Tag: BPS

Impact Sourcing 101: The Fundamentals of a Powerful Global Sourcing Model | Sherpas in Blue Shirts

September 18, 2014

I recently concluded an engagement on impact sourcing. Did you say, what? That was my first reaction as well when I initially heard about impact sourcing. I knew about other global services constructs – rural sourcing, crowd sourcing – but not impact sourcing. Turns out, I wasn’t alone. During the course of my research I realized there is a lack of awareness about impact sourcing in the market. For uninitiated folks like me, I hope this blog – the first in a series on the topic – helps create awareness about impact sourcing and its role within global services delivery.

What is impact sourcing?

So, what is impact sourcing?

Impact sourcing (IS) is a business process service delivery model that provides quality and cost at parity with traditional BPO services, but with optimized enhancements such as:

  • A qualified, trained, untapped talent pool with skill sets aligned to match client needs,
  • Lower attrition rates and higher corresponding levels of employee engagement, and
  • Opportunities to fulfill corporate social responsibility and diversity objectives while operating within a traditional BPO framework

Put simply, it is a BPO service delivery model that employs high potential but previously disadvantaged individuals for service delivery that provides positive impact on both business and society.

 

Here are some facts to set the context:

Impact sourcing is sizable (235,000-245,000 FTEs). There are many instances where it is practiced across countries in Africa (South Africa, Kenya, Nigeria, Egypt, Ghana, Morocco), India, and Philippines. In fact, our research shows that across these countries, impact sourcing constitutes ~12% of the overall BPO market. Not only that, it is growing at a faster clip than the overall BPO market.

What constitutes impact sourcing?

Our experience shows that there is no one answer to what constitutes impact sourcing. Depending on who you are talking to and the social context, impact sourcing constituents vary by how one defines a disadvantaged individual. Broadly, the constituents can be classified in three different categories:

  • Economically disadvantaged: Near/below poverty line, located in low income areas, lack of access to jobs or prior work experience
  • Socially disadvantaged: Minorities, historically underemployed or marginalized group (e.g., black and Asian communities in South Africa, certain castes/tribes in India), gender groups
  • Physically disadvantaged: Differently-abled, diagnosed with health conditions (e.g., HIV/AIDS) limiting equal opportunities in the workforce

Why does it matter?

Impact sourcing has the potential to engage high potential individuals in meaningful employment opportunities and make a real difference in their lives. These individuals in the absence of impact sourcing would not have access to jobs or their situation/background would put them at a disadvantage as compared to mainstream workers. Impact sourcing provides these individuals a platform that helps boost their confidence and provide opportunities to bring themselves at par with the mainstream workers through direct and indirect impact.

  • Direct impact: Our research shows that impact sourcing typically leads to an improvement in workers’ lifestyle (40-200% increase in individual income), professional development, increase in confidence levels, reduction in tendency to migrate, and reduced stress levels
  • Indirect impact: The increase in individual income typically benefits 3-4 family members due to increased spending power for family and household and facilitates a stable environment. This is especially empowering for women. In addition, it strengthens communities by creating a 3.5-4.0x multiplier effect on the local economy and improves future employability of disadvantaged individuals

So one impact worker can potentially lead to a much wider impact that uplifts many more in the community.

More than a feel good factor

There are many large, global companies across buyer and service provider organizations that currently use impact sourcing for BPO service delivery. These companies experience measurable business benefits of impact sourcing while also positively impacting the worker, their families and communities. In order to scale the practice of impact sourcing, more companies need to adopt the practice.

Our research suggests there is a compelling business case to impact sourcing in addition to the social benefits. This business case is based on strong foundational elements with credible supporting evidence.

To give you an idea of the business benefits of impact sourcing, check out the performance improvements Teleperformance has experienced using impact sourcing, the access to new talent that Aegis has because of their involvement in impact sourcing, and the plans Microsoft has for impact sourcing,

In my next blog in this series, I will share impact sourcing’s value proposition and its business case. Watch this space for more.

