Consider the Source

Contact Center Outsourcing Consolidation- Where Are the Benefits?

By: Mike McMenamin, Associate Partner & Director, Contact Center Services, TPI

  In the past 3-5 years contact center outsourcing, a $60 billion market, has experienced significant consolidation. Here is a timeline of how the consolidation progressed:

1. Stage 1: (10 -15 years ago) -  Large buyers of contact center outsourcing services, i.e. Fortune 500 firms with more than 500 agents (many with more than 1,000), initially outsourced for cost savings and to reduce large employee populations of agents; moved work out to one or two service providers.

2. Stage 2: (5-10 years ago) - These same buyers realized that using multiple service providers created ongoing price and performance competition; workload was split between multiple service providers (sometimes as many as 10 based on their size).

3. Stage 3: (3-5 years ago) – As a significant portion of the work portfolio has migrated offshore and all major providers have established a global footprint of some kind, buyers have begun to consolidate their stables of multiple service providers.   They see and realize the benefits (i.e. knowledge transfer, global standard processes / tools / technology, improved global account management) of moving toward fewer and usually larger, more capable service providers. 

In this market, the Tier-1 service providers have been the beneficiaries of this move towards consolidation on large accounts.  The large telecommunications companies (Sprint, AT&T, and Verizon) have consolidated and now rely on two to three major providers, as opposed to 10 different firms in the past.  Firms like GM and HP (with > 5,000 agents) have also consolidated using a smaller number of service providers.  This allows the buyers to move their workload around the globe (onshore, offshore, nearshore) with a single service provider as their markets, demand, and business priorities change from year to year.

SIG Conference: Day 2 - Procurement, Supply Chain & Day 2 Reflection

By Bill Huber, Director, CPO Services, TPI

 

Procurement Outsourcing:

Here at SIG, Rajeev Menon, VP & head of Procurement Services for Genpact based in Hyderabad, and Judy Burds, VP Business Development, reported that Genpact has seen a significant pick up in procurement outsourcing awards in recent months.  This has included stand-alone purchase transaction processing for a global pharmaceutical company, expansion of addressed spend with existing customers, and significant procurement work as part of several larger F&A engagements.  Genpact is also seeing interest growing in their tail-end spend management services.

New Position Chief Supply Chain Officer (CSCO)

IBM showed its recent research on “The Supply Chain of the Future” which included fascinating data on five critical issues: Cost Containment, Visibility, Risk, Customer Intimacy and Globalization.  According to IBM, the CSCO combines the role of the CPO and the COO.  It was a visionary session which provided much food for thought for all in the room.

Our view

We have rarely seen a higher level of intellectual engagement at a conference, and there has been significant exchange of best practices. The consensus is that despite the current political climate, sourcing decisions are now, more than ever, critically focused on solutions that will provide greater value to the customers for the same or lower price. This suggests an increase in the emphasis of capability in the “3C Framework for Successful Sourcing Strategies” (Capability, Capacity and Cost).  I expect to see many of the approaches discussed at this event increase and become more mainstream during the next year.  The silver lining in all this is likely to be meaningful innovation and improved productivity in sourcing.

SIG Conference: Day 2 – Examining Offshore Measures & Encouraging Tech Advancement

By Bill Huber, Director, CPO Services, TPI 

Captive vs. Outsource:

DuPont’s Frank Conway co-presented with our own Brian Smith  on the considerations between captive and outsourced solutions, which they compared to “seeing in a sandstorm.”  

As Frank pointed out, the decision is often a journey that reflects executives’ mindsets.  Having a captive can have a strong psychological benefit, but when times get tough, executives can often swing from not wanting to outsource to trying to outsource too much.   

