Consider the Source

Put in the Hard Yards to Get the Best Out of Your Sourcing Balanced Scorecard

by Ed Tann, Director, ISG

“Come what may, all bad fortune is to be conquered by endurance,” Joey Barton, English footballer turned Twitter prophet, quotes the ancient poet Virgil.

As Barton, and Virgil before him, reminds us: it takes hard work to win results. The balanced scorecard for sourcing promises a lot – to determine, measure and manage a set of predictable outcomes. But, like most treasure, it is the thing of whispers. There’s actually not much of a map to it, and only few have enjoyed its largesse. Indeed, the lack of a structured scorecard may have led a number of organizations into the poorly scrutinized, headline-making sourcing contracts with which the industry is, sadly, all too familiar.

Though constructing a balanced sourcing scorecard involves a degree of soul searching and rigor, the rewards at the end of the process are considerable. The following Top 5 guidelines will help you to construct a scorecard for your next sourcing transaction.

1. Create a map to flesh out the sourcing strategy. Use an established model that is based on the proven multi-dimensional Kaplan and Norton scorecard construct as the skeleton upon which to attach the meat of your sourcing scorecard. Resist attempts to change this established structure; it works. Allow it to prompt the right thinking.
   
   
2. Measure activities not outcomes. Objectives are about outcomes, and strategies are plans for achieving those outcomes. Measure the activities that underpin your strategic plans. Acknowledge major challenges, address tricky fundamentals and question entrenched patterns of behavior. The result should be a set of activities and associated measures that manage obstacles and create competitive advantage for client and service provider.
   
   
3. Guide the pre-contract process. A good deal of form and rigorous strategic thinking in the pre-contract phase is imperative to establishing fundamentals. Pre-contract deliberations will inform a great deal of the transaction including the definition of services, the assessment of the service providers’ attributes, the characterization of the type and term of the contract, the evaluation of the bidders and the definition of the service-level agreements (SLAs).
   
   
4. Manage the relationship during and after the contract. Your scorecard should underpin the delivery of services during contracting and beyond, guiding the business case requirements for both parties, value adds and investments in governance and innovation. Base SLAs on operational strategies rather than off-the-shelf norms. Use your balanced scorecard as a tool for continual relationship improvement, using inputs from senior managers from both the client and the provider that yield actionable improvement items.
   
   
5. Manage the provider’s operations. Providers need to confront the high stakes challenges of today’s competitive environment. They face margin-squeezing shifts in supply and demand, advanced cost and delivery models, new and powerful market entrants, general supply “switchability” and an increasingly savvy buyer. The scorecard produces a coherent analysis and measurement framework to help provider align its business to these fundamentals, devising go-to-market strategies, rebalancing costs, prioritizing investments and building capabilities.

As on the sports field, discipline and hard work will pay off in the competitive sourcing marketplace, especially with an expertly structured balanced scorecard. For more information, contact Ed Tann, Director, ISG, at edmund.tann@isg-one.com or +44 7769 977530.

Lessons Learned from the 2011 TPI Momentum Geography Report

By Paul Reynolds, Chief Research Officer, TPI Momentum

Every region of the world experienced significant outsourcing developments in 2011. The TPI Momentum 2011 Market Trends & Insights Geography Report found that global developments are increasingly connected. The natural and nuclear disasters in Japan, political upheaval from the Arab Spring in the Middle East and Africa and the continuing debt drama throughout the euro zone all impacted outsourcing decision-making far beyond those regions.

Here are the Top 5 highlights from the report:

1. The continental divide is growing. In 2010, for the first time, companies in Europe spent more on outsourcing than those in North America. That trend continued in 2011, as spending in the EMEA region rose four percent, led by stronger growth in Europe, while outsourcing spending in North America fell six percent and is now at the lowest level since 2006. Spending in the Asia-Pacific region reached a record high following nine percent growth.

2.  Currents are changing for offshoring. Long-held attitudes and trends toward offshoring are changing, in both directions. During 2011 clients facing contract negotiations around the world generally were more open to offshoring. However, clients in three of the largest markets – the U.S., U.K. and Canada – bucked this trend. Several high-profile U.S. and U.K. companies repatriated work that had previously been offshored. U.S. and Canadian companies exhibited growing preferences to keep outsourced work within their countries, often because of sensitivity about data security or offshoring in general.

