outsourcing issue #17

8/8/2019 Outsourcing Issue #17

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EmergingnationsGlobalServices:LookingBeyondMainstreamLocations

KDN NO: PP14967/02/2010 (023611)MICA (P) 140/07/2009

PREMIER MAGAZINE ON BUSINESS AND TECHNOLOGY SERVICES INDUSTRY

I S S N 1 9 8 5 - 1 0 0 6

ISSUE #17, 2010

PeopleManagementPractices atLearningOrganisations

Challengesof OffshoreOutsourcing

Conversation:Tholons CEOAvinash Vashistha

AligningBusiness &GlobalisationObjectives

www.the-outsourcing.com RM12, S$8, US$8


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ecently, I had the opportunity to have a drink and qualityonversation with Avinash Vashistha, a renowned thought leadern the global services landscape.

It was an interesting tte--tte, where the co-author ofThe Offshored Nation effortlessly provided a comprehensivesnapshot of the outsourcing industry.

One of his key observations is that Knowledge ProcessOutsourcing (KPO) being the sexy term it is in theutsourcing sphere right now is being bandied aroundimlessly by many locations to mask scalability weaknesses.

While not discounting the fact that KPO could work well ifroperly approached as shown by the success of Sri Lanka in

the recent years Avinash advises prudence in this matter.e opined that the issue is not about KPO but about creating

niche and sustainable value. Essentially, the South Asian

ation is a prime example in this. With a population of only9 million people, the Sri Lankan industry has little problems

with scalability in the niche Finance & Accounting Outsourcing(FAO) domain due to the good availability of a fully competent

nd aligned labour pool.Be sure to read his comments on other pertinent issues

surrounding the sourcing space in the inside pages.eanwhile, in ourcovr Sor Jerry Durant takes a look

beyond mainstream locations in global services trade.urant likens emerging nations and companies to diamonds

n the rough. They have yet to be polished but theyre gems,evertheless.

e reckons that strong government participation is onef the essential components for emerging nations to present

themselves as a viable destination for outsourcing buyers,besides correcting negative perceptions along the way.

Governments must be prepared to tackle and solve variablesthat are within their control for a start. At the same time they

ust insure that endorsed suppliers command the highest levelf respect in relative to viability and ability to deliver.

This must be done with utmost care, of course. Certainly,t only takes a hand full of ill-vetted vendors to devastate aountrys credibility as a viable emerging location, he stresses.

In the Maagm column, Dr Arlyne Diamonds providessimple Dos & Donts when dealing with alcohol while doingbusiness in other countries.

In her own words: Above all, please remember you arethere to win the deal, not to win the drunken bout. SritharanVellasamy

Managing Editor/PublishErSth VellaSamy

ConsultantSd Surian

e [email protected]

sub EditorS Vella

journalistJ Hoo

art dirECtorStv CHoo

graPhiC artistShf oSman

ContributorsT menonDth llew, mhd arSHaD

e [email protected]

Vk ViSnorsh naTHen

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worDbs meDia (001645509-W)27-1, Metro Centre, Jalan 3/146,Bandar Tasik Selatan,57000 Kuala Lumpur;Phone: +603 9056 4770, 9058 0971;Fax: +603 9056 4771, 9058 0972

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Emerging nations

Global Services:Looking BeyondMainstream Locations

KDNNO:PP1

4967/02/2010

(023611)

MICA(P)140/

07/2009

PREMIERM

AGAZINE

ONBUSINE

SSANDTEC

HNOLOGY

SERVICES

INDUSTRY

I S S N 1 9 8

5 - 10 0 6

ISSUE#17,20

10

PeopleManage

ment

Practicesat

Learning

Organisations

Challenges

ofOffshore

Outsourcing

Conversation:

TholonsCEO

AvinashVashist

ha

Aligning

Business&

Globalisation

Objectives

www.the-outsou

rcing.com

RM12,S$8,US

$8


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6/466| Outsourcing | March-April 2010

Outsourcing | news bits

Hwi, whichprovides next-g e n e r a t i o n

telecommunicationsnetwork solutions orglobal operators, inkeda our-way agreementin Shenzen, China withthree Malaysian compa-nies to promote local tele-communication humancapital development.

The three companies are TechnologyPark Malaysia Corp Sdn Bhd (TPM),Multimedia Development CorporationSdn Bhd (MDeC) and Dream CatcherConsulting Sdn Bhd.

Under the agreement, the ourparties would initiate collaboration

to develop the necessaryhuman capital or the tele-communication segment.

It includes setting up atelecom data centre inra-structure within TPM anddeveloping a structuredcertifcation programmeto benchmark trainedhuman capital resourceswhich can be deployedglobally.

The agreement was signed inconjunction with the ofcial visit oDeputy Minister o Science, Technol-ogy and Innovation (MOSTI), TuanHaji Fadillah Yuso to China, said astatement released by the ministryon March 15.

InteractIve Intelligence Inc. (ININ)says Malaysia is well on its way tobecome one o the top locations orcontact centre businesses in the AsiaPacifc region with a current marketsize o RM94 million.

Last year, Malaysias contact centremarket contributed 13-15% to theAsia Pacifc Actuation Centres (APAC)

market, making it one o the leadingcountry contributor and importantgrowth country o ocus, ININ regionalgeneral manager or Asia, Simon Leesaid in a statement.

Malaysias Inti Education Group isforeseeing cost savings to the tune ofRM1.1 million over ve years under itscollaboration with Ricoh Malaysia tomanage the print services of the educationgroup.

Ricoh said the managed print servicesagreement was signed recently where

Ricoh would have exclusive rights for Intisprint services.

Inti is a member of the LaureateInternational Universities network, withlinks to other institutes of higher educationacross 21 countries.

By appointing Ricoh as a strategicpartner, Inti will extend and expandits use of Ricohs print and documentmanagement devices and solutions to itsfacilities within the entire education group,it said.

INTI will use Ricohs devices andsolutions exclusively to achieve a morestreamlined and cost-effective environment,compared to the current system andequipment.

Ricoh said this was in line with Intisefforts to become a green organisation,which is part of its commitment toenvironmental sustainability.

Malaysian businesses have been advisedto outsource their infrastructure to enhanceprotability and avoid unnecessary costs.

Regus Group Vice President forSouth East Asia William Willems said thatwithout having to pay attention and time toaspects such as maintenance of property,equipment and even ofce stafng, anorganisation would be able to concentrateon its core business.

In the event of a crisis, outsourcing ofinfrastructure would also offer businessesthe exibility to downscale without havingto be stuck with extra resources, he said ina statement.

Property is the second largest xedexpense for most companies, yet recentresearch by CORNET suggests that asmuch as 50% of corporate ofce space

goes unused at any one time, he said.He said an ideal infrastructure to source

for would include a client-driven mix ofofces, meeting rooms, common areas,advanced communications systems,network access and IT, and administrativeand technical support.

A exible property portfolio leads toreduced overheads, lesser liability andeasier way to manage your property,Willems said.

He said outsourcing of infrastructurewould contribute to the expected 20-25%rise in revenue of the Malaysian outsourcingindustry that was estimated to be worth

US$1.1 billion last year.

Outsource infrastructure,businesses urged

Savings for Intiwith Ricoh tie-up

Hua, local

orgaaoo dvloplco xpr

Malaya a prm pofor coac cr: inin

We rmly believethat the country can

be the hub of contactcentres, as a spillover

of outsourcing fromtraditional markets likeIndia and Philippines istaking place.

The countrys call centre marketis also expected to grow 20-30% thisyear compared with a 17% growthlast year, with contact centres totalnumber o seats this year anticipatedto reach 32,470.

We frmly believe that Malaysiacan be the hub o contact centres,as a spillover o outsourcing rom

traditional markets like India andPhilippines is taking place.

This has urther strengthenedthe attractiveness o Malaysia as theemerging hub or outsourcing, Leesaid.

He added that another advantageMalaysia had was its multilingualtalents serving apart rom the English,Malay, Chinese and Tamil speakingcommunities, the growing Koreanand Japanese speaking communitiesin the country.

ININ is also projecting a 20-25%revenue growth or Malaysia in 2010,which will stem rom the evolution ocontact centres, undergoing a shit romvoice centric to multimedia centric andthe desire o companies and business toturn their contact centres rom a merecost centre to be a proft centre.


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MAs ad taahook up with fve-year deal

March-April 2010 | Outsourcing | 7

news bits | Outsourcing

Ld rom Family Dollar Stores,Luxot and NASSCOM were recentlyinducted into the IAOP Outsourcing

Hall o Fame or their contributions to theindustry and society.

The International Association o Out-sourcing Proessionals (IAOP) honouredJoshua R. Jewett, Senior Vice President oInormation Technology and Procurement,and Chie Inormation Ofcer, Family DollarStores, Inc.; Dmitry A. Loschinin, Presidentand Chie Executive Ofcer, Luxot; andthe late Dewang Mehta, Past President,Nasscom.

The newest inductees were honouredat a luncheon ceremony during The 2010Outsourcing World Summit in Florida. Estab-lished in 2006, the Hall o Fame recognisesindividuals not only or their contributionsto the management practice and industry ooutsourcing, but also or their contributionsto society through outsourcing.