• Frank also pointed out that whether outsourcing or managing a captive, you never give up your ultimate accountability.  The buck stops with you.  Whether it is outsourced, internal, onshore or offshore, the CEO expects it to work.
• Brian Smith noted that the most efficient captives and service providers achieve a fairly similar cost level, with the best captives operating at a 2%-4% lower cost than the best service providers.  However, median service provider costs amount to 79% of median captive costs.  Two reasons for this are that captives tend to have a significantly higher percentage of support staff, and a lower span of control (Apparently there are a number of captives that are currently “for sale”).

 

Newt Gingrich:

Former Speaker of the House Newt Gingrich provided the keynote at today’s lunch, covering an encyclopedic range of issues.  Equally critical of both U.S. political parties, he emphasized more changes in technology in the next 25 years than in the previous 125. He pointed out that no bureaucracy could possibly grasp, plan for, or react to this level of change and that only the private sector, reacting to the market, often through trial and error will be able to take our economy through this change. 

His key challenge to the sourcing audiences: 

Define what conditions would be required for the U.S. to be the preferred sourcing destination for more business activities, and become a force to advocate for those changes.  He mentioned taxes, regulation, education, and energy among those key issues.

Newt also pointed out that those countries that become protectionist, ultimately lag in technology, become more expensive and ultimately become backwaters on the global stage.  

The audience appeared to like Gingrich’s messages. Stay tuned for some more from day 2…

  

SIG Conference: Day 2 – eSourcing Insights and BPO Innovations

By Bill Huber, Director, CPO Services, TPI

eSourcing:

SAP and WE Energies provided some excellent, practical insights on how eSourcing auctions have been successfully conducted, and how they were able to diffuse the frequent arguments that reverse auctions destroy value.  As we have noted in the past, reverse auctions and other sourcing technologies are simply tools, and it is always the human element that determines whether tools will help to create or destroy value.  Gail DeVeau’s work at WE Energies is an example of how the tools can work in capable hands. 

The BPO Market:

Phil Fersht from AMR Research provided a broad overview of the direction of BPO. He shared many excellent nuggets with the group.  There were several highlights that stood out:

• There is a new breed of executive emerging that is looking at globalization and outsourcing.  In the 90’s the CIO had to move forward with enterprise resource planning (ERP) or be left behind.  Now, senior finance executives are feeling the need to move forward with globalization or be left behind.
• Healthcare analytics and sourcing from federal funding will be a growth area for sourcing professionals.  The stimulus plan confirms this.
• Many things that AMR Research has been telling clients not to do in outsourcing for years is now happening. Now companies are simply saying, “Take 30-40 % off bottom line. We are willing to take a leap of faith. We just want it done.”  The reality is that it takes 3-4 years to do effectively. 
• In outsourcing, client satisfaction trumps other service level agreements (SLAs).  If clients are satisfied and they feel that they are working with the provider, they will tend to be pleased even if there are problems in other SLAs.
• Procurement outsourcing will increase, partially because of the skill set issues facing procurement organizations, and knowledge process outsourcing (KPO) options available that are executable with relatively small headcounts. 
• Customers are asking procurement software vendors to provide more process support to      drive greater collaboration between procurement software providers and outsourcers.  Currently only about 15% of procurement BPO implementations involve technology transformation, far below other areas of BPO.
• KPO resources are often used to bring high value service to clients with the objective of ultimately growing the business into more scalable BPO. 

More insights from day 2 to follow…

 

SIG Conference: Day 1 Review – First Impressions

By Bill Huber, Director, CPO Services, TPI

The 35th Sourcing Interests Group kicked off its summit yesterday in Baltimore, MD.  There are over 325 attendees this year, up slightly from last fall.  The healthy attendance at a time when discretionary travel has been restricted across the board underscores the critical importance of current sourcing issues. 

I had the opportunity to speak with a number of the delegates during the opening reception and breaks.  Several themes are emerging:

Increased focus on domestic outsourcing:

• A document management outsourcer discussed how the past year has been net neutral in terms of full time employees (FTEs), despite the declining economy and the loss of some customers from industry consolidation.  Most of the work performed is domestic and on site at client locations. 
• A financial services executive was looking for domestic outsourcing providers.  Looking for opportunities to save money that would not get them into political trouble since the strings attached with TARP funding are onerous.
• An Indian based provider outlined recruiting activities around certain U.S. hub cities.

