GT_October_2010 by Ali Comelek

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GlobalizationToday

The Official Magazine of the International Association of Outsourcing Professionals

GlobalizationToday October 2010

New Research Reveals

Commerce Redefined

Cracks in Chinaâ&#x20AC;&#x2122;s Armor? Are great wages and workforce enough to overcome the perceived negatives? (page 20)

Cut Costs, Gain Contracts (page 29)

Top Buying Factors Revealed

Lessons from transaction-cost economics applied to outsourcing (page 34)

INSIDE October 2010

7 PUBLISHER’S NOTE 8 NEWS FEED

What’s new and noteworthy in global commerce

15 BLOG BEAT

Outsourcing news and commentary from the blogosphere

29 STRENGTHENING GLOBAL HOLD

The most important buying factors when clients outsource business consulting, knowledge process, and analytics services, revealed

34 OLIVER’S TWIST

Outsourcing professionals learn 10 key lessons from Dr. Oliver Williamson’s Nobel Prize-winning transaction-cost economics to create more effective business contracts

42 WORLD DOMINATION

The IAOP widens its reach with new regional advisory boards

50 SCRAPBOOK

Snapshots of recent IAOP chapter meetings around the world

CHINA’S CHIPS IN THE ARMOR

Are great wages and workforce enough to overcome the negatives?

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Pillsbury is ranked as one of the “World’s Best Outsourcing Advisors.” (2010 IAOP)

Strategy. Vendor selection. Negotiation. Implementation. Workouts.

Success.

Pillsbury Global Sourcing offers integrated consulting and legal services under one roof that are pioneering and proven by more than two decades of landmark work. We have advised on thousands of outsourcing transactions worth more than half a trillion dollars for our clients, including many of the Fortune Global 100. To learn more about how we can help guide your company through every stage of complex, cross-border outsourcing projects, visit us at www.pillsburylaw.com.

Pillsbury Winthrop Shaw Pittman LLP | 2300 N Street, NW | Washington, DC | 888.663.9300 Houston • London • Los Angeles • New York • Northern Virginia • Orange County • Sacramento • San Diego San Diego North County • San Francisco • Shanghai • Silicon Valley • Tokyo • Washington, DC

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FOUNDER & PUBLISHER Ali Comelek ali.comelek@globalizationtoday.com CO-FOUNDER Larry Genkin lgenkin777@gmail.com

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Get listed in the Globalization Today Buyer’s Guide All Globalization Today subscribers have complete access to our Buyer`s Guide that allows them to quickly find and purchase outsourcing and offshoring-related products and services. Globalization Today offers a free basic listing to providers in the following categories: • Information Technology • Internet & Web • Consulting • Business Process • Human Resources • Art & Design • Medical & Billing • Printing & Publishing • Writing & Editing • Engineering & Architecture • Finance • Virtual Assistantship

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EDITORIAL ADVISORY BOARD Dr. Bruce Greenwald Prof. Asset Management and Finance Columbia Business School Dr. Matt Waller Prof. Marketing and Logistics University of Arkansas Dr. John Hindle Sr. Manager - Accenture, Adjunct Prof Vanderbilt University Mike Corbett Chairman - International Association of Outsourcing Professionals Matt Shocklee CEO & President - Global Sourcing Optimization Services Arijit Sengupta CEO of BeyondCore, Inc Chair of the Cloud Computing Chapter of IAOP

Address: 6501 E. Greenway Pkwy., Ste 103-494 Scottsdale, AZ, 85254, USA Phone: 1-602-494-4194

PUBLISHER’S NOTE

China no longer remains renowned only for having the biggest population in the world. It has, through the years, opened its doors to embrace globalization little by little. Getting to its present booming economic state didn’t happen overnight, of course. It took decades of advancements—not to mention a readiness to face change while staying loyal to their culture—to put the nation where it is now. As China escalates to becoming a favorite outsourcing destination of industry practitioners, Globalization Today’s proprietary research examines the region’s strong and weak points on page 20. We encourage you to support our radical approach to journalism, which allows you to publish your thoughts on matters affecting outsourcing today. After all, we believe that our articles should be written by experts—professionals immersed in the industry—who can best communicate the language of outsourcing to their colleagues. All you have to do is visit www. globalizationtoday.com and click on Become an Editorial Contributor so you can start submitting your stories right away.

Hard work deserves a reward. This issue, Globalization Today gives recognition to those unheard of before. First off, we turn our heads to a genius who has dedicated his time to the study of transaction-cost economics. Little of his research has been published, putting his identity to unfamiliarity. The professor’s labor didn’t remain unappreciated for long, though. While his name may not be as famous as that of Adam Smith or Karl Marx, his work is surely something these historical greats will take pride in. In 2009, he became the recipient of the prestigious Nobel Prize in Economic Sciences. Not only that; the academic’s award-winning study crossed the boundaries of economics, proving beneficial to another field— outsourcing. Kate Vitasek, Karl Manrodt, Ph.D., Richard Wilding, Ph.D., and Tim Cummins examine the 10 key lessons of transactioncost economics and apply them to outsourcing, in order to establish cost-efficient business contracts that benefit both parties involved. Itching to know who this genius is? Find out on page 34.

By sending us news, columns, analyses, or interviews relevant to our field, we give you the perfect opportunity to be Thought Leaders. The best content will be featured in our monthly printed edition, which allots a Resource Box that lets you, the author, share information about your company and the services you offer, as well as your professional experience. And as we said earlier, hard work deserves a reward. We know that you put your best effort in every endeavor you engage in, so we’d like to assure you that all of your submissions will be published online. The greatest reward we can get is knowing that we enrich your minds in giving you the latest. So enjoy this issue, dear readers.

Founder and publisher

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PUBLISHER’S NOTE

Founder and publisher

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NEWS FEED

NEWS Feed

WHAT YOU NEED TO KNOW IN THE WORLD OF OUTSOURCING KENYAN BANKS SET TO BENEFIT FROM CARD PROCESS OUTSOURCING DEAL www.globalservicesmedia.com

Kenyan banks are set to benefit from a credit card outsourcing partnership from Universal Payment Services (UPS), a global transaction service provider of payment card services in the Middle East

and Africa. The banks stand to benefit from a full spectrum of smart card solutions for their customers through third-party card-sourcing by UPS, allowing them

to concentrate on their core business of taking deposits and providing loans and ultimately cut down costs considerably on human capital, hardware, and software. Through UPS, banks will now have the choice between the Visa or MasterCard International cards accepted globally, plus a host of other card solutions. In Kenya, only Paynet has successfully completed EMV (Chip) Acquiring certification for its outsourced Visa customer banks that acquire ATM transactions and for its group-owned ATM network, PesaPoint. UPS will install cardpersonalization centers certified with both Visa and MasterCard to produce debit and credit cards and a certified call-center facility to attend to card-customer queries.

COLOMBIA BECOMES HAVEN OF STABILITY, CLIENT GRIEVANCES AND BRAZIL BLAST www.nearshoreamericas.com

Much of the new BPO investment is targeted toward Bogota, but Medellin and other cities are also seeing growth. Several sources confirmed during the Gartner conference that Genpact and Sutherland, a mid-tier global BPO operator, will soon be announcing plans to set up delivery centers in Colombia. Genpact has been one of the most active providers in the region over the last few years and the firm’s wheels seem to be turning even faster this year. Its Guatemala City presence is in the process of expanding, and the move into Colombia—mentioned as a possibility by Guatemala Country

GlobalizationToday October 2010

Manager Nitin Bhat during a Nearshore Americas interview in July—seems to

reflect careful consideration of how to service both domestic and international clients. Genpact also maintains facilities in Mexican cities Juarez and Caborca. The recent news that HP will locate a Global Service Center in Medellin was just one of a series of indications that the country is also on the map of tier-one players. No reports indicate that Genpact will scale back or close the Juarez facility—smack on the USMexican border and virtually ground zero in the Mexican government’s battle to quell narco-violence—or the Caborca facility, which is about 100 mi south of the boundary with Arizona.

NEWS FEED

ACCENTURE’S SKILLS TO SUCCEED TO EMPLOY 250,000 BY 2015 www.accenture.com

As part of its corporate citizenship commitment to include more than $100 million over three years, Accenture announced that by 2015, it will equip 250,000 people around the world with the skills to get a job or build a business. This goal underscores Accenture’s commitment to its corporate citizenship initiative Skills to Succeed, which, through teaming with strategic partners, educates people around the world, building skills that enable them

to participate in and contribute to the economy and society. Additionally, Accenture and the Accenture Foundations will contribute more than $100 million over three years in global and local giving, as well as pro bono contributions of time and employee skills. Accenture currently has more than 80 Skills to Succeed initiatives, which focus on building relevant skills for people in communities around the world.

US PSOS LEADING IN OUTSOURCING SOFTWARE AND IT INFRASTRUCTURE www.outsourcing-center.com

Public sector organizations are leading the way in outsourcing software applications and IT infrastructure to third-party providers, but cost savings are not always the biggest draw. The Nursing and Midwifery Council (NMC) announced that it will outsource its core applications and IT infrastructure to Business Systems Group (BSG) in a deal worth £5.2 million over five years. Elsewhere, Bridgend County Borough Council has renegotiated a deal to host

its COA Solutions e5 financial accounting system with hosting company 2e2, saving an estimated £488,000 over the course of the five-year agreement. But this was compared with the cost of the previous outsourcing contract, rather than inhouse provision. The NMC had a large outsourcing contract with EDS, which ended in 2002, but has kept applications and services in-house since then. It will move 50 servers from one of its own data centers into a BSG facility also in London,

as well as the storage area network and all the applications those servers host. It will keep a separate data center operational for disaster recovery purposes. Jolyon Ingham, interim head of ICT for NMC, said actual cost savings compared with inhouse provision were negligible—it was the attraction of moving responsibility for IT provision and disaster recovery to a third party, leaving the NMC to focus on providing core services, that won the argument.

BGE TEAMS WITH ACCENTURE AND ORACLE FOR SMART METER IMPLEMENTATION www.noa.co.uk

Baltimore Gas and Electric (BGE), a subsidiary of Constellation Energy (CEG), has teamed with Accenture (ACN) and Oracle to implement a smart-meter network for its 1.2 million customers. The planned implementation is part of BGE’s Smart Grid initiative that aims to reduce peak electricity demand, increase customer service, and enhance operational performance. Smart Grid will provide customers with detailed information regarding energy consumption and cost, and will deliver data that will enable BGE to enhance the performance of its

distribution network. Combined with BGE’s energy-efficiency and demandresponse initiatives, Smart Grid will help the state of Maryland, under EmPOWER Maryland, achieve its goal of a 15 percent reduction in total system demand by 2015. Accenture will provide systemsintegration services including the design, building, and management of a customer web portal, meter-data-management system, advanced metering infrastructure (AMI), and integration related to BGE’s customer care and billing and outage management systems.

