Survival Strategies: The BPO route
In a sluggish economy, Indian IT companies played it smart and quickly capitalised on the scotching pace of growth offered by ITES. In the earlier issue of Tattler, AssureConsulting.com had argued that ITES is not IT. ITES players cover a wide range of multiple verticals, constituting banking and insurance telecom, retailing, utilities back roll processing are poised for immense growth. This has little in common with traditional IT constituting software development, testing and maintainance. Dismayed industry observers are crying foul, over the industry's shifting focus from high end products and services. But for IT service companies, whose growth rates were painfully crunched by the downturn; ITES offered a humongous growth opportunity too good to be bypassed. Consider these factoids.
ITES grew at a rate of 73 per cent in 2001-02, as against 14 per cent for the overall IT industry.
The ITES industry is expected to grow to Rs. 81,000 crore in 2008; from Rs. 7,100 crore in 2001-02. The sector is expected to contribute 37 per cent of total software and services exports in 2000.
Forex inflows will increased ten-fold from $6.2 billion in 2001-02 to $60.72 in 2008 (IT plus ITES)
World-class IT infrastructure, idle capacity, flat growth, pricing pressures, tight squeeze on IT budgets and declining profits have accelerated beleaguered IT sector's pace towards ITES. In the last six months, Indian service icons have announced their BPO foray to shore up margins and improve top line growth. Wipro acquired a majority stake in Spectramind, Infosys launched Progeon, Satyam ventured into the BPO space with Nipun, HCL launched E-Serv, Polaris floated Optimus to execute back office operations and Hughes also made a departure from its positioning of high value-added R&D work in the Telecom sector to debut in the BPO space. Certainly considering the success of BFL Mphasis, the strategy appears to be paying at least in the short term. MsourcE, the company's BPO arm was the main driver of growth and pulled in Rs 14.5 crore in revenue and a profit of Rs 2.2 crore. Though the software business remained flat, Mphasis delivered another quarter of growth when most companies registered a decline in quarterly profits. Lessons from the Mphasis story are now being emulated across companies.
Indian IT companies are capitalising on the track record in delivering world class services to global icons and established SEICMM level processes to bag orders. Infosys' one quarter old BPM venture Progeon Limited, has bagged a contract worth approximately $30 million from GreenPoint Mortgage, one of the largest US wholesale mortgage lender. The contract, the second for Progeon, will run through five years. Indian companies are also tapping established marketing networks, as they provide an opportunity for strategic cross selling between the IT and IT enabled businesses. For instance GreenPoint was already an Infosys client before Progeon bagged the order. And pre-established relationships from the IT services era are helping companies to reduce sales cycles in their ITES ventures from 6-9 months to three months. MsourcE, the BPO venture of MphasiS-BFL Ltd currently has 10 active clients, five of whom were MphasiS clients and outsourced work to MsourcE based on their earlier interaction. Two MsourcE clients also became MphasiS clients after they began outsourcing IT projects. Kshema Technologies is another company gearing up for its BPO venture to focus on requirements of existing clients.
The long-term impact of the strategy to move to low-end services is debatable. In a recent report, Gartner compared the ITES scramble to the dotcom boom but later withdrew the report. According to the report the size of the ITES opportunity is grossly overestimated.
"A lot of people are touting the entire global BPO market of $127 billion in 2002 as the potential market for Indian BPO companies. Of this $127 billion, 60 per cent is in the US. As of now the trend for BPO going offshore is evident primarily in the US and of the companies in the US that we surveyed only 5 per cent said they were going offshore for their BPO work. So we estimate that the offshore opportunity that Indian companies can tap into is about $6 billion, and Indian companies are competing for this business with near-shore companies in countries like Mexico and Canada, and offshore companies in the Philippines and Ireland." The report was later withdrawn but many are questioning the hype around IT.
However the Indian IT industry influenced by global market trends is loathe to let go the short term benefits and healthy profits offered by ITES. Also companies such as Spectramind are making strong attempts to expand the scope of services offered by entering the high-end BPM segment. Spectramind is setting a knowledge center for one of its clients and hiring Ph.Ds. If IT companies are to pull it off in the long term, they must quickly ramp up the BPO chain.
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Thursday, April 29, 2004
Business Process Outsourcing: The Vendor's Perspective
Applying technology to business improvement
Most businesses are under intense pressure to cut costs, cut resources, cut headcount and improve their use of capital. Although these short-term goals can be achieved through outsourcing, they should not be pursued in isolation. Economic theory and history both show that when an industry embarks on this kind of cost reduction, individual firms always end up in the same place: The market eventually equalizes, but with a lower price for everyone.
Long-term competitive advantage is more affected by the now systemic and aggressive reduction in what economists call transaction costs. From the 1960s to the 1990s, organizations drove down production costs to the extent that blue-collar productivity increased 40-fold in Western economies. However, over the same period, transaction costs, and therefore white-collar costs, varied by only two percent. This massive difference was partly because the technology was focused on automation and basic accountancy; and partly because we had a lot to learn about how to apply technology to business improvement.
Today’s technology — pervasive computing, the Internet, mobile technologies and business process management — is geared to driving down transaction costs. Two things will emerge. One is the same kind of 40-fold improvement in white-collar productivity that we saw in blue-collar productivity; the other is that businesses will disaggregate where it costs less to perform an activity outside the organization than inside it. So if a 40- to 50-fold improvement in transaction costs occurs, we should expect to see new kinds of organizations, and all the assumptions that we make currently about industry configuration, company organization and achievable levels of productivity will change radically.
Managing at the level of business processes
We are already beginning to see a move toward looser, more disaggregated organizational structures. As transaction costs fall further, more companies are becoming capability-based organizations. This new form of disaggregation suggests that as transaction costs become sufficiently low, organizations can afford to be world-class at everything.
For activities at which it is world-class but not profitable, a business should look for partners; and for activities at which it cannot be world-class, it should devise a sourcing strategy. The choice is no longer a stark one between insourcing and outsourcing, but involves weaving a much smarter strategy about what should be done internally, and what should be sold — outsourcing, partnering, and in some cases, monetizing assets.
The skills that are required to manage disaggregated organizations go way beyond today’s concepts of vendor and partner management. Aggregation and orchestration must be undertaken at the process level, and management must cover process collaboration and process synergies, which is a much more sophisticated requirement than simple vendor management.
To buyers, it would appear there is a wide choice of solutions. However, there are two considerations to take into account. The first is that, even if this market grows as fast as predicted, it is not a single, monolithic, distinguishable market like ITO. BPO, for all the processes on offer, represents probably 20 to 30 immature markets.
The second consideration has to do with critical employees. In ITO the service provider can replace just about any employee without affecting the service. This is not the case in BPO because processes are never fully documented or fully automated. They consist of a mish-mash of automated, semi-automated and manual processes with workarounds and fixes, because nobody knows how to do them any other way. The people who know how the processes really work are important. Their knowledge cannot be uncovered by due diligence as it can be for ITO. Potential BPO clients must not undersell their knowledge of their processes.
Knowing your business processes
True process outsourcing and true process transformation demand a level of industry knowledge and domain skills that make it extraordinarily unlikely that, at least under the current model, the equivalent of IBM, CSC or EDS in the ITO market is going to materialize in BPO. Disaggregation and BPO are going to mean managing 30, 40 or even 50 providers of business process services, and processes will span many organizations.
The issue is not one of management, because no organization can manage 40 of anything, but is about aggregation and orchestration. Outsourcing to different vendors complicates the realization of synergy. Once organizations have outsourced six processes to six companies, how do they exploit the synergies?
A potential solution is emerging in the form of an Enterprise Process Repository. This enables both customers and vendors to understand the current state and the planned future state of all processes, so that they can identify synergies, collaboration opportunities and consequential opportunities. Once customers have that plan, they can source more intelligently and vendors can understand the potential for the future.
Different deals, different approaches
Because continuous fundamental change and innovation are crucial to successful BPO, BPO deals cannot be handled in the same way as ITO deals. The approach is different, the outcomes are different and the value drivers are different — so don’t treat them the same. Every ITO deal that we have witnessed has featured heated debate about who controls architecture, who controls strategy and who decides if the vendor should buy from Dell or HP; but none of this actually affects the success of the deal.
BPM as the enabler of BPO
If vendors are to offer BPO at anything approaching world-class level, they need outsourcing “science.” Vendors should be more interested in business process management (BPM), which gives them a method for managing collaborative processes and a method for managing processes across multiple clients and multiple enterprises. BPO is impossible without a method for intelligently aggregating, orchestrating and controlling processes. Thus BPM is the enabler of BPO.
BPM enables the process outsourcer and process aggregator to discover, design, deploy, execute and redesign business processes. Running processes that were designed for single company operation and getting economies of scale and scope across multiple clients is a nontrivial task. BPO vendors need to demonstrate mastery of complex program management, including the ability to manage people, behavioral and cultural issues. If vendors do not understand change management and behavioral management, they should not be offering BPO.
BPM and BPO should be key parts of every business’ sourcing strategy. The strategy should recognize that successful BPO requires a very different approach to ITO and facilities management. BPO is about continuous innovation, collaboration, iteration and co-creation. It needs a process aggregator. Smart vendors should be working on exactly how they will fulfill that role.
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Applying technology to business improvement
Most businesses are under intense pressure to cut costs, cut resources, cut headcount and improve their use of capital. Although these short-term goals can be achieved through outsourcing, they should not be pursued in isolation. Economic theory and history both show that when an industry embarks on this kind of cost reduction, individual firms always end up in the same place: The market eventually equalizes, but with a lower price for everyone.
Long-term competitive advantage is more affected by the now systemic and aggressive reduction in what economists call transaction costs. From the 1960s to the 1990s, organizations drove down production costs to the extent that blue-collar productivity increased 40-fold in Western economies. However, over the same period, transaction costs, and therefore white-collar costs, varied by only two percent. This massive difference was partly because the technology was focused on automation and basic accountancy; and partly because we had a lot to learn about how to apply technology to business improvement.
Today’s technology — pervasive computing, the Internet, mobile technologies and business process management — is geared to driving down transaction costs. Two things will emerge. One is the same kind of 40-fold improvement in white-collar productivity that we saw in blue-collar productivity; the other is that businesses will disaggregate where it costs less to perform an activity outside the organization than inside it. So if a 40- to 50-fold improvement in transaction costs occurs, we should expect to see new kinds of organizations, and all the assumptions that we make currently about industry configuration, company organization and achievable levels of productivity will change radically.
Managing at the level of business processes
We are already beginning to see a move toward looser, more disaggregated organizational structures. As transaction costs fall further, more companies are becoming capability-based organizations. This new form of disaggregation suggests that as transaction costs become sufficiently low, organizations can afford to be world-class at everything.
For activities at which it is world-class but not profitable, a business should look for partners; and for activities at which it cannot be world-class, it should devise a sourcing strategy. The choice is no longer a stark one between insourcing and outsourcing, but involves weaving a much smarter strategy about what should be done internally, and what should be sold — outsourcing, partnering, and in some cases, monetizing assets.
The skills that are required to manage disaggregated organizations go way beyond today’s concepts of vendor and partner management. Aggregation and orchestration must be undertaken at the process level, and management must cover process collaboration and process synergies, which is a much more sophisticated requirement than simple vendor management.
To buyers, it would appear there is a wide choice of solutions. However, there are two considerations to take into account. The first is that, even if this market grows as fast as predicted, it is not a single, monolithic, distinguishable market like ITO. BPO, for all the processes on offer, represents probably 20 to 30 immature markets.
The second consideration has to do with critical employees. In ITO the service provider can replace just about any employee without affecting the service. This is not the case in BPO because processes are never fully documented or fully automated. They consist of a mish-mash of automated, semi-automated and manual processes with workarounds and fixes, because nobody knows how to do them any other way. The people who know how the processes really work are important. Their knowledge cannot be uncovered by due diligence as it can be for ITO. Potential BPO clients must not undersell their knowledge of their processes.
Knowing your business processes
True process outsourcing and true process transformation demand a level of industry knowledge and domain skills that make it extraordinarily unlikely that, at least under the current model, the equivalent of IBM, CSC or EDS in the ITO market is going to materialize in BPO. Disaggregation and BPO are going to mean managing 30, 40 or even 50 providers of business process services, and processes will span many organizations.
The issue is not one of management, because no organization can manage 40 of anything, but is about aggregation and orchestration. Outsourcing to different vendors complicates the realization of synergy. Once organizations have outsourced six processes to six companies, how do they exploit the synergies?
A potential solution is emerging in the form of an Enterprise Process Repository. This enables both customers and vendors to understand the current state and the planned future state of all processes, so that they can identify synergies, collaboration opportunities and consequential opportunities. Once customers have that plan, they can source more intelligently and vendors can understand the potential for the future.
Different deals, different approaches
Because continuous fundamental change and innovation are crucial to successful BPO, BPO deals cannot be handled in the same way as ITO deals. The approach is different, the outcomes are different and the value drivers are different — so don’t treat them the same. Every ITO deal that we have witnessed has featured heated debate about who controls architecture, who controls strategy and who decides if the vendor should buy from Dell or HP; but none of this actually affects the success of the deal.
BPM as the enabler of BPO
If vendors are to offer BPO at anything approaching world-class level, they need outsourcing “science.” Vendors should be more interested in business process management (BPM), which gives them a method for managing collaborative processes and a method for managing processes across multiple clients and multiple enterprises. BPO is impossible without a method for intelligently aggregating, orchestrating and controlling processes. Thus BPM is the enabler of BPO.
