Eric S, Author At Everest Group

Liberty Source: Using a Military Spouse Talent Model to Energize Onshore Delivery / Part II | Sherpas in Blue Shirts

December 16, 2015

Our first discussion with Steve Hosley, CEO of Liberty Source, provided an overview of their journey thus far. Our next discussion began our detailed look at Liberty Source’s talent model, which continues below with insights on its challenges and benefits.

Eric: Once an employee is onboard, what is the design for her or his development and career path?

Steve: Many organizations follow a typical succession planning and talent management process to aid in guiding their employees down their career paths in which they are aligned with the goals of the company. Where we differ is the frequency of this review and the involvement of our clients.

Because our mission speaks to providing job progression opportunities, our first client agreed to the formation of an employee development committee that meets on a quarterly or semi-annual basis to aid us in evaluating our talent management program for employees assigned to its account. This dialogue provides us with great insight into current and future required skills. While the jobs may be entry to mid-level careers at Liberty Source, the longer-term partnership we take with our clients allows us to create and grow “farm teams” to form talent pipelines that are extensions of our clients’ talent planning models.

Career paths are individually determined and then taken into account when we perform our regular talent review discussions. While employees may be in a role associated with a Finance and Accounting career path, some employees have indicated they would like to pursue other areas of responsibility. To support their development, we use creative networking and affinity groups in a different way to provide extra-curricular opportunities for them to pursue and grow their interests.

Eric: This is a fairly different type of people model. How have you adjusted the management model to reflect this?

Steve: First off, we commonly refer to our managers as coaches because we believe this is the kind of culture we are building. We have to focus on non-traditional techniques. Most of the BPO world is set up to manage in-person and face-to-face. The mission we are on changes the very nature of this relationship because the majority of our people are destined to relocate or telework. We have to manage virtually, create touch points that factor in different time zones and modes of communication, and manage client expectations differently.

We also allow for more independent and direct communication with the client. Ordinarily this is highly filtered by the BPO organization. We remove as much of the go between as possible to allow for the transparent process we promise to our clients. Once the employee is up to speed and producing, they own this relationship in most cases.

The typical command and control model that drives a directive, task-oriented communication style is replaced with a coaching and mentoring model. This view of leadership vs. management permeates how we engage employees to own their work more directly and learn how to transform it to a more efficient and scalable plan for the long term.

Eric: With all these modifications to normal people practices, it would seem that Liberty Source’s culture must be distinctive. Can you comment on what defines the culture?

Steve: Liberty Source is a place to come home to. Stable careers, flexibility in workplace and schedules, and with a common goal of being a place where employees come to transform their careers and customers come to transform their work. To achieve this, we have to translate what our employees may be used to and begin to train, teach, and coach on commercial culture norms and expectations. Some of our employees may be working in a sophisticated office setting for the first time, so we cannot expect everyone to come to the job without clearly defining rules of engagement and a structure to follow. We came up with a few simple principals to help guide a way of thinking and acting based on language they might already be used to. These six principles are:

Own it: We take personal responsibility to get our tasks done, meeting or exceeding both our clients’ and colleagues’ expectations.
Learn and lean: We look at every task or process as a learning experience, and don’t hesitate to lean on others for help.
Know our clients: We know what drives our clients’ success, and make decisions that support their business.
Know your numbers: We always know our performance metrics, and what we’ve committed to our clients.
No surprises: If something gets in the way of our performance, we immediately flag the situation to our management and our clients
No boundaries: Performance has no limits. We always look for opportunities outside our scope of responsibility to make a difference.

We also rely on a family approach to bring everyone to the table to resolve challenges. There is a level of honesty and support that comes from a family-centered view. You don’t get this in a commercial setting, and we tap in to it to gain trust and thus create strength.

Eric: What are the biggest opportunities and challenges you see for the talent model to continue scaling and evolving?

Steve: We still believe there is work to be done in better leveraging localized municipal community colleges as well as tapping into SaaS providers for training as well. Our size impacts the number of resources we can tap. To move past this, we are fortifying partnerships to expand our capability to expand learning and development goals.

The power of the Liberty Source family is in their sense of mission. It is easy to convey to this community that the success that you and the organization achieve now with our clients will create a wake of opportunity for future deserving spouses and veterans – and on behalf of those future spouses and veterans, we thank you for your commitment to Liberty Source. This message typically would not resonate in a BPO operation, but at Liberty Source it is “all hands on deck.” We strongly believe that the human capital model we have designed will directly translate to commercial differentiation in the market through low attrition and a committed workforce.

Eric: What are the benefits of the Liberty Source talent model in comparison to traditional BPO models?

Steve: Access to untapped, capable talent that fits – with our deep ties, affiliations and tools we have access to talent that is not readily apparent to the typical BPO. This is paying off in a couple ways:

Dedication: We have single digit attrition which is directly attributed to our dedicated military community and the culture we have formed. Typical BPOs have higher levels of turnover and much less social impact than we do. This retention creates the opportunity to transform work for our clients. We have a workforce that is highly engaged in the work of Liberty Source and wants to see us succeed like we’ve not seen in our previous commercial experiences. We’d like our current and future clients to see what can happen when full engagement is in action.
Agility: Our proximity to our clients and our EQ lends itself to less cycles and revisions. We get hand-offs right the first time.
Continuous improvement: This has long been an elusive goal of BPO providers. At Liberty Source we are committed to growing our employees and a big part of achieving that is through transforming our clients work so the type of Liberty Source work begins to elevate. This in turn elevates the abilities of our team.
Connection to Corporate Social Responsibility (CSR): Companies should no longer think of their CSR activities independently from the operation of their company. At Liberty Source, we deliver services at a commercial standard and our clients also get the benefit of evangelizing about our amazing social story as well.

