Consider the Source

Assessing IT in the Public Sector

By Don Flores, Partner & Director, State and Local Government Services, TPI

Last month, I attended the 40^th annual conference of the National Association of State Chief Information Officers, which represents state CIOs and IT executives and managers from the states, territories, and the District of Columbia. At different times during the conference, we were asked to participate in interactive multiple-choice poll, and the results were very interesting. On the first day, 67% of the state IT officials in the audience predicted 2010 would bring a 5% reduction in their funding (only 6% said it would be up and 13% said it would be the same). And when the group was asked what should be the top priority for state CIOs next year, “seeking efficiencies and cost control” won in a landslide.

This is not an easy time to be a state or local government IT leader. At a time when public funds are in the tank due to the economic downturn, demand has never been greater for services, especially in highly complex areas such as disaster recovery, data security and e-government. The pressure is easy to see in the Commonwealth of Virginia, where a recent legislative audit of outsourcer Northrop Grumman found repeated outages and costly delays in its handling of the government’s IT systems and has led to calls to cancel the contract.

Smart organizations—whether they’re in the public sector or the private – know that proper governance of outsourcing arrangements must be agreed upon ahead of time and built into every agreement. But crafting a successful sourcing strategy actually begins much earlier than that. TPI has recently kicked off IT assessments with the State of Vermont, State of Washington and City of Houston aimed at identifying opportunities to reduce costs and improve service delivery. Carefully exploring all options is the only way states and municipalities can find the efficiencies their budgets require while still providing the high-quality IT services their citizens demand.

Order to Cash Outsourcing - 5 Reasons Why It’s a Trend to Watch Today

By Art Shanfeld, Senior Advisor, TPI

Order to Cash (OTC) outsourcing has typically been on CFOs’ lists of “potential outsourcing opportunities,” but it has not risen to the top of the list until recently. TPI is seeing more interest and activity in OTC outsourcing this year in spite of - and possibly because of - the depressed economy.

Several emerging trends in OTC are catching CFOs’ attention and changing their priorities on that list of outsourcing opportunities. These are the TPI Top 5 reasons why OTC is growing in popularity:  

1. The shift from function-based to process-based (“end-to-end”) outsourcing. In the past, OTC outsourcing solutions have focused on just two or three functions within the OTC process (e.g., credit, collections or cash applications). But in the past few years, sourcing service providers have invested in developing “end-to-end” OTC capabilities that offer integrated solutions (tools and processes) across order management, credit management, invoicing, cash application, dispute resolution and reconciliation and analysis. These end-to- end capabilities drive higher efficiency in transaction processing as well as resolution of order entry mistakes, pricing disputes, billing errors and credit or collection issues. The benefits of transparency and accountability that come with service provider investments in end-to-end capabilities are paying off with increased buyer interest and confidence.

2. Shifting buyer interest from offshoring to transformation. The “lift and shift” model has been the backbone of most OTC solutions and has driven cost savings for most companies. Most service providers have established networks of offshore centers with the technology and telecommunications infrastructures that are necessary to support customer requirements. Separate from and beyond offshore capabilities, though, some service providers have made investments to quickly broaden their offerings by making strategic acquisitions of niche companies with deep OTC capabilities. These providers have combined the proprietary tools and methodologies from those acquisitions with their other service delivery resources and capabilities to provide robust OTC transformation capabilities to their customers. The providers are offering much more than just “labor arbitrage” and are differentiating themselves from their competitors in the early stages of customers’ RFI/RFP processes.

 

3. Increased focus on customer service requirements. Buyer concerns with service provider offshore capabilities in customer service and support are not uncommon, given the language barriers and timing in getting issues resolved. This sensitivity is particularly high for companies that require higher levels of customer communication and contact. Given these sensitivities, TPI is seeing situations where customers are choosing onshore and nearshore solutions to gain better support and higher customer satisfaction (internal and external customers) by foregoing higher-level cost savings from offshore options. 

 

4. Shift from customized to standardized OTC solutions. As part of the drive to “end-to-end” OTC outsourcing solutions, service providers are leveraging their investments in technology by pushing to their customer bases standardized tools and methodologies that require lower costs to implement and maintain. This trend will likely take hold in the more transaction-based areas of invoicing and cash applications, while demand for more complex and customer-facing activities (such as order management) will still require higher solution customization. 

