Global Services Nov - 2008 - Low Res

cover_final_India.
qxp 10/20/2008 10:31 PM Page 1
Governance Tools Can be a F&A Outsourcing Regroups

Game Changer p. 27 in 2008 p. 30
globalservicesmedia.com
Rs. 250
November 2008 Vol. 03, Issue 34
Understand the essential

nature of innovation in
outsourcing engagements.
52 pages including cover
ARGENTINA . . . . . . .31 ARS CANADA . . . . . . . . . .12 CAD HONGKONG . . . . . . .78 HKD MEXICO . . . . . . . . .112 MXN SINGAPORE . . . . . . .15 SGD USA . . . . . . . . . .9.99 USD
AUSTRALIA . . . . . . .13 AUD CHINA . . . . . . . . . . .77 CNY INDIA . . . . . . . . . . .250 INR PHILIPPINES . . . . .485 PHP SOUTH AFRICA . . . .74 ZAR SINGLE COPY PRICE; SHIPPING
BRAZIL . . . . . . . . . .21 BRL EUROPE . . . . . . . . .7.5 EURO JAPAN . . . . . . . . .1170 JPY RUSSIA . . . . . . . .260 RUB UK . . . . . . . . . . . . . .5 GBP & HANDLING CHARGES EXTRA
ISG.qxp 12/20/2007 1:23 PM Page 15
with all Great Achievements you find

Passion
Building on Our Global Heritage Working Together: IT-Enabled BPO

The Taj Mahal is acclaimed as a masterpiece of architecture and Enterprises are searching for ways to continuously improve
of the heart — an enduring testament to the power of love and what they do. An emerging trend is the integration of Business
a builder’s passion for creating beauty. At Genpact, we too, are Process Outsourcing (BPO) with Information Technology
passionate about our work and see beauty in managing and Outsourcing (ITO) to create even greater value. Genpact’s
simplifying business processes for companies around the world. propriety technology tools, coupled with domain knowledge
Our 31,700+ associates span 9 countries are united by a passion in major industry verticals, transforms client cost structures
for excellence and commitment to work as a team. By combining while reducing complexity and risk.
our passion for excellence with teamwork, Genpact redefines
what is possible, expanding from service to one company, GE, A Passion for Excellence.
to more than 35 global enterprises in less than three years. At Genpact we’re passionate about our customers, our people
and the communities we serve. Our passion is a special energy
Cultivating Quality: Lean and Six Sigma that defines us and constantly raises the bar on what we can
As companies wrestle with growing global complexity and achieve as we strive to exceed customer expectations and drive
competition, they look to Lean Six Sigma and Reengineering business impact. Our dedication to this principle drives us to be
methods to ensure consistently high levels of performance and the Employer of Choice wherever we operate. We recruit top
service delivery. As part of their efforts to sustain customer and talent, train and reward them to be their best and create an
shareholder value, global leaders search for partners whose environment of learning, openness and respect. This passion for
dedication to process excellence is part of their DNA. Like other excellence is part of Genpact’s DNA, rooted in our GE heritage
great builders, Genpact has the culture and tools to get it right and fervent belief that the customer comes first.
the first time. Our building blocks are the deep industry domain
knowledge, technology know-how and multi-shore delivery that
we combine with Lean Six Sigma to ensure process excellence
with every customer engagement.
visit us at genpact.com and learn how we can work together to make the impossible possible
New York +1 646 624 5900 • London +44 (0)20 7535 5400 • Gurgaon +91 124 402 2000 • Shanghai +86 21 6133 3555 • Tokyo +81 3 3543 1816
Masthead_India_Nov_Final.qxp 10/20/2008 10:33 PM Page 3
The gateway to the global sourcing of IT and BPO services

Vision
A CYBERMEDIA PUBLICATION
The gateway to the global sourcing
of IT and BPO services MANAGEMENT SALES & MARKETING
Shyam Malhotra
Raman Roy Satish Gupta
DIRECTORY OF SERVICES Hoshie Ghaswalla Head-Sales & Marketing
satishg@cybermedia.co.in
EDITORIAL 91 987-199-7785
Print Magazine
Ed Nair, Editor
ed@cybermedia.co.in Arun M., Assistant Product Manager
The monthly magazine dedicated to the buyers of IT and arunm@cybermedia.co.in
Keerthi Nair, Associate Editor
BPO services focuses on bringing high-quality content to keerthin@cybermedia.co.in 91 987-332-2490
its audience. Our credible content comes from a network Namita Goel, Assistant Editor
Gunjan Sharma, Assitant Manager, Sales
namitag@cybermedia.co.in
of highly experienced writers and industry insiders. gunjans@cybermedia.co.in
Imrana Khan, Senior Correspondent
imranak@cybermedia.co.in Deepak Jindal, Circulation Executive
e-Magazine Pratibha Verma, Senior Correspondent deepakj@cybermedia.co.in
pratibhav@cybermedia.co.in
Now, enjoy reading and downloading the entire issue COLUMNISTS PRINT SERVICES
from the digital version of Global Services magazine at Allan Schweyer
Lori Blackman N.C. George
www.globalservicesmedia.com AVP
Phil Fersht
Shyamanuja Das georgenc@cybermedia.co.in
Online T. Srirengan
DESIGN
General Manager
Shilpi Bhargava, Manager, Design
www.globalservicesmedia.com : This portal on global shilpib@cybermedia.co.in
srirengant@cybermedia.co.in
sourcing gives you news, features, blogs, and unique tools
to search for providers, deals and events. OFFICES
e-Newsletter U.S.A.
Global Services Media LLC.
1091 Amboy Ave, Suite C, Edison, NJ 08837
Get all the latest news, stories, blogs, experts’ comments T: 678-665-6005, F: 626-604-3966
and announcements by subscribing to our twice-a-week INDIA
newsletters. To subscribe, log on to Cyber Media (India) Ltd.
Cyber House, B-35, Sector 32, Gurgaon, NCR Delhi 122001
www.globalservicesmedia.com T: 91 124 4031234, F: 91 124 2380694
Events SINGAPORE
Cyber Media (Singapore) Pte Ltd.
#14-03, High Street Centre, 1 North Bridge Road, Singapore 179094
Global Services organizes various events such as confer- T: 00-63369142-44, F: 00-63369145
ences, buyer-seller meetings, destination series and custom
Printed and published by Pradeep Gupta on behalf of Cyber Media (India) Limited,
round tables. For more information, write to D-74, Panchsheel Enclave, New Delhi – 110017, and printed by him at Rakesh
satishg@cybermedia.co.in Press, A-7, Naraina Industrial Area, Phase II, New Delhi - 110028. Editor –
Shyamanuja Das
Reprints of Articles All rights reserved. No part of this publication may be reproduced by any means
without prior written permission from the publisher
If you would like to use any of the articles Subscriptions in India: Available at Rs.2500 (12 issues). Single copies are available
for Rs.250 plus shipping and handling.
published in this magazine for marketing, sales or other
Subscriptions: One year (12 issues): free to qualifying subscribers, or US $95,
purposes, write to arunm@cybermedia.co.in. Canada $125. International subscriptions (other than India): US$177 for one year.
Single copies are available for $9.99 plus shipping and handling.
The Global Services 100
The annual survey conducted by Global Services and
Letters to the Editor
neoIT, an outsourcing advisory firm, brings out the list of
top 100 innovative IT and BPO service providers. Send letters to ed@cybermedia.co.in, or to any of our
http://www.globalservicesmedia.com/content/ writers. We reserve the right to edit all letters. Postings
globalservices100.asp submitted to our blogs and letters to the editor may be
published in our magazine or Website.
Subscription
In the Next Issue
41,000+ people have subscribed for the Global Services
magazine. If you would like to subscribe to the magazine, Revisiting Global Sourcing in an Uncertain Economy: A
go to www.globalservicesmedia.com (Canada and U.S.), or compilation of thought-provoking articles from sourcing
e-mail to deepakj@cybermedia.co.in (rest of the world). experts on how to handle the economy.
November 2008 www.globalservicesmedia.com GlobalServices 3

Contents_Nov_Full_Final.qxp 10/20/2008 10:40 PM Page 4

N o v e m b e r 2 0 0 8 Vo l u m e 0 3 , I s s u e 3 4
FEATURES
18
By Jolie Newman
Understand the essential
nature of innovation in
outsourcing engagements
8 RETHINKING GLOBALIZATION:
FUTURE PROOFING GLOBAL SERVICES 27
GOVERNANCE TOOLS
CAN BE A GAME CHANGER
By Mike Beals
By Eugene Kublanov, CEO, neoIT A successful outsourcing initiative requires the implementation of a
So should we, those in the outsourcing and offshoring industry, still disciplined outsourcing lifecycle methodology. To make this
think that we are insulated from adverse changes in the future? Yes. methodology work, both the customer and the service provider must
The need of the hour is to re-think your globalization, offshoring and together design an approach to govern the relationship using the
outsourcing strategy and ensure that it is adequately “future-proofed” right governance tools and guidelines
34
SAFEGUARDING
LIFE INSURANCE
By Imrana Khan
30 Apart from $5 million saving a year, the six year
old application outsourcing led to 100 percent
F&A OUTSOURCING REGROUPS IN 2008 system availability, improvement in system turnaround
times and productivity. The project also helped create a
By John Willmott, CEO, NelsonHall lot of tools that automated many processes and
Improved Business Analytics Delivery in 2009 & 2010 improved SLA compliance to 100 percent consistently
4 GlobalServices www.globalservicesmedia.com November 2008

Contents_Nov_Full_Final.qxp 10/20/2008 10:41 PM Page 5
24X7
11 SEASON FOR
BUYOUTS 14 M&A ACTIVITIES
SPEED UP IN
By Imrana Khan ECONOMIC
Crisis in the global economy is SLOWDOWN
driving a trend of Mergers and
Acquisitions (M&As) in the ser- By Tholons
vices industry. Interestingly,
despite the credit crunch and
economic slowdown, some com-
panies still have the cash to see
M&As through. 15 NO IMPACT OF WALL
STREET CRISIS ON COLUMNISTS
THE JOBS CUT
By Namita Goel SHYAMANUJA DAS
11 CSC, EDS: MANAGED

& PROFESSIONAL
Shyamanuja pioneered
outsourcing
journalism in India in
SERVICES LEADERS 1998 with bpOrbit, a
By Keerthi Nair 16 OUTSOURCING
TUNISIA
TO newsletter for the
domestic Indian BPO
By Pratibha Verma industry. He is now
Editor, Dataquest magazine, Cybermedia.
12 THE UNCERTAIN
GLOBAL ECONOMY
ALLAN SCHWEYER
By Imrana Khan Allan is the President
and Executive Director
of the Human Capital
Institute and author of
Talent Management
Systems.
PHIL FERSHT
NO. OF LONG-TERM
17 OUTSOURCING
Phil is Research Director,
Business Process
Outsourcing, offshoring
DEALS SURGES IN and IT sourcing, for
SEPT. ’08 leading industry analyst
By Datamonitor firm AMR Research, Inc.
EXPERT VIEWS
36 38 40
KNOWING THE UNKNOWN: THE THE NEW OUTSOURCING WILL THE U.S. TURN
VALUE OF ASSUMPTION OPTION INTO A COMPETITIVE
MANAGEMENT By Ben Bauer, HP Outsourcing SOURCING LOCATION?
By Jennifer Harnett-Bullen, Michael Latchford, Services By Phil Fersht, AMR Research
and Nick Mathisen, PA Consulting Group
42 45 50
THE ROI IN ENTERPRISE DEFINING STRATEGIES FOR IN DEFENSE OF
WEB 2.0 AND CORPORATE OFFSHORE HYBRID CAPTIVES GLOBALIZATION, STILL
SOCIAL NETWORKING By Brian Smith, TPI and Sid Pai, TPI By Shyamanuja Das, CyberMedia
By Allan Schweyer, HCI India
Editors note_Nov_Full-Final.qxp 10/20/2008 10:16 PM Page 6
EDITOR’S NOTE
The FUD Factor

T 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 TPI’s Q3 Index and outlook,
ED NAIR 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
Editor toward much more than a temporary “softness” in global outsourcing. Though
ed@cybermedia.co.in a spot survey of financial institutions (by AMR Research) revealed an encour-
aging future for outsourcing, it may not translate to outsourcing project awards
at current market values. The large service providers are redrawing their strate-
No doubt, there are gies and marking down their revenue estimates.
No doubt, there are opportunities amidst the chaos, but an overall sen-
opportunities amidst timent of fear, uncertainty, and doubt has set in. The period will shake up
the chaos, but an the industry, force companies to innovate, and adopt new practices. The indus-
overall sentiment of try will be quite different when it will emerge out of the current recession.
Meanwhile, we will celebrate the heroes of 2008. The Global Services 100
fear, uncertainty, and Survey is now available on our website: www.globalservicesmedia.com. I invite
doubt has set in. all service providers to fill up the online survey and participate. GS

The New Frontier

Financial Services - Multilingual Capabilities
Application Development and Maintenance - Knowledge Based Outsourcing
THE SUMMIT WILL HIGHLIGHTS ISSUES SUCH AS:
• What are the major outsourcing trends and what expertise are African countries offering?
• What is the size and composition of the talent pool available in the African continent?
• What are the key differentiators of African nations from countries such as India?
• How are African countries carving a space for themselves in the globally competitive outsourcing market?
• Which processes are natural and suitable for outsourcing to Africa?
• Is the regulatory and political environment suitable for large companies setting up significant centres in Africa?
• How do the countries in Africa compare with each other in the league tables?
SPEAKER HIGHLIGHTS
Hon Asraf Dullul Hon Samuel Poghisio Dr Mohan Kaul

Minister of Information & Director-General,
Minister of Information &
Communication, Kenya Commonwealth
Communication, Mauritius
Business Council
Crispin Lyden-Cowan Mark Kobayashi-Hillary Dr Titi Banjoko

Principal Adviser National Outsourcing Chair,
KPMG Association AfricaRecruit
Anwar Versi Vijay Kumar Other speakers include:

Vijay Amliwala, Director, CBC Technology
Editor Director David Smith, Head of Marketing, Zippcard
African Business Africa Payment Gateway Marianne Nganunu, Permanent Secretary,
Ministry of Communications, Science &
Technology
FOR SPONSORSHIP ENQUIRIES AND TO REGISTER ONLINE FOR A 10% DISCOUNT VISIT
www.cbcglobal.org
Government of Kenya Government of Mauritius

feature_globalization_nov_full-final.qxp 10/20/2008 9:44 PM Page 8
Rethinking
Globalization
Future Proofing Global Services
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”
By Eugene Kublanov, CEO, neoIT

