Consider the Source

How to Keep Visa Restrictions from Delaying Your Transition to Global Service Delivery

By Ian Watt, Director, TPI, and Kathy Welch, Senior Advisor, TPI

Implementing a global service delivery model typically requires rapid mobilization of resources. Historically, global service providers have relied on a variety of visas to meet clients’ demand for skills and aggressive deployment schedules. However, this approach is becoming increasingly untenable.

Organizations in the United States planning significant change initiatives could see their projects delayed by staffing shortages due to current restrictions on visas for foreign workers. A contingency strategy is essential, therefore, to adjust for delays in bringing service provider resources on board.

Here are the TPI Top 5 key elements of a prudent transition contingency plan:

1. Plan for delays to impact knowledge acquisition and knowledge transfer processes. The time between assignment of offshore resources to arrival in the U.S. that has been traditionally 2 to 4 weeks is now 4 to 6 weeks. What is worse, you have to expect that some resources will be denied visas, requiring added flexibility in knowledge transition planning.
   
   
2. Develop resource acquisition fallback options. Resource mobilization delays are inevitable, so adjust your internal staffing plans accordingly. During a transition, some subject matter experts (SMEs) will leave the company absent financial incentives to stay on and help. A lag in service provider transition resources can mean higher “stay” bonuses and SME costs. These all directly affect your bottom line, diminishing the value of the transaction.
   
   
3. Find better ways to leverage technology and connectivity. Collaboration software and document sharing have a cohesive effect on virtual teams. Focus on integrating collaboration tools immediately. Setting up the appropriate connections is never as easy or as quick as it appears to be.
   
   
4. Concentrate more transition work offshore. In some situations, the typical transition model can be inverted so that U.S.-based resources move offshore to work side-by-side with offshore team members at the service provider’s site. This can keep transition on track while improving cross-communication. Moreover, you can gain insight into how things actually work offshore, which will ultimately benefit the relationship.
   
   
5. Jointly develop a risk mitigation plan. The current challenges are not isolated to India-heritage firms. U.S.- and European-heritage service providers have also experienced problems with visa processing. Facilitate dialogue between your teams and develop mitigation plans for the entire service portfolio. Given the tight schedules of transitions, these plans should be reviewed and adjusted on a weekly basis.

For more information on transition services, including the possible impact of visa and immigration issues on your sourcing strategy, contact Ian Watt, Director, TPI, at +1 847 452 5897 or ian.watt@tpi.net.

Corporate Social Responsibility: A Global Obligation

by Jodie Janacek, IAOP CSR Subcommittee Member, TPI

Last week TPI announced that we’ve accepted a seat on the Corporate Social Responsibility (CSR) subcommittee of the International Association of Outsourcing Professionals (IAOP). If you’re not yet a member or familiar with the IAOP, it is the global, standard-setting organization and advocate for the outsourcing profession.

The CSR subcommittee is one of the most active bodies within the IAOP, leading discussion among members on how the outsourcing community can identify and address critical social, economic, and environmental issues on a global basis.

According to Jagdish Dalal, IAOP’s managing director of thought leadership, “CSR has become a more important standard for measuring corporate ethics and social consciousness. This is not just an American phenomenon; this standard is being discussed and adopted globally. For example, last December, the largest human resource development conference held in India focused exclusively on this topic, and top company executives presented their views and their companies’ commitments to CSR.”

As a corporate member of IAOP, we’re proud to be in the company of the world’s leading global enterprises, service providers, academic thought leaders and advisory and law firms, all pulling together to make the global outsourcing marketplace a model of excellence for other high-growth industries. We hope you’ll take a minute to read more about the current and ongoing activities of the CSR subcommittee and learn how TPI plans to contribute to the betterment of the outsourcing community through our participation. We also encourage you to complete the IAOP CSR survey to share your thoughts about the role of CSR in outsourcing, a topic that touches each of us now and is steadily growing in importance. Survey findings will be shared at the 2012 IAOP Outsourcing World Summit, February 20-22.

What corporate efforts do you think should be at the top of the corporate agenda to raise the bar on social responsibility in outsourcing? Tell us what you think in the comments section below.
 