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ONE SOURCE FOR ALL OF YOUR POSSIBILITIES Consider the possibilities that Can be aChieved with a world-Class outsourCing partner improve efficiencies by reducing capital costs associated with daily operations achieve growth by deploying advanced technology and services to enhance the customer experience and strengthen overall brand image implement latest technology and monitoring capabilities to mitigate security risks and meet compliance regulations

turn to diebold as a single point of contact for technology upgrades, risk mitigation, regulatory compliance and more to help streamline processes, improve efficiencies and strengthen your bottom line. For more information, including a new white paper that addresses the operational efficiencies that can be achieved by outsourcing, visit: www.diebold.com/outsourcingefficiency

NEWS FEED

INFOSYS BPO WINS CMO ASIA AWARDS 2010 FOR EXCELLENCE IN BRANDING & MARKETING www.outsourcing-center.com

Infosys BPO, a subsidiary of Infosys Technologies, announced that it has won the CMO Asia Awards 2010 for Excellence in Branding & Marketing from a competitive base of over 150 companies. This award recognizes organizations for their branding, client, and employee-level communication initiatives. The company has been acknowledged for excellence in driving thought leadership and for showcasing a strong relationship with analysts, media, and other key influencers. Infosys BPO continued to add value to its clients by enhancing client efficiencies, endcustomer experience, cost competitiveness, and return on investments. The company’s focus has been on helping its clients look good in front of their customers and other

stakeholders. It added new clients, opened up new delivery centers, and acquired McCamish Systems, emerging as a trusted partner. The CMO Asia Awards are awarded in

partnership with the CMO Council and hosted by the World Brand Congress. The awards are judged by an independent, highcaliber jury of professionals from across Asia.

OBAMA TO CHECK INCENTIVES TO INVEST IN OVERSEAS JOBS www.news.in.msn.com

US President Barack Obama recently underlined his determination to end tax

loopholes that encourages incentives for investment in overseas jobs, saying he will

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GlobalizationToday October 2010

provide a generous tax credit to companies that create more jobs in the domestic marketplace. Amid indication that outsourcing could become a hot issue in the November elections, Obama said that the tax breaks should go to companies that create jobs in the country and not overseas. Running behind in opinion polls, Ohio Governor Ted Strickland of the Democratic party, who was going out of his way to woo Indian companies, passed an executive order that banned outsourcing, arguing that this undermines economic development and has unacceptable business consequences. Reacting to the order, the Indian IT sector, which gets 60 percent of its export revenue from the United States, termed the move as discriminatory and said it amounts to a trade barrier. The move, which comes ahead of Obama’s visit to India in November, follows a controversial legislation that increased H-1B and L1 visa fees, hitting India’s over-$50 billion IT industry. Obama said his proposal will help small businesses upgrade their plants and equipment, plus encourage large corporations to get off the sidelines and start putting their profits to work in places like Cleveland, Toledo, and Dayton.

NEWS FEED

TCS AND SUPERVALU PARTNER FOR FULL SERVICES www.outsourcing-center.com

Tata Consultancy Services (TCS), a leading IT services, business solutions, and outsourcing firm, announced that the company had entered into a significant multi-year agreement with SUPERVALU INC. for a full services engagement. SUPERVALU is one of the largest grocery retailers in North America. The partnership with TCS is transformational in nature and will drive operational

efficiencies for the firm through the integration of IT, BPO, and infrastructure services. As part of this engagement, more than 600 SUPERVALU India associates will become part of TCS. The retail industry unit contributed 12.3 percent of the firm’s total revenues in 2009-2010 and works with leading retailers globally.

NEW HEALTH CARE LAW: THE ULTIMATE OUTSOURCING STIMULUS PACKAGE? www.nearshoreamericas.com

In what could potentially bring outsourcing projects worth $1 billion to India over the next five years, Dutch banking major ABN Amro is set to renew its contracts for managing the bank’s software applications and computer hardware systems with IBM, Tata Consultancy Services (TCS), and Infosys Technologies. The original contract signed by ABN Amro in 2005 was worth $2 billion, spread over five years, and had five vendors— IBM, Accenture, TCS, Infosys, and Patni. The bank had then aimed to save nearly $250 million every year by working with fewer vendors and consolidating its IT infrastructure. Now, having gone through several restructuring itself, including its merger with Fortis Bank

and nationalization, the bank plans to cut the vendor base further and drive the integration of different banking systems through outsourcing. According to at least three people familiar with ABN Amro’s outsourcing decision, the bank has retained IBM for managing communication networks, desktops, and computer servers and plans to reduce the number of software application outsourcing vendors to two from the current three. IBM is also working on an integration plan for ABN Amro and Fortis and aims to consolidate the IT systems by 2012, a person familiar with the process added. Officials at TCS and Infosys declined to offer any specific comments. ABN

Amro officials had not responded to an e-mail query sent by ET. In a year when top outsourcing firms are hoping that customers would revive their tech spending, this could be the beginning of a series of such renewal opportunities being pursued by almost every vendor. Outsourcing experts from research firms such as Ovum said around 500 contracts worth nearly $37.5 billion are set to expire by September this year, ranging anywhere between $1 million and $1 billion each. Among them, while China Mobile plans to adopt a total outsourcing model by giving away computer hardware and application development activities to a set of vendors, Verizon is looking to lower its operational costs by sending out some work overseas.

CSC WINS V-TRIPS CONTRACT www.outsourcing-center.com

CSC recently announced it is one of the five companies to be awarded the Volpe Transportation Information Project Support Services (V-TRIPS) indefinite delivery/quantity contract by the John A. Volpe National Transportation Systems Center, which is part of the US Department of Transportation’s Research and Innovative Technology

Administration (RITA). The five-year contract has an estimated total value of $234 million for all firms. Under the terms of the contract, CSC will compete for task orders to provide IT services, from concept development to systems development and operational support associated with the Volpe Center’s mission to deliver innovative

transportation systems. For more than a decade, CSC has supported the Volpe Center in tackling the nation’s transportation issues and initiatives.

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Cloud Computing Managed Services

Innovation Global Markets

Compliance Business Continuity

BLOG BEAT NEWS AND COMMENTARY FROM BLOGGERS AROUND THE WORLD OUTSOURCING AND SUBCONTRACTING: SAME DIFFERENCE? www.outsourcing101.wordpress.com

Since the explosion onboard Transocean’s Deepwater Horizon drilling rig in the US Gulf of Mexico on April 20, 2010, we have been witness to daily reports of the far-reaching catastrophic effects of the disaster, both environmental and economic. It seems that the immediate reaction of the three parties involved—BP, Transocean, and Halliburton—was to point the finger of blame, instead of accepting responsibility and immediately leaping into action to gain control of the situation, and, therefore, attempt to mitigate the effects of the disaster as much as possible. The presence of multiple players has raised the issue of accountability. Should BP be solely responsible? Transocean? Halliburton? Should all parties accept some of the responsibility, and if so, to what degree should each one be liable? To answer these questions, we need to understand the relationships between the three parties. Unfortunately, it has been due to a lack of understanding of these relationships that has unjustly dragged our industry’s name and its reputation through the mud during this tragedy. Shortly after the Deepwater explosion, many hailed the incident as not only an environmental disaster, but also an outsourcing one. However, outsourcing did not play any role in the equation. According to BP, its relationship with Transocean and Halliburton, which operated and maintained the offshore rig, was of a subcontractual nature, not an outsourcing one. When subcontracting, the end-user—BP in this instance—provides the details and exact specifications of the service (or product) that it needs delivered, including the quality standards, pricing, timeframe, etc. that the subcontractor needs to adhere to. These are often called input contracts because every detail is specified. It may be easier to understand subcontracting in relation to the car

industry that uses many subcontractors. For example, a body panel, say a wing, might be constructed by a subcontractor, but its specification (once agreed) will be detailed to the smallest degree because that wing not only has to fit in with the rest of the car—it also has to meet the requirements of the manufacturer’s automation systems. If the car manufacturer decides to outsource car production, then it would give the supplier a specification of what the car should look like, its performance levels and cost, relying on the supplier’s expertise to construct and fit the wing in line with the overall requirement. Meanwhile, in an outsourcing arrangement, the end-user looks to the supplier to deliver an output or outcome and is not normally concerned about how this is done exactly, provided the specified output or outcome is delivered. So there is a significant and clear distinction between outsourcing and subcontracting. Though the BP case was not even one of outsourcing, I find it frustrating that the wider public almost never hears about the numerous examples where outsourcing is positively affecting the industry. Instead, we only hear about isolated instances where it has not gone smoothly. I suspect that good news doesn’t sell. Remember, the key to any successful relationship is clearly defining and agreeing with the desired outcomes at the outset and having a clear understanding of the roles of each party. However, this is not enough. Whether a business partnership involves subcontracting or outsourcing, it is also necessary to have contingency plans in place. As we’ve seen most with BP, should the unforeseen arise as it inevitably does, an established crisis procedure should help limit the repercussions when things do go wrong, with all parties knowing their exact roles and responsibilities. This can only help to improve outsourcing partnerships and the reputation of our industry.

THE GREEN GRASS OF OUTSOURCING www.noa.co.uk

Every cloud has a silver lining. Stripping away the bureaucracy that so often blights the decision-making process will empower more companies to take a holistic view on the environmental impact they have on outsourcing. In its broader sense, outsourcing has become one of the buzzwords of 2010. Despite popular belief often perpetuated by the media, its value-added impact is a lot more than just cost-saving. Risk mitigation and reducing carbon emissions also have a key role to play. As we see the green shoots of recovery, green, which has been on the backburner for many companies, is now firmly back on the agenda. With a new government also come a new competitive landscape and a commitment to green issues. Exploring the green challenges facing the outsourcing community is increasing. And despite the turbulence surrounding any cost-cutting exercise from No. 10, David Cameron and Nick Clegg’s new coalition stance on outsourcing, it’s likely to shape Britain’s economy over the next four years. Green procurement can deliver significant benefits while addressing climate change, and for this reason, I would invite more people to look beyond the glass ceiling of conventional business practices. Reducing wastage, increasing

efficiency, and simplifying compliance all marinade well to helping companies bolster their bottom line, as well as stimulating their corporate social responsibility (CSR). I’m pleased that more companies are looking beyond the taboo and prepared to go green by offsetting their overheads in favor of something more honorable and tax-efficient. Admittedly, the government’s stance to reduce carbon emissions by 34 percent by 2020 (source: CRC EES) is certainly ambitious, but in truth, it will require nearly every company in the British Isles to engage in some form of outsourcing. Therefore, the green agenda is more important than ever. Clearly, there needs to be an additional layer of transparency thrown on the issue of green sourcing and helping to define the incentive surrounding it. Uniformity is paramount in enabling companies to make informed decisions on how to go about their business and the impact they have on the environment. Once a standard has been determined, it would serve to create a safer and greener market for more companies to engage in. Suffice to say, organizations need to explore the supply chain in greater depth. globalizationtoday.com

OpportunITy BCS, The Chartered Institute for IT. Discover how becoming a BCS member can open up the opportunities, support and training you need to succeed in IT. Visit www.bcs.org/opportunity

Knowledge

Recognition

Networking

THOUGHT LEADER

QUALITY OVER QUANTITY By Daniel Naoum

Focusing on quality rather than bigger cost savings is key in getting IT offshore outsourcing right in the long run Although businesses are once again starting to look toward outsourcing as a way of improving business efficiency while cutting costs, there is evidence that both businesses and outsourcers need to reassess the value currently being delivered. For example, recent figures from Vanson Bourne found that 75% of UK businesses were disappointed by the quality of work provided by offshore outsourcers. So why is it that companies are dissatisfied with the service they are getting from their outsourcing providers? The simple answer is that the cost-centric focus of the offshore-outsourcing industry is risking the success of IT projects, with companies prioritizing daily rates over other key issues such as quality of work and innovation. To change the perceptions on outsourcing and ensure that businesses investing in it are happy, the outsourcing model needs to shift the focus from cost savings to long-term benefits led by continued innovation, whether in technology or business process. WHAT’S WRONG WITH THE CURRENT MODEL?