BPM enables the process outsourcer and process aggregator to discover, design, deploy, execute and redesign business processes. Running processes that were designed for single company operation and getting economies of scale and scope across multiple clients is a nontrivial task. BPO vendors need to demonstrate mastery of complex program management, including the ability to manage people, behavioral and cultural issues. If vendors do not understand change management and behavioral management, they should not be offering BPO.
BPM and BPO should be key parts of every business’ sourcing strategy. The strategy should recognize that successful BPO requires a very different approach to ITO and facilities management. BPO is about continuous innovation, collaboration, iteration and co-creation. It needs a process aggregator. Smart vendors should be working on exactly how they will fulfill that role.
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Source:http://www.csc.com
Wednesday, April 28, 2004
10 CRITICAL FACTORS TO EXPLORE WHEN CHOOSING AN OUTSOURCING PROVIDER FOR FOREIGN EXCHANGE SERVICES
Outsourcing FX is No New Trend for Banks
While today's competitive financial market demands that banks respond to market needs quickly and efficiently, there was a time when only the largest money centers could afford to offer foreign exchange (FX) services. Technological advancements have made a foreign exchange product line accessible to banks of all sizes. However, in today's economy, banks have to consider the feasibility of offering foreign exchange products and services. As a fee-based product offering, foreign exchange services can enhance a bank's revenue stream while meeting a market need. Yet, the costs for creating a FX processing environment can be enormous. It is for this reason that foreign exchange is an area that numerous banks outsource to correspondent banks or non-bank providers in order to compete in today's financial market. Outsourcing FX products and services allows banks to offer an advanced technology solution, industry expertise and superior customer service without the cost of back office investments. Art Gillis, principal of Computer Based Solutions, Inc. in Dallas, Texas, reported, "About 43 percent of America's 9,355 banks and thrifts currently outsource some of their operations."
When choosing an outsourcing solution, banks should focus on the services that will allow them to keep overhead costs to a minimum yet enable them to focus on business development opportunities.
Top 10 Reasons to Outsource FX:
Increase revenue and profits derived from fee-based services
Improve operational efficiencies and productivity levels by automating administrative tasks
Deliver value to customers to enhance business relationships
Expand service lines to capture more business from existing customers
Achieve more competitive exchange rates through wholesale purchasing
Control costs. If cash is not tied up in capital expense, it can be reinvested in areas offering the greatest return on investment.
Leverage the Internet to streamline and automate products, services and processing of transactions
Acquire industry expertise and expedite market entry
Enhance the ability to manage the rate spread on transactions
Enhance account management through real-time management reports on the purchase and sales of foreign currencies and the income generated from each product.
10 Questions to Ask When Evaluating a Foreign Exchange Online System
1. Is the system networked from the parent bank to branch banks?
2.Does the system provide flexibility for your bank to share revenue with the provider or to mark up rates and still have the ability to remain competitive?
3.Is the system integrated seamlessly with your bank's other systems?
4.Does the system allow your bank to retain control over profit margins, processes and account management procedures?
5.Can the bank re-brand the system for its bank and subsidiaries?
6.What capabilities are available to store, track, and send your customers information?
7.How are investigations handled?
8.What are the security features?
9.Can your bank create a centralized or decentralized process for managing its foreign exchange transactions?
10.Does the system enable your bank to provide customers real-time market information?
Choosing The Right Financial Institution
The notion of giving an outsider access to highly sensitive information can initially stir reluctance among banks. Banks often evaluate the competitive threat a correspondent bank provider poses when outsourcing because they often have access to a customer's confidential banking information. Therefore, companies must carefully assess the offerings, experience, credibility and demonstrated capabilities of potential bank and non-bank service providers.
Banks have numerous choices and an effective solution needs to do more than address current business functions. They should evolve as new technology evolves and business objectives develop over time. Here are a few criteria to keep in mind when choosing a provider.
Check the financial strength of the provider.
The financial health of your provider is critical. Established providers with a history of profitability are the safest bet, particularly if the provider is less than two years old.
Check the provider's record of success. Ask prospective providers to furnish you with a representative sampling of their customer base and speak with customer references.
Establish whether the financial institution has a clearly defined account management plan.
Account management is a critical factor in the outsourcing relationship. Some of the questions you should ask include: 1) Will a single account manager serve as your point of contact on all of the details of your account; 2) Will you be able to meet with that person often, and 3) Will you meet with your future account manager and other support staff before the relationship begins?
What security measures does the financial institution have in place and have they been tested?
You should settle for no less than a detailed outline of the security measures that protect a provider's facility from outside intrusion. Ask about the types of firewalls and related programs a provider uses and ask if they have experienced security problems. Find out what recovery plans are in place in case there is a security breach. Also pay close attention to the potential threat of internal security violations.
Make sure the financial institution offers a training plan and continued support.
Make sure the service provider offers formal training for systems and technology and how to use it efficiently.
Explore in-depth the quality of the financial institution infrastructure and the personnel charged with managing it.
Find out who its technology component partners and Internet backbone providers are. What are the key metrics, including reliability, availability, and scalability? An on site inspection is mandatory in establishing your confidence in both the provider's physical infrastructure and its management expertise. Ask about current and planned investments in infrastructure. You want to ensure that you benefit from continued upgrades and new technologies.
How are services priced?
Make sure you know what you are buying. You should also get a clear idea of how pricing will change as your needs scale up or down over time. Ask if the provider's pricing practices are flexible or rigidly set.
Conclusion
Numerous banks face the following dilemma: 1) Have a critical process whose usage is falling but will never go away. 2) Need significant investment in new technology in order to compete. 3) Faced with making the decision to spend money on technology investments or outsource a core process.
Today, approximately 95% of medium sized and community banks in the US outsource foreign exchange services to financial institutions. And the majority of banks in the US outsource processing for a variety of bank services. Many have learned that it's best to give the process to someone who specializes in it. After all, it's the provider not the customer, that's making the resource investment. The provider is also assuming the responsibility for managing these resources and for much of the business risk inherent in doing it well.
Whether businesses embraced the potential of e-business or not, they found that the new technology in the hands of their suppliers, customers and competitors compressed business cycles. Some companies struggle to keep up with the rapid rate of technological changes. By outsourcing, a company can benefit from technology's cutting edge without large capital expenditures.
Outsourcing and enabling a provider that specializes in a service to manage resources allows the bank to not only focus on its core competencies but also increase its bottom line. If operating costs are reduced, it's because of the specialized knowledge and economies of scale of the provider's resources. If capital costs are reduced, it's because the provider is making those capital investments, not the bank. Similarly, when speed and flexibility are enhanced, it is because it's faster and less expensive to leverage another firm's existing resources than it is to build one's own from scratch. When outsourcing is credited for focusing the business on its core, it is specifically because the bank will now be able to invest more of its internal resources in those areas where its unique capabilities produce exceptional returns.
It is imperative to choose a service provider that can put all the pieces together, regardless of how complicated the tools and processes become. Ultimately, by developing the necessary tools and processes into a comprehensive, fully integrated solution that fits together seamlessly, the bottom line will benefit and your bank will remain competitive in the 21st century.
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Financial
B2B
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Source:http://www.fsoutsourcing.com
Outsourcing FX is No New Trend for Banks
While today's competitive financial market demands that banks respond to market needs quickly and efficiently, there was a time when only the largest money centers could afford to offer foreign exchange (FX) services. Technological advancements have made a foreign exchange product line accessible to banks of all sizes. However, in today's economy, banks have to consider the feasibility of offering foreign exchange products and services. As a fee-based product offering, foreign exchange services can enhance a bank's revenue stream while meeting a market need. Yet, the costs for creating a FX processing environment can be enormous. It is for this reason that foreign exchange is an area that numerous banks outsource to correspondent banks or non-bank providers in order to compete in today's financial market. Outsourcing FX products and services allows banks to offer an advanced technology solution, industry expertise and superior customer service without the cost of back office investments. Art Gillis, principal of Computer Based Solutions, Inc. in Dallas, Texas, reported, "About 43 percent of America's 9,355 banks and thrifts currently outsource some of their operations."
When choosing an outsourcing solution, banks should focus on the services that will allow them to keep overhead costs to a minimum yet enable them to focus on business development opportunities.
Top 10 Reasons to Outsource FX:
Increase revenue and profits derived from fee-based services
Improve operational efficiencies and productivity levels by automating administrative tasks
Deliver value to customers to enhance business relationships
Expand service lines to capture more business from existing customers
Achieve more competitive exchange rates through wholesale purchasing
Control costs. If cash is not tied up in capital expense, it can be reinvested in areas offering the greatest return on investment.
Leverage the Internet to streamline and automate products, services and processing of transactions
Acquire industry expertise and expedite market entry
Enhance the ability to manage the rate spread on transactions
Enhance account management through real-time management reports on the purchase and sales of foreign currencies and the income generated from each product.
10 Questions to Ask When Evaluating a Foreign Exchange Online System
1. Is the system networked from the parent bank to branch banks?
2.Does the system provide flexibility for your bank to share revenue with the provider or to mark up rates and still have the ability to remain competitive?
3.Is the system integrated seamlessly with your bank's other systems?
4.Does the system allow your bank to retain control over profit margins, processes and account management procedures?
5.Can the bank re-brand the system for its bank and subsidiaries?
6.What capabilities are available to store, track, and send your customers information?
7.How are investigations handled?
8.What are the security features?
9.Can your bank create a centralized or decentralized process for managing its foreign exchange transactions?
10.Does the system enable your bank to provide customers real-time market information?
Choosing The Right Financial Institution
The notion of giving an outsider access to highly sensitive information can initially stir reluctance among banks. Banks often evaluate the competitive threat a correspondent bank provider poses when outsourcing because they often have access to a customer's confidential banking information. Therefore, companies must carefully assess the offerings, experience, credibility and demonstrated capabilities of potential bank and non-bank service providers.
Banks have numerous choices and an effective solution needs to do more than address current business functions. They should evolve as new technology evolves and business objectives develop over time. Here are a few criteria to keep in mind when choosing a provider.
Check the financial strength of the provider.
The financial health of your provider is critical. Established providers with a history of profitability are the safest bet, particularly if the provider is less than two years old.
Check the provider's record of success. Ask prospective providers to furnish you with a representative sampling of their customer base and speak with customer references.
Establish whether the financial institution has a clearly defined account management plan.
Account management is a critical factor in the outsourcing relationship. Some of the questions you should ask include: 1) Will a single account manager serve as your point of contact on all of the details of your account; 2) Will you be able to meet with that person often, and 3) Will you meet with your future account manager and other support staff before the relationship begins?
What security measures does the financial institution have in place and have they been tested?
You should settle for no less than a detailed outline of the security measures that protect a provider's facility from outside intrusion. Ask about the types of firewalls and related programs a provider uses and ask if they have experienced security problems. Find out what recovery plans are in place in case there is a security breach. Also pay close attention to the potential threat of internal security violations.
Make sure the financial institution offers a training plan and continued support.
Make sure the service provider offers formal training for systems and technology and how to use it efficiently.
Explore in-depth the quality of the financial institution infrastructure and the personnel charged with managing it.
Find out who its technology component partners and Internet backbone providers are. What are the key metrics, including reliability, availability, and scalability? An on site inspection is mandatory in establishing your confidence in both the provider's physical infrastructure and its management expertise. Ask about current and planned investments in infrastructure. You want to ensure that you benefit from continued upgrades and new technologies.
How are services priced?
Make sure you know what you are buying. You should also get a clear idea of how pricing will change as your needs scale up or down over time. Ask if the provider's pricing practices are flexible or rigidly set.
Conclusion
Numerous banks face the following dilemma: 1) Have a critical process whose usage is falling but will never go away. 2) Need significant investment in new technology in order to compete. 3) Faced with making the decision to spend money on technology investments or outsource a core process.
Today, approximately 95% of medium sized and community banks in the US outsource foreign exchange services to financial institutions. And the majority of banks in the US outsource processing for a variety of bank services. Many have learned that it's best to give the process to someone who specializes in it. After all, it's the provider not the customer, that's making the resource investment. The provider is also assuming the responsibility for managing these resources and for much of the business risk inherent in doing it well.
Whether businesses embraced the potential of e-business or not, they found that the new technology in the hands of their suppliers, customers and competitors compressed business cycles. Some companies struggle to keep up with the rapid rate of technological changes. By outsourcing, a company can benefit from technology's cutting edge without large capital expenditures.
Outsourcing and enabling a provider that specializes in a service to manage resources allows the bank to not only focus on its core competencies but also increase its bottom line. If operating costs are reduced, it's because of the specialized knowledge and economies of scale of the provider's resources. If capital costs are reduced, it's because the provider is making those capital investments, not the bank. Similarly, when speed and flexibility are enhanced, it is because it's faster and less expensive to leverage another firm's existing resources than it is to build one's own from scratch. When outsourcing is credited for focusing the business on its core, it is specifically because the bank will now be able to invest more of its internal resources in those areas where its unique capabilities produce exceptional returns.
It is imperative to choose a service provider that can put all the pieces together, regardless of how complicated the tools and processes become. Ultimately, by developing the necessary tools and processes into a comprehensive, fully integrated solution that fits together seamlessly, the bottom line will benefit and your bank will remain competitive in the 21st century.
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Ecommerce
Financial
B2B
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Source:http://www.fsoutsourcing.com
Tuesday, April 27, 2004
Monday, April 26, 2004
Business Process Outsourcing: Two models that work
Business process outsourcing has become much more of an obvious trend recently in companies both big and small. The reasons vary, from a wish to achieve economies of scale, to the access that it allows to technology infrastructure without the need for companies to build out their own, to the requirement to gain access to specific category expertise.
