| Q: OK Cliff: how's the sourcing space developed over | | | | maturing the governance of outsourcing, and reaching |
| the last few years? | | | | standards on how complex multi-provider sourcing |
| A: I think most people - myself included - view a shift | | | | relationships are managed within organizations. But yes, |
| around 2005-6 in terms of where the drivers are and | | | | this is not something that's going to be going away in |
| some of that may be economy-related or fears over | | | | the next 20 years. It's going to be important for any |
| the economy, and some of it may be the maturity at | | | | company to be competitive. |
| the end of stream - a lot of things have changed. The | | | | Q: Let's shift the focus onto shared services. What |
| industry has become more mature. From 2000 to, say, | | | | proportion of shared services leaders have |
| 2005, there was a big focus on outsourcing and | | | | outsourcing strategies? |
| offshoring as a way to reduce cost, and access | | | | A: OK: let's start with captive centers, with shared |
| low-cost markets for the purpose of reducing direct | | | | services that have put captive centers in other |
| labour costs. Since then there has been a renewed | | | | countries. We've seen a major trend towards |
| focus on not only reducing costs but on improving | | | | leveraging the mature outsourcing providers to |
| quality and the effectiveness of the organization - on | | | | improve the shared services organizations that have |
| implementing technology, and leveraging the maturity of | | | | been established around the world. So as shared |
| the service providers to improve effectiveness. That's | | | | service centers have globalised - and we tend to call |
| become an equally important driver. | | | | these captive when they're located in places like India |
| In the past year or so we've seen a downturn in the | | | | or Latin America - those centers have in general not |
| economy which obviously keeps cost at the forefront, | | | | met the expectations. Operating a shared service |
| but there is an equally strong focus on accessing the | | | | center remotely presents its own challenges. The |
| capabilities and the maturity, the Six Sigma processes, | | | | expertise and the infrastructure capabilities needed to |
| that a service provider can bring into the organization | | | | manage an offshore SSC are different. So we're |
| to drive ongoing productivity and improvement. The | | | | seeing a trend towards SSCs outsourcing |
| issue that companies saw when just going after the | | | | components of the internal organization. |
| labor arbitrage was that it's a one-time benefit. If you're | | | | There are various names for it - virtual captive, hybrid, |
| not accessing the markets that produce high-quality | | | | internal/external delivery organizations - where |
| talent, sustainable talent and sustainable improvements | | | | outsourcing service providers will provide some |
| then you're back where you started a year or two | | | | infrastructure, and some process capabilities, and they |
| later. So we are putting an increased focus on putting | | | | may even share the management and jointly manage |
| the right resources in the right location with the right | | | | components of the operation. Service providers may |
| service providers that have the capabilities for ongoing | | | | bring some process maturity that they have, or some |
| sustainable productivity gains, and clients are looking for | | | | training capabilities into the SSC - or HR initiatives, HR |
| that. | | | | capability to go out and hire and recruit and train and |
| Q: Presumably a lot of the shift that took place was | | | | retain the personnel. If India has let's say 300-500 |
| as a result of key locations becoming able to provide | | | | captive centers, a good portion of those will be |
| that sort of element? | | | | exploring the third-party-type relationships at one level |
| A: In the past we had predominantly India providing | | | | or another. A large number already are. Large-name |
| 90-95% of the low-cost labor market. Over the past | | | | companies at some level have partnerships or |
| three years or so we've seen, for example, the | | | | sourcing agreements with third parties to help manage |
| Philippines emerge as a destination to provide | | | | and improve their SSCs. |
| high-quality low-cost voice support as well as | | | | Q: Presumably you're seeing this as something that's |
| F&A BPO support, and for various reasons: | | | | accelerating? |
| synergies with the American educational system and | | | | A: It is accelerating. What that means for us is that our |
| American culture, that provide an advantage that India | | | | market is not just western: it's also companies in the |
| doesn't; going a level deeper, the Philippine accounting | | | | domestic Indian or Chinese or Latin American markets |
| standards are very similar to American accounting | | | | that have the SSCs in place, so we can advise them |
| standards; their accent is much more of a western, | | | | through outsourcing parts of them. |
| American accent than you find in India. For call centers, | | | | Q: How far do you think the business has changed as |
| for F&A BPO activity we're seeing a lot of | | | | a result of the credit crunch? |
| capability in the Philippines, which is providing some | | | | A: You know, outsourcing - especially global |
| relief - or competition - for India depending on how you | | | | outsourcing - is counter-cyclical: when the economy's |