The Changing Cost Dynamic changes that have impacted the other cost-line items during
In 2003, an organization that engaged with an offshore the past five years.
third-party service provider for its Application Development Consider travel costs. Consider real estate and infrastruc-
and Maintenance (ADM) initiatives could reasonably expect ture costs. Everything is on the rise. This is true, not just of
to notch up savings of 45 to 50 percent. Today, this number India, but of many countries that are both existing and new
is in the 25 to 30 percent range. What has changed? entrants to the services globalization marketplace. As cost
In 2003, an organization that set up a captive center in increases for everything from wages to travel to infrastruc-
India for its back office functions could reasonably expect to ture and technology, we are looking at a dramatic shift
save 30 to 35 percent on its operating costs. In 2008, the where organizations will find offshoring cost savings in the
savings are often less than half that percentage. And in some next five years.
cases, the savings are negligible forcing companies to put up
their captives for sale. What has changed? The Changing Labor Pool Dynamic
Wages, to start with. At an average 13 to 15 percent year Indian firms have made in training, benefits and other
over year growth rate, wage inflation in India has forced retention tools. Although retention costs do not impact the
third-party service providers to steadily increase prices to customer directly, the increase in the service providers’ cost
maintain the attractive profit margins which have made base will ultimately affect the end user organization. Captive
them the darlings of Wall Street. And just when the wage centers, on the other hand, also face similar attrition and
growth rate dropped a bit in anticipation of waning demand retention issues as third party providers do, but don’t have
for IT and BPO services in the U.S., the inflation rate in the same luxury. Escalating wages and rising retention costs
India — reflecting higher global prices for everything from have forced many organizations to reevaluate their captive
food to gas — hit 11 percent, effectively setting the floor for strategy. Philips and Citi are recent examples of companies
salary hikes in the coming year. that have sold their captives to Indian service providers,
Currency appreciation has also been a contributing fac- Infosys and TCS respectively, as part of a captive strategy
tor to the diminishing cost advantage of offshoring. revamp. Others are outsourcing their low-end processes to
Although in recent months, the Rupee has eased against the providers, while moving the high-end processes from high
U.S. dollar, it is still roughly four percent ahead of the 2003 cost locations to their offshore captive centers.
levels, and there’s uncertainty about what is to come. While India’s labor pool issues have been accelerating in
What’s the Total Cost of Offshoring? the past five years, many other markets have entered the off-
If we look only at wage growth, it would take India shoring realm to provide alternatives to buyers. Countries
another 20 years to achieve wage parity with the U.S. But such as the Philippines, Romania, Brazil, Vietnam, Costa
can that be the sole factor for determining the cost advan- Rica, South Africa and Mexico now provide highly qualified
tage? No. resources at reasonable price points without the high attri-
Enter Total Cost of Offshoring (TCO). Let’s look at the tion rates of India. This results in greater labor stability, con-

feature_globalization_nov_full-final.qxp 10/20/2008 9:45 PM Page 9
Ask Ed
tinuity and higher productivity. l Is our global services portfolio sufficiently insulated
At home, the U.S. economic slowdown has contributed from changes in global cost structures?
to the global labor pool shake up. With U.S. unemployment l Is our global services portfolio capable of quickly scal-
hovering at over six percent — a five year high — employing down to adjust to a revenue downturn?
ers now can consider hiring IT and back office talent, from l Have we fully thought through the impact of geopolit-
their own backyards. ical events on our globalization efforts?
l What impact will an unexpected currency fluctuation
The Changing Political Dynamic have on our global services portfolio?
Although political risk has been long factored into orga- l Is our organization prepared for a Democratic adminis-
nizations’ decision-making around offshoring, outsourcing tration and the resulting impact on our offshoring initiatives?
and globalization, it is only recently that developments l Have we recently assessed our TCO to ensure we con-
around the world have brought this risk to the forefront. tinue to meet our business objectives?
Political risk has been notoriously difficult to assess and can l What is our U.S. low cost strategy?
have broad ranging affects on the offshoring industry. It is l What is our Nearshore strategy?
also not just limited to emerging markets where government l How do we proactively assess and mitigate risks?
stability, and in worst cases armed conflict, come into play. Future proofing a global services portfolio typically
Political risk also exists in developed countries that buy ser- involves a structured approach:
vices and ranges from major policy shifts to elections to Step 1: Assess ITO/BPO Portfolio Alignment: Determine
changing popular sentiment. whether your company’s ITO/BPO portfolio is aligned to
Today, as in no other time during the past five years, we your overall business strategy, to industry conditions and to
are faced with political winds that have the potential to the macro economic environment.
sweep in drastic effects on the offshoring industry. Visas will Step 2: Develop A Re-Alignment Roadmap: After assessing
be affected, for one. And there is a perceived future risk. portfolio alignment and identifying critical areas that require
management attention the next step is to develop a roadmap
Future-Proofing the Offshoring Model to bring the global services portfolio back into alignment.
As organizations digest the myriad trends, forces and Step 3: Implement A Portfolio Management Approach:
developments that impact the future of globalization or off- Ensuring that a global services portfolio remains aligned to
shoring efforts, it will be incumbent on them to put in place dynamic company, industry and economic conditions can
strategies that can effectively deal with impending risks, be challenging. Most organizations have by now realized
uncertainty and generate the value which is still very much that proper governance is instrumental to offshoring/global-
inherent to the practice. “Global players have to regularly ization success, but few companies have taken the next leap
update and revise their global sourcing strategy, have a sense – to manage their services value chain as a portfolio.
of urgency to develop and maintain a global delivery model
which is so critical to being successful in today’s competitive Adapting to Uncertainty
marketplace,” added Oliver Bussmann, CIO, Allianz. So, is this the death of offshoring? Is this the death of
Both buying organizations and service providers need to India as the darling ITO/BPO destination for U.S. and
be keenly aware of developments that may change the face European companies? Does this mean mass return of IT
of services globalization and respond accordingly. jobs to the U.S.? Does it mark the emergence of a new
What should CIOs and CFOs be Asking Themselves region as an IT services powerhouse?
Today? No, no and no.
l Is our IT strategy aligned with where the business is So what does it all mean? It means that we are on the
heading? Where our industry is heading? threshold of major change in the services globalization
l Is our IT and back office cost structure aligned with arena. It is the time now to consider our efforts to date, take
how our business will perform in the next two years? a lesson from the high-tech manufacturing sector, and pre-
l Do we have a clearly defined 3 to 5 year strategy for ser- pare for an uncertain future where an agile, cost effective
vices globalization? and diversified global services portfolio will be your com-
l Have we designed a diversified portfolio that includes petitive advantage.
the right operating model(s), location(s), provider(s)? Welcome to the new era of services globalization. GS

Dataquest
Nov 15, 2008
Issue
Comprehensive evaluation of the
domestic contact centre business
Dataquest is featuring an analysis of the domestic customer interaction services market
in India with an in-depth analysis of the market.
NEW Also, get to know who’s who in the domestic Contact Centre industry.
SOA Status Report A first-ever look at on-the-ground deployment of SOA across industries
/CMIL/09/08
The HCM Advantage Deployment, trends & challenges of India’s Human Capital Management
Special Report: Hyderabad Round-up of Hyderabad’s IT industry
To advertise in this issue, contact ektas@cybermedia.co.in

24x7_Nov_Full-Final.qxp 10/20/2008 10:23 PM Page 11
24x7
Season for Buyouts
BY IMRANA KHAN
Outsourcing to Tunisia p. 12
CSC, EDS:
Managed &
T he crisis in the global economy
is driving a trend of Mergers
vulnerable companies — are also a
shortcut to increase global presence,
Professional
and Acquisitions (M&As) in the
services industry.
strengthen service delivery and achieve
business goals. Smart firms are using
Services Leaders
Interestingly, despite the credit the downturn to strengthen their hor- BY KEERTHI NAIR
crunch and economic slowdown,
some companies still have the cash to
see M&As through. Valuations are
izontal and vertical focused services.
Abid Ali Neemuchwala, Global
Head of Process Excellence, TCS
A T&T, BT Global Services, CSC,
EDS and IBM Global Technology
Services are Managed and Professional
cheap and beleaguered financial com- spoke to Global Services , “The acqui- Network Services (MPNS) providers,
panies need to raise capital. The buy- sition will provide three dimensional according to Magic Quadrant report
out of Citigroup Global Services, the benefits to TCS. First, it strengthens released by IT research and advisory
acquisition of Cambridge Solutions, our relationship with one of our major firm, Gartner. The leader companies
the buyout of Axon, and the expected clients, Citigroup. TCS is already the have been selected among those 14
sale of Lehman Brothers’ captive BPO biggest supplier of IT and IT-enabled companies that made to the “Magic
are some of those strategic develop- services to Citigroup, and with this Quadrant” this time.
ments in a turbulent economy. buyout we will become the largest All in all, Gartner points out that the
Most recent development is the provider of back-office services to the “Leaders” have significant network man-
British consultancy Axon’s board’s client. Second, it kicks off a new mar- agement and outsourcing experience
unanimity over its acquisition. A high- ket that doesn’t exist today for pro- and understand the dynamics needed to
er bid by Indian IT-services company, viding process-led back-office services. deliver network-centric IT services suc-
HCL Technologies, helped the com- It will also add up to our ability to pro- cessfully. The providers are further cat-
pany buy Axon — “On Sept. 26th, vide BPO platform to small and mid- egorizd into “Challengers”, “Visionaries”
2008, HCL announced the terms of a sized banks, which are still untapped. and “Niche Players.”
cash offer to acquire the entire issue at Third, the deal sets up TCS into a new It is also important for the
a price of 650 pence in cash per Axon BPO segment, which is domain-led providers, reviewed in this report, to
share and then issue a share capital of transaction-processing services.” have automated fault detection and
Axon at approximately $772.778 mil- In another, acquisition Xchanging remediation and performance man-
lion. Within a week, Axon showed acquired 75 percent shares of Cam- agement tools, with varying degrees of
interest in HCL’s offer. The acquisition bridge Solutions. David Andrews, success and effectiveness.
now will be formalized in the fourth CEO, Xchanging, while explaining Gartner evaluates providers on the
quarter of 2008.” the reasons behind the acquisition, basis of whether they had to directly pro-
Similarly, TCS acquired Citi- said to Global Services, “In the current vide IT-management services in support
group’s stake in Citigroup Global
Services (CGS) for $505 million
under a packaged $250 million, 9.5-
phase of globalization, large companies
like ours, need companies like Cam-
bridge, with a large talent pool, to fit
of customer WAN environments, devel-
op and maintain their own remote man-
agement platform, provide, directly or
1
year outsourcing deal to provide back- the bill. After U.K. we now want to through partners, IT services in support
24x7
office services. move to the U.S. market. GS of LAN and serve clients globally, along
These global consolidations — With additional inputs with some financial criteria. GS
whether with established players or from Namita Goel

Financial Crises
The Uncertain
Global Economy
BY IMRANA KHAN
Q 3 ’08 wasn't easy for the global

business world, and Q4 ’08 seems
no different. The financial turmoil has
sectors, about half (48 percent) of the
participants from the banking industry
will increase their sourcing expenditure.
plans to increase the outsourcing of
such services.
spread far and wide. Every business sec- The sector will continue to not Advisers’ Speak: “Think Twice.
tor is assessing the impact of the global only source its IT-infrastructure, appli- Go Slow.”
meltdown meticulously. Assessments cation, finance & accounting, “Companies with large outsourcing
vary highly. They differ in the outsourc- and banking BPO services but it also engagements are going ahead and still
ing sector as well. Some conclude that seeing costs saving benefits. However,
the current state of the market presents IMPACT ON OUTSOURCING project-level outsourcing decisions are
an opportunity while others conclude the EXPENDITURE (%) going slow and are noticing slow cash
opposite. We look at some viewpoints on Over the last month, has your firm been flows,” said Eric Smith, Managing
the impact of the current financial crisis. looking to increase/decrease your expendi- Director, Alsbridge Private Equity. “The
ture on outsourcing services (IT and BPO)? market will remain good for service
The AMR Research Survey providers with good balance sheets,
Other 43
A recent survey conducted by AMR strong global presence and robust deliv-
Financial 29
Research with support from Global Ser- Services 29 ery records,” he added.
vices reveals that outsourcing sector If small providers need to gather
will see minimal impact of the financial 41 wins in the current market, then they
turmoil. Of 44 participants from the need to brush up their consulting skills.
Banks 48
financial sector, only 16 percent finan- For the existing deals, they need to be
10
cial institutions plan to chop their out- able to showcase their delivery capabili-
sourcing expenditure. Interestingly, 45 60 ties in order to win deal extensions. For
2 percent plan to stick to their existing

sourcing strategies while 39 percent
plan to strategize for increasing their
Insurance
Companies 20
20
expected deals, most of them may need
to look out for the help of intermediaries
in order to roll out good outsourcing
sourcing spending. No change deals. Service providers would need to
24x7
Further analysis uncovered that, of Increase convince clients by brushing up their

the banking, finance and insurance Decrease consulting skills.

“It is critical for vendors to teach today’s global economic climate has required to cut costs today and plan
the client about their capabilities to yet to fully affect the outsourcing for tomorrow.
deliver clients’ requirements. If the industry that serves the financial-
small companies bring in consulting services sector.” Providers: “A Big Storm Ahead”
skills, they can actually compete with The provider companies see a
big counterparts even in the hard Buyers’ Take: “Financial Turmoil to major impact of slowdown on their
conditions,” said Bob Randolph, CFO Have Nominal Impact on Out- revenues. AMR Research and Global
and BPO Lead, Avasant. sourcing in 2009” Services survey revealed something
“There might be a slowdown in “Opportunities are still there. similar. With the plunging economy,
contract signing at this point of time. Providers — large or boutique — the participants from the vendor com-
But we expect a big pick up ahead and need to have a knack for getting them. munity eye slowdown in the out-
many new outsourcing engagements The demand of outsourcing services is sourcing industry too.
in the next six months, said Andy Efs- still hot. However, the chances are
tathiou, NelsonHall. “In order to deal bright for the large providers. Small Expected Annual Reading: “Nomi-
with the large fluctuations, service and mid-sized firms may have a hard nal Impact on Outsourcing in 2009”
providers need to be able to deal with time to prove their delivery capabili- Despite a slowdown and softness in
the volume. Providers with 60 to 70 ty” said a Fortune 500 banking com- Q3 ’08, “the 2008 year-to-date num-
percent revenues coming from finan- pany that is involved in captive as well bers and values of outsourcing contract
cial companies are in big trouble. as third-party driven outsourcing prac- awards are exceeding metrics of 2007.
Concentration on an individual sector tices. The company’s mortgage and Compared with last year at this point,
is the biggest problem.” banking activities are being sourced the number of contracts awarded has
“What we are seeing in the third from 100 countries worldwide. risen almost 5 percent. TCV of those
quarter and year-to-date metrics rep- Buyers, especially from the finan- contracts has grown nearly 19 percent,
resents the results of outsourcing ini- cial sector, are now carefully scruti- and their ACV has climbed 27 percent.
tiatives begun in more stable times — nizing providers’ performance abilities The full year 2008 looks to be on
compared to the anxiety of recent as the current market situation is course for a strong overall result. While
weeks,” stated Brian Smith, Partner pushing them to derive maximum TPI anticipates strong fourth quarter
and Managing Director, Financial output from the existing relationships award values, the company believes that
Services Operations, TPI North to go slow about engaging in new current unrest and realignment in the
America, in a press statement. “The ones. Buyers are even forced to hold global financial-services industry, and
continued softness of those numbers on to their future outsourcing strate- related impact on other industry seg-
reflect early recessionary indicators gies as they figure out whether their ments, is likely to introduce softness in
seen in the beginning of the year. companies are buying or being outsourcing contract awards entering
But the uncertainty and unrest of bought. In addition, buyers are 2009,” TPI anticipates. GS
BANKS: SPENDING INTENTIONS ON OUTSOURCING SERVICES LINES (%) n=29
Mortage BPO services HR outsourcing

IT staff-augmentation
HR outsourcing projects
IT staff-augmentation
projects Mortage BPO services
Mortage BPO services Banking BPO services

Finance & Accounting
Banking BPO services
outsourcing
Finance & Accounting
outsourcing
banking BPO services
IT infrastructure
outsourcing
Application outsourcing
3
24x7
0 50 100 0 50 100
Short-term Increase Short-term Decrease Medium-term Increase Medium-term Decrease

M&A Activities Speed up in Economic

BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS
Acquirer
MEGA M&As OF SEPT. '08
Target Area Deal size
($ mn)
T he overall global market crash caused
only a slight slowdown in Merger &
Acquisition (M&A) activities in the IT Out-
l HCL Technologies Axon Group IT consultancy 731.12 sourcing (ITO) and Business Process Out-
l Telvent Git Sa DTN Holding Business intelligence 445 sourcing (BPO) industries, which stood at 59
l Red Hat Qumranet IT software 107 transactions for a total deal value of over $2.1
l Open Text Captaris IT software 106.79 billion in Sept. ’08, unlike the previous
l Francisco Partners Aconex IT software 90.67 month, which witnessed around 71 transac-
l Quest Software Netpro Computing IT software 78.7
tions totaling to $2.85 billion. The average
l Advent Software Tamale Software IT software 70.1
deal size was $36 million, slightly below the
average deal value of $40 million in August.
l Eclipsys Medinotes IT software 45
The bitter winds of economic crisis span-
l Constellation Justice Education & Asset IT solutions 40
Software Solutions Businesses
ning across major client geographies have
affected the stakeholders of the global out-
l Phase Forward Clarix IT software 40
sourcing industry. The current chaos may
l Vector Capital Pharsight IT software 38.92
hinder the M&As in the space temporarily.
l Standard Life Vebnet Holdings IT software 37.89
“Wait and watch” would be a good strategy
l Synchronoss Wisor Telecom IT software 18
adopted by most firms looking for inorgan-
l Secure Computing Securify IT software 15
ic growth. However, a few cash rich firms may
l Basware Contempus IT software 14.88 undertake inorganic investments expecting
l Netgear Cp Secure IT software 14 bargain deals in this low valuation and tight
l Azkoyen Primion Technology IT software 9.34 liquidity scenario.
l Cegid Group Vcs Timeless IT software 5.67 The melting stock prices have drastically
l Grand-Flo Solution Cl Solutions China IT services 3.03 lowered the market valuations and hence the
l Data Respons Ipcas IT services 2.71 timing is ideal for the companies looking for
l Csp R2 Technologies IT solutions 2 deals to grow. Amid such downturn, targets
l Sky High Halifax Computer Services BPO 1.68 looking for higher valuations need to offer
l Healthaxis BPO Management Services BPO 1.57 sustainable value proposition in terms of
l Park City Group Prescient Applied Intelligen IT solutions 1.37 high-end capabilities and clientele to differ-
l Testplant Redstone Software IT software 0.88
entiate oneself from the peer group. Howev-
l Norman Norman Shark IT software 0.88 DEAL VALUE BY
l Ultima Networks Jcs Computing Solutions IT software 0.5 ACQUIRER COUNTRY (%)
l Broadcaster Lamplighter Studios IT services 0.29
l Adex Media Bay Harbor Marketing IT services 0.29
l Qhr 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 —
l Datatec Inflow Technologies IT services —
l Ordina E-Chain Management IT consultancy —
l 4C Controls Zahra Technology IT services —
4 l Trilogy
l Adobe
l Expand
Inc/Austin
Systems
Networks
Ecora Software
Yawah
Netpriva
IT software
IT software
IT software
—
—
—
24x7
l Spectris Acuity Cimatrix IT services — U.K.: 2 India: 34

l Wolters Kluwer Addison Software Und Service IT software — Others: 10 Spain: 21
U.S.: 25 Canada: 7
To see the full table, visit www.globalservicesmedia.com
SOURCE: THOLONS SOURCE: THOLONS

