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Vol. 03, Issue 34November 2008

Governance Tools Can be aGame Changer p. 27

F&A Outsourcing Regroupsin 2008 p. 30

Understand the essentialnature of innovation inoutsourcing engagements.

Rs. 250

52 pages including cover


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Revisiting Global Sourcing in an Uncertain Economy: A

compilation of thought-provoking articles from sourcing

experts on how to handle the economy.

DIRECTORY OF SERVICES

The gateway to the global sourcing of IT and BPO services

MANAGEMENT

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[email protected]

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Allan Schweyer

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4/52

RETHINKING GLOBALIZATIO N:FUTURE PROOFING GLOBAL SERVICES

By Eugene Kublanov, CEO, neoIT

So should we, those in the outsourcing and offshoring industry, still

think that we are insulated from adverse changes in the future? Yes.

The need of the hour is to re-think your globalization, offshoring andoutsourcing strategy and ensure that it is adequately future-proofed


FEATURES

By Jolie Newman

Understand the essential

nature of innovation in

outsourcing engagements

18

November 2008 Vo lume 03 , I ssue 34

4 GlobalServices www.globalservicesmedia.com November 2008

27

SAFEGUARDING

LIFE INSURANCE

By Imrana Khan

Apart from $5 million saving a year, the six year

old application outsourcing led to 100 percent

system availability, improvement in system turnaround

times and productivity. The project also helped create a

lot of tools that automated many processes andimproved SLA compliance to 100 percent consistently

34

8

F&A OUTSOURCING REGROUPS IN 2008

By John Willmott, CEO, NelsonHallImproved Business Analytics Delivery in 2009 & 2010

30

GOVERNANCE TOOLS

CAN BE A GAME CHANGER

By Mike Beals

A successful outsourcing initiative requires the implementation of a

disciplined outsourcing lifecycle methodology. To make this

methodology work, both the customer and the service provider must

together design an approach to govern the relationship using the

right governance tools and guidelines


5/52

SHYAMANUJA DAS

Shyamanuja pioneered

outsourcingjournalism in India in

1998 with bpOrbit, anewsletter for the

domestic Indian BPOindustry. He is now

Editor,Dataquestmagazine, Cybermedia.

ALLAN SCHWEYER

Allan is the Presidentand Executive Director

of the Human CapitalInstitute and author of

Talent Management

Systems.

PHIL FERSHT

Phil is Research Director,

Business ProcessOutsourcing, offshoring

and IT sourcing, forleading industry analyst

firm AMR Research, Inc.

24X7

COLUMNISTS

45DEFINING STRATEGIES FOR

OFFSHORE HYBRID CAPTIVES

By Brian Smith, TPI and Sid Pai, TPIIndia

36KNOWING TH E UNKNOWN: THE

VALUE OF ASSUMPTION

MANAGEMENT

By Jennifer Harnett-Bullen, Michael Latchford,

and Nick Mathisen, PA Consulting Group

40WILL TH E U.S. TURN

INTO A COMPETITIVE

SOURCING LOCATION?

By Phil Fersht, AMR Research

38THE NEW OUTSOURCING

OPTION

By Ben Bauer, HP Outsourcing

Services

42THE ROI IN ENTERPRISE

WEB 2.0 AND CORPORATE

SOC IAL NETWORKINGBy Allan Schweyer, HCI

50IN DEFENSE OF

GLOBALIZATIO N, STILL

By Shyamanuja Das, CyberMedia


NO . O F LON G-TERM

OUTSOURCING

DEALS SURGES IN

SEPT. 08

By Datamonitor

17

SEASON FOR

BUYOUTS

By Imrana Khan

Crisis in the global economy isdriving a trend of Mergers and

Acquisitions (M&As) in the ser-

vices industry. Interestingly,

despite the credit crunch and

economic slowdown, some com-

panies still have the cash to see

M&As through.

11

CSC, EDS: MANAGED

& PROFESSIONAL

SERVICES LEADERS

By Keerthi Nair

11

THE UNCERTAIN

GLOBAL ECONOMY

By Imrana Khan

12

OUTSOURCING TOTUNISIA

By Pratibha Verma

16

M&A ACTIVITIES

SPEED UP IN

ECONOMIC

SLOWDOWNBy Tholons

14

NO IMPACT OF WALL

STREET CRISIS ON

THE JOBS CUT

By Namita Goel

15

EXPERT VIEWS


6/52

ED NAIREditor

EDITORS NOTE

[email protected]

No doubt, there areopportunities amidst

the chaos, but anoverall sentiment of

fear, uncertainty, anddoubt has set in.

he last two months have sunk the U.S. economy into an abyss and its

impact could be felt on the global financial markets. The recession is

now official, and it could take on a severe form and last a protracted

term. Economists say that recovery would begin several quarters later and

would be slow.

The global services industry, which had put up a brave front till now, even

had two of the best quarters ever in its history. But now the tremors of the

economic quake are being felt. According to TPIs Q3 Index and outlook,

there were fewer mega-contracts in Q3, significant decline in contract val-

ues in Europe, and a dramatic drop in IT contract value. The outlook points

toward much more than a temporary softness in global outsourcing. Though

a spot survey of financial institutions (by AMR Research) revealed an encour-

aging future for outsourcing, it may not translate to outsourcing project awardsat current market values. The large service providers are redrawing their strate-

gies and marking down their revenue estimates.

No doubt, there are opportunities amidst the chaos, but an overall sen-

timent of fear, uncertainty, and doubt has set in. The period will shake up

the industry, force companies to innovate, and adopt new practices. The indus-

try will be quite different when it will emerge out of the current recession.

Meanwhile, we will celebrate the heroes of 2008. TheGlobal Services 100

Survey is now available on our website: www.globalservicesmedia.com. I invite

all service providers to fill up the online survey and participate. GS


T

The FUD Factor


7/52


SPEAKER HIGHLIGHTS

Mark Kobayashi-HillaryNaonal Outsourcing

Associaon

Hon Asraf DullulMinister of Informaon &

Communicaon, Maurius

Hon Samuel PoghisioMinister of Informaon &

Communicaon, Kenya

FOR SPONSORSHIP ENQUIRIES AND TO REGISTER ONLINE FOR A 10% DISCOUNT VISIT

www.cbcglobal.org

Dr Mohan KaulDirector-General,

Commonwealth

Business Council

Dr Ti BanjokoChair,

AfricaRecruit

The New Froner

Financial Services - MullingualCapabiliesApplicaon Development and Maintenance - Knowledge Based Outsourcing

THE SUMMIT WILL HIGHLIGHTS ISSUES SUCH AS:

What are the major outsourcing trends and what experse are African countries offering?

What is the size and composion of the talent pool available in the African connent?

What are the key differenators of African naons from countries such as India?

How are African countries carving a space for themselves in the globally compeve outsourcing market?

Which processes are natural and suitable for outsourcing to Africa?

Is the regulatory and polical environment suitable for large companies seng up significant centres in Africa?

How do the countries in Africa compare with each other in the league tables?

Crispin Lyden-CowanPrincipal Adviser

KPMG

Anwar VersiEditor

African Business

Vijay KumarDirector

Africa Payment Gateway

Other speakers include:Vijay Amliwala, Director, CBC Technology

David Smith, Head of Markeng, Zippcard

Marianne Nganunu, Permanent Secretary,

Ministry of Communicaons, Science &

Technology


8/52


By Eugene Kublanov, CEO, neoIT

The Changing Cost Dynamic

In 2003, an organization that engaged with an offshore

third-party service provider for its Application Development

and Maintenance (ADM) initiatives could reasonably expect

to notch up savings of 45 to 50 percent. Today, this number

is in the 25 to 30 percent range. What has changed?

In 2003, an organization that set up a captive center in

India for its back office functions could reasonably expect to

save 30 to 35 percent on its operating costs. In 2008, thesavings are often less than half that percentage. And in some

cases, the savings are negligible forcing companies to put up

their captives for sale. What has changed?

