Archive for June, 2009

The death of outsourcing…

June 26, 2009

Yesterday, I was asked for my predictions for the future of human resources outsourcing (HRO) for a project for the Gerson Lehrman Group. It got me thinking about the future of all business process outsourcing (BPO) in light of recent developments in the cloud.

I know that to most outsourcing service providers, the cloud is still, well, in the clouds.

This however is about to change.

For those of us who grew up in (or built) large, people-heavy, consulting-led businesses from the mid nineties, the use of high technology was seen as an enabler. In most cases, this was actually seen as an opportunity to marshal – and sell – large numbers of high-cost (and highly profitable) consultants to clients to build enterprise resource planning (ERP) systems and drive out cost-savings through business process re-engineering (BPR). This is why the audit companies ran into such difficulties with conflicts of interest.

If the consulting arm of the business is making gazillions in fees more than the audit arm, where are the checks and balances, where is the governance? This of course is old news, but let’s take the story forward to those companies that acquired these fabled consulting arms.

Suddenly, IBM, Capgemini, Atos wielded enormous clout. They collectively had some of the best (and most expensive) brains in the market. All flourished; all are profitable. But…

With cloud solutions, the use of technology over people utterly breaks the IBM, Capgemini and Atos – and HP, EDS, Accenture et al – business models. As the cloud business model, currently typified as software as a service (SaaS), evolves into providing services, the old consulting-led businesses suddenly lose their shine.

Take for example the humble desktop. In multi-country corporations it generally costs about USD1000 per user per year once you factor in all associated costs. By outsourcing this to one of the companies mentioned above, the cost drops to about USD700. With a cloud-enabled service this figure will, I promise you, drop to USD5 per user per year.

This represents a 1400 per cent premium for the outsourced norm and is, as you would expect, untenable.

This transformation will not happen overnight. Two things will slow it down, the first is that getting the security elements sorted between internal and external clouds (which is the only way I can see it working in the near-term) is not easy. The second, will be the feet dragging, fear, uncertainty and doubt (FUD) and general nay-saying by the very companies that should be embracing this new opportunity.

If you have invested the very same gazillions in buying and/or developing the best consultants in the world, you really don’t need some snotty new business model stealing your lunch. As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

Cloud offers us – the forward-thinking ITO and BPO firms – the chance to stick it to the old guard. What’s not exciting about that?

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Domestic protectionism has a domestic cost

June 17, 2009

Since Barack Obama vowed to punish US “corporations that ship our jobs overseas,” the backlash from offshore locations against such a move has spread to officials from government, industry associations, and leading outsourcing service providers. And while they say they want to wait for more details, they are also clearly concerned about the implications such policy would have.

While today’s highly interdependent global economy renders Obama’s 19th-century notion of “our jobs” meaningless, the bigger issues are the impact such a move would have on the Indian economy’s ability to continue being a major consumer of US-manufactured products and services, and the likelihood that other countries would react to Obama’s protectionist stance with their own equally unproductive and trade-reducing positions.

As Bob Evans has said:

“If protectionism would solve the problem and lead to things like “full employment,” I’d be all for it. If government-mandated limits on what level of profit businesses can make would make those companies more competitive and successful and lead to higher employment, I’d bang the drum loudly. No matter how painful it is to see the impact on some American workers as the global economy unfolds, we cannot attempt to create a future that’s a frozen image of a past that’s just not compatible with today’s round-the-clock, round-the-world economy.”

Protectionism is defended by two major arguments. The first is that protectionist policies save jobs in domestic industries. This argument reasons that if a domestic industry is forced to compete against a foreign country that provides services more cheaply, such as India, then that domestic industry will have to lay off hundreds or thousands of workers in order to stay competitive. Entire communities whose livelihoods depend on the service or industry will be decimated by poverty.

The second argument, a corollary to this one, is that eventually, left to compete for too long against an offshore location, a domestic industry might collapse completely, leaving the protectionist-prone country dependant on foreign operations. This, the argument goes, could be devastating as it would find itself unable to provide a badly needed resource.

So the question, when times are is not, “Should we save these jobs?” It is, “Should we save these jobs at the expense of other jobs, or should we let economic efficiency decide where people and resources are best employed?”

