Op2i Outsourcing Survey 2008 Exec Report

Outsourcing 2.0 - Survey 2008

Exec Summary

Full report available from www.Op2i.com

1No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd

www.Op2i.comManaging Risk – Delivering Value™

9th March 2009

Bharat Vagadia

Op2i

- a business improvement firm specialising in outsourcing

We provide and combine advisory, training and implementation services throughout the

sourcing lifecycle

We leverage our experience, tools and relationships to ensure clients outsource the right

processes for the right reasons, to the right location and to the right service providers



We offer managed outsourcing solutions from undertaking programme management on

behalf of our clients to fully managing the outsourcing contract on a client’s behalf

We provide intermediary services to pre-screened service providers which help clients’

go-to market quickly, at reduced cost and risk

Convergence the new driving force

- outsourcing will equate to globalisation

• Convergence : Interaction, overlap and absorption of different industries converging together in a more competitive and deregulated market

• Convergence is happening in a range of forms changing the nature of market structures, demand, competition, competitors and the ways of doing business

• Convergence - what the world looks like tomorrow:



– Skill sets are available everywhere,

– Everywhere is connected,

– Knowledge is ubiquitous,

– Everything is now,

– Everywhere is here,

– Resources are globally distributed.

Outsourcing and Offshoring can

enable businesses to transform

their organisations and become

flexible, dynamic and globalised.

In the future the terms

“outsourcing and offshoring” will

replaced simply by globalisation.



Convergence Trends © Op2i 2008Convergence Trends © Op2i 2008

Economic downturn and convergence

- implications for outsourcing

Continuing overcapacity, increasing globalisation, the commoditisation of some services, the emergence of new technologies and what appears to be a prolonged depressing economic outlook, one thing is clear: organisations large

and small face an era of exceptional competition – this trend is likely to continue for some time, beyond the current economic cycle

The implications for the outsourcing industry are less clear – it is likely that Europe will see some curbs on offshoring, given increasingly protectionist policies and trade union pressure, as unemployment rates rises

Requires organisations to become more

efficient (in all its economic forms) and

Forcing organisations to think local and

protect jobs, at higher costs and reduced



Convergence and competition are

long-term trends that will only get

more intense with time, whereas

the protectionist trends are short-

term, a reaction to the current

economic slowdown

efficient (in all its economic forms) and

global

protect jobs, at higher costs and reduced

efficiency

How do you persuade end users

to incur the substantial initial

cost involved in any new

outsourcing contract?

Given that a substantial number

of outsourcing deals fail, new

and innovative business models

will be required!

Key messages from survey

- companies need to focus on

• Defining what and why activities should be outsourced today and in the future – definitions

of core and non-core will change over time

• Better and smarter SLAs and measurement systems – without which a contract is useless

• Selective use of specialist advisors both pre and post contract – you cannot afford the

risks of failure

• Flexible contracts – convergence implies constant change – should however not mean

lightweight contracts

• Management of relationships (partnerships) - communication and culture, especially as



• Management of relationships (partnerships) - communication and culture, especially as

clients increasing use multi-shore strategies

• Going beyond just labour arbitrage – how can partners help you in improving performance

and entering new markets

• Ensuring multi-disciplinary teams to manage the programme – outsourcing as a

transformational strategy effects the whole organisation

• For suppliers, either have scale, deep knowledge or both – competing on the strength and

depth of their talent pool, knowledge, technology enabled infrastructure and client

relationships – move towards multi-delivery locations

Survey findings



Survey findings

Economic downturn likely to lead to more outsourcing

40%

50%

Which of the following best describes the main effect outsourcing and offshoring has upon domestic businesses

The general consensus (50% of respondents) believe interest in outsourcing has increased with

the economic downturn

The majority of respondents believe outsourcing has a



0%

10%

20%

30%

Positively helps in terms of productivity

and efficiency

Helps cut costs and improve profitability

No real impact Detrimental to all local businesses

Detrimental to the SME market in the

local economy

outsourcing has a positive effect on

domestic businesses

Data protection however remains a real concern

20%

30%

40%

50%

Which of the following best describes your view of Data Protection and Intellectual theft within off-shoring

How do emerging destinations overcome

data protection concerns?