Will the Current Macro-Economic Environment be a Drag to the Sourcing Industry?

By Dinesh Goel, Partner, TPI India

The stability of the IT services sector and the growth of the service providers has come under debate again due to several developments in the macro economic environment. The unemployment rate in the U.S. is more than nine percent, Standard & Poors lowered the sovereign credit rating of the U.S. on August 5 and in Europe, several European economies are in need of bailouts by stronger economies or measures to cut budgets and curb spending for improving their fiscal health.

These events may potentially lead to a slowdown in decision making and postponement of IT projects by companies. The argument is that slower GDP growth in the U.S. and several other economies will cause negative business sentiment, lower consumer confidence and cause a decline in state investments and consumer spending, which impacts businesses’ growth outlook and IT budgets. The largest impact for India heritage providers is feared from the U.S. since it contributes about 60 percent of annual revenues.

In my view, the global ITO and BPO services industry may not be impacted as severely as the recent recession (2008-2009) as companies will react in different ways to the situation. The reaction to the uncertainty in the global economy will probably result in:

1. Companies seeking to further tighten their belts with assistance from service providers to achieve these goals. Low cost global service delivery locations enable service providers to deliver a higher level of services to meet immediate, essential BPO and ITO needs potentially at a higher efficiency and productivity level.
2. Higher level of focus on cost and savings by public sectors across the U.S. and Europe – potential for outsourcing growth for service providers to partner with governments.
3. Accelerated adoption of cloud computing delivery models – among mid-sized businesses with a broader scope of services and large businesses with point requirements.
4. The transformational projects and allocated spending to complete these projects that can be deferred will be deferred, but hopefully will not disappear entirely.

The impact of companies choosing to defer budgets will likely mean slowing growth for the providers in the next few quarters, and it will be increasingly important for Indian-heritage providers. According to the TPI Index – which measures commercial outsourcing contracts valued at US$25 million or more – Indian-heritage providers have won a larger share of the sourcing contracts, increasing their market share in the last decade from one percent of contracts to 26 percent this past quarter. This effect could be partially offset by the growing demand for sourcing services from emerging markets such as India, Southeast Asia, Latin America etc… History also offers evidence that management teams that invest in its company’s future during periods of slower growth or recessionary spells are in a better position to catch the next bull phase.

Overall, I am not as pessimistic about the opportunities for the services sector as some economists and industry analysts might be. I’m also very interested in your view. How do you think this situation will play out for the ITO/BPO industry in the near future?

 

Thinking About the Cloud? Don’t Forget These Financial Considerations

By John Cawyer, Director, TPI

Much is made of the importance of Cloud Computing, the endless options for what can be sourced to the Cloud, and the vast dollars that can be saved by moving services to the Cloud. But very little is said about what consideration should be given to specific financial structures and terms of a Cloud-based services agreement. 

Here are the TPI Top 5 financial considerations not to be overlooked when making Cloud-related decisions:

1.  Current contractual agreements should include commercial terms and pricing considerations to enable easy migration to the Cloud without financial penalty. Update termination language to include termination assistance for moving workloads or applications to Cloud-based solutions.

2.  Don’t expect the same terms and deal structures that you get in your existing hosting or outsourcing agreements. There are three distinct camps in the current Cloud space: 

•   Traditional service providers supplying Cloud services (IBM, HPES, CSC, etc.)

•   New providers specializing in Infrastructure as a Service (Rackspace, Navisite, Terramark, SFDC, Workday, and hundreds of other Software as a Service companies and their acquiring companies)

•   Traditional consumer companies rapidly evolving in the enterprise space (Microsoft, Google, Amazon, etc.).  Each of these firms is coming from differing backgrounds and experiences and has different contractual terms and pricing models based on their unique legacy experiences.

3.  Costs shift from capital expense (CAPEX) to operating expense (OPEX). You no longer own the software and hardware, so asset depreciation is removed from the book.  This is great news for companies trying to reduce CAPEX, but it requires better forecast and demand planning to ensure proper allocation of OPEX budgets.