IAOP is thrilled to recognise these lead-ers who have reshaped outsourcing andinspire us to higher achievements andcontributions to the world around us, said

IAOP Chairman Michael Corbett.These leaders have shaped the outsourc-

ing proession and we all beneit romtheir contributions today, said IAOPsAdvocacy and Outreach committee chair,Atul Vashistha, Chairman, Neo Group andNeo Advisory.

Family Dollars Jewett was recognised orhis long standing knowledge and contribu-tions to the outsourcing proession, leverag-ing IT capabilities through outsourcingto better the discount retailers businessand also giving back his leadership andtechnical skills to a non-proft.

Luxots Loschinin has led Luxot romits inception in April 2000 in Russia intoa leading global IT outsourcing providerserving some o the worlds most successulcompanies.

The late Mehta was lauded as a transor-mation leader in Indias IT industry. He ledNasscom, Indias premier trade body andthe chamber o commerce o the IT-BPOindustries, rom 1991 to his death in 2001.

Dr. Ganesh Natarajan, immediate pastchairman, Nasscom, accepted the award.

MaLaysIa Airlines (MAS) and TATA Con-sultancy Services have sealed a fve-yearcontract or IT inrastructure services.

The partnership is part o MAS strategicoutsourcing programme to transorm itsIT operations. It is in line with BusinessTransormation Plan to align the role oIT to the airlines proit and loss, MASChie Inormation Ofcer, Faridah AbdulRahman, said in a statement.

The contract was signed by Faridah and

TCS head o Asia Pacifc, Vish Iyer.Faridah said one o the key initiatives

included fne-tuning MAS IT outsourcingstrategy to deliver the required businessresults at lower cost.

We will also continue to work with ourkey vendors to maximise service deliveryand to proactively address other businessrequirements, she said. TCS will undertakeIT inrastructure management o MAS datacentres, IT networks and IT security.

DHaka has become one o the topdestinations or reelance onlinework, outshining Indian cities suchas Bangalore, as the Bangladeshicapital is ast emerging as a majorcentre or data entry work that em-ploys tens o thousands o people.

According to a new report byoDesk Corp, a United States-basedleading marketplace or companiesand online workers, Dhaka is nowranked third among global citieswhere online jobs are outsourcedrom the West.

A combination o cheap labourand good English skill has made

Dhaka a surprised winner inreelance outsourcing jobs suchas graphic design, data entry andcheck-up, translation and webdevelopment.

Bangalore ranked fth on oDeskslist o top cities or online work, thereport said.

The top our cities with morereelance work are: Chandigarhand Mohali o India, Dhaka oBangladesh and Quezon City othe Philippines, it said, adding halo the reelance online workers inDhaka do data entry work.

iAOP duc hr it

ladr oHall of Fam

Dhaka rak hrd gloal frlacouourcg ork

COP Master Classapi 15-18, Ku lumpu

To register for Malaysias COP Master Class event please email:

> Outsourcing Malaysia and MSC Malaysia members:[email protected] or [email protected]

> Non-members and all others: [email protected]

EvEry day, business journal headlines and industry reports alike are making one

thing clear outsourcing is now essential to business success.

In turn, this tremendous growth in outsourcing has caused businesses

worldwide to recognise that they also have an exploding demand for outsourcing

professionals who can effectively lead these initiatives from beginning to end.

As thE global-standard setting organisation, the International Association

of Outsourcing Professionals (IAOP) works with buyers, sellers, and advisors

worldwide to develop these professionals.

thE CErtIfIEd Outsourcing Professional (COP) Master Class course sets the

stage for COP candidates who aspire to consult at all levels of their organisations

and to lead their organisations outsourcing programmes.



Outsourcing | news bits

ai US companies outsourc-ing business to India o ollowingunair business practices, American

President Barack Obama says his proposalto tax frms shipping jobs overseas was onlyintended to provide a level playing feld.

I you are a business here, entirelylocated in the United States, and investingin the United States, and hiring workers inthe United States, you are paying a 35%rate, he said in an Oval ofce interviewwith Bloomberg/Businessweek.

I you are a multinational and you areinvesting in India, and your workorce isin India, and your plants and equipmentare in India, but your headquarters arehere, you are taking deductions on all theexpenses in India, but you are keeping yourprofts outside the United States, that justdoesnt seem entirely air, Obama said.

The same is true where you havecompanies that have 90% o their sales in

the United States,but are posting90% o their proftsoverseas.

Y o u g e t asense there thatthe accountantshave been busy,he said, suggestingthat these companies were taking unairadvantage o current tax laws.

But our goal here is simply to make surethat there is an even playing feld betweenbusinesses who are investing in the UnitedStates, hiring US workers, selling to a loto customers here as well as overseas, andthose who are operating across borders,Obama said.

And that is an area where there canbe some legitimate debate, but certainlyshouldnt be portrayed, somehow, as beinganti-business.

The Financial IntelligenceUnit India, part of the IndianGovernments Ministry of Finance,has signed an IT outsourcingcontract with Wipro Infotech inMarch. The project is due to becompleted in 24 months witha further service period of 36months.

As part of the deal, Wiprowill manage the Units IT in a bidto enhance the efciency andeffectiveness of its collection,analysis and dissemination ofnancial information and highlightsthe Governments intentions to

use technology to bring efciencyinto analysis of data.

Arun Goyal, director ofFinancial Intelligence Unit India,said: We are keen on timelyimplementation of the Projectas it will signicantly enhancecapabilities to collect nancialinformation from various reportingentities, analyse it and disseminateactionable information to variouslaw enforcement and intelligenceagencies.

Software major TataConsultancy Services (TCS)is all set to bag a 600 million(US$915m) outsourcing contractfrom the UK Government formanaging a state-sponsoredpension scheme that is still in theworks.

UKs Personal AccountsDelivery Authority said that TCS

has emerged the successfulbidder for a ten-year arrangementto set up and administer theNational Employment SavingsTrust (NEST), a scheme to belaunched by 2012.

NEST, which is beingdesigned and implemented toaugment the existing employer-provided schemes, is expectedto benet nearly six million Britishcitizens, when it becomes fullyoperational.

The contract is divided intotwo stages and runs for 10 years,with possible extensions for up to

a further ve years. The rst stagewill run to October 2010, allowingTCS to begin the activity requiredto set up and administer NEST,PADA said in a press statement.

accenture is providing Starwood Hotels

& Resorts Worldwide Inc. one o the worldslargest hotel and leisure companies witha range o IT outsourcing services undera multi-year contract worth more thanUS$200 million.

Under the termso the contract,Accenture is pro-viding Starwoodwith an integratedIT solution, includ-ing end-to-endapplication andinrast ructuremanagement.

Application outsourcing services include

development, testing, maintenance andrunning o the applications. Inrastructureoutsourcing services include server andstorage management, data centre manage-ment, end-user computing, network man-agement, and service desk management.

These services are enabling Starwoodto improve the quality and the efciencyo its IT operations. In addition, StarwoodIT is better able to ocus on driving new in-novations into the marketplace to enhanceStarwoods competitive positioning.

Todd Thompson, CIO o Starwood, said,This programme with Accenture is keyto the continued transormation o IT atStarwood into a team that is outstandingat execution and delivers initiatives thatdrive business results. In addition to improv-ing quality and efciency, we are excitedabout the ongoing opportunities to workwith Accenture to increase and accelerate

innovation to our business.

Accenture is delighted to have a vitalrole in the IT transormation at Starwood,said Umar Riaz, a senior executive inAccentures Products practice.

By combining our experience in pro-viding applicationand inrastructureo u t s o u r c i n gservices, alongwith our deepknowledge o thehospitality indus-try, we are able todeliver consistent,cost eective and

innovative IT solutions to Starwood as they

seek to urther drive a platorm or proftablegrowth.

Accenture is delivering the services toStarwood leveraging teams based in theUnited States and utilising its Global De-livery Network.

Indian FinanceMinistry signsoutsourcingcontract with Wipro

TCS bagsUS$915m UKpension deal

sarood up h Accur

iduryfl

Oama r

tHe MuLtIMeDIa Development Corpora-tion (MDeC), the custodian o the MSCMalaysia initiative, said it has churnedout 9,000 K-Workers or the Malaysian ICTindustry in 2009 alone.

Its CEO Datuk Badlisham Ghazali saidthe talent demand or the highly skilledknowledge workers is growing in parallelto the increasing number o MSC-statuscompanies.

MDC zro


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domagloal

docum maagmrvc mark

March-April 2010 | Outsourcing | 9

news bits | Outsourcing

Xox Corporation leads the globaldocument management servicesmarket, according to analyst irm

NelsonHall, in its Document ManagementMarket Forecast: 2009-2013 study.

In addition to being named the overallglobal leader in document managementservices, Xerox tops the individual lists oreach major region including North America,Europe, the Middle East and Arica, LatinAmerica and Asia Pacifc.

The global document management mar-ket is predicted to increase to more than US$45billion by 2013, said Rachael Stormonth,senior vice president, NelsonHall. Xeroxsstrength in document management is asignifcant orce in this growing market, andby revenue it is the market leader.