Eric: What could others learn from Liberty Source’s experiences?

Steve: Major misconceptions are tied to spotty résumés and unrecognizable military terms and experiences. This is the primary reason the military spouse has challenges in achieving their full potential. If you focus clearly on what defines success in the role and manage to that in your selection, in your goal setting, and in your rewards you can really achieve a lot and help someone really deserving achieve their potential. Lastly, given that many of our staff originate from a command and control hierarchy, empowerment needs to be consistently reinforced to generate their optimal performance.

Eric: Thanks for sharing these insights with us. It is stimulating to think about how much a people model and culture can be designed to align to a particular targeted talent pool. I look forward to hearing more about Liberty Source’s continued journey in a couple more months.

Liberty Source: Using a Military Spouse Talent Model to Energize Onshore Delivery | Sherpas in Blue Shirts

December 9, 2015

Our first discussion with Steve Hosley, CEO of Liberty Source, provided an overview of their journey thus far. In this second discussion, we take a deep-dive on the talent model of Liberty Source.

Eric: What was the original vision for the talent model? How has that evolved over time and what are the reasons for the changes?

Steve: BPO has undergone an incredible industrialization over the past 20 years in offshore locations. Our original vision of the talent model for Liberty Source was to leverage this industrialization and build a human capital experience back into the forefront of BPO. The very first step in the creation of Liberty Source was to incorporate it as a Public Benefit Corporation (PBC) – which is a sustainable commercial for-profit enterprise that is also “hard-wired“ to operate with a social compass of hiring and providing career “on-ramps” focused on leveraging the talents of an underserved, but very capable U.S. military spouse population. The fact that we incorporated our company based on our human capital model speaks volumes to how we value talent at Liberty Source. Flexibility is key to our employees, so we allow our military spouses to take their Liberty Source jobs with them and work virtually when deployed to another base. This vision and foundation has not changed one bit although our journey has taught us a number of things.

We are now much more skilled and informed on how to work towards this vision. Key learnings include, when you elect to work with a member of the military, it is more about the community than it is about one type of individual in that community. We naturally have expanded our definition to now be the military community of spouses and veterans. We also learned that when engaging with our Liberty Source “shipmates,” the company must remain inclusive and accommodating to their larger family to include active service members.

We have seeded our values, operating principles and employee handbook with many military cultural norms that translate well into a commercial environment. These learnings all culminated at our one-year anniversary, when we hosted the Liberty Source Board of Directors for the first time on-site at our operations center. A formal Board meeting and dinner with speeches was not in the cards after all the hard work and dedication of our “shipmates” and sacrifices from their supportive families. We had to make this about the whole family, not just our shipmates. It was time to roll in the snow cone machine, bounce house, and bring in all their family members, including any active military that were home on leave. It was our time to be inclusive and celebrate the Liberty Source Family as a whole.

Eric: How are elements of the people model different than for traditional BPO?

Steve: The differences are not fundamental, but calibrated to our specific employee model. When you want to go beyond industrialization, you begin to ask your employees to “figure it out” and gain the confidence to ask questions. We find this is the only way to go “beyond the green” and past what is expected from us daily. So with this population you get folks who are constantly transplanted into new military communities around the world while their service member is at sea, in the Middle East or in some unknown location. If their car breaks down, or a new appliance arrives and is not installed, they figure it out. This is a population that has been accustomed to figuring things out for their families. We leverage this strong proven skill and move it to the workplace culture. Let’s first discuss our employment value proposition. There are four quadrants we look at when talking about the employee value proposition.

Culture: The first is a sense of culture and a place to come home to. Our military families need a sense of place where they can continue to bond and contribute, so we build a family culture that creates a level of communication and comradery necessary to maintain the mission focus. Still today in many military circles, spouses are referred to as “and spouse” or even worse, “dependents.” At Liberty Source, the company and culture has been designed for the first time in a different sequence, “spouses and veterans.” This simple change in sequence and priority translates well to a strong and tight community at Liberty Source.
Benefits: While we offer standard benefits to all of our employees, we found that our employees carrying existing military benefits desired the ability to supplement certain aspects of their existing coverage. We, in turn deployed an a la carte menu approach allowing everyone the flexibility to supplement their existing coverage and still tap a meaningful benefits program. Additional time off and flex time benefits, in support of specific military events such as PCS – Permanent Change of Station and Veterans Day, along with a flexible workplace, and other virtual work strategies add a richer layer to our offerings that you won’t find in a typical enterprise.
Compensation: We look at our compensation programs as a total reward offering. We find ways to start them in at Liberty Source at the right place and salary even though the market, due to the impact of their frequent moves, may dictate a lower wage. We believe the career pathways to opportunity we offer are all part of our short term and longer term incentives when balanced with more flexible time off and supplemental benefits. In this way a larger need is still met in a rewarding total package.
Development: The largest value we offer is our development track. Think of the impact to a résumé when you now have work experience at a Fortune 500 brand (our customers) and when you don’t have to drop your career every two to three years. Because our employees no longer have to make that choice, they build a continuous development program through on-the-job learning, networking, and course work supplemented with internal and external training.

Eric: So how do you go about integrating that into your recruiting?

