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Sydney Saffold

The Rise of Financial Planning & Analysis Outsourcing | Sherpas in Blue Shirts

By | Blog

In the four years I worked as a transition manager for a market leading service provider before joining Everest Group, I led multiple finance and accounting outsourcing (FAO) migrations for global clients. While all of them involved transition of transactional processes such as accounts payable (AP), accounts receivable (AR), or general ledger accounting (GL), very few involved “high-end” processes such as Financial Planning & Analysis (FP&A)

I came to realize that, especially in the past, organizations have hesitated to outsource FP&A processes for several key reasons. First, FP&A is highly complex as it is domain-intensive and requires superior analytical skills. Second, the boundaries of the function are not easy to draw as it much more typically embedded across the organization than handled by a dedicated team. And third, unlike transaction-intensive processes that are easy to document, FP&A function involves considerable ad-hoc and subjective knowledge that resides with individual analysts, and the risk of losing this undocumented knowledge during transition makes companies reluctant to outsource their FP&A scope.

At the same time, FP&A outsourcing is gaining increasing traction in the marketplace, albeit more frequently in contract extensions than in new contracts. Everest Group research indicates that most enterprises start their FAO engagements by first moving transactional processes to their service provider, and then gradually transitioning higher-value processes such as FP&A as the relationship matures and the buyer gains more trust and confidence in the provider’s  ability to deliver quantifiable value.

Buyers’ increased leverage of outsourced FP&A processes results from the multiple benefits it can achieve for them. These include:

  • the ability to monetize data for business insights, strategy design and implementation
  • significant top-line and bottom-line impact from analytical insights into areas such as cost management, product profitability, inventory, and project appraisals, etc.
  • enhanced managerial efficiency, as accessing and extracting data from disparate systems, collating and cleansing data to prepare regular/ad-hoc reports, and data analyses can consume as much as 40 percent of managers’ time
  • 40-60 percent savings in analyst costs due to labor arbitrage
  • transformation-oriented productivity benefits that enable at least two to three percent savings year over year three to five years after transition

While the benefits are many, buyers must still take a cautious approach as the success of FP&A outsourcing largely depends on the transition given the inherent complexities. They must also recognize that robust process documentation is not only a key to the success of FP&A transition but also a means to reduce dependence on in-house analysts over time.

Yes, there are risks to outsourcing FP&A, but the value proposition is strong. And smart enterprises will increasingly evaluate the risk/value equation, whether with their existing or another FAO provider.

To learn more about FP&A outsourcing, please click here to gain access to Everest Research Institute’s just-completed research report, “Moving beyond Transactional FAO: The Rise of FP&A Outsourcing,” which covers topics including market size and buyer adoption, value proposition and contract characteristics, the service provider landscape, and implications for key stakeholders.

End of Term, Which Way Next? | Sherpas in Blue Shirts

By | Blog

As many of you are aware, I am afflicted with a love of motorcycles, specifically Harley Davidson’s. So during the limited time I’m home, I spend as much of it as possible riding. My wife usually joins me on the bike, as does Pip, our Yorkie, who sits on my wife’s leg with his face in the slipstream, absolutely loving it. For anyone concerned about Pip’s safety, no worries…we have him outfitted in a do-rag and Doggels (goggles for dogs), and wearing two harnesses with safety straps attached to me so he can’t fall off.

Recently, the three of us were riding and approached a ‘highway ends’ sign. Technically the highway ended but the road didn’t; rather, we were provided options for other highways and local roads. We were approaching the decision point at about 60 mph and had to think about what to do next. Our  decision was impacted by various factors: 1) how the bike was running; 2) how tired we were getting; 3) how much longer we wanted to ride; 4) what the weather was doing; and 5) whether we wanted to take the longer lake road or the inland route, which was less scenic but closer to home.

