer developers in the UK where everyone is throw away 20 man-years’ development of between other projects being managed by keen to make suggestions and wants to see the desktop version, especially in the current the supplier. their ideas put into practice.” economic climate. Find out what Margaret did next and how Omnext solved the problem @ www.outsourcemagazine.co.uk/omnextapps or via QR code THE NEXT GENERATION OF SOFTWARE ANALYSIS IS HERE Find out how to reduce IT expenditure from a real insider with a 360o view In a constant quest to reduce IT expenditure companies are searching for new options in outsourcing software. Andy loved what Omnext are doing so much he jumped at the chance to leave National Grid as a Senior IT Project Manager and join Omnext to head up their UK operation. Oh, Andy is also Operations Director for the NOA, so he knows what he’s talking about. Discuss the risks and potential for your business with Andy on [email protected] or +44 (0) 7770-444383

p10 21000/102487 Omnext FP.indd 10 18/9/12 14:37:00 This Issue Contact Centres; Supplier Management; Procurement Outsourcing; Legal; Continuous Improvement in this issue

74 REGULARS Getting to the win-win with 56 Microsoft and others... NOA Round-Up Our partners at the National Outsourcing Association reveal why outsourcers are always accountable and ‘Best of British’ outsourcing could soon become a permanent fixture. 94 The Legal View Lou Oliver of Stephenson Harwood on why an unplanned split needn’t be a disaster. 98 Top Ten Frank D’Andrea shares his top tips on relationship management and good governance. 100 NelsonHall Round-Up 70 In her inaugural article for Outsource, Legal Transformation 94 NelsonHall’s Rachael Stormonth looks at Breaking up Danny Ertel explains why law departments doesn’t have why any news of the death of HRO BPO has are following in the footsteps of other to break your been exaggerated. functions – but that legal transformation heart – or must take a different form... the bank 105 The Oral Review 74 More genius from the Sourcing Sage… Getting to the Real-Life Win-Win Outsource columnist Kate Vitasek takes a 106 behind-the-scenes look at the organisations Online Round-Up adopting a vested approach to their The best articles from the Outsource outsourcing models – and you could win a website over the last quarter – click straight copy of her latest book. through from our digital edition. 78 113 What’s the Point of Outsourcing? Inside Source Over the next few months DLA Piper Our covert agent talks G4S and a very ill- in association with Outsource will be timed romantic encounter… running a survey getting to the very bottom of some of the biggest questions 114 in outsourcing. Take the survey at The Last Word http://www.outsourcemagazine.co.uk/ Whatever you do, don’t try to sell this man outsourceDLAsurvey ANYTHING…

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9-11 contents final.indd 11 19/9/12 12:35:59 Call Me Maybe? We shine the Outsource spotlight on the customer contact space, looking at some of the biggest challenges facing the industry now and going forward.

n many ways these are great times as, if not more than, it is anywhere else in for the customer contact business, business – and the contribution customer with new technology providing contact makes to an organisation’s big data hitherto-unthinkable opportunities mountain. for smarter and more effective These of course represent wonderful Icontact; new delivery locations emerging opportunities for those responsible for almost day by day; and expertise and best customer contact, either in-house or practice deepening with every interaction. outsourced. But there are also huge Nevertheless, there are clouds on the challenges being thrown up here. One of horizon; with every opportunity comes a course is cost: as businesses are required new challenge, some significant – even to cater for an ever-greater array of formats, existential – ones for individual providers platforms and types of interactions, so and the industry as we know it today alike… to do their costs rise in areas such as infrastructure, development and training. Technology The complexity of today’s multi-platform As any professional even half-familiar with content environment is much greater than the customer contact space will be well that at play at the start of the call centre aware, technology is driving change at business and this has its attendant price – an incredible rate in this industry – and and risk. Furthermore, there is uncertainty in a great many different ways. Most about the long-term viability of any given obviously, there is the increased use and platform; huge investment might go into capability of technology within traditional adopting certain technologies only to find call centre operations: more efficient call that they are obsolete within a comparatively handling and smarter IVRs, cost-efficient short time (the speed of technological VOIP, the increasing deployment of advancement here colliding with an artificial intelligence. But there is also the increasingly fickle consumer base). deeper transformation being wrought by The move from call to contact centre technology in the form of the move from a is specifically challenging because it call centre to a contact centre philosophy, calls into question the economics of the with more and more customer interactions whole industry: if the human factor is to taking place via purely electronic be removed as much as possible from means as smartphones proliferate (a customer contact, the traditional pricing recent Rapide survey revealed that 86 models become obsolete – along with per cent of businesses believe mobile things like established career development communications will be indispensable paths and sought-after skill sets (especially to future customer experience systems), at managerial level). The balance of power the use of social media explodes (see in the provider space shifts significantly too, below) and consumers become more and from the suppliers of people – who have more happy interacting with non-human access to high-quality affordable talent – to touchpoints. There is also the cloud factor the suppliers of technology. – the development of the cloud model is While it’s unlikely even in the long term impacting upon customer contact as much that the human factor will be removed

“The mobile channel is emerging as the consumer’s primary choice for all possible service activity with service providers” – Michael Moaz

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@ValaAfshar: The future of customer service contact is mobile video across social networks via tablets – no question. #custserv

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p12-19 callc centre JAMIE SEEN.indd 13 19/9/12 15:37:44 p106 TheProfessionals FP.indd 106 19/9/12 12:26:17 feature CALL/CONTACT CENTRES

The unparalleled complexity of technological options now❛ available continue to provoke serious head-scratching even as it offers access to brave new worlds of efficiency and next-level service delivery❜

altogether from customer contact, the professionals now have to factor in “success” and the costs of “failure”? And incentives to downsize headcounts are Twitter, Facebook and other platforms this of course creates uncertainty. What is obvious and, increasingly, the technology into their portfolios. Individuals are most definitely certain is that social media exists to facilitate this – at a cost, of course, increasingly comfortable tweeting brands are an increasingly important channel and with the risks described above. But to demonstrate satisfaction or otherwise for the consumer: a recent study by Echo this isn’t necessarily going to be a smooth – and the “social” element of the media Research and Fishburn Hedges showed journey – many organisations have means that a refusal to engage with an that the proportion of UK consumers struggled along the way even now to find unhappy customer, or a failure in that contacting brands directly through social the right balance between human and engagement, is likely to be visible well media nearly doubled from 19 per cent to non-human touchpoints, as any customer beyond the traditional “confession booth” 36 per cent in only eight months to April this can testify who has taken their custom confines of the customer/brand relationship. year. Crucially, 65 per cent of respondents elsewhere after one lengthy queue too In other words, customer contact is now to that survey believed that social media many – and the unparalleled complexity not just about contact with a customer but, were a better way to communicate with of technological options now available via that one customer, with a host of other companies than call centres (highlighting continue to provoke serious head- customers, with a raft of prospects, and both the advantages of social media and the scratching even as it offers access to brave with one’s competitors who can of course poor standing of call centres in the public new worlds of efficiency and next-level witness these interactions in the raw. eye). service delivery. As social media remains a relatively As with the myriad new technologies nascent field, there is a great degree available in the space, there are a huge Social Media of learning on the hoof going on – what number of social media platforms for call Alongside engagement with new proportion of spend is to be allocated to centre providers to take into account – technologies, social media has been at social media responses now and going while concentrating on the highest-profile the heart of changing customer behaviour forwards; what specific language and tone platforms is a no-brainer, failing to cater in recent years and customer contact is most effective; what are the benefits of for more niche platforms which may be

"Social media has previously been regarded as largely a channel for marketing, but more and more companies are seeing this as an opportunity for customer care, and the lines between the two are blurring." – Melissa O'Brien

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p12-19 callc centre JAMIE SEEN.indd 15 19/9/12 14:42:55 feature CALL/CONTACT CENTRES

popular amongst your organisation’s target yet increasing wages to keep key talent is market could prove costly. Therefore, again, reducing the labour arbitrage value which there are costs and risk associated with remains the single most important factor in uncertainty over which platforms are viable decisions around offshoring. How providers over the long-term and how much resource nurture and keep their talent while needs to be devoted to any given platform. maintaining margins is an ongoing difficulty The biggest challenge of course is and one that will only be exacerbated by the lack of control companies (or their rising inflation in many offshore hot spots. suppliers) now have over brands. Because of the aforementioned high visibility Reputation of engagement via social media one Rightly or wrongly, call centres hold a superficially small error can have significant less-than-special place in the heart of the repercussions once exposed to the social average consumer. Despite the fact that ecosystem (as several high-profile cock-ups individual interactions with centres tend in recent months evince). How customer to be resulting in ever-greater levels of engagement executives understand this customer satisfaction, the overall perception and build that understanding into their of call centres and consumers’ interaction operations going forward is one of the key with them remains generally negative – in challenges facing the space today. other words, customers tend to hold onto their prejudices despite improving service Talent Acquisition & levels. This should come as no surprise; it’s Management established fact that we remember – and Ask any senior professional in the talk about – a negative experience much outsourcing and business transformation more than we do a positive one, and half an space to enumerate his or her biggest hour on hold to one contact centre is almost challenges and sourcing and retaining key certainly going to outweigh – at least when talent is almost certain to figure highly – and it comes to a consumer’s overall perception this situation is no different in the customer of the industry – speedy resolution via a contact arena. On the one hand, a gloomy handful of others. economic outlook (see below) and relatively The problem here is the old adage high levels of unemployment in the west that one bad apple spoils the barrel – in should be creating for onshore providers other words, poor performance by one and captives a bigger, higher-skilled talent centre ruins it for everyone else that pool in which to fish (and certainly many consumer interacts with. To an extent this providers are happy to talk up the talents of is true, of course – and while it doesn’t those employees they’ve already engaged). mean that everyone should just give up However, there remains a talent deficit on good customer service (the primary above a certain level of expertise in many responsibility, of course, being to the brand, verticals and ensuring a steady flow of the not to the contact centre space) it does right people into the right positions remains ❛Offshore, in reinforce the fact that improvements need a key challenge for providers – especially the voice BPO to come across the board and as universally as the macroeconomic picture (hopefully) heartlands of India as possible for the reputation of the industry improves. and the Philippines to improve. Offshore, in the voice BPO heartlands of especially, attrition It may well be asked: why does the public India and the Philippines especially, attrition remains a huge standing of call centres generally matter at remains a huge problem (though less than all as long as the service of the centre being it was perhaps two years ago). Talented, problem (though contacted at any one time is exemplary? capable individuals abound; the problem is less than it was The issue here is that unless a customer has keeping them. Training (especially cultural perhaps two already had a positive experience with that familiarisation) costs are spiralling and years ago)❜ specific centre, he or she is likely already @AmandaHosburgh: Rarely do you want to offshore your verbal customer contact. Some functions can work fine, some generate angry customers. #outsourcing

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to be in a negative mindset when making are negotiating – and renegotiating – harder The Anti-Outsourcing/ the first contact, doing so reluctantly and and margins are squeezed. Offshoring Backlash with a sense of foreboding generated by Perhaps more pernicious still, however, The ongoing US election campaign has his or her anti-call centre prejudices (and is the ongoing uncertainty which continues seen a significant focus upon the “o” word – at any rate coming, most probably, from a to colour the macroeconomic outlook. but for “outsourcing” in the jibes of Messrs starting point of having a problem requiring Buyer organisations remain, in the main, Romney and Obama read “offshoring”, for resolution). This then makes the task of less willing – or able – than previously to it is the flight of American jobs overseas interacting with that customer successfully make long-term commitments and this which has created so much animosity all the harder, requiring more of the agent/s is of course having a markedly negative amongst the electorate. Even the most handling the customer and increasing impact upon suppliers whose own cursory glance at the mainstream news the risk associated with sub-optimal strategic planning depends on the ability channels (and much more so Twitter) will performance. to forecast future volumes and types of demonstrate the depth of the anti-offshoring Cynically, one might well ask why this work. For providers whose operations feeling in the US; and the same picture is matters at all, as consumers are presented span multiple geographies the issue is mirrored in economies as far afield as the with little choice as to whether or not to further complicated by the increased UK, Canada and Australia. engage contact centres per se; but for the currency volatility which has developed as a For many consumers however the most industry to attract and retain top talent, consequence of the downturn. immediate contact with offshoring comes for example it would certainly help to be Moreover, the huge budgetary hits via a call centre; the foreign accent at viewed as more of an employer of choice taken by local and national public sector the other end of the phone is for many than an employer of last resort. organisations, particularly in the UK and all the proof that is needed that work Unfortunately for the industry as a whole, mainland Europe, are themselves creating continues to flood overseas, and as a result the only way to tackle the reputational a lack of clarity: while an upsurge in customer contact has become for many challenge is by a wholesale improvement outsourcing is being witnessed, with less the archetypal offshored process – and of service quality (which is of course pretty money to go round the amount of work as such draws a great deal of flak at a much what has been going on already, available is decreasing as some services consumer level. So much, in fact, that the according to the Bright contact centre are slashed or abandoned altogether. Many last couple of years have seen a significant benchmarking index which saw negative organisations previously heavily reliant trend towards backshoring or returning scores drop from over nine per cent of on the public purse are now seeking new customer contact to an onshore operation. customer respondents in Spring ’09 to territory (with consequent further downward Major organisations such as Santander around four per cent in Autumn 2010) – and pressure on margins). The radical have made huge PR play in recent times even then it may well be that old prejudices restructuring of some very large bodies with about returning their previously offshored simply refuse to die (hardly unknown in huge customer contact requirements – for call centres to onshore locations – yet this society at large, of course). example, the UK’s NHS – creates yet more of course comes at a cost, since labour uncertainty as the future viability of existing arbitrage, while diminishing, has by no Economic Uncertainty services comes under the microscope. means gone for good. It should come as little surprise that the The solution for call centre providers Despite calls for action, it seems unlikely ongoing economic gloom afflicting much may well be similar to that mandated for that either Presidential candidate will – or of the world is having an impact upon the most other organisations throughout this could – take any extreme steps to reverse call centre and customer contact space. protracted period of sluggishness – agility, the offshoring trend; however, tighter This impact manifests itself in various flexibility, streamlining, a tight focus on legislation may well have an impact upon ways. Firstly, there is the impact in terms of cost, an ability to think ever further outside call centre operations, and even without the activity volume – and here the picture isn’t a the box – but it is difficult to shake the ungentle touch of the long arm of the law wholly gloomy one, as many organisations feeling that the call centre space more than the anti-offshoring mood cannot be ignored. are actually driving more activity through most sectors is at the mercy of its buyers’ Working out how to gain all the advantages their captive contact centres (it’s important fortunes, and perhaps the challenges of offshore components without incurring to remember that not every business is posed by the economic climate will prove the wrath of increasingly nationalistic doing especially badly from the slump) or particularly intractable in this space – populaces (and hence consumers) in the choosing to outsource to providers eager despite (or perhaps because of) its value to west will be an ongoing challenge for the to snap up the work. However, under the organisations of all kinds seeking to secure space and one to which there may well be familiar mantra of “more from less”, buyers their own survival. no simple answers.

@martinwalden: @BTCare can we cancell the appointment and also who do i contact to make a complaint about ur phone customer service?

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p12-19 callc centre JAMIE SEEN.indd 18 19/9/12 14:43:25 heading another heading here There are costs and risk associated ❛ with uncertainty over which platforms are viable over the long- term and how much resource needs to be devoted to any given platform❜

Only 14 per cent of adults in Great Britain think companies live up to the customer service promised by businesses in their marketing campaigns. (Source: YouGov)

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p12-19 callc centre JAMIE SEEN.indd 19 19/9/12 14:43:34 Optimising your supplier portfolio Multisourcing might be the best option for your organisation – but the attendant risks need to be considered very carefully. Getting the right strategy in place is absolutely crucial…

Natalia Levina, NYU

Natalia Levina is Associate Professor at the Stern School of Business, New York University. She teaches courses on Global Sourcing and Open Innovation as well as Information Systems and Organizations Doctoral Seminar.

Ning Su, University of Western Ontario

Ning Su is an Assistant Professor at the Richard Ivey School of Business at the University of Western Ontario. His research investigates global sourcing of knowledge-intensive services.

n today’s global services outsourcing providers. Every sourcing manager knows of the vendors, however, had the right arena, increasing numbers of that more vendors mean more headaches: incentives to invest in a new information companies adopt “multisourcing”; more coordination issues, more searches system necessary to optimise the function. that is, they select and combine and innovation, and more contracting costs. Had the three contracts been combined, the information technology (IT) and Yet these are only surface costs; a much investment in the system would’ve paid off Ibusiness services from multiple providers. more serious problem with increasing within the lifetime of the contract. The decrease in deal size, well-documented the number of suppliers within a single Single sourcing, however, may not be the by the Global TPI Index, is one indicator function – a practice commonly engaged answer either as the trend to multisource that buyers are dividing their business by today’s buyers – is that the buyer has arisen in response to problems among multiple providers. Gartner – may lose economies of scale within this associated with lock-in, an inability to which has promoted this term since the function, thereby increasing production tap into best-of-breed capabilities, and publication of the 2006 book Multisourcing: costs. These increased costs can be increased operational risks. A common Moving Beyond Outsourcing to Achieve reflected immediately in higher bidding wisdom for resolving the tension between Growth and Agility by its consultants rates or creep in over time as vendors are too few and too many providers is to focus Cohen and Young – has been continuously unable to optimise the function they were on a handful of strategic partners so as to emphasising multisourcing as one of the charged with. For example, a large global address these risks while avoiding full lock- top trends in the sourcing of IT and BPO bank outsourced its account reconciliation in. This rule of thumb may not be sufficient services. business to three different vendors getting for generating the greatest benefits from There are, however, well-known risks what seemed to be a low charge rate from today’s complex sourcing opportunities. In involved in increasing the number of each due to competitive pressures. None some situations a single vendor may be the

“You have to be fast on your feet and adaptive or else a strategy is useless.” – Charles de Gaulle

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natalia levina final.indd 20 18/9/12 10:57:01 feature Multisourcing

Every sourcing manager knows❛ that more vendors mean more headaches: more coordination issues, more searches and innovation, and more contracting costs❜

Consendre mod eugait alit“Everyone luptati sisisisit takes surveys.augait num Whoever iusti facidunt makes a ipsumsan statement el about eraestrud human exerat behaviour ad onulla has cor ing eumsandre ex elit atetue tet ulla feu feum niamconEmengaged ea commodiam in a survey ad of tem some dolortio sort.” Utat - Andrew lum quisim Greeley et, quissi.Volobore m iurero dolobore.

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natalia levina final.indd 21 18/9/12 10:56:34 feature Multisourcing

best solution whereas in others, numerous FIGURE 1 vendors may deliver the best results. Moreover, associating more vendors directly with lower lock-in is a bit naïve. In some cases, increasing the number of vendors may reduce lock-in when such vendors are easily substitutable for each other. In other cases, however, vendors may have diverse capabilities and each vendor may have invested in learning specific clients’ needs making them less-than-ideal substitutes. For example, multisourcing is very common in IT application development. This knowledge work, however, is often done at the level of teams who invest in learning specific business needs and technological constraints of the client organisation. Having multiple vendors involved in this work hardly reduces lock-in. Our multi-year research project focussed on understanding the multisourcing practices of diverse clients and their impact on providers and business outcomes; we find it useful to think about vendor portfolios, which include not only the breadth (how many vendors), but also the depth (how co-invested the parties are) of vendor the costs and risks involved in performing a relationship impact these drivers. For a relationships. This view allows us to discuss given function, while increasing the output given outsourced function, developing situations in which multiple vendors can (service quality, speed, flexibility, and and maintaining a broad vendor portfolio substitute for each other (relationships are innovation). One can assume that whatever allows the client firm to access a diverse set of low depth) versus not (each relationship aspects of outputs can be measured, of capabilities, both generic and specific is quite deep). The main thing to recognise they were put in a contract and thus have to the client. These superior capabilities is that large breadth does not automatically specific associated costs and risks involved. may bring cost advantages to the client as equal small depth in sourcing relationships Thus, what we care about in a sourcing vendors are able to deliver at lower costs. (see Figure 1). Sourcing relationships strategy beyond known costs and risks is Thus for example, in the famous ABN-AMRO should and do allow for polygamy how to get the vendors to produce things case of multisourcing to IBM, Accenture, (many deep relationships) as well as for that are not in the contract (we refer to them TCS, Infosys, and Patni in 2005, each vendor uncommitted monogamy (one shallow as “intangibles”). brought capabilities to the table that allowed relationship). By recognising that depth What drives these costs, risks, and it to lower production costs. While this case and breadth are two different dimensions intangibles? For any given function, we is easy to make for multisourcing across of a multisourcing strategy, clients can start would argue that a combination of basic function (e.g. IBM handling infrastructure analysing which portfolio structure they production factors (vendor’s generic vs. TCS handling application maintenance), want for each function. To do so, they need capability, vendor’s client-specific capability, even within the function of each provider to consider how varying the breadth and and economies of scale within a function) as (e.g. application development), each one of depth of their vendor portfolio will result in well as the client’s ability to reduce strategic the five preferred suppliers can have some different performance outcomes. and operational risks by reducing vendor prior experience that would allow it to be First, let us consider critical drivers of dependency (switching costs) shape the more efficient on a given contract. Beyond outsourcing success. As illustrated in outcomes of the relationship. direct cost-savings, a broad supply base Figure 1, every sourcing relationship can Now, consider how the choice of the may also result in better intangibles as be judged based on how well it reduces number of vendors and the depth of each the client can leverage and combine work

The Leonard N. Stern School of Business dates back to 1900 and the founding of the NYU School of Commerce, Accounts and Finance.

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natalia levina final.indd 22 18/9/12 10:57:21 feature Multisourcing

delivered by a set of best-of-breed vendors As we have argued, large breadth relationships with suppliers, they also have potentially allowing the client to tap into does not equal small depth. The depth is a “dark side.” This was first noted by supply each vendor’s innovation capabilities. reflected in the client’s and the vendor’s chain management researchers studying From a risk perspective, a broad vendor mutual commitment and investment. the automotive industry, where close base also has its advantages. Having A relationship can reach significant relationships developed by Japanese auto multiple suppliers may lower a client’s depth if the vendor is willing to invest manufacturers were seen as an important strategic risk by reducing lock-in. As we time and resources in customising its part of their competitive advantage. Yet, have argued, this is not an automatic benefit knowledge and capabilities based on these relationships can also result in a of increasing the number of vendors, as the client’s specific business practices client being taken advantage of by vendors the client must also ensure that vendors and technological environment. Once the who feel that the relationship is so strong are interchangeable in order to lower vendor acquires such strong client-specific that the client’s switching costs are too switching costs and associated lock-in. In capabilities, both the vendor’s production high. Vendors would then proceed to our data, many sourcing managers believed cost and coordination cost between the increase prices, reduce management that having multiple vendors with similar client and the vendor can be reduced. commitment, make poor staffing choices, capabilities (e.g. several large Indian firms) Meanwhile, intangible benefits such as etc. In response, while cultivating a involved in a given function helps each innovation, operation flexibility, and quality deep relationship with existing vendors, vendor become familiar with the client’s improvement, can also be achieved. These the client firm should also control the business and technological environment intangible benefits are much talked about cost of switching to a new vendor and and hence reduces the strategic risk of as the hallmarks of good partnership where consider what it would take to exit current being locked in. In addition, a broad vendor the client gets more than what they paid for, partnerships. portfolio helps improve flexibility and while the vendor gets to build its capabilities Given this newly acquired understanding reduce operational risks and one vendor’s by learning from and with the client. of how the nature of a vendor portfolio operational failure (e.g. bankruptcy or While there are multiple benefits of close impacts outsourcing outcomes, we can see natural disaster) will have a smaller impact that each client can choose to use different on the client if switching costs are low and portfolios for each function it sources. It another vendor can take the work on. This is should be noted that while there is a best- best seen in the cases of infrastructure work fitting multisourcing model in a certain or BPO contracts with identical transitions period of time, the choice of model is not (e.g. customer service call centres). static and has to evolve. Even ABN-AMRO, We have already discussed the which as stated took a bold step of involving downsides of a broad vendor portfolio, five strategic vendors in IT hardware and which include increased coordination software in 2005, has renewed its contracts and contracting costs as well as in 2010 to include only three vendors. reduced economies of scale within each Multisourcing strategy is a process of engagement resulting in higher production continuous learning and adaptation. In costs. It is important to note that not all this process, the client firm needs to keep functions have significant economies of experimenting with different configurations scale, hence dividing work into multiple in search of an optimal portfolio as the chunks may have fewer consequences. ❛A common wisdom business priorities of both the client and the This is often the case in many types of for resolving the vendors shift over time. knowledge work where economies of tension between To conclude: differentiating between scale are limited to relatively small teams too few and too outsourcing depth and breadth and or groups involved in solving problems or many providers is to considering how each impacts drivers developing new products. In any case, of outsourcing outcomes will help when the client decides to grow its vendor focus on a handful firms develop a strategy that results in portfolio in order to achieve the benefits of strategic “rightsourcing” for them.

such strategy offers, it should also invest in partners so as to EVEN MORE vendor management capabilities (such as address these risks For more on multisourcing see Sanjay Chadha’s the vendor management office) to reduce while avoiding full article ‘Navigating through the complex world of ongoing coordination and contracting costs. lock-in❜ multisourcing’ online now at http://bit.ly/u589Q1 The Richard Ivey School of Business, in London, Ontario, was the first North American business school to set up a campus in Hong Kong. It also has facilities in Toronto.

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natalia levina final.indd 23 18/9/12 10:57:32 P24-25 21000-102818 RES Group DPS.indd 24 17/9/12 13:05:48 P24-25 21000-102818 RES Group DPS.indd 25 17/9/12 13:06:03 APPLICATION DEVELOPMENT OUTSOURCING Application development lies at the heart of the ITO space, a multi-billion-dollar business open to organisations from the world’s largest corporations to one-person start-ups. In the fi rst article of a two-part series, four of our experts give their thoughts on specifi c aspects of this vast, complex and dynamic space…

WHAT ARE THE KEY TRENDS IN THE APPLICATION DEVELOPMENT OUTSOURCING SPACE TODAY? by Stuart Mills, Director of Applications Management UK, Logica

There has been lots of requirement; design; implementation; environment. The role of the outsourcer talk about how much verifi cation; maintenance. The relative ease will have to adapt to this change. The cloud computing will of development, and consequent movement application developer outsourcer change the IT industry. away from traditional processes could lead will need to be profi cient in terms of You don’t have to be to a proliferation of applications that have technology, but also in understanding far-sighted to realise the not been subject to this rigorous lifecycle business processes to avoid falling impact that cloud computing will have, and and the testing that applied throughought. into the trap of development for the considerable step-change the industry This could result in overly complicated, development’s sake. An appreciation is about to undergo. In terms of application unmanageable application portfolios that of the wider business environment will developer outsourcing, cloud also has are diffi cult to service and maintain. enable developers to provide solutions a signifi cant role to play in changing the Users and customers themselves will also not just applications. industry. be more used and expect to be able to “pick In terms of technology, application The principal reason for this is the and choose” apps from apps stores and developer outsourcers will need to bridge simplicity of cloud application services. easily add them to their portfolio which may the gap between the old and the new. New cloud-based apps are far easier extend the problem of apps proliferation. Much has been made of the current to develop and install than traditional These apps can themselves be easily skills gap in cloud services and this is a applications. On the face of it, this extended outside traditional application string that will need adding to the bow. doesn’t pose too many problems and to development processes. However, familiarity with more established a large extent increased fl exibility and I see the problem being one of quality technologies, and understanding how effi ciency is to be welcomed. But, it also control and providing the support required best to bring the two generations together disrupts the traditional software lifecycle: to sustain and service this fast-moving harmoniously, will be crucial.

“Software is like sex: it’s better when it’s free.” – Linus Torvalds

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p26-29 APP DEV final.indd 26 19/9/12 11:10:51 feature Application Development Application Development Outsourcing

@thecitysecret: Deutsche’s call to share IT is a good starting point for a discussion. Is software expensive as it is badly commissioned or is IT at fault?

