Tapping New Sources of Executive Outsourcing Talent

Tapping New Sources of Executive Outsourcing Talent

By Jeff Hocking, Hawlan Ng and Katie Tucker

Understanding the highly unique qualifications, skills and behavioral profiles of successful outsourcing executives

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s outsourcing’s global reach and implementation steadily expand, boosting the demand for outsourcing executives, outsourcing firms will need to consider candidates well

outside the typical competitive landscape. Although the traditional companies remain a viable target for talent, new research demonstrates that key skills and capabilities can be acquired outside of the industry and then honed into productive outsourcing leadership competencies.

Ongoing Korn/Ferry research identifying the ideal emotional profiles and thinking styles of successful outsourcing executives marks the beginning of an effort to inject greater scientific rigor into the evaluation, recruitment and selection of executive talent in a rapidly evolving profession. The research is also designed to help ensure that outsourcing companies can effectively access an ever-growing population of future leaders.

The use of outsourcing by global companies continues to grow and change – often quite significantly over short periods of time, as the recent rise of “same-shoring,” recruitment process outsourcing (RPO), finance & accounting outsourcing and industry-specific outsourcing (e.g., life sciences) demonstrates.

As a result of these changes as well as the singular aspects of the outsourcing business model, the leadership qualities needed by outsourcing firms to successfully navigate this volatility differ in meaningful ways from the leadership qualities that generate success in most, if not all, other industries.

For example, the most effective outsourcing executives possess higher levels of energy, tolerance for ambiguity and confidence compared to profiles of best-in-class executives outside the industry, according to Korn/Ferry’s proprietary assessment database (see charts on page 6). These differences makes sense in light of the constantly changing dynamics and the “24/7” culture of the outsourcing industry.

By comparing emerging scientific studies of the emotional profiles and thinking styles of successful outsourcing executives with insights gleaned from actual recruiting and field experiences, this whitepaper seeks to equip outsourcing firms with a better understanding of what to look for, and where to look, when hiring outsourcing executives.

Evolving Beyond Efficiency-Only

The staggering economic downturn has not impeded the global shared services and outsourcing market’s 15 percent annual growth rate, and the value of this $1.4 trillion market.1 If anything, the recession appears to have further spurred the need for, and use of, outsourcing: in a second-quarter 2009 survey of global outsourcing professionals, 58 percent of respondents indicated that economic conditions were “driving more outsourcing.”2 A similar increase in outsourcing occurred during the 2001-2002 U.S. recession.

In addition to information technology outsourcing (ITO), human resources outsourcing (HRO), finance & accounting outsourcing (FAO) and customer care (or call center) outsourcing – which have long figured as the most commonly outsourced activities – companies have more recently embraced procurement outsourcing, knowledge process outsourcing (KPO), and RPO. Global procurement outsourcing, for example, increased by more than 30 percent last year, twice the annual growth rate of all forms of outsourcing.3

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Financial services, technology and healthcare, respectively, represent the industries that currently invest the most money in outsourcing services. Meanwhile, other industries, such as life sciences, have demonstrated significant, market condition-driven increases in outsourcing spending.4 The rise of specialized industry-specific outsourcing services points to an important motivational shift among outsourcing buyers. In the past, outsourcing was pursued almost exclusively as an efficiency play. A company paid an outsourcing firm to perform a process, or processes, faster and cheaper. While efficiency remains paramount, it is far from the only reason why companies outsource their processes.

Cost reduction and speed remain crucial requirements, but these drivers have been joined by other higher-value motivations, such as access to better talent and what some outsourcing vendors and buyers describe as “transformational� opportunities. For example, by outsourcing drug development or even sales and marketing processes to a third party, a pharmaceutical company is investing in hopes of making a strategic leap rather than simply seeking to trim costs.