What we faced is very similar to the thinking required when developing an end of term strategy (ETS). You should consider an ETS not as the end of the road but as a series of new roads, any of which you can take. And you determine your going forward roadmap by understanding the roads that lie ahead, establishing how to go about making the road choice decision, and ultimately selecting the one that is right for you –whether old, new, still under construction road or an off road build-it-your-selfer.

The common set of factors you must consider when developing your ETS include: 1) how the relationship has been performing and whether or not it is still productive; 2) what needs to be changed in the services scope expanding/contracting; 3) how the sourcing objectives need to change to align with current business objectives; and 4) what market, technology and delivery model changes need to be addressed.

When facing an ETS, there are typically six roads for you to consider:

Renew: Sign on for the same contract, terms and conditions, pricing structure, and service levels, with minimal changes.

Renegotiate: Modify one or a limited number of elements in your outsourcing contract, e.g., price and service levels.

Restructure: Rethink the structure of key contract provisions, key business terms, and in-scope processes.

Re-compete: Terminate your existing contract and enter into a competitive bid process with potential suppliers, and select one or multiple providers to replace the current services agreement.

Repatriate: Terminate your current outsourcing contract and bring previously outsourced services back in-house.

Hybrid of the above strategies: In a multi-process outsourcing agreement, certain processes may warrant different strategies so, in effect, the overall strategy is a combination of the various strategies.

One key, and often misjudged, factor is when to develop your ETS. Waiting too long can be disastrous because you can run out of road. You need to leave adequate time not only to develop the strategy and roadmap but also to make course corrections as you may well face substantial challenges during implementation. For example, there may be difficulties in execution, such as a failure in negotiations of restructuring an existing relationship, or in the transition of services from the incumbent to a new supplier. In most cases, the best time to start the development of the ETS is 18 to 24 months before contract expiration. This timing may change depending on the outsourced processes and the complexity of the environment.

The ETS creation process should be collaboratively undertaken, with the buyer and supplier, and structured to drive more value, both financial and operational, into the relationship. If your organization plans ahead, and invests the proper time and resources, it should be able to develop an ETS that drive the most appropriate decision on the best direction to take – one that is in alignment with its current and future objectives.

Back to our motorcycle ride with Pip…we took the lake road and kept riding.

Why Sherpas in Blue Shirts? | Sherpas in Blue Shirts

By | Blog

Consult  (v.tr.) To seek advice or information

Sherpas in Blue Shirts – what an odd image. Burly, weathered mountain guides certainly don’t match the mainstream view of well manicured, pinstriped professionals who jet in and out of clients’ offices offering sage advice for substantial fees. But perhaps they should. For hundreds of years, mountaineers have sought out experienced guides to aid their ascent, specifically those who knew the mountain’s landscape, weather and routes. The arrangement between the climber and Sherpa was truly a partnership based on alignment of interest. The adventurer wanted to reach the top. The Sherpa wanted to be paid. Dead clients don’t pay. At least not very well.

So how did the Sherpas develop such legendary status? Why did their clients readily share their experience and recommendations for the guide’s services? Ultimately, how did the Sherpa manage a successful trip every time? I believe it was because he/she never strayed from understanding four basic things:

  • What is the client’s ultimate goal?
  • What are the client’s capabilities?
  • What are the environmental conditions influencing the trip?
  • What is required of the Sherpa to ensure the client achieves his/her goal?

Racing to the top in record time would have robbed the client who wanted to achieve a well-paced, spiritual journey. Ignoring a client’s poor health and shoddy equipment often resulted in the injury or death of someone in the climbing party.

Perhaps it’s time we begin to rethink how consultants and their clients engage. Perhaps we should expect a true alignment of interest and active participation by consultants. Perhaps we need to confirm that they are providing an approach that is unique to the combination of the client’s objectives, capabilities and surrounding environment.

Perhaps it’s time we trade in those pinstripes for an ice axe and ropes.

