BPO: 3 Rules To Live By

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All Eyes Are on Latin America Pg 20

Everest Report Forecasts 20% Growth in FAO Pg 8

New Face of The BPO Sector Pg 27

bpo 3 Rules to Live by

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April 2011

features

BPO: 3 RuLES TO LIVE By 10by Ed NairConvergence, process performance, and analytics define the vector for the growth of BPO.

ALL EyES ARE ON LATIN AMERICA 20by Smriti SharmaLatin America has grown to be a region of great promise for the global services industry. A look at the characteristics of the region and recommendations for buyers and service providers.

10

15

18

What’S DriviNG thE FaO MarkEt?by Smriti SharmaFAO demand will continue to come from late adopters; the mid-market also has strong potential

DElivEriNG PrODuct Quality aS a MaNaGED SErvicE iN OutcOME-BaSED MODElby Ed Nair Outsourced product development is no longer about engineering at lower cost. The process of product engineering is now more value-driven and quality focused.

NEW FacE OF thE BPO SEctOr 27by kumar Parakala, kPMG

kEEPiNG PacE With EvOlviNG tEchNOlOGy kEy FOr lPOS 31by vineet ramachandran, analyst at valueNotes Sourcing Practice

BPO: WhErE iS thE iNNOvatiON? 33By Nigel hughes, Global Services Director, compass Management consulting

xperts

Next Issue:

The Promise of IaaSLearn about the promises of IaaS in the May special report.

GLOBAL SERvIcES DIGITAL MAGAzINE

8EVEREST REPORT FORECASTS 20% GROWTH IN FAOby Smriti SharmaFAO market growth continues to see strong adoption across most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting.

COMING SOON

Editor’s NotE

Ed NairEditor

[email protected]

In the aftermath of the recession, the

BPO industry overall seemed lackluster and had very few

pockets of growth. Things got better in

2010.

Rewriting the Rules

the recession in 2008 brought about many changes in the outsourc-ing industry. Borne out of the need to seek more bang for the

buck, be it in ITO or BPO, these rules were then famously called ‘the new normal’. One aspect of this ‘new normal’ was the stress on outcome rather than effort. This led to the popularity of outcome-based pricing (at least in terms of discussions) over input-based pricing and output-based pricing.

Opinions are divided on which industry weathered the recession better – ITO or BPO? ITO contracts recovered with more contract renew-als, marked by lower contract periods and lower contract values, with very weak new scope contracts. The BPO industry gave mixed signals. For one, large-scale BPO contracts were an exception, and then, many BPO projects that were signed were incremental in scope. The BPO industry overall seemed lackluster and had very few pockets of growth. Things got better in 2010.

The outlook for BPO in 2011 is very positive. The impact of the ‘new normal’ is more visible now (than it was in 2010) in the context of the BPO industry. Many of the rules of the industry have been rewritten.

This issue of the digital magazine covers quite a bit of ground in charac-terizing the various trends and drivers of the industry in general, although there are more specific references to the FAO segment.

The other key trend story covered in this issue is the unprecedented rise of Latin America as an outsourcing region in the last few years. Countries like Chile, Colombia, Costa Rica, Brazil, Argentina to name a few have emerged as very attractive destinations. They are an interesting set of coun-tries, ambitious and aggressive, in the way they are going about attracting outsourcing traffic. The story gives a good snapshot of the countries in the region and gives recommendations to buyers & services providers about making forays into Latin America. GS

COUNTRY-IN-FOCUSEnsuring Global VisibilityA special feature for countries to showcase their uniqueness

There are numerous outsourcing destinations that exist as great alternatives to India and China.

Inviting Countries to showcase capabilities that accentuate their uniqueness.

For more information write to [email protected]

Examples of Country-in-focus featureEgypt Philippines Jordan

JORDAN

FAo market growth continues to see strong adoption across most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting for 70-75 percent of total FAo spending in 2010.

Everest report Forecasts 20% Growth in FAo

by Smriti Sharma

the Finance and Accounting Outsourcing Annual Report 2011, published by Everest Group states that Finance and Accounting Outsourcing market is expected to grow 15-20

percent and top $4B in annual contract value in 2011.Analyses of the report encapsulate multi-process FAO

contracts with a minimum of two F&A contracts with a minimum of two F&A processes, over $1M in annualized contract value (ACV), and a minimum contract term of three years. As per the press release on the report from Everest, the FAO vendor landscape features Accenture, IBM, Genpact, Capgemini, Infosys BPO and HP as leading service providers. Other service providers in the analysis include TCS, Wipro, WNS, ACS-Xerox, Steria, Vengroff Williams & Associates (VWA), Outsource Partners International, Cognizant, EXL Services and Intelenet. Also included in the report are emerg-ing providers: iGate-Patni, Minacs, HCL and KPIT Cummins Infosystems.

According to the study, in 2010, ACV grew almost 15 percent in comparison to about 10 percent growth during 2009, and total contract values (TCV) of new engagements reached $5 B. The FAO market reached $3.5 B in ACV in 2010, representing about $28.5B in total FAO spending.

“Last year saw a strong rebound in multi-process FAO adoption, which we expect to continue this year as buyers look to reduce costs and optimize processes. However, buyers remain cautious and adopt a more phased approach rather than going in for big-bang solutions,” articulated Gaurav Gupta, managing partner, Everest Group.

“Increasing competitive intensity among service providers is driving innovation. Beyond cost arbitrage, the FAO value proposition will expand this year to include best-in-class process optimization and, as contracts mature, we’ll see more demand for business and strategic impact. This also will be a testing year for platform and SaaS-based offerings,” added Gupta.

The report highlights that F&A sourcing represents a $150-200B opportunity split equally across third-party serv-ice providers and captives/shared services. Current penetra-tion of the third-party sourcing market represents only 5-10 percent of the overall potential, implying a significant value creation opportunity.

8 Globalservices www.globalservicesmedia.com April 2011

Finance and Accounting Outsourcing

strategy for addressing the market in 2011. He said, “2011 plan is not different from a 2010 plan which is that we will beat the market, we will be ahead of the market in terms of growth, our penetrations in the market share will improve, and our client acquisitions will continue to be very aggressive in terms of both new logos as well as expanding our footprints with our existing logos.

Genpact’s strategy is strengthened by technology platforms that enable processes in different functions and industries. Said Ghosh, “New markets like India which has got lot of small and medium is seeing traction. We will start addressing the small and medium business segment market through a combination of our traditional service model and our busi-ness process as a service.”.

Further, from a competency prospective, couple of areas like statutory accounting for European landscape is very tough to do from one centralized location. Here Genpact has the strategy to do it through partners.