5. Focus on cash flow. Companies are evaluating OTC outsourcing opportunities with several goals in mind, including obtaining cost savings while balancing customer support and satisfaction requirements. A benefit that has always been part of the discussion is cash flow. Service provider capabilities to reduce days sales outstanding, to improve receivable agings or to reduce receivable write-offs have typically been a part of the “benefits” discussion. But with demonstrated end-to-end capabilities by service providers, the cash flow benefits are even better, more visible and more attributable to the changes and improvements brought by service providers’ OTC solutions. 

The net effect of these five trends is that OTC is not just one of the topics on CFOs’ lists of outsourcing opportunities . . . it is quickly becoming the area of focus.

 

TPI’s CFO Services experts can help your organization produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during economic uncertainty. To learn more contact
Art Shanfeld, Senior Advisor, TPI.

Risk and Organizational Change at the PMI Global Congress – Part 2

By Cynthia Batty, Global Competency Lead, Service Management, TPI

 

 

At last month’s Project Management Institute’s Global Congress there were many sessions on risk management. PMI has long considered risk to be a critical factor in project management. We were treated to a number of very sophisticated risk workshops, by very thoughtful educators and consultants. I had some very useful takeaways from these sessions; this is one.

 

Outsourcing has risk that needs identification as well – both from the project perspective and from the ongoing service and relationship management perspective. In my practice, I generally see interest in risk management up front, but the interest in maintaining a risk management and mitigation plan wanes after the outsourcing project is completed and services begin. In our view, this is the time when risk management is most important.

 

I’ve wondered for some time why managers are so reluctant to engage on risk, and I’ve come to believe that it’s because risk is boring – unless you’ve got a “live one” in front of you. So when I signed up for the session “Deadliest Catch: Risk Identification in the Vast Bering Sea,” I was hoping for something different – and I got it.

 

The instructor, from The Persimmon Group divided up the room into groups of about 15, and asked us to watch some film clips from the Deadliest Catch program and identify all the risks we could see in 10 minutes after the films. We had about two minutes to organize ourselves (the groups were complete strangers to each other) and were told that the group that identified the largest number of risks would win a prize.

 

Then he rolled the tapes of the dangerous, wet, cold, frightening footage of men catching crabs off the Alaska coast. We made notes and collated our risks afterwards in an atmosphere of fun and excitement. Granted crabbing is a bit more immediate and obvious than managing outsourced services risk, but the very short process focused everyone’s minds wonderfully! Our team identified over 100 risks – but we still lost to a group who did a better job of creating their categories.

 

It was an eye-opening way to push a team to quickly take stock, which forced immediate identification of key categories, and an excited atmosphere to literally call out the risks large and small without rationalizing. When I told the instructor I planned to use the technique with my teams from now on, the room exploded in applause. It was a smart, interesting way to drive people to think fast (and in a relatively fun way) about risk. I’ve used this already with a client, just focusing on their own risk, and giving them a head start by identifying categories such as Reputational Risk and Geopolitical Risk to help them. It worked like a charm; they identified nearly 200 risks in eight categories in two ten-minute sessions, which has lead to subsequent risk workshops to follow up.

 

This is a real keeper of an idea, and now part of our overall Risk Management methodology in our Service Management & Governance practice.

Next time: Innovation and Organizational Change Management

Organizational Change and Risk at the 2009 PMI Global Congress

By Cynthia Batty, Global Competency Lead, Service Management, TPI


I attended the Project Management Institute’s Global Congress this month, in Orlando, Florida. I am particularly interested in Organizational Change Management and Risk Management, so I selected sessions primarily focused on these things. Many of the sessions focused on what I call “voodoo” change management – communications, feelings, and so forth – but not an operational expression of change. Though there was one outstanding and remarkable presentation by an interesting team from the State of Oregon and George Fox University. I think their work provides some very practical and operational insight on how change management should be integrated into both project and outsourcing management.

What the State of Oregon Department of Human Services Process Center of Excellence has done is take a look at all the thinking in organizational change management, codify and examine it, and create a methodology that shines the cold light of operations on the problem of providing concrete actions to bring about effective change – especially when the change is not one that stakeholders will ever like or embrace. Outsourcing presents such a challenge.