Outsourcing, Ohio, Obama and Offshoring | Sherpas in Blue Shirts

By | Blog

Anti-offshoring sentiment in the U.S. – fuelled by uninformed press, the Ohio ruling banning outsourcing, visa issues restricting human capital mobility, the chop-shop metaphor by a senior politician in the senate, and the real or perceived belief by U.S workers that they had lost their jobs to India – has been rampant for years.

However, the protectionist (and in cases even jingoistic and xenophobic) tide seemed to turn, at least at the highest level of the U.S. government, during President Obama’s recent visit to India. The President, changing his messaging from previous years, presented his view of offshoring as part of international trade. Citing that 20 just-signed trade deals with India would create 50,000 jobs for the U.S., he said, “…And that’s why we shouldn’t be resorting to protectionist measures; we shouldn’t be thinking that it’s just a one-way street. I want both the citizens in the United States and citizens in India to understand the benefits of commercial ties between the two countries.”

India Prime Minister Manmohan Singh added, saying, “India is not in the business of stealing jobs from the United States of America. Our outsourcing industry I believe has helped to improve the productive capacity and productivity of American industry.” And Som Mittal, president of NASSCOM, after citing that GE’s and UT’s chairmen said they are winning export deals from the world over and creating jobs in the U.S. because they are able to do design work in India and shorten the product cycle, stated, “We also hope that the U.S. Congress will understand our industry’s business model. It is a different matter that those job losses happened to be in manufacturing, retail and construction. In fact, there is net hiring going on in the services if we go by the U.S. labour statistics.”

Touché to all these leaders for painting the proper picture. The reality is that offshoring and nearshoring – to China, the Philippines, Egypt, South America, Canada, Mexico, or anywhere, even India, which has been singled out as the ultimate “villain,” with offshoring often equated to being “Bangalored” – will not go away. Nor should it.

Rather, the long-term trend will be driven by models that provide buyers with the most optimal cost-value equilibrium, which is essentially a trade-off balance they must strike between what they believe is most important to their business and what they are willing to pay for it. For example, while an organization may place premium value on having an IT staff located down the hall, it may not be willing to pay the associated premium price. Rather, it may opt to offshore IT help desk services to a provider with 24-hour operations.

The cost-value equilibrium is also closely linked to competitiveness. For example, offshoring engineering design work to a provider with around-the-clock staff speeds time-to-market, resulting in competitive advantage.

Although every buyer organization’s cost-value equilibrium is unique, the quest to attain it will continue to play-out with enterprises willing to pay more as long as their perception of value continues to increase.

At the end of the day, global sourcing is an irreversible phenomenon. While the nature and models will continue to evolve, services will never go back in-toto to high cost onshore locations.

Japan at Your Service – A Keane Idea? | Sherpas in Blue Shirts

By | Blog

The wheel of acquisitions in the global services provider space continues to turn – last Friday NTT Data and Keane announced a definitive agreement for NTT to acquire Keane. Keane, a privately held IT service provider serving primarily the United States and Canada, is a 12,500 employee-strong player with a 45-year track record of providing services.

The two key imperatives for large “SIers” (as those in Japan label System Integrators) in Japan has been building an annuity book of business (diversification from project and hardware revenues) with an intentional mix outside of the homeland. The latter has meant primarily entry into mature Western markets of North America and Europe – markets they have struggled to capture without market access, offshore delivery models and understanding of the sophisticated market. The imperatives have not been unique to Japanese players, some Korean Chaebols have been struggling with similar issues.

NTT has been quite busy over the last several years.

• Acquisitions in Europe of SAP consultants intelligence AG and Cirquent GmbH (BMW’s former internal IT shop)
• Asia/Pacific acquisitions of Business Formula (M) Sdn Bhd and Extend Technologies Group Holdings Pty. Ltd.
• North American M&A of M.I.S.I. Company Ltd., Revere Group Limited, intelligence Inc., Intelligroup, Inc. (US$141 million revenue), and now Keane (US$788 million revenue).