Steve: Like any employer we accept applications from all qualified candidates and give everyone full consideration based on their knowledge, skills, and experiences. What we have found is the group we are here to help most, our military spouses, does not have the typical résumé that shows solid career progression in all cases. The nomenclature and terminology used is also more conducive to small markets than large ones. We have developed a keen eye and supporting science that looks closer at résumés where large employers would not take the time.

Because of the unconventional résumés, we have developed pre-employment screening systems that are based on 100s of candidates and performance data that help us identify the proper, personal hard-wiring to be successful at Liberty Source and within the specific position. We have seen the “fit rate” improve by 47% over the past year as our pre-screening tool became more informed on performance results. We believe that our current 50% employee referral rate for new hires coupled with the development of our talent acquisition science that has taken place over the past year and a half will position us well for scale.

Eric: Is there anything unique about your training programs?

Steve: We design our work to be done from anywhere so there is a stronger commitment to documenting the processes and procedures, virtualizing the training materials and supplementing with online and third party partners to execute training and development via a virtual or blended learning setting.

In our next of our discussion, we’ll ask Steve questions about the implications of this talent model once its members are on board, including the benefits and challenges of managing such a culture.

Liberty Source: Bringing Innovation to the Onshore Delivery Model | Sherpas in Blue Shirts

October 12, 2015

What if a service provider could build itself from scratch based on the learnings from the past two decades? Liberty Source, launched in 2013 as an impact sourcing provider, is trying to do just that in the highly competitive finance & accounting (F&A) outsourcing market. It has agreed to share its story with us over the coming months as its business continues to scale. We plan to look at how it optimizes its talent model to align to its social mission, its approach to using automation technology in service delivery, and other key issues which it faces as they look to compete in the market.

Our first discussion was with Steve Hosley, CEO of Liberty Source and a veteran of the outsourcing and shared services industries. We hope you enjoy this unique view into what it is like to start a new service provider company that is attempting to disrupt traditional models.

Eric: What is Liberty Source and how is it unique?

Steve: Liberty Source is an onshore BPO provider of F&A services. Our differentiators revolve around transparency and flexibility with our customers. Business is changing fast and flexible agreements are important to keep up with the pace. By flexible, we mean being able to pivot quickly to a company’s evolving delivery needs with a mix of automation and human capital needs.

We have chosen to run our onshore center with a social compass. Our team members – or as we call each other “shipmates” – primarily have a direct military affiliation as spouses of active duty military members or they are veterans themselves. This represents over 70% of our employee base. Our culture continues to be built around the U.S. military community. We believe that this community makes us look and operate much differently than a typical BPO operation. For example, we have “family meetings” instead of the more stereotypical “all-hands meetings.” Our conference rooms are named after famous U.S. military spouses with our Boardroom named after Martha Washington. Our transformation training revolves around the OODA Loop (Observe, Orient, Decide, Act) rather than the typical Six Sigma.

Lastly, we aim to create a business that is known as a transformation center – where customers come to transform their work and employees come to transform their careers.

Eric: Where is Liberty Source finding this military talent?

Steve: Our current operations center is in Fort Monroe Virginia, near Virginia Beach. It is located near five bases, home to over 70,000 active service members and the largest naval base in the world. 85% of our employees have college degrees and of them, 21% of them are holding Masters Degrees. This helps confirm that we have a talented workforce that is simply seeking big company, multi-national experience. The fort has a storied history and is known as Freedom’s Fortress. Under Union General Benjamin Butler during the U.S. Civil War, it became a beacon for tens of thousands of slaves to come and gain their freedom. We believe, that that in small way, we hope to continue in the spirit of Fort Monroe by providing real commercial technical skills and careers to a population of well-deserving and very talented U.S. military spouses and veterans.

Our spouses are allowed to take their positions with them when they are PCS’d (permanent change of station) so now with over 10 percent of our employees operating virtually, we aim to continue to expand our footprint of Liberty Source coverage to all the major U.S. military bases around the world.

Eric: How is Liberty Source structured, legally and financially?

Steve: Liberty Source was created to capture the growing commercial demand for onshore BPO delivery but do it in a manner that was socially responsible. We established ourselves as a Public Benefits Corporation, or a PBC. This allows us to operate as a commercially viable and market relevant for-profit enterprise, while also holding the company accountable to a social mission. Given that this structure and delivery model was new, we elected to initially go to market as a wholly owned subsidiary of Digital Divide Data, which pioneered the offshore impact sourcing market in the early 2000s.

Eric: What successes has Liberty Source had to date?

Steve: We are a little over a year old in terms of go-to-market efforts and have stabilized our first client, a very large contract with 15 different processes. These were brought back from India from an eight-year incumbent. We transitioned in 100 FTEs and have been live with the client’s work since February. Our first client attained the same price as it did in India, and now the work is only three hours away from them versus being in India.

We achieved price neutrality by doing the work more efficiently. The efficiencies have been gained through three primary drivers. As we stated previously the community we are building is loyal, resulting in single-digit attrition this year. What we have found is that this lack of attrition makes us more competitive in that we are not having to spend time and effort on retraining and extensive review cycles. We inherited an ingrained functional tower orientation and migrated it to end-to-end process teams, which really helped reduce rework. Lastly, we are benefiting from building a business in the era of “As a Service” and cloud offerings so our infrastructure is light and efficient. A combination of things like email from Office365, general ledger from NetSuite, payroll from ADP, and all workstations are laptops to provide DRP (disaster recovery plan) flexibility. Most importantly we strongly believe that we are in the people business and that our success in delivering quality service back in the U.S. on this tough economic contract, is due to the fortitude and dedication of our employees. This is most evident in that we successfully trained 100 people in 120 days with a limited background in SAP and SFDC applications to work effectively in those environments.