NelsonHall, a specialist business processoutsourcing (BPO) analyst frm, tracks world-wide and regional BPO activity. The documentmanagement services study covers managedprint services (MPS), inbound documentservices, outbound transactional services andoutbound print management services.

As the worlds leading enterprise or busi-ness process and document management,Xerox helps companies optimise their printinginrastructure with MPS, and streamlinestheir communication and business processesto grow revenue, reduce costs and operatemore efciently.

Meanwhile, Xerox recently completed itsacquisition o Afliated Computer Services(ACS). ACS is the largest diversifed businessprocess outsourcing (BPO) frm in the world.

For the past 50 years, Xerox has ortifedits leadership in document management,creating new markets through our renownedinnovation, said Ursula M. Burns, Xerox CEOsaid in a statement.

With ACS, we take another step or-ward, expanding our leadership to includebusiness process outsourcing that helpssimpliy document-driven work. The newXerox provides the technology and servicesto help our customers reach new levels oefciency and eectiveness, giving them thereedom to ocus on what matters most: theirreal business.

British Telecom and its formercellular arm O2 have come full

circle, with the UK incumbentwinning a ve-year agreementto manage the mobile and xedcore networks for O2, now part ofTelefonica.

The multimillion poundmanaged services deal is one ofa series of wins for BT Wholesale,building on the telcos new all-IP21CN (21st Century Network)platform. By converging thexed and mobile core on thisultra-modern system, BT saysit will enable O2 to handle thedata explosion far more exibly,and support a wide range of

highly targeted next generationapplications, Wireless Rethinkwebsite reported.

BT already provides corenetwork management support forO2 on the mobile side, as well asa managed network service forthe cellcos xed and broadbandservices for businesses. The UKslargest mobile operator has beendiversifying its business in order tobecome a full service operator inrecent times, following Vodafoneand others as the mobile-onlytag becomes a burden rather than

an advantage. This has brought itcloser to its former parent, whichmay also have its eye on an entrypoint into the huge Telefonicaempire in Europe and LatinAmerica.

Asias contract chipmakers willlikely see their earnings improvesharply this year, as the globaleconomic recovery lifts demand,and as more semiconductor

companies worldwide look tooutsource more production,reports The Wall Street Journal.

Rising outsourcing orders,especially from Japaneseintegrated device manufacturerssuch as NEC Electronics andFujitsu Microelectronics, are likelyto lift the earnings of contract chipmakers Taiwan SemiconductorManufacturing and UnitedMicroelectronics of Taiwan,analysts say.

Both NEC and Fujitsu areIDMs - traditional chipmakersthat handle semiconductormanufacturing in-house. But asthey continue to struggle withlosses, analysts say they areexpected to boost outsourcing tosave production costs.

capgeMInI Group announced recentlyits acquisition o on-demand purchasingsolutions provider IBX and with it, the avail-ability o the industrys frst global end-to-end,Procurement-as-a-Service oering. Havingcollaborated together sincemid-2009, Capgemini andIBX decided to join orces inorder to drive developmento a new global procure-ment service oering and urther expandthe addressable market or IBXs best-in-class

technology.The deal adds IBXs strength in sotware-

as-a-service purchasing technology toCapgeminis global sourcing, business pro-cess outsourcing (BPO) and transormationexpertise.

According to AMR Research, outsourcingo supply management processes has grownin recent years: The market grew 30% in oneyear, driven by procurement and strategicsourcing services being oshored to India in

record numbers.With a solid track record

on the BPO procurementarea, Capgemini is readyto tackle this new growth

opportunity and will make use o its Right-shore delivery network including strong

oshore operations in India, China, Braziland Poland.

IBX, a recognised pioneer in the feld oe-purchasing, is headquartered in Stockholm,with 240 employees located across Europeand in the US.

British telecoms,O2 come full circle

NEC, Fujitsu increaseoutsourcing

Capgm ak ovr ibX

o al dvlopmWhile we managed to generate 9,000

knowledge workers or the market, we oreseethat an additional 12% is needed to illpositions in the market by 2012, Badlishamsaid. He was speaking at an awards ceremonyto recognise graduates and institutions thathave participated in MDeCs KnowledgeWorker Development Initiatives (KDI).

MSC Malaysia KDI has trained over 22,000trainees consisting o undergraduates, un-

employed resh graduates, and retrenchedKWorkers since 2006.

Badlisham said MDeC is intensiying theKDI programme by conducting inishingschool lessons to equip jobseekers with skillsto work in the IT industry.

He said that MDeC plans to have its ownfnishing schools and hopes that it will bepart o the 10th Malaysia Plan, which willbe tabled next year.



Outsourcing | Disaster recovery

Whl n n wn d u, hl h h

hppn whh fre, power outage,water pipe leakage,hquk phn.

But while SMBs arepowerful economicforces, they oftenforgo basic protectionsagainst businessrisks due to lack of

time, budget and staffresources.


11/46March-April 2010 | Outsourcing | 11

Disaster recovery | Outsourcing

By Dd Dznl

The recentnatural disasters have servedas a stark reminder that businesses oall sizes ace increasing uncertaintyand risks. Yet or small businesses, the

stakes can be much higher.I disaster strikes and renders a companys

critical inormation lost or inaccessible, the costor small businesses, in terms o fnancial loss

and reputation can be irreparable. Combinethese consequences with the gap that exists be-tween perception and reality o how preparedSMBs in Asia Pacifc and Japan are or disasterand business disruptions; we are aced with avery worrying situation.

Small and midsized businesses (SMBs)are the lieblood o our regional economy,accounting or about 90% o all businessesand employing as much as 60% o the work-orce.

But while SMBs are powerul economicorces, they oten orgo basic protections againstbusiness risks due to lack o time, budget andsta resources. Disaster planning can all toooten appear at the bottom o the investmentpriority list as SMBs ocus on channelling alltheir eorts into business growth.

While no one wants a disaster to occur, thereality is that they happen whether a fre,power outage, water pipe leakage, earthquakeor typhoon. The average SMBs in Asia Pacifcand Japan experienced three outages over a12 month period according to Symantecs SMBDisaster Preparedness Survey.

A majority (84%) eel protected againstthese potential disasters and two thirds (69%)

in h

f h mbelieve their customers will understand and bepatient i there is a disruption to their computeror technology resources. Despite these percep-tions, the reality is these companies are notprepared and their customers will likely notwait around or them to fx the problem.

Almost hal o SMBs in Asia Pacifc andJapan do not have a plan or disasters orbusiness disruptions. The subsequent cost othis lack o preparedness to their customers canbe as much as US$15,000 per day on averageand eight hours or more downtime.

It is thereore not surprising that 42% oSMB customers have actually switched vendorsbecause their vendors computer or technologysystems are not reliable.

The misconception is that disaster recoverywill be costly. What it should be seen as is abalance as you spend on disaster recoveryplans, your operational eiciency shouldbeneft in turn.

You will surely not want to be going hellor leather on disaster recovery planning,but rather take a more structured approach protecting your most crucial assets frst andprioritise the rest in order o its importance toyour business.

This approach means you can be protectedwithout breaking the bank. It also means youwill need to ask the right questions or yourbusiness to ensure optimal disaster recoveryresults.

David Dzienciol is the Vice President or Channels,Global Strategic Partners and SMB, Asia Pacifcand Japan, Symantec.

Mighty tips for sMall Business

Prevention is undoubtedly better than cure and luckily, there are simple, effective, measuresSMBs can take to mitigate risks and retain customers despite the disasters they may face:

>Determine your needs:Decide what critical and condential information should be secured and protected and prioritisein order of importance.

>Engage trusted advisors:Look to a solution provider to help create plans, implement automated protection solutions andmonitor for trends and threats.

>Automate where you can:Automate the backup process to ensure that it is not overlooked when demands on staff timeintensify.

>Test regularly: Implement non-disruptive test backup. Recovering data is the worst time tolearn that critical les were not backed up as planned.

>Combine prevention and protection:Take an all-in-one approach is chasing technology that combines protection against todayscomplex security threats with rapid recovery capabilities.



Outsourcing | Cover Story

ByJ Duan

Ou t s O u r c i n g i sconstantly under themicroscope or criticismor a variety o reasons.

Thereore people making buyingdecisions are much less apt to sticktheir necks out and consider a newregion than sticking with the triedand tested locations. Yet as theeconomy continues to erode capitaland challenge operation unds, ocusis being placed on a more global viewo all sourcing locations.

It really bothers me when I hear

international commerce. Yes, its notabout outsourcing o services, itsabout developing a trade channelthat will allow nations, emerging ornot, to provide a credible lie or theircitizens. As we move orward in ourunstable and seemingly complexworld, we are constantly challengedby matching and balancing deliverywith purchase capacities.

Many outsourcers soon discoverthat outsourcing is not a key toinstantaneous wealth. In act, therude awakening o those rst ewyears o struggle makes one quicklyappreciate the complexity o global

emging nains:Lcaing hsw spsLooking beyond mainstream locations in global services trade

people talk poorly o a region, andrattle o a batch o ill-inormed andoten prejudiced comments. Whydoes it have to be a question aboutcultural acceptability? Had therebeen a shred o credible evidenceprovided, I would be inclined toaccept the hypothesis. However, itis oten veiled as a justication tosupport a purchase decision.