I’ve been bothered for years by the lack of completion in most change management methodologies. While it’s clear that changes have to be communicated and winning hearts and minds is important, the hard fact of organizational change is that sometimes it’s hard to like the change regardless of how it’s packaged. So there has to be a more operational expression of change.  A way to ride herd on the outcomes, often over several years, is to ensure that the change really “took.” This takes an organizational bent of mind, a will to see it through, and a strong methodology that supports this kind of institutionalization of change – something that corporations sometimes lack. It’s refreshing for an American to think that a state government would support and nurture such an obvious and valuable approach.

Like so many major advances in project management, this United States Government contribution to the ongoing discussion of project management is published. Go take a look at their review of change management methodologies for an instant primer on change in management thinking, and what is missing: States Of Change: An Inquiry Into The Nature Of Organizational Change.

There’s a lot to mine on this subject. I realized (paradoxically, I suppose)  that innovation could only thrive in an organization where change management was actively practiced – I’ll write about that in the future. I felt that our Service Management & Governance operating model methodology was validated. Outsourcing is the kind of change that challenges organizations; it’s good for the corporate entity, but hard for people. Walking that tightrope has implications for both the human capital of a company, and its bottom line.

Next time: Risk and The Deadliest Catch!

Keeping Your Healthcare Sourcing Strategy Moving Forward (with Confidence!) During Turbulent Times

By: David J. McCament, Director, Healthcare Payer / Provider, TPI

Today’s global economic conditions are unprecedented for decision makers in healthcare. For example, every part of the United States healthcare business model is undergoing significant and unpredictable change; and we’re not even close to the finished model. 

Despite these turbulent times, healthcare payers and providers who are embarking on or are in the middle of major strategic business projects are wondering how to align their sourcing strategies amid this constant, multidirectional change. 

There is no time like the present for healthcare payers and providers to capitalize on chaos to improve operations and prepare for the new healthcare environment. Here are the TPI Top 5 actions you can take in the near term to drive contractual flexibility, increase speed of value realization and maximize the value derived from your sourcing relationships.

1. Reduce the number of key service providers and then increase leverage with those that survive your vetting process.

2. Renegotiate current contracts to reflect the changing environment. Consider the future benefit streams of your contracts and “pull them forward” contractually to realize their value sooner. Seek to consolidate multiple contracts with the same service provider to improve leverage across business units.

3. Now is the time to establish (or fine tune) rigorous Service Management & Governance oversight processes to ensure maximum value realization from your current contracts.

4. Look outside the traditional healthcare market for sourcing ideas and executable models. Examples of other industries that have proven track records in sourcing include banking and financial services, manufacturing and telecommunications, all of which have been successfully sourcing non-core functions for decades.

5. Establish an enterprise-wide sourcing advisory council to document and propagate your organization’s sourcing philosophy. For example, consider the bigger picture of sourcing as not just “outsourcing,” but as the application of resources form every potential source to solve your business challenges.

Now is the time to re-assess your sourcing strategy and re-evaluate your current sourcing relationships. Reset the performance bar, define/refine what innovation means to your firm and make sure to measure service providers’ execution of their contractual obligations.

TPI’s experts can help healthcare organizations produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during these turbulent times.  

Take charge; set direction. Contact David K. McCament, Director, Healthcare Payer / Provider, TPI, to learn more.

Making M&A Count For Achieving Business Goals

By Nigel Walker, Partner & Managing Director, Energy, Utilities, and Life Sciences Services, TPI

The pharmaceutical industry is seeing a lot of mergers and acquisitions as companies seek ways to reduce costs even while they can see a drop in their future revenues looming due to drugs coming off patent.  But mergers will not deliver savings or revenue increases if executives do not manage the integration effectively and decisively. 

Big mergers have many moving pieces. The complexity is compounded by the fact that companies in the pharmaceutical space have often been traditionally been very decentralized. When you combine decentralized organizations, you run the risk of losing the advantages of a merger. For example, it’s not unusual to see HR working towards one goal, while IT works towards another.  Departments, business units and integration efforts cannot be isolated. Newly merged companies that allow themselves to operate in the same decentralized manner they followed before the merger will have the much of the same overhead and cost structure they had earlier.

To achieve the BUSINESS GOALS of a merger, companies must holistically look across their business for cost savings.  One quick win organizations often overlook is corporate real estate, which can offer huge cost savings if managed right.  We know firsthand the cost savings that can be achieved.  Our work with other organizations is proof that great cost savings can be achieved in year one by taking a disciplined approach to merger integration.