Eric: How has the organization and its business matured in the short time Liberty Source has been in existence?

Steve: With the monthly delivery to our foundational client, now stable and our second client underway, the Board of Directors of Liberty Source made the decision last month to exit the foundation stage and enter our next stage of growth given that we have proven the viability of the model and have positive momentum. This growth stage includes investing in pursuing other clients. Our second client, also a large Fortune 500 multi-national, is undergoing a transformation and wanted a BPO provider that was willing to be flexible as its strategy evolved. This translates into taking on work that is initially about providing performance-based labor, which they need now, while also working on a project to automate the work, and then eventually rebalance the delivery mix into the appropriate levels required to be done by humans after the automation is completed.

The market and customers have spoken to us, so we have pulled forward the training, building and management of Robotic Process Automation (RPA) in our business model and invested in it earlier than we had planned.

Eric: How does Liberty Source plan to compete in the market moving forward?

Steve: We are targeting the market through a couple lenses. We are starting in the F&A area. We typically aim for companies that share our social mission of employing military spouses and vets. Finally, we resonate with organizations that have already outsourced before and are able to understand the benefits of our model when we explain things like transparent governance, providing a pathway to outcome-based pricing and how we embrace technology.

Because we have proven the model in Virginia, we would like to continue to scale and grow this location. We are also open to creating another center near an existing military population that may align with some other company’s geographic delivery or customer base and shares our social mission of providing opportunities to U.S. military families.

Lastly, part of our social mission is about providing upward mobility to our employees and we believe that embracing automation will over time elevate the remaining work and fulfill this commitment. In turn, our customers benefit from Liberty Source’s pursuit of these technology solutions though continuous improvement.

Eric: What are some of the things on your mind as you look forward to the next steps of Liberty Source?

Steve: We know the market need – it is seeking agility and flexible arrangements. Ones that can provide innovation and benefit to both parties. We feel our model and culture position us well to provide these differentiators.

Further, we must marry up this to the human capital strategy – we are beginning to build a virtual spouse model, which will give us even more elasticity on how to access and deliver talent. We also believe that bringing RPA into the service delivery model will provide flexibility in how we manage operations and our talent pool.

Eric: Thanks for your time and insights – I look forward to hearing more about how the journey has progressed when we speak again.

Photo credit: Flickr

John Mellencamp Named Honorary Everest Group Analyst of the Month | Sherpas in Blue Shirts

June 8, 2015

“Well I was born in a small town
And I live in a small town
Prob’ly die in a small town
Oh, those small communities

All my friends are so small town
My parents live in the same small town
My job is so small town
Provides little opportunity”

— John Mellencamp, Small Town (1985)

Turns out Mr. Mellencamp was a pretty good analyst when it comes to assessing global services employment opportunities in small communities. So much so, that I am officially naming him as “Honorary Everest Group Analyst of the Month.”

No, I am not smoking something.

We just completed a first of its kind analysis of the U.S. Domestic Outsourcing location landscape for RevAmerica and finally have the key facts the industry has been lacking. In short, although smaller communities are sometimes used for service delivery, the reality is that the vast majority of the market is concentrated in larger communities with populations measured in the 100,000s vs. 10,000s. In particular, tier-3 cities are the sweet spot…the largest number of centers, the largest employment, and the largest centers.

Defining the city tiers

In order to analyze approximately 250 metro cities, we segmented them into six groups – tier-1 through tier-5 plus rural. As indicated below, the city segments are characterized by differences in population size plus commercial and educational factors.

Although only one dimension of a city’s potential for service delivery, it is easy and revealing to look at the differences in average population size of the city tiers. Each city tier is 20-40% of the population of the next larger city tier, which leads to a dramatic difference in the profile of cities that are 2-3 tiers different from each other.

It’s good to be a tier-3 city!

One of the most interesting findings from the research was the extent to which tier-3 cities dominate on almost every dimension. As shown in the exhibit below, they have the largest share of FTEs and delivery centers of all cities. Further, their centers are on average larger than any other city tier.

Additionally, tier-3 cities have the largest portion of multi-function centers (some combination of IT, business process, and contact center) and are the centers which are expected to grow the most in coming years.

Given that tier-3 cities average one million in population, most are surprised that cities of this size are driving the growth of domestic outsourcing delivery – many would expect smaller cities to be the primary forces. So why are tier-3 cities favored?

In short, we believe this is due to three factors which work in combination with each other:

Sufficient cost savings: Relative to tier-1 cities, tier-3 cities offer 15-20% savings; moving to tier-4 cities may only offer 5% more savings and in many cases is either cost neutral or even higher cost than a tier-3 city.
Enough talent: With nearly one million in population, the installed base of experienced talent is sizeable. Further, most tier-3 cities have large colleges which produce fresh talent for the entry labor force. Combined with the life style benefits of a larger city (airport, entertainment, shopping, etc.), tier-3 cities have the ability to both keep talent and to attract talent from other cities – either smaller or larger cities. Not everyone would want to live in New York, NY; similarly, many people could not imagine living in a town of Midland, MI (a town of roughly 50,000). However, many people could be comfortable in a city of one million.
Accessible: Although the idea of a remote, small city may seem attractive in order to capture an isolated labor pool, this doesn’t hold up well when assessed in detail. First, even small communities have competition for talent plus limited talent pools – costs can quickly spiral up. Second, the practical logistics of transit to these small cities creates an inconvenience that most organizations wish to avoid (especially for IT service delivery, requiring more cross-center collaboration). Most tier-3 cities are connected by direct flights to other major business centers within two to three hours of flight time.