4.  Expect greater transparency but more inconsistency in Cloud pricing. There tends to be different pricing structures based on whether Cloud is public, private or a hybrid.  Provider A may charge by processors reserved while Provider B charges by the CPU hour.  New total cost of ownership (TCO) calculators (examples below) and provider models are lending better insight into specific components of pricing, but be aware that these calculators only provide certain components of the pricing and that additional costs are likely.

•    CloudSizer.com (IDEAS International)
•    Microsoft Azure Pricing Calculator
•    Gogrid.com
•    Amazon Elastic Compute Cloud (Amazon EC2)

5.  The TCO, not just the base services price, needs to be fully understood when moving to Cloud solutions. While there can be great detail to the pricing, analysis of Cloud Computing models will usually be more difficult than legacy business case analysis. Whether produced from a vendor TCO calculator or not, the initial provider pricing will likely not include all expenses that will be incurred. Examples of costs frequently not included in Cloud solutions are:

•    Internal Level 1 service desk and technical resources to interface with the provider’s Level 2 desk
•    Migration costs to the Cloud
•    Additional network bandwidth (data transfer rates in and out)
•    Remaining book value of stranded assets and software
•    Remaining amortization of applications
•    Additional staff to manage new contracts
•    Cost of fulfilling minimum volume commitments in current contracts
•    Costs of partial termination of existing contracts

TPI Financial Analysis experts can help you make the most informed strategic move to the Cloud through objective advice, knowledge of your industry and experience with arrangements from simple to complex. For more information, contact John Cawyer, Director, TPI, at +1 972 342 1993 or john.cawyer@tpi.net.

Is Ma Bell Back? What AT&T's Acquisition of T-Mobile Means for Enterprise Mobility Customers

by Tom Young, Partner & Managing Director, Infrastructure Services, TPI

Yesterday AT&T (NYSE:T) announced it had entered into a definitive agreement to acquire T-Mobile USA from Deutsche Telekom (FWB: DTE) in a $39 billion cash-and-stock transaction.

If the deal is approved by regulators, it will create the largest wireless carrier in the U.S., with 130 million subscribers, enabling AT&T to surge ahead of Verizon Wireless, which had about 94 million wireless customers at the end of 2010.

Many of the nuances of this announcement underscore the fact that enterprise clients continue to play second fiddle to consumers in the U.S. mobility space. Granted, joining these two companies will enable some to get nationwide coverage without turning to multiple mobile carriers (due to AT&T’s well-known service issues in markets such as New York), and that will result in higher-volume purchases, fewer contracts to manage, and simpler integration of mobility with the rest of their U.S.-based infrastructure.

AT&T will still need to address enterprise clients’ desire to create a consistent global mobility strategy. While the T-Mobile acquisition improves coverage in the U.S. market, it is not a stepping stone to greater global coverage. Further, we may see slower innovation in the U.S. market as a result of the decrease in competition.

What should enterprise mobility customers be doing to cope with continued industry consolidation? Read TPI's Point of View here.

Why Every Company Needs a Cloud Computing Strategy Now

By Kevin Smilie, Partner, TPI Cloud Computing Business Solutions

Only 5 percent of companies have a Cloud Computing strategy while just 20 percent have the resources internally to develop one, according to a survey of more than 140 global IT decision-makers conducted by TPI.

Cloud Computing is widely seen as the next evolution of IT services, yet only a fraction of organizations has have a strategy for dealing with it. Developing a plan to take advantage of this game-changing innovation in 2011 should be at the top of every CIO's agenda.

Here are the TPI Top 5 reasons why organizations need to develop a strategy now to take advantage of Cloud Computing’s disruptive impact on technology:

1. The iPad Effect on Business: The enormous popularity of the iPad has not only been lucrative for Apple, it has also shown the world how the rapid adoption of Cloud Computing by consumers is putting enterprises on the spot. As executives and employees have grown enamored of the iPad and its ability to access services from the Cloud with ease, they are increasingly attempting to use them for work. To avoid the risk and confusion created by individuals going around the IT department with their own ad-hoc implementations, organizations need a plan for supporting Cloud Computing widely.

