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talent management

What is “Good” Attrition in Global Services? | Sherpas in Blue Shirts

By | Blog

Managing attrition has always been a priority for business leaders in global services, and its importance continues to increase over time. Given rising competitive intensity for talent, especially in mature markets, attrition continues to consume significant mindshare of senior executives and HR managers. The key challenge has always been to quantify the actual impact of attrition on their companies’ operations.

Everest Group has developed a quantitative framework to identify the financial impact of attrition, by evaluating both costs and benefits (see Exhibit 1). Attrition impacts two key parameters of business – direct attrition-related costs (e.g., expenses on recruitment, employee onboarding/training, and employee pay-outs) and productivity loss/revenue leakage. Although the benefits associated with attrition are often not fully understood, mature firms have been able to achieve lower employee costs per FTE by adopting strategic and policy-level levers.

Financial Impact of Attrition

Based on this framework, we define “good” attrition as the average annual employee turnover rate at which an organization has a net financial gain for its operations. Everest Group’s analysis indicates a good attrition rate in an India-based English language contact center is 25-30 percent annually (see Exhibit 2). Firms with a lower or higher turnover rate incur net costs.

Good attrition rates are influenced by both market- and company-specific factors, and vary by function and location. For instance, the Philippines has an attrition rate range similar to India’s for contact center services, but a much lower one for IT services. Operations in Eastern Europe and Latin America usually have a much lower rate of good attrition compared to Asia across all functions.

Direct cost and benefit of attrition

It is noteworthy that firms usually experience attrition-related benefits for work in which efficiency and standardization are key considerations. In complex and judgment-intensive work, it is often desirable to have a very limited attrition. Furthermore, the benefits of attrition are relatively easier to achieve in moderate- to large-scale and growing operations. Small-scale and low growth operations need to consciously develop employee career paths to mitigate the challenges of higher people costs associated with a stagnant workforce.

Business leaders and HR managers can benefit by adopting this quantitative approach to assess the impact of attrition on their operations. To gain maximum value, they should institutionalize metrics to fully estimate – ideally capture – both the costs and benefits of attrition. Business managers should also identify the level of attrition that is good for their operations, and plan for it in their annual budgeting and forecasting cycle.

For more details on this topic, please refer to our recently released report, How Much Attrition is “Good” Attrition?

 

The Business Case for Impact Sourcing | Sherpas in Blue Shirts

By | Blog, Impact Sourcing

This blog is the second in a series of three on impact sourcing. In my first blog, I gave an introduction to impact sourcing in terms of what it is, its constituents, and why it matters. Now I’ll focus on its value proposition and business case.

Impact sourcing value proposition

The graphic below provides a snapshot of impact sourcing value proposition, which is based on five key elements, i.e., low cost, reliable delivery, access to alternate talent, stable workforce, and social benefits.

Low cost

Impact sourcing offers significant cost arbitrage over source locations for offshore BPO. At 70%+, this arbitrage is comparable than the arbitrage offered by traditional offshoring. In fact, as compared to traditional sourcing, impact sourcing offers savings across both “in-house employment” and “outsourcing” models. For example, in South Africa, people costs for impact workers are 8-10% lower than traditional workers when averaged over a three year period for in-house employment. In India, impact sourcing offers 35-40% savings as compared to traditional BPO in an outsourced model.

The drivers for these additional savings over traditional sourcing models vary by location. For example, in South Africa, lower costs are driven by lower attrition and some differences in salaries. In India, the savings are primarily driven by lower people cost and facilities cost in tier-3/rural location for IS operations as compared to tier-1 locations for traditional sourcing. To get a better understanding of cost for impact sourcing across different locations, check-out the detailed report.

Proven and reliable delivery

Our research shows that the performance achieved from impact sourcing is comparable to traditional BPOs with a robust track record of meeting client SLAs/KPIs and expectations. There are multiple examples as illustrated in the case studies of Teleperformance, Accenture, RuralShores, and SureHire. Even in cases where the performance of impact workers is not tracked, there is strong endorsement of performance being comparable to traditional workers.

Furthermore, companies have successfully mitigated the concerns (e.g., lack of talent, data security, and infrastructure) linked to service delivery using impact sourcing by focusing on skills development initiatives and replicating security infrastructure similar to traditional sourcing. For example, Aegis SA provides 12-16 week training program for impact workers that teaches basic office competencies and behavioral skills. In addition, there are several training institutes (Impact Sourcing Academy, Harambee, Careerbox, Piramal Udgam) that focus on developing the skill-sets of impact workers. Many pure play impact sourcing service providers (e.g., RuralShores) have implemented robust infrastructure to mitigate concerns on data security.