Second Vendor aggressively contesting to gain market share

Second tier vendors are aggressively contesting to gain market share and are creating differentiated offerings to distinguish themselves in the crowded FAO market. Gupta highlighted their areas of focus:

a) Innovative value propositions – process maturity mod-els, industry-specific solutions, end-to-end processes solutions, specialized process offerings, bundled FAO-PO offerings.

b) Strategic alliances between pure-play FAO service pro-viders and technology providers to offer platform/SaaS-based offerings.

c) Increasing presence and foray into emerging locations such as Africa, Latin America, and Tier-2/Tier-3 cities in mature destinations such as India. Also, focusing on mid-market and small-market buyer. GS



In addition to an increase in new FAO contracts last year over 2009, the market also reached an all-time high in con-tract extensions that along with contract expansions, repre-sented nearly 55 percent of ACV growth in 2010. The study predicts organic growth to continue as contracts valued $6.2B or more are up for extension within the next three years.

Shantanu Ghosh, senior vice president and global head of practices, solutions and transitions, Genpact shared his

FAO Bytes 1. FAO market growth continues to see strong adoption across

most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting for 70-75 percent of total FAO spending in 2010.

2. The United States accounted for over half of total FAO spending in 2010 while Asia-Pacific witnessed the fastest growth.

3. Large buyers accounted for 55 percent of contracts signed in 2010. Mid-market companies, which have revenues of US$1-5 billion annually, revived adoption of FAO last year.

4. Outsourcing of accounts payable, accounts receivable and general ledger continue to be the most outsourced processes whereas outsourcing of financial planning and analysis is an emerging trend.

5. An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piece-meal approach. More than 50 percent of the new contracts in 2010 had end-to-end scope (Procure-to-Pay, Order-to-Cash, Record-to-Report).

6. Nearly 95 percent of FAO contracts had an offshore com-ponent with maximum offshore growth occurring in Indian tier-2 locations, Central and South America as well as South-east Asia. Several new locations entered the FAO delivery location map including South Africa and Morocco.

7. In 2010, technology augmentation emerged as the new “normal” – nearly 50 percent of the new contracts included add-on tools such as workflows, interfaces, document man-agement, business process management, business intelligence and user portals/dashboards.

10 Globalservices www.globalservicesmedia.com February 2011

Tools & Technologies

bpo: Rules to Live by3


Tools & Technologies

3Rule 2: Process improvement is reaching its limit. Tie in process to business outcomes and performance.

Rule 3: Acquire business smarts through analytics. And be smart about acquiring analytics.

Rule 1: BPO and IT are not two separate worlds. There’s a lot to gain when these glaciers collide.

Convergence, process performance, and analytics define the vector for the growth of BPo.

BPo: 3 rules to Live By

the BPO industry is getting more interesting than ever. In reality, it is a stodgy old indus-try. But the last decade has brought the BPO industry into the limelight and it gets con-

stantly compared to its other famous cousin, the IT serv-ices industry. Once very dissimilar with each other, there is now more similarity than ever. Comprised of a motley set of horizontal and vertical industry-specific processes or functions, the BPO industry is growing along all axis (the segments). The vendor landscape is showing great dispersion and yet presents dense clusters of strengtOver-laying all the varied dynamics of business and underlying all the varied forces of economic change, there are three rules regarding BPO and BPO service providers that organizations should watch out for.

Rule 1: BPO and IT are not two separate worlds. There’s a lot to gain when these glaciers collide.

BPO is no longer about running sweatshops with people toiling away at processing work mechanically. The devel-opment of specific technologies like docu-ment management, information retrieval systems, and such had speeded up work in many document-intensive processes. But the advent of IT-based solutions that automate specific parts of the process lent further improvement in efficiency. For example, solutions dedicated to processing insurance claims or processing mortgage applications, automated the process to deliver better effi-ciency and required lesser resources. At one level, this could be called as the integration of process with technology, but at another level, it could be called as the integration of IT with operations.

There is a shift in approach by BPO vendors to having increased focus on technology devel-opment. BPO vendors with the parentage of an


Special Report

by Ed Nair

IT services company call it as platform-based BPO, whereas pure play BPO vendors are looking at acquiring technology capabilities. These involve the client transitioning from its legacy software to adopt a standardized platform used by the vendor. This could be enterprise resource planning (ERP) or financial management and accounting software, payments, or a billing system, for example.

Platform-based BPO usually involves the development of IP in the form of a solution that delivers the process. This is then overlaid on an IT infrastructure and services are delivered using a per transaction-based pricing model (rather than per FTE-based). Consequently, platform BPO can be thought of having four stages: hosting (involves hardware and infrastructure set-up, networking, disas-ter recovery); implementation (covers system design to deployment); process management (process standardiza-tion, best practices, analytics); and maintenance.

Some examples include TCS’ platform BPO for pro-curement that handles the source-to-pay cycle; IBM’s Lender Business Process Services for mortgage processing; and Caliber Point’s (Hexaware) Republic which is a multi-tenant HR services delivery solution.

They also seek a wide range of secondary benefits that can improve both efficiency and effectiveness, including standardizing and simplifying processes throughout the enterprise and making better connections between differ-ent processes.

Finance executives in the survey place equal importance on improv-ing overall company performance and on improving the efficiency of processes themselves. A majority of respond-ents (58%) say that efficiency gains in proc-esses (e.g., faster, lower cost, less rework) are a high priority for their improvement initia-tives, but just as many (55%) place a high pri-

ority on the ability of process improvements to improve company performance overall.

Rule 2: Process improvement is reaching its limit. Tie in process to business outcomes and performance.

Gains through process improvement have been incremen-tal and may have reached its limit. It is now time to relook at the process from the point of view of business outcomes and tie it into delivering some of the performance goals. Check whether your BPO vendor is able to deliver on this front.

In a survey of 151 sen-ior finance executives, done by CFO Research Services and Genpact, the respond-ents showed that they take a broad view of the benefits of process improvement throughout their organiza-tions. Many of them link process improvement to overall company performance—not just to process efficiency.


BPO: 3 Rules to Live By

Source: cFO Research Service Report 2010


Special Report

Rule 3: Acquire business smarts through analytics. And be smart about acquiring analytics.

Analytics is about tapping into the embedded intelligence of a system. Analytics helps in identifying patterns in behavior and performance and is both diagnostic and prescrip-tive. The application of analytics in other spheres like marketing and engineering have yielded results that go beyond improv-ing efficiency to delivering better outcomes and therefore higher performance. The same is true of business processes and how they are handled.

Smart enterprises derive decision-making power and agility from analytics that run across various business func-tions, but it is a very challeng-ing proposition to put into practice. This is because process measurements are ori-ented towards efficiency and not effectiveness. Process analytics have to be measured in terms of performance parameters and thereafter be made part of the manage-rial decision-making framework. The organizational

intelligence is thus derived from the process level. BPO providers who are able to do this demonstrate higher level of leadership.