Wages, to start with. At an average 13 to 15 percent year

over year growth rate, wage inflation in India has forced

third-party service providers to steadily increase prices to

maintain the attractive profit margins which have made

them the darlings of Wall Street. And just when the wage

growth rate dropped a bit in anticipation of waning demand

for IT and BPO services in the U.S., the inflation rate in

India reflecting higher global prices for everything from

food to gas hit 11 percent, effectively setting the floor for

salary hikes in the coming year.

Currency appreciation has also been a contributing fac-

tor to the diminishing cost advantage of offshoring.

Although in recent months, the Rupee has eased against the

U.S. dollar, it is still roughly four percent ahead of the 2003

levels, and theres uncertainty about what is to come.

Whats the Total Cost of Offshoring?

If we look only at wage growth, it would take India

another 20 years to achieve wage parity with the U.S. But

can that be the sole factor for determining the cost advan-

tage? No.Enter Total Cost of Offshoring (TCO). Lets look at the

changes that have impacted the other cost-line items during

the past five years.

Consider travel costs. Consider real estate and infrastruc-

ture costs. Everything is on the rise. This is true, not just of

India, but of many countries that are both existing and new

entrants to the services globalization marketplace. As cost

increases for everything from wages to travel to infrastruc-

ture and technology, we are looking at a dramatic shift

where organizations will find offshoring cost savings in thenext five years.

The Changing Labor Pool Dynamic

Indian firms have made in training, benefits and other

retention tools. Although retention costs do not impact the

customer directly, the increase in the service providers cost

base will ultimately affect the end user organization. Captive

centers, on the other hand, also face similar attrition and

retention issues as third party providers do, but dont have

the same luxury. Escalating wages and rising retention costs

have forced many organizations to reevaluate their captive

strategy. Philips and Citi are recent examples of companies

that have sold their captives to Indian service providers,

Infosys and TCS respectively, as part of a captive strategy

revamp. Others are outsourcing their low-end processes to

providers, while moving the high-end processes from high

cost locations to their offshore captive centers.

While Indias labor pool issues have been accelerating in

the past five years, many other markets have entered the off-

shoring realm to provide alternatives to buyers. Countries

such as the Philippines, Romania, Brazil, Vietnam, Costa

Rica, South Africa and Mexico now provide highly qualified

resources at reasonable price points without the high attri-tion rates of India. This results in greater labor stability, con-

Should we, those in the outsourcing and offshoring industry, still think that we are

insulated from adverse changes in the future? Yes. The need of the hour is to

re-think your globalization, offshoring and outsourcing strategy and ensure that it

is adequately future-proofed

Rethinking

GlobalizationFuture Proofing Global Services


9/52


Ask Ed

tinuity and higher productivity.

At home, the U.S. economic slowdown has contributed

to the global labor pool shake up. With U.S. unemployment

hovering at over six percent a five year high employ-

ers now can consider hiring IT and back office talent, from

their own backyards.

The Changing Political Dynamic

Although political risk has been long factored into orga-

nizations decision-making around offshoring, outsourcing

and globalization, it is only recently that developments

around the world have brought this risk to the forefront.

Political risk has been notoriously difficult to assess and can

have broad ranging affects on the offshoring industry. It is

also not just limited to emerging markets where government

stability, and in worst cases armed conflict, come into play.

Political risk also exists in developed countries that buy ser-

vices and ranges from major policy shifts to elections tochanging popular sentiment.

Today, as in no other time during the past five years, we

are faced with political winds that have the potential to

sweep in drastic effects on the offshoring industry. Visas will

be affected, for one. And there is a perceived future risk.

Future-Proofing the Offshoring Model

As organizations digest the myriad trends, forces and

developments that impact the future of globalization or off-

shoring efforts, it will be incumbent on them to put in place

strategies that can effectively deal with impending risks,

uncertainty and generate the value which is still very muchinherent to the practice. Global players have to regularly

update and revise their global sourcing strategy, have a sense

of urgency to develop and maintain a global delivery model

which is so critical to being successful in todays competitive

marketplace, added Oliver Bussmann, CIO, Allianz.

Both buying organizations and service providers need to

be keenly aware of developments that may change the face

of services globalization and respond accordingly.

What should CIOs and CFOs be Asking Themselves

Today?

l Is our IT strategy aligned with where the business is

heading? Where our industry is heading?

l Is our IT and back office cost structure aligned with

how our business will perform in the next two years?

lDo we have a clearly defined 3 to 5 year strategy for ser-

vices globalization?

lHave we designed a diversified portfolio that includes

the right operating model(s), location(s), provider(s)?

l Is our global services portfolio sufficiently insulated

from changes in global cost structures?

l Is our global services portfolio capable of quickly scal-

ing down to adjust to a revenue downturn?

lHave we fully thought through the impact of geopolit-

ical events on our globalization efforts?

l What impact will an unexpected currency fluctuationhave on our global services portfolio?

l Is our organization prepared for a Democratic adminis-

tration and the resulting impact on our offshoring initiatives?

lHave we recently assessed our TCO to ensure we con-

tinue to meet our business objectives?

lWhat is our U.S. low cost strategy?

lWhat is our Nearshore strategy?

lHow do we proactively assess and mitigate risks?

Future proofing a global services portfolio typically

involves a structured approach:

Step 1: Assess ITO/BPO Portfolio Alignment:Determinewhether your companys ITO/BPO portfolio is aligned to

your overall business strategy, to industry conditions and to

the macro economic environment.

Step 2: Develop A Re-Alignment Roadmap: After assessing

portfolio alignment and identifying critical areas that require

management attention the next step is to develop a roadmap

to bring the global services portfolio back into alignment.

Step 3: Implement A Portfolio Management Approach:

Ensuring that a global services portfolio remains aligned to

dynamic company, industry and economic conditions can

be challenging. Most organizations have by now realized

that proper governance is instrumental to offshoring/global-ization success, but few companies have taken the next leap

to manage their services value chain as a portfolio.

Adapting to Uncertainty

So, is this the death of offshoring? Is this the death of

India as the darling ITO/BPO destination for U.S. and

European companies? Does this mean mass return of IT

jobs to the U.S.? Does it mark the emergence of a new

region as an IT services powerhouse?

No, no and no.

So what does it all mean? It means that we are on the

threshold of major change in the services globalization

arena. It is the time now to consider our efforts to date, take

a lesson from the high-tech manufacturing sector, and pre-

pare for an uncertain future where an agile, cost effective

and diversified global services portfolio will be your com-

petitive advantage.

Welcome to the new era of services globalization. GS


10/52

Comprehensive evaluation of the

To advertise in this issue, contact [email protected]

/CMIL/09/08

domestic

contact centrebusiness

DataquestNov 15, 2008

Issue

Dataquest is featuring an analysis of the domestic customer interaction services market

in India with an in-depth analysis of the market.

Also, get to know whos who in the domestic Contact Centre industry.NEW

A first-ever look at on-the-ground deployment of SOA across industriesSOA Status ReportDeployment, trends & challenges of Indias Human Capital ManagementThe HCM Advantage

Round-up of Hyderabads IT industrySpecial Report: Hyderabad


11/52

T he crisis in the global economyis driving a trend of Mergersand Acquisitions (M&As) in theservices industry.

Interestingly, despite the credit

crunch and economic slowdown,

some companies still have the cash to

see M&As through. Valuations are

cheap and beleaguered financial com-

panies need to raise capital. The buy-

out of Citigroup Global Services, the

acquisition of Cambridge Solutions,

the buyout of Axon, and the expected

sale of Lehman Brothers captive BPO

are some of those strategic develop-ments in a turbulent economy.

Most recent development is the

British consultancy Axons boards

unanimity over its acquisition. A high-

er bid by Indian IT-services company,

HCL Technologies, helped the com-

pany buy Axon On Sept. 26th,

2008, HCL announced the terms of a

cash offer to acquire the entire issue at

a price of 650 pence in cash per Axon

share and then issue a share capital of

Axon at approximately $772.778 mil-

lion. Within a week, Axon showed

interest in HCLs offer. The acquisition

now will be formalized in the fourth

quarter of 2008.

