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Vol. 03, Issue 34November 2008
Governance Tools Can be aGame Changer p. 27
F&A Outsourcing Regroupsin 2008 p. 30
Understand the essentialnature of innovation inoutsourcing engagements.
Rs. 250
52 pages including cover
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Vision
The gateway to the global sourcing
of IT and BPO services
Print Magazine
The monthly magazine dedicated to the buyers of IT and
BPO services focuses on bringing high-quality content to
its audience. Our credible content comes from a network
of highly experienced writers and industry insiders.
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http://www.globalservicesmedia.com/content/
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Send letters to [email protected], or to any of our
writers. We reserve the right to edit all letters. Postings
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published in our magazine or Website.
In the Next Issue
Revisiting Global Sourcing in an Uncertain Economy: A
compilation of thought-provoking articles from sourcing
experts on how to handle the economy.
DIRECTORY OF SERVICES
The gateway to the global sourcing of IT and BPO services
MANAGEMENT
Shyam Malhotra
Raman Roy
Hoshie Ghaswalla
EDITORIAL
Ed Nair, [email protected]
Keerthi Nair, Associate [email protected]
Namita Goel, Assistant Editor
Imrana Khan, Senior Correspondent
Pratibha Verma, Senior Correspondent
COLUMNISTS
Allan Schweyer
Lori Blackman
Phil Fersht
Shyamanuja Das
DESIGN
Shilpi Bhargava, Manager, [email protected]
SALES & MARKETING
Satish Gupta
Head-Sales & Marketing
91 987-199-7785
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91 987-332-2490
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Deepak Jindal, Circulation Executive
PRINT SERVICES
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November 2008 www.globalservicesmedia.com GlobalServices3
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RETHINKING GLOBALIZATIO N:FUTURE PROOFING GLOBAL SERVICES
By Eugene Kublanov, CEO, neoIT
So should we, those in the outsourcing and offshoring industry, still
think that we are insulated from adverse changes in the future? Yes.
The need of the hour is to re-think your globalization, offshoring andoutsourcing strategy and ensure that it is adequately future-proofed
The gateway to the global sourcing of IT and BPO services
FEATURES
By Jolie Newman
Understand the essential
nature of innovation in
outsourcing engagements
18
November 2008 Vo lume 03 , I ssue 34
4 GlobalServices www.globalservicesmedia.com November 2008
27
SAFEGUARDING
LIFE INSURANCE
By Imrana Khan
Apart from $5 million saving a year, the six year
old application outsourcing led to 100 percent
system availability, improvement in system turnaround
times and productivity. The project also helped create a
lot of tools that automated many processes andimproved SLA compliance to 100 percent consistently
34
8
F&A OUTSOURCING REGROUPS IN 2008
By John Willmott, CEO, NelsonHallImproved Business Analytics Delivery in 2009 & 2010
30
GOVERNANCE TOOLS
CAN BE A GAME CHANGER
By Mike Beals
A successful outsourcing initiative requires the implementation of a
disciplined outsourcing lifecycle methodology. To make this
methodology work, both the customer and the service provider must
together design an approach to govern the relationship using the
right governance tools and guidelines
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SHYAMANUJA DAS
Shyamanuja pioneered
outsourcingjournalism in India in
1998 with bpOrbit, anewsletter for the
domestic Indian BPOindustry. He is now
Editor,Dataquestmagazine, Cybermedia.
ALLAN SCHWEYER
Allan is the Presidentand Executive Director
of the Human CapitalInstitute and author of
Talent Management
Systems.
PHIL FERSHT
Phil is Research Director,
Business ProcessOutsourcing, offshoring
and IT sourcing, forleading industry analyst
firm AMR Research, Inc.
24X7
COLUMNISTS
45DEFINING STRATEGIES FOR
OFFSHORE HYBRID CAPTIVES
By Brian Smith, TPI and Sid Pai, TPIIndia
36KNOWING TH E UNKNOWN: THE
VALUE OF ASSUMPTION
MANAGEMENT
By Jennifer Harnett-Bullen, Michael Latchford,
and Nick Mathisen, PA Consulting Group
40WILL TH E U.S. TURN
INTO A COMPETITIVE
SOURCING LOCATION?
By Phil Fersht, AMR Research
38THE NEW OUTSOURCING
OPTION
By Ben Bauer, HP Outsourcing
Services
42THE ROI IN ENTERPRISE
WEB 2.0 AND CORPORATE
SOC IAL NETWORKINGBy Allan Schweyer, HCI
50IN DEFENSE OF
GLOBALIZATIO N, STILL
By Shyamanuja Das, CyberMedia
November 2008 www.globalservicesmedia.com GlobalServices5
NO . O F LON G-TERM
OUTSOURCING
DEALS SURGES IN
SEPT. 08
By Datamonitor
17
SEASON FOR
BUYOUTS
By Imrana Khan
Crisis in the global economy isdriving a trend of Mergers and
Acquisitions (M&As) in the ser-
vices industry. Interestingly,
despite the credit crunch and
economic slowdown, some com-
panies still have the cash to see
M&As through.
11
CSC, EDS: MANAGED
& PROFESSIONAL
SERVICES LEADERS
By Keerthi Nair
11
THE UNCERTAIN
GLOBAL ECONOMY
By Imrana Khan
12
OUTSOURCING TOTUNISIA
By Pratibha Verma
16
M&A ACTIVITIES
SPEED UP IN
ECONOMIC
SLOWDOWNBy Tholons
14
NO IMPACT OF WALL
STREET CRISIS ON
THE JOBS CUT
By Namita Goel
15
EXPERT VIEWS
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ED NAIREditor
EDITORS NOTE
No doubt, there areopportunities amidst
the chaos, but anoverall sentiment of
fear, uncertainty, anddoubt has set in.
he last two months have sunk the U.S. economy into an abyss and its
impact could be felt on the global financial markets. The recession is
now official, and it could take on a severe form and last a protracted
term. Economists say that recovery would begin several quarters later and
would be slow.
The global services industry, which had put up a brave front till now, even
had two of the best quarters ever in its history. But now the tremors of the
economic quake are being felt. According to TPIs Q3 Index and outlook,
there were fewer mega-contracts in Q3, significant decline in contract val-
ues in Europe, and a dramatic drop in IT contract value. The outlook points
toward much more than a temporary softness in global outsourcing. Though
a spot survey of financial institutions (by AMR Research) revealed an encour-
aging future for outsourcing, it may not translate to outsourcing project awardsat current market values. The large service providers are redrawing their strate-
gies and marking down their revenue estimates.
No doubt, there are opportunities amidst the chaos, but an overall sen-
timent of fear, uncertainty, and doubt has set in. The period will shake up
the industry, force companies to innovate, and adopt new practices. The indus-
try will be quite different when it will emerge out of the current recession.
Meanwhile, we will celebrate the heroes of 2008. TheGlobal Services 100
Survey is now available on our website: www.globalservicesmedia.com. I invite
all service providers to fill up the online survey and participate. GS
6 GlobalServices www.globalservicesmedia.com November 2008
T
The FUD Factor
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The gateway to the global sourcing of IT and BPO services
SPEAKER HIGHLIGHTS
Mark Kobayashi-HillaryNaonal Outsourcing
Associaon
Hon Asraf DullulMinister of Informaon &
Communicaon, Maurius
Hon Samuel PoghisioMinister of Informaon &
Communicaon, Kenya
FOR SPONSORSHIP ENQUIRIES AND TO REGISTER ONLINE FOR A 10% DISCOUNT VISIT
www.cbcglobal.org
Dr Mohan KaulDirector-General,
Commonwealth
Business Council
Dr Ti BanjokoChair,
AfricaRecruit
The New Froner
Financial Services - MullingualCapabiliesApplicaon Development and Maintenance - Knowledge Based Outsourcing
THE SUMMIT WILL HIGHLIGHTS ISSUES SUCH AS:
What are the major outsourcing trends and what experse are African countries offering?
What is the size and composion of the talent pool available in the African connent?
What are the key differenators of African naons from countries such as India?
How are African countries carving a space for themselves in the globally compeve outsourcing market?
Which processes are natural and suitable for outsourcing to Africa?
Is the regulatory and polical environment suitable for large companies seng up significant centres in Africa?
