Consider the Source

Catching Up or Staying Ahead?

Today's blog on the HP/EDS deal comes from Peter Allen, Partner and Managing Director, TPI.

The marriage of EDS and HP is not about catching IBM, as has been commonly reported, but about staying ahead of Google, Amazon and Dell, while emphasizing services over effort.

Look at the bigger picture: there are only two clear leaders covering the broadest spectrum of outsourcing services.  IBM and Accenture cover the gamut of IT and business process services, including many industry-specific processes for airlines, retail, pharmaceuticals, and banking. The nearest pursuers are in India: Infosys, TCS and Wipro.

The combination of EDS and HP is one step short of having the sort of coverage enjoyed by IBM and Accenture, but three steps ahead of everyone else.

European Roulette

Today's blog on European outsourcing comes from Duncan Aitchison, Partner and President of TPI’s operations in EMEA.

You would think that a shift in global outsourcing demand away from the U.S. would be accompanied by an increase in outsourcing activity in Europe. Surprisingly, this has not been the case.

If one looks at the Total Contract Value (TCV) of private sector outsourcing transactions conducted in Europe each year since 2003, the amount has been consistently around the $40 billion level.

What is more interesting, however, is the pattern of outsourcing activity at the country level within Europe.

Europe remains a challenging market for any business. It doesn’t behave as a definable, targetable concentration of homogeneous demand.  It is a collection of diverse countries and regional markets with different cultural and linguistic characteristics, as well as a variety of legal and industrial structures. Together, these factors influence what is bought, where, and how it needs to be sold.

Listening to the Buy-Side

Today's blog on TPI's Americas Sourcing Leadership Exchange (SLE) comes from Peter Allen, Partner and Managing Director, TPI.

Falling quickly on the heels of our Americas Sourcing Industry Conference (SIC) held for service providers, we conducted our latest Americas Sourcing Leadership Exchange (SLE) for buy-side participants last week in Chicago.

What can one learn from spending a couple of days with almost 200 executives who are actively involved in the outsourcing business proposition and battling the recessionary markets of 2008?  Plenty.

Despite some of the popular conjecture about a slowdown in the adoption of outsourcing, this was our largest SLE ever, and the attendees generally expressed a desire to become ever MORE active in using outsourcing to achieve greater variability in their corporate cost profiles.

Many of the attendees, whether in the planning stages or actively managing existing arrangements, were keen on achieving even greater flexibility in their costs.  The discussions around captive operations, shared services and internal optimization received considerable air time when considered in contrast to outsourcing.

Pulling the Renegotiation Levers

Dale Hearn of TPI’s Financial Analysis Services Group will be "blogging about the bottom line" this week.

Of the many factors that come into play during sourcing decision-making, financial drivers within the existing contract are critical.

Companies must decide whether to renegotiate their contract with their current provider (re-source), choose a new service provider, or bring the services back in house (in-source). Several clients that I worked with over the past couple of years made a conscience decision to renegotiate with their current service provider based solely on the overall financial implications of the deal.  For more information, check out my colleague's whitepaper.

Service levels, client satisfaction surveys, balance of trade issues, and executive relationships all had an impact in renegotiations, but the most important factors for these clients were based on the NPV (net present value) and profit margins over the term of the deal.

Think Outside the Indian Sourcing Box

Today's guest blog on outsourcing in Latin America comes from Melany Williams, Partner & Managing Director, TPI Innovation Center.

With a wave of buyers of outsourcing services looking to Latin America, the habit of moving your business 7,000 miles away needs evaluation.

The appreciation of the Indian rupee by more than 11 percent against the U.S. dollar this year and the rise of the Canadian dollar is causing many companies to consider diversifying their offshore portfolios. India is facing constraints such as wage inflation, talent attrition and infrastructure strains, and Latin America is increasingly becoming the alternative “go-to” location.

A number of factors support setting up a Latin America operation: most countries in the region have stable social and economic environments, the necessary infrastructure, intellectual property rights, and free trade agreements including NAFTA that make sharing data in core business applications across borders possible. These regions are more appealing now than a few years ago and successfully migrating IT and business service support functions requires a balanced view of risks and opportunities.

Straw Man Arguments of Offshoring

Today's guest blog comes from Paul Duckham, Senior Advisor, TPI.

Should a U.S. bank spend another US$2-3 million tweaking its mature IT systems to squeeze another 5 percent productivity gain out of its U.S. operations, or just move the processes offshore, with the potential for 40 percent saving?

The above surely sounds like a straw model argument; obviously the better business case wins out every time, doesn’t it? Well, not always.

The portfolio of IT projects often takes on the characteristics of ancient law – it must not be questioned or changed. Most of the time this is good since constant churn in the project list causes a huge waste of resources as people start and stop project work.

But when considering BPO opportunities and whole processes outsourcing, shouldn’t everything be fair game?

Tipping Forward

Today's blog on TPI's Sourcing Industry Conference comes from Peter Allen, Partner and Managing Director, TPI.

Have 120 executives from over 50 service provider firms discuss the “tipping point” in sourcing, and the word you’ll hear repeatedly is innovation. It’s no surprise the topic earned the most buzz at TPI’s Sourcing Industry Conference (SIC) in Chicago on April 22.

How to put the topic of “innovation” more prominently on the table for outsourcing relationships has been led by my colleague Harvey Gluckman. His work with several service providers and law firms is addressing the ways that innovation is declared as an expectation, its evaluation techniques, funding models, and the overall governance constructs. It’s truly market-changing work.

Mapping Personnel by Service Tower

Today's guest blog on personnel considerations in IT outsourcing comes from Ray Bender, Senior Advisor, TPI.

How critical is quantifying the number of personnel who support the services you are evaluating for a potential IT outsourcing engagement?

Staffing and personnel costs generally form a significant portion of every IT budget. The percentages vary depending on the type of services being considered for outsourcing. Application development, maintenance and help desk services are on one end of the spectrum with a high percentage of labor costs, while mainframe and server support services are at the other. The percentage of staffing costs for network services depend on whether telecommunication carrier expenditures are part of the budget or a separate expense category.

The better you know the staff supporting the function and their corresponding expense structure, the better you will be able to develop a sound business case on which to base your financial evaluation.

Is Change Management Just a Growing Pain?

Today's guest blog on change management comes from Shawn McCray, Partner, TPI. 

Things don’t eventually come around.

Problems that occur during implementation of outsourcing are primarily caused by poor change management and lack of governance, and they’re not just natural growing pains. We’ve seen situations where initial implementation went so poorly the entire business case was degraded such that recovery was almost impossible.

But when change management and governance are proactively deployed both parties achieve expected results. A miracle of miracles!

So why doesn’t this happen every time?

The Three Dimensions of IT Sourcing

Today's blog on IT outsourcing is from Mike Slavin, Partner and Managing Director, CIO Services North America, TPI.

Clients strive to keep key information technology (IT) competencies in-house, even if internal resources are battling to keep the ship afloat.  The incentive to call upon external expertise to overcome weaknesses is critical, but it’s curious how many turn a blind eye.  Being categorized as “upper right-hand quadrant” is not always indicative of capability to affect change and innovation.

Strategic competencies are hard to attain and maintain, especially in the IT space. An advantage is always vulnerable, and identifying, not to mention replicating exact competencies is difficult.  With increasing cost pressures, long-term strategies are often moderated in the face of tactical budgets.

So, if internal IT resources and expertise are not up to par, doesn’t keeping them in-house create a disadvantage?