Similarly, TCS acquired Citi-

groups stake in Citigroup Global

Services (CGS) for $505 million

under a packaged $250 million, 9.5-

year outsourcing deal to provide back-

office services.

These global consolidations whether with established players or

vulnerable companies are also a

shortcut to increase global presence,

strengthen service delivery and achievebusiness goals. Smart firms are using

the downturn to strengthen their hor-

izontal and vertical focused services.

Abid Ali Neemuchwala, Global

Head of Process Excellence, TCS

spoke to Global Services , The acqui-

sition will provide three dimensional

benefits to TCS. First, it strengthens

our relationship with one of our major

clients, Citigroup. TCS is already the

biggest supplier of IT and IT-enabled

services to Citigroup, and with thisbuyout we will become the largest

provider of back-office services to the

client. Second, it kicks off a new mar-

ket that doesnt exist today for pro-

viding process-led back-office services.

It will also add up to our ability to pro-

vide BPO platform to small and mid-

sized banks, which are still untapped.

Third, the deal sets up TCS into a new

BPO segment, which is domain-led

transaction-processing services.

In another, acquisition Xchanging

acquired 75 percent shares of Cam-

bridge Solutions. David Andrews,

CEO, Xchanging, while explaining

the reasons behind the acquisition,

said to Global Services, In the current

phase of globalization, large companies

like ours, need companies like Cam-

bridge, with a large talent pool, to fit

the bill. After U.K. we now want to

move to the U.S. market.

With additional inputsfrom Namita Goel

GS

4x7Season for Buyouts2

November 2008 www.globalservicesmedia.com GlobalServices 11 2 4

7

AT&T, BT Global Services, CSC,EDS and IBM Global TechnologyServices are Managed and Professional

Network Services (MPNS) providers,

according to Magic Quadrant report

released by IT research and advisory

firm, Gartner. The leader companies

have been selected among those 14

companies that made to the Magic

Quadrant this time.All in all, Gartner points out that the

Leaders have significant network man-

agement and outsourcing experience

and understand the dynamics needed to

deliver network-centric IT services suc-

cessfully. The providers are further cat-

egorizd into Challengers, Visionaries

and Niche Players.

It is also important for the

providers, reviewed in this report, to

have automated fault detection and

remediation and performance man-

agement tools, with varying degrees of

success and effectiveness.

Gartner evaluates providers on the

basis of whether they had to directly pro-

vide IT-management services in support

of customer WAN environments, devel-

op and maintain their own remote man-

agement platform, provide, directly or

through partners, IT services in support

of LAN and serve clients globally, along

with some financial criteria.GS

BY IMRANA KHAN

BY KEERTHI NAIR

Outsourcing to Tunisia p. 12

CSC, EDS:Managed &Professional

Services Leaders


12/52

12 GlobalServices www.globalservicesmedia.com November 200824x

7

2

Q 3 08 wasn't easy for the globalbusiness world, and Q4 08 seemsno different. The financial turmoil has

spread far and wide. Every business sec-

tor is assessing the impact of the globalmeltdown meticulously. Assessments

vary highly. They differ in the outsourc-

ing sector as well. Some conclude that

the current state of the market presents

an opportunity while others conclude the

opposite. We look at some viewpoints on

the impact of the current financial crisis.

The AM R Research Survey

A recent survey conducted by AMR

Research with support from Global Ser-

vices reveals that outsourcing sector

will see minimal impact of the financial

turmoil. Of 44 participants from the

financial sector, only 16 percent finan-

cial institutions plan to chop their out-

sourcing expenditure. Interestingly, 45

percent plan to stick to their existing

sourcing strategies while 39 percent

plan to strategize for increasing their

sourcing spending.

Further analysis uncovered that, of

the banking, finance and insurance

sectors, about half (48 percent) of the

participants from the banking industry

will increase their sourcing expenditure.

The sector will continue to not

only source its IT-infrastructure, appli-cation, finance & accounting,

and banking BPO services but it also

plans to increase the outsourcing of

such services.

Advisers Speak: Think Tw ice.

Go Slow.Companies with large outsourcing

engagements are going ahead and still

seeing costs saving benefits. However,

project-level outsourcing decisions are

going slow and are noticing slow cash

flows, said Eric Smith, Managing

Director, Alsbridge Private Equity. The

market will remain good for service

providers with good balance sheets,

strong global presence and robust deliv-

ery records, he added.

If small providers need to gather

wins in the current market, then they

need to brush up their consulting skills.

For the existing deals, they need to be

able to showcase their delivery capabili-

ties in order to win deal extensions. For

expected deals, most of them may need

to look out for the help of intermediaries

in order to roll out good outsourcing

deals. Service providers would need to

convince clients by brushing up their

consulting skills.

BY IMRANA KHAN

The UncertainGlobal Economy

Financia l Crises

IMPACT ON OUTSOURCINGEXPENDITURE (%)

OtherFinancial

Services

Banks

InsuranceCompanies

43

Over the last month, has your firm beenlooking to increase/decrease your expendi-ture on outsourcing services (IT and BPO)?

No change

Increase

Decrease

29

29

41

48

10

60

20

20


13/52

IT staff-augmentationprojects

2 4

7

3

November 2008 www.globalservicesmedia.com GlobalServices 13

It is critical for vendors to teach

the client about their capabilities to

deliver clients requirements. If the

small companies bring in consulting

skills, they can actually compete with

big counterparts even in the hardconditions, said Bob Randolph, CFO

and BPO Lead, Avasant.

There might be a slowdown in

contract signing at this point of time.

But we expect a big pick up ahead and

many new outsourcing engagements

in the next six months, said Andy Efs-

tathiou, NelsonHall. In order to deal

with the large fluctuations, service

providers need to be able to deal with

the volume. Providers with 60 to 70percent revenues coming from finan-

cial companies are in big trouble.

Concentration on an individual sector

is the biggest problem.

What we are seeing in the third

quarter and year-to-date metrics rep-

resents the results of outsourcing ini-

tiatives begun in more stable times

compared to the anxiety of recent

weeks, stated Brian Smith, Partner

and Managing Director, Financial

Services Operations, TPI NorthAmerica, in a press statement. The

continued softness of those numbers

reflect early recessionary indicators

seen in the beginning of the year.

But the uncertainty and unrest of

todays global economic climate has

yet to fully affect the outsourcing

industry that serves the financial-

services sector.

Buyers Take: Financial Turmoil toHave Nominal Impact on Out-

sourcing in 2009

Opportunities are still there.

Providers large or boutique

need to have a knack for getting them.

The demand of outsourcing services is

still hot. However, the chances are

bright for the large providers. Small

and mid-sized firms may have a hard

time to prove their delivery capabili-

ty said a Fortune 500 banking com-pany that is involved in captive as well

as third-party driven outsourcing prac-

tices. The companys mortgage and

banking activities are being sourced

from 100 countries worldwide.

Buyers, especially from the finan-

cial sector, are now carefully scruti-

nizing providers performance abilities

as the current market situation is

pushing them to derive maximum

output from the existing relationships

to go slow about engaging in newones. Buyers are even forced to hold

on to their future outsourcing strate-

gies as they figure out whether their

companies are buying or being

bought. In addition, buyers are

required to cut costs today and plan

for tomorrow.

Providers: A Big Storm Ahead

The provider companies see a

major impact of slowdown on theirrevenues. AMR Research and Global

Services survey revealed something

similar. With the plunging economy,

the participants from the vendor com-

munity eye slowdown in the out-

sourcing industry too.

Expected Annual Reading: Nomi-

nal Impact on Outsourcing in 2009

Despite a slowdown and softness in

Q3 08, the 2008 year-to-date num-bers and values of outsourcing contract

awards are exceeding metrics of 2007.

Compared with last year at this point,

the number of contracts awarded has

risen almost 5 percent. TCV of those

contracts has grown nearly 19 percent,

and their ACV has climbed 27 percent.