In other words, tier-3 cities have an attractive mix of cost savings and talent, while still being comparatively easy from an operational perspective. This is broadly true, but less true for pure contact center work which can more easily operate at scale in tier-4 cities and even some tier-5 cities due to the broad labor pool which can fill contact center roles.

So, would Mr. Mellencamp’s small town have been a viable service delivery location? He is from Seymour, Indiana, with a population of about 16,000 – clearly a rural community by our definition. Highly unlikely many organizations could operate an IT or business process center of 200 FTEs in Seymour, although a smaller contact center could be viable. So, yes, there might be jobs…but little opportunity…

Also check out my co-presenter Sakshi Garg’s top 10 takeways from RevAmerica.

Photo credit: Flickr

Monkey Poop & the INR 500 Shoe Shine: Lessons in Value for Outsourcing? | Sherpas in Blue Shirts

May 4, 2015

“Sir, sir – a monkey pooped on your shoe!” was the first thing that brought my attention to the large, wet mound on my casual walking shoe.

Not a convenient development when walking around Connaught Place in New Delhi.

Interestingly, the next thing I heard was “Shoe shine – only 500.”

Despite the jet lag, I was able to immediately recognize the scam. The fact that the same person who pointed out the poop before I noticed it also happened to have a shoe shine kit was a pretty good clue. Never did see the accused monkey, although I strongly suspect it was actually the person who I begrudgingly paid INR 500 for that shoe clean-up and shine!

I filed it away as a humorous lesson and forgot about it until mentioning it some colleagues in our India office the next week. They were aghast and surprised that I would pay so much for the shoe service (about US$10 at the time, and 20% of the value of the shoes – which I had never previously considered deserving of a shine). From their perspective, I had paid far above market value (10-15 times the market rate) and should have negotiated the price down. From my perspective, I had no idea of the market price and just wanted the issue fixed quickly despite knowing the painful truth that the source of the problem was also the solution to the problem.

I was recently reflecting on this for reasons completely unknown to me (er, might have come about while changing a baby diaper…you get the idea). I was struck by the fact that my colleagues, the shoe shiner, and I all had different thoughts upon the value exchange. In an effort to demonstrate exactly how much I over-analyze life, I distilled this to three lessons.

1. Value is relative

The shoe shine from my perspective cost US$10 and allowed me to get back to enjoying the sights and sounds of Delhi. Frustrating, but well worth the money from a functional perspective that had nothing to do with the shoes themselves, but rather to remove a nuisance and enable me to do other things. From my colleagues’ perspective, it was 10x the market rate. From my experience, it was about 2X the market rate (US$5) in the U.S., so I did not mind the rate too much. If I had been asked to pay 10X the U.S. rate or US$50, I would have resisted and likely gone ballistic. For the shoe shiner, ignoring raw material costs of the poop, it was tremendous profit and a highly valuable exchange.

Depending upon one’s perspective, the financial price of a value exchange and the utility from the value are viewed differently.

No wonder we struggle to put a price to value in outsourcing!

2. Attribution of value creation is contextual

Although the shoe shiner definitely helped solve the issue and did so quickly, I could not be pleased with the value received; the context of the need for the services completely undermined his shoe shining contribution.

If this had not been a scam and I accidentally stepped into something and a shoe shiner happened to be nearby and solved the issue, then I would have thanked him profusely and happily paid the INR 500. However, instead of thanking him, I left grumbling and scowling because of the context in how the value was created for me.

In other words, if you cause the problem, your perceived value in solving the problem is less than if you solve problems created by others.

3. Perception of value is as much about experience as results

After starting to reflect on this, I pulled out these old shoes (see photo), which I have not worn much in recent years. Ironically, they look pretty good. In fact, I believe the leather is softer and better looking than when I first bought them. They have also avoided collecting as much dust as before the unplanned shoe shine.

In other words, they benefited from the shoe shine and it appears to have been a decent shoe shine.

But I can’t give the shoe shiner any credit for this because the experience was such a turn-off.

So, solve the problem, but also ensure the experience of problem resolution is appreciated by the recipient.

Outsourcing is fundamentally a service provided by one complex organization to another complex organization. The situation is ripe with many factors (mis-communications, mis-aligned stakeholders, budget pressures, turnover, etc.) to limit the chance for perceived value exchange between organizations. Although we need to ensure the work completed creates value, we should not forgot that how we treat each other and manage our interactions can completely undermine the appreciation of value. If you solve a problem, don’t expect credit if you created the problem – solve problems beyond your scope. If you solve a problem, don’t expect much credit if the experience is suboptimal – own the problem and the service experience.

Why We are Changing to “Global In-house Center” (GIC) over “Captive” | Sherpas in Blue Shirts

September 6, 2012

When we began conducting webinars for Market Vista when it was launched in 2008, one of the most common questions we received during webinars was “what is a captive?” I even recall one attendee leaving me a voicemail within 10 minutes of a webinar concluding that basically said, “You guys suck because I can’t understand what you mean by ‘captive’ – isn’t it just a shared service center?”

In recent times, I am less frequently asked to explain what “captive” means and, in fact, generally find that most industry insiders all understand and use the term clearly.

So what explains our decision to stop using “captive” and instead use “Global In-house Center” or “GIC”?

