Next Generation Global Services Archives - Page 5 Of 7

Increasing Globalization of Global Services: Next Global Sourcing Frontier – Africa? | Sherpas in Blue Shirts

September 8, 2011

The mandate of Everest Group’s Location Optimization practice is to assist clients with data, insights, and advice on which global sourcing practitioners can rely to make their most critical decisions related to global locations. As we go about conducting our day to day business, three questions underpin the discussions with global sourcing practitioners nine out of 10 times.

What are the key locations for global services delivery?

Which regions are attracting attention and interest to meet the next wave of global services requirements?

How do the key global services stakeholders (buyers and service providers) perceive the next frontier(s) for global sourcing?

In order to build awareness on the trends we are observing across the global locations space at the highest level, we will attempt to provide the answers to these three questions.

First, let’s look at the key regions for global services delivery today. Exhibit 1 depicts our Market Vista Locations Maturity Heatmap, which tracks and compares the level of market activity across global locations. Asia remains the dominant location of the global services installed base by a large margin. This should come as no surprise as the global sourcing story has been pioneered and successfully played out in Asia – India provided the proof of concept for building industrial scale in global services, and the Philippines has rapidly adopted this successful model and opportunity to become a world leader in customer service. The success seen by India and the Philippines has encouraged other locations in Asia to concoct their individual recipes for succeeding in the attractive global services space. For example, China has emerged as a credible option for sourcing R&D and engineering services (read more in Everest Group’s “What is the True Maturity of China’s Offshore Services Market?”) while Malaysia is making concerted efforts to carve out a niche in the shared services space.

Exhibit 1 – Market Vista Locations Maturity Heatmap

Central and Eastern Europe (CEE) and Latin America are the next set of regions beyond Asia in terms of installed base of global delivery. These regions experienced waves of expansion, especially as companies strive to put in place a global portfolio of delivery locations for purposes, such as risk diversification, leveraging technical/language skill sets, 24×7 coverage, regional support, etc. There are more than 10 locations in both these regions with credible evidence of global services activity. Poland (in CEE) and Brazil (in Latin America) are the two large locations that have built credible scale in global services delivery and are recognized as mature locations on our Market Vista Location Maturity Heatmap. Poland has carved out a niche as a nearshore location for servicing Europe in non-voice business processing and IT, while Brazil is recognized for IT talent and an attractive domestic market, in addition to its proximity as a nearshore location for global services. (Read more about Brazil in Everest Group’s “Perspectives on the Maturity of Brazil’s Offshore Services Market.”)

Africa is a relatively new entrant in the global services locations landscape and has three or four locations with nascent global services activity. It presents specific and, at times, niche propositions and opportunities. And its value proposition is now being slowly understood by global investors.

Next, and before we discuss Africa in greater detail, let’s look at the set of locations attracting interest from buyers and service providers to meet the next wave of global services expansion. Exhibit 2 is based on Everest Group’s comprehensive survey of key global services stakeholders and compares regions that buyers and service providers are planning to leverage for setting up new centers. (Read the Everest Group Location Insights detailing buyers’ and service providers’ location-related plans and perceptions).

Exhibit 2: Location Expansion Plans of Buyers and Service Providers

As is clear, Asia figures prominently in the plans of buyers and service providers for setting up new centers. Asia continues to attract interest from buyers and service providers, despite the high installed base of current activity. The Asian locations witnessing sustained interest include India, the Philippines, China, and Malaysia.

The survey results also give a big “thumbs-up” to Latin America. This is corroborated by recent market activity trends that show the region is experiencing activity in establishment of both captives and supplier delivery centers. Key countries that are witnessing increased interest include Brazil, Argentina, Chile, and Mexico.

Let’s go now to one of the most interesting findings from the survey – Africa! Indeed, as many as 20 percent of all respondents from the service provider segment indicated plans to add new countries in Africa to their global delivery portfolio. South Africa seems to be especially popular with service providers, with 10 percent of all respondents disclosing plans to set up a center there. Egypt also figures into the list of leading choices for locating a new delivery center.

So what are the reasons behind this emergence of Africa countries as the next frontier of global locations, especially for service providers?

