Download - Op2i Outsourcing Survey 2008 Exec Report
Outsourcing 2.0 - Survey 2008
Exec Summary
Full report available from www.Op2i.com
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9th March 2009
Bharat Vagadia
Op2i
- a business improvement firm specialising in outsourcing
We provide and combine advisory, training and implementation services throughout the
sourcing lifecycle
We leverage our experience, tools and relationships to ensure clients outsource the right
processes for the right reasons, to the right location and to the right service providers
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We offer managed outsourcing solutions from undertaking programme management on
behalf of our clients to fully managing the outsourcing contract on a client’s behalf
We provide intermediary services to pre-screened service providers which help clients’
go-to market quickly, at reduced cost and risk
Convergence the new driving force
- outsourcing will equate to globalisation
• Convergence : Interaction, overlap and absorption of different industries converging together in a more competitive and deregulated market
• Convergence is happening in a range of forms changing the nature of market structures, demand, competition, competitors and the ways of doing business
• Convergence - what the world looks like tomorrow:
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– Skill sets are available everywhere,
– Everywhere is connected,
– Knowledge is ubiquitous,
– Everything is now,
– Everywhere is here,
– Resources are globally distributed.
Outsourcing and Offshoring can
enable businesses to transform
their organisations and become
flexible, dynamic and globalised.
In the future the terms
“outsourcing and offshoring” will
replaced simply by globalisation.
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Convergence Trends © Op2i 2008Convergence Trends © Op2i 2008
Economic downturn and convergence
- implications for outsourcing
Continuing overcapacity, increasing globalisation, the commoditisation of some services, the emergence of new technologies and what appears to be a prolonged depressing economic outlook, one thing is clear: organisations large
and small face an era of exceptional competition – this trend is likely to continue for some time, beyond the current economic cycle
The implications for the outsourcing industry are less clear – it is likely that Europe will see some curbs on offshoring, given increasingly protectionist policies and trade union pressure, as unemployment rates rises
Requires organisations to become more
efficient (in all its economic forms) and
Forcing organisations to think local and
protect jobs, at higher costs and reduced
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Convergence and competition are
long-term trends that will only get
more intense with time, whereas
the protectionist trends are short-
term, a reaction to the current
economic slowdown
efficient (in all its economic forms) and
global
protect jobs, at higher costs and reduced
efficiency
How do you persuade end users
to incur the substantial initial
cost involved in any new
outsourcing contract?
Given that a substantial number
of outsourcing deals fail, new
and innovative business models
will be required!
Key messages from survey
- companies need to focus on
• Defining what and why activities should be outsourced today and in the future – definitions
of core and non-core will change over time
• Better and smarter SLAs and measurement systems – without which a contract is useless
• Selective use of specialist advisors both pre and post contract – you cannot afford the
risks of failure
• Flexible contracts – convergence implies constant change – should however not mean
lightweight contracts
• Management of relationships (partnerships) - communication and culture, especially as
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• Management of relationships (partnerships) - communication and culture, especially as
clients increasing use multi-shore strategies
• Going beyond just labour arbitrage – how can partners help you in improving performance
and entering new markets
• Ensuring multi-disciplinary teams to manage the programme – outsourcing as a
transformational strategy effects the whole organisation
• For suppliers, either have scale, deep knowledge or both – competing on the strength and
depth of their talent pool, knowledge, technology enabled infrastructure and client
relationships – move towards multi-delivery locations
Survey findings
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Survey findings
Economic downturn likely to lead to more outsourcing
40%
50%
Which of the following best describes the main effect outsourcing and offshoring has upon domestic businesses
The general consensus (50% of respondents) believe interest in outsourcing has increased with
the economic downturn
The majority of respondents believe outsourcing has a
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0%
10%
20%
30%
Positively helps in terms of productivity
and efficiency
Helps cut costs and improve profitability
No real impact Detrimental to all local businesses
Detrimental to the SME market in the
local economy
outsourcing has a positive effect on
domestic businesses
Data protection however remains a real concern
20%
30%
40%
50%
Which of the following best describes your view of Data Protection and Intellectual theft within off-shoring
How do emerging destinations overcome
data protection concerns?
