Consider the Source

Mad Deskillings

Hip-hop performers are sometimes said to have “mad skills,” and this is a good thing. I’m hearing about what might be called “mad deskilling.”

It is not a good thing.

More often in global outsourcing these days the rather artless (literally) words deskill and deskilling are being bandied about. The dictionary defines deskilling as “the elimination of the need for skilled labor in an industry, especially by the introduction of high technology.” It also refers to the downgrade of a job or occupation from a skilled to a semiskilled or unskilled position.

You can guess how I feel about this. I neither like nor agree with the assertion that jobs can be dumbed down to the point that they can be performed in a piecemeal manner. Performed more efficiently? Sure. But done without any design, master plan or measurement? Absolutely not.

Collaborative work is work done as part of a group. And that means there’s a shared goal or at least a common purpose. As with almost any group activity there is some element of social interaction to the work in addition to the task fulfillment. Trust comes into it.

Again, there are absolutely some work processes that are candidates for simplification and streamlining – to the point that they can be performed by lesser-skilled people. Automation helps.

But if the outsourcing and offshoring industry insists on deskilling work processes as a core strategy for making work portable, how will the aggregate value of process transformation ever come about? And where’s the much ballyhooed value “beyond the scope of work” going to come from in such an environment?

The No. 1 concern we hear today from clients is employee turnover. They view the churn at their service providers as a significant business risk. They’re right. And emphasizing deskilling is part of what’s creating this risk.I believe the workers who make up the global sourcing industry are looking for challenges, not rote tasks. They want to be part of an industry that adds value, not just acts as worker bees optimizing a task to the point of marginal cost.

Beware of the mad deskillings!

So Your Job is in the Outsourcing Cross Hairs

No question: If your job is “in scope” for an outsourcing endeavor, you will experience change, which can be disconcerting to say the least.

Knowing that knowledge often brings comfort, I thought it might be useful to share some of the tactics that companies use when trying to decide how/if to transfer employees to an outside service provider.

They frequently ask these questions or ones much like them:

• How would you describe the culture and demography of your organization? What's your staff turnover rate?

• How will you handle the sensitivities and concerns of transitioned staff?

• How do you typically integrate and develop new employees?

• Describe the process you use to harmonize conditions between a client's staff and your own in line with "generally comparable (contractual) terms and conditions."

Transparency and providing people with as much lead-time as possible are key principles of well-designed sourcing programs, and the good news is that most companies genuinely are committed to ensuring consistent and fair treatment of employees in the event of outsourcing.

At the same time, most of the industry’s service providers are looking to add talent to their ranks.

Best of Both Worlds – Sell and Continue to Receive Services

This week I have another guest blogger from TPI, Dinesh Goel, Project Director...

An interesting trend kicked off when GE made one of its largest transactions almost three years ago. The company decided to exit the majority ownership of its fully owned captive subsidiary, GE Capital International Services (GECIS), at an enterprise value (which includes the acquired company’s debt as well as its cash and other holdings) of approximately $1 billion.

In the last 12 months, the media has reported several other similar transactions with the most recent being the buy out of Phillips captive centers across three countries by Infosys BPO. With the growth and maturity of the commercial outsourcing (and offshoring) market, parent organizations of captives have been actively considering divestment as a feasible option.

Many organizations established their offshore captives in locations – such as India - in response to the lack of reliable and matured service provider capabilities at the time, as well as perceptions regarding the risks of using third-party providers.

But the growth trajectory of offshore outsourcing during the past five to six years has resulted in the availability of a far more mature marketplace in which service providers can deliver what wasn’t considered feasible in the past and at a potentially more attractive cost-value equation. Additionally, most leading service providers currently are in a race to grow their capabilities in new areas and acquire scale to build the muscle needed to become serious contenders in large-sized sourcing transactions.

These two factors in play are compelling the managements of parent organizations to give the option of divestment serious thought.

The activity in the marketplace has been further intensified by the presence of several large private equity players who view this as a high-growth industry that can deliver significant return on their investments.

My take on this trend: Most scale related acquisitions of captives will have a limited runway that likely will not extend beyond the next two years for a reasonable (or more than reasonable) valuation. While captives that are providing services in specific niche areas (such as engineering services, R&D, analytics) will continue to enjoy high multiple valuations for a much longer period of time (given that the market is still at nascent stages), other captives will see diminishing interest from suitors over time.

Of course, this is also expected to vary by region, given that the evolution and presence of providers is geographically varied. For instance, captives in Latin America or Eastern Europe may yet have more time on their hands for such a decision before they see diminishing interest (and hence price) compared to their counterparts in India.

Our detailed point of view on this topic can be accessed at  http://www.tpi.net/pdf/pointofview/TPI_POV_Monetization_of_Captives.pdf.

Farewell to a Quiet Leader

The global outsourcing industry lost a truly special compatriot this week. David Coward, a colleague at TPI, passed away suddenly.

Memorial tributes are often smarmy and trite, and I know that David wouldn’t care very much for any fawning over his contributions as a human being. Simply, he didn’t think of himself as being very special. He wasn’t wrong about much, but on this point he was simply mistaken.

