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outsourcing

What is outsourcing? Definitions, best practices, challenges and advice | In the News

By | In The News

Outsourcing is a business practice in which services or job functions are farmed out to a third party. In information technology, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development or QA testing.

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring (or, more accurately, offshore outsourcing) is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because unlike domestic outsourcing, in which employees often have the opportunity to keep their jobs and transfer to the outsourcer, offshore outsourcing is more likely to result in layoffs.

In recent years, IT service providers have begun increasing investments in IT delivery centers in the U.S. with North American locations accounting for more the a third of new delivery sites (29 out of a total of 76) established by service providers in 2016, according to a report from Everest Group, an IT and business sourcing consultancy and research firm. Demand for digital transformation–related technologies specifically is driving interest in certain metropolitan areas. Offshore outsourcing providers have also increased their hiring of U.S. IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the U.S. to work on client sites.

Read more in CIO

CX and the Philippines: An Evolving Value Proposition | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

For the last several years, the Philippines’ value proposition as the leading contact center delivery location has been availability of a large workforce with good language skills and high empathy, at very competitive costs. But to remain the top contact center destination, it will need to evolve its value proposition from customer service delivery to CX delivery.

This is because CX has emerged as a top priority for firms to build a loyal customer base in today’s digital age in which end-consumers are seeking a seamless, quality, personalized experience across channels. To support clients in this quest to deliver a superior customer experience, the contact center industry is transforming from an arbitrage-first to experience-first model. Everest Group research shows that the key to delivering the CX of the future is optimizing a blend of talent and technology.

The primary technology enablers

  • Fortify analytics solutions – Contact centers are blessed with access to a wealth of high-quality data. Customer analytics can help them provide personalized services and real-time support for query resolutions. Operational analytics will allow them to monitor processes, predict future demand, and optimize service elements to achieve the best outcomes.
  • Embrace automation solutions – The first step is using self-service offerings to manage simple queries, followed by leveraging rule-based chatbots and smart IVRs to manage high-volume transactional tasks for maximum automation impact on contact center operations.
  • Focus on delivering omni-channel experience – Delivering a consistent, seamless customer experience requires an integrated view of the customer across all channels. With a more case-driven approach, each interaction that the customer has with the organization feels like part of an ongoing conversation and relationship.

The key talent enablers

While technology advancement will help prepare the groundwork for CX delivery, talent enablers are equally important to ensure a smooth transition:

  • Build the right talent strategy – As contact centers adopt technology on a wider scale, the role their agents play will evolve to focus more on domain and technology expertise. Thus, recruitment and training programs must align to identifying new talent with the right skills, and strengthening existing agent capabilities and knowledge.
  • Rationalize KPIs/metrics – To measure agent performance, contact centers will have to establish metrics and KPIs that focus on digital enablement, business outcomes, and impact on the customer experience.

If you’re currently associated with a contact center in the Philippines, or are considering outsourcing contact center operations to the Philippines, we invite you to join us at the Contact Center Association of the Philippines’ annual conference at Shangri-la’s Boracay Resort & Spa, Boracay Island, Philippines on October 11 and 12. The Contact Islands conference, at which my colleagues Karthik H and Katrina Menzigian will be featured speakers, will focus on the evolving nature of CX, and how the Philippines is matching the pace of the global industry-wide disruption.

Outsourcing To India Is A Suitable Option For Another 3 Decades: Study | In the News

By | In The News

India’s position as a labor arbitrage market may continue for another “25-35 years”, said IT consultancy Everest Group. However, it is unlikely that earlier offshored work would be back to its home market, it added.

“There is no doubt that India is still a highly attractive and viable option for low-cost labor, albeit not quite as good as it was 15 years ago, but still very compelling, and it will likely remain so for another three decades,” said Michel Janssen, Chief Researcher at Everest. “We move out our estimate for the end of the India labor arbitrage to beyond the 2040-50 time horizon.” Indian IT firms have put it that they have shifted from a model based purely on labor arbitrage and have been hiring in bulk onshore.

Read more in CXOtoday

Changing Landscape of Global Outsourcing | Webinar

By | Webinars

Tuesday, September 26, 2017 | 9:30 a.m. CDT

Everest Group’s H. Karthik, Partner, will be a featured speaker at the Bloomberg Professional BI Analyst Briefing webinar: Changing Landscape of Global Outsourcing.