Telco-to-Telco Deals Fuel Record Third Quarter for Outsourcing

By Mark Mayo, Partner & President, Global Resources Management, TPI

This quarter showed record performance, but not enough to lift the YTD results to 2008 levels. Very importantly, several large and unique contracts in telecommunications were responsible for a significant portion of the quarter’s performance.  Highlights for the quarter include:

1. A few very large Telco-to-Telco contracts — instances where one telecommunications carrier outsources its network operations requirements to another telecommunications service provider —accounted for more than 30 percent of the Broader Market’s total contract value (TCV).
2. Resurgence in mega deals, or contracts valued at US$1 billion or more, occurred both with and without Telco-to-Telco deals.
3. Significant IT outsourcing TCV growth, driven primarily by Telco-to-Telco deals, took place, with Broader Market BPO (contracts >$25M in TCV) continuing to lag. BPO outsourcing adoptions continues at the smaller contract level (<$25M in TCV).
4. The number and TCV of contracts signed in Asia Pacific increased substantially, with and without the impact of Telco-to-Telco.. Year-to-date, the region’s TCV has already exceeded the value of its contract awards for all of 2008.

Based on the tradition of strong fourth quarters, and a more robust industry pipeline, we expect positive movement in the marketplace during the next 6 to 9 months.

Check out the full Q3 TPI Index presentation below:

3rd Quarter 09 TPI Index

View more documents from TPI.

Growing Evidence that Procurement Outsourcing is Rapidly Moving to Strategic Sourcing, Category Management and Technology

By: Bill Huber, Director, CPO Services, TPI

Recently, ICG Commerce announced that it signed a four-year agreement with Houghton Mifflin Harcourt Publishing Company ─ the world's largest publisher of educational materials for pre-K–12 schools ─ to provide ongoing sourcing and category management services. HMH will leverage ICG Commerce's deep category expertise, supported by a robust market information and technology platform, to drive cost reductions across its indirect spending in areas including IT, telecommunications, marketing, facilities management and travel.

Advance Auto Parts also recently signed a procurement outsourcing agreement with IBM. It will “allow Advance to focus resources on achieving its key strategies, provide savings opportunities by leveraging IBM's buying power during vendor negotiations, give access to IBM's global expertise and best practices for both sourcing and expense accounts payable, and improve processes and organizational capabilities with both procurement and accounts payable policies.” Click here for Advance’s full news release.

Over the summer, IBM announced that is has expanded its procurement outsourcing services offering with new strategic sourcing services and new procure-to-pay services. Writing in Supply and Demand Chain Executive, IBM’s VP of Procurement Services Bill Schaeffer noted that, “Once a company has gained full advantage from the potential value offered by sourcing and procurement, the only remaining direction to look is outside of the company for additional leverage and value. At the simplest level, this begins with benchmarking and application of ‘best practices.’ However, benchmarking really only begins to point us in the right direction and cannot deliver the full value that a company seeks. True spend leverage occurs not just when a company uses the best ideas of another business, but when it actually leverages the resources, infrastructure and spend of other businesses in concert with its own to derive more value than it can by itself.”

India-heritage service providers have also moved solidly into sourcing and technology. Infosys launched its “Sourcing and Procurement Academy,” focusing on a “sourcing and procurement curriculum to enhance competencies and meet the goals and objectives of both the employees and the company. Our academy enhances the skills of procurement professionals to deliver better value to customers.” Infosys has also launched a sourcing and procurement business platform based on the SAP SRM platform with niche applications such as workflow, OCR and document management. Other leading India-heritage providers such as Wipro, TCS and Cognizant have also built strategic sourcing capabilities by leveraging their technology capabilities and growing consulting capabilities.

Global leaders Capgemini and HP are also investing in procurement capabilities. Capgemini announced that it is working with European e-purchasing solution provider IBX to launch a BPOpen technology platform for procurement. Capgemini has indicated that “this new solution is aimed at reducing the cost of procurement for companies while also accelerating and reducing the time to ROI on the deployment of e-procurement” to “enable their clients to incur one-tenth the implementation costs over traditional implementation approaches in their sourcing efforts.”

