Outsourcing Thought Leadership - Neo · PDF fileOutsourcing Thought Leadership September 2002...

Copyright 2002 Ross Research Reproduction is permitted and encouraged.

Outsourcing Thought Leadership

September 2002

In This Issue… • Offshore Outsourcing: Dive Right In! (page 2) The CEO of

an investment banking firm facilitating cross-border transactions

provides in-depth insights into the benefits, risks and first steps for a

successful offshore outsourcing strategy.

• Marketing BPO – Why Should Clients Choose You? (page

6) A 20-year marketing/PR veteran explains how to get on the

“short list” by crafting compelling and understandable marketing

messages for all your audiences.

• What Wall Street and City Analysts Think of BPO (page 10) Ross Research reports the results of a Xansa-commissioned study

assessing respondents’ opinions of business process outsourcing

(BPO) and its impact on company performance, cost reduction, and

shareholder value.

About Our Newsletter… Published monthly by Ross Research, Outsourcing Thought

Leadership offers sound advice and guidance from experienced, savvy

industry influencers and market advisors. This free, information-packed

newsletter exposes you to a variety of outsourcing topics in each issue.

Our goal is to provide you with succinct, on-target opinions to assist with

the provision, marketing, and selling of information technology (IT)

outsourcing and BPO services.

We wish you much success with your outsourcing endeavors! Fondly,

Lisa

Lisa Maio Ross, Principal and Editor

Ross Research, 955 Massachusetts Ave., #104, Cambridge, MA 02139

office: 617-787-2580; fax: 617-787-6361; www.rossresearch.com

“Market Intelligence for Outsourcers”

Copyright 2002 Ross Research Reproduction is permitted and encouraged. 2

If you’re an IT outsourcing company, systems integrator, or Business Process Outsourcing (BPO) provider, market reality demands that it’s time you sit up, take notice, and plot the course offshore. Offshore outsourcing has become a way of life for many of the top decision makers in corporate America… General Electric currently offshores half a billion dollars worth of IT services to India, which is over 20% of its IT services budget. GE also employs over 10,000 people in India for offshore call center and Business Process Outsourcing activities.

OFFSHORE OUTSOURCING: DIVE RIGHT IN! Written by: Vivek Subramanyam, CEO, Technology Holdings

This article comes at a time when the benefits of going “Offshore” are

possibly just about beginning to ring in your ears. It’s much talked about,

it’s the new thing, and you’re either mildly curious, contemplating

gingerly treading towards the pool to dip your toes in and get a feel for it,

or preparing to dive off the springboard, having already tried and savored

the benefits. If you’re an IT outsourcing company, systems integrator, or

Business Process Outsourcing (BPO) provider, market reality demands

that you sit up, take notice, and plot the course offshore.

WHO’S ALREADY PLAYING BALL? Offshore outsourcing has become a way of life for many of the top

decision makers in corporate America, many of whom have gained

recognition and advancement for introducing this remarkable alternative

to their companies and saving millions of dollars. Imagine potentially

having saved 50% of your IT costs in 2001!

• General Electric currently offshores half a billion dollars worth of

IT services to India, which is over 20% of its IT services budget. GE

also employs over 10,000 people in India for offshore call center and

Business Process Outsourcing activities.

• Microsoft Corporation announced plans to make its Bangalore

(India) center the largest center outside of the United States. Texas

Instruments, Oracle, Adobe, Novell, Computer Associates, Intel,

and scores of other companies have set up large R&D centers and

software support outfits in India, some of which have been in

operation for several years, with the headcount growing rapidly.

• The US financial services industry is the single largest industry that

outsources to India. The pieces of code that drive American

Express and Citibank are just as likely to have been written in

Bangalore as it is that you were chatting with “Nick” with a drawl

from Delhi about your credit card query. Nick’s been watching

videos of the Yankees during the World Series, and I’m not kidding!

So, what are the risks, you ask?


Close to half the Fortune 500 companies outsource to India already. Costs reduced by 50-60% without affecting growth drivers. The risks associated with offshore have diminished significantly in recent times with the growing maturity of offshore providers.

THE WHY’S AND WHAT’S TO WATCH OUT FOR India remains the favored offshore destination for software development

and BPO – close to half the Fortune 500 companies outsource to India

already. The incredible success of Indian offshore IT services companies

stems from the abundant, technically skilled, English-speaking labor pool

available in the country. This, in combination with the proven ability of

Indian offshore IT companies to use quality processes and software

delivery methodologies that have earned several Indian companies the

Software Engineering Institute's Capability Maturity Model (SEI-CMM)

Level 5 rating for fault-free software engineering processes, gives US

corporations the ability to get more bang for the buck. Those at the helm

of the better offshore companies have typically “been there, done that” in

the US before managing offshore companies, and increasingly

sophisticated projects are being moved offshore.