However, analytics often does not come as part of the BPO deal unless business outcomes are specified as

part of the deal deliverables. A recent report on analytics offshor-ing by HfS Research, titled ‘Where Offshore Analytics is Heading in 2011’, states:

“Analytics straddles across data management, MIS reporting, pre-dictive model development, and business consulting. We explored the trend of IT-BPO players push-ing these analytics services bun-dled together with other ITO-BPO offerings. We recommend tjat the business need ultimately must determine the nature of bun-dling for clients, along with the organization’s level of experience with analytics. When analytics is

proposed for process optimization, it makes business sense. However, when business decisions (such as defining mar-keting strategy for the next 5 years) are based on high-level analytics, saving a few dollars by bundling in a few proc-esses is not recommended.” GS

FAo demand will continue to come from late adopters; the mid-mar-ket also has strong potential

What’s driving the FAo Market?

J ust as the Philippines continues to be the hub of contact/ call center outsourcing, India has scaled up remarkably in the FAO segment of BPO. According to estimates from Everest Research, nearly more than 55 percent of FAO contracts

offshore F&A services to India. Of more than 20 lead-ing FAO service providers tracked by Everest, 18 have delivery presence in India with close to 80 delivery centers when taken together. Gaurav Gupta, managing partner, Everest Group, said “India continues to be the location of choice for offshoring F&A services.In 2010, the maximum FTE growth took place in Indian tier-2 locations, followed by South East Asia, and Central & South America. India-heritage providers also continue to register a strong presence on the FAO service pro-vider landscape.”

“Beyond its prominence as a delivery location, in recent years India has also emerged as a buyer geography for FAO. Last 2-3 years have witnessed a significant growth in terms of domestic FAO deals, with most leading FAO service provid-ers considering this market segment as an important part of their future growth strategy” added Gupta .



by Smriti Sharma

Top Trends to Watch Out For in FAO• Demand in the emerging market- whether it is

India or Asia Pacific or Latin America- for FAO services will grow this year. Shantanu Ghosh, senior vice president and global head of practices, solu-tions and transitions, Genpact said, “The reason being a lot of multinationals - which are uS and continental Europe based- have done their first wave of FAO, where they obviously focused on high impact geographies like uS or uK or continental Europe are now focusing on their second or third wave outsourcing through the new market. These economies are creating companies that are growing from small to medium to big and they are expand-ing outside their home territories. They are also looking not only from the prospects of labor arbi-trage but also from the prospect of creating growth platforms along with delivering process excellence through use o process management expertise.”

• FAOwill continue to increase in thedevelopedmar-kets, which is the source destination for demand. Demand will continue to come from late adopters. Ghosh shared, “These are the people who have not jumped on the FAO bandwagon earlier, but now have seen the model get proven and have got enough confidence that this works and they are therefore now coming in the market. Many of them are large but that also includes the medium business segments that are now beginning to show interest in now getting into the FAO market.”

• For peoplewho have experienced their firstwave ofFAO, they can be clearly seen going up the value chain. Lot of the business with existing customers that was in the initial pieces of transactional and little beyond transactional like ledger FAO has now moved on to closing reporting, financial planning, tax support etc.FAO is on its second generation of what can be done. Gupta stated, “Financial Planning & Analysis (FP&A) represents an emerging area in

FAO. FAO has moved beyond just Accounts Payable, Accounts Receivable and General Ledger. An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach.”

• The role of technology in FAO has evolved fromthe basic “tie-and-run” model to an “augmentation” model. In 2010, technology augmentation emerged as the new “normal” – nearly 50 percent of the new contracts included add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals/dashboards.

• The adoption of performance-based incentives and/orgain-sharing has increased. As the FAO value proposition expands, the interest in performance-based incentives and/or gain-sharing models has increased to incentivize service provider to deliver beyond standard expectations. Buyers are looking at value propositions beyond just labor arbitrage.

• There isan increasingtrendof“verticalization” inFAO, moving away from the traditional assump-tion that FAO is a horizontal function. Gupta shared, “Many service providers are coming up with industry-specific FAO solutions (e.g., focused offering in travel, telecom, utility etc.). Service providers are also aligning their sales and delivery team along key verticals to make a targeted market approach.”



Milind Godbole, President of operations, Asia Pacific, Aditya Birla Minacs offers his perspective on FAo

GS: How do you compare FAo market performance in 2010 and what’s the outlook for 2011?MG: The FAO market has attained maturity with respect to the large North American buyers and most of the growth for this segment in 2010 was related to contract renewals. As per Aditya Birla Minacs market intelligence, only 30 new large deals were signed in 2010 which is 15-16percent higher compared to 2009.

The EMEA saw 10-12 new large deals that was similar to NA, rest of the growth in this market was due to contract renewals and scope expansion.

Mid-market (both in NA and EMEA) witnessed unprec-edented growth in 2010 and this trend will continue to been

seen until 2015.Based on our market survey, 2011 will be

the FAO year for mid-market customers; this segment has started focusing on profitability and is looking at all possible avenues for cost reduction.

FAO in APAC has continued to lag behind rest of the world. However, we believe that from 2011 onwards we expect the APAC FAO market to get onto a growth trajec-tory which will gain further momentum 2012 onwards. FAO in APAC will not mature until 2016. Client F&A operations in APAC con-tinue to be primitive in comparison to NA or EMEA. The processes are paper based, limited use of technology, decentralized and mostly non-standard. We have already started notic-ing an increased interest in setting up Shared Service Centers (SSCs) which will pave way for FAO.

SMB is another market segment that has huge market potential, but given the nuances, it might take a significant time

IntERvIEw vIEwPoInt

“increased alliances between pure play BPO providers & FaO technology providers”

for large service providers to make a significant impact. Given our recent acquisi-tion (Compass BPO) in the FAO space we have made a silent entry into the SMB space and are well poised to ride the growth.

We believe that with respect to industry segment, healthcare, insurance, retail, energy & utilities will wit-ness maximum growth in 2011.

GS: what are the top trends seen in FAo for this year?MG: The market would witness increased alliances between pure play BPO players and F&A technology providers. There are multiple drivers behind this strategy including the need for non-linear growth, higher revenue productiv-ity & ability to provide value added services. This would also result in additional platform based offerings, mostly targeted towards mid-market customers.

Increased demand for analytics and other high-end F&A services (e.g. FP&A type services).Service providers will have to develop industry specific analytics capabilities in order to show differentiation in this market.

FAO market consolidation - Increase in acquisition of captive FAO SSCs by third party service providers and also

M&A activities in the specialized FAO service provider space.

Increased investment in building onshore capability by traditional offshore (India) origin service providers. Similarly increased traction in Tier 2/3 cities in the offshore market for FAO delivery so as to nurture new talent and reduce costs.

GS: what is your strategy to push your services for 2011?MG: Minacs has adopted a Blue Ocean* FAO strategy for developing the FAO market

1) Process & Domain Led - This allows us to offer niche solutions focused not only on outsourcing but more importantly address CFO pin points.

2) Target Market Led - Minacs targets its solutions towards Mid-Market & SMB customers allowing us to create sole source opportunities.