The current obsession with day rates means that when choosing an outsourcing provider, not enough emphasis is placed on continued quality and the cost savings and increased efficiency it brings. Ninety-four percent of UK organizations recently admitted that by focusing too much on cost, they are increasing the likelihood of their IT projects failing to meet their requirements and needing more management time. What’s even more worrying is that rather than try to change the way outsourcing is done, 78% of those questioned admitted that they still use day rates as the main method to calculate outsourcing costs. CUTTING HIDDEN COSTS

Businesses looking at offshore or nearshore outsourcing have always been attracted by initial cost savings such as cheaper staff overheads and rent charges. However, by focusing solely on this, organizations can be hit by hidden costs later in the projects. There are many reasons why traditional offshore destinations don’t always lend themselves well to continued cost savings and overall business management efficiency. For example, these regions are generally far away

from business hubs and as such, managers visiting a site can find themselves making week-long business trips to address an issue that actually takes no more than an hour to solve. Outsourcing based on low-cost day rates means companies are risking drops in quality and therefore end-user satisfaction—something a few businesses can afford. The rule “You get what you pay for” may have been unpopular in the recession, but it’s a fact. Businesses must force themselves to plan further ahead, eventually resulting in more substantial gains. INNOVATION EQUALS SUCCESS

Another key advantage of outsourcing is you can work with regions leading the way in a particular industry. A company considering offshore or nearshore outsourcing must look at what different regions can offer them. To illustrate, Spain has become an IT outsourcing hotspot for its highly skilled IT workers equipped with European business know-how. The region also has a proven track record, developing efficient and innovative business processes for brands such as Zara and Santander. Nearshoring within the European Union offers easy travel to outsourcing hubs particularly to UK companies and tightly controlled EU legislation, which can put them on the road to cost savings and efficiency lasting years rather than months. LOOKING TO THE FUTURE

Although day rates are clearly the priority for many companies looking at offshoring or nearshoring, it’s up to the outsourcers to prove that this costcentric approach only gives brief respite and not long-term innovation and success. Also, it offers little benefit to a global outsourcing market trying to prove its worth as budgets become available post-recession. It is imperative to the survival of those companies and to the outsourcing industry that innovation and value for money become priorities. The only way to ensure the industry serves its customers well and protects them from economic turmoil is to change the industry model. Outsourcers must encourage their clients to think strategically—the more advanced a company’s business methods, the more sustainable and substantial cost savings will be. RESOURCE BOX

Daniel Naoum Co-founder, Valueshore Spain

Madrid-based Daniel Naoum is co-founder of Valueshore Spain, a Spanish government-backed collaboration of 23 leading IT consulting firms, offering guidance on doing business in the country. With an industry experience of over 13 years, he is also UK country manager at IT consulting firm VASS, one of Valueshore’s many partners.

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Call-to-Action Outsourcing Insights by WNS

Business Process Outsourcing Provides Cover to Guarded Investment Managers Himanshu Bajaj, Vice President, Banking and Financial Services, WNS Global Services

Managing Vulnerability Although changes have been dramatic in the past couple of years, they are on their way to creating an inflection point for investment managers, where new tracks across management of risk, liquidity, reporting and compliance are beginning to emerge. Changing market conditions are driving capital spend and putting an increasing level of stress on the operational expenditure. Such unprecedented problems call for solutions of the same order, which are unconventional and provide a panacea for a new order. Client Relationship Management (CRM) A joint study conducted by Datamonitor and an outsourcing firm states that 76 percent of those with focus on wealth management consider client retention the most important factor in the current economic scenario. Wealth management firms are increasingly focused on 'advisor productivity' reaching out to existing customers, assuaging their fears and discouraging them from liquidating their assets.

As the global economy recovers from its worst ever recession, markets continue to be unguided, riding on the back of uncertainty. The extent of impact has been significant across most asset classes and geographies. All major investors and market participants report a sentiment of cautiousness and weakness in their outlook. Financial Times reports that May 2010 was particularly unstable, and many funds have begun to de-risk their portfolios dramatically or re-position themselves more cautiously. According to the Boston Consulting Group, net new money globally for asset managers was a mere 1 percent in 2009. Chicago-based Hedge Fund Research found that the average hedge fund lost 2.26 percent in the past few months of 2010. The trend with long-term investors such as pension funds and retirement funds was quite similar â&#x20AC;&#x201D; challenge in creating alpha in these conditions. The key challenges now are retaining retail and institutional investor confidence and identifying white spaces, which could provide opportunity for alpha creation. This is surely easier said than done. Apart from dislocated markets, the most significant change has been around regulations, which continue to demand investment in specialist staff, running expensive technology and specialist audits, certification and other operating constraints.

WNS works with some of the leading companies in the financial services arena to focus on client retention and CRM â&#x20AC;&#x201D; helping them establish contact centers and offline functions; taking- over outbound calling for marketing and sales functions; administration of accounts and portfolios; providing direct channels; and agency and broker support. Core Middle- and Back-office Functions Investment management companies and brokerage firms are stretched with maintaining expensive and high-touch middle and back-offices. In addition, these offices are also expected to constantly re-model themselves to align with the dynamic needs of the marketplace. However, efficacies and better capital management cannot be the cost of increased costs! Thus, most investment managers and brokers today, favor a global center of excellence model, which can manage middle- and back-office processes globally, leveraging the best practices in the industry. A leading retail broker-dealer partnered with WNS to service the market more effectively with its aggressive growth plans. WNS delivers services across the entire life-cycle of the client. It supports all the financial products, including client profile management, client administration, advisor compensation, fund portfolio administration and client portfolio administration. WNS also provides support for new products as they are added to the client portfolio. These include brokerage products, annuities, insurance and managed products.

Corporate Finance Another challenge market participants have to grapple with is that of regulatory compliance, reporting, accounting and corporate governance. Introduction of newer and complex practices like the IAS 39, indicates that these trends are firm and will get accentuated in times to come. Leaders in the industry are therefore looking at outsourcing certain components of their business, such as reconciliation, accounting, statutory reporting and collateral management, as a strategic path to achieving bottom-line growth. Research One of the key drivers to performance of investment managers is creating a research unit, which is ahead of others in the game. A well-equipped research unit can drive efficacies by simple processes such as scrutinizing data and providing an analytical approach to investment counsel. The greatest advantage provided by a high-quality intelligence framework is its potential to acquire the most relevant information and thus, equip a firm to tackle the ever-evolving market. Knowledge services are fast emerging as an important division that can be outsourced to a service provider. This involves business and financial research, investment banking, technology solutions and analysis reports. BPO service providers are now privy to a vast reservoir of knowledge that allows them to advice capital market companies objectively. In the current economic climate, businesses must be able to adapt to the fluctuating market conditions rapidly. And, outsourcing could ably support that endeavor. The ideal service provider will offer a strategic long-term partnership, collaborate in building the offshore program, bring-in the required domain expertise and operational excellence via technology optimization.

For more insights on outsourcing or our service offerings, visit wns.com. Alternatively, you can write to us at info@wns.com

Need to improve operational performance? Talk to a business process outsourcing service provider with a strong track record for delivery. With over 21,000 employees located in 21 delivery centers around the world, WNS extends the enterprise of over 200 organizations by improving their business performance. To learn how we can help extend your enterprise, visit wns.com.

REGIONAL SPOTLIGHT: CHINA

The Sleeping Giant Awakens Assessing how China fares in the global outsourcing market through proprietary research By Diona Valdez As the shift to global offshore outsourcing grows strong, more and more companies seek refuge in China’s flourishing economy. For a region that abundantly provides a talented local IT pool and services at a much lower cost, knows how to meet the needs of foreign clients, and has crushed the language barrier in small yet significant steps, therefore opening its doors to the world, it’s not at all surprising that China, once coined as “the sleeping giant,” has now awoken right at the forefront of the outsourcing industry. International Data Corporation predicted in a report that by 2011, the country will step up to be the world’s top outsourcing destination. For this reason, it is but fitting that Globalization Today shifts its spotlight from last issue’s Central/Eastern Europe to China. In partnership with the International Association of Outsourcing Professionals (IAOP), a new proprietary research was conducted that measured the following key indicators: positive-versusnegative favorability, awareness level, top-of-mind awareness, and perceived strengths and weaknesses. These

GlobalizationToday October 2010

factors were examined in order to see China’s performance in the global outsourcing market, as assessed by top players in the industry: customers, providers, advisors, and analysts.

THE RESPONDENTS

Understanding the demographic data gives a clear picture of the research participants:

Primary Industry Construction/Architecture/Engineering Education/Non-Profit Entertainment/Media Financial Services Healthcare/Medical/Pharmaceutical/Bio-Tech Hospitality Information Technology (Including: Hardware/Software/Services) Government Manufacturing Media (Including: Advertising/PR) Professional Services (i.e. Accounting, Consulting, Insurance, Legal, Real Estate) Retail (Including: Wholesaler/Distributor/Consumer Goods) Telecom Transportation/Utilities Other

1.67% 3.00% 1.00% 11.67% 5.33% 0.33% 33.67% 1.33% 3.00% 1.67% 17.67% 3.00% 5.00% 1.33% 10.00%

REGIONAL SPOTLIGHT: CHINA Role Customer Provider Advisor Analyst/Press/Academic

20.33% 46.00% 27.00% 6.33%

Total Annual Revenues Less than $10 million $10 million but less than $100 million $100 million but less than $500 million $500 million but less than $1 billion $1 billion but less than $5 billion $5 billion or Greater

23.33% 15.00% 10.67% 5.33% 14.33% 31.00%

Number of Employees Less than 100 100-500 501-1.000 1.001-5.000 5.001-10.000 10.001-20.000 20.001-30.000 30.001-40.000 Over 40.000

22.33% 8.67% 5.00% 12.67% 7.00% 7.67% 4.67% 3.00% 28.67%

Projected Annual Outsourcing Spending Up to $1 million $1 million up to $10 million $10 million up to $50 million $50 million up to $100 million $100 million up to $500 million $500 million up to $1 billion $1billion or more

39.67% 15.67% 13.67% 9.67% 11.67% 3.67% 5.67%

globalizationtoday.com

REGIONAL SPOTLIGHT: CHINA

HOW DOES CHINA MAKE YOU FEEL?

There are two essential factors to consider in measuring the performance of China as an outsourcing provider: regional perception and regional awareness. Respondents were asked, “Rate [China] based on your perception of their outsourcing performance.” If they are completely familiar with the region, “Do not know” was an answer option. Regional awareness defines the familiarity of the respondents to China’s outsourcing performance, regardless of

whether they’re just slightly, moderately, or strongly familiar. On the other hand, regional perception quantifies how outsourcers “feel” about the region, presented in a sliding scale from strongly unfavorable to strongly favorable. In the following illustration, it is clearly presented that China is viewed by the respondents more favorably than otherwise. Hence, they view the region as an outsourcing destination in a positive light.