How do the countries in Africa compare with each other in the league tables?
Crispin Lyden-CowanPrincipal Adviser
KPMG
Anwar VersiEditor
African Business
Vijay KumarDirector
Africa Payment Gateway
Other speakers include:Vijay Amliwala, Director, CBC Technology
David Smith, Head of Markeng, Zippcard
Marianne Nganunu, Permanent Secretary,
Ministry of Communicaons, Science &
Technology
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8 GlobalServices www.globalservicesmedia.com November 2008
By Eugene Kublanov, CEO, neoIT
The Changing Cost Dynamic
In 2003, an organization that engaged with an offshore
third-party service provider for its Application Development
and Maintenance (ADM) initiatives could reasonably expect
to notch up savings of 45 to 50 percent. Today, this number
is in the 25 to 30 percent range. What has changed?
In 2003, an organization that set up a captive center in
India for its back office functions could reasonably expect to
save 30 to 35 percent on its operating costs. In 2008, thesavings are often less than half that percentage. And in some
cases, the savings are negligible forcing companies to put up
their captives for sale. What has changed?
Wages, to start with. At an average 13 to 15 percent year
over year growth rate, wage inflation in India has forced
third-party service providers to steadily increase prices to
maintain the attractive profit margins which have made
them the darlings of Wall Street. And just when the wage
growth rate dropped a bit in anticipation of waning demand
for IT and BPO services in the U.S., the inflation rate in
India reflecting higher global prices for everything from
food to gas hit 11 percent, effectively setting the floor for
salary hikes in the coming year.
Currency appreciation has also been a contributing fac-
tor to the diminishing cost advantage of offshoring.
Although in recent months, the Rupee has eased against the
U.S. dollar, it is still roughly four percent ahead of the 2003
levels, and theres uncertainty about what is to come.
Whats the Total Cost of Offshoring?
If we look only at wage growth, it would take India
another 20 years to achieve wage parity with the U.S. But
can that be the sole factor for determining the cost advan-
tage? No.Enter Total Cost of Offshoring (TCO). Lets look at the
changes that have impacted the other cost-line items during
the past five years.
Consider travel costs. Consider real estate and infrastruc-
ture costs. Everything is on the rise. This is true, not just of
India, but of many countries that are both existing and new
entrants to the services globalization marketplace. As cost
increases for everything from wages to travel to infrastruc-
ture and technology, we are looking at a dramatic shift
where organizations will find offshoring cost savings in thenext five years.
The Changing Labor Pool Dynamic
Indian firms have made in training, benefits and other
retention tools. Although retention costs do not impact the
customer directly, the increase in the service providers cost
base will ultimately affect the end user organization. Captive
centers, on the other hand, also face similar attrition and
retention issues as third party providers do, but dont have
the same luxury. Escalating wages and rising retention costs
have forced many organizations to reevaluate their captive
strategy. Philips and Citi are recent examples of companies
that have sold their captives to Indian service providers,
Infosys and TCS respectively, as part of a captive strategy
revamp. Others are outsourcing their low-end processes to
providers, while moving the high-end processes from high
cost locations to their offshore captive centers.
While Indias labor pool issues have been accelerating in
the past five years, many other markets have entered the off-
shoring realm to provide alternatives to buyers. Countries
such as the Philippines, Romania, Brazil, Vietnam, Costa
Rica, South Africa and Mexico now provide highly qualified
resources at reasonable price points without the high attri-tion rates of India. This results in greater labor stability, con-
Should we, those in the outsourcing and offshoring industry, still think that we are
insulated from adverse changes in the future? Yes. The need of the hour is to
re-think your globalization, offshoring and outsourcing strategy and ensure that it
is adequately future-proofed
Rethinking
GlobalizationFuture Proofing Global Services
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November 2008 www.globalservicesmedia.com GlobalServices9
Ask Ed
tinuity and higher productivity.
At home, the U.S. economic slowdown has contributed
to the global labor pool shake up. With U.S. unemployment
hovering at over six percent a five year high employ-
ers now can consider hiring IT and back office talent, from
their own backyards.
The Changing Political Dynamic
Although political risk has been long factored into orga-
nizations decision-making around offshoring, outsourcing
and globalization, it is only recently that developments
around the world have brought this risk to the forefront.
Political risk has been notoriously difficult to assess and can
have broad ranging affects on the offshoring industry. It is
also not just limited to emerging markets where government
stability, and in worst cases armed conflict, come into play.
Political risk also exists in developed countries that buy ser-
vices and ranges from major policy shifts to elections tochanging popular sentiment.
Today, as in no other time during the past five years, we
are faced with political winds that have the potential to
sweep in drastic effects on the offshoring industry. Visas will
be affected, for one. And there is a perceived future risk.
Future-Proofing the Offshoring Model
As organizations digest the myriad trends, forces and
developments that impact the future of globalization or off-
shoring efforts, it will be incumbent on them to put in place
strategies that can effectively deal with impending risks,
uncertainty and generate the value which is still very muchinherent to the practice. Global players have to regularly
update and revise their global sourcing strategy, have a sense
of urgency to develop and maintain a global delivery model
which is so critical to being successful in todays competitive
marketplace, added Oliver Bussmann, CIO, Allianz.
Both buying organizations and service providers need to
be keenly aware of developments that may change the face
of services globalization and respond accordingly.
What should CIOs and CFOs be Asking Themselves
Today?
l Is our IT strategy aligned with where the business is
heading? Where our industry is heading?
l Is our IT and back office cost structure aligned with
how our business will perform in the next two years?
lDo we have a clearly defined 3 to 5 year strategy for ser-
vices globalization?
lHave we designed a diversified portfolio that includes
the right operating model(s), location(s), provider(s)?
l Is our global services portfolio sufficiently insulated
from changes in global cost structures?
l Is our global services portfolio capable of quickly scal-
ing down to adjust to a revenue downturn?
lHave we fully thought through the impact of geopolit-
ical events on our globalization efforts?
l What impact will an unexpected currency fluctuationhave on our global services portfolio?
l Is our organization prepared for a Democratic adminis-
tration and the resulting impact on our offshoring initiatives?
lHave we recently assessed our TCO to ensure we con-
tinue to meet our business objectives?
lWhat is our U.S. low cost strategy?
lWhat is our Nearshore strategy?
lHow do we proactively assess and mitigate risks?
Future proofing a global services portfolio typically
involves a structured approach:
Step 1: Assess ITO/BPO Portfolio Alignment:Determinewhether your companys ITO/BPO portfolio is aligned to
your overall business strategy, to industry conditions and to
the macro economic environment.
Step 2: Develop A Re-Alignment Roadmap: After assessing
portfolio alignment and identifying critical areas that require
management attention the next step is to develop a roadmap
to bring the global services portfolio back into alignment.
Step 3: Implement A Portfolio Management Approach:
Ensuring that a global services portfolio remains aligned to
dynamic company, industry and economic conditions can
be challenging. Most organizations have by now realized
that proper governance is instrumental to offshoring/global-ization success, but few companies have taken the next leap
to manage their services value chain as a portfolio.
Adapting to Uncertainty
So, is this the death of offshoring? Is this the death of
India as the darling ITO/BPO destination for U.S. and
European companies? Does this mean mass return of IT
jobs to the U.S.? Does it mark the emergence of a new
region as an IT services powerhouse?
No, no and no.
So what does it all mean? It means that we are on the
threshold of major change in the services globalization
arena. It is the time now to consider our efforts to date, take
a lesson from the high-tech manufacturing sector, and pre-
pare for an uncertain future where an agile, cost effective
and diversified global services portfolio will be your com-
petitive advantage.
Welcome to the new era of services globalization. GS
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Comprehensive evaluation of the
To advertise in this issue, contact [email protected]
/CMIL/09/08
domestic
contact centrebusiness
DataquestNov 15, 2008
Issue
Dataquest is featuring an analysis of the domestic customer interaction services market
in India with an in-depth analysis of the market.
Also, get to know whos who in the domestic Contact Centre industry.NEW
A first-ever look at on-the-ground deployment of SOA across industriesSOA Status ReportDeployment, trends & challenges of Indias Human Capital ManagementThe HCM Advantage
Round-up of Hyderabads IT industrySpecial Report: Hyderabad
8/14/2019 Global Services Nov_2008_low res
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T he crisis in the global economyis driving a trend of Mergersand Acquisitions (M&As) in theservices industry.