Increased focus on procurement outsourcing:

• One company case example discussed indirect procurement as one of three “towers” outsourced along with IT applications and Finance and Administration.  Of these three towers, procurement has the smallest impact on headcount and the largest business case impact and overall cost savings.

Shortening of outsourcing cycle times:

• Unisys CEO Ed Coleman used the term “sourcing speed dating”  in reference to what he described as a “12 month cycle to make an outsourcing decision.”  Coleman pointed out that many companies simply don’t have time for that when  thriftiness and simplicity are prevailing themes.    If outsourcing can save money, how can companies afford to take 12 months to implement it?  Every month that goes by means savings dollars out the door. Coleman also predicted increased movement to “platform as a service” delivery models where customers can “buy by the drink.”

Innovation:

• During the “Less is More” period, companies must wring additional value from existing capital investments, including outsourcing relationships.  Several providers indicated that their customers are constantly looking for price concessions, but only now are they beginning to act on cost savings opportunities through innovation that were previously ignored.  While customers still expect to see some movement on price, they are appreciative of those providers who can bring meaningful suggestions for improving operations and reducing overall costs. 
• In his keynote presentation, TCS America President Surya Kant identified three techniques to improve innovation in outsourcing:
  1. Contracts with funding budgets specifically set aside for innovation initiatives
  2. Contracts with cost savings guaranteed through innovation provisions
  3. Joint governance metrics on the number of proactive innovation proposals submitted by the service provider, the percentage accepted by the customer, and the benefits realized from implemented innovations

Where will this lead?  Here are my initial predictions:

• Indian and multi-national service providers will increasingly develop approaches to export some of their operational capabilities in employee on-boarding, training, process mapping, technology, and performance measurement to North America to increase delivery of outsourcing within the U.S. to complement their offshore capabilities.  Reduced labor arbitrage benefits will be partially offset by a more favorable political/regulatory climate for domestic approaches, especially within certain industries such as financial services and automotive. 
• Similarly, providers will continue to increase their philanthropic participation in their customers’ communities.   
• Sourcing will increasingly include elements of provider/customer collaboration during the selection process, focusing on innovation and flexible relationships that can mature over time. 
• Companies will shift more of their sourcing energies from the transaction to the governance process to optimize their strategic relationships. Governance will be accomplished at a more strategic level, focusing on capability alignment and innovation as equally important to operational and financial metrics.

More to follow!  Stay tuned…

Sourcer, Heal Thyself

By Bill Huber, Director, CPO Services, TPI

As I speak with procurement colleagues, I consistently hear of corporate mandates to negotiate an across-the-board price reduction or change to payment terms with all suppliers.  While companies will see some short term benefits from this behavior, it of course is not sustainable.  By not differentiating based on supplier performance and innovation, the quality of the supplier base will ultimately be degraded. Also, because this approach tends to focus on price it can starve innovation that might more significantly reduce total cost

I was asked by Tim Cummins at IACCM to speak on a panel along with Dan Mahlebashian, Chief Contracting Officer at General Motors and Tim McCarthy, Worldwide Director of Pricing and Contracts at Rockwell Automation on the subject of Renegotiation – The Silent Killer of Expected Results.  The topic clearly resonated with the sourcing community and was subscribed to by an audience of over 400 representing a who’s who of leading corporations.

The prescription for procurement was clear: We must possess the courage to resist knee-jerk tactics and lead through strategy, prioritization and alignment, leavened with a touch of old fashioned ingenuity

If anyone is attending SIG’s Global Sourcing Summit this week in Baltimore, MD, I’ll see you there. I’ll be posting between presentations throughout the week.