0%

10%

20%

It is a real problem and threat

I believe it may be a problem in some cases

I don't believe it is actually that important It has been blown out of proportion by the

media

The government is probably actually worse

Not sure

Propensity to outsource and offshore business functions

- the usual suspects

60%

80%

100%

Propensity to Outsource by location

Onshore Offshore Never

Marketing, media management, IT security and virtual PA functions are the least likely activities to be

outsourced

Six activities dominate the offshoring space: 1.Software

Development, Testing & Management, 2.IT support, 3.Email customer support,



0%

20%

40%

MK

T R

es / C

om

p

Inte

lligence

Sale

s L

ead

Gen

era

tion

Mark

etin

g

Med

ia M

an

ag

em

ent

Custo

mer S

up

port –

call

cen

tres

Custo

mer S

up

port –

em

ail

HR

–tra

inin

g a

nd

recru

itment

HR

–p

ayro

ll, benefits e

tc

Pro

duct D

evelo

pm

ent

Lo

gistics a

nd P

rocu

rem

ent

Facilitie

s Man

agem

ent

IT S

up

po

rt

IT S

ecurity

So

ftware

, Web

Develo

pm

ent, T

estin

g a

nd

Man

ag

em

ent

Invo

icing, B

ookk

eep

ing, A

cc

Fin

an

ce a

nd T

reasu

ry

fun

ctio

ns

Do

cum

en

tatio

n/K

now

ledge

Mn

gt

Virtu

al P

A

3.Email customer support, 4.Documentation and

Knowledge Mngt 5.Call centres 6.Invoicing,

Bookkeeping and Accounting

Activities most likely to be outsourced onshore include: HR recruitment and training, Facilities Management, and

Logistics

Loss of control and conflicting management styles remains

biggest vulnerability faced by businesses

0%

10%

20%

30%

40%

Service Provider for Performance

Strategic Information Dependence

Conflicts in management styles

Data protection Compliance

Biggest vulnerability faced by business when outsourcing on-shore

The biggest vulnerability faced by businesses when

outsourcing onshore or offshore includes: dependence



0%

10%

20%

30%

40%

Service Provider Performance

Strategic Information

Dependence

Conflicts in management style

Data protection Compliance

Biggest vulnerability faced by business when outsourcing off-shore

offshore includes: dependence on the service provider for

performance and conflicts in communications and management styles

Benefits realisation and reintegration are largest financial

risks

0%10%20%30%40%50%60%

High up front capital and transition costs - e.g. IT

systems.

Cost of reintegration of processes on

termination of the outsourcing agreement

Cost associated with managing the service

provider.

Not achieving the cost benefits

Largest financial risk when outsourcing onshore

The greatest financial risk remains the possibility of not achieving the cost

benefit, followed by cost of reintegration of processes on termination of the

outsourcing agreement



0%

10%

20%

30%

40%

50%

High up front capital and transition costs - e.g. IT

systems.

Cost of reintegration of processes on

termination of the outsourcing agreement

Cost associated with managing the service

provider.

Not achieving the cost benefits

Largest financial risk when outsourcing offshore

For offshoring, costs associated with managing the service provider rank

higher than up front capital and transition costs

Inadequate internal skills and expertise, together with poor

contracts and SLAs source of largest internal risks

0%

10%

20%

30%

40%

Poorly constructed contracts and Service Level Agreements

Insufficient internal project management skills

Inadequate skills, proficiency and experience in outsourcing

Source of largest internal risks when outsourcing onshore

All three areas remain a concern for many



0%

10%

20%

30%

40%

Poorly constructed contracts and Service Level Agreements

Insufficient internal project management skills

Inadequate skills, proficiency and experience in outsourcing

Source of largest internal risks when outsourcing offshore

concern for many organisations

Partnerships approach, secondment and seeking specialist

advice are the most effective risk mitigation strategies

0%

20%

40%

60%

80%

Negotiate strong contract

Build Partnership relationship

Manage public relations and press

Impose legal obligation on

supplier

Place limitations on subcontracting by

supplier

Most impacting outsourcing risk mitigation actions

Most effective risk reduction actions when outsourcing

Development of a partnership relationship between customer and supplier – easier said than

done however.. …



0%

20%

40%

60%

Consulting with a specialist outsourcing

intermediary

Obtaining professional training in outsourcing

Accessing information from a trade association

Seconding staff to provider

Most effective risk reduction actions when outsourcing

Seconding staff and consulting specialist outsourcing

intermediary

Good governance, measurement and monitoring systems

seen as being critical to success

0%

20%

40%

60%

Audit of vendor processes and security

arrangements

Shared quality management system

Well defined governance structures

and process

SLA measurement and monitoring systems

Means of achieving low risk outsourcing project implementation

Combination of a well defined governance structure and

sufficient SLA measurement and monitoring systems.



