The Official Magazine of the International Association of Outsourcing Professionals
GlobalizationToday December 2011 - January 2012
Top Trends of 2012 012 Our Thought Leaders Pinpoint npoint the Biggest Trends for The Year Pagee 18
A Look Back att 2011
Review of Last Year’s Trends Page 28
Merger and Acquisitions Activity in the HRO by John Willmott – NelsonHall Page 46
State of the Cloud by Timothy Chou, Stanford University Page 58
Sometimes, s, “NO” is the rightt answer by Thom Mead Page 52
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INSIDE December 2011 - January 2012 7 PUBLISHER’S NOTE 8 NEWS FEED What’s new and noteworthy in global commerce.
34 MEETING THE CHALLENGES OF CLOUD COMPUTING
by Leslie Willcocks, Will Venters and Edgar A. Whitley
SOMETIMES, “NO” IS THE RIGHT ANSWER
by Thom Mead, Firstsource Thom shares lessons and tips for improving sales performance and avoiding bad deals.
Our Thought Leaders Lay Out the Trends for 2012
OUTSOURCING’S TOP 2012 TRENDS
Is cloud computing the savior of business? Is it a threat to data security? Does it signal the demise of the corporate IT function entirely? These are some of the questions executives are asking about the use of remote servers in the cloud, which enables organizations to access on-demand computing capacity, software and business functionality.
46 MERGER AND
ACQUISITIONS ACTIVITY IN THE HR OUTSOURCING INDUSTRY
by John Willmott – NelsonHall
There has been significant Merger and Acquisition (M&A) activity in the HR Outsourcing Industry in the last few years. See Page 42 for a quick review. Peter Ackerson - Deloitte Consulting LLP analyzes the implications of the M&A Activity for Service Buyers.
LOOK BACK AT 2011
So how did our pundits do with our top predictions from a year ago? IAOP’s managing director thought leadership Jagdish Dalal and Global Ambassador Matt Shocklee provided some perspective on what the year brought for outsourcing.
58 STATE OF THE CLOUD by Timothy Chou, Stanford
With So Much Happening in the Cloud, We Need to Take A Look.
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The global economy is still in the process of transition. We will see new business realities, new destinations, new technologies and new delivery models. In this issue we outline the trends that all outsourcing professionals need to watch. Check our cover story: industry experts make predictions for 2012 (see page 18). Their analysis will help you figure out your path this year. Speaking of 2012, mark your calendar for the 2012 Outsourcing World Summit, scheduled for Feb. 2022, at Disney’s Contemporary Resort & Conference Center in Lake Buena Vista, Florida. For details, turn to page 64. So how did our pundits do with our top predictions from a year ago? IAOP’s Managing Director Thought Leadership Jagdish Dalal and Global Ambassador Matt Shocklee provided some perspective on what the year brought for outsourcing. See page 18 to see what these Certified Outsourcing Professionals® had to say about our fortune telling. Cloud computing is one of those things where so much happens so quickly that you cannot take your eyes off for one moment. In this issue we are bringing two stories to help you with what’s happening in the cloud space. First, on page 34, we have an article from Leslie Willcocks, Will Venters and Edgar A. Whitley of Accenture that will help you understand how you can meet the challenges that Cloud is bringing to our industry. Next, we are going to take a look at what happened last year. Timothy Chou of Stanford University gives us a “State of the Cloud” on Page 58. And finally, I urge all of our readers to contribute articles and feedback. This magazine is an effective way for you to be heard and to share your ideas with your colleagues. Call me at 602-492-4194 or email me at email@example.com
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WHAT YOU NEED TO KNOW IN THE WORLD OF OUTSOURCING
US FEDERAL BILL SET TO HIT INDIAN BPOs www.globalservicesmedia.com
A bipartisan bill has been tabled in the US House of Representatives to make companies that move call centres overseas ineligible for grants or guaranteed loans from the federal government, a move aimed at stemming the tide of jobs heading to nations like India. Introduced by Rep Tim Bishop and Rep David McKinley, the US Call Center Worker and Consumer Protection Act would also put some aggressive mandates on call-centre operations. "Outsourcing is one of the scourges of our economy and why we are struggling so to knock down the unemployment rate," said Bishop. Under the protectionist legislation, not only would customer service representatives working overseas for US corporations have to disclose their locations upon request, they would also have to offer callers the option of being transferred to call centres back in America, the 'Huffington Post' reported. Besides, the proposed legislation requires the Secretary of Labour to maintain a list of employers that locate call centres overseas. The companies also require to provide 1208
Today December 2011 - January 2012
day advance notification before moving a call centre overseas. The call-centre bill has strong backing from the Communications Workers of America (CWA), a union which represents 150,000 call centre workers in the US. In a report, issued recently by the CWA, the union alleged that outsourced call centres, including some based in India, pose a serious security
threat as there are insufficient safeguards in place to deter fraud. The report titled 'Why Shipping Call Center Jobs Overseas Hurts Us Back Home' cited several examples of security breaches involving outsourced call centres, including in India.
UK GOVERNMENT ANNOUNCES CITIES TO BE ‘SUPER-CONNECTED’ www.sourcingfocus.com
The UK government has announced the 14 cities eligible to bid for money to make themselves “superconnected”. Chancellor George Osborne said in his Autumn Statement that he was making £100m available to create 100Mbps (megabits per second) citywide networks in 10 urban areas. It forms part of government plans to kickstart the economy Among cities eligible to bid are Birmingham, Liverpool and Newcastle. The four UK capitals - London, Edinburgh, Cardiff and Belfast - had already been announced. The others on the list are
Bradford, Bristol, Glasgow, Leeds, Nottingham, Manchester and Sheffield.
CAPITA HELPS DERBYSHIRE COUNCILS SAVE £2.5M www.sourcingfocus.com
Nine of the Derbyshire councils who are part of the Derbyshire Transformational Partnership have been working with Capita to conduct a single person’s council tax discount review. Capita reviewed 135,000 cases of single person discount eligibility. 6,545 claimants were found to not be entitled to the discount and these have now been removed. This has generated additional revenue for the councils of £2.5million. Kath Gruber, director of customer management at Derby City Council, commented: “In these difficult financial times
it is important that councils make every effort to ensure that deliberate attempts to unfairly claim single person discount are identified. We want to ensure that only those entitled to council tax discount receive it, so the vast majority of residents who pay their full council tax each year do not have to subsidise those who choose to claim discounts they are not entitled to. This review has created significant additional council tax income, which can be put back into front line services and help keep council tax as low as possible.” www.globalizationtoday.com
TATA CONSULTANCY SERVICES NOT KEEN ON LUFTHANSA SYSTEMS BUY ON PROFIT CONCERNS www.economictimes.com
European companies such as Lufthansa, who already outsource their IT services work to vendors including TCS and NIIT Technologies, are under pressure to shed non-core assets. For Indian tech firms seeking to grow their business beyond the top market US, such transactions promise to bring sustained revenues with local staff. India's software services firm Tata Consultancy Services is not pursuing the acquisition of Lufthansa's IT arm actively anymore on concerns of profitability and hassles of reaching an agreement with the airline's labor union, at least three people familiar with the discussions said. However, European labor laws, aimed at protecting local jobs, make it tough to relocate existing projects to cheaper delivery locations such as India. "It's a marriage mostly seen as win-lose here in Europe, especially with the danger of most work getting shipped offshore," said a senior official at one of the Indian tech services firms based in Europe. His company was among bidders looking to acquire a stake in Lufthansa Systems. Another person also based in Europe and familiar with early talks between TCS and Lufthansa said the two companies could still rework a transaction based on 10
Today December 2011 - January 2012
renewed structure. "Instead of a complete buyout, a joint venture with TCS can be among possibilities," he added. Lufthansa Systems, the IT arm of Europe's second biggest airline had 2010 revenues of 4,105 core (almost $780 million) with some 3000 staff and counts its parent apart from several other airline companies among top customers. In August this year, Lufthansa had confirmed reports of restructuring its IT unit including plans to seek a partner. "I have heard rumors about talks between Lufthansa and TCS. Of course we will take care of our colleagues and no one will be left alone. We are always concerned about job losses in acquisitions as this is usually passed off as synergy effect but these people are highly trained and skilled individuals and any job loss is absolutely unacceptable," said Arne von Spreckelsen, a spokesperson for the Lufthansa trade union with some 2.2 million members. When contacted, a TCS spokesman said his company does not comment on market speculation. Lufthansa Systems officials had not responded to an email query sent by ET on Monday. TCS was not the only bidder in race to acquire Lufthansa Systems; rival Wipro, apart from several European outsourcing firms have
had dialogues with the airline over past two years. A successful acquirer will get the expertise to target nearly $10 billion global airline IT market. Experts say labor troubles would continue to derail any large acquisition bids by Indian tech firms in Europe. "European labor issues are a structural impediment to acquisitions of larger firms by offshore firms which is precisely why none have happened so far," said Peter Schumacher, Chief executive of European think-tank Value Leadership. "These issues cut across Europe, as the recent strike by more than 400 Danish employees of CSC shows," Schumacher added. Under pressure to shed non core business assets, European outsourcing customers such as Lufthansa are also being asked by the labor union to raise wages. "We have asked Lufthansa group companies for a 6.1%
compensation hike for their employees, this includes Lufthansa Systems. We will start negotiations on January 13th and we are confident that we can arrive at a conclusion on good terms as what we are asking for is fair," Spreckelsen said. Over the past three years, tech firms including Wipro, Infosys, Patni and several others have had discussions with potential targets such as Globant of Argentina, Ciber in the US and IDS Scheer of Germany. While Software AG acquired IDS Scheer earlier this year, both Globant and Ciber decided to discontinue their dialogues with potential acquirers. In 2008, Infosys made a $753-million offer for UK-based SAP aggregator Axon. However, it backed out when domestic rival HCL made a competing bid, bettering Infosys' original 600-peace offer, and finally completed the acquisition.
OUTSOURCING NEW DEALS IBM Lands $2.6B Outsourcing Deal
IBM is the prime contractor in a $2.6 billion deal signed by the Spanish savings bank, la Caixa, to manage its IT infrastructure over the next 10 years. IBM services will account for about half of the total, with other third parties receiving the rest. IBM will host la Caixa systems and its consultants will work with the bank's IT unit, la Serveis Informaticas la Caiza, to manage la Caixa's IT infrastructure running in Barcelona and Cerdanyola del Valles data centers. IBM also will work with the la Caixa team on developing mobile applications, cloud computing, and social media, according to an IBM announcement Thursday. "This agreement allows us to offer better services to our clients and obtain competitive advantages in a sector in which innovation and new technologies are key to realizing growth," said Juan Maria Nin, the bank's general manager, in the IBM announcement.
Today December 2011 - January 2012
The agreement also will allow la Caixa to save 400 million euros over the 10-year period, he said. The bank expects to implement new mobile and cloud computing technologies to expand its business in Spain and other parts of the world. It aims to become recognized as using new technology to reach financial services customers, the announcement said. The deal includes collaboration between la Caixa's Innovation Center in Barcelona and IBM's research centers. The IBM centers will funnel to the Innovation Center technologies aimed at consumer banking and innovations in business processes. IBM has been a supplier and partner to la Caixa for 50 years, said Juan Zuiria, IBM general manager for Spain, Israel, Portugal, and Greece, in the announcement. That period makes the bank a customer of IBM's first line of general-purpose mainframes, the IBM 360, launched in 1964, or even its 1401 computer, which preceded the 360 machines. IBM has made a series of such banking deals around the world over the last six months. They include Westpac Bank in Auckland, New Zealand; Banco Santander in Spain and Latin America, one of the largest banks in the eurozone; and MCB Bank Limited in Pakistan.
NEWS FEED AstraZeneca in Tie-up With HCL Tech
USCIS and CSC Renew Vows
HCL Technologies (HCL) has been picked by AstraZeneca, a biopharmaceutical company, as a strategic infrastructure outsourcing partner. HCL will be responsible for the provision, management and transformation of AstraZeneca's global hosting and collaboration environment. As part of the five-year engagement, HCL will be responsible for managing AstraZeneca's entire data centre environment across over 60 locations globally. It will also host and migrate some of the existing large data centers into stateof-the-art facilities. In addition, HCL will manage AstraZeneca's global collaboration environment, including e-mail, messaging and collaboration services for users worldwide. It delivers transformational projects, including server virtualization, storage and back-up transformation and implementation of the hybrid cloud, according to a release issued by R. Srikrishna, Executive Vice-President and Head-Global Infrastructure Services, HCL ISD, HCL Technologies.