The benefits are here for everybody to see:

• Costs reduced by 50-60% without affecting growth drivers

• Freeing up of resources for core development activities

• The use of different time zones to establish a 24x7 production cycle

• Deployment of projects quicker than competitors by conserving the

time and resources spent to recruit the "right" personnel

• Access to world class resources and production capabilities

The risks associated with offshore have diminished significantly in recent

times with the growing maturity of offshore providers. While the

perception of geopolitical risk has increased, those in the know will scoff

at the frenzied media and tell you that the reality is that mere rumblings

have been overplayed, and that it will always be business as usual in the

software and BPO centers of India, most of which are a couple of

thousand miles away from the border. Offshore providers have,

however, been quick to set up disaster recovery systems and back-up

development centers in locations such as Singapore to mitigate the impact

of perceived risks.

What you do need to watch out for, however, are:

• Reliable track record of the offshore company

• Expertise in the relevant technology areas

• Sound offshore methodology

• Experienced offshore project management team


For companies with fairly large outsourcing budgets, however, the ability to unlock the real benefits of offshore outsourcing will stem from a long-term strategic approach to offshore outsourcing that results in huge cost savings. A Dedicated Development Center (DDC) is fundamentally a virtual extension of the US company’s in-house software development and maintenance environment managed and operated by the offshore provider.

• The ability to respond quickly to changing business needs

• Requisite offshore infrastructure, including a communications link.

SEEING LIGHT AT THE END OF THE TUNNEL If you ain’t seen nothing yet, try a “proof of concept” pilot project and

test the waters with a small project or by moving a handful of people

offshore. For the seasoned outsourcer, the key challenge is picking the

right provider and making sure you’re spot on so that you can start with a

larger project.

For companies with fairly large outsourcing budgets, however, the ability

to unlock the real benefits of offshore outsourcing will stem from a long-

term strategic approach to offshore outsourcing that results in huge cost

savings. Joint ventures and the use of Dedicated Development Centers

(DDCs) set up and operated by offshore providers for the client with the

option to transfer ownership at the end of a certain period (Build,

Operate, Transfer, or BOT) are ways to see light at the end of the tunnel.

A DDC is fundamentally a virtual extension of the US company’s in-

house software development and maintenance environment managed and

operated by the offshore provider, comprising “dedicated” building,

software, hardware and communications infrastructures, and

management, support and engineering staffs. The DDC is structured with

an upfront contractual framework around the client’s requirements for 2

to 3 years with clearly defined service levels, operational performance

criteria, resource needs, a ramp-up plan, and resource utilization

commitments. DDCs are also commonly called ODCs (Offshore

Development Centers), or “Offshore Labs”. DDCs have been adopted

traditionally for software development, maintenance, and porting

activities, and now “Product Vendors” or “ISV’s” and BPO companies

are increasingly adopting this model. Some benefits of the DDC are:

• Continuous access to dedicated resource base

• Knowledge retention (the same set of individuals are working on

subsequent projects)

• A “Zero Capital Investment” delivery vehicle for customers

interested in long-term initiatives (e.g. application maintenance)

• Large scale cost savings

If the contractual relationship has a provision where the customer has the


Something to ponder is that offshore IT firms are increasingly diversifying into BPO and are now attempting to offer the whole suite. Outsourcing companies should actively explore options such as acquiring or merging with an Indian offshore provider, a joint venture, or a tight strategic alliance.

option to “buy” the DDC at a pre-determined valuation and time frame,

which is the TRANSFER option, that gives the entire DDC operation a

“Build, Operate, Transfer” (BOT) structure.

STRATEGIC IMPERATIVES FOR US AND EUROPEAN OUTSOURCING COMPANIES AND SYSTEMS INTEGRATORS If you are part of the think tank at an IT outsourcing company, systems

integrator, or a BPO Company, it’s critical that you join forces with an

Indian offshore provider to form a winning combination that can pack a

mean punch. While offshore firms have developed credible domain

expertise and skills in business analysis, implementation, and integration,

their weakness remains marketing ability. Something to ponder is that

offshore IT firms are increasingly diversifying into BPO and are now

attempting to offer the whole suite. Several niche offshore providers

focused on certain business processes, such as insurance/healthcare

claims processing, receivables management, transaction processing,

benefits administration, and customer service have also emerged.