Additionally, there has been continuous chatter about NTT being in discussions with India-based Patni Computers, a Tier 1 offshore wannabe, but still short of the US$1 billion revenue figure, which would have added significant offshore capability, a key component of the delivery model to serve Western markets and ofcourse a large client base across these markets. While NTT is still far short of its stated ¥300 billion non-Japanese services revenue aspiration, I speculate that Keane provides a customer base and delivery capability that reduces the likelihood of something happening between NTT and Patni in the near term.

Keane’s application development and maintenance experience plus infrastructure management capabilities will accelerate NTT’s expansion into the United States and Canada. NTT, is a diversified Japanese conglomerate with businesses in telecom and IT services in both the B2B and B2C spaces. NTT’s IT services business, NTT Data, focuses mainly on Japan and other parts of east Asia, with a core competency in IT infrastructure management. It has been rapidly strengthening its globalization and American agenda.

So what does this mean? NTT’s ongoing global inorganic strategy reinforces emerging trends in business growth and M&A driven consolidation in the industry and raises questions about what’s next:

  1. East Asia majors will continue to seek assets to drive the multiple objectives of building a large book of annuity business, globalization and creation of offshore delivery capability. The order and priority will vary depending on starting points but all three levers will play out soon… and largely through M&A.
  2. Large “hardware” companies’ efforts to expand their services businesses into new areas are reaffirmed. Xerox acquired ACS to access a higher growth business process services that built upon its document management services. Dell acquired Perot Systems to do the same in IT services. The consolidation wave appears to be moving as much across the industry as within the industry.
  3. Services business models are continuing to expand globally in pursuit of growth – but growth on a relative basis. Similar to how Accenture, IBM, Infosys, HP, TCS, Wipro, and others are looking for growth in developing markets beyond the slowing market in the United States, Japanese players see the US as a more attractive growth opportunity than their domestic market (although all are also eying China with great interest).

Will we see more moves by deep-pocketed Japanese players into North America and Europe? I firmly believe that the Japanese Samurais are on the prowl, and more targets will be taken out as the large players further their plan to:

  • Diversify from products and build services, more importantly annuity based IT outsourcing, business
  • Globalize their businesses to enter Americas, Europe to derisk growth and look for attractive opportunities
  • Build offshore capabilities in India, China to serve local market and more importantly create the platform for delivery for Western client base

Who is next in line to buy? The other large SIers Nomura, NEC, Fujitsu, Hitachi – all have “insignificant” non-Japan-services (i.e., outsourcing) revenue; NTT’s global acquisition march may be the wake-up call they need to stop hitting the snooze button. Many have been contemplating strategies but slow to act. Organic strategies is nigh impossible. Acquisitions are an imperative if they want to “move the needle.”

Who is the likely target? This is more interesting and complex. There are some candidates in the onshore world, which may not be doing well but provide enough interesting capabilities that furthers the aspiration of these large Japanese giants. Speculation about Indian offshore players is plentiful. The Patni deal is yet to happen for a variety of reasons and it is likely that other deals will always face valuation misalignment. When Satyam went belly up there was interest from the Orient but it lacked the urgency required in that situation. There could be Chinese assets as well, but many of those potential targets are embryonic and likely to fall short of near term revenue aspirations… this is the million or should I say… billion dollar question!

Everest Q4 Report: Outsourcing Market Continues to Signal Global Recovery | Press Release

By | Press Releases

DALLAS ─ The outsourcing and offshoring market witnessed continued trends of global recovery as evidenced by sustained global transaction activity led by buyers in the United States and Europe, continued captive growth, increased hiring by leading Indian suppliers, and other indicators, according to the Market Vista: Q4 2009 report by Everest, a global consulting and research firm. Everest’s quarterly study on global outsourcing and offshoring activity reports transaction volume in the fourth quarter was similar to the third quarter, but a few mega-deals pushed annual contract value (ACV) up 72 percent to about US $4 billion.