3) Technology Led - Minacs offers technology led FAO solutions and end-to-end managed platform for Automating Legacy Processes

* Blue Ocean Strategy is a business strategy book first published in 2005 and written by W. chan kim and renée Mauborgne. Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. in blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. in blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.GS



milind godbole

outsourced product development is no longer about engineering at lower cost. the process of product engineering is now more value-driven and quality-focused.

delivering Product Quality as a Managed service in an outcome-Based Model

outsourced product development is no longer about engineering at lower cost. The process of product engineering is now more value-driven and quality focused. Companies such

as Symphony Services are leading the trend by offering product development as a managed service and delivering new outcomes. In an interview with Global Services,Sunil Gupta, Head of PQM, Symphony Services offers his per-spective on product quality management and how these new outcomes can be delivered. Excerpts:

GS: what are the differences between process/service qual-ity management and product quality management(in the context of outsourced prod-uct development, which in itself is a service)? SG: The differences between process and service quality management and product qual-ity management (PQM) are small. In fact, PQM is actu-

ally a combination of process quality—measured through process maturity compliance—and service quality—meas-ured through service level agreement. Because of this combination, PQM is delivered as a managed service in an outcome-based model to achieve an agreed business result, including reduction of test cycles by 25-30%, reduction of escape defect in to QA and out of QA by 20%, or reduc-tion of Dev and Test Infrastructure cost by 25%.

In today’s environment, independent software ven-dors encoun-ter a frenetic pace to deliver innovative soft-ware releases to market, out-stripping tradi-tional product quality man-agement objec-tives, method-ologies, and processes. To keep pace, we are seeing more and more ISVs move to a managed product quality solution. This has been shown to improve customer satisfaction, increase release cadence, shorten test cycles, lower defect leakage and testing costs, thus saving R&D budget that can be meaningfully repur-posed to increase investments in new product innovation and development.

GS: what are the key drivers of product quality in out-sourced R&D/product development?SG: Symphony sees successful product developments resulting from staying true to a few suggested “guidelines.” Product development managers execute against these spe-cific key drivers for product quality:


Product Development

by Ed Nair

sunil gupta


Product Development

a. Building and checking quality at each stage – for build processes and practices in to each stage to be checked at each stage

b. Checking early and often – as early as the build stage and continue full automation testing for every build

c. Quality through process – repeatability and predict-ability is key

d. Managed process- to ensure continuous evolution and improvement

e. Managed service model -for sustained and continu-ous results

f. Outcome engagement model - for measuring and achieving results

GS: How are some of the mature ISvs handling PQM? SG: In handling PQM, most of the mature ISVs have realized limited benefits due to marginal knowledge of the previous drivers, and by starting their product qual-ity initiative by setting up their own teams, invested in tools and infrastructure. However, realizing the down fall in this, ISVs have later moved to a managed service model to achieve the desired resulting and benefits, where the focus is still on managing outgoing metrics of QA phase rather than managing quality at each stage.

GS: what are the essential steps to manage and opti-mize PQM?SG: At Symphony Services, we deliver five steps to achieve effective product quality management as a service:

a. Early-stage build management and certification–This helps to improve build success rates while reducing re-work resulting from problem identification early in the development cycle—thereby increasing the efficiency and productivity of teams, including reducing initial defect escape rates to less than 20%. This is especially true for companies with a multi-site build model.

b. Dynamic automation and regression testing–Faster and frequent testing ensures that you meet commercial grade software requirements for performance, scale and availability consistently. This can increase a company’s test coverage, reduce resource constraints of manual testing, and give more flexibility to adapt to changing require-ments. This is achieved in every daily build in an 8-10 hours cycle.

c. Experience-based usability and performance testing–We are able to improve usability and performance guaran-teeing high levels of customer satisfaction.

d. Cloud-based development and testing–Symphony works to enable optimum utilization of IT infrastructures by moving to a cloud-based model for development and testing. This results in 1.) optimizing cost and 2.) moving from a CAPEX to OPEX model and from fixed, dedicated environments to flexible and on-demand provisioning of environments. This allows users to manage peak infrastruc-ture requirements on the cloud.

e. Causal-oriented problem management–We conduct fine-tuning of product quality by performing a causal analysis on the field defects and taking corrective and pre-ventive actions accordingly. GS

Latin America has grown to be a region of great promise for the global services industry. A look at the characteristics of the region and recommendations for buyers and service providers on how to make forays into this region.

All Eyes Are on Latin America

R ecent times have witnessed this region draw ace players of the outsourcing world - American Express, General Motors, Intel, Genpact, Sitel, Wipro, Citibank and more.

Business process outsourcing (BPO), shared service centers (SSC), call centers, offshore delivery centers have grown significantly in the region. For exam-ple, Wipro currently delivers finance and accounting services to the largest beverage company in Latin America from a service center in Curitiba, Brazil. For years, TCS had had significant presence in uruguay. Similarly, many of the global leaders have presence in countries like Chile and Colombia.

Still, many potential areas beyond call centers and IT have been untapped. Areas like HRO, FAO and procure-ment outsourcing have still not started to make best use of the available resources.

by Smriti Sharma

Juan Diaz, consulting manager, Wipro Consulting Services, author of the recent report (by Wipro Consulting Services) titled Latin America- A New World Option for Offshoring said, “When clients look at Latin America they look for Spanish language skills, geographical proximity, and also cost effective-ness. For example, if you look at India which is the most developed sector in outsourcing or shared serv-ices, there is a lot of wage inflation going on, and inflation is on the rise every year. In that comparison, Latin America is more stable. If you look at long term in that case, it is going to be probably same cost for some years and these are the kind of things companies are looking at. So, probably if you have the same cost, if you have the same talent and it takes you the same to go from Europe to India or from Europe to go to Latin America, then Latin America is also a good option.”

Allure of Latin AmericaH Karthik, vice president, Everest Group stated four driv-ers apart from the obvious:

1. language Skills: Especially, in terms of Spanish and Portuguese it becomes a potent force as you think about the Spanish population in the uS. There is prob-ably no other region in the world that offers the combina-tion of language skills at scale plus cost savings.

2. Domestic Regional opportunities: In addition, to Latin America being a region to serve the uS, it also offers a fairly significant domestic or regional opportu-nity especially in large countries like Brazil and Argentina where the domestic market is also fairly large. Ou esti-mate suggests that between 60-70 percent of the work in the region is focused on the region itself and 30-40 percent is focused on offshore, primarily the uS. So domestic market is a large opportunity.


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3. Same time Zone: The same time zone with the uS and Canada.

4. Domestic Business opportunities: If you are to look at large global companies, they also see domestic business opportunities in Latin America. This is irrespec-tive of outsourcing. Speaking of how Genpact’s client feels about their chosen locations -Juarez, Mexico and Guatemala. Mary Korthuis, vice president and operations lead, Mexico and Guatemala, Genpact said, “Drug cartel-related violence and related media stories has caused concern with some customers and their own security organiza-tions have limited/eliminated their travel to Juarez. Other customers are fine and continue to travel in and out with no concern. Besides the city issues, customers are pleased with the near shore location; easy access for mail pick up/drop off; facility literally within a “stone’s throw” from the uS; easy hiring of English speaking resources who go back and forth across the border themselves so they are integrated into uS culture. Technology is all in the uS, so for all intensive pur-poses – on-shore functionality at near-shore prices.”