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p26-29 APP DEV final.indd 27 19/9/12 11:11:00 FEATURE APPLICATION DEVELOPMENT

WHAT DO CUSTOMERS EXPECT OF WHAT ARE THE THEIR OUTSOURCED APPLICATIONS CHALLENGES – DEVELOPMENT AND ARE THEIR AND PITFALLS – EXPECTATIONS REALISTIC? OF MODERNISING by Eleanor Winn, Director, Source YOUR LEGACY APPLICATIONS Organisations outsource addition, the scarcer skills can be diffi cult applications development to fi nd. A service provider will only invest in PORTFOLIO? for many reasons. the skills for which there is demand, and a by Andy Rogers, Business In our work, we have customised version of a legacy application Development Manager UK, Omnext come across the good – running on a mainframe might not be top of cost reduction; the bad – a their pops. The internet-enabled last-ditch attempt to achieve unrealistic For these and the many other outcomes world means that we timescales; and the ugly – an attempt to that organisations are seeking through will become more and get rid of a dysfunctional team instead outsourcing, the main factor affecting the more dependent on the of addressing the problem directly. But odds of achieving what they expect is internet and ICT. which are the most common outcomes that the information gulf that exists between It is an customers are working towards, and how customer and provider. The ability to bridge understatement to say that application realistic are they? that gap and create a clearly articulated, software will only play a steadily In a game of Outsourcing Family quantifi ed (where possible), comprehensive stronger role in society. The call for Fortunes, the top answer would probably and realistic set of expected outcomes quality in that software – which is be “cost savings”, and this remains a at the beginning of an engagement. This controlling more and more of our basic ubiquitous request from the companies that requires a mindset-shift for most customers infrastructure – will only increase. The we work with. It is true that working with an – particularly among the procurement demand for transparency about how, outsourcing provider can be signifi cantly community – from “why should we tell by whom and if and how the correct cheaper than the alternative – based on them that?” to “let’s share everything unless procedures have been adhered to in cost per day alone, the business case is there is a good reason why not”. Nothing software development will also increase. a clear winner. In addition a provider has increases the probability of somebody This demand will not be limited to greater access to specialist skills for short hitting a target like showing them exactly new applications but will push back periods, and is likely to have more mature where it is. into existing systems and will require processes, giving greater consistency and retroactive compliance with standards productivity. However, for developments and guidelines. that require in-depth knowledge of an In the ICT marketplace billions are organisation’s business, the time required to spent on software development. A major get up to speed, clarify questions and rectify proportion of that expenditure goes on the inevitable mistakes, can wipe away the maintaining and enhancing the immense expected savings unless managed very volume of existing legacy systems closely indeed. coupled with the need to integrate with Our second most common requirement new platforms and new applications. is to access a larger, more fl exible resource Legacy systems were developed when pool for development work, particularly the awareness about transparency and where there are peaks of demand. The the impact on society was minimal. provider sales pitch, with its promises of Against this background we see one 40,000 skilled resources, is very seductive, of the principal challenges in working but the customer should be aware that with legacy systems is to be able to the vast majority of those resources will identify the shortcomings and items for be deployed on other accounts, so the improvement on a cost-effective basis. “instant skills access” nirvana is unlikely. In

“It’s hardware that makes a machine fast. It’s software that makes a fast machine slow.” – Craig Bruce

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p26-29 APP DEV final.indd 28 19/9/12 11:11:11 FEATURE APPLICATION DEVELOPMENT

WHAT DO ORGANISATIONS TYPICALLY GET WRONG WHEN APPROACHING APPLICATION DEVELOPMENT OUTSOURCING? by Harry McDermott, CEO, Hudson & Yorke

I am answering this mobile communications strategy of the question from the company has to be integrated with the perspective of the application development strategy. core competence of my company ADO Programme Logistics The process is typically both time- which specialises in Networks do not just appear consuming and resource-demanding*, communications technology strategy and 2 magically from the ether. They resulting in confl icts with the need to sourcing. have to be designed and built. Even respond rapidly to changing business What has this got to do with Application cloud services have to be bespoked needs and to meet the needs of Development Outsourcing (ADO)? Well, for large organisations. The overall transparency. a lot actually, because the performance ADO programme plan must carefully This challenge can be met by of enterprise applications is entirely consider the lead time for the network having the capability to identify dependent on the network strategy of the build, especially if data centres and/or compliance with industry and corporate company and, by extension, the network company offi ces are located in developing standards and collating the resultant infrastructure deployed to carry the economies. What might appear trivial (e.g improvement requirements with the application traffi c. What we see too often the ordering of access circuits to a data impact analysis of any business change is ADO decision-making which fails to centre) has the potential to derail an entire request. Transparency, quality and properly consider mission-critical aspects ADO programme. Believe me, we’ve seen application integrity are then handled of communications technology. In many it happen. more effi ciently and lead directly to a cases, the network is an after-thought. This sustainable reduction in technical debt. is wrong... and a recipe for trouble. Governance of the ICT This capability must be automated and Broadly speaking I would advise Operating Model matched to the volatility of the specifi c anyone to ensure their ADO strategy is 3 The third area that requires careful application. underpinned by a robust communications consideration is the governance of the ICT Governance and management control technology strategy. In particular, I would operating model. It should be obvious from can then be established as part of on- recommend that three key areas are above that the inter-dependency between going activities meeting both society’s considered: applications and networks is unbreakable. needs and corporate expenditure goals. Therefore, if network services and *(Industry research shows that Network Architecture application development are outsourced to some 50 per cent of development The network architecture must be different third-party organisations (which and maintenance time is spent on 1 compatible with the information is the norm in a world of ‘best-of-breed’ initial impact analysis of a change architecture and application architecture sourcing) there is a strong governance requirement and that 50 per cent of the of the company. The decision to centralise, responsibility on the part of the client to impact analysis is spent on analysing regionalise or localise the development ensure that the inter-vendor communication unidentifi ed dead or redundant (and/or hosting) of applications must be and collaboration is strong. Otherwise code and is further hampered by accompanied by a compatible network there is potential for misalignment of undocumented complexity and code strategy. Quite simply the network objectives, disappointment with the clones. Identifying these shortcomings architecture will change depending on how outcomes, and confusion regarding the and monitoring the ensuing solution the applications are to be developed, where root causes of particular problems. activities is a key driver in improving they are to be hosted and from where they Get these three things right, and the source code quality.) will accessed. And if applications are to chances of a successful ADO programme be available on mobile devices then the will be greatly enhanced.

@will_j: Hey, open source software peeps. If you release an API breaking feature in a minor release just to keep the version low I will hunt you down

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p26-29 APP DEV final.indd 29 19/9/12 11:11:28 Are You Fat? Edward Brooks is a man on a mission: to get organisations who took the shared services path a few years back to take another look at the outsourcing business case. Why? Because, he says, there’s a huge amount of fat to be trimmed…

Edward Brooks, TheFAOprogram.com

Edward Brooks is a consultant with over 12 years of outsourcing experience, leading on over $5bn-worth of deals across F&A, HR, Recruitment, IT, Customer Services, Clinical Research, Facilities Management, and more.

t is worth dusting off those old shared Fast forward to 2012 and I can honestly available for back-office services, Finance service centre business plans. When say that every client I’ve had in the last two departments are now taking a fresh and organisations set up SSCs in the 1990s years has been shocked at the strength of more sophisticated look at what outsourcing and early 2000s, most paid lip service to their business case for finance outsourcing, can deliver. outsourcing. It was usually mentioned even after years of operating an SSC Ias a likely future option, but that they would environment. The Cost Play be able to deliver most of the savings In the “new normal” world of zero or low Do your staff cost you an average of internally, by themselves, via shared services. economic growth, and with little investment $34,000/£22,000 per person, fully loaded,

@shaynarae: Note to self: bring a jacket to Finance. It’s COLD.

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ed brooks final.indd 30 18/9/12 16:37:41 feature F&A Outsourcing

fully trained, including all overheads and Leveraging it could eventually lower the supplier’s leadership costs? From any shared service ❛a supplier’s revenues. Recognising this difference in centre I’ve seen in the US, UK and Europe, operating mentality starts to explain why those are pretty much entry-level salaries, investment in deep specialisation delivers hugely different regardless of all the additional employment the core activity productivity rates compared to any finance taxes, operating costs, and management that drives operation within an organisation where costs attached to every position. their revenues – finance is a support activity, not a revenue- In 2010 I came back to advising on delivering finance driving activity. Finance outsourcing, after a few years operations – is When evaluating suppliers’ bids there consulting on other areas of BPO. With my almost never can be a lot of words and loads of diagrams, first client we wasted two days reviewing recognised as a Day only some of which make sense. It is easier, a business case that we assumed to be 1 benefit when trying to make comparisons and flawed because it showed savings of 47 per ❜ rankings, to dwell on the “toys” that are cent. Needless to say, the model was right Address the following questions: being promised within the deal. The good and I had to bluff that I was not actually too How much will you invest in improving news is that this is a clear demonstration of surprised. your finance operations in the next 12 how much the suppliers have invested in I was similarly cautious with my second months? their core business. The less-good news is client, despite the model showing 43 per What process automation will you be that, until the suppliers have really engaged cent savings, advising them that the figure delivering this year? with your operations and IT teams, there is was 25+ per cent. It was not until well into What percentage of your staff are Lean- or no way to know if they are really applicable the project that we shared the true extent of Six-Sigma-certified? to your business, no matter how attractive the opportunity. What is your Lean/Six Sigma training they sound. The key point is that these “entry point” budget for 2012? However, these “toys” do have a numbers make it almost criminal for any Are the results of any process measureable financial benefit. A recent CFO to not even take a quick look at the improvement project guaranteed to deliver client had been looking to invest $0.5m in a 2012 case for outsourcing. They would not results? reconciliation automation tool. The supplier let other departments away with maintaining The market in the delivery of outsourced they chose brought this to the table, priced similar ignorance of the facts – even more transactional finance services is very as part of the deal. Aside from the financial so in this business climate. mature. In three of the last four deals that saving benefit, the tool would reduce the Many things have happened in the last I’ve led, ranking of the suppliers’ bids has closing period by two further days. few years to reinforce the pure financial been so close that we’ve had to force rank Other examples of tools and services that business case. SSCs have experienced the bids in order to get to a shortlist. All the can be embedded in deals include: wage creep, and added one or two extra suppliers recognise this, and that is making Collections and cashflow management job levels in the hierarchy, despite making for a much more creative, value-driven Period end closing trackers headway in productivity. Competing offering. In doing so, they are addressing Optical character recognition against that, the suppliers have established the perennial complaint about outsourcing Document/mailroom management commercial models that can clearly state that transformation is neglected. Duplicate payment auditing the number of FTEs required to carry out Even at an entry level, your outsourced While any value-add service is a specific volume of activities. Further, they delivery team will be near to 100 per cent never actually free, and there will be can put a clear price (fully loaded for all Lean- or Six-Sigma-trained. One of the implementation costs at your end, the costs, investment, risk, and profits) against revelations of site visits to the outsourcers cost will be transactional and the risk and each job level of the FTEs they would is the sheer passion that the delivery teams outcomes will be underwritten as part of the deploy, making the final business case very bring to every client. The prospective clients original or amended outsourcing deal. easy to calculate. who take floor walks of existing operations The main caveat here is just to be careful always comment on the drive, engagement, when procuring services. Shiny toys can The Value Play and hard, proven business improvement suck you into a supplier but you need to Leveraging a supplier’s investment in the case studies that are discussed on the tours. work out at an early stage the practicality core activity that drives their revenues – Process improvement is just a way of of implementing them, bearing in mind delivering finance operations – is almost life at suppliers, from the ground up. And that you will be going through a complex never recognised as a Day 1 benefit. staff are incentivised to do it, even though enough change programme. If they are

“Many people are in the dark when it comes to money, and I’m going to turn on the lights.” – Suze Orman

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ed brooks final.indd 31 18/9/12 16:37:50 feature F&A Outsourcing

going to have an impact on the supplier’s or just increased volumes? can be foreseen and planned via the normal productivity you had better profile their How quickly can you get the headcount service management procedures. arrival at the right time in the business case. sign off to increase volumes? Planned reductions in volumes can occur That is highly unlikely to be Day 1, and may What are the onboarding costs (e.g. on a timeline determined by the client. not even be in Year 1 of the deal. recruitment, training etc) of adding new Unplanned reductions may take eight or staff? more weeks to filter through to the monthly The Risk Play What is the time between recognising the invoice. Suppliers take differing views on Cost and value are easier to address in need for increased volumes and having the how they recoup their investment in deals, financial terms than risk, but it doesn’t make resources in place to deliver them? so scenario-planning should be taken early it easy to ignore these questions: In the modern employment world, on with the down-selected suppliers. Does all the finance delivery risk sit within temporary resources can give much upside your organisation? flexibility. Employed for longer, they can Making It Work – Addressing Do you have a clear set of commercially also provide the downside flexibility. Until The Emotions viable and commercially comparable service then, they come at a premium that will At this stage in the market’s evolution, the levels that underpin your daily performance? blow the $34,000/£22,000 fully loaded cost data is available to carry out a detailed Do you provide your internal clients comparison out of the water. analysis of your options. With clients it with full guarantees, backed up with cash From a 2012-2017 planning perspective usually only takes a couple of weeks to penalties, payable monthly, to underpin the I always challenge clients to map out get to that point. As an advisor, the really quality of the services you deliver? the widest possible range of events that interesting development to see is the The risk play emphasises that suppliers emotional life cycle that the key influencers take delivery risk from your organisation and ❛Process (usually process leads) go through. commit to delivering services at a similar improvement is just They usually start the deal cycle or better-quality level than you currently a way of life convinced that “we are just different”. provide. This is always framed around at suppliers, from During the following months they realise a set of “no BS” measurements that are the ground up that their services are not very different. quantifiable, trackable, and relevant to both ❜ By the time you have carried out reference you and the supplier. could impact their business. We then calls and site visits to see live, outsourced In reality, for the first six months at carry out an exercise to ensure that their operations, key influencers recognise least, service levels will probably be set delivery operations – whether insourced that most of what their finance operations very similar to your current performance. or outsourced – are able to address those perform is actually transactional, relatively However, at contract signing, the supplier scenarios at a cost and speed that is low value-add, and very similar to most will sign up to year-on-year improvements proximate to the event. other organisations’ finance operations. for up to five years, that always have to be This is all based on a lot of tough backed up by service credits against your learnings from the last four years. Looking Outwards monthly invoice. One client, who I recently advised on Any organisation that is running an onshore renegotiating their arrangement, had shared service operation, established The Strategy Play only factored in upward growth in their between 1995 and 2008, should run the So far, the common theme across the contracted volumes. The concept of their 2012 outsourcing business case. Whatever cost, risk, and value plays can almost be business shrinking had seemed alien when benchmarking you have carried out in condensed into three words: “more for less”. negotiating their first arrangement in 2007. the past cannot replicate comparing your The strategy play applies almost a supply Their new contract takes as its starting point delivery costs, value, risk and strategy with chain approach to meeting your future the need for a delivery model that adapts what is available in the commercial market. delivery needs, whatever scenarios play out. operationally and commercially to all future Other departments would require very good The questions to ask are: volume scenarios. excuses if they were happy paying 20+ How much will it cost to reduce delivery Within the certainty of zero or low per cent more for a less robust product or capacity? economic growth, it is the strategic service. What fixed costs will you be left with, even attraction of outsourcing that should provide after reducing headcount? confidence. Suppliers should be able to EVEN MORE What will the cost be of increasing react to upturns in your volumes within a For more from Edward Brooks check out his article capacity, whether to deal with an acquisition matter of weeks. Most events causing this ‘Back To The Future’, online at http://bit.ly/PFBAn0

Consendre mod eugait alit luptati sisisisit augait num iusti facidunt ipsumsan el eraestrud exerat ad onulla cor ing eumsandre ex elit @PDA82: People from India that are at my office are so nice. I wonder if its cause they know they are taking our jobs. #outsourcing atetue tet ulla feu feum niamconEm ea commodiam ad tem dolortio Utat lum quisim et, quissi.Volobore m iurero dolobore.

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ed brooks final.indd 32 19/9/12 13:49:44 P33 21000-102850 Logica FP.indd 33 17/9/12 13:07:03 The Future of BPO Is the future made of automation and analytics – and Extreme BPO?

Cathy Tornbohm, Gartner

Cathy Tornbohm is Vice President BPO Research for Gartner, researching and advising on sourcing strategies for BPO in general and F&A BPO in particular.

n the 19th century, “…most large FIGURE 1 households had a still room for distilling spirits and here were brewed an exhaustive repertoire of items: inks, weedkillers, soap, toothpaste, candles, Iwaxes, vinegars and pickles, cold creams and cosmetics, rat poisons, flea powders, shampoos and medicines, as well as solutions for removing stains from marble, for taking the shine off trousers, for stiffening collars and even for removing freckles.” Bill Bryson, in his recent book At Home, goes on to talk about sending your laundry home from the city on the train to be washed by your trusted servants! In his study of the history of homes it really struck me how much similarity there is between what has happened with how much organisations now outsource and the changes in what a stately home used to make for itself which it now sources externally because it can. This issue of evaluating whether the external world has a service worth buying will be a constant part of many an organisation’s evolution for the next ten years – so you'd better get good at it!

“What does the future, that half of time, matter to the man who is infatuated with eternity?” – Emile M. Cioran

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Cathy tornbohm final.indd 34 18/9/12 16:39:34 feature BPO

It is remarkable how far BPO has FIGURE 2 progressed in the last ten years to become a $135bn global market in 2012. It has moved from a service that initially supported mostly data entry, payroll and call centres to now supporting financial report and account preparation at year end for many large corporations, and complex analytical insight. The adoption has latterly seen much more sophistication added to automatic data entry and clever intelligent voice recognition systems added to customer management centres. All of which allow BPO to deliver greater business benefits than in the past. BPO providers in the main have spent the last decade realising that for transactional services only providing lower-cost labour is not a sustainable long-term plan for most types of BPO. Economically, this approach means that revenue can only grow as they add staff – and providers don’t really want such a linear relationship. They would like to be able to provide business process services that are mostly independent of how FIGURE 1 many staff are involved. ERP landscape an organisation could be industries, can be outsourced. This last decade of BPO adoption has living with. Note that for services these are Essentially, we are pretty much still at proved that processes can be conducted bought in typically via the BPO provider the start of understanding what can be cheaper in remote locations and that if you to support processes: for example, an outsourced to a service provider. This can put a rules-based procedure around the electronic invoice provider or a maternity is especially true in the area of analytics process, then you can likely outsource it. specialist. Most BPO providers are making outsourcing for which we are in reality The next decade of BPO will be about significant investments in these PETS tools at the very early days of understanding increasingly automating business processes to either automate data entry or improve what service providers can do to help which might not have been looked at for a processing, or allow high-end analytics. organisations penetrate and investigate decade, and creating multi-user services PETS will be the new crucial way of the mountains of big data the internet is – for example micro-payment systems or evaluating a BPO provider. Questions to currently producing and likely to produce online recruitment services – and seeing ask when reviewing providers will be: do (and that’s before we move in to the where cloud-enablement can take over they have PETS that fit your industry? Are “internet of things” when objects such as BPO. This automation of processes Gartner they complementary to your existing needs? house robots, your domestic appliances terms PETS (Process Enhancement Are the PETS going to help reduce the and utility meters will all be wired up to the Technologies and Services), which is simply cost of processing and increase the quality internet to pump out even more wonderful a big collective noun for all the tools that of the processing? Trust me, these will data to be interrogated). service providers are investing in that can be much better questions than asking for Interestingly, several organisations have ultimately service multiple clients. Examples transformation and innovation, as it is PETS heavily embraced BPO, including BT, P&G, of process enhancement technologies that are a critical component of providing Unilever, many closed-book insurance include the use of even clever IVR that can improved processing capabilities. companies and the BBC. This clever line up the grumpiest of callers with your The future of BPO will also be about weaving of internal and external processes most professional agent. Or well-designed exploring what other high-end processes will be the norm for many companies as business process management suites that can be outsourced. That is, those business the next decade of BPO adoption moves sit on top of clients’ existing infrastructure activities which need highly educated towards more automation, and might find a and beautifully complement even the worst folk who are highly knowledgeable about new era of extreme BPO emerging!

“This is the first age that’s ever paid much attention to the future, which is a little ironic since we may not have one.” – Arthur C. Clarke

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Cathy tornbohm final.indd 35 18/9/12 16:39:46 Digital by Default Ninety per cent of organisations believe the ability to provide a joined-up, multi-channel experience is vital to success. So why do 70 per cent confess they don’t do it?

Mike Havard, Ember Services

Mike Havard is Director of Ember Services, a customer management consultancy offering forensic benchmarking and strategic and operational support. He has over 25 years’ experience of customer management strategy and operational delivery.

“The golden rule for every business man is this: ‘Put yourself in your customer’s place.’” – Orison Swett Marden

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Mike Havard final.indd 36 19/9/12 13:53:30 feature Customer Management

he drive towards multi- The route economic sense. Carphone Warehouse, channel, increasingly non- t❛o success for example, has used video on demand voice customer contact is starts with a to deliver top-quality service at low cost. inexorable for two reasons. Eye Openers, a YouTube channel, provides First, because consumers comprehensive short video clips, made by contact centre Tdemand it. Second, because the economics re-evaluation of staff, that offer help and information about are so attractive. Online transactions are an organisation’s different phones and their features. Since its carried out at a fraction of the cost of a contact strategy launch in November 2009, Eye Openers has phone call. However, if all of this is true, ❜ received more than six million hits – each why have many organisations found it so of which may otherwise have become an hard to wean customers off the phone and expensive technical support desk call or onto other channels – especially for service visit to a store. interactions? Most often, it is because multi-channel delivery falls woefully short of Remove the barriers customer expectation. Slow response times, Carphone Warehouse is an excellent unclear information and non-intuitive online example of a company that has not only navigation leave consumers frustrated and introduced lower-cost channels but reaching for the phone. optimised and promoted them to maximise So, if consumers want to use low- usage. Too often, companies introduce new cost channels, and businesses want to channels and then, when usage is low, write encourage them to do so in the interests of default strategy is to analyse and categorise them off as failures. There are often very business efficiency, what needs to change the reasons for customer contact and then simple barriers that, once removed, will to make it happen? to identify which channels will improve lead to success. Our exhaustive study of organisations the speed, ease of use or value of the Bill payment is a good example. More recognised as pioneers in multi-channel organisation’s response. For example: and more organisations now allow online delivery has convinced us that the route Customers seeking to validate bill payment – cheaper for the organisation to success starts with a comprehensive information – package delivery details, to operate and easier for the customer to re-evaluation of an organisation’s contact flight or train times – will be happy to do so use. But, take up has been slow. Concerns strategy. Instead of looking at emerging online, providing the information is accurate about online security may be part of the channels and seeing how they can be and up to date. problem, but experience tells us that the shoe-horned into the existing contact Customers experiencing service issues lack of human confirmation is a contributory centre status quo, organisations need – poor broadband performance or mobile factor that a simple confirmation email to rethink end-to-end customer contact coverage for example – are likely to review or SMS could overcome. Overcoming management with the assumption that they their peers’ experience via social forums, consumer uncertainty about transactions is will offer digital channels unless there is a or to contact the provider direct via web an important point. Surrey County Council compelling reason not to. In essence, they chat or instant messaging. They will opt for recently moved its school applications must become "digital by default". public channels because their query is ‘non- process online. However, parents’ personal’. natural anxiety over so important an issue Digital by default Customers wanting to resolve a personal prompted them to call to make sure their Reconfiguring customer contact strategy query – check a bill or progress an online application had been received around the principle that digital channels application – won’t choose public channels, or to check on progress. Contrary to the will be the default choice for consumers but will opt instead for a phone call or swift Council’s intention, calls to the contact depends upon one significant and obvious email response. centre actually went up! They are now factor. Namely, consumers have to believe Making a clear distinction between looking at ways to use SMS, email and other that, in the overwhelming majority of cases, one-on-one personal channels and one- channels, not just to acknowledge receipt, digital channels will offer them better on-many public channels is important but to provide proactive updates on the service and faster resolution than the phone. since the latter are, as a rule of thumb, application’s progress. In short, digital channel delivery must be considerably cheaper to deliver. Bowing to The key is to think through the entire exceptional. the consumer preference for speedy online interaction process, rather than just identify The first step in mapping a digital by access in these cases, makes absolute a cheaper means to do a single part of it.

@unfortunatalie: TMOBILE UPDTE! Yesterday, I posted a blog on my terrible experience with @tmobileuk (http://t.co/WgYKdEms). Last night, they cut me off.

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Mike Havard final.indd 37 18/9/12 15:49:10 feature Customer Management

Our research has revealed a clear divide if customers are calling because other between organisations that have looked channels have already failed, speed to at their contact strategy in an integrated answer must be a priority. Businesses way, identified where digital channels can may have tolerated a five or ten per cent improve the customer experience and abandonment rate in the past, but will find invested accordingly, and those that are that this is no longer acceptable. simply looking at online channels as a Many traditional customer management cheap alternative to high-cost interactions. metrics can effectively be replaced by the The former are succeeding, not only in "customer effort score". This is a method of terms of enhancing customer service, but rating how easily customers can undertake saving money too. They are also achieving various interactions via various channels. wider organisational goals, such as loyalty, It is based on the understanding that the engagement and advocacy. The latter are easier something is, the more likely people not even achieving their cost-reduction are to do it. BT analysed customers’ online targets, because the digital options behaviour and identified moments when they deliver are not effective enough to customers appeared to struggle with the encourage customers to use them. process. They now intervene and offer a web chat to help them over the hurdle. Though Transform the this is necessary in less than two per cent of contact centre online visits, these visits account for about Even in successfully "digital by default" 20 per cent of BT’s consumer online sales, organisations, the contact centre continues proving that proactive intervention can to play a pivotal role. There are times when save the day. Customer satisfaction with a one-on-one non-public conversation is the service is an impressive 86 per cent the only thing that will work. Companies but, equally importantly, almost all say they that have tried to operate without a contact would have contacted BT by another (more centre have discovered this to their cost. expensive) channel, had they not been We are aware of several online retailers offered web chat. who have opted for this route only to find that their disgruntled customers, unable to The business case resolve problems or vent their frustration, The business case for becoming digital took to the web, publishing damning by default is compelling: lower cost plus remarks on public forums. The simple higher customer satisfaction and sales. lesson is this: if you don’t allow customers to However, no one said it is easy. It demands resolve their issues with you privately, they The first step in a willingness to challenge the status quo, will castigate you publicly. mapping❛ a digital by develop new skills, embrace innovation and, In the digital by default environment, calls default strategy of course, to invest in new technology and to the contact centre will decrease, but their processes. The penalties for not doing so, importance will increase proportionally. is to analyse however, will be considerable. Organisations Customers will opt to call because their and categorise will find themselves landlocked into query is particularly urgent, complex or the reasons for increasingly expensive contact channels significant, or because attempts to resolve customer contact with progressively lower levels of customer their issues by other means have failed. and then to identify approval and advocacy. The evolution Either way, it is important to respond quickly which channels of customer contact is inexorable and – and well. Traditional contact centre metrics will improve the potentially – hugely beneficial. Embrace it. will have to evolve to stay relevant. speed, ease of use For example, if every call is a complex EVEN MORE one, call handle time becomes less relevant or value of the For more on the customer experience see our case than resolution. The economic priority organisation’s study featuring Zynga and TELUS International online isn’t throughput, but call outcomes. Or, response❜ now at http://bit.ly/Oo90tZ

Consendre modEmber’s eugait alitresearch luptati paper, sisisisit ‘Becomingaugait num Digital iusti facidunt by Default: ipsumsan New thinking el eraestrud for multi-channel exerat ad onulla effectiveness’ cor ing eumsandre ex elit atetue tet ulla feu feum niamconEmcan be downloadedea commodiam free adof charge tem dolortio from www.emberservices.com.Utat lum quisim et, quissi.Volobore m iurero dolobore.

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Mike Havard final.indd 38 18/9/12 15:49:46 p39 21000/101910 SIEPA FP.indd 39 17/9/12 13:07:50 The Face of Finance How do you – and should you – deal with your internal customers?

Ralph Geertsema

Ralph Geertsema is an independent advisor on finance transformation working with clients looking at how to implement ERPs, drive SSC build and stay compliant in one effort.

Hugo Aaldering

Hugo Aaldering has gained significant experience in large ERP implementations and business process re- engineering within various multinationals. Currently, he is working with Canon Europe with a main focus on (re-) structuring a €2,000m rental and lease portfolio.

n the transformation of the Has SSC creation been able to FIGURE 1 transactional finance function from save the face of finance? back office to a service function we Our operational colleagues weren’t very need to consider how we define impressed with the finance function as they customers, what service levels we were interfacing with multiple departments: Ioffer to different customers of the finance AP and procurement for the ordering of function and who will eventually manage the services and equipment; AR, collections customers of the finance function. and sometimes billing for all the customer- Traditionally finance has been a back- related activity. Finally all the commercial office support function which tended (bids) and non-transactional finance to have multiple interfaces with their (operational reviews, budgeting, planning) driven and very controlled environments colleagues in the business. In most internal was dealt with by the business controllers. with a strong compliance focus. Not only support functions the main customer is (See Figure 1). are the controls fully documented, most usually the boss, so finance was mostly The first generation of shared service SSCs also document the adherence to them looking internally and up, with the Chief centres (SSCs) were designed to offer and do regular internal testing to ensure Finance Officer as the most important maximum output of transaction against a and be able to prove the quality of service customer. lower cost base. SSCs were by nature rule- delivered.