3. The fast-changing world slows down decision making. TPI has observed that the current events that dominated world news in 2011 are also causing companies to slow their outsourcing decisions. Companies throughout Europe, and those around the world who do business there, are moving cautiously while the Greek debt crisis, the future of the euro and other macroeconomic issues play out. The natural and nuclear disasters in Japan had a major effect on business operations and planning. The Middle East and North Africa had been gaining ground as an outsourcing service destination, but, following the Arab Spring, businesses are waiting to make major commitments to the region until the political and business environments stabilize. Outsourcing decision making also slowed in the large banking and diversified financials industries because executives were highly focused on global financial conditions and preparing for the new capital requirements in the Basel III agreement that will take effect around the world.

4.  Clients want more without paying more. Clients around the world are renegotiating existing contracts, converting sole-source engagements into multisource arrangements and asking service providers for more services and lower rates. While this type of activity is typically associated with experienced outsourcing clients, it is occurring in mature and emerging outsourcing markets alike.

 5.  Change rearranges the top. The United States surpassed India in 2011 as the top-ranked country on the TPI Momentum Outsourcing Viability Index (OVI).^™ Though costs and labor competition are rising in India, it remains a leading outsourcing destination, ranking second worldwide on this measure. Rising costs also caused the Philippines to slide in the OVI, from fourth to seventh. Other changes in the top 10 include Canada rising two positions to fifth and Egypt falling from 10 to 16. The OVI ranks 51 countries on six dimensions that measure the country’s suitability to support outsourcing.

The biggest takeaway from the TPI Momentum 2011 Market Trends & Insights Geography Report is that outsourcing feels the impact of political and economic developments beyond national borders. The complete report includes regional overviews plus individual chapters on 21 countries that discuss market developments and drivers in detail. To learn more about it click here or contact Paul Reynolds, Chief Research Officer, TPI Momentum, at +1 508 625 2194.

IBM Acquires Emptoris: Implications for BPO

By Bill Huber, Partner, TPI

The acquisition by IBM of Emptoris – a widely deployed procurement software solution that combines spend analytics, sourcing, contract management and other functionality – is big news in procurement circles. The move presents an opportunity for IBM to advance its technology solutions and procurement BPO businesses, and to tell a marketing story to open more doors within procurement organizations.  An article by our friends at SpendMatters has largely gotten it right in terms of opportunities and challenges, and it's worth a read.

In terms of the larger picture, this acquisition clearly signals a further commitment to platform-based BPO, and that the combination follows Capgemini’s acquisition of IBX last year, as well as ICG Commerce’s much earlier internal repurposing of its software suite to use as an integral component of its procurement delivery model.  While to date the economics of pricing have been challenging, platform-based BPO solutions will likely become an increasingly dominant delivery model.  Here are four distinct advantages that Platform-Based BPO Solutions offer:

• By optimizing its BPO process to a standardized technology offering, the service provider can in theory provide both greater process efficiency and improved resource utilization across multiple clients. As a result, the provider can support a higher transaction volume with fewer resources.
• Because the underlying technology is provided with the service, no capital investment is required by the customer. Furthermore, the deployment of the same technology across multiple customers, supported by a leveraged technology team often located in a lower-cost market, should combine to reduce the service provider’s total cost of ownership. Some of these savings can be passed on to the customer.
• A continuous feedback loop between the service delivery team and the technology team across multiple client engagements enables ongoing enhancements to the underlying technology. These can include new functionality and related applications geared toward enablement of continued positive business impact beyond cost savings.
• Lastly, because the services are optimized to the platform from the beginning, the amount of time to achieve savings should be reduced.

IBM has emphasized that this acquisition is another key piece of its overall “Smarter Commerce” Strategy, and that the combination will enable IBM clients to better manage process visibility, tighter integration with an increasing number of trading partners, and rising transportation costs.  Interestingly, IBM is emphasizing that the combination will allow customers to analyze supplier performance, centralize contract lifecycle management, and develop global sourcing solutions with a “flexible choice of software and service, delivered in the cloud, on premise or in a hybrid model.” 