0%

20%

40%

60%

80%

Exhaustive business plan

Prior process optimisation

Selecting right processes/function for

outsourcing

Rigorous quality planning, systems and

processes

Reintegration plan of processes

Means of gaining maximum return from outsourcing investment

Selecting the right process and functions to

outsource in the first place

India remains in the lead, but number of destinations on the

increase, and clients becoming more selective

Access to resources

Labour costs

Language

Skilled work force

Existing track record

First choice destination: India - why?India was ranked number one choice by a long way

China comes a very distant second place as the first choice destination, with UK, Poland, Costa Rica, Philippines, Bulgaria and Romania each figuring, primarily on the basis of availability of skilled workforces



0% 5% 10% 15% 20% 25% 30% 35% 40% 45%workforces

China competes with the Philippines for second choice, but primarily driven by the search for lower labour costs

Most organisations choose Philippines for its language capability

Ireland/UK, China and the Philippines were equal third choices. The reasons for choosing Ireland are varied and show a degree of maturity of the country as an offshoring destination. Like the UK and Northern Ireland as destinations, Ireland’s skilled workforce, proximity to UK, cultural alignment, language and access to resources all figure as strong drivers

Most seek specialist help in accessing skills, knowledge and

developing good governance structures

0% 10% 20% 30% 40% 50%

National Outsourcing Association

Management Consultant

Niche Outsourcing Specialist

Single domain specialists e.g. lawyer, consultant, trainer ....

In-house resources only

Preferred mode of accessing outsourcing skills and knowledge?

Perceived good outsourcing governance model?

Niche outsourcing specialists and management consultants ranked

highly



0% 10% 20% 30% 40% 50%

Home grown

Negotiated with vendor

Independently developed bespoke governance model

Mediated governance model provided by an experienced outsourcing specialist

Other

a) Mediated governance model provided by an experienced outsourcing specialist

b) Negotiated with vendor

Summary

• Outsourcing has been gaining momentum in the last decade, with the emergence of more services, more company types engaging in and more destinations to choose for outsourcing. As Bruce noted “outsourcing has become more interesting over time, but BPO investment has been around for many years. If you were to choose sub-sectors to invest your money, it is a good place to put your money, because you have contractual income, an industry where there will be growth over the long term. However, return on investment multiples are coming down and are becoming more realistic.

• There is no doubt the outsourcing industry is still learning and has yet to mature sufficiently for there to be a body of knowledge on what constitutes best practice - for a variety of firms.

• Deciding what to outsource, where to outsource and identifying the right provider are simply the opening



• Deciding what to outsource, where to outsource and identifying the right provider are simply the opening challenges. Making outsourcing happen provides further potential pitfalls – it calls for strong project, change and governance management skills that probably don’t exist internally. Firms must start viewing outsourcing as a strategic partnership approach, utilising advisors to complement and enhance internal teams.

• Challenging times will call for radical changes to business practice and business models.

• Outsourcing 2.0 will require different business models, greater risk sharing, better management of SLAs / measurement systems and of the relationship itself

• Is your company still a dinosaur when it comes to outsourcing?

An appropriate African Proverb:An appropriate African Proverb:

– Every morning in Africa, a gazelle wakes up.It knows it must run faster than the fastest lion or it will be killed.



– Every morning a lion wakes up.It knows it must run faster than the slowest gazelle or it will starve to death.

– It doesn’t matter whether you are the lion or the gazelle.

– When the sun comes up, you had better start running.

Contact Op2i to find out how we can help you run faster

http://www.Op2i.com

Constructive Reintegration = Outsourcing 2.0

Bharat Vagadia

CEO Op2i



CEO Op2i

Board Director UK National Outsourcing Association

Author: Outsourcing to India – a Legal Handbook

T: +44 207 193 4339

M: +44 7711 898089

E: [email protected]

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Op2i Outsourcing Survey 2008 Exec Report