The full year 2008 looks to be on

course for a strong overall result. While

TPI anticipates strong fourth quarter

award values, the company believes that

current unrest and realignment in theglobal financial-services industry, and

related impact on other industry seg-

ments, is likely to introduce softness in

outsourcing contract awards entering

2009, TPI anticipates. GS

Mortage BPO services

HR outsourcing


Banking BPO services

Finance & Accountingoutsourcing

banking BPO services

Short-term Increase Short-term Decrease

BANKS: SPENDING INTENTIONS ON OUTSOURCING SERVICES LINES (%) n= 29

0 50 100


HR outsourcing

IT staff-augmentation

projects

Banking BPO services

Finance & Accountingoutsourcing

IT infrastructureoutsourcing

Application outsourcing

Medium-term Increase Medium-term Decrease

0 50 100


14/52

SOURCE: THOLONS

DEAL VALUE BY

ACQUIRER COUNTRY (%)

14 GlobalServices www.globalservicesmedia.com November 200824x

7

4

M&A Activities Speed up in Economic

The overall global market crash caused

only a slight slowdown in Merger &Acquisition (M&A) activities in the IT Out-

sourcing (ITO) and Business Process Out-

sourcing (BPO) industries, which stood at 59

transactions for a total deal value of over $2.1

billion in Sept. 08, unlike the previous

month, which witnessed around 71 transac-

tions totaling to $2.85 billion. The average

deal size was $36 million, slightly below the

average deal value of $40 million in August.

The bitter winds of economic crisis span-

ning across major client geographies haveaffected the stakeholders of the global out-

sourcing industry. The current chaos may

hinder the M&As in the space temporarily.

Wait and watch would be a good strategy

adopted by most firms looking for inorgan-

ic growth. However, a few cash rich firms may

undertake inorganic investments expecting

bargain deals in this low valuation and tight

liquidity scenario.

The melting stock prices have drastically

lowered the market valuations and hence the

timing is ideal for the companies looking fordeals to grow. Amid such downturn, targets

looking for higher valuations need to offer

sustainable value proposition in terms of

high-end capabilities and clientele to differ-

entiate oneself from the peer group. Howev-

MEGA M&As OF SEPT. '08

Acquirer Target Area Deal size($ mn)

lHCL Technologies Axon Group IT consultancy 731.12

l Telvent Git Sa DTN Holding Business intelligence 445

lRed Hat Qumranet IT software 107

lOpen Text Captaris IT software 106.79

l Francisco Partners Aconex IT software 90.67

lQuest Software Netpro Computing IT software 78.7

lAdvent Software Tamale Software IT software 70.1

l Eclipsys Medinotes IT software 45

lConstellation Justice Education & Asset IT solutions 40

Software Solutions Businessesl Phase Forward Clarix IT software 40

lVector Capital Pharsight IT software 38.92

l Standard Life Vebnet Holdings IT software 37.89

l Synchronoss Wisor Telecom IT software 18

l Secure Computing Securify IT software 15

l Basware Contempus IT software 14.88

lNetgear Cp Secure IT software 14

lAzkoyen Primion Technology IT software 9.34

l Cegid Group Vcs Timeless IT software 5.67

lGrand-Flo Solution Cl Solutions China IT services 3.03

lData Respons Ipcas IT services 2.71l Csp R2 Technologies IT solutions 2

l Sky High Halifax Computer Services BPO 1.68

lHealthaxis BPO Management Services BPO 1.57

l Park City Group Prescient Applied Intelligen IT solutions 1.37

l Testplant Redstone Software IT software 0.88

lNorman Norman Shark IT software 0.88

lUltima Networks Jcs Computing Solutions IT software 0.5

l Broadcaster Lamplighter Studios IT services 0.29

lAdex Media Bay Harbor Marketing IT services 0.29

lQhr Technologies Clinicvault IT services 0.14

l Roper Industries Horizon Software Internation IT services

l Riverside Healthcarefirst IT services

l Integrity Interactive Software Impressions IT software

lDatatec Inflow Technologies IT services

lOrdina E-Chain Management IT consultancy

l 4C Controls Zahra Technology IT services

l Trilogy Inc/Austin Ecora Software IT software

lAdobe Systems Yawah IT software

l Expand Networks Netpriva IT software

l Spectris Acuity Cimatrix IT services

lWolters Kluwer Addison Software Und Service IT software

SOURCE: THOLONS

BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS

U.K.: 2

Others: 10

U.S.: 25

India: 34

Spain: 21

Canada: 7To see the full table, visit www.globalservicesmedia.com


15/52

November 2008 www.globalservicesmedia.com GlobalServices 15 2 4

7

5

Slowdown

er, we believe the targets will not be willing

to sell in this market situation unless they are

desperately looking to sell out due to liquid-

ity or other concerns. Already a few compa-

nies are backing out from the block.

The largest acquisition announcement ofthe month was by HCL Technologies bid-

ding to acquire Axon Group. HCL placed

close to $800 million bid for Axon against

Infosys bid of $750 million, i.e. 8.3 percent

higher than Infosys bid. In terms of per share

bids, HCL bid for Axon at 650 pence against

600 pence by Infosys.

In the second largest acquisition of the

month, Telvent, a Spanish IT-services

provider acquired DTN, the U.S.-based

provider of real-time information services

for a total deal value of $445 million. The

acquisition is expected to strengthen the

market position of the acquirer in the U.S.

Another large deal was $107 million domes-

tic acquisition of Qumranet by the U.S.-

based Red Hat, the global Linux services

provider. The target offers enterprise soft-

ware to enable independent computing

from a virtual infrastructure. In another

similar sized acquisition, Canada-based

Open Text acquired the U.S.-based Cap-

taris, a provider of electronic informationexchange solutions. GS

DEAL VALUE BY

TARGET COUNTRY (%)

U.S.: 44Australia: 4Germany: 1

Others: 11U.K.: 40

SOURCE: THOLONS

Sept. 15th 08, a date that has madeits place in the history of marketcrashes, surprisingly didnt cause much

damage to the already drowning jobs

market. The month of Sept. took away

95,054 jobs, which is seven percent

higher than last months number, as

reported by Challenger, Gray & Christ-mas. The number this month is third

highest in this year after May and July,

where the number had surpassed the

one million limit.

Automotive and financial services

sector continue to claim the maximum

number of position losses. It may take

several weeks or months for the fallout

from Sept.s Wall Street turmoil to hit

the employment numbers, said John A.

Challenger, CEO of Challenger, Gray &

Christmas. In the case of Merrill Lynch,for example, Bank of America will now

decide how many of the investment

firms approximately 64,000 employees

to keep. For Lehman Brothers, the pic-

ture is even less clear since it is being sold

off to multiple bidders. In the case of

Freddie Mac and Fannie Mae, the gov-

ernment bail out is no guarantee that

jobs will be saved.

Outsourcing, which was for the

last two months posed as one of the

least important reasons for jobs cut, has

moved up the table and claimed 1,225

jobs this month. The drastic change

was that Mergers & Acquisitions have

taken the No. 1 position and Market

Conditions has moved to No.3 as the

reason for jobs cut this month. Apart

from the Wall Street trauma, HP and

EDS merger have also made it to the

black list of the month. The merger

might do some good to the companies,

but it has single-handedly given outover 24,000 pink slips.

Health care industry continues to

hire. Among all the states, Calif. claimsthe highest number of jobs cut. GS

No Impact of Wall Street

Crisis on the Jobs CutBY NAMITA GOEL

Jobscut

MONTH BY MONTH TOTALS

Month 2008 2007

l June 81,755 55,726

l July 103,312 42,897

l August 88,736 79,459

l September 95,094 71,739

Month 2008 2007

l Financial 111,201 129,927

l Automotive 94,918 46,237

l Government/ 66,847 29,167Non-Profit

l Transportation 61,972 16,905

l Retail 51,321 38,857

ACTION POINT TO IMPROVEMARKET SITUATION

BY INDUSTRY (YEAR TO DATE)

Just like earlier this year in April,Congress has again passed a billon Sept. 28 to flow in $700 billionto stabilize the market conditions,particularly the financial institu-tions that might improve the jobsituation, as market condition isdirectly proportional to jobs cut.