Large and untapped talent pool

Given most locations in Africa (South Africa, Kenya, Nigeria, Egypt, Ghana, Morocco) and Asia (India and Philippines) where impact sourcing is largely used have a high unemployment rate among the youth, impact sourcing provides an opportunity to access this large, untapped qualified pool. For example, there are over 155,000 unemployed graduates in South Africa. Over 35% graduate youth (age 15-29 years) in rural India are unemployed. Through impact sourcing companies tap into this alternate pool to augment talent supply. For example, impact sourcing has become TCS’ primary source for entry-level talent during non-campus-hiring season and enables extending its recruitment throughout the year. A detailed case study on TCS illustrates this in greater detail and provides insights on its outcome.

This talent pool is especially suited to serve the domestic market. Companies leverage this talent pool as source of competitive advantage for domestic service delivery, given local language capabilities and cost arbitrage. For example, RuralShores uses impact sourcing for vernacular language support for domestic market.

Stable and engaged workforce

One of the strongest elements of impact sourcing value proposition is the stability and motivation levels associated with impact workers. Our research shows that impact workers have 15-40% lower attrition than traditional BPO workers and exhibit high motivation levels that leads to improved performance over a period of time and lower hiring and training costs. This is endorsed by many companies using impact sourcing. A study by Careerbox comparing the performance of impact workers with traditional workers shows about 10% higher retention for impact workers measured after 90 days and 180 days of recruitment.

The lower attrition rates are driven by the strong emotional bond and loyalty towards the employer that helped educate, train and provide employment to the disadvantaged worker. In addition, impact sourcing provides a strong fit with personal/family aspirations (e.g., opportunity to work in local community without migrating to urban centers). Furthermore, for most impact workers BPO is a preferred career option compared to alternatives (e.g. agricultural, industrial labor), as it offers higher salaries and better work environment.

Social Impact

These four value proposition elements – low cost, reliable delivery, access to alternate talent, and stable workforce – are built around the fifth one – the social impact. In fact, the value proposition for impact sourcing exists because of the types of employees hired. Impact sourcing employees are high potential but disadvantaged economically, socially or some other way. For example, they may come from a low-income area or not have had the opportunity for a university education. Impact sourcing offers these types of people an opportunity to earn and build transferable workplace skills. As a result, employees improve their well-being, and the well-being of their families and communities. (See my blog Impact Sourcing 101: The Fundamentals of a Powerful Global Sourcing Model for a full explanation.)

A study done by RuralShores among 650 respondents across 11 of its centers shows significant improvement in the living standards of its employees after joining RuralShores. To illustrate this with a few indicators, 46% of its employees purchased mobile phones, 56% purchased consumer durable goods, average of 20% increase in family savings. This is echoed in Accenture’s experience of impact sourcing where annual income of impact workers increased by ~33% post employment.

Impact sourcing really is a win-win with tangible positive impact on business and on people. Any which way you look at it, the combined value proposition of impact sourcing is compelling, especially for certain types of BPO work.

In my next blog, I’ll share my perspectives on the aptness of impact sourcing to business.


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, benefitting 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 join our webinar, The Business Case for Impact Sourcing on Tuesday, October 7, 2014.


Photo credit: The Rockefeller Foundation

More New Faces at Serco to Help Turn the Company Around | Sherpas in Blue Shirts

By | Blog

Serco’s H1 2014 results were poor but in-line with expectations. Adjusted revenue was £2,433m, up 1.1% year on year but adjusted operating profit was down 59.1% year on year to £50.7m.

Profits were impacted by £30m from reduced volumes of work for the Australian Government Department of Immigration and Border Protection (DIBP) and other contract attrition (principally Electronic Monitoring and U.S. contracts).

Changes in other contracts impacted profits by an additional £25m. These included work with AEGON and Shop Direct  moving from transformation into run and maintain phases.

A further £30m was wiped off profits due to two other troubled UK government contracts, COMPASS (for the provision of accommodation for asylum seekers) and PECS (Prisoner Escort and Custody Services) and the internal corporate renewal program.

Serco fared better in other geographies with 10% revenue growth in AMEAA and 7% in Americas.

The focus on fixing major contract problems in the UK has taken management attention away from sales. The pipeline declined by £4bn year on year down to £8bn. Furthermore, Serco has lost eight major new bids and two major rebids in this period.