U.S. Citizenship and Immigration Services (USCIS) awarded CSC a task order to continue to operate and maintain USCIS' Verification Information System (VIS). The task order, which was awarded during CSC's fiscal 2012 second quarter, has a one-year base period, a one-year option and two sixmonth options, bringing the estimated total three-year value to $67 million. BNP Paribas and IBM Strike a New Deal www.outsourcingalert.com
BNP Paribas and IBM announced a six year agreement for management, support and maintenance services of BNP Paribas infrastructure through their joint venture BNP Paribas Partners for Innovation (BP2I) created in 2004. BP2I is equally owned by BNP Paribas and IBM. Since 2004, BNP Paribas has grown from 95,000 to 200,000 employees, including 150,000 in Europe, and now works with over 22 million customers.
GSA Selects HP Enterprise Services www.outsourcingalert.com
HP Enterprise Services has been selected by the U.S. General Services Administration (GSA) as one of 21 vendors to provide federal agency sponsored buildings and campuses with telecommunications infrastructure services and products under the Connections II contract. www.globalizationtoday.com
NEWS FEED Salesforce.Com Acquires Rypple for Push Into Cloud HR Software www.globalservicesmedia.com
Salesforce.com announced it will acquire cloud-based performance management vendor Rypple in a bid to enter the human resources software market. The deal is expected to close before April 30 of next year. Financial terms were not disclosed. The move comes shortly after SAP made a major market splash by announcing its intentions to buy cloud HR software vendor SuccessFactors, the second-largest pure SaaS (software as a service) company after Salesforce.com. Exhibiting no small amount of chutzpah, Salesforce.com said it will relaunch Rypple's application as Successforce, a new business unit led by John Wookey, who recently left SAP after serving as a top executive in its SaaS strategy. Salesforce.com had been quiet about Wookey's planned role until now. "Salesforce. com and Rypple share a vision for extending the social enterprise to transform the way we work," Salesforce.com CEO Marc Benioff said in a statement. "The next generation of HCM is not just about a cloud delivery model, it's about a fundamentally better way to recruit, manage and empower employees in a social world." Rypple will provide the basis for Salesforce. com to "revolutionize" the HCM market, Wookey said in another statement. Salesforce.com's announcement talked up the social networking pedigree of Rypple's software, which is used by the most famous social network of all, Facebook, as an employee performance management system. Rypple's approach eschews the practice of static, periodic performance reviews, and instead allows
Today December 2011 - January 2012
managers as well as employees to give ongoing feedback and public recognition to individual workers and teams, according to descriptions on its website. "What Rypple has done is three things: They are the convergence between performance management, gamification and social [software]," said analyst Ray Wang, CEO of Constellation Research. "The thing they've done is make performance management kind of fun." Performance management is also the type of "edge application" that has the potential to reach every user in a company, thereby giving Salesforce.com an opportunity to scale up its business significantly, Wang added. Expense reporting software would be another example of this sort of application, he added. Meanwhile, Rypple's technology also garnered praise from HR software analyst Naomi Bloom, managing partner of the consulting firm Bloom & Wallace.
NEWS FEED IBM Buys Analytics Vendor DemandTec for $440 M www.globalservicesmedia.com
IBM is buying analytics vendor DemandTec for US$440 million in a bid to build out its line of e-commerce software, the companies announced Thursday. The transaction is expected to close in the first quarter of next year. DemandTec's cloud-based applications are used by retailers to fine-tune pricing strategies and product offerings on an ongoing basis in order to improve business. The various modules approach this general theme from many perspectives, according to descriptions on DemandTec's website. Some allow companies to determine the
best product mix on a local basis by "taking shopper demand, space, productivity, and profitability into account," it states. Another helps determine the best pricing on a given item throughout its lifecycle, while others focus on targeted marketing campaigns. DemandTec also offers a number of partner-provided services. One of the latest features long-term weather forecasting data from Weather Trends International. DemandTec's offerings will be rolled into IBM's Smarter Commerce family of products, which also includes the businessto-business data integration technology the company gained through the $1.4 billion acquisition of Sterling Commerce in 2010. IBM "is redefining how brands buy, market, sell and service their customers in ways that their customers want," said Craig Hayman, general manager of industry solutions, in a statement. "Bringing science to the art of pricing and promotion is a big part of this strategy." The DemandTec purchase will also give IBM 450 additional customers among some of the world's largest retailers, including Target and Wal-Mart.
BLOG BEAT NEWS AND COMMENTARY FROM BLOGGERS AROUND THE WORLD
THREE CORE TYPES OF INNOVATION BY JIM STIKELEATHER, CHIEF INNOVATION OFFICER AT DELL SERVICES
Much has been written on the topic of innovation and people have categorised the types of innovation in various ways over the years. In Dellâ€™s view, there are simply three core types of innovation: sustaining innovation, breakthrough innovation and disruptive innovation. Sustaining Innovation Sustaining innovation refers to the continual improvements in existing goods, services, and processes. This type of innovation focuses on incremental performance and productivity enhancements of existing products and services that come from improved or â€œinnovativeâ€? materials, technologies, sources of capital, streamlined process flows, better employee training, improved supply chains, and many other ways. This type of innovation is generally, consumer driven. Six sigma methods, theory of constraints analysis, process re-engineering are all approaches that result in sustaining innovation which can generally be predicted in terms of costs to create, time to manifest and resulting value generated. As a consequence, the market generally expects and anticipates this form of innovation and factors it into its decision criteria and purchasing patterns. Breakthrough Innovation Breakthrough innovation is the introduction of new usage patterns and applications of existing technology, products and services in novel combinations of existing off-the-shelf components, applied cleverly to create a new value proposition within an existing business 16
Today December 2011 - January 2012
process or model. They can also be totally new business models or processes based upon existing technology, products and services. Breakthrough innovation could be considered a discontinuous form of a sustaining innovation because they create a new usage pattern that is unexpected, but are more predictable than a disruptive innovation as they can be somewhat anticipated. It is important to note, that regardless of the type of innovation under consideration, the degree with which the innovation changes the way things are done, impacts on manageability, value and business continuity. At some point innovations move from being simply pragmatic (better, faster, cheaper ways of doing what we always have done) to being transformative, as a result of changing the entire way things are done. Disruptive Innovation Disruptive innovation is the introduction of new, radically different inventions, products, processes, or services into the market, which deeply impact on peopleâ€™s lifestyles and purchasing patterns, to the extent of creating an entirely new segment of consumers. This type of innovation can cause significant leaps in value delivered to customers, although historically, disruptive innovation has required longer adoption periods because it generally required societies to change their current behaviour into something very new and very different. Disruptive innovation is usually designâ€?driven and may result in the cannibalisation of existing sales, as current products and services become substitutes for the new innovative product or service. Often a disruptive innovation is the result of combining
multiple breakthrough innovations. For example, the iPod was a breakthrough innovation on MP3 players due to factors such as its form and ease of use. Alongside this, the service iTunes was a breakthrough business model for the delivery of content. The two combined to create a content consumption disruptive innovation with technology, process and business model implications. Disruptive innovation does not mean the elimination of previous technology, processes or business models, but does force them to change. Disruptive innovation can also bring with it unintended consequences. For example, the rapid movement to internet telephony has caused the loss of sustained operation with power failures. S‐Curves and Innovation Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process, the life cycle of innovations, can be described using the “s‐curve” or diffusion curve. The s‐curve maps growth of revenue or productivity, against time. In the early stages of a particular innovation, growth is relatively slow because the new product needs to establish itself. At some point, customers begin to demand the new product and consequently, product growth increases more rapidly. Sustaining innovations, new incremental innovations or changes to the product, allow and encourage growth to continue. However, towards the end of its life cycle, the rate of growth begins to slow down and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return. The s‐curve derives from an assumption that new products are likely to have “product Life,” i.e., a start‐ up phase, a rapid increase in revenue and eventual decline. In fact, the great majority of innovations never get off the bottom of the curve, and never produce
healthy returns. Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s‐curves will come along to replace older ones and continue to drive growth upwards and potentially yield even greater growth than the previous innovations. In particular, successful disruptive innovations that have the power to create new divisions of consumers, will completely wipe out previous s-curves. A typical disruptive innovation will induce at first, a slow growing s-curve that will (once consumers have adapted to the innovation) become sharp and steep, whereas a sustaining innovation will generate a more stable, gradual and longer s-curve. On the other hand, an s-curve reflective of a breakthrough innovation tends to sit somewhere in between the disruptive and sustaining s-curves: it is stable yet unpredictable. Choosing your Innovation When a company is preparing for innovation, it must measure what exactly its business needs now. If a company is looking for a major re-vamp of personality within its offerings then as long as finances can afford the possible slump of interest in existing products and services, alongside adjustment time, disruptive innovation is their best bet. Alternatively, if budget can’t fully accommodate such a change or full blown disruptive innovation is too big a step, then working on a break through innovation is a more suitable option. This option not only offers excitement but incorporates reassurance into the package too. However, sustaining innovation, although driving smaller effects, should not be dismissed. Implementing sustaining innovation is crucial if an organisation wants to keep ahead of the game and meet the expectations of the demanding consumers, grown out of our fast paced, highly technological era. As Steve Jobs correctly pointed out, “you can’t just ask customers what they want…by the time you get it built, they’ll want something new.” www.globalizationtoday.com
TOP TRENDS OF 2012
OUTSOURCINGâ€™S TOP 2012 TRENDS By Sandy Frinton Our Thought Leaders Look into Crystal Balls Itâ€™s a New Year. And with it will bring new business realities, delivery models, destinations and technologies to the outsourcing industry. While the uncertain economy and the elections will impact the industry, the winners will be: locations in the U.S. and near shore as well as the BRIC countries; collaborative delivery models; and companies using converging technologies and corporate social responsibility, our panel of industry thought leaders say. value and innovation Here are the top trends to watch for in the to contracts, and some coming year: longer-term deals, IAOPâ€™s trend watchers New Realities predict. â€œThe global economic The â€œEsâ€? will have a big impact on outsourcing in 2012 as in the global Economy and the U.S. climate will force business to focus on Election. and bigger While 2011 was the year we saw some positive fewer indications from the Obama administration of projects,â€? says Julia Santos, Certified Outsourcing increased outsourcing acceptance, the upcoming Professional (COP), Head of Global Business elections and continued economic unrest may Optimization, Johnson & Johnson Group of Consumer Companies. create a less favorable outlook. â€œCompanies will look to defer and reduce Fewer new projects, tighter budgets and less discretionary spending by companies all are likely work in current contracts, negotiate down rates on the horizon but this will create opportunities in current outsourcing arrangements, look for for near shore destinations, providers to add dramatic cost cuts in new contracts, reduce the 18