To us this all sounds like a blurring of distinctions between technology solutions and BPO solutions, and a platform-based strategy provides an on-ramp to grow both offerings within each client without ever using the often polarizing “outsourcing” word. We believe that this wave will continue.

What do you think?

Keys to IT Process Maturity

By Chris Pfauser, Principal Consultant, Compass

CIOs seeking to optimize operational efficiency often rely on strategies and frameworks such as ITIL and COBIT. But deploying a process improvement initiative or set of tools isn’t enough.  True enterprise-wide process maturity is characterized by clearly defined activities, functions, roles, and responsibilities. This enables the IT organization to quickly address performance issues, identify root causes, and prevent recurring problems. Perhaps more importantly, process discipline enables demand management and flexible, usage-based pricing – essential components of cloud and utility computing models.  

Here are the Top 5 keys to a successful IT process management strategy:

1. Documentation and transparency. Many organizations have pockets or islands of process maturity.  But, like chains, enterprise-wide processes are only as strong as their weakest links.  End-to-end clarity into process flow is needed to identify where and why problems and issues occur, and how best to address them.  Without this clarity, IT defaults to its traditional silo-based approach of managing the desktop or the mainframe, without an understanding of the overall system and end-to-end service.
   
   
2. Ownership and accountability. A common problem with process frameworks is that they allow individuals to use rules and guidelines to pass responsibility along down the line. The result: a “hot potato” culture where activity is defined and documented but little actually gets resolved. Commitment from IT and the business is needed to ensure key processes have owners who are responsible and accountable for results.
   
   
3. Meaningful metrics. Top-performing organizations are refining their metrics and key performance indicators to measure the end-to-end process and improve results, rather than simply track activity. The basic question is, “What are all the activities and approvals that happen between ‘I want’ and ‘I have?’” In this context, “time to resolve” is more effective than the traditional “time to respond” as a key IT functional metric.
   
   
4. A clearly defined service catalogue. A specific understanding of the composition and cost of each unit of IT service allows the business to see what’s being consumed and enables IT to see what’s being delivered, through an IT service catalog and a business service catalog. This understanding establishes a critical foundation for IT demand management.
   
   
5. Pricing tensions. Once service units are clearly defined and priced, it becomes possible for the business to see the cost implications of their choices regarding IT usage. This visibility serves as an incentive to drive smarter consumption decisions by the business, and more efficient delivery by the service provider.

Contact us for more information on IT process maturity.

SAP Acquires SuccessFactors: Forecast Calls for More Clouds

by Michele Loux and Maribeth Sivak, Senior Advisors - CHRO Services, TPI

The shift toward delivery of Human Resources (HR) applications via Software as a Service (SaaS) in the Cloud continues with SAP AG announcing its planned $3.4 billion acquisition of SuccessFactors, a talent management software provider.

The fact that SAP agreed to pay a 52% premium for SuccessFactors indicates both the urgency it felt to increase its Cloud and SaaS credibility and its lag in internal product development. SAP expects to complete the acquisition in the first quarter of next year after which SuccessFactors will remain an independent company operating under the name “SuccessFactors, an SAP company.”

What does this acquisition bring to these organizations?

In a recent call, Bill McDermott, SAP’s Co-CEO, said “the combination of SuccessFactors and SAP will create a Cloud powerhouse.” SAP plans to use its scale to boost SuccessFactors’ revenue, which was $205.9 million in 2010 with more than 3,500 customers in 168 countries.

Lars Dalgaard, CEO of SuccessFactors, said “the deal would accelerate SuccessFactors' roadmap by 10 years.”

The TPI point of view

SuccessFactors will continue to operate separately, causing no immediate impact to its talent management clients. A number of HRO providers use SAP and SuccessFactors to deliver services. We do not expect this acquisition will impact the providers’ ability to leverage SAP and SuccessFactors to deliver service to their clients, even as we anticipate these underlying systems will continue to evolve and improve.  

This acquisition is a validation of the Cloud’s bearing on Human Capital Management solutions. When it acquired SuccessFactors, SAP acquired Cloud technical expertise and infrastructure, giving it a foothold in the growing market for Cloud services. Both companies should benefit from access to an expanded customer base.