There are a number of reasons that procurement outsourcing has expanded so visibly into strategic sourcing, category management and technology:

·   To increase spend under management, procurement outsourcing providers bring in additional, specialized category expertise, typically by expanding a company’s sourcing team from tens to hundreds.

·   These additional resources leverage real-time market intelligence gained from continually analyzing sourcing categories for multiple companies throughout the year (versus once a year or every three years) and use this information advantage to deliver better sourcing results.

·  To help companies achieve high levels of compliance and maximize realized savings, providers have invested heavily in developing:

  

o    Reporting and analysis tools to identify, monitor and continuously improve savings programs

o    Integrated processes, infrastructure and dedicated resources to actively manage categories and savings initiatives post-sourcing

Combined, these capabilities can help companies achieve and sustain greater results in a shorter period of time.

 

Procurement executives and CFOs are using this advantage to position procurement as a key source of cash or working capital that can be used to meet strategic objectives such as improving margins or funding growth and innovation. The procurement outsourcing sector is continuing to evolve, moving into project-based sourcing, logistics and other supply chain management functions. It is currently one of the most dynamically developing areas of outsourcing.

Stay tuned … post your own thoughts here, and feel free to contact me at bill.huber@tpi.net to discuss further.

Captive Sales Continue with UBS Sale to Cognizant

By: Brian Smith, Partner & Managing Director, Financial Services, TPI

Today’s news that UBS has sold its captive to Cognizant is the continuation of a trend – following captive sales by Aviva to WNS in 2008, Citigroup to Wipro earlier this year, and AIG to HP-owned MphasiS in August. It’s clear that the idea that offshore services can only be provided from within a captive wholly owned structure is dead – certainly for IT services, and probably for most BPO services. 

One of the big challenges with this type of transaction is that an internal organization suddenly becomes a third party – and that comes with associated management challenges that are often missed in the heat of executing the transaction. It’s a big change, but often slowly executed – in essence nothing changes on day one - but as the buyer seeks to leverage its investment, conflicts with the former parent can emerge. We therefore recommend paying a lot of attention to governance, and implementing a strong approach to governance from inception.

We anticipate that the trend of captive monetization will continue, and that the capabilities of the captives, once commercialized, will increase the maturity of the overall market – particularly in terms of domain expertise.

The Quest For Outcomes – Part 1

By: David Fleming, Director, TPI

It is undeniable that C-suite sponsors of strategic sourcing initiatives are increasingly focused on the ability of their service providers to deliver outcomes rather than provide input.  These same sponsors are tasking transaction teams with creating outcome based agreements, often to the bemusement and confusion of these teams as they cast around trying to create this new paradigm.

A starting point for any team seeking to establish an outcomes based agreement is to consider the idea that all contracts are outcomes based – whether swapping beans for a cow or dollars for improved customer satisfaction.  The value in accepting this idea is that it directs the mind away from a focus on how to develop a new contracting model.  Instead it allows strategists, performance managers, and C-suite sponsors to consider what management techniques, particularly sourcing techniques (new and old), are most likely to ensure that the transaction being entered into will deliver the outcomes sought.

As simple as it sounds, the first step in delivering an outcomes based agreement is to identify the desired outcomes along with the outputs and inputs needed to achieve them.  At this stage, some old-school management tools can be useful, although they may be tested by the complexity of both strategic sourcing agreements and delivering outcomes across a network of organisations.  Simplest among these tools is the SMART test. 

• SPECIFIC: Are the outcomes being sought specific? If they are inherently complex, which is probable, are there future problems that are likely to result when a commercial relationship is established? Task project teams with anticipating these problems and identifying those management techniques likely to be needed to ensure that problems are dealt with in a manner that preserves the effectiveness of the agreement.
• MEASURABLE: How can the outcome, and more particularly the service providers’ contribution to the outcome’s achievement be measured? This is rarely simple since outcomes are at the least dependent on inputs from the client and service provider. Commonly, multiple service providers contribute to an outcome and each will inevitably have a view on their own contributions and their co-contributors failings.
• Similarly considerations of ACHIEVEABILITY, REASONABLENESS and TIMELINESS need to be made and factored into the design of the agreement.

A project team that understands the SMART dimensions of the outcomes they are seeking is well equipped to establish the obligations of all parties, the means by which achievement of these obligations will be tracked, and the management techniques that will be used to remediate situations where outcomes are not being delivered.