“I don’t care a damn for your loyal service when you think I am right; when I really want it most is when you think I am wrong.” – John Monash

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p40-41 Ralph Geertsema final.indd 40 19/9/12 09:48:17 feature FINANCE

An operational manager nowadays could FIGURE 2 an AP helpdesk only rather than a procure- be suffering more as most functions in to-pay support). Most of the customers are finance can and do have a retained function, looking for end-to-end support to ensure a nearshore local language helpdesk and they get support for their business need an offshore delivery centre. – i.e. “we need to ensure we get paid on It is is not unlikely that this model is time for this service” and not “we can’t start replicated for procurement, AP, AR, billing, collections because the billing team has collections and management reporting missed the bill run”. – sometimes with different vendors and different support systems. It is not The role of the business uncommon that an internal customer trying controller in the second- to complete a basic procure-to-pay cycle generation SSC will have to engage with at least ten different The business controller will be an important internal units in order to complete a basic reimbursement. Understanding the element in the service provision to the transaction. service level and support offered to the operational manager. Second-generation Innovation in complex multinationals is internal customer is important here. SSCs can manage most of the day-to- next to impossible to execute as employees Common policies nowadays are that day queries and the standard reporting need to overcome system architects, design employee expenses are paid weekly, status requirements through their service councils, security compliance, vendor information can only be obtained through layer. However, non-standard reporting negotiations, new vendor creation – and a self-service portal and there is a sample requirements and in-depth business then overcome hurdles of basic support audit of claims to reduce internal cost. It is analysis need to be performed or managed functions like application support or IT important to ensure that all stakeholders by the business controllers. security. It is not uncommon that these involved are fully aware that this is a no-frills Once the service mentality and processes take more than nine months to service, with minimal support effort. capability has been established the big complete – or even stop innovation projects It is equally important to understand that global corporates have been pushing to completely. the quality control question is not whether set up multifunctional centres containing Order-to-cash cycles are even more processes were executed in a compliant finance, procurement, HR, service delivery, notorious as endless negotiations between manner, but if the correct business customer service and sometimes even internal stakeholders renowned for the objectives were achieved. There are many more complex functions like legal and tax disconnect between the bid-to-order examples where SSCs have clearly followed compliance. The logic behind this is that process and the order-to-cash process. all documented processes and controls once service support infrastructure and First-generation SSCs created very robust (and completed audits with all accolades) culture is built this can then be exploited for transactional centres; however they do not and still do not make the business multiple internal functions. have a defined interface model with the successful in achieving their objectives. The evolution of the finance function operational customers and are sometimes Famous outsourcing cases include war from a back-office operation into a fully even considered a “hidden finance stories of significant breakdowns in fledged service operation is not an easy function”. service – like disconnecting a customer, transformational journey. Building up a not accepting service requests or causing service layer in the SSC organisation that is So what is needed to make supply chain delays. (See Figure 2). transparent, uniform and easy to deal with, this model work? Thirdly it is critical to create a service is not an easy assignment. This journey First of all, identify and define your infrastructure that manages the customers; starts, in the way Covey describes it: “Start customers of the finance function, who this includes service processes, service/ with the end in mind”, with a clear customer they are and how to create a proper helpdesk teams and also systems to and service goal for each process to ensure segmentation between them. support this (like trouble ticketing systems expectations and delivery are in sync. The Secondly, understand what the service or in IT). It is important to understand that last step is to exploit this service mentality value is that is offered to your customer and customers need to be followed and across multiple internal functions. how they are dealt with. serviced throughout the entire process. This is not rocket science: as, for Especially in outsourced relationships the EVEN MORE instance, all employees are customers outsourcers tend to bring a service support For more from Ralph Geertsema check out his article of finance for employee expense system for their part of the process only (so ‘In The Know’, online now at http://bit.ly/O1bSPy

“I’m a big advocate of financial intelligence.” – Daymond John

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p40-41 Ralph Geertsema final.indd 41 19/9/12 09:48:24 PROCURING EXCELLENCE It’s boom time for procurement outsourcing – but what’s it all about? We put some of the most pressing questions in the space to our team of experts…

“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” – William Feather

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procurement final.indd 42 18/9/12 11:00:46 FEATURE PROCUREMENT OUTSOURCING

f the hoary old adage is correct that one should keep in-house what one does best, and outsource the rest, it may seem par for the course that an organisation should consider outsourcingI its procurement function: after all, procurement isn’t core in the same way as, for example, building aeroplanes is for Boeing or Airbus. However, for many organisations procurement remains as core as non-core possibly gets: buying goods and services as effi ciently and as cheaply as possible has such a huge impact on P&L that many companies simply won’t consider loosening their grip on what they consider IS PROCUREMENT OUTSOURCING to be a business-critical function. Nevertheless, procurement outsourcing ABOUT FINALLY TO TAKE OFF? is on the rise. As familiarity with and By Peter Smith, Editor, Spend Matters UK/Europe expertise in the broader outsourcing model deepens and permeates business, and In the best spirit of when an organisation outsources IT or HR, as the capability of providers increases to opinionated, decisive and a chunk of associated procurement deliver effi ciencies safely and in a manner market analysts, I would spend and activity goes with it. which doesn’t interfere unduly with the confi dently predict that – A vertical slice might mean outsourcing organisation’s core activities, more and well, maybe... a process step across multiple categories; more buyers are choosing the outsourcing Actually, the problem perhaps market and supplier research; or route for part or all of their procurement is not so much the “is it about to take supplier registration and verifi cation; or functions. If it is still perhaps the case off?” aspect of the question. It’s more the running complex sourcing events. Or a third that procurement outsourcing has yet to defi nition of “procurement outsourcing”. way of cutting it is geographic: outsourcing hit the real outsourcing mainstream – as Because if we look at what was the procurement in countries where the an AT Kearney report from early last year historical lift-and-shift business process organisation has yet to build a strong base, has it, “procurement continues to trail outsource, probably involving some for instance. other functions in outsourcing. Why is that offshoring of lower-value work, then no, it is We’re seeing growth in these areas; fi rms the case? Because it’s not that easy to not about to take off. Indeed, some of the such as Procurian and Proxima who focus do” – we are certainly seeing more than highest-profi le deals of that nature weren’t on category expertise rather than process PROCURING EXCELLENCE enough examples of this being carried out a success (no names mentioned) and that cost reduction are doing well, as are players effectively within organisations large and has perhaps infl uenced the market away like Achilles, who handle a vertical slice; small to suggest that the tipping point has from the end-to-end model of procurement running industry-wide supplier qualifi cation, been reached and passed. outsourcing. risk and information processes for their Over the next few pages we hear from But if we widen our perspective customers. a number of experts from very different somewhat, then the evidence is that we’re So, I don’t see a boom coming in corners of the space, offering their already seeing pretty strong growth. massive, headline, transfer-everything responses to a range of distinct questions in The wider view looks at all elements of deals; but I do see steady growth (or maybe an attempt to build up a snapshot of at least the procurement function and process, even a “take-off”) in providers running part of the procurement outsourcing space and sees opportunities for outsourcing aspects of the overall procurement picture. as it is today. Of course, as always we’d love service providers to take on vertical or Indeed, and increasingly, a key element of to hear your own thoughts and experiences, horizontal slices across that picture. So a the procurement leader’s role is therefore so if you’re involved in procurement horizontal slice means outsourcing on a to blend internal and external provision of outsourcing and have some stories to share, category spend basis, either to a specialist services, in the most effective manner, to feel free to write to the editor at jamie. procurement provider or indirectly, as deliver the function’s overall objectives. [email protected]

“Buying is a profound pleasure.” – Simone de Beauvoir

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procurement final.indd 43 18/9/12 11:00:55 p44 21000-102502 PIKOM FP.indd 44 18/9/12 15:05:15 FEATURE PROCUREMENT OUTSOURCING

WHAT ARE THE KEY TRENDS IN PUBLIC SECTOR PROCUREMENT OUTSOURCING? By Chris Graves, Head of Procurement – Services, YBO

The overriding trend to the fact that by outsourcing procurement within the public there is still a requirement to comply with sector since the – amongst other things – the OJEU public Comprehensive contracting regulations, the Remedies Spending Review in Directive and the recent Public Services 2010 has been the (Social Value) Act. The opportunity to requirement to deliver cost savings on create more agile procurement systems is a scale never seen before. signifi cantly reduced as the outsourcing This issue has become a triple threat partner is in essence acting as an agent as many Local Authorities have had to of the contracting authority. Equally as make large-scale redundancies to meet other elements are outsourced, a strong the reduced settlements and little or no procurement function is needed to ensure WHAT ARE THE KEY funding has been made available for effective contract management of the SKILLS REQUIRED national or regional agencies to support outsourced service is maintained. IN THE RETAINED better procurement. Shared services have evolved beyond the Whilst there appears to be a growing traditional landscape of HR and fi nancial TEAM FOLLOWING trend for more public sector bodies to services into procurement with a number A PROCUREMENT outsource parts of statutory delivery of public sector bodies looking to share requirements such as waste collection resource across a wider base which may OUTSOURCING? By Brian Nolf, Partner & Global SCM and back-offi ce services such as IT, enable more category or commodity Practice Head, Wipro Consulting the trends regarding procurement expertise to be applied in high-spend or Services outsourcing are mixed. We have risky areas. Equally though, I am aware seen some look to leverage private that some public sector bodies who were sector expertise with either partial or early adopters in this trend are looking The retained and the full outsourcing of their procurement to re-establish their own identities for outsourced organisations operations whilst others have recently procurement again after only a few years of are essentially two sides exited long-standing arrangements with a shared service function. of the same coin. the private sector to bring the service The public sector buying consortia are The combined team back “in-house”. This is in some way due working better together than ever, with comprising the outsourcer some collaborative arrangements in place and the retained team should enable PUBLIC SECTOR on areas like multi-functional devices and IT the procurement function to work as a ❛ hardware really improving the terms under 21st-century organisation – offering an BODIES WHO WERE which the public sector can procure these industrialised, high-quality, virtual, global EARLY ADOPTERS products. There is more to come in this area source-to-pay process at an optimal IN THIS TREND ARE though as pure service-type contracts are cost to serve. The retained organisation LOOKING TO RE- reviewed, such as consultancy, insurance in particular plays a pivotal role in the ESTABLISH THEIR and business travel. development of a strong relationship OWN IDENTITIES Ultimately each public sector body between the business functions FOR PROCUREMENT needs to balance the demands of reduced (engineering, production, fi nance, sales budgets alongside the political and coercive and marketing) and the outsourced AGAIN AFTER ONLY pressures under which they operate, which, organisation in delivering seamless A FEW YEARS OF A in part, explains why different approaches services. SHARED SERVICE to procurement outsourcing are being taken In order to allow the procurement FUNCTION❜ across the sector. function to deliver as a 21st-century organisation, the retained organisation >

@okirk_: ordering things online is more exciting than buying in person I think

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procurement final.indd 45 18/9/12 11:01:59 FEATURE PROCUREMENT OUTSOURCING

has to perform three main roles: A) Partner with the rest of the business and the network of suppliers. In order to partner with business, the retained organisation should possess skills to liaise, interface and partner with other service functions. The key skills required to support this include: strategic planning, overall supply planning and demand alignment, value engineering and cost-accounting, hedging and risk- management, negotiation and contracting and change management. B) Govern the relationship with the outsourced organisation using “sense and respond”. As a governance arm, the retained organisation should invest WHAT ARE THE MOST COMMON in roles and skills that act as nodes for “sense and respond” to ensure integrated CAUSES OF FAILURE IN PROCUREMENT service delivery, integrated vendor OUTSOURCING RELATIONSHIPS? management and to map and manage By John Gorrell, Principal Consultant, Orbys interdependencies. The “sense and respond” mechanisms allow the retained The procurement The second niggle that can fester is organisation to effectively monitor the outsourcing benefi ts the supplier’s failure to remove the client performance of the processes, reacting case has a number of from the buying cycle. The reasons only to performance anomalies. As a components. These may be outside their control (e.g. third governance arm, the retained organisation include: parties unwilling to operate through an should also have a good understanding ● improved buying intermediary), but the result is clients of the outsourcing model and strengths of power through aggregating demand; feeling they are paying for services that the outsourcing partner to deliver business ● improved cash fl ow through better they still transact. In the worst cases this returns or savings through the combined framework terms; can lead to a steady reconstruction of the team. ● reduced procurement cost through procurement department to man-mark the C) Act as a Centre of Excellence hub shared transactions/negotiations; and supplier. and a change agent. The retained ● a slimmed-down retained organisation. Finally, suppliers can be guilty of organisation should continue to invest in Each has the potential to deliver a one-size-fi ts-all approach and don’t skills for expertise in company specifi c gains, but each also holds a risk of react responsively to changing market knowledge such as creating a “Sourcing disappointment. dynamics. For example software licensing COE” for commodity management and We have seen three key shortfalls in costs are inextricably linked to the market knowledge, tax planning, and best supplier commitment that hurt the client/ hardware confi guration. The optimal practice adoption. In addition, the retained supplier relationship. licensing package and upgrade cycle for organisation should serve as the change The fi rst is supplier unwillingness to a particular client may be out of synch agents to cascade the case-for-change, “copper-bottom” savings, refusing to take with the supplier’s framework creating a impact-of-change and education-for-change on the risk in contracts and pricing. This perception of ineptitude or worse. adoption through the business and supplier “jam tomorrow” offer may refl ect a lack of To reduce these risks or, at least, community. confi dence in their benefi ts delivery, but expose them amid the sales hype, it In essence, the retained organisation may equally have something to do with is essential that a contract-by-contract should assume the role of a facilitator and modern internal governance regimes commitment (i.e. for different types or an evangelist to assure and communicate that do not like the uncertainty of cost levels of procurement) is tabled during the the value that has been created as a result management outside the organisation’s tender process, ensuring expectations are of the outsourcing initiative today and into immediate control. shared and understood from the outset. the future.

“Paying is part of the game of life: it is the joy of buying that we crave.” – Gilbert Parker

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procurement final.indd 46 18/9/12 11:02:11 FEATURE PROCUREMENT OUTSOURCING

WHEN IS – AND ISN’T – PROCUREMENT OUTSOURCING RIGHT FOR YOUR ORGANISATION? By Tom Lawrence, Chief Communications Offi cer, Proxima

First things fi rst: there is not one type of procurement outsourcing (PO). In this article we refer to PO as the complete transfer of responsibility for managing a proportion, or all, of the cost base to a third- party provider (not just the management of processes associated with P2P or AP). Activities included within PO include: Business partnering (often right up to and including the CPO role) Implementation and change management Sourcing Spend analysis Supplier and contract management Supplier on-boarding/help desks The provision of all the associated technology So having cleared that up, let’s now look maturity journey. It’s not just for those with under the microscope. at the characteristics of an organisation advanced capability looking for where to go A business leader that has strong links to that should consider outsourcing their next – an organisation with no procurement Finance and has the power and capability procurement: function can leapfrog the maturity journey to make things happen. PO will deliver a Generally, to make the business model by several years through outsourcing. signifi cant return on investment, which can stack up, for both the buyer and the In reality, however, procurement is all materially impact profi tability if, and only if, service provider, PO services are typically about building relationships and trust with the mechanisms are in place to capture the consumed by large (>£500m annual the stakeholders it hopes to serve, and benefi ts. revenue) and complex businesses. then positively infl uencing their behaviours. A business leader that understands A business that is culturally more willing Therefore, to defi ne the characteristics that the long-term value proposition of to be challenged, has clear objectives for of the perfect procurement outsource procurement is not to achieve savings, but what it wants to achieve (not a step-by step organisation, it’s equally important to to deliver value for money over the long plan on how it’s going to be achieved) and consider the human side, and look at the term. Procurement outsourcing will not only is more willing to embrace change will be business leader that is buying the service. transform the management of the cost base, more likely to maximise the true benefi ts of Some of the characteristics we would but it will also ensure it is optimised on an procurement outsourcing. expect to see in this individual are as on-going basis. As with any change programme, follows: Procurement outsourcing has something there must always be a burning platform An interesting reality of most to offer every large business, benefi ts sitting behind the decision to outsource. procurement projects is that they are that go way beyond just achieving a large In procurement, this might be a need cross-functional. So PO should appeal to return on investment. And because it’s to improve profi tability, transform the business leaders with a change agenda, a not simply about outsourcing a process, capability of the as-is or change the overall progressive view of the world, a willingness educating yourself about how it can work, cost management culture of the business. to embrace ideas, a desire for innovation and understanding how it can improve your It’s worth noting that PO can work at any and someone who is open to having his/ existing capability is paramount to enabling stage of an organisation’s procurement her business positively challenged and put you to make an informed decision.

@BotaKarim: Procurement makes me crazy!!!

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procurement final.indd 47 18/9/12 11:02:19 FEATURE PROCUREMENT OUTSOURCING

WHAT ARE THE BIG DATA IMPLICATIONS OF THE RISE OF PROCUREMENT OUTSOURCING? By Tom Cave, Account Director, sparesFinder

Here at sparesFinder, retailers like Wal-Mart may be recording purchase requisition to payment. All too we help large, asset- and analysing in real-time. It’s important to often it is just easier to turn a blind eye to intensive companies understand this isn’t just about size, but also off-book purchasing and allow individuals reduce working capital speed and the variance of the information. to manage their own procurement. by improving their We deal in smaller, slower-changing sets However, by reducing the master master data, with every of data, the kind needed to create accurate data-set to a minimum and harmonising one of our applications being web- and informative purchase orders for raw their description across all parts of the based since 1998. materials, spares and services. But, when company, it becomes much easier to So it is, perhaps, a surprise to hear a poorly controlled, these records – called fi nd what is needed, establish whether somewhat heretical view of big data from or not it already exists (preventing an insider: namely that it is in danger of AT THE END OF duplicates being created), aggregate becoming just the latest marketing ruse ❛ orders for better discounts, and make it to keep software sales moving through THE DAY, THE easier for suppliers to understand and diffi cult times. OUTSOURCING OF process orders. In other words: remove I’ve always thought big data is attracting PROCUREMENT MAY excuses for rogue purchasing; stop large Y2K-scale hype with CIOs asking “why PROVE TO “SEPARATE corporations from buying equipment they aren’t we doing big data yet?”, but THE MEN FROM THE already own, and get better deals from for many it simply isn’t necessary. For BOYS” IN BIG DATA their key suppliers. example, the largest data source for an oil TOM CAVE ❜ At the end of the day, the outsourcing and gas company is likely to be reservoir of procurement may prove to data, where the total volume may well “separate the men from the boys” in be over 250Tb. But to assume this needs item and service masters – create issues big data, holding companies and their a big data platform would be wrong. of their own. Hard-to-fi nd and poorly suppliers accountable and making These records are not the same as, say, described masters cause confusion and rogue operations obsolete through the million-plus transactions an hour that delay throughout the supply chain, from specialisations in this area of MDM.

@KLProcurement: Burdon: Procurement isn’t about buying things, but about the creation and management of buyer-supplier relationships ...

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procurement final.indd 48 18/9/12 11:02:25 p49 21000-102954 BerlinPartner FP.indd 49 18/9/12 14:14:30 New Age of Mobile Enterprise The integration of mobile technology is transforming organisations' IT infrastructures; find out how...

he use of mobile devices, including location systems and use of an in-built photo providing quick access to them. smartphones or tablets in the camera, sound recording, voice processing, The use of a mobile client jointly with corporate sector is a new sustainable and handwritten notes, as well as offline work the basic system accelerates and trend. End users like mobile devices with data. simplifies the process of group workflow because they are always at hand, The following are the business cases that and improves the efficiency and accuracy of andT are compact and efficient. Mobile show how a company’s IT infrastructure was management decisions. devices have already reached the level of augmented using mobile applications. maturity at which they can become the main Mobile clients for Enterprise Asset tool for working with business information. Mobile clients for corporate Management The volume of information that companies information and workflow systems 2 Enterprise Asset Management (EAM) need to digest is growing exponentially. 1 The issue of processing and is specifically relevant for asset-intensive Fast and accurate reactions to important approving large-volume documents in industries with a network infrastructure that events and grounded decision-making are modern business is becoming more and includes pipelines, tunnels, roads, railroads, vital. These are new serious challenges for IT more acute. The expansion of information and electric grids. infrastructure and they cannot be addressed systems through the use of mobile The key feature of such solutions is by augmentation of computing resources. The applications is very instrumental in such close integration with map services. ability of businesses to survive largely depends situations. Using a mobile client, end users identify on the flexibility of their IT infrastructure and on A mobile client is integrated and their current location and the location how susceptible it is to innovations. synchronised with a corporate information of the incoming requests. For requests, system that is, for instance, based on IBM descriptive information is provided, Going mobile FileNet or IBM Lotus Domino. The user can a list of required tasks, and a list of A vivid example of a new generation download to his or her mobile all documents attached assets. Additionally, a request of innovations in corporate IT is mobile that require reaction and work with them can contain related graphic marks on a technologies. anywhere. It is possible to view the attached map. For example, an air conditioner goes out of Evidently, a mobile application is not limited files or give comments, record audio or insert order at a big plant: a map will show to a service to a simple transfer of information from a graphic comments, and add handwritten person the plant entrance, the route through the notebook screen to a smartphone screen. It notes. In addition, a mobile client provides plant territory, the required actions, and the air is primarily an extension of the company’s IT quick search across documents that are conditioner’s location. It is possible to update infrastructure with the use of native capabilities kept on the mobile device or server, allowing the marks using a mobile client and the of mobile devices, including work with geo- users to mark documents as favourites, and changes will be synchronically reflected in the

p50-51 21000-102020 IBA DPS.indd 50 18/9/12 12:05:45 advertising feature

sent to the bank’s server for subsequent processing and registration.

Mobile payments and retail If your application is installed on 4 a smartphone of your customer, then news, offerings, and other data go directly to the end-user’s pocket. Isn’t it what any retailer or service provider has dreamed of? Also, mobile payments through mobile internet banking are growing in popularity. A customer can make mobile payments and be updated on tariffs and services. A map is seamlessly integrated in the mobile client. The user can filter objects by distance and find the nearest ATMs or bank offices. Choosing an object, the user can view information about it, including street address, working hours, and the list of its services, as well as make a route from the current location to the selected object. Undoubtedly, mobile devices not only grant indisputable benefits, but also bring about new challenges. In terms of security, of master or head of the repair group can integrated solutions are needed that ensure see on the mobile the location protected data transport, reliable data of repair crews and make encryption, special mechanisms to control efficient decisions in case of vulnerable data, and management of mobile emergency. The application devices based on centralised practices. The also displays statistics and task is solvable, all the more that the mobile diagrams. revolution in the business sector is inevitable and is already underway. Improving client management FOR MORE INFORMATION 3 Mobile applications IBA UK 43-45 Portman Square London come first when customer relations should W1H 6HN [email protected] be flexible and efficient. IBA Group developed +44 (0) 20 7969 2715 a solution for a major bank that set an IBA Group www.ibagroupit.com ambitious goal to expand its customer base dramatically. As part of the program, a mobile basic system. Using application that was closely integrated with the application, one the bank’s back end was developed. It allows can also take a photo before bank employees to sign up a customer when and after the repair, and the application they are out of the office, to take a photo of automatically links it to GPS coordinates. a customer, and to recognise the barcode The employees that are assigned the role on his or her ID. The newly created form is

p50-51 21000-102020 IBA DPS.indd 51 18/9/12 12:05:52 The importance of being secure Service providers aren’t just responsible for their own information security; they have responsibilities to their clients too. But are too many suppliers approaching the infosec question from the wrong direction?

To read the blog (and huge number of comments) at www.comparethecloud.net which prompted this article see http://bit.ly/N1Jxr5

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Infosec final.indd 52 18/9/12 15:50:30 feature Infosec

James Rees, Razor Thorn Security

James Rees is the MD of Razor Thorn Security Ltd; he spends his time helping companies frustrated with their security or looking to protect their critical assets from both technological and business risks.

ompanies are speeding Recently on a popular blog at www. to published security issues (there are far up their outsourcing of key comparethecloud.net – that we contribute more that occur than are reported in the internal functions, especially to regularly – I was outlining a regular media) it is evident that if you don’t provide now that cloud computing response to discussions that we have with adequate security, and get caught out then, models have become so outsourcing companies, with regards to you will be on the receiving end of any Cpopular; this will only increase, and there their need to become digitally secure. number of threats. are new outsourceable services being Many of these companies have only recently But in all honesty, I truly believe that, devised all the time. However, as much started to be asked if they are secure; many rather than asking the previous questions, as outsourcing has risen, so too have don’t understand the requirements, and you should as a service provider, and a compliance requirements. In the last ten don’t want to undertake them at all due to business in your own right, be asking: years or so there have been a lot of data their perceived cost and time-consuming “What are our security responsibilities?” breaches, service failures and malicious elements. This is a much better question, with a much theft (especially in the credit card industry). better and more positive output than any of With the popularity of buying services and If you just look the other questions; it should be a question products online increasing, so too do the at❛ the IT security that EVERY organisation should ask itself. opportunities for large-scale crime, the Let’s analyse this question and the effects of which have quickly meant that it aspects of your general responses that will commonly has become the largest growth industry in operation you come out. There are sometimes variations the world. are only looking (every company is unique and often will Outsourcing providers are increasingly at half of the have a unique list) but here is a common finding that compliance requirements picture. Look at list of responses we tend to find with most are coming up in negotiations time and the business as a companies: time again; PCI DSS, ISO27001, etc are whole our customers becoming must-have items on clients’ lists. ❜ our stakeholders As crime rises companies and governments When we get in front of outsourcing our partnerships try to protect themselves and the consumer service providers and talk to them about our staff against threats through legislation; information security and compliance our legal/contractual compliance cybercrime is no different and we will requirements we hear a lot of statements requirements continue to see compliance requirements like: our customers’ legal/contractual that will demand a good level of information “We want to do the minimum…” After a compliance requirements security practises. bit of discussion this statement normally Ultimately organisations are responsible Customers, for outsourcing companies, turns into: for their own security. They are also are a little ahead in awareness because in “What is the minimum that we have to responsible for their clients’ security many cases they are driving the security do?” After even more discussion this finally (especially if they are an outsourcing requirements due to their being responsible turns into: company). Far too many companies in for security breaches. “What is the minimum that we have to do today’s world do not take their security Outsourcing companies now have to and what can happen if we don’t?” seriously – and end up paying for it. take information security and cybersecurity This is where we get to the root of the Damage for a security event can be seriously if they want to continue to be matter. What will happen if we do not extensive and can cause some serious profitable; that’s not a guess, this is a fact. It maintain a good level of security? Well, issues; too many companies fall foul of this is already happening. looking at the recent few years with regards and either do not survive or have to pay

“Safety’s just danger, out of place.” – Harry Connick, Jr.

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Infosec final.indd 53 18/9/12 15:50:43 feature Infosec

extensively for their lack of due diligence. Here are some common issues from an TOP Security Tips for information or cybersecurity event: loss of brand reputation 7 Service Providers extensive fines mass-client exodus Know your business-critical assets  bad press coverage Identify and list them, review them regularly and ask yourselves: “Are we doing staff morale 1 enough to protect ourselves as an organisation and those that rely on us?” stakeholder migration share devaluation Know your risks and vulnerabilities legal issues Make sure you understand what issues and risks you have to your operation 2 and your business-critical assets. After all it’s better to be aware of them and Any one of those outcomes listed above able to handle them properly than to ignore them and be surprised. Ninety per cent of is bad news for an organisation and these organisations that have a security event do not survive the following year. can be easily prevented by some simple awareness of risks and vulnerabilities to Plan, Plan, PLAN your organisation and its critical assets. For any vulnerabilities you cannot do anything about, plan a response for them: 3 don’t just leave them. Do something to plan for the eventuality the risk will occur. Understand your security responsibilities and handle them; do not do what far too Create an information security function many organisations do and ignore them. Create an information security role in your organisation: if you want to be 4 ISO27001- or PCI-DSS-accredited then you will need one anyway. Don’t make it an IT person: you are only dealing with a small part of the issue. Make the role an Damage for a independent advisor to the central stakeholders. They don’t need to be a board member, ❛ just an advisor. Too many organisations make it IT’s responsibility, and more often than security event can not this will hamper an information security function. Don’t do it; make it independent, as be extensive and many CIOs may not communicate the risks to the stakeholders for fear that they will be in can cause some trouble.

serious issues; too Don’t cheap out on recruitment many companies Do not, whatever you do, get an inexperienced information security person to fall foul of this 5 check a tick box: get someone qualified to do the role, or if you want someone to fulfil the role, get them trained by a professional. Having an inexperienced person in and either do not the role can be, and often is, more of a hindrance than a help. Don’t forget if needs be survive or have to you can outsource the role to an experienced information security consultancy to reduce pay extensively for costs and provide on-the-job training. their lack of due Regular reviews from a third party diligence Reviews from a third party are invaluable: they show whether or not your ❜ 6 information security function is being effective and can often give valuable The final thing to note – a very important insight into providing a more secure service for your stakeholders and your clients. Use an independent third-party information security company that has the experience thing – is that information security and to undertake a review at least once a year. Be warned: use an information security cybersecurity is not just about IT. Yes, that is company, not an IT support company; they will very likely not be looking at the whole a large part of security these days with most picture! of our assets having some form of IT-related component attached – but there are a lot Don’t get taken in by vendors Too many technology vendors’ salespeople will try to get you to buy their products of information security items that are more 7 stating inaccurately that these will “end all your security worries” or will “remove business-related than anything else. If you the need for you to become PCI DSS compliant”. These are inaccurate and it’s worth just look at the IT security aspects of your engaging an independent information security consultant, if you do not have one operation you are only looking at half of the employed internally to take a look at the vendor’s proposed solution. They will be able to picture. Look at the business as a whole, give you the truth of the matter. and remember the question to ask is: “What are our security responsibilities EVEN MORE both to ourselves as a business and our For more on information security and outsourcing see ‘Optimising Information Security in an Outsourced customers?” Environment’, online now at http://bit.ly/PRIbPr

Consendre mod eugait alit luptati sisisisit augait num iusti facidunt ipsumsan el eraestrud exerat ad onulla cor ing eumsandre ex elit @richardarnatt: If you work in InfoSec, your whole life is basically geared around making other people’s life less easy. atetue tet ulla feu feum niamconEm ea commodiam ad tem dolortio Utat lum quisim et, quissi.Volobore m iurero dolobore.

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Infosec final.indd 54 18/9/12 15:50:58 p55 21000-101915 Slaughter&MAy Fp.indd 55 17/9/12 15:43:50 This Issue: The public sector; Outsourcing Works; NOA AWARDS SHORTLIST; Procurement

Outsourcers are Always Accountable Greater transparency in public sector outsourcing contracts could greatly improve the industry’s reputation, says NOA Chairman Martyn Hart.

