Talking outsourcing- a blog from computing.co.uk

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Thursday, 30 August 2007

Out(source) of Africa

Africa has yet to make much of an impact in the list of offshore outsourcing destinations, and it’s no surprise given the reputation for civil unrest and poor governance in many African nations, but with a total of 53 different countries and growing enthusiasm for hi-tech global services this might all change.

I asked Richard Mwangi, managing director of NorthWest Offshore in Kenya, a few questions about what is going on at present in his part of the world. First, I asked about the lack of exposure and credibility given to Africa, to which he gave quite a pragmatic response.

Mwangi said: ‘Remember that an average business process outsourcing (BPO) project in India has 2000 seats, while the whole of Kenya has less than 2000 seats. Instead of trying to change this perception [of poor infrastructure in Africa] the best thing to do is to address the problem and a number of projects in East Africa are at different stages of being realised. However, talking of perceptions my personal experience has been that this changes once people make a personal visit – what you see in the press and what you see in real life tend to be different.’

Mwangi explained to me that Ghana and South Africa are now starting to take off as popular destinations for BPO work – of course he also said that Kenya is the next place to watch. In fact, South Africa is becoming an extremely popular destination for voice-based work due to reduced issues with accent compared to Asian destinations such as India, along with a time zone far closer to that in Europe.

One issue that does need to be rectified is the lack of a trade body to represent the region for IT-enabled services, such as BPO. Nasscom does this well for India and though Africa is of course a collection of many countries, it would serve them well to have some form of unified trade body working in the interests of the region.

When I asked Mwangi about the issue of human resources and the steady stream of graduates we often hear about in India and China, he said: ‘African countries might not have the numbers you will find in India and China, but African professionals are as good as the best anywhere else in the world. Many African universities are making a conscious effort to train students for BPO. However, in the African context it’s also important to look at productivity and not just absolute labour cost. The cost of internet connectivity and lack of access to capital is a barrier especially when you take into account the educated workforce that is unemployed.’

I really do believe that we are on the cusp of an African services revolution and it will be entrepreneurs such as Richard Mwangi who steer a course for many African nations in the 21st century.

Posted at 05:59 PM in offshore outsourcing | Permalink | Comments (0) | TrackBack (0)

The NOA awards

This is a quick call to all of you in the industry who have yet to enter the National Outsourcing Association (NOA) annual awards for 2007. The entry closes on 7 September so there is only a week left now.

The NOA insists on people entering for the awards, rather than just having a panel of experts create a shortlist from whatever is going on in the industry. It doesn’t cost anything to enter any of the 15 categories and there is no requirement to be a member of the NOA, so there is no reason to not enter – even the application form is pretty simple so it doesn’t take long. This whole process is focused on finding and rewarding the best in the industry and it has been steadily getting bigger each year.

The NOA is expecting more than 500 people to turn up in person for the awards ceremony on 18 October and of course there is all the usual media publicity for the winners. I’m a judge and a board member of the NOA, so it might be only natural for me to support and promote the awards, but I would say that this is one of the most ‘honest’ awards in the entire outsourcing arena.

The whole process is run with a focus on rewarding best practice in outsourcing and not merely as a money-making exercise – all too often some ‘industry awards’ need you to pay hundreds of dollars for an entry form and then you are hounded to sponsor the gala prizegiving event. The NOA does seek sponsors for the final award ceremony, but that is because feeding and watering 500+ people does not come cheap. If we cover costs then we are happy. The board directors give up a lot of time voluntarily to judge and rank all the entries, and there are some real gems that crop up in this process.

In short, in the outsourcing game this is an award worth getting, but if you don’t fill out a form in the next week then you won’t even get considered, so go and have a look at the information on the NOA web site for details of how to enter.

Posted at 05:01 PM in outsourcing | Permalink | Comments (0) | TrackBack (0)

Tuesday, 28 August 2007

Never mind the quality, feel the spam

Now and again dubious service providers, who seem to believe that adding useless comments to my blog will result in heaps of new business, spam this blog. Let’s just think about that for a moment. I have not noticed BT or British Airways or Reuters or Virgin Atlantic spamming the blog. It’s always some miserable little firm that even the owner's mother has never heard of, spamming away in the failed belief that any publicity is good publicity.