A recent study identified the following outsourcing benefits buyers identified as their primary drivers for investing in outsourced finance and accounting processes:

1. Cost reduction; 2. Access to better talent; 3. Addressing staffing issues and labor shortages; 4. Access to better technology and systems; 5. Process and productivity improvements; and 6. Better risk management capabilities.5 Outsourcing’s increased use during recent recessions and its evolution beyond an exclusive focus on cost reduction have helped cement its inclusion in the strategic tool box of most companies.

This shift has clear implications on the type of executives outsourcing firms currently seek.

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Smarter, More Discerning Buyers

That said, the outsourcing discipline continues to evolve, sometimes quite suddenly.

For example, the sudden devaluation of a specific currency can dramatically reduce the labor arbitrage benefits of locating outsourcing operations in a specific country. This type of volatility remains one of several developments that outsourcing companies can expect to contend with during the next 12 to 24 months: Savvier Buyers: In recent years, outsourcing-related news coverage has focused on its growth, its political dimensions and, most recently, its welcome status as a source for U.S.-based job growth.

The coverage is notable for what it lacks: reports of outsourcing partnership failures. Since the highly publicized failure of a number of large outsourcing partnerships in the late 1990s and early 2000s, the effectiveness of outsourcing relationships has increased steadily.

This success is due, in part, to a consulting sub-sector, outsourcing advisory, whose very existence is dedicated to leveling the playing field between first-time outsourcing buyers and seasoned providers.

Today, however, there are fewer first-time buyers and many more seasoned buyers. Outsourcing management has become an important executive competency. The CFO of a $2 billion U.S. manufacturer describes this skill as a “ticket to the game” for corporate finance executives.6 Additionally, a growing number of companies now hire executives specifically to manage outsourcing partnerships. This development has caused some leading outsourcing advisors to wonder privately about the future of their sub-sector, as outsourcing-management expertise and experience within their client companies increases. As outsourcing buyers grow more experienced, they also grow more demanding and more rigorous in their management of the relationship.

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A Demand for Greater Flexibility: One of the most common demands outsourcing buyers make is for more flexible outsourcing relationships. Within the next 12 to 24 months a large number of major, 10-year outsourcing agreements signed in the early 2000s will expire. As a result, “outsourcing providers will need to provide the flexibility that their customers are looking for in order to maintain their income from these deals that they worked so hard on 10 years ago and throughout [the duration of] the agreement.”7

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Doing so means considering gainsharing fee arrangements, significant changes to servic e level agreements, shorter agreement terms and other changes requested by customers. “Global uncertainty and customers’ desires for immediate and guaranteed cost savings will lead companies to seek shorter outsourcing contracts that give them the ability to adjust volume and service level terms,” notes a 2008 industry report.8 A Growing Need for Sustainable Practices: In addition to demands from more experienced customers, outsourcing companies, particularly those involved in ITO, face growing pressure to demonstrate their socially responsible management of the “triple bottom line” of environmental, ethical and financial performance.

One of the leading analyst-side authorities in the outsourcing market predicts that “increasing energy costs, growth in computational demands, and the pain associated with facility expansion (space, power, cooling) will drive business cases supporting technology modernization — with green IT becoming a very important factor in total cost of ownership (TCO) among outsourcing companies.”9 Ongoing Volatility: In addition to ongoing macroeconomic volatility, outsourcing companies can expect to contend with continuing volatility within specific market segments. In the past year, one of the most lucrative market sectors, financial services, experienced extreme upheaval, which resulted in consolidation and in some wellknown cases, outright collapse. Those changes swiftly eliminated some highly lucrative outsourcing agreements.

The U.S. healthcare sector, another extremely profitable market, is on the brink of experiencing regulatory-driven upheaval that will likely affect how major companies, including health insurers, use outsourcing services. Factor in currency fluctuations, ever-changing political currents and geopolitical unrest in several parts of the world, and it becomes clear that the one certainty confronting outsourcing companies is ongoing uncertainty.