Today December 2011 - January 2012
TOP TRENDS OF 2012
number of suppliers, and look to nearshore and offshore destinations for captive or outsourced services,” she says. Companies will do more Business Process Outsourcing (BPO) to cut costs, reduce risks, tap into global talent from the developing services market, and get support for revenue generation, Santos predicts. “In turn, providers will need to be much more efficient on internal cost control and will need to step up their innovation capabilities in order to help with their client’s short- and longterm challenges,” she says. “Providers will need to become more involved and entrenched in their client’s business. Companies will need to leverage their providers through collaboration and look for innovation as well as cost reduction
opportunities.” Indecision in the global economy due to political uncertainty in the U.S. and continued concern of the health of Europe will cause many organizations to pause on major new outsourcing deals, causing them to focus on driving increased value from existing outsourcing relationships, says IAOP Global Ambassador Matt Shocklee, COP. Recent IAOP polling shows overwhelming agreement from outsourcing customers and service providers that there’s stranded value in their existing relationships. www.globalizationtoday.com
TOP TRENDS OF 2012 Even though economic conditions may improve, companies in the Western world will look for more "contracted staffing" options rather than hiring or even considering outsourcing, according to IAOPâ€™s Managing Director Thought Leadership Jagdish Dalal, COP. On the positive side, companies with a better understanding of risks and a more stable visibility into the future will begin to sign up for longer outsourcing agreements than they did in recent past, he anticipates. Atul Vashistha, COP, chairman, Neo Advisory & Neo Group, sees the weakened demand improving by early to mid-2012. Budgets will continue to be tight with most approved on a rolling month or quarterly basis, he says. Vashistha also envisions minimal discretionary spending with approvals requiring rigorous ROI explanations. The majority of investments will need to show positive ROI within a fiscal year and, as a result, lead times and planning cycles will be short, he says. Many deals that may have been deferred due to the slow economy may start up again and increase the overall activity for the sector, predicts says IAOP strategic advisory board member Neil S. Hirshman, COP, partner at Kirkland & Ellis LLP. New Destinations Higher unemployment, economically blighted urban areas and local government incentives will drive more companies to look to stay on shore, especially in the U.S., predicts Dalal, who also expects politicians to continue to talk against outsourcing as the election nears. A report published by Boston Consulting Group predicted that with the rise of wages and economic conditions in China, U.S. wages will 20
Today December 2011 - January 2012
become competitive with Chinese labor rates in five years for manufacturing, creating pressure on bringing more work back to U.S., according to Dalal. Frustrated with supplier rising costs, governance challenges and uneven performance, insourcing will be explored by more clients, Vashistha predicts. Rural sourcing - outsourcing processes to communities with low costs of living â€“ will be a trend in 2012, the watchers say. IAOP Asia Ambassador Bobby Varanasi, COP, Chairman and CEO of Matryzel Consulting, sees rural sourcing increasing as companies move from â€œleveraging cheaper outsourcing locations to a more concerted strategic endeavor of tapping into a trainable pool where emphasis will be placed on sustainability and serving the domestic market.â€? Even some state governments in the U.S. â€“ such as Tennessee, Michigan, Illinois, Idaho, Wyoming and North Dakota â€“ are starting to provide incentives and tax breaks to outsourcing
TOP TRENDS OF 2012
LPO O companies to locate their operations in their states, creating employment and positive social impacts, he says. “The distinction between a purchasing West and a providing East no longer holds true,” Varanasi says. Varanasi also sees low-cost domestic sourcing gaining mainstream visibility, with provider firms creating new jobs in U.S. that will leverage both "work-from-home" concepts and a skilled workforce that's not mobile. Such markets like Ann Arbor, Michigan, or towns in the states of Idaho, Wyoming and others will not compete directly with offshore/ nearshore locations but rather provide increased choice and larger opportunity for providers and end-users alike, he says. As another option, nearshoring will benefit many companies looking to spend less on travel costs, be more efficient due to time zone compatibility and harness on closer cultural affinity among other reasons, Santos says. Look for the BRIC countries - Brazil, Russia,
India and China – to surge as outsourcing destinations in the coming year, the panel of trend watchers say. “2012 will be a year for the BRIC countries to accelerate their internal focus on outsourcing as a differentiating strategy to strengthen their local economies and differentiate their products and services, not just their human resources,” Shocklee says. “The U.S. and European markets will continue to show weak economies further driving the BRICS to grow from within.” As the BRIC nations continue to accelerate their economies and play an increasingly important role in the future of the outsourcing industry, the ability to manage cross culturally involving multiple languages will challenge “English” as the global business language in outsourcing, he says. Technology will play a decisive role in enabling language agnostic outsourced enabled business processes from and to anywhere in the world. According to Dalal, continued high economic growth, coupled with rising wages and costs, will lead India, China and even Brazil to compete harder in the marketplace with some providers from those countries looking elsewhere to open satellite centers. Brazil will be in the spotlight as an emerging market. Hosting both the 2012 World Cup and the Olympics will bring tremendous visibility to Brazil, making it a strong Latin America country in the coming year, Santos predicts. Other locations offshore players will continue to expand in or set up operations include Poland, Mexico and Colombia, says Vashistha. As new locations emerge, vendors will continue to diversify their global delivery footprint, but will struggle to get the same scale, cost and talent that they currently get in India, predicts Jay Desai, Senior Vice President – Global www.globalizationtoday.com
TOP TRENDS OF 2012 Sourcing of Northern Trust. As a result, there will be a continued progression to move towards Tier 2 and Tier 3 cities in India to lower cost of operations, says Desai, COP. Governments also will have an impact on where outsourcing occurs. The next few years may see an increase in protectionist measures taken by various governments to counter the high levels of unemployment, Desai foresees. Protectionist or liberal measures toward outsourcing/offshoring by the developed nations will decide the geographical spread of delivery centers, according to Rohit Kapoor, President and CEO of EXL Service. In 2012, there will be a continued emphasis on protection of data and the costs associated with it, Hirshman predicts. As more and more countries look to be an outsourcing destination, we would expect them to enact laws protecting personal The trend toward â€œmulti-process, multidata as a way of becoming a more attractive vendorâ€? transactions that we saw in 2011 will location for customers, he says. continue to play a prominent role as experienced customers are willing to take on the challenge of New Verticals and Domains managing those types of transactions in order The industryâ€™s growth will be driven by new vertical to get the increased benefits achievable through markets and domains, predicts Kapoor, with the such a structure, Hirshman says. range of jobs outsourced by companies ranging from transactional jobs to supporting clients in New Models their decision-making process. Desai sees buyers outsourcing more complex, How outsourcing is delivered also will continue knowledge-intensive functions and processes as to evolve in the coming year. Mike Salvino, Group Chief Executive â€“ Business Process their confidence with outsourcing increases. Hirshman is seeing customers move outsourcing Outsourcing of Accenture, believes a new fifthout of the back-office and into more customer- generation of BPO is at hand. Accenture is driving additional efficiencies and facing processes and more strategic opportunities. â€œAs customers become more sophisticated business value by developing cloud-based and purchasers of outsourcing services, they will SaaS-based solutions built around standardized leverage their experience in a way that forces leading business processes to enable greater providers to be more creative and to enhance volume and commercial flexibility for its clients, he says. their service offerings,â€? he says. 24
Today December 2011 - January 2012
TOP TRENDS OF 2012 “Vested Outsourcing is a fundamental business model paradigm shift in the ways in which a company that outsources and their service providers do business.” Peter Moller, partner at Deloitte, says he is seeing hybrid models using both captive SSCs and outsource providers on a global basis. Often the global hub (usually in India) provides lower value transactional services in English only and is run by a third party while the regional centers are kept in house and provide more sensitive, strategic and language intensive support, he says. Northern Trust’s Desai envisions captive and third party models coexisting in the coming year. While there will be growth in captive centers with some captive center spin-offs, larger buyers will be captive centers plus multi-country sourcing to best of breed providers, he says. Also expect to see continued acceleration in bundling of technologies, processes and people “Developing these platforms and applying both into increasingly seamless outsourcing service outsourcing and consulting expertise will redelivery models, such as Business Process as a shape the BPO ecosystem in the coming years by Services (BPaaS), gain favor, Shocklee predicts. bringing an on demand model and mindset to our industry,” Salvino says. “We believe in and are New Social Responsibility striving to realize a vision where successful BPO providers will create value for clients by owning Another trend to watch will be impact sourcing, these technology platforms, delivering services employing individuals with limited opportunity with insights, outcomes, commercial flexibility, for sustainable employment as principal workers in Business Process Outsourcing (BPO) centers to and global delivery at scale.” Hybrid models will be on the rise in 2012. Kate provide high-quality, information-based services Vitasek, a faculty member at the University of to domestic and international public and privateTennessee, sees “vested outsourcing” transforming sector clients. Working with the Rockefeller Foundation’s the industry. Under this model, customers and service providers work collaboratively to develop Poverty Reduction through Information and a performance-based partnership in which both Digital Employment (PRIDE), IAOP’s Corporate parties’ interests are aligned, and each becomes Social Responsibility (CSR) subcommittee will make this a major focus in 2012, according to vested in each other’s success. “I believe Vested will do for outsourcing what IAOP’s CEO Debi Hamill. LEAN did for manufacturing,” Vita sek says. Through PRIDE, the Rockefeller Foundation www.globalizationtoday.com
TOP TRENDS OF 2012 New M&As The Merger and Acquisition trend we predicted last year will continue this year driven by tight access to capital and mid-sized organizations struggling to meet growth expectations given the uncertain economic and political situation worldwide. â€œLarge global players will be shopping for organizations with technical talent capable of designing and delivering consumer oriented cloud based solutions in consumer banking, retail and health care markets,â€? Shocklee says. Desai agrees the consolidation of suppliers will continue. He sees at least one large merger/ acquisition between a $1 billion India-heritage offshore provider and a large global outsourcer. Tier 2 vendors will continue to face difficulty in differentiating themselves and will struggle to organically acquire market share, and pure-play BPO vendors will face market pressure to acquire or be acquired, he says. Vashistha says M&A activity will continue but yield little benefit. He sees the gap between Tier I and Tier 2 suppliers widening with no clear leaders yet in either category. While some Tier 2 players will continue to prosper, clear differentiation branding will be necessary for them to succeed, he notes. Johnson & Johnsonâ€™s Santos says further reduction and consolidation of providers will become necessary if the current economic conditions donâ€™t improve. She also anticipates more mergers and acquisitions as a survival mechanism for corporations.