Strategy of companies that see Latin America as a destination of choice should reflect on the following elements:

• Ratherthanacompany-bycountryapproach,com-panies should adopt a regional, networked approach. They need to capture the right skill in the right cities.

• Differentiatedadvantagesshouldencapsulatecultur-al similarities and the physical proximity part. These advantages should be promoted aggressively on how they can translate into real business value.

• DonBerryman,generalmanagerofAmericasatSitelsaid,“you must remember this is not a domestic uS location. There are many cultural and sociological similarities but they still don’t have the infrastruc-ture of the typical u.S. location. So customers will not have the same experience they would with a uS call center. Expectations have to be aligned to the uniqueness of the environment, similar to when we developed our presence in the Philippines or India.”

• Focuson the services thatarebestprovided in thisregion and also carve out new niches that may do well.

• Compete vigorously in the local market and theglobal service delivery playing fields to mitigate risk and enhance economic benefit.

• Diaz stated, “I would recommend a company thatis looking at setting up their operations is that they need to have local support. As they are the ones who are operating in this location, they are the ones who know the region and they are the ones who know which are the countries that bring the best benefit depending on what you want to do.”

Recommendations for buyers Location strategies must place a high priority in identify-ing market saturation as Latin America is not one location, but several unique countries.

Buyers need to keep in mind that there are significant differences across the region in terms of cost and labor pool. For example, between Brazil and Argentina, Brazil is almost 40 – 50 percent more expensive than Argentina. There is cost dissimilarity across the region, this is some-thing companies need to keep in mind while zeroing upon locations.

Also, there are significant variations in the scale of talent pool in skills and language capabilities across the region. For example, countries like Argentina and Brazil support large scale, but countries like Colombia, Costa Rica can only support small scale centers. Also, in terms of scale there are contrasts, Brazil has fairly evolved in terms of IT skills such as SAP but countries like Costa Rica is more favorable for contact center work in Spanish and English. Differences in language skills - Brazil is more suited for Portugese work; Argentina, Chile, Mexico are more on the Spanish side. Broadly, all locations offer some advantages, there are differences across the region both across countries and cities in the countries, which companies need to keep in knowledge.

Karthik said, “Most countries in this region have issues of fluctuating currency. For example, in recent months, Brazilian and Chilean currency are becoming less competitive, while Argentinian currency is becoming more competitive.”

Diaz added, “Buyers need to have a clear overview of where they want to get to and what each of those coun-tries offers to them. It comes to what they want to do in the country; if you want to do just plain call centers, then just go for a cheap location and if you want to go further and into operations across all the uS and other places and company processes like procurement, then you need to be very careful where you set up those operations. They need to talk to the local people. Companies are already operating here and they have done the homework.”

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Recommendations for services providers Services providers should approach this as an integral component of their global strategy. In other words, think about what complementary roles that Latin America or the cities/countries in Latin America can play to their network of existing centers. For example: Are you thinking of Latin America as a location to do very niche work focused on the uS market, or are you thinking about Latin America as a location to get certain skills?

Karthik stated, “Overall, the strategy on how Latin America fits in the global play needs to be very clear and there are lots of differences across the cities and countries so people need to be very clear on how they need to use Latin America. If you are thinking of it on both the grounds of domestic opportunity and offshore opportu-nity, then some of the larger countries are more favorable to locate in. Also, in terms of strategies, acquisition can be a powerful mode of entry.”

Don Berryman, general manager of Americas at Sitel states questions service providers should be cautious and ask before approaching the Latin American market:

•WhatkindofbusinessamIplanningtoputinLatinAmerica?

•WhatkindofagentsamIlookingfor?•Istheresupportintermsofworkers,educationlevel,

service or sales experience and English speaking skills?•Howwillthislocationbenefitmyoverallgloballoca-

tion strategy?Failing to answer these questions is a common mistake

that outsourcing providers have made in new markets. Added Don, “Also, there are countries in Central and South America that might not make good call center locations because they don’t have the workforce in place, so service providers need to carefully assess what kind of business they want to put in there, what kind of work experience the local people have, and can the business model sustain a long period of time to be a viable investment.”

Talking about the major challenges Genpact is facing, Korthuis shared, “The main challenge is the drug cartel-related violence and the related media stories. That said, this violence has not disrupted our operations there at all and we ensure that our employees are safe at all times.”


All Eyes on Latin America

Country Incentives

Argentina: Income tax exemption of 60%, employer’s social security contributions reduced by as much as 70%,

no restrictions on foreign currency wire transfers for imports of goods and services and a range of

benefits derived from the recognition of software as an industrial activity.

Brazil: Reduction in social security contributions up to 50%, tax exemptions for imports associated with

software development, tax exemption on goods purchased for export, plus local government

incentives, particularly around Rio de Janeiro and São Paulo.

Mexico: PROSOFT agency provides grants for IT companies setting up in Mexico. Additional incentives are

available from local government these vary from region to region, but tax credits on R&D and other

investments are typical.

Rest of Latin

America:

Nicaragua offers a 15-year tax holiday. Panama, costa Rica and Uruguay have setup special tax

free zones near major IT and business process outsourcing centres. colombia has the following

incentives: Free Trade zones offering up to a 50% tax break on sales into the local market, 40%

tax deduction on the cost of purchased machinery, Service exporting companies can import capital

goods exempt from custom duties and vAT. chile has setup chilean Economic Development Agency

(CORFO) which helps by co-funding projects. Chile also benefits from trade agreements with US,

Australia, china and canada.

Tax incentives make deal comparisons difficult to do

Source: HFS Research, 2011

Country ScorecardsDiaz shared, “If we take an overall assessment where you just mix what you have in terms of talent, what you have in terms of cost, infrastructure, countries been stable.. if you take all that and mix it then I’ll say Colombia and Brazil are best option. Brazil is the best option because it is where the biggest market is and most developed next to Mexico in the region. And Colombia is the one as it is the cheapest one and most business friendly and it is here where all the big players are actually going because there is huge potential there.”

The report, a New World Option for Offshoring, states Wipro has developed a ranking methodology to help organizations decide which of these countries would offer the greatest benefits based on their needs and priorities. The ranking method is based on three primary business criteria, each composed of a group of key factors namely cost effectiveness, talent and resource availability and business catalyst.

Here is the combined score (5= Best Ranking)1. Colombia: Ranking: 3.34 Negative publicity about guerrilla, drug cartels and

high crime rates has slowed investments by corporations. However, during Alvaro uribe’s presidential period, secu-rity and crime rates have improved significantly. Today, countries like Brazil and Mexico are ranked as even more dangerous and risky locations. With a good combination

of low cost, talent pool and government support, Colombia is becoming among the best options in Latin America, especially in Call Centers. The number of local and foreign BPO suppliers operating in Colombia and the significant growth the sector has had in the last cou-ple of years, show the country is gaining the confidence of foreign companies.

