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Lokendra Tomar on July 14th, 2009 at 11:37 am :
Comments 000
Aberdeen Group recently published Partnering for Performance: Knowledge Process Outsourcing. This report explains how companies have improved operations and profits by migrating high-end, knowledge intensive work to the right outsourcing provider. In this post, we summarize key Aberdeen findings and then share our perspective as an integrated KPO provider.
Integreon is making available a free copy of this report; click here if you would like to request a copy. To receive the report, you must complete the registration form with the required contact information, including an e-mail address with a business/corporate domain name, and agree to subscribe to the Integreon blog.
Report Summary
Aberdeen found that companies are outsourcing more complex and high-value processes. More specifically, the following areas are likely to see more outsourcing: market and industry analysis, competitive intelligence, consumer behavior analysis, and regulatory analysis.
The report cites IRI, a consumer data provider and analysis company, to illustrate how a “Best in Class” company can benefit by outsourcing. By outsourcing all processes that did not require routine interaction with its customers, IRI achieved the following benefits:
- Reduced cost by offshoring 35% of workforce
- Improved speed of capturing POS data by 33%
- Accuracy up to 99.6% (three point gain)
- Errors down 80%
More generally, Aberdeen found that “Best in Class” outsourcing consumers improve customer satisfaction by 18%, decrease time to market by 5%, and increase the number of projects meeting QC targets by 24%. Achieving these gains, however, is by no means automatic. Best in Class companies beat the average and lagging companies by a wide margin, as this table illustrates:
| (Percent change) |
Best in Class
(Top 20%) |
Industry Average
(Middle 50%) |
Laggards
(Bottom 30%) |
| Customer Satisfaction |
18
|
7
|
6
|
| Time to market |
(5)
|
7
|
11
|
| Projects meeting QC |
24
|
9
|
1
|
The report provides useful guidance on steps Best in Class companies take to achieve the biggest benefits from outsourcing. Companies must choose the right provider, define the work outsourced and monitor it regularly, and govern the relationship effectively. Also, they must work with a provider that can:
- Map processes effectively, pilot test them, then roll them out
- Communicate effectively with the company and address, in advance, how problems will be solved
- Measure and meet the SLAs customers set
- Offer a global delivery platform with on-demand service
Integreon’s Views
Integreon’s experience delivering high-end knowledge services for the last decade supports Aberdeen’s findings. We have always viewed outsourcing as more than just cost savings and have invested significantly in building domain expertise, creating a global delivery platform, fostering a culture of continuous improvement, re-engineering processes, and deploying technology aggressively (even to the extent that it cannibalizes some of our existing business and means additional investment in innovation to keep the business growing).
For each vertical market we serve, our Account, Implementation, and Program Management team, which is a group of domain experts who serve as consultants and relationship managers, work closely with companies to deliver more than just cost savings. They map processes, establish communication plans, and ensure companies choose, capture, and then use metrics. We have also long understood the value of global delivery and now offer on-demand service from the US, UK, India, and the Philippines.
We have many examples of helping our customers define and improve service levels, expand coverage and the range of services for their users, and improve time to market with quick ramp ups. Our belief is that to keep winning business, we have to be significantly better experts than our customers rather than just being a low cost provider.
Filed under Knowledge Outsourcing (KPO)
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Lokendra Tomar on March 11th, 2009 at 10:31 am :
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All outsourcers have grappled with how the current economic crisis will affect outsourcing. Evidence is emerging that outsourcing activity will increase.
Few companies or professional service firms made outsourcing decisions at the onset or in the early stages of the economic crisis. As companies try to exit crisis management or adapt to a long-term crisis, however, they are again thinking about more tactical/strategic responses. And outsourcing is back on the agenda.
For example, Business Week, in JPMorgan Chase to Increase India Outsourcing 25% (9 March 2009), reports that JP Morgan “will increase its outsourcing to India by 25% this year to nearly $400 million [and] will also manage the integration of the acquired companies from India to bring down the cost of integrating different information technology (IT) systems.”