plans to support the development and testing of Impact Sourcing business models, support research on interventions and continue to build the network of key Impact Sourcing stakeholders to advance the field. Expect to see others following the examples of the good work being done by Foundation grantees like Digital Divide Data, a social enterprise with the objective of creating jobs for poor and disadvantaged youth in Cambodia, Laos and New Technologies Kenya; and Samasource, an intermediary that markets and sells Impact Sourcing services to When it comes to technology in 2012, simplify remains the buzzword, says Neo groupâ€™s Vashistha. clients based in the U.S. and United Kingdom. 26
Today December 2011 - January 2012
TOP TRENDS OF 2012
“Systems integration led by standardization and migration to common global processes will lead growth,” he says, predicting that cloud computing offerings will stimulate greater demand for infrastructure outsourcing. Vendors will revamp the architecture of their product offerings to fit the modular needs of a cloud environment, creating a big demand for redesigning software architecture, and also for quality assurance and testing services, Vashistha predicts. Cloud computing may not be as disruptive as initially thought, Desai says, anticipating that as buyers start internalizing the benefits of the cloud, they will come to realize that the public cloud is ideal for small and medium enterprises or localized to non-core platforms, such as email. Larger buy-side firms will continue to spend on cloud technologies like virtualization and SAAS, and explore the potential of the private cloud. As cloud computing solutions continue to proliferate worldwide, customers and suppliers will continue to struggle to comply with increased government regulations, the real risks of cyber-security and threats of ecoterrorrism, Shocklee says. The convergence of social networking, collaboration and mobility platforms will create a significant demand for value-added outsourcing services, Desai predicts. Matryzel’s Varanasi sees companies increasing their emphasis on social media to source talent globally, position their products and services, and collect intelligence around their end users that goes significantly beyond SEO. Social media and the use of Web-based recruiting engines has taken off and will
continue to accelerate, Dalal says. Consumer technologies from social networks, gaming and mobility will increasingly be applied to BPO, changing the traditional role of the IT manager. “For the first time, a generation of digital natives is getting into managerial roles, bringing consumer technology into the corporate environment,” says Guibert Englebienne, cofounder and CTO of Globant. Adding to this, the recent appearance of marketplaces for different platforms also increases competition and reinforces the need to remain innovative, he says. “The last decade has seen our industry creating a lot of capacity on a wide spectrum of knowledge areas,” Englebienne says. “It is now our turn to provide innovation to our customers.” Can we do it? How will the year fare for you, your company and the industry? Check back with us next year to see. ABOUT THE AUTHOR
Sandy Frinton Sandy has written bylined news and features stories, traditional and Web 2.0 press releases, employee communications, e-newsletters, corporate letters from CEOs, annual reports and other communications in a wide range of business sectors. She also has managed communications and media relations for international businesses for major acquisitions, plant closures and business restructurings in the U.S. and globally. You can reach her at: sandy.frin i to t firstname.lastname@example.org
A LOOK BACK AT 2011
A LOOK BACK AT 2011 By Sandy Frinton A review of last yearâ€™s trends and what really happened So how did our pundits do with our top predictions from a year ago? IAOPâ€™s managing director thought leadership Jagdish Dalal and Global Ambassador Matt Shocklee provided some perspective on what the year brought for outsourcing. Hereâ€™s what these Certified Outsourcing ProfessionalsÂŽ had to say about our fortune telling: 1. Increased Outsourcing Acceptance We predicted: President Barack Obamaâ€™s comments in India this November about outsourcing set the stage for potentially creating a more favorable political outlook on outsourcing in the coming year. What happened: While political acceptance of outsourcing has become somewhat more positive, the 2012 election year in the U.S. and the economy has tempered the earlier upbeat outlook. â€œAs it happens every four years, politicians are once again joining the bandwagon that outsourcing is bad for U.S. economy and regularly confusing outsourcing with offshoring, Dalal points out. 28
Today December 2011 - January 2012
A LOOK BACK AT 2011
A LOOK BACK AT 2011 Agrees Shocklee: â€œA highly competitive election Dalal says, citing examples of General Motors and will mute that acceptance with offshoring being the Otis Elevator (a division of United Technologies) bringing work back to U.S. We also have seen a naughty word of the year.â€? higher number of â€œcaptiveâ€? centers being opened near shore, such as Hewlett Packard establishing a 2. So Many Sources large center in Costa Rica. We predicted: Expect to see many more different sourcing arrangements than in the past. Socio3. Growing Up economic pressures on leading countries -- U.S., Britain and Germany -- will lead companies We predicted: Corporate pressure to reduce costs to consider onshore outsourcing or center and continued economic uncertainty will prolong establishments in the same light as offshore the current trend of highly competitive bidding for services and shorter duration of contracts outsourcing What happened: Clearly, this has proven to be true, with favorable terms embedded to alter volume of
Today December 2011 - January 2012
A LOOK BACK AT 2011 service without re-opening contract negotiations, Dalal predicts. What happened: Although we began the year with this prediction being true, a recent trend indicates that companies are once again getting more comfortable having longer-term contracts, he says. However, cost pressures on the providers remain just as sharp at the end of the year as they were at the beginning. We predicted: Economic incentives provided by local and federal government for encouraging employment in depressed economic areas will encourage competition with lower rates in offshore
destinations. We predicted: IAOP is seeing heightened interest in supporting outsourcing from government economic development agencies from developing regions such as Africa, Eastern Europe/Russia, Malaysia, Mexico, Brazil and Colombia, as well as strong interest in the U.S. from states such as North Dakota, Missouri and Tennessee, commented Shocklee. 4. Latin America Growth We predicted: IAOP expects the Latin America region to experience a boom in 2011, particularly in Brazil, Mexico, Chile, Colombia, Costa Rica and Peru, which are strategic locations to the U.S. market. What happened: This proven true and will continue to be a trend in 2012. As an indicator on the interest in the region, more than 300 professionals attended our first Latin America Outsourcing Summit in Cartagena, Colombia and plans are underway for the second such summit in Brazil this fall. 5. Mergers and Acquisitions We predicted: A greater stratification of service providers lies ahead with large broad firms and large specialized firms dominating while middleand lower-sized providers struggle to survive. What happened: Through the year, we have seen several large and small acquisitions. After acquiring ACS, Xerox continues to purchae smaller specialized providers and build a solid services base for the company. We have seen large acquisition such as ISS, a Denmark-based facility services company with over 500,000 employees globally, being purchased by another European firm to
A LOOK BACK AT 2011
expand its service offerings beyond its security than outsourcing single processes or functions on services base. Also, EXL Service acquired OPI and a stand-alone basis. What happened: As predicted, we saw a number in the advisory space KPMG acquired Equaterra. of companies adopt a multi-process, multi-vendor 6. Innovative Partnerships and Consolidation approach to outsourcing. â€œCustomers looked to identify the best of breed for each process and We predicted: Challenging local economic then to integrate the providers and the services conditions in India and the resulting competitive in a way that brought strategic advantages to the pressure to reduce price offerings of outsourced customers,â€? says IAOP strategic advisory board services will lead to increased consolidation of member Neil S. Hirshman, COP, partner at offshore providers. Kirkland & Ellis LLP. What happened: This trend is further accelerated by the fact that so-called emerging nations, such 7. Risky Business as BRIC (Brazil, Russia, India and China) are a We predicted: 2011 will be a year where fertile ground for providing local services, Dalal says. Through the year we have seen some major companies will need to learn to manage market, outsourcing contracts won by IBM and Accenture financial, security and other risks. What happened: 2011 proved to be the year of in India and China. We predicted: Companies will combine â€œwiki-leaksâ€? as customers and service providers processes in their outsourcing initiatives rather struggled to comply with increased government regulations, the real risks of cyber-security and threats of eco-terrorism, according to Shocklee. ABOUT THE AUTHOR
8. Talent Competition
Sandy Frinton Sandy has written bylined news and features stories, traditional and Web 2.0 press releases, employee communications, e-newsletters, corporate letters from CEOs, annual reports and other communications in a wide range of business sectors. She also has managed communications and media relations for international businesses for major acquisitions, plant closures and business restructurings in the U.S. and globally. You can reach her at: sa sand ndyy.fr email@example.com m
Today December 2011 - January 2012
We predicted: Recruiting, developing and retaining key employee talent will be a critical challenge facing organizations in 2011. What happened: Social media and use of Webbased recruiting engines have taken off through the year. According to a published Gartner report, â€œCIO report that their most effective and frequent method of gaining the right skills is to bring in temporary skills from outside of IT.â€? As a result, this report predicts that â€œtemporary staffingâ€? and â€œskills outsourcingâ€? has grown faster in recent years and will continue to do so in near future.
A LOOK BACK AT 2011
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MEETING THE CHALLENGES OF CLOUD COMPUTING By Leslie Willcocks, Will Venters and Edgar A. Whitley Is cloud computing the savior of business? Is it a threat to data security? Does it signal the demise of the corporate IT function entirely? These are some of the questions executives are asking about the use of remote servers in the cloud, which enables organizations to access on-demand computing capacity, software and business functionality. Cloud computing is a young phenomenon, and it is suffering through the growing pains typical of its age. Itâ€™s also subject to many overblown claims in the marketplace, from ardent supporters and detractors alike. Although the upside of cloud computing is considerable (see â€œThe promise of cloud computing,â€? Outlook Point of View, April 2011), numerous challenges lie aheadâ€”among them, safeguarding data security and privacy, defining the contractual relationship with providers, dealing with lock-in and exit strategies, and managing the cloud services. New research from the London School of Economics and Accentureâ€”based on surveys 34
Today December 2011 - January 2012
of more than 1,000 business and IT executives, as well as in-depth interviews with more than 35 service providers and other stakeholdersâ€” takes a rigorous, data-driven look at cloud computing trends and usage. It is telling that the IT executives interviewed were almost uniformly more cautious about realistic timeframes for cloud implementation than were the business executives, who are especially interested in agile and cost-effective IT solutions in the near term. This caution is rooted in several implementation challenges.
Challenge #1: Safeguarding data security Our survey asked IT executives to identify the biggest risks in cloud computing. The top answer, named by two-thirds of respondents, was “data security and privacy.” Potential adopters are concerned about the security of data outside the corporate firewall. A related issue has to do with offshore data housing, which can pose problems of legislative compliance when data crosses borders. In the short term, most companies can avoid these issues by using domestic cloud facilities. The cloud carries some new risks, however—
notably, as one of our interviewees put it, “People hack brands or hack applications regardless of what the infrastructure is underneath.” Because a cloud provider hosts multiple clients, each can be affected by actions taken against any one of them, as in distributed denial-of-service attacks—server requests that inundate a provider from widely distributed computers. This is what happened, for example, in the wake of the WikiLeaks activities: when attacks came into the provider hosting WikiLeaks, all other clients were affected as well. However, some of these risks are mitigated to www.globalizationtoday.com
a degree by new security applications such as encrypted file systems and data-loss prevention software. Cloud providers also have the ability to invest in more sophisticated security hardware and software, such as using analytics to examine unusual behavior across vast numbers of virtual servers. Beyond this, a providerâ€™s scale enables effective responses to large-scale server attacks through high levels of redundancy. Concerned enterprises can also mitigate risk by employing hybrid cloudsâ€”a situation in which most servers are in the cloud, but key data is hosted internallyâ€”and by improving data governance. 36
Today December 2011 - January 2012
Challenge #2: Managing the contractual relationship Cloud computing contracts are a mix of outsourcing, software and leasing. Some observers have argued that contracting for cloud is simpler than traditional approaches to IT sourcing because only one contract is required instead of multiple agreements for software, hardware and systems integration. In reality, however, few software, platform or infrastructure providers meet all of a clientâ€™s functional requirements, so contracting for cloud services typically involves ecosystems of providers that must be integrated
CLOUD COMPUTING are currently not adequately focused on providing enterprise contracting requirements. As one respondent told us, “The problem with cloud services today is that many of the service providers have not evolved to the point that they are comfortable being custodians of data.” That is, many providers have historical roots in product development, not service provision, so they often do not adequately understand what it means to have service liability. In response, companies should evaluate cloud SLAs in relation to their company’s risk management profile and the ecosystem of cloud providers. When the offered SLAs are insufficient, companies can seek to exploit multiple cloud providers for the same service. In this way they can fashion their own guaranteed uptime by creating virtual points of presence at extremely low cost. Also, companies can engage a service integrator to perform management and contractual functions. Challenge #3: Dealing with lock-in
to provide complete solutions. Cloud contracts generally focus on servicelevel agreement (SLA) guarantees, but the network of interactions within the overall ecosystem increases the complexity of SLAs. Software-asa-service providers, for example, often share a single platform for all users, and so they cannot provide each client with a differentiated SLA. At present, relatively low compensation is offered by providers for breaches of SLAs, but competition should improve this situation, as should the development of cloud standards. Our research also found that cloud providers
Exit strategies and lock-in risks are key concerns for companies looking to exploit cloud computing. There is always a switching cost for any company receiving external services. However, cloud providers have a significant additional incentive to attempt to exploit lock-in. If computing were to become a very liquid commodity, and if switching to a lower-cost provider were too easy, margins would rapidly become razor thin. When contracting for a cloud service, executives should be aware of two forms of lockin. The first form, technology lock-in, concerns the cost of moving a business service from one cloud platform to another. Once a company is on a particular platform, it is often more www.globalizationtoday.com
CLOUD COMPUTING cost-effective to purchase additional services compatible with existing onesâ€”thus increasing lock-in. A second form, institutional lock-in, occurs when technologies become embedded within organizational routines and usersâ€™ work practices. Particularly for users of softwareas-aservice, such institutionalism can have a serious impact on the ability to switch cloud providers-which increases the severity of lock-in. Providers are likely to focus on increasing lockin as competition reduces margins. Competitors, however, will focus on reducing switching costs for dominant players. Specialist services and service integrators can help meet these challenges. Challenge #4: Managing the cloud Although many dramatic predictions are being made about the impact of cloud computingâ€”among them, the claim that traditional IT departments will become obsoleteâ€”our research supports the conclusionthat cloud impacts are likely to be moregradual and less linear. Nevertheless, thecloud does carry with it significant disruptionto business as usual, leading to two particular management challenges. First, once introduced into the enterprise,cloud services can be easily updated or changed by business users without the direct involvement of the IT department. And it is in the providerâ€™s interests to develop functionality that expands usage and spreads it across the organization. So maintaining overall, strategic control of services can be difficult. This independence of the business when it comes to IT services also means that IT must work harder to gain the ongoing attention of the C-suite and to extend its strategic role. Second, organizations are still slow in developing management capabilities and principles for operating with cloud services. Such strategies 38
Today December 2011 - January 2012
should focus on the multiple contracts needed for a cloud ecosystem. Effective supervision of usage, SLAs, performance,robustness and business dependency is vital. Monitoring the external providerâ€™s services must be done, but internal cloud monitoring should also be introduced. Support provided by cloud providers can be variable, and organizations should develop their own support services, either internally or with third parties.