They provide a capable (although nascent) low-cost alternative to CEE locations
They offer scalable language skills and cultural affinity with the developed world. South Africa and Morocco have strong cultural similarity with the United Kingdom and France, respectively. Egypt offers the opportunity to cater to the lucrative Middle East market.
A foothold in the African region gives service providers the ability to serve domestic African markets, e.g., South Africa for sub-Saharan regions, and Egypt and Morocco for North African markets. Business from local firms and especially MNCs operating in the region present a lucrative opportunity for service providers looking for the next set of clients

In addition to the above value propositions offered by African locations, we can contextualize the motivations for location portfolio expansion from both the buyer and service provider standpoints. Buyers set up captive centers or influence service providers to provide support from new locations primarily to complement their current global locations portfolio in terms of access to specific talent pools for language skills, time zone proximity, to support international business expansion, etc. At the same time, buyers are also sensitive to the complexities associated with a wider geography footprint and, hence, are looking to find the optimum balance of value capture and risk mitigation from global services programs.

On the other hand, Tier 1 service providers usually have a wider frame of reference due to their servicing of multiple clients, and hence are typically more globalized than buyers. In addition, service providers are more open to moving into hitherto unexplored territories due to incessant cost pressures and the need for differentiation. Most of the Tier 1 service providers are already well penetrated in all the major global services theatres and are now looking to explore the African continent.

Although it remains to be seen how much of this enthusiasm will ultimately get converted to any action, the sheer level of interest itself should excite countries in the African continent – South Africa, Egypt, Morocco, and Mauritius – to develop the global services capabilities in their individual countries, sharpen the articulation of their value proposition and differentiation theme, and craft effective marketing strategies to attract global investors.

How Many Americans Truly Understand “Healthcare Reform”? | Sherpas in Blue Shirts

September 6, 2011

As the debates continue, the courts rule, and the American people become more educated on the true impact of “healthcare reform,” the question that begs for an answer is, “What, exactly, IS healthcare reform?” Read any article, tune into any top news organization, and listen to one of the political pundits or news anchors, but your view will change as soon as you hear another source. Even the politicians responsible for the legislation are confused!

The American people are speaking out like never before in gatherings and town hall meetings across the United States about healthcare reform’s cost impact on our system, especially in such a down economy. The reactions have been astonishing; but even more astonishing has been the opposite views from both sides of the issue with opposing explanations on whether traditional town hall meetings really represent the true feelings and will of the American people. New political explanations and themes are beginning to emerge. Instead of healthcare reform we now have “insurance reform.” The debate seems to be around identifying the bad guy. Is it insurance organizations, physicians, pharmaceutical companies, or government? Where is the “Bogey Man” in this?

Most of us in the healthcare technology market space agree that all this debate and posturing has caused a delay in the commitments to move healthcare industry technology forward. It has been a lean year for major providers of healthcare solutions and services to implement anything because healthcare provider organizations are confused over government mandates, stimulus and what that entails. It’s apparent, however, that whichever direction the debate moves, whatever is or is not deployed for healthcare reform, the resulting environment will require innovative technology solutions that can support access to the critical information necessary to comply to market demand and government mandates. It’s time to act on compliance demands rather than gamble that they will be moved out or go away. It’s time to plan for the next generation of services that will help healthcare organizations do more for less, rather than adding to already strained information technology budgets.

It’s not yet clear which organizations will step up to the plate and define the healthcare model for the future and the technologies that will drive that model. But what is abundantly clear is that next generation IT applied to mHealth, medical device integration, telehealth, and data center transitions will support and drive innovation that will support quality of care and wellness programs and make these affordable for consumers.

As we strive to understand what healthcare reform is, we cannot lose sight of the fact that healthcare is a costly issue, and we must make it affordable for all without consuming our national economy.

The A to Z of Mortgage BPO – Accenture acquires Zenta | Sherpas in Blue Shirts

August 24, 2011

Earlier today Peter Bendor-Samuel, CEO of Everest Group, posted a blog about what Accenture’s acquisitions of Zenta and Duck Creek signal for the global services industry. My goal in this blog is to drill down into specific details around the Zenta acquisition. So, with that…

Accenture announced earlier this week that it had acquired Zenta, a provider of residential and commercial mortgage processing services in the United States. The announcement also cited the launch of Accenture Credit Services, which will consist of full service consulting, technology, and BPO capabilities for the commercial real estate, residential mortgage leasing, and automotive finance industries.