2. Need for Cost Control: While the “Great Recession” may have subsided, uncertainty about the speed and timing of an economic recovery is keeping the pressure on organizations to reduce costs and limit investments until business demand returns. TPI Research has found that the ability to more tightly manage IT spending is the number one reason clients are interested in Cloud Computing. As budgeting for 2011 begins, organizations should be preparing to leverage this disruptive technology to reduce costs and capital expenditures and align future spending with value.

3. Pricing Confusion: In theory, the Cloud Computing market is pay-as-you-go. But in practice, it can be hard to discern just what you will pay and just what you will get. Pricing and terms vary widely, and there is no standard methodology for service level agreements. The business models for public, private, hosted and hybrid solutions are all different, and figuring out the best deal for your organization will require enterprise-wide planning, research and testing, all of which takes time.

4. Changing Landscape: There has been a flood of new Cloud-based offerings coming on the market recently, while intensification in merger-and-acquisition activity has caused major shifts in the service provider community. Organizations should be thinking of their Cloud Computing strategy as a roadmap that will help them navigate this increasingly cluttered landscape and arrive at the right set of vendors and solutions for their needs.

5. Only the Beginning: Cloud Computing only works as well as an organization manages it. The key to achieving the benefits it promises is with an integrated, centralized IT Service Management (ITSM) system dedicated to demand management, capacity management and service integration. The only path to such a system is through proactive strategic thinking well in advance of implementation. Migrating a service to the Cloud is only just the beginning.

Every company needs a strategy to deal with the rise of Cloud Computing. The TPI Cloud Computing Business Solution Unit advises clients interested in moving IT and business process operations to the Cloud as a way to reduce costs, improve flexibility or create scale to achieve their business objectives.

For more information, contact Kevin Smilie at kevin.smilie@tpi.net or
+1 817 773 4127.

Getting Serious About Sustainable Sourcing

by Tom Olsen, Director, TPI

The increasing pressure of corporate responsibility — combined with the fact that the global information technology (IT) industry is on par with the aviation industry in terms of global carbon dioxide (CO₂) emissions — is driving companies to look for ways to reduce their carbon footprint. IT is an important part of the equation. The pressure to address sustainability is rising not only to address new regulations and customer demands, but also from a strong and inherent drive to realize economic benefits by saving costs on energy, travel and consumables.

Getting serious about sustainable IT requires sustainable sourcing. TPI clients increasingly demand sustainability in sourcing processes. Based on our experience, we suggest using these TPI Top 5 tips for incorporating sustainability into your company’s sourcing initiatives:

1. Articulate sustainable IT as an objective. Make it clear to your service provider(s) that sustainability is one of your key objectives.
2. Make solution sustainability an evaluation factor when evaluating service providers. Give sustainability an appropriate weighting to properly reward service providers for incorporating initiatives such as physical server and storage consolidation, virtualization, and thin clients.
3. Include sustainability in your statement of work. Be sure to describe functional and reporting tasks such as recycling, compliance with energy schemes, responsible asset disposal, and consolidation.
4. Define sustainability service levels. These levels will allow you to measure the performance of the sustainable services with a continuous improvement mechanism.
5. Include critical deliverables in the contract. Your contract should commit the service provider to implement critical deliverables within a certain time frame, such as an energy management system (EMS) within a specified timeframe and at least one emission reduction proposal per contract year.

Finally, make sure that during the process you ask service providers to describe how they will deliver sustainable IT services for your company and request information about their internal commitment to sustainability.

TPI’s seasoned strategy and assessment experts can help you achieve your global sourcing goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex.

E-mail Tom Olsen, Director, TPI, or phone him at +47 41 66 36 66 to learn more about sustainable sourcing.

Aon and Hewitt: The HR Consolidation Wave Continues

By Rosemary Collins, Partner and Managing Director, HR Services

Consolidation in the HR consulting and outsourcing industry continues as two more firms are joining forces. Yesterday, Aon Corporation and Hewitt Associates announced they have entered into a definitive agreement under which Hewitt will combine operations with Aon Consulting to form Aon Hewitt, a human capital consulting and outsourcing organization. The agreement is expected to close in the October/November timeframe with a deal value of $4.9 billion ($2.5 billion in cash and 64 million shares of Aon stock). Russ Fradin, current Chairman and CEO of Hewitt Associates, will be the Chairman and CEO of Aon Hewitt.