Some of the most common examples have been around for years. For example, large companies have long outsourced travel requirements to travel firms that are not only experts in their field, but the can also negotiate better deals with commonly used airlines or hotel chains. Other examples are employee benefits or payroll and accounting - during the Internet boom, many such service providers developed outsourced packages specifically aimed at the needs of start-up companies. Procurement, inventory management, logistics, customer service through outsourced call centres and subcontracted manufacturing are yet further examples of business processes that are commonly outsourced.
With the outsourcing of core business processes, finding the right partner is of paramount importance. All companies that offer outsourcing services must be able to demonstrate that they have the required process expertise and, if the process outsourced is of strategic importance, deep domain expertise is essential.
In addition, companies should look for the value-added services that are offered - for example, where companies wish to outsource procurement or inventory management, or are looking for a firm that can manage supplier networks and supplier enablement for them, outsourcing of the processes involved can be of invaluable help in smoothing the project management and encouraging take-up among suppliers. For such support, the firm offering outsourcing services is better positioned if it has a global reach.
Another point to be remembered is that you can't improve what you can't measure - if business processes are to be outsourced, change management will be required and strict guidelines should be put into the outsourcing contract with regard to service delivery and performance levels.
One company offering business process outsourcing services with strict delivery levels built in is Xchanging. The firm offers outsourcing for human resources, procurement, accounting and settlement, and customer administration. Some of its customers have actually outsourced their entire back-office business functions to Xchanging.
The value proposition that Xchanging offers is the ability to cut costs without companies needing to build their own infrastructure, as well as access to proven process expertise. The firm achieves this high level of expertise by consistently hiring resources that are experts in their fields in terms of being active practitioners, rather than consultants. It's people have all run business departments themselves and now have their own P&L for their specific category at Xchanging - and therefore the firm is offering high levels of category expertise as well.
Xchanging uses a purely gain-share model - no gain, no pain, and no consulting fees. To develop robust performance metrics, the firm always begins with an assessment of existing conditions in a company and develops a plan as to where the company would like to go. Those savings that are identified form the basis of the agreement that the companies then enter into - the savings are shared by the companies in joint venture agreements and Xchanging is measured on its performance relative to the initial plan.
To do this, it has at it's disposal a wide range of performance metrics that it uses - and these go way beyond just achieving hard cash savings, but also measure the quality of the processes as well. For example, if Xchanging has been tasked with managing a company's fleet of cars, the firm will measure such things as how long a proposal for renewal of cars takes and will measure the quality of the proposal against accepted norms to ensure that wastage is driven out of the processes involved. By driving out the inefficiencies, savings can be made in administrative costs as well as price - and those additional savings can be passed on to the client.
According to David Oates, marketing director at Xchanging, such outsourcing models will become much more prevalent in the future, as evidenced by the falloff that many vendors have seen recently in their software licence sales. Companies such as IBM have already seen this change in the market and are adjusting their services accordingly, using their own procurement teams to manage service delivery for their clients. The model seems to working for Xchanging - in business for only four years now, the firm has already expanded to more than 1,000 resources.
Another model that appears to be gaining traction is one espoused by Ulogistics, part of the UMECO group in the UK. Specialising in the aerospace industry, it is working with customers in the industry to manage their in-bound supply chain. To do this, it is working across its customers' global supplier networks to increase visibility, ease supplier roll out and help its customers to change their processes for supplier integration so that suppliers can manage inventory requirements on behalf of their customers.
As such, Ulogistics fulfills many of the requirements for effective business process outsourcing - it has deep domain expertise, specific process expertise, is helping companies reduce their infrastructure costs, and is providing value-added supplier management services globally.
Ulogistics is offering customers access to We Supply's technology, a vendor of on-demand supply chain management solutions, and building its own processes on top that are specific to the needs of the aerospace industry.
Chris Turner, managing director of Ulogistics, states that the company has no ambition to enter other industries, but will remain focused on aerospace. However, it appears likely that We Supply may team up with experts from other vertical industries at some point to develop specific expertise in other sectors.
Such developments could prove to be a serious challenge to the large integrated suite vendors that are developing specific industry expertise on a software licence basis - the outsourced model could provide access to outsourced business process services specific to their industry at lower cost, with lower levels of investment required and with service levels that are specific to the needs of their particular firm.
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Ecommerce
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B2B
Free Evaluation
Source:http://searchwebservices.techtarget.com
Business process outsourcing has become much more of an obvious trend recently in companies both big and small. The reasons vary, from a wish to achieve economies of scale, to the access that it allows to technology infrastructure without the need for companies to build out their own, to the requirement to gain access to specific category expertise.
Some of the most common examples have been around for years. For example, large companies have long outsourced travel requirements to travel firms that are not only experts in their field, but the can also negotiate better deals with commonly used airlines or hotel chains. Other examples are employee benefits or payroll and accounting - during the Internet boom, many such service providers developed outsourced packages specifically aimed at the needs of start-up companies. Procurement, inventory management, logistics, customer service through outsourced call centres and subcontracted manufacturing are yet further examples of business processes that are commonly outsourced.
With the outsourcing of core business processes, finding the right partner is of paramount importance. All companies that offer outsourcing services must be able to demonstrate that they have the required process expertise and, if the process outsourced is of strategic importance, deep domain expertise is essential.
In addition, companies should look for the value-added services that are offered - for example, where companies wish to outsource procurement or inventory management, or are looking for a firm that can manage supplier networks and supplier enablement for them, outsourcing of the processes involved can be of invaluable help in smoothing the project management and encouraging take-up among suppliers. For such support, the firm offering outsourcing services is better positioned if it has a global reach.
Another point to be remembered is that you can't improve what you can't measure - if business processes are to be outsourced, change management will be required and strict guidelines should be put into the outsourcing contract with regard to service delivery and performance levels.
One company offering business process outsourcing services with strict delivery levels built in is Xchanging. The firm offers outsourcing for human resources, procurement, accounting and settlement, and customer administration. Some of its customers have actually outsourced their entire back-office business functions to Xchanging.
The value proposition that Xchanging offers is the ability to cut costs without companies needing to build their own infrastructure, as well as access to proven process expertise. The firm achieves this high level of expertise by consistently hiring resources that are experts in their fields in terms of being active practitioners, rather than consultants. It's people have all run business departments themselves and now have their own P&L for their specific category at Xchanging - and therefore the firm is offering high levels of category expertise as well.
Xchanging uses a purely gain-share model - no gain, no pain, and no consulting fees. To develop robust performance metrics, the firm always begins with an assessment of existing conditions in a company and develops a plan as to where the company would like to go. Those savings that are identified form the basis of the agreement that the companies then enter into - the savings are shared by the companies in joint venture agreements and Xchanging is measured on its performance relative to the initial plan.
To do this, it has at it's disposal a wide range of performance metrics that it uses - and these go way beyond just achieving hard cash savings, but also measure the quality of the processes as well. For example, if Xchanging has been tasked with managing a company's fleet of cars, the firm will measure such things as how long a proposal for renewal of cars takes and will measure the quality of the proposal against accepted norms to ensure that wastage is driven out of the processes involved. By driving out the inefficiencies, savings can be made in administrative costs as well as price - and those additional savings can be passed on to the client.
According to David Oates, marketing director at Xchanging, such outsourcing models will become much more prevalent in the future, as evidenced by the falloff that many vendors have seen recently in their software licence sales. Companies such as IBM have already seen this change in the market and are adjusting their services accordingly, using their own procurement teams to manage service delivery for their clients. The model seems to working for Xchanging - in business for only four years now, the firm has already expanded to more than 1,000 resources.
Another model that appears to be gaining traction is one espoused by Ulogistics, part of the UMECO group in the UK. Specialising in the aerospace industry, it is working with customers in the industry to manage their in-bound supply chain. To do this, it is working across its customers' global supplier networks to increase visibility, ease supplier roll out and help its customers to change their processes for supplier integration so that suppliers can manage inventory requirements on behalf of their customers.
As such, Ulogistics fulfills many of the requirements for effective business process outsourcing - it has deep domain expertise, specific process expertise, is helping companies reduce their infrastructure costs, and is providing value-added supplier management services globally.
Ulogistics is offering customers access to We Supply's technology, a vendor of on-demand supply chain management solutions, and building its own processes on top that are specific to the needs of the aerospace industry.
Chris Turner, managing director of Ulogistics, states that the company has no ambition to enter other industries, but will remain focused on aerospace. However, it appears likely that We Supply may team up with experts from other vertical industries at some point to develop specific expertise in other sectors.
Such developments could prove to be a serious challenge to the large integrated suite vendors that are developing specific industry expertise on a software licence basis - the outsourced model could provide access to outsourced business process services specific to their industry at lower cost, with lower levels of investment required and with service levels that are specific to the needs of their particular firm.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
Source:http://searchwebservices.techtarget.com
Sunday, April 25, 2004
Five Rules for a Great Business Process Outsourcing Agreement
Business Process Outsourcing (BPO) involves looking closely at the processes that compose the business and its functional units and then working with service providers to outsource these functions. Such functions as claims management, human resources, finance and compliance can be outsourced. The outsourcing provider then administers these functions on their own systems to agreed service standards and at a guaranteed cost.
BPO agreements are frequently negotiated by executives not connected with the business being outsourced. To ensure that your company will obtain the service levels and cost benefits desired, it is necessary that the executives in HR or finance or other process being outsourced understand the details of the outsourcing agreement so they can attempt to influence them before the contract is signed. Through the establishment of five rules, here are some of the operating requirements and infrastructures necessary for a successful relationship. Although my expertise is in human resources outsourcing, these rules are important for any outsourcer to get right.
Rule #1: Get the Outsourcing Agreement Right
Even though the human resource or other pertinent executives may not be "approvers" of a BPO agreement, they play a key role in evaluating the competency of the provider and providing a framework of knowledge to ensure the interests of the company and the employees are well served.
Most companies have a motivation for considering outsourcing. This motivation frequently is misplaced during the throes of due diligence, solution building and contracting. Every negotiating team should establish a short list of its reasons for outsourcing (e.g., operating costs, improved service, cost avoidance, headcount reduction, etc.) and then test vendor proposals against the list. This is not as easy as it seems. If there is a dedicated "deal team" in place, its idea of success and completion may be different than the executives who will have to manage the ongoing relationship.
Many executives discuss having a "seat at the table." In this instance, the seat at the table is the negotiating table. The intent is to receive agreed upon services at an agreed upon price for a period of time. If services and price don't match, there will be unpleasant consequences later. A corollary to this is to remember the provider also needs to make money. If the deal is too one-sided, then service or investment in new technology and processes will suffer. Executives with a longer-term focus can validate the need for change and counsel the negotiating team if the cost focus overwhelms the service focus.
Typical sourcing initiatives fall into two groups: Sole Negotiation and Request for Information/Request for Proposal (RFI/RFP). The RFI/RFP route may be conducted by internal resources or by a sourcing consultancy or consultant (such as TPI, EquaTerra, Everest, Deloitte Consulting LLP, etc.). The debate as to which option provides a better return will not be answered here; instead here are timelines on both alternatives (see Chart 1).
In addition to understanding the process, there needs to be a clear definition of roles and responsibilities. Identify decision makers, advisors, constituents, key staff and the deal team. Each has a distinct role and together they will ensure objectives are met and support the previously established definition of success. In addition to the decision makers, a project management office (PMO) must be established to ensure work is done and timelines are met. The PMO is established when it appears a contract is likely and continues throughout transition. Some organizations have the PMO established when RFIs are issued.
Rule #2: Change Management Cannot Start Early Enough
Change management is all about ensuring the organization supports the business initiative. It's also about leadership and communications. The effort should begin before any potential vendor is involved. There must be a communications strategy to ensure employees, especially those who may be at risk, understand the reasons and feel they will have some level of protection during and after the vendor selection. This is not easy and if your organization does not have the professional staff to support this effort, outside resources may be necessary.
Different constituencies have separate interests and needs. The change management process must include all of them. In HR outsourcing, the most common alignment of the internal groups includes employees, human resource leadership and senior/line management. External groups could include financial analysts, shareholders, unions/works councils and current third-party providers. The internal program should work in tandem with the provider's program to ensure clarity and consistency of message.
Note that "change management," as defined here is leadership change management and is different than the change process that accompanies the actual operations. Once operations begin, there will be a change process with elements such as change orders and work orders. If there is a large IT component involved, make the distinctions early to reduce confusion.
Rule #3: Get the Transition Right
In the simplest definition, transition is all about getting processes and people from internal control to external control. For this process to work, internal resources must be a willing part of the process. This takes some effort if employees' positions are at risk (see change management). It may be necessary to devise retention programs for key employees. Turnover during this phase must be controlled or orderly transition will fail.
Transition can be further defined as the detailed, desk-level analysis and documentation of all relevant tasks, technologies, workflows and functions. It also covers the movement of people if they are in-scope.
If the process is to be moved "as-is," the focus is on the current state.
If the process is to be transformed, changed or will use new technology, the focus is on the delta between current state and future state.
Process Transition: The provider will assign team leads to manage one or more processes. The teams will include staff from both client and vendor. The team members will be needed for significant amounts of time. During the transition process, documentation is created and assembled. Job shadowing may be part of the methodology. The client should sign off on the readiness of the provider before accountability moves to the provider.