Given the abysmal state of the mortgage industry – especially residential – in the United States, this is an ideal time for a large BPO service provider with sufficient cash reserves and existing low-cost delivery model to build or expand its capabilities in the mortgage servicing space by taking advantage of attractive valuations, thereby making an investment in the future. (Cognizant did exactly this last month when it acquired CoreLogic’s India-based captive.)

Think about it. The mortgage industry is facing significant double whammy profitability issues, with costs rising due to higher fulfillment expenses and the need to manage increased and changing regulatory norms, and revenue dropping due to lower origination volume (purchasing volume). The nature of services itself has changed with loan modification volume rising significantly, while new mortgage initiations have reduced dramatically. And the increased regulatory oversight, resulting from regulations such as the Dodd-Frank Act and additional proposed changes, has created an air of uncertainty in the mortgage servicing industry. Against this backdrop, Accenture’s acquisition of Zenta was certainly smart and well-timed.

The acquisition was also smart, for a different reason. Within the banking, financial services, insurance (BFSI) BPO market, Accenture has a strong position in the insurance sector which accounts for 60 percent of its BFSI BPO revenue. However, it has a fairly modest scale of operations in banking BPO, and limited capability in industry-specific capital markets BPO. With this acquisition, Accenture gains Zenta’s strong voice and non-voice experience and capabilities in the mortgage services space, which it can then infuse with its own strong consulting and technology capabilities to establish what is essentially a one-stop-shop for the mortgage industry. The launch of Accenture Credit Services is a clear step in fulfilling this objective.

With Accenture making this move in the mortgage services space – as we had suggested it might in our BFSI BPO service provider profile compendium released earlier this year – what can we expect next? Will it make further investments in banking BPO around, say, credit cards? Or will it perhaps invest in capital markets BPO, which has been a gap in its overall BFSI offering? Can it develop the capabilities organically, or may another acquisition, either a captive or pure-play niche service provider similar to Zenta, be in its crosshairs?

Yes, it’s exciting times in the BFSI outsourcing space. Stay tuned for new developments!

Philippines’ Expanding Role in the Global Services Supply Chain | Sherpas in Blue Shirts

August 19, 2011

Recently I was in Manila for the Contact Center Association of Philippines (CCAP) annual industry event, which also marked the CCAP’s 10-year anniversary. There was a great deal of enthusiasm about Philippines having reached an important milestone of becoming the world’s leading voice BPO destination. Prominent industry and political speakers emphasized the fact that Philippines had achieved this distinction on the back of a vibrant ecosystem, a natural affinity toward the services and customers in play, and the significant attention the industry is enjoying relative to the political and economic quarters. One of the eminent presenters summarized the upbeat mood by stating that Filipinos had demonstrated that it is possible to be nice and still win!

The celebrations were well-deserved. The Philippines IT/BPO industry has grown at a healthy clip of ~30 percent annually over the past five years to reach ~US$9 billion in revenues, and is a significant contributor to the country’s GDP, direct and indirect employment, and foreign exchange earnings. Additionally, the industry has catalyzed growth of multiple next-wave cities in the provinces, attracting local talent, entrepreneurs, and governments to participate in the overall economic upswing. Multiple factors, including availability of a robust English-speaking talent pool, relatively neutral accent, cultural similarity with the United States, and a competitive cost environment have contributed to this success.

Yet, one must question whether this success is sustainable and what lies ahead for the industry in the years to come. The global services phenomenon has certainly spawned a new generation of competing destinations beyond India and Philippines. While locations such as China derive strength from regional and domestic market scale and capabilities, countries in Africa are witnessing a significant government-backed push to target the relatively lesser tapped UK and European markets. Other countries such as those in Eastern Europe and Central/Latin America are establishing themselves as the preferred nearshore destinations for Europe and North America, respectively. While it is important for Philippines to protect and enhance its position in the existing strongholds, the competition will be more apparent in the comparatively new markets such as the UK, continental Europe, and Asia Pacific, and in service segments such as non-voice and industry-specific BPO services.