Interestingly, despite the credit
crunch and economic slowdown,
some companies still have the cash to
see M&As through. Valuations are
cheap and beleaguered financial com-
panies need to raise capital. The buy-
out of Citigroup Global Services, the
acquisition of Cambridge Solutions,
the buyout of Axon, and the expected
sale of Lehman Brothers captive BPO
are some of those strategic develop-ments in a turbulent economy.
Most recent development is the
British consultancy Axons boards
unanimity over its acquisition. A high-
er bid by Indian IT-services company,
HCL Technologies, helped the com-
pany buy Axon On Sept. 26th,
2008, HCL announced the terms of a
cash offer to acquire the entire issue at
a price of 650 pence in cash per Axon
share and then issue a share capital of
Axon at approximately $772.778 mil-
lion. Within a week, Axon showed
interest in HCLs offer. The acquisition
now will be formalized in the fourth
quarter of 2008.
Similarly, TCS acquired Citi-
groups stake in Citigroup Global
Services (CGS) for $505 million
under a packaged $250 million, 9.5-
year outsourcing deal to provide back-
office services.
These global consolidations whether with established players or
vulnerable companies are also a
shortcut to increase global presence,
strengthen service delivery and achievebusiness goals. Smart firms are using
the downturn to strengthen their hor-
izontal and vertical focused services.
Abid Ali Neemuchwala, Global
Head of Process Excellence, TCS
spoke to Global Services , The acqui-
sition will provide three dimensional
benefits to TCS. First, it strengthens
our relationship with one of our major
clients, Citigroup. TCS is already the
biggest supplier of IT and IT-enabled
services to Citigroup, and with thisbuyout we will become the largest
provider of back-office services to the
client. Second, it kicks off a new mar-
ket that doesnt exist today for pro-
viding process-led back-office services.
It will also add up to our ability to pro-
vide BPO platform to small and mid-
sized banks, which are still untapped.
Third, the deal sets up TCS into a new
BPO segment, which is domain-led
transaction-processing services.
In another, acquisition Xchanging
acquired 75 percent shares of Cam-
bridge Solutions. David Andrews,
CEO, Xchanging, while explaining
the reasons behind the acquisition,
said to Global Services, In the current
phase of globalization, large companies
like ours, need companies like Cam-
bridge, with a large talent pool, to fit
the bill. After U.K. we now want to
move to the U.S. market.
With additional inputsfrom Namita Goel
GS
4x7Season for Buyouts2
November 2008 www.globalservicesmedia.com GlobalServices 11 2 4
7
AT&T, BT Global Services, CSC,EDS and IBM Global TechnologyServices are Managed and Professional
Network Services (MPNS) providers,
according to Magic Quadrant report
released by IT research and advisory
firm, Gartner. The leader companies
have been selected among those 14
companies that made to the Magic
Quadrant this time.All in all, Gartner points out that the
Leaders have significant network man-
agement and outsourcing experience
and understand the dynamics needed to
deliver network-centric IT services suc-
cessfully. The providers are further cat-
egorizd into Challengers, Visionaries
and Niche Players.
It is also important for the
providers, reviewed in this report, to
have automated fault detection and
remediation and performance man-
agement tools, with varying degrees of
success and effectiveness.
Gartner evaluates providers on the
basis of whether they had to directly pro-
vide IT-management services in support
of customer WAN environments, devel-
op and maintain their own remote man-
agement platform, provide, directly or
through partners, IT services in support
of LAN and serve clients globally, along
with some financial criteria.GS
BY IMRANA KHAN
BY KEERTHI NAIR
Outsourcing to Tunisia p. 12
CSC, EDS:Managed &Professional
Services Leaders
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12 GlobalServices www.globalservicesmedia.com November 200824x
7
2
Q 3 08 wasn't easy for the globalbusiness world, and Q4 08 seemsno different. The financial turmoil has
spread far and wide. Every business sec-
tor is assessing the impact of the globalmeltdown meticulously. Assessments
vary highly. They differ in the outsourc-
ing sector as well. Some conclude that
the current state of the market presents
an opportunity while others conclude the
opposite. We look at some viewpoints on
the impact of the current financial crisis.
The AM R Research Survey
A recent survey conducted by AMR
Research with support from Global Ser-
vices reveals that outsourcing sector
will see minimal impact of the financial
turmoil. Of 44 participants from the
financial sector, only 16 percent finan-
cial institutions plan to chop their out-
sourcing expenditure. Interestingly, 45
percent plan to stick to their existing
sourcing strategies while 39 percent
plan to strategize for increasing their
sourcing spending.
Further analysis uncovered that, of
the banking, finance and insurance
sectors, about half (48 percent) of the
participants from the banking industry
will increase their sourcing expenditure.
The sector will continue to not
only source its IT-infrastructure, appli-cation, finance & accounting,
and banking BPO services but it also
plans to increase the outsourcing of
such services.
Advisers Speak: Think Tw ice.
Go Slow.Companies with large outsourcing
engagements are going ahead and still
seeing costs saving benefits. However,
project-level outsourcing decisions are
going slow and are noticing slow cash
flows, said Eric Smith, Managing
Director, Alsbridge Private Equity. The
market will remain good for service
providers with good balance sheets,
strong global presence and robust deliv-
ery records, he added.
If small providers need to gather
wins in the current market, then they
need to brush up their consulting skills.
For the existing deals, they need to be
able to showcase their delivery capabili-
ties in order to win deal extensions. For
expected deals, most of them may need
to look out for the help of intermediaries
in order to roll out good outsourcing
deals. Service providers would need to
convince clients by brushing up their
consulting skills.
BY IMRANA KHAN
The UncertainGlobal Economy
Financia l Crises
IMPACT ON OUTSOURCINGEXPENDITURE (%)
OtherFinancial
Services
Banks
InsuranceCompanies
43
Over the last month, has your firm beenlooking to increase/decrease your expendi-ture on outsourcing services (IT and BPO)?
No change
Increase
Decrease
29
29
41
48
10
60
20
20
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IT staff-augmentationprojects
2 4
7
3
November 2008 www.globalservicesmedia.com GlobalServices 13
It is critical for vendors to teach
the client about their capabilities to
deliver clients requirements. If the
small companies bring in consulting
skills, they can actually compete with
big counterparts even in the hardconditions, said Bob Randolph, CFO
and BPO Lead, Avasant.
There might be a slowdown in
contract signing at this point of time.
But we expect a big pick up ahead and
many new outsourcing engagements
in the next six months, said Andy Efs-
tathiou, NelsonHall. In order to deal
with the large fluctuations, service
providers need to be able to deal with
the volume. Providers with 60 to 70percent revenues coming from finan-
cial companies are in big trouble.
Concentration on an individual sector
is the biggest problem.
What we are seeing in the third
quarter and year-to-date metrics rep-
resents the results of outsourcing ini-
tiatives begun in more stable times
compared to the anxiety of recent
weeks, stated Brian Smith, Partner
and Managing Director, Financial
Services Operations, TPI NorthAmerica, in a press statement. The
continued softness of those numbers
reflect early recessionary indicators
seen in the beginning of the year.
But the uncertainty and unrest of
todays global economic climate has
yet to fully affect the outsourcing
industry that serves the financial-
services sector.
Buyers Take: Financial Turmoil toHave Nominal Impact on Out-
sourcing in 2009
Opportunities are still there.
Providers large or boutique
need to have a knack for getting them.
The demand of outsourcing services is
still hot. However, the chances are
bright for the large providers. Small
and mid-sized firms may have a hard
time to prove their delivery capabili-
ty said a Fortune 500 banking com-pany that is involved in captive as well
as third-party driven outsourcing prac-
tices. The companys mortgage and
banking activities are being sourced
from 100 countries worldwide.
Buyers, especially from the finan-
cial sector, are now carefully scruti-
nizing providers performance abilities
as the current market situation is
pushing them to derive maximum
output from the existing relationships
to go slow about engaging in newones. Buyers are even forced to hold
on to their future outsourcing strate-
gies as they figure out whether their
companies are buying or being
bought. In addition, buyers are
required to cut costs today and plan
for tomorrow.