People Transition: The scale will depend on the nature of the contract. If there will be employees moving to the provider, the usual process of interviews, job offers and acceptance periods will follow. It may be necessary to devise retention plans for key employees, and severance plans and reassignment programs for impacted staff. Expenses for retention and severance plans are generally borne by the client. People issues must be a major focus of leadership during the critical transition process.
Technology Transition: If the provider will be assuming licenses or operations of client-owned systems, applications or infrastructure, then all in-scope systems must be identified and documented. Licenses, maintenance agreements, hosting, LAN, WAN and telecom are subject to review and may be part of the transition. If separate entities will manage applications and/or hosting, protocols must be established to ensure roles and responsibilities are clear.
The governance process will be finalized during transition. This is the fundamental basis for managing the relationship during the "build" and "operate" phases of the relationship. There are multiple models for this subject; the key point is to appoint individuals with sufficient authority to manage the relationship on a day-to-day basis. The governance methodology should cover the change process and issue resolution as well as the actual contractual relationship. Web portal design and content also need to be part of the governance process.
Rule #4: Love Your Client Manager
Business process outsourcing agreements are long-term, complex and personal relationships. As end-to-end BPO is not commoditized, it takes "care and feeding" to make it work. Legally it is a client-vendor relationship, but it can and should work collaboratively as a partnership.
Both parties will have relationship managers. These individuals ensure that changes occur in a timely, orderly manner and that issues are resolved appropriately. Selection criteria for the client's manager should focus on relationship skills, knowledge of the organization, business case and analytic skills and reputation within the organization. They should also be senior enough to make decisions in a timely manner, without further approvals, within defined boundaries.
Give a good reference, where deserved. This is a significant way to signify approval of the results and relationship. It's almost as good as paying invoices in a timely manner.
Rule #5: Get Over It; It's a New and Better World
Moving to an outsourcing model will not make you more strategic. What it will do, by eliminating large organizations and consolidating SLAs, is allow more time to understand the needs of the organization. Understanding the basic business better allows you to propose and implement more creative and effective strategies. In addition, your provider will have more resources and access to best practices to support those business objectives. Outsourcing can be an enabler to becoming more strategic.
Outsourcing is based on outcomes. The client defines the outcomes, and the vendor supplies the means. Once trust is established, the total team can create a true partnership to the betterment of all. As more and more organizations move to an outsourced model, choices and processes will improve and the journey will become easier.
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Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.deloitte.com
Business Process Outsourcing (BPO) involves looking closely at the processes that compose the business and its functional units and then working with service providers to outsource these functions. Such functions as claims management, human resources, finance and compliance can be outsourced. The outsourcing provider then administers these functions on their own systems to agreed service standards and at a guaranteed cost.
BPO agreements are frequently negotiated by executives not connected with the business being outsourced. To ensure that your company will obtain the service levels and cost benefits desired, it is necessary that the executives in HR or finance or other process being outsourced understand the details of the outsourcing agreement so they can attempt to influence them before the contract is signed. Through the establishment of five rules, here are some of the operating requirements and infrastructures necessary for a successful relationship. Although my expertise is in human resources outsourcing, these rules are important for any outsourcer to get right.
Rule #1: Get the Outsourcing Agreement Right
Even though the human resource or other pertinent executives may not be "approvers" of a BPO agreement, they play a key role in evaluating the competency of the provider and providing a framework of knowledge to ensure the interests of the company and the employees are well served.
Most companies have a motivation for considering outsourcing. This motivation frequently is misplaced during the throes of due diligence, solution building and contracting. Every negotiating team should establish a short list of its reasons for outsourcing (e.g., operating costs, improved service, cost avoidance, headcount reduction, etc.) and then test vendor proposals against the list. This is not as easy as it seems. If there is a dedicated "deal team" in place, its idea of success and completion may be different than the executives who will have to manage the ongoing relationship.
Many executives discuss having a "seat at the table." In this instance, the seat at the table is the negotiating table. The intent is to receive agreed upon services at an agreed upon price for a period of time. If services and price don't match, there will be unpleasant consequences later. A corollary to this is to remember the provider also needs to make money. If the deal is too one-sided, then service or investment in new technology and processes will suffer. Executives with a longer-term focus can validate the need for change and counsel the negotiating team if the cost focus overwhelms the service focus.
Typical sourcing initiatives fall into two groups: Sole Negotiation and Request for Information/Request for Proposal (RFI/RFP). The RFI/RFP route may be conducted by internal resources or by a sourcing consultancy or consultant (such as TPI, EquaTerra, Everest, Deloitte Consulting LLP, etc.). The debate as to which option provides a better return will not be answered here; instead here are timelines on both alternatives (see Chart 1).
In addition to understanding the process, there needs to be a clear definition of roles and responsibilities. Identify decision makers, advisors, constituents, key staff and the deal team. Each has a distinct role and together they will ensure objectives are met and support the previously established definition of success. In addition to the decision makers, a project management office (PMO) must be established to ensure work is done and timelines are met. The PMO is established when it appears a contract is likely and continues throughout transition. Some organizations have the PMO established when RFIs are issued.
Rule #2: Change Management Cannot Start Early Enough
Change management is all about ensuring the organization supports the business initiative. It's also about leadership and communications. The effort should begin before any potential vendor is involved. There must be a communications strategy to ensure employees, especially those who may be at risk, understand the reasons and feel they will have some level of protection during and after the vendor selection. This is not easy and if your organization does not have the professional staff to support this effort, outside resources may be necessary.
Different constituencies have separate interests and needs. The change management process must include all of them. In HR outsourcing, the most common alignment of the internal groups includes employees, human resource leadership and senior/line management. External groups could include financial analysts, shareholders, unions/works councils and current third-party providers. The internal program should work in tandem with the provider's program to ensure clarity and consistency of message.
Note that "change management," as defined here is leadership change management and is different than the change process that accompanies the actual operations. Once operations begin, there will be a change process with elements such as change orders and work orders. If there is a large IT component involved, make the distinctions early to reduce confusion.
Rule #3: Get the Transition Right
In the simplest definition, transition is all about getting processes and people from internal control to external control. For this process to work, internal resources must be a willing part of the process. This takes some effort if employees' positions are at risk (see change management). It may be necessary to devise retention programs for key employees. Turnover during this phase must be controlled or orderly transition will fail.
Transition can be further defined as the detailed, desk-level analysis and documentation of all relevant tasks, technologies, workflows and functions. It also covers the movement of people if they are in-scope.
If the process is to be moved "as-is," the focus is on the current state.
If the process is to be transformed, changed or will use new technology, the focus is on the delta between current state and future state.
Process Transition: The provider will assign team leads to manage one or more processes. The teams will include staff from both client and vendor. The team members will be needed for significant amounts of time. During the transition process, documentation is created and assembled. Job shadowing may be part of the methodology. The client should sign off on the readiness of the provider before accountability moves to the provider.
People Transition: The scale will depend on the nature of the contract. If there will be employees moving to the provider, the usual process of interviews, job offers and acceptance periods will follow. It may be necessary to devise retention plans for key employees, and severance plans and reassignment programs for impacted staff. Expenses for retention and severance plans are generally borne by the client. People issues must be a major focus of leadership during the critical transition process.
Technology Transition: If the provider will be assuming licenses or operations of client-owned systems, applications or infrastructure, then all in-scope systems must be identified and documented. Licenses, maintenance agreements, hosting, LAN, WAN and telecom are subject to review and may be part of the transition. If separate entities will manage applications and/or hosting, protocols must be established to ensure roles and responsibilities are clear.
The governance process will be finalized during transition. This is the fundamental basis for managing the relationship during the "build" and "operate" phases of the relationship. There are multiple models for this subject; the key point is to appoint individuals with sufficient authority to manage the relationship on a day-to-day basis. The governance methodology should cover the change process and issue resolution as well as the actual contractual relationship. Web portal design and content also need to be part of the governance process.
Rule #4: Love Your Client Manager
Business process outsourcing agreements are long-term, complex and personal relationships. As end-to-end BPO is not commoditized, it takes "care and feeding" to make it work. Legally it is a client-vendor relationship, but it can and should work collaboratively as a partnership.
Both parties will have relationship managers. These individuals ensure that changes occur in a timely, orderly manner and that issues are resolved appropriately. Selection criteria for the client's manager should focus on relationship skills, knowledge of the organization, business case and analytic skills and reputation within the organization. They should also be senior enough to make decisions in a timely manner, without further approvals, within defined boundaries.
Give a good reference, where deserved. This is a significant way to signify approval of the results and relationship. It's almost as good as paying invoices in a timely manner.
Rule #5: Get Over It; It's a New and Better World
Moving to an outsourcing model will not make you more strategic. What it will do, by eliminating large organizations and consolidating SLAs, is allow more time to understand the needs of the organization. Understanding the basic business better allows you to propose and implement more creative and effective strategies. In addition, your provider will have more resources and access to best practices to support those business objectives. Outsourcing can be an enabler to becoming more strategic.
Outsourcing is based on outcomes. The client defines the outcomes, and the vendor supplies the means. Once trust is established, the total team can create a true partnership to the betterment of all. As more and more organizations move to an outsourced model, choices and processes will improve and the journey will become easier.
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Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.deloitte.com
Monday, April 19, 2004
BPO India
BPO India is one of the popular business practices in today's competitive environment. The Indian BPO industry is constantly growing. According to India Infoline, the ITES-BPO segment registered a growth of 59% this year to reach US $2.3 billion and is projected to grow 54% to $3.6 billion in 2003-04. However, along with the phenomenal increase in BPO to India there has been a backlash against outsourcing. These enraged cries come from parties that have been affected by the migration of jobs to offshore locations like India. Though this anti-outsourcing movement is gaining mometum, it is important to understand the long term benefits of outsourcing and of BPO India.
BPO - Benefits
British Trade and Industry Secretary, Patricia Hewitt, at a national conference of the Confederation of British Industry (CBI) said, "It is much easier to see the short term benefits of protectionism than to see the long term costs to consumers and business competitiveness."
This is the crux of the pro-outsourcing argument. BPO India offers benefits not only in terms of cost reduction, but also in terms of increased productivity and quality. Companies along with their customers benefit since they can access some of the best talent and expertise in the industry at lower rates.
BPO India - Cost Savings
Bob Beauchamp, BMC Software President and CEO talked about the backlash in the US where an economic rebound had not created jobs. Addressing the Product and Embedded Software Summit in Bangalore he said that there may be a backlash, "But as studies have indicated that for every one dollar invested in India, the value derived by the US economy is between $12-14." He termed outsourcing to India as "irreversible" and said it was a "must have" to improve the Indian and global economy.
NASSCOM has tried to address some of the concerns voiced by anti outsourcing parties especially about the benefits to the American economy.
The study shows that US businesses have witnessed significant cost savings by offshoring to India.
The US banking, financial services and insurance (BFSI) sector's costs are 7-10% lower than that of it's European counterparts
American BFSI companies have saved $6 billion in the last four years by offshoring to India.
BPO India - Creates Jobs
It seems contradictory to say that the migration of jobs from one country to another actually creates jobs in the former. However, that can ultimately be the case. According to the NASSCOM report, the BFSI sector have saved $6 billion in the last few years and due to these savings have added 125,000 new jobs in this period thus preventing layoffs.
Nearly 170 Indian IT companies have offices in the US and they employed nearly 60,000 people in the US in 2001. These people paid nearly $810 million in taxes in 2001. Employees of Indian IT firms bought goods and services worth $1.2 billion in the US and paid nearly $300 million as social security in 2001.
BPO India - Value Addition
The NASSCOM study continues to explain the added benefits. BFSI offshoring has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%.
The report gives a striking example of the success of the automobile industry in the US due to outsourcing. Today, this industry is the largest in the world and two of the biggest automobile companies are American. The industry has the same number of professionals it did in 1994 as it did in 1974, which is 900,000. Over this same period sales and services in this sector grew 20% from 2 million to 2.4 million. Outsourcing gave this industry a competitive edge and opened up opportunities in terms of investing in new equipment and re engineering processes.
The US steel industry, however, resisted outsourcing and suffered greatly despite several tariffs and quotas.
BPO India - Long Term Benefits
Amidst the mounting furore against outsourcing one has to examine things more objectively. In the short term, cost benefits and value addition may not be apparent because of the initial investment involved in training and infrastructure. Also outcries against migration of jobs seem to cement the argument. However, as the NASSCOM report shows, the long term benefits are very powerful. Not only does BPO India allow global companies to avail of some of the best talent and expertise at competitive rates, but it also allows the company to actually save several jobs, which it might have had to lay off otherwise.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
source:http://www.outsource2india.com
BPO India is one of the popular business practices in today's competitive environment. The Indian BPO industry is constantly growing. According to India Infoline, the ITES-BPO segment registered a growth of 59% this year to reach US $2.3 billion and is projected to grow 54% to $3.6 billion in 2003-04. However, along with the phenomenal increase in BPO to India there has been a backlash against outsourcing. These enraged cries come from parties that have been affected by the migration of jobs to offshore locations like India. Though this anti-outsourcing movement is gaining mometum, it is important to understand the long term benefits of outsourcing and of BPO India.
BPO - Benefits
British Trade and Industry Secretary, Patricia Hewitt, at a national conference of the Confederation of British Industry (CBI) said, "It is much easier to see the short term benefits of protectionism than to see the long term costs to consumers and business competitiveness."
This is the crux of the pro-outsourcing argument. BPO India offers benefits not only in terms of cost reduction, but also in terms of increased productivity and quality. Companies along with their customers benefit since they can access some of the best talent and expertise in the industry at lower rates.