Conclusion: Resolving the tensions Our interviews have exposed potential tensions between enterprise executives, who express the desire for command and control over business services, and IT executives, who must adopt new modes of operation when it comes to leveraging the power of the cloud. Other tensions exist as well: for example, if cloud suppliers are looking to commoditize their
services, how will clients achieve the customized services they desire to support business agility and differentiation? These tensions are not insoluble, but they do suggest that providers and clients alike must consciously address a suite of cloud challenges in the planning, contracting and management of services. www.globalizationtoday.com
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M&A ACTIVITY IN HRO
MERGER AND ACQUISITIONS ACTIVITY IN THE HR OUTSOURCING INDUSTRY By John Willmott- NelsonHall There has been significant Merger and Acquisition (M&A) activity in the HR Outsourcing Industry in the last few years. Here is a quick reviewâ€Ś Accordingly, this article considers provides an analysis of the levels of outsourcing-related M&A activity, explains the types of M&A activity, and discusses the implications of each of the various types of M&A activity for the clients of the providers involved Exhibit 1 shows the numbers of Business Year
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 42
Processing Outsourcing (BPO) and Human Resource Outsourcing (HRO)-related acquisitions tracked by NelsonHall over the past 10-years. Exhibit 1: Levels of BPO and HRO-Related Acquisition Activity
Number of HRO-Related Total Acquisitions BPO-Related Acquisitions 32 81 37 91 17 53 22 76 28 99 27 109 29 123 21 96 10 67 6 33
Today December 2011 - January 2012
Proportion HRO-Related 40% 41% 32% 29% 28% 25% 24% 22% 15% 18%
M&A ACTIVITY IN HRO
depth of capability of their HRO service There is currently a high level of acquisition portfolios. Examples include ADP activity within the total BPO industry and acquiring Workscape and The RightThing the HRO industry is particularly active in this respect. Indeed the level of HRO-related t Providers acquiring geographic capability to enter new, frequently emerging, acquisition activity has increased over the past geographic markets. two years, both in absolute terms and relative to t In terms of HRO-related acquisitions the BPO industry as a whole. over the past two years, the pattern of So what is the pattern of acquisition activity activity has shifted from a high emphasis in HRO and why is this happening? on market consolidation in 2010, with Essentially, there are three major types of an increasing emphasis on portfolio M&A activity taking place in the HRO market: development, to high emphasis on both portfolio development and geographic t Market consolidation with major expansion in 2011. industry players acquiring one another, reducing the number of client choices in Each of these has differing implications for a mature market. Examples here include Aon acquiring Hewitt, ACS, a Xerox client organizations. Market consolidation Company acquiring ExcellerateHRO, and may have the greatest implications for clients and NorthgateArinso acquiring Convergys may imply a significant change in their operating model in the medium-term. The major recent HR Management t Providers broadening the breadth & acquisitions of this type are shown in Exhibit 2: www.globalizationtoday.com
M&A ACTIVITY IN HRO Exhibit 2: HRO Market Consolidation Year
To become market Northgate To expand North Management ACS, a Xerox ! " #$ & Company SFN Group ' in North America
Aonâ€™s acquisition of Hewitt made it the largest Benefits Administration consulting and outsourcing player globally. In addition to the global scale and scope and combined strengths of the consulting and benefits outsourcing units, Aon picked up significant new complementary cross-selling opportunities for its insurance brokerage and reinsurance businesses. Aon Consulting had $1.3bn of revenues in fiscal year 2009 and Hewitt had $3.0bn: the combined entity will be triple the size of Aon Consulting. In many ways this formation of Aon Hewitt is a reverse acquisition. Accordingly the threat of radical process change to Hewittâ€™s multi-process HRO and benefits administration clients is relatively low. The deal continued the consolidation trend across the benefits consulting and outsourcing market; other recent M&A activity including Towers Perrin and Watson Wyatt merging to form Towers Watson. Also in this category, ACS, a Xerox Company, acquired ExcellerateHRO (EHRO) from HP, to integrate EHRO into its own service lines. This move potentially creates a higher level of process change for EHRO clients in the medium-term. Both units had significant benefits administration practices, 44
Reason for Acquisition
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( # )
payroll, and multi-process HR outsourcing services. EHRO and ACS each bring marquee clients along with growing bases of midmarket clients, especially in benefits administration. ACS has much work to do to stabilize the client base and integrate the EHRO services into its portfolio. Thirdly, NorthgateArinso acquired the HR Management unit from Convergys, thereby acquiring Convergys' global HR service delivery assets and client portfolio. Convergys had recently completed restructuring two major deals with two clients and had negotiated renewals or extensions for many of its most visible deals to remove any outstanding liabilities and commitments. While this acquisition presents some medium-term choices for former Convergys clients who have highly customized individual instances of SAP, they will potentially benefit from NorthgateArinso's provision of a more certain future comprising a HR outsourcing roadmap and ongoing investment in HRO technology and processes. Exhibit 3 provides examples of HRO-related acquisitions driven primarily by a need for portfolio development.
M&A ACTIVITY IN HRO Exhibit 3: Portfolio Development Year
'&& '& capability into ## *+ Strengthen '& capability in petroleum, # & automotive Edvantage Strengthen Group learning capability within talent management ## ' & The Center management #& training # capability Development #'& ' & learning #:;(; Government *< ' &
ADP has been particularly active in this type of portfolio acquisition, moving beyond its traditional payroll stronghold to strengthen its capabilities in benefits administration and talent management in support of its multi-
Reason for Acquisition
process HRO service development. The RightThing brings end-to-end RPO capabilities including sourcing, onboarding, employment branding, etc. while ADP has strengthened its ability to compete for benefits outsourcing www.globalizationtoday.com
M&A ACTIVITY IN HRO
within large and complex organizations with the acquisition of Workscape. In both of these cases the clients of the acquired organizations are likely to face little process change; any process change, though hopefully for the better, will more likely be experienced by
Today December 2011 - January 2012
clients of the acquiring provider, and this is characteristic of acquisitions driven by the portfolio development motive. Exhibit 4 provides examples of HROrelated M&A activity prompted by a need for geographic expansion.
M&A ACTIVITY IN HRO
Exhibit 4: Geographic Expansion Year
Reason for wAcquisition
Drake Beam Morin
ManpowerGroup REACH HR
To increase regional presence in U.K. To strengthen outplacement services outside U.S. To offer HRO services in China To increase learning services presence in China To expand Asian market presence
A primary impact of acquisitions of this type on North American clients is to provide enhanced support for their ability to operate more globally, typically with improved support for emerging markets. Consolidations, acquisitions, and divestitures have become more common across the international business landscape. HR Outsourcing is not alone in this trend and this M&A activity is not necessarily negative since it can sometimes solve existing problems. Potential buyers of services should be aware of these trends and prepare accordingly.
ABOUT THE AUTHOR
John Willmott John Willmott is the the h founder of NelsonHall N Ne lsonHa Hall and has b been een ee n CEO since its inception ince cept p ion in 11998. 998. John has has developed deve de velo lope ped d the comp company mpany to iits present posi position itiion as thee le th ading d BP BPO O an anal alys al ystt firm globally. ys leading analyst John Jo hn remains actively acttiv ivel elyy involved invo in olved d in i the he delivery delilive de very of client assignments. assignment ntss. He He has h s personally covered the BPO ha PO m mar market arke ket since sinc si ncee 19 1992 92 and a d has led well wellll in in excess of a hundred hundr dred ed assessments on B BPO. BPO PO.
M&A ACTIVITY IN HRO
IMPLICATIONS OF M&A ACTIVITY IN HRO FOR SERVICE BUYERS By Peter Ackerson - Deloitte Consulting LLP Recent changes in the Human Resources (HR) Outsourcing Industry indicate many client organizations may find themselves in situations where their outsourcing provider has either been acquired or is itself acquiring other providers, with a potential impact on the process models underpinning their outsourced services. While most outsourcing contracts contain a provision for a change of ownership covering both client and provider organizations, the ability to move out of an agreement does not offset the need to manage the situation to avoid a disruption of services. Implications for clients and organizations considering HR outsourcing When an agreement is signed with a provider, there is generally an assumption the provider will not be acquired or change their business model. However it is prudent to secure contract language to address these possibilities. A â€œchange of controlâ€? clause should be included to define what would happen in the event of 48
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this condition. Your legal advisor can provide specific advice and the exact wording for the clause. From a business standpoint, the organization needs the opportunity to decide whether a provider consolidation will be an obstacle to the services provided.
M&A ACTIVITY IN HRO
be considered if necessary. Your legal counsel may have included a â€œno-penaltyâ€? clause, but there will still be transition costs from the current provider and any new provider. In addition, any change of provider is a disruption and uses generally scarce resources in HR and InformationTechnology (IT). Termination clauses are rarely invoked, but they do become a negotiating point after notification of a change in control. Additional considerations to prepare for this possibility: t Contract provisions for retention of key provider personnel t Requirements concerning client ownership of all documentation and data (both source and processed) at all times. t Prohibition on changing technical platforms or service locations without client agreement. t Provisions addressing additional costs incurred because of any change Considerations if M&A activity occurs with a current provider
The ultimate sanction is the ability to exit the agreement if the proposed merger and acquisitions (M&A) activity is believed to be detrimental to future delivery of services. In actuality, exiting an agreement could be costly and time consuming; however it is an option to
Communicate...and then communicate some more. If the provider handles this well, they will be reaching out to you. If you are informed of the change through the media or some other source, then actively, and promptly, reach out to your relationship manager (or higher). Request a meeting to discuss implications of the merger or acquisition, any known plans, and impact on the team providing services to your www.globalizationtoday.com
M&A ACTIVITY IN HRO organization. Ask for periodic updates. Silence is not golden in this situation - you need, and should insist on, a constant flow of information. Service levels should be carefully monitored during the providerâ€™s transition period. Melanie Langsett, Deloitte Consulting LLP Principal, leads the Benefits Outsourcing Advisory practice and provides these observations: t â€œIn the 12+ months following a merger, the focus for the vendors is internal and with maintaining as stable an environment for their employees and their clients as possible. Therefore, there can be: t Diminished focus on new service/ product development t Focus on conversion of clients from
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one platform to another. Those who are already on the selected platform generally get less attention. t System enhancements/upgrades are often delayed due to the internal conversion activity t Customizations can take longer as most technology support is focused on merger related activities t Provider employee turnover is generally highest within the first 3-6 months following the merger announcement and can result in errors and processing delays if all administrative documentation isnâ€™t up to date and knowledge isnâ€™t passed appropriatelyâ€?
M&A ACTIVITY IN HRO While we have focused on potential concerns and issues, a provider who has thought out the implications of the change will likely have addressed these issues and should be able to present communications and plans addressing these concerns. If they don’t…communicate.
an announcement is made, initiate and require frequent updates…and review your contract terms. Conclusions
A change in provider status (acquired, merged, divested) is not necessarily a negative. In many cases the resultant company may be a stronger Could a provider acquisition or merger improve partner for your organization. To confirm that is your services? the case, remember the following points: The short answer is “yes”. Many analysts believe these changes are creating stronger balance sheets, t Assume it could happen - have a contract providing for the possibility broader offerings, and better geographic coverage. An organization having a well-balanced contract t Maintain good communications with your provider, including the Executive Sponsor and close communications with their providers will likely have better control of the situation and t Be aggressive in asking questions if you are impacted by a change may ultimately end with better arrangements. If the current services are not sufficient, this may t Utilize the opportunity to ask for improvements in services and costs be a good time to determine if a new provider structure can improve the situation. In many cases, t Consider the provider’s point-of-view and see if there are mutual wins this may be an opportunity to discuss costing and service levels, especially if the platform and service While these points are not guarantees of success, locations are changing. they are reasonable approaches to dealing with potential changes in the provider landscape. What are impacted organizations saying? The good news is changes have generally been positive, as generally heard…companies received sufficient notice, changes were minor, and service has not been impacted. However, not all changes were positive. In some cases platforms and service locations were changed, causing some level of disruption; and communications were not timely or helpful. While some of the issues were providerspecific, some were tied to the size of the client. Large population organizations (higher revenue) generally received better notice, with one very large company directly hearing from a provider’s CEO. Having a positive, on-going relationship can go a long way towards avoiding “surprises”. Once
ABOUT THE AUTHOR
Peter Ackerson Peter Acke Ackerson kers rson on is a Sp Spec Specialist ecialist Leader in Del Deloitte eloi oitt ttee C Consulting onssul ulti ting LLP’s LLP’ LL P s HR Transformation TTransform mat atiion ion Practice. P ac Pr acti tice ce. With With over ove o verr 30 years off experience experien nce iin n major majo ma j r corporations and outsourcing g firm fifirms, rmss, h hee leads le ead ads comp complex plex global transformation transfformatiion projects. He is a senior res resource sou ourc rcee on o out outsourcing utso sour urci cing ing aadv advisory dvis isory projects and an d shar shared h red d sservices projects.