To help the company turn around, Rupert Soames, Serco’s new CEO, has brought in a number of new executives. These include:

  • Liz Benison, soon to be the new Chief Executive Officer of Serco UK & Europe, Local & Regional Government division. Benison joins Serco from CSC where most recently, she was VP and General Manager for the UK business, managing a £1bn business and its 8,000 employees, with over half of its revenues coming from government customers. Her experience of working with the public sector is key. She has also worked for Capgemini and Xansa plc (now Steria)
  • The latest executive appointment to be announced is that of Angus Cockburn as Group Chief Financial Officer as from the end of October 2014. Angus is currently the interim Chief Executive Officer at Aggreko plc, having replaced Soames who joined Serco in May this year.

A strategic review is underway and in the coming months we expect to see:

  • More money put into strategic and targeted bids to improve the poor win rate and the pipeline
  • Better qualification of opportunities to focus on returns and not revenue alone
  • Further reorganization to simplify the business – the company operates in 47 different business segments, some of which are loss making – more divestments are very likely
  • Steps towards eliminating loss making contracts
  • Reduction of internal costs through improved internal functions, managing a troubled transition to shared services, and better management information.

Serco left its outlook for 2014 unchanged and expects revenue attrition of circa 5% in 2015.

The company is on a turnaround path to rebuild itself, its reputation and its pipeline. The strategic review is bringing out some clear weaknesses that it can address. With fresh faces on board to support the turnaround, Serco also needs to reenergize its workforce and, as Soames said, become a magnet for top talent.

Enterprise Technology Disruption: It’s not the Cloud, Stupid… | Sherpas in Blue Shirts

By | Blog

Today’s conversations and research around technology disruption and the causes invariably focus on cloud services, and rightly so. Be it infrastructure, software, or any other facet of technology consumption or development, cloud services have had, and will continue to have, the most disruptive impact. The disruption discussion also includes the impact of mobility, next-generation analytics, and the growing importance of software to control the enterprise.

This is leaving enterprise technology providers in a state of amazement and numbness. They are investing all their energy in responding to these disruptive trends. However, there are equally important dimensions they need to understand. Some of these include:

  1. Where is the talent? How many conventional enterprise technology providers are the first choice of employees these days? They themselves believe, very few. The mindboggling (and questionable) valuation of companies such as Pinterest, Uber, and WhatsApp, and the flood of consumer technology start-ups/niche firms (reminders of 2000?), are pushing the technology talent toward these smaller companies. Job seekers now believe that all the action and fun are in consumer technology. Even within the enterprise technology segment, new candidates and existing talent are focusing on new and innovative firms (e.g., Alteryx, Coupa, Dropbox, Palantir, Tableau, Workday) or their own start-up more than on traditional vendors. Given that technology is as good as the people who innovate it, this is a serious threat for most enterprise technology providers.

  2. Where is the plan? Enterprise technology providers take pride in their exhaustive business case modelling and time to market planning. These cases normally create a multiyear plan and staggered investments across the timeline. However, given that technology disruption is reducing the cycle of innovation and time to market, these time and tested strategies are increasingly becoming irrelevant. Do these technology providers have sufficient internal strength, processes, and willingness to jettison the age-old model of investment planning and be in sync with the shortening technology cycle?

  3. Why so many competitors? The huge entry barriers incumbent technology providers created for newer players are crumbling in the face of technology disruption. Enterprise buyers, driven by internal and external factors, have become more receptive of nimbler and more innovative technology companies than in the past. Moreover, new-age technology providers now better understand the requirements of an “enterprise grade product.” More so, the enterprises’ requirements are themselves undergoing significant changes that suit these new-age technology firms, such as agility over control, and first to market rather than best to the market.

  4. Who is the competition? IBM is fighting retailer Amazon for dominance in cloud services, Oracle is fighting smaller MongoDB and Postgres for the database market, Teradata is fighting Cloudera for next generation analytics, and so on. While the technology world has been replete with similar David versus Goliath stories seemingly since time immemorial, their occurrence and impact have become more severe in the past couple of years.

The enterprise technology providers are responding by leveraging their tried and true methods of acquisition, (e.g., IBM/SoftLayer, VMware/AirWatch, Tibco/Jaspersoft,) and partnering with nimbler firms (e.g., SAP, Microsoft, and IBM partnering with Hortonworks and Cloudera for Hadoop, HP partnering with OpenStack for cloud services, and Oracle partnering with NetSuite for SaaS.)

The big challenge these enterprise technology providers now have is to strategize based on the type of competition. In earlier times, they knew their competitors and how they would react, and they were comfortable in their planning meetings. However, now the environment has changed. No one knows who and where the next competition is coming from (airline industry versus video conferencing, anyone?)