This shapes the disrespectul

attention given to nation-based pur-chasing decisions. For over 22 years Ihave traveled to and dealt with over90 nations, discussing, advising anddirecting their interest in expanding

Bad sks Wh ds i ha b a qusinabu culualaccpabiliwhn i cms usucingngagmns?

It is nolonger amatterof single

purposecost

rationale

that isdrivingsourcingties.



Cover Story | Outsourcing

service trade.So what would compel one to look

to other locations or outsourcingservices? With established regionslike India, China, Philippines andRussia, each with reerenceable deliv-

ery history it seems that there wouldno reason to look elsewhere. Today,there are three reasons why otherlocations are being evaluated: Improvements in buying prac-tices, Supplier strengths and Additional alternative outlets thataord same or better engagementrelationships.

It is no longer a matter o singlepurpose cost rationale that is driv-ing sourcing relationships. It ismulti-objective and dynamicallyconsidered in terms o the globalcontext. When you only have aew choices, the issue o location ismuch less a actor than the soughtater business goals. In act, in thecontext o emerging nations, manyo their sourcing enterprises are beingutilised as a resource by establishednations. I such practices were risky,then why would emerging nationsbe utilised either as a collaborativepartner or by establishing a domi-ciled operation?

Lking bnd mainsamSimply put, its too easy to be lulled

into the belie that mainstreamlocations oer a sae haven or busi-ness. When bad buying practices areollowed, no good will come romit regardless o the market. Usingsound judgment and responsibleevaluation will greatly increasea successul engagement even inperceived risky locations. Sucientevidences show that engagementrelationships can succeed or ailanywhere around the globe. It isvery unusual that a simple interestin particular location would solelydeterminate the purchase decisionsbeing made. Yet so little attention is

given to many acets behind whyone region should be consideredover another.

In 2009 Doug Brown and ScottWilson (authors o the Black Booko Outsourcing) stirred quite a usswhen they produced the Top 10List o Most Dangerous Places toOutsource. Many were surprisedat locations that were listed andthe obvious absence o others. Theramework that Brown and Wilsonused contains all o the elements thatone would expect to evaluate whenmaking a location-based relation-ship decision. Factors were dividedbetween those involving governmentactors and the other related to theenvironment (refer image above).

Control over location-based riskis managed through governmental

activism, preparatory measures andin extreme cases, simply avoidance.It should not be assumed any othese measures are easy or thatthey cannot be brought into a levelo acceptable tolerance. Recogni-tion and attentive action by thegovernment and outsource servicesuppliers can signicantly increase

the possibility o interest in theiremerging market.

Buyers have to realise to comparetheir basis o evaluation (a WesternPerspective) with the realities o spe-cic regions and cultures. Thereore,what might appear to be o concernrom outside may be normal andcontrolled within the local regionand any alterations could in actserve as a catalyst or chaos.

govemeal Evomeal

Forces o Capitalism

Corruption Enorcement Terrorist/Rebel Threats

Geopolitical Conditions

Economic/Currency StabilityLaw Enorcement

Secured Weather/Climate Threats

Legal System

Gnmn as caalsStrong government participationis essential or having successullocal markets. Simplistic supplierinitiatives create rail, and otenexploited, business relationships.Marginal buyers are oten exploitedin these emerging regions with thosewith ill intent.

These malicious activities otenrange rom slow non-payment tocases where legitimate suppliers areexploited to piler unds based onnon-existent business. Capitalisingon a thirst or sales, a weak legalsystem, and the absence o a ormedsupplier community, suppliers areat grave risk or these predatoryconditions.

Governments play a critical roleSimpl pu, is as b lulldin h blifha mainsamlocations ofer

a saf han fbusinss.




in the development o a credibleemerging supplier market. It is morethan glitzy marketing campaignsand exhaustive exposure at coner-ence venues. It also involves the

ormative development o a crediblebusiness climate.

At the same time it is essentialthat outsourcing companies beadequately supported in the earlyyears o their development. Thismay entail training grants, supportor a community-based collectiveindustry development initiativeand business trading platorms thatshow these companies in the propercontext.

It is quite ironic that the developedsourcing regions (India, Philippines,etc) are oten used as the yardstickor comparison when in reality the

measure has to be evaluated dier-ently. Is it appropriate to comparea country with a history o serviceagainst a country that has onlyrecently emerged as a source?

Does every buyer have togravitate to a specic region thathas a large human resource poolwhen they only need a handul odependable individuals to service

the contract? These are a couple oexamples why mature vs. emergingnation comparisons have little to dowith value.

The government must be pre-pared to address and resolve issuesthat are within their control. Atthe same time it must insure thatendorsed suppliers command thehighest level o respect relative totheir viability and ability to deliver.Unortunately it only takes a handull o ill-vetted suppliers to destroya countrys credibility. Beore ventur-ing ahead both the government andoutsource providers need to be ully

prepared and in the best orm.The bigger is better rule does

not apply to making sourcing deci-sions. Economics o scale oten createconditions that are unavourable or

buyers and suppliers. In these tryingeconomic times one cannot aordto make blind decisions and expectpositive outcomes. The beauty oemerging nations is price aordabil-

ity and the ability to scale rapidly.Even though not the largest, theyoer signicant abilities. Foundedon the experience o larger nations,they quickly become a part o themainstream.

Unique brand identication is aspertinent to emerging nations as itis to companies. This goes beyondsimply a logo or a slogan, it involvesestablishing a credible identity orwhat they do and represent. Forbuyers, they may only be operatingrom an impression o what theemerging nation is about. Biasesormed through a supercial lack oknowledge can overlook havens thatare worthy o consideration.

Wh iniiais g wngFundamentally it all starts with desire

Sucient

idncs shwha ngagmnlainships cansuccd fail

anwh aundh glb.



Cover Story | Outsourcing

that is acted upon either without astrategy or one that is terribly fawed.We see a lot o money being spentby both emerging and establishednations where the return isnt there.

Oten the results that are touted asthe ruits o these labours wouldhave occurred naturally without anyintervention.

We must remember that thebuyer drives the purchase cycle andthat the promotion by governmentsand business is more o a catalystor awareness, visibility and to drawinterest. It is a quantum leap toimply that the spark behind theseprogrammes are directly attributableto the development sales. With thissaid it is still critical to be recognisedand or emerging nations to makethemselves known in order to letbuyer know that they are availableor business.

What are some o the ways towork wisely and promote youremerging nation? As mentioned

earlier there are three undamentalobjectives that any emerging nationcampaign must have; awareness,visibility, and attract interest. His-torically governments and theiroutsourcing business partners have

relied on conerences and advisoryreports. Both generate visibility andprovide awareness but have thepotential risk o adverse commentsabout the status o their outsourcingsector. This is not to say that i theyare rail and prone or problems thatit should be hidden.

However, it is oten that theseemerging nations are comparedagainst mature markets and indoing so are held to an unrealisticstandard. This benchmark seldomhas a signiicant impact on de-livery and oten refects the needor government to attend to issuesas noted by the Brown & Wilsonramework.

In reaching the buying popula-tion, the message needs to be takento the consumers o outsourcingservices. While conerences have tra-ditionally been used as a means toattain campaign goals, more needsto be done to attract one-on-one dia-logue between suppliers and buyers.Unortunately the conerence venuedoes not provide a climate condu-cive to this interchange. The useo virtual venues, web-based videointroductions, social networks and

open collaborative orums not onlyremoves the negative hard selling,but encourages riendly interaction(even with a bit o education).

One last point is that govern-ments and suppliers need to becreative. Emerging nations tend toollow a shopkeeper approach. Thesign is throw up and buyers areexpected to arrive and buy. Buyerswho have an interest are oten aptto have a narrow view o what

they need. A acilitated brainstormsession helps to expand the scope oopportunity, which allows or a planor long-term consideration.

Why is this important? It showsto the buyer/party o interest, that as

an emerging nation, you are lookingat not just capturing their opportu-nity but that you have the depth ounderstanding to help, support andanticipate their needs. This is criti-cally important. I the relationshipremains at only a supercial suracelevel the potential uture mobilityo the buyer to another market isvery real.

Wh is mging?The short answer is everyone otherthan the established nations. Themuch longer answer and morecomplex one is everyone is emerg-ing. At this very moment evenlong-standing established nationsare constantly emerging through re-invention, whether in services or themeans by which these are delivered.The lead can be both insightul aswell as deceptive. Insightul in thecontext o laying down years oexperience and learning in a conciseand summary way.

But deceptive by means that opast success practices that are eithernot true today or were the result otiming coincidence. One exampleo this was the pre-2000 demand

or sourcing services that exceededsupply. People were willing to selloutsourcing services because it waseasy and on a commission basis.

Today we see excess supply bycomparison to demand and there-ore nding commission based salespersonnel is nearly impossible. Thishas given rise to scammers who preyupon the nave and sell hope andpromise o sales that do not exist. Itis critical or any emerging nation

Uniquebrandidentifcationis aspertinenttoemerging

nations

as it is tocompanies.This goes

beyondsimply alogo or aslogan ...