Well, it may have been a genius of the calibre of Oscar Wilde who claimed that ‘there is only one thing in life worse than being talked about, and that is not being talked about’, but in this case I would have to disagree with the great raconteur. Getting your company talked about because they spam blogs, or Myspace profiles, or YouTube videos is not really a very positive way to drum up publicity.

In fact, it affects the entire outsourcing industry. The seasoned service providers are focused on service – even the major offshore players have stopped crowing about their rates. Everyone has started to accept that for outsourcing to work as a viable long-term business strategy, it has to be through the creation of a genuine partnership between two companies. The nature of that partnership is something that academics have been writing about for years, yet most companies in the industry have paid lip service to the notion – talking of partnership only as part of a sales pitch that relies on slashing costs.

Cost remains a key driver in all aspects of business, but it’s good to see the major service providers talking more about risk and expertise these days. I had a chat with a senior IBM executive recently and one of the key things he said was that its customers can get new servers configured and up on their network within 20 minutes. Try achieving that with your old in-house IT department. These are the true measures of flexibility that make it worthwhile to consider outsourcing as a strategy that can take the business somewhere new.

Posted at 11:02 AM in offshore outsourcing, strategy | Permalink | Comments (0) | TrackBack (0)

Friday, 24 August 2007

The legal ins and outs of outsourcing

It’s always nice to be involved in some way in a new book. I am familiar with writing for the internet and communicating through podcasts or super-fast SMS, but I do still enjoy reading books – and writing them. I even collect George Orwell first editions.

So I was pleasantly surprised to be contacted by Bharat Vagadia, who has written Outsourcing to India: A Legal Handbook, because he wanted me to contribute a foreword introducing the book. I reminded Bharat that I am not a lawyer and have no specialist legal knowledge beyond that I get from talking to people in the legal community about the contracting process. Most of my legal knowledge has been gleaned from Inspector Morse or The Bill.

However, he insisted that I write the introduction to the book because he wanted it to appeal to those interested in the legal process of outsourcing to India, but who are not necessarily from the legal profession. So I was pleased to recently receive a copy of the book in the post with my foreword included, but I still think that most of it is a bit too legal for me to understand! But it is well worth a look if you are involved in contracting with Indian firms.

Posted at 09:01 AM in offshore outsourcing, outsourcing | Permalink | Comments (0) | TrackBack (0)

Thursday, 23 August 2007

Some thoughts on IT infrastructure outsourcing

Research firm Datamonitor published a report recently that looked at the question of offshoring technical infrastructure. Most of the 150 CIOs and senior IT managers that were questioned said they would rather offshore their infrastructure to Eastern Europe than India. They also indicated a preference for an established Western supplier, rather than an overseas supplier.

This was positioned in much of the media as an anti-India story, or a pro-Eastern Europe story, or just a plain old anti-offshoring story, but isn’t this really like teaching your grandmother to suck eggs. Think about it for a moment. Infrastructure has always been important, but in an era that is becoming dominated by virtualisation, services-oriented architecture, Web 2.0, software as a service, and any other acronym that basically means you need immense business flexibility, infrastructure is now absolutely critical.

The key drivers for a successful IT infrastructure site will be all around the quality of the facilities, reliability of the power and cooling systems, telecoms connectivity and so on, and none of these things are linked to labour arbitrage at all so I find it a bit odd that we keep on reading about offshoring and infrastructure in the same sentence. Should we expect the huge server farms in California to be going offshore anytime soon? I don’t think so.

Posted at 06:00 PM in offshore outsourcing, outsourcing, strategy | Permalink | Comments (0) | TrackBack (0)

Business networks are best for small business

I’ve picked up on a couple of surveys by Datamonitor recently, as the researcher seem to be focusing a lot of attention on outsourcing. A recent study of 500 UK small to medium-sized enterprises (SMEs) found that only 25 per cent of smaller businesses have embraced outsourcing as a strategy that works for them.

Almost 60 per cent of the SMEs surveyed said they could never imagine their IT function will be fully outsourced. One of the interesting observations made by Datamonitor in this study was that there is nothing close to a dominant player in IT services for the SME market. Of those 500 companies surveyed, they had over 100 companies managing network services.