This article is consistent with many third-party studies over the last few years that outsourcing is only partly about cost savings. It’s also about rationalizing business processes and freeing up internal resources for higher value work.
In our business, we see the same signs of a shifting mentality. For example, we recently began what we believe is an industry first, outsourcing of an entire research function for a global investment bank (including onsite and offshore teams). This was unthinkable previously. And in the UK, following our announcement of outsourcing the Middle Office of top 30 law firm Osborne Clarke, we have had many inquiries about outsourcing from top 50 UK law firms.
Filed under Economic Trends
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Lokendra Tomar on November 25th, 2008 at 11:19 am :
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How should knowledge process outsourcers (KPOs), their clients, and their employees respond to current crisis in financial markets?
Client Perspective
Choose your vendor carefully - If there was ever any doubt, the current turmoil shows that that service quality and price should not be the only factors customers consider . Long term vendor financial stability is critical as well. Vendors with only a few hundred employers who depend on a handful of clients may find it difficult to survive even a single client loss. Depending on how much business they lose and their financial backing, a key client loss can put at risk continuity of service to remaining clients. Buyers should seek vendors with scale, good financial backing, and a broad customer base.
Outsourcing as a survival tool - Outsourcing is not just about cost savings - it can be a company’s lifeline too. Unless you remain competitive, you may not survive as a business. You may be able to save more jobs (and create new ones) by outsourcing if done smartly and with the right vendor. Choosing the right vendor will help you improve business economics, achieve flexibility, innovation, and help create growth (jobs). The downturn could last quite some time so it is important to consider both your cost basis and operating efficiency, even as your deal with what may be emergency circumstances.
Vendor Perspective
Reduce client concentration - While it’s always good to get more business from existing clients, look to balance the client mix. Otherwise, if your biggest client accounts for 40% of revenues and suddenly disappears (which seems to happen very often these days), you may not be able to survive the impact. Diversify into more verticals and geographies. Winning new business in this economy may be hard, but point your sales team in the right direction now.
Enhance capital - Clients will start asking more probing questions about the financial stability of your business and access to capital. Cover your financial bases. Work towards moving to profitability and get an investor who can be there to support you on your long term business plan/strategy
Leverage opportunities to consolidate /buy cheap assets - A major economic downturn is a time to be simultaneously conservative and bold. Be conservative in managing operating costs but be bold in buying good assets (companies, people), especially when many outstanding properties are available at the lowest price in years. Tight operations coupled with strategic acquisitions will pay handsome dividends when the economy eventually turns around.
Employee Perspective (for India-based personnel)
A downturn is not the end of the world. It’s not first time it’s going to happen. The economy will recover and KPOs will grow again at a rapid clip. This is perhaps first time that global events have had a direct impact in India, specifically immediate job losses. Previously, these types of incidents were limited in scope and barely would even be covered in the press. Now, however, the impact has been pronounced, both in captives and third party vendors. KPOs are not the only ones affected by the global turmoil; many other sectors have shared in the turmoil (e.g., consider what has happened with domestic Indian airlines). The pervasive impact of the Western downturn on the Indian job market shows that the Indian economy is now more tightly integrated into a US/global environment. So it is natural that Indian jobs in many industries will rise or fall based on events in US/global markets.
But, there is hope among this bad news. Outsourcing is expected to pick up even more strongly in the months to come and that should drive new job creation.
Filed under Business Process Outsourcing (BPO), Economic Trends, India Business and Economy, Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Outsourcing Industry News
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Lokendra Tomar on August 5th, 2008 at 2:44 pm :
Comments 000
Business Week ran a story on the Indian Economy in its July 2nd edition “India’s Economy Hits the Wall”. It paints a grim picture of the Indian economy and its prospects. Though the article is certainly accurate, observers of and participants in the Indian economy should not lose sight of the fact that overall growth will likely continue at about 7 or 8%, down from 10% or higher.