BPO India - Cost Savings
Bob Beauchamp, BMC Software President and CEO talked about the backlash in the US where an economic rebound had not created jobs. Addressing the Product and Embedded Software Summit in Bangalore he said that there may be a backlash, "But as studies have indicated that for every one dollar invested in India, the value derived by the US economy is between $12-14." He termed outsourcing to India as "irreversible" and said it was a "must have" to improve the Indian and global economy.
NASSCOM has tried to address some of the concerns voiced by anti outsourcing parties especially about the benefits to the American economy.
The study shows that US businesses have witnessed significant cost savings by offshoring to India.
The US banking, financial services and insurance (BFSI) sector's costs are 7-10% lower than that of it's European counterparts
American BFSI companies have saved $6 billion in the last four years by offshoring to India.
BPO India - Creates Jobs
It seems contradictory to say that the migration of jobs from one country to another actually creates jobs in the former. However, that can ultimately be the case. According to the NASSCOM report, the BFSI sector have saved $6 billion in the last few years and due to these savings have added 125,000 new jobs in this period thus preventing layoffs.
Nearly 170 Indian IT companies have offices in the US and they employed nearly 60,000 people in the US in 2001. These people paid nearly $810 million in taxes in 2001. Employees of Indian IT firms bought goods and services worth $1.2 billion in the US and paid nearly $300 million as social security in 2001.
BPO India - Value Addition
The NASSCOM study continues to explain the added benefits. BFSI offshoring has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%.
The report gives a striking example of the success of the automobile industry in the US due to outsourcing. Today, this industry is the largest in the world and two of the biggest automobile companies are American. The industry has the same number of professionals it did in 1994 as it did in 1974, which is 900,000. Over this same period sales and services in this sector grew 20% from 2 million to 2.4 million. Outsourcing gave this industry a competitive edge and opened up opportunities in terms of investing in new equipment and re engineering processes.
The US steel industry, however, resisted outsourcing and suffered greatly despite several tariffs and quotas.
BPO India - Long Term Benefits
Amidst the mounting furore against outsourcing one has to examine things more objectively. In the short term, cost benefits and value addition may not be apparent because of the initial investment involved in training and infrastructure. Also outcries against migration of jobs seem to cement the argument. However, as the NASSCOM report shows, the long term benefits are very powerful. Not only does BPO India allow global companies to avail of some of the best talent and expertise at competitive rates, but it also allows the company to actually save several jobs, which it might have had to lay off otherwise.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
source:http://www.outsource2india.com
Sunday, April 18, 2004
Outsourcing Good For U.S. and World Economie
Outsourcing of information technology services continues to be a hot topic--and a sore point for many IT professionals. As they stand in unemployment lines, they see their former jobs being shipped off to India, where they are now done by people making one-fifth as much. It has aroused much bitterness and led to legislative efforts to restrict outsourcing in the name of saving jobs for Americans.
I can't really offer any comfort to unemployed programmers, but the process of outsourcing is good for both the U.S. and world economies. Any jobs saved in the short-run by restrictions on outsourcing will come at the expense of better jobs in the future that will not be created.
The problem really arises because India, rather than, say, Canada or Germany, is the perceived threat. We don't generally worry about American jobs going to wealthy industrialized countries like Canada and Germany, because their workers are highly paid and cannot undercut us based on low labor costs. Because Indian workers are paid only a fraction of what a comparable American (or Canadian or German) makes, the competition is viewed as unfair.
But how did the U.S. and other wealthy countries get that way? It was by being the low-cost producer in some area. No doubt, the European farmers of the 18th century were bitter about being undercut by American farmers, whose cost of land was a fraction of that in Europe. They must have felt that this was as unfair as unemployed IT workers feel about India. But as time went by, costs equalized as capital and labor migrated to other countries and other industries. This is all part of the process of economic growth.
An article in the February issue of Wired Magazine makes this point well. It points out that Indians now doing jobs outsourced from America are seeing a rapid rise in their wages and standard of living. In the process, they are becoming more like Americans, which is translating into demand for American goods and life-styles. The Indians also know that they can't compete only on price; the quality also has to be there, and they believe that they are delivering it.
The author of the article, Daniel Pink, goes on to make this important point: "Isn't the emergence of a vibrant middle class in an otherwise poor country a spectacular achievement, the very confirmation of the wonders of globalization--not to mention a new market for American goods and services? And if this transition pinches a little, aren't Americans being a tad hypocritical by whining about it? After all, where is it written that IT jobs somehow BELONG to Americans--and that any non-American who does such work is stealing a job from its rightful owner?"
Perhaps more starkly, Carly Fiorina, CEO of Hewlett Packard, recently said, "There is no job that is America's God-given right anymore."
It's worth noting that the U.S. is not the only country where outsourcing is happening. British and Australian companies are also outsourcing to India, while European companies are outsourcing to the Czech Republic and other formerly communist countries, where wages are low but education levels are high.
It's also important to know that when countries outsource work to India or China, they are only doing so for very low-end operations that require little skill or training. The high-end work and wages stay here--work that might not be retained if it could not be augmented by outsourced functions in low-cost countries like China and India.
A Jan. 30 report in the Wall Street Journal illustrates how this works, using the case of a computer mouse manufacturer called Logitech. It sells a wireless mouse called Wanda for about $40 that is assembled in China. Of the $40, China gets only $3. The rest goes to suppliers, many based in America, which make components for the mouse, and to domestic retailers. The biggest component of Logitech's cost is its marketing department based in Fremont, California, where the staff of 450 Americans makes far more than the 4,000 Chinese who actually manufacture the product.
Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn't able to stay competitive by outsourcing some of its costs. Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing. Cisco, for example, is a leader in outsourcing, but has not reduced the number of its domestic employees because they have been redeployed into other areas, doing higher value-added work. These jobs often pay better than those that were outsourced.
I know that this is no solace to those who have lost jobs due to outsourcing. But the nation as a whole will be worse off if outsourcing is restricted
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Outsourcing of information technology services continues to be a hot topic--and a sore point for many IT professionals. As they stand in unemployment lines, they see their former jobs being shipped off to India, where they are now done by people making one-fifth as much. It has aroused much bitterness and led to legislative efforts to restrict outsourcing in the name of saving jobs for Americans.
I can't really offer any comfort to unemployed programmers, but the process of outsourcing is good for both the U.S. and world economies. Any jobs saved in the short-run by restrictions on outsourcing will come at the expense of better jobs in the future that will not be created.
The problem really arises because India, rather than, say, Canada or Germany, is the perceived threat. We don't generally worry about American jobs going to wealthy industrialized countries like Canada and Germany, because their workers are highly paid and cannot undercut us based on low labor costs. Because Indian workers are paid only a fraction of what a comparable American (or Canadian or German) makes, the competition is viewed as unfair.
But how did the U.S. and other wealthy countries get that way? It was by being the low-cost producer in some area. No doubt, the European farmers of the 18th century were bitter about being undercut by American farmers, whose cost of land was a fraction of that in Europe. They must have felt that this was as unfair as unemployed IT workers feel about India. But as time went by, costs equalized as capital and labor migrated to other countries and other industries. This is all part of the process of economic growth.
An article in the February issue of Wired Magazine makes this point well. It points out that Indians now doing jobs outsourced from America are seeing a rapid rise in their wages and standard of living. In the process, they are becoming more like Americans, which is translating into demand for American goods and life-styles. The Indians also know that they can't compete only on price; the quality also has to be there, and they believe that they are delivering it.
The author of the article, Daniel Pink, goes on to make this important point: "Isn't the emergence of a vibrant middle class in an otherwise poor country a spectacular achievement, the very confirmation of the wonders of globalization--not to mention a new market for American goods and services? And if this transition pinches a little, aren't Americans being a tad hypocritical by whining about it? After all, where is it written that IT jobs somehow BELONG to Americans--and that any non-American who does such work is stealing a job from its rightful owner?"
Perhaps more starkly, Carly Fiorina, CEO of Hewlett Packard, recently said, "There is no job that is America's God-given right anymore."
It's worth noting that the U.S. is not the only country where outsourcing is happening. British and Australian companies are also outsourcing to India, while European companies are outsourcing to the Czech Republic and other formerly communist countries, where wages are low but education levels are high.
It's also important to know that when countries outsource work to India or China, they are only doing so for very low-end operations that require little skill or training. The high-end work and wages stay here--work that might not be retained if it could not be augmented by outsourced functions in low-cost countries like China and India.
A Jan. 30 report in the Wall Street Journal illustrates how this works, using the case of a computer mouse manufacturer called Logitech. It sells a wireless mouse called Wanda for about $40 that is assembled in China. Of the $40, China gets only $3. The rest goes to suppliers, many based in America, which make components for the mouse, and to domestic retailers. The biggest component of Logitech's cost is its marketing department based in Fremont, California, where the staff of 450 Americans makes far more than the 4,000 Chinese who actually manufacture the product.
Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn't able to stay competitive by outsourcing some of its costs. Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing. Cisco, for example, is a leader in outsourcing, but has not reduced the number of its domestic employees because they have been redeployed into other areas, doing higher value-added work. These jobs often pay better than those that were outsourced.
I know that this is no solace to those who have lost jobs due to outsourcing. But the nation as a whole will be worse off if outsourcing is restricted
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Source:http://www.ncpa.org
Friday, April 16, 2004
Database Outsourcing
Nonprofits rely on information to guide programs, manage relationships with clients and constituents among other things. This information, often referred to as data, is an organizational asset that must be handled carefully so that it is useful. Database technology has become a common way for nonprofits to handle information, Due to the complexities of technology in general and databases specifically, nonprofits find they are challenged in how to select, use and maintain databases. One solution to this challenge is to outsource a portion of the database work to experts who can be helpful.
Nonprofits can outsource database support in a variety of ways. For instance, a volunteer or a software developer might create a custom database; a consultant might help select or implement a commercial software package; a freelance programmer might write complex reports; or a database hosting service might manage servers.
The process of selecting or building a database can be divided into seven areas, each of which could be outsourced:
1.needs assessment (including the build vs. buy decision)
2.system selection (if buying)
3.custom database development (if building)
4.implementation support
5.database customization, report development, and other enhancements
6.staff support (help desk, training, and documentation)
7.system support (database management, server management)
This article discusses areas that contrast buying versus building a database, specifically, system selection when buying a database and custom database development when building one.
The issues involved apply to every phase of database outsourcing:When should you consider outsourcing?
1.What should be included in the project?
2.Who should be involved in the decision?
3.What kind of expertise is needed?
4.What are the benefits of outsourcing?
5.What are the risks of outsourcing?
System Selection
System selection is the process of identifying which software product an organization should use for its database. An organization should undertake a system selection project after it has made the decision to look for commercial software rather than build its own database (for a discussion of the buy versus build decision see "Should Nonprofit Agencies Build or Buy a Database?") Using the information gathered during the process of deciding whether to build or buy a database, the organization can determine its needs for selecting a database and establish criteria to compare competing vendors.
The consultant's role is to help the organization envision how it will use a new database; prioritize its needs; distinguish mandatory requirements from its wish list; compare its list of requirements to what vendors can offer; assess the financial and human resources required to buy, implement, and support a new system; and, in the end, make a decision.
When should an organization consider outsourcing a system selection project?
It makes sense to seek help with system selection when:
1.The organization lacks the time and/or technical expertise to evaluate vendors.
2.The organization wants to draw on the experience of someone who has matched similar organizations with systems in the past and already knows what's available.
3.The organization needs help choosing between competing options.
4.The organization needs impartial help in evaluating and prioritizing its needs.
5.The organization lacks experience with other systems or ways of working.
6.The organization wants guidance that is free from office politics.
What should be included in an outsourcing project?
A system selection project can include any or all of the following:
1.interviewing key staff, board members, and volunteers to understand long-term goals and daily operating needs
2.identifying and prioritizing mandatory and optional features
3.creating a qualified vendor list
4.assembling a request for proposals (RFP) and evaluating responses
5.identifying technical infrastructure requirements
6.specifying integration requirements
7.developing scripted scenarios so all vendors show comparable features; for instance, when comparing fundraising databases, each vendor might be required to create two donor records, merge them and add some joint gifts, then separate them and show the effect on the gift records
8.identifying required resources, including budgets, staffing, policies, procedures, and training
Who from your organization should be involved in the project?
Begin by appointing a respected, neutral staff member to oversee the project and serve as liaison to the consultant. The liaison could be a knowledgeable staff member who does not have a vested interest in any particular outcome. The liaison should have sufficient stature to make recommendations to senior management. The liaison does not need to have a technical background. However, it's critical that this person be given the time to oversee the project (which may require shifting duties temporarily), and have a personal interest in seeing the project through.
Next, convene a selection committee representing each of the major groups that would enter data or receive reports from the system, such as fundraising, membership, marketing, finance, client intake, and information technology.
When you hold software demonstrations, invite all interested staff and volunteers. They should be given an opportunity to provide comments to the selection committee, preferably in writing. The selection committee's job will be to evaluate the demos, check references, compare costs, and make a recommendation to management. The internal liaison should oversee the decision-making process, though the consultant may facilitate the process. Under no circumstances should the consultant make the final decision -- the organization must control this.