Topics discussed during the webinar will include:

  • Impact of digital disruption on global services
  • Industry forecast and growth outlook
  • Increased investments by offshore IT services companies in high-cost countries
  • Robotic process automation and its impact on growth and profitability in the industry

Join this session to learn about the changing landscape of Global Sourcing and how it will impact the offshore IT services industry.

register for the webinar

In Digital, What was Context Now Becomes Core | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts, Uncategorized

I don’t know about your company’s situation; but having looked at literally hundreds of outsourcing contracts, I see that they all have something in common. The original intent was a one-time shift to transform and improve an operational aspect. Unfortunately, IT outsourcing contracts sort of poured concrete around the outsourced processes. Thus, the quest for operational excellence through outsourcing IT has the effect of stopping companies from changing. That’s a non-starter in the digital world.

When companies begin to rotate from legacy environments into digital technologies and digital business models, it’s not long before they realize they must fundamentally rethink their assumptions around the old ways of doing things. In those old assumptions, outsourcing IT infrastructure, development and maintenance and other IT functions made sense. The assumption was those functions were not core competencies, so the company should outsource to get efficiencies of scale and price points through leveraging the outsourcer’s core expertise. That assumption was usually right; the company transformed from Point A to Point B and achieved a one-time shift in improving operations.

Read more at my CIO Blog

Capital Markets BPO: Provider Selection Pricing Considerations | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.

Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.

Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?

What to consider when selecting a Business Process Outsourcing provider

  • Specialists come at a premium: Specialist providers typically charge a premium price. The premium is nominal for low complexity processes such as static and dynamic data management, client onboarding, low value reconciliations, trade capture, and exception matching. Yet, it rises considerably for high complexity capital markets BPO processes such as OTC derivatives, syndicated loans, and alternative investments. Specialist capitalist providers’ expertise in niche and complex services gives them significant pricing power leverage over pureplay BPO providers.
    BPO-Business-Process-Outsourcing
  • Pureplay BPO providers on the move: However, pureplay BPO providers over the last couple of years have moved swiftly, and gained meaningful ground in terms of building competence in high value services. This increased, more head-on competition has reduced the pricing differential to some extent.
  • Pricing model induced rate differential: FTE-based pricing is most common in capital markets BPO contracts, closely followed by the transaction-based model. Typically, contracts with transaction pricing have a higher Annual Contract Value (ACV) per FTE, as the service provider agrees to share some of the buyer’s risk, and thus bakes the risk premium into the pricing. Additionally, the scope of work for capital markets BPO deals with transaction-based pricing is usually higher value and more complex, pushing up the average ACV per FTE further.

Pureplay BPO providers VS. specialists

Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.

Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers –  both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.

Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?

 

Which Way are the Winds of Change Blowing in the Global Services Industry? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

2016 will unquestionably be recorded in the history books as one of the most turbulent years in modern times. Geopolitical, socio-economic, and technological volatility hit global service providers and enterprises alike particularly hard, leaving them in a state of uncertainty never seen before in the services industry.

Everest Group’s recently-published Market Vista™ – 2016 Year in Review report took a deep-dive look at these and other key trends and drivers impacting GICs, offshore/nearshore locations, service providers, and outsourcing transactions.

Here’s a snapshot view into some of the most interesting developments of 2016:

Digital takes center stage in outsourcing deals

While the volume of BPO deals had surpassed that of traditional IT services (e.g., application development and infrastructure services) in the previous decade, the pendulum has swung back to IT – now in a digital form. Several factors are driving this change, including increasing maturity of traditional services, the need for a personalized customer strategy, the need for increasing operational efficiency, and the protectionism wave. Indeed, the number of inked digital deals increased by 175 percent between 2014 and 2016.

Outsourcing deal sizes are decreasing – but not for everyone!

Higher maturity and increasing customer expectations continue to drive comparatively smaller or unbundled deals, particularly in the U.K. and North America, where a significant portion of deals are incremental or outcome-based. However, many enterprises, are signing larger deals as they invest in infrastructure and supporting platforms in order to build digital capabilities in the near future.