It’s ironic how special he was to so many others. I can’t speak much for David’s family and friends, except to say that he adored his two children and greatly valued his personal relationships. He always made the time – which is a challenge in our business – to focus on the life side of the work-life balance.

I know that he often struggled with the demands on his time, and sought assurance that it was OK to have a personal life outside of our workplace. He set a great example of having priorities, and living them.

While I could go on about all of the great client work David led, and the many industry players he encountered, all that really tells us is how many lives he touched.

David was an expert in his field, but he was the most unpretentious individual you’d ever meet. Humility was his middle name.

So …

•  Whether you’re in the ITO or HRO side of our industry …

•  Whether you’re part of ACS, EDS, IBM, Accenture, Hewitt, Fidelity, Convergys, or other service provider colleagues …
  

•  Whether you’re a client such as General Motors, Cardinal Health, Dana, JPMorganChase, Metromedia Restaurant Group, Wyeth, GMAC, Delphi, Towers Perrin, Aetna, or countless others …  

•  Whether you’re part of the TPI family, an alumni or competitor …

… if you ever met David, you’ll remember the experience forever.

The sun will rise tomorrow, but one thing is for certain – we will miss our gentle giant with the Texas twang. Rest in peace, J. David Coward. You are already missed.

The Price is Not Right

From time to time I'll invite compatriots and experts with a great point of view to "guest" on my blog. Today I bring you insights from Chris Kalnik, a TPI partner who leads our financial-analysis practice. Take it away, Chris! …

Imagine you've hired a contractor to gussy up your kitchen. You draw up plans, agree on materials and ballpark a price that fits in your budget. Then, mid-way through the job, the contractor tells you his costs have gone up dramatically, so yours will, too.

I can guess at your response, and I won't try to print it on a family-friendly blog like Peter's. Suffice to say you'd be entitled to be upset.

Just as you shouldn't be expected to pay a higher price for your new kitchen, neither should outsourcing clients be expected to incur inflation adjustments higher than experienced in their “home” country from their foreign-shores service provider.

And yet this kind of price dance is taking place in our industry, with clients and service providers warily circling each other.

Let me be clear: Service providers should not have to accept contracts that put them in untenable situations, especially in relationships slated to last for a number of years, during which price pressures really ought to be examined from time to time.

But we also think clients should not have to bear an additional, undue inflation risk because a service is now being delivered in an overseas locale.

There are a number of reasons why creeping inflation in the provider's location shouldn't automatically translate to higher prices for the services being provided.

First off, inflation does NOT affect all costs uniformly – or at all: The computers, networks and other equipment being used to do the job aren't suddenly more expensive. In addition, basic technology costs continue to fall, giving a cushion to the provider. It's also critical to note that rising inflation does not translate into uniform salary increases. In places like India, in fact, it's often the opposite: experienced workers jump ship for better jobs only to be replaced by lower-paid staff. In fact, no company's salary budget increases at the rate of inflation.

Nevertheless, organizations and their advisors need to give careful consideration to the choice of locale and provider due to inflation concerns – and that also means making sure that any contract language about inflation uses an appropriate measure. That's typically a government-supplied or blessed indicator, such as consumer price indices in the U.S. or Europe.

The "I" Word

The word innovation gets thrown around in the sourcing business as much as it does in seemingly every other industry. And, in keeping with usage elsewhere, we often hear the word without any clear definition of exactly what kind of new stuff is being done or how precisely it's supposed to make our lives better.

So just what does innovation in sourcing look like? A little over a year ago my firm reached out to clients, practitioners and providers with what we called an Innovation Agenda to suss out the answer to that question. We came up with four planks:

  --Refreshing contract terms: Sourcing has a long way to go, but it's already seen a lot of change, and the old ways of establishing a relationship often don't cut it.

  --Rethinking benchmarks: If the only reason you measure the price of a service against what everyone else is paying is to get your costs down, you aren't doing yourself or your company any good.

  --Gainsharing: Both sides of a relationship ought to be able to expand their risks and rewards as sourcing relationships grow more solid and sophisticated.

  --Change management: Not just another jargon phrase. Sourcing has to develop systems to better align the roles of client and provider.

And here's some good news: The first two of these have already gotten a lot of good buzz in the industry and even some actual application. Progressive minds are moving together. The last two are well on their way to seeing the light of day, and I'm pleased (and should disclose) that my firm has offerings for both gainsharing and change management.

OK, so I've told you about near-term innovation. What's next? I see a couple of possible trends.

The first entails better comparisons between what an organization says it wants and what it's actually buying. The "lift and shift" model of reassigning jobs to a lower-cost environment is just that. If it's being talked about – and measured and criticized – as a more robust sourcing solution that should produce ever-more benefits for the organization, then we're talking about apples and oranges.

Another thing I think we'll see is contracts that are better able to manage the increasing number of multi-sourcing relationships.

I want to keep the Innovation Agenda going. If you're interested in suggesting new planks, please drop me a note or see: http://www.tpi.net/knowledgecenter/innovationagenda.