To find out more about the NOA visit www.noa.co.uk

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NOA PAGES final.indd 56 18/9/12 14:39:58 ourcing has never been so So if G4S providing Olympic security I agree with Andrew Haldenby, Director high profile – thanks to G4S’ guards was – as some commentators insist of the independent think tank Reform, Olympic debacle and Richard – an example of privatisation, then Nick when he writes in The Telegraph: “The Branson’s war of words with Buckles wouldn’t have appeared before a private sector can look secretive because First Group, everybody is Parliamentary Select Committee: he would the details of their contracts are typically Stalking about outsourcing. It’s been a have spoken at an EGM. hidden from the view of the public. But summer of discontent, as far as the media As we know, G4S will pick up the tab for this is as much to protect the government is concerned, with certain journalists the additional police and army personnel, as the company involved. It can be queuing up to take pot shots at the very and has donated an extra £2.5 million to embarrassing for the government to admit concept of outsourcing, and instigating the Ministry of Defence. All of this proves that a private company is running a public an ideological debate as to whether it that the supplier is highly accountable to service much better and at much lower is politically and socially acceptable to the government. In many ways, private cost than the rest of the public sector. outsource. companies are more accountable than Private companies provide complete data Now, as almost all economists will agree, public bodies, who do not face such direct to government on their performance. My the private sector tends to be more efficient consequences of poor performance. You advice to the private sector, for what it is than the state. Which means many of them only have to read about NHS or MoD worth, is to make public their contracts believe the role of the state should be debacles to see this point; in some cases and performance data, to avoid any hint of supervisory, rather than focussed on the we have been waiting years for them to secrecy and to show what they can do.” actual delivery of services. Some quarters even acknowledge there was problem. Transparency of public sector contracts brand this as privatisation, and argue that Not to mention the reputational damage, is something to be applauded and outsourced delivery of services presents a and associated financial drawbacks. As encouraged. Although, if exact price huge moral hazard. well as losing over £50m on the contract, breakdowns were available for individual Outsourcing is not privatisation or a G4S saw its share price drop sharply and services it might cause more problems hazard. Not guilty your honour! On either wipe millions off the face of the company. than it solved: price-fixing could become count. For starters, outsourcing and And still some commentators argue that an issue. If suppliers could see the market privatisation are very different. Floating outsourcing presents a moral hazard. Not rate for each service, each would naturally British Gas on the stock market, that was true: the supplier had plenty of skin in the gravitate towards the most expensive. privatisation. The Soviet Union’s natural game, and was very much affected when Disclosing the overall contract value, resources being divided up among the men things went wrong. It wasn’t taking undue and the services it covers would be a who would become known as the oligarchs risks with other people’s consequences: it better idea. Better still, details of how – that was privatisation. Ownership – and had its own to worry about, both in terms the deal is performing, the value it is or therefore accountability – was transferred of the financial penalty clauses built into isn’t bringing. Rather than being released to a group of individuals, and the state gave the contract, and a sullied reputation in years after the fact, OGC-type Gateway up its proprietary rights to companies it the minds of a generation of outsourcing reviews should be available in real-time. As used to own / manage, and therefore was decision-makers. People will think twice taxpayers, the public has the right to know no longer part of the decision-making. and thrice before commissioning G4S the status of a contract: is it green, amber Accountability is the key difference now, and its tenders will come under more or the dreaded red? If it is status red, what between outsourcing and privatisation scrutiny than ever before. is being done about it? (defined on Forbes’ Investopedia as It is worth noting that in cases like this, If these details were made public, “the transfer of ownership of property when a deal doesn’t deliver, it is often then people would know more about or businesses from a government to not the singular fault of the supplier: the what outsourcing is and what it isn’t, a privately owned entity"). Once the contract will include certain obligations of where responsibilities lie and risks exist. ownership is transferred, so is the the client too. Where obligations are not Increased understanding of our industry accountability. On privatisation British being delivered, on either side, the public will increase trust. This means defining Gas was at once only accountable to its should know the whys and the wherefores, who we are, what we do and highlighting shareholders; oligarchs accountable only to which would greatly improve the how well we do it. Outsourcing Works. themselves. transparency of the outsourcing industry. Together we’ll prove it.

Interested in joining the NOA? To apply for NOA membership, please give us a call on +44 (0)20 7292 8686 or visit our website: www.noa.co.uk

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NOA PAGES final.indd 57 18/9/12 14:40:11 This Issue: The public sector; Outsourcing Works; NOA AWARDS SHORTLIST; Procurement

Public announcement: Outsourcing Works A new campaign could see 'Best of British' outsourcing become a permanent fixture in the global sourcing space.

ducating the man in the street public wants to see evidence of the macro- nation, we have the potential to become the about the value of outsourcing is economic advantages that outsourcing global strategic hub for outsourcing. Many Eimportant. These people may not brings, such as its track record of job UK contracts are now third-generation; the be making decisions about outsourcing creation and its positive contribution to UK is further along the outsourcing learning now, but they could influence the sourcing UK PLC. Well, let’s give it to them – this curve than any other nation. We are the decisions of the future. For example, a information is out there. Outsourcing is the battle-hardened veterans. That is why a father may be a true outsourcophobic. He second-biggest aggregate employer in the plethora of nations come here seeking may ramble on, as Dads do, imbedding UK. Every day, over three million people advice on how to maximise the value. his staunchly anti-outsourcing stance into get out of bed, brush their teeth and go off But to press home the advantage, and the impressionable, young mind of his delivering services for other brands. How bring more and more work to our shores, adolescent son. can that not be creating jobs and economic ensuring that outsourcing knowledge is a Ten years later, that son is running his benefit? major export, bolstering and reinvigorating own company. Or, running the country, who Here at the NOA, we know that the UK economy, our industry must knows? If he has it culturally ingrained that Outsourcing Works. We are also acutely join forces. Just like the Champagne outsourcing is a bad thing, that doesn’t work, aware that news of failure travels much region managed to position its wares and wastes money, then every procurement faster than success. Of the hundreds as the de facto-number-one celebratory decision he makes will be influenced of outsourcing deals that made up the drink, we must champion the best of by that, and he will seek to influence the Olympics, only one gets talked about. And British outsourcing success – the end mindset of others… that is so wrong. To combat this depredation goal being that all across the globe, no There is a chance, if anti-outsourcing of our industry, we must unite and champion outsourcing deal feels complete without fervour builds up, that one day it becomes success, and correct some misconceptions British involvement. Cementing the UK an electoral campaigning topic, just as it along the way. The National Outsourcing as the undisputed global strategic hub has in the US presidential race. Barack Association is calling upon the entire for outsourcing could make sourcing a Obama is demonising ‘Outsourcing’ – this outsourcing industry to demonstrate to the campaigning topic in the UK. But in an presents a major challenge to our industry. media, the business community and the economy-boosting, positive way! You can read any number of articles at man in the street that Outsourcing Works. Following a pilot to a selection of the the moment about Romney and Obama – Although the NOA is aggrieved at the NOA membership base, 80 organisations "he’s an OUTSOURCER, no you’re a dirty recent lambasting of our industry, we have pledged their support to Outsourcing OUTSOURCER". However, compared understand the need for outsourcing to Works, the campaign to both celebrate to the USA, British people are not nearly prove its worth. We need to maintain the success and share best practice. Work as inherently and vehemently opposed to political status quo: this lack of political is on-going to collate case studies and outsourcing. But they still want evidence. bias against outsourcing per se had led to numerical evidence to support this Earlier this year, the NOA commissioned a culture of end-user openness. This has argument – give us a call at the NOA if a research project entitled “The Public allowed suppliers to mature faster, gaining you believe you can add weight to the Perception of Outsourcing” which a wealth of experience of governance and campaign by providing details of a success discovered that to appreciate the value that relationships, negotiations and renewals story, or even better, a success-from-the- outsourcing brings to the UK economy, the that other nations simply do not have. As a brink-of-failure story.

To find out more about the NOA visit www.noa.co.uk

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NOA PAGES final.indd 58 18/9/12 14:40:32 THE NOA AWARDS SHORTLIST Showcasing the best in the outsourcing industry...

The shortlist for the National Outsourcing Association Awards 2012 is as follows:

BPO Contract of the Year Rising Star of the Year Offshoring Destination of the ❋ Infosys BPO Ltd – Everything ❋ Amanda Wright - Standard Year Everywhere Life Plc ❋ South Africa ❋ iQor – BBC ❋ Jodi Singfield – BBC ❋ Spain ❋ Logica, now part of CGI, and ❋ Nik Mellor – Source ❋ Sri Lanka ELEXON ❋ Paul Thomas – CSC ❋ Source – The Solicitors ❋ Przemek Berendt - Luxoft Outsourcing End-User of the Regulation Authority (SRA) Year ❋ Sykes Global Services – Link Offshoring Project of the Year ❋ BBC Network ❋ Aegis ❋ HM Revenue & Customs ❋ Centrica ❋ National Rail Enquiries IT Outsourcing Project ❋ Intetics – eFinancialCareers of the Year ❋ Wipro Technologies - BT Lean Award for Innovation in he shortlist for this year’s National ❋ Capgemini – Smith Group plc Engagement: MBN Dwell Time Outsourcing ❋ CSC Reduction ❋ Aquira – Vodafone Outsourcing Association Awards ❋ HM Revenue & Customs ❋ Wipro Technologies – BT Lean ❋ bss digital – 3SC is now out – and, once again, ❋ RR Donnelley – Barclays Engagement: Task Closure ❋ Firstsource Solutions - giffgaff T ❋ Wipro Technologies – BT Rate Improvement ❋ Liberata – CapacityGRID some of the biggest names in the space ❋ Liberata – Focused Liability are competing to triumph on one of Financial Services Outsourcing Service Provider Order Workflow (FLOW) Outsourcing Project of the Year of the Year the biggest nights of the European ❋ Accounting Consultancy & ❋ 60k – Thomas Cook Award for Academic outsourcing calendar. Solutions (Pvt) Ltd – Sri Lanka ❋ Aegis Achievement This year, a record number of entries ❋ ELIX-IRR – Standard Bank ❋ arvato ❋ Dr Albert Plugge – Delft ❋ Friends Life – Diligenta ❋ HCL Technologies University of Technology are scrapping it out over the 19 categories ❋ Sykes Global Services – Link ❋ Luxoft ❋ John Strachan – Baker Hughes up for grabs at the gala event (taking Network ❋ Kevin Willans – The Co- ❋ TLT – Exigent Outsourcing Contact Centre operative Banking Group place Thursday 25th October 2012 at the Provider of the Year ❋ Lorna Baker – Land Registry Park Plaza Riverbank in London) and Public Sector Outsourcing ❋ 60k – Thomas Cook ❋ Richard Smith – HML the shortlist (opposite) represents only a Project of the Year ❋ Aegis ❋ arvato – Sefton Metropolitan ❋ arvato Award for Corporate Social fraction of the companies throwing their Borough Council ❋ Firstsource Solutions Responsibility hats into the ring. ❋ BBC ❋ OpenContact – Go Ape ❋ Avasant – The Rockefeller ❋ HM Revenue & Customs Foundation NOA Chairman Martyn Hart said, upon ❋ iQor – BBC Outsourcing Advisory ❋ Centrica the release of the shortlist: “Not only is this ❋ Xceed of the Year ❋ SPi Global a record-breaking year for quantity, all of ❋ DLA Piper Telecommunications, Utilities ❋ ELIX-IRR Skills Development the award submissions are of outstanding and High-Tech Outsourcing ❋ Herbert Smith Programme of the Year quality. We always look forward to this time Project of the Year ❋ Olswang ❋ IBM ❋ CSC ❋ Source ❋ Infosys BPO Ltd of year, as it brings a unique opportunity ❋ Firstsource Solutions – O2 ❋ ITIDA to compare best practice and reward the ❋ Firstsource Solutions – Sky Outsourcing Works: Award for ❋ Luxoft ❋ Infosys BPO Ltd – Everything Delivering Business Value in ❋ SQS Group Limited companies who are pushing the industry Everywhere Outsourcing forward. The effort and detail that has gone ❋ arvato – Sefton Metropolitan Shared Service Centre in to the submissions makes me proud to In-house Outsourcing Borough Council of the Year Professional of the Year ❋ de Poel – Care UK ❋ Logica, now part of CGI be a part of our rapidly maturing industry, ❋ Amanda Wright – Standard ❋ HM Revenue & Customs ❋ Plan-Net and also proud that so many companies Life Plc ❋ Mahindra IT & Business ❋ Specsavers ❋ Jim Hemmington – BBC Services ❋ Teleperformance and see the value of competing to win a NOAA ❋ Stephen Dyke – CSC ❋ RESPONSE – Hiscox Response – Student Loans Shortlisting has been difficult – choosing a Company winner will be even harder.” ❋ UBS Poland

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NOA PAGES final.indd 59 18/9/12 14:40:44 This Issue: The public sector; Outsourcing Works; NOA AWARDS SHORTLIST; Procurement

Bill CROTHERS, COME ON DOWN! NOA Chairman Martyn Hart welcomes a new government Chief Procurement Officer, but warns there is more to procurement contracts than price.

s part of the newly amalgamated Good procurement code for cheapest – we have a good deal. commercial relationships and ❛involves knowing There is not enough involvement of the A procurement directorate in the "ultimate end user". This is grassroots stuff, Cabinet Office, the government has a new the market, considering the wishes and challenges of Chief Procurement Officer. Take a bow, including having a the actual collaborators, the ones who really Bill Crothers. Mr Crothers is a chartered rough idea of the understand what it takes to make a deal accountant who has been working in costs involved. work. That is the launch pad to genuine Whitehall for six years. Prior to that, he Introducing long-term value. Government would do had a long spell with Accenture. He benchmarking well to remember this: a contract is for the knows his way around an outsourcing lifespan, not just for inking. deal and he’s hungry for savings. into procedures is A mature, savvy client doesn’t make In a recent interview, he was forthright worthwhile❜ the decision purely on price, but on track about the size of the challenge he faces. record, references, and the informed "To me procurement covers everything to bid – should be one of the government’s opinion of previous/existing customers. including pre-procurement, managing a key initiatives in eradicating wastefulness. With all of these things in place, you can pipeline of what we might be requiring Currently, public sector procurement is find the right company to deliver the right in the future, then buying, the pre- seen as a combative sport. Done properly, service at the right price. Which is not contract stage. The next stage – contract outsourcing is a combined effort to secure necessarily the cheapest. Outsourcing management – is critically important. maximum value over the life of the deal – decisions must never be made purely on And then there‘s an overlay of supplier not a race to the cheapest offer recorded price. Good procurement involves knowing relationships, which is different to contract on a piece of paper. Government needs the market, including having a rough management,” he told Public Service to get smart and begin taking a holistic idea of the costs involved. Introducing magazine. “There‘s a huge range of skills approach to costs. Being realistic and benchmarking into procedures is and being a procurement professional in considering the financial impact over the worthwhile; it will save more than it costs. government is really challenging. There‘s full term of these tantalisingly low-priced Procurement teams should be deeply a common thread of skills required for all contracts would be a good start. suspicious of any bid that’s dramatically of those activities, and a set of skills unique At the moment, the public sector does lower than the rest. If it looks too good to to each of them.” not even account for the total cost of be true, it probably is. Beware the cheapest The National Outsourcing Association is ownership – i.e. the unwritten costs, such bid. It is a naïve consumer who thinks that keen to help. The All Party Parliamentary as the man-hours of client-side effort the cheapest is the best bargain. Group on Outsourcing and Shared to build up the relationship between But given his background, Mr Crothers Services is preparing a report to the supplier and customer. It is often never is well positioned to be an intelligent mover Treasury that will offer practical advice taken into account, for example, when in the outsourcing market. The National to those high-ranking civil servants that shifting suppliers, it will incur costs, and Outsourcing Association will support him a recent Telegraph article described these could outweigh the benefits of the every step of the way: after the publication as “struggling to adapt” to the evolving new "lowest bid". But at the moment, of the All Party Parliamentary Group report, landscape of public service delivery. the government doesn’t seem to care we’ll be looking to sit down with him and Up-skilling to create outsourcing savvy, about that – so long as those gladiatorial help him drive forward the changes needed intelligent procurement teams – with public procurers have negotiated "a most to make the public sector an intelligent protocols that don’t cost suppliers the earth economically advantageous tender" – consumer of outsourcing.

To find out more about the NOA visit www.noa.co.uk

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NOA PAGES final.indd 60 18/9/12 14:41:07 Events PREVIEW & calendar

Event type Title Location aM/PM

SEP 12 26th noa Members Seminar Knowledge Knowhow in Mills & Reeve, 1pm – 5pm O outsourcing Birmingham 27th noa Steering Committee all Party Group – Can Outsourcing logica, London 4pm – 7pm Reduce Youth Unemployment? OCT 12 11th noa Steering Committee End User Only Steering Committee Herbert Smith, London 9.30am – 11am 25th awards Ceremony NOA Awards Park Plaza Riverbank, 6.30pm – 1am London nov 12 13th noa Topical Event Developing the UK as the Global Eversheds, London 9am – 5pm Strategic Hub of Outsourcing – How is the UK leading the way?

22nd noa Members Seminar outsourcing Works – Moving a tlt, Bristol 1pm – 5.30pm partnership from problem to success. 28th noa Premier Members Event networking Drinks London 5.30pm – 7.30pm DEC 12 6th noa Members Seminar outsourcing Works in LPO London 9am – 11am

JAN 13 17th noa Steering Committee outsourcing Works in HRO TLT, London 9am – 11am tbc noa Topical Event tbc London tbc FEB 13 12th noa Steering Committee outsourcing Works in BFSI London TBC 27th noa Members Seminar outsourcing Works in the RPC, London 9am – 1pm P public Sector MAR 13 13th noa Members Seminar Developing the UK as the Global Manchester 1pm – 5.30pm Strategic Hub of Outsourcing 21st noa Steering Committee outsourcing Works for Pharmaceuticals london 4pm – 5.30pm APR 13 24th noa Steering Committee outsourcing Works in Retail London 9am – 11am TBc awards Ceremony EOA Awards Europe 7pm – 12am TBC noa Topical Event TBC London TBC May 13 15th noa Members Seminar tBC Edinburgh 1pm – 5.30pm JUN 13 TBc conference & Exhibition outsourcing Works Symposium london 8.30am – 5pm Two Day Seminar and Exhibition

Interested in joining the NOA? To apply for NOA membership, please give us a call on +44 (0)20 7292 8686 or visit our website: www.noa.co.uk

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NOA PAGES final.indd 61 18/9/12 14:41:17 Steering the Flow How can we create a culture that fosters an environment in which continuous improvements flourish? As Madelein Smit explains, big changes are made one step at a time, but these steps can be accelerated to ensure rapid and lasting progress.

Madelein Smit, CEVA Logistics raising the level of the water in the river despite numerous requests to adhere to and causing it to eventually finding a global pay terms. The response from the Madelein Smit is VP more efficient (steeper, more direct) local team was that the Colombian peso Global Finance & route to the ocean. Over long periods of was “always devaluating against the dollar” Accounting at CEVA time, this process builds a pattern that is and that it was therefore cheaper to pay characteristic of a river delta. early, which is true in times of devaluation. A Logistics, one of the The expression “everything flows, nothing quick review of exchange rates clearly show world’s leading non- stands still” (as quoted by Plato) probably that the peso goes up and down against asset based supply chain management can be equally applied to the way processes the dollar, but this measure was instigated companies. are established in companies over time. at a time of severe currency distress and Much like rivers, a new process is designed somehow got stuck as the new process, to be efficient at first, but over time the even thought it was not necessary anymore. tributary gets clogged up with additional In the same way, different departments, ince prehistoric times, the checks and balances imposed – or simply with different upstream interests, may tributaries to the Amazon delta the deposition of the sediment resulting reflect the meeting of the sandy coloured have undergone numerous from incremental changes in IT systems, Rio Solimoes, that confluence the darkly changes to their main course: mergers, staff changes and the like. coloured waters of the Rio Negro, and for large and small movements, An example of how these things happen several miles these waters run side by side Sas well as additions, deletions and other slowly over time was relayed to me recently. in the Amazon without mixing. changes constantly change the landscape During a project to look at better working These conditions can often be found around it. A natural process, known as capital management – i.e. making payments when the business development team’s avulsion, shifts the courses of rivers on time – the central team found that the interests meet those of the Finance team because the deposits of silt and sediment Colombian team always made all payments downstream. Any business has the need begin to clog the river’s channel, thereby as soon as possible – i.e. very early – to understand how their revenue develops

“The happiness of the drop is to die in the river.” – Al-Ghazali

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madeline smit final.indd 62 18/9/12 16:44:37 feature Continuous Improvement

from prior periods. Finance teams If the goals of an environment in which continuous conduct analysis to understand whether ❛individuals are improvements flourish? What does it take to the increases are solely because of new change a habit? contracts, or also due to organic growth, aligned with the “The fish only knows that it lives in the and how much of the increase was offset by small changes water, after it is already on the river bank. contracts that may have recently been lost. needed to be made Without our awareness of another world At the same time the business development to change the end- out there, it would never occur to us to teams need the same information to steer to-end process for change.” – Anonymous the pipeline. Surprisingly, the financial the better, this can After WWII the Japanese created a reporting systems quite often run in parallel add up to a large philosophy known as Kaizen (“change to the sales IT systems without feeding positive change for the better”), made famous by their car their information to each other. This lack of over time assembly lines. Kaizen refers to activities integration results in in-depth analysis not ❜ that continually improve all functions. When being leveraged in either department – and applied correctly, it involves all employees so the headwaters are lost downstream. a heady leadership challenge. Leaders in in an end-to-end process – from the CEO Making matters worse, the speed of companies have to create a mindset for to the work floor – thereby empowering change required from companies in improvement and innovation. It is no longer personnel, crossing organisational response to external demands has reached a safe option to accept that the present way boundaries and delivering better returns to a level never experienced before in history. of doing things is necessarily the best. If shareholders. The rate of adoption of new technologies, the management team chooses to put their It does not matter what change method customers demanding more and more heads in the sand, the competitors will eat is used. Six Sigma, LEAN, Agile, 5S and personalised services and products, their breakfast. TRIZ / TIPS all have good track records. combined with the scarcity of resources If continuous changes are inevitable, The value lies in the creation of a common and growth of emerging markets make for how does one create a culture that fosters language, across all organisational

“If you’re going to live by the river, make friends with the crocodile” – Indian Proverb

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madeline smit final.indd 63 18/9/12 16:44:53 outsource magazine offers even more value online… the leading players talking about the biggest issues

DEATH BY POWERPOINT Deborah Kops

STRATEGIC OUTSOURCING DECISION- MAKING: HEADS VERSUS HEART? Bharat Vagadia

SOURCING MANAGEMENT: THE SECRET TO OUTSOURCING SUCCESS? Stan Lepeak

UK’S SILICON VALLEY - GROWING ONSHORING Martyn Hart

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outsource.indd 70 19/9/12 12:25:40 feature Continuous Improvement

functions and geographies, to approach and sponsorship level, is key to ensuring problem-solving and deliver measurable Continuous that all levels of the organisation understand and lasting change. For instance, at CEVA, a improvement the value being striven for and that all those global supply chain management company, principles impacted by the change hear a consistent we have embraced the LEAN methodology, message from all layers of management or which pushes us towards impeccable CHECKLIST department heads about the purpose of the operational execution. Coupled with Kaizen it changes. creates a relentless drive to eliminate waste. ✔ Leadership to create a mindset in Aligning the goals of individuals (ideally which improvement can flourish. This linked to their personal scorecards and Having one vocabulary in which Finance means accepting and encouraging people can relate to business development constructive dissatisfaction and creating remuneration) towards the ultimate goal you staff to discuss an end-to-end rating and a vocabulary in which it can be safely expect from the team, such as efficiency billing issue for a particular customer, expressed. or cost savings, can be very effective when encourages our teams to focus on the root ✔ Really understand the problem. Make the goal is congruent for all parties – i.e. sure you have the real root cause. Think the outsourcing provider is incentivised cause and measurable outcomes, rather than and think again. Ask "why?" five times to on their individual issues with the matter. determine the true issue. to do the same. Ideally a combined force In an outsourced situation, a root-cause ✔ Don’t give up if you don’t succeed should be created, with representatives analysis discussion has high potential to at first. Try again and move towards from headquarters, the local teams and the turn into a blame game, resulting in retained your goal in small incremental outsourcing partner. improvements, learning from mistakes If the goals of individuals are aligned teams and offshored teams deflecting as you progress. responsibility and hiding behind SLAs. Once ✔ Work in cross-functional teams. Use with the small changes needed to be made teams start down this spiral it gets harder the perspectives from a number of to change the end-to-end process for the to pull them out of their emotional state and people to brainstorm new ideas. better, this can add up to a large positive back into objective problem-solving. ✔ Make looking for improvements a change over time. Consider the volume of habit. Recognising that improvement vendor invoices that are processed in your Continuous improvement and gain knows no limits creates an environment share clauses now feature in most large in which everyone feels valued for organisation. Now think about whether it outsourcing contracts, and yet there is bringing their ideas to the table. would be possible to save one minute per little consideration given at the outset as invoice in the entry, handling or payment to how an environment will be created in end with the outsourcing partner. There can process. If calculated back to the man-hours which teams can openly discuss process be no sacred cows, where some teams or and mundane effort saved, such seemingly challenges and make suggestions to change geographies are somehow absolved from small individual actions can add up to a processes that “we have done here like this their responsibilities to buy into the change large positive impact. for the last twenty years.” The skill set for process. All perspectives are required to In the same way that a man standing in initiating lasting changes across borders, or fully understand the root causes and also for a river like the Amazon would get washed within a matrix organisation with regional and each team to have the context of how their away by the brute force of the current, functional executives, requires consideration own actions contribute to the root cause – someone trying to stand up to the flow and alongside the decision to outsource. Those or why changes in said actions are a key deliver radical change at once in a large retained in the IT, Finance or HR function requirement to enable the improvement that established company will most likely fail. following an outsourcing decision might is needed. However, the flows of small streams can require up-skilling in order to step up to what In centrally driven offshoring initiatives, be forever altered by laying rocks in them, is required from them in the new operating local management may feel bypassed. and all these tributaries make the mighty model and conditions. These are the same people who are then river. It is easier to make big changes by In addition, there may be unrealistic expected to create a culture in which it is changing one small thing at a time in various expectations from what can be achieved safe to challenge existing processes. Using departments and locations, guiding the in a certain time frame by the outsourcing familiar references (such as Kaizen) that efforts thereby ensuring that they meet up at service provider, leading to disillusionment are embedded in the language and culture the right place to deliver maximum impact. at sponsorship level which might result in of a company can offer a shared frame of a knee-jerk change in provider. Rather, the reference to enable disparate teams to work EVEN MORE management team has to have the courage towards the same goals of efficiency or cost For more from Madelein Smit check out her entry in to take a long, hard look at the processes of savings. Creating awareness of the context our series ‘The Professionals’, online now at http://bit. their own team – and how that fits in end to of the change required, both at grass roots ly/KzVTWJ

“You can never step into the same river; for new waters are always flowing on to you.” – Heraclitus

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madeline smit final.indd 65 18/9/12 16:45:05 Changing Shape As buying organisations’ needs and behaviours change, so too must providers’ own strategies and offerings…

Kavitha Nair

Kavitha Nair is a business journalist specialising in information technology and processes. She is a graduate of the University of Mumbai.

he economic crisis may not 2011 and 11 per cent from the first quarter of and also develop contracts that offer creative have fundamentally changed 2012. The 65 contracts the region awarded solutions and added-value propositions”. the buying behaviour for during the quarter represented a decline of Wipro, for instance, leverages its large sourcing projects in 29 per cent year-over-year and 26 per cent consulting practice to bring in an Europe, but trends indicate sequentially. understanding of the respective clients’ Tthat organisations want service providers Aitchison says: “Going forward, we business drivers. “The consulting to take on bigger risk in terms of service anticipate a soft third quarter, which faces practice, which we have been building deliverables. Research firm Ovum believes an especially tough comparison with 2011.” over the past four years, allows us to that a longer sales cycle, tight budgets and Meanwhile, the macroeconomic engage in conversations that go beyond the pressure on margins all indicate that uncertainty has had an influence on buyers’ cost optimisation to offer new value the quality of service delivery will emerge behaviour. Both Harsh Muthal – CEO and propositions,” added Singh. to be the key battleground for the next 18 Managing Partner for the strategic advisory Competencies are the other factor that months. Vendors have taken note of this influences a buyer’s behaviour today. In the and are accordingly shaping up to meet the ❛We anticipate past, a service provider would offer services demands of the markets. a soft third based on the specifics the customer had, on There is a crisis of confidence in quarter, which successful completion of which, the vendor European outsourcing markets, which faces an especially would be awarded a long-term contract. have witnessed reduction in the number of Today the buyer expects the vendor to megadeals. tough comparison anticipate the trend and build competencies “This combined with the implosion of with 2011❜ Duncan accordingly. The demand for industry demand for outsourcing in the UK public Aitchison expertise is more important now than ever. sector has led to the falling levels of total firm for global outsourcing and investments As Liz Benison, President CSC UK, contract value,” says Tom Reuner, Principal Tholons – and Roop Singh, Vice President & observes: “The industry has thus far spoken Analyst with Ovum. North America/Europe/JAPAC Head, WCS, about bringing domain-expertise best Duncan Aitchison, Partner, EMEA, Wipro Technologies, touch upon the active practice from industry into clients. I don’t Information Services Group (ISG) also involvement of various business functions think the industry has completely delivered points to Europe’s sluggish start to the year in outsourcing decisions. These business on that.” CSC recognises this and has put following a record-breaking second half of functions now demand quicker return on renewed rigour and focus into taking the 2011. ISG’s 2Q12 TPI Index measured total investments. best practice within a specific vertical to a contract value (TCV) of €6.7 billion, a drop “Consequently,” says Muthal, “vendors customer as opposed to just bringing their of 21 per cent from the second quarter of need to brush up on their negotiating skills technology play to it.

“Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable.” – William Pollard

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kavita final.indd 66 18/9/12 14:47:21 feature Provider Market

There is a clear pressure on vendors to up the delivery to keep the deals running, as the cost optimisation drive gets into high gear. Industry players point to a trend of "consolidate and outsource" amongst European buyers as they start to prioritise efficiency improvement projects. This is a top priority for CIOs today, believes Tridip Saha, General Manager & Head – UK (IT Services), MindTree. “Based on an organisation’s structure, IT – be it in infrastructure support or application support – is fragmented across different divisions and different countries. Consolidating the fragmented environment helps companies bring about much-needed efficiencies,” says Saha. The consolidated approach to outsourcing is characteristic of second- or third-generation outsourcers who have a strategic view of outsourcing. Clients who are first-generation outsourcers are by comparison relatively immature. It might take them a couple of years to switch to a consolidated mode of outsourcing. It, therefore, could be argued that the approach to "consolidate and outsource" is but part of the maturation of the outsourcing lifecycle. However, says B G Srinivas, Member of the Board, Head of Europe & Global Head of Financial Services & Insurance for Infosys, once a client has achieved a level of optimisation, and there is a requirement to further reduce the spend, organisations are forced to look to the next level and consolidate with the vendor base. “The uncertain environment does add to the pressure on the IT spend and consequently reinforces this consolidated approach,” Srinivas added. This uncertain environment also paves the way for a "reverse innovation model". As per this model, innovations in IT solutions developed in places like Brazil, China, and India are exported to Europe. Wipro, There is a crisis of for instance, has been actively bringing confidence in European its learnings and innovative solutions outsourcing markets, which have witnessed reduction in from emerging countries to the European the number of megadeals. and North American markets for the past

@ProtectHCCan: New & developing markets are intensifying global competition for the capital necessary for innovation. #CETA #cdnpoli #next25

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kavita final.indd 67 18/9/12 14:47:35 If power delivers opportunity…

…then we need to talk Could you join our team of thought-leading columnists? Email the editor on [email protected] Apply for your FREE subscription to Outsource magazine at www.outsourcemagazine.co.uk/free

final ads v2.indd 1 19/9/12 12:29:24 feature Provider Market

six or seven months in the financial and This has helped in repeat business and to manufacturing sector. drive growth,” says P R Chandrasekar, CEO, Singh explains: “A case in point is our Hexaware Technologies. experience with a client who wanted to The volatility in exchange rates does have introduce a white goods product.” Given an impact on software exports companies the market condition Wipro had to ensure like Hexaware for whom majority of the the product was comfortably priced. The revenues are in dollars or euros. Hexaware company worked with the client on the R&D for instance has hedges worth Euro 13 and on different cost criteria, and delivered million at an average rate of 70Rs. This has a product based on their learnings from increased since the same time last year. an emerging market. Singh adds that they “The increase in number is but an have started to see a lot of traction in this indication of the increase in our business,” approach. added Chandrasekar. A confluence of the existing environment HCL too has seen an upsurge in demand. with technology advances is a factor Ashish Gupta, EMEA VP, HCL Technologies Benison believes could strongly influence rationalises that in a market where clients Liz Benison the reverse innovation trend. She points look to reduce the cost of delivery and make to an increase in instances where IT more efficient, players like HCL offer an customers have either trialled new ❛The industry has attractive proposition. products or services, or plan to do so, in thus far spoken “Last year we did almost two and a half the emerging markets and post successful about bringing times the booking which we traditionally do implementation bring back the learnings to domain expertise, and this year too we seem to be walking on their mainstream global business. the same path” says Gupta. Buyers have also started to look for best practice from According to a report on zdnet.com, HCL’s commercial flexibility in their contracts. industry into CEO Vineet Nayar was quoted stating that iGATE for instance has seen acceptance of clients. I don’t the company had stopped hunting clients its outcome-based model enabled by iTOPS think the industry from April and that the company would move (integrated technology and operations). has completely from being a hunter to a farmer, grabbing As per this framework, iGATE makes the delivered on that low-hanging fruit. Gupta explains that the upfront investment in building a technology Liz Benison ❜ company will pursue a similar strategy in and process platform. The client then pays Europe as this would help drive more value only for the agreed outcomes achieved In order to succeed in this scenario, a with existing customers. Gupta clarifies through the platform. This helps the service provider will need to become lean that the company has not stopped looking company deliver a variable cost structure to and efficient, rationalise the installed base for new clients and that though the focus manage the client’s business. and the way they can deliver, craft and sell is currently inclined towards the farming “The interest in this framework is services. approach, it could change as the market increasing across all sectors,” says Derek “As easy and mundane as it sounds this situation evolves. Kemp, Executive Vice-President and Head is critical. An industrialised approach to BG Srinivas adds that the Infosys view in of Sales for EMEA, Asia & Australia, iGATE. commodity services delivery and services the current macroeconomic climate is not to Kemp adds that customers today are also offerings will help bring in economies of panic. The company continues to invest in its embarking on a simplification agenda, be it scale,” feels Gianluca Tramacere, Research people and platforms. But at the same time it in terms of rationalising their applications/ VP, Gartner. is also monitoring its people investments on portfolio or vendors or both, and cites an Nonetheless, despite the macroeconomic a quarterly basis, so as to ensure it is in line opportunity in the midst of the uncertainty. uncertainty, vendors all remain cautiously with the business visibility and can also avoid He believes that in such a scenario the optimistic. creating an onsite bench. iTOPS approach could be an attractive Hexaware for instance has been posting proposition to a client. The company has a 40 per cent growth year-on-year. “Our EVEN MORE already seen traction in this business model approach of primarily concentrating on For more from Kavitha Nair, see her article ‘Size and expects more clients to opt for this Germany [and the] UK and spending time Matters’ from the last Outsource, online now at http:// model through the second half of the year. with existing clients is yielding good results. bit.ly/OuEJXl

“We are beginning to see the benefits of global consolidation.” – Lakshmi Mittal

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kavita final.indd 69 18/9/12 14:47:59 Legal Transformation What can law departments learn from their peer functions about outsourcing and vendor management?

Danny Ertel, Vantage Partners

Danny Ertel is Founder and Partner at Vantage Partners LLC, a Boston-based global management consultancy specialising in relationship optimisation; and chairman of software provider Janeeva. He is also a member of the Sourcing Interests Group Advisory Board, and a columnist for Outsource online.

“Study is vain and counsel useless that is not put to virtuous effect when the time calls.” – Rabelais

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DANNY ERTEL final.indd 70 18/9/12 16:45:43 feature legal

fter years of resisting change already concentrate a significant portion firms to standardise and share documents; and the adoption of practices of their outside legal spend. ALM’s Law they significantly increased the use of that IT, Finance, HR, and Department Benchmarking Survey last year paralegals; they introduced innovative other corporate functions found that on average, the top two firms techniques for case management and have successfully put to use, used by any given company get about 50 early case assessment; and they were corporateA law departments are embarking per cent of the company’s spend, even early adopters of technology to support on a major transformation. Making better as that company makes occasional use of collaboration with outside counsel. These use of technology, globalisation, and a hundred or more firms. Actually trying were possible not just because they spent process reengineering, some General to move more spend toward a few firms more with each primary firm, but because Counsels and their teams have been is also no easy feat. In many cases, law DuPont made significant investments in very able to get their costs under control, free departments act primarily as intermediaries active management of the relationship with up resources to work more closely and or internal project managers, with the those law firms. strategically with their internal clients, business unit clients selecting the outside and play a larger role in managing their firm they are most comfortable with; and The next wave: unbundling companies’ ever-growing compliance risks. even when in-house counsel drive the The combination of improved technology, The challenge many are facing, however, selection process, relationships, relevant globalisation, and the recession did finally is that the techniques that worked for IT or experience, and conflicts are typically more create enough pressure that legal process Finance transformation, and the sourcing outsourcing (LPO) has become a reality. tools that have helped reduce other kinds The reality is Although adoption is still thin, corporate of indirect spend, need to be adjusted and t❛hat even when legal departments have begun to pick the adapted to what is indeed different about they use many low-hanging fruit in terms of lower-value, the practice of law. Outsourcing means repetitive tasks that could be separated something different to a corporate function law firms, most from the handling of the overall matter and that already sends out a majority of its work companies already outsourced to a different provider. The to law firms. Spend management means concentrate a most common example, accounting for something different to a department that significant portion the greatest volume of the work at LPO sits between internal clients and outside of their outside providers, is the initial review of documents advisors with whom they must have a legal spend that may need to be produced to the other relationship of trust and candour. ❜ side as part of pre-trial discovery. As law important criteria than any spend-related firms and their clients gain experience and Procurement 101 and the sourcing strategies. become more comfortable with mapping Law Department Companies that have tried to bring their legal processes and identifying those Basic procurement principles encourage outside counsel spend under tighter control pieces that can be done at the requisite buyers of goods and services to gain have found that change management, levels of quality for a much lower cost, other leverage by consolidating their spend with rather than spend analysis, is their biggest activities such as contract management, a smaller number of suppliers. DuPont’s challenge. Moreover, giving a particular patent reviews, and some aspects of due highly regarded Convergence Model firm a lot of your work is not, by itself, a diligence have started to follow suit. provided an early proof point (in 1992) for guarantee that they will give you their Of course, what is unbundled must corporate law departments, as they reduced best rate or the best value available in the eventually be reintegrated. Outsourcing the number of law firms the company used market. The 2012 Real Rate Report from some tasks means managing more, from 350 to 34. Since then, many corporate TyMetrix actually suggests otherwise: the rather than fewer providers, and unlike law departments have gotten on that more work one firm handles for a client simply adding another law firm to a panel, bandwagon, recognising that the hundreds – and the longer the client relationship integrating an LPO provider’s services of law firms they used were too many to extends – the higher the average rate the requires effective communication and afford them much clout with each. But firm charges. collaboration not only between client consolidation is not a panacea, nor does the While convergence was an important and provider, but also with the law firms added clout guarantee real savings. element of their model, DuPont did a lot and technology providers who are part The reality is that even when they more than consolidate their spend with of the equation. Law departments have use many law firms, most companies fewer law firms: they also pushed those law not traditionally majored in vendor

“Discourage litigation. Persuade your neighbours to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.” – Abraham Lincoln

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DANNY ERTEL final.indd 71 18/9/12 16:45:53 feature legal

management or operational excellence. the lawyer-client relationship as if it were But to act like the service integrators they a pure commodity purchase. As we’ve are becoming, they must also develop new learned with outsourcing other corporate capabilities. Some law departments, like functions, when buying complex services, those at Prudential, NetApp, and Credit the relationship matters. (All available Suisse, to name a few, have created new evidence from IT and Business Process roles for Legal Operations, and reached Outsourcing arrangements suggests that out to colleagues in IT, Procurement, the difference between a well-managed Finance, and other functions, to build the provider relationship and a poorly managed necessary connections that are required one is worth as much as 30 per cent of for a smoothly-running, multi-vendor annual contract value – see, e.g., Managing environment. (See All the King’s Horses Outsourcing Relationships to Maximize … Putting Value Back into Legal (ACC Value (Vantage Partners, 2010) available Docket, Jan/Feb 2012) available at http://bit. at http://bit.ly/RAS0CP.) In law, where the ly/P6eVFh) nature of the services rendered requires that the client trust the provider, it makes No more billable hours no sense to engage in the posturing and The other big push many in-house counsel gamesmanship typical of commodity are making is away from the traditional purchase negotiations. “Best” offers, “time and materials” billing models and “Final” offers, “Best and Final,” and similar toward alternative fee arrangements (AFAs). variations on the “start high and make Clients want predictability and meaningful concessions grudgingly” dance serve budgets for their legal services, not just only to teach both client and counsel not to discounts on an hourly rate with no control believe the first thing the other has to say. over the amount of time that gets billed at And when corporate sourcing groups and that rate. Many corporate law departments Much more legal departments obsess about making are experimenting with paying for work ❛ sure no one is paying the law firms they use on a fixed-fee basis, or under some risk- important than the a lower hourly rate, one has to wonder why sharing models, but progress is slow. size of the discount their strategy is to become a firm’s “least For most companies, the use of pricing is whether the desirable client”? models based on something other than the client is getting Much more important than the size billable hour is limited to a small portion value from the of the discount is whether the client is of their work. Notable exceptions include relationship getting value from the relationship. Value pharmaceutical giant Pfizer, which has ❜ is about the results the firm obtains, the moved nearly 75 per cent of its outside for. Flat fees are not sustainable unless the responsiveness with which it addresses the legal work to a panel of law firms whose buyer of those services limits the scope of client’s needs, and the efficiency with which work is primarily contracted for under a the demands it makes on outside counsel. it deploys resources. Value comes from the flat-fee model. In the oil and gas world, Making final payments hinge on law firm insight counsel bring to solve a problem, FMC Technologies, another innovator, has performance and client satisfaction doesn’t the knowledge they apply to execute a moved much of its outside legal spend work without clear expectations and easily transaction, and the care with which they into a structure under which a portion of understood evaluation criteria. To move advise clients about the risks they face. To every invoice is held back, and then 0-200 away from buying services by the hour, get the greatest value for their money from per cent of that holdback is paid at the end lawyer and client both must communicate outside counsel law departments must based on the firm’s performance. But AFAs and collaborate much more effectively, and create sustainable relationships, much like are no more a panacea than consolidation, not just about the content of the work, but the best long-term outsourcing relationships nor any easier to implement well than also about how the work will be carried out and strategic partnerships. unbundling. (“Should we look under every rock? Which To be effective, Pfizer and FMC have had ones should we leave unturned?”). Standing on the to make significant changes in how services What doesn’t generally work for shoulders of giants are consumed, not just in how they are paid controlling legal costs, is to approach Legal education, at least in the US, has

“Go not to the elves for counsel, for they will say both yes and no.” – JRR Tolkien

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DANNY ERTEL final.indd 72 18/9/12 16:46:16 feature legal

long been based on the case method, To build a network huge (and unsustainable) problems for drawing lessons from the mistakes (and ❛ themselves in terms of recruiting, training, successes) of others. The management of preferred and profitability. Unless clients treat those of legal practice, both in-house and at law providers who can as shared problems, they will not be able firms, could stand to learn from what peer help a company to achieve the improvements they seek. To functions have been doing to become more reduce legal costs build a network of preferred providers who efficient and more responsive to the needs and innovate in can help a company reduce legal costs and of the business. In particular, in-house how they support innovate in how they support the business, counsel should apply key lessons learned the business, law law departments will have to adopt partner about what it takes to manage a network of management best practice. preferred providers. departments will To make any significant changes to To be sustainable, pricing model have to adopt the models under which corporate law change must come hand-in-hand partner management departments engage outside counsel, with delivery model change. Clients best practice❜ clients will need to be build strategic want to move away from pricing based supplier management capabilities. As entirely on effort without regard to the bespoke solutions to clients’ unique and other corporate functions have reduced the efficiency, quality, or success of those non-recurring needs, the reality is that many number of suppliers they use, they have efforts. Fair enough. But to stop relying things we do can be done equally well had to learn to manage the fewer (and now primarily on the billable hour, law firms and more efficiently by reusing precedent; more strategic) ones differently. Doing so and law departments will have to get better and we can eliminate a fair amount of time effectively requires new skills and tools, together at specifying the terms of their spent by both sides reviewing and revising and a mindset geared toward joint problem- engagements and at paying attention to basic documents by adopting forms that solving. It also requires putting in place the fitness for purpose of the resources meet market standards. (There is certainly protocols for communication and decision- assigned to achieve those requirements. evidence in the London finance market, making, a shared approach to budgeting Outsourcing providers have learned that for example, that the sophistication of and planning, and a process for solving delivering complex services, some which the legal practice has been elevated, not the business challenges both client and are basic and repetitive and others which downgraded, for having adopted standard counsel will face. entail the exercise of significant judgment forms for basic agreements.) For that to The transformation of the business and expertise, requires an ability to price happen, however, clients must accelerate and practice of law is under way. The not just on the basis of time, but also the adoption of standard form contracts and pressures from the business to be more outputs, transactions, functions delivered, other documents, and insist their lawyers responsive to their needs, help them scope of responsibilities, and service levels focus their time where it really matters. deal with the growing risks of operating attained. To price based on outputs, value, To get better value for money in an increasingly regulated and highly satisfaction, etc., however, law firms must law departments must create real globalised market, and do so with much first understand what it costs them to do partnerships with their preferred greater budget discipline are not going what, and then reengineer their services so firms, and that means solving some to go away. The good news is that law they can deliver those outputs or convey that of their problems too. Companies departments can leverage what other value consistently, while making a profit. that have unilaterally imposed major rate corporate functions have learned in dealing To make legal matters subject to discounts on their panel firms have learned with similar challenges. The road to better budgeting and project management, the hard way that by doing so they make pricing structures, more efficient delivery and to enable delivery of more it harder for their relationship partner at models, and strong relationships with elements of the work by junior / less the law firm to pull together the right team trusted advisors who are also real business expert resources, standardisation for each assignment and to be especially partners, lies through how law departments and knowledge management are a accommodating when the client needs create and manage their preferred provider must. Outsourcing providers know that access to special expertise or is in a bet- panels. the key to enabling delegation, as well as the-company situation. If law firms are to to improving processes and making them change how they bill, invest in knowledge EVEN MORE more efficient, comes in large part through management, and send to LPO providers For even more from Danny Ertel, check out his top ten standardisation. Although as lawyers we tasks that used to be performed by their tips for repairing troubled relationships, online now at like to feel that we are always working on own junior associates, they will be creating http://bit.ly/kcMS52

“I try and live to the letter of the law, but right on the edge of it.” – Mark Roberts

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DANNY ERTEL final.indd 73 18/9/12 16:46:27 Getting to the real-life win-win Kate Vitasek and the Vested Outsourcing model have been making big waves in outsourcing for the past couple of years – but just what is the model all about, and which companies, if any, have embraced it? Time to find out…

fter two years of blogging for book Vested: How P&G, McDonald’s Outsource I hope readers and Microsoft are Redefining Winning Kate Vitasek, have at least heard of Vested in Business Relationships, by myself and University of Outsourcing and maybe Karl Manrodt with Jeanne Kling. Vested is even read one of our three a behind-the-scenes look at the separate Tennessee books.A But perhaps you have some doubts and often inspirational journeys that big and concerns, so you are still waiting on the and small organisations have taken to “vest Kate Vitasek is a sidelines. All too often we hear, “I like the for success” following the five rules of the faculty member of the University of theory of Vested, but does it really work in Vested approach for developing highly Tennessee’s Centre for Executive the real world? Are companies (especially collaborative relationships. Education and an internationally ones people have heard of!) adopting the Vested approach?” So just what is Vested? recognised innovator in the practice Short and simple: the answer is a The original research leading to the Vested of supply chain management and resounding YES! And we are featuring business model was a collaboration among outsourcing. our favourite cases studies in our latest the University of Tennessee (UT), the

Twenty-two separate P&G brands each have total global sales of over $1bn.

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kate vitasek final.indd 74 18/9/12 11:06:37 FEATURE VESTED OUTSOURCING

Microsoft Corp. chairman and philanthropist Bill Gates

FIGURE 1 United States Air Force, and the Defense Acquisition University. We studied some of 3 the world’s most successful outsourcing relationships with a simple goal in mind: CLEARLY DEFINED 2 AND MEASURABLE 4 fi nd a better way to outsource services. DESIREDOUTCOMES PRICING The result is Vested: a hybrid outcome- FOCUSES ON MODEL INCENTIVES THE WHAT ARE OPTIMIZED based business model based on shared- NOT THE HOW FOR COST/SERVICE value and relational economics principles. TRADEOFFS  Under the Vested hybrid business model organisations work together to build a 1   5 solid, trusting and cooperative foundation OUTCOME- for sharing value and achieving desired BASED VS. INSIGHT VS. TRANSACTION OVERSIGHT outcomes. Vested is best employed BASED BUSINESS WIN/WIN GOVERNANCE MODEL  (WIIFWE)  STRUCTURE when organisations want to achieve RELATIONSHIP transformational results versus simply

Consendre mod eugaitVested: alit How luptati P&G, sisisisit McDonald’s augait numand Microsoftiusti facidunt are ipsumsan Redefi ning el Winningeraestrud in exeratBusiness ad Relationships onulla cor ing is eumsandre ex elit atetue tet ulla feu feum niamconEmpublished by ea Palgrave commodiam Macmillan ad tem and dolortio is available Utat lumat http://amzn.to/MnLj6l quisim et, quissi.Volobore m iurero dolobore.

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kate vitasek final.indd 75 18/9/12 11:06:57 feature Vested Outsourcing

entering into a transaction-based agreement. of the commercial contract. the belief that everyone in the McDonald’s Organisations that adopt a Vested approach The two companies created a commercial System comprises a three-legged stool – follow five “rules” to develop and build their agreement that was highly Vested in employees, owner/operators and suppliers business relationships (see Figure 1). nature, collaborative in approach and – and that as such they all can and should For those seeking the elusive “win-win” transformational in thinking. Under this win together. by creating agreements that are designed groundbreaking agreement, P&G created Kroc insisted that winning only happened to drive innovation and create shared value, an outsourcing relationship that challenged when all parties were successful. The stool look no further. Here’s a brief look at some JLL to not just take care of its buildings, but is only as strong as its three legs; for one leg of the case studies we feature in the book – to take charge of its buildings. to prosper, each leg must prosper. Simply they portray the thinking and processes that The results? P&G says its Global put, McDonald’s, its owner/operators, and companies use in implementing the Vested Business Services unit has reduced cost as suppliers have a vested interest in helping model. a percentage of sales by 33 per cent for its each other succeed. outsourced operations. These savings were Kroc’s System is based on trust, loyalty, P&G not achieved at the expense of customer and fairness. This motivates suppliers to When AG Lafley became the CEO of P&G satisfaction. P&G’s “customers” – the invest in McDonald’s business – creating in 2000 he brought with him a vision to employees that use the facilities – are the a marketplace advantage in key business transform the consumer packaged goods real customers of JLL. JLL has exceeded drivers such as cleanliness, quality, value, giant’s entire approach to innovation satisfaction targets for six consecutive years. assured supply, safety, and being better, not and outsourcing. Innovation was a major just bigger. Kroc engaged suppliers who priority under Lafley’s stewardship, but he ❛An outsourcing were entrepreneurs and would not hesitate questioned the sustainability of the "in- model based to innovate and invest in the McDonald’s house-invent-it-ourselves" model, betting that on insight and System. He worked with suppliers to looking beyond P&G’s walls could produce performance develop products and processes that served more highly profitable innovations that would rather than bean- the owner/operators and, at the same time, drive value for both P&G and the parties counting and cost- produced profit and growth to the supplier. bringing innovation to P&G. This thinking To this day McDonald’s lives by the required the rejection of a “not-invented- cutting required philosophy that, as Kroc famously said here” mindset within P&G to enthusiasm for an unconventional some 50 years ago, “None of us is as good those ideas “proudly found elsewhere.” approach❜ as all of us.” Together, McDonald’s and But at P&G innovation does not stop at its owner/operators and suppliers work product development. It clearly extends together to create a competitive advantage into its outsourcing operations as well. P&G for McDonald’s and those in the System. believed that, by working with world-class The results are stunning. In 2011, Fortune outsourcing service providers it could Magazine named McDonald’s the number- drive costs lower and ensure that service ten Most Admired Company in the World. offerings remained on the leading edge of Fortune ranked McDonald’s number-one best practice. In 2003 the company entered among all companies for "Management a groundbreaking contract with Jones Quality", “Global Competitiveness,” “Use of Lang LaSalle that turned the conventional Corporate Assets,” and second among all approach to outsourcing on its head: companies for “Best Long-Term Investment.” P&G created a business model based on Forbes placed McDonald’s first on its 2010 contracting for transformation instead of McDonald’s list of Most Admired Companies. Barron’s contracting for day-to-day transactions. Most of us know that McDonald’s has a ranked the company fifth on its 2011 list P&G embraced a Vested approach when secret sauce that makes its Big Mac so of Most Respected Companies. Business it inked a pioneering outsourcing contract tasty. But the company’s real secret sauce Week included them in its top 20 Best with JLL spanning 60 countries that included is the “System” that founder Ray Kroc Companies For Leadership, and also noted facility management, project management perfected to build long-term transparent that McDonald’s was one of 2010’s Greenest and strategic occupancy services. The relationships designed to give McDonald’s Companies in the World. McDonald’s has scope and complexity of the deal was a first a sustainable competitive advantage in earned dozens more awards in vital areas of for both companies, as well as the approach the marketplace. The System is based on workplace, diversity, and sustainability.

According to company estimates, one in every eight American workers has been employed at one time or another by McDonald’s.

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kate vitasek final.indd 76 18/9/12 11:07:22 FEATURE VESTED OUTSOURCING

MICROSOFT AT P&G INNOVATION “charity” by creating sustainable and Six years ago Microsoft came to the ❛ transformational change through vested uncomfortable conclusion that it needed DOES NOT STOP relationships with NGOs and local to completely restructure its major global AT PRODUCT communities to solve water poverty issues fi nance processes and operations. DEVELOPMENT. in some of the most remote parts of the Its worldwide system was a patchwork IT CLEARLY world. of ineffi cient and disjointed processes: EXTENDS INTO ITS Vested also shares a case study of a small the software giant was using 77,000 active OUTSOURCING business that has won big by deploying procurement vendors and its fi nance OPERATIONS AS WELL the Vested model with their customers and operations used up to 370,000 hours ❜ employees. annually simply producing reports. countries to Accenture. Both parties operate The theme that emerges from these A better system was needed; the the agreement with incentives designed to case histories is that organisations – company’s senior management determined improve performance and deliver increased big and small corporations, state and that outsourcing would help improve quality value year-over-year. They share in the risks local governments, and even non-profi t and cost structures. But Microsoft wanted and rewards of doing so. This innovative organisations – all have several things to go beyond the conventional notion of outsourcing relationship vests Microsoft in common: everyone involved in the outsourcing, or simply shifting the “mess and Accenture in each other’s success: enterprise is innovating through highly for less.” Microsoft’s vision was to shift they are most successful when they both collaborative Vested relationships that not the focus from transactional accounting succeed. only talk about the elusive win-win: they to a more strategic approach that would The OneFinance success story is the achieve it. leverage “business insight”. It also wanted very defi nition of win-win. In February The bottom line is the bottom line, as to achieve consistency and standardisation 2007, Microsoft signed the outsourcing the success stories in Vested demonstrate. worldwide. This project became the agreement with Accenture, with an original There really is a better way to outsource. It’s OneFinance initiative. contract term of seven years at a value not just a nice theory; it really works. And, by An outsourcing model based on insight of $185 million. The contract spanned the way, there’s no need to wait. and performance rather than bean-counting Microsoft’s entire back offi ce fi nance and cost-cutting required an unconventional processes, including: AP – Expense reports approach – one that was not simply about & invoices, requisition to Purchase Order WIN A COPY OF THE outsourcing the work, but about outsourcing process and general accounting. a transformation of the work, achieving Within 28 months Microsoft and LATEST BOOK FROM desired outcomes and changing the Accenture had extended the agreement to THE VESTED TEAM defi nition of winning to create a mutually 2018 and expanded its scope, increasing benefi cial win-win mentality. the total the contract value to $330 million. We have fi ve copies – The company needed a partner it would OneFinance has won multiple awards signed by Kate Vitasek share that new vision with over the long haul, from the heavyweights in the outsourcing – of Vested: How P&G, McDonald’s and Microsoft one with a vested interest in achieving that industry, including the Outsourcing Center, are Redefi ning Winning win-win mindset. Enter Accenture. the Shared Services Outsourcing Network, in Business Relationships The result was a Vested model – a and the International Association for to give away to performance and outcome-based Outsourcing Professionals. Outsource readers. Simply write to the relationship that focusses on results, not Outsource editor at jamie.liddell@ outsourcemagazine.co.uk with “Vested transactions. The OneFinance initiative GOING BEHIND THE SCENES book offer” in the subject line by October embraces defi ned and measurable Behind-the-scenes details and exclusive 31st and we’ll draw fi ve lucky winners outcomes; it focusses on the what, not the interviews with the players who made their from our electronic bag… Winners how; it optimises pricing incentives and has collaborative, win-win visions reality are will be notifi ed by email and will be a governance structure based on insight, detailed in Vested. One surprise you might required to submit a postal address upon notifi cation. What are you waiting for? not oversight. It’s no accident that those not expect: the book reveals the Vested features are real-life iterations of Vested’s model works not only with buyer-supplier Five Rules. relationships, but also with organisations EVEN MORE The OneFinance initiative outsourced such as Water for People, a non-profi t that For more from Kate Vitasek see her series of columns back offi ce fi nance transactions in 95 is changing the paradigm of a traditional on the Outsource site, indexed at http://bit.ly/GG9mFb

Microsoft is one of the world’s largest corporate collectors of contemporary art with over 5,000 pieces in its collection.

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kate vitasek final.indd 77 18/9/12 11:07:29 What’s the point of outsourcing? DLA Piper in association with Outsource is running a survey looking at some of the biggest questions in outsourcing. To launch the survey – which you can take at www.outsourcemagazine.co.uk/outsourcedlasurvey – Duncan Pithouse presents a “state of the nation” perspective on outsourcing...