SOURCE: CHALLENGER, GRAY & CHRISTMAS

The employment report pro-vides further evidence ofthe need for the House ofRepresentatives to pass an

economic rescue package

today, before it adjourns,

which will protect Main

Street America and mitigate

further job loss

Elaine L. Chao,U.S. Secretary of Labor


16/52


17/52

November 2008 www.globalservicesmedia.com GlobalServices17 2 4

7

Despite the worsening economicsituation, the global outsourcingmarket remained on course during Sep-

tember, with a number of providers

signing major, long-term deals.

Of the 10 biggest deals signed in Sep-

tember, just one had a duration of less

than five years. The overall trend, in

recent years, has been for outsourcing

contract lengths to become shorter, due

to customer wariness of being trapped ina long-term deal. However, six of Sep-

tembers biggest deals had a duration of

10 years, with two more set to last for

five years and one (HPs deal with BT

Group) set to last seven-and-a-half years.

U.S. defense giant SAIC secured the

biggest contract of the month one of

the biggest deals of the year to date

when it was awarded a 10-year, $5.2 bil-

lion mega-deal by the National Cancer

Institute. The win capped a stellar first

nine months of 2008 for SAIC, whichhas seen it secure 55 contracts with a

total value of $10.9 billion.

SAIC has also been one of the major

beneficiaries of the expansion in the U.S.

public sector outsourcing in 2008. There

was further evidence of this trend in Sep-

tember: Alongside the National Cancer

Institute contract, four deals with a

total value of $1.7 billion were awarded

by the U.S. Marine Corps, the Defense

Threat Reduction Agency, the NASA

and the Federal Aviation Administration.

These deals were spread around four dif-

ferent providers, with lesser-known

names like Technology Associates Inter-

national and Stinger Ghaffarian Tech-nologies winning major deals alongside

more established players Lockheed

Martin and Raytheon.

In addition to the large public sec-

tor deals, September also saw some sig-

nificant movement in the private sec-

tor, including a number of extensions

to existing contracts. For example, HP

secured a seven-and-a-half year exten-

sion from BT Group, while ACS

secured a 10-year extension from

industrial firm Ingersoll-Rand to pro-vide services around the customers

existing data-center and network

requirements as well as support glob-

al data centers providing mainframe

and midrange processing. GS

ITdeals

No. of Long-term Outsourcing

Deals Surges in Sept. 08

THE TEN LARGEST IT SERVICES DEALS IN SEPT. 2008

Customer Provider Engagement(s) Value Duration($ mn) (yrs)

National Cancer Institute SAIC Consulting, support 5,200 10

BT Group HP Infrastructure mgmt. 660 7.5

Ingersoll-Rand ACS Data-center outsourcing, 551 10network mgmt.

Bristol-Myers Squibb Accenture ADM 550 10

US Marine Corps Technology Associates Support 500 10International

Defense Threat Reduction L ockheed Martin Infrastructure mgmt. 475 10Agency

Hanoi Telecom Ericsson Systems integration 450 3

Max New York Life IBM Infrastructure mgmt. 450 10

Federal Aviation Admn. Raytheon Training services 437 5

NASA Stinger Ghaffarian Application mgmt. 300 5

Techologies

SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE


18/52


19/52

THE DEFINITION OF INNOVATION, according

to www.dictionary.com, is Something new or dif-

ferent introduced. The American Heritage Dictio-

narys definition is, The act of introducing something

new. And the Merriam-Webster dictionary defines

innovation as, The introduction of something new.

You dont get more similar than that.

Yet ask 19 different people their definition of innovation in glob-

al services delivery (we did), and youll get 19 different answers. For

example, Kaushik Bhaumik, Head of Cognizants Business Technolo-

gy and Consulting Practice, said, Innovation in the global services

delivery context refers to improvements in outcome or value (around

a particular process or activity), that is above and beyond what would

normally be achieved through continuous improvement, Six Sigma and

other process improvement programs. Roger Turnham, Oracles

Director of the Program Management Office for Business Process Out-

sourcing (BPO), cited innovation as being those things you do to fur-

ther one or more of the corporations objectives, i.e. the three bullet

points you find in the CEOs letter in an annual report. Luis Cuellar,

Director of Process Improvement and Compliance for Mexico-based

IT services provider Softtek, defines innovation as the introduction or

improvement of a service, process or product that ultimately translates

into value for its customers. And Peter Allen, Partner and ManagingDirector at sourcing advisory firm TPI, noted, The customer must

By Jolie Newman


20/52

accrue benefit as a result of the relationship with the service

provider that is outside the box of the scope the provider is

under contract to deliver.

Other definitions of innovation in global services deliv-

ery include that of Vijay Kumar, Chief Technology Officer

(CTO) of Wipro, who said, [It] is about continuous value

creation. Its about partnering with customers to enable themto solve their business problem. Innovation is moving from

a differentiator to business enabler in services industry.

Ramesh Krish, Director in the Global Strategic Sourcing

Group at NASDAQ-listed human therapeutics manufacturer

Amgen, using the term applied innovation, referred to it as

what you can do to improve the current delivery of services

to make them better, cheaper, or more value-add by delib-

erately and thoughtfully applying a certain principle in a very

simple context. Rob Addy, Research Director of Outsourc-

ing and IT Services at industry research firm Gartner, said,

At a theoretical level, innovation can be thought of as a rel-

ative measure of the preparedness of an organization to go

beyond the conventional norms of their sector or discipline

in order to differentiate themselves from their peers through

the provision of products and/or services that deliver addi-

tional benefit over and above the market leaders by utilizing

novel or inventive approaches.

While the above definitions of innovation in global services

and others we encountered do have similarities, there

are some interesting permutations that point to lack of clar-

ity and/or disconnects among the different constituencies inthe global sourcing industry. That said, it was heartening to

hear a variety of common intersection points including that

innovation is not radical or big bang, but rather, incremental

steps; the parties must jointly define innovation; there must

be a high degree of collaboration; it must be a partnership-ori-

ented relationship; and innovation happens when an idea is

turned into reality.

For the purpose of this article, which aims to present a true

pulse on the current state, perceived or real, of innovation in

global services delivery, well operate under the context of the

following base-level definition: 1) Constant, ongoing quali-

ty improvement; 2) constant, ongoing cost reduction through

efficiencies; 3) constant technology improvements; and 4)

delivery of business benefits, all of which are intended to enable


Figure 1

Special Report

OPTIMAL SOURCING APPROACH

The Optimal sourcing approach must emphasize collaboration and partnership

to drive solutions with innovative transformation dynamics that will evolve

over the length of the contract.

Collaborative Solution Design

Collaborative

Transformational

Approach

The Journey to

World-Class

Benchmarking

Transformation

Roadmap

High

EFFICIENCY

EFFECTIVENESS

World-classEFFECTIVENESS

Initial

Lift and Shift Target Future

State

Transformation

World-class

World-class

EFFICIENCY

1D

1Q 1D

1Q

HighLow

The Hackett Valur GridTM

Partnership

SOURCE: THE HACKETT GROUP


21/52

the customer to achieve its desired future state.

Most agree employing collaborative transformational

sourcing is the approach that will most effectively guide com-

panies on their journey down the innovation path. The Hack-

ett Groups depiction of this approach is depicted in Figure 1.

Impediments to and Solutions for AchievingInnovation

While the components of our above baseline definition

should perhaps be inherent expectations and deliverables in

an outsourcing engagement, most outside the service

provider community dont believe they are yet being

achieved in most cases. Why is this?

There is a confluence of factors, which Mark Hodges,

Chairman of sourcing advisory firm EquaTerra calls stabil-

ity at all costs, that make lack of innovation the norm, not

the exception. These factors include: Discarding the most

important provider selection criteria once the deal is signed confidence in the provider achieving the desired state and

chemistry/cultural fit with the service delivery team and

replacing them with a focus on cost savings and noise

reduction; soft change management and communica-

tions initiatives; compensation formulas for service delivery

executives which are geared toward ensuring all KPIs are

green; the wrong composition of skills in customer relation-

ship management and governance teams; capacity/supply

constraints of BPO service providers; and poorly structured

contracts that dont encourage or even allow for the possi-

bility of innovation.