So what must Philippines do to ensure continued growth and success in the emerging global services landscape? Investments in talent capacity and quality are required to meet the industry’s projected entry-level workforce requirements, as are development of specific domain expertise and a steady pool of management/ leadership. The industry’s expansion into next-wave cities needs to be strengthened through adequate physical/social infrastructure development and local government stewardship. Finally, the industry’s stated agenda of further diversification into newer markets and service lines must be supported through renewed and targeted marketing and communication initiatives.

The Philippines IT/BPO industry has set itself an ambitious 20 percent annual growth target over the next five years. Achieving this will require Philippines to proactively shape its destiny and profile, recognizing evolving customer expectations and competitor capabilities. Will there be any surprises?

Video: Multi-Country RPO Key Findings | Sherpas in Blue Shirts

August 10, 2011

Watch as Sayan Chatterjee, Senior Research Analyst, highlight key findings from the recent report Multi-Country Recruitment Process Outsourcing (RPO): Hype vs. Reality.

A Case of Selective Hearing? | Sherpas in Blue Shirts

August 9, 2011

A colleague and I recently hosted a roundtable for the leaders of captive centers (i.e., offshore operations not belonging to third-party ITO or BPO suppliers) in the Philippines. In attendance were leaders from more than 15 organizations with operations at varying degrees of maturity. So what do you think their reactions were to the discussion?

On one level, most participants could have felt good. Makati City is bustling (and far better organized than, say, Gurgaon or Bangalore). Most operations are growing well, and are perhaps a key factor in the Philippines’ overtaking India in voice BPO. Everyone around the table is facing the same operating issues around attrition, wage increases, staffing for night shifts, and the constant traffic of visitors from the parent company coming to kick the tires and bond with the associates serving internal or external customers halfway around the globe. The issues would have been worrying for the leaders if they weren’t all dealing with the same stuff.

At another level, the leaders should be worried. After all, it’s easy to be absorbed by the operating issues of trying to keep a few thousand people engaged and focused on customer service and attendance, and making sure they’re happy and well-fed in their 24×7 operations. But the world is changing. Parent companies have gotten a lot smarter in what work they send where, and to whom. Third-party providers are the ones renting out a majority of new office space in Manila, and they are eager to grab what market share they can from the captive pie. Many of these third-party operations are led by Indian managers who are perhaps a bit tired of things in Gurgaon or Bangalore and have come to the Philippines to get their next kick in life.

So why does this matter? On one hand, things can continue as-is; after all, life is good as long as headcount in the captive center keeps increasing, isn’t it? On the other hand, status quo can relegate these operations to becoming a mere spoke in the global supply chain of their parent organizations. Decisions that shape their future will continue to be made by the leaders back home, or worse, by peers in these organizations’ centers in India or other locations.

It’s time for the leaders of the Philippines captives to face the fact that business as usual is not going to last as long as the third parties are coming and parent companies are getting more discerning. More importantly, they need to make themselves heard by demonstrating leadership capabilities beyond day-to-day delivery, and taking charge of the offshoring agenda, or at least starting to shape it.

Banks of the Future, Bank Big on Technology: The Changing Applications Landscape in the Global Banking Industry | Sherpas in Blue Shirts

July 21, 2011

A rapidly evolving business environment is causing the global banking industry to rethink the way it leverages technology. Market growth objectives post the recession, the desire to create a globally integrated multi-channel environment, and managing the complexity of new products are placing increasing pressure on global banking institutions to move toward a “bank of the future” paradigm. The transition to this future state requires banks to realign their technology environment and, more importantly, their IT applications portfolio. Recently released Everest Group research report, IT AO in Banking – Trends and Future Outlook, highlights the key drivers causing this evolution. Following is a summary of the three most noteworthy trends we identified:

Increasing focus on customer-centricity: How does the “bank of the future”communicate with its customers? The recently unveiled technology-studded concept branches of Barclays and Citibank offer us a preview.