Everest Group, supported by The Rockefeller Foundation, conducted an in-depth assessment on impact sourcing (IS) as a business process service delivery construct. The study presents a detailed, fact-based business case for IS that substantiates the benefits of the IS model for Business Process Outsourcing (BPO). Additionally, it sizes the current IS market for BPO work, profiles the landscape, details the business case, and shares experiences of companies through case studies and testimonials. The report focuses on Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, India, and the Philippines.

The Rockefeller Foundation aims to catalyze the IS sector in Africa through its Digital Jobs Africa Initiative. The Foundation’s role is to ensure positive social and economic impact on 1 million people by supporting high potential but disadvantaged youth to work in the dynamic outsourcing sector in Africa, benefiting them, their families and communities. The Foundation recognizes that the most sustainable and scalable path to achieving this impact is because of the tangible business value impact sourcing provides. Impact sourcing enables companies to purposefully participate in building an inclusive global economy, gaining business efficiencies while changing people’s lives.

Visit our impact sourcing page for more information.

Be sure to view our webinar, The Business Case for Impact Sourcing from October 7, 2014. Download now.

Read part 2 of this blog series.

Read part 3 of this blog series.

Photo credit: The Rockefeller Foundation

Why BPO Providers Are Disappointing Investors | Sherpas in Blue Shirts

August 1, 2014

Out of 22 outsourcing stocks, a few have outperformed the S&P to date this year: EXL Service, Global Payments, Star Tek and UEPS. But 18 have underperformed by an average of 9 percent so far. Why is this trend happening?

First, investors are always forward looking, and stock disappointments or exuberance are relative to the prior year. We saw great appreciation in stocks across the industry in 2013. But this year we’re well off that pace. With stocks at full value last year, they have less progress to go.

Several other factors are in play. Protectionist sensitivity to moving work offshore affects several providers. Rising labor costs, attrition and currency fluctuations take another hit. Competition and pricing pressure are intense in some segments. And some providers are dealing with a stepped-up pace of regulatory changes as well as integration challenges of acquisitions.

Top driver

But I believe the biggest factor is that the global services space is maturing. The strong, robust growth driven by the secular shift to offshoring or labor arbitrage is starting to flatten.

As a result, the industry is in search of the next set of S curves that can drive growth. There are a number of interesting contenders:

  • Cloud
  • As a service
  • Digital
  • New functional areas that companies are willing to contemplate giving to third parties
  • Vertical industry plays in healthcare or financial services driven by wrestling with regulations and driving further into compliance and dealing with regulations

All these areas are promising for industry growth. However, these new growth opportunities are not sufficient to offset the declining rate of growth in the broader arbitrage segment. So what does this portend for the future?

The future

I think at least until — and unless — these new areas develop enough scale for robust revenue growth, we’ll see the kind of cyclicality that we’ve experienced over the last few years with the industry’s fortunes tied to economic cycles rather than an underlying growth engine.

A Modest Proposal for Infosys | Sherpas in Blue Shirts

July 24, 2014

Much like Jonathan Swift proposed an outrageous, over-the-top suggestion that the Irish eat their children as a way to accommodate themselves in famine and over-population, I have a modest proposal for Infosys. It’s over the top, but it’s intended to highlight an issue.

My modest proposal is that Infosys keep its platform IP business, sell its labor arbitrage business and use the proceeds to buy IP and software and further develop it.

I understand that this sounds beyond the pale that Infosys would ever sell its arbitrage business. But think about this: they already split the company into two. They recognized that the arbitrage outsourcing business is maturing and is going to be in a mature state.

They already clearly bet the future of Infosys on its ability to jump on the next S curve in terms of IP. I say go ahead and go whole hog. In the words of the country and western song, sell the truck while it’s still running.

Why not sell it while they can get a huge premium? The Infosys arbitrage business is the jewel of the industry. Great people, great clients and extremely high-quality work. It would fetch a very high multiple. Any competitor would be proud to own it.