Expertise required from a outsourcing partner:
1.experience helping comparable organizations solve similar problems
2.objectivity and communication skills
3.experience assessing business processes, database requirements, and organizational effectiveness
4.experience turning business needs into scenarios for software demos
5.experience working with committees and facilitating group decision-making
6.experience with a variety of database solutions
Benefits of outsourcing a system selection project:
1.getting it done: organizations are frequently not able to allocate the necessary time, or they lack the skills to manage the project and compare options
2.creating a sense of urgency: paying a consultant tends to make the project a priority for everyone, particularly senior management
3.getting access to expertise that the organization lacks
4.having an objective facilitator run the project
5.getting an unbiased assessment of the strengths and weaknesses of the systems under consideration and how well they'll meet the organization's needs
Risks of outsourcing a needs assessment
1.The natural resistance to change can be heightened by what's perceived as "interference" from outsiders.
2.The consultant may not understand the unique culture and needs of your organization.
3."To a person with a hammer, everything looks like a nail." The consultant may have a bias toward one solution for all problems. If the consultant has a relationship with a particular software vendor, that vendor's product may be the only recommended solution.
4.For smaller projects or decisions, the cost of bringing in a consultant may exceed the benefit.
5.When considering this or any consulting project, be sure that you get to meet the people who will actually do the work, not just the charming sales people.
6.The consultant can facilitate the decision, but should not make the decision. If this happens, the organization may not feel the ownership and commitment necessary to follow through with implementation.
7.The consultant's expertise cannot take the place of having a staff member serve as advocate and champion of the process.
When buying products or services it always pays to check references. In this case, you need to get a sense of the consultant's style, approach, flexibility, communication skills, ability to diagnose problems and come up with workable solutions, and ability to meet deadlines and work within a defined budget.
Custom Database Development
Custom database development is undertaken when an organization has decided to build its own system rather than buy commercial software. It requires a detailed description of required features, reports, interfaces, and workflows; and the creation of a database that combines the required functionality with a user interface that staff find intuitive.
When an organization should consider outsourcing database development
Because database development is so expensive and time-consuming, it's important to make sure that this is the best approach. Before you start building a custom database, be sure you've compared the cost and functionality of commercial software. Will a custom solution provide mandatory functionality that commercial databases lack or significantly reduce up-front and long-term costs?
An organization should consider outsourcing database development when it has decided against buying a commercial database, and any of the following statements are true:
Staff lack the technical expertise in database design and programming.
1.Staff have the expertise but there aren't enough of them to get it done.
2.The project is urgent, and needs to be done without affecting the technology staff's current priorities.
A database development project can include any or all of the following:
1.developing a clear project scope and timeline
2.staff interviewsworkflow analysis and process mapping
3.detailed specifications for every field, table, screen, report, and interface needed
4.development of one or more prototypes of the system for testing
5.delivery of a functioning system that meets the specifications
6.staff training
7.documentation
8.ongoing modifications, upgrades, maintenance, and training
Who from your organization should be involved in the project?
This type of project requires strong technical skills and knowledge of your organization's long-range goals and daily operations. Database development therefore usually requires cross-functional teams made up of staff members from different groups within your organization. You'll need one or more people at a management level who understand the goals and management reporting needs of the affected departments. You'll also need one or more staff members who understand the minutiae of daily operations. In addition to providing their own expertise, team members must be able to represent the needs of their peers. Finally, if you have your own technical staff you'll want to involve them in the project. They'll help translate between departmental staff and the database programmers, clarify technical issues, and specify any technical constraints or interfaces to other systems.
Expertise needed from a third party
Fundamentally, this is a technical project. It requires experience mapping processes, turning functional needs into technical specifications, and creating databases of similar complexity. Ideally, the programmers will have worked with similar types of databases, but this isn't mandatory as long as they demonstrate (in meetings with you and in prior work with other organizations) that they understand the issues involved and can meet the full range of requirements.
In addition to technical skills, the programmers must be able to communicate effectively with your staff and with your project liaison; help you make sure the project stays within scope, on time, and under budget; and turn what may start as vague wishes into an effective, functional product.
Benefits of outsourcing database development
Most nonprofits do not have sufficient technical skills on staff to allow development of sophisticated databases. Also, as with the needs assessment, the primary benefit may be creating a sense of urgency and getting the project done. You're accomplishing that by hiring the technical and project management expertise needed to make the project a success. In addition, you're getting a new set of eyes that can help you envision new ways of managing your data and analyzing your programs.
Risks of outsourcing database development
Any custom database development project can suffer from a variety of ailments: a slowly enlarging scope, timeline, and budget; eternal dependence on the programmer who created the system; and lack of documentation and training for the database.
Third-party developers can exacerbate these problems. Staff may come to feel that it's too much trouble or too expensive to call the programmer when something isn't working. Instead, they'll find ways of working around the database, resulting in shadow systems that undermine the usefulness and authoritativeness of the main database.
In addition, when the developer turns its attention to other clients, smaller fixes and problems in your database may not be addressed in a timely manner. There's also the danger that the developer could leave the company you've been working with, or the company could go out of business. Worst of all, the developer may fail to understand your organization's culture and needs, resulting in a failed project. When you hire a database developer, think of it as a long-term relationship, not a one-time project.
Summary
Database projects tend to require sustained periods of intense work followed by long periods of relative stability. Projects like this, which require specific technical skills for a defined time period, lend themselves well to outsourcing. While outsourcing database projects can be expensive, it's often cheaper than hiring a staff member with equivalent skills. A good consultant or developer can help you make decisions and solve problems that have stymied your staff. If you approach outsourcing projects strategically, involve staff appropriately in decision-making, understand what you're buying, and compare alternatives, outsourcing can save time and money.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.techsoup.org
Nonprofits rely on information to guide programs, manage relationships with clients and constituents among other things. This information, often referred to as data, is an organizational asset that must be handled carefully so that it is useful. Database technology has become a common way for nonprofits to handle information, Due to the complexities of technology in general and databases specifically, nonprofits find they are challenged in how to select, use and maintain databases. One solution to this challenge is to outsource a portion of the database work to experts who can be helpful.
Nonprofits can outsource database support in a variety of ways. For instance, a volunteer or a software developer might create a custom database; a consultant might help select or implement a commercial software package; a freelance programmer might write complex reports; or a database hosting service might manage servers.
The process of selecting or building a database can be divided into seven areas, each of which could be outsourced:
1.needs assessment (including the build vs. buy decision)
2.system selection (if buying)
3.custom database development (if building)
4.implementation support
5.database customization, report development, and other enhancements
6.staff support (help desk, training, and documentation)
7.system support (database management, server management)
This article discusses areas that contrast buying versus building a database, specifically, system selection when buying a database and custom database development when building one.
The issues involved apply to every phase of database outsourcing:When should you consider outsourcing?
1.What should be included in the project?
2.Who should be involved in the decision?
3.What kind of expertise is needed?
4.What are the benefits of outsourcing?
5.What are the risks of outsourcing?
System Selection
System selection is the process of identifying which software product an organization should use for its database. An organization should undertake a system selection project after it has made the decision to look for commercial software rather than build its own database (for a discussion of the buy versus build decision see "Should Nonprofit Agencies Build or Buy a Database?") Using the information gathered during the process of deciding whether to build or buy a database, the organization can determine its needs for selecting a database and establish criteria to compare competing vendors.
The consultant's role is to help the organization envision how it will use a new database; prioritize its needs; distinguish mandatory requirements from its wish list; compare its list of requirements to what vendors can offer; assess the financial and human resources required to buy, implement, and support a new system; and, in the end, make a decision.
When should an organization consider outsourcing a system selection project?
It makes sense to seek help with system selection when:
1.The organization lacks the time and/or technical expertise to evaluate vendors.
2.The organization wants to draw on the experience of someone who has matched similar organizations with systems in the past and already knows what's available.
3.The organization needs help choosing between competing options.
4.The organization needs impartial help in evaluating and prioritizing its needs.
5.The organization lacks experience with other systems or ways of working.
6.The organization wants guidance that is free from office politics.
What should be included in an outsourcing project?
A system selection project can include any or all of the following:
1.interviewing key staff, board members, and volunteers to understand long-term goals and daily operating needs
2.identifying and prioritizing mandatory and optional features
3.creating a qualified vendor list
4.assembling a request for proposals (RFP) and evaluating responses
5.identifying technical infrastructure requirements
6.specifying integration requirements
7.developing scripted scenarios so all vendors show comparable features; for instance, when comparing fundraising databases, each vendor might be required to create two donor records, merge them and add some joint gifts, then separate them and show the effect on the gift records
8.identifying required resources, including budgets, staffing, policies, procedures, and training
Who from your organization should be involved in the project?
Begin by appointing a respected, neutral staff member to oversee the project and serve as liaison to the consultant. The liaison could be a knowledgeable staff member who does not have a vested interest in any particular outcome. The liaison should have sufficient stature to make recommendations to senior management. The liaison does not need to have a technical background. However, it's critical that this person be given the time to oversee the project (which may require shifting duties temporarily), and have a personal interest in seeing the project through.
Next, convene a selection committee representing each of the major groups that would enter data or receive reports from the system, such as fundraising, membership, marketing, finance, client intake, and information technology.
When you hold software demonstrations, invite all interested staff and volunteers. They should be given an opportunity to provide comments to the selection committee, preferably in writing. The selection committee's job will be to evaluate the demos, check references, compare costs, and make a recommendation to management. The internal liaison should oversee the decision-making process, though the consultant may facilitate the process. Under no circumstances should the consultant make the final decision -- the organization must control this.
Expertise required from a outsourcing partner:
1.experience helping comparable organizations solve similar problems
2.objectivity and communication skills
3.experience assessing business processes, database requirements, and organizational effectiveness
4.experience turning business needs into scenarios for software demos
5.experience working with committees and facilitating group decision-making
6.experience with a variety of database solutions
Benefits of outsourcing a system selection project:
1.getting it done: organizations are frequently not able to allocate the necessary time, or they lack the skills to manage the project and compare options
2.creating a sense of urgency: paying a consultant tends to make the project a priority for everyone, particularly senior management
3.getting access to expertise that the organization lacks
4.having an objective facilitator run the project
5.getting an unbiased assessment of the strengths and weaknesses of the systems under consideration and how well they'll meet the organization's needs
Risks of outsourcing a needs assessment
1.The natural resistance to change can be heightened by what's perceived as "interference" from outsiders.
2.The consultant may not understand the unique culture and needs of your organization.
3."To a person with a hammer, everything looks like a nail." The consultant may have a bias toward one solution for all problems. If the consultant has a relationship with a particular software vendor, that vendor's product may be the only recommended solution.
4.For smaller projects or decisions, the cost of bringing in a consultant may exceed the benefit.
5.When considering this or any consulting project, be sure that you get to meet the people who will actually do the work, not just the charming sales people.
6.The consultant can facilitate the decision, but should not make the decision. If this happens, the organization may not feel the ownership and commitment necessary to follow through with implementation.
7.The consultant's expertise cannot take the place of having a staff member serve as advocate and champion of the process.
When buying products or services it always pays to check references. In this case, you need to get a sense of the consultant's style, approach, flexibility, communication skills, ability to diagnose problems and come up with workable solutions, and ability to meet deadlines and work within a defined budget.
Custom Database Development
Custom database development is undertaken when an organization has decided to build its own system rather than buy commercial software. It requires a detailed description of required features, reports, interfaces, and workflows; and the creation of a database that combines the required functionality with a user interface that staff find intuitive.
When an organization should consider outsourcing database development
Because database development is so expensive and time-consuming, it's important to make sure that this is the best approach. Before you start building a custom database, be sure you've compared the cost and functionality of commercial software. Will a custom solution provide mandatory functionality that commercial databases lack or significantly reduce up-front and long-term costs?
An organization should consider outsourcing database development when it has decided against buying a commercial database, and any of the following statements are true:
Staff lack the technical expertise in database design and programming.
1.Staff have the expertise but there aren't enough of them to get it done.
2.The project is urgent, and needs to be done without affecting the technology staff's current priorities.
A database development project can include any or all of the following:
1.developing a clear project scope and timeline
2.staff interviewsworkflow analysis and process mapping
3.detailed specifications for every field, table, screen, report, and interface needed
4.development of one or more prototypes of the system for testing
5.delivery of a functioning system that meets the specifications
6.staff training
7.documentation
8.ongoing modifications, upgrades, maintenance, and training
Who from your organization should be involved in the project?
This type of project requires strong technical skills and knowledge of your organization's long-range goals and daily operations. Database development therefore usually requires cross-functional teams made up of staff members from different groups within your organization. You'll need one or more people at a management level who understand the goals and management reporting needs of the affected departments. You'll also need one or more staff members who understand the minutiae of daily operations. In addition to providing their own expertise, team members must be able to represent the needs of their peers. Finally, if you have your own technical staff you'll want to involve them in the project. They'll help translate between departmental staff and the database programmers, clarify technical issues, and specify any technical constraints or interfaces to other systems.
Expertise needed from a third party
Fundamentally, this is a technical project. It requires experience mapping processes, turning functional needs into technical specifications, and creating databases of similar complexity. Ideally, the programmers will have worked with similar types of databases, but this isn't mandatory as long as they demonstrate (in meetings with you and in prior work with other organizations) that they understand the issues involved and can meet the full range of requirements.
In addition to technical skills, the programmers must be able to communicate effectively with your staff and with your project liaison; help you make sure the project stays within scope, on time, and under budget; and turn what may start as vague wishes into an effective, functional product.
Benefits of outsourcing database development
Most nonprofits do not have sufficient technical skills on staff to allow development of sophisticated databases. Also, as with the needs assessment, the primary benefit may be creating a sense of urgency and getting the project done. You're accomplishing that by hiring the technical and project management expertise needed to make the project a success. In addition, you're getting a new set of eyes that can help you envision new ways of managing your data and analyzing your programs.
