Consider the Source

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.

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?

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?

Should your Service Provider also be your Bank?

Each week TPI’s Financial Analysis Services Group will be “blogging about the bottom line.”  The group’s first guest blog comes from Tim Langley-Hawthorne, Director at TPI.

IT asset management is generally a pain. Most clients I’ve worked with struggle to do a good job at this basic task.  When considering IT outsourcing, the natural temptation for clients is to get out of the IT asset business, and have the service provider take over asset management and ownership responsibilities.

But the objective to clean house and transfer IT asset ownership to the service provider may be in conflict with the company desire to achieve ongoing financial savings from outsourcing.

The Chemistry of IT Outsourcing

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

It’s the speed, not the volume.

When it comes to managing the cost and effort of using new technology in a sourcing solution, the overall level of technology doesn’t matter nearly as much as the pace of technology’s evolution and frequency of change. To stay one step ahead, an organization has to have a well-developed sourcing strategy and a plan to manage the sourced environment.

Renewal Strategies for ITO Relationships

An ITO relationship will stand the test of time with a well-designed sourcing strategy and supporting contract. Sounds like motherhood, but the “well designed” aspect generally relates to anticipating classes of change that will occur during the term. 

During the past several years, TPI has advised on renewal strategies and associated negotiations for many of the larger ITO agreements signed in the 1995-1999 period. While these agreements were awarded to differing service providers, most of them ran to term without undue litigation or termination. Sure, there were areas of unfulfilled expectations, but the level of satisfaction through these first-generation agreements is usually quite high.

How to Freshen Up Your ITO

Technology is constantly changing. IT outsourcing (ITO) strategies need periodic refreshing, too.

While it was once quite common to award a single contract to a service provider for a broad range of IT services, multi-sourcing is the preferred approach today. The two or more providers engaged usually have similar capabilities. In turn, that creates continuous competitive tension, which is a good thing as the providers strive to satisfy the client.

Application-services units were an early adopter of multi-sourcing, using multiple providers in an effort to get the best of the best. The allocation of work factored in business unit alignment, geographic orientation and technical acumen. Infrastructure services also sometimes separate computing services from data center and network services.

When considering a second-generation ITO relationship, organizations need to consider the value of the relationship they’ve previously formed with providers and make an honest call about the importance of that relationship to operational capabilities.

We generally tell our clients that their company-wide IT sourcing strategy should reflect the lessons of prior sourcing endeavors, but emphasize the future need of individual business units and corporate functions. Factors relating to concentration of operational risk, access to added capacity, and attainment of competitive tension frequently lead to a multi-sourcing outcome.

The IT sourcing landscape for most companies is much more complex today than ever before, demanding some serious governance expertise and commitment.

Outsourcer Heal Thyself

While traveling in India recently I didn't get a chance to respond to a post by Phil Fersht, who was writing in response to my own blog of January 10 making some predictions about 2007.

By our estimates, about one in five ITO deals worth more than $50 million rely on an advisor (a look at Advisor IT Marketshare). As the ITO marketplace has become mature – with established providers, experienced buyers, lessened employee transfers and capital asset components, and better-defined services – many corporate procurement organizations undertake their ITO endeavors without calling upon experts. What might change that percentage in 2007?  Certainly the increased use of offshore delivery models, and complex multi-sourcing arrangements, are providing reasons to call upon specialized expertise.

From our own experience in the recent year, I can tell Phil that we’re seeing almost as much activity in the under-$50M segment as we are in the over $50M segment.  Size doesn’t matter as much as complexity.