50.24%

21.95%

THE AWARENESS INDEX

question: how many of the total number of participants have an awareness of the region as an outsourcing destination? The survey shows that 76.62% are knowledgeable of China being an outsourcing hub, while approximately 23 in every 100 respondents are not aware of its outsourcing performance. In the past three decades, China has tremendously increased its popularity among outsourcing clients by certain improvements mentioned earlier. Still, it needs a bit more push to achieve a higher score in terms of clients’ awareness of the region as a potential business partner.

OUTSOURCERS ON CHINA

The surveyed population consists of five sets: primary industry, role in outsourcing, annual company revenues, total number of employees, and projected annual spending on outsourcing. Each has various subsets, which enabled the study to obtain results in another perspective. The following graph shows the answer of each respondent as regards their awareness and feelings toward China being an outsourcing spot.

GlobalizationToday October 2010

Primary Industry

76.62%

For over 30 years, China has learned that high-end engineering services, a steady supply of labor, and a strong telecommunications and Internet infrastructure are some of the reasons that make them a major choice for outsourcers worldwide. Logically, clients turn to China because they know what the region can do for their business. A region is therefore dependent on the clients’ awareness of it as a provider before both foster an outsourcing relationship. According to the study, more respondents have a positive perception of China. But here’s the

Unfavorable Index

Favorable Index

Awareness Index

Construction/Architecture/Engineering Education/Non-Profit Entertainment/Media Financial Services Healthcare/Medical/Pharmaceutical/Bio-Tech Hospitality Information Technology (Including: Hardware/ Software/Services) Government Manufacturing Media (Including: Advertising/PR) Professional Services (i.e. Accounting, Consulting, Insurance, Legal, Real Estate) Retail (Including: Wholesaler/Distributor/ Consumer Goods) Telecom Transportation/Utilities (i.e. Energy/Water)

0.00% 0.00% 50.00% 25.00% 0.00% 0.00% 28.21%

100.00% 100.00% 50.00% 30.00% 66.67% 0.00% 51.28%

60.00% 77.78% 66.67% 58.82% 75.00% 0.00% 78.79%

0.00% 0.00% 0.00% 29.73%

33.33% 50.00% 100.00% 43.24%

75.00% 40.00% 60.00% 69.81%

33.33%

42.86%

27.27% 0.00%

27.27% 100.00%

73.33% 25.00%

Other

9.52%

52.38%

70.00%

REGIONAL SPOTLIGHT: CHINA

TOP

THE

WHICH COMPANIES POPULARITY GAME?

Here’s what the respondents were asked: “When you think of [China], which outsourcing companies do you think of?” The list isn’t short, and all their answers are put together in the cloud that follows. The larger the company name appears, the more frequent it comes to mind to those surveyed. IBM scores highest on top-of-mind awareness, followed by Accenture and Bleum. HP, iSoftStone, and Neusoft share the fourth place. WORKFORCE AND WAGES: CHINA’S FUEL

The participants were surveyed regarding their perceptions on China’s strong and weak points in relation to buying factors. While every outsourcing region has its own sets of strengths and weaknesses, the study shows exactly what China’s are. In the following chart, the buying factors are presented from left to right, ordered from the biggest strength to the biggest weakness. Out of the 11 factors,

IBM Accenture Bleum HP Neusoft iSoftStone

5.60% 4.31% 3.45% 3.02% 3.02% 3.02%

wages proves to be the major reason why China remains to be a wise destination choice among clients. With extremely low labor costs strongly etched on China’s outsourcing reputation, it’s pretty much understandable. On the other hand, language maintains to be the biggest challenge when outsourcing to China. Despite the availability of resources and English

proficiency being a requirement to enter Chinese universities, much improvement has yet to be worked on in terms of fluency with the universal language. The scores for available workforce and wages have a three-digit difference, making these undeniably the region’s strongest points; although perceived weaknesses exceed perceived strengths in a whopping nine out of 11 buying factors.

83.6%

81.3% 61.4%

55.2%

7.05%

LOOKING SEGMENT

13.5% 14.5% 2.8%

CLOSER:

CHINA

23.3% 7.5%

11.7%

24.5%

17.1% 3.8%

8.4%

27% 7.8%

22.4%

22% 3.3%

7.9%

4.2%

PER

The ranking per perceived strength and weakness for each demographic subset surveyed is presented in the following chart. The figures appear in terms of putting vital buying factors into consideration. The biggest strength scores as 1; the second, 2; and so forth, up to 11 as China’s biggest weakness. China abounds with a steady supply of local labor force, further validated by the survey that ranks available workforce as

not lower than second. The same goes for wages, except for the entertainment industry that ranks it on the sixth place. Education as a buying factor ranks high as well. However, cultural compatibility and language pose as threats to the region. This goes to show that China has yet to exert a major effort into making sure that said buying factors wouldn’t hinder clients from investing their outsourcing

resources in China. Simply put, China needs to work on its English proficiency. Fully eradicating the language barrier will give them a huge advantage over other outsourcing hotspots. Wages and available workforce being its ultimate strengths are already a given, but just imagine the sheer surge in the number of outsourcers once it cures its biggest flaw.

globalizationtoday.com

REGIONAL SPOTLIGHT: CHINA Price

Skilled Labor

Growing Market

Quality

Security/Risk

Speed

Market Leadership

Innovation

Brand

Primary Industry Construction/Architecture/Engineering Education/Non-Profit Entertainment/Media Financial Services

1 1 2 2

6 1 6 4

1 9 5 7

1 3 2 1

6 3 6 3

4 7 6 6

5 5 1 5

6 5 2 8

6 7 6 9

Healthcare/Medical/Pharmaceutical/ Hospitality Information Technology Government Manufacturing Media (Including: Advertising/PR) Professional Services Retail (Wholesaler/Distributor/) Telecom Transportation/Utilities Other

1 1 1 1 1 2 1 1 2 3 3

3 1 3 5 4 2 6 3 3 3 2

8 3 8 9 8 6 9 7 9 8 8

1 3 2 4 2 1 2 2 1 1 1

4 3 5 5 6 6 3 7 3 5 7

7 8 7 5 5 6 7 5 7 5 6

6 8 4 1 7 2 4 3 5 1 4

5 3 6 1 3 5 5 6 5 5 5

9 3 9 5 9 9 8 9 8 8 9

Role Customer Provider Advisor Analyst/Press/Academic

2 1 1 1

4 3 4 2

8 8 8 5

1 2 2 3

5 4 5 6

7 7 7 4

3 5 3 8

6 6 6 7

9 9 9 9

1 2 1 1 1 1

3 3 3 4 3 5

8 8 8 8 8 8

2 1 2 2 1 2

6 5 4 5 5 4

7 7 6 6 6 7

4 4 5 2 7 3

5 6 7 7 4 6

9 9 9 8 8 9

Number of Employees Less than 100 100-500 501-1,000 1,001-5,000 5,001-10,000 10,001-20,000 20,001-30,000 30,001-40,000 Over 40,000

1 1 3 4 1 2 1 1 1

3 4 1 2 4 3 4 5 4

8 8 7 8 8 8 5 6 8

2 2 2 1 2 1 2 3 2

6 5 4 4 5 5 5 3 5

7 6 8 7 6 6 7 2 7

4 3 4 2 7 7 3 9 3

5 7 6 4 3 4 8 6 6

9 8 9 8 9 9 9 8 9

Annual Outsourcing Spending Up to $1 million $1 million up to $10 million $10 million up to $50 million $50 million up to $100 million

2 1 1 1

3 3 3 6

8 8 8 8

1 2 2 2

5 5 5 3

7 7 6 7

4 4 7 3

5 6 4 5

9 8 9 9

$100 million up to $500 million $500 million up to $1 billion

1 1

5 4

6 9

3 2

4 3

7 6

3 4

7 7

9 8

*1 = biggest strength; 11 = biggest weakness globalizationtoday.com

â&#x20AC;&#x2DC;Naturally organizations tend to

focus on the transition of people and processes during an outsourcing project. We help our clients understand and deliver an effective retained organization that often holds the key to success.â&#x20AC;&#x2DC; Arthur de Oude Partner at ConQuaestor

Amsterdam, Den Haag, Utrecht | 0800 783 7833 | info@conquaestor.nl | www.conquaestor.nl

OUTSOURCING SERVICES

Strengthening Global Hold The most important buying factors when clients outsource business consulting, knowledge process, and analytics services, revealed Knowledge process outsourcing (KPO) is a trend that is steadily picking up in India as well as in the West. KPO takes business process outsourcing (BPO) a notch higher in a sense that while BPO is focused on the improvement of processes to provide basic customer-care support, KPO is based on the need for knowledge expertise in various fields such as legal, patent, and business research services. Consultancy services, on the other hand, help organizations get a good grasp of the “best practices” in the industry and give them advice on how to improve operations and implement technology, to name a few. Companies have been readily outsourcing consulting services, knowledge process, and analytics for the higher value they are to gain from business experts. However, there has been observed one major reason why some organizations are still hesitant about consulting services or KPO: the inability to track decisions made during the whole process. Trends such as full-cost accounting and eco-labels have been put into play to minimize this problem but it still helps to find out about which factors buyers consider the most important in hiring knowledge process, consulting, and analytics services to be able to make the right decision. To give local vendors a deeper understanding of their market potential, we conducted a survey among members of the International Association of Outsourcing Professionals (IAOP) to find out which buying factors they consider as the most important and the least important. The following graph illustrates the relationship of these two variables. To be able to get the most important decision factors in buying consulting, knowledge process, and analytics services, the “least important” score is subtracted from the

“most important” score in each of the named categories. The formula will also show by how much the most important differs from the least important buying factor. (Note: negative scores merely signify that the respondents who selected a particular criteria as one of the two buying factors they consider “most important” were outnumbered by those who named said criteria in their two “least important.”) Quality and innovation are regarded the two most important buying factors, followed closely by market leadership and skilled labor—both of which were also rated with net positive scores. More respondents rated price as an important buying factor than those who classified the criteria as least important. DIGGING DEEPER: QUALITY AND INNOVATION REIGN SUPREME A clear picture of buying factors may be seen if we first take into consideration the macro numbers displayed in the graph below and use the demographic subset information in the chart on page 31 to expand our points of comparison. The

most important buying factor is ranked #1; the second most important, #2; all the way down to the least important, which is ranked #9. The data apparently shows that most organizations give highest regard to quality and innovation. Skilled labor, which is a top buying factor when it comes to software application and management, is positioned a little lower down the ladder—although both still gained net positive scores. Price, security/risk, brand, speed, and growing market are considered of lower priority by the respondents. There are a lot of possible explanations for this, such as that price is not really a factor as long as the outsourcing firm guarantees quality and innovation in handling and improving internal processes. Outsourcing companies that provide consulting, knowledge process, and analytics services would do good to ensure they deliver quality service and apply innovative strategies at reasonable prices. Stick to the formula and you will gain more clients.

Buying Factors Ordered Quality Innovation Market Leadership Skilled Labor Price Security/Risk Brand Speed Growing Market

32.33% 30.00% 29.00% 23.67% 5.00% -19.33% -24.00% -27.00% -33.67%

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IAOP membership 85% of IAOP members credit IAOP for improved outsourcing outcomes at their organizations

MEMBER SERVICES FIRMBUILDER.COM

The industry’s premier repository of outsourcing information, housing more than 1,000 articles, studies, white papers, reports, and conference proceedings.