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0%
10%
20%
It is a real problem and threat
I believe it may be a problem in some cases
I don't believe it is actually that important It has been blown out of proportion by the
media
The government is probably actually worse
Not sure
Propensity to outsource and offshore business functions
- the usual suspects
60%
80%
100%
Propensity to Outsource by location
Onshore Offshore Never
Marketing, media management, IT security and virtual PA functions are the least likely activities to be
outsourced
Six activities dominate the offshoring space: 1.Software
Development, Testing & Management, 2.IT support, 3.Email customer support,
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0%
20%
40%
MK
T R
es / C
om
p
Inte
lligence
Sale
s L
ead
Gen
era
tion
Mark
etin
g
Med
ia M
an
ag
em
ent
Custo
mer S
up
port –
call
cen
tres
Custo
mer S
up
port –
em
ail
HR
–tra
inin
g a
nd
recru
itment
HR
–p
ayro
ll, benefits e
tc
Pro
duct D
evelo
pm
ent
Lo
gistics a
nd P
rocu
rem
ent
Facilitie
s Man
agem
ent
IT S
up
po
rt
IT S
ecurity
So
ftware
, Web
Develo
pm
ent, T
estin
g a
nd
Man
ag
em
ent
Invo
icing, B
ookk
eep
ing, A
cc
Fin
an
ce a
nd T
reasu
ry
fun
ctio
ns
Do
cum
en
tatio
n/K
now
ledge
Mn
gt
Virtu
al P
A
3.Email customer support, 4.Documentation and
Knowledge Mngt 5.Call centres 6.Invoicing,
Bookkeeping and Accounting
Activities most likely to be outsourced onshore include: HR recruitment and training, Facilities Management, and
Logistics
Loss of control and conflicting management styles remains
biggest vulnerability faced by businesses
0%
10%
20%
30%
40%
Service Provider for Performance
Strategic Information Dependence
Conflicts in management styles
Data protection Compliance
Biggest vulnerability faced by business when outsourcing on-shore
The biggest vulnerability faced by businesses when
outsourcing onshore or offshore includes: dependence
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0%
10%
20%
30%
40%
Service Provider Performance
Strategic Information
Dependence
Conflicts in management style
Data protection Compliance
Biggest vulnerability faced by business when outsourcing off-shore
offshore includes: dependence on the service provider for
performance and conflicts in communications and management styles
Benefits realisation and reintegration are largest financial
risks
0%10%20%30%40%50%60%
High up front capital and transition costs - e.g. IT
systems.
Cost of reintegration of processes on
termination of the outsourcing agreement
Cost associated with managing the service
provider.
Not achieving the cost benefits
Largest financial risk when outsourcing onshore
The greatest financial risk remains the possibility of not achieving the cost
benefit, followed by cost of reintegration of processes on termination of the
outsourcing agreement
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0%
10%
20%
30%
40%
50%
High up front capital and transition costs - e.g. IT
systems.
Cost of reintegration of processes on
termination of the outsourcing agreement
Cost associated with managing the service
provider.
Not achieving the cost benefits
Largest financial risk when outsourcing offshore
For offshoring, costs associated with managing the service provider rank
higher than up front capital and transition costs
Inadequate internal skills and expertise, together with poor
contracts and SLAs source of largest internal risks
0%
10%
20%
30%
40%
Poorly constructed contracts and Service Level Agreements
Insufficient internal project management skills
Inadequate skills, proficiency and experience in outsourcing
Source of largest internal risks when outsourcing onshore
All three areas remain a concern for many
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0%
10%
20%
30%
40%
Poorly constructed contracts and Service Level Agreements
Insufficient internal project management skills
Inadequate skills, proficiency and experience in outsourcing
Source of largest internal risks when outsourcing offshore
concern for many organisations
Partnerships approach, secondment and seeking specialist
advice are the most effective risk mitigation strategies
0%
20%
40%
60%
80%
Negotiate strong contract
Build Partnership relationship
Manage public relations and press
Impose legal obligation on
supplier
Place limitations on subcontracting by
supplier
Most impacting outsourcing risk mitigation actions
Most effective risk reduction actions when outsourcing
Development of a partnership relationship between customer and supplier – easier said than
done however.. …
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0%
20%
40%
60%
Consulting with a specialist outsourcing
intermediary
Obtaining professional training in outsourcing
Accessing information from a trade association
Seconding staff to provider
Most effective risk reduction actions when outsourcing
Seconding staff and consulting specialist outsourcing
intermediary
Good governance, measurement and monitoring systems
seen as being critical to success
0%
20%
40%
60%
Audit of vendor processes and security
arrangements
Shared quality management system
Well defined governance structures
and process
SLA measurement and monitoring systems
Means of achieving low risk outsourcing project implementation
Combination of a well defined governance structure and
sufficient SLA measurement and monitoring systems.