Providers: A Big Storm Ahead
The provider companies see a
major impact of slowdown on theirrevenues. AMR Research and Global
Services survey revealed something
similar. With the plunging economy,
the participants from the vendor com-
munity eye slowdown in the out-
sourcing industry too.
Expected Annual Reading: Nomi-
nal Impact on Outsourcing in 2009
Despite a slowdown and softness in
Q3 08, the 2008 year-to-date num-bers and values of outsourcing contract
awards are exceeding metrics of 2007.
Compared with last year at this point,
the number of contracts awarded has
risen almost 5 percent. TCV of those
contracts has grown nearly 19 percent,
and their ACV has climbed 27 percent.
The full year 2008 looks to be on
course for a strong overall result. While
TPI anticipates strong fourth quarter
award values, the company believes that
current unrest and realignment in theglobal financial-services industry, and
related impact on other industry seg-
ments, is likely to introduce softness in
outsourcing contract awards entering
2009, TPI anticipates. GS
Mortage BPO services
HR outsourcing
Mortage BPO services
Banking BPO services
Finance & Accountingoutsourcing
banking BPO services
Short-term Increase Short-term Decrease
BANKS: SPENDING INTENTIONS ON OUTSOURCING SERVICES LINES (%) n= 29
0 50 100
Mortage BPO services
HR outsourcing
IT staff-augmentation
projects
Banking BPO services
Finance & Accountingoutsourcing
IT infrastructureoutsourcing
Application outsourcing
Medium-term Increase Medium-term Decrease
0 50 100
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SOURCE: THOLONS
DEAL VALUE BY
ACQUIRER COUNTRY (%)
14 GlobalServices www.globalservicesmedia.com November 200824x
7
4
M&A Activities Speed up in Economic
The overall global market crash caused
only a slight slowdown in Merger &Acquisition (M&A) activities in the IT Out-
sourcing (ITO) and Business Process Out-
sourcing (BPO) industries, which stood at 59
transactions for a total deal value of over $2.1
billion in Sept. 08, unlike the previous
month, which witnessed around 71 transac-
tions totaling to $2.85 billion. The average
deal size was $36 million, slightly below the
average deal value of $40 million in August.
The bitter winds of economic crisis span-
ning across major client geographies haveaffected the stakeholders of the global out-
sourcing industry. The current chaos may
hinder the M&As in the space temporarily.
Wait and watch would be a good strategy
adopted by most firms looking for inorgan-
ic growth. However, a few cash rich firms may
undertake inorganic investments expecting
bargain deals in this low valuation and tight
liquidity scenario.
The melting stock prices have drastically
lowered the market valuations and hence the
timing is ideal for the companies looking fordeals to grow. Amid such downturn, targets
looking for higher valuations need to offer
sustainable value proposition in terms of
high-end capabilities and clientele to differ-
entiate oneself from the peer group. Howev-
MEGA M&As OF SEPT. '08
Acquirer Target Area Deal size($ mn)
lHCL Technologies Axon Group IT consultancy 731.12
l Telvent Git Sa DTN Holding Business intelligence 445
lRed Hat Qumranet IT software 107
lOpen Text Captaris IT software 106.79
l Francisco Partners Aconex IT software 90.67
lQuest Software Netpro Computing IT software 78.7
lAdvent Software Tamale Software IT software 70.1
l Eclipsys Medinotes IT software 45
lConstellation Justice Education & Asset IT solutions 40
Software Solutions Businessesl Phase Forward Clarix IT software 40
lVector Capital Pharsight IT software 38.92
l Standard Life Vebnet Holdings IT software 37.89
l Synchronoss Wisor Telecom IT software 18
l Secure Computing Securify IT software 15
l Basware Contempus IT software 14.88
lNetgear Cp Secure IT software 14
lAzkoyen Primion Technology IT software 9.34
l Cegid Group Vcs Timeless IT software 5.67
lGrand-Flo Solution Cl Solutions China IT services 3.03
lData Respons Ipcas IT services 2.71l Csp R2 Technologies IT solutions 2
l Sky High Halifax Computer Services BPO 1.68
lHealthaxis BPO Management Services BPO 1.57
l Park City Group Prescient Applied Intelligen IT solutions 1.37
l Testplant Redstone Software IT software 0.88
lNorman Norman Shark IT software 0.88
lUltima Networks Jcs Computing Solutions IT software 0.5
l Broadcaster Lamplighter Studios IT services 0.29
lAdex Media Bay Harbor Marketing IT services 0.29
lQhr Technologies Clinicvault IT services 0.14
l Roper Industries Horizon Software Internation IT services
l Riverside Healthcarefirst IT services
l Integrity Interactive Software Impressions IT software
lDatatec Inflow Technologies IT services
lOrdina E-Chain Management IT consultancy
l 4C Controls Zahra Technology IT services
l Trilogy Inc/Austin Ecora Software IT software
lAdobe Systems Yawah IT software
l Expand Networks Netpriva IT software
l Spectris Acuity Cimatrix IT services
lWolters Kluwer Addison Software Und Service IT software
SOURCE: THOLONS
BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS
U.K.: 2
Others: 10
U.S.: 25
India: 34
Spain: 21
Canada: 7To see the full table, visit www.globalservicesmedia.com
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7
5
Slowdown
er, we believe the targets will not be willing
to sell in this market situation unless they are
desperately looking to sell out due to liquid-
ity or other concerns. Already a few compa-
nies are backing out from the block.
The largest acquisition announcement ofthe month was by HCL Technologies bid-
ding to acquire Axon Group. HCL placed
close to $800 million bid for Axon against
Infosys bid of $750 million, i.e. 8.3 percent
higher than Infosys bid. In terms of per share
bids, HCL bid for Axon at 650 pence against
600 pence by Infosys.
In the second largest acquisition of the
month, Telvent, a Spanish IT-services
provider acquired DTN, the U.S.-based
provider of real-time information services
for a total deal value of $445 million. The
acquisition is expected to strengthen the
market position of the acquirer in the U.S.
Another large deal was $107 million domes-
tic acquisition of Qumranet by the U.S.-
based Red Hat, the global Linux services
provider. The target offers enterprise soft-
ware to enable independent computing
from a virtual infrastructure. In another
similar sized acquisition, Canada-based
Open Text acquired the U.S.-based Cap-
taris, a provider of electronic informationexchange solutions. GS
DEAL VALUE BY
TARGET COUNTRY (%)
U.S.: 44Australia: 4Germany: 1
Others: 11U.K.: 40
SOURCE: THOLONS
Sept. 15th 08, a date that has madeits place in the history of marketcrashes, surprisingly didnt cause much
damage to the already drowning jobs
market. The month of Sept. took away
95,054 jobs, which is seven percent
higher than last months number, as
reported by Challenger, Gray & Christ-mas. The number this month is third
highest in this year after May and July,
where the number had surpassed the
one million limit.
Automotive and financial services
sector continue to claim the maximum
number of position losses. It may take
several weeks or months for the fallout
from Sept.s Wall Street turmoil to hit
the employment numbers, said John A.
Challenger, CEO of Challenger, Gray &
Christmas. In the case of Merrill Lynch,for example, Bank of America will now
decide how many of the investment
firms approximately 64,000 employees
to keep. For Lehman Brothers, the pic-
ture is even less clear since it is being sold
off to multiple bidders. In the case of
Freddie Mac and Fannie Mae, the gov-
ernment bail out is no guarantee that
jobs will be saved.
Outsourcing, which was for the
last two months posed as one of the
least important reasons for jobs cut, has
moved up the table and claimed 1,225
jobs this month. The drastic change
was that Mergers & Acquisitions have
taken the No. 1 position and Market
Conditions has moved to No.3 as the
reason for jobs cut this month. Apart
from the Wall Street trauma, HP and
EDS merger have also made it to the
black list of the month. The merger
might do some good to the companies,
but it has single-handedly given outover 24,000 pink slips.