The demands on HR technology are changing rapidly with a particular push for mobile access, social collaboration and business-driven analytics. Once they sort out their future technology path, SAP and SuccessFactors together should have the products and the experience in delivering Cloud, mobile, social and analytics applications to provide innovative HR solutions in the future. Whether they can do this quickly enough to compete effectively with Workday remains to be seen.

We expect to see more Cloud acquisitions in the future. These acquisitions should spur organizations to reassess their human resource technology roadmaps.

Drawing the Line on Facilities Management at Manufacturing Sites

by Kevin Coleman, Director, TPI

As Facilities Management Outsourcing (FMO) arrives in manufacturing companies, a vigorous debate arises over where to draw the line of demarcation in manufacturing plants. This line refers to the separation between management and maintenance of the building itself — including the building’s electrical, plumbing and HVAC systems — and management and maintenance of the systems linked to plant operations. Because it is often impossible to completely segregate the two, this is a critical issue to think through when considering FMO for manufacturing sites.

At first, the answer seems obvious: Use the existing “yellow line” that already exists either physically or conceptually to indicate where access is restricted to participants in the manufacturing process. Even a cursory look, however, reveals the inadequacy of using this boundary, since services such as roof maintenance, lighting, heating and cooling pervade the manufacturing space.

A more interesting possibility is the idea that many utility systems that support the manufacturing line are similar to the building systems that are being outsourced. Production chillers use the same technology and similar components as large air conditioning systems. Circulating gycol loops for process chilling or heating use the same technology as circulating water systems used to heat and cool buildings. Process boilers are similar to the boilers used in heating the building, and compressed air systems can be found in both building systems and process systems. So increasingly we are seeing providers of facilities management services also undertaking responsibility for process utilities.

We see similar integration involving building cleaning and line cleaning. This integration extends as far as line sterilization and changeover support where the facilities management team augments the line operation team in these labor-intensive tasks.

Mature organizations are realizing that a trained and well-equipped facilities management team creates a pool of knowledgeable and skilled resources that can supplement the dedicated operations and maintenance teams that are required for ongoing production. This integrated view lowers costs by reducing the need for temporary workers during periods of peak activity, when service demand exceeds the capacity of the ongoing production and maintenance staff.

Predictably, manufacturing management and the production workforce often initially react negatively when these ideas are raised. As a result, this sort of integration is often set aside during the initial transition as a topic for future transformation work. However, once plant managers understand that they do not lose control over operations with service providers working in their facilities — and workforces understand that first-tier service providers are also good employers who can provide broad opportunities — resistance dissipates, and the integration becomes a next logical step.

We believe that in the near future, such integration will become a recognized best-practice model and that we will see it occur more often during the first round of transition, accelerating savings and improving the financial performance early in facilities management outsourcing arrangements.

Reinventing Procurement as a “Go-To” Organization

By Michael Kushner, Director, CFO Services, TPI

No other department has as much reach both internally and externally as procurement. It supports every department and employee in the company, commits significant financial obligations on behalf of the company and has the ability to view and manage consumption. And yet, in most companies, procurement is not seen as the “go-to” department. A variety of challenges can dull its reputation, but it is possible to turn these negative perceptions on their head.

Here are the Top 5 essentials to make procurement a “go-to” group:

1. Find a strong leader. An effective procurement leader is NOT a procurement person – s/he is a sales and business leader who focuses on business objectives, leveraging procurement skills as a means to support them. An effective leader will build buy-in from the business, demonstrate a “service” mentality to foster a culture that enables the business units, and will develop people even as roles change.
   
   
2. Create a meaningful set of goals. A vibrant procurement organization will know what the department stands for, what it is trying to accomplish, and what to communicate to the business units and service providers. While the group’s objectives will include cost reduction and savings reported, more importantly, the goals need to align with the company’s larger imperatives and demonstrate how procurement enables the business units to deliver on the company’s mission.
   
   
3. Establish C-suite support. Procurement needs a consistent executive message that declares its significance to the business imperatives. Executive-level support provides a credible platform for procurement to demonstrate its value and build buy-in from the business. To maximize results for the enterprise, business unit executives should invite procurement to business unit meetings and department planning sessions.
   