Innovation is also lacking at the pre-contract stage. Forexample, John Moran, VP Strategic Sourcing at Scotiabank,

one of North America's leading financial institutions and

Canada's international bank, recently issued an RFI to 19

service providers for outsourcing a simple, commoditized

finance process. Not one of the 15 providers who respond-

ed cited any semblance of innovation into its response. All

that Scotiabank received was a labor arbitrage play. Moran

cites, What I would have liked to have seen is a provider

actually having already made a bet on a horse to win the

race. So, for instance, rather than asking what systems we

currently have and offering to run on those same systems for

a lower price, I would have thought at least one would have

said, Weve done an analysis on the market, weve decided

this software package is the best for doing that particular

process and were now doing that for 20 other customers.

The good news is there are techniques, as depicted in

Figure 2, which can be employed to garner innovation from

an outsourcing engagement.

There are additional techniques for achieving outsourc-

ing innovation. Many of those we spoke with recommend-

ed having a team of people devoted to innovation. For

example, Amgens Krish suggested that the business devel-

opment people could perform this role. Seeing a need forpeople with different vantage points or mind sets,


Special Report

Innovation counsel should

be built into the contractto force a mindset to

jointly create, deliver and

measure innovation dur-

ing the lifecycle

Vijay Kumar, CTO, Wipro

Applied Innovation

improves the current

delivery of services by

thoughtfully applying acertain principle in a very

simple context

Ramesh Krish, DirectorGlobal Strategic Sourcing Group, Amgan

Factors can be baked into

a sourcing agreement to

facilitate innovation allo-

cation of specific bud-

getary pools and pilot

projects, and the imple-

mentation of systemized

processes

Rob Addy, Research Director of Outsourcing andIT Services, Gartner

Emphasis on negative

terms during the con-

tracting phase inhibits the

types of discussions that

can lead to innovation

Tim Cummins, Presidentand CEO, International Asso-

ciation for Contract and Com-mercial Management (IACCM)


22/52


Special Report

TECHNIQUES FOR ACHIEVING INNOVATION

Innovation Reviewsl Annual or Quarterly Innovation Reviews (also know

as Innovation Boards)l Topics include: State of the market, industry trends

and relevant information, technology updates,solution demonstrations, site visits, to name a few

l Use peer groups to understand what is happeningin your industry, outsourcing and other industries.

Benchmarkingl Customers should always activate their bench-

marking clausesl Focus on best practice and comparators of innova-

tion, not just cost comparisonsl Benchmark both functional excellence and out-

sourced environments.

Satisfaction Surveysl Perform monthly, quarterly and annual customer

satisfaction surveysl 360 degrees all internal and external stake-

holdersl Satisfaction measures should include innovation.

Be a True Partnerl Allow/invite your provider into your annual plan-

ning sessionsl Brief them on your strategic and business objec-

tives and ask them to brief you on how they canhelp you achieve your business objectives

l Ask/demand innovation from your providerl Do not let the account team go tactical

get

them to think and act above tactical delivery.

Financial Base Casel Ensure your financial base case has sufficient

funding in the out years to pay for innovationl Funds must be set aside for business case investi-

gation, evaluation and developmentl Create a pseudo R&D budget.

Gainsharing and Incentivesl Use a gain sharing mechanism, on a case-by-case

basis, to pay for business case developmentl A license-to-sell innovation to the customer by

the provider is as important as a gain-sharingmechanism

l Include mutual rewards for both the customerorganization and service provider.

Service Levelsl Some SLAs must be tied to innovation or it will not

happenl Project milestones, go-live events, and pilots are

tangible measures of innovationlOther measures include accuracy, customer satis-

faction, productivity, Six Sigma (defects), workelimination, and such.

Governance and Relationship Managementl The customer governance team should have a

transformation or innovation ownerl The governance team should have sufficient staff

and budget to help drive innovationl The governance team must hold the provider

accountable for innovationl Reassure the provider that the relationship is

long-term; otherwise, they will be inclined to dis-invest in the relationship

l The customer must retain process managementexpertise at a level where they can clearly articu-late future state requirements, evaluate proposalsbrought forward by SPs and work with the cus-tomer organization to get the business case forchange agreed.

Executive Visibility and Supportl Ensure senior service provider visibility steering

committees, visiting their HQ, joint speakingengagements, regularly scheduled calls, quarterlyand annual briefings

l Foster/facilitate meetings and face time betweencustomer senior execs and provider senior execs.This cant be done too often.

Behavior/Communication/Culturel Be prepared to invest in and encourage change

share the risk and eventual reward with yourprovider

l Communicate you aspirations earlyl Transformation requires a partnership mindset,

not a transactional onel Innovation is often not brought to bear because

customers do not: Ask for it; define what theymean by it; motivate the provider to deliver it orput restrictions around it

l Customers rarely help the provider to understandwhat is important to them

l Can the sacred cows be targeted?l Can the recalcitrants be reassigned or moved out?

The Contractl Transformation, and its associated innovation,

must be a definable project in the contract;otherwise, it will not be funded and will not beimplemented

l Build a fair cost structure into the contract thatallows for innovation

l Distinguish between what is in the basefees vs. what is charged a fee fortransformation or enhancement

l Transactional contracts that onlyfocus on operational cost savings and notbroader-based business outcomes andbenefits are a barrier to innovation.

Figure 2

SOURCE: EquaTerra


23/52


Special Report

EquaTerras Hodges suggested partners from management

consultancies or ex-pats or big thinkers who have been

trained by ex-pats to understand the intricacies of different

geographies. And TPIs Allen pointed to the need for an

innovation team within the provider organization which has

the knowledge and expertise to ensure its ability to commit

to achieving the innovation goals of the customer.And Vivek Wadwha, a Harvard Fellow and Professor at

Duke University, emphasized per a research paper he co-

authored entitled,How the Disciple Became the Guru, that a

significant amount of innovation is now coming out of

India, in particular via its retooled education system. He

stated India has adapted and perfected western practices in

workforce training and development, and now takes work-

ers with poor education and weak technical skills and turns

them into highly productive technical specialists and man-

agers to be able to compete on the world stage.

Innovation in Todays M arketplace

Following are a wide range of cited examples of innovation

in services delivery. Whether they actually constitute true inno-

vation or not is subject to individuals perceptions.

Martin Mcphee, Partner at Accenture, noted one of the

top-of-mind things at Accenture is the overall green agenda.

Thus, one of its newer offerings is a health check to gauge a

customers green maturity. He also cited another specific

example in which a global financial institutions definition of

innovation was elimination of repeated failure and workload

being delivered manually that could be delivered automatically.

Accenture developed what is now a patent pending tool andprocess, and embedded them into the global delivery envi-

ronment. Over 12 months, it has achieved an overall 20 per-

cent improvement in service quality and a 26 percent reduc-

tion in service cost for its customer. Another Accenture

innovation, cited by Scotiabanks Moran (although not utilized

by the bank) is the development of a model bank that demon-

strated Accentures view of the components and operations of

an ideal bank.

Dr. Robert Lee, Chairman and CEO of Achievo, a software

outsourcing and IT-services provider which operates on a

model employing a local front-end with the back-end services

provided in China, pointed to a newly signed deal with Dan-

ish pharmaceutical firm Nycomed, via which it will provide

design, operation and maintenance services for the companys

validation management process for implementing a drug safe-

ty solution. Lee also cited development of major components

of the public address system at the Birds Nest stadium at the

recent Beijing Olympics, as well as development of PA systems

for many large airports in China.

Phil Fersht, Research Director, Global Services and Out-

sourcing at AMR Research, pointed to breaking down barri-

ers and leveraging synergies by bundling IT applications and

the business processes supported by those applications undera single service provider as one form of innovation. The exam-

ple he cited was that of Bristol-Myers Squibb, which recent-

ly bundled its HR applications and processes in an outsourc-

ing deal with IBM, and shortly thereafter signed a similar

agreement with Accenture for its F&A applications and finan-

cial-support services.