Given the unique and severe challenges facing outsourcing firms, it may not be surprising that a pair of leading outsourcing advisors compare the buyer-provider relationship to a marriage by organizing the outsourcing lifecycle into distinct phases: introspection, courtship, dating, the marriage ceremony and commitment.10 5

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LEADERSHIP CHARACTERISTICS OF OUTSOURCING EXECUTIVES Korn/Ferry’s proprietary assessment tool has been given to more than a million executives worldwide. The data gleaned has yielded best-in-class profiles for executive positions across multiple industries. This assessment also integrates the collective findings of two independent and consecutive 30-year studies on leadership development and executive success. The system is designed to assess competencies and fit, identify individual strengths, and support the onboarding and professional development processes.

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Emotional Profile

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4 Profile of Best-in-Class: Executives Across All Industries Outsourcing Executives*

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Ambiguity Empathy Tolerance Composure

Energy

Humility

Profile of Best-in-Class: Executives Across All Industries Outsourcing Executives*

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Confidence

Thinking Style

Action-Focused

Flexible

Complex

EMOTIONAL PROFILE Interacting with others and dealing with emotionally-charged situations

THINKING STYLE Operational style when focusing on a task or situation

Ambiguity Comfortable with uncertainty and Tolerance diversity, thrives on change

Action- Focused

Fast, efficient, productive, orderly

Composure Calm, cool under pressure, emotionally

steady, not frustrated easily

Flexible

Adaptive, changeable, intuitive

Creative

Empathy

Sizes up self and others accurately, appreciates people’s feelings

Complex

Thorough, quality minded, data driven, long-term thinker

Energy

Mental energy and stamina, capacity to sustain analytic thinking

Creative

Exploratory, creative, patient, logical

Humility

Willingness to adapt to different situations, lack of personal ego investment

Confidence Self assurance, ambition, willingness to

tackle risks, conflict and challenges

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*Research in progress SOURCE: The Korn/Ferry Institute, 2009

Leadership Implications from the Field

Each phase of the outsourcing lifecycle contains distinct capability requirements; these range from sales and marketing, to developing thick contracts and negotiating service level agreements, to project management, to change management, to operational level management, to executive-level troubleshooting. If they are to oversee a healthy “marriage,” successful outsourcing executives must possess these skills in addition to many other qualities.

Regardless of how their services differ, outsourcing companies conducting executive searches remain unified in the belief that successful leaders differ from executives in other industries in several important ways, including the following: Customer Care, Redefined: Not only are outsourcing companies more customer-focused than most other industries, they are also uniquely customer-focused. That is, outsourcing companies serve their customer’s customers. An executive with an FAO provider may partner with the CFO of a client company to perform the order-to-cash cycle, for example, but successfully performing this service requires the outsourcing executive to interact with the client company’s customers on a daily basis. The same holds true for a customer care outsourcing company. Other outsourcing companies may deal directly with their client’s operational employees or its vendors (e.g., a procure-to-pay outsourcing provider). An outsourcing company may have dozens of clients while working on a daily basis with thousands of its clients’ customers, employees and vendors.

For this reason, outsourcing firms seek leaders who understand the dynamics involved in serving as an extension of a client company’s brand and reputation.

Left Brain, Right Brain: Outsourcing companies routinely say they want to hire executives who are both analytical and instinctual.

Given the importance of “doing more for less and doing it better,” outsourcing firms need executives who demonstrate the ability to, and a passion for, delving into details. The success of an outsourcing partnership hinges on the outsourcing company’s ability to adhere to a dizzying array of specific guidelines, parameters and performance metrics on a daily or hourly basis throughout the course of the three-, five- or 10-year lifecycle of the contract. Not surprisingly, 7

“outsourcers frequently use Six Sigma Quality Management tools to manage execution of BPO or ITO contracts,” reports a leading outsourcing expert.11 Yet, analytical prowess represents only part of the specification picture. Outsourcing companies also indicate that they want their executives to possess “street smarts” and to “understand the human factor.” When the performance metrics do not meet client expectations, the relationship hinges on an outsourcing executive’s ability to communicate and troubleshoot with their client counterparts. Outsourcing executives also need to understand the human factor to effectively manage a large, and sometimes massive, workforce. Doing so requires excellent communications skills with regard to the highest and lowest levels of an organization’s hierarchy.