2. Brazil: Ranking: 3.08• Largest call centers industry in the region. Very

strong telecom network (150 million mobile phones in operation and 50% of households linked to broadband by the end of 2011

3. Chile: Ranking 2.98Chile is ranked as one of the best Spanish-speaking

delivery locations. It’s pushing to grow in the sector by covering operations as an offshoring location for compa-nies in Spain.

4. Argentina: Ranking: 2.91Inflation in 2009 was 13% and it is predicted that

Argentina will suffer higher inflation increases in 2010, which adds an additional risk when offshoring to this location. It is key that these projections are assumed in the business model to ensure benefits realization in the long term.

5. Mexico: Ranking: 2.70Biggest call center industry in the region after Brazil.

Proximity to uS attracts uS customers. GS

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Source: Wipro consulting research (5=Most cost effective)

Excerpts from an interview with don Berryman, general manager of Americas at sitel

“We look out for oversaturation in markets where we compete for resources”

GS: what are the main growth areas for this region?DB: In the past few years, Sitel has experienced great growth in Brazil, Nicaragua and Panama. Additionally, Sitel has cultivated aggressive development with our English-

speaking agents in Bogota, Colombia.

We have seen the Brazilian domestic market growing rap-idly, and business opportunities are expanding by 20-25% a year. In fact, Sitel opened a state-of-the-art facility located in the city of Sao Paulo in January 2011, dou-bling our capacity in Brazil, and bringing Sitel’s total employee

count in Latin America to over 11,000. Managua, Nicaragua continues to explode with growth,

focusing on the service of English and Spanish-speaking u.S. consumers. As an innovator, Sitel first entered Nicaragua in 2008 to provide customer and tech sup-port for Fortune 1,000 companies in wireless, consumer electronics, media services, banking and other financial product lines. Three years later, we continue to expand in this area due to the location’s unique ability to offer culturally aligned, multilingual talent for a wide range of u.S. consumer markets. Today we are the largest contact center provider in this country. And with the ongoing support of organizations such as ProNicaragua, as well as

the established free trade zone regime, Sitel sees the con-tinued investment as a sustainable win-win for our client base and employees.

GS: How does your client feel about your chosen desti-nation in latin America?DB: Sitel has an expansive footprint in Latin America. Choosing one specific location can be an interesting dynamic—when Sitel recommends specific locations to our clients, many have preconceived ideas about certain markets without experiencing the destination firsthand. But, as we tour the markets with our clients, and they are able to see our skilled staff in action, plus the existing clients we are servicing in those regions, the perceptions are immediately replaced with a much different reality.

Colombia is a great example of a market that clients tend to have perceived opinions, mostly generated from news stories about crime or corruption.

However, once they experience the real Colombia, its outstanding workers and the vibrant infrastructure, they are able to shape a more accurate depiction of the true opportunity.

GS: How has this destination helped you offer specific advantages to your clients?DB: The biggest advantage for our clients is convenient travel time and time zone alignment. It takes a full day to travel to the Philippines or India, and clients are forced to work a night shift to align with the North American work-day. So, call centers and business functions requiring work to be completed during uS business hours lend themselves to a working location in this general time zone.


All Eyes on Latin America

by Smriti Sharma

Don berryman

GS: what challenges are you facing? If any, what are your barriers to increased investment?DB: Sitel is always on the lookout for oversaturation in a market where we are competing for resources with our competitors or local providers. However, an inter-esting development is surfacing where our clients desire to enter markets that we see as slightly oversaturated. This may be happening because of regional promo-tion directly to our clients or even the loss of expertise within the contact center industry. The key is creating a great work environment and offering incentives like continuing education to become the most desirable place to work in these areas. But, at the same time, you need to consider other markets so you don’t saturate an area. We work with our clients to provide an honest assessment of the situation.

GS: what’s the methodology followed at a company like Sitel?DB: Great talent. Agents and front line supervisors are the foundation of our business and Sitel always builds our operations from the ground up.

We have an outstanding real estate group at Sitel, and they do a great job of analyzing these locations and mar-kets. In some cases, we are looking at the quality of people, quality of education and the support in the call center. Other times, Sitel looks at the role of government to see if they are active in terms of subsidies, credits or opportuni-ties for job training in preparation for positions in a new call center. Sitel believes it’s not just the quantity and qual-ity of the people; it’s also the participation of the govern-ment on a local and national level that can elevate a desti-nation’s capabilities. GS

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the last few years have been defining in several ways for both; the supply and the demand end of the

industry. On demand end, cost arbi-trage has become baseline for the buyers and now they are expect-ing new initiatives to attain higher thresholds of productivity, efficiency and revenue growth. On supply end, service provision has commoditized

by Kumar Parakala, KPMG

New Face of the BPo sectortraditionally, BPo industry has been synonymous with the ‘lifting and shifting’ non-core tasks to a vendor shop for benefits such as cost arbitrage and abundance of cheaper workforce. the BPo industry has successfully enabled buyers, across the globe, to improve their bottom-line while growing into $158B industry.


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and market is flooded with service providers pushing services in similar price band.

These pressures have led the way for shift of BPO industry from “commodity behavior” to “partner-ing behavior”. In this new phase, the business objectives of buyers and service providers are better aligned and focus of industry has moved to “value creation” instead of only “cost

arbitrage”.

Lever of the new face of BPO

Some of the key words that will resound in the new phase of BPO sector will be automation, proc-ess improvement, innovative business model and pricing models.

A u t o m a t i o n initiatives– Most of the leading service provid-ers are leveraging their technologi-cal competency to

automate processes. Automation of processes has helped service provid-ers to reduce the process cycle time and attain higher productivity. Back office operations such as invoicing processes gained from improved and optimized processes. Analytic models created through technology automa-tion gave a huge boost to customer analytic service providers. With tech-nology advancements, complex proc-esses are also being automated by service providers.

Other key benefits of Automation Initiatives –

• Reduces of risk of operationsfrom offshore model

• Provides buyers with realtime control over operation through portals

• Enables service provid-ers to attain higher quality standards

Continuous improvement programs– After attaining deeper understanding of the buyer’s business and processes, service providers are increasingly adopting best practices such as “six sigma” and “lean”. These processes are enabling service provid-ers to attain higher efficiency, better resource utilization and improved skill index of service provider. Buyers Commodity Vs Partnering

service provider’s pre-config-ured business processes, pre-built deployment accelera-tors and organization change management.

• Allows smaller buyers to lev-erage best IT infrastructure to support their business processes.

Business process as a service (BPaaS) is the umbrella term that is being increasingly used to capture the whole range of ‘Cloud-enabled’ innovation within the BPO mar-ketplace. With wider acceptance of “Cloud” technologies in most of the industries, BPaaS might prove to be the biggest game-changer in the BPO space. BPaaS proposi-tion may include Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and SaaS as well as the traditional benefits of out-sourcing such as process expertise and labor arbitrage. In addition, BPaaS offerings will provide a cost, sales, and delivery model to reach the medium-sized enterprise market.