The negative macro environment highlighted by Business Week may actually benefit outsourcing companies. In the last two months the Indian rupee has depreciated rapidly against US dollar and is now at 43 rupees to the US dollar, which directly benefits outsourcing companies operating from India (costs being in Indian rupees and revenues being in US dollars). This was a big worry for outsourcing industry in 2007 when the rupee topped out at INR 39 to USD level.
Furthermore, most major India-based outsourcing companies are insulated to some degree from the Indian economy. They have established a global delivery platform, meaning building operations centers in the US and elsewhere. For example, Wipro invested in several US delivery centers (see, e.g., Information Week article, April 2007). And finally, smart outsourcers have taken other steps to insulate their businesses, particularly keeping salary hikes under control by limiting annual salary hikes to an average of 10% despite high inflation and supplementing pay with incentives including professional development leadership training.
Filed under India Business and Economy
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Lokendra Tomar on July 29th, 2008 at 8:00 pm :
Comments 000
Large India-based outsourcer Infosys is now trying to move from a ‘profit’ focused business model to a ‘growth’ focused business model, perhaps in response to competition and market downturn (see Profit-focused Infosys now looks to growth in LiveMint.com, 29 July 2008). In our view, this means
- Showing flexibility in pricing to win bigger contracts but at the same time
- Maintaining operational cost focus
Infosys has grown to such a big size now that it can no longer afford to ignore large (but low profitability) contracts which sometime requires transfer of assets, employees etc. TCS has been aggressive in going after these types of contracts and have won some big deals in the past. Infosys’ strategy now is a tacit admission that it can no longer afford to maintain high (abnormal) profitability without sacrificing growth.
The ‘growth’ model has been a forte of Cognizant in IT industry, which has publicly maintained that they will re-invest profits for higher growth. This model has had very good success and Cognizant has been one of the star performers both in terms of share price and operational performance.
At Integreon, we do not see any immediate impact of this shift on our KPO and LPO business, but we keep a close watch on the bigger outsourcing industry.
Filed under Outsourcing Industry News
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Lokendra Tomar on July 21st, 2008 at 8:00 pm :
Comments 000
Outsourcing the Offshore Operations by Steve Hamm in Business Week (16 July 2008) suggests that third-party outsourcing providers are generally better at managing operations than captive centers. This thesis comports with conventional wisdom.
A recent research report by TPI, a leading sourcing consulting firm, however, concludes otherwise. Captive 2.0 – The Next Generation of Indian IT and BPO Captive Operations finds that the difference in performance between third-party delivery centers and captives (a corporation’s offshore, owned and operated center) may not be so cut-and-dry. The research looked at four segments:
- Average captives
- Average third-party providers
- Best-in-class captives
- Best-in-class third-party providers
The data showed that while average third-party outsourcing is “better” than the average captive on cost and value, best-in-class third-party still falls behind best-in-class captive.
For suppliers, the real competition for best-in-class third party outsourcing providers is less other third-party providers than it is best-in-class captives. Moreover, as outsourcing moves up the value chain into the middle-office and as global macro-economic volatility continues, outperforming captive sourcing become even more difficult, requiring highly adept management and a global delivery and customer service footprint.
For buyers, this means a flexible approach to outsourcing strategy: a mix of captive and third-party services may be necessary. Buyers (clients) may do better with a captive where proprietary technology and detailed domain expertise are critical and difficult for a third-party to master. Where processes and functions are generic or sub-scale, third-party providers often have the advantage.
Filed under Captive v. 3rd Party
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Lokendra Tomar on July 16th, 2008 at 8:00 pm :
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The annual Black Book of Outsourcing survey results were recently released. Beyond the rankings, authors Douglas Brown and Scott Wilson report on several important findings in their “state of the industry” report. (For the record, Integreon scored very well in the rankings; see our Black Book press release.)