Similar opposing needs define other elements of an outsourcing executive’s mission: long-term goals must be balanced against short-term performance management; efficiency improvements must be reconciled with the need for new infrastructure investments; the workforce must be managed to produce highly efficient work without burning out (and creating additional turnover-related costs); and global business dynamics must be monitored along with specific performance metrics.

Constant “Thin-Slicing:” The term thin-slicing, which best-selling business writer Malcolm Gladwell defines as “the ability of our unconscious to find patterns in situations and behaviors based on very narrow slices of experience,”12 also describes a quality that top outsourcing executives possess.

One of the most formidable challenges an outsourcing executive encounters is a byproduct of the profession’s ever-changing dynamics and extreme complexity: ambiguity. One outsourcing veteran describes the business as a slinky – when one ring moves or changes, it sets off a chain reaction causing every other area of the business to change.

Outsourcing executives need to respond to frequent, immediate and significant changes with relatively minor amounts of information.

The ideal outsourcing company CEO “is like a jet fighter,” notes an outsourcing company corporate director. “This person must 8

make many, many decisions with very limited information.” The CEO of a major outsourcing firm agrees, noting that “We just don’t have the time to dig deep because we are focused on so many different customers’ needs.” In short, outsourcing executive search committees continually seek out “thin-slicers.”

Self-Motivation: In some ways, the outsourcing executive leadership experience parallels that of a CIO. Smooth-running operations rarely generate pats on the backs; however, the slightest deviation from baseline service levels will result in a rapid dose of dissatisfaction.

Scientific Support for Unique Leadership Qualities

The demand for fighter-pilot decisiveness in the field is supported by a more scientific assessment of the outsourcing executive’s leadership qualities.

Analyses of Korn/Ferry’s proprietary assessment database, which consists of a significant number of outsourcing executives’ assessment results as well as extensive interviews with heads of these firms, suggests that the CEOs and senior-most operating executives of outsourcing companies possess different leadership styles than chief executives within other industries.

“Thinking/operating style” (see the “Emotional Profile and Thinking Style of Outsourcing Executives” sidebar) measures how executives think and operate when they are unaware of how their image is being perceived publicly (i.e., in an interview or during a public presentation).

This analysis indicates that outsourcing executives are significantly more action-focused than executives in other industries. Additionally, the research indicates that best-in-class outsourcing executives must move with great adaptability and flexibility, more so than what might be required in non-outsourcing companies. Outsourcing leaders often do not have as much time or predictability in their work to formulate detailed plans that produce optimal decisions. While many executives outside this space create thoroughly vetted plans that focus on longterm quality, the outsourcing environment seldom allows an executive this luxury. While every executive aims for high quality, the reality of the outsourcing world is that goals need to be met at a very rapid pace.

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The Korn/Ferry assessment also measures an outsourcing executive’s “emotional profile,” which is the capacity to interact with others and deal effectively with complex and emotionally charged situations. The research suggests that best-in-class outsourcing executives need to deal with higher levels of uncertainty, change, diversity and variety than their CXO counterparts in other industries. As a result, the level of ambiguity outsourcing executive must tolerate also tends to be higher.

Additionally, the “confidence” benchmark is also a bit higher among outsourcing executives than it is among best-in-class executives in other industries. This difference relates to the size of the workforces that successful outsourcing executives manage (sometimes 50,000 people or more). To do so effectively, outsourcing executives must possess a strong willingness to tackle risks and challenges, and the self-assurance to deal with conflict and tension.