SOMETIMES, â€œNOâ€? IS THE RIGHT ANSWER By Thom Mead Thom shares lessons and tips for improving sales performance and avoiding bad deals. I can recall being on vacation in Hong Kong with my wife as we were walking through the famous shopping district in Mongkok. Here you can buy Class A imitation goods of leading brands at far lower prices than the real brand and few would ever know the difference. Or if you are like meâ€Ś you will negotiate (aka: haggle) for an even better price. As I plied my finely honed negotiating skills on the unsuspecting merchants, the price kept getting lower and lower. My wife would say, â€œStop, stop alreadyâ€? and she would eventually walk away in embarrassment. I remained however, and got the price far lower than when she had left. I explained to her, â€œUntil they say, â€œNo!â€?, then they are comfortable it is still a good deal for them as well and they will make a profit. They wonâ€™t sell at a loss.â€? Earlier in my career, as president of an F&A BPO subsidiary of ACS (now Xerox), I had the opposite problem. I was put into the subsidiary to orchestrate a turnaround of their #1 Money Losing Unit (MLU in ACS parlance). I was to 52
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be the 5th president in 5 years. The subsidiary was grossly unprofitable when I took control, employees were doing sick-outs to send a message to management. This was not going to become profitable by doing the same thing a little better. The model was broken. Nearly half our customers were unprofitable and had lost confidence in us, resulting in 2 customers threatening to sue us. Our client list was to die forâ€Ścategory leading brands in virtually every industry. The only problem was, through mismanagement, the accounts had become unprofitable. My predecessors had put lipstick on the bulldog, tried smoke and mirrors and hoped things would improve. They did not. While we did excellent work, flawlessly processed claims, and managed a very respected contact center of 144 people, which disbursed more than $2 billion annually in funds on behalf of our customers, we were hemorrhaging red ink.
Tough decisions had to be made. I chose to jettison our unprofitable customers, along with any customer whose account was not of sufficient size to warrant a single, full time account manager. In the end, we let go more than half of our customers. Some were so small the customer did not even know we were managing their money. This had a corresponding impact on revenue… but it was not equal in size. The revenue drop was only 11%...or said another way, 89% of our revenue came from 40% of our customers. Left unchanged, we would have lost our biggest and best customers first. We needed to reinvent the underlying business model also, or in time we would slowly go out of business. We inverted our value proposition and stopped leading with commodity transaction processing, offering value added services for an additional premium. We now offered value laden offerings designed from
input from our customers, with the transaction processing already baked into the price. No more smoke and mirrors…as this was the basis of the lawsuits. We had to fundamentally merge the 2 former competitors ACS had previously bought, into a single cohesive subsidiary, on a single IT platform. An interesting thing happened when we told the customers the truth…they agreed to drop the lawsuits and work with us to solve the problem and bear the pain of a system conversion…as long as we did not go back to our old ways. They became part of the change management team and were excited to be part of the solution. Within 12 months from when I started, we were profitable again. In my next role, I was the Head of Sales for North America for the Outsourcing Division of Unisys. I did not win favor with some of my sales team when I said, “We will not pursue bad deals…it costs www.globalizationtoday.com
money, we probably wonâ€™t win them anyways, and why do we want to win a bad deal?â€? I replaced those who did not embrace. We went on to have the 2nd best quarter in the companyâ€™s history 12 months laterâ€Śmaking 40% of our number for the year in the first quarter alone. Sometimes it pays to say â€œNoâ€?. In a pursuit for a leading insurance company, I was invited to bid on an $8 million RFP they were about to issue. If implemented, it was a forward thinking idea that would revolutionize how the process was done at the time. Normally the type of thing my employer would have excelled at, if we bid and won. But my gut told me, we were there as the stalking horse, and no matter what we bid, we would not win. I declined to bid. The prospect senior executive was more than a little perturbed and had a few emotionally charged unkind words 54
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to say in response. About 18 months later, the same senior executive called me in to bid on a $20 million opportunity. Somewhat surprised, I asked, â€œWhy did you call me? I am surprised you even remembered me, much less kept my business card.â€? He replied, nearly 2 years ago you sat in front of me and declined to bid on a dream project. Every other leading vendor submitted a bid. By declining to bid you earned my respect as someone who makes good business decisions, and were not the typical salesperson who would say, â€œYes!â€? to any deal in the hope of getting a commission. So on this opportunity, I am giving you right of first refusal. Bring me a good deal, and the deal is yours. If you decline, I will put it out for competitive bidâ€?. I asked, â€œOkayâ€Śso what happened to the other deal?â€? He replied, â€œIt diedâ€Śwe could not get Board approval.â€? We
went on to win the new deal, sole sourced. Having been a successful bag carrying salesperson, as well as a successful head of Sales for more than one leading outsourcing company, I am often surprised that when a deal is good, profitable and can be used as a flagship reference account…it is referred to as a “Team Sale”. Yet if the deal is won, but has problems and is not profitable…that somehow the salesperson is to blame as if he/she did the deal in complete isolation with no input from the same “team”. At every outsourcing company which I worked, the sales model is and essentially the same. And the bigger the company, the more similar it becomes. The salesperson is tasked with evangelizing the company to the market. They take the positioning and messaging provided by Marketing and go out into the swamp and
start kissing frogs one at a time, hoping to find a prince. They manage the overall account penetration strategy; they personally get close to the prospects, nurturing them for when the time is right. Sort of like the deep moles opposing sides planted in their enemy during the Cold War. Once an opportunity is identified, the salesperson is charged with helping the prospect to cultivate the opportunity into one shaped to his/her company’s competitive advantage. Whether sole sourced or put out for bid, a team of highly capable support personnel, comprised of Finance, Legal, HR, Operations, IT, SMEs, Sales Support, and others at all levels in the company come together to develop the (hopefully) winning solution. It has been kicked around numerous times. The profit has been padded by Operations to ensure it will not be a nightmare to manage, legal has padded the price to allow for the risk, HR has costed the worst possible scenario…and others all weigh in. They have created the perfect deal that will never sell. So senior management sharpens the pencils for everyone and slowly it gets chiseled down to a deal that is at least competitive. Everyone signs off it is a deal that they can live with if won. Speak now or forever hold your peace. The salesperson may not have even had a vote in what the deal ultimately looked like, though they likely did have input. But regardless they have their marching orders… sell this deal we have proposed. Assuming the proposed deal is competitive, it enters successive rounds of refinement and negotiation. Again the salesperson has input, but seldom a vote. He/she is tasked with representing the deal only, since few if any have signature authority for a $20 million, $100 million, or $1 billion deal. Most don’t even have signature authority for $5,000. The deal gets negotiated, www.globalizationtoday.com
THOM MEAD everyone signs off the deal is good and worth doing. But as the saying goes, â€œSuccess has many fathers, failure is but an orphan.â€? Here are some tips for improving sales performance and avoiding bad deals: 1. Try to stay objective. â€œNO,â€? can be a good decision too. Avoid the uninformed perspective that we canâ€™t win if we donâ€™t bid. You will not win most anyways, so be selective and you will not throw away a lot of bid dollars on legions of deals that you were likely not destined to win. Selling is not a lotteryâ€Ś it is not luck. If you have a win percentage in the single digits, then you are not saying â€œNoâ€? enough. 2. If the deal catches you by surprise, donâ€™t be surprised if you donâ€™t win. People buy from people they trust. If you have no prior account intelligence and no executive level relationships, you have virtually no chance of winning. Can a blind squirrel still find an acorn? Yes. 3. Have a bid qualification criteria, and stick to it. Too many companies say they have a clearly defined market, yet still bid on anything and everything. In select circumstances, bidding outside of your target may be fruitful, but are you positioned to win against established competitors at that account and in their home court, playing the game their way? (See #2 above). 4. Do a regular pipeline analysis as well as a win/ loss analysisâ€Śand be brutally honest. You will not improve by changing the criteria to fit the circumstances. Donâ€™t use it as an opportunity to find a scapegoat or to justify firing someone as that will alter the results. Separate the 56
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THOM MEAD people from the process. If the process is flawed fix it. If the people do not have the skills required to succeed, find new ones. You cannot make a cat a dog. Sometimes too, it is the sales management that is the problem, not the salespeople. 5. Don’t manage by intimidation. If the sales team and the supporting cast always say yes to your ideas, then you have a weak team, or your reputation precedes you. In the case of the latter, look in the mirror when a deal turns bad. Learn to lead, not dictate. Respect those who challenge you. They will learn from your leadership and you might see a different perspective that could result in a better deal. 6. Know your value in the deal and be sure it is clearly articulated and differentiated. BUT, be sure the value you are offering is the value the prospect is seeking. If the prospect expects it to be already included as table stakes, then your value add has been reduced to a commodity. What the true value is that the client is seeking may not be articulated in any bid discovery documents. Can you quantify the value you are going to deliver? Can you promise it? Will you guarantee it in a shared risk, shared reward model? If you do not know and are guessing what the client really needs and wants, you likely will not win. But if you do, you may fail to deliver to their expectations as you may not know why they really chose you. 7. Selling outsourcing is closer to M&A than it is the sale of hardware, software or services. It is not about winning as much as it is about getting a good deal structured. You are competing with the other vendors…not the prospect. Nor are you competing against the third party advisor if one is working the deal.
For the buyer, beating down the vendor on price to the point where they have insufficient margin is a self fulfilling prophecy for missed expectations. Do you really want a vendor who is struggling because they are strained to serve you? Do you want their “B” team working your account? Do you want them to bring you innovative ideas to cut cost and increase revenue? Then be sure the proper financial incentives are in place to allow them to earn their margin if they in fact meet or exceed your expectations. Sales is as much about making good decisions as it is about closing deals. Don’t be star struck by every great logo or the revenue potential it represents. Stick to your principles, objectively qualify your deals, and be prepared to walk. Your win ratio will improve, as will your profitability, and you likely will win good deals worth keeping. Sometimes, “NO” is the right answer. ABOUT THE AUTHOR
Thom Mead is VP of Marketing, Alliances & Channels – North America for Firstsource, a leading global provider of BPO solutions for the Banking, Financial Services, Insurance, Healthcare, Telecommunications & Media, industries. With nearly 30,000 employees across more than 45 delivery centers around the world, Firstsource delivers both onshore (70%) and offshore (30%) solutions for its clients. Prior to Firstsource, Thom was CMO for EXLservice, SVP - Sales for Spherion, VP of Sales and Marketing for Unisys Outsourcing and VP of Global Marketing for ACS where he also served as president for an ACS BPO subsidiary. Thom has been a key figure in structuring and closing more than $17B of outsourcing transactions in his career. Thom can be reached at: 770-769-7795; firstname.lastname@example.org; www.linkedin.com/pub/thom-mead/0/224/a98
STATE OF THE CLOUD
STATE OF THE CLOUD 2011 By Timothy Chou With So Much Happening in the Cloud, We Need to Take A Look Today everybody is talking about cloud computing, but what is it? Hopefully when you finish reading this youâ€™ll be able to explain it to your Facebook friends, or maybe even give a lecture to your IT staff. Letâ€™s begin by observing everyone is using consumer application cloud services. Whether this is Netflix, Google, Twitter, Baidu or your favorite online banking application weâ€™re all using consumer application cloud services. What you may not realize is that ever business application software company who has IPOed in the past ten-plus years is delivering business application cloud services. A subset of these business application cloud service companies and the year they IPOed include Concur (1999), Webex (2000), Kintera (2003), Salesforce.com (2004), RightNow Technologies (2004), WebSideStory (2004), Kenexa (2005), Taleo (2005), DealerTrack (2005), Vocus (2005), Omniture (2006), Constant Contact (2007), SuccessFactors (2007), NetSuite (2007), and OpenTable (2009). 2011 saw both Successfactors and RightNow Technologies purchased by SAP and Oracle respectively. All of these consumer and business application cloud services use the original cloud â€“ the network cloud service. In fact, the word â€œcloudâ€? comes from the fact that many years ago those of 58
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us who built and sold client server applications, used to draw a picture with the PC connected to a network and the network connected to a server. Since none of us actually understood how the network worked, we drew a cloud and labeled it â€œnetworkâ€? and left it at that. In those days companies built their own networks, but today consumers and businesses use network cloud services delivered by companies like AT&T, Verizon, Centurylink, Bell and Singtel. Since the network cloud service providers had to build buildings that had high-quality power and were physically secure, it made sense for them to begin to offer data center cloud services for these emerging consumer application cloud services. In the early days it made more sense for
STATE OF THE CLOUD