| look at it. | | | | good the outsourcing business is good; when the |
| Q: What about China? | | | | economy is bad, the business gets actually a little bit |
| A: Well, China has a role as well. China has a role in | | | | better! So we've seen companies move a bit more |
| technology; a role in very transactional BPO; they've | | | | aggressively towards outsourcing as a result of the |
| been doing well with embedded software; they've | | | | credit crunch; companies that need to stretch their |
| been providing capabilities in certain types of software | | | | dollar more than they have are looking at how they |
| development - the coding aspect. But the relationship | | | | can maintain the level of service that they have, at |
| between Chinese companies and their western | | | | lower cost. So they are looking at how outsourcing |
| counterparts and services really hasn't matured as | | | | can help them reduce their cost. |
| well as, I think, some of the predictions would have led | | | | Q: Do you see this as being adjacent to the process |
| you to believe five years ago. It's still a very small | | | | that has already been ongoing in recent years, or are |
| market in terms of directly outsourcing services into | | | | certain types of companies and certain sectors |
| China. Service providers providing that as part of their | | | | becoming - specifically as a result of the crunch - |
| overall solution and having a Chinese component in the | | | | forced to adopt outsourcing as part of their |
| back doing data entry or some technology-related | | | | strategies? |
| work, but providing a western or Indian front end to the | | | | A: Yes - or maybe they're being more aggressive |
| client: that's something we're seeing a little of. But in | | | | when before they could afford to be a little more |
| terms of the market potential and where it is now, the | | | | conservative when the priority was maybe focused |
| English language is a big hindrance to China. The ability | | | | on keeping more resources domestically, to manage |
| to communicate right now is an issue. | | | | relationships. Maybe the credit crunch and economic |
| Q: Those locations are providing things demanded by | | | | hardship pushes them to move resources to the most |
| external firms. Let's change the focus a little: how have | | | | efficient area they can. Many times that means a |
| the requirements of those firms changed over the | | | | lower-cost country. So it forces them to expand what |
| past few years, in terms of what they've been asking | | | | they were already doing. |
| of Equaterra? | | | | The financial services industry is probably the most |
| A: Client requirements have become a little more | | | | mature outsourcing industry - they've been outsourcing |
| related to the long view. They're looking a little more at | | | | long before anyone else - and the market was pretty |
| the overall strategy and how sourcing fits into that. | | | | penetrated. This now just forces them to become |
| Clients maybe five or six years ago were perhaps | | | | more aggressive in their global sourcing strategy: their |
| CIO or even line management. Today the CFO is | | | | captive centers in India expand; everything we were |
| much more involved in every engagement. So looking | | | | talking about in terms of the Indian or offshore |
| at how sourcing ties in with the overall company | | | | providers working within their SSOs. The financial |
| strategy and will drive and help execute in the long | | | | services industry has to maintain a lot more control |
| term: client requirements have changed in that sense. | | | | and visibility just because it's such a regulated industry, |
| We're looking at how sourcing globally can help a client | | | | so their relationships with third parties have to be well |
| focus on meeting their long-term needs and their | | | | documented, well structured, agreements have to |
| long-term strategic vision and not just the tactical | | | | meet their governance and liability requirements. I think |
| cost-reduction. | | | | they're getting more aggressive. |
| Q: Has the nature of your clients changed in terms of | | | | It certainly hasn't slowed. Some predictions were that |
| either size or the industry they come from? | | | | companies that were heavily leveraged in the financial |
| A: Well it's still predominantly large companies that are | | | | services sector were at risk: unless you're with a |
| doing this, and it has been for a long time; but we are | | | | company that completely went out of business, or the |
| seeing more mid-market companies having an interest | | | | business was reduced dramatically, the outsourcing |
| in this. So I think the mix of clients is expanding from | | | | business has really benefited from the credit crunch. It |
| large Global 2000 companies to mid-market | | | | forces a lot more companies to look at outsourcing or |
| companies with an interest in global sourcing: how they | | | | an alternative sourcing strategy. |
| can access talent that you just can't access ordinarily. | | | | Q: Let's put you on the spot: what's going to happen in |
| The competition for talent is just too tight in western | | | | the next five years and which will be the big locations |
| countries. So for mid-market companies to grow | | | | and sectors that will be driving outsourcing? |
| they're looking at accessing global markets to tap into | | | | A: That's not putting me on the spot: I think about this a |