CHAPTERS

Through IAOP’s chapter network, members share their expertise and gain knowledge on best practices for specific industry segments, topics and geographic areas.

VA L U E H E A LT H C H E C K S U R V E Y

A diagnostic tool to assist buyers and providers in rapidly identifying opportunities to enhance business value obtained from their outsourcing relationships.

W W W. B E S T O U T S O U R C I N G J O B S . C O M Helping customers source and hire the most qualified outsourcing professionals and provide outsourcing professionals with the best job opportunities in their respective fields.

G L O B A L I Z AT I O N T O D AY

The official publication of IAOP for the growing ranks of outsourcing professionals.

IMPROVING OUTSOURCING OUTCOMES BY CONNECTING YOU TO THE RESOURCES YOU NEED.

IAOP® is the global, standard-setting organization and advocate for the outsourcing profession. With more than 110,000 members and affiliates worldwide, IAOP is the leading professional association for organizations and individuals involved in transforming the world of business through outsourcing, offshoring, and shared services. A Global Community IAOP has members in nearly 50 countries. Each member has direct, online access to each other and to IAOP’s entire portfolio of services, including its vast chapter network, regional-level events, and corporate and professional development programs. MEMBERSHIP Customer Corporate Membership provides organization-wide access to the association’s research, training, certification and networking programs — all designed to help companies

International Association of Outsourcing Professionals® (IAOP®)

Tel +1.845.452.0600

Fax +1.845.452.6988

achieve better business results through outsourcing. Provider/Advisor Corporate Membership provides the same organization-wide benefits of Customer Corporate Membership, but also includes member-only sponsorship opportunities that serve the marketing and business development needs of these companies. 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.

To learn more about IAOP membership or to become a member, visit www.IAOP.org.

w w w . I A O P. o r g

OUTSOURCING SERVICES Price

Skilled Labor

Growing Market

Quality

Security/Risk

Speed

Market Leadership

Innovation

Brand

Primary Industry Construction/Architecture/Engineering Education/Non-Profit Entertainment/Media Financial Services

3 2 4 5

9 1 4 2

1 5 2 9

1 2 4 3

5 7 8 7

7 9 4 6

3 4 2 4

5 5 1 1

7 7 8 8

5 3 5 1 5 8 5 4 4 4 4

1 3 4 4 2 2 4 2 1 4 5

8 8 9 4 9 6 9 6 9 8 6

4 1 1 4 3 1 2 2 4 1 2

7 3 7 4 8 3 6 8 6 4 7

8 3 8 9 6 6 7 6 8 8 7

2 3 3 1 3 3 1 4 3 2 1

3 1 2 1 1 3 3 1 1 4 2

6 8 6 8 6 8 8 9 6 2 9

Role Customer Provider Advisor Analyst/Press/Academic

5 5 5 7

4 4 3 1

9 9 8 4

1 3 1 3

6 7 7 4

8 8 6 9

3 1 2 4

2 1 4 2

7 6 9 7

5 5 5 3 5 5

2 2 3 4 4 4

8 8 6 9 9 9

1 3 4 1 2 2

6 6 8 6 7 6

7 7 9 8 7 8

3 4 2 2 1 2

4 1 1 5 3 1

9 8 6 6 5 7

Number of Employees Less than 100 100-500 501-1,000 1,001-5,000 5,001-10,000 10,001-20,000 20,001-30,000 30,001-40,000 Over 40,000

4 5 6 5 5 1 4 9 5

2 4 2 2 4 3 1 5 4

8 9 7 7 9 8 9 7 9

1 2 1 2 3 4 1 3 3

6 7 4 7 7 6 8 6 7

7 6 9 9 7 7 6 7 8

5 2 5 1 2 5 3 4 1

3 1 3 4 1 2 4 1 2

9 8 8 6 6 9 7 2 6

Annual Outsourcing Spending Up to $1 million $1 million up to $10 million $10 million up to $50 million $50 million up to $100 million

5 4 5 5

4 3 2 4

8 9 8 7

1 1 4 1

6 6 7 6

7 8 9 8

3 2 2 2

2 5 1 3

8 7 6 8

$100 million up to $500 million $500 million up to $1 billion $1billion or more

6 6 5

4 4 4

9 9 9

2 2 2

8 7 8

7 7 7

2 3 3

1 1 1

5 4 6

*1 = biggest strength; 11 = biggest weakness globalizationtoday.com

Outsourcing Values Series – Mike Harris, DCG President Outsourcing - Six Rookie Mistakes in Vendor Management I recently saw an interesting article on “Vendor Management.” It included a list of six mistakes that tend to be very common in outsourcing where the client-vendor relationship is not as mutually beneficial as it can, and should, be. I think it’s a good list so I have included it here with some commentary and examples of my own: 1. Failing to speak with one voice Basically, the vendor is confused by mixed signals coming from the client. I have seen this happen most often when there is a power struggle between a central procurement or sourcing group and the IT team that works day-to-day with the outsourcing vendor. This is a classic IT Governance problem and there is no right answer (although I know who I think should win). The important thing is to resolve it unambiguously for all the participants including the vendor.

Outsourcing is about adding a competitive link to your ‘VALUE CHAIN,’ not just a cheap cog in your supply chain. At the end of the day you

must have added value that supports your business objectives

2. Skipping the homework I see lots of examples of this but the one that really bugs me is the lack of attention to how success (or indeed failure) will be measured before the deal is signed. Often, this is exacerbated by the need (?) for secrecy around the small team doing the deal. The small team sometimes doesn’t have the breadth of knowledge or experience to put together a robust but flexible set of metrics for management of a contract over several years. I always recommend including metrics experts or the team that will actual manage the contract in the negotiations AND allowing time for baseline and/or benchmarks metrics to be developed. 3. Fixating on price Too often, I have to bite my lip to stop myself saying, “You get what you pay for.” More seriously, it is important to think of the total profit of the vendor and savings by the client as a “Value Pie.” If one side or the other is not getting enough of the Value Pie then the relationship will deteriorate. It is important to develop metrics that reflect the whole Value Pie.

If you could change one thing about your software development, what would it be? 4. Using too few suppliers More and more, Iâ&#x20AC;&#x2122;m coming to the conclusion that the best control for vendor management is having other options. The simplest other option is to have another vendor ready to do the work. In a single vendor arrangement, There is a real risk of mutual dependence leading to distorted behavior leading to mutually assured destruction. The single vendor option may seem to be the way to get the lowest price in the short term but it seems to be that any sort of monopoly is likely to become inefficient fairly quickly. 5. Only dealing with large vendors Following on from my comments under #4, above, the best practice that I have seen is to separate potential vendors into a few (2-4) groups e.g. Large vendors, small vendors, Indian-based Vendors, Eastern European vendors, etc. This allows the RFP process to compare like vendors for value for money and, potentially, pick the right risk management mix of vendors based on size, politics, price, specialist capabilities or whatever. 6. Signing and forgetting This is another symptom of having too few people involved in the original deal. What it boils down to is that the IT team who have to make the agreement work on a day-to-day basis CANNOT ignore the vendors. In outsourcing arrangements where I have seen the most heat and light generated, it is because a bubble of frustration builds up amongst the team as they try to operationalize an agreement that is not as strong or flexible as it should be. At some point, this bubble bursts over the small group who signed and forgot. DCG is an international software development consulting firm helping companies frustrated with development costs, hampered by poor quality or struggling to estimate and achieve on-time delivery. We have successfully helped global organizations and their partners to make timely, effective changes to results and culture.

Measure. Improve. Deliver. www.davidconsultinggroup.com

Ph: +1 610-644-2856

info@davidconsultinggroup.com

TRANSACTION-COST ECONOMICS

Oliver’s Twist The impact of Dr. Oliver Williamson’s Nobel Prize-winning study transcends his own field, as outsourcing professionals learn 10 key lessons from transaction-cost economics to create more effective business contracts By Kate Vitasek, Karl Manrodt, Ph.D., Richard Wilding, Ph.D., and Tim Cummins In any field, there’s the unsung hero. Be it as historical an event as a religious or political revolution, or as seemingly routine (but tremendously influential)

as business, there is always someone who has yet to gain recognition for his unparalleled efforts in promoting beneficial change in his respective field.

Even the outsourcing industry is not an exception, a perfect example being the rarity of finding a business professional that has ever heard of Dr. Oliver Williamson. This is not at all surprising— outside academia, very few journals on his work are generally published and distributed. But thanks to the Nobel Foundation, Williamson has become a name not too unfamiliar. In 2009, the professor emeritus of business, economics, and law at the University of California, Berkeley, who has spent his life devoted to the study of transaction-cost economics, won the Nobel Prize in Economic Sciences. His exceptional contribution to his own field is now educating professionals in another—outsourcing, that is— providing them lessons to read and practice as they continuously look for improved processes and methods in developing better outsourcing contracts and relationships. WHAT EXACTLY IS TRANSACTIONCOST ECONOMICS?

Dr. Oliver Williamson, recipient of the 2009 Nobel Prize in Economic Sciences

GlobalizationToday October 2010

Transaction costs are those that accumulate when participating in a market. Here’s an example: when buying a book, there’s not only the price upon purchasing but also the costs incurred in buying it, such as the expenses of

TRANSACTION-COST ECONOMICS traveling to the store or using the Internet. Hence, those that go beyond the book’s retail price are called transaction costs, including actual monetary, expertise, flexibility, risk, and asset specificity costs, just to name a few. Transaction-cost economics adopts a contractual approach to the study of economic organizations. It is best thought of as accounting for all the costs of a deal or contract, both obvious and hidden. There are also positive and negative transaction costs to factor in, few of which are easy to quantify. Williamson stresses that transaction costs will be acquired whether or not a firm decides to make or buy a product or service. A company should utilize transaction-cost economics as the basic unit of analysis in determining these costs to make better, more meaningful decisions. It’s important to understand that there are costs associated with any contract, from the simplest one-on-one commodity type to vertical integration. There’s no such thing as zero transaction cost, since there is a cost for bureaucracy and another for operating in the market. The goal then is to identify and quantify these to optimize business. THE 10 KEY TRANSACTION-COST ECONOMICS CONCEPTS: LESSONS FOR TODAY’S OUTSOURCERS

A vital purpose of Williamson’s work is to help companies understand how their behaviors and approach to a contract can drive up transaction costs. We examine the 10 lessons of transactioncost economics directly applicable to outsourcing: 1. Outsourcing is a continuum, not a destination. Under conventional outsourcing, there are basically two approaches: going to the market, and building corporate hierarchies by bringing the capability within the organization. Simply put, the decision is whether to in-source or to outsource. Perhaps the best way to examine Williamson’s work is to consider outsourcing in terms of a continuum, as illustrated in the next figure. Williamson advocates a third hybrid

Corporate Hierarchies

The Market

approach to contracting as the preferred method for dealing with complex services that need to be performed in an outsourcing arrangement. Under this approach where the majority of contracting resides, added security and contractual supports take the form of inter-firm safeguards. Unfortunately, he also notes that when companies have taken the hybrid approach, it works— though not surpassingly well—because often, companies don’t approach contracting as wisely as they should. Deciding whether to in-source or to outsource is rarely a simple “yes or no” decision. Most often, the decision encompasses a tradeoff between safeguards and price. In other words, it is a hybrid of what tasks or responsibilities each party will have to complete. 2. Develop contracts that create mutual advantage. Once a company has answered the makeversus-buy decision, it must determine the strategy for working with its suppliers. Williamson points to the power of the win-win approach, which should also be a major strategy for companies. As game theorist John Nash demonstrated, the key lies in players working together toward a mutually beneficial strategy for the cumulative payoff. The idea is not to optimize for the status quo but to look for ways to change the game, or in the outsourcing context, the contract process, achieving a larger payoff for everyone. By working together, companies can identify opportunities to reduce costs and increase service. Williamson takes the concept of game theory from economics to contracting, showing that a contract can have negative

effects on the business if an organization does not strategize on how to structure it properly. Commit to a contract that focuses on aligning the interests of both parties involved. This symbiotic approach to an outsourcing agreement upgrades the relationship into a collaborative one, as opposed to simply meeting specific requirements. RESOURCE BOX

A faculty member at the University of Tennessee’s Center for Executive Education, Kate Vitasek is a nationally recognized innovator in the practice of supply chain management and outsourcing. She can be reached thru kvitasek@utk.edu.