Health care industry continues to
hire. Among all the states, Calif. claimsthe highest number of jobs cut. GS
No Impact of Wall Street
Crisis on the Jobs CutBY NAMITA GOEL
Jobscut
MONTH BY MONTH TOTALS
Month 2008 2007
l June 81,755 55,726
l July 103,312 42,897
l August 88,736 79,459
l September 95,094 71,739
Month 2008 2007
l Financial 111,201 129,927
l Automotive 94,918 46,237
l Government/ 66,847 29,167Non-Profit
l Transportation 61,972 16,905
l Retail 51,321 38,857
ACTION POINT TO IMPROVEMARKET SITUATION
BY INDUSTRY (YEAR TO DATE)
Just like earlier this year in April,Congress has again passed a billon Sept. 28 to flow in $700 billionto stabilize the market conditions,particularly the financial institu-tions that might improve the jobsituation, as market condition isdirectly proportional to jobs cut.
SOURCE: CHALLENGER, GRAY & CHRISTMAS
The employment report pro-vides further evidence ofthe need for the House ofRepresentatives to pass an
economic rescue package
today, before it adjourns,
which will protect Main
Street America and mitigate
further job loss
Elaine L. Chao,U.S. Secretary of Labor
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7
Despite the worsening economicsituation, the global outsourcingmarket remained on course during Sep-
tember, with a number of providers
signing major, long-term deals.
Of the 10 biggest deals signed in Sep-
tember, just one had a duration of less
than five years. The overall trend, in
recent years, has been for outsourcing
contract lengths to become shorter, due
to customer wariness of being trapped ina long-term deal. However, six of Sep-
tembers biggest deals had a duration of
10 years, with two more set to last for
five years and one (HPs deal with BT
Group) set to last seven-and-a-half years.
U.S. defense giant SAIC secured the
biggest contract of the month one of
the biggest deals of the year to date
when it was awarded a 10-year, $5.2 bil-
lion mega-deal by the National Cancer
Institute. The win capped a stellar first
nine months of 2008 for SAIC, whichhas seen it secure 55 contracts with a
total value of $10.9 billion.
SAIC has also been one of the major
beneficiaries of the expansion in the U.S.
public sector outsourcing in 2008. There
was further evidence of this trend in Sep-
tember: Alongside the National Cancer
Institute contract, four deals with a
total value of $1.7 billion were awarded
by the U.S. Marine Corps, the Defense
Threat Reduction Agency, the NASA
and the Federal Aviation Administration.
These deals were spread around four dif-
ferent providers, with lesser-known
names like Technology Associates Inter-
national and Stinger Ghaffarian Tech-nologies winning major deals alongside
more established players Lockheed
Martin and Raytheon.
In addition to the large public sec-
tor deals, September also saw some sig-
nificant movement in the private sec-
tor, including a number of extensions
to existing contracts. For example, HP
secured a seven-and-a-half year exten-
sion from BT Group, while ACS
secured a 10-year extension from
industrial firm Ingersoll-Rand to pro-vide services around the customers
existing data-center and network
requirements as well as support glob-
al data centers providing mainframe
and midrange processing. GS
ITdeals
No. of Long-term Outsourcing
Deals Surges in Sept. 08
THE TEN LARGEST IT SERVICES DEALS IN SEPT. 2008
Customer Provider Engagement(s) Value Duration($ mn) (yrs)
National Cancer Institute SAIC Consulting, support 5,200 10
BT Group HP Infrastructure mgmt. 660 7.5
Ingersoll-Rand ACS Data-center outsourcing, 551 10network mgmt.
Bristol-Myers Squibb Accenture ADM 550 10
US Marine Corps Technology Associates Support 500 10International
Defense Threat Reduction L ockheed Martin Infrastructure mgmt. 475 10Agency
Hanoi Telecom Ericsson Systems integration 450 3
Max New York Life IBM Infrastructure mgmt. 450 10
Federal Aviation Admn. Raytheon Training services 437 5
NASA Stinger Ghaffarian Application mgmt. 300 5
Techologies
SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE
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THE DEFINITION OF INNOVATION, according
to www.dictionary.com, is Something new or dif-
ferent introduced. The American Heritage Dictio-
narys definition is, The act of introducing something
new. And the Merriam-Webster dictionary defines
innovation as, The introduction of something new.
You dont get more similar than that.
Yet ask 19 different people their definition of innovation in glob-
al services delivery (we did), and youll get 19 different answers. For
example, Kaushik Bhaumik, Head of Cognizants Business Technolo-
gy and Consulting Practice, said, Innovation in the global services
delivery context refers to improvements in outcome or value (around
a particular process or activity), that is above and beyond what would
normally be achieved through continuous improvement, Six Sigma and
other process improvement programs. Roger Turnham, Oracles
Director of the Program Management Office for Business Process Out-
sourcing (BPO), cited innovation as being those things you do to fur-
ther one or more of the corporations objectives, i.e. the three bullet
points you find in the CEOs letter in an annual report. Luis Cuellar,
Director of Process Improvement and Compliance for Mexico-based
IT services provider Softtek, defines innovation as the introduction or
improvement of a service, process or product that ultimately translates
into value for its customers. And Peter Allen, Partner and ManagingDirector at sourcing advisory firm TPI, noted, The customer must
By Jolie Newman
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accrue benefit as a result of the relationship with the service
provider that is outside the box of the scope the provider is
under contract to deliver.
Other definitions of innovation in global services deliv-
ery include that of Vijay Kumar, Chief Technology Officer
(CTO) of Wipro, who said, [It] is about continuous value
creation. Its about partnering with customers to enable themto solve their business problem. Innovation is moving from
a differentiator to business enabler in services industry.
Ramesh Krish, Director in the Global Strategic Sourcing
Group at NASDAQ-listed human therapeutics manufacturer
Amgen, using the term applied innovation, referred to it as
what you can do to improve the current delivery of services
to make them better, cheaper, or more value-add by delib-
erately and thoughtfully applying a certain principle in a very
simple context. Rob Addy, Research Director of Outsourc-
ing and IT Services at industry research firm Gartner, said,
At a theoretical level, innovation can be thought of as a rel-
ative measure of the preparedness of an organization to go
beyond the conventional norms of their sector or discipline
in order to differentiate themselves from their peers through
the provision of products and/or services that deliver addi-
tional benefit over and above the market leaders by utilizing
novel or inventive approaches.
While the above definitions of innovation in global services
and others we encountered do have similarities, there
are some interesting permutations that point to lack of clar-
ity and/or disconnects among the different constituencies inthe global sourcing industry. That said, it was heartening to
hear a variety of common intersection points including that
innovation is not radical or big bang, but rather, incremental
steps; the parties must jointly define innovation; there must
be a high degree of collaboration; it must be a partnership-ori-
ented relationship; and innovation happens when an idea is
turned into reality.
For the purpose of this article, which aims to present a true
pulse on the current state, perceived or real, of innovation in
global services delivery, well operate under the context of the
following base-level definition: 1) Constant, ongoing quali-
ty improvement; 2) constant, ongoing cost reduction through
efficiencies; 3) constant technology improvements; and 4)
delivery of business benefits, all of which are intended to enable
20 GlobalServices www.globalservicesmedia.com November 2008
Figure 1
Special Report
OPTIMAL SOURCING APPROACH
The Optimal sourcing approach must emphasize collaboration and partnership
to drive solutions with innovative transformation dynamics that will evolve
over the length of the contract.
Collaborative Solution Design
Collaborative
Transformational
Approach
The Journey to
World-Class
Benchmarking
Transformation
Roadmap
High
EFFICIENCY
EFFECTIVENESS
World-classEFFECTIVENESS
Initial
Lift and Shift Target Future
State
Transformation
World-class
World-class
EFFICIENCY
1D
1Q 1D
1Q
HighLow
The Hackett Valur GridTM
Partnership
SOURCE: THE HACKETT GROUP
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the customer to achieve its desired future state.
Most agree employing collaborative transformational
sourcing is the approach that will most effectively guide com-
panies on their journey down the innovation path. The Hack-
ett Groups depiction of this approach is depicted in Figure 1.
Impediments to and Solutions for AchievingInnovation
While the components of our above baseline definition
should perhaps be inherent expectations and deliverables in
an outsourcing engagement, most outside the service
provider community dont believe they are yet being
achieved in most cases. Why is this?