Slowdown Jobscut
No Impact of Wall Street
DEAL VALUE BY
TARGET COUNTRY (%)
Crisis on the Jobs Cut
BY NAMITA GOEL
S ept. 15th ’08, a date that has made

its place in the history of market
crashes, surprisingly didn’t cause much
MONTH BY MONTH TOTALS
Month 2008 2007
l June 81,755 55,726
damage to the already drowning jobs l July 103,312 42,897
market. The month of Sept. took away l August 88,736 79,459
95,054 jobs, which is seven percent l September 95,094 71,739
higher than last month’s number, as
reported by Challenger, Gray & Christ-
BY INDUSTRY (YEAR TO DATE)
mas. The number this month is third
highest in this year after May and July, Month 2008 2007
Australia: 4 U.S.: 44 l Financial 111,201 129,927
Germany: 1 where the number had surpassed the
U.K.: 40 l Automotive 94,918 46,237
Others: 11 one million limit.
l Government/ 66,847 29,167
Automotive and financial services
SOURCE: THOLONS Non-Profit
sector continue to claim the maximum
l Transportation 61,972 16,905
er, we believe the targets will not be willing number of position losses. “It may take
l Retail 51,321 38,857
to sell in this market situation unless they are several weeks or months for the fallout
desperately looking to sell out due to liquid- from Sept.’s Wall Street turmoil to hit
ity or other concerns. Already a few compa- the employment numbers,” said John A. ACTION POINT TO IMPROVE
nies are backing out from the block. Challenger, CEO of Challenger, Gray & MARKET SITUATION
The largest acquisition announcement of Christmas. “In the case of Merrill Lynch, Just like earlier this year in April,
Congress has again passed a bill
the month was by HCL Technologies bid- for example, Bank of America will now
on Sept. 28 to flow in $700 billion
ding to acquire Axon Group. HCL placed decide how many of the investment to stabilize the market conditions,
close to $800 million bid for Axon against firm’s approximately 64,000 employees particularly the financial institu-
Infosys’ bid of $750 million, i.e. 8.3 percent to keep. For Lehman Brothers, the pic- tions that might improve the job
higher than Infosys bid. In terms of per share ture is even less clear since it is being sold situation, as market condition is
bids, HCL bid for Axon at 650 pence against off to multiple bidders. In the case of directly proportional to jobs cut.
600 pence by Infosys. Freddie Mac and Fannie Mae, the gov-
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
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
“The employment report pro-
vides further evidence of
the need for the House of
Representatives to pass an
economic rescue package
market position of the acquirer in the U.S. jobs this month. The drastic change today, before it adjourns,
Another large deal was $107 million domes-
tic acquisition of Qumranet by the U.S.-
based Red Hat, the global Linux services
was that Mergers & Acquisitions have
taken the No. 1 position and Market
Conditions has moved to No.3 as the
which will protect Main
Street America and mitigate
further job loss
“
provider. The target offers enterprise soft-
ware to enable independent computing
from a virtual infrastructure. In another
reason for jobs cut this month. Apart
from the Wall Street trauma, HP and
EDS merger have also made it to the
— Elaine L. Chao,
U.S. Secretary of Labor 5
SOURCE: CHALLENGER, GRAY & CHRISTMAS
similar sized acquisition, Canada-based black list of the month. The merger
24x7
Open Text acquired the U.S.-based Cap- might do some good to the companies, Health care industry continues to
taris, a provider of electronic information but it has single-handedly given out hire. Among all the states, Calif. claims
exchange solutions. GS over 24,000 pink slips. the highest number of jobs cut. GS

Destination
Outsourcing to
Fiveplaces to visit
Tunis
The capital city of
Tunisia, Tunis, is a centre
TUNISIA
BY PRATIBHA VERMA
of commercial activity
and is famous for its
scents, colors, leather,
filigree and tiny crafts
A small north African country,
Tunisia, has become a favored
destination for foreign direct invest-
countries like Tunisia, involve in
the outsourcing of their company
services by serving francophone
work. Medina, a ment over a few years now. It is its markets with stronger business
UNESCO World Heritage Site, suburbs of Carthage,
La Marsa, and Sidi Bou Said are some visiting sites. modern infrastructure, stable gov- environments contending with
Sousse
ernment, strong economy, accessible lower costs.
The city is location and most importantly, the Many reports rate Tunisia as a
known for its availability of high tech profession- leader in Africa and in the Arab
processed food,
olive oil, textiles, als at low costs, which make it ideal World for its excellent performance
transport equip- market for the investors. Many worldwide. World Economic
ments and monu-
ments. Its night- European IT firms have set up oper- Forum’s Africa Competitiveness
clubs, casinos, beaches, museums allures many ations here, as the cost of a Tunisian Report, 2007 identifies it as the first
filmmakers. Complex of Port El Kantaoui is a diver-
sified tourist zone.
engineer is about 80 percent lower most competitive economy in
than that in Europe. Africa and 29th in the world.
Kairouan
Kairouan, also Tunisia's thriving economy cre- World Economic Forum’s Global
known as Kirwan, is ates an attractive atmosphere for Information Technology Report,
ranked after Mecca,
Medina and
investors from the European Coun- 2006-2007 ranks it first in Africa
Jerusalem as a place tries, Japan and the U.S. Around and in the Maghreb, and 35th in
of pilgrimage. The 2,600 foreign firms have invested in the world in the field of “global
city is mainly famous
for its pastries, carpets, vases and goods made of the country and few chose Tunisia information technology”, and A.T.
leather. City's main attraction is the Great Mosque for its close proximity and prefer- Kearney’s Global Services Location
of Sidi-Uqba.
ential trading relations with the Index, 2007 gives it 26th position
Bizerte
With diversified
European Community and the Arab in the world in terms of “labor cost
economy, this city is Maghreb Union, as well as for the advantages”.
known for its manu- Investment Code, which offers for- Tunisia, with a population of
facturing industry
(textile, auto parts, eign investors considerable incen- 10.3 million attracted foreign direct
cookware). Its fruits, tives and exemptions. Tunisia seeks investment of $3.270 million in
vegetables, wheat
and fish are popular world over. It is liked for its to attract 2,000 new outsourcing 2008. Furthermore, despite the
beaches — Sidi Salem, La Grotte and Rasenjela. jobs this year to minimize its dou- intensification of the world debt
Ajim ble-digit jobless rate. problem, Tunisia managed to reduce
6 A.T. Kearney’s recent study has its total debt burden.

Ajim is a fishing
port city located in
the Island of Djerba. It ranked Tunisia amongst the world’s Software Technology Parks with
is also closest to the top-50 competitive “offshore loca- state-of-the-art IT infrastructure
African continent. Its
tions” for outsourcing company and telecom facilities have helped
24x7
major attractions are

Obi-Wan Kenobi's services abroad. The Kearney index Tunisia emerge as a prominent out-
house, the Mos Eisley Cantina. also noted that French-speaking sourcing hub. GS
Compiled by Pratibha Verma SOURCES: LookLex, Offshore Box, FIPA-TUNISIA, Investintunisia, Outsource2tunisia

ITdeals
No. of Long-term Outsourcing
Deals Surges in Sept. ’08
D espite the worsening economic
situation, the global outsourcing
market remained on course during Sep-
was further evidence of this trend in Sep-
tember: Alongside the National Cancer
Institute contract, four deals with a
tember, with a number of providers total value of $1.7 billion were awarded
signing major, long-term deals. by the U.S. Marine Corps, the Defense
Of the 10 biggest deals signed in Sep- Threat Reduction Agency, the NASA
tember, just one had a duration of less and the Federal Aviation Administration.
than five years. The overall trend, in These deals were spread around four dif-
recent years, has been for outsourcing ferent providers, with lesser-known
contract lengths to become shorter, due names like Technology Associates Inter-
to customer wariness of being trapped in national and Stinger Ghaffarian Tech-
a long-term deal. However, six of Sep- nologies winning major deals alongside
tember’s biggest deals had a duration of more established players — Lockheed
10 years, with two more set to last for Martin and Raytheon.
five years and one (HP’s deal with BT In addition to the large public sec-
Group) set to last seven-and-a-half years. tor deals, September also saw some sig-
U.S. defense giant SAIC secured the nificant movement in the private sec-
biggest contract of the month — one of tor, including a number of extensions
the biggest deals of the year to date — to existing contracts. For example, HP
when it was awarded a 10-year, $5.2 bil- secured a seven-and-a-half year exten-
lion mega-deal by the National Cancer sion from BT Group, while ACS
Institute. The win capped a stellar first secured a 10-year extension from
nine months of 2008 for SAIC, which industrial firm Ingersoll-Rand to pro-
has seen it secure 55 contracts with a vide services around the customer’s
total value of $10.9 billion. existing data-center and network
SAIC has also been one of the major requirements as well as support glob-
beneficiaries of the expansion in the U.S. al data centers providing mainframe
public sector outsourcing in 2008. There and midrange processing. GS
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 10
network mgmt.
Bristol-Myers Squibb Accenture ADM 550 10
US Marine Corps Technology Associates Support 500 10
International
Defense Threat Reduction Lockheed Martin Infrastructure mgmt. 475 10
Agency
Hanoi Telecom
Max New York Life
Ericsson
IBM
Systems integration
Infrastructure mgmt.
450
450
3
10
7
24x7
Federal Aviation Admn. Raytheon Training services 437 5

NASA Stinger Ghaffarian Application mgmt. 300 5
Techologies
SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE

Cover story_Nov_Full-Final.qxp 10/20/2008 10:35 PM Page 18
Understand the essential nature of innovation in

outsourcing engagements
By Jolie Newman
T
HE DEFINITION OF INNOVATION, according
to www.dictionary.com, is “Something new or dif-
ferent introduced.” The American Heritage Dictio-
nary’s definition is, “The act of introducing something
new.” And the Merriam-Webster dictionary defines
innovation as, “The introduction of something new.”
You don’t get more similar than that.
Yet ask 19 different people their definition of innovation in glob-
al services delivery (we did), and you’ll get 19 different answers. For
example, Kaushik Bhaumik, Head of Cognizant’s 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, Oracle’s
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 corporation’s objectives, i.e. the three bullet
points you find in the CEO’s 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 Managing
Director at sourcing advisory firm TPI, noted, “The customer must
Special Report
accrue benefit as a result of the relationship with the service the provision of products and/or services that deliver addi-
provider that is outside the box of the scope the provider is tional benefit over and above the market leaders by utilizing
under contract to deliver.” novel or inventive approaches.”
Other definitions of innovation in global services deliv- While the above definitions of innovation in global services
ery include that of Vijay Kumar, Chief Technology Officer — and others we encountered — do have similarities, there
(CTO) of Wipro, who said, “[It] is about continuous value are some interesting permutations that point to lack of clar-
creation. It’s about partnering with customers to enable them ity and/or disconnects among the different constituencies in
to solve their business problem. Innovation is moving from the global sourcing industry. That said, it was heartening to
a differentiator to business enabler in services industry.” hear a variety of common intersection points including that
Ramesh Krish, Director in the Global Strategic Sourcing innovation is not radical or big bang, but rather, incremental
Group at NASDAQ-listed human therapeutics manufacturer steps; the parties must jointly define innovation; there must
Amgen, using the term “applied innovation,” referred to it as be a high degree of collaboration; it must be a partnership-ori-
what you can do to improve the current delivery of services ented relationship; and innovation happens when an idea is
to make them better, cheaper, or more value-add by delib- turned into reality.
erately and thoughtfully applying a certain principle in a very For the purpose of this article, which aims to present a true
simple context. Rob Addy, Research Director of Outsourc- pulse on the current state, perceived or real, of innovation in
ing and IT Services at industry research firm Gartner, said, global services delivery, we’ll operate under the context of the
“At a theoretical level, innovation can be thought of as a rel- following base-level definition: 1) Constant, ongoing quali-
ative measure of the preparedness of an organization to go ty improvement; 2) constant, ongoing cost reduction through
beyond the conventional norms of their sector or discipline efficiencies; 3) constant technology improvements; and 4)
in order to differentiate themselves from their peers through delivery of business benefits, all of which are intended to enable
Figure 1
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.
Benchmarking
The Journey to
World-Class
Transformation
Collaborative Roadmap
Transformational
Approach The Hackett Valur GridTM
World-class
High World-class
Partnership EFFECTIVENESS
Initial 1D
”Lift and Shift” Target Future 1Q
EFFECTIVENESS
State
Transformation
EFFICIENCY
World-class
Collaborative Solution Design
Low High
1Q 1D
EFFICIENCY
SOURCE: THE HACKETT GROUP

Special Report
the customer to achieve its desired future state.

Most agree employing collaborative transformational
sourcing is the approach that will most effectively guide com- Applied Innovation
panies on their journey down the innovation path. The Hack- improves the current
ett Group’s depiction of this approach is depicted in Figure 1.
delivery of services by
Impediments to and Solutions for Achieving thoughtfully applying a
Innovation certain principle in a very
While the components of our above baseline definition simple context
should perhaps be inherent expectations and deliverables in — Ramesh Krish, Director
an outsourcing engagement, most outside the service Global Strategic Sourcing Group, Amgan
provider community don’t 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 Innovation counsel should
important provider selection criteria once the deal is signed be built into the contract
– confidence in the provider achieving the desired state and to force a mindset to
chemistry/cultural fit with the service delivery team – and jointly create, deliver and
replacing them with a focus on cost savings and “noise
reduction;” “soft” change management and communica-
measure innovation dur-
tions initiatives; compensation formulas for service delivery ing the lifecycle
executives which are geared toward ensuring all KPIs are — Vijay Kumar, CTO, Wipro
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 don’t encourage or even allow for the possi-
bility of innovation. Emphasis on negative
Innovation is also lacking at the pre-contract stage. For
example, John Moran, VP Strategic Sourcing at Scotiabank,
terms during the con-
one of North America's leading financial institutions and tracting phase inhibits the
Canada's international bank, recently issued an RFI to 19 types of discussions that
service providers for outsourcing a simple, commoditized can lead to innovation
finance process. Not one of the 15 providers who respond- — Tim Cummins, President
ed cited any semblance of innovation into its response. All and CEO, International Asso-
that Scotiabank received was a labor arbitrage play. Moran ciation for Contract and Com-
mercial Management (IACCM)
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 Factors can be baked into
said, ‘We’ve done an analysis on the market, we’ve decided
this software package is the best for doing that particular
a sourcing agreement to
process and we’re now doing that for 20 other customers’.” facilitate innovation — allo-
The good news is there are techniques, as depicted in cation of specific bud-
Figure 2, which can be employed to garner innovation from getary pools and pilot
an outsourcing engagement. projects, and the imple-
There are additional techniques for achieving outsourc- mentation of systemized
ing innovation. Many of those we spoke with recommend-
ed having a team of people devoted to innovation. For
processes
example, Amgen’s Krish suggested that the business devel- — Rob Addy, Research Director of Outsourcing and
IT Services, Gartner
opment people could perform this role. Seeing a need for
people with different vantage points or mind sets,