Karl Manrodt is a professor in the Department of Management, Marketing & Logistics at Georgia Southern University. The author of three books and over 50 scholarly articles can be e-mailed at kmanrodt@georgiasouthern.edu.

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TRANSACTION-COST ECONOMICS 3. Understand the transaction attributes and their impact on risk and price. Once a company understands that outsourcing should be seen as a continuum instead of a simple in-sourceversus-outsource decision, the next issue should be which approach would be best for structuring the relationship and contract to drive out non-value-added transaction costs. Williamson points out that companies need to understand three attributes of their business environment in order to help them make better discussions with outsourcing providers, which will ultimately lead to better contracts. Each of the attributes is identified in the following table:

ATTRIBUTE IMPACTING RISK Asset specificity

Uncertainty of work

Variable frequency

Understanding these three attributes and how companies view them have a direct influence on how a company and a service provider will behave when writing a contract because each element can add risk to a provider. According to Williamson, the higher a customer’s need for asset specificity, the more uncertain and the less frequent the work, the higher the transaction costs or price that they should expect to pay. And the greater the degree these attributes are present, the higher the risk for the service provider. As a result, the provider will need to charge a premium for the work. Companies should look to identify all costs, including those associated with asset specificity, uncertainty, and

RISK TO SERVICE PROVIDER Low Widely available and generic assets can be used to provide services

High High degree of customization and investment needed in order to provide services

Dynamic environment; Static environment; little high degree of work likelihood of work changing scope changing or being or be eliminated eliminated Consistent levels of work to amortize over assets

Inconsistent levels of work to amortize over assets

frequency, and work to develop solutions that can mitigate these risks and the expenses that come with them. Rather than ignoring the risks, the best way to manage them is to first identify them. Failure to do so will lead to one-sided agreements by pushing risks onto the service provider or the customer. This will simply cause the provider to raise costs, or the customer to want to reduce the price without trying to manage the real issues. Risks and costs need to be addressed from a holistic supply chain perspective. Remember, the sum of the local costs does not equal the total cost. 4. The greater the bilateral dependencies, the greater the need for preserving continuity. The world of business is not stable and

GlobalizationToday October 2010

companies and their service providers need to develop a relationship that can best address a dynamic environment. Often, a provider invests, develops, or creates assets or skill sets to be used for a specific customer. The cost of redeploying these assets to alternative uses becomes increasingly difficult, placing the service provider at risk should the contract expire. In some cases, both service providers and customers increase their asset specificity over time by creating interdependent processes and systems. These bilateral dependencies can make it costly to undo a relationship if things eventually go wrong. Williamson argues that contracts should have a preserving governance provision. In other words, there should be a governance structure in place to avoid loss. It should be flexible enough to account for disturbances or maladaptations if and when things go wrong. The higher degree of complexity and bilateral dependency, the bigger the need to spend time in creating a governance structure that preserves continuity. Reckless companies that frequently bid and shift work to new suppliers are likely to experience higher overall costs than if they developed a fair and equitable contract and eliminated switching costs. 5. Use a contract as a framework, not a legal weapon. Williamson advises that a contract’s effect should be to facilitate adaptation, preserve continuity, and realize mutual gain during contract implementation. Contracts should be structured with flexibility to deal with unanticipated disturbances and to relieve potential maladaptations. A research conducted by the International Association for Contract & Commercial Management (IACCM) shows that contracts nowadays are filled with terms designed to protect self-interest in the case of risks—such as limitation of liability—rather than promote social collaboration between companies.

TRANSACTION-COST ECONOMICS

Product/Service Atrribute

Creating a detailed contract and statement of work (SOW) traps the outsourcing provider and customer in a box. This limits innovation and encourages finger-pointing when there are inevitable changes. Instead of making uneducated guesses about the future, it is better to make an outline of the work and provide recourse in case unexpected circumstances occur. For work yet to be determined, focus on the process and tools to be used, not on the work to be accomplished. 6. Develop safeguards to prevent defection. Williamson notes that due to bounded rationality, costly breakdowns prevail in spite of efforts to develop sound contracts. A key reason for contractual breakdowns is that business and market dynamics can and do change the economics of the agreement. What was once a viable contract may become a burden to all. Where should the work go when business relationships turn sour and need to be terminated? Williamson warns companies against the temptation of bringing the work back in-house. This is due to the additional bureaucratic costs involved in taking a transaction out of the market and organizing it internally. He advises that an internal organization should be usefully thought of as the last resort. It is therefore important to recognize that business relationships may need to change due to shifts in the market, thus requiring contracts to have a wellthought-out exit-management plan. Rather than fearing the risks associated with a bad contract, practitioners should clearly identify the costs linked with terminating one. Creating safeguards that are fair and equitable is a must, with the goal of keeping either party intact in the event that a contract needs to be terminated prematurely.

1A. Generic

1B. Asset Specific

2. Safeguards Required?

2A No

3A.1 Higher price

2B Yes

3B.1 Market Pricing

3B.2 Vertical Integration (Make/ In-source)

Source: adapted from Williamson, 2008 7. Predicted alignments can minimize transaction costs. Williamson points out a concept called predicted alignment, in which the goal is to create a shared vision that results in the economizing or minimizing of transaction costs to the extent possible, given the uncertainties inherent in market dynamics and forecasts. In simple terms, the business and the contracting approach need to be in synch, as described in detail in the chart above: Williamson’s model teaches companies to work through the options to select the most logical path in solving their product/supply requirements. Complex outsourcing agreements should transparently discuss the risks and manage them through properly defined safeguards that protect both the service provider and the customer. Creating a shared vision will guide how both the company and the service

provider will work. They should develop mutually beneficial outsourcing agreements and pricing models whereby the provider is rewarded financially for achieving the desired outcomes. 8. Your style of contracting matters. For those relying on market pricing, Williamson describes the three styles of contracting: ••Muscular. The muscular contracting approach has one of the parties holding the balance of power, and does not hesitate to exercise it. While both buyers and suppliers in theory can hold power positions, more often than not it is the buying organization that demonstrates its power, and tells a service provider what it wants and expects. ••Benign. The benign approach assumes that both parties will cooperate; both

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TRANSACTION-COST ECONOMICS

parties will give-and-take in the relationship. This works well until the stakes are raised and eventually gives way to conflict wherein mutual gains are sacrificed, unless countervailing measures have been put into place. ••Credible. Williamson describes this as hardheaded and wise. It is hardheaded because it strives for clear results and accountability but it is not meanspirited as in the muscular type. On the other hand, it is wise because it arises out of an awareness that complex contracts are incomplete and thus pose cooperative adaptation needs, requiring the exercise of feasible foresight to uncover potential hazards, work out the mechanism, and factor these back into contractual design. Organizations that use the muscular approach may have a short-term win but will lose in the long run. Companies will ultimately face higher market and transaction costs from switching or transitioning suppliers, or at a minimum from suppliers being forced to use conventional negotiations to put in myopic and costly contractual provisions and behaviors that simply drive up hidden costs. 9. Build credibility. Williamson stresses that transactioncost economics does not necessarily embrace opportunist ideas such as the illusive concept of trust. He wonders what benefits might come from the widespread use of trust among outsourcing buyers and at what cost. It should not necessarily replace power entirely and indefinitely, he argues, and this is where credibility in contracting enters the picture. Trust is implicit in Williamson’s suggestion that it’s often better to leave money on the table, or not insist on winning every negotiating point. It’s an idea that goes against the usual low-cost, transaction-based grain in a traditional contract. If there is a strategic rather than

constructive purpose that skews the contract in one party’s favor “and if real or suspected strategic ploys invite replies in kind, then what could have been a successful give-and-take exchange could be compromised,” Williamson explains. If each party, or even just one, has a strategic agenda and wants to gain an upper hand, asymmetry will result. “Always leaving money on the table can thus be interpreted as a signal of constructive intent to work cooperatively, thereby to assuage concerns over relentlessly calculative strategic behavior.” What can result is a pragmatic and ultimately wise outsourcing contract with credibility from start to finish. 10. Keep it simple. Getting it right entails working out the logic and making it plausible, which means preserving contact with what is actually occurring in the market and in the contract while avoiding what he calls fanciful constructions. Under conventional outsourcing, the best practice is to create more detailed SOWs and tightly defined service level agreements to monitor the business in great detail. This trend is often coupled with complex pricing models and associated penalties for service providers that do not meet the metrics. Unfortunately, too many organizations are focusing on measuring for measurement’s sake. They are often perplexed to find out that their scorecard fares excellently but the business is not as profitable and customers are not as happy as they would like. The complexity of systems and business interactions make uncomplicated models attractive and necessary. Simplicity requires knowledge, the ability to prioritize, and a high degree of flexibility and pragmatism. Transaction-cost economics shows that the bottom line is not always apparent at first look. Hence, looking into the hidden costs of doing business is just as crucial as knowing the price of the service or

product to be bought. Williamson’s study also shows how businesses can best address conflict-resolution. He takes the concepts of game theory and focuses them around the contracting process itself. His thoughts on outsourcing substantiate the value of a collaborative approach, making his study one of the most informative in presenting how contract and governance structures need to be utilized in developing outsourced relationships. The challenge for practitioners is to apply these valuable lessons to their outsourcing relationships and see how their performance will improve.

RESOURCE BOX

Highly acclaimed presenter, speaker, lecturer, and editorial advisor Richard Wilding is the chair of supply chain risk management at the Centre for Logistics and Supply Chain Management, Cranfield School of Management UK. He can be reached at r.d.wilding@cranfield.

Tim Cummins is the founder and CEO of the International Association for Contract & Commercial Management (IACCM), a non-profit organization that has become the global forum for innovation in trading relationships and practices. E-mail him at tcummins@iaccm.com.