I have commented on this before in this blog, but it’s worth reiterating. I don’t really think we will reach a position where one or two IT suppliers becomes the outsourcing partner of choice for all SMEs. By their very nature SMEs are smaller and more fragmented, harder to reach, harder to sell to, and often have specific needs that don’t quite fit the normal solution.

What we really need is a more established SME-to-SME capability – a business network. This would encourage smaller companies here to engage with smaller companies in Russia, India, China, as well as locally, rather than assuming the big players will now scoop up SME business because they are running out of steam with the big contracts.

Posted at 08:00 AM in outsourcing, strategy | Permalink | Comments (0) | TrackBack (0)

Wednesday, 22 August 2007

Putting outsourcing on expenses

Back when I worked in a City bank I used to travel around the world quite a lot, which meant I had a major job tracking expenses and booking them all into a claims system. One of the good things my company did was to publish some guideline figures, so the process could be streamlined to a certain extent.

Basically, there were guidelines such as ‘no more than £50 per person for dinner’ or ‘no more than £150 for a hotel room’ – below these limits you could essentially zip through the expenses claim very quickly. More formal approvals were only required if you broke any of the suggested limits, in which case the boss would need to take a look and authorise the claim.

It all worked quite well. I suppose by offering this level of trust in the employee there was scope for fraudulently claiming for the odd cab fare here and there, but on the whole the costs saved by streamlining the process must have been worth more than the odd crooked claim by bankers who should know better. But my company was not perfect. The procedures I followed applied in London only. My colleagues in Singapore would have claims for single cups of coffee scrutinised in detail. Who were you with? What was the business purpose of that cup of coffee? An army of clerks crawled all over their receipts in complete contrast to the exception-handling bliss in London.

So I was interested to see that supermarket chain Asda has outsourced its expense claims to a partner called GlobalExpense and is trumpeting the fact that the firm estimates a future saving of £200,000 thanks to the new arrangement.

GlobalExpense saves companies money by insisting that claims fall within the corporate policy. According to GlobalExpense statistics, managers approve claims 99 per cent of the time, yet at least 15 per cent of expenses are outside policy - no doubt those receipts that come back from conferences in Las Vegas will now be scrutinised a bit more closely. It’s not clear if any of these statistics apply to Asda, but as they are moving from a 100 per cent paper-based system for expenses to this new arrangement, it is clear to see how expenses will be paid faster, and will be within corporate policy guidelines more often.

Expenses management is not something that we often think of when talking about outsourcing, but it is clearly a discrete finance function where a return on better controls can be visibly achieved in a very short time – much to the dismay of bar owners the world over.

Posted at 11:00 AM in outsourcing | Permalink | Comments (0) | TrackBack (0)

Tuesday, 21 August 2007

Don't toy with outsourcing

The world’s largest toy maker, Mattel, was in trouble last week over allegations that some of its products contain harmful quantities of lead paint and dodgy magnets. The latest product recall involved 18 million toys. Only two weeks ago, 1.5 million Fisher Price toys were also recalled.

The problem stems from the manufacturing process in China. It seems that Mattel has not been completely on top of what its outsourced manufacturing partners in China have been doing and so standards have slipped.

I asked my father about this story over lunch last weekend and he had a more sanguine view than most: “We used to eat lead soldiers when I was a kid and it never did me any harm,” he said.

However, most parents are a little more concerned about the safety of their kids when playing with Mattel toys.

This blog doesn’t normally look at manufacturing, but a product recall nearly 20 million-strong that is triggered by faults in an outsourcing relationship can’t be ignored. Some might also argue that most IT services are not as critical as the safety of children, but given that every organisation today is powered by IT in some form or other it’s easy to see that airlines, railways, hospitals, all have safety-critical systems.

The lesson to be learned is that even the most basic processes affect the relationship you have with your customer. It might be assumed that painting toys is a pretty simple process, but here is a case study in how it can go disastrously wrong.

With IT services we often talk about the non-core elements of the company being outsourced and that term is often used as a synonym for less important – or even non-important. That’s a big mistake, because it’s those simple processes that are outsourced to a third party that make up the service you offer to your customer. If those processes were not important then they would not be part of your corporate supply chain - outsourced or not. It’s worth remembering this as we read about how something as simple as contracting a company to paint your products can cause a corporate nightmare.