Knowing What to Look for Expands Where to Look

By acquiring a more holistic grasp of the expertise, experience and leadership qualities that successful outsourcing executives possess, outsourcing companies and boards can effectively enlarge the pool of leadership candidates.

Rather than simply targeting top competitors as the primary, or sole, source for leadership talent, companies can seek out the same type of talent wherever it currently resides, including other industries, client companies and their own ranks. Besides, relying too heavily on recruiting top executives from competitors can constrict the search, excluding better candidates from consideration.

Anecdotal evidence from recent search assignments suggests that a more complete understanding of the components of outsourcing executive leadership success expands the search “locations” in interesting ways. For example, one recent search for an outsourcing CEO produced a highly attractive candidate from outside the industry whose qualifications included experience in a highly operational industry (at one of the world’s most successful conglomerates) and subsequent experience at one of the world’s most innovative online companies. The candidate’s unique Six-Sigma-meets-Silicon-Valley grooming was highly alluring for the equally unique demands of the outsourcing industry.

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Moreover, by applying more scientific rigor to identifying the leadership qualities of successful executives, outsourcing companies can better identify which rising executives within their own ranks may be future CEO material. By doing so, these companies can more effectively tailor appropriate leadership development activities to these “future potentials.”

Homegrown talent will become an increasing valuable asset as outsourcing’s growth continues to increase, expand and transform.

The competition for top talent will only increase, and it will pay to know what to look for in outsourcing executives and where to find them.

Endnotes 1 “Global Outsourcing Market to be Worth $1,430 Billion by 2009,” Computer Business Review, August 2007 2 “2Q09 Advisor and Business/IT Service Provider Pulse Survey,” EquaTerra, July 15 2009 3 “Procurement Outsourcing to Enjoy Rapid Growth,” Supply Chain Digest, Nov. 26, 2008 4 “Pharmaceutical Industry Becoming More Aggressive Outsourcing Buyer,” Business Wire, June 26, 2008 5 “Outsourcing the Back Office: The Path Toward Sustainable Benefits,” CFO Research Services in collaboration with Capgemini. July 2006. ©CFO Publishing Corp.

6 Ibid 7 Holt, Maxine. “AnalystWatch: Flexibility Demanded in Outsourcing Renewals,” Computer Business Review, March 20, 2008 8 “Top Five Outsourcing Trends for 2009 Predicted by International Association for Outsourcing Professionals,” International Association for Outsourcing Professionals, Dec. 29, 2008 9 “2009 Green Outsourcing Survey,” The Black Book of Outsourcing, 2009 10 Krell, Eric. “Management Accounting Guideline: Outsourcing the Finance and Accounting Functions,” Certified Management Accountants of Canada, American Institute of Certified Public Accountants and The Chartered Institute of Management Accountants. ©2007 11 Fersht, Phil. “Can Six Sigma Really Help Execute an Effective Sourcing Process?” Horses for Sources blog: http://fersht.typepad.com/the_outsourcing_bloghorse/2009/06/sixsigma.html. June 15, 2009 12 Gladwell, Malcolm. “Blink: The Power of Thinking without Thinking,” Little, Brown and Company, 2005

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Jeff Hocking is Managing Director of Korn/Ferry’s Northern California offices.

Hawlan Ng, Psy.D., is a Director of Assessment Services based in Korn/Ferry’s San Francisco office.

Katie Tucker is a Senior Client Partner in Korn/Ferry’s Global Technology Market, based in Atlanta.

About The Korn/Ferry Institute

The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues.

The Institute commissions and publishes groundbreaking research utilizing Korn/Ferry’s unparalleled expertise and preeminent behavioral research library. It also serves as an exclusive destination for executives to convene and hone their leadership skills. The Institute is dedicated to improving the state of global human capital for organizations of all sizes around the world. For more information on the Institute, visit www.kornferryinstitute.com.

About Korn/Ferry International

Korn/Ferry International, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, develop, retain and sustain their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

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