We think the most striking finding is what the authors calls reverse outsourcing:
“Outsourcing is taking on a new twist. Rather than U.S. jobs going to India, the latest evolution of outsourcing is moving in reverse, with India’s leading service providers opening offices on Main Street, USA. The reverse outsourcing development is too new for Indian companies to point to actual cost savings yet, but moving front office processes closer to the client is fast attracting buyer interest. Major suppliers are responding to the demand for enhanced, locally delivery customer service.”
Several Indian outsourcing firms have established and grown US presences, not only for front office marketing and sales, but also for delivery of services as well. TCS, Wipro, Satyam and HCL are notable examples. Outsourcers have multiple reasons to adopt “dual shore” strategies. One is purely administrative, linked to visa challenges.
The bigger and more important reason is the realization that the best customer service requires a combination of an offshore and onshore team or, in some instances, pure onshore teams. In Integreon’s view, supported by the Black Book findings, firms with only offshore operations will find it increasingly difficult to provide world-class solutions.
The authors also comment on what buyers value. For client segments in the early stages of adopting outsourcing, for example legal process outsourcing (LPO) such as legal document review, “client relationship and cultural fit and trust and end-to-end service” is key. This may be because the providers may not have differentiated themselves on service delivery in early stages and cultural/relationships issues become proxy for potential performance.
For more mature segments – document process outsourcing (DPO) or knowledge process outsourcing (KPO) such as research and analytics – “innovation and deployment and comprehensive end to end service” are the key to successful relationships. This finding adds to the already overwhelming evidence that as outsourcing clients gain sophistication and develop increasingly high expectations, providers must deliver more than simple cost-arbitrage. Innovation, cultural fit, and domain expertise are among the critical success factors for the future.
Filed under Business Process Outsourcing (BPO), Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips
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Lokendra Tomar on June 15th, 2008 at 8:38 pm :
Comments 000
IT outsourcing has already seen the advent of billion dollar companies from India (Infy, Wipro, TCS, Satyam) which compete head-on with global giants such as IBM and HP. A recent report, Firstsource in WNS, Intelenet buyout radar, Economic Times, 27 May 2008, suggests that we likely will see a similar pattern in the business process outsourcing (BPO) market.
WNS and Intelenet are both reportedly planning to bid for Firstsource, which should take combined entity revenues higher than or close to $billion mark. Genpact also looks all set to achieve billion dollar revenue this year. If this happen, the BPO market will see its first billion dollar player much faster than did the IT outsourcing market. The IT sector took almost 15 years to get there; BPO seems on track to arrive there in 10 years.
Does that mean that with each new wave of outsourcing (IT, BPO, KPO, and LPO) companies are becoming better with the benefit of previous wave (experience) and growing faster? If yes, then we will perhaps see the first KPO/LPO $billion business in 5 years.
Filed under Business Process Outsourcing (BPO)
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Lokendra Tomar on March 20th, 2008 at 3:14 pm :
Comments 000
Several articles have recently suggested that the likely recession in the US will be bad for the outsourcing industry. In our view, the economic uncertainty is a dual-edged sword with more positives than negatives. Integreon may experience some negative news from some customers but the unsettled economy increases our opportunities. Two factors will determine the overall impact for our knowledge process outsourcing.
On the one hand, the slowdown negatively affects our clients. In some instances, this may mean less business for us. This is likely true where (1) Integreon and other KPO penetration is already at a very high level or (2) client spending on KPO services is discretionary and does not add to enterprise profits for the clients. This negative affect, however, may be tempered by our clients deciding to compete harder for the smaller pool of available business (e.g., “let’s do more pitch books” or “we need to provide more value at the same price to keep customers”).
On the other hand, the slowdown forces our clients and prospective clients to seek better value propositions to protect or improve their profits. They will turn to Integreon services to benefit from the offshore cost, efficiency, and expertise arbitrage.
On balance, I think that the drive to win business, to increase value, and to reduce cost are likely to outweigh for Integreon and other KPOs what may be a decline in overall economic activity in the US.
Filed under Economic Trends
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