Posted at 11:00 AM in offshore outsourcing, outsourcing | Permalink | Comments (0) | TrackBack (0)

Monday, 20 August 2007

Going global

The global delivery model is something of a Holy Grail for most IT service companies. Everyone wants to be considered a global player, yet being able to offer global delivery is not just a function of how many offices a company opens around the world, so it’s interesting to see a new paper from outsourcing advisory firm Equaterra on how to design a global delivery model. Equaterra makes some interesting observations in the opening section of the paper, including:

• An Economist Intelligence Unit survey of 300 executives worldwide found that when asked what country would be the best overall location for their firms’ R&D work, outside of their home country, India was the country most frequently cited, followed by the US and China.

• Organisations also continue to tap into offshore resources via the captive route. Equaterra counts over 300 major captive operations of Western firms in India alone. Use of captive operations are sometimes transitional, as over time, the parents of the captives (for example, General Electric, British Airways and Citigroup) opt to spin them off to not only make a profit but also to rid themselves of the challenges and operating overhead.

• A 2006 Offshoring Research Network survey (led by Duke University and supported by Archstone Consulting and Booz Allen Hamilton) of 537 buyers in the US and Europe, 70 per cent of which were Fortune1000 and larger firms, found that over 50 per cent of respondents have now undertaken offshore outsourcing.

• The same study found that while IT outsourcing remains the leading offshore functional area, product development, general and administration, and call centre/helpdesk have also been outsourced offshore by 25 per cent or more of the survey respondents. Procurement, a functional area less frequently outsourced to date, is one of the leading areas targeted going forward.

The Equaterra commentary is useful and worth reading because it synthesises a lot of key commentary into a single short paper. It is a fact that business process and IT outsourcing has become far more global in the past decade – just look at the regions now trying to enter this market from all corners of the world.

The real key to success in global sourcing is addressing service delivery in a continuum – or thinking of the outsourcing value chain in much the same way as a product is assembled from raw goods on a production line. Though we have not really seen it yet, as sourcing becomes more global and more fragmented into smaller ‘best of breed’ contracts – rather than the big single-supplier deals – it is likely that users who excel at outsourcing can start considering this skill a competitive advantage in their industry.

Posted at 05:35 PM in offshore outsourcing, outsourcing, strategy | Permalink | Comments (0) | TrackBack (0)

Thursday, 09 August 2007

Taking yourself captive

Market rumours suggest that financial services group Prudential is exploring how to sell off its back-office operations in India, to create a new business process outsourcing organisation focused on the insurance and pensions sector. The Prudential operation is in its office in Mumbai. These offshore, but internal, teams are often referred to as ‘captive’ as they are all employees of the parent company – to distinguish them from resource that is outsourced to a third party. It’s a route that has been taken in the past by organisations such as British Airways, who set up operations in India and spun that off as WNS, or GE who spun off its Indian back office to create GenPact.

Just think of the business advantages in doing this. First the companies can make the most of the cost savings involved in going to a lower-cost location. Then, they can save further by improving processes and making the back-office more efficient. Then they industrialise the process so the back-office can operate as an autonomous unit – so much so that they can talk to investment banks about spinning the offshore unit off – a process that means they will earn millions by selling the company to established service companies, or other investors. Then, even once the companies are separate entities, they can still enjoy further benefits through preferential service pricing or keeping an equity stake in the new organisation, and making that company more valuable by creating a steady stream of work for it to process.

What is interesting though is that Prudential is not the only major company with offshore operations now considering this route; Citibank appears to be considering this option too. It’s interesting because after the creation of Genpact in 2004 many considered that the days of the large offshore back-office would be numbered. Everyone in the industry was talking then about the boost this would give to outsourcing suppliers. If GE was opting to use outsourcing rather than its own offshore resource then it has to be the right business model. Yet, there were never really any other comparable examples of an internal captive department being spun off again in the same way, until now. At least, if the rumours are true.

If these sales really do go ahead soon then it will lead us to the same debate all over again. How big does your offshore operation have to be to justify going it alone or working with a partner? I think the jury is out at present because all conventional wisdom said that you work with a partner up to a certain size, then do it yourself to cut the supplier margins out of the equation. Now it’s all changed, again.

Posted at 06:00 PM in management, offshore outsourcing, strategy | Permalink | Comments (0) | TrackBack (0)