   
4. Motivate individuals. Empower members of the procurement team to be in charge of their decisions and their relationships, and the business units will want to work with them. Well-developed roles and activities will give the team members a sense of ownership of their actions and the outcomes they generate. Align goals for individual employees with the procurement group’s goals to drive the appropriate team actions. 
   
   
5. Build a good reputation. Procurement needs to execute consistently and market itself, reaching out to the business units and sharing success stories. Let people know you are the group to call when they need to get something done, and the team will become recognized as a partner for the business units. Once a good reputation begins to take hold, it will snowball, driving more procurement demand from the business and more interest from people who want to be a part of the team.

For procurement groups that can reinvent themselves, a domino effect brings other positive changes. Attrition will increase as other parts of the company look to hire people from the team. Demand to get into procurement will increase as colleagues realize its broad reach and influence. And business unit demand will increase, driving the need to assess procurement’s growth and focus.

For more information about how to turn your procurement department into a “go-to” group, contact Michael Kushner, Director, CFO Services, TPI at michael.kushner@tpi.net or +1 435 327 2349.

Cloud Security: Peeling the Onion

By Steve Follin, Director, TPI Cloud Services

Discussions around cloud security tend to be framed in terms of lonely ships sailing into uncharted waters: “You don’t know what you’re getting into,” we’re routinely warned.

Actually, we do.

The fact is, the fundamental security challenges confronting a company seeking to source IT infrastructure services in the cloud are essentially the same as those faced in traditional outsourcing.  Various potential risks – data center vulnerability, network intrusion, unauthorized system access, data privacy, natural disasters, etc. – must be assessed and addressed to provide an acceptable level of security for data centers, operating systems, storage environments, and networks. 

What’s different in a cloud setting?  It’s that the infrastructure “layers” involved may be more decentralized, are most likely shared with other customers, and have more complex IT operational processes, whereby processing may be moved among the provider’s data centers to load-balance. 

Due diligence therefore comprises focusing on exactly the same traditional security concerns, asking the same “first round” questions about each infrastructure layer, and following up with more questions as complexities emerge. Ultimately, what’s needed to solve the mystery of cloud security is to “peel back the onion” – to systematically evaluate the security of each infrastructure layer, and to then assess additional risks inherent in the provider’s cloud architecture and operational environment. 

Consider, for example, a virtual private cloud (VPC), where some, but not all, infrastructure components are dedicated to each customer.  In other words, CPUs and storage may be dedicated, while server racks and physical network segments are shared.  From a high-level perspective, assessing security may seem daunting as the environment is “new” and complex. But by systematically addressing the security concerns at each layer of the infrastructure “onion,” and then at the overarching cloud level, a viable approach readily emerges.

The first and foremost assessment question for a VPC is: What’s dedicated and what’s shared?  While this has to be understood at a very deep technical level in order to perform a security assessment, providers have this information readily available.  If the provider’s cloud solution has dedicated storage and servers, then the “first round” of due diligence is to use the customer’s “conventional” security criteria to assess the dedicated servers and storage security.  Specifically, the servers’ virtual and operating systems’ security is assessed as it would be in a traditional hosted server environment.

As for public clouds, in a VPC the shared infrastructure components and cloud operating processes create security risks above and beyond those in a traditional hosted server environment.  If server racks are shared, their architecture’s compliance with the customer’s security policies must be evaluated.  If the provider’s processes include moving data between data centers to balance loads, compliance with the client’s data privacy and security requirements must be addressed.

As a client, the key to evaluating cloud security is understanding the cloud implementation details and “peeling back the onion.” This approach leads to a series of tractable security assessments that can be addressed using conventional evaluation processes.  While the issues involved are complex, the complexity can be systematically addressed – layer by layer.

The IT Consumerization Challenge – and Opportunity

By John Lytle, Consulting Director, Compass

The “consumerization of IT” – or the Bring Your Own Device (BYOD) trend – has emerged front and center, and a lot of CIOs aren’t very happy.  A recent article in Computerworld calls it a “thorn in the side” of most IT departments, and cites complexity, support, and security concerns.

Like it or not, employees are purchasing iPads, Blackberries, iPhones, and other devices and using them for work-related purposes.  One question CIOs need to ask themselves is, “When do I start caring?” Specifically, what policies should be defined and enforced around who can use what kind of device for what kind of activity – be it messaging or collaborating, accessing corporate networks, etc.?