Infosys could then deploy its capital into its IP business. The strategy goes along with already having hired a CEO from SAP who understands products and IP, and it would free management from the complications of having to manage two business models at the same time.

My modest proposal illustrates the underlying issue that faces the offshore services industry. It contemplates the maturing of the space and the complications of jumping to a new high-growth market segment. If you want to look at other similar situations, consider IBM, which recently sold its transactional BPO and voice BPO services.

It would be a breathtaking move. But, with my apologies to Jonathan Swift, it’s certainly food for thought.

Photo credit: “Jonathan Swift by Charles Jervas detail” by Charles Jervas

OneHP and Progress towards Profitability and Growth | Sherpas in Blue Shirts

July 8, 2014

At HP EMEA analyst summit in London last week, the company highlighted progress towards strategic plans and targets. Key messages included:

  • Progress with implementing OneHP
  • Stronger sales
  • Better leveraging of HP technology and software IP with continued focus on the “New Style of IT”
  • Growing the advisory part of advise, transform, and manage

Under the moniker of OneHP, the different divisions within the group have been working more collaboratively to share skills and assets better. This strategy was further emphasized during the analyst summit with representatives from various divisions co-presenting sessions.

Stronger sales is a key initiative across the business. This has been achieved to some degree in EMEA already but there is still more to do; Q2 FY 2014 results showed that EMEA, which accounted for 38% of the company’s revenue had experienced growth of 4% compared with a decline of 6% in Americas and a growth of 1% in APAC year-on-year. However, growth was driven by hardware while services revenue shrunk. HP Enterprise Services (HPES) in particular, saw the biggest negative growth within HP group, of 7% year-on-year globally. HPES profit margin of 2.5% in Q2 2014 was up 100bps on previous quarter but unchanged year-on-year.

HP Enterprise Services

Focusing on HP Enterprise Services (HPES): the management presented a brighter outlook for sales than previous quarters with 400+ new clients added in 2013 and a very large deal in the pipeline. Signs of progress on strategic objectives included:

Sales restructuring: HPES has changed its sales structure with 29% of sales force deployed on proactive/new sales rather than scope extensions/renewals sales up from 4% in 2013. HPES has enhanced its sales collaboration tools to improve planning and execution. It is also improving account management. To enhance its sales HPES is hiring top talent as well as building a global practice to meet market demands.

New Style of IT: Delivering solutions for the new style of IT, comprised of capabilities for cloud, mobile, big data and security.  Examples of success in this activity include the Norfolk County Council contract which was won in 2013. Contract deliverables have included a cloud-based information hub for data sharing to enable public services work better in partnership with each other. HPES is also delivering desktop, data center and other infrastructure services to the council. The OneHP component includes the use of Autonomy and Vertica, as well as HP’s technical skills around cloud, desk top, virtualization and infrastructure capabilities.

Increasing advisory services: This is to enable HPES to engage with clients early, to help articulate requirements better and specify the solution that can draw on OneHP, to also increase higher margin services. An example of this is HPES’ contract with Seadrill which included advisory services to plan vacating a data center in six months and migrating 31 applications to the cloud, including some transformation. The advisory service appears focused on identifying potential innovation or transformation opportunities or helping clients define a solution as part of an on-going service. Carving a modernization niche for its advisory services, in this style, could help HPES potentially avoid coming into direct competition with major consultancies that would sell their services on a vendor/technology agnostic ticket and with SI partners that may be HP resellers.

Other measures underway include developing more vertical capabilities, becoming more business requirement-focused and continuing to reduce costs.