There is a confluence of factors, which Mark Hodges,
Chairman of sourcing advisory firm EquaTerra calls stabil-
ity at all costs, that make lack of innovation the norm, not
the exception. These factors include: Discarding the most
important provider selection criteria once the deal is signed confidence in the provider achieving the desired state and
chemistry/cultural fit with the service delivery team and
replacing them with a focus on cost savings and noise
reduction; soft change management and communica-
tions initiatives; compensation formulas for service delivery
executives which are geared toward ensuring all KPIs are
green; the wrong composition of skills in customer relation-
ship management and governance teams; capacity/supply
constraints of BPO service providers; and poorly structured
contracts that dont encourage or even allow for the possi-
bility of innovation.
Innovation is also lacking at the pre-contract stage. Forexample, John Moran, VP Strategic Sourcing at Scotiabank,
one of North America's leading financial institutions and
Canada's international bank, recently issued an RFI to 19
service providers for outsourcing a simple, commoditized
finance process. Not one of the 15 providers who respond-
ed cited any semblance of innovation into its response. All
that Scotiabank received was a labor arbitrage play. Moran
cites, What I would have liked to have seen is a provider
actually having already made a bet on a horse to win the
race. So, for instance, rather than asking what systems we
currently have and offering to run on those same systems for
a lower price, I would have thought at least one would have
said, Weve done an analysis on the market, weve decided
this software package is the best for doing that particular
process and were now doing that for 20 other customers.
The good news is there are techniques, as depicted in
Figure 2, which can be employed to garner innovation from
an outsourcing engagement.
There are additional techniques for achieving outsourc-
ing innovation. Many of those we spoke with recommend-
ed having a team of people devoted to innovation. For
example, Amgens Krish suggested that the business devel-
opment people could perform this role. Seeing a need forpeople with different vantage points or mind sets,
November 2008 www.globalservicesmedia.com GlobalServices 21
Special Report
Innovation counsel should
be built into the contractto force a mindset to
jointly create, deliver and
measure innovation dur-
ing the lifecycle
Vijay Kumar, CTO, Wipro
Applied Innovation
improves the current
delivery of services by
thoughtfully applying acertain principle in a very
simple context
Ramesh Krish, DirectorGlobal Strategic Sourcing Group, Amgan
Factors can be baked into
a sourcing agreement to
facilitate innovation allo-
cation of specific bud-
getary pools and pilot
projects, and the imple-
mentation of systemized
processes
Rob Addy, Research Director of Outsourcing andIT Services, Gartner
Emphasis on negative
terms during the con-
tracting phase inhibits the
types of discussions that
can lead to innovation
Tim Cummins, Presidentand CEO, International Asso-
ciation for Contract and Com-mercial Management (IACCM)
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22 GlobalServices www.globalservicesmedia.com November 2008
Special Report
TECHNIQUES FOR ACHIEVING INNOVATION
Innovation Reviewsl Annual or Quarterly Innovation Reviews (also know
as Innovation Boards)l Topics include: State of the market, industry trends
and relevant information, technology updates,solution demonstrations, site visits, to name a few
l Use peer groups to understand what is happeningin your industry, outsourcing and other industries.
Benchmarkingl Customers should always activate their bench-
marking clausesl Focus on best practice and comparators of innova-
tion, not just cost comparisonsl Benchmark both functional excellence and out-
sourced environments.
Satisfaction Surveysl Perform monthly, quarterly and annual customer
satisfaction surveysl 360 degrees all internal and external stake-
holdersl Satisfaction measures should include innovation.
Be a True Partnerl Allow/invite your provider into your annual plan-
ning sessionsl Brief them on your strategic and business objec-
tives and ask them to brief you on how they canhelp you achieve your business objectives
l Ask/demand innovation from your providerl Do not let the account team go tactical
get
them to think and act above tactical delivery.
Financial Base Casel Ensure your financial base case has sufficient
funding in the out years to pay for innovationl Funds must be set aside for business case investi-
gation, evaluation and developmentl Create a pseudo R&D budget.
Gainsharing and Incentivesl Use a gain sharing mechanism, on a case-by-case
basis, to pay for business case developmentl A license-to-sell innovation to the customer by
the provider is as important as a gain-sharingmechanism
l Include mutual rewards for both the customerorganization and service provider.
Service Levelsl Some SLAs must be tied to innovation or it will not
happenl Project milestones, go-live events, and pilots are
tangible measures of innovationlOther measures include accuracy, customer satis-
faction, productivity, Six Sigma (defects), workelimination, and such.
Governance and Relationship Managementl The customer governance team should have a
transformation or innovation ownerl The governance team should have sufficient staff
and budget to help drive innovationl The governance team must hold the provider
accountable for innovationl Reassure the provider that the relationship is
long-term; otherwise, they will be inclined to dis-invest in the relationship
l The customer must retain process managementexpertise at a level where they can clearly articu-late future state requirements, evaluate proposalsbrought forward by SPs and work with the cus-tomer organization to get the business case forchange agreed.
Executive Visibility and Supportl Ensure senior service provider visibility steering
committees, visiting their HQ, joint speakingengagements, regularly scheduled calls, quarterlyand annual briefings
l Foster/facilitate meetings and face time betweencustomer senior execs and provider senior execs.This cant be done too often.
Behavior/Communication/Culturel Be prepared to invest in and encourage change
share the risk and eventual reward with yourprovider
l Communicate you aspirations earlyl Transformation requires a partnership mindset,
not a transactional onel Innovation is often not brought to bear because
customers do not: Ask for it; define what theymean by it; motivate the provider to deliver it orput restrictions around it
l Customers rarely help the provider to understandwhat is important to them
l Can the sacred cows be targeted?l Can the recalcitrants be reassigned or moved out?
The Contractl Transformation, and its associated innovation,
must be a definable project in the contract;otherwise, it will not be funded and will not beimplemented
l Build a fair cost structure into the contract thatallows for innovation
l Distinguish between what is in the basefees vs. what is charged a fee fortransformation or enhancement
l Transactional contracts that onlyfocus on operational cost savings and notbroader-based business outcomes andbenefits are a barrier to innovation.
Figure 2
SOURCE: EquaTerra
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Special Report
EquaTerras Hodges suggested partners from management
consultancies or ex-pats or big thinkers who have been
trained by ex-pats to understand the intricacies of different
geographies. And TPIs Allen pointed to the need for an
innovation team within the provider organization which has
the knowledge and expertise to ensure its ability to commit
to achieving the innovation goals of the customer.And Vivek Wadwha, a Harvard Fellow and Professor at
Duke University, emphasized per a research paper he co-
authored entitled,How the Disciple Became the Guru, that a
significant amount of innovation is now coming out of
India, in particular via its retooled education system. He
stated India has adapted and perfected western practices in
workforce training and development, and now takes work-
ers with poor education and weak technical skills and turns
them into highly productive technical specialists and man-
agers to be able to compete on the world stage.
Innovation in Todays M arketplace
Following are a wide range of cited examples of innovation
in services delivery. Whether they actually constitute true inno-
vation or not is subject to individuals perceptions.
Martin Mcphee, Partner at Accenture, noted one of the
top-of-mind things at Accenture is the overall green agenda.
Thus, one of its newer offerings is a health check to gauge a
customers green maturity. He also cited another specific
example in which a global financial institutions definition of
innovation was elimination of repeated failure and workload
being delivered manually that could be delivered automatically.
Accenture developed what is now a patent pending tool andprocess, and embedded them into the global delivery envi-
ronment. Over 12 months, it has achieved an overall 20 per-
cent improvement in service quality and a 26 percent reduc-
tion in service cost for its customer. Another Accenture
innovation, cited by Scotiabanks Moran (although not utilized
by the bank) is the development of a model bank that demon-
strated Accentures view of the components and operations of
an ideal bank.
Dr. Robert Lee, Chairman and CEO of Achievo, a software
outsourcing and IT-services provider which operates on a
model employing a local front-end with the back-end services
provided in China, pointed to a newly signed deal with Dan-
ish pharmaceutical firm Nycomed, via which it will provide
design, operation and maintenance services for the companys
validation management process for implementing a drug safe-
ty solution. Lee also cited development of major components
of the public address system at the Birds Nest stadium at the
recent Beijing Olympics, as well as development of PA systems
for many large airports in China.