Capgemini deploys a component of its go-to-market

model, business insights, to create a hypothesis around its

clients customers processes, put them through filters, and iden-

tify areas for process improvement. David Poole, Capgeminis

Head of North American BPO, described an example in which

it had a hypothesis that when itsclients customers phoned to

check the rate plan on their electricity bill or slowed up their

payment process, those customers were likely to move their

electric service to a competitor. When Capgeminis analysis

demonstrated the customer might move its service, the client

would offer the customer a special rate or send them a free gift

to assist in customer retention, thus contributing to the clients

top line. Capgemini is also planning on launching next year

accelerated solutions environments for groups of its customers.

The goal is to get the customers to bounce ideas and challenges

off of each other so that Capgemini can design innovative solu-tions around the identified needs.

Taking a smart initiative is

the first step toward

innovation

John Moran, VP, StrategicSourcing, Scotiabank

Innovation is elimination

of repeated failure and

workload that is delivered

manually, instead of auto-

matically Martin Mcphee,

Partner, Accenture

Customer must accrue

benefit as a result of the

relationship with the ser-

vice provider Peter Allen, Partner and

Managing Director, TPI


24/52


25/52


Special Report

vice in its network, over and above what might be under con-

tract. Thus, a governance structure was put in place to moti-

vate the service provider to bring ideas to a defined group of

innovation managers, one from the provider, one from the cus-

tomer, both of whom were not burdened with the day-to-day

management of service.

Vijay Kumar, Wipros CTO, cited an example in which acustomer with 64 divisions spread across different geographies,

with more than 80 development instances and 12 produc-

tion/staging instances, wanted to develop a shared service sup-

port center. Employing collaborative innovation, Wipro was

able to achieve for the customer 30 to 40 percent cost savings,

5to 10 percent productivity year on year, an average of 10 per-

cent incident reduction on an annual basis, and improvement

in first call resolution. Kumar also runs an innovation coun-

cil in which 12 CIOs meet twice a year, exchange ideas, and

share knowledge and experiences to assist each in driving inno-

vation initiatives.

Contracting for Innovat ion The Great DivideWe encountered quite a bit of disagreement on whether or

not innovation can actually be written into an outsourcing

contract. On the naysayer side, Anish Nanavaty, CEO of

WNS Knowledge Services group, said, It is a truly collabo-

rative effort and it cannot be written into a contract. The cus-

tomer and the service provider have to be engaged in deep

communication and both must be willing and free to exper-

iment with the variables to deliver innovation. Arkadiy

Dobkin, President and CEO of EPAM, a leading global soft-

ware engineering and IT consulting provider with delivery cen-ters throughout Central and Eastern Europe, said, Shared

risk/reward stipulated in the contract could be a stimulating

factor, but I do believe that contractual agreements are not the

most efficient motivator to achieve innovation. And Scotia-

banks Moran stated, Weve tried to contract for innovation

in outsourcing and it doesnt really happen no matter what you

put into the contract. The provider is either going to come for-

ward with an innovative program, or not. You get a lot of bag-

gage ideas as opposed to true innovation when you go down

the contracting route trying to force it.

In the middle-of-the-road camp, Wipros Kumar stated,

Since collaboration is fluid in nature, everything shouldnt be

nailed down in a contract. However, innovation counsel and

reward structures should be built into the contract to ensure

it forces a mindset to jointly create, deliver and measure inno-

vation during the lifecycle of the engagement. And Garners

Addy noted some factors can be baked into a sourcing agree-

ment to facilitate innovation, such as the allocation of specific

budgetary pools to finance proofs of technology and pilot pro-

jects, and the implementation of systemized processes for

enhancement suggestion capture, periodic process reviews,

employee education and technology awareness sessions.

On the positive side, Accentures Mcphee emphasized thatby changing focus from inputs to outputs and outcomes, you

can actually start to define innovation into the structure and

framework of the contract. But this calls for a more mature

contract structure, which provides the flexibility and agility to

enable innovation to drive change. And AMRs Fersht added

that a new contractual element, called Business Service LevelAgreements, can account for adding in a given number of

innovation consulting hours per month.

Tim Cummins, President and CEO of the International

Association for Contract and Commercial Management

(IACCM) cited the need to radically rethink global services

delivery contracts. Cummins says, Were trying to coordinate

something that is incredibly complex. And while there must

be a strong level of discipline, there must not be rigidity. Both

sides use the contract as a vehicle to try and manufacture cer-

tainty where there is none.

Cummins noted an emphasis on negative terms during the

contracting phase inhibits the types of discussions that can lead

to innovation. Thus, he encourages a focus on the desired out-

comes from the outsourcing engagement when crafting the

contract, as well as building in more carrots and less sticks. Fig-

ure 3 depicts IACCMs recommended innovation-driving con-

tracting structure and process.

The Future of Innovation in Global ServicesDelivery

So how will innovation in global services delivery evolve,

and what will it look like, in the relative near-term? A variety

of the experts we spoke with cited open innovation top-ics and ideas are put out on the Internet to gain the wisdom

Enable customers toaccess potentially game-changing and/or new mar-

ket business models, i.e.prototypes and pilots, tocome out with new ideas

Ananth Krishnan, VP andCTO, TCS

Get customers to bounceideas and challenges off

of each other so thatinnovative solutions aredesigned around the iden-tified needs David Poole, Head of North

American BPO, Capgemini


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Special Report

of the crowds and will be funded if a provider sees viable, scal-

able value in the response as well as social computing and

social networking to drive innovation.

On a more pragmatic level, WNS Nanavaty stated glob-

al services will bring varied, low-cost resources in large quan-

tities that can be deployed in specially-crafted processes in an

anywhere, anytime model. And Gartners Addy thinks wellbe able to create the environments, processes and service deliv-

ery team templates that foster and encourage innovation.

TPIs Allen added the final caution, noting that left

unaddressed, were headed for a definition of outsourcing that

is entirely within the box, its entirely commodity-oriented, the

margin expansion opportunities for the providers will be

severely limited and the customer receptivity to these rela-

tionships in the context of adding more value down the roadis going to erode. GS

WORDS TO THE WISE

PROVIDERS

l David Poole from Capgemini: Create formalprocesses and report mechanisms for innovationthat involve everyone within your own organizationand your customers organization to ensure theideas get implemented.

l Kaushik Bhaumik from Cognizant: Innovation is acontinuous pursuit, not a one-time event. Itrequires a focus on investment in new processesand technologies, some of which can be very for-ward leaning, in order to be able to deliver them tocustomers. In addition, approaching innovation in a

part-time manner won't yield meaningful results.l Mark Hodges from EquaTerra: The burden of proof

is on the provider, not the customer.l Rob Addy from Gartner: Invest in people, and rec-

ognize and celebrate those that question the sta-tus quo. Only by challenging the accepted norms oftoday will tomorrows innovative best practices bedeveloped.

l Anish Nanavaty from WNS: If you dont know thebusiness issues that keep your customers up atnight, you arent going to be in a position to helpthem innovate.

CUSTOMERSl Phil Fersht from AMR: Dont go over the top with

multisourcing ... multisource sensibly. And takemaximum advantage of your contract negotiationor renegotiation to bring the innovation discussioninto play.

l Kaushik Bhaumik from Cognizant: Don't underes-timate the internal change management requiredto successfully reap the benefits of innovation.Organizational lines may need to shift, processessimplified and role/responsibilities fundamentallychanged in order to get the full benefits ofinnovation. Our experience indicates that suc-

cessful change management is the differencebetween true value-adding innovation and acade-mic exercises.

l Rob Addy from Gartner: Recognize innovationwont just happen. It needs to be encouraged anddeveloped over time, and that takes investment.Time and resources (as well as cold hard cash) areneeded to help new ideas become reality.Customers who expect their providers to burdenthese costs are likely to be disappointed with thelevel of innovation they experience.

l John Moran from Scotiabank: Dont get too hungup on sourcing for innovation.

l Anish Nanavaty from WNS: Understand how thelevers of innovation link back into processes that

reside within a global services relationship.Service providers need to be exposed to how thoselevers can move the needle for your organizationso that they can eliminate the artificial constraintsset by contracts.