Have bath salt-inspired zombies eaten our brains? Do we strangely enjoy having to invest 5 minutes defining terms simply so that people can understand what we are talking about? Or are we just desperate for topics for our blogs?

Nope. None of those.

We did it for the children. (Insert ohhhh and ahhhh here.)

The image of the slide below explains the full rationale for the change and you should be prepared to see it A LOT – in webinars, reports, conference presentations, etc.

Yes, we know that “captive” is easy to write and say. It has many things going for it.

However, it is a poor word. Quite simply, does anyone associated with a “captive” want to refer to it as a “captive”? Does any bright-eyed recent college graduate run home excitedly yelling “Mom and Dad – I got a job at the captive!” Does the word “captive” inspire anyone, or is it a negative-tinged and off-putting word? Is this really a helpful word to be using 5, 10, or 20 years from now?

As we were contemplating this potential change, I asked a number of my contacts how their organizations refer to internal delivery center organizations. None of them use the term “captive.” Further, all found that they had to explain what “captive” meant to new business users becoming more involved with global services. It is simply not a term that was widely adopted by the people it is intended to describe. In my mind, clearly it is a poor word.

The only arguments for keeping it are inertia and laziness. If we want to find something better, we have to get started at some point, and we agree with Nasscom (India) and BPAP (Philippines) that point is now. And tomorrow. And next month. And next quarter. And next year. And…well, you get the idea.

So we enter a long and painful process of using and advocating for Global In-house Center (or GIC – “Gee-Eye-Sea”) to replace captive. And it will be a journey with lots of opportunity to annoy and “correct” people.

Is “Global In-House Center” (GIC) any better? My view is that it is a good alternative simply because it does not try to go beyond the facts while also being clear. It avoids the temptation to “judge” these centers by referring to them as “innovation hubs,” “Centers-of Excellence,” or other terms that may match intent in some cases but are not clearly and universally true. Global In-house Center is largely self-defining – “in-house” pretty much gets the point across. “Global” hints at geography but gives room to expand the application (All business units? All locations?).

But we do have to learn a new acronym – GIC. Global In-house Center is a mouthful and will have to be regularly shortened to GIC. But we are all pretty good at learning acronyms…so add it to the list. GIC…and ERP, O2C, ITO, BPO, FAO, HRO, CRM, SCM, ITIL, COLA, CAGR, ROI, TCO, MSA, SOW, and more…

What Is the Investment Profile of Your Service Provider? | Sherpas in Blue Shirts

August 29, 2012

Like many financial investors over the past decade, my portfolio resembles a buoy floating on ocean swells. Most of the “ups” have been offset by painful “downs,” and the real growth has come simply from saving more money. At this point, I often wonder if I am actually investing, or just riding out a storm and hoping for the best. I fear the same is true of many organizations and the relationships they are continuing with their service providers.

Those of you who attended last week’s Market Vista webinar will recall that we spent some time looking at the service provider landscape in banking applications outsourcing. One of the key takeaways from our assessment of this competitive landscape (one of the largest outsourcing markets, with over US$6 billion in annual revenue) is that the players most improving relative to their peers have targeted their investments on technology (e.g., HCL with Capital Stream, Polaris with Intellect, and TCS with Bancs).

At the risk of sounding like a broken record, the market must find ways of creating more value beyond just labor arbitrage. First, yesterdays or today’s successes get no credit next year – competitive pressures require moving forward. Second, the arbitrage-centric model is okay, but not great. Maintaining satisfaction – let alone improving it – is elusive. Quite simply, it is too dependent upon too many people, and people are not as reliable and consistent as we would like to believe. Think about it: do you prefer a switchboard operator or your personal contacts directory in your smart phone?

My strong, strong belief is that users of third-party outsourcing services need to pay increasingly close attention to the investments their service providers are making, and re-align their relationships accordingly. This applies primarily to technology-related capabilities, but also to other areas such of geographic scope, domain knowledge, partnerships, and others.

But haven’t we been investing already?

While there have been some investments, many of the hard-dollar investments to date have really just been in creating fungible scale – seating, recruiting pipelines, sales organizations, and training for resources that could be used in multiple ways. They were largely about how to expand the existing business into new, but roughly similar markets. Few of the “investments” were hard choices between one or more options to create meaningfully different and new types of value. For example, having a building for employees to work in is only a question of estimating demand and therefore size of the space, not whether a building is required.

Other than a few acquisitions of Global In-house Centers (GICs or captives), such as Citi’s by TCS and UBS’ by Cognizant, there have been few larger scale bets on enhancing capabilities. Many service providers have been incrementally optimizing capabilities with an extra million dollars here and there. Occasionally, a firm has bought a technology capability for tens of millions of dollars. HCL’s acquisition of Axon, (£440 million), is the largest capability expansion that comes to mind in the past five years – and it was a bet on combining two different, but seemingly complementary, types of value propositions (Note: I consider HP’s mammoth acquisition of EDS to be industry consolidation, not fundamental capability enhancement. The pending US$2.6 billion acquisition of Logica by CGI is both consolidation and capability enhancement).

Overall, the investments have been very tightly aligned to expected revenue streams that could create fairly quick pay-off, and often just mimicking what others were already doing rather than boldly breaking the mold or venturing into truly unknown territory.

What can break the mold, and how it changes everything

If service providers continue to largely mirror each other’s capabilities, we will continue to end up with 10, 20, or more service providers that largely do the same thing, and are not particularly differentiated. To create true and sustainable differentiation, an organization must be able to do things that others simply can’t do (i.e., it’s not a question of “getting the right team”).