Phil Fersht, Research Director, Global Services and Out-
sourcing at AMR Research, pointed to breaking down barri-
ers and leveraging synergies by bundling IT applications and
the business processes supported by those applications undera single service provider as one form of innovation. The exam-
ple he cited was that of Bristol-Myers Squibb, which recent-
ly bundled its HR applications and processes in an outsourc-
ing deal with IBM, and shortly thereafter signed a similar
agreement with Accenture for its F&A applications and finan-
cial-support services.
Capgemini deploys a component of its go-to-market
model, business insights, to create a hypothesis around its
clients customers processes, put them through filters, and iden-
tify areas for process improvement. David Poole, Capgeminis
Head of North American BPO, described an example in which
it had a hypothesis that when itsclients customers phoned to
check the rate plan on their electricity bill or slowed up their
payment process, those customers were likely to move their
electric service to a competitor. When Capgeminis analysis
demonstrated the customer might move its service, the client
would offer the customer a special rate or send them a free gift
to assist in customer retention, thus contributing to the clients
top line. Capgemini is also planning on launching next year
accelerated solutions environments for groups of its customers.
The goal is to get the customers to bounce ideas and challenges
off of each other so that Capgemini can design innovative solu-tions around the identified needs.
Taking a smart initiative is
the first step toward
innovation
John Moran, VP, StrategicSourcing, Scotiabank
Innovation is elimination
of repeated failure and
workload that is delivered
manually, instead of auto-
matically Martin Mcphee,
Partner, Accenture
Customer must accrue
benefit as a result of the
relationship with the ser-
vice provider Peter Allen, Partner and
Managing Director, TPI
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November 2008 www.globalservicesmedia.com GlobalServices 25
Special Report
vice in its network, over and above what might be under con-
tract. Thus, a governance structure was put in place to moti-
vate the service provider to bring ideas to a defined group of
innovation managers, one from the provider, one from the cus-
tomer, both of whom were not burdened with the day-to-day
management of service.
Vijay Kumar, Wipros CTO, cited an example in which acustomer with 64 divisions spread across different geographies,
with more than 80 development instances and 12 produc-
tion/staging instances, wanted to develop a shared service sup-
port center. Employing collaborative innovation, Wipro was
able to achieve for the customer 30 to 40 percent cost savings,
5to 10 percent productivity year on year, an average of 10 per-
cent incident reduction on an annual basis, and improvement
in first call resolution. Kumar also runs an innovation coun-
cil in which 12 CIOs meet twice a year, exchange ideas, and
share knowledge and experiences to assist each in driving inno-
vation initiatives.
Contracting for Innovat ion The Great DivideWe encountered quite a bit of disagreement on whether or
not innovation can actually be written into an outsourcing
contract. On the naysayer side, Anish Nanavaty, CEO of
WNS Knowledge Services group, said, It is a truly collabo-
rative effort and it cannot be written into a contract. The cus-
tomer and the service provider have to be engaged in deep
communication and both must be willing and free to exper-
iment with the variables to deliver innovation. Arkadiy
Dobkin, President and CEO of EPAM, a leading global soft-
ware engineering and IT consulting provider with delivery cen-ters throughout Central and Eastern Europe, said, Shared
risk/reward stipulated in the contract could be a stimulating
factor, but I do believe that contractual agreements are not the
most efficient motivator to achieve innovation. And Scotia-
banks Moran stated, Weve tried to contract for innovation
in outsourcing and it doesnt really happen no matter what you
put into the contract. The provider is either going to come for-
ward with an innovative program, or not. You get a lot of bag-
gage ideas as opposed to true innovation when you go down
the contracting route trying to force it.
In the middle-of-the-road camp, Wipros Kumar stated,
Since collaboration is fluid in nature, everything shouldnt be
nailed down in a contract. However, innovation counsel and
reward structures should be built into the contract to ensure
it forces a mindset to jointly create, deliver and measure inno-
vation during the lifecycle of the engagement. And Garners
Addy noted some factors can be baked into a sourcing agree-
ment to facilitate innovation, such as the allocation of specific
budgetary pools to finance proofs of technology and pilot pro-
jects, and the implementation of systemized processes for
enhancement suggestion capture, periodic process reviews,
employee education and technology awareness sessions.
On the positive side, Accentures Mcphee emphasized thatby changing focus from inputs to outputs and outcomes, you
can actually start to define innovation into the structure and
framework of the contract. But this calls for a more mature
contract structure, which provides the flexibility and agility to
enable innovation to drive change. And AMRs Fersht added
that a new contractual element, called Business Service LevelAgreements, can account for adding in a given number of
innovation consulting hours per month.
Tim Cummins, President and CEO of the International
Association for Contract and Commercial Management
(IACCM) cited the need to radically rethink global services
delivery contracts. Cummins says, Were trying to coordinate
something that is incredibly complex. And while there must
be a strong level of discipline, there must not be rigidity. Both
sides use the contract as a vehicle to try and manufacture cer-
tainty where there is none.
Cummins noted an emphasis on negative terms during the
contracting phase inhibits the types of discussions that can lead
to innovation. Thus, he encourages a focus on the desired out-
comes from the outsourcing engagement when crafting the
contract, as well as building in more carrots and less sticks. Fig-
ure 3 depicts IACCMs recommended innovation-driving con-
tracting structure and process.
The Future of Innovation in Global ServicesDelivery
So how will innovation in global services delivery evolve,
and what will it look like, in the relative near-term? A variety
of the experts we spoke with cited open innovation top-ics and ideas are put out on the Internet to gain the wisdom
Enable customers toaccess potentially game-changing and/or new mar-
ket business models, i.e.prototypes and pilots, tocome out with new ideas
Ananth Krishnan, VP andCTO, TCS
Get customers to bounceideas and challenges off
of each other so thatinnovative solutions aredesigned around the iden-tified needs David Poole, Head of North
American BPO, Capgemini
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26 GlobalServices www.globalservicesmedia.com November 2008
Special Report
of the crowds and will be funded if a provider sees viable, scal-
able value in the response as well as social computing and
social networking to drive innovation.
On a more pragmatic level, WNS Nanavaty stated glob-
al services will bring varied, low-cost resources in large quan-
tities that can be deployed in specially-crafted processes in an
anywhere, anytime model. And Gartners Addy thinks wellbe able to create the environments, processes and service deliv-
ery team templates that foster and encourage innovation.
TPIs Allen added the final caution, noting that left
unaddressed, were headed for a definition of outsourcing that
is entirely within the box, its entirely commodity-oriented, the
margin expansion opportunities for the providers will be
severely limited and the customer receptivity to these rela-
tionships in the context of adding more value down the roadis going to erode. GS
WORDS TO THE WISE
PROVIDERS
l David Poole from Capgemini: Create formalprocesses and report mechanisms for innovationthat involve everyone within your own organizationand your customers organization to ensure theideas get implemented.
l Kaushik Bhaumik from Cognizant: Innovation is acontinuous pursuit, not a one-time event. Itrequires a focus on investment in new processesand technologies, some of which can be very for-ward leaning, in order to be able to deliver them tocustomers. In addition, approaching innovation in a
part-time manner won't yield meaningful results.l Mark Hodges from EquaTerra: The burden of proof
is on the provider, not the customer.l Rob Addy from Gartner: Invest in people, and rec-
ognize and celebrate those that question the sta-tus quo. Only by challenging the accepted norms oftoday will tomorrows innovative best practices bedeveloped.
l Anish Nanavaty from WNS: If you dont know thebusiness issues that keep your customers up atnight, you arent going to be in a position to helpthem innovate.
CUSTOMERSl Phil Fersht from AMR: Dont go over the top with
multisourcing ... multisource sensibly. And takemaximum advantage of your contract negotiationor renegotiation to bring the innovation discussioninto play.
l Kaushik Bhaumik from Cognizant: Don't underes-timate the internal change management requiredto successfully reap the benefits of innovation.Organizational lines may need to shift, processessimplified and role/responsibilities fundamentallychanged in order to get the full benefits ofinnovation. Our experience indicates that suc-
cessful change management is the differencebetween true value-adding innovation and acade-mic exercises.
l Rob Addy from Gartner: Recognize innovationwont just happen. It needs to be encouraged anddeveloped over time, and that takes investment.Time and resources (as well as cold hard cash) areneeded to help new ideas become reality.Customers who expect their providers to burdenthese costs are likely to be disappointed with thelevel of innovation they experience.
l John Moran from Scotiabank: Dont get too hungup on sourcing for innovation.
l Anish Nanavaty from WNS: Understand how thelevers of innovation link back into processes that
reside within a global services relationship.Service providers need to be exposed to how thoselevers can move the needle for your organizationso that they can eliminate the artificial constraintsset by contracts.