Google to use Savvis to provide data center cloud services. Today, companies like Twitter, Facebook and OpenTable continue to rely on data center services provided by companies like Savvis, NTT, Terremark, and others. 2010 saw Savvis being aquired by Centurylink and Terremark being aquired by another network cloud service provider, Verizon. Of course, anyone who becomes a student of the cost of computing comes to realize that the cost of power is a big driver. As a result, anyone who needs space for 100,000+ computers (e.g., Google, Amazon, Microsoft) is building data centers located near low-cost and reliable power. What has ignited cloud computing is the advent of compute & storage cloud services. You should
realize, that while there is a lot of technology underneath the covers, the true innovation here has been a new business model. While pioneered by Amazon, compute & storage cloud services are now available from an ever-increasing number of players including Microsoft, EMC, Terremark, Rackspace, Joyent, Layered Technologies and many many others. Of course compute & storage cloud services are being used by startups, which all hope to be the next Groupon. One example is the Gilt Groupe, which auctions high-end fashions and in a few years grew to an over $300M business, running their application on a compute & storage cloud service. Another example is Pathwork Diagnostics, who uses 1000+ computers to run machinelearning algorithms for a few months to produce better tumor diagnostics, then turn the computers off. We are only at the beginning of what’s possible. In 2010, $3,000 will buy a single computer for more than three years running in a high-quality data center 24x7, which is good. But $3,000 will also buy 10,000 computers for 30 minutes. No one has ever had that capability before. Both economics and a new generation of programmers drove the rise of client-server computing. The same thing is beginning to happen in cloud computing as well. A new generation of software development cloud services is arriving that is allowing the next generation of programmers to build more complex applications, in less time, with less money. Whether these are horizontal development environments like Microsoft’s Azure or Google’s AppEngine, or vertical development environments like Salesforce’s force.com or Netsuite’s SuiteCloud, all are providing environments which blend software development with the operational challenges of managing the security, availability www.globalizationtoday.com
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STATE OF THE CLOUD
and performance of the application. Which brings us to the last major category – operations management cloud services. Whether you’re managing a traditional ERP or home grown application your IT staff is managing the security, availability, performance, problems and changes to those applications. Traditionally you bought the software (e.g., spam filtering), installed and managed it – today a whole new generation of operations management software is being delivered as a cloud service. This includes change management cloud services from Numara, security management from Trend Micro, McAfee or CA Technologies and performance management cloud services from Rackspace. So what is the state of the cloud in corporations? Eighteen months ago I was invited to speak to the CIOs of the 40 largest companies in the world. I took the opportunity to run a small survey and asked the CEOs of Taleo, Salesforce, Concur, Vocus, RightNow and Netsuite, which of these companies were their customers. Bottom line 38 out of 40 were running one or more of these application cloud
services. As 2011 draws to a close I asked the CIOs of 4 companies both large ($14B semiconductor and a $20B consumer products company) and small ($150M semiconductor and $200M computer hardware company) what the state of their usage of the various cloud services. Together they were using over 75 business application cloud services, which indicates how again the widespread usage of these solutions. Similarly, as you might expect there was only experimentation in software development, operations management and compute & storage cloud services, all indicative of the current state of the market. We are clearly in the early stages of the next major shift in computing post client-server. Led by business applications we’re well on our way. ABOUT THE AUTHOR
Timothy has been a visible pioneer in evangelizing this major shift in computing. He has appeared in various publications including Forbes, Business Week, The Economist, and New York Times as well as on CNBC and NPR. He has also been a keynote speaker for business, technology and CIO audiences in North America, South America, Asia and Europe. Timothy holds a B.S. in Electrical Engineering from North Carolina State University and a Masters and Ph.D. in Electrical Engineering from the University of Illinois. He served as a member of the board of directors of Embarcadero Technologies (NASDAQ:EMBT) from 2000 until 2007. In 2007 he joined the board of directors at Blackbaud (NASDAQ: BLKB) and currently serves on the compensation committee. www.cloudbook.net/timothy-chou
DEVELOPING A MOBILE LEARNING STRATEGY By Kevin Young With the mobile market expanding rapidly and the popularity of new mobile devices such as tablets and e-Readers increasing, mobile learning is now fast becoming a consideration for employee education. Here, Kevin Young, General Manager, SkillSoft EMEA, outlines his five top tips for 2. What problem are you trying to solve? organisations looking to develop a mobile learning strategy. Mobile is still only a component of an overall learning strategy. You need to give thought to where it is most appropriately applied. One way 1. What does â€˜mobileâ€™ mean? to approach this is to think about the audiences When planning your â€˜mobileâ€™ strategy, be sure to that are most dependent on mobile devices, such keep your thinking broad enough to include a as sales people, executives and field technicians. number of devices that can support your learning Many companies provide formal training when objectives. A laptop is an ideal platform for most a new employee starts, but the actual moment of kinds of e-learning, and many employees carry need may not arise for months or even longer. So them wherever they go. Increasingly, laptops are being able to deliver short refreshers or job aids equipped with wireless capabilities and unlimited via a smartphone can be very helpful to fielddata plans enabling fast broadband connectivity based employees. Reminders can also be delivered from anywhere with a mobile signal. Most iPods to employees via the text and SMS functionality (and other MP3/MP4 players) donâ€™t have the to keep them on track when theyâ€™re involved in interactivity of smartphones, but are capable of a longer term effort. Further to that, data can be receiving audio and video programmes that learners collected through mobile surveys to understand can consume at their convenience. e-Readers offer what situations employees are encountering in the an attractive form factor for learning content, but course of their jobs and where skills gaps exist. like the MP3 players, arenâ€™t designed for extensive interactivity. Most support PDF, Word and other 3. What devices will you support? file formats, which can be useful for reading and studying primarily text-based learning resources. While we have been seeing signs that the mobile Find out what devices employees use and adapt space is maturing, we are still not living in a world where standards prevail. Form factors, operating your training accordingly. 62
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MOBILE LEARNING ‘always on’ and therefore supply smartphones to virtually all employees. Others restrict phones to those audiences who are deemed to have the greatest need. Because not all learners will have access to mobile devices or the desire to use them for learning, it is important to ensure any assets you want to use for mobile learning will also be available through whatever systems your learners normally use to access training. 5. How does it fit into your existing learning strategy and ecosystem? systems and limitations of various phones and tablets make it difficult or impossible to ‘build once’ and then deliver too many devices. Common file formats that your company may be using for your general e-learning simply will not work on one or more popular mobile devices. To a large extent, many companies are making their decision on what devices to support based on the success of those devices in the marketplace. Nobody wants to make a major investment in building content for one platform only to see that device fade from use. This also has to be balanced with the capabilities and constraints of these various devices. 4. Do you have the necessary organisational support? Your mobile learning strategy needs to be aligned with overall organisational strategy, with the IT department involved throughout. Your IT department may have already arrived at a conclusion about what devices it will and will not support. Communicate with them and understand what the dynamics are in your organisation around providing mobile devices to employees. Some companies want their employees to be
Mobile learning presents an opportunity to improve employee performance, productivity and engagement, but it isn’t right for every need. To be successful you need to have an understanding of how m-learning fits within a broader framework and this will be driven by the maturity of your learning programme and systems, your goals and your workforce. ABOUT THE AUTHOR
Kevin Young has 20 years experience in the IT industry, 14 of which have been in the technology-based training sector. Before joining SkillSoft, Young headed up CBT Systems UK operations, managing a team of more than 40. Between 1990 and 1998 Young held a series of sales/senior management positions with NETg International. He established the UK Strategic Account Group in 1995 and was directly involved in signing the largest-ever UK technology-based training agreement, valued at $10 million over five years. From 1997 to 1998 Young was based in Australia, tasked with setting up NETg’s AsiaPacific/Japanese operations. With a small team he grew the revenue base significantly, through the effective application of a direct and channelbased sales operation. Kevin has a BSc (Hons) in plant biology and geography from Newcastle University and was an associate member of the Institute of Personnel Management.
WHATâ€™S HAPPENING AT THE IAOP
WELCOME NEW IAOP MEMBERS
MEMBERSHIP AND CHAPTERS
IAOP is pleased to welcome new and renewing corporate and professional members from: Accenture; Ace; AFLAC; Assyst Inc.; Avanade, Inc.; Barrack Consulting; Birlasoft; Bleum; Blue Shield of CA; Booz Allen Hamilton; Boston Scientific; BristolMyers Squibb; Canadian Broadcasting Corporation; Capgemini; Cassidy Turley; Centro Media; Ci&T; Cienet International; CIGNA; COMNet Group Inc; Compass Group; ConductIT; Copenhagen Business School; CSC; Deloitte; Digital Divide Data; Eurest Services; f13consulting limited; Fasken Martineau DuMoulin LLP; Fifth Third Bank; Fiserv; Genpact; GlaxoSmithKline; Global Minset; Global Targeting; Herlaar; Hewlett Packard; Humana Inc.; Infosys; Interlink; KPMG; Kraft Foods; Macquarie Capital; McKesson Corp.; MetLife; Microsoft; MULTIENLACE SAS; Mylan, Inc.; Nebula; Neo Group; Nike Inc.; NiSource; Nordea Bank; Oracle; Orange Business Services; PCCW; Pfizer; Prudential; PwC; Quint Wellington Redwood; ResourcePro; Royal Bank of Canada; SAP; SolCon Partners; Sonata Software; Swiss Re Insurance Company Ltd; TCS; TEAM International; The Guardian Life Insurance; The Xpert; TMF-Group; TPI; TransUnion Interactive; UBS; Universal Music Group; University of Toronto; USAA; Walgreens; Wells Fargo; Whirlpool; WinskySoft; Wipro Technologies; WNS Global Services; Xchanging; Yahoo!; and Zurich Insurance For information on IAOP membership, email email@example.com.
CONFERENCES & EVENTS THE 2012 OUTSOURCING WORLD SUMMITÂŽ Februa ary 20-22, 2012 | Disneyâ€™s Conte emporary Resort, Lake Bue ena Vista, Florida Register by January 31, 2012 at www. IAOP.org/Summit to get a $50 Disney Resort Gift Card! 64
Today December 2011 - January 2012
WHAT’S HAPPENING AT THE IAOP MEMBERSHIP
Membership in IAOP provides access to an extensive array of services, and just as importantly distinguishes organizations and professionals as leaders in the field of outsourcing. IAOP membership demonstrates a commitment to innovative thinking, continuous performance improvement, and to the sustaining development of outsourcing as both an industry and as a profession.
IAOP membership provides access to a wide range of services designed to help you and your organization improve outsourcing outcomes. Many of these services are included as part of IAOP’s Professional or Corporate Membership, with discounts available for use beyond the level provided. Some services are also available individually at non-member rates.
CUSTOMER CORPORATE MEMBERSHIP
Organizations that are currently outsourcing or are considering one or more outsourcing initiatives should become Customer Corporate Members of IAOP. This membership provides organization-wide access to the association’s research, training, certification, and networking programs - all designed to help companies achieve better business results through outsourcing. PROVIDER/ADVISOR CORPORATE MEMBERSHIP
Outsourcing service providers and advisory firms should join IAOP as Provider/Advisor Corporate Members. This membership provides the same organization-wide access to IAOP’s research, training, certification, and networking programs as Customer Corporate Membership, but also includes member-only sponsorship opportunities that serve the marketing and business development needs of these companies. PROFESSIONAL MEMBERSHIP
Professional Membership is available to individuals either as part of their company’s corporate membership or on an individual basis. This membership serves the needs of practitioners working in the field of outsourcing whether as customers, providers, or advisors. In addition, it provides these professionals with direct, personal access to association services. For information on IAOP membership, e-mail firstname.lastname@example.org.
t Globalization Today - The official publication of IAOP creates the largest and best informational publication on outsourcing by uniting and tapping the collective intellect of individuals from around the world. IAOP Members receive a free subscription plus the opportunity to get published, promote products/services and advertise. tIAOP’s Knowledge Center - This online repository houses more than 1,000 articles, including chapter meeting presentations, conference proceedings, industry whitepapers, research articles and more. tGlobal Chapter Network - Through its active and expansive chapter network, IAOP members can share their expertise and find knowledge on best practices for specific industry segments, topics and geographic areas within outsourcing. tConferences & Events - IAOP hosts the world’s best-known and most highly-respected executive conferences on the topic of outsourcing, including The Outsourcing World Summit®. tOutsourcing Professional Certification Frameworks (OPCF) - IAOP’s trainings and certifications are the industry’s de facto. Members receive substantial discounts. tValue Health Check Survey - This web-based diagnostic tool provides outsourcing customers and service providers with rapid insights to realizing outsourcing value. tBestOutsourcingJobs.com - Companies seeking the best talent for outsourcing jobs, as well as professionals looking for employment opportunities, will benefit from this IAOP member service. For more detailed information on each of these member services, visit www.IAOP.org/MemberServices.