The ideal win-win would be for the US or European IT Outsourcing or

BPO company to focus primarily on managing the front-end client

relationships and project management, offer a haircut on the pricing to

clients, and backend sizeable portions of delivery to an offshore supplier.

This would free up the cash and allow for increased profitability and

long-term sustainability. Outsourcing companies should actively explore

options such as acquiring or merging with an Indian offshore provider, a

joint venture, or a tight strategic alliance. The market will evolve before

we can bat our eyelids, and it’s best to cast the hat in the ring and move in

before the competition does!

Vivek Subramanyam is the CEO of Technology Holdings, an investment

banking firm that facilitates cross-border transactions in the IT

outsourcing and Business Process Outsourcing space, such as mergers,

acquisitions, and joint ventures. Technology Holdings works with U.S.

and European outsourcing companies, offshore outsourcing firms, and

private equity funds that invest in the outsourcing arena. He can be

reached by e-mail at [email protected] or at 512-689-5666.


Business Process Outsourcing (BPO) suppliers typically rely on this type of esoteric language to describe what they do and how they operate.

MARKETING BPO – WHY SHOULD CLIENTS CHOOSE YOU?

Written by Jolie Newman, President, Jolie Newman & Associates

• “[Our] vision is to monetize scalable supply chains.”

• “It became mission-critical as [we] strategically focused on [our] go-

forward plan.”

• “[Our] value proposition is based on maximizing synergies and being

first to market with a leveraged, value-added deliverable.”

Do your brochures, press releases, data sheets, e-mail campaigns and web

site contain statements like these? Chances are, they do. Business

Process Outsourcing (BPO) suppliers typically rely on this type of

esoteric language to describe what they do and how they operate. But the

sad fact is that these descriptors actually say very little, if anything, about

why a prospect should consider or select your company as its BPO

supplier. Even sadder, all the above examples came from a Business

Finance magazine article in which Frank Lingua, the nation’s “leading

purveyor of buzzwords,” satirized the types of statements outsourcing

marketers make every day.

WHO ARE YOU SPEAKING TO? Technology marketers have it easy, at least in comparison with

outsourcing marketers. Their marketing initiatives typically target either

a consumer or a technical audience. Those who are exposed to the

marketing messages – regardless of how the messages reach them – will

“get it” if they’re the intended audience. And they’ll know if they’re the

intended audience. A parent searching for a PC on which to run 2nd grade

learning games won’t pay attention to marketing about Cisco routers.

But it’s just not that simple for BPO marketers. Because a BPO

transaction impacts so many different people in an organization, and

because such a wide group of people are directly or indirectly involved in

the research, evaluation and decision-making processes, your marketing

materials – whatever form they’re in – likely reach a highly disparate

audience. This audience could well include CEOs, CFOs, CIOs, CTOs,

sales VPs, HR executives, functional managers, accounting strategists,

benefits analysts, etc. You’re likely also speaking – directly or indirectly

– with industry analysts, journalists and Wall Street through your external


BPO marketers face an even more daunting challenge, because their companies’ services are so complex and abstract. . When industry buzzwords must be used, keep them to an absolute minimum. They don’t add much value and tend to complicate the message.

communications.

BPO marketers face an even more daunting challenge, because their

companies’ services are so complex and abstract. It’s not only difficult to

describe, in terms that can be understood by all those audiences noted

above, what your company does and the inherent value it can deliver.

Demonstrable, quantifiable results are often hard to pinpoint, and clients,

for competitive reasons, may shy away from having their transactions and

results discussed.

So how do you help such a dissimilar mix of people understand your

marketing messages? How do you drive people to learn more about you?

How do you differentiate yourself to ensure you get included on the short

list of potential providers?

BE CLEAR, COMPELLING, CONCISE AND CREDIBLE Avoid Jargon. If words and terms like “best practices”, “best-in-class”,

“best-in-breed”, “commoditized”, “sub-optimal”, “value-add”, and

“operationalize” could be completely obliterated from our language, we’d

be doing those who receive our marketing messages a tremendous

service. Eyes tend to glaze over or gloss over this type of jargonistic

consultant-speak. Unfortunately, given the nature of the industry, BPO

marketers are frequently hard-pressed to develop messages completely

devoid of jargon. When industry buzzwords must be used, keep them to

an absolute minimum. They don’t add much value and tend to

complicate the message.