So what does this merger bring to these organizations and to the market?

• The recent merger of Towers and Watson Wyatt, which formed the largest HCM consulting firm in the world, presented a challenge to both Aon and Hewitt. Their new organization will be on par with the size and scope of Towers Watson and will help them retain their ability to compete in the market. Additionally, Aon’s presence in over 120 countries worldwide, particularly in some of the major emerging markets, provides the broader global footprint Hewitt has lacked.

• From an HR Outsourcing (HRO) perspective, the market has questioned whether Hewitt was big enough to sustain the level of investment required to compete in the broad-scope market over the long haul. The combined cash flow of Aon and Hewitt will put the new organization in a stronger position to invest in the business and reap the benefits of Hewitt’s successful re-emergence in the HRO market this past year.

• Hewitt’s dominance in the large-market total benefit outsourcing space combined with Aon’s significant mid-market client base will give the combined company capabilities across the full spectrum of the benefits outsourcing market.

• Many are speculating on the potential impact of healthcare reform on the health benefits market. Having access to a healthcare brokerage service within the firm will position Aon Hewitt well for an expansion of benefits administration services down-market as well as potential reform-driven plan design changes.

• Aon seems bullish on this merger, agreeing to pay a 41% premium over Hewitt’s share price the day before the announcement. However, the market reacted less optimistically, pushing Aon’s share price down 7.1% on a modestly up day. With the merger still 3-4 months away, we will have to wait and see how investors ultimately view this tie-up.

What does TPI see as the challenges clients of these two firms should bear in mind?

• Distractions – Any merger brings a level of distraction as the senior leadership of the merging organizations works to integrate the two firms both from an infrastructure and a staffing perspective. Clients should insist on frequent updates from their Account Management teams as well as from the top management of Aon Hewitt.

• Technology – While at this time Aon and Hewitt say they plan to keep all of their existing technology platforms, we would expect to see the retirement of some, especially in benefits outsourcing, where both firms have existing large- and mid-market offerings. It is unrealistic to expect the new organization will achieve its annual cost savings targets, which they project to be $355 million beginning in 2013, without some platform integration.

• Culture – Hewitt is known for having a unique, positive culture, although that perception has changed quite a bit over the last decade as the firm has grown and struggled financially. Still, the integration of two very different cultures will be a challenge for Aon Hewitt.

Although this merger came as a surprise, it makes very good business sense. It positions the new organization to maintain a leadership position in HCM consulting globally and it brings the cash flow necessary to make the investments that leadership in the HRO market requires. When considered alongside the acquisition of ACS by Xerox and the purchase of Convergys’ HRO business by NorthgateArinso, as well as the frequency of renewals of existing HRO contracts, the merger of Aon Consulting and Hewitt Associates signals that the HR outsourcing market is continuing to bounce back from the challenges of 2008.

TPI looks forward to welcoming Aon Hewitt to the marketplace.

The New U.S. Senate Finance Bill ― Five Potential Effects on Financial Services Companies that Outsource

By Sean O’Sullivan, Director, TPI

The finance reform bill currently awaiting final action by the U.S. has been delayed for a number of reasons and has seen significant change during debate this summer, including the removal of a proposed US$19 billion tax on banks. Overall, the legislation would overhaul U.S. financial regulations at a level not seen since the 1930s. It proposes to close holes in regulation and to curtail some trading practices that many believe led to the crisis in the financial markets in 2008.

Today’s TPI Top 5 outlines major components of the bill and their potential implications for financial services companies that outsource.

1. New regulatory authority. A "too big to fail" provision would give regulators new authority to seize and break up large financial firms that could cause systemic risk to financial markets and the overall economy. According to The Wall Street Journal, the ratings of firms historically deemed "too big to fail" could be downgraded and, therefore, would incur higher borrowing costs that would put pressure on both margins and profits. As vendors see more risk in large firms, will they use price increases as a mechanism to mitigate the risks?