The beauty ofemerging nationsis price affordabilityand the ability toscale rapidly. Eventhough not the

largest, they offersignifcant abilities.




relationship that you have. Weall know that we work to generaterevenue but without a strong bondinvolving these core values, the like-lihood or success will be elusive.

rugh diamnds

Emerging nations and companiesare diamonds in the rough. They arenot polished and they arent perectbut they are genuine. The energyand eort that they are willing to putorth to be respected and to deliver acredible service is oten lost in thosecompanies who have developed anattitude o complacency.

Access to governmental decision-makers is real and solid bonds can beestablished easily. Bonds that help toovercome some o the undamentalchallenges that Western buyersconsider as risks.

Organically they are grounded on

helping the people and their nationto develop a lie, and not just a busi-ness empire. For buyers who want aaceless service, an emerging nationis probably not your best choice.

But or those who want to estab-lish a lasting relationship, based notjust on solid business pragmatismbut also in the lieblood o personalrelationships, than emerging nationshave much to oer.

Jerry Durant serves as ChairmanEmeritus (founder) for The InternationalInstitute for Outsource Management,a trade organisation dedicated to theassessment, development, and guidanceof outsource service providers in theITO, BPO, Call Centre and KPO domainareas.

to have sound and trusted guidanceto breach the understanding gap asthey enter into the global market.

A common issue surroundingemerging nations is the availabilityo an appropriate resource pool. Insmall countries like Bhutan, the poolo both companies and individualsis small (but with a credible English-speaking population). Should they

be excluded i they are not massiveor should we consider the reality thatnot every buyer needs a resourcebase in the tens o thousands?

Some o these stem once againrom the bigger is better mental-ity, or that we might need more.In both cases we are overlookingthe need to right size any engagedrelationship. Just because you canbuy more or less does not meanthat its an appropriate positionto take. Likewise, suppliers need toright size engagement in order to besocially responsible in their deliveryo services.

Emerging nations require acommitment to global outsourcingtrends and industry behaviour.It is very easy to overlook what ishappening around you, i one issteadily ocused on making sales.There is an abundance o inorma-tion about market behaviour, otendisseminated on a quarterly basis.

Lurking inside o summaryinormation lies a intelligenceabout shits in buyers goals andinitiatives. These shits oten haverelated impact on other sourcingdisciplines. Without awareness andan acute understanding, signicantimpact may occur in the emergingnations outsourcing sectors. Anup-trend in one sector may be anindication that uture erosion willensue in another. This can be either

taken as a preparatory warning ora sign o a potential opportunityor the emerging market. Emergingnations have the potential to behighly fexible but suer rom a lacko condence because they arentestablished.

Nains fail bcausAside rom the points expressed

earlier, a leading contributor is thelack o outsourcing sector cohesion.This is based on ear that someonemight get business that you couldhave got. As a result companiescreate a wall around themselves andwork very hard to survive.

The need or a collective commu-nity in emerging nations is needed tooster dialogue. Uniying messagesto the buying public send a sign ostrength. Countries like India thatorm an organisation dedicated tooutsourcing (Nasscom) are able torally a unity to develop quickly witha common message.

China on the other hand hasormed their unication around acommon plan (1000-100-10) butocuses their collectivism at themunicipal level (due in large part tosize o the country and the diversitythat exists). Not every companythat is your competition will beattractive to your buyers. Maybeits price, perhaps its approach orit may simply be you keeping thebuyer satised.

The destiny o your country andyour company is dependent uponyou. While you may utilise thesupport o others, there is no onethat can promote you better thanyoursel. Leaving to much in thehands o others, as a strategy, isdangerous. I cannot emphasise theimportance o trust in any working

Snggnmnpaicipainis ssnial fhaing succssfullcal maks.

It iscriticalfor anyemerging

nationto have

sound andtrusted

guidanceto breachthe under-

standinggap asthey enter

into theglobalmarket.



ThoughT Leader | Outsourcing

Is Knowledge Process Outsourcing(KPO) the way to go for countrieswith limited ability to scale?I think one has to be careul withthe defnition o KPO. In some waysit seems to look like a little placethat lesser populated nations hidebehind because o an inability toscale operations. Having said that, Ieel that theres nothing wrong withthis KPO approach altogether butthen it becomes relatively a smalloperation. The question is not aboutKPO but about creating a niche andsustainable value.

ow many niches can a countrydevelop? One good example is SriLanka. The population is only 19

million people, however it is one othe top countries when it comes to Fi-nance and Accounting Outsourcing(FAO). The industry has no problemswith scalability in this domain due tothe availability o a ully competentand aligned labour pool.

I think the whole idea is to startthinking about what you can do incertain verticals essentially. Servicevendors used to say in the past thatthey can provide services in fnancialaccounting and IT, but now ven-dors are starting to oer specialisedservices in IT, fnancial accountingand supply chain expertise thrown

in or a particular vertical. Providerscompanies must have the ability togo to a client and speak the clientsindustry language.

For example, oil and gas royaltypayment calculation is part o FAO.This particular process will not bea part o a retail operation, whichhas a dierent set o processes andsubsequent requirements. One mustunderstand that fnancial account-ing is a very mature process. So thereis a very speciic FAO processingparticularly or an industry andthats what providers must start tolearn in order to bloom in the KPOlandscape.

What is your take on Legal ProcessOutsourcing (LPO)?In my opinion, LPO has not really

been successul in the past ew years.There are a lot o good companiesthat have grown to a certain size

nd eventually disintegrated. Whys that so? First o all, I believe the

paralegal part o the work is prob-bly the only one component thatan easily be outsourced.

The rest are very high-end stund we cant expect law frms in the

West to outsource those. For exampletwo years ago, American giant GEropped the rate that they pay to

their lawyers or paralegal work tobout US$75 an hour. Understand-bly, or the American lawyers theate was too low in act it was notven cost price to them. Due to this,

I think GE defnitely drove some othe paralegal work out o the US insome sense.

ut then again its somethingthat probably doesnt create enoughscalable volumes. So you have avery ragmented marketplace that

as not made sense or the largeruys to get involved in. So right now

ts just moving rom small clients tosmall LPO providers.

Is location or a good supplier poolthe prime concern for you as asourcing adviser?Location is one element but I dontthink arguments necessarily go

lways that way. Considering mostultinational outfts, such as IBM

nd Accenture, they have deliveryentres in many global locationss a bid to address globalisationeeds o their own clients. Hence

t becomes pertinent or vendors toer a global delivery network o

ocations. Lack o such a network oentres is a clear disadvantage.

The only Indian company thatas any reasonable presence across

the globe is TCS. For example, TCSas 9000 people in South America.

Most o the other suppliers wouldprobably have around 1000-2000.This is a signifcant advantage or

rms like Accenture, IBM and TCS.This gives clients comort about bothscalability and location-speciicxperience. A need to have a com-

parative supply pool is vital, elsethe best value cannot be sourcedor clients.

There is no avouritism to thesuppliers side, because we eed the

eeds o the clients according to theprocesses that are outsourceable.We need to make sure that there

acnvstin

wit ins VsistOutsourcing magazines Sritharan Vellasamyhas a friendlychat with the co-author ofThe Offshore Nation in KualaLumpur. Vashistha is also the CEO and Chairman of TholonsInc. a global investment, advisory, research and managementrm for business, knowledge and IT services globalisation.

Continue to page 33

How manyniches cana countrydevelop? One

good example isSri Lanka. The

population isonly 19 million

people, howeverit is one of thetop countrieswhen it comesto Finance and

AccountingOutsourcing

(FAO).



Outsourcing | engineering

ByHash Bala

AerospAceand automotiveindustries, globally take alead in driving the engineer-

ing design and services outsourcingspace. Both these industries werebadly hit by the economic downturnin 2008-09. To counter the impacto economic turbulence, aerospaceand automotive companies had

started restructuring their businesses

Aerospace/Automotive manufacturers Announcements

Boeing 4,500 job cuts that will reach 10,000 by yearending 2009

Bombardier 4,360 job cuts in Canada, US, Mexico andNorthern Ireland by April 2009

GE Aviation Closure of GE Aviation facility in Albuquerqueduring Q3-2010, with the axing of more than 400jobs commencing in Jul 2010

Nissan UK 1,200 job cuts of the 5,000 strong workforce at itsSunderland plant announced in Jan 2009

Jaguar Land Rover UK 450 job cuts announced in Jan 2009

BMW 850 job cuts at its Mini car plant near Oxfordannounced in Feb 2009

General Motors Proposal to cut its global white-collar payroll from73,000 to 63,000 announced in Feb 2009

ea suctoentire product lie cycle. Moreover,there is the constant pressure toinnovate using newer technologies.Cost saving is an immediate as wellas one o the long-term imperativeto all these enterprises.

gadual covy postcssoConicting outlook has been pre-sented by the aerospace industry

stalwarts on industry recovery. Boe-ing expects a gradual recovery inthe economy, ollowed by growth inairline trafc by 2012. Airbus, on theother hand is quite positive that theaviation industry will demonstrategrowth in 2011 itsel. Airbus alsorevised its 20-year orecast or theperiod 2009-28 to sell 25,000 pas-senger and cargo planes with a totalvalue o US$3.1 trillion as comparedto their previous orecast o estimated24,300 planes to be sold over the 20-year period 2007-26. As per Airbusprojections, Asia-Pacifc will be thelargest aircrat demand driver in thenext 25 years ensuring overall utureaircrat demand.