Outsourcing Beyond the Horizon: Turning Today’s Opportunities into Tomorrow’s Successes. The financial and economic crisis has reshaped and transformed the outsourcing industry. It has also created never-beforeseen opportunities. The 2012 Summit addresses how to capitalize on these opportunities to maximize success at your organization:
CALENDAR OF EVENTS
IAOP CHAPTER MEETINGS t
UK CHAPTER MEETING ON “TWENTY THINGS SUPPLIERS WOULD TELL YOU IF THEY COULD” AND “CLOUDS AND COMPETING SHORES: THE CHANGING LANDSCAPES OF OUTSOURCING & OFFSHORING”
ENGINEERING CHAPTER WEBINAR ON “BUILDING AND LEADING A VIRTUAL TEAM”
MINNESOTA INAUGURAL CHAPTER MEETING
SALES & MARKETING CHAPTER WEBINAR
NORDIC CHAPTER MEETING
CHICAGO AND GLOBAL HUMAN CAPITAL JOINT CHAPTER MEETING ON “MAXIMIZING THE VALUE OF YOUR OUTSOURCING RELATIONSHIPS - THE TOP TEN THINGS THAT COMPANIES SHOULD DO TO MAXIMIZE OUTSOURCING RELATIONSHIPS”
Go to www.IAOP.org/chapters for more information and to register.
WHATâ€™S HAPPENING AT THE IAOP tLearn what the latest innovations are and CORPORATE & PROFESSIONAL how to implement them DEVELOPMENT tHear industry best practices and lessons COP MASTER CLASS & learned from leading practitioners and GOVERNANCE WORKSHOP visionaries SCHEDULE tStay current on the latest outsourcing tools The COP Master Class is a great option and technologies, including the cloud for earning up to half (75 points) of the tMeet and evaluate vendors in the Global Knowledge and Training points needed for Services Mall (or showcase your company COP certification, and fully completes the required training for the aCOP designation. as an exhibitor!) Completing the one day Governance tNetwork with 700+ outsourcing Workshop is worth another 15 COP professionals from around the globe Certification points. Youâ€™ll also get access to The Summit tJANUARY 17-19, 2012: MAASTRACHT, THE HUB â€” a networking site just for Summit NETHERLANDS. delegates. Open to all registered delegates, t*Limited Seating - Register Today. this is the place to meet other delegates, tFEBRUARY 22-24, 2012: HONG KONG, get current information about sessions, CHINA. Email Winnie Chow at winniechow@ networking, special events, and more. You hbc.hk. will be able to customize your agenda, arrange tMARCH 26-29, 2012: RIZZO EXECUTIVE meetings with delegates, sponsors, exhibitors, CENTER, CHAPEL HILL, NC. and keep your calendar â€“ all in one place! tJUNE 25-28, 2012: KINGBRIDGE Want to attend The Summit Free? CONFERENCE CENTER, TORONTO, CANADA Become a Corporate Member and receive two full-access passes to the Summit. In Register now for any North American addition, receive organization-wide access to COP Master Class Bundle offers and save IAOPâ€™s research, training, certification and $750 off the original price! Bundles include 3-day COP Master Class, 1-day Governance networking programs. Workshop and Online COP Exam Prep. Provider/Advisor Corporate Members also receive complimentary exhibit space. For Please visit www.IAOP.org/training_ more information, email Renee Preston at calendar for a full list of classes, current discounts and specials. email@example.com. CORPORATE MEMBERS Our in-house training calendar is filling up fast with companies who have seen the value of holding a private COP Master Class 66
Today December 2011 - January 2012
WHAT’S HAPPENING AT THE IAOP for their employees. Don’t get left behindbook your company training today! “The COP program was selected due to its global recognition and application across all of our outsourcing practices,” says Rolf Kleiner, Senior Vice President, KellyOCG. “This will help reinforce thought leadership, credibility and our knowledge of the outsourcing marketplace.” Ask your account executive about private, on site COP Master Class training & certification for your teams of ten or more. Customers, providers or advisors who are not corporate members may email sales@ iaop.org for more information. To see what companies have embraced IAOP training and certifications please email firstname.lastname@example.org. 10-QUESTION QUIZ: AND FIND OUT IF YOU HAVE WHAT IT TAKES TO BECOME CERTIFIED Are you prepared to successfully manage outsourcing initiatives? Do you have the knowledge and experience needed to join the industry’s most elite Certified Outsourcing Professionals? Begin your journey to earning one of IAOP’s most distinguished designations by testing your outsourcing professional skills with IAOP’s 10 question quiz at www.IAOP.org/Quiz. Once you have completed the quiz email it to email@example.com for your results. Those who submit the quiz will receive a complimentary electronic sample of the Outsourcing Professional Body of Knowledge (OPBOK) from IAOP partner Van Haren Publishing.
IAOP LAUNCHES ADVANCED CERTIFICATIONS The new Certified Outsourcing Professional in Outsourcing Governance (COP-GOV) lets professionals validate their expertise in this specialized area to employers and the industry. The new certification shows advanced skills and experience beyond the Certified Outsourcing Professional® (COP) designation that demonstrates that professionals have the knowledge and experience to design, implement and manage outsourcing relationships. The association also added a new training program to help individuals obtain the new Certified Outsourcing Professional in Business Development (COP-BD) designation, which requires that professional complete the new Service Provider Business Development Workshop online. The COP-BD designation demonstrates a professional has specialized knowledge of and experience in business development, marketing, sales, account management, relationship management and service delivery/execution. IAOP EXPANDS CERTIFIED OUTSOURCING SPECIALIST FAMILY IAOP’s Certified Outsourcing Specialist™ (COS) family of certifications will now include the newly launched COSFoundation Principles certification, which is supported by APMG-International’s qualifying training program, Sourcing Governance Foundation, and its testing services. Certifications within the COS
WHATâ€™S HAPPENING AT THE IAOP family, including COS-FP, are standardized Providers or Client courses introduce candidate evaluation procedures for the participants to the concepts, terminology and structure of the model components. outsourcing industry. Participants will gain an understanding of For more information please contact the value of the model for service providers copprogramservices@IAOP.org. and clients and identify major characteristics NEW TRAININGS ADDED TO COURSE of service providers at different capability levels. CATALOG Participants who successfully complete Service Provider Business Development either training will be accredited with Workshop 25 points toward COP certification and IAOP is launching a new Service Provider 15 hours toward recertification. These Business Development Workshop that will and other pre-accredited courses and cover the skills and knowledge providers conferences, both from IAOP and other of all sizes need to deal with complex outsourcing industry sources, may be found and rapidly changing market realities in IAOPâ€™s online Outsourcing Professional and challenges. An online version of the Course Catalog. An extensive mapping of training will be launched immediately, and the eSCM Capability Model can also be instructor-led onsite training will also be found in the Outsourcing Professionals available on request. Successful completion Book of Knowledge (OPBOK). of the workshop is pre-accredited in the Outsourcing Professional course catalog For more information please contact for 15 COP points and 6 hours toward copprogramservices@IAOP.org. recertification. The workshop will cover such areas as THE COP DIRECTORY IS YOUR developing and maintaining a competitive GUIDE TO THE MOST QUALIFIED advantage and attractive value propositions; OUTSOURCING PROFESSIONALS! dealing with growing competition from Want to see who the COPs are in your companies in developing countries; rising company? Looking to work with the protectionism in developed countries; industryâ€™s most elite professionals? Head developing integrated global marketing, on over to the NEW COP Directory where sales and service delivery; and operational you can search by Name, Country and strategies to support the demands of Company! For current COPs this is a great multinational customers and others. way to keep your information up to date at eSCM-CL and eSCM-SP Courses all times. Just login to your MY IAOP and IAOP has completed the accreditation of the enter your updated information into your eSCM-CL and eSCM-SP three day model Member Profile. It will automatically update courses developed and delivered by ITSqc, in the directory. Check out the new COP The eSourcing Capability Model for Service Directory: www.IAOP.org/COPDirectory; 68
Today December 2011 - January 2012
WHAT’S HAPPENING AT THE IAOP PROFESSIONAL DEVELOPMENT RESOURCES AVAILABLE No matter what industry you are in, IAOP has resources available for all outsourcing professionals. For the latest titles from IAOP, ITSqc and others please visit www. iaopbookshop.com, and get 15% off of any title you order. Also new from IAOP are titles from the American Bar Association found at the IAOP/ABA Legal Bookstore (www.ababooks.org/affiliate/iaop). For more information on any of IAOP’s programs and services, email info@iaop. org. IAOP RELEASES TOP OUTSOURCING TRENDS TO WATCH FOR IN 2012 The New Year will bring new business realities, delivery models, destinations and technologies to the outsourcing industry, according to the fifth annual trend predictions released today by the International Association of Outsourcing Professionals® (IAOP®). While the uncertain economy and the elections will impact the industry, the winners will be: locations in the U.S. and near shore as well as the BRIC countries; collaborative delivery models; and companies using converging technologies, IAOP’s thought leaders say. Here are the top trends to watch for: tSourcing Close to Home: Higher unemployment, economically blighted urban areas and local government incentives will drive more companies to look to stay on shore, especially in the U.S. Nearshoring, rural sourcing and domestic
sourcing will be on the rise. tBRIC Surge: Look for the BRIC countries - Brazil, Russia, India and China – to surge as outsourcing destinations in the coming year. Hosting both the 2012 World Cup and the Olympics will bring tremendous visibility to Brazil, making it a strong Latin America country in the coming year. t Collaborative and Strategic: Models where customers and service providers work collaboratively to develop performance-based partnership will be increasingly used by companies. Customers will move outsourcing out of the back-office and into more customerfacing processes and more strategic opportunities. t M&As: Expect to see more consolidation as providers struggle with tight access to capital and to meet growth expectations given the uncertain economic and political situation worldwide. t Technology Convergence: The convergence of social networking, collaboration and mobility platforms will create a significant demand for valueadded outsourcing services. Companies will increase their emphasis on social media to source talent globally, position their products and services, and collect intelligence around their end users that goes significantly beyond SEO. t Cloud Concerns: As cloud computing solutions continue to proliferate worldwide, customers and suppliers will continue to struggle to comply with increased government regulations, the real risks of cyber-security and threats of eco-terrorrism. www.globalizationtoday.com
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Today December 2011 - January 2012
COP vs. aCOP – Which One is For You? Whether your goal is to arm yourself with the skills and tools necessary to begin improving your outsourcing outcomes immediately or become an Associate Certified Outsourcing Professional (aCOP) or Certified Outsourcing Professional (COP), IAOP offers the de facto training to get you to your goal - the COP Master Class. The COP Master Class is an integral part of the Certified Outsourcing Professional (COP) family program. It provides outsourcing professionals — whether they work as customers, providers or advisors — with an intensive learning experience on the stateof-the-art, end-to-end process for outsourcing success. Individuals who complete the course will not only earn 75 points toward their COP designation, but also will immediately be able to improve outsourcing outcomes at the organizations with which they work. The COP Master Class, either live or online, is required training for the new aCOP certification. The class is organized with four teaching components — core content, group discussions and activities, expert insight, and applying content, and is designed to engage course participants and connect with three primary learning preferences: auditory, visual, and kinesthetic. The COP Master Class curriculum is composed of the 10 standard categories, 54 specific standards, and 106 elements of the standards.
IAOP 2012 COP Master Class Schedule: January 17-19, 2012 − Maastricht, The Netherlands: COP Master Class February 22-24, 2012 – Hong Kong, China: COP Master Class March 26-29, 2012 – Chapel Hill, NC, USA: COP Master Class (includes Governance Workshop) March 29, 2012 − Chapel Hill, NC, USA: Governance Workshop June 25-28, 2012 – Toronto, Canada: COP Master Class (includes Governance Workshop) June 28, 2012 – Toronto, Canada: Governance Workshop For information on participating in one or more of these classes, please visit IAOP’s training calendar here: www.IAOP.org/training_calendar.
REGISTER between 1/1 and 1/31 and get a $50 Disney Resort Gift Card!*
Scan tag for more information about The Summit.
Discuss. Network. Learn. Outsourcing Beyond the Horizon: Turning Today’s Opportunities into Tomorrow’s Successes Register for The 2012 Outsourcing World Summit at www.IAOP.org/OWS2012 between January 1, 2012 and January 31, 2012 and get a $50 Disney Resort Gift Card. *With regular rate registrations from 1/1-1/31 only. May not be combined with other discounts or offers. Promotional item is non-transferable and will be distributed on site.
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Published on Jan 4, 2013