2. Derivatives. The bill would require most derivatives trading to be executed on a public exchange as opposed to the current method in which derivatives trades are completed privately between banks and customers. This provision has come under scrutiny because of enforceability issues and questions about whether or not all derivative contracts would be posted on a public exchange. Will a new level of compliance be required to conform to new regulations?

3. Financial stability council. A new board would be established to recommend to the Federal Reserve stricter regulations on capital and leverage and other requirements for large firms that are considered a threat to the financial system. An additional level of reporting and compliance may be required to satisfy these new regulatory requirements.

4. Hedge funds. Hedge funds with more than US$100 million under management would be required to register with the U.S. Securities and Exchange Commission as investment advisors and disclose information about their trading and portfolios. The funds would face additional regulatory, compliance and reporting requirements that could provide an opportunity for service providers to bring best practices and solutions to the outsourcing industry.

5. Insurance. The bill would create a new Office of National Insurance within the U.S. Department of the Treasury to monitor the insurance industry. This new department would flag insurers that should be treated as systemically important and coordinate international insurance issues. This new entity would produce a study and recommendations to Congress on ways to modernize insurance regulation.

TPI’s seasoned Financial Services outsourcing experts can help you achieve your sourcing and governance goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. E-mail Sean O’Sullivan, Director, TPI, or phone him at + 1 347 949 0713 to learn more.

Will Volcanic Ash Impact Your Data Center?

by Gaurav Kumar, Senior Advisor, TPI India

Volcanic ash continues to disrupt travel and business across continental Europe without predictability, while also compounding environmental and climate change issues. IT executives globally are pausing to reconsider whether their existing data center facilities can stand the test of time and the ever-more-frequent tests of nature making headlines almost daily around the world.


Here are the TPI Top 5 considerations for IT executives looking to determine the efficacy of their current data center facilities:

1. Air contaminants and RF interference: Frequent breakdown of critical IT equipment in the data center facilities (e.g., due to oxidation of motherboards) have often been tracked back to the contaminants in the ambient air. Contaminants such as SO₂, NO_X, NO₂, O₃ and lead react with some of the components of IT equipment (primarily silicon) affecting their performance. Such contaminants may be carried by chimneys of upstream industrial units, which are usually missed without a detailed assessment. Similarly, radio frequency (RF) transmission from nearby mobile or TV towers may interfere with the performance of network equipment.

2. Soil composition: Since resilience to earthquakes is derived from the resilience of the bedrock, sampling of the soil from the data center facility provides an informed view of the structural composition of the soil. Additionally, one should investigate if the area was previously a swamp or used as a landfill, which in turn compromises the bedrock’s resilience. Soil sampling also aids in detecting any contaminants that may have spread from nearby landfills, municipal sewage treatment works or industrial drains.

3. Building structural stability: Commensurate with the subsurface profile and the expected Tier level (per the Uptime Institute or TIA-942) of the data center, the expected structural strength of the building can be derived. Contrasting this with your building’s current structural stability should indicate any need to fortify the building structure.

4. Assessment of flood patterns: Understanding the susceptibility of the site to any impact from coastal, river, surface, or drain/sewer water better informs the remedial measures that need to be adopted. Any required measures should also consider factors such as the accessibility of the site for evacuation and measures needed to ensure operational continuity.

5. Scalability of shared infrastructure: In a co-located setup, the cooling and power infrastructure is frequently shared across multiple clients. The ability of the installed shared infrastructure to continue to support the demands of multiple clients― either on account of business demand or adoption of advanced technologies (e.g., blade servers) ― determines how much runway the facility has left to support your operations.

The pre-Socratic Greek philosophers and Vedic Hindu thinkers believed the world constitution and fundamental powers were derived from four classical elements – Earth, Water, Air and Fire. These may just be the things to watch while reflecting on the robustness of your existing data center in light of the vagaries of nature.

TPI’s seasoned experts can help you achieve your IT Infrastructure and global sourcing goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex.

E-mail Gaurav Kumar, Senior Advisor, TPI India, or phone him at +91-99451-99951 to learn more.