Special Report
Figure 2
TECHNIQUES FOR ACHIEVING INNOVATION

Innovation Reviews Governance and Relationship Management
l Annual or Quarterly Innovation Reviews (also know l The customer governance team should have a
as “Innovation Boards”) transformation or innovation owner
l Topics include: State of the market, industry trends l The governance team should have sufficient staff
and relevant information, technology updates, and budget to help drive innovation
solution demonstrations, site visits, to name a few l The governance team must hold the provider
l Use peer groups to understand what is happening accountable for innovation
in your industry, outsourcing and other industries. l Reassure the provider that the relationship is
long-term; otherwise, they will be inclined to dis-
Benchmarking
invest in the relationship
l Customers should always activate their bench-
l The customer must retain process management
marking clauses
expertise at a level where they can clearly articu-
l Focus on best practice and comparators of innova-
late future state requirements, evaluate proposals
tion, not just cost comparisons
brought forward by SPs and work with the cus-
l Benchmark both functional excellence and out-
tomer organization to get the business case for
sourced environments.
change agreed.
Satisfaction Surveys
Executive Visibility and Support
l Perform monthly, quarterly and annual customer
l Ensure senior service provider visibility — steering
satisfaction surveys committees, visiting their HQ, joint speaking
l 360 degrees – all internal and external stake-
engagements, regularly scheduled calls, quarterly
holders and annual briefings
l Satisfaction measures should include innovation.
l Foster/facilitate meetings and face time between
Be a True Partner customer senior execs and provider senior execs.
l Allow/invite your provider into your annual plan- This can’t be done too often.
ning sessions Behavior/Communication/Culture
l Brief them on your strategic and business objec-
l Be prepared to invest in and encourage “change”
tives and ask them to brief you on how they can — share the risk and eventual reward with your
help you achieve your business objectives provider
l Ask/demand innovation from your provider l Communicate you aspirations early
l Do not let the account team “go tactical”– get l Transformation requires a “partnership” mindset,
them to think and act above tactical delivery. not a transactional one
Financial Base Case l Innovation is often not brought to bear because
l Ensure your financial base case has sufficient customers do not: Ask for it; define what they
funding in the out years to pay for innovation mean by it; motivate the provider to deliver it or
l Funds must be set aside for business case investi- put restrictions around it
gation, evaluation and development l Customers rarely help the provider to understand
l Create a pseudo “R&D” budget. what is important to them
l Can the sacred cows be targeted?
Gainsharing and Incentives l Can the recalcitrants be reassigned or moved out?
l Use a gain sharing mechanism, on a case-by-case
basis, to pay for business case development The Contract
l A “license-to-sell” innovation to the customer by l Transformation, and its associated innovation,
the provider is as important as a gain-sharing must be a definable project in the contract;
mechanism otherwise, it will not be funded and will not be
l Include mutual rewards for both the customer
implemented
l Build a fair cost structure into the contract that
organization and service provider.
allows for innovation
Service Levels l Distinguish between what is in the base
l Some SLAs must be tied to innovation or it will not fees vs. what is charged a “fee for
happen transformation or enhancement”
l Project milestones, “go-live” events, and pilots are l Transactional contracts that only
tangible measures of innovation focus on operational cost savings and not
l Other measures include accuracy, customer satis- broader-based business outcomes and
faction, productivity, Six Sigma (defects), work benefits are a barrier to innovation.
elimination, and such.
SOURCE: EquaTerra

Special Report
EquaTerra’s 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 Customer must accrue
geographies. And TPI’s Allen pointed to the need for an benefit as a result of the
innovation team within the provider organization which has
the knowledge and expertise to ensure its ability to commit
relationship with the ser-
to achieving the innovation goals of the customer. vice provider
And Vivek Wadwha, a Harvard Fellow and Professor at — Peter Allen, Partner and
Managing Director, TPI
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 Innovation is elimination
workforce training and development, and now takes work-
ers with poor education and weak technical skills and turns
of repeated failure and
them into highly productive technical specialists and man- workload that is delivered
agers to be able to compete on the world stage. manually, instead of auto-
matically
Innovation in Today’s Marketplace — Martin Mcphee,
Following are a wide range of cited examples of innovation Partner, Accenture
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 Taking a smart initiative is
customer’s green “maturity.” He also cited another specific the first step toward
example in which a global financial institution’s definition of innovation
innovation was elimination of repeated failure and workload
— John Moran, VP, Strategic
being delivered manually that could be delivered automatically. Sourcing, Scotiabank
Accenture developed what is now a patent pending tool and
process, 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- ple he cited was that of Bristol-Myers Squibb, which recent-
tion in service cost for its customer. Another Accenture ly bundled its HR applications and processes in an outsourc-
innovation, cited by Scotiabank’s Moran (although not utilized ing deal with IBM, and shortly thereafter signed a similar
by the bank) is the development of a model bank that demon- agreement with Accenture for its F&A applications and finan-
strated Accenture’s view of the components and operations of cial-support services.
an ideal bank. Capgemini deploys a component of its go-to-market
Dr. Robert Lee, Chairman and CEO of Achievo, a software model, “business insights,” to create a hypothesis around its
outsourcing and IT-services provider which operates on a client’s customers processes, put them through filters, and iden-
model employing a local front-end with the back-end services tify areas for process improvement. David Poole, Capgemini’s
provided in China, pointed to a newly signed deal with Dan- Head of North American BPO, described an example in which
ish pharmaceutical firm Nycomed, via which it will provide it had a hypothesis that when its client’s customers phoned to
design, operation and maintenance services for the company’s check the rate plan on their electricity bill or slowed up their
validation management process for implementing a drug safe- payment process, those customers were likely to move their
ty solution. Lee also cited development of major components electric service to a competitor. When Capgemini’s analysis
of the public address system at the Bird’s Nest stadium at the demonstrated the customer might move its service, the client
recent Beijing Olympics, as well as development of PA systems would offer the customer a special rate or send them a free gift
for many large airports in China. to assist in customer retention, thus contributing to the client’s
Phil Fersht, Research Director, Global Services and Out- top line. Capgemini is also planning on launching next year
sourcing at AMR Research, pointed to breaking down barri- accelerated solutions environments for groups of its customers.
ers and leveraging synergies by bundling IT applications and The goal is to get the customers to bounce ideas and challenges
the business processes supported by those applications under off of each other so that Capgemini can design innovative solu-
a single service provider as one form of innovation. The exam- tions around the identified needs.

Special Report
Cognizant has worked with a leading healthcare payer orga- number of application defects through continuous root cause
nization to dramatically re-invent its provider credentialing, analysis, freeing up of resources to increase the number of
a standard process most healthcare insurers have to conduct applications supported by the team, attaining a near shore
to get regular updates on the qualifications, experiences and leverage of 96 percent, and saving the customer nearly $3 mil-
procedures of the physicians who participate in their plans. The lion dollars in the first year of operation.
customer previously had a highly manual, paper-based process Ananth Krishnan, VP and CTO at TCS, emphasized his
for provider credentialing that cost over $100/file. By mov- company’s utilization of “disruptive innovation” – based on the
ing key activities to lower cost centers and introducing new same concept founded by Professor Clayton Christensen, who
workflow and work segmentation technologies and process- sits on TCS’ board – and its Co-Innovation Network to enable
es, Cognizant was not only able to reduce the cost to $35/file, its customers to access potentially game-changing and/or new
but also attain significant improvements in the quality and vol- market business models. For example, one of its U.K. cus-
ume of credentialing activities. tomers was looking at exploiting the social networks world to
Softtek’s Cuellar cited a $50 billion, Fortune 100 customer further its business. TCS partnered with the customer, sever-
– one of the world’s leading providers of essential technolo- al U.K. universities, and several of TCS’ research labs, built a
gies to developed, developing and emerging countries – that lot of prototypes, and piloted it in the U.K. Those candidates
wanted to develop a global center of excellence as a central- are now being seriously considered by the customer because
ized solution for application support to ameliorate the impact the pilots were quite successful.
of its highly fragmented processes, tools, customer service and TPI’s Allen cited a global network services contract,
costs. After conducting a comprehensive assessment, Softtek signed in early 2007, between Credit Suisse and British Tele-
recommended a simplified organizational structure and com. Credit Suisse wanted new capabilities brought into the
implemented a solution that resulted in a reduction of the relationship, to expand the reach, capacity and quality of ser-
Figure 3
CONTRACTING STRUCTURE AND PROCESS

A Framework for Collaboration — A Mechanism for Innovation and Value
Customer
External
Market
Intelligence
Commitment
Manufacturing/ Marketing
Services Management and Sales
Competency
External Realizing
Business innovation and
Intelligence Supplier
value improvement
possibilities
SOURCE: INTERNATIONAL ASSOCIATION FOR CONTRACT AND COMMERCIAL MANAGEMENT (IACCM)

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 Enable customers to
innovation managers, one from the provider, one from the cus- access potentially game-
tomer, both of whom were not burdened with the day-to-day changing and/or new mar-
management of service.
ket business models, i.e.
Vijay Kumar, Wipro’s CTO, cited an example in which a
customer with 64 divisions spread across different geographies, prototypes and pilots, to
with more than 80 development instances and 12 produc- come out with new ideas
tion/staging instances, wanted to develop a shared service sup- — Ananth Krishnan, VP and
port center. Employing collaborative innovation, Wipro was CTO, TCS
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 Get customers to bounce
share knowledge and experiences to assist each in driving inno- ideas and challenges off
vation initiatives. of each other so that
innovative solutions are
Contracting for Innovation — The Great Divide designed around the iden-
We encountered quite a bit of disagreement on whether or
not innovation can actually be written into an outsourcing
tified needs
contract. On the naysayer side, Anish Nanavaty, CEO of — David Poole, Head of North
American BPO, Capgemini
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 can actually start to define innovation into the structure and
communication and both must be willing and free to exper- framework of the contract. But this calls for a more mature
iment with the variables to deliver innovation.” Arkadiy contract structure, which provides the flexibility and agility to
Dobkin, President and CEO of EPAM, a leading global soft- enable innovation to drive change. And AMR’s Fersht added
ware engineering and IT consulting provider with delivery cen- that a new contractual element, called Business Service Level
ters throughout Central and Eastern Europe, said, “Shared Agreements, can account for adding in a given number of
risk/reward stipulated in the contract could be a stimulating innovation consulting hours per month.
factor, but I do believe that contractual agreements are not the Tim Cummins, President and CEO of the International
most efficient motivator to achieve innovation.” And Scotia- Association for Contract and Commercial Management
bank’s Moran stated, “We’ve tried to contract for innovation (IACCM) cited the need to radically rethink global services
in outsourcing and it doesn’t really happen no matter what you delivery contracts. Cummins says, “We’re trying to coordinate
put into the contract. The provider is either going to come for- something that is incredibly complex. And while there must
ward with an innovative program, or not. You get a lot of bag- be a strong level of discipline, there must not be rigidity. Both
gage ideas as opposed to true innovation when you go down sides use the contract as a vehicle to try and manufacture cer-
the contracting route trying to force it.” tainty where there is none.”
In the middle-of-the-road camp, Wipro’s Kumar stated, Cummins noted an emphasis on negative terms during the
“Since collaboration is fluid in nature, everything shouldn’t be contracting phase inhibits the types of discussions that can lead
nailed down in a contract. However, innovation counsel and to innovation. Thus, he encourages a focus on the desired out-
reward structures should be built into the contract to ensure comes from the outsourcing engagement when crafting the
it forces a mindset to jointly create, deliver and measure inno- contract, as well as building in more carrots and less sticks. Fig-
vation during the lifecycle of the engagement.” And Garner’s ure 3 depicts IACCM’s recommended innovation-driving con-
Addy noted some factors can be baked into a sourcing agree- tracting structure and process.
ment to facilitate innovation, such as the allocation of specific
budgetary pools to finance proofs of technology and pilot pro- The Future of Innovation in Global Services
jects, and the implementation of systemized processes for Delivery
enhancement suggestion capture, periodic process reviews, So how will innovation in global services delivery evolve,
employee education and technology awareness sessions. and what will it look like, in the relative near-term? A variety
On the positive side, Accenture’s Mcphee emphasized that of the experts we spoke with cited “open innovation” – top-
by changing focus from inputs to outputs and outcomes, you ics and ideas are put out on the Internet to gain the “wisdom

Special Report
WORDS TO THE WISE

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
PROVIDERS l Rob Addy from Gartner: Recognize innovation
l David Poole from Capgemini: Create formal won’t just happen. It needs to be encouraged and
processes and report mechanisms for innovation developed over time, and that takes investment.
that involve everyone within your own organization Time and resources (as well as cold hard cash) are
and your customer’s organization to ensure the needed to help new ideas become reality.
ideas get implemented. Customers who expect their providers to burden
l Kaushik Bhaumik from Cognizant: Innovation is a these costs are likely to be disappointed with the
continuous pursuit, not a one-time event. It level of innovation they experience.
requires a focus on investment in new processes l John Moran from Scotiabank: Don’t get too hung
and technologies, some of which can be very for- up on sourcing for innovation.
ward leaning, in order to be able to deliver them to l Anish Nanavaty from WNS: Understand how the
customers. In addition, approaching innovation in a levers of innovation link back into processes that
part-time manner won't yield meaningful results. reside within a global services relationship.
l Mark Hodges from EquaTerra: The burden of proof Service providers need to be exposed to how those
is on the provider, not the customer. levers can move the needle for your organization
l Rob Addy from Gartner: Invest in people, and rec- so that they can eliminate the artificial constraints
ognize and celebrate those that question the sta- set by contracts.
tus quo. Only by challenging the accepted norms of
today will tomorrow’s innovative best practices be
developed.
l Anish Nanavaty from WNS: If you don’t know the
business issues that keep your customers up at
night, you aren’t going to be in a position to help
them innovate.
CUSTOMERS
l Phil Fersht from AMR: Don’t go over the top with
multisourcing ... multisource sensibly. And take
maximum advantage of your contract negotiation
or renegotiation to bring the innovation discussion
into play.
l Kaushik Bhaumik from Cognizant: Don't underes-
timate the internal change management required
to successfully reap the benefits of innovation.
Organizational lines may need to shift, processes
simplified and role/responsibilities fundamentally
changed in order to get the full benefits of
innovation. Our experience indicates that suc-
cessful change management is the difference
between true value-adding innovation and acade-
mic exercises.
of the crowds” and will be funded if a provider sees viable, scal- ery team templates that foster and encourage innovation.
able value in the response – as well as social computing and TPI’s Allen added the final caution, noting that left
social networking to drive innovation. unaddressed, we’re headed for a definition of outsourcing that
On a more pragmatic level, WNS’ Nanavaty stated glob- is entirely within the box, it’s entirely commodity-oriented, the
al services will bring varied, low-cost resources in large quan- margin expansion opportunities for the providers will be
tities that can be deployed in specially-crafted processes in an severely limited and the customer receptivity to these rela-
anywhere, anytime model. And Gartner’s Addy thinks we’ll tionships in the context of adding more value down the road
be able to create the environments, processes and service deliv- is going to erode. GS

Feature-Governance_Nov_Full-Final.qxp 10/20/2008 9:40 PM Page 27
GOVERNANCE TOOLS
CAN BE A GAME CHANGER
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
By Mike Beals
T
HE TOUGHER THE ECONOMY, the better and business-process organizations that have outsourced: If
the case you can make for outsourcing in a tra- you can’t measure it and/or provide aggregated reports on it,
ditional or shared services environment. But how are you supposed to know whether it can be improved?
there’s a problem. As organizations scale up When more than half your services are delivered by multiple
their use of outsourcing, it becomes more diffi- external parties, how can you provide cogent end-to-end
cult to monitor, manage, measure and report on those often- performance, consumption and chargeback reports to your
complicated relationships. As a result more than a few CIOs internal customers? And if you can’t prove outsourcing’s
and other C-suite executives live in fear of some very simple value, why should your organization consider expanding it
questions: Where do we stand? What is outsourcing really — or even supporting it?
doing for us? What are the numbers? And let’s not forget the Why indeed. Failure to quantify the value of your busi-
big one: How can we optimize this multiprovider service ness services, whether delivered via outsourcing or other-
delivery model? wise, may lead to internal constituents pushing back, de-
It’s an age-old dilemma, and today it’s haunting most IT funding or various units freelancing their own outsourcing