Within the automotive industry,Volkswagen AG, predicts that theworldwide automotive market will

Exhibit 1: Major retrenchments announced during 2008-09 recession in auto-aerospace sector

to remain competitive.These manuacturers relied on

retrenchment as a step to handlethe near-term projected reduction incustomer demand. Exhibit 1 (below)lists some o the major announce-ments o downsizing during 2009in the automotive and aerospaceindustry.

Large aerospace and automo-tive companies are reeling under

tremendous cost pressures across the

Source: ValueNotes Research

nasscom pdcts thwoldwd spd o svcs toach aoud US$1.1tllo by 2020, of whchthe ofshored engineeringsvcs makt sxpctd to ow toUS$ 150 bllo US$ 225bllo by 2020.


19/46



Outsourcing | engineering

was not a challenge, 50% said that lack oin-house capability could be addressed viaoutsourcing.

A urther analysis revealed that outo the above 28% buyer category, only8% addressed the issue via outsourcingprimarily when they had less specialisedin-house resources or when there was aresource crunch. Another 8% didnt thinkthat they could address any challenge viaoutsourcing.

While pressure rom competitors was amajor challenge, buyers did not perceiveoutsourcing a better solution to mitigatethis challenge.

Cost savings was a major challenge, butthere was a strong belie that it could bemitigated via outsourcing. However, our

survey revealed some insights on the variedperceptions o cost savings. (See Exhibit 4)

Savs: Buy vs. svc povdpcptoA substantial disparity existed between theperception o buyers and service providers onthe actual cost savings via outsourcing.

A signifcant number o buyers believedthat there were no cost savings due tooutsourcing but the service providers hada more optimistic view. While 62% o theservice providers believed that outsourcingresulted in cost savings between 15-40%,only 44% o the buyers agreed with this.

Wll eSO ow?Some fndings rom the survey on serviceproviders perceptions indicated that:> Almost three ourths (76%) o the serviceproviders claimed that their customers wererepeat-buyers.> Most o them believed that their keystrengths were their domain expertise,service quality, and understanding o cus-tomer needs.

Interestingly, satisaction levels o buyersdid not corroborate this perception o serviceproviders.

Only 14% o buyers are highly satisfedwith their outsourcing vendors, 59% aremoderately satisfed and believe that thereis scope or improvement, whereas 27%have indicated low satisaction levels onaccount o poor vendor execution. Thereasons or outsourcing were not purely the

perceived cost savings but also work quality.Buyers who were not particularly keen onoutsourcing believed that the inability tomaintain the promised quality standardswas one o the key reasons behind theirdecision to not outsource.

The ValueNotes ESO survey 2010 resultsindicate that despite issues, a signifcantmajority o manuacturers that alreadyoutsource will continue to do so and willeven increase outsourcing by 25% in thenext two to fve years. India, China andEastern Europe will be the most avoured

outsourcing destinations. Apart rom devel-oping strong domain expertise, engineeringservices companies at this stage will needto partner with the buyers rather thanjust being service providers. The researchindicates that ESO industry is here to stayand will grow at around 20-25% in the nexttwo years and beyond.

Harish Baliga is an Analyst at ValueNotes aresearch provider focused on the outsourcingindustry.

8%

19%

30%

32%

11%

16%

22%22%

16%

25%

No cost savings Cost savings of

10-15%

Cost savings of

15-25%

Cost savings of

25-40%

Cost savings of

more than 40%

Buyer Service provider

Source: ValueNotes report - Engineering Services Outsourcing: Perception vs. Reality

exhbt 4: Buy vs. svc povd pcpto o cost savs va outsouc

Wth thautomotvdusty,Volkswa Ag,pdcts thatth woldwdautomotvmakt wll otmatch p-csso lvlsutl 2013. Whlths mht btu to som

xtt, w aalso wtssauto-dustymakt covylobally.



OffshOre | Outsourcing

AttrActedby the potentialor signicant cost reductionsand stang fexibility, many

companies around the world have

outsourced oshore the past decade.But despite this remarkable growth,outsourcing success seems to eludesome companies. One oshoreoutsourcing challenge is distance.

Outsourcing is usually morecomplex as the work moves out-ward rom on-site to near-shore andoshore. Geographic separationmakes it particularly challengingto communicate clearly and timelybetween the teams and individuals

across distant borders.Interaces and handos between

organisations with dierent valuesand languages present ample op-portunities or communicationailures. Embedding the use o com-mon project management toolsand supporting techniques withuseul metrics is diicult in anysituation, it is particularly vexingand challenging across distancesand time zones.

Callngooo outoucingThis rst of a two-part article byDr Wendell Jones that examines thegeographical, cultural, organisationaland managerial challenges of offshoreoutsourcing

Wn coodination witu o intnal popli citical to t pojct,ic communication iimpotant. Ti i tmain aon wy omoganiation locat15-30% of the oshoresuppliers sta onsite and

u vido conncing tocommunicat btwnthe onsite and oshoretam.



Outsourcing | OffshOre

Sharing data andsotware across or-

ganisations and teamsrequires strict version con-trol to protect the integrity

o programs and data. It isimportant to keep versions o critical

components in more than one locationto apply backup and version control pro-cedures and to use shared congurationcontrol tools.

A second challenge is communicationsrichness. The proximate location o sup-plier managers in relation to the customerorganisations outsourcing managers canaect the spontaneity and richness ocommunications. The richest is ace-to-acecommunication because sound, sight

and body language all convey meaning.The second richest is video conerencing,third is telephone, and the least rich ormo communication is written messages(memos, letters, emails).

Several dimensions o location aect theability to communicate with, work with,and manage a supplier. One is the natureo the work. When coordination with usersor internal people is critical to the project,rich communications is important. This isthe main reason why some organisationslocate 15-30% o the oshore supplierssta onsite and use video conerencingto communicate between the onsite andoshore teams.

Spontaneous and rich communication iseasiest or people located in the same suiteo oces. It is still not dicult or peoplein the same building, or people who workin dierent buildings on the same campus.

The communications diculties increaserom working in dierent locations in the

same city or region, in dierent regions oa country, or in dierent countries. I thecustomer and supplier people, who mustcommunicate regularly, are located on di-erent continents with widely diering timezones, eective communications is moredicult. Video conerencing capabilitiesand other technologies can improve therichness o communications across timezones and continents.

A third challenge is continuity o op-erations. In developing countries, servicesmay be more prone to disruptions or slowrecovery. Beore taking work to an oshorelocation, it is essential to evaluate whetherthe country has an uninterruptable power

supply, backup generators, and redundantcommunications acilities. Disaster recoveryand backup contingency plans are essentialand should include plans to quickly shitwork between locations as well as designatesupplier and customer teams ready to travelon short notice to restore operations in anew location.

Providing physical security and protect-ing intellectual property and trade secretsis a ourth challenge, particularly whenoutsourcing in less developed countries.These are important issues in any situationbut are particularly critical in countries withdierent legal systems and enorcementmechanisms.

While the leading near-shore and o-shore suppliers maintain strong securitymeasures and procedures to protect intel-lectual property, it is advisable to limitoutsourcing to countries and companies

that provide security guarantees. Thelarger service providers and established

outsourcing countries typically providethese guarantees.A th challenge is confict resolution.

Inadequate management o inevitableconlicts between people involved onboth sides can seriously jeopardise theoshore outsourcing relationship andperormance.

Successul client and supplier managersreconcile dierences in their approachesand strive to develop a unied and coopera-tive approach to resolving disputes. Theyresolve disputes at lower levels and ollowa dened escalation process that involvesboth companies.

They watch or negative and positive

patterns in dispute resolution over time,and then openly discuss and encouragepositive approaches as permanent ways toresolve uture disputes. Oshore outsourc-ing managers in both companies areperiodically trained in dispute resolutionmethods, and the customer managers avoidusing a power over the supplier to resolvedisputes. Habitual use o power advantageserodes most relationships.

Dr Wendell Jones is a Professor of Managementand a former senior executive at Compaq,NASDAQ, and McDonnell Douglas. He is rec-ognised as a leading outsourcing practitioner,advisor and thought leader. He is the co-authorof Outsourcing Information TechnologySystems & Services recognised as one ofthe best outsourcing references. The book wasrecently released in a Chinese edition.

Inadquat

managmnt oinevitable conictsbtwn poplinvolvd on botid can ioulyjopadi toshore outsourcinglationip andpomanc.

Before taking work to an offshorelocation, it is essential to evaluatewhether the country has an

uninterruptable power supply,backup generators, and redundantcommunications facilities.



InnovatIon | Outsourcing

Faced with recession, howhave companies changed theirinnovation strategy? Answer:

Increase or hold investment steady.