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0%
20%
40%
60%
80%
Exhaustive business plan
Prior process optimisation
Selecting right processes/function for
outsourcing
Rigorous quality planning, systems and
processes
Reintegration plan of processes
Means of gaining maximum return from outsourcing investment
Selecting the right process and functions to
outsource in the first place
India remains in the lead, but number of destinations on the
increase, and clients becoming more selective
Access to resources
Labour costs
Language
Skilled work force
Existing track record
First choice destination: India - why?India was ranked number one choice by a long way
China comes a very distant second place as the first choice destination, with UK, Poland, Costa Rica, Philippines, Bulgaria and Romania each figuring, primarily on the basis of availability of skilled workforces
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0% 5% 10% 15% 20% 25% 30% 35% 40% 45%workforces
China competes with the Philippines for second choice, but primarily driven by the search for lower labour costs
Most organisations choose Philippines for its language capability
Ireland/UK, China and the Philippines were equal third choices. The reasons for choosing Ireland are varied and show a degree of maturity of the country as an offshoring destination. Like the UK and Northern Ireland as destinations, Ireland’s skilled workforce, proximity to UK, cultural alignment, language and access to resources all figure as strong drivers
Most seek specialist help in accessing skills, knowledge and
developing good governance structures
0% 10% 20% 30% 40% 50%
National Outsourcing Association
Management Consultant
Niche Outsourcing Specialist
Single domain specialists e.g. lawyer, consultant, trainer ....
In-house resources only
Preferred mode of accessing outsourcing skills and knowledge?
Perceived good outsourcing governance model?
Niche outsourcing specialists and management consultants ranked
highly
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0% 10% 20% 30% 40% 50%
Home grown
Negotiated with vendor
Independently developed bespoke governance model
Mediated governance model provided by an experienced outsourcing specialist
Other
a) Mediated governance model provided by an experienced outsourcing specialist
b) Negotiated with vendor
Summary
• Outsourcing has been gaining momentum in the last decade, with the emergence of more services, more company types engaging in and more destinations to choose for outsourcing. As Bruce noted “outsourcing has become more interesting over time, but BPO investment has been around for many years. If you were to choose sub-sectors to invest your money, it is a good place to put your money, because you have contractual income, an industry where there will be growth over the long term. However, return on investment multiples are coming down and are becoming more realistic.
• There is no doubt the outsourcing industry is still learning and has yet to mature sufficiently for there to be a body of knowledge on what constitutes best practice - for a variety of firms.
• Deciding what to outsource, where to outsource and identifying the right provider are simply the opening
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• Deciding what to outsource, where to outsource and identifying the right provider are simply the opening challenges. Making outsourcing happen provides further potential pitfalls – it calls for strong project, change and governance management skills that probably don’t exist internally. Firms must start viewing outsourcing as a strategic partnership approach, utilising advisors to complement and enhance internal teams.
• Challenging times will call for radical changes to business practice and business models.
• Outsourcing 2.0 will require different business models, greater risk sharing, better management of SLAs / measurement systems and of the relationship itself
• Is your company still a dinosaur when it comes to outsourcing?
An appropriate African Proverb:An appropriate African Proverb:
– Every morning in Africa, a gazelle wakes up.It knows it must run faster than the fastest lion or it will be killed.
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– Every morning a lion wakes up.It knows it must run faster than the slowest gazelle or it will starve to death.
– It doesn’t matter whether you are the lion or the gazelle.
– When the sun comes up, you had better start running.
Contact Op2i to find out how we can help you run faster
http://www.Op2i.com
Constructive Reintegration = Outsourcing 2.0
Bharat Vagadia
CEO Op2i
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CEO Op2i
Board Director UK National Outsourcing Association
Author: Outsourcing to India – a Legal Handbook
T: +44 207 193 4339
M: +44 7711 898089