Overall, the focus of the event was heavily on IT with BPO limited to a short part of the HPES deep dive session. HPES maintains that BPO is an important part of its business and it is currently bidding for a new major contract in the UK government sector. My take is that BPO has become something of a quandary for HPES. Although it values the business and wants to grow it, other activities appear to get the higher share of resources. Yet, we live in the era of increasing digital channels and automated processes. HPES’ IP and access to vast technology resources should position it to do well in this market. Some of its IP such as Vertica, Autonomy, and multiple content/document management software can be used to deliver analytic-based or more automated digital BPO services. HPES also has a whole load of vertical capabilities, such as banking, government tax and revenue, and healthcare, that it can take advantage of to leverage platform-based BPO sales. HPES is taking a good hard look at these assets. A comprehensive strategy for growth of the BPO line could bring all the different components together to target emerging demand for a new style of BPO such as analytic-based services (e.g. revenue assurance, fraud and error, and risk management).

How to Make Your Website Invisible | Sherpas in Blue Shirts

July 7, 2014

There’s a big move underway, especially among the Indian firms, to rebrand away from outsourcing and BPO. The industry now prefers to use a variety of other terms such as BPM, BPS and managed service. But the immediate impact of changing the terminology on a provider’s website is that the website disappears from the search engines, effectively turning the company into stealth mode and sabotaging marketing efforts when potential customers turn to search engines to look for those services.

In the U.S. market, the term outsourcing is saddled with the negative connotation of job loss and exporting jobs. And in the Indian market, negative connotations have attached themselves to the BPO brand due to BPO workers enjoying themselves in their first job out of college and often getting into interesting escapades that appear to be an aggressive, risky lifestyle. BPO is increasingly seen in a poor light, particularly among the parents of the Indian workforce the providers seek to attract.

India’s service providers have nothing to be embarrassed about; they offer employees high-paying jobs with good career potential. But in an attempt to deal with the negative connotations, they are changing the terms “outsourcing” and “BPO” to sidestep the problematic issues. It’s quite understandable.

There’s no doubt that the industry has accumulated these difficult brand connotations, and we would all prefer not to work in an industry with negative brand connotations. However, businesses tunnel to Google for marketing and, by calling themselves by other terms, they disappear from the search engines.

Nevertheless, customers continue to believe that they’re buying outsourcing and BPO services and are confused and somewhat annoyed about these new terms they must learn. It violates the first rule of marketing, which I’ve blogged about before: it’s all about the customer.

At a time when services growth is becoming more difficult, going into stealth mode in search engines may not be the wisest course of action.

Photo credit: Daniel

The Coming Disruption in BPO | Sherpas in Blue Shirts

June 6, 2014

We at Everest Group have been exploring robotics and understanding its potential. What we’re seeing is that it’s relatively easy and cheap to implement. Where it has been implemented to date, it results in somewhere from a 15-20 percent reduction in critical shared services or BPO functions, depending on the transactional nature of the BPO function. If this proves to be true across the industry, we’re looking at disruption of a similar magnitude to the disruption I’ve blogged about regarding workloads migrating from an asset-heavy environment into the cloud.

Explained very simply for those of you who are not aware, robotics is a software program that can take screenshots or data from system such as ERP, apply logic to that and input it back into the system or into another system.

The reason this is disruptive to the BPO industry is that BPO is largely based around activities (such as finance and accounting, HR procurement, invoicing and customer service), which are performed by labor in low-cost destinations. For some providers, a significant or meaningful proportion of their FTEs are dedicated to these activities.

Here’s the issue: if you reduce the number of FTEs by 20 percent, it’s reasonable that revenue will drop by approximately 20 percent. And up to this point, revenues had been growing at 5-6 percent per year. Customers will capture the lion’s share of the benefit of reducing FTEs.

This will further complicate an already-maturing industry that is struggling to sustain growth levels that it has enjoyed for the last five years. Furthermore, in a contracting industry, price becomes a weapon. So we would expect a knock-on effect that pricing will become more competitive as companies struggle to replace revenue from automation by challenging competitor businesses.

The net result is potentially quite disturbing if you’re a service provider and attractive if you’re a customer.

These are early days and we have yet to complete our full study around how widely applicable robotics technology is. But our early analysis leads us to believe that it has serious implications for the BPO industry.

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