Duncan Pithouse, DLA Piper

Duncan Pithouse is a Partner with DLA Piper (www.dlapiperoutsourcing.com), specialising in non- contentious technology and sourcing matters, and focussing on complex international outsourcing contracts. He advises on a wide range of outsourcing transactions and all aspects of a client’s sourcing requirements.

o, what is outsourcing? And has it have done yourself, and continue to need to service provider to bring to bear its existing always been the same? How does have delivered to you or for you. As early processes, ideas, policies, structures it change? Why does it change? as 1982, US management consultant Tom to deliver efficiency improvements and What is the point of outsourcing? Peters recommended to US businesses cost reduction. But at the same time, the No doubt you have very clear that they should “do what you do best, and customer invariably has clear ideas of what Sviews on the answers to all these questions, outsource the rest” as the primary salvation it wants and even how it wants it, especially garnered and developed over a number of of US business profitability, and numerous in regulated businesses such as financial years of working within the sourcing sphere companies have followed that advice in the services. whether as a user, buyer or advisor or a following thirty years. This apparent inherent tension is arguably combination of all of these roles. What we What is being outsourced becomes the single most important philosophical hope to do over the course of this article, more complex and specialised with every issue in outsourcing, since failing to and our survey (which you can complete month. As customers look increasingly properly appreciate the risk associated with at www.outsourcemagazine.co.uk/ to outsource functions and services that getting the balance wrong will inevitably outsourcedlasurvey), is to understand are closer than ever to their core business drive up the price, and not result in on a broader scale the current state of the (and even to what they do best), they do appropriate transfer of responsibility to the outsourcing market, the challenges facing so creating new issues. Yet, whatever the service provider – so damaging the delivery it now and how it is likely to develop over nature of the outsourcing, the same four of the required business case and business the near future. We hope this will enable us core issues continue to recur and challenge benefits. to develop one of the first cross-sector and organisations looking to outsource services One potential answer is the increased cross-participant analyses of the state of the and functions. prevalence of “co-sourcing”, using a outsourcing market so that we can be better closer operational relationship between prepared to engage in outsourcing now and Recurring Themes the customer and the service provider, with in the future. Letting the service provider do what it joint teams, jointly produced deliverables Outsourcing, offshoring, nearshoring, needs to do vs. retaining control and continuous prescribed skills transfer. strategic sourcing – whatever name is At the heart of any outsourcing is the fact This though throws up a further set of applied to it – is a variation on broadly that the customer is handing over delivery issues particularly around “finger-pointing”, the same theme – it is of course getting responsibility to the service provider, and apportionment of liability, service levels and someone else to do for you what you could is doing so in such a way that it wants the reverse service levels, and IP ownership

To take the survey, go to http://www.outsourcemagazine.co.uk/outsourcedlasurvey

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p78-80 dla edit JAMIE SEEN.indd 78 19/9/12 12:32:31 feature Outsourcing Survey

Gradually – but ❛certainly more consistently – deals are moving to an outcomes-based approach with the outcomes linked to the customer’s actual needs❜

“Everyone takes surveys. Whoever makes a statement about human behaviour has engaged in a survey of some sort.” – Andrew Greeley

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p78-80 dla edit JAMIE SEEN.indd 79 19/9/12 12:32:42 feature Outsourcing Survey

❛customers seem to be more mature in their approaches to outsourcing, looking towards outcome-based models❜

that need to be properly thought through and that they will need to align the services to yourself – and the same core issues continue catered for in the outsourcing agreement. a new service delivery model, essentially to recur, whatever the deal, as we hope we Alignment of business objectives to “reinventing the wheel” at the customer’s highlighted earlier in this article. service provider incentives cost. Desirable as it might be, insourcing But now, more than ever, we operate in Everyone knows that it’s all about “risk vs. is no longer a practical option because it an exciting environment (even if it is not return”, and that this is usually interpreted would be prohibitively expensive to rebuild without its challenges!). Customers seem to mean that the service provider’s an internal function. to be more mature in their approaches to liability cap needs to have some bearing So, achieving appropriate protection for the outsourcing, looking towards outcome- on (a proportion of) its revenue under service provider’s proprietary IP as against based models and different sourcing the contract. But this in itself leads to strategic flexibility for the customer should approaches, such as co-sourcing. an adversarial approach to putting the remain a core sensitivity for all customers. Functions that are “higher up the value outsourcing arrangement together, resulting “Total cost of ownership” certainty vs. chain” are being outsourced, causing a in inputs and outputs rather than a deal that long-term flexibility re-examination and re-consideration of key is tied to the customer’s business. Most people identify “cost reduction” in one issues across the entire contract from what Gradually – but certainly more form or another as the single-most important the service descriptions should say, all the consistently – deals are moving to an reason for outsourcing. Cost reduction is way to how responsibility, risk, and liability outcomes-based approach with the inherently tied to a business case, which should be apportioned. outcomes linked to the customer’s actual of course needs to factor in not just the Service providers seem to want to needs (for example, regulatory compliance service provider’s charges, but also the develop new offerings to set themselves or increased profitability), together with a cost of delivering the customer obligations, apart in respect of these new outsourcings. more open-minded approach to sharing the continued management of the service All the time, these play out against a weak the upside more obviously with the service provider and – although often missed – the economic environment, and an increasing provider, via bonuses tied to the delivery of cost of effecting organisational change raft of regulatory compliance requirements. business benefit. to align the customer organisation to the We have consciously said that these seem The path of no return – avoiding losing outsourced service delivery. to be the trends because these are our know-how and IP lock-in When putting the deal together, then, the perceptions. We really want you to complete When you outsource, you invariably align parties both need to be clear about what our survey to help to develop an analysis yourself (to a greater or lesser degree is being bought at what price, and what is of the current outsourcing market. Over depending on how you approach the and is not covered within the charges. This the next months we will report back on our philosophical point raised above) to the is all very obvious, of course, and it’s not survey findings, and provide an insight to service provider’s processes and are likely just about getting the scope and the pricing the real state of the outsourcing market now to make staff redundant, whilst relying on a schedules right. It is also making sure that and its likely future shape. retained layer to manage rather than absorb robust change-control procedures are in Go to www.outsourcemagazine.co.uk/ the service provider’s delivery. place, predictable pricing models are set outsourcedlasurvey to complete the Before long, the customer has lost the out, responsibility for costs of compliance survey. It takes approximately 10 minutes to in-house skills to provide the services, but with polices and changes in law and costs complete. then begins to lose the skills to re-build the associated with exit – such as TUPE and This survey and accompanying reports are function should it want to. Likewise, unless wind-down costs – are properly catered for. being carried out by Outsource and DLA the contract is appropriately drafted, the Piper as part of a commercial relationship. services become modelled on a proprietary An Ever-Changing Constant? For more information contact the editor at methodology of the service provider and Calling something an ever-changing constant [email protected] is so reliant on the service provider’s IP is undoubtedly oxymoronic, but it does that continuing use of these at the end of seem to us to neatly describe approaches EVEN MORE the term becomes impossible. So the to outsourcing. Conceptually, outsourcing For more from Duncan Pithouse check out his article customer is left with a choice: renew, or has not changed – it is still getting someone ‘Invested Outsourcing’, online now at http://bit.ly/ choose another service provider knowing to do something you would otherwise do QdHNai

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p78-80 dla edit JAMIE SEEN.indd 80 19/9/12 12:32:52 p81 21000-102807 FinancialTimes FP.indd 81 18/9/12 15:45:36 outsource XPLORES Getting Out of the HR Jungle with The Value of HR Outsourcing Our series OutsourceXplores Getting Out of the HR Jungle begins with an exclusive, eye-opening roundtable debate bringing in representatives from all corners of the HRO space…

Andrew Fox, HSBC

Andrew Fox is Head of HR UK Bank, Head of HR RBWM Europe for HSBC. He is passionate about enabling business performance and people development.

Nick Harvey, Logica, now part of CGI

Nick Harvey is Head of HRO Proposition, Business Process Services at Logica, now part of CGI. He works across all levels of the Logica/CGI and client organisations to craft innovate, winning and deliverable HR BPS solutions.

Linda Merritt, NelsonHall

Linda Merritt is Research Director HRO for leading analyst firm NelsonHall. Her specialities include multiprocess HRO, payroll, benefits, RPO, learning BPO, mobility services, and talent management.

Sola Osinoiki, PWC

Sola Osinoiki is Manager Human Resource Services at PricewaterhouseCoopers. He has over 11 years of technology experience and six years’ global HR systems implementation and consulting experience.

For more superb content from our series OutsourceXplores Getting Out of the HR Jungle x with Logica, see the series index at www.outsourcemagazine.co.uk/logicaxplores

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p82-85 xplores logica JAMIE SEEN.indd 82 19/9/12 14:47:06 ROUNdTABLE HRO

ast month, to launch our series However, Harvey added, “in many look for the lower HRO admin costs. Then OutsourceXplores Getting out of the cases – especially where people have second-generation clients start to look at the HR Jungle, Outsource and Logica outsourced once already – they’ve often overall cost of the programme and want to – now part of CGI – convened a achieved some of that cost reduction, manage the large costs beyond the vendor roundtable looking at some of the maybe by moving things to a lower- fees. Finally, the most progressive clients Lkey trends, developments, challenges wage environment that’s helped drive are looking at creating improved business and opportunities at play within the HRO costs down. Increasingly organisations performance at the optimum cost.” space. During a wide-ranging, free-flowing are looking to go up the value chain to The panel then turned to the topic discussion, a team of thought leaders understand how they can drive greater of driving transformation through representing the buyer, vendor, advisory business performance and achieve value outsourcing. Nick Harvey began by getting and analyst communities tackled some of that way as well as maintaining a tight cost back to first principles: “I think you’ve got the very biggest issues facing HRO today. environment.” to go back and look at the reasons for HR The full transcript of this roundtable is On the question of whether cost transformation – because outsourcing available on the Outsource website via the reduction through labour arbitrage is still effectively is just an enabler: why are QR code at the end of the article; here we a key factor in terms of location selection, organisations looking to transform HR, how present some of the highlights and primary Harvey posited “a very mixed picture”. they are going to go about it, are they clear talking points to arise from this compelling “I think that where people can use in terms of the outcome they expect from encounter… it and how they are going to achieve those The debate began with some input from ❛Increasingly outcomes? Then obviously there’s a piece PwC’s Sola Osinoiki, who was asked how organisations are around how they bring all of that together. If HR outsourcing is currently driving business you think about a typical HR transformation transformation. looking to go up the value journey there’s a foundational element “Over the past couple of years we are chain to understand how and then you look to build on that, and seeing more and more of the HR function they can drive greater then you look hopefully to optimise. I think aligning with the overall business outcomes business performance❜ what we are seeing is that HR outsourcing – so this drives around ‘What is the business Nick Harvey can play a part in each of those steps on outcome that we are trying to drive to the transformation journey… Ultimately and deliver to?’” he said. “Because you wage arbitrage to manage back-office it’s all about aligning HR with the broader understand the business outcome, you aspects of the service in terms of non- business strategy.” begin to align HR to that – and (with the customer-facing work, you still get a lot of NelsonHall’s Merritt pointed out that concept of cost reduction in mind) you are that. Once you get to the point of actually “it’s important to think about that business looking at the best way of delivering those putting customer contact work out into strategy early on, even if you’re first- solutions.” those environments, you do get a much generation outsourcing”. When asked how important cost remains more mixed picture. I think it also depends “Where is it you want to end up?”, she as a driver for change, Osinoiki’s response on what other experiences organisations asked. “If you want to end up with HR was unambiguous: “For the organisations have had with moving work offshore in transformation, then picking a vendor who we are working with across the board, cost any other environment; that is a key factor can help you through your early stages is still one of the key drivers… Every single in conversations we have. Those typically when you are more focussed on operations implementation that I’ve been involved with that have had a good experience moving – getting the services up and running, has got a big monetary return investment at a function or parts of a function offshore almost catching up with others so far as the end of it.” are much more receptive. Those that don’t technology and processes are concerned Both provider and buyer representatives have any offshore capability (however it’s – and you’re also very concerned about concurred: Andrew Fox of HSBC said that provided) are much more reluctant. There’s cost, you may pick a partner who isn’t “when we look to outsource, cost is a major a maturity piece there that comes into it.” the best partner for you as you move driver ([although] you can dress it up any Linda Merritt of NelsonHall picked up forward as you mature... I think it behoves way you want to: say efficiency, say core on this point, ending the discussion on cost everybody to think about what they want capability, say variable costs, you could say with a look at that “maturity piece”: “Cost is from day one, but also what they want over lower unit costs...)” while Logica’s Nick always a top concern and expected benefit a period of time as they phase and grow Harvey agreed that “cost is a significant of HRO, but it does vary by the maturity into the complexity that HR transformation element”. of the client. Clients new to HRO tend to really is, so they have the right partner.” For more from Logica, now part of CGI, see www.logica.com x

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“Certainly in my experience,” said that warehouse – and the warehouse gives improve is no longer an option. I think Fox, “outsourcing doesn’t drive the you the insight into what’s going on within we see also those where there is clarity transformation. Sometimes transformation the organisation.” around how HR strategy aligns with drives the function to look at, amongst Linda Merritt then expanded upon the business strategy. I think roadmaps are other things, outsourcing – so outsourcing data question: “When we are talking about always an interesting option because short- may enable HR transformation... You don’t the idea of data, I think one of the real term pressures, and continual changes start with one pot and end with that same values of having an excellent outsourcing in business content, do present a lot of pot on a journey. As you mature your pot partner is they can really help you plan to challenges with being able to maintain a matures with you – or then you renew with get to the end stage where you have the path on that roadmap. Ultimately, that’s a different provider.” data you need, but the outsourcing partner the role for providers such as Logica, now Fox continued: “I also have had this pet sometimes has to help especially newer part of CGI, to help organisations to do theory that says ‘whatever you outsource clients who may not articulate their need. that. There’s no magic answer. There’s no today, you’ll in-source tomorrow’ – and They may say, ‘I need global payroll’ and single solution. It’s about understanding then what you in-source tomorrow, you’ll we’ve seen a lot of global payroll deals, your business content and how you can outsource again the day after. I think there but underneath it is not necessarily a big drive value out of changing an HR function is not always, but often, a cycle of nature concern of who cuts what cheque; it is and align it with broader business goals.” and I think that’s driven by nothing other the payroll data they want to be able to The debate then moved on to the than the way we report financially, and the understand what’s happening with the topic of multisourcing, with Andrew Fox way financials work. A lot of the behaviour having opined that in the case of HSBC is driven by financial statements and the Cost is always a top specifically it wouldn’t at any rate be way we report, not by what might or might ❛ possible simply to engage with a sole not be best for all concerned when it concern and expected provider globally – “at the moment we are comes to in- out-, in- outsourcing.” benefit of HRO, but considering outsourcing our recruitment At this point the panel looked in some it does vary by the globally and I know there wasn’t a single detail at the HSBC experience specifically. maturity of the client❜ provider that could provide that service Fox was asked if his organisation had “set Linda Merritt globally for us in a standardised way.” out with a kind of deeper transformation Fox pointed out that “what happens agenda in mind – or was it focussed on the labour costs and the labour force around is that managing multiple suppliers costs first and foremost?” every area they have, whether it’s different becomes a new competence that you “It was absolutely a lot more than cost,” business inputs or different countries or have to acquire; you shouldn’t assume he replied. “It was truly transformational whatever it may be.” just because you’ve been able to manage in terms of platforms, systems, processes She continued: “I think that many one outsource partner in the past, that and capability. It was fairly holistic in terms people in fact don’t have [a long-term you can now (for the same transaction of what we tackled. Cost was just a part of understanding], but if they’re short-term globally), manage multiple ones. I think it. In effect, what we said was, we would thinking too much then that’s where you it’s a different capability set – and I’m not reduce our costs by some 25 per cent start to see the problems of having to sure that this exists widely at the moment but at the same time we would uplift our change systems and vendors and rip and in the profession… At the moment [vendor service and capability significantly too.” replace, after you’ve sold some additional management is] a core competency of Sola Osinoiki wished to take this further ideas of where you need to go. Too short- the provider not the customer. I think that – “if you then look at another aspect of this, term thinking isn’t good. A general long- business in general, and HR typically, you are basically building for two items term plan is very possible.” have got a lot to learn in terms of optimum ultimately from an HR point of view. One Drawing this section of the discussion to management of external parties, providers, is the data that goes into the system and a close, Nick Harvey looked at what again suppliers etc.” then there is the output that comes out the seems a mixed picture. Harvey responded that “I think there other side” – which thought was picked “I think we can see varying views,” he should be more to come in terms of up by Nick Harvey: “And it also provides stated. “We see some where HR functions commercial innovation around outsourcer an insight into the organisation. Once are still very much in reactive mode. I think HR services and I think you will see those you have the foundation in terms of good there are some where they’ve recognised top-tier clients who are best in class, quality data and consistency in terms of that they have to take a more transformative certainly have those commercial skills very your process, you can then start to build up view, because just trying to continue and quickly and I think you’ll also see more and

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more providers moving to the supply chain level there’s integration required. monetised as we’ve seen in the past.” enrichment piece as well.” Ultimately it’s how you architect the Nick Harvey then asked: “On the idea “What we are beginning to hear,” solution in the fullest sense that counts.” of access any time, anywhere from any interjected Osinoiki, “is about ‘best of Merritt liked “the concept about the device: the success of that will be around breed’. So if you’re going to go for multiple lynch-pin provider, for larger organisations the concept of bring-your-own-device. vendors, but not be tied into one particular going on transformation. That’s the idea Where’s the maturity of that?” solution, all of a sudden you might find that perhaps there is a lead provider “Well, I think security is one of the yourself with a payroll provider, resourcing that is working in partnership with the top things,” Merritt replied. “Certain provider, benefits provider and an HCM client to help this occur, because what is organisations are not going to let things provider. All of a sudden, like Andrew developing is some strong regional players go out of house. But we have so much said, you need to develop a new skill – or for different parts of the globe and for mobile access in our private lives that the get somebody alongside you to manage some companies, rather than trying to find pressure is building to bring them into the multiple vendors to deliver a complex one vendor who can do everything.” workplace. We have to face the challenges solution. What happens is that all of a Andrew Fox also liked the lynch-pin and manage them. Pretty much most of sudden your choice of vendor begins to be concept, saying that he thought it “will the suppliers that I work with have at least impacted by who you take as your lynch- drive the trend of in-sourcing what you basic access now – they’re starting to put pin provider.” outsourced previously. You’ll have fairly simple decisions and functions that Linda Merritt was in full agreement: to go down that route because of the are actually transactional online.” “I think people are trying to come up complexity… That’s going to drive costs “This is where you really need to to speed to match companies like our up because every person in that value depend on the IT infrastructure of the banking partner here, so they can meet chain has to have a margin. In terms of organisation as a whole, and HR then the needs with one vendor who can innovation, I think I might take a more becomes something that is piggy-backing assure them that – whether it’s through cynical view and say that it might be on something that already exists,” said partnerships or whatever – it’s well- stifling innovation because the energy is Sola Osinoiki, adding that “as we tie in the integrated and well-managed.” going in to making the processes work ability to develop apps and then develop Logica’s Harvey saw “two aspects and to outsourcing them and to managing portals, all of a sudden the concept of to this” from the perspective of his the service level agreements and the innovation almost comes upon you by force organisation: “First of all we recognise relationships and the complexity – and because your customer is beginning to ask what our core capability is; we are not offshoring, when that’s accompanied with you for that innovation.” trying to be broader or to span the entire outsourcing. I’m not so sure that it isn’t a Andrew Fox summed up the innovation breadth of what you might consider HRO. detractor from innovation.” section, and the roundtable as a whole: For example, we do have partnerships, At this point the conversation turned “I think this is a very important debate interestingly, in the RPO space. We to address innovation, with Linda Merritt which is going to occupy more and more would typically go to market with another opining that “something that is innovative time in the future. I think organisationally, organisation. I think certainly an element one day starts to become standard on the our approach so far has been quite a around what we’ve termed ecosystem next day – but I still think innovation is traditional one in that you can’t use your management, in the sense of looking at relative to your current capabilities…” personal device because of security the end-to-end ecosystem, is something “I think another way,” she added, “where reasons, but increasingly our external that we see as a key component of any HR I see innovation in HRO – more at the small customers want access to their data and solution in its broadest sense. end, but it is definitely both transformative to be able to transact via mobile devices. “That’s something that organisations can and a disruptive force – is Software-as-a- So we are developing it there, and I think obviously choose to take on themselves Service that you can just pay for as you go HR should be able to piggy-back on those or something they can use an outsourcing instead of having to have a licence etc – sorts of developments.” provider to do. It is recognising that no one this is duly transforming a lot of offerings. provider is ever going to meet every single We’ve mentioned you have to have a Read the Transcript need; it’s about making sure that you’ve margin and so our current economy, which got integration at all the right points – so has put a really ruthless perspective on To read the full transcript you’ve got the integration from a service cost, I think has made many vendors not of this compelling roundtable, simply scan able to move forward on innovation-type perspective, you have it at the process this QR code… perspective, and also at the technology things, especially if they can’t be easily

Each OutsourceXplores is a separate content series created in collaboration with a commercial partner. The Outsource editor retains final editorial control of course. For more information write to [email protected] xx

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p82-85 xplores logica JAMIE SEEN.indd 85 19/9/12 14:51:39 outsource XPLORES THE impact of Big Data in association with AND

An Introduction to Big Data Our series on ‘The Impact of Big Data’ kicks off with a top-down look at the topic: what is it, and why does it matter to your business?

t is easy, when considering the big its provider has sufficient storage space data phenomenon, to get carried (though that in itself can’t be ignored); Jamie Liddell away by the numbers. But the most it’s about capturing and analysing the important aspect of “big data” as a data in intelligent, strategically relevant Jamie Liddell is concept which is changing business and tactically adept ways in order to gain the Editor of Itoday isn’t the size of the data (though potentially game-changing competitive with well over 2.5 quintillion bytes being advantage. Outsource and created every day, there is clearly a lot Why game-changing? Because big data www.outsourcemagazine.co.uk of information doing the rounds) but doesn’t just involve doing the same things what that size signifies: how and why better, faster, cheaper, more accurately; it organisations can and must use such vast means the ability to do entirely new things, repositories of information to survive and and potentially to create entirely new lines thrive. Grappling with big data isn’t simply of revenue. The reason is simple: the kind a matter of ensuring your organisation or of data sets that come under the big data x For more unmissable content on ‘The Impact of Big Data’ see the series index at www.outsourcemagazine.co.uk/luxoftxplores

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p86-89 xplores luxoft final.indd 86 19/9/12 09:50:55 THE impact of Big Data in association with AND feature BIG DATA

❛Big data doesn’t just involve doing the same things better, faster, cheaper, more accurately; it means the ability to do entirely new things, and potentially to create entirely new lines of revenue❜ increasingly accurate macroeconomic outsourcing route almost by default. forecasts; from identifying likely And of course the provider market has delinquencies early to maximising the been keen to offer a helping hand: many effectiveness of the bank’s various product suppliers see big data and the higher- marketing drives. If knowledge is power, value work it entails as being key revenue then the potential tied up in such data sets lines going forward. As a result huge is powerful indeed. And, of course, the investments have gone into crafting big bigger the data, the greater the potential data solutions and the space comprises – assuming, always, that the capability is one of the most important growth areas there to use the data correctly. Big data within the outsourcing supplier arena. without the ability to leverage it to your own One forecast, from IDC, puts the value advantage is nothing more than a drain of big data-facing products and services on precious resources (and meanwhile by the end of 2015 at just shy of $17bn – a your competitors are busy rolling out the hefty pie indeed, but a pittance compared analyses which will see them eating your with the potential gains to be found in the lunch tomorrow). intelligent use of the data itself. One big issue when it comes to getting One aspect of the rise of big data which maximal advantage from your huge data continues to cause uncertainty and has is of course the old chestnut of “in-house serious ramifications for organisations or outsourced”. As is so often the case regardless of whether or not they keep this may well come down to what an their data in-house is the increased organisation sees as core and non-core compliance burden being shouldered by activities; the hypothetical global bank in anyone using and moving data. Within the above example might hold data analysis the US and EU especially, data protection umbrella are so huge and so complex that close to its strategic heart, and wish to keep regulation is increasingly mordant and without the right technology and mindset its big data-focussed activities in-house – in poses significant challenges, both in terms in place any meaningful analysis would be which case the problems facing it include of the legislation itself and the compliance functionally impossible, yet with the right kit getting the right technology in place (and requirements emerging therefrom, and and thinking whole new areas of analysis paying for it), and attracting suitable big as a result of uncertainty over further can open up which previously might never data-savvy talent (likewise). Alternatively regulation and its potential impact on have been considered in the first place – it may feel like outsourcing at least a part existing relationships. This is a key and of course it can be the case that many, of its big data work – and then the usual factor in any outsourcing decision in this many different analyses with radically challenges around outsourcing rear their space, as it is now legally clear in many different ramifications can be carried out on heads, including governance issues and jurisidictions that both provider and buyer the same data set. the question of IP. It really is – to coin a have at-times-onerous legal obligations For example, a global bank processing phrase – horses for courses. regarding the data they use and that the millions of transactions a year has an However, whereas the same could buyer may well be liable for data breaches awful lot of data on its hands. But that be said for pretty much any outsourcing even if they are the responsibility of the data can be used for a huge number question, when it comes to big data the provider. On the flip side, organisations of purposes depending on the type of “courses” are changing so rapidly that, may wish to outsource analysis specifically analysis conducted on it: from monitoring increasingly, only the richest organisations on that basis as their provider must act and capitalising upon spending habits to are able to keep their entire big data in accordance with all relevant current preventing fraud and money laundering; activity portfolios in-house: the investment legislation and this expertise simply may from studying its own processes to in equipment and talent is proving too not exist within the end-user organisation increase internal efficiency to building up great for many firms who are taking the itself. For more from Luxoft see www.luxoft.com x

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p86-89 xplores luxoft final.indd 87 19/9/12 09:51:03 outsource XPLORES THE impact of Big Data in association with AND How to Tackle the Big Data challenge Want to grasp the big data nettle? Our series looking at ‘The Impact of Big Data’ continues with some practical tips to help you get it right.

Przemyslaw Berendt, Luxoft

Przemyslaw Berendt is VP, Global Marketing and Managing Director Poland for Luxoft, a leading Central & Eastern European application development service provider.

. ig data is quickly becoming for structured data management. Yet in competitive advantage companies have the most hyped-up notion in times where consumers constantly and to be able to retrieve and combine them the IT industry these days, immediately share information on social with the structured data they possess. gaining dominance over cloud networks, blogs, and by text messages the Analysing such variety of data will help and mobile. As markets push use of unstructured data becomes a source drive customer engagement. A good Bbusinesses to provide innovative products of competitive advantage. way to analyse if your industry can be and services, companies have to figure Google goes as far as stating that the transformed using big data is taking a look out a way to leverage the volume, velocity, way consumers make decisions was at the volume, velocity, and variety of data and variety of data they have access to. transformed in recent years. Historically, used. In some industries such as banking, However, tackling the big data challenge purchase decisions were triggered when media, telecommunications or retail – is not easy, and will require a different a consumer was exposed to advertising, where all three of them get a high rating – approach to implementing IT initiatives. followed by the “First Moment of Truth” big data technologies can be employed. According to Gartner, “through 2015, when a consumer saw a product on the The second success factor is gaining the more than 85 per cent of Fortune 500 shelf. The process ended when a consumer right support for big data initiatives. Unlike organisations will fail to exploit big data used a product. Today, a new step has in typical IT initiatives, it’s not the CIO who for competitive advantage”. Forrester emerged in that decision-making process: is the ultimate stakeholder of the project. also warns that “big data with little or no called ZMOT (“Zero Moment of Truth”) It’s the business leaders who should business involvement will ultimately fail”. where an end-user, prior to picking up the sponsor and drive the use of big data. So how can decision-makers and buyers product from the shelf, researches it online. IT departments should act as enablers prepare to face the big data challenge? It happens in real time; it’s based on other of extracting value from the large pools First, companies must identify if a use consumers’ feedback; it’s benchmarked of historical data and live data streams case for implementing big data solution against other offers. available. Only a deep understanding really exists. The majority of enterprises The sources of information for the of the business case, combined with already have well-established strategies consumer are endless, and to gain expertise in identifying, transforming, x For more unmissable content on ‘The Impact of Big Data’ see the series index at www.outsourcemagazine.co.uk/luxoftxplores

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p86-89 xplores luxoft final.indd 88 19/9/12 09:51:13 THE impact of Big Data in association with AND feature BIG DATA

❛The majority of enterprises already have well-established strategies for structured data management❜

and analysing the right information recommend a proper technology stack avoiding silos, and leveraging existing can guarantee success. Technology for the particular case the team is trying infrastructure. Software developers have to departments only provide the plumbing to address. Yet, expert knowledge of remember to build reusable components to be able to process massive amounts technology like Hadoop may not be that can be used in resolving other use of data in real time. It’s the business that enough. Make sure you select a vendor cases in the backlog. Agile methodology needs to derive insights, and take action who has a track record of solving problems is a perfect fit for such complex initiatives. based on the data points combined. in your domain. This will assure technical Delivering shippable components of Since big data requires a unique mix of teams can speak the same language the final product, and frequent reviews understanding the business drivers and with business users and data architects. with stakeholders will ensure the team is knowledge of IT processes to enhance If outsourcing is not part of the strategy, focussed on solving the case in hand. those, the next challenge leaders should the alternative is to build the skill set Even if big data is only reaching manage is bringing the right talent together. in-house. However, grooming big data the “peak of inflated expectations” Creating cross-functional teams consisting technical excellence is time-consuming; according to Gartner’s ‘Hype Cycle for IT of software engineers, business users and team members representing business Infrastructure and Outsourcing Services’, data analytics experts seems to be the have to be carefully selected. On top of sourcing professionals, IT managers, right strategy. Not all of the required skill being experts in the domain, they need to and business stakeholders should not set may be immediately available in the be able to verbalise the issue in a way that undermine its importance. The technology organisation, and that’s where outsourcing data architects and software engineers can that enables taking advantage of it already part of the problem comes in handy. understand it. exists. Vendors introduce services to High-end software development service Lastly, make sure your roll-out plan come across future demand. The firm that providers have been investing for some assumes incremental delivery scattered combines it together stands high chances time in building the right know-how, and over multiple milestones. In order of leapfrogging the competition. And it’s a experience in big data technologies. to stay focussed on the selected use matter of a couple of years at most until the Experienced vendors will be able to case, it’s recommended to start small, wider market adopts big data.