Management
relationships. This could mean chaos — a possibility that Even organizations that have instituted disciplined gov-
keep executives up at night. ernance solutions around outsourcing find themselves inun-
dated with information, most in formats unusable or diffi-
What You Don't Know Can Hurt You Badly cult to share, like spreadsheets. End-to-end service levels and
You already know that the complexity of outsourcing financials become difficult to obtain and use. Management
methodologies makes finding and fixing errors difficult. Too of providers takes too long, leaving precious little time for
much governance team time is spent verifying invoices — collaboration and change management. Determining
by recalculating Additional Resource Charges/Reduced acceptable parameters for key performance indicators
Resource Credits (ARCs/RRCs), service-level penalties, becomes near impossible. How can managers quickly focus
earnbacks and chargebacks — using different rate tables for on key pieces of data that fall outside acceptable parameters?
each country and currency. A recent study by EquaTerra, a In addition, it’s not likely that any of the governance
global business advisory firm, found invoicing error rates team members will stay for the term of a deal lasting five or
run at about nine percent on average across IT Outsourcing 10 years. So do you have any process/solution that will serve
(ITO) and Business Process Outsourcing (BPO) deals glob- as a knowledge repository for how the contract has evolved
ally. And yet, fast verification is the key because you proba- or how issues have been resolved? Having a good governance
bly only have 30 days to dispute an invoice and 60 days to director — or even two — doesn’t address the problem
recover fees. Of course not all of those errors will be resolved because heroes don’t scale. In fact, too many outsourcing
in your favor, but the more outsourcing relationships you deals succeed or fail based on the capabilities of one indi-
have and the higher the dollar volume, the more money you vidual. So it’s time to take it up a notch; maybe three.
have at risk.
A Holistic Viewpoint
The Evolution With the right portfolio governance management tools,
For most organizations, outsourcing has occurred in an organizations can streamline their outsourcing processes,
ad hoc fashion, and now, unfortunately, most of the process- saving money and time; automate transactional governance
es around governing outsourcing are inconsistent or non- activities with built-in calculations tied to the agreements
existent. While some organizations under-staff governance and associated business cases; and mitigate risk through
activities, others use overqualified resources for routine low- compliance and audit management. Bottom line, organiza-
value activities. Today about 50 percent of the work of gov- tions that approach outsourcing properly can appreciate sav-
ernance is routine, and thus ripe for automation. 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-
Should You Consider Managing Your ingful information and get it into a system that makes sense
so people will start using it. The only way that’s going to
Outsourcing Relationships as a Portfolio?
happen on a consistent basis is if it’s guided by a framework
supported by the right kind of tools. You’ve heard about
Probably so, if:
something being simple but not easy, right? This is the other
l The percentage of services delivered by external way around: Really knowing your outsourcing performance
resources is growing, or over 50 percent will never be simple, but it can become much easier with the
l You are blending multiple providers in different
right governance tools and guidelines.
geographies, or within a function
And don’t discount collaborative capabilities.
l You're unable to determine which throat to choke
when there is a problem Collaboration between multiple providers and governance
l It's difficult understanding the respective role of — and governance and business — is critical for most ITO
each provider from an end-to-end service perspec- and BPO deals.
tive, as well as how they interface (or overlap) with
other providers The Four Phases of Governance Progression
l It's difficult to calculate and report on charge- No matter where you are, the idea is to build a solid
backs to the business units foundation, and then move up to the next step.
l End-to-end performance reporting takes too long,
l Basic governance: You’re addressing the acquisition of
or is labor intensive
commodity products and services and have some basic gov-
l You do not have service catalogs to communicate
your services, and charges to internal customers ernance in place in an attempt to manage contracts, pay
l You expend more than one full-time resource in invoices, and such.
the analysis, consolidation and reporting of finan- l More sophisticated relationship management: You’re
cial, consumption, and performance data. starting to transform the business by leveraging your out-
sourcing partners to provide more value. This requires estab-

Management
lishment of a different kind of relationship with service

providers, one in which they understand your business dri- Carrots You Can Reasonably Anticipate
vers so they can provide expertise, not just commodity ser-
vices. Because this is a much more collaborative relationship, When it comes to solutions that enable out-
it requires more sophisticated management. sourcing portfolio — style management, you'll
l Managing multiple outsourcing relationships as a find many claims, some stretching the bound-
portfolio: These organizations are moving up the ladder, but aries of logic. Here are some realistic rewards
too much work is being done ad hoc, which is wasteful. The for finding the right solution and partner:
missing link is a framework. Frameworks provide consisten- l Reduced labor cost of governance: Expect to
cy and process, and from there you build the ability to save some 18 percent annually
benchmark. Organizations at this stage develop “governance l Reduced fees: You should realize 1 to 2 percent
centers of expertise,” which consolidate leveragable gover- savings by catching invoice errors
nance activities like invoice verification, contract adminis- l Easier identification of service level credit calcu-
tration, financial and performance reporting. lation errors (1 to 5 percent of fees)
l The power of tools: This is the step that many organi- l Significant cost avoidance: Reduce excess spend-
zations need to take. The right tools liberate information ing due to uncontrolled consumption, minimize
that can optimize the service delivery environment. In too the need for additional staff and get easy access
to contract to minimize change orders
many cases, service providers plunk inch-thick binders
l ROI typically one year or less
down on CIOs’ desks. Are most of the answers there? Sure. l Ongoing cost reductions
Does the CIO have the time to dig them out and interpret l Creation of additional value: Get more time for
them and can he share that information easily? Not a joint planning and collaboration
chance, unless you want to hire a staff of spreadsheet jock- l Enhanced project approval: Log, approve and
eys. Therefore, the information is useless, and it’s impossible track new projects and initiatives
to optimize the outsourcing environment. l Enhanced communication and collaboration:
You'll be able to keep better relationships and
What To Look For in a Solution priorities aligned with providers and business.
Find a comprehensive, fully scalable buy-side tool that
automates the transactional components of governance and tain the solution as the deal changes over time.
provides decision-making support for more strategic work. l Collaboration: You’ll need a simple, workable collabo-
As an example, Governance WorkPlace, an outsourcing rative environment to facilitate communication, joint plan-
portfolio-management tool by EquaTerra, is designed for ning, change management between providers, governance,
teams that manage outsourced or blended sourcing relation- the retained organization and the business units.
ships in traditional and shared services organizations. That’s l Knowledge management: This is too often forgotten.
fortunate because they’re often the ones struggling to effec- Make sure your solution provides the ability to capture the
tively manage internal and outsourcing relationships. “tribal knowledge” of the deal in terms of contract amend-
ments, issue resolutions, and discussion areas each leveraging
Must-have Features version control and full-text search.
l Scalability: Find a tool or solution that can assist not
only at an individual deal level, but can also scale across mul- The Competitive Edge
tiple back-office functions, multiple providers, and globally. It’s clear that we can stipulate the advantages to out-
l A simple dashboard: This makes it easy to organize and sourcing and shared services environments. The only
display key performance indicators and supporting data. remaining questions are how fast to move and to build sup-
KPIs quickly focus management on problem areas so deci- port in your organization. Armed with the right information
sions will be faster and better. — data delivered with right portfolio governance tools —
l Quick-turn analysis: A useful business-intelligence you’ll move your organization further up the evolutionary
platform provides easy-to-use export charts, graphs, data on ladder of outsourcing, enhancing efficiencies and building a
multiple dimensions like business unit, geography, provider, competitive edge over organizations that fail to grasp the
to name a few. importance of governance and enabling tools. GS
l Automation: True portfolio-wide solutions will auto-
mate complex outsourcing methodologies and governance Mike Beals brings more than 20 years of HR, IT, and outsourcing gov-
processes via workflow. This helps institutionalize the work ernance experience to EquaTerra. He is responsible for EquaTerra’s
of governance and gets away from hero-led deals. enabling technology platform called Governance WorkPlace (GWP), and
l Maintainability: Make sure you get the administrative has assisted customer in all four stages of the outsourcing lifecycle, with
tools necessary for the governance team members to main- primary emphasis on “source” and “manage” stages.

Feature-FAO_Nov_Full-Final.qxp 10/20/2008 9:47 PM Page 30
F&A OUTSOURCING
Regroups in 2008
Improved Business Analytics Delivery in 2009 & 2010
By John Willmott, CEO, NelsonHall

Processes: Finance and Accounting
T
HE VALUE OF Finance and Account the outsourcing of a major in-house shared service environ-
Outsourcing (FAO) contract activity in the 12 ment, which now not only needed to partner both to invest
months ending September 2008 was notably and re-energize service delivery but also to relocate shared
lower than those in the 12 months ending services centers into key “growth” economies.
September 2007, and indeed lower than any l BT’s renewal of a $250 million FAO contract with
similar 12-month period in the past five years. Steria was a significant reaffirmation of one of the earliest
So why was this and what are the prospects for the FAO major F&A outsources. BT also reaffirmed its commitment
market in 2009 and beyond? to FAO by extending the scope of its FAO beyond the trans-
There are a number of reasons for this. Firstly, 2007 was actional services carried out through Steria with the out-
the peak of FAO activity in the past five years and so repre- sourcing of record-to-report functions to Accenture.
sented a golden year for FAO. Accordingly, it was going to l Microsoft’s expansion of its FAO activity to a more
be a difficult year for 2008 to beat. global level with the award of a $185 million F&A and pro-
In 2007, there were landmark contracts for FAO includ- curement outsourcing contract covering 92 countries to
ing: Accenture.
l Infosys’ $250 million multiprocess FAO contract with l Capgemini’s award of FAO contracts by NXP Semi-
Philips. This was a particularly significant deal as it reflected conductors and SKF.

l Genpact’s contract with Kimberly-Clark. undoubtedly thaw, but may take a while to do so as the cred-
So, 2007 demonstrated a number of trends in FAO it crunch increasingly bites into the manufacturing sector
including the globalization of F&A support for which is one of the major purchasers of FAO.
International markets and a greater emphasis on record-to- The second factor behind the reduced level of FAO activ-
report service delivery. ity in 2008 is the impact of the credit crunch itself. Indeed,
This globalization of FAO continued in 2008, notably the credit crunch has a double effect on FAO, which takes
with Capgemini being awarded a seven-year contract to sup- its impact beyond that on other functions and explains why
port Unilever’s businesses in Latin America. However, FAO has been impacted more than the outsourcing of other
despite this latter contract, HP’s contract with Tribune business functions by the credit crunch.
Publishing and the recent award of an FAO contract renew- So, what impact did the credit crunch have on FAO?
al to ACS by UTC, the scale of FAO contract activity seen The first impact of the credit crunch has been to reduce
in 2007 has not been repeated in 2008. the overall level of FAO contract activity. The credit crunch
Nonetheless, the broad trends in FAO continued. Key has had the short-term impact of freezing the sourcing
trends in FAO in 2008 included an extension of both deliv- strategies of many organizations with the result that the
ery locations and markets served with marked extension of overall level of new Business Process Outsourcig (BPO) con-
delivery capability into Central Europe and Latin America, tract signings in the second quarter of 2008, not just those
with the latter not only acting as a nearshore location to in FAO, showed a significant decline. This is because a
serve North America, but also increas- major change in the economic environ-
ingly serving the important growth ment necessitates a major organization-
markets of Latin America itself. It is WHILE ORGANIZATIONS al rethink, with existing strategies put
likely in 2009 that the delivery capabil- on hold while this strategic review takes
ity will develop in further regions with, HAVE BEEN FROZEN place. Some organizations have also
for example Northern Africa, being uti- IN THE GLARE OF THE experienced a change in senior manage-
lized to serve both English-speaking ment, but even those where the
and French-speaking markets. CREDIT CRUNCH IN THE upheaval has been less dramatic have
In addition to the benefits of labor FIRST HALF OF 2008, almost certainly been undertaking
arbitrage largely being achieved from major reviews to determine their
FAO, there was a marked increase in THE CREDIT CRUNCH response to the credit crunch. So,
the trend to apply increased automa- WILL EVENTUALLY sourcing has slowed while organiza-
tion to FAO. For example, HP has tions undertake more fundamental
been increasingly emphasizing the use LEAD TO INCREASED strategic reviews, which take time to
of technologies such as e-invoicing, ripple down to the sourcing level.
which the company claims can achieve
BPO USAGE INCLUDING Indeed, depending on the level and
15,000 to 20,000 invoices per full-time FAO ACTIVITY. timing of the impact of the credit
employee, and auto-reconciliation. crunch on the sector and organization,
Some of these technologies are still at more drastic strategies than outsourc-
an early stage of deployment, and this trend will continue in ing may be called for. Clearly, saving 40 percent of 1 to 2
2009 and 2010. percent of your cost base via FAO is insufficient to save a
Compliance is another major theme in 2008 with Lehman or Northern Rock, where immediate liquidity of
Capgemini notably launching a SOX-compliancy service in many tens of billions of dollars is required. In these
support of its FAO capability, and the need for improved instances, and the most extreme cases where organizations
compliance is certainly one of the strengthening drivers are seeking to save themselves from bankruptcy, outsourcing
behind FAO in these difficult times. is unlikely to work as a short-term fix and organizations are
This was accompanied by the continuing move into looking for investors or acquirers with deep pockets, possi-
record-to-report and analytical functions with many bly coupled with a need for major lay-offs and restructuring.
providers aiming to obviate concerns regarding changes in So, organizations typically need to have stabilized them-
dollar-rupee exchange rates by enhancing their analytical selves financially and strategically prior to outsourcing, and
capabilities in support of F&A. anyway outsourcers no longer want to take on customers
Finally, there was a move to take advantage of the initial- potentially facing major financial problems.
ly booming market for SAP implementation services with, So, the current credit crunch can generate a pause in
for example Infosys and HCL, battling to takeover Axon. FAO activity while organizations address the shape of their
HCL appears to have won this particular acquisition but has business and the strategies required to position over the next
done so at just the point that the credit crunch has put a 12 to 18 months. The greater the impact of the credit
freeze on the purchasing of SAP software. This freeze will crunch on the business, the longer it may take to revise its

sourcing strategies and begin to evaluate BPO opportunities ing approach than previously. There are still challenges in
including FAO. So, in the short-term, the organizations that adopting transactional pricing since organizations frequent-
drive FAO contract activity are likely to be those that have ly struggle to establish in-house baseline costs per transac-
existing sourcing strategies in place and have not been tion and providers will remain reluctant to price against an
severely impacted overall by the credit crunch. However, as unverified cost base. Nonetheless, changes in transaction
the credit crunch begins to impact the wider economy than volume remains one of the fundamental drivers of out-
the banking sector, these organizations are becoming ever sourcing and mitigation of volume risk will be a major dri-
harder to find. ver of FAO in the uncertain times that lie ahead over the
And, in the case of FAO there is a further consideration. next 18 months.
F&A is the major source of financial control and financial l A need to achieve greater cost reduction, which implies
information within an organization, and so organizations a more transformational end-to-end approach to BPO,
will be reluctant to undergo a disruption which in turn implies an increase in
to this function, however temporary, at the scope, length and value of FAO
a time when they are monitoring their ORGANIZATIONS WILL contracts, possibly leading to a greater
financial controls more closely than at BE RELUCTANT TO emphasis on source-to-pay as well as
any time for decades. This latter factor end-to-end accounting processes so
clearly came into play early in the credit UNDERGO A DISRUP- that savings can be achieved in pur-
crunch, and is likely to remain for some TION TO THIS F&A chased goods and services and not just
time yet. Although, organizations typi- in F&A process costs.
cally do recognize that the F&A func- FUNCTION, HOWEVER Another increasingly common
tion is potentially an area of major cost
savings, and the majority of U.S. corpo-
TEMPORARY, AT A response to the credit crunch will be to
accelerate expansion strategies within
rates feel this way, they are unlikely to TIME WHEN THEY ARE emerging “growth” economies. Here,
outsource F&A function during a peri- organizations face two main drivers for
od of great financial uncertainty because
MONITORING THEIR the use of BPO and FAO — rapid
of the potential disruption this would FINANCIAL CONTROLS changes in volumes (this time
cause to their financial monitoring and upwards) and a lack of local expertise.
controls. The principal reason to out-
MORE CLOSELY THAN BPO can be used not only to support
source during such a period would be to AT ANY TIME FOR rapid entry into new markets, but also
achieve access to improved financial to minimize the risk of new market
control, that cannot be achieved in- DECADES — A FACTOR entry by providing a cost-effective exit
house. So, over the next year, improved CLEARLY THAT CAME strategy should one be needed.
analytics and financial control, rather In addition, customers will still be
than cost reduction, will be the driving INTO PLAY EARLY IN seeking to minimize their own invest-
forces for FAO. THE CREDIT CRUNCH. ment in change. It seems that organi-
However, while organizations have zations will focus on the use of FAO to
been frozen in the glare of the credit achieve cost reduction with minimum
crunch in the first half of 2008, the credit crunch will even- investment and maximum protection from volume-related
tually lead to increased BPO usage including FAO activity, risks. Accordingly, both the scope and the nature of pricing
though the latter may take longer to recover than BPO ser- within these contracts is likely to shift as organizations seek
vices for above reasons. to achieve significant cost savings and changes in operating
Once the FAO market does recover in say, the second model and reduce their exposure to underlying fluctuations
half of 2009 or even 2010, then the nature of services and in business volumes.
contract approaches will have evolved to meet the needs of The net impact of this may mean that the FAO market
the new economic environment. In particular, the goals of will be more adversely impacted by the credit crunch than
credit crunch-impacted F&A sourcing strategies are likely to other BPO markets in the short-term and will be slower to
become more ambitious, featuring: recover. However, when it does so, it will re-emerge with a
l An emphasis on improved accounting effectiveness, greater process scope, with much greater emphasis on ana-
including improved accounting close times, improved com- lytics and business support, and a wider cost reduction agen-
parability across geographies and business units, and da. Twenty-percent of 1-percent cost reduction has a minor
improved analytics for identifying emerging trends and dri- impact on organizations in the light of a potential recession,
ving the business more responsively. while the ability to make the right financial decisions and
l A need to transfer volume risk, which implies organi- move into new markets may save the organization and
zations becoming more willing to adopt a transactional pric- ensure future success. GS