New technology, but different implementation strategy

Although large buyers have the capabilities to insource digital services delivery, dearth of talent and investment size and complexity forced smaller buyers to outsource delivery of their digital services.

Concentration in leading geographies

With digital services talent availability increasing in some global services destinations, the share of activity is being redistributed. Share of top-10 locations increased from 60 percent in 2015 to 70 percent in 2016. Locations recording a >50 percent increase in activity in 2016 were Ireland, Malaysia, Poland, Romania, and Singapore.

Surging wave of protectionism

A growing set of countries, including the U.S., U.K., Australia, and Singapore are adopting an “our country first” stance. This has manifested into a series of inward looking protectionist steps and safeguarding regulations, such as Brexit, the recent change in visa regulations in Singapore and Australia, and proposed immigration changes in the U.S. While these had limited impact in 2016, as most of them came into effect in early 2017, it will be interesting to see how players’ location activity evolves going forward.

Following are the five key trends we believe will define the global services industry in 2017:

Global Services Outsourcing Deals in Market Vista

To learn more about Everest Group’s take on 2016’s key trends, developments, and associated drivers – and how these will impact what happens in the global services industry in 2017 – please refer to Everest Group’s report titled Market Vista™: 2016 Year in Review: Global Services Industry Facing “Winds of Change.”

How Donald Trump May Save the India-heritage Outsourcing Firms | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Over the past month or so, many of the India-heritage outsourcing firms have reacted to the current political climate to announce significant hiring goals for onshore (U.S.) hiring while scaling back applications for H-1B visas. There are numerous reports across the country of these announcements creating a frenzy of governors courting the companies to locate delivery centers in their states, with sweet incentives included.

Impact of the digital model

Notwithstanding the irony of taxpayers underwriting job growth for the same companies that are simultaneously being raked across the coals for stealing American jobs and moving them to India and other offshore locations, the shifts coming on the back of political jawboning may be setting the stage for a way to a longer-term turnaround of prosperity. Recent analysis of the organic growth of the top 20 outsourcing services providers by Everest Group and DeepDive shows a dramatic deceleration of these collective firms’ growth. Projections over the next couple of years indicate a continuation of this trend. Deeper in the numbers, however, is the startling fact that the 80 percent block of these firms’ revenue that is labor arbitrage-based is actually shrinking slightly! The remaining 20 percent – that which is generally considered “digital” (cloud, mobile, social, analytics, AI/robotics, etc.) is growing at an annual rate of over 20 percent.

Many of these “digital” activities require service delivery resources that are intimate with the consumers of the service. This is driving a push for a greater onsite (onshore) delivery mix to unlock the value inherent in these digital initiatives.

Now you see the punch line – Trump-driven reactions to increase the onshore presence aligns with what is required for success in the digital marketplace.

The digital transformation challenge

However, it is not a forgone conclusion that all the firms that shift their mix slightly will succeed in this fast-growing digital space. Digital success often requires a different business model that demands changes far beyond the location of service delivery staff. We see all elements of the business model shifting – locations, talent approach, innovation cycle, sales motions, organization models, funding processes, etc. – a transformation that is challenging for companies large and small (enterprises seeking to adopt digital solutions also have major transformational change requirements).

That said, actions in response to the U.S. administration’s stricter posture toward immigration, commitments to “hire American” and “buy American,” and rhetoric about trade reform (i.e., border taxes could position, if not encourage, service providers to increase their digital mix. The market revenue numbers suggest that customers want it, so those offshore-centric players who can navigate the business model changes required to do it at scale could end up thanking President Trump for the push into the digital pool.

Outsourcing firms thrown into digital model

Everest Group Warns ‘Wait and See’ Won’t Cut It in New World Disorder | Press Release

By | Press Releases

Everest Group and other global services experts convene to discuss challenges of managing in uncertain times 

Washington is a fitting if not symbolic location for Everest Group’s next On Point Summit – “New World [Dis]Order: Managing in Turbulent Markets.”  Everest Group experts and other global services executives will convene at The Watergate Hotel in the U.S. capital on May 17 and 18 to discuss the rapidly evolving landscapes of globalization, automation, immigration and digital transformation.