While there are likely numerous other dimensions shaping the technology market today, they are tough to foresee. This makes enterprises’ and technology providers’ task of planning for their technology roadmap almost impossible.

What is the best way to move ahead? Should enterprises and providers stop their technology planning cycles and become real time planners? Should they wait it out for the disruption smoke to clear? Should they continue with their existing strategies?

If you are an enterprise technology provider or a customer trying to make sense of this juggernaut, please do share your perspectives with me at [email protected].

What Global Services Can Learn from the NFL Salary Cap | Sherpas in Blue Shirts

By | Blog

For readers who are not sports fanatics…the U.S. National Football League (NFL) – and many other professional sports leagues around the world – must abide by a rule called a salary cap that places a limit on the amount of money each team in the league can spend on player salaries. Every year, this results in the team owners dismissing still productive players, in part due to expected changes in future performance, but largely because they must cut players with salaries above what they can afford in order to stay under the league-mandated salary cap for the entire cost of the roster. Invariably, this means changes to the teams’ make-up from year to year, as their rosters are rebuilt to compete in the new season.

So, what does this have to do with global services (and how can you justify reading about football while at work)?

Looking at the salary cap as a cost benchmark – which for each NFL team sets in motion a range of forces that define which teams are successful – provides some interesting lessons for the global services industry.

1. Talent models: build through the draft

The price of experienced talent in the NFL limits the teams’ ability to use that talent while still staying underneath the salary cap. Although a team could build itself entirely with 6+ year veterans, it would have to do so with almost all of them being average or below average performers. It simply could not afford to have higher paid, above average performers. And, while few top-notch players are important to each team, they’re not necessary in every spot on the roster.

Entry-level players provide teams the opportunity to find high-potential talent and utilize it before a market develops to buy it away. They also enable teams to experiment with larger volumes of comparatively cheaper talent. And, of course, once a player gains experience and can test the open labor market, the highest bidder wins, so the player is automatically paid above what the average bidder felt was the market value.

So, entry-level talent helps fulfill key roles because the diamonds in the rough are beginning to emerge, and because the market is not able to overpay for this talent in the earlier years of their careers. In the NFL, the winning teams are built based upon key talent that is found in the draft and supplemented with signings of select players from other teams.

Global services face a similar dilemma: entry-level talent is comparatively affordable, whereas experienced talent that is known to perform above average comes with a high price tag.

Implication for global services: sourcing talent from colleges and other education programs is essential to building a competitive cost structure.

2. Management: coaching matters – a lot

Since teams are experiencing greater than ever churn in their roster of players, it is becoming increasingly apparent that a good coaching staff is critical and can rapidly change the performance level of its team. In most cases in the NFL, whether a new coaching staff will be successful is evident quite quickly – generally within two years.

In order to be competitive, a coaching staff must both develop the entry-level talent from the draft and help mold together the entire team to perform at or above their collective level of capability. This often means pushing newly drafted talent (which they must be able to identify early on) into bigger roles than what seems ideal at the time.

As a result, teams with a capable and stable coaching staff are often able to sustain above average performance over multiple seasons – and members of these coaching staffs become prime candidates for bigger roles on other coaching staffs which are looking to turn around performance.

Implication for global services: ensure a management model that can rapidly develop new talent, (invest in the right training, etc.), and increase the overall performance level…operational expertise may not be enough.

3. Culture: it must endure beyond changes in players and coaches

With expected change in players and coaching staffs, the longest-term success comes from establishing and nurturing a culture that can both sustain itself over time and help raise the performance of players above what may be their natural, individual ability.

As hardcore fans of the NFL know, many of the high priced veterans that sign with other teams fail to live up to the expectations and may be cut in only a few years. Why? Some is due to physical decay or inability to step up to fill bigger shoes. However, the change in team culture – expectations, offensive/defensive schemes, attitudes…the way things are done – can also limit a player’s ability to perform at a high level.

By contrast, teams with strong cultures can often find average players and attain above average results – assuming the average players were correctly identified as being a good fit with the “system” (or culture).

Implication for global services: build a culture, (and supporting tools, processes, etc.), that relies not only on superstars, but rather on the ability of many team members to perform above their expected level – including that of the superstars.

So, draft smart, coach well, and build an enduring culture. And, if you’re seeking ways to refine your global services skills, you might want to spend some time watching the NFL teams’ strategies…the draft begins on April 25.

Note: apologies to our non-North America readers and those who don’t follow the NFL. We understand that calling our violent game “football” is an insult to all fans of FIFA, the World Cup, etc. – we simply can’t help ourselves.