A one-hour Webinar will be held Feb. 17, 8 a.m. CDT, to present study findings and insights. Additionally, the discussion will include emerging trends and outlook of the Filipino BPO industry with guest panelists from the Commission on Information and Communications Technology (CICT) and the Business Processing Association of the Philippines (BPA/P).
Comparing Q4 to Q3 2009, the report includes the following findings:

  • Business process outsourcing (BPO) comprised 26 percent of deals signed in Q4 with increases of 12 percent in transaction volume and 25 percent in ACV.
  • IT outsourcing (ITO) held 71 percent of transaction activity; deal volume remained steady and ACV rose 21 percent.
  • Deals with both ITO and BPO components drove the ACV significantly in Q4 on account of a few mega-deals of this nature.
  • The BFSI (banking, financial services, insurance) and MDR (manufacturing, distribution, retail) verticals contributed towards about one-third of deal signings.
  • The BFSI vertical witnessed a marginal decrease in overall transaction volumes but contributed towards one-sixth of overall market ACV. Half of the BFSI deals were inked by banks, which constituted an equal proportion of the ACV as well.
  • In the MDR vertical, contract signings resembled Q3 activity, but ACV increased 44 percent.
  • North America and Europe again contributed towards three-fourths of total transaction signings in Q4, with the ACV increasing significantly in the United Kingdom.
  • Captive activity in Q4 reached a two-year high, led by MDR and BFSI verticals, with 40 new announcements led by 14 in India and 18 in Rest of Asia.
  • Both Tier-I and Tier-II locations contributed equally towards overall offshore delivery (i.e., both captive and third-party centers).
  • Overall supplier transaction activity held steady and improved for traditional global majors and declined for offshore centric-suppliers. M&A activity saw 10 acquisitions and 39 new alliances.

“Recovery continues to be slow and steady, but the global sourcing market is turning the corner as buyers are out of the reactive mode and now able to once again focus forward on proactive measures to reach long-term business objectives,” said Eric Simonson, Managing Principal of Research, Everest. “The last half of 2009 saw signs of recovery momentum with transaction volumes holding steady. Although we saw ACV levels rise sharply due to a handful of mega-deals, we’re still seeing buyers sign bite-sized deals as well.”

Everest’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive landscape, current and emerging locations, key supplier intelligence insights, and key developments across the top 20 financial services companies globally.

The Market Vista Q4 report also includes focus sections on:

  • Emerging geography profiles of South Africa, Vietnam, Turkey, Thailand, Guatemala, El Salvador, Ukraine, Egypt and Mauritius
  • Location optimization insights include hiring increases in India, tax incentives in Buenos Aires, impact of European Union VAT regulations, and cost arbitrage factors in the United States, Brazil, Poland, Philippines and India
  • 2009 Year in Review of Supplier Developments

Quarterly Market Vista reports include key developments among 20 leading global suppliers. Traditional supplier profiles include Accenture, ACS Xerox, Atos Origin, Capgemini, Convergys, CSC, Hewitt, HP, IBM, Dell Perot Systems and Unisys. Offshore-centric supplier profiles include Cognizant, EXL, Genpact, HCL, InfosysMahindra Satyam, Tata Consultancy Services, Wipro and WNS.

The Webinar will be held Feb. 17 at 8 a.m. CDT; 2 p.m. GMT Standard Time. Special guest panelists will be Secretary Ray Anthony Roxas-Chua III, Chairman, Council on Information and Communications Technology, Office of the President of the Philippines; and Oscar Sañez, President and Chief Executive Officer, Business Processing Association of the Philippines (BPA/P). To register, please visit: research.everestgrp.com/Events/Webinars.

Market Vista is a subscription service with four reports published per year, now enhanced to also include location datasets, Market Vista Primer and Global Locations Insights newsletter. For information about the Market Vista: Q4 2009 report or other research services, please visit research.everestgrp.com, e-mail [email protected] or call +1-214-451-3110.