Worldwide spending on R&Dtouched US$1 trillion in 2006 andhas continued to grow. GlobalR&D spending topped US$1,140billion in 2009 (3.2% growth over2008). Studies also indicated a risein R&D spending by the worlds top1,400 R&D-investing companies in2007-2008despite the onslaught orecession.

Despite readjustments (the USprivate sector is orecasted to seean ination-adjusted dip in R&Dinvestment in 2009, but the Federalstimulus package is expected to have

$101

$175

$210

6.3%

8.8%8.6%

$0

$50

$100

$150

$200

$250

US EU Japan

T

otal2008R&DInvestment

(inbillions$)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Gro

wthininvestmentfrom2

007

raised total spending to US$383.5billion an increase o 1.75% over2008), the global innovation spend-ing remains strong (refer Figure 1).

While local companies rom In-dia and China have small researchbudgets (total R&D spending ormajor companies rom India andChina totals US$3.5 billion), theirspending is growing ast: 21% over2007 or China and 50% or India.The concern or executives is toprioritise the right kind o invest-ment on innovation. Even in thebest o times, the margin o error oninnovation is razor-thin.

Globalisation o innovationinvestment is a remarkable trend.Companies have continued to

Ee i he bes f imes, hemrgi f errr ii isrzr-hi.

I-SurcigiiInnovation investment in a time of economic uncertainty

increase innovation investment incountries outside their home bases.And, companies that perormed asubstantial raction o their R&D in

acilities outside their home coun-tries showed above-average businessperormance. As businesses look tomaximise the returns on innovationinvestment in multi-geography/multi-business unit universe, thesourcing model which has beenmatured over decades o interactionbetween clients and sourcing part-ners can be leveraged to deliverbetter outcomes.

need fr frmewrkThere are several key issues thatimpact strategic innovation invest-ment:

> What is the right balance betweendesire-driven targets and condition-driven limitations to maximise thecompanys value added?> What is the best way to allocateresources to achieve, and sustain,success?> Will the experienced cycles in theindustry, and overall economy, con-tinue or will there be undamentalshits in the marketplace?

To systemically study and addressthese issues, a robust ramework toanalyse innovation investment isrequired. The concept o Returnon Innovation Investment (ROLL)needs to be actored in to thisramework.

An innovative model can bebuilding centres o innovationwithin the frm that will leverage

Figure 1: Glbl R&D Iesme US/EU/Jp

While themechanism forimple-mentinginnovationinvestment mayvary greatlybased on acompanys,the need forsystematicallyanalysing theunderlyingneeds anddrivers forinvestment isuniversal.

1

2

3

4

5

6



Outsourcing | InnovatIon

Embryonic Growth Mature Aging

Impact of Economic Cyclesi.e. It can affect the slope

Economic boom/Economic uncertainty low

Regular cycle

Recession / Economic uncertainty high

Characteristic Strategies of Companies

Establish generic marketTake risksDevelop technologyRespond rapidlyDevelop market position

Become market leaderEstablish distributionEstablish technologyEstablish manufacturingInvest for the future

Invest to reduce costsImprove operating efficiencyMaintain market shareRationaliseImprove profitabilityMaximise cash value of investment

Manage investmentMaximise cash throw-off

Figure 2: Product Adoption by Consumers in Different Economic Cycles

the same kind o perormance measures asin a sourcing relationship, albeit actored orcreative outcomes. As sourcing relationshipsmatured over time, many buyers expect thesuppliers to not just provide the contractedservices, but improve business modelsthrough innovation. Sourcing contractsoten incorporate this actor today.

Eectively managing innovation througha series o contractual measures might seemcounter-intuitive to the set norm o research.But, it does have the positive impact osupplier bringing truly out-o-the-box ideasto the buyer. I a third party can be madeto innovate, an in-house team no matterwhere they are situated globally, can bemade to do so too. Arguably, with greater

eectiveness since employees are moreinvested in the well-being o their frm.

Setting measures, which vary basedon economic situation/ market cycles isimportant. The impact o economic cycles onproduct adoption should inuence innova-tion investment decision making. In a reces-sion, cautious spending by consumers leadsto slower product uptake and companiesmaximise end-o-lie profts by prolongingproduct liecycles (refer Figure 2).

While the mechanism or implementinginnovation investment may vary greatlybased on a companys DNA (discretionary20%-time at Google versus process-driveninnovation at 3M), the need or system-atically analysing the underlying needs

and drivers or investment is universal.The ollowing section describes one suchramework which can be used by leadersto help shape the direction o innovationinvestment.

Ii iesmeThis ramework (refer Figure 3), which needsto be tightly coupled with organisationalcorporate strategy, acilitates discussion anddecision-making on innovation investment.The exercise can be broadly segmentedinto fve phases. Innovation investmentplanning ocuses on Stages 3 onwards.

The vision deliverable is vital to theinnovation investment strategy. Genesis oa successul innovation investment strategyis a vision which takes into account severalelements and dimensions (refer Figure 4).

A realistic vision channels innovationinvestment in the right direction result-ing in higher returns. Risk diversifcationmight suggest that a company pursue amix o end-state visions or its portolio.For instance, Microsot aims at being themarket leader with Windows 7, while it isa pursuer with its music player Zune.

Benets from formal strategicfrmewrkThe planning ramework enables thecompany to identiy major challengesand answers undamental questions thatwill inuence the uture o the companysinnovation investment. With strategicinnovation planning the fnancial peror-mance o the company can be substantially

improved in terms o:> Sales: Improved commercial realizationo innovation initiatives> Cash ow: Targeted, and phased, innova-tion investment rees up cashProftability: Improved hit rate on innova-tion investment> Return on investment: Not just deliverhigher return on every invested innovation-dollar, but also enable tracking it reliablyover time> Strategic planning creates a rameworkor the strategic allocation or resources.It helps to improve the R&D/ technologygroups unction within the entire companyand to create improved transparency on its

unctions.

Setup Stage Creative Stage Analytical/Organisational Stages

1 2 3 4 5

Create ChangeReadiness

Envisionthe future

Defineinnovation

goals

Evaluate &select preferred

strategies

Developimplementation

roadmap

Considered complete when corportate strategyhas been clearly formulated.

Considered partially complete when corporatestrategy has been clearly formulated.

Figure 3: Ii Iesme Frmewrk

Stage Goals Example Key Example Measures OverallDeliverables of Success Effectiveness Measure

Create Create readiness/ Clear understanding Eectiveness ofChange urgency for change of feasibility, drivers internalReadiness Identify drivers and barriers communication

of change (mobilisation of teams,

Develop high level understanding ofplan and approach goals, surveys)

Envision Develop future Limited set of Quality of scenarios ROLLthe future scenarios detailed future (measured against (Return on Innovation

Foresee potential scenarios real-world outcomes) Investment)business implications measured as:

Incremental cash Dene Identify exciting Vision Statement Quality of goals ow resulting frominnovation ambitions (measured against innovation goalsgoals Characterise ideal real-world outcomes) (product introductions,

companies process changes etc.) Develop visionstatement

Evaluate & Construct detailed Ambition and Eectiveness ofselect strategic options underlying strategy selectioninvestment Evaluate attractive assumptions mechanism usedpreferred options Evaluation againststrategies Select best strategy strategies chosen

by competitors Develop Develop long-term Strategic action plan Cost eectivenessroadmap transition plan of implementation

Build strategic plan Leadership overhead Manage requiredimplementation Risk management

to total innovationinvestments



InnovatIon | Outsourcing

CclusiThis write-up on strategic innovation invest-ment planning is meant to serve as anoverview o the key elements o innovationinvestment. The path to innovation ina company can be diverse visionarymanagers (like Steve Jobs), technologybreakthroughs (like creation o Lithium-ionbattery), radically new service models (likee-commerce) or even incremental improve-ments leading to innovative products (likeCisco) but the need or an underlyingramework or acilitating and managingthe innovation process is universal.

Innovation need not always stem romcutting-edge technology or tectonic shitsin consumer preerences. A tweak in amundane business task can turn out to beyour organisations iPod.

A wise manager told us The rush o

day-to-day activities and ocus on transac-tion generation and management inhibitsattention to the question: What must we dodierently to meet our objectives?

While long term bets are hallmarks ovisionary companies, tactical managemento some innovation objectives will lead tobetter overall outcomes. Sourcing relation-ships are an ideal hunting ground or suchmeasures.

1,2,4 Source: EU Industrial R&D Scoreboard(October 2008)

3 Source: Battelle, Ohio, and R&D Magazinereport (December 2008)5 The reerence is to Motorola, Inc. which,owing to innovation missteps, cut its cellphone market share by hal in two yearsollowing the introduction o the path-breaking RAZR product line6 Source: EU Industrial R&D Scoreboard(October 2008)7 From Management by Peter Drucker

Deepak Bharathan is a Principal at PA Consult-ing Group, a global strategy and managementconsulting firm. He specialises in strategyinitiatives for clients in Private Equity, Tele-communications, Media, Technology andLife-Sciences.

Special thanks to Louis J. Kaczmarek,Massachusetts Department of Public Health,for his work on innovation stages.