Feature_NIIT_Nov_Full-Final.qxp 10/20/2008 10:19 PM Page 34
SAFEGUARDING
LIFE INSURANCE
Apart from $5 million saving a year, the six-year old application outsourcing
project led to 100 percent system availability, improvement in system turnaround
times and productivity. The project also helped create a lot of tools that automat-
ed many processes and improved SLA compliance to 100 percent consistently
By Imrana Khan
T
he Year 2002: A Fortune 100 global insurance of its IT services to its one of the prime contractors NIIT
company (reluctant to reveal its identity) based Technologies, an India-based technology company. The
in the U.S. had an in-house IT team responsi- provider set up a dedicated offshore development center to
ble for the management of several IT applica- handle all the applications for the customer’s life insurance
tions, which handled its life-insurance business. business.
For the company with 150 years of experience of providing The contract was no less challenging for NIIT.
a wide array of banking, insurance and asset-management “Availability of resources with skills in the customer’s
services in over 50 countries with over 120,000 employees technology area was scarce — in the market and within
who serve a broad customer base — individuals, families, the organization. We overcame these challenges through
small businesses, large corporations, institutions and gov- our knowledge-management and competency-develop-
ernments — it was difficult to manage the internal IT ment frameworks,” said Ritu Gupta, Practice Leader,
requirements and to run its growing global business. BFSI (Banking, Financial Services and Insurance)
Moreover, the company was using old technology to man- Vertical, NIIT Technologies.
age its gigantic insurance business. Initially, NIIT dedicated 20 employees to this relation-
“We did an analysis of the work being done and deter- ship. This number has now grown to 200. The team of 200
mined that it was using old technology, had many repeat- workers supports the set of applications 24x7, handles all
able tasks, which were not core to the business we do. We kinds of enhancements to their mission critical systems, and
were mainly facing work capacity problems in terms of supports re-engineering and decommissioning initiatives in
training and hiring new people and the transition of a busi- these areas. These enhancements are being taken up time-to-
ness from the West coast to the East coast,” said the com- time based on requests from business users to align the sys-
pany’s spokesperson. tems with the changing needs of business and customers.
At the same time, being a leading provider of retirement In order to track these enhancements and to streamline
services and life insurance in the U.S. and a top property the entire process of rolling out these changes to the pro-
and casualty insurer in Canada, it was necessary for the duction systems, NIIT Technologies mapped a workflow
company to maintain, and gear up, its position in the mar- with the customer, which was implemented online through
ket. With the massively growing business and rapidly “MATRIX,” the provider’s knowledge portal. The customer
increasing competition, it was necessary to explore the new also has complete access to the status of the requested
business model. Thus, the conglomerate evaluated the enhancements. The MATRIX knowledge portal is being
options of outsourcing the IT applications, since the exist- used for: Requesting enhancements; allocating tasks; track-
ing team was unable to meet the increasingly stiff service- ing the status of open requests/tasks; tracking productivity
level agreements driven by the changing nature of the busi- and other relevant metrics; besides being an ever evolving
ness and increased competition. repository of systems, processes and domain knowledge and
Between 2002 and 2003: The company opted for mul- also an e-learning portal for ensuring competent and certi-
tisourcing model of offshoring and outsourced a big chunk fied individuals service the account.

Feature_NIIT_Nov_Full-Final.qxp 10/20/2008 10:20 PM Page 35
Case Study
ENHANCEMENT REQUEST STATUS TRACKING

Using the Web-based MATRIX portal, the customers
can keep track of all enhancement requests. The
status of a requested enhancement can be known
through "Maintenance Request" based combin-
ation on all or any of the following criteria:
l Maintenance request ID: ID with which the requirement
is created (e.g. TA/06/03/06)
l Priority: Priority of task
l Reported date (from and to): Date on which task was
assigned to offshore
l Reported by: Name of person task was assigned by
l Assigned to: Name of person task was assigned to
l Status: Status of task
l Closed date (from and to): Date on which task was
closed
l Reviewed by: Name of person who reviewed the task
l Reviewed date (from and to): Date on which task was
reviewed.
The Structure and Workflow of Offshore Team improvement was also noticed in the system turnaround
For the customer, NIIT planned a dual shore model of times. The maintenance team size came down significantly.
operation. As part of the model, its onsite personnel inter- There was a marked increase in the productivity numbers
acted with the business users to discuss their enhancement of the team as well as the processes with the effort required
requirements, and accordingly initiated a maintenance per enhancement request reduced significantly by over 66
request, which was then assigned to the offshore team. percent and with the number of projects, which were being
Details of the initiated task are added to “Task — Aces” handled by team, was also increased. The engagement also
Community on portal. The offshore team leader in turn led to the creation of several tools, which helped in automa-
assigns these tasks to respective offshore technical specialists tion of a lot of processes and the engagement achieved 100
within the team based on their skills and expertise. A review- percent on all Service-level Agreement (SLA) compliances,
er is also assigned for each task. with 100 percent for all systems for the past five years start-
Upon completion, each task within the enhancement ing fifth month of engagement and with 100 percent for all
request is reviewed thoroughly. If approved, the correspond- quarter-end SLA from inception.
ing status in the workflow system is updated to “CONS-UT “Our knowledge-management framework that effective-
Complete.” All supporting test cases, review and defect logs ly reduced the risk of knowledge loss due to any discontinu-
and relevant artifacts are also uploaded. “Task” Community ity of resources, along with our competency-development
is updated with task completion details along with reviewed framework — that ensures skilled resource availability —
checklist for the task. has been instrumental in the growth of our relationship.
Our passion for value creation has resulted in savings of
Updates Till Now … about $5 million per annum,” added Ritu.
The offshoring engagement led to tangible benefits for In the end, “We treat each other as partners and are
the customer’s life-insurance business, which accrued to the not afraid to discuss problems and solutions. It’s all about
customer’s bottom line directly. The system availability how to make everything work better,” said the insurance
improved from 94.5 to 100 percent. In fact, a lot of giant’s spokesperson. GS

Experts-PA consulting_Nov_Full-Final.qxp 10/20/2008 9:56 PM Page 36
Experts
Knowing the Unknown
The Value of Assumption Management
Interestingly enough, the major cause of
disagreements between the customers and
providers is not talent or skill, but rather
assumptions. Putting a governance structure
in place ensures a project’s success
By Jennifer Harnett-Bullen, Michael Latchford, and Nick Mathisen
I
n the outsourcing journey, from the l Demonstrate expertise and is one with clear intent to unambigu-
initial request for proposals to full- experience ously address specific technical, process,
service delivery, a provider is required l Show respect for the customer’s people or financial issues. “Bad”
to make many assumptions about a input assumptions can have a disproportion-
customer in order to develop a solu- l Anticipate potential risks ate effect on the success of future tran-
tion. These assumptions will range from l Make allowances for contingency. sition and contract implementation.
broad brush to being specific in their Assumptions are just another com- Without that clear intent, the assump-
detail, and will be used by a provider to ponent of a project to manage — tion can become confusing, misinter-
design, price, schedule, and staff a solu- along with issues and risks — and preted or meaningless, especially when
tion that they believe, meets the cus- therefore require planning and man- revisited some time after originally
tomer’s needs at the lowest cost. agement. Customer and provider can made. Bad assumptions are the ones
Although assumptions are identi- avoid disagreements and project delays that lead to change requests — and usu-
fied, they are not always well docu- by jointly developing, managing ally conflict — and should be avoided.
mented or — in many cases — agreed and agreeing a comprehensive set of However, just making an assumption
with the customer. The reasons for robust assumptions that form the sole is not enough. Making assumptions
keeping the customer in the dark vary, source of legitimate contract change without the agreement of all parties is a
but usually a provider wants to appear requests. There are three aspects to useless exercise as neither party will be
an expert in his field, and fears that assumption management: able to point to an assumption when
revealing assumptions may show weak- l Define and agree robust suddenly it is proven to be incorrect. To
ness or vulnerability. In addition, a assumptions ensure that assumptions are accurate and
provider might not truly understand l Actively manage assumptions relevant, it is key that all assumptions are
the repercussions of an assumption l Integrate assumptions and change validated by affected parties. This vali-
proven false and that could have dan- management. dation will be much improved if each
gerous consequences. assumption includes the impact of it
In our experience, being up-front DEVELOP A ROBUST being proved false. A side benefit of
and honest about assumptions with a ASSUMPTION SET requiring assumptions to have clear
customer gives the project, and the rela- Assumptions essentially bound the intent and the impact will be to avoid
tionship, the best chance for success. By scope of a solution in unknown areas “assumption overload” and ensure only
sharing assumptions and validating and allow detailed definition of the solu- relevant assumptions are made.
them with the customer, a provider can: tion to occur. A well-crafted assumption The final piece to developing a

Experts-PA consulting_Nov_Full-Final.qxp 10/20/2008 9:56 PM Page 37
robust assumption set is to ensure that assumptions in advance. Therefore, help drive the right behaviors in defin-
assumptions are captured from all par- establishing a governance structure and ing, documenting, validating and
ties. For example, a customer should mechanisms to deal with new infor- agreeing the complete set of assump-
document assumptions about the ser- mation and changes to known assumptions that are deemed relevant by
vices it will receive from a provider and tions is paramount to ensure that the both sides for the contracted solution
give the provider the opportunity to project continues without undue delay. to meet the business needs. Similarly,
validate them. This multiparty Therefore, in conjunction with a well defined and early established
approach will result in a more complete this agreement, a workable dispute res- governance model provides both par-
set of assumptions. olution process must be in place that ties with the necessary mediums to
allows missing, incomplete or inaccu- mitigate the impact of changes to
ACTIVELY MANAGE ASSUMPTIONS rate assumptions to be addressed joint- known assumptions and, more impor-
As assumptions are made to docu- ly by both parties. Without an agreed tantly, the impact on unknown or
ment the unknown, it is easy to make dispute resolution in place at the undocumented assumptions.
many assumptions and rapidly lose onset, both parties would not be will- That said, a collaborative environ-
sight of what is important, especially ing to meet and determine a joint ment will only go so far when changes
after the contract has been signed. arise that impact the cost of delivery.
Also, an assumption is most critical at Therefore, from the onset of the out-
two points: First, when originally
made to allow solution definition,
A collaborative sourcing journey itself, the customer
and service provider can come to agree-
and second when proved false. Active
assumption management will allow
approach to assump- ment to the affect that any assumptions
not documented and shared with the
much more efficient and effective
assessment of change when this occurs.
tions, from both sides, other, will not impact the solution
outright if proven incorrect, but the
Once the assumptions are defined
and agreed, ensure that they are
will help drive the right impact of those documented and
shared with the other and proven false,
documented and readily available to
all parties.
behaviors in defining, will be split equally by both parties.
Such an agreement will kick start
The assumptions, along with issues documenting, validat- the process of assumption manage-
and risks, ought to be managed on a ment in such a manner that both par-
regular basis during the lifetime of the ing and agreeing the ties will validate assumptions known to
contract. Simple steps such as priori- have a potential impact to the other
tizing which assumptions to docu- complete set of party so that the other party is known
ment in greater levels of detail, assign- regardless if proven correct or incorrect.
ing owners and documenting them in assumptions to meet In the end, the value of any project will
the contract in logical groupings, can be determined against its objectives, its
make this task much more effective, the business needs. timeline and its budget. Therefore,
particularly in the complex situation proper assumption management can
where an assumption could be built on only further increase the likelihood of
another assumption. solution in the instance of one party a project’s success or, at a minimum,
objecting to a potential impact not be the source of a project's delay or
INTEGRATE ASSUMPTIONS AND imposed on them resulting from new worse, its downfall. GS
CHANGE MANAGEMENT information or a change.
Undocumented assumptions are a Jennifer Hartnett-Bullen is a principal con-
primary cause of dispute between the ENSURING VALUE FROM sultant in PA Consulting Group's IT Con-
provider and the customer as they rep- THE START sulting practice. She specializes in project and
resent decisions made by one party that The goal of a successful outsourcing program management and custom software
the other never had a chance to vali- arrangement is a true partnership development. Michael Latchford is a principal
date. In an ideal world, there would be between the customer and the provider. consultant in PA Consulting Group's IT Con-
a prior contractual agreement that only Why then should customer and sulting practice and is a specialist in deliver-
documented assumptions could be providers alike shy away from forming ing complex outsourcing solutions. Nick
used as the basis for contract change this partnership — a collaborative envi- Mathisen is a principal consultant in PA Con-
management. Clearly, however, it is ronment — earlier on in the process? sulting Group's IT Consulting practice, spe-
unrealistic to expect all potential sce- If established early on, a collabo- cializing in the design, analysis and architec-
narios to be anticipated and covered by rative approach to assumptions will ture of IT systems.

Experts_HP_Nov_Full-Final.qxp 10/20/2008 9:59 PM Page 38
xperts By Ben Bauer
The New Outsourcing Option

Developing, operating and managing volumes of information as
well as maintaining mission-critical applications in order to sustain
business growth and remain cost-effective, is a challenge faced by
most organizations. That’s when infrastructure as a service comes
to the rescue
T
oday, CIOs are challenged in deployed, delivered, managed and mea- est hardware, software and services.
more ways than one to sup- sured. Until now, CIOs either updat- With this new model, companies
port business growth and ed their technology environment in- can tap into a pre-built infrastructure
bring out new initiatives, inte- house or outsourced the management delivered as a service, which provides a
grate acquired businesses of their infrastructure to a service platform for Microsoft Exchange, SAP,
quickly, as well as roll out new products provider. And for accomplishing that, and other critical business applications.
and services rapidly. With aging facili- they also required hardware and soft- These state-of-the-art data centers:
ties, and hardware and growing man- ware updates in every three to five years l Use the latest blade servers; power
agement costs, traditional methods of on an average. and cooling technology
managing the data center can easily hin- Today, there is a new alternative. l Run at maximum energy
der, rather than sustain business growth. Technology service providers are efficiency
People in enterprise technology are beginning to offer new ways to out- l Use standards-based, modular
facing similar problems in improving source, which will dramatically reduce components and tools
performance, maximizing financial the time, cost, complexity, disruption l Are virtualized, and built and
return for the business and minimizing and risks associated with creating managed with best-practice and policy-
risk. From CIOs to IT managers, all dynamic data centers and updating based processes.
are trying to address these challenges by existing applications. Because the assets are owned and
aligning business and technology goals, One example is HP’s new approach managed by a service provider, compa-
which at times can be contradictory. called Adaptive Infrastructure as a Ser- nies have more flexibility as they convert
Overall, the managing enterprise tech- vice, which is also referred to in the capital investment normally associated
nology seems like a never-ending cycle industry as “infrastructure as a ser- with a traditional infrastructure into an
of adjustment, crisis, and then adjust- vice” or “infrastructure utility services.” operating expense. At the same time,
ment again. Instead of investing capital dollars in they realize improved service levels and
Modernizing and transforming new or upgraded data-center facilities quickly adjust the size of their environ-
infrastructure technology into more and the systems that populate them (as ment and pay for what they need,
agile, energy-efficient and cost-effective with traditional outsourcing approach- based on the changing needs of the busi-
assets that drive business growth, is not es), companies can access their mission- ness. In addition, outsourcing these
an easy task. Enterprise applications critical applications as a service, deliv- functions reduces capital investment
such as Microsoft Exchange Server and ered from state-of-the-art data centers via a pay-per-use model while lowering
Systems Applications and Products owned and professionally managed by costs and energy consumption.
(SAP) — and the infrastructure they a technology service provider. In this A recent survey of 75 CEOs and 75
run on — are the lifeblood of a busi- article, I will call the emerging model CIOs worldwide showed that more
ness. But running outdated or multiple by the generic term, “infrastructure as than one-third of CEOs and CIOs
versions of critical applications on older a service.” believe that, in two to five years, their
technologies can hold a business back. With infrastructure as a service, the data centers will be incapable of dealing
So what should a CIO do? CIOs can quickly leapfrog their cur- with the rapidly growing demand for
rent, outdated environment and tap services and applications (Penn, Schoen
INFRASTRUCTURE AS A SERVICE into a service provider’s state-of-the-art & Berland Associates, March 2008). To
The CIO must change the way data center, which is continuously meet that challenge, infrastructure as a
products and services are purchased, maintained and updated with the lat- service will help companies:

Experts_HP_Nov_Full-Final.qxp 10/20/2008 10:00 PM Page 39
l Gain a quicker, less complex path poor management of HR, business erated, phased approach to a trans-
to a predictable, low-cost operating disruptions and delayed implementa- formed infrastructure. This plan of
expense financial model tion of new processes. action will show the CEO the approach
l Meet immediate infrastructure Taking a page from the traditional and how it affects the organization’s
modernization needs outsourcing playbook, guiding a bottom line.
l Eliminate high-cost, disparate, smooth, effective transition to any kind l Once the CIO has a buy-off from
heterogeneous environments that of outsourced environment is required the CEO, the company can move into
require extensive technology upgrades for the relationship to live up to its the transition stage — actually moving
and low utilization rates potential. A critical success factor in applications over to a technology ser-
l Quickly scale computing power transitioning and transforming the data vices company. Understanding the
within a matter of hours or days. center is to have an integrated and company culture, as well as employees’
Consider, for example, the needs of structured approach, which is done in talents and strengths helps in making
a large financial institution, which is three phases — planning, transition this smooth transition. The service
under pressure to manage a growing and transformation. provider should have a skilled transition
volume of information, as well as main- l The first step is to carefully assess team with best practices across people,
tain its 24/7 mission-critical applica- how the current infrastructure tech- processes, tools, technologies and assets.
tions. It relies upon the processing nology environment is performing in The in-house team working with the
power to keep operations running relation to business goals. A due dili- service provider will be responsible for
smoothly. If the company factors in cost a well-coordinated and tested imple-
of energy and time for upkeep, along mentation of the project.
with overall operations cost, why Instead of investing l As an added bonus, transition
wouldn’t it simply pay for all or part of and transformation can happen in
its processing work to be run by an out- capital dollars in new tandem. As the technology infra-
sourcing partner? This would avoid data-center facilities structure is transitioned over to the
investment of additional time, money selected service provider, the software
and effort to keep an infrastructure up and systems, compa- can be updated and new programs can
and running internally. nies can access their be implemented. Since it is so impor-
Companies are constantly looking tant to be agile in this new technolo-
for ways to lower costs through oper- mission-critical appli- gy environment, transforming appli-
ations, HR and technology. In order to cations as a service, cations quickly will allow companies
compete with more agile firms, they to react to market changes faster.
are looking at how they pay for tech- delivered from data Once the transformation is complete,
nology and services — as an operating companies can focus beyond technol-
expense versus a capital expense. Com-
centers professionally ogy requirements to meet critical busi-
panies need to be prepared for changes managed by a technol- ness objectives.
in business needs and have the ability With infrastructure as a service,
to adapt more quickly, while keeping
ogy service provider. companies will reduce the time taken
costs down. With transformation time to transition to a new, standardized
shortened, these institutions can free- environment, while reaping the bene-
up capital for innovative new services gence review need to be performed, fits of improved service levels. It’s also
that will help accelerate growth for including a review of culture and val- designed to lessen the disruptions of
the business. ues. Then a proposal should be pre- an enterprise’s core business and allows
pared, which includes high-level task, for better use of HR and improved
HOW TO MAKE THE SWITCH staffing and milestone plans for enhanc- processes. In addition, companies can
Whether starting from a tradition- ing the infrastructure. The proposal enjoy more financial flexibility as they
al outsourcing engagement or manag- should take into consideration these convert capital investment, normally
ing data centers in-house, the transi- needs at the worldwide, regional, and associated with a traditional
tion to infrastructure as a service, country levels. infrastructure, into an on-going
involves considerations around people, With a defined plan in place, IT operating expense. GS
process and technology. While the managers can choose how best to out-
move is considerably less complex with source software assets such as Microsoft Ben Bauer is the worldwide Marketing Man-
an infrastructure as a service model, it Exchange or SAP to take advantage of ager for HP Outsourcing Services and is respon-
is still necessary to have a well-planned the new infrastructure utility services. sible for all aspects of marketing, with partic-
and well-executed transition as a This allows flexibility to on-board ular emphasis on using emerging infrastructure
proven way to avoid problems, such as applications immediately or in an accel- technology as a service delivery model.

Experts_Phil fersht_Full-Final.qxp 10/20/2008 10:01 PM Page 40
xperts By Phil Fersht
Will The U.S. Turn Into a Competitive

Sourcing Location?
We're in the final throes of the most enthralling and
contentious election in years and John McCain or Barack
Obama will likely have a very different impact on the U.S.'s
potential as a sourcing location. So, is the U.S. in a position
to step up as a serious BPO or ITO location?
W
ITH THE ping that provider from offering sys-
FINANCIAL CRI- tems architecture work to their cus-
SIS upon us and a
Even if the U.S. wage tomers, which is among the costliest
troubled economic rates for programming onshore IT services?
period in store for We’ve now been sucked into a
the medium-term, higher unemploy-
work in IT services global employment war for sourcing
ment, a weak dollar and lower labor come down services, and from what Sen. Obama
costs are combining to increase the has stated last month, he intends to
attractiveness of low-cost U.S. loca- significantly, there is give the U.S. firms tax-breaks to
tions for global services. We have also a major issue source work onshore. While he hasn’t
already seen leading offshore service yet outlined exactly how he plans to
providers significantly bolstering their that the quality of do this, it is likely that he initially
onshore U.S. presence, with, for exam- many IT services plans to provide benefits to customers,
ple, TCS establishing a major service as opposed to providers, to source
delivery facility in Cincinnati, Infosys delivered from work to onshore U.S. locations. This is
in New Jersey, Wipro in Atlanta and
Cognizant in Phoenix. Offshore ser-
offshore locations is the opposite strategy of the Indian
government’s STPI (Software
vices must be augmented with cus- now consistent. Technology Parks of India) tax
tomer-facing onshore services, howev- scheme, which gives tax-breaks to new
er, with the onshore costs lowering and Indian organizations (mainly
new (potential) government policies to service provider in, say Chennai, what providers) in the region of 10 to 20
encourage the U.S. business to keep is now stopping that provider taking percent during their first 10 years of
jobs stateside, we could see the U.S. on higher-value accounting services, inception, designed primarily to bol-
emerge as a highly attractive sourcing such as budgeting/forecasting and ster its software industry, but also
location for global services providers. business intelligence? That provider directly applies to its service providers.
What is clear, is that shipping jobs basically owns and understands much Look at it this way, you can hire
offshore isn’t necessarily very good for of the revenue cycle of that customer, staff in low-cost U.S. locations for as
the U.S. unemployment rate — the hence, the natural next step is to move low as $25,000 a year for back-office
age-old argument of focusing U.S. up the process value chain. And if administrative work. If you can reduce
staff on “higher-value” work is wear- your current provider won’t move up that further, to $22,000 a year as a
ing a bit thin these days. What’s more, the value-chain, there is a prolifera- result of tax incentives, and the cost of
many offshore service providers are tion of knowledge-process outsourc- health-care is reduced/subsidized, the
now focused on taking on more high- ing providers willing and ready to take price differential with locations such as
er-value work activities for their cus- on higher-value offshore work. Latin America and India is minimal.
tomers, in addition to routine transac- Moreover, while a firm may have been IT, on the other hand, is significantly
tion work. For example, once you enjoying good quality COBOL pro- cheaper in locations such as India and
have your general ledger run from a gramming from Brazil, what’s stop- China for all levels of services.

Experts_Phil fersht_Full-Final.qxp 10/20/2008 10:02 PM Page 41
Here's My Take mainstream applications. Even if the

For Business Process Outsourcing U.S. wage rates for programming
(BPO) services, the U.S. is still in the
The core battle work come down significantly, there is
game. The issues surrounding cus- is with services also a major issue with the fact that the
tomer/employee contract still favors quality of many IT services delivered
onshore services (even though off-
needed from from offshore locations is now consis-
shore services are improving by the business-process tent. The core battle is with services
day), plus the fact that there is still a needed from business-process archi-
great supply of midlevel executives architects and staff tects and staff with deep industry-spe-
who will be anxious to keep their jobs with deep industry- cific expertise. We have seen many of
in the forthcoming months. With sig- the leading offshore providers invest in
nificant incentives to keep work specific expertise. their onshore deliver centers over the
onshore, I can see the U.S. stepping last year — and we can expect to see
up as a serious BPO location. Not a continued significant competition
bad thing for the BPO industry, as firms struggle to sell off their Indian between the incumbents and offshore
long as the service providers invest captives, several of them may scale- providers in the coming months for
wisely in attaining the right down their offshore dependence and onshore-related work. GS
onshore/offshore balance within their alternatively seek onshore services.
delivery infrastructures. Moreover, the For IT services, it’s looking a bit Phil is Research Director, Global
onus on sourcing we’re going to see late to pull much of this back. In Services and Outsourcing, for leading
from restructuring financial services India, for example, IT services have industry analyst AMR Research, Inc. He
industry is going to entail a delicate become the life-blood of the country’s also authors the popular blog “Horses for
balance of onshore/offshore BPO economy, and the skills in basic pro- Sources” which can be accessed at
work. If the major financial-services gramming are widely available for http://www.fersht.typepad.com

Experts_Allan_Nov_Full-Final.qxp 10/20/2008 10:08 PM Page 42
xperts By Allan Schweyer
The ROI in Enterprise Web 2.0 and

Corporate Social Networking
How do organizations find creative ways to recruit, engage and
retain Gen Y, and facilitate strategic knowledge sharing across
the enterprise? The answer lies with Web 2.0 collaboration
tools in organizational social networking and knowledge-
sharing
F
ew social phenomena of the ever, neither is there a generally accept- organizations that implement and
past decade have rivaled social ed model for its implementation, nor master Web 2.0 tools today, including
networking and Web 2.0. web who should own it in the organization. CSN, can expect to gain similar, if not
sites such as LinkedIn, In an attempt to uncover emerging even greater advantages. In most cases,
MySpace, Facebook, practices and early indications of the however, it is safe to say that the Web
Wikipedia, and in India, Orkut has value of corporate Web 2.0 and CSN 2.0 tools being used remain outside
attracted millions of users of all ages tools, the Human Capital Institute the corporate firewall. Nevertheless
and backgrounds. For “social” net- (HCI) and Cornerstone OnDemand, they are being put to business purposes
working and public information shar- a talent-management suite provider, also. Facebook, for example, allows for
ing, these tools have been spectacularly conducted a survey of HCI’s senior the creation of private networks and
successful. It only stands to reason HR membership on leveraging social LinkedIn has proven to be a powerful
then, that the technology might be networking and Web 2.0 collaboration recruiting tool. In neither case, is
used for professional or corporate use; tools in various enterprises. The main it necessary to license and install
for networking and knowledge sharing objective of the survey and subsequent any application.
— behind the firewall, so to speak. interviews was to understand the role From our results, it would appear
Corporate Social Networking and impact of Web 2.0 collaboration that corporate Web 2.0 and CSN
(CSN) is the most common term tools in organizational social network- tools are still experimental in most of
being applied to the rising use of pro- ing and knowledge sharing. the organizations that report their
fessional networks inside organiza- At this stage, in the development use. As above, most of that use falls
tions. Blogs, Wikis, threaded discus- and implementation of corporate Web outside formal practice and certainly
sion boards and other Web 2.0 tools 2.0 collaborative tools, users can still outside “the firewall”. The three great-
have made their way onto Intranets for be labeled early adopters. And, just as est barriers to using Web 2.0 tools,
corporate use in knowledge sharing. early adopters of online job boards according to our respondents, are user
Best practice in CSN and Web 2.0 reaped benefits and competitive adoption, other priorities taking prece-
technology does not exist yet. How- advantage a dozen years ago or so, dence and the difficulty in building a
“ We have been able to eliminate physical

office space through the use of online col-
laboration technology. Smart use of collab-
oration technology has enabled us to pro-
duce and deliver training programs that
have a 20 X + ROI in terms of the impact
on business performance.
“
— Survey Respondent
“ The main challenge is time ... our users
will need to have a bit of a culture shift
and be educated on what the tools are
and how to use them. People are already
so overwhelmed, they’re not sure they
have the time to engage in this type of
activity.
“
— Survey Respondent

Experts_Allan_Nov_Full-Final.qxp 10/20/2008 10:09 PM Page 43
compelling business case for their use. 2.0 adoption and perceived benefit —
Time will address the first barrier as As workforce is personal and for business — between
more young people who have grown younger and older workers.
up using the tools enter the workforce spread more and more But organizations are already
and this, in turn, should move Web around the globe, reporting the benefits from corporate
2.0 tool adoption up on the priority Web 2.0 and CSN applications. Bet-
list. The third main barrier — making organizations are ter internal as well as external com-
the business case — was the focus of looking for tools munication, connecting and engaging
our research. To do that, proponents of employees and faster and more effec-
the technologies need to demonstrate to keep teams tive knowledge transfer are the most
Return on Investment (ROI). together “virtually” articulated benefits at this early stage
There, clearly remains much work in the adoption of the tools.
to be done in identifying the ways and so that physical Clearly, the tools will play a critical
methods to determine ROI and the distance does not future role in HR and talent manage-
tangible value from corporate Web 2.0 ment. They can provide a common
and CSN investments. And very little affect performance communications platform for employ-
research has been done to quantify the and learning. ees, allowing them to share informa-
ROI in CSN and corporate Web 2.0 tion, knowledge, ideas and collaborate
— that which does exist is compelling online. Moreover, the tools are likely
— as in the statements of value in Web ly.” Their goal is that performance and to become essential in attracting,
2.0 made by so many of our survey learning should not suffer because of onboarding, developing and keeping
respondents. Our respondents believe physical distances between the various the next generation of talent.
that Web 2.0 tools will finally allow members of the team. Many organizations are already
them to access the rich content and Not surprisingly, our research moving from an experimental use of
corporate memory that proves so elu- reveals a gap between the promise of corporate Web 2.0 tools to more for-
sive in most companies. Respondents corporate Web 2.0 and CSN tools and mal uses, and this is largely being dri-
believe that this information, includ- the current reality. But organizations ven by the HR department. The
ing tacit knowledge, can benefit the can’t expect overnight revolutions. majority of organizations that are not
organization significantly. The new technologies and processes yet using the tools are impressed with
Our survey results show that the can confer advantage only when they their potential and are planning
decision to use social networking are given sufficient thought and the to implement them in the near future;
and/or other Web 2.0 tools now or in necessary support prior to and fol- only a small minority appears to
future is greatly influenced (84 per- lowing implementation. have looked at the tools, assessed
cent) by the demographics of the Despite some skepticism, Web 2.0 their potential and rejected them for
workforce. As the typical workforce is tools are likely to be among the high corporate use. GS
spread more and more around the demand applications of the next gen-
globe, organizations are looking for eration of employees. Our research Allan is President and Executive Director,
tools to keep teams together “virtual- showed a significant difference in Web Human Capital Institute.
Global Sourcing in an
Uncertain Economy
A compilation of thought-provoking articles
from sourcing experts on how to handle the economy.
Find out in Dec. ’08 issue!