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WHAT’S HAPPENING AT THE IAOP WELCOME NEW IAOP MEMBERS

WORLD DOMINATION The IAOP widens its reach—globally, that is—with new regional advisory boards

The IAOP is pleased to welcome new and renewing Corporate and Professional Members from the following organizations: Accenture; Advokatfirman Delphi; Aegis; Allstate Insurance; AppLabs; Avoca Solutions; Azure Knowledge Corporation; Bakari Technologies Ltd.; Blue Shield of California; Business Catalyst International; California State University-Stanislaus; Cassidy Turley; Castech Data Services Inc.; CB Richard Ellis; CIBERsites India Private Limited; COPC; Cross Border Projects GmbH; Deloitte; Diebold; Eli Lily; Entergy Services, Inc.; EquaTerra; Expedia, Inc.; Express Scripts, Inc.; Ferring Pharmaceuticals A/S; Ford Motor Company; General Motors; hiSoft Technology International Limited; Hospira; IBM Corporation; IBS Datafort; IMS; Infosys; ISIS; Jones Day; Kraft Foods; Lawson Software; Limited Brands; Marsh & McLennan Companies; MetLife, Inc.; Microsoft; Orange Business Services; Outsource Partners International; P&G; PacificHub Corporation; PCCW Solutions; PETCO Animal Supplies, Inc.; PolyDyne Software; PricewaterhouseCoopers; Procter & Gamble; Repsol YPF; Sierra Associates; SPi Technologies; State Farm Insurance Company; Stone & Company; Storeroom Solutions, Inc.; Suncorp; Sykes Enterprises Inc.; Target Consultancy; TD Ameritrade; TOPROW Management; Trellis; Unisys Corp.; University of St. Thomas; Vmware, Inc.; and Whirlpool. For information on IAOP membership, e-mail sales@iaop.org.

RECENT IAOP ANNOUNCEMENTS

THE IAOP SEEKS THE WORLD’S TOP COMPANIES FOR THE GLOBAL OUTSOURCING 100 APPLICATION

The lnternational Association of Outsourcing Professionals (IAOP) is calling on service providers and advisors to apply for its annual Global Outsourcing 100 and join the ranking of past leaders like Accenture and TPI. The association is accepting applications for the independently judged, opt-in ranking through November 1, 2010. Now entering its seventh year for service providers and third for advisors, the Global Outsourcing 100 has become an important resource to help companies make more informed purchasing decisions based on an objective methodology. Continued to page 46 » 42

GlobalizationToday October 2010

WHAT’S HAPPENING AT THE IAOP

MEMBERSHIP Membership in the 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. CUSTOMER CORPORATE MEMBERSHIP Organizations that are currently outsourcing or are considering one or more outsourcing initiatives should become Customer Corporate Members of the 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 the IAOP as Provider/Advisor Corporate Members. This membership provides the same organization-wide access to the 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 sales@iaop.org.

CALENDAR OF EVENTS

CHAPTER MEETING CALENDAR 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. •

OCT 5

ITALY CHAPTER MEETING ON THE “LEGAL ASPECTS OF OUTSOURCING TRANSACTIONS” AND “CRITICAL ASPECTS IN DESIGNING AND MANAGING SLAS”

•

OCT 19

GOVERNANCE CHAPTER WEBINAR ON “REMEDIATING TROUBLED OUTSOURCING RELATIONSHIPS”

•

OCT 21

CHICAGO CHAPTER MEETING

•

OCT 22

PROCESS EXCELLENCE CHAPTER WEBINAR

•

OCT 25

TOOLS SYMPOSIUM PRESENTED BY THE OUTSOURCING TOOLS & TECHNOLOGY INNOVATION, GLOBAL TECHNOLOGY INDUSTRY, AND SAN FRANCISCO CHAPTERS

•

OCT 28

THE NEW ENGLAND CHAPTER MEETING FEATURES A PANEL DISCUSSION LED BY COMPASS AMERICA INC. ON “HOW UTILITY COMPUTING IS EFFECTING OUTSOURCING: THE GOOD, THE BAD, AND THE UGLY”

•

NOV 3

NORDIC CHAPTER MEETING ON “BUILDING A TWO-WAY HIGHWAY FOR DANISH BUSINESS VIA DESIGN AND OUTSOURCING”

•

NOV 3

QINGDAO CHAPTER LAUNCH. STAY TUNED TO WWW.IAOP.ORG FOR UP-TO-DATE INFORMATION

Gain knowledge, network, and earn Certified Outstanding Professional (COP) credits! Sign up for a chapter meeting today at www.iaop.org/Chapters.

THE IAOP WEBINAR SERIES

The next complimentary member-services webinar will feature the IAOP’s new official publication, Globaliization Today. Learn more about this exciting magazine, including how to become an editorial contributor or advertiser and how to get your organization in the buyer’s guide as well. Topic: Globalization Today Date: October 5, 2010 at 3:00 p.m. (EDT) Presenter: Ali Comelek, founder and publisher Sign up: Contact memberservices@iaop.org Attend one of the following pre-recorded sessions by e-mailing memberservices@ iaop.org: • Certified Outsourcing Professional (COP) Recertification • The 2011 Global Outsourcing 100 • BestOutsourcingJobs.com • Value Health Check Survey • IAOP Corporate Membership • IAOP Professional Membership THE 2011 OUTSOURCING WORLD SUMMIT

The IAOP presents the 14th edition of its world-renowned conference— the Outsourcing World Summit—on February 21-23, 2011, at the Renaissance Esmeralda, Indian Wells, California. Join your colleagues in exploring how you can lead your company to success in the new outsourcing landscape. Find out how to implement an outsourcing initiative, streamline operations, improve bottom line through outsourcing, and find the perfect provider partner or introduce your services to potential clients. More than 50 industry leaders and visionaries will delve into topics critical to your success, including: • • • • • • • • • • • •

GLOBALIZATION RURAL SOURCING CORPORATE SOCIAL RESPONSIBILITY (CSR) CLOUD COMPUTING MANAGING RISK THROUGH SOURCING STRATEGY—MULTI-SERVICE PROVIDER ENVIRONMENT KNOWLEDGE PROCESS OUTSOURCING (KPO) TODAY’S OUTSOURCING TOOLS AND HOW-TOS VENDOR MANAGEMENT OUTSOURCING AS A PROCUREMENT DISCIPLINE TRANSITION AND GOVERNANCE EXPLORING NEW GEOGRAPHIES AND TRANSBOUNDARY OUTSOURCING GOVERNMENT OUTSOURCING

This three-day event delivers programs designed to enhance your knowledge, skills, and experience in outsourcing, while enabling you and your organization to network with industry leaders and fellow customers as you learn about industrybest practices and key trends. You will be joined by others from organizations like Accenture, Aetna, Allstate, AstraZeneca, Bank of America, Booz & Company, Capgemini, Cassidy Turley, CB Richard Ellis, Citi, Coca-Cola, Colliers International, Duke University Fuqua School of Business, Eastman Kodak, Estee Lauder, Infosys, Johnson & Johnson, Kellogg, Kirkland & Ellis, Liberty Mutual, London School of Economics & Political Science, Mayer Brown, Morrison & Foerster, Neo Advisory & Neo Group, Nokia, Orange Business Services, PepsiCo, PETCO, PricewaterhouseCoopers, Procter & Gamble, Rural Sourcing, SAP AG, Wellpoint, and more for an unparalleled opportunity to learn and network with the industry’s best minds and visionaries. Register by November 1, 2010, and save $350! Go to www.iaop.org/Summit to find out more.

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ADVERTORIAL

Agile IT, Agile Business By Jimmy Harris and Stephen Nunn No doubt about it: cloud computing is hot these days. It’s hard to read a newspaper or magazine without seeing something about the topic. As big as it is, however, cloud computing is actually part of an even bigger story: the fundamental re-creation of the traditional enterprise operating model. A whole panoply of technologies, applications and architectures is creating a way to scale the IT function up or down immediately to meet the near-real-time needs of any large organization. Tap into only the service you need, when you need it, for as long as you need it. The result is a far more agile and cost-effective IT function.

Agile workplace Agile IT is also transforming the way business is done by making it easier for people to use the right computing or communications device to access the information they need, when they need it, and to collaborate more effectively with others both inside and outside the organization. The traditional way companies have thought about linking workers with information has generally been device-specific. Now, mobile applications available at app stores are revolutionizing how consumers use their mobile devices, and we can expect similar developments at the enterprise level.

But if such a model for delivering IT capabilities is as compelling as it sounds, why not extend it beyond IT and apply the same model to any combination of people, process and technology? Because the cloud is more than a new IT architecture. It’s actually a new business design as well—a new, more flexible operating platform.

Eventually, CIOs will be able to think about an entirely different IT model: provisioning services by linking multiple providers and applications in a reconfigurable, end-toend manner to meet the ongoing needs of workers and the entire business.

The ultimate benefit and competitive advantage delivered through this new platform and design is greater organizational agility. An agile operating platform, enabled by outsourcing models and by an IT infrastructure that expands or contracts to meet demand, can help organizations be more responsive to the marketplace and create a more open environment for innovation.

The cloud model becomes even more compelling as one moves from hardware to software to processes and functions. In this third area affected by the cloud model, we find providers offering software or services that enable an entire function or workforce. Often called “software as a service,” this aspect of the cloud model begins to point to more radical changes in how businesses operate.

This newly enabled agility will transform business in several key areas:

Agile IT With traditional IT services, a company signs a multi-year contract for infrastructure support with an outsourcer or other provider. Once the ink is dry on the contract, those services are locked in for the specified period. With a cloud model, by contrast, IT services can be reconfigured quickly in support of new strategies and opportunities. When the needs of the enterprise change, a company isn’t saddled with irrelevant IT support or obsolete infrastructure. This kind of technology elasticity and scalability is fundamental to agility.

Agile processes

Cloud computing and software as a service present IT capabilities to companies on a pay-as-you-use basis. It’s an agile operating infrastructure that enables executives to make sourcing decisions in a rhythm that is more attuned to business cycles, rather than decisions that will result in a fixed condition over a period of many years.

Agile business But it is at the enterprise level where the use of the cloud model truly gets interesting. Here we find an enterprise operating platform that takes the app store approach to configuring IT capability and applies it to the business as a whole.

In this model, chief executives not only manage their organizations; they help design and redesign them too. They are managing, in fact, a virtual enterprise—an ecosystem of cloud providers, IT and business process outsourcers, and a host of other parties, both internal and external. We are some years away from this kind of enterprise operating model on a large scale, but the harbingers are already here. Consider “bundled outsourcing.” By having a single provider responsible for several related functions—human resources, finance, procurement, learning and so on—an organization gets the equivalent of the interoperability of technologies and processes at the enterprise level.

A new era The cloud model represents another stage in the relentless disaggregation of the business—breaking up the organization and its functions into logical components, keeping in house those that cannot be done more efficiently or effectively by an outside specialist, and letting someone else run everything else. This model requires new kinds of management styles, new ways of managing people and new ways of valuing the enterprise itself. Certainly these are significant challenges. But in a world where responsiveness and agility increasingly mark the difference between high performers and also-rans, agile IT and agile business will continue to be a distinctive feature of marketplace success. This article is based on “Agile IT: Reinventing the Enterprise” which originally appeared in the June 2010 issue of Outlook, an Accenture publication. Used with permission.

You can read the full article at: accenture.com/agileIT

Who says you can’t be big and nimble?

No matter what size your organization, agility is imperative. Agility allows you to more swiftly capture opportunities. It accelerates development of new capabilities. It fuels high performance. Today’s winners prevail by balancing scale, speed and flexibility in ways competitors cannot match. To see how our vast experience and research can help you more nimbly ride the waves of change, visit accenture.com

WHAT’S HAPPENING AT THE IAOP SPONSORSHIP OPPORTUNITIES FOR THE 2011 OUTSOURCING WORLD SUMMIT ARE GOING FAST!