Technology is the strongest lever for creating defensible differentiation, but it tends to be a big and sustained bet. Done correctly, leveraging investments in technology across multiple clients generates powerful economic returns not only for a service provider but also for its clients who can ride a rising tide of capability as network effects take hold and more investment is added to the solution.

I don’t want to suggest that big bets on technology will be appropriate in all areas. However, technology investments in areas in which they will make a difference will in turn drive a radical alteration in the service provider landscape. So instead of 10 or 20 service providers, we’ll be down to two or five – far fewer of these types of investments will be able to create a positive ROI, so there will be fewer providers that try, and fewer that are successful. Quite simply, the world does not need 20 service providers building and maintaining a core banking platform or 10 running a global payroll system. Further, when considering big bets on technology, the world suddenly breaks into hundreds of possibilities, and no service provider can afford to pursue and sustain more than a handful of them.

The implications of technology investments for clients will be that some of their service providers will look increasingly dissimilar, and no longer considered interchangeable. This is both a good and a bad thing. Clients will be able to gain greater value and have more types of solution models to choose from, but they will have fewer choices within the higher value solution models. The fundamental economics of investments dictate that any high investment service will naturally restrict the service provider landscape.

Client implication #1: be thorough in your understanding of how service providers are investing, and in what type of solution you want now and ideally in the future.

Client implication #2: implication #1 applies both to your existing service providers and others you may not be using – are you aligned with the providers investing in the direction in which you want to go for your priority services?

Client implication #3: implication #1 also applies to your existing providers’ service delivery areas that you are not currently using – is your industry or function receiving priority investment, or is it an after-thought?

If you want the extra value, it will require extra investment by service providers; and that will lead to less choice within a particular solution type. This means we will move from a sea of service provider options to lots of smaller ponds tightly organized around well-defined service delivery capabilities.

Post Captive Global In-house Center Webinar Musings: Change is Not as Hard or as Quick as You Might Think | Sherpas in Blue Shirts

June 11, 2012

Last Wednesday, we hosted a webinar on the cost competitiveness of global in-house centers and were privileged to have Kush Kamra (SVP of Global Operations for MetLife) and Charlie Roberson (Head of Enterprise Expense Management and Offshoring for Wells Fargo) join us as guest panelists. The analysis presented came from a joint study between Everest Group and NASSCOM earlier in 2012.

The webinar featured extensive discussion (thanks to our wonderful panelists) and got me thinking about two points in the aftermath of the webinar.

First, as those who attended know, the term “captive” is being replaced by “global in-house center” or “GIC.” In all honestly, I have been reluctant to confidently adopt this because change is hard (is it really worth it?) and “captive” is so simple to use in our reports (a mere seven characters!).

What suprised me is that in the two days after the webinar, three different individuals (two at the FSO event in NY, one during a phone interview) proactively corrected themselves after they said “captive” and replaced it with “global in-house center.” We laughed about it, but the point is that people are open to change and the word can get around pretty quickly. And not to be underestimated, it is much easier to replace a REALLY BAD idea when something better is consistently introduced into the market.

The second point that that I wanted to share is about labor arbitrage. As those familiar with the analysis we presented will recall, we analyzed the relative cost structure of offshore delivery vs. onshore and the sustainability of it under a range of scenarios. In many ways, the analysis simply helps rigorously document what those already close to situation know in their hearts – labor arbitrage is alive and well and not in danger of going anywhere soon.

The day after the webinar, the same topic came up in conversation with a senior solution design executive from a leading service provider. The individual mentioned that entry level positions continue to join at roughly the same salary level as five years ago and wage inflation is not nearly as dramatic as it may seem. However, she pointed out that the price for leadership is going up rapidly (luckily, this is a small sub-segment of the cost structure).

This underscores an important fundamental: supply and demand and how small changes in both can have big impacts. In short, demand for offshore resources is growing at a slower rate at exactly the same time that education systems are producing increasing amounts of resources. Further, training efforts aimed at increasing employability of graduates are slowly demonstrating impact. My prediction is that with the combined impact of slowing growth in demand and increasing supply of resources, we will see very little increase in the cost structure from offshore locations over the next 5 years (and this is before considering the impact of exchange rates). Yes, leaders (scarce resources – completely different supply-demand curves) will continue to become more and more expensive, but much of the cost structure will stay roughly the same.

Looking at this another way, the entire offshore/nearshore delivery ecosystem providing export services (India, China, Philippines, Mexico, Malaysia, Poland, etc. serving the United States, United Kingdom, Netherlands, Australia, etc.) is only a little over 4 million people on a global basis. In the grand scheme of things, this is a really small labor pool and the ability to create excess supply from the 6 billion humans across Asia, Latin America, and Africa is tremendous – we are not in a supply constrained situation, but rather a demand-constrained scenario. SaaS, cloud, BPaaS, etc. only further suggest the potential for moderated demand for offshore resources.

I understand why people are concerned about cost increases and indeed some costs are increasing and some have increased significantly, but we are a long, long, long way from fundamental shifts in cost structures.

Is 10% Salary Inflation Too High? A Perspective on the Offshore Wage Increases | Sherpas in Blue Shirts

April 16, 2012

For those tracking the global service market, reports of 10-15% salary increases in low-cost countries is almost expected. For executive management not familiar with the offshoring of services, seeing these headlines in the business press is unnerving.

But should it be?

I am not arguing that wage inflation in low-cost countries is equal or lower to high-cost countries, but it is clear to me that those in high-cost countries significantly lack perspective on how to interpret these numbers.