Risks of outsourcing database development
Any custom database development project can suffer from a variety of ailments: a slowly enlarging scope, timeline, and budget; eternal dependence on the programmer who created the system; and lack of documentation and training for the database.
Third-party developers can exacerbate these problems. Staff may come to feel that it's too much trouble or too expensive to call the programmer when something isn't working. Instead, they'll find ways of working around the database, resulting in shadow systems that undermine the usefulness and authoritativeness of the main database.
In addition, when the developer turns its attention to other clients, smaller fixes and problems in your database may not be addressed in a timely manner. There's also the danger that the developer could leave the company you've been working with, or the company could go out of business. Worst of all, the developer may fail to understand your organization's culture and needs, resulting in a failed project. When you hire a database developer, think of it as a long-term relationship, not a one-time project.
Summary
Database projects tend to require sustained periods of intense work followed by long periods of relative stability. Projects like this, which require specific technical skills for a defined time period, lend themselves well to outsourcing. While outsourcing database projects can be expensive, it's often cheaper than hiring a staff member with equivalent skills. A good consultant or developer can help you make decisions and solve problems that have stymied your staff. If you approach outsourcing projects strategically, involve staff appropriately in decision-making, understand what you're buying, and compare alternatives, outsourcing can save time and money.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.techsoup.org
Thursday, April 15, 2004
Five Rules for a Great Business Process Outsourcing Agreement
Business Process Outsourcing (BPO) involves looking closely at the processes that compose the business and its functional units and then working with service providers to outsource these functions. Such functions as claims management, human resources, finance and compliance can be outsourced. The outsourcing provider then administers these functions on their own systems to agreed service standards and at a guaranteed cost.
BPO agreements are frequently negotiated by executives not connected with the business being outsourced. To ensure that your company will obtain the service levels and cost benefits desired, it is necessary that the executives in HR or finance or other process being outsourced understand the details of the outsourcing agreement so they can attempt to influence them before the contract is signed. Through the establishment of five rules, here are some of the operating requirements and infrastructures necessary for a successful relationship. Although my expertise is in human resources outsourcing, these rules are important for any outsourcer to get right.
Rule #1: Get the Outsourcing Agreement Right
Even though the human resource or other pertinent executives may not be "approvers" of a BPO agreement, they play a key role in evaluating the competency of the provider and providing a framework of knowledge to ensure the interests of the company and the employees are well served.
Most companies have a motivation for considering outsourcing. This motivation frequently is misplaced during the throes of due diligence, solution building and contracting. Every negotiating team should establish a short list of its reasons for outsourcing (e.g., operating costs, improved service, cost avoidance, headcount reduction, etc.) and then test vendor proposals against the list. This is not as easy as it seems. If there is a dedicated "deal team" in place, its idea of success and completion may be different than the executives who will have to manage the ongoing relationship.
Many executives discuss having a "seat at the table." In this instance, the seat at the table is the negotiating table. The intent is to receive agreed upon services at an agreed upon price for a period of time. If services and price don't match, there will be unpleasant consequences later. A corollary to this is to remember the provider also needs to make money. If the deal is too one-sided, then service or investment in new technology and processes will suffer. Executives with a longer-term focus can validate the need for change and counsel the negotiating team if the cost focus overwhelms the service focus.
Typical sourcing initiatives fall into two groups: Sole Negotiation and Request for Information/Request for Proposal (RFI/RFP). The RFI/RFP route may be conducted by internal resources or by a sourcing consultancy or consultant (such as TPI, EquaTerra, Everest, Deloitte Consulting LLP, etc.). The debate as to which option provides a better return will not be answered here; instead here are timelines on both alternatives (see Chart 1).
In addition to understanding the process, there needs to be a clear definition of roles and responsibilities. Identify decision makers, advisors, constituents, key staff and the deal team. Each has a distinct role and together they will ensure objectives are met and support the previously established definition of success. In addition to the decision makers, a project management office (PMO) must be established to ensure work is done and timelines are met. The PMO is established when it appears a contract is likely and continues throughout transition. Some organizations have the PMO established when RFIs are issued.
Rule #2: Change Management Cannot Start Early Enough
Change management is all about ensuring the organization supports the business initiative. It's also about leadership and communications. The effort should begin before any potential vendor is involved. There must be a communications strategy to ensure employees, especially those who may be at risk, understand the reasons and feel they will have some level of protection during and after the vendor selection. This is not easy and if your organization does not have the professional staff to support this effort, outside resources may be necessary.
Different constituencies have separate interests and needs. The change management process must include all of them. In HR outsourcing, the most common alignment of the internal groups includes employees, human resource leadership and senior/line management. External groups could include financial analysts, shareholders, unions/works councils and current third-party providers. The internal program should work in tandem with the provider's program to ensure clarity and consistency of message.
Note that "change management," as defined here is leadership change management and is different than the change process that accompanies the actual operations. Once operations begin, there will be a change process with elements such as change orders and work orders. If there is a large IT component involved, make the distinctions early to reduce confusion.
Rule #3: Get the Transition Right
In the simplest definition, transition is all about getting processes and people from internal control to external control. For this process to work, internal resources must be a willing part of the process. This takes some effort if employees' positions are at risk (see change management). It may be necessary to devise retention programs for key employees. Turnover during this phase must be controlled or orderly transition will fail.
Transition can be further defined as the detailed, desk-level analysis and documentation of all relevant tasks, technologies, workflows and functions. It also covers the movement of people if they are in-scope.
If the process is to be moved "as-is," the focus is on the current state.
If the process is to be transformed, changed or will use new technology, the focus is on the delta between current state and future state.
Process Transition: The provider will assign team leads to manage one or more processes. The teams will include staff from both client and vendor. The team members will be needed for significant amounts of time. During the transition process, documentation is created and assembled. Job shadowing may be part of the methodology. The client should sign off on the readiness of the provider before accountability moves to the provider.
People Transition: The scale will depend on the nature of the contract. If there will be employees moving to the provider, the usual process of interviews, job offers and acceptance periods will follow. It may be necessary to devise retention plans for key employees, and severance plans and reassignment programs for impacted staff. Expenses for retention and severance plans are generally borne by the client. People issues must be a major focus of leadership during the critical transition process.
Technology Transition: If the provider will be assuming licenses or operations of client-owned systems, applications or infrastructure, then all in-scope systems must be identified and documented. Licenses, maintenance agreements, hosting, LAN, WAN and telecom are subject to review and may be part of the transition. If separate entities will manage applications and/or hosting, protocols must be established to ensure roles and responsibilities are clear.
The governance process will be finalized during transition. This is the fundamental basis for managing the relationship during the "build" and "operate" phases of the relationship. There are multiple models for this subject; the key point is to appoint individuals with sufficient authority to manage the relationship on a day-to-day basis. The governance methodology should cover the change process and issue resolution as well as the actual contractual relationship. Web portal design and content also need to be part of the governance process.
Service level agreements (SLA) and key performance indicators (KPI) are determined as part of both the contract and transition period. They are generally finalized at the end of transition, although they may be reopened at an agreed time if new processes or technologies have been implemented. One word about service level agreements: Don't over measure; instead look for leading indicators.
Rule #4: Love Your Client Manager
Business process outsourcing agreements are long-term, complex and personal relationships. As end-to-end BPO is not commoditized, it takes "care and feeding" to make it work. Legally it is a client-vendor relationship, but it can and should work collaboratively as a partnership.
Both parties will have relationship managers. These individuals ensure that changes occur in a timely, orderly manner and that issues are resolved appropriately. Selection criteria for the client's manager should focus on relationship skills, knowledge of the organization, business case and analytic skills and reputation within the organization. They should also be senior enough to make decisions in a timely manner, without further approvals, within defined boundaries.
Give a good reference, where deserved. This is a significant way to signify approval of the results and relationship. It's almost as good as paying invoices in a timely manner.
Rule #5: Get Over It; It's a New and Better World
Moving to an outsourcing model will not make you more strategic. What it will do, by eliminating large organizations and consolidating SLAs, is allow more time to understand the needs of the organization. Understanding the basic business better allows you to propose and implement more creative and effective strategies. In addition, your provider will have more resources and access to best practices to support those business objectives. Outsourcing can be an enabler to becoming more strategic.
Outsourcing is based on outcomes. The client defines the outcomes, and the vendor supplies the means. Once trust is established, the total team can create a true partnership to the betterment of all. As more and more organizations move to an outsourced model, choices and processes will improve and the journey will become easier.
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Financial
B2B
Free Evaluation
Source:http://www.deloitte.com
Business Process Outsourcing (BPO) involves looking closely at the processes that compose the business and its functional units and then working with service providers to outsource these functions. Such functions as claims management, human resources, finance and compliance can be outsourced. The outsourcing provider then administers these functions on their own systems to agreed service standards and at a guaranteed cost.
BPO agreements are frequently negotiated by executives not connected with the business being outsourced. To ensure that your company will obtain the service levels and cost benefits desired, it is necessary that the executives in HR or finance or other process being outsourced understand the details of the outsourcing agreement so they can attempt to influence them before the contract is signed. Through the establishment of five rules, here are some of the operating requirements and infrastructures necessary for a successful relationship. Although my expertise is in human resources outsourcing, these rules are important for any outsourcer to get right.
Rule #1: Get the Outsourcing Agreement Right
Even though the human resource or other pertinent executives may not be "approvers" of a BPO agreement, they play a key role in evaluating the competency of the provider and providing a framework of knowledge to ensure the interests of the company and the employees are well served.
Most companies have a motivation for considering outsourcing. This motivation frequently is misplaced during the throes of due diligence, solution building and contracting. Every negotiating team should establish a short list of its reasons for outsourcing (e.g., operating costs, improved service, cost avoidance, headcount reduction, etc.) and then test vendor proposals against the list. This is not as easy as it seems. If there is a dedicated "deal team" in place, its idea of success and completion may be different than the executives who will have to manage the ongoing relationship.
Many executives discuss having a "seat at the table." In this instance, the seat at the table is the negotiating table. The intent is to receive agreed upon services at an agreed upon price for a period of time. If services and price don't match, there will be unpleasant consequences later. A corollary to this is to remember the provider also needs to make money. If the deal is too one-sided, then service or investment in new technology and processes will suffer. Executives with a longer-term focus can validate the need for change and counsel the negotiating team if the cost focus overwhelms the service focus.
Typical sourcing initiatives fall into two groups: Sole Negotiation and Request for Information/Request for Proposal (RFI/RFP). The RFI/RFP route may be conducted by internal resources or by a sourcing consultancy or consultant (such as TPI, EquaTerra, Everest, Deloitte Consulting LLP, etc.). The debate as to which option provides a better return will not be answered here; instead here are timelines on both alternatives (see Chart 1).
In addition to understanding the process, there needs to be a clear definition of roles and responsibilities. Identify decision makers, advisors, constituents, key staff and the deal team. Each has a distinct role and together they will ensure objectives are met and support the previously established definition of success. In addition to the decision makers, a project management office (PMO) must be established to ensure work is done and timelines are met. The PMO is established when it appears a contract is likely and continues throughout transition. Some organizations have the PMO established when RFIs are issued.
Rule #2: Change Management Cannot Start Early Enough
Change management is all about ensuring the organization supports the business initiative. It's also about leadership and communications. The effort should begin before any potential vendor is involved. There must be a communications strategy to ensure employees, especially those who may be at risk, understand the reasons and feel they will have some level of protection during and after the vendor selection. This is not easy and if your organization does not have the professional staff to support this effort, outside resources may be necessary.
Different constituencies have separate interests and needs. The change management process must include all of them. In HR outsourcing, the most common alignment of the internal groups includes employees, human resource leadership and senior/line management. External groups could include financial analysts, shareholders, unions/works councils and current third-party providers. The internal program should work in tandem with the provider's program to ensure clarity and consistency of message.
Note that "change management," as defined here is leadership change management and is different than the change process that accompanies the actual operations. Once operations begin, there will be a change process with elements such as change orders and work orders. If there is a large IT component involved, make the distinctions early to reduce confusion.
Rule #3: Get the Transition Right
In the simplest definition, transition is all about getting processes and people from internal control to external control. For this process to work, internal resources must be a willing part of the process. This takes some effort if employees' positions are at risk (see change management). It may be necessary to devise retention programs for key employees. Turnover during this phase must be controlled or orderly transition will fail.
Transition can be further defined as the detailed, desk-level analysis and documentation of all relevant tasks, technologies, workflows and functions. It also covers the movement of people if they are in-scope.
If the process is to be moved "as-is," the focus is on the current state.
If the process is to be transformed, changed or will use new technology, the focus is on the delta between current state and future state.
Process Transition: The provider will assign team leads to manage one or more processes. The teams will include staff from both client and vendor. The team members will be needed for significant amounts of time. During the transition process, documentation is created and assembled. Job shadowing may be part of the methodology. The client should sign off on the readiness of the provider before accountability moves to the provider.
People Transition: The scale will depend on the nature of the contract. If there will be employees moving to the provider, the usual process of interviews, job offers and acceptance periods will follow. It may be necessary to devise retention plans for key employees, and severance plans and reassignment programs for impacted staff. Expenses for retention and severance plans are generally borne by the client. People issues must be a major focus of leadership during the critical transition process.