The thought leaders with whom we spoke for this article offered the following

words of advice to the provider and customer communities on how to position,

ratchet-up and achieve innovation in global services delivery


27/52


By Mike Beals

THE TOUGHER THE ECONOMY, the better

the case you can make for outsourcing in a tra-

ditional or shared services environment. But

theres a problem. As organizations scale up

their use of outsourcing, it becomes more diffi-

cult to monitor, manage, measure and report on those often-

complicated relationships. As a result more than a few CIOs

and other C-suite executives live in fear of some very simple

questions: Where do we stand? What is outsourcing really

doing for us? What are the numbers? And lets not forget the

big one: How can we optimize this multiprovider service

delivery model?Its an age-old dilemma, and today its haunting most IT

and business-process organizations that have outsourced: If

you cant measure it and/or provide aggregated reports on it,

how are you supposed to know whether it can be improved?

When more than half your services are delivered by multiple

external parties, how can you provide cogent end-to-end

performance, consumption and chargeback reports to your

internal customers? And if you cant prove outsourcings

value, why should your organization consider expanding it

or even supporting it?

Why indeed. Failure to quantify the value of your busi-

ness services, whether delivered via outsourcing or other-

wise, may lead to internal constituents pushing back, de-funding or various units freelancing their own outsourcing

A successful outsourcing initiative requires the implementation of a disciplined

outsourcing lifecycle methodology. To make this methodology work, both the

customer and the service provider must together design an approach to govern

the relationship using the right governance tools and guidelines

GOVERNANCE TOOLSCAN BE A GAM E CHANGER


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relationships. This could mean chaos a possibility that

keep executives up at night.

What You Don' t Know Can Hurt You Badly

You already know that the complexity of outsourcing

methodologies makes finding and fixing errors difficult. Too

much governance team time is spent verifying invoices by recalculating Additional Resource Charges/Reduced

Resource Credits (ARCs/RRCs), service-level penalties,

earnbacks and chargebacks using different rate tables for

each country and currency. A recent study by EquaTerra, a

global business advisory firm, found invoicing error rates

run at about nine percent on average across IT Outsourcing

(ITO) and Business Process Outsourcing (BPO) deals glob-

ally. And yet, fast verification is the key because you proba-

bly only have 30 days to dispute an invoice and 60 days to

recover fees. Of course not all of those errors will be resolved

in your favor, but the more outsourcing relationships youhave and the higher the dollar volume, the more money you

have at risk.

The Evolution

For most organizations, outsourcing has occurred in an

ad hoc fashion, and now, unfortunately, most of the process-

es around governing outsourcing are inconsistent or non-

existent. While some organizations under-staff governance

activities, others use overqualified resources for routine low-

value activities. Today about 50 percent of the work of gov-

ernance is routine, and thus ripe for automation.

Even organizations that have instituted disciplined gov-

ernance solutions around outsourcing find themselves inun-

dated with information, most in formats unusable or diffi-

cult to share, like spreadsheets. End-to-end service levels and

financials become difficult to obtain and use. Management

of providers takes too long, leaving precious little time for

collaboration and change management. Determiningacceptable parameters for key performance indicators

becomes near impossible. How can managers quickly focus

on key pieces of data that fall outside acceptable parameters?

In addition, its not likely that any of the governance

team members will stay for the term of a deal lasting five or

10 years. So do you have any process/solution that will serve

as a knowledge repository for how the contract has evolved

or how issues have been resolved? Having a good governance

director or even two doesnt address the problem

because heroes dont scale. In fact, too many outsourcing

deals succeed or fail based on the capabilities of one indi-vidual. So its time to take it up a notch; maybe three.

A Holistic View point

With the right portfolio governance management tools,

organizations can streamline their outsourcing processes,

saving money and time; automate transactional governance

activities with built-in calculations tied to the agreements

and associated business cases; and mitigate risk through

compliance and audit management. Bottom line, organiza-

tions that approach outsourcing properly can appreciate sav-

ings of 2 to 5 percent of total contract value through

improved operational efficiency.The goal is to aggregate data in ways that provide mean-

ingful information and get it into a system that makes sense

so people will start using it. The only way thats going to

happen on a consistent basis is if its guided by a framework

supported by the right kind of tools. Youve heard about

something being simple but not easy, right? This is the other

way around: Really knowing your outsourcing performance

will never be simple, but it can become much easier with the

right governance tools and guidelines.

And dont discount collaborative capabilities.

Collaboration between multiple providers and governance

and governance and business is critical for most ITO

and BPO deals.

The Four Phases of Governance Progression

No matter where you are, the idea is to build a solid

foundation, and then move up to the next step.

lBasic governance: Youre addressing the acquisition of

commodity products and services and have some basic gov-

ernance in place in an attempt to manage contracts, pay

invoices, and such.

l More sophisticated relationship management: Youre

starting to transform the business by leveraging your out-sourcing partners to provide more value. This requires estab-


Management

Should You Consider Managing Your

Outsourcing Relationships as a Portfolio?

Probably so, if:

l The percentage of services delivered by external

resources is growing, or over 50 percent

l You are blending multiple providers in different

geographies, or within a function

l You're unable to determine which throat to choke

when there is a probleml It's difficult understanding the respective role of

each provider from an end-to-end service perspec-

tive, as well as how they interface (or overlap) with

other providers

l It's difficult to calculate and report on charge-

backs to the business units

l End-to-end performance reporting takes too long,

or is labor intensive

l You do not have service catalogs to communicate

your services, and charges to internal customers

l You expend more than one full-time resource in

the analysis, consolidation and reporting of finan-

cial, consumption, and performance data.


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lishment of a different kind of relationship with service

providers, one in which they understand your business dri-

vers so they can provide expertise, not just commodity ser-

vices. Because this is a much more collaborative relationship,

it requires more sophisticated management.

l Managing multiple outsourcing relationships as a

portfolio:These organizations are moving up the ladder, buttoo much work is being done ad hoc, which is wasteful. The

missing link is a framework. Frameworks provide consisten-

cy and process, and from there you build the ability to

benchmark. Organizations at this stage develop governance

centers of expertise, which consolidate leveragable gover-

nance activities like invoice verification, contract adminis-

tration, financial and performance reporting.

lThe power of tools: This is the step that many organi-

zations need to take. The right tools liberate information

that can optimize the service delivery environment. In too

many cases, service providers plunk inch-thick binders

down on CIOs desks. Are most of the answers there? Sure.

Does the CIO have the time to dig them out and interpret

them and can he share that information easily? Not a

chance, unless you want to hire a staff of spreadsheet jock-

eys. Therefore, the information is useless, and its impossible

to optimize the outsourcing environment.

What To Look For in a Solution

Find a comprehensive, fully scalable buy-side tool that

automates the transactional components of governance and

provides decision-making support for more strategic work.

As an example, Governance WorkPlace, an outsourcingportfolio-management tool by EquaTerra, is designed for

teams that manage outsourced or blended sourcing relation-

ships in traditional and shared services organizations. Thats

fortunate because theyre often the ones struggling to effec-

tively manage internal and outsourcing relationships.

M ust-have Features

l Scalability: Find a tool or solution that can assist not

only at an individual deal level, but can also scale across mul-

tiple back-office functions, multiple providers, and globally.

lA simple dashboard:This makes it easy to organize and

display key performance indicators and supporting data.

KPIs quickly focus management on problem areas so deci-

sions will be faster and better.

l Quick-turn analysis: A useful business-intelligence

platform provides easy-to-use export charts, graphs, data on

multiple dimensions like business unit, geography, provider,

to name a few.

l Automation: True portfolio-wide solutions will auto-

mate complex outsourcing methodologies and governance

processes via workflow. This helps institutionalize the work

of governance and gets away from hero-led deals.

lMaintainability: Make sure you get the administrativetools necessary for

Documents

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