The two-day event exclusively for enterprise sourcing executives features a slate of renowned thought leaders:

  • Uri Dadush, former director of international trade for the World Bank, will deliver the keynote address, “Globalization: Curve or Cliff?”
  • Peter Bendor-Samuel, CEO of Everest Group, and Rod Bourgeois, head of research for DeepDive Equity Research, will present “Immigration: The Latest and What to Expect”
  • Bill Price, first worldwide vice president of customer service at Amazon, author of “The Best Service is No Service,” and partner at Antuit, will join a panel to discuss “Digital Disruption: Pain or Gain”
  • Everest Group’s Jimit Arora, partner, IT services research, and Sarthak Brahma, vice president, pricing assurance, will discuss “Outsourcing Market: Pricing Collapse and Shifting Provider Landscape”

Other speakers include senior executives at leading North American financial institutions, digital retailers, natural resources companies, and more.

“Times of uncertainty can be career inflection points for senior executives who are armed with actionable data and insights and able to offer wise strategies for navigating perilous waters,” said Eric Simonson, managing partner at Everest Group. “So at this gathering of global services executives, we will put the facts on the table, exchange war stories, and engage in provocative discussions. The goal is to equip and inspire these executives to provide invaluable leadership, helping their companies not only to survive but also to emerge from the disorder as successful market leaders.”

***Enterprise executives may apply to attend the event at http://www1.everestgrp.com/OnPointSummit-May2017.html. ***

Pharma BPO: What Justifies Premium Resource Pricing? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The global pharma industry, hit hard by the rise of generics and the patent cliff on branded drugs, has been in cost-cutting mode, especially since the beginning of this decade.

With the rising costs of R&D and new drug development, pharma corporations began looking at streamlining manufacturing operations through Contract Manufacturing Organizations (CMO) and de-risking their R&D efforts via Contract Research Organizations (CRO).

CROs, which were initially sought out by pharma companies to cope with ad hoc/transient requirements such as additional capacity, have now emerged to cater to a whole host of services in the pharma outsourcing construct. These include clinical trial management, clinical data management, medical/clinical writing, bio- statistical programming, pharmacovigilance, and regulatory report writing.

Offshoring has also gained considerable traction in the last few years. Indeed, many global pharma giants have increasingly looked to low-cost locations such as India, as evidenced by the establishment of various home-grown CROs and Indian arms of global CROs, and some Tier 1 Indian BPO providers’ scaling up their capabilities in this space.

Given their nature and complexity, pharma industry processes typically command a substantial FTE cost premium over judgment-based sub processes in functional areas. For example, the following chart compares Clinical Trial Management FTE costs within those in Financial Planning and Analysis and Procurement Outsourcing.

Typical price variation: FP&A, Sourcing and Clinical Trial Management services

Pharma BPOWhat’s behind these premium prices?

  • Skill profile: Even in the fairly early stages of outsourcing, pharma companies entrust some of their core work, such as clinical research, pre-clinical trial management, and certain activities in drug discovery, to their service providers. The necessary niche skill-sets typically require a background in clinical research, medicine, biotech, etc. Thus, the FTE rates are higher than those for even highly educated business analysts.
  • Nature of deals/projects: Pharma projects are relatively shorter in tenure than those in other BPO functions, especially deals involving medical writing and bio-statistical programming, where average tenure may range from four to eight months. Thus, the average utilization is significantly lower. This lower hour base to recover costs/margins leads to a higher hourly billing rate.
  • Service provider margins: While the highly mature and commoditized F&A, HR, and Procurement outsourcing markets have margins in the 10-20 percent range, pharma BPO is still relatively nascent and thus commands margins of25-50 percent.
  • Technology cost: In some deals, we’ve seen pharma BPO service providers bearing the cost of technology licensing, which further increases the FTE pricing.
    We expect that pharma BPO will likely continue commanding a premium pricing compared to other BPO functions for two key reasons.

First, pharma companies are gaining increased confidence from strengthening clinical and medical infrastructure and the stabilizing regulatory and business environment in India. This is resulting in outsourcing more core activities such as the entire spectrum of services pertaining to drug discovery and development. And second, Indian CROs and BPO providers are augmenting their capabilities to move beyond pharmacovigilance, bioequivalence, and bioavailability services, and challenging global CROs in areas such as end-to-end drug discovery and product development.

What’s your take on the premium pricing in the pharma BPO industry? Is it justified?