Another set of considerations revolves around the basic question: “How do I support these devices?” If they haven’t been already, CIOs will be tasked with providing mobile access to company information. If you have character-based legacy applications rather than browser-based applications, it will be a lot more difficult to support mobile devices. Meanwhile, telling the folks in the Boardroom that they can’t access sales figures on their “executive jewelry” devices isn’t a viable option.

The consumerization issue also affects infrastructure: how good is your network’s perimeter security? The influx of mobile devices could impact your entire network strategy. Consider the question in the context of how will you manage “data in motion;” in other words, your companies IP, client data, etc.

While discussions around IT consumerization tend to focus on the various headaches it causes IT, it also provides an opportunity.  I’m having more and more conversations with CIOs who are concerned about building their operational defense plan, about managing their legacy applications and rationalizing their portfolios.  They’re looking for a good understanding of overall staffing and support costs, and how to pull together their shared services and sourcing strategies.  Ultimately, they need to understand what they’re spending and what they’re getting.

In this larger context, the IT consumerization challenge can help you take on these big picture tasks of IT operational strategy.  So, rather than a putting-out-the-fire exercise, the imperative to effectively support mobile devices can become part of your strategic plan to transition the enterprise from where is now to where you know it needs to be.

What do you think? Is IT consumerization keeping you awake at night? How are you dealing with it?

Global Payroll Providers Creating a Track Record of Success

by Julie Fernandez, Director - CHRO Services, TPI

Part one of this series focused on recent developments in payroll administration in North America. Now we turn our attention to the global payroll market.

In 2010 and 2011, global payroll outsourcing opportunities continued to draw the attention of large, mid-size, and small clients alike. Last year, TPI released a filtering tool that evaluates a client’s global payroll needs with an articulated country-by-country strategy for rationalized outsourcing of payroll administration. We have since seen a very favorable response from global leaders in HR, procurement and shared services and are frequently engaged to help clients articulate their global payroll strategy and help build a business case for change.

Heritage payroll providers are taking the lead in multi-country payroll outsourcing, with ADP and NorthgateArinso having the broadest reach. These providers are investing significant resources in developing global payroll templates while expanding their offerings to include pre-configured templates featuring more sophisticated country-level payroll rules for countries with the payroll scale to deploy multi-client services. These global payroll platforms are generally designed for the most commonly served markets, including Western Europe, the U.S., Mexico, Brazil, and some Asia Pacific countries, including Australia, China, India, Japan, Hong Kong, Singapore and Thailand. 

HRO providers take a different approach. Rather than developing a broad global template and reusable country configurations, they are focused on leveraging clients’ custom ERP by extending their payroll modules to the largest countries where payroll scale can generate savings or efficiencies to the client. Typically only a portion of a client’s population is concentrated in geographies that can implement such global ERP payroll solutions cost effectively. As a result, HRO providers usually punt in-country payroll services to third party solutions that they may agree to manage.

In recent years, the global payroll market has seen the emergence and growth of more service providers focused on the “tail end” of global client populations – the 20% of employees who are scattered across 80% of the globe. Some refer to these providers as “payroll aggregators” because the term is a fitting description of the primary value proposition. 

There are payroll providers whose approach and technology are specifically designed to normalize data for consolidated interfaces and coordinate with in-country third party vendors. Patersons, SafeGuard World International, Celergo and others with a regional focus will directly serve clients who seek bundled payroll outsourcing for multiple countries. Providers like these have also become important partners for HRO and SaaS providers seeking to round out services and geographic coverage. Heritage providers are working to imbed such a model within their larger global offerings — ADP with StreamLine, Ceridian with exclusive in-country providers and NorthgateArinso with its BDO and agoHRa relationships.

The global payroll outsourcing industry, as a whole, is facing a critical challenge. We must ensure that global payroll outsourcing can create a track record of success. Clients continue to need assistance in defining the scope that is “right-sized” for each country before wildly pursuing a whole world’s worth of payroll. And finally, knowledge of the market to target the appropriate providers and articulate actionable business cases will help to create an awareness of the value in strategic sourcing of payroll across the globe.