For advertising opportunities,
contact Satish Gupta at satishg@cybermedia.co.in

www.osourcebook.com
The OSourceBook 2008 Web edition is
now live. Search for global outsourcing
providers by name, location, industry,
services, and more at your fingertips.
B
Experts_TPI_Nov_Full-Final.qxp 10/20/2008 10:13 PM Page 45
xperts By Brian Smith and Sid Pai
Defining Strategies for Offshore

Hybrid Captives
What’s the ideal approach for optimizing offshoring
strategy — one that improves efficiency ratio and
uses fixed overheads better or one that facilitates
partnerships with fewer risks? Here’s an insight into
creating a successful collaborative model
G
lobal organizations typi- Comparison of captives and factory.” However, because many cap-
cally offshore a broad range third-party provider tives never attain critical mass, they
of business tasks and 100 Cost/FTE eventually lack the efficiency that parent
processes ranging from entities want and ultimately become a
very simple to very com- 79 liability instead of an asset.
plex. To optimize their resources, early 67 65
adopters, particularly those in the finan- WEIGHING CAPTIVE EFFICIENCY
cial-services industry (Citibank and VS. THIRD-PARTY UTILIZATION
Standard Chartered Bank, as exam- TPI research has shown that captives
ples), established their own wholly are more frequently less efficient than
owned and operated offshore business equivalent third-party service provider
Captive- Service Service Captive-
units, called “captive centers.” Median Provider- Provider- Best-in- arrangements from a cost perspective.
While many firms continue to use Median Best-in- Class The respective cost structures differ
third-party providers for such units, Class because of factors such as compensation,
other later entrants to offshoring estab- Normalized using median captive = 100 workforce, the ratio of associates to team
lished various forms of “hybrid captive” SOURCE: TPI
managers, more support staff, corporate
models as a means to strike a balance allocations, and the spend on business
between the benefits and risks of own- some available practices as well. continuity planning/disaster recovery
ing a captive and utilizing third parties. Operating a captive in a country such planning driven by corporate policy.
During the past few years, a number of as India, is a complex undertaking, and A minority of captives or “best-in-
management models have mushroomed. many such units are established with a class” captives, however, can attain cost
As a result, the market is seeing an emer- grand vision of creating a super-efficient, performance gains better than those of
gence of some best practices — and low-cost “operations and technology the third-party service providers.

OVERVIEW OF STRATEGIC ALTERNATIVES FOR AN EVOLVED CAPTIVE

l Best-in-class captive has reached the
4 scale and operating efficiency of large,
3 third-party units
l Serves as global servicing arm of the
2
enterprise, driving standardization and
1 consolidation and re-engineering.
Super Captive
l The “strategic captive” houses higher-
4 4 end/KPO work/PMO and the VMO to

Captive source lower-end work via “hub and spoke”
3 3 model
2 i2i l Entity performing low-end work with peo-
2 ple and assets transferring to a third
1
1 party/domestic contracting for people (and
Hybrid Captive assets).
Evolved
Captive
l With slowing growth, cost arbitrage stops

4 and enterprise does not see captive activi-
3 ties as “core.” With stable operations, cap-
tive represents a monetization opportunity
2
1 l People and asset transfer at premium to
ensure operational stability, transfer to a
Reverse BOT - Third Party/PE third party or third party/PE combination.
Captive units that do not reach crit- core employees being retained while Instead of making piecemeal, unit-
ical scale are often 30 to 50 percent more the commodity work is spun off to oriented decisions to outsource or off-
expensive than the median third parties third parties. shore, hybrid captive models are imple-
and generally evolve in common ways. mented as a result of systematically
First, the parent company either invests HYBRID CAPTIVE MODELS assessing applications and processes. As
in revitalizing the captive, creating a As customer organizations continue customer organizations consider their
viable player with costs at an acceptable to reset their sourcing strategies on the options, the assessment first focuses on
premium, or the captive atrophies to a basis of the assessment, a number of dif- determining processes or functions
point that the business is eventually ferent structures are emerging in the that should be executed via the fol-
bought out by third parties. marketplace. A “hybrid captive” model lowing options:
Alternatively, parent companies are is defined as a captive that has evolved to l Retained by on-site customer
increasingly evolving toward a hybrid become the local hub of a network of personnel
captive model, with strategic third-party providers. l Carried out in onshore shared

service centers captive’s premises (see Hybrid model C provider. It also gives the provider a
l Sourced from the offshore in the diagram). This is an alternative to much-reduced risk profile, encouraging
captive unit the often-seen sourcing model of captive creativity in order to tackle more com-
l Sourced from third parties staff operating in designated zones from plex and less easily defined objectives
(whether onshore or offshore). within the service provider’s premises and/or processes.
A hybrid captive structure is intend- (see Hybrid model B).
ed to create value by leveraging the THE SYNTHETIC CAPTIVE MODEL
investment, management team, and BENEFITS OF ADOPTING A HYBRID The “synthetic captive” sourcing
infrastructure of a captive to become a CAPTIVE STRATEGY concept attempts to emulate the bene-
local prime contractor and the hub for A hybrid captive model of leveraging fits of having a captive without all the
obtaining services as needed from third the captive’s premises improves its effi- risks of creating an offshore center in
parties. This can provide value in several ciency ratio, makes better use of fixed conjunction with a service provider. In
ways. In the first instance, the captive overhead, and can be perceived as reduc- a synthetic model, a service provider pro-
management can examine its own book ing risk. It also lowers the cost of third- vides all the physical infrastructure and
of business to determine what activities party resources, since the service provider supporting functions like recruitment,
are core and non-core, and then out- does not need to provide infrastructure, general training, financial reporting,
source non-core activities to third par- secured space, and other resources that while the customer may own and man-
ties (see Hybrid model A in the dia- the captive possesses. age some operational delivery, product
gram). This will free up space to enable Finally, by extending the scope of the training, and quality assurance.
the captive to take on more work from captive’s management team, these jobs Synthetic captive arrangements are
the parent without an increase in infra- become more interesting and challeng- focused around a commercial outsourc-
structure investment, or even allow an ing, which enables individual growth ing contract with pricing and governance
improvement in seat utilization by and mitigates career advancement issues provisions that enable the sharing of
enabling the third party to use the cap- that could be a significant problem for management responsibilities and deci-
tive’s own infrastructure during the captives — especially the smaller ones. sion-making. This helps some customers
periods when it is not being used by When captive management is running feel more comfortable with the risks of
captive employees. a business, they have control over the offshoring, which enables them to
This approach also enables captive supply of resources and therefore can achieve some of the benefits of having a
management to utilize a service generate more value for their parent. captive without the significant set-up
provider’s ability to ramp up and ramp They can take on more work — per- costs and risks.
down staff so as to help the captive han- haps outside of their initial core com-
dle volume fluctuations and special pro- petency — and distribute that work to BENEFITS OF ADOPTING A
jects without hiring and increasing head- provide a more robust and resilient SYNTHETIC CAPTIVE STRATEGY
count — an important consideration in environment by utilizing one or more For service providers, the synthetic
today’s economic environment. service providers. structure facilitates increased partnership
An alternative approach is, when The hybrid captive concept has where they are taking fewer risks and can
the captive has more space than it emerged as a means of structuring a rela- rely on their customer to participate in
requires or when it needs to enable tionship that gives the buyer of services the evolution of services, provide staff
speedy connectivity into an internal a significant degree of transparency and and expertise, and help the provider
network that uses third parties but management oversight over operations learn the customer’s business. This, in
requires them to locate their staff at the carried out offshore by a service turn, can position the service provider to

HYBRID OPERATING MODELS

Transition from Captive 1.0 to Captive 2.0 Hybrid Model
Hybrid Model
A B C
l Offshore service delivery was either through l Offshore service delivery happens through a
a service provider(s), a captive unit or both in hub and spoke model with the captive unit act-
some cases ing as the hub
l Captive unit and service provider did not l The captive unit and service provider can be in
interact with each other. different locations; captive unit may be operating
from a service provider location or service provider
Company Service Provider
may be operating from the captive location.
Offshore Captive
enter a business segment and leverage the zation establishes a captive, it has a look beyond labor arbitrage as a means
capabilities developed with its synthet- sense of ownership that drives it to to increase capability and variable capac-
ic captive customer. ensure that sufficient work is moved ity that helps achieve previously unat-
Both parties can gain from this type there to make it effective. However, this tainable value. After thorough evaluation
of arrangement, which has made it an can cause problems in distributed orga- of your organization’s strengths, carefully
increasingly popular option. However, nizations where individual business analyze which combination of the
this model is not without its own set of units may believe that they have a approaches described here can help opti-
challenges. The sourcing strategy is sub- right or obligation to look for cheaper, mize your offshoring strategy. In doing
ject to the changing views of the man- commercially viable solutions. Such so, you just may unlock value; not seen
agement teams of the two parties over scanning of alternatives increases the in your previous or current labor arbi-
time, and great care is needed to ensure number of providers and reduces the trage experience. GS
that the objectives of the two parties captive’s value proposition. Although
remain aligned. the same can happen with a hybrid cap- Brian Smith is TPI’s Partner & Managing
Interestingly, the transparency that tive, scanning can have the effect of Director, FSO Services North America. He
underlies these captive relationships souring the synthetic captive relation- advises financial institutions of all aspects for
can have unintended consequences, ship, as the alternate service providers outsourcing and offshoring. Sid Pai, Partner &
causing managers in both organizations will inevitably be competitors of the Managing Director, Global India, TPI, pro-
to attempt to micro-manage costs at a synthetic captive provider. vides expert sourcing solutions for IT processes
line-item level, missing the point of the Increasingly, as firms move to second- and Business Process Outsourcing (BPO), with
broader relationship. When an organi- generation offshoring, it is necessary to special focus on offshore operations.

ad_strip_1.qxp 7/15/2008 4:08 PM Page 20
Handshakes, Eyeballs
Readers & Viewers
Empowering the Knowledge Nation

Expert-shyamanauja_Nov_Full-Final.qxp 10/20/2008 10:44 PM Page 50
xperts By Shyamanuja Das
In Defense of Globalization, Still

Year 2008 witnessed a temporary blip and its impact went
beyond the financial markets and affected many other
businesses. Nevertheless, the Indian and Chinese domestic
markets could yet provide to be the resuscitating agents that
keep alive the globalization dream
T
he 1997 Asian economic cri- with its risks. Risk demands mitigation
sis that started in Thailand strategy for sure. But that is not the
but ultimately affected many
The domestic markets same as completely avoiding risk.
Asian economies did not in India and China In fact, if anything, at this juncture,
impact the Indian economy India could play a far more important
too much, as India was economically have the potential of role. Friedman (and Clyde Prestowitz
not too integrated with the ASEAN dragging ahead the and others) talked of a world where
countries. At that time, in hindsight, countries like India and China are
many celebrated that isolation. world economy, so far increasingly competing as equals with
Year 2008 is different. Not only is been pulled by the U.S., the developed world and have some
India more globalized, with its services- advantages over the latter in some
led economy, but also more closely Europe, Japan and Asia. areas, such as talented and well-trained
integrated with the developed professionals. They all argue that there
economies, especially U.S. and U.K. has been a power shift in favor of
Also, unlike the Asian economic crisis, to providers serving Lehman is direct India and China because of this flat-
the impact of U.S. slowdown on the and immediate. And at least three of tening of the world.
world goes beyond financial markets the top five large IT companies in Power brings with it more respon-
and affects many other businesses — India do business with Lehman. sibility. Apart from their services and
IT Outsourcing (ITO) and Business Many of us are busy analyzing what manufacturing strengths respectively,
Process Outsourcing (BPO) services, would have happened if Indian com- India and China are huge markets. In
for example. Yes, this sector had wit- panies would have lesser business in fact, the domestic markets in these
nessed another big slowdown in 1999 financial services, or with the U.S. and countries have the potential of drag-
to 2000, but its impact beyond tech so on. These analyses are not just hypo- ging ahead the world economy, which
sector was limited. thetical, they are meaningless as no one has so far been pulled by the U.S.,
This time, not only have most sec- knows the future. What if this Europe and Japan, with a little par-
tors in the U.S. and Europe been slowdown would have happened ticipation from Asia in last few years.
affected by this crisis, but for India’s IT in pharma or telecom sector? That can change dramatically, if India
and BPO industry, the immediate In fact, when the dollar was weak- and China start thinking that they can
impact on business is immense. Take, ening, many declared that focusing do that.
for example, the mortgage business. more on Europe was the path to salva- Call it globalization 4.0 or by any
Not long back, many Indian BPO tion. Then, the rupee strengthened fancy name. But I do not think it is just
firms thought this was the most fash- against other currencies too. And now, wishful thinking anymore. India and
ionable business to serve. They were the the dollar has strengthened signifi- China can surely lead globalization
first to be impacted, when the melt- cantly against major currencies, includ- from now on. Maybe, the U.S. crisis
down happened. Then came the ing the rupee. has presented them with such an
Lehman bankruptcy. Again, while the We cannot run away from the real- opportunity. They must grab it. GS
analysts are still trying to explain how ities of globalization. As we are getting
the global financial markets will be increasingly globalized and are reaping Shyamanuja is Editor, Dataquest,
impacted because of that, the direct loss the rewards of it, we will have to live CyberMedia.

Partner:
MICROSITE Remote Infrastructure Management

Articles News Experts’ Views Case Studies Resources Contact Us Register
FEATURED ARTICLES EXPERTS’ VIEWS
CASE STUDIES
FEATURED NEWS
http://rim.globalservicesmedia.com
ABOUT PARTNER
Experience IT. Now!

RNI No.DELENG/2006/17056
Posting Date: 29&30 of advance month. Posted at MBC/1B. DPR No.DL(S) 01/3284/2007-2009

Global Services Nov - 2008 - Low Res

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Global Services Nov - 2008 - Low Res

Transféré par

Droits d'auteur :

Formats disponibles

cover_final_India.

qxp 10/20/2008 10:31 PM Page 1

Governance Tools Can be a F&A Outsourcing Regroups

November 2008 Vol. 03, Issue 34

Understand the essential

52 pages including cover

with all Great Achievements you ﬁnd

Building on Our Global Heritage Working Together: IT-Enabled BPO

The gateway to the global sourcing of IT and BPO services

November 2008 www.globalservicesmedia.com GlobalServices 3

The gateway to the global sourcing of IT and BPO services

4 GlobalServices www.globalservicesmedia.com November 2008

11 CSC, EDS: MANAGED

The FUD Factor

6 GlobalServices www.globalservicesmedia.com November 2008

The New Frontier

Hon Asraf Dullul Hon Samuel Poghisio Dr Mohan Kaul

Crispin Lyden-Cowan Mark Kobayashi-Hillary Dr Titi Banjoko

Anwar Versi Vijay Kumar Other speakers include:

Government of Kenya Government of Mauritius

By Eugene Kublanov, CEO, neoIT

8 GlobalServices www.globalservicesmedia.com November 2008

November 2008 www.globalservicesmedia.com GlobalServices 9

To advertise in this issue, contact ektas@cybermedia.co.in

November 2008 www.globalservicesmedia.com GlobalServices 11

Q 3 ’08 wasn't easy for the global

2 percent plan to stick to their existing

Further analysis uncovered that, of Increase convince clients by brushing up their

12 GlobalServices www.globalservicesmedia.com November 2008

BANKS: SPENDING INTENTIONS ON OUTSOURCING SERVICES LINES (%) n=29

Mortage BPO services HR outsourcing

Mortage BPO services Banking BPO services

November 2008 www.globalservicesmedia.com GlobalServices 13

M&A Activities Speed up in Economic

l Spectris Acuity Cimatrix IT services — U.K.: 2 India: 34

14 GlobalServices www.globalservicesmedia.com November 2008

S ept. 15th ’08, a date that has made

November 2008 www.globalservicesmedia.com GlobalServices 15

6 A.T. Kearney’s recent study has its total debt burden.

major attractions are

16 GlobalServices www.globalservicesmedia.com November 2008

THE TEN LARGEST IT SERVICES DEALS IN SEPT. 2008

Federal Aviation Admn. Raytheon Training services 437 5

November 2008 www.globalservicesmedia.com GlobalServices 17

Understand the essential nature of innovation in

OPTIMAL SOURCING APPROACH

Collaborative Solution Design

20 GlobalServices www.globalservicesmedia.com November 2008

the customer to achieve its desired future state.

November 2008 www.globalservicesmedia.com GlobalServices 21

TECHNIQUES FOR ACHIEVING INNOVATION

22 GlobalServices www.globalservicesmedia.com November 2008

EquaTerra’s Hodges suggested partners from management

November 2008 www.globalservicesmedia.com GlobalServices 23

CONTRACTING STRUCTURE AND PROCESS

SOURCE: INTERNATIONAL ASSOCIATION FOR CONTRACT AND COMMERCIAL MANAGEMENT (IACCM)

24 GlobalServices www.globalservicesmedia.com November 2008

November 2008 www.globalservicesmedia.com GlobalServices 25

WORDS TO THE WISE

26 GlobalServices www.globalservicesmedia.com November 2008

November 2008 www.globalservicesmedia.com GlobalServices 27

28 GlobalServices www.globalservicesmedia.com November 2008

lishment of a different kind of relationship with service