Elements: Dimensions: Vision Examples:

Performance Understand internal strengths

Governance Stretch targets

Values Address stakeholders

Products/Services Leadership involvement

Markets External and internal visibility

Employees

Technology

Customers

Figure 4: Wh des he busiess w be?

I recessi, cuiusspedig by csumersleds slwer prducupke d cmpiesmximise ed-f-lifeprots by prolongingprduc lifecycles.

Ii eed lwyssem frm cuig-edgeechlgy r ecic shifsi csumer prefereces. awek i mude busiesssk c ur u be yurrgisis iPd.

7

Be the

Leader (Product)

Leader (Market)

Leader (Technology)

Pursuer

Long-term Exiter


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*Note: Only customers who said creating buy-in is made

difcult in their relationship by cultural dierences

0%

20%

40%

60%

80%

n=55

Customers describing their offshore providerCustomers describing their own organization

% of customers who attributed the characteristic described below

to their offshore provider and their own organization

Tendency to agree even

when not sure can deliver

Preference for indirect

communication

1 2 3 4 5

Figure 1 Top challenges in offshore relationships, asopposed to onshore

Figure 2 Customers view their offshore provider differentlyfrom how they view themselves

26| Outsourcing | March-April 2010

Outsourcing | feature

ByDnny el nd JosphBbmn

The success o outsourcingdeals depends heavily on avery challenging activity:

gaining internal buy-in aroundboth the decision to outsource andthe changes it brings. Gaining align-

ment rom senior stakeholders,including the heads o business andunctional units, is dicult becauseo the need to manage competingviews on budgets, timelines, andtrade-os between service customi-sation and cost savings. And gettingbuy-in rom end-users is a challengebecause they may resist making thesignicant process changes requiredo them, upending the business casein the process.

I gaining buy-in is a strugglein outsourcing engagements, it iseven more dicult when services

are delivered oshore. Oshore out-sourcing presents all the alignmentchallenges associated with onshoredeals, in addition to two uniqueactors explored throughout thisarticle: stakeholders ear the addi-tional risks o sourcing services romoverseas, and cultural dierencescontribute to user dissatisaction

Giningby-in

om skholdsand make it dicult to establish astrong working relationship with theservice provider.

In this article, well explorehow these challenges in oshoringdeals make alignment dicult andprovide guidance or overcomingthem.

Skholds Oshore outsourcing presents allthe risks associated with onshoredeals losing key people and theirknowledge, suering diminishedorganisational morale, partneringwith a service provider with uncer-tain nancial strength as well asmany that are unique to oshoring.The rst buy-in challenge in oshor-ing is gaining alignment amongstakeholders around the decisionto oshore, and the risks describedbelow make that eort more dicultthan in an onshore deal.

Customers in oshoring dealsmay need to worry about potentialdisruptions in business operationscaused by events in the countryrom which services will be delivered.The possibility o inrastructurebreakdowns, political instability,and corruption may drive somestakeholders to voice concerns about

going oshore. I these risks arenot actively addressed by assess-ing their likelihood and potentialseverity, and developing a plan ormanaging them, stakeholders mayquestion whether the alleged benets

In liy, mnyclims boinnion ocondentialityovss my

b ovsd,nd pblpovids hvovwhlmingsciy sgdso pvncompomiss ocondential data.



feature | Outsourcing

o the deal outweigh the potentialdownsides.

The protection o conidentialdata represents both real and per-ceived risks. A real risk in a businessprocess outsourcing deal is thatthe customer violates regulations(e.g., the EU directive 95/46/EC) that

prohibit personal data rom crossingnational borders. Well beore makingthe decision to oshore, the customerneeds to assess this risk, develop anapproach or dealing with it, anddetermine how the approach willimpact the business case.

There are also perceived risks,such as the worry that condentialdata is simply less likely to be pro-tected overseas because o limitedappreciation or condentiality orinsucient security saeguards. Inreality, many claims about inatten-tion to condentiality overseas maybe overstated, and reputable provid-

ers have overwhelming securitysaeguards to prevent compromisesto condential data. Nevertheless,stakeholders will be reluctant to buyin to an oshoring deal i their earsabout condential data protectionare not addressed.

In addition to the risks describedabove, participants in VantagePartners Managing OshoringRelationships: Governance inGlobal Deals study cited currencyfuctuation, local labour laws, andincompatible public holidays asadditional issues in oshoring deals.Because o the perceived impacto these risks on the business case,stakeholders worry that oshore isriskier than onshore and are morelikely to mount resistance to sourcingrom overseas.

Sample business case outline

Feature Purpose

Executive summary Explain why the expected benets outweigh the drawbacks andrisks

Process summary Provide update on what has transpired in the exploration ofoffshoring and what will be happening next

Current state of services Describe how the services potentially in scope are deliveredin scope today to ensure that all key inputs and outputs are understood and

properly mapped in the future state

Desired future state Give sense of how services may be delivered in the future basedof services in scope on internal discussions and consultations with potential service

providers

Recommended solution Describe recommendation for how to source services mosteffectively, subject to development of solution with the provider: Which services should be outsourced Which services should be delivered from which locations Which provider(s) will deliver the services What type of pricing model should be negotiated The potential scalability of the solution to service additional

geographic locations Approximate timeline for development of solution and

transition to future state

Key objectives and Provide clarity into what benets stakeholders can expect tomeasures of success gain and how those objectives will be measured

Industry comparison Describe offshoring arrangements pursued by competitors andtheir results

Risk register Identify and assess the various risks in a potential deal anddevelop a plan for managing them

Change management plan Outline the specic behaviour changes that will be requiredfor different types of stakeholders and describe a plan forovercoming resistance to making those changes

Financial model Present current state costs and expected transition and futurestate costs so that stakeholders have a shared view of theexpected nancial impact of a potential deal

Inefective governancecn mnis islin slow dcision-mking, nsolvdconict, and unmetcommitments.

Ofshore outsourcingpsns ll hisks ssocidwih onsho dls losing ky poplnd hi knowldg,sufering diminishedognisionlmol, pningwih svic

povid wihuncertain nancialsngh s wll smny h niqto ofshoring.

Table 1


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Table 2Purpose: This Risk Register catalogues risks that would be created or heightened by a decision to offshore. Some of these risks would alsohave some bearing on the selection of a provider, whereas others would not afford any meaningful opportunity to differentiate among potentialproviders. We have estimated the probability and potential severity of each risk and developed commensurate risk management strategies toundertake as we approach selection of a single provider.

Risk Specic risks Impacts Estimated Estimated General risk Speciccategory provider probability severity (potential management actions or preventing,

selection? lost revenue or approach mitigating, and transerringadded cost) risk

Governance Cultural dierences x Medium Medium Governanceresult in slow decision-making, unresolvedconfict, and unmetcommitments

Business Political instability, x Low Medium Contractcontinuity social unrest, violence, negotiation and

terrorism, or corruption co-design &disrupt business due diligenceoperations

Condential Disclosure o x Low High Contractdata condential client negotiation &protection data negatively co-design

impacts business o and dueclients, damages our diligencereputation, and/orresults in regulatoryaction

Contract Currency fuctuations x Medium Low Contractresult in higher prices negotiation &or services than co-design andoriginally anticipated due diligence

Stipulate in contract Establishgovernance structure that is alignedwith the objectives and complexity o therelationship Align around protocols for workingtogether, including inormation-sharingand reporting procedures Educate the provider on our corporateculture Provide joint skills training andcoaching, including cultural awareness

training Implement best practices formanaging cultural dierences in oshorerelationships

Stipulate in contract terms for continuityo contract under various conditions Develop contingency plan for anyeventuality Consider purchasing insurance tocover sudden loss o inormation throughunoreseen circumstances Select provider with multiple deliverylocations

Stipulate in contract clear conditionsrelated to data exchange, access,utilisation, storage and allotment andindemnication or any violations Secure rights to conduct audits toensure security o data and protection ocondential inormation Scrutinise delivery centers to assesshow condential data is treatedInterview delivery team members aboutcompany policy and culture aroundcondentiality Conduct due diligence to determinewhether any o providers clients haveexperienced violations o condentiality

Stipulate in contract that servicesare being xed in our currency to avoidbearing risk o currency depreciation overcontract period Inquire into effectiveness of providerscurrency risk management program Research impact of Indian AccountingStandard-11 on oreign exchange-relatedgains and losses

28| Outsourcing | March-April 2010

Outsourcing | feature

This ear is relected in com-mon contractual provisions thatspeciy how and when a providercan move services oshore aterhaving already been trusted totake over the services. Overcomingstakeholder resistance, thereore,requires customers to present abusiness case that takes these risksinto account and outlines a strategy

or dealing with them.

us dissiscionCultural dierences, i not properlyaddressed, contribute to user dis-satisaction and make continuedbuy-in among stakeholders andend-users even more diicult.Because o the added diculty omanaging a global relationship,

90% o survey respondents believecustomer-provider dierences inoshore deals have at least someimpact on gaining buy-in with stake-holders. And among customers whosaid creating buy-in was dicult intheir relationship, culture ranked asthe most signicant challenge (seeFigure 1).

For example, when it comes



feature | Outsourcing

to directness o communication,customers typically believe their

outsourcing issue #17

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