Other key benefits of BPaaS -• Allows service providers to

spread their investments across multiple customers.

• Enables buyers to enjoyfinancial benefits by reducing operating costs up to 30 per-cent, thereby cutting capital expenditures. They do this by using a pay-as-you-go pricing model.

• Enables buyers to get fast-er payback, quick return on investments, and solutions where they do not have to think about infrastructure, software, and process services.

• Provides benefits particularlyto small and mid-sized capi-tal-starved firms.

In future, the cloud will provide the platform for service providers of

application, people and infrastruc-ture. It also allows the delivery from being “people centric”, as in the traditional ‘lift and shift’ model to being platform centric. BPO service providers, which have strong pres-ence in IT application development and maintenance, could comfortably adopt this model. They are offer-ing HRO platform, F&A platform, procurement platform and analytic platform BPO solutions.

Platform based services became popular during the global recession, when clients were looking for higher efficiency in services without incur-ring large upfront transformational cost.

Other key advantage of Platform based services are –

• Assures higher compliancewith standardized processes, stringent security regulations, local statutory norms and internal controls.

• Defines the ownership andaccountability of the processes by resting ownership of all aspects of BPO with the serv-ice provider.

• Allows buyers to reducetime-to-market by leveraging

have gained through reduced risk in operation and increased throughput of operations. Back office operations that are highly process-driven, gain most from implementation of these practices.

Other key benefits of improve-ment programs –

• Enables service providers tomove up the value chain

• MinimizesriskofoperationsInnovative business models-

As the BPO industry evolves from high growth phase to mature phase, the challenge of delivering services will be replaced by delivering them effectively. Evolution of new business models - “Platform based service” and “Business Process as a Service” - to cater to dynamic needs of buyers will play a significant role in imminent future.

Platform based services is an innovative business model that industry is very excited about. The matured service providers undertake the management and execution of client’s business processes on their own technology platforms such as CRM and ERP. The model ena-bles service provider to own proc-esses, the underlying platform and


BPO

Features of Platform based BPO

all shapes and sizes to re-energize tra-ditional outsourcing services and also to launch new services. There will be significant traction. BPaaS will force people to standardize their processes. Infrastructure and software become more of a choice that allows buyers to leverage the right ecosystem.

Innovation in pricing models- Traditionally, business proposition of most of the service providers cen-tered around cost arbitrage, which led to widespread adoption of “input based” or “FTE based” pricing. With customer focus moving to achieving higher efficiency and productivity as well as sharing risks, innovative pricing models are becoming increas-ingly significant.

transaction based pricing is one such innovative pricing methodol-ogy that is catching up in the indus-try. Pricing of the deal is based on number of transaction processed by the service provider. A well defined “transaction”, with a definite begin-ning and end point, is essential for implementation of transaction based pricing model. Deep understanding of processes, well defined methodol-ogy and unambiguous service level agreements are required defining “transaction” with such certainty.

The model enables service provid-er to decide the number of resourc-es and time allocated to execute a “transaction”, while meeting the quality standards and service level agreements. Service provider man-ages the risk of ownership by utiliz-ing the resources efficiently across multiple customers and by charging an appropriate risk premium in the price of transaction. It also motivates service provider to increase efficiency of every resource through innovative delivery models and by leveraging better technology.

Other key benefits of transaction based pricing model –

• Offers buyers flexibilityand scalability as pricing is dependent on consumption

• Enables buyers to effectivelymonitor costs due to enhanced visibility of consumption pattern.

• Results in lowerperunitcostdue to higher efficiency

• Createsmorevalue andown-ing more risk, service providers can increase profit margins

• Givesserviceprovidershighercontrol over operation through freedom of ramp up/down and reallocation of resources

Despite of it’s benefits, for wide-spread adoption of this model the industry needs mechanisms to predict volume of transactions with some degree of accuracy and standardiza-tion of processes and technology.

outcome based pricing is likely to be the most impactful change that BPO industry might undergo in next five years. As per this model, the service provider is paid as per contribution made by services to achieve buyer’s business objective. Outcome-based models become relevant when the objec-tive of the outsourcing relationship goes beyond cost. They deliver a measurable impact on the end business result, and align the inter-ests of both the customer and the service provider, enabling them to work towards the same goal.

As “value creation” is at the core of this model, it requires service pro-vider to have in-depth understanding of buyer’s industry. Along with this, strong service level agreement and well defined scope of contract are essential to measure outcome of the services.


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Also, it is extremely important that the buyer understands the level of risk the provider must take to help the buyers achieve the desired business outcome. It requires that the buyer have a deep level of trust in the provider — not only its capa-bilities but also its continual dem-onstration of partnering. It requires “partnership” relationship between the buyer and service provider with strong governance and relationship management. The senior leadership of both sides requires higher degree of collaboration. To further solidify the commitment of both parties to a value-adding partnership, employing

a model in which the responsibilities for risk mitigation and maximizing returns on investment are shared.

Other key benefits of outcome based pricing models –

•Redu•Enablesserviceproviderstorise

in the value chain• Encourages “value creation”

and “innovation” in delivery models

• Enables buyer and serviceproviders to align business objectives

Most of these innovations are being led by the leaders in the BPO market. Due to lesser capacity to

absorb the risk involved with innova-tion, niche players find it tough to initiate innovation. But increasing pressure to differentiate themselves from the peer will drive niche players to join the innovation wave. Imagine the transformed face of the BPO sec-tor when innovations would be driv-en from players across the bands of BPO sector. The industry is eagerly looking forwards to this phase of the BPO market. GS

kumar Parakala is head of it advisory, kPMG EMa & india and chief Operating Officer, advisory in kPMG in india. he is also a global head for Sourcing advisory.


BPO

the egal process outsourc-ing (LPO) industry is one such segment that has seen tremendous growth in

terms of technology from its incep-tion. Technology is now a focal point in almost every facet of LPO services, from being an enabler of services to monitoring workflow. It offers service providers the opportunity to widen their scope of offerings.

Technology’s greatest impact on LPO services is through its ability to facilitate easier and more thor-ough delivery of their services. Legal services such as contract manage-ment or litigation support make use of software platforms for a variety of reasons. With document review specifically, having to sift through thousands of documents manually would take up too much lawyer time. With a software platform, docu-ments can be scanned fairly quickly to determine which of them might be relevant to the litigation suit the client is involved in. This automa-tion of high volume work increases the time lawyers can spend on other tasks for the client. Having a single platform for managing multiple cli-ent contracts can drastically can make the task of abstraction or redlining easier for employees. Platforms used for such services are generally sourced

by Vineet Ramachandran, Analyst at ValueNotes Sourcing Practice

Keeping Pace with technology is Key for LPostechnology has played an integral role in the outsourcing industry. in the knowledge services outsourcing segment especially, there has been a quick evolution of technology, tailored to multiple verticals and services.