Barclays Piccadilly Circus branch in London’s West End. Photo credit Barclays

Barclays’ flagship Piccadilly Circus branch in London went high-tech in December 2008 with multiple types of cash machines, an interactive video wall, a floor staff equipped with tablet PCs, and a “premier lounge” with Microsoft Surface technology. Citibank unveiled an even more tech-savvy branch in New York’s Union Square in December 2010, featuring interactive iPad-style “sales walls” that allow customers to purchase the bank’s products through a flip-friendly, touch-screen interface. Other high-tech features include Wi-Fi access, enhanced-image ATMs to deposit checks without envelopes, and 24/7 video chat station for speaking with a customer services representative.

The clear, common underlying theme behind the extensive use of technology at these banks of the future is improving the customer experience. That said, the bank of the future is not just about having high-tech feature-packed branches; it is also about being in contact with the customer through other channels such as the mobile and Internet. Some banks are using Web 2.0-based technologies to service existing customers and reach out to new ones. ABN Amro, ING and Rabobank all have dedicated web-care teams that communicate with customers through social media. Banks are also striving to provide customers with a uniform and convenient banking experience across channels, be it physical branches, web portals, or mobile devices.

Citibank Union Square — Citibank branch at New York’s Union Square. Photo credit: Jay Irani

Managing complexity in banking operations is becoming exceedingly important as banks’ operations expand and the regulatory requirements become tougher. Frantic M&A activity during the recession and the subsequent foray of banks into newer markets such as the Middle East, Africa and Asia, have created large banking entities with many disparate systems that require integration and standardization. Banks are striving to create a unified view of the customer by integrating complex customer data from across geographies and product lines in order to address risk and improve sales effectiveness.

The regulatory environment today is also tougher than ever before. Regulations such as Basel III (which will be phased in from 2013 to 2019 globally), the U.S. Dodd-Frank Act, and the reverse stress-testing requirements for banks in Europe all require banks to be on top of huge volumes of customer data and process it real-time to assess risk. This will require most banks to upgrade their IT backbone, with a special focus on data management and analytics.

Improving profitability has, expectedly, become an important driver against the backdrop of the pressures brought on by the financial crisis. Banks are continually striving to remove redundancies in operations, improve business efficiencies, and achieve cost savings especially in the middle- and back-office activities. Technology outsourcing continues to be a key enabler of all these goals. Cloud adoption is another emerging opportunity by which banks can meaningfully reduce their IT costs and complexity.

Technology is widely regarded as the panacea for addressing the challenges associated with all these themes of customer centricity, complexity, and profitability. Technology is fast changing the way consumers do banking and the way banks do business. Banks are banking big on technology to prepare for the future today, and tomorrow’s IT services leaders are working fervently today to lay the groundwork.

Related Reports:

ITO RFI 2011: Is the Slowdown over for ITO? | Sherpas in Blue Shirts

July 19, 2011

Earlier this year, Everest Group conducted its annual study of high total contract value ITO deals to gain insight into how a variety of parameters correlates with deal activity. The study, which is part of our ITO Request for Information 2011 report, analyzed 467 ITO deals across 16 service providers (a combination of MNCs, Tier-1 offshore and Tier-2 offshore) against the following factors:

Buyer revenue size
Buyer geography
Buyer industry
Provider type

Within each of these parameters, we focused our assessment on scope, duration, size and pricing model of deals in application, development & maintenance (ADM), infrastructure outsourcing (IO), and those with a combination of ADM and IO.

Important findings from the study include:

Insights on how buyers in different size groups determined the scope and pricing model of the deals they signed. For example:
- Large buyers (revenue > US$10 billion) showed a preference for outcome-based pricing models
- Large buyers took up a higher share of offshore providers’ RIMO offering compared to buyers in other size groups
Parameters that define the maturity of engagements service providers have with their buyers. For example:
- Deal sizes, especially in the RIMO space, were back to pre-recession levels for both MNCs and offshore providers
- The declining trend in deal duration, across deal types and provider types, was arrested in 2010

Following are a couple of illustrative examples from the report. The one on the left displays a comparison of ADM deal size and duration between different types of service providers, and the one on the right depicts a trend analysis of RIMO deals that offshore providers have signed with buyers of different sizes.

Is the slowdown over for ITO?