Technology Transition: If the provider will be assuming licenses or operations of client-owned systems, applications or infrastructure, then all in-scope systems must be identified and documented. Licenses, maintenance agreements, hosting, LAN, WAN and telecom are subject to review and may be part of the transition. If separate entities will manage applications and/or hosting, protocols must be established to ensure roles and responsibilities are clear.
The governance process will be finalized during transition. This is the fundamental basis for managing the relationship during the "build" and "operate" phases of the relationship. There are multiple models for this subject; the key point is to appoint individuals with sufficient authority to manage the relationship on a day-to-day basis. The governance methodology should cover the change process and issue resolution as well as the actual contractual relationship. Web portal design and content also need to be part of the governance process.
Service level agreements (SLA) and key performance indicators (KPI) are determined as part of both the contract and transition period. They are generally finalized at the end of transition, although they may be reopened at an agreed time if new processes or technologies have been implemented. One word about service level agreements: Don't over measure; instead look for leading indicators.
Rule #4: Love Your Client Manager
Business process outsourcing agreements are long-term, complex and personal relationships. As end-to-end BPO is not commoditized, it takes "care and feeding" to make it work. Legally it is a client-vendor relationship, but it can and should work collaboratively as a partnership.
Both parties will have relationship managers. These individuals ensure that changes occur in a timely, orderly manner and that issues are resolved appropriately. Selection criteria for the client's manager should focus on relationship skills, knowledge of the organization, business case and analytic skills and reputation within the organization. They should also be senior enough to make decisions in a timely manner, without further approvals, within defined boundaries.
Give a good reference, where deserved. This is a significant way to signify approval of the results and relationship. It's almost as good as paying invoices in a timely manner.
Rule #5: Get Over It; It's a New and Better World
Moving to an outsourcing model will not make you more strategic. What it will do, by eliminating large organizations and consolidating SLAs, is allow more time to understand the needs of the organization. Understanding the basic business better allows you to propose and implement more creative and effective strategies. In addition, your provider will have more resources and access to best practices to support those business objectives. Outsourcing can be an enabler to becoming more strategic.
Outsourcing is based on outcomes. The client defines the outcomes, and the vendor supplies the means. Once trust is established, the total team can create a true partnership to the betterment of all. As more and more organizations move to an outsourced model, choices and processes will improve and the journey will become easier.
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Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.deloitte.com
Wednesday, April 14, 2004
Models for Business Process Outsourcing
Onsite Model of Business Process Outsourcing
The success of any business process outsourcing contract lies in the appropriate and precise gathering of information about the project. According to the onsite business process outsourcing model, the whole set of processes starting from information gathering to implementation is done at the client's premises.
This model ensures that the result is correct at the first instance. Based on the needs and requirements of the client, the design, development and test teams are deployed for a short time frame at the client's location. The business process outsourcing service provider utilizes its workforce for service of its clients at their premises. This business process outsourcing model becomes essential and suitable if the project needs a specific resource type of post-deployment, maintenance, support and follow-up activities. This model is helpful for those projects that are mission-critical, require proper and constant attention and also need everything to be done in the client's location. Thus, the onsite business process outsourcing approach is ideal for:
1.Requirements not being defined at length
2.Dynamic changes in deliverables or requirements
3.Tough and Rigid deadlines
4.Constant need of support
5.Direct interaction with client
6.Scalable staff augmentation
7.Moving across time lines
8.Mission Critical Projects
9.Product engineering-related services
10.Open-ended and iterative nature of project scope
11.Projects that are highly secured and confidential
In this approach, all the activities mentioned below are executed onsite:
1.Initial Study/Understanding the client's requirements
2.Planning
3.Technology Assessment
4.Development
5.Design
6.Testing
7.Installation
8.Maintenance and Support
9.Offsite Model of Business Process Outsourcing
According to this model of business process outsourcing, the service provider will have its office near the client location. Not only does the business process outsourcing offsite center have the benefit of being close to the client, but it also gives support to the onsite team and the offshore development activities at the offshore center. Thus the experts at the business process outsourcing offsite center in tandem with the corresponding offshore center team ensure on time, quality service through collaborative skills across different time zones. This business process outsourcing model is appropriate:
1.For short-term business process outsourcing projects
2.When requirements are defined beforehand
3.When there are no frequent changes in the business process outsourcing project
4.When the client's location may not have extra capacity
Offshore Model of Business Process Outsourcing
This model of business process outsourcing entails that the project-related activity; right from initial study to testing is done at the service provider's premises. The business process outsourcing service provider will not have any presence at the client's location but the client will interact directly with the offshore team. This model is best suited when the project plan is well defined and the development team has a clear understanding of client requirements. The team members at the business process outsourcing offshore location interact with the client through various communications means such as telephone, fax, email etc. This business process outsourcing model has been proved to be effective in terms of:
1.High quality service with low labor cost
2.Effective utilization of time zone (24x7 service)
3.Availability of multi-technology skills
4.30 to 50% reduction in project cost
But the high level of risks associated with this business process outsourcing delivery model becomes a critical success factor for some clients. Some analysts are of the opinion that a 100% business process outsourcing offshore model is not workable. The risks, which are associated with this model:
1.Risk of communication gap between the vendor and client
2.Client requirements may not be captured in real term
Source:http://businessmajors.about.com
Onsite Model of Business Process Outsourcing
The success of any business process outsourcing contract lies in the appropriate and precise gathering of information about the project. According to the onsite business process outsourcing model, the whole set of processes starting from information gathering to implementation is done at the client's premises.
This model ensures that the result is correct at the first instance. Based on the needs and requirements of the client, the design, development and test teams are deployed for a short time frame at the client's location. The business process outsourcing service provider utilizes its workforce for service of its clients at their premises. This business process outsourcing model becomes essential and suitable if the project needs a specific resource type of post-deployment, maintenance, support and follow-up activities. This model is helpful for those projects that are mission-critical, require proper and constant attention and also need everything to be done in the client's location. Thus, the onsite business process outsourcing approach is ideal for:
1.Requirements not being defined at length
2.Dynamic changes in deliverables or requirements
3.Tough and Rigid deadlines
4.Constant need of support
5.Direct interaction with client
6.Scalable staff augmentation
7.Moving across time lines
8.Mission Critical Projects
9.Product engineering-related services
10.Open-ended and iterative nature of project scope
11.Projects that are highly secured and confidential
In this approach, all the activities mentioned below are executed onsite:
1.Initial Study/Understanding the client's requirements
2.Planning
3.Technology Assessment
4.Development
5.Design
6.Testing
7.Installation
8.Maintenance and Support
9.Offsite Model of Business Process Outsourcing
According to this model of business process outsourcing, the service provider will have its office near the client location. Not only does the business process outsourcing offsite center have the benefit of being close to the client, but it also gives support to the onsite team and the offshore development activities at the offshore center. Thus the experts at the business process outsourcing offsite center in tandem with the corresponding offshore center team ensure on time, quality service through collaborative skills across different time zones. This business process outsourcing model is appropriate:
1.For short-term business process outsourcing projects
2.When requirements are defined beforehand
3.When there are no frequent changes in the business process outsourcing project
4.When the client's location may not have extra capacity
Offshore Model of Business Process Outsourcing
This model of business process outsourcing entails that the project-related activity; right from initial study to testing is done at the service provider's premises. The business process outsourcing service provider will not have any presence at the client's location but the client will interact directly with the offshore team. This model is best suited when the project plan is well defined and the development team has a clear understanding of client requirements. The team members at the business process outsourcing offshore location interact with the client through various communications means such as telephone, fax, email etc. This business process outsourcing model has been proved to be effective in terms of:
1.High quality service with low labor cost
2.Effective utilization of time zone (24x7 service)
3.Availability of multi-technology skills
4.30 to 50% reduction in project cost
But the high level of risks associated with this business process outsourcing delivery model becomes a critical success factor for some clients. Some analysts are of the opinion that a 100% business process outsourcing offshore model is not workable. The risks, which are associated with this model:
1.Risk of communication gap between the vendor and client
2.Client requirements may not be captured in real term
Source:http://businessmajors.about.com
Tuesday, April 13, 2004
Survival Strategies: Diversify or Die
Historically, India's IT sector has been extremely US centric, with US contributing 62 per cent of total software exports. When the US economy hurtled southward, billing rates declined dramatically and onsite orders shrunk. For the Indian IT services industry, accustomed to the low hanging fruits of the US dotcom boom; the slowdown was a wake up call - Indian companies needed to diversify operations and quickly ramp up presence in alternate markets. IT companies responded with remarkable speed in ramping presence in new markets. US continues to be the dominant export destination, but India IT Inc's exports to Japan, Europe, Asia Pacific have registered an upswing.
Probably one of the biggest success stories, this year for India Incorporated is Japan, the world's second-largest software and services market that accounts for a whopping 70 per cent of the Asian market and contributes more than 12 per cent to the global outsourcing pie. According to Japan External Organisation (JETRO), the market size for IT in Japan is $100 billion. IDC Japan has forecast that the Japanese market is expected to grow at a five-year compounded annual growth rate of 5.4 per cent and reach 6,474 billion yen ($54 billion) by the year 2004.
Currently, India software exports to Japan are valued at $226 million; insigificant when compared to $3.9 billion to the US, $1.5 billion to Europe or $426 million to Asia Pac (excluding Japan). Indian companies are, however, slowly gearing to tap the proffered potential of the Japanese market. Capitalising on its famed software expertise, Indian service majors such as Infosys, Wipro, Satyam, Hughes, Polaris, NIIT and 265 other Indian companies have set up offices and subsidiaries, or have entered into marketing alliances with companies in Japan - a global leader in hardware but facing laggard growth in the software segment.
The efforts are beginning to show. Wipro has 30 active clients in Japan, including names like Toshiba, NEC, Daiwa Institute of Research. Japan now contributes seven per cent of Wipro's revenues. HSS, specialising in convergent network, is another company to successfully foray into the Japanese market. The company entered into an agreement with NEC Corporation, the world's leading providers of Internet, Broadband network and enterprise business solutions to enhance its routers, switches and IP applications, used for building IP optimised backbones as well as edge and access solutions. Polaris one of the earliest companies to establish a subsidiary in Japan has bagged an order to implement its core retail banking product BankWare across all Shinsei Group companies. BFL Mphasis and i-Flex have also entered into an agreement with Sinshei.
The geographical diversification is not restricted to the Top five or 10 Indian IT service majors. Small and mid-sized companies are now aggressively exploring the Japanese software market. Impulsesoft, a provider of short-range wireless solutions is a 40-member company. A strong believer that size does not matter, the company is supplying components for short-range wireless products to Japanese markets. Tenet India, another mid-sized company bagged a contract from the Japanese communication major, NEC, with business of over $2 million per annum. NEC will outsource core R&D projects to Tenet in communication technologies. The company's 60-member strong dedicated centre will help NEC in design, development and testing of datacom.
In addition, Japanese companies are beginning to realise India's "high value low cost advantage" and are in the process of establishing ODCs in India. Patni runs a dedicated center for Hitachi Japan and Toshiba has entered into an ODC alliance with HCL.
While Japan is an emerging market, Europe has been India' second largest software export market accounting for 24 per cent of India's software exports. One of the biggest India success stories in Europe is Mastek, whose European operations grew by 51 per cent, there was a decline of 37 per cent in US operations in 2002. Many European countries such as Germany, Bavaria, Italy, Denmark and Britain are competing to attract investments from India. UK and Germany, however, top the list. UK is the second largest recipient of global overseas direct investment after the US, attracting 24 percent of all investment in Europe and 8 per cent of world wide investments. Incidentally, India stands sixth on the UK of top investors.) UK bagged approximately 60 per cent of Indian IT investment in Europe during the last year. Around 125 Indian companies involved in the ICT and software sectors now have a presence in the UK. Leading the pack are big names like Wipro, Infosys, TCS, Mastek, PCS and Kale Consultants among others.
Germany is another favoured destination among Indian software companies. Datamatics is aiming to be a Top 10 company in Germany. According to the Frankfurt Economic Development Agency, about 35 Indian IT companies have set up offices in Frankfurt and neighbouring regions. Two years back, Infosys set up a development center with 600 engineers and the company boasts of clients such as BMW, Deutsche Investment Trust, Adidas and Franklin Templeton. Wipro, recently, set up a design center for embedded solutions in Kiel, Germany, which will benefit customers in Germany, Scandinavia, and in the growing market in Northern Europe. The centre will provide system on chip solutions in the areas of PDA, intelligent mobile phones; mobile data capture units, Internet access solutions, networking and automobile electronics and help the company to meet the demand for a more direct customer interface. Geometric Software recently entered into an alliance with Daasault and Sonata has a close relationship with Franklin Templeton.
The penetration in newer markets displays a commitment to shrug the lopsided dependence on US markets and derisk the export model. Obstacles abound: Indian companies lack an understanding of the cultural determinants that govern business in Europe and Asia Pac. Compared to US, sales cycles in Europe and Japan are, hence, longer than the US. The Indian software services brand name, however, precedes these difficulties and recent high value orders bagged by companies like Sasken show the efforts are yielding results.
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Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.assureconsulting.com
Historically, India's IT sector has been extremely US centric, with US contributing 62 per cent of total software exports. When the US economy hurtled southward, billing rates declined dramatically and onsite orders shrunk. For the Indian IT services industry, accustomed to the low hanging fruits of the US dotcom boom; the slowdown was a wake up call - Indian companies needed to diversify operations and quickly ramp up presence in alternate markets. IT companies responded with remarkable speed in ramping presence in new markets. US continues to be the dominant export destination, but India IT Inc's exports to Japan