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from third party software vendors. A small percentage of LPOs have also developed proprietary platforms that are available for their clients should they choose. As these platforms con-tinue to evolve ever so rapidly, the automation of lower value work will increase thereby leaving lawyers with the opportunity to tackle medium to high value services.

The inclusion of workflow manage-ment and data security, two elements where technology once again rears its head, are not limited to the LPO space. These tools are commonly used across businesses and services. How

LPOs differentiate themselves in this segment however, is the manner by which they are able to integrate these industry generic tools into their exist-ing LPO specific software platforms. This is primarily to streamline and make their processes more efficient and cost effective.

Within LPO service offerings, technology is used for workflow man-agement. Various LPOs have differ-ent work flows tools ranging from tracking attendance of employees to something as advanced as monitoring employee productivity. For example, for clients that are being billed by the

in-house at times based on client requirements.

Technology also plays a huge role with respect to data security. With the constant upload of documents, often in the hundreds of thousands, maintaining the confidentiality and ensuring safe storage of these docu-ments becomes a key concern for clients. Technology from the side of the LPO ensures this information is stored on secure servers with the ability by either party to access any or all files at any given point in time using encrypted passwords. With a constant reliance for client files for

hour, there are software tools in the market that enable LPOs to monitor exactly how many hours an employee spends on a particular project or task. This makes billing the client easier by ensuring that the number of hours required by the client has been ful-filled and being able to offer the client cost predictability from the start of the project. Managers also use tools to keep themselves updated on the status of projects being worked on to ensure deadlines are met. These tools, much like software platforms, can yet again be sourced from third party vendors, provided by the client or developed

the completion of work LPOs also have dedicated bandwidth to ensure smooth uploads and downloads by their employees.

The points above serve as testament to the fact that technology is an impor-tant asset across levels in LPO serv-ices. Going forward, technology tools will help broaden the range of services offered. Healthy competition amongst software vendors to remain market lead-ers will also benefit clients by giving them greater flexibility and variety when choosing software platforms.

The opportunity costs for parties involved in this technological progres-sion should not be overlooked. With LPOs having their pick of cutting edge platforms, costs will continue to decrease while the efficiency and speed by which they are able to deliver legal services globally will increase. This in turn will put added pressure on soft-ware developers to keep themselves updated on the requirements of buy-ers to remain competitive. IT/BPO players, the true technology giants, should have an advantage by being able to churn out highly sophisticated home-grown software that can be used internally and licensed for exter-nal use as well. GS

vineet ramachandran is analyst at value Notes Sourcing Practice


LPO


xperts By Nigel Hughes, Global Services Director, Compass Management Consulting

BPo: Where’s the innovation?recent surveys suggest that organizations seeking innova-tion from BPo initiatives often fail to achieve desired results. A variety of factors are at play, including mismatched expec-tations, poorly defined objectives and governance structures, and a lack of clear measures to chart progress. What can clients and service providers do to more effectively drive innovation from BPo arrangements?

For client organization execu-tives managing BPO rela-tionships, the goal of “inno-vation” continues to be elu-

sive. Part of the challenge lies in defining innovation and recognizing and quantifying it after the fact. Then there’s the issue of mixed signals and unrealistic expectations – “but we want cost reduction and innovation.” And, there’s always the sticky question of who’s responsible for delivering innovation, and who’s to blame when it doesn’t happen.

The topic of innovation was central to a recent BPO Executive Roundtable discussion held in conjunction with the Sourcing Interests Group Summit in Amelia Island, Florida. The Roundtable comprised senior execu-tives, primarily from financial serv-ices organizations, and focused on key challenges and opportunities in the BPO space. Bill Huber, Partner and Director of CPO Services at sourc-ing advisory firm TPI, co-chaired the discussion and shared his and par-ticipants’ observations. (Compass and TPI are both owned by ISG, Inc.)

According to Huber, the Roundtable participants collectively defined inno-vation as “a dramatic game changer exemplified by improved margins, reduced risk, delighting customers, and new capabilities.” Agreeing on what is meant by innovation may seem like a minor point, but it’s actu-ally central to the overall discussion. For one thing, as one participant said, “Sometimes we confuse productivity improvements with innovation.”

There’s a somewhat related issue of unrealistic expectations. According to one participant, “How can we

“Specifically, a “30/70” approach to client/service

provider resourcing was seen as necessary to

address the cultural challenges posed by a bPo engagement, while the “10/90” resourcing model

typically used for ito was not

appropriate for bPo. ”


speed and effectiveness of both the service provider’s innovation genera-tion and the client’s disposition cycle.

Process efficiency – specifically the application of technology to eliminate process inefficiency – was also cited as an area of opportunity. Indeed, Compass analyses of outsourced busi-ness process operations in the financial services sector confirm that significant improvements can be made in many environments to streamline redun-dant and unnecessarily people-inten-sive processes, as well as to improve processes where technology has been applied to simply automate inefficient ways of doing things.

The Roundtable concluded that effective BPO required more hands-on management than IT outsourcing. Specifically, a “30/70” approach to client/service provider resourcing was seen as necessary to address the cultural challenges posed by a BPO engagement, while the “10/90” resourcing model typi-cally used for ITO was not appro-priate for BPO GS

Nigel hughes is Director of Global Service Development at compass Management con-sulting. Bill huber is Partner and Director of cPO Services at tPi.

the customer’s fault. Thirty percent, meanwhile, felt it was the shared responsibility of client and service provider, and a somewhat surprising 0 percent blamed the provider.

So what are the keys to a suc-cessfully innovative BPO arrange-ment? At a high level, the Roundtable concluded that innovation requires partnering and mutual commitment – no surprise there. More specifically, says Huber, the participants discussed possible ways to build shared incen-tives into BPO agreements. “For example,” says Huber, “you might build X number of Provider consult-ing hours into the contract to identify and quantify opportunities for process transformation or creating new sourc-es of value. “Gainshare” approaches for both the service provider and the customer to share in the benefits of innovation provide another powerful incentive.”

Another critical issue is measur-ing innovation and its impact on the business. Roundtable participants discussed ideas around how to track the acceptance rate of innovative ideas introduced by the service provider team through an innovation review and dispositioning process as part of the strategic governance framework. The best frameworks will report the

expect providers to reduce our costs by 30 percent, deal with 30 percent attrition, and understand our busi-ness sufficiently to innovate?” Well, one could argue that clients’ unreal-istic expectations are often fueled by vendors’ unrealistic promises. That said, it’s certainly true – as one par-ticipant pointed out – that the cost reduction pressures faced by BPO service providers trump opportunities to innovate.

The Roundtable participants (all of whom were client organization execu-tives) were clearly not in an accusa-tory mood when assessing blame. When asked, “When innovation fails to occur, whose fault is it?” 70 per-cent responded that it was entirely


BPO

BPO: 3 Rules To Live By

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