The slowdown in the ITO industry lagged that of buyer industries such as financial services and manufacturing. While they displayed clear signs of negative economic impact in 2007-2008, service providers in the IT industry appeared stable because of contributions from multi-year engagements of the past. It was only later in 2009, because of the resulting squeeze in the IT budgets, that the actual effect on IT service providers’ numbers became visible. Indeed, when we published our RFI on ITO deals last year, the impact of the recession was starkly clear on almost all the parameters we evaluated.

So has the ITO industry recovered from the slowdown? To get a handle on this, we closely evaluated parameters such as deal size, duration, and scope. Having seen bigger and better engagements (larger deal sizes, longer duration and broader scope), it does appear that ITO is coming out of the slump. However, before these results can be termed reliable indicators of recovery, we will have to observe these parameters as trends over 2011.

For more information on Everest Group’s ITO Request for Information 2011 study, click here.

Captivating Clarifications: Don’t Make the Wrong Comparison | Sherpas in Blue Shirts

July 11, 2011

This is the second in a series of thought leadership articles by Eric Simonson on the continuing role of captives in the global services landscape.

Building upon a May blog post, we recently published a report on the health of the offshore captive model entitled “Captives are Staying Alive.” The report was in partnership with Tesco HSC, a Bangalore-based captive with more than 5,000 employees providing IT, business, and finance services to the rest of the global retailer’s organization. CIO magazine picked up on the report and asked some additional questions for its coverage of our analysis.

In the course of providing additional input to Stephanie Overby (the author of the magazine article), I realized that one critical question was not highlighted strongly enough in our analysis: can you compare the captive sourcing model with the third-party outsourcing model?

On first glance, the obvious answer is “yes.” And indeed, many of us have spent time picking apart the ways in which to compare the costs of both models, plus the merits of outsourcing lowering time to implement and reducing up-front investments (see our deepest, off-the-shelf assessment from almost four years ago).

Any effort to develop a global services strategy that includes a meaningful thought process on the optimal mix of sourcing models will have to sort through how the various strengths and limitations of both models align with a particular organization’s needs and objectives.

But is that really the whole story? Is a one-to-one comparison of models going to provide the right insights to inform a strategy?

First, let me caution that captives require a commitment to scale in order to be successful. Many of the reported failures of the offshore model (bringing jobs back onshore because offshore is too expensive or complicated) are actually caused by lack of scale and associated commitment to manage these issues properly to reduce or eliminate their impact. In others words, do not use the captive model on a whim – only do so if you are deeply committed to ensuring it attains sufficient scale in total headcount and in size and quality of the leadership team. It requires both enough people (say 500-750 minimum for most types of work delivered from “farshore” locations) and enough leaders.

Scale issues aside, there are two fundamental differences in the captive model that need to be considered to understand its potential role in a global services portfolio:

Additional scope of services
Ability to re-leverage human capital investments

Both of these factors are often overlooked because they are second-order implications that derive from successfully building a captive delivery model; as a result, they are not commonly considered a first-order benefit in the target business case.

Additional scope of services

In an outsourced model, scope is primarily defined in terms of process responsibility and number of FTEs completing various tasks. This is also true in the captive model, but captives can further act like offshore corporate centers and take on work that: 1) is not easy to define; and 2) stretches across the front, middle, and back offices. This opens up the ability to deliver from offshore almost any work that doesn’t require close proximity to the end customer. It also helps explain why captives tend to outgrow their initial real estate plans quickly, and with significant “other bucket” work.

Examples of advanced roles I have seen in captives include product management, pricing strategy, corporate communications, talent management strategy, operations research and optimization, and IT standards and security architecture. While these are not normally outsource-able activities, the captive model provides the opportunity to deliver more scope from offshore – it is simply about adding offshore employees in sales, marketing, or other functions to the global team, not signing SOWs with negotiated pricing and service levels.

In short, a captive enables the option to add lots of additional activities that are not initially planned and that do not lend themselves to the outsourcing model. For organizations seeking to manage themselves in a truly global manner, this is an important consideration and can provide value in a wide range of ways.