By sponsoring a summit, service providers and advisors gain a proven, unparalleled opportunity for brand awareness and influence on the thinking and decision-making of client executives worldwide. Support of the IAOP’s Outsourcing World Summit directly demonstrates the commitment your firm has made to leadership and excellence in outsourcing. If your company is interested, please hurry! Many slots have already been filled. Download the Sponsorship Prospectus at www.iaop.org or contact Renee Preston at renee.preston@iaop.org to learn how your firm can play a role in this exciting event. WELCOME ABOARD NEW SPONSORS!

Alsbridge Cassidy Turley COPC Deloitte Consulting ISS CERTIFICATION & PROFESSIONAL DEVELOPMENT

The IAOP’s Outsourcing Professional Certification Framework (OPCF) was designed to address the growing need for organizational-wide outsourcing expertise through standards covering the end-to-end outsourcing process and training and certification programs to enhance the skills and abilities of the individuals who design, build, implement, and manage outsourcing initiatives, as well as those who are skilled in the delivery of outsourced services. The certifications within this framework distinguish individuals as leaders in the field of outsourcing.

NEW!

COMPLIMENTARY CERTIFICATIONS

WEBINAR

COP

FAMILY

The IAOP expanded its Corporate and Professional Development Program in the summer of 2010 by launching both the aCOP and COS-TP certifications. The new Associate Certified Outsourcing Professional (aCOP) certification is specifically designed for professionals who have become experts on the endto-end industry standards. Achieving this certification demonstrates that they possess the knowledge required to design, implement, and manage outsourcing initiatives that have a high probability of achieving an organization’s intended outcomes. The Certified Outsourcing Specialist (COS) certification family is for individuals involved in the delivery of outsourcing services. Earning the Certified Outsourcing Specialist-Transaction Processing (COS-TP) certification means that one has demonstrated the skills necessary to quickly and accurately perform tasks in the transaction processing industry. Learn about the steps you need to take and the requirements for the newest certifications. For more details, visit www.iaop.org/COP or sign up for one of the IAOP’s complimentary 60-minute webinars. To view the next webinar dates, go to www.iaop.org/COPResource_Center or e-mail courtney.coon@iaop.org.

This year, Accenture was named the world’s best outsourcing provider for the third consecutive year, while TPI topped the list of leading advisors to the industry. The unranked lists will be previewed at the 2011 Outsourcing World Summit on February 21-23, 2011, at the Renaissance Esmeralda, Indian Wells, California and was fully released in May 2010 in a special advertising section of FORTUNE Magazine. “The Global Outsourcing 100 continues to grow each year as a trusted source for the industry to help companies select leading providers and advisors who will help them achieve greater business value and better outcomes,” said IAOP Chairman Michael Corbett, who will lead the evaluation team made up of recognized industry leaders for the second consecutive year. Companies will be judged using an objective methodology

GlobalizationToday October 2010

that examines 18 criteria, including size and growth, customer references, organizational competencies, and management capabilities. They can submit applications for the 2011 Global Outsourcing 100 and World’s Best Outsourcing Advisors via an online form, by logging on to www.iaop.org and clicking the My IAOP tab. Members and non-members of the IAOP are encouraged to apply. The deadline for fully completed applications is on November 1, 2010. For more information, visit www.iaop.org/2011GO100 or contact Pam O’Dell thru pam.odell@iaop.org or (845) 452-0600, local 121. THE IAOP EXPANDS GLOBALLY WITH NEW REGIONAL ADVISORY BOARDS

The IAOP is strengthening its global presence by establishing regional advisory boards in key regions around the world. The association has formed advisory boards made up of outsourcing leaders from top companies in Latin America, Northern Europe, the Middle East and Northern Africa, China, and the Pacific Rim, with more still being formed. The boards will leverage common interests and shared resources to tailor the association’s programs and services to regional needs while also ensuring that the IAOP is truly global in its thinking, leadership, decision making, and operations. “These new regional advisory boards will accelerate the IAOP’s global presence, enhance our impact as an international association, deliver more tailored services to our members, and promote outsourcing in regional markets, ” said IAOP Chairman

WHAT’S HAPPENING AT THE IAOP THE 2010 COP MASTER CLASSES AND WORKSHOPS

Participants in a COP Master Class learn a lot from networking with their peers as well

Michael Corbett. PRONicaragua Executive Director Javier Chamorro Rubiales said, “These boards will bring the value of a worldwide association to a regional level that is more accessible, agile, and productive, thus positively impacting the local industries, especially those in emerging markets such as Central America and more so in Nicaragua.” Santiago Pinzón Galán, executive director of the Chamber of BPO & IT at ANDI (National Business Association of Colombia), who is chairing the Latin America regional advisory board, said the board will provide an ideal match between “the IAOP’s global access to best practices, tactics, strategies, and networking, and Latin America’s talent, creativity, innovation, commitment, value, and the next decade of fast-growing social and economic development.” According to Ken Schulz, vice president of VanceInfo Technologies Inc., who is serving on the China board, “This is an opportune time for the IAOP China regional advisory board to help facilitate the rapid pace of outsourcing growth in the region as buyers and sellers of outsourcing services look to step up and compete on the world stage.” Ron Broeren, director of global sourcing advisory at Quint Wellington Redwood and chairman of the Northern Europe board, said the board will expand the IAOP’s presence in the region and “build a bridge with the global IAOP organization.” Indeed, the IAOP continues to grow globally. It has membership in 44 countries, established chapters in 15, and holds an annual Outsourcing World Summit attended by delegates from 34 countries.

The COP Master Class is an integral part of the COP program and a requirement of the new aCOP certification. It provides outsourcing professionals—customers, providers, or advisors—with an intensive learning experience on the state-of-the-art, end-to-end process for outsourcing success. Individuals who complete the course will not only earn 75 points toward their COP designation or fulfill the aCOP training requirement, but also improve outsourcing outcomes at the organizations with which they work. The Outsourcing Governance Workshop is a one-day intensive designed to gain comprehensive cutting-edge knowledge on all aspects of creating and sustaining successful relationships with your outsourcing partners. On top of earning 15 points toward the COP designation, participants also learn to understand the stages of growth in governance and assess where their organization is positioned and how it can move further along the growth curve. • OCTOBER 12-15: COP MASTER CLASS IN ROME, ITALY • NOVEMBER 1-3: COP MASTER CLASS* IN LA JOLLA, CA, USA • NOVEMBER 4: OUTSOURCING GOVERNANCE WORKSHOP IN LA JOLLA • DECEMBER 6-9: COP MASTER CLASS IN KUALA LUMPUR, MALAYSIA. TO REGISTER, CONTACT BOBBY VARANASI AT BOBBY@MATRYZEL.COM. • JANUARY 19-21, 2011: COP MASTER CLASS IN HONG KONG, CHINA. TO REGISTER, CONTACT WINNIE CHOW AT WINNIECHOW@HBC.HK. • MARCH 7-9, 2011: COP MASTER CLASS* IN CHAPEL HILL, NC, USA • MARCH 10, 2011: OUTSOURCING GOVERNANCE WORKSHOP IN CHAPEL HILL

*Register for any North American Master Class by November 30, 2010, and receive the Governance Workshop, free—that’s almost $1000 worth of savings! Unless otherwise noted, please register for the above classes and workshops at www.iaop.org. ONLINE COP MASTER CLASS FALL SPECIAL

Stay up to date with outsourcing’s most sought-after topics and prepare for the mandatory COP exam. The Online COP Master Class is available at your convenience and can be accessed from your own computer anywhere in the world at any time of day! Register at www.iaop-cop.com by December 1, 2010, and receive the $250-worth COP Exam Prep, free! THE IAOP ONLINE BOOKSTORE NOW OPEN!

Visit www.iaopbookshop.com to view and purchase publications from the IAOP, including the Outsourcing Professional Body of Knowledge (OPBOK) and more. IAOP members who order through the site get 15 percent off IAOP books, as well as any books published by VanHaren.

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SCRAPBOOK

Connecting Outsourcing Professionals Around the Globe Alice Szczepanski, senior specialist, Washington Gas; Vern Sheppard, COP, principal, Executive Operations Management (EOM); Andy Bart, consultant, (EOM); and Emma Morgenstern, an independent consultant, at the meeting of the Washington D.C. Chapter on September 16, 2010

sionals (IAOP) The International Association of Outsourcing Profes has direct, online er memb Each ies. countr 50 nearly in ers memb has gs, conferences, access to other members through chapter meetin . events rship and partne outsourcing To properly serve this diverse global community of countryand cityof rk netwo a ped develo has IAOP the , professionals leaders ry indust The . boards level chapters and regional-level advisory tion associa the with work boards and rs chapte who serve on these to tailor these to help define its overall programs and services and in their regions programs to meet the unique local needs of members world. the around al advisory The IAOP currently has 44 active chapters and 11 region areas: ing follow the in (RABs) boards • Latin America • British Isles • Northern Europe • Central and Southern Europe • Eastern Europe and Russia • Middle East and Northern Africa • Africa • India • China • Pacific Rim • Australia and New Zealand

Participants listen intently

at last month’s India Chapte

of Gopal Devanahalli, co-chair the India (Bangalore) Chapter sys, and vice president of Info d. crow the addresses

r meeting.

Everest Group Associate Principal Vikash Jain presents “The Status of the Outsourcing Industry” at the India Chapter meeting.

outsourcing Indeed, the IAOP is a global community of . professionals for outsourcing professionals d with the For more information on how you can become involve g. aop.or info@i e-mail RABs, IAOP’s chapters and

Mike Corbett; Carlos Andres de Hart Pinto, vice minister of Commerce, Industry, and Tourism, Colombia; and Santiago Pinzon, executive director, ANDI and chair of the IAOP’s Latin America regional advisory board and co-chair of the Colombia Chapter

GEO

Get Recognition For Your Team!

IAOP’s Global Excellence in Outsourcing Award

IAOP recognizes outsourcing professional teams at customer organizations that are leading the effort to better serve their customers and make their companies more successful through outsourcing. GEO Awards are given in two categories: · The GEO Award for Best Practices · The GEO Award for Innovation

Enhance awareness — both inside and outside your company — of your team’s accomplishments. There is no fee for applying. Teams selfnominate through an online application at www.IAOP.org/GEO.

For more information and to apply, visit www.IAOP.org/GEO.

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URL

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Accenture Avasant, LLC BCS ConQuaestor David Consulting Group Diebold International Association of Outsourcing Professionals (IAOP) InvestChile ITSqc, LLC Kelly Outsourcing & Consulting Group (KellyOCG) Pillsbury Winthrop Shaw Pittman LLP ProBenchmark RR Donnelley Global Services SENCOR WNS Global Services Zinnov

www.accenture.com www.avasant.com www.bcs.org/opportunity www.conquaestor.nl www.davidconsultinggroup.com www.diebold.com www.IAOP.org

48, 49 6 36, 37 4 0 40 22, 23 18, 19 14

www.investchile.com www.itsqc.org www.kellyocg.com www.pillsburylaw.com www.probenchmark.com www.outsourcing.rrd.com www.sencor.net www.wns.com www.zinnov.com