Each OutsourceXplores is a separate content series created in collaboration with a commercial partner. The Outsource editor retains final editorial control of course. For more information write to [email protected] x

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p86-89 xplores luxoft final.indd 89 19/9/12 09:51:22 HEAD-TO-HEAD IAN MOYSE & DANIEL THOMAS If one word above all others has dominated the outsourcing space over the last year, it’s been “cloud”. But even though the cloud has now fi rmly embedded itself in both professional and private life, there’s still a great deal of misunderstanding over what it really is – and, according to this issue’s Head-to-Head participants, a lot of bad practice to boot. Ian Moyse, Sales Director at cloud CRM provider Workbooks, and Daniel Thomas, Founder, CompareTheCloud.Net – over to you…

“You plan a tower that will pierce the clouds? Lay fi rst the foundation of humility.” – Saint Augustine

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p90-93 HEAD TO HEAD final.indd 90 19/9/12 09:53:19 FEATURE HEAD-to-HEAD

Ian Moyse: Daniel, what do you see as It’s going to be an vendors aren’t being educated about the being hot in the cloud space right now? ❛ channel and their customers. You are right: interesting two or the smaller guys don’t understand cloud. I Daniel Thomas: At the moment it’s three years ahead present at a lot of channel events and I hear definitely heating up in the IaaS – as some of the the feedback and it surprises me often; I Infrastructure-as-a-Service – space. From pre-conceptions expect the audience to have really complex a provider perspective, what I am noticing customers have questions for me and I think this is going to is a lot of people trying to re-engineer around security be really in-depth and high-level stuff but their back ends, and come away from and data disappear, what I actually get is still people coming up traditional technologies such as storage and they become saying “Do you know what? I’m starting to area networks, moving on to commoditised understand what the Cloud is now.” They’re hardware and really getting aggressive on more comfortable just trying to figure out the basics – because pricing. That space is, in my opinion, the with the model❜ as an industry, I think we’ve done ourselves one that’s on fire at the moment. Ian Moyse a disservice. We’ve moved from the TLA to an AFLA – which means we moved IM: What I’m finding is the majority of butcher, the baker, these little guys are from three-letter acronyms to “another business out there is skewed towards small being put out of business by lower margins four-letter acronym”. When talking about business, and there is still a massive lack and providers going direct – but there’s a cloud, we’ve got IaaS, PaaS, SaaS, CaaS: of understanding of cloud, because it’s so complete lack of customer service attached there’s another one every day. Then we’ve hyped: there’s a load of nice terminology to it. It’s a trade-off between price and got private and public cloud, we’ve got and techie stuff that’s been thrown into it, service, in my opinion. hybrid clouds; we’ve got all these wondrous but a lot of people aren’t getting the benefits terms and, you’re right, we’ve got vendors because they can’t get past all of that front- IM: I agree. I speak at a lot of events, I cloudwashing who are taking what aren’t end stuff. They read the articles and their listen to vendors speaking – whether it be really multi-tenancy products designed for number-one worry is still security. What closed workshops or public ones – and the cloud, but are giving them a web front I’ve spoken about a lot recently: if you don’t what tends to happen is that the way it’s all end, for example, and saying “this is now understand something you tend to shy away phrased is around the enterprise part of the cloud”! So customers can’t quite figure out from it. market, but 98-99 per cent of UK businesses exactly what cloud is. are sub-250 employees. That’s just the way DT: At the moment the biggest problem the world is. There’s a dichotomy appearing DT: Exactly! Veering off slightly, maybe, is something called cloudwash. By that I in that the businesses that can get the most but one of my real annoyances is that the mean that every vendor is positioning their benefit and levelling from the cloud are vendors all assume that end-users have got cloud to be better than the next cloud and smaller businesses – because if you go access to very, very good connectivity that is actually not explaining at all what the back to the old technologies on network, enables them to buy their services. None of cloud is and what the business offerings you needed a hefty database, their software, them really publish any figures or minimum are. Propositions are all geared towards this hardware, this infrastructure. Before you broadband speeds or provide any detailed high-end users – the larger enterprise even started it was cost-prohibitive for the data that allows customers to make a choice space. Within the SMB space there’s still a smaller business to choose that vendor. So of whether the cloud is right for them in the lack of clarity, or understanding, and with certain technologies and big brand names first place. There’s no point in having cloud the models that are being put into place at that we know had products which would if you can’t connect to it... the moment, a lot of the larger providers only fit when you got over a certain number are basically trying to bypass the channel, of seats because they only actually became IM: And do you know what? Two things whereas the channel has always been anywhere near affordable at that point. we still get asked a lot as a business, the trusted adviser to the SMB space. By Now, with cloud, you can take virtually in our experience with customers, are bypassing the channel and going with any cloud platform and it’s affordable to “how much do I need to use because I’m these direct models, what they’re doing anyone based on the number of users worried about the speeds I’ve got?” and is what I call the supermarket effect: the you’ve got and your usage. You can now around “I’m still nervous about where the cloud providers are mostly coming in like use the same technology as the larger data is and who has it...” – and we still go the large supermarkets, whereas the little firm. So there’s potentially levelling going through explaining that it’s just internet- boutique shops you used to get like the on – but what I think is happening is that based applications, but how it differs. We

@Nishiths: Current growth in cloud services is of businesses evaluating and moving existing applications and internally supported services to the cloud

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p90-93 HEAD TO HEAD final.indd 91 19/9/12 09:53:25 FEATURE HEAD-to-HEAD

every vendor ❛is positioning their cloud to be better than the next cloud and is actually not explaining at all what the cloud is DANIEL THOMAS ❜

still have those basic conversations that need to step back because vendors are huge opportunity, the customers are willing have been going on now for perhaps six, running at 400mph and a lot of customers to pay a higher-than-average seat price seven, eight years. The danger now is, there are still learning to walk in terms of this because they’ll typically need some help is also more information out there, more technology. They are just getting over-awed and advice around it, which is where the articles, people have read some of what with it, but everyone is saying “everything channel has helped vendors in the past and is out there (and of course as we’ve said, should be cloud: you’re going to need a they’ve got the most to gain. there’s cloudwashing), and it’s the luck of cloud for everything and you need to do it A corporate customer understands about the draw as to what they’ve read – and do now”. That’s not going to happen. This is a having a hot standby, backing up off-site, they truly understand it or have they got a balancing of the industry. All cloud gives multi-locations, resilience and all those misconception? customers is an option. things; they can afford it, and they know how The other danger is, they haven’t read to do it because they’ve got the expertise anything because they’ve seen so much DT: One problem as well is that a lot of in-house. The average small business – let’s of it. It’s everywhere. When you pick up cloud providers are saying “we’re going pick a 20-user or 50-user business – do a magazine on an airline, there’s articles to go into the SMBs and mini-channel they really have a hot stand-by for critical about cloud in there. So what they’ve done and we’re really targeting that”: I’ve been applications? Probably not. So when it is, they’ve switched off to it because they to events and been witness to certain goes wrong they have a panic, they have don’t know what to read: there’s just too concerns and considerations, whereas outages in the business... They tend to do much volume and vendor pitch. What’s a small user has gone through a cloud the right things but they are cost-prohibitive. frustrated me is when I’ve been to cloud provider and because they’re not 1,000 or Whereas cloud is going to say, well, actually events and written some cloud papers, and 500 seats or even 250 seats, the vendor just all of that stuff can be done a lot easier – I’ve looked at what others have done, I’ve tosses them away like a rag doll and doesn’t often included by the vendor – so you can thought “someone’s probably beaten me to bother educating them. get all the things you should have had in this, it’s already been covered” – but what the past, such as resilience and protection, tends to happen is it’s all vendor pitch. The IM: If you think about it though, cloud is but you can afford it now and it will be done responsibility to educate the customer has where you can have the most success as a properly. gone; it seems to be “just let me push this vendor and a channel, because the bigger down, cloud’s right for you – because I’ve customers are going to push you on price, DT: What I would say is, there are providers got cloud to sell, so I’d better push it really are going to be more educated, are going out there that are trying to embrace the hard on you, I’m not worried about whether to be able to build it themselves; for the channel and what they want to do is provide you understand it yet or not”. I think we channel, the smaller business is such a the hardware, so to replace the hardware

“There are no rules of architecture for a castle in the clouds.” – GK Chesterton @mathiasassante: IDC expects maturing cloud services to generate $100 billion in revenue in 2016

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p90-93 HEAD TO HEAD final.indd 92 19/9/12 09:53:30 FEATURE HEAD-to-HEAD

supplier with a cloud offering. Sorry to do fact now that vendors really have to do their IM: Very good. I agree. Very succinct. a plug here, but Cloud Sigma are a great work to get the customers. I also like the There are always nuances outside that, example of this: they are trying to get hold of fact that the vendors are now getting a rude but that’s a great high-level piece. What I the UK channel and work with them and just awakening: it’s not just about collecting think is the most digestible format we are replace the model; they go on-site and put revenue on a piece of software written seeing at the moment is SaaS, because it’s in a server for the customer, and match that that’s been replicated millions of times – easiest to switch on and get an application. off-site for the customer and provide all the they’ve actually got to provide something But across everything it’s going to be an access and details. Now, some companies meaningful out of the box for the customer, interesting two or three years ahead as are trying out there to actually embrace rather than 10 million lines of configuration some of the pre-conceptions customers the channel and continue the old models, which has always been the case. have around security and data disappear, whereas the channel providers as such I think, just going back to the cloudwash, and they become more comfortable with were the actual conduit into technology. we could come up with some easy the model. What I’ve found is once the This is being disintegrated on a daily basis. explanations to help people understand customer is using one cloud service they’re cloud a bit better. People talk about IaaS, incredibly receptive to the next. The Cloud IM: I think there’s a whole education PaaS etc. My definition is: IaaS is the Industry Forum did a survey of satisfaction starting to happen. We have watched other auditing and the engineering – so literally of customers who’ve used a cloud service industries be decimated: look at the video the raw processing on the actual server. and around 98 per cent of customers industry. Do you think of going and hiring PaaS – Platform-as-a-Service – is where reported in that survey were very satisfied a video tape now? You’ve got Netflix and you’ve got an operating system on top of the with what they’d had. LoveFilm, you can stream something. That’s hardware – so Windows of Linux or anything Now in any industry you’re not going to becoming commonplace. That, you could like that. get 100 per cent, but what this means is that argue, was a cloud replacement for the people say “I had a good experience with hard-form factor of a video tape and renting IM: And you can just switch it on and put this” – so when the word “cloud” comes from the stores we all remember. what you want on it. up again, or one of these other terms, they’re more cloud-committed: they’re DT: I’ve got a really good analogy as you DT: Exactly. And with SaaS: as soon as more receptive to it. It’s the first time that’s are talking about video tapes. One thing you put an application on it, which you’re difficult – there’s that fear of “ooooh I’m a customers have to realise is when they are delivering to the end-user, in my opinion bit nervous, I don’t know what to expect, backing up on to media tape – ie DDS or that’s Software-as-a-Service. Above that, but there’s all this stuff over here I know DAT tapes or whatever on their local server realistically, it’s all variations of SaaS. and understand so of course I feel more – they’re actually using technology from the The reason I say that is people can talk comfortable with it”. 1970s to put all their critical data on. This is about Communications-as-a-Service and A lot of that, again, is education, not by one of the reasons why cloud storage is so Desktops-as-a-Service, but in my opinion vendors on their solution technology but important... it all runs off a Software-as-a-Service layer. the generic stuff of making customers To make it simple for people, those would understand cloud and feel more IM: It’s going to be a progressive thing, be my definition of the main acronyms – comfortable with it: what is this stuff? How not overnight; some vendors seem to think and then my definition of the Cloud is “any does it work? I’ve had conversations with we are going to see in one year the whole software service or server accessed over people who say full-stop “no, I wouldn’t use industry change – it isn’t. It’s a progressive, the internet”. cloud” and I’ve just taken them through year-on-year thing where we will see new a very basic conversation. Twenty or 30 vendors, new technologies delivered. Like It’s going to be a minutes in, they’re saying “Do you know we’ve seen in those other industries, some progress❛ ive thing, what? I never really understood it that way, of the legacy big-name vendors in IT are not overnight; but I can start to see where the benefits going to have some shocks coming and... some vendors of this are”. It’s not a complex, technical seem to think we conversation, but it’s a conversation not DT: I cannot wait for that because I think being had with people. I think what’s they all need waking up anyway – and are going to see in happening is that the industry is assuming I think a lot of them need a reboot on one year the whole customers are all self-educating themselves customer service. Not a shadow of doubt industry change – and they will know about it, and they’re just in my mind. To be perfectly frank, I like the it isn’t❜ Ian Moyse going to buy it. And they’re not.

“There are no rules of architecture for a castle in the clouds.” – GK Chesterton @mathiasassante: IDC expects maturing cloud services to generate $100 billion in revenue in 2016

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p90-93 HEAD TO HEAD final.indd 93 19/9/12 09:53:36 Termination for Convenience Nobody likes to talk about breaking up when they’re just getting together – but planning for termination should be part and parcel of any outsourcing negotiation. Nevertheless, there could be a way out even when the requisite preparations haven’t been made…

Lou Oliver, Stephenson Harwood

Lou Oliver is an associate in the commercial, outsourcing and technology group at international law firm Stephenson Harwood LLP. She regularly advises on ITOs/BPOs and a wide variety of commercial arrangements.

ermination is often the last In this article, I consider how a party services indefinitely, even in situations thing on the parties’ minds at might terminate a contract in which the end where there is no significant breach or the outset of a new project or has not been provided for. In particular, in threat of breach by the other party. business relationship. Motivated circumstances where: Consider, for example, the following by a need and excitement to just the contract is of no specific duration; situations (particularly relevant to the Tget started, the parties (and consequently there is no serious breach or risk of current economic climate): the contract) may be focussed on the breach by the other party; and market pressures and changes have services to be supplied, on SLAs, on there is no termination for convenience impacted costs such that the contract is no price and payment – essentially the core mechanism. longer as commercially viable or profitable elements of performance. But what if you First, however, let’s look at what a as it was at the outset (and the parties haven’t planned quite so elaborately for the termination-for-convenience mechanism is cannot agree changes to the contract to end? and why it can be useful. account for this); or “This is the end, Beautiful friend, […] the It is sometimes easy for the parties to there has been a company restructuring end, Of our elaborate plans.” (‘The End’ – forget at the outset that they may not want and the services are either no longer The Doors) to continue providing (or receiving) the needed by the customer or are no longer a

“Law is nothing unless close behind it stands a warm living public opinion.” – Wendell Phillips

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legal view final.indd 94 18/9/12 14:53:45 feature the legal view

core part of the supplier's business; or and to provide for payment by the customer there has been some breakdown in to the supplier of "early-termination" or the relationship but nothing so serious as "break-option" compensation payments to to give rise to any termination rights for allow the supplier to recover unamortised material breach. costs and even loss of profits. A termination-for-convenience Voluntary "no-cause" termination rights mechanism (otherwise known as a "no- are more common in long-term contracts fault" termination right) does what it says on and those of unspecified duration. However, the tin and allows a party to terminate the what is less commonly known is that contract unilaterally, simply because it suits termination-for-convenience may also be it to do so (with certain limitations which I available in certain situations to a party will touch on later). where it is not expressly written in to the "No-fault" termination can be an attractive contract. option where grounds for termination are In such circumstances, first heed the uncertain or insubstantial. The terminating warning that any such implied termination party is not faced with making the argument right should be used cautiously. It is a that a material or fundamental breach giving principle of contract law that the contract rise to termination rights has occurred or confers on a contractor not only a duty with the concurrent risks of getting such an to carry out the work but a right to do so. assessment wrong (the danger of the latter There is also a general rule that a party is being that the terminating party might, in still liable to perform a contract even where turn, face a claim for damages by the other it has become considerably more difficult or party for "wrongful termination" of contract) expensive for it to do so. A right to terminate – they simply need to give notice. for convenience is more likely to be implied Depending on such factors as the or justifiable where an informal contract, complexity and value of the contract, the or a formal contract that does not properly implementation costs and the bargaining address termination, has been rolling on for strength of the parties, a contractual a long time (perhaps several years). termination-for-convenience mechanism Where the contract is silent on might be as simple as a statement that a termination, and balancing implied rights party (or either party) may terminate the to terminate against duties to perform the contract by written notice, of a specific contract, the rule is that the contract is duration, to the other. terminable on "reasonable notice". So what Contracts normally provide for such constitutes "reasonable notice"? termination to be effective only after an It is sometimes Clearly this can be a sensitive issue for a agreed initial period has passed. The ❛ party on the receiving end of an unwelcome initial period provides some security to easy for parties or unexpected termination notice. Getting the supplier: allowing it to get on with to forget at the the notice period right (and communicating its job without the fear or uncertainty of outset that they it to the other party effectively) requires termination-for-convenience hanging may not want to careful forethought in order to mitigate over it. The no-fault termination right continue providing upset, avoid a dispute or to ensure should also allow the supplier to recover (or receiving) defensibility if disputed. The terminating implementation costs. The clause itself the services party should consider the following factors could be mutual or only give one party indefinitely, even when deciding what should constitute rights. It could also place limitations on the "reasonable notice": circumstances in which the right may be in situations the length of the existing relationship used. where there is no between the parties (the longer the In larger outsourcing contracts, the significant breach relationship, the longer the notice period termination-for-convenience mechanism is or threat of breach should be); likely to be a much more sophisticated affair by the other party❜ the importance of the contract to the “It can become difficult to see the wood for the trees and determine on a strategic level what exactly a vendor has been contracted to perform.” – John Buyers

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legal view final.indd 95 18/9/12 14:54:00 feature the legal view

business of the non-terminating party (e.g. Don't forget that material breach) and should take into percentage turnover/core supplier); ❛ account all of the same factors described the extent of early investment by the non- where all parties above. terminating party (sunk costs); to a contract Be aware too that whilst the factors the terminating party’s own notice are generally in described would apply to most contracts requirements (if any), in related contracts agreement that the for goods and services, additional factors under which it can be terminated for contract should may apply to other types of contracts. For convenience; end, the cleanest example, certain statutory minimums apply the degree of formality to the contract – exit would be a to termination notice periods in employment the more formal the contract, the more that contracts. termination of it should be governed by the negotiated one So, the time has come to let your supplier rights set out in the contract; agreed by the or customer know that you wish to part how long it would (reasonably) take parties in writing❜ ways. How should you do it? Technically, the non-terminating party to replace the written notice is unnecessary provided that contract in an orderly way (i.e. either to communication of the notice is clear and procure another supplier or to replace the provided also that there is no requirement business lost); in the contract that notice be in writing. connected to the point above, what the However, it is obviously an advantage for comparable notice periods in the relevant evidential purposes (and for the parties’ industry are (i.e. what is deemed standard own reference) if notice is in writing or, if in the industry as a handover period or is made verbally, then immediately followed common as a notice period in contracts of a up in writing. similar kind within the industry); and Be clear that it is a notice of termination any other considerations that may be and state the exact date from which relevant in the circumstances (for example: termination will be effective (i.e. the length have new employees or business premises of the notice you are giving). It may also been taken on, at least in part, to service help to refer in the notice to the basis on the contract; are there any other factors that which you have made your assessment could impact the reasonableness of the for the notice period. Aside from showing notice period?). the other party that you have given serious As illustrated by this list of thought to what is reasonable in the considerations, what is a "reasonable notice circumstances; it may act as a useful self- period" in the circumstances will always reference checkpoint to ensure that you be dependent on the facts relevant to the have done so. particular contract and the parties. It might Lastly, don’t forget that where all parties be helpful to note, however, that the English to a contract are generally in agreement Courts have been reluctant to enforce that the contract should end, the cleanest notice periods of less than six (and in some exit would be a negotiated one agreed cases nine) months when terminating a by the parties in writing. The fact that the long-term contract, for convenience. original contract was made informally does These considerations apply equally not preclude the parties from agreeing to notice periods for express rights of variations to it, or terminating it, by mutual termination for convenience in formal agreement. The end might not have been contracts, and parties should be aware that planned at the outset but it does not need to a very short notice period may be open be apocalyptic. to dispute, and ultimately unenforceable, if it is not "reasonable". It should certainly EVEN MORE be longer than any notice periods For more from Stephenson Harwood, check out necessitating more immediate termination the write-up of our roundtable on extraterritorial (such as for insolvency or irremediable regulation, online now at http://bit.ly/NeBve7

Consendre“If you mod desire eugait information alit luptati on sisisisit some augait point ofnum law, iusti you facidunt are not ipsumsanlikely to ponder el eraestrud over the exerat ponderous ad onulla tomes cor ofing legal eumsandre writers ex elit atetue tet ulla feu feumin order niamconEm to obtain eathe commodiam knowledge you ad seek,tem dolortio by your Utatown lumunaided quisim efforts.” et, quissi.Volobore – Felix Adler m iurero dolobore.

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legal view final.indd 96 18/9/12 14:54:20 p97 2100-102677 UBM FP.indd 97 18/9/12 12:27:24 TOP TEN

RELATIONSHIP MANAGEMENT This issue, our Top Ten series visits a topic at the heart of outsourcing: relationship management and good governance…

Frank D’Andrea, Hydro One

Frank D’Andrea is Director, Outsourcing Services at Hydro One Inc. in Toronto, accountable for the company’s outsourcing agreements, and providing advice and direction to company Lines of Business that receive services from outsourcers.

n the world of outsourcing and whereas others, where there’s equal skin in Don’t disregard the obvious: relationship management, the game, can be viewed as a partnership. objectives are different nomenclature is a peculiar obsession. Either way, outsourcing doesn’t absolve your 1 Clients seek reduced costs As buyers of services, we struggle accountabilities for the desired objectives and better service, while providers are with whether we consider our provider and outcomes. profi t-oriented. Therein lies the tension, Ia “partner” or a “vendor.” Behavioural The reality with outsourcing arrangements but be cognisant of it. Issues will arise theory would then suggest how we manage is that there are many shades of grey when where limits will be reached before the relationship should be accordingly it comes to how the contract, and even more resolution can take place. For example, different: it’s either black or white. so how the provider, should be “managed”. how far is the client willing to forego its No doubt some alliances clearly lend Nomenclature is somewhat moot. To achieve customer experience? Are the provider’s themselves to one particular view or the good governance and effective relationship margins fair in the current marketplace? other – pure transactional relationships management, it is important to keep in mind Think of these situations as a business can be treated as being vendor-like, some key fundamentals to success. transaction. Good governance

"When you're in a relationship and its good, even if nothing else in your life is right, you feel like your whole world is complete." – Keith Sweat

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top ten final.indd 98 18/9/12 11:10:21 TOP TEN Relationship Management

recognises there are differing objectives, Communication fosters change management process, think and somewhere in between, a solution lies. collaboration about what is a “material change” and 5 Be open and honest, and that works when that might be invoked. Fairness is Whose strategy is it anyway? both ways. Too often issues hit an impasse certainly one element, as is the amount The client enters into an because of hidden agendas kept under of dollars involved. But it should be clear 2 outsourcing arrangement as part masque because of information which is to both parties when it’s time to go back of its overall corporate strategy. Early not forthright. Solutions are better achieved to the “negotiating table”. The contract buy-in from the provider as to the entity’s when both parties have a common vision, needs resilience, but should also have strategy is paramount as it drives consistent and when information is complete. Work some flexibility over time as operational and common behaviours. The provider with me, not against me. In the end, if the requirements will change. needs to know (and sometimes needs to relationship is unhealthy and parties are be reminded of) what’s important to the not communicating, the result is business Don’t be afraid: it’s okay to client. This also lends itself to the success disruption. Communication is a powerful escalate of the provider in delivering its services, means of driving commitment. 9 Too often issues percolate at the which is exactly what the client should working-level until they reach breaking want (though we don’t always think that Create value, avoid leakage point. Governance leads are meant to deal way!). This is organisational alignment at a Outsourcing contracts to some with those issues where resolution is not macro-level. 6 extent all factor in continuous forthcoming at an operational level (as improvement and innovation as a means opposed to disputes which are more legal Goals and objectives drive to creating value. In some cases, this is in nature). The decision-making protocol outcomes a clear deliverable. Providers should should be clear. That’s not to say escalate 3 Just as it’s important to consider embrace continuous improvement and all issues – but at the same time, escalation overall strategy for the corporation, specific innovation as a means to demonstrate their can be effective in bringing quick and goals and objectives by tower will drive the expertise in extracting value, coping with reasonable solutions to issues. right behaviours if properly communicated. change and achieving joint successes as Individual towers may also have a shift in often the provider will benefit too. Providers Strive for transparency, trust… goals and objectives, and thus, that focus can be leveraged as an extension of the and don’t forget to celebrate should be refreshed. Clients need to realise management team, and thus should be able 10 Your outsourcing relationship – too that not all towers are equally profitable to drive value or avoid its leakage. like any relationship – requires nurturing. to the vendor. As entities move to multi- If there is distrust, the relationship will vendor environments, this becomes even Establish checks and balances certainly deteriorate. The contract needs more critical as service integration needs Checks and balances drive to be socialised, and transparency will to gel across towers. This is organisational 7 to the heart of performance lead to trust. When the contract is used alignment at a more complex micro-level. measurement. True enough that service merely as a legal vehicle, it is easy to levels need to be met; but step back and grumble and express disappointment. Clarify who does what take a holistic view of your contract and the Positive reinforcement is necessary for Accountabilities are often blurred relationship. Discuss what works and what the relationship to survive. Don’t forget to 4 between lines of business, and doesn’t, and once a year revisit the strategy. remember all the good that’s happened contract management, both for the client Is it still current? Are your needs being along the way, and the successes you have and the provider. Those responsible met? Remember the provider’s success is achieved together. for operations through projects and integral to the client’s execution of its overall change requests often end up slipping corporate strategy. Regularly schedule time Your outsourcing contract is a legal vehicle into contractual “scope creep,” meaning for meaningful and constructive dialogue on to achieving compliance. How that contract contractual terms being introduced into the health of the relationship. gets executed rests on how you manage and standard outsourcing documents. Leave govern the relationship, regardless whether the contractual terms and conditions Change is endemic you refer to your provider as a partner or to the governance leads. If roles and Let’s face it: however well-written vendor. When it comes to governance of responsibilities are well defined, 8 your contract is, it certainly can’t human beings, it’s best to remember our there is less chance of a performance envision all potential future changes, so personal relationships often impact and “expectations gap” at all levels. be ready for that. Beyond having a robust even facilitate compliance.

"I have a very bad relationship with mice." – Casey Affleck

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top ten final.indd 99 18/9/12 11:10:28 This issue: The death of hr outsourcing?