Differentiate Yourself. The goals of all marketing initiatives are to

influence people to have a positive perception of and want to know more

about your organization and offerings. To do so, you need to grab your

audiences quickly and help them immediately understand what makes

you different and better. Covansys does an outstanding job at this on its

web site. The home page proclaims, in huge letters, “We know your

industry. We pioneered the transparent offshore outsourcing model. We

take on the toughest technology issues…A hard-working, no-nonsense

global consulting and technology services provider.” Bam. The

company instantly establishes what it does, lets you know the depth of its

knowledge, and tells you it’s ready to solve your business problems. If

you were only remotely interested in offshore outsourcing, wouldn’t you


Bottom line? You must capture your audience quickly and make them understand who you are, what you do, and, most importantly…why you’re uniquely qualified to provide what they need. In addition to telling your prospects about your BPO services, you must tell them about the benefits those services can deliver.

be compelled to explore the company further?

On the other end of the spectrum is the company that proclaims, “We are

a leading provider of BPO services for Fortune 1000 organizations.”

What’s compelling? What BPO services provider can’t say that? Would

you want to learn anything more about the company?

Bottom line? You must capture your audience quickly and make them

understand who you are, what you do, and, most importantly…why

you’re uniquely qualified to provide what they need.

Focus on Client Benefits. BPO is all about solving a business

problem. In addition to telling your prospects about your BPO services,

you must tell them about the benefits those services can deliver. Let’s

say you’re a provider of “comprehensive HR outsourcing services.” A

prospect would probably be interested in learning more about your

company. But, if you say, “We…enable Global 500 corporations to

enhance human capital productivity, reduce HR costs, and provide

superior HR services to their employees,” – as Exult does – you’ve told

prospects about the real value your services can deliver. You’ve given

them a highly compelling reason to investigate you further.

Voicing client benefits can get a bit tricky because the drivers behind

BPO adoption tend to change from year to year. In 2000, companies

viewed BPO as a way to gain competitive advantage. Cost reduction and

the ability to focus on core competencies were the primary drivers behind

BPO transactions in fall 2001. And BPO experts – quoted in an August

2002 study on BPO conducted by the Sourcing Interests Group (SIG), --

stated that, today, companies are looking to BPO for cost savings,

variable cost structures, information security, the ability to execute, and

business continuity. Your marketing materials should at least touch on

these types of benefits. Your salespeople and executives can then delve

deeper into these benefits in direct communications with decision makers.

Be Credible. While BPO is no longer in the infancy stage, it probably

hasn’t yet progressed past late adolescence. The still tender age of the

BPO industry makes prospective buyers anxious and industry influencers

wary. Questions about where the industry might go and which providers

will be around in one or more years loom large. One of the ways to


The strongest way to demonstrate credibility is through client case studies.

alleviate these concerns is to emphasize the sourcing backgrounds,

industry knowledge, and years of expertise possessed by your company

executives.

But focusing on the “big brains” and previous business experience of

your executives will go only so far in eliminating the “here today, gone

tomorrow” fear many have of BPO providers. The strongest way to

demonstrate credibility is through client case studies.

Brief, results-focused case studies should be showcased in all appropriate

marketing materials. Make sure they include the client’s challenge, the

solution you provided, and any and all tangible evidence you can share

about results. For example:

• Challenge – In advance of a major new product launch, the

client company needed to significantly improve its A/R to ensure

efficient and effective collections and adequate cash flow.

• Solution – The BPO supplier re-engineered the client’s A/R

processes to provide the appropriate combination of customer

care and negotiation skills. Operating under the client’s name,

the supplier also served as a virtual department within the

client’s organization.

• Results – A/R performance increased to an unprecedented level

of 98%.

What prospect wouldn’t be interested in learning more about a BPO

supplier capable of providing these outstanding results?

The complexity and inherent intangibility of BPO creates unique

challenges for BPO marketers. But by making their messages clear,

compelling, concise and credible, BPO marketers can get prospects

jazzed to take the next steps – investigate, evaluate, negotiate and buy!

Jolie Newman is president of Jolie Newman & Associates, a firm that

provides strategic PR and marketing solutions for outsourcing,

professional services, research, and consulting organizations. She

possesses 20 years of expertise in business-to-business PR and

communications programs. Jolie can be reached at 407-677-8404 or

[email protected].