(For a more comprehensive perspective, checkout our webinar on labor arbitrage sustainability or our recent joint study with NASSCOM on Global In-house Center (GIC) cost competitiveness.)

Let’s start with a simple exercise (yes, you can count this towards your daily mental fitness goals).

First, recall your starting salary out of college.

Second, recall your salary in the fifth year of being in the work force (the fifth year is fourth salary increase if you received increases annually). If your salary changed currencies or you jumped to business school, you are disqualified from further playing this game.

Two numbers…now divide the fifth year salary by the first year to get a ratio (this should be greater than 1.0 and generally less than 3.0).

Now compare against the table below to get the annual percent increase in your salary across those five years. For example, if the ratio is 1.5, then the average annual increase was 10.7%.

Ratio	Annual % increase
1.00	0%
1.25	5.7%
1.50	10.7%
1.75	15.0%
2.00	18.9%
2.25	22.5%
2.50	25.7%

Most people find the annual percent to be higher than they expected. And often surprisingly close to the typical reported increase in offshore salaries.

Why? The perspective that most people miss is that the growth in salary for an individual is different than pure salary inflation. Salary growth of an individual reflects both pure salary inflation (what an entry-level developer will earn) and the impact of their career progression (being able to deliver more value). In other words, salary growth also reflects being paid more for playing a slightly more valuable role – even if that does not include a formal promotion.

This picture becomes even more skewed if you consider total compensation (salary and bonus), which tends to grow even faster early in a career.

Many of you are probably now thinking, “Wait, my salary has not been growing that fast recently!”

True – and salary growth in percentage terms slows as individuals reach 10, 15, and 20 years into their careers. Much of the growth in salary in the early portions of the career is due to steady progression in being able to play a more valuable role – taking greater ownership, requiring less quality review, increasing domain knowledge, and other factors. But the benefit of further increasing these skills diminishes beyond a certain point, and salary growth is then predicated on other factors such as impact, leadership, and overall labor market rates for fully developed skills.

These same things are at play in offshore labor markets and much of the labor force is in the first 5-10 years of their careers due to the labor pyramid – so much of the workforce should be seeing “high” salary increases. At more senior roles, salary increases tend to moderate on a percentage basis.

Give this exercise to others – and potentially to that executive who feels 10% salary inflation is far different than what happens in the United States.

An Early Peek… the Results from the Shared Services and Outsourcing Survey | Sherpas in Blue Shirts

March 7, 2012

Summary report now available | Download

As you may recall, in December Everest Group announced that we were partnering with Shared Services & Outsourcing Network (SSON) to launch the industry’s first-ever survey to investigate Vertical Industry-specific Strategies for Shared Services and Outsourcing (or “VISSSO” for those who like acronyms that hiss like a snake).

The survey covered not only traditional horizontal functions like F&A, HR, and IT, but also industry-specific functions like order management in hi-tech, merchandising analytics in retail, and loan and mortgage servicing in banking. In total, it addressed 164 vertical functions and 8 horizontal functions. Scope, sourcing model, technology strategy, organization model, improvement initiatives…all that stuff for each function across 28 industries.

Quite simply, it was a huge effort, and we are just now climbing out from underneath the avalanche of data.

Starting tomorrow at the North America Shared Services & Outsourcing Week in Orlando, we will begin unveiling the findings. We will follow with similar sessions in other SSOW events around the world, plus release the summary report later in March.

Enough about what is to come, let’s jump into some of the insights we have uncovered.

Looking across the 164 vertical functions, the responses reveal that services industries like financial services, transportation, and healthcare (in comparison to product-oriented industries like manufacturing and energy) include over twice as many vertical functions in their shared services and outsourcing strategies. Why? To over-simplify, the mid-office of services industries is simply larger and more important than that of product-oriented industries.

This means the mid-office is more closely tied to the financial processes typically at the heart of both shared services and outsourcing efforts. Or as we have hypothesized in our earlier research, “operational finance” processes of services industries are a critical component of value delivery and due to their linkage with other finance process, they are most commonly aggregated into the more general finance activities.

We also broke apart the data based upon the organizational maturity for delivering services (see the graph below). Interestingly, mature organizations are twice as likely to use end-to-end models for delivering F&A services. Further, mature groups are somewhat less focused on consolidation (and re-engineering – not shown), but more focused on increasing collaboration with their user groups. Further, they believe they are more than four times as successful in implementing change.

What does this tell us? Our belief is that shared services and outsourcing professionals are segmenting into two groups. One has been successful in creating change for their organizations, plus implementing and optimizing a new delivery model. The second has not only implemented a new model, but is actively trying to create ongoing change by engaging their users and seeing change as a day-to-day competency instead of a painful and one-time transition.

Consolidation and process re-engineering will not quickly go out of style, but they are far from the end of the story. And, by the way, the more mature group reports greater focus on cost savings, greater ability to meet financial targets, and more increased inclusion of non-cost value drivers in their business cases.

There are many other findings that will be featured in our summary report; some additional interesting factoids in the interim include:

Of all sectors, public sector is most focused on cost savings (tax payers rejoice!)
Not surprising, the hi-tech industry has much more aggressive plans to pursue Saas/cloud solutions
More mature organizations are largely focused on soft factors like user engagement and change management, but they are not more inclined to implement new tools, adopt analytics, or prioritize Saas strategies

All for now…looking forward to sharing more as we work through additional analysis. Please don’t hesitate to contact me if you have questions or wish to debate the findings.

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Author: Eric S