The thought leaders with whom we spoke for this article offered the following
words of advice to the provider and customer communities on how to position,
ratchet-up and achieve innovation in global services delivery
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November 2008 www.globalservicesmedia.com GlobalServices 27
By Mike Beals
THE TOUGHER THE ECONOMY, the better
the case you can make for outsourcing in a tra-
ditional or shared services environment. But
theres a problem. As organizations scale up
their use of outsourcing, it becomes more diffi-
cult to monitor, manage, measure and report on those often-
complicated relationships. As a result more than a few CIOs
and other C-suite executives live in fear of some very simple
questions: Where do we stand? What is outsourcing really
doing for us? What are the numbers? And lets not forget the
big one: How can we optimize this multiprovider service
delivery model?Its an age-old dilemma, and today its haunting most IT
and business-process organizations that have outsourced: If
you cant measure it and/or provide aggregated reports on it,
how are you supposed to know whether it can be improved?
When more than half your services are delivered by multiple
external parties, how can you provide cogent end-to-end
performance, consumption and chargeback reports to your
internal customers? And if you cant prove outsourcings
value, why should your organization consider expanding it
or even supporting it?
Why indeed. Failure to quantify the value of your busi-
ness services, whether delivered via outsourcing or other-
wise, may lead to internal constituents pushing back, de-funding or various units freelancing their own outsourcing
A successful outsourcing initiative requires the implementation of a disciplined
outsourcing lifecycle methodology. To make this methodology work, both the
customer and the service provider must together design an approach to govern
the relationship using the right governance tools and guidelines
GOVERNANCE TOOLSCAN BE A GAM E CHANGER
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relationships. This could mean chaos a possibility that
keep executives up at night.
What You Don' t Know Can Hurt You Badly
You already know that the complexity of outsourcing
methodologies makes finding and fixing errors difficult. Too
much governance team time is spent verifying invoices by recalculating Additional Resource Charges/Reduced
Resource Credits (ARCs/RRCs), service-level penalties,
earnbacks and chargebacks using different rate tables for
each country and currency. A recent study by EquaTerra, a
global business advisory firm, found invoicing error rates
run at about nine percent on average across IT Outsourcing
(ITO) and Business Process Outsourcing (BPO) deals glob-
ally. And yet, fast verification is the key because you proba-
bly only have 30 days to dispute an invoice and 60 days to
recover fees. Of course not all of those errors will be resolved
in your favor, but the more outsourcing relationships youhave and the higher the dollar volume, the more money you
have at risk.
The Evolution
For most organizations, outsourcing has occurred in an
ad hoc fashion, and now, unfortunately, most of the process-
es around governing outsourcing are inconsistent or non-
existent. While some organizations under-staff governance
activities, others use overqualified resources for routine low-
value activities. Today about 50 percent of the work of gov-
ernance is routine, and thus ripe for automation.
Even organizations that have instituted disciplined gov-
ernance solutions around outsourcing find themselves inun-
dated with information, most in formats unusable or diffi-
cult to share, like spreadsheets. End-to-end service levels and
financials become difficult to obtain and use. Management
of providers takes too long, leaving precious little time for
collaboration and change management. Determiningacceptable parameters for key performance indicators
becomes near impossible. How can managers quickly focus
on key pieces of data that fall outside acceptable parameters?
In addition, its not likely that any of the governance
team members will stay for the term of a deal lasting five or
10 years. So do you have any process/solution that will serve
as a knowledge repository for how the contract has evolved
or how issues have been resolved? Having a good governance
director or even two doesnt address the problem
because heroes dont scale. In fact, too many outsourcing
deals succeed or fail based on the capabilities of one indi-vidual. So its time to take it up a notch; maybe three.
A Holistic View point
With the right portfolio governance management tools,
organizations can streamline their outsourcing processes,
saving money and time; automate transactional governance
activities with built-in calculations tied to the agreements
and associated business cases; and mitigate risk through
compliance and audit management. Bottom line, organiza-
tions that approach outsourcing properly can appreciate sav-
ings of 2 to 5 percent of total contract value through
improved operational efficiency.The goal is to aggregate data in ways that provide mean-
ingful information and get it into a system that makes sense
so people will start using it. The only way thats going to
happen on a consistent basis is if its guided by a framework
supported by the right kind of tools. Youve heard about
something being simple but not easy, right? This is the other
way around: Really knowing your outsourcing performance
will never be simple, but it can become much easier with the
right governance tools and guidelines.
And dont discount collaborative capabilities.
Collaboration between multiple providers and governance
and governance and business is critical for most ITO
and BPO deals.
The Four Phases of Governance Progression
No matter where you are, the idea is to build a solid
foundation, and then move up to the next step.
lBasic governance: Youre addressing the acquisition of
commodity products and services and have some basic gov-
ernance in place in an attempt to manage contracts, pay
invoices, and such.
l More sophisticated relationship management: Youre
starting to transform the business by leveraging your out-sourcing partners to provide more value. This requires estab-
28 GlobalServices www.globalservicesmedia.com November 2008
Management
Should You Consider Managing Your
Outsourcing Relationships as a Portfolio?
Probably so, if:
l The percentage of services delivered by external
resources is growing, or over 50 percent
l You are blending multiple providers in different
geographies, or within a function
l You're unable to determine which throat to choke
when there is a probleml It's difficult understanding the respective role of
each provider from an end-to-end service perspec-
tive, as well as how they interface (or overlap) with
other providers
l It's difficult to calculate and report on charge-
backs to the business units
l End-to-end performance reporting takes too long,
or is labor intensive
l You do not have service catalogs to communicate
your services, and charges to internal customers
l You expend more than one full-time resource in
the analysis, consolidation and reporting of finan-
cial, consumption, and performance data.
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lishment of a different kind of relationship with service
providers, one in which they understand your business dri-
vers so they can provide expertise, not just commodity ser-
vices. Because this is a much more collaborative relationship,
it requires more sophisticated management.
l Managing multiple outsourcing relationships as a
portfolio:These organizations are moving up the ladder, buttoo much work is being done ad hoc, which is wasteful. The
missing link is a framework. Frameworks provide consisten-
cy and process, and from there you build the ability to
benchmark. Organizations at this stage develop governance
centers of expertise, which consolidate leveragable gover-
nance activities like invoice verification, contract adminis-
tration, financial and performance reporting.
lThe power of tools: This is the step that many organi-
zations need to take. The right tools liberate information
that can optimize the service delivery environment. In too
many cases, service providers plunk inch-thick binders
down on CIOs desks. Are most of the answers there? Sure.
Does the CIO have the time to dig them out and interpret
them and can he share that information easily? Not a
chance, unless you want to hire a staff of spreadsheet jock-
eys. Therefore, the information is useless, and its impossible
to optimize the outsourcing environment.
What To Look For in a Solution
Find a comprehensive, fully scalable buy-side tool that
automates the transactional components of governance and
provides decision-making support for more strategic work.
As an example, Governance WorkPlace, an outsourcingportfolio-management tool by EquaTerra, is designed for
teams that manage outsourced or blended sourcing relation-
ships in traditional and shared services organizations. Thats
fortunate because theyre often the ones struggling to effec-
tively manage internal and outsourcing relationships.
M ust-have Features
l Scalability: Find a tool or solution that can assist not
only at an individual deal level, but can also scale across mul-
tiple back-office functions, multiple providers, and globally.
lA simple dashboard:This makes it easy to organize and
display key performance indicators and supporting data.
KPIs quickly focus management on problem areas so deci-
sions will be faster and better.
l Quick-turn analysis: A useful business-intelligence
platform provides easy-to-use export charts, graphs, data on
multiple dimensions like business unit, geography, provider,
to name a few.
l Automation: True portfolio-wide solutions will auto-
mate complex outsourcing methodologies and governance
processes via workflow. This helps institutionalize the work
of governance and gets away from hero-led deals.
lMaintainability: Make sure you get the administrativetools necessary for