News of HR BPO’s Death Has Been Exaggerated It’s one of the most diverse areas of the outsourcing space – but has HRO had its time? Not a chance, says NelsonHall’s Rachael Stormonth, who in her first article forOutsource looks back across a chequered history – and discusses how vendors are adapting to meet evolving market demands…

he story of multi-process HR BPO to date is well known to GEN ATTRIBUTE OUTCOME

HR outsourcing watchers. It Gen 1 All-encompassing scope but 50% sub-contracted Financial failure

can be categorised as a story Gen 2 All-encompassing scope; attempt at process Too ambitious too soon

spanning four generations, standarisation rebuffed by clients Tduring which time some actors in the story Gen 3 Back to transactional processes; safe and steady What about talent management? have left the stage, often mortally wounded Gen 4 Rebuild across processes Jury still out! (Exult, ExcellerateHRO, Convergys) with Figure 1 others more recently joining the cast (e.g. Logica, TCS). (See Figure 1) clients. An early utility model, except the with RPO one of the areas where SaaS-led The Generation 1 deals like BT/ standardisation couldn’t be achieved and HRO activity is resonant. Accenture and those conducted by vendors were far too early to gain client So major multi-process HRO suppliers Exult were all-encompassing in terms acceptance – and the costs of trying to are rebuilding their approaches – but is the of process scope and were often JVs. achieve standardisation were far too great. market interested? However the delivery was still largely Generation 3: multi-process HRO onshore and at least 50 per cent of the then went back a few steps and typically Major HR priorities today: cost, cost base was not addressable since ditched the talent management processes. talent, and information aspects like payroll and benefits were Deals focussed on standardising the “safe” NelsonHall recently interviewed 220 subcontracted, usually remaining with transactional processes such as payroll organisations to find out about their the same third parties as before. With and HR record-keeping. HR priorities and also their attitudes to the client expecting a 20 per cent cost So that leaves us today, at Generation outsourcing. The vast majority identified reduction and the vendor a profit, this led 4. Once again suppliers are building six HR issues as highly important for them: to massive financial failure. on transactional processes, adding in Reduce the cost Generation 2 wasn’t much better. It was elements of talent management to offer – Need to reduce cost of staff healthcare predicated again on an all-encompassing clients a set of integrated HR processes, and benefits process scope but this time on the which increasingly include SaaS-based – Corporate requirement for reductions assumption that standard processes could offerings in some areas. IBM’s acquisition in costs of HR administration be built which would be shared across of Kenexa is an interesting development, Retain the right people

Rachael Stormonth is Senior Vice President, NelsonHall. She can be contacted at [email protected] or on Twitter at @rstormonth

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p100-103 nelson hall jamie seen.indd 100 19/9/12 14:59:14

– Need to improve identification of high performers and succession Top 5 benefits sought from HRO management – Need to improve retention of key 1) Improved access to HR information personnel Find out what is happening 2) Improved automation of HR processes – Difficulties in obtaining consistent 3) Integration of HR processes single view of the employee – Need for improved HR analytics and 4) Improved support for emerging markets intelligence The cost of people continues to be a 5) Standardisation of services across geographies major issue for many organisations, with some challenged by rising labour costs in Figure 2 an environment of flat topline growth. This is leading organisations to look at the cost What is causing these HR information. Automation also helps of their employee benefits and see if they difficulties? drive standardisation, both to facilitate the can be creative in bringing these down. At Two-thirds of the organisations NelsonHall integration of HR processes to give that the same time, there is continuing pressure spoke to express high concerns with poor single view of the employee and of the from the CFO to reduce G&A costs and to consistency of HR processes across their truth, and to support standardisation of make HR administration more efficient. business. As well as creating avoidable services across geographies. When organisations are looking to process costs, this makes consistent Finally, organisations are looking for restructure or reduce headcount it is tracking and comparison of employee improved HR support, especially in areas critical for them to focus their limited performance – let alone the impact like recruiting and employer branding, resources and career development of associated inputs like training and particularly in emerging markets that are opportunities on high performers. But in recruitment policies – all but impossible. becoming key to their future success. these situations it is often the most able In addition, organisations are seeking Figure 1 who choose to leave while low performers more flexible deployment of their So what’s happening in the tend to be less mobile: the challenge for employees – to achieve this they need HR outsourcing market? employers is to identify and subsequently detailed and comparable information Well despite the rebuild in multi- retain their top talent. on individual employees’ career history, process HRO, the HR outsourcing This all ties in to a need to understand competences, and performance. market continues to be dominated by and deploy personnel more effectively How are these issues impacting single process deals. In particular, two and efficiently which requires a single organisations’ requirement from HR areas in the current single-process integrated view of the employee and a outsourcing? Figure 2 (above) shows the HR outsourcing market where market need for improved HR analytics. top-five benefits sought from HRO from the demand is increasing are: same NelsonHall study. Recruitment: those At the top of the list, organisations are organisations that are hiring want ❛Multi-process looking for better access to HR information 1 quality personnel, the best talent HRO is far from to enable their HR departments and for the job, and they want flexibility, to dead, though the managers to identify and focus their limited be able to scale up fast when they need, existence of multi- resources on their top performers. perhaps in new geographies. Getting process utilities is Secondly, they are seeking improved recruitment and onboarding right should likely to remain a automation of HR processes. HR has help with employee retention. And some traditionally been last in the queue for RPO specialists are increasingly being dream rather than automation but it is becoming increasingly asked by clients to help with employer a reality over the important, both to drive down HR process branding. Thus at its best, RPO can next few years❜ costs and for data collection to provide support a number of HR priorities.

For more information on NelsonHall see www.nelson-hall.com

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p100-103 nelson hall jamie seen.indd 101 19/9/12 14:59:24 This issue: The death of hr outsourcing?

Benefits Administration: 2012 MPHRO MArket Split by Segment In the US, there is increased 2 demand for services such as Technology-Led HR Service dependent and on-going eligibility audits that have quickly become a popular Core Business service for managing the rising cost of healthcare. Audits and verification 13% services are appealing because they drive cost reductions in benefits spend while Multi- 24% Country providing a quick ROI: organisations typically remove four to eight per cent of ineligible dependents. Another area of 15% growth is benefits communications such as Summary of Benefits & Coverage (SBC) and Summary Plan Description (SPD) to employees in digital and hard-copy formats. This is behind the partnership announced recently between HighRoads and Pitney Bowes Management Services. 48% There is also a recent trend to multi- country benefits, reflecting increasing globalisation and the need for organisations to go beyond portals for Client-Specific payroll and employee records and collect Shared Service and benchmark benefits information Transformation across countries Figure 3 (Source: NelsonHall) In addition, benefits administration is becoming increasingly important for all segmentation of the multi-process HR HR technology and use outsourcing to organisations in the UK with increasing outsourcing market as it stands today. complement the new technology roll-out. activity in advance of automatic enrolment. The biggest segment by value Finally many organisations use HR In contrast, many learning services is client-specific shared services outsourcing to standardise their HR deals have stalled. During a slow recovery, transformation. Clients are typically processes across a region such as Europe, organisations continue to keep the purse- very large organisations, with 50,000+ typically focussing initially on a narrow strings tight when it comes to training and employees. These clients want an all- core of HR activities such as payroll and development spend and are having to encompassing outsourced HR service employee administration. NorthgateArinso be creative in areas such as leadership that is standardised, but just for them. supporting AstraZeneca is a classic development activities. Their key requirement is “take my shared example. This is currently the fastest So where is demand for multi-process services to the next level”. This segment growing segment of multi-process HRO HR outsourcing? While it is not one of our is typically serviced by the likes of IBM activity. “hot” areas of demand, contracts continue and Accenture. This will remain the most to be signed, both renewals and new significant segment by value over the next How are service providers engagements, and the area continues to few years. addressing the multi-process rebuild if somewhat cautiously. A second obvious segment is HRO market? organisations such as start-ups who So how are suppliers addressing these What’s Happening to want to focus on their core business requirements? The following examples Multi-Process HRO? and don’t want to be bothered with HR, illustrate different strategies being adopted Figure 3 quantifies NelsonHall’s while organisations need to fix their by vendors:

Rachael Stormonth is Senior Vice President, NelsonHall. She can be contacted at [email protected] or on Twitter at @rstormonth

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p100-103 nelson hall jamie seen.indd 102 19/9/12 14:59:30 Logica: HR system transformation in large under control: this was very attractive to partnership with Oracle organisations❛ AstraZeneca. In Europe, the big surprise recently NorthgateArinso also started to become has been Logica. Logica has found a continue to seek more creative in use of delivery locations, major gap in the market for Oracle HR help in process being one of the early adopters of Manila transformations. The supplier is interested standardisation, for HRO delivery. in deals with new system implementations in getting better However, their level of SAP-based and where there is a major transformation information on MPHRO contracts seems to have slowed up-front. Some of the keys to Logica’s their employees, in the past two years and much of success are: for smarter NorthgateArinso’s recent activity seems To insist on a common HR process recruitment to be more mid-market and based on taxonomy to be used across all HR ❜ ResourceLink. processes, both those delivered by Logica and those retained by the client to ensure vendors were coming unstuck with more Conclusions clear communication and to integrate all ambitious offerings. Multi-process HRO is far from dead, HR processes with a common Logica- Accordingly ADP is something of a though the existence of multi-process supplied workflow. global bellwether for what can safely be utilities is likely to remain a dream rather Imposing standard Logica processes for achieved in MPHRO and its acquisition than a reality over the next few years. those processes they deliver; if the client strategy largely maps their progression However, large organisations continue wants a non-standard process then they across additional HRO processes. In to seek help in process standardisation, are free to deliver this themselves within 2010 ADP strengthened its US benefits in getting better information on their the overall HR framework. administration capability with the employees, for smarter recruitment, and Ensuring that change management acquisition of Workscape and recently for geographic expansion. Talent spotting begins at an early stage by acclimatising strengthened this further in health and and retention remain key to the delivery of the client personnel to Logica processes welfare, which is a key issue in the US. an added-value service. prior to service adoption through use of In addition, ADP has moved into RPO And suppliers are responding, once service simulations. This clearly has the with the acquisition last year of The again expanding their services into talent advantages of blocking calls for process RightThing – and RPO is one of the management functions. For example, change in the early stages of adoption. key services required to support multi- major vendors such as ADP and IBM have Overall this model addresses the nationals in beginning to address their HR recently acquired RPO specialists with the vendor need for process standardisation requirements in opening up in emerging promise that RPO will increasingly start to in a pragmatic manner by providing a markets, particularly in Asia and Latin become part of the key MPHRO service. framework within which the client can America. ADP has also started to address Elsewhere, the internationalisation of do non-standard processes without the basic requirements once organisations benefits administration is an on-going threatening the whole edifice. are in an emerging market by purchasing trend and the use of benefits portals and Randstad’s payroll business in India. benchmarking continues to develop. ADP: making steady progress by Indeed, portals and benchmarking acquisition NorthgateArinso: this pace setter has continue to be important in ensuring a ADP has always been the most pragmatic seen recent activity in the mid-market high standard of service to employees at of the HRO service providers, offering NorthgateArinso was certainly, a couple an optimised cost to the organisation. a level of process efficiency in payroll of years ago, the pacesetter in terms of SaaS and BPaaS services will that is widely regarded as unbeatable for establishing HR process standardisation increasingly be used to address sheer factory delivery. ADP has been very across base processes Europe-wide individual HR edge processes, and conservative in rolling out multi-process with clients such as AstraZeneca. The across the full range of HR processes to HR outsourcing, largely sticking to a highly key to this was their euHReka portal support start-ups and organisations for disciplined form of payroll plus employee which “socialised” SAP and brought the which HR is a hygiene factor rather than administration at a time when some other user interface and number of keystrokes a key priority.

For more information on NelsonHall see www.nelson-hall.com

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p100-103 nelson hall jamie seen.indd 103 19/9/12 14:59:36 21000-102911 SigFP.indd 1 19/9/12 13:28:02 this ISSUE Cartoon; Online Round-Up; Inside Source; The Last Word the back end

The Oral Review Ever get that feeling when you want the ground to open up and swallow everybody else?

Matt Heffron

By day, Matt Heffron is Director, Global Integrated Solutions for Sutherland Global Services – but when the sun goes down his alter ego emerges: the Sourcing Sage (www.sourcingsage.com), offering mordant satire in graphic form.

“Life imitates art far more than art imitates Life.” – Oscar Wilde

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p105 cartoon headlines - matt heffron JAMIE SEEN.indd 105 19/9/12 12:36:45 The Back End Online Round-Up

Online Round-Up Each quarter the Outsource website features a huge range of articles from both regular columnists and occasional contributors – and each issue we showcase some of the best efforts from the latter community here in the magazine. Remember: if you’re reading this in our digital format you can click on the URLs to go straight through to the article proper. If you’re holding the print mag, well, you’ll just have to type them in…

Q&A: Kellie Goldstein, Thomson Reuters Kellie Goldstein is CFO, Emerging Markets for Thomson Reuters. We caught up with Kellie following her presentation at the CFO Exchange in London, to get some insights into her role and some of the structural innovations G4S taken by her organisation to ensure an extremely robust focus on some of the world’s most dynamic regions... http://bit.ly/OMOnlineSep1202

Implementing and managing collaborative relationships by Dr Andrew Humphries and Linda McComie Outsourcing is where organisations work together using their specialised resources innovatively to achieve aims and objectives Security outsourcing: anything to learn from the G4S experience? that could not be realised on their by Mike Gillespie own. Successful outsourcing can Recent events with G4S and LOCOG/the government’s procurement of security for thus only be achieved through the Olympics will clearly not be leaving the headlines any time soon. Indeed you collaboration. This is dependent could be forgiven for thinking this was a security event, not a sporting one. Is there on good management of anything to be learnt from the Olympic security outsourcing? A good place to start relationships... would be to understand how organisations source physical security. http://bit.ly/OMOnlineSep1203 http://bit.ly/OMOnlineSep1206

Consendre“The internet mod is theeugait first alit thing luptati that sisisisit humanity augait has num built iusti that facidunt humanity ipsumsan doesn’t elunderstand, eraestrud theexerat largest ad onulla experiment cor ing in eumsandreanarchy that ex elitwe atetue tet ulla feu feum niamconEm ea commodiamhave ever ad had.”tem dolortio – Eric Schmidt Utat lum quisim et, quissi.Volobore m iurero dolobore.

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p106-110 online round-up final.indd 106 19/9/12 09:55:55 Outsource or captive? Legal considerations by Marcel when outsourcing to Horst India There is no by Manishi question about Pathak it – the current Over the last operating 20 years India environment across the UK, has created Europe and indeed the world a place for is still an incredibly difficult itself as a global technology one. This is not least in part services hub and is now one due to the fact that it’s nearly of the preferred outsourcing impossible to predict what will locations. Initially, the draw was happen from one week to the a source of cheap but educated next – let alone being able to labour; however, India has now prepare for years in advance. grown to prove itself as a true These ups and downs in the hi-tech knowledge hub. A major global economy inevitably part of this success story for the affect every business and Indian economy is the booming its outsourcing decisions – technology outsourcing industry whether the organisation is which – while many would large or small, domestic or associate this with Business multinational. Processing Outsourcing - has http://bit.ly/OMOnlineSep1201 recently grown to include G4S Financial & Accounting, Q&A: Graham Barnes, Information Technology, MyCSP Medical Transcription, The holy Education & Training Services grail of which increasingly form part of organisational the outsourcing market. design is being http://bit.ly/OMOnlineSep1209 able to change when the world OPINION: Outsourcing that you live in changes. But needs to purge its actually effecting change in toxicity public sector organisations has by George been a challenge for politicians Davies down the ages. Financial The G4S crisis Outsourcing: effective management or business Controller Graham Barnes is shining a risk? (Parts 1 & 2) explains to Ian Herbert and spotlight on the by Nicola this introduces new and Ruth King of the Accounting consequences White challenging risks to the and Financial Management of when things go wrong In an effort to business environment that, if Group in the School of through outsourcing. It standardise not planned for and managed Business and Economics at demonstrates that whether and centralise correctly, can end up costing Loughborough University how client or supplier, any processes, the enterprise more money the administration of pensions outsourced contract or large as well as minimise costs, than it saves… for the civil service is presently programme needs careful many companies turn to http://bit.ly/ undergoing both revolutionary risk management. You can outsourcing some or all of OMOnlineSep1205 & http:// and evolutionary change. outsource the delivery but their IT processes. However, bit.ly/OMOnlineSep1207 http://bit.ly/OMOnlineSep1204 not the responsibility. The

“If a writer knows enough about what he is writing about, he may omit things that he knows. The dignity of movement of an iceberg is due to only one ninth of it being above water.” – Ernest Hemingway

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p106-110 online round-up final.indd 107 19/9/12 09:56:07 The Back End Online Round-Up

government has had to step in for an organisation to handle its for the London Olympics together the experience, to plug the hole, demonstrating interactions with its nearly 300 seemed to come with all the knowledge, and collective that when something goes million customers globally, it speed of a Bolt from the blue. wisdom of peers, subject wrong – particularly with wasn’t just looking for “customer Many defence and security matter experts, and academic politically sensitive or high- service”: it wanted “customer commentators were taken authorities to enable senior profile projects – why the delight”... aback by the revelation that financial leaders and failure occurred is a secondary http://bit.ly/OMOnlineSep1210 G4S, a specialist in outsourced decision makers to be more matter to the impact on security contracts, could not effective and act with greater performance… OPINION: Why was G4S provide the required contingent confidence throughout their http://bit.ly/OMOnlineSep1208 ever expected to deliver staff headcount to secure key careers”. Prior to Nick’s on such a high-volume Olympic events… appearance chairing IQPC’s Case Study: Zynga and recruitment contract? http://bit.ly/OMOnlineSep1211 forthcoming CFO Exchange in TELUS International by Mark Switzerland, November 11-13, When social Mitchell Q&A: Nick Araco, CFO we spoke with Nick about game provider The Herculean Alliance his organisation, his views on Zynga – the scandal Nick Araco is the economic landscape and San Francisco- precipitated by the President trends within Finance, and based the admission and CEO of the what keeps the members of his developer from G4S that it was unable to CFO Alliance, rapidly expanding organisation of CityVille and FarmVille, honour its contract to provide a “community awake at night... among others – was looking more than 10,000 security staff that brings http://bit.ly/OMOnlineSep1212

@blyth33s: At least the internet has 0 calories or trans fat

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p106-110 online round-up final.indd 108 19/9/12 09:57:26 The Back End Online Round-Up

Achieving high- Q&A: Marco Stefanini, performance BPO Stefanini by recognising the Since he importance of an end- formed the to-end approach company by Anoop that bears Sagoo his name in In high- 1987, Marco performing Stefanini has seen it grow business into one of Brazil’s largest process tech companies and an outsourcing (BPO) increasingly prominent relationships, client and player on the global stage. provider collaborate effectively We spoke with the Stefanini to deliver business services. CEO and President, about that They manage end-to-end remarkable journey, got his performance, resolving thoughts on developments in service issues first before the outsourcing space – both worrying about the commercial domestic and international implications. They improve – over the next few quarters – services continually and seek and asked him what he’d do new opportunities to execute Community innovation: crowdsourcing in differently if he had his time corporate strategy and impact software testing (Parts 1 & 2) over again... business results. by Mithun Sridharan http://bit.ly/ http://bit.ly/OMOnlineSep1220 In today’s rapidly growing and truly global OMOnlineSep1217 software industry, success is now more than SME Information Risk: ever dependent on the quality of the software. Q&A: Krystian Bestry, 48 per cent suffered A good quality product or service leads to ABSL reputational damage satisfied and loyal customers – the main Krystian already from lost data ambition of every company. A business that compromises on Bestry is the by Mike quality loses loyal customers in the long run. The challenge European Gillespie that most IT managers and executives have is common: how to Delivery Head According effectively test software applications on time and within budget at Infosys to a recent while balancing resources? BPO – and survey by http://bit.ly/OMOnlineSep1213 & http://bit.ly/ a Vice President of Poland’s Iron Mountain OMOnlineSep1215 Association of Business and PricewaterhouseCoopers Services Leaders (ABSL). LLP (PwC), in Europe, mid- Ahead of ABSL’s 3rd Annual sized businesses are placing All sides are winners as days it appears are over, Conference (which took themselves at unnecessary IT outsourcing deals get according to the quarterly place September 10-11 in information security risk. shorter and less costly Global TPI Index, which tracks the Baltic resort of Sopot) we The average index score for by Nigel S IT contracts valued at the $25- got together with Krystian information risk maturity in this Chisnall million-plus mark. In the first to find out more about his group was only 40.6 (a score out In the mega- quarter of 2012, total contract organisation, its membership, of 100), which sharply highlights deal era for IT value across functions was and its role in helping bring the gap between what business outsourcing $18.7 billion, a decline of 22 per Poland further out into is currently doing and what it contracts, cent from the same quarter a the international sourcing is supposed to be doing in the companies often entered into year ago and 35 per cent from limelight... area of information risk. decade-long deals for hundreds the previous quarter… http://bit.ly/ http://bit.ly/OMOnlineSep1214 of millions of pounds. Those http://bit.ly/OMOnlineSep1216 OMOnlineSep1222

“The internet is the Viagra of big business.” – Jack Welch

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p106-110 online round-up final.indd 109 19/9/12 09:57:35 THE BACK END ONLINE ROUND-UP

What’s next for outsourcing? by Ash Bisaria The global crisis and subsequent economic downturn caused signifi cant operational and fi nancial challenges for most US fi rms, and now we see a similar play-out in Europe. The next round of outsourcing is being driven out of compulsion to cut cost aggressively just to stay in business and protect margins. Years back, Harvard Business Review declared outsourcing as one of the most important management practices of the last 75 years. The current downturn is accelerating it; earlier outsourcing was merely focussed on basic functions like customer care (call centre), AP, IT help desk etc., but now it encompasses the entire organisation. http://bit.ly/OMOnlineSep1219

Q&A: Jonathan the judges’ attention – and markets, the utilities sector and how his clients are negotiating Jorgensen, Access UK about some of the challenges the fi nancial services industry the various challenges facing Jonathan his organisation’s clients are which has been shortlisted in them during an ongoing Jorgensen is facing in what remains for many three categories at the UK’s slump; key trends in enterprise Group Business an extremely tough operating National Business Awards, IT; why smart meters will Development environment... being presented this year on prove transformative for the Director at http://bit.ly/OMOnlineSep1218 November 13 at London’s utility sector; and how to turn Access UK Ltd, Grosvenor House Hotel. We regulation into a competitive which has just been shortlisted Q&A: Adrian Bettridge, spoke with Adrian about his advantage... in the ‘Business Enabler of Baringa Partners organisation (and why the http://bit.ly/ the Year’ category at the UK’s Adrian Bettridge judges have taken a shine to it); OMOnlineSep1221 National Business Awards, is Senior Partner being presented this year on at Baringa REMEMBER You can keep up to date with all November 13 at London’s Partners, a the articles published online by subscribing to our Grosvenor House Hotel. We consultancy weekly OutsourceXpress email: see our homepage spoke with Jonathan about focussed on at www.outsourcemagazine.co.uk for more details… why his business has caught the wholesale and retail energy

“There is creative reading as well as creative writing.” – Ralph Waldo Emerson

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p106-110 online round-up final.indd 110 19/9/12 09:57:59 PROMOTIONAL feature

Berlin Partner – We enable growth! © Berlin Partner GmbH_Scholvien © Berlin Partner

Berlin has established itself as Partner competently supports companies information on incentive programmes and an important European hub and removes the obstacles in their paths to the labour market. The BLC also offers a real for the services sector. More achieve better business results, which in turn estate web portal that allows prospective and more companies with stimulate growth. Berlin Partner smoothes the investors to tour available commercial global operations are opening way for investors by providing advice about properties via a 3D virtual model of the city. service centres in Berlin and how to access new markets and enhances In addition, with its recurring survey covering providing business services in Berlin’s image as an attractive place to live key structural industry data, Berlin Partner and work. Our motto, “we enable growth” contributes significantly to the showcasing and the German capital. sums up what we do best! growth of shared service centres and business erlin offers strategically important process outsourcing in the capital region. Reichstagskuppel in Berlin advantages, such as a highly qualified workforce, low labour Where to find us costs, attractive real estate, a Berlin Partner will participate in the 7th Shared state-of-the-art telecommunications Services & Outsourcing Week for the German- Binfrastructure and optimal regional and speaking countries, DACH Region, (Estrel national transportation connections – all at the Hotel, November 20-23, 2012) and in the heart of Europe. CCW 2013, the leading event for call centre Foreign language proficiency of business in Europe (Estrel Hotel, November prospective employees is another very 25-28, 2013) important reason for shared service centres Berlin Partner consistently contributes to to choose Berlin. The capital region is home the positive development of Berlin’s service FOR MORE INFORMATION to many different languages: people sector by offering its customers tailor-made, Marion Messmer, Head of Unit from over 180 countries live here, making individual service packages like the Business Service Industries, Berlin Partner GmbH it a natural place for services that require Recruiting Package, which is designed Fasanenstraße 85, 10623 Berlin qualified and multilingual staff. Eighty-seven specifically for job advertisement, selection Tel: +49 30 39980-244 per cent of Berlin’s population speaks English, and training of qualified personnel. email: [email protected] a third speaks French and 23 per cent have Another impressive aspect of service is the or visit: www.businesslocationcenter.de language skills in Russian. Almost 70 per Business Location Center (BLC) which provides or www.berlin-partner.de cent of the Berlin population speaks one or investors with the most important and current two foreign languages, and a quarter of the economic information from one convenient population speaks three or even more! source. Investors and entrepreneurs have As the official economic development quick and easy access to sector-specific corporation for the state of Berlin, Berlin data, property offers, geographic data, and

p111 21000-102954 BerlinPartner FP.indd 111 18/9/12 14:46:59 p112 21000-102872 MarketForce.indd 112 18/9/12 09:41:06 THE BACK END INSIDE SOURCE

Peering under the blankets of the outsourcing space…

The blame game Having watched the across a couple of opinion escalation earlier this pieces in the national press summer of what it’s now making very similar points. And apparently mandatory to I have to say, I’m inclined to term “the G4S debacle” with agree. So much of the negative growing disbelief and anger, press around outsourcing this I thought I would share a few summer has revolved around thoughts on the issue with activities which would have a former colleague of mine been similarly controversial who happens to know some had they been carried out by of the principals in the whole the government of the day sorry affair. My perspective – but the state has dodged was that while nobody comes bullets extremely successfully out of the situation with any by sending them out to the dignity – other of course than private sector. If this is in fact a the soldiers drafted in to get primary driver of policy I think the government out of its it’s disgusting. The government hole – the spotlight had been should be outsourcing because unfairly trained on G4S to the it makes sense from a strategic A fondled farewell… benefit of the government’s economic perspective, ‘Leaving drinks’ are often a was an admirer of long standing procurement “professionals” not to sidestep the train of recipe for exactly the kind who decided to pick her even- who should simply have done public opinion at a cost to of scandal that gets Inside less-steady self up, pursue him an immeasurably better job. the taxpayer. This is “stupid Source all flushed and hot and, er, make him an offer he Not to excuse G4S its failings; sourcing” at its very, very worst. under the collar; emotions run couldn’t refuse. As he emerged but the blame hasn’t been justly high, blood alcohol levels run from the littlest room he was met apportioned. higher and behaviours get by this imposing presence who “But that, my dear, is warped by opportunities for pushed him into a dark nook – exactly the point,” my friend people to say goodbye in ever and her tongue into his mouth. condescended. “The policy more (less?) meaningful ways. Apparently his resistance was is increasingly to outsource Such was the case, according less than fervent – which was the blame. Look at Atos: to one of my confidential unfortunate for him as at that getting paid a fortune informants, at the departure point a gentleman made his to take the flack for from his role of a well-known own way to the bathroom, and implementing an and well-loved member of the spying the two would-be lovers unpopular government business media back in the flew into a rage and launched policy. And somehow Spring. himself savagely at our Romeo. it’s working: the hatred My source has it that the The reason? He just happened of the mob is all for the strong spirits had been flowing to be the husband of our errant suppliers rather than the freely for several hours when Juliet, coincidentally stopping paymasters.” our gallant anti-hero made his into the bar along with another A day or so later I came rather unsteady way to perform party… And much fun was had his ablutions. Watching him go by all…

“An espionage organisation is a collector: it collects raw information. That gets processed by a machinery that is supposed to resolve its reliability, and to present a finished product.” – Aldrich Ames

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p113 inside source final.indd 113 19/9/12 10:00:58 THE BACK END THE LAST WORD

cash, we’re going to fall over ourselves as an organisation to come on board? No: we’re going to do what’s right for us at the right time, and if in any of those areas we decide, down the line, on an outsourcing we will approach you. Not the other way round. I know from my peers that this is a common problem at present. Providers are suffering from squeezed margins and increasing competition (so higher cost-per-bid). So they’re looking to pillage – sorry, “upsell” their existing customers. But we’re partners, not cash cows. Don’t get me wrong: I don’t mind the occasional pitch – but to be corralled again and again, as I was last week, with eager sales execs looking to get me on their respective hooks smacks of the kind of desperation which puts relationships in jeopardy. I’m not even the right person to be OPINION pitching half the time. Behaving like that won’t win I’m Not Buying It! our provider a single extra penny of business and has cast Last week I flew out to It’s because while I was there really – that have gone into, a cloud in my mind over our the Philippines for my I was treated – for the first time and come out of that. We’re relationship. Bluntly it’s pissed quarterly round of back- by this provider I must add – to doing what we’re doing, when me off. And I know I’m not slapping, troop-motivating, what a few of my colleagues we’re doing it, because it’s alone. trouble-shooting and glass- have already suffered: the right for us – and we’ve thought raising – it’s a tough job but dreaded up-sell. Hard, intrusive, loooooooooooong and hard somebody has to do it – at uncomfortable – like the about it. Mr Target our Manila delivery centre. dentist’s drill in Marathon Man. So for our provider to begin Would you like to pushing new services on us with We’re a couple of (good) We are already a huge contribute an interesting, years into what is certainly one contributor to this organisation’s all the subtlety and sensitivity of provocative – and, if you of the best deals I’ve worked on bottom line. But that’s irrelevant an overgrown toddler is worse wish, anonymous – piece in a frighteningly long career. to the issue. What is relevant than irritating: it’s actually really to The Last Word? Or would Pretty much everything is is that our outsourcing damn rude. Do these people you like to respond to this particular column? Why really think that just because where it should be, the teething strategy is the result of years not drop a line to the problems have been resolved of experimentation, debate, they have a really compelling editor at jamie.liddell@ long ago, all’s groovy. failure, heartbreak and eventual new proposition for recruitment, outsourcemagazine.co.uk So why did I fly back with a success, and the countless or procurement, or facilities to discuss your thoughts? nasty taste in my mouth? person-hours – person-years management, or order-to-

Consendre mod eugait alit luptati sisisisit augait num iusti facidunt ipsumsan el eraestrud exerat ad onulla cor ing eumsandre ex elit “Buy what thou hast no need of and ere long thou shalt sell thy necessities.” – Benjamin Franklin atetue tet ulla feu feum niamconEm ea commodiam ad tem dolortio Utat lum quisim et, quissi.Volobore m iurero dolobore.

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P114 the last word final .indd 114 19/9/12 10:02:08 p115 21000-102925 Scottish Dev FP.indd 115 17/9/12 16:01:09 xchanging OBC.indd 1 19/9/12 13:28:34