Ability to re-leverage human capital investments

The process of fully bringing an offshore resource up to speed to complete a job is critical, and takes longer than most like to admit. In an outsourced model, once the time has been invested to make an individual fully functional in understanding all the nuances of a system or the business’ needs, he or she may be promoted within the client service account, or may leave the account to work for another client. (And organizations do benefit by receiving talent from other accounts as the associates do possess certain forms of expertise, although they lack organizational context, which takes time to cultivate.)

In the captive model, fully functional associates remain in the organization and advance to related roles, or may be moved to other locations to cross-pollinate or further deepen their skills. This ability to retain and enhance the understanding of organizational context is an important factor in capturing value from human capital investments in a captive model.

If you’re creating a global talent model, resources gaining experience with your enterprise in an offshore location can prove to be very valuable for the rest of your organization – you have greater ability to predict success in new roles, they inherently understand your organization from multiple angles, etc. Net-net, specific skills can be developed in both the outsourced and captive models, but deep organizational context is best cultivated in the captive model.

Large organizations must continue to optimize their global services strategies, and the external versus internal sourcing mix debate will continue to be emotional. Emotion is fine; but just be sure you are framing the right comparisons, and don’t forget the real, yet hard to value and compare in a business case, second-order benefits of the captive model.

What unexpected benefits have you seen from internal service delivery in captives? Can those benefits be valued?

CIO: The Captive Model for Offshoring Is Thriving, Says Research Firm

Report: Captives are Staying Alive

Report: Comparison of Outsourced and Captive Solutions for Capturing Value from Offshoring

Procure-to-Pay: Measuring Outcome Beyond Efficiency Gains | Sherpas in Blue Shirts

July 5, 2011

More and more companies are recognizing the value of end-to-end business process management as it breaks down functional and organizational silos to enable a more holistic approach to enterprise performance management.

Of the common sets of end-to-end processes – which include Source-to-Contract (S2C), Procure-to-Pay (P2P), Order-to-Cash (O2C), Record-to-Report (R2R), and Hire-to-Retire (H2R) – P2P is most often identified as the priority for optimization. There are two key drivers of this trend. First, compared to other end-to-end processes, P2P activities are typically more common across the enterprise, making them easier to standardize. Second, the business case for P2P is frequently the most compelling. Through process standardization, workflow automation, system integration, and rigorous compliance enforcement, companies have been able to achieve rapid and significant spend and operating cost savings while simultaneously gaining the ability to better manage risk.

A case in point: a global software and products company achieved an initial operating cost reduction of 35 percent. It subsequently realized spend savings of US$700 million (~9 percent on a spend base of US$8 billion) and captured more than US$10M in Early Payment Discounts (EPD). The savings and benefits accrued generated a break-even on the business case in less than six months.

Based on Everest Group’s experience, one of the most critical success factors of P2P transformation is the institutionalization of a common set of well-defined performance metrics across the entire organization, including both internal and third party delivery partners. The performance metrics should be closely linked to desired business outcomes, and applicable across segments and geographies. Moreover, both P2P efficiency and effectiveness should be easily quantified, measured, and benchmarked.

The table below presents a P2P metrics framework that starts with clearly defined business objectives that are measured by a small set of outcome-based metrics to reflect the overall efficiency and effectiveness of the P2P process. The diagnostic measures are designed to identify specific process breakdowns and improvement opportunities, and are tracked and reported at the operational level.

We strongly recommend companies follow a structured approach to develop a holistic P2P performance management framework:

Define common metrics, and clearly delineate objectives, descriptions, and interdependencies with other performance measures
Establish a standard methodology and systems to track and report performance; key components include:
- Measurement scope, parameters, method, data source, and frequency
- Benchmarking methodology and data source
- Reporting dashboards, frequency, and forum
Assign accountability for:
- Measuring and tracking performance metrics
- Benchmarking and reporting overall P2P performance
- Identifying and prioritizing continuous improvement (CI) opportunities
- Reviewing and approving CI projects
- Implementing and monitoring CI initiatives
- Calibrating performance metrics based on evolving business objectives

There’s no question that the old management adage “You can’t manage what you don’t measure” holds true in the case of end-to-end process management. Having a common set of appropriately-designed performance metrics is both an enabler for and indicator of successful P2P transformation.

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Tag: next generation global services