A recent study commissioned by worldwide business consulting, IT, outsourcing and business process management firm Xansa (www.xansa.com) is worth noting. A majority of the investment analysts surveyed believes that companies should place more emphasis on BPO over the next two years. Cost management is paramount with BPO, as indicated by analysts who stated that the ability to reduce costs is the biggest benefit the companies they follow have gotten from BPO initiatives

What Wall Street and City Analysts Think of BPO Written by: Lisa Maio Ross, Ross Research, Principal and Editor

Ross Research typically does not source outsourcer-sponsored studies as

independent validations; however, a recent study commissioned by

worldwide business consulting, IT, outsourcing and business process

management firm Xansa (www.xansa.com) is worth noting. MORI

research firm conducted telephone interviews for Xansa with 50 Wall

Street and 50 City of London analysts in the United States and United

Kingdom. The study sample came equally from supply-side individuals

representing: telecoms/media/technology, banking, insurance, and

retail/consumer goods. The goals of this study were to assess

respondents’ opinions of business process outsourcing (BPO) and BPO’s

impact on company performance, cost reduction, and shareholder value.

Key results of this first-of-its-kind study are highlighted below:

• Analysts’ awareness of the BPO concept is higher among US

respondents than those in the UK, most likely as a result of

higher market penetration by BPO specialists in the US and a

greater readiness of US companies to talk about their BPO

relationships.

• A majority of the investment analysts surveyed believes that

companies should place more emphasis on BPO over the next

two years, as stated by 52% of US analysts and 38% of those in

the UK.

• Over half the sample felt that an improvement in shareholder

value – namely share price and company profitability – resulted

directly from BPO initiatives (Share price: 78% of US analysts

and 60% of UK respondents, and Company profitability: 68% of

US analysts and 60% of UK analysts).

• Cost management is paramount with BPO, as indicated by

analysts who stated that the ability to reduce costs is the biggest

benefit the companies they follow have gotten from BPO

initiatives (60% of US and 70% of UK analysts).

• Most analysts rated focus on core business (one of BPO’s

central tenets) as having a strong influence on company share

price, with American analysts giving higher marks to companies

that focused on their core businesses (66% of US and 62% of

UK analysts).


• A significant number of analysts thought that companies should

place more emphasis on BPO initiatives in the future and

should make such activities apparent when talking to the

investment community.

• Analysts generally are unfamiliar with the mechanics of

outsourcing or BPO, and they expressed concern on how

companies avoid loss of management control.

According to John Melo, Xansa’s Managing Director of Business Process

Management, “Analysts are clearly aware of the core advantages of BPM

(Business Process Management, Xansa’s offering to the BPO market)

even if they do not yet fully understand the mechanics. They expect their

companies to be greater users in the future. The worldwide growth in the

outsourcing of business processes will, before long, make BPM the norm

rather than the exception.” Ross Research concurs with Mr. Melo’s

comments, not only based on the results of this study but also from our

familiarity with the Wall Street analyst community and the reports they

write that constantly tout the benefits of BPO and their kudos to users and

providers of such services.

Lisa Maio Ross is Principal of Ross Research, an outsourcing-focused

market research and advisory services firm. She is also the Editor of

“Outsourcing Thought Leadership”. She can be reached

[email protected] or 617-787-2580.


About Ross Research

Ross Research provides market research and advisory services to

outsourcing companies worldwide. Based in Cambridge, Massachusetts,

Ross Research conducts primary and secondary research to provide IT

and BPO service providers with the industry, competitive, customer,

company, and strategy data needed to maximize the bottom-line from

their outsourcing, service delivery, marketing, and sales initiatives. Ross

Research analysts – MBAs and PhDs with significant business experience

– develop comprehensive outsourcing industry reports for the supplier

community and provide custom research-based advisory services for

specific clients. Since 1999, Ross Research has created high-end

business strategies for leading companies including: Accenture, Rockwell

Automation, Wipro Technologies, Extreme Networks, Williams

Communications, Sybase, and Lexmark.

Custom services tailored to meet clients’ unique objectives include:

• Market opportunity analysis

• Competitive intelligence

• Win/loss ratio analysis

• Demand generation services

• Sales prospect analysis

• Advisory on marketing to the public sector

• Commercialization of service offerings

• Survey design, administration, and analysis

• Financial modeling and analysis

• Report, newsletter, and presentation creation (eliminate this one?)

• Multi-client studies

Ross Research also publishes a monthly newsletter, Outsourcing

Thought Leadership, as well as other syndicated reports on topics such

as: Business Process Outsourcing (BPO), Offshore Outsourcing,

Influencer Marketing Strategies, and Sourcing Advisory Services

Analysis. For details about our publications, services, and research team,

visit www.rossresearch.com or call us at 617-787-2580.

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