| research and design, into analytics capabilities that exist | | | | lot! The next five years, we'll see more sectors getting |
| in other countries. You just can't find the resources | | | | involved and becoming more mature in outsourcing: |
| here. It's not necessarily a cost play for mid-market | | | | pharmaceutical, healthcare, will be major. Pharma was |
| companies as much as it is a growth issue. | | | | a little bit late to the outsourcing game, so they'll be |
| Q: Presumably that can only be exacerbated over | | | | expanding that dramatically, and you'll see a lot of |
| time: the talent gap's not going to get any smaller. | | | | resources in pharmacovigilance, and some of the |
| A: No. As other countries come online and become | | | | analytic areas associated with pharma being |
| more mature - for example, you see companies | | | | outsourced and offshored. It'll drive tremendous |
| getting into Vietnam now; Intel has established a large | | | | savings in that area. We're seeing continuing |
| presence in Vietnam, and other companies are | | | | outsourcing in manufacturing. From those verticals, I |
| establishing sourcing capabilities there. So other | | | | think we'll see the most growth. |
| countries like that are tapping into the engineering talent | | | | In terms of the complexion of the market, what we |
| that's available. It is getting costly in India. Comparatively | | | | know of as "offshore" and "domestic" today, those |
| with the US or the UK or Europe it's still very | | | | lines will be completely blurred. It will just be global |
| competitive, but it's a matter of finding the right talent, | | | | sourcing. There's not going to be a discernable |
| and there's a lot of capability in Latin America, in | | | | difference. Companies like Accenture and IBM are truly |
| Russia, in Central and Eastern Europe: these markets | | | | global service providers. When you outsource |
| have a long way to go before they're fully mature and | | | | applications you may have your business requirements |
| there's a lot of capacity that's out there. It's just a | | | | done onsite but your coding done in India, your |
| matter of that capacity becoming mature in a way | | | | transactions processed in Prague, your calls taken in |
| that can be marketed globally and to western | | | | the Philippines. Traditional Indian service providers are |
| companies. English is a factor. | | | | moving more towards the west and developing more |
| Q: To what extent over the next few years are the | | | | of an onsite capability, and the traditional onsite |
| big emerging economies going to become outsourcers | | | | domestic outsourcing service providers are moving |
| themselves? | | | | towards having the right resources in global locations. |
| A: That's another big issue. We're now competing for | | | | And those will adjust and shift as the market changes. |
| the same talent in India as Indian companies are. The | | | | You won't have a company that's overcommitted in |
| Indian market is growing. We've known that the | | | | one market: they'll have reach in a lot of markets, and |
| Chinese market has had a large domestic demand for | | | | as politics change and economies change you may |
| quite some time, but now a lot of the major supply | | | | see one market reduce in size and another market |
| markets have big demands on their own internal | | | | expand depending on the skill sets that are available. |
| resources. So it's not just exporting the skill-set. That's | | | | So more of a supply chain for services, much like |
| absolutely a difference today from five years ago. | | | | manufacturing did, will become more mature. It's there |
| Those companies are going global, and they're | | | | today, but it'll become more mature and there'll be |
| accessing and going after the same skills as we are, | | | | more of a requirement to be competitive in the |
| but within their own countries. | | | | mainstream climate. You won't know if your |
| Q: So how important do you think that's going to be in | | | | software's been coded out of India or Russia or China |
| the rise of second-tier locations? You mentioned | | | | depending on where the requirements are being met, |
| Vietnam, which is of course perfectly placed near both | | | | and those requirements will be political stability, |
| India and China... | | | | transparency, security; all of those requirements will be |
| A: It's important. We're already seeing Chinese | | | | standard regardless of location. |
| companies that have had skill shortages in the big cities | | | | You'll see less scrutiny over location as long as that |
| in China look at Cambodia, and other countries like that. | | | | location meets the minimum standard. We're seeing |
| We're going to see companies from every developing | | | | security standards like BS7799 or ISO27001 setting |
| country - and every developed country - going after | | | | security standards for international locations, and as |
| resources not just within traditional markets but in | | | | long as those standards are audited and maintained |
| emerging countries as well. | | | | then it gives clients, regulators and customers a level |
| Q: It sounds like outsourcing could save the world... | | | | of comfort knowing that security measures are met, |
| A: It's definitely a long-term business issue. It's certainly | | | | whether it's in the US or in India. |
| not a panacea. There's still a ways to go in terms of | | | | |