Domestic protectionism always has a domestic cost. Most of the time, however, the costs of protectionism go unnoticed, because protected jobs in one industry are concentrated and easy to see, while the costs throughout the economy are widely dispersed, over a hundreds of industries and millions of consumers.

If offshoring becomes “the” industry that the US seeks to repress, it’s my opinion that this protectionism will cost the US domestic economy much and achieve little.

Coterminous joined-up articulation habits

June 14, 2009

Working within a consulting environment, one tends to get used to the jargon dreamed up by people who make their money by confusing the hell out of clients. We have all “engaged with stakeholders” and “circled back with the partnership team”, but what I described as “consultese bollocks” several years ago is obviously alive and well in government.

Take a look at this article by Roland White for today’s Sunday Times… and weep.

Co-operation works… but know your limits

June 12, 2009

In the world of outsourcing, service providers have co-operated where necessary – i.e. when specifically asked to do so by potential clients – but there is very little co-operation in other circumstances.

I think this is wrong-headed and short-sighted.

Let’s say you were working for one of the best HR outsourcing businesses on the planet. You find you can compete against the other HRO firms on a like for like basis, but with more and more clients looking to make savings across the whole of their business, they want to combine HR with finance, oh, and will throw in a technology refresh too.

How are you going to compete against an IBM or Accenture turning up and saying “sure guv, no problems, we do all that and more – we’re the answer to your prayers mate!”?

Of course, the more sensible and mature clients are going down the multi-sourcing route, which is to your benefit, but I’m increasingly working on synergistic relationships between BPO and ITO firms before a client has specifically asked for it. There are several advantages to this approach, including:

  1. The cost of sale for each party goes down and,
  2. Each firm’s margins are strengthened because they are concentrating on what they’re really good at

There is the obvious issue of governance to consider (and I will be looking at that in another blog), but in the current economic climate, this type of arrangement could and should lead to more positive outcomes for clients and service providers alike.

Change the DNA, change the beast

June 7, 2009

Following a meeting at Reform last week, several suggestions came out: (as Reform runs under the Chatham House rule, I can’t say who said what, but I can give you a flavour).

  1. Those who run political initiatives are not asked to justify the routine costs of governing
  2. There is a huge issue with the cultural DNA differences between public and private sectors in terms of reviewing
  3. The public sector is very diverse and diluted and although devolution is a key driver for change, the “it’s our money and we’ll decide how to spend it” mentality is alive and well in government departments

I’ll leave the recommendations to come from the authors of a paper due out in the next couple of weeks. Nevertheless there are a couple of points I think are worth raising now.

  1. Government needs to push service delivery as far as possible to the private sector and offer contracts to local/national  businesses to enhance the local economy, notwithstanding the need to comply with EU competition law
  2. The government should become both the commissioner of services and the quality assurance auditor, to ensure efficiency and cost-effectiveness
  3. There is a need to build a vehicle which could be a consortium or joint venture between government and one or several private sector partners that will administer the transformation and contracts to service providers

I’m having a follow-up meeting tomorrow to discuss this in more detail, but I believe that only by changing the DNA of the public sector, can we change the beast.

No option is off the table

June 3, 2009

Local governments are considering the best operating model for post CSR10. Councils have already tried a technology-led approach which involves re-platforming the disparate systems and from that, undertaking business process reengineering to deliver efficiencies in operational departments enabled by the new systems.

A second iteration on this theme is to outsource back office functions to deliver savings in finance and accounting, human resources, procurement etc. However, with the likelihood of cuts of up to 30% in central government grant aid from 2011, this shaving the parmesan approach is untenable.

I’ve been working on a possible solution, but I need input. What are the solutions; the more radical the better? Start the debate.

Why would I want to co-operate?

June 1, 2009

Increasingly a closer, more reciprocal relationship between the outsourcing provider and third party advisor is required that ensures stronger governance and accountability. In this more heterogeneous environment, the advisor acts as a trusted advisor to the client, stringently reviewing the providers’ performance and ensuring that the outsourcing contract is open, honest and much less likely to fail. This development will prevent outsourcing suppliers taking on work they don’t have the necessary expertise and capacity to carry out.

I wrote this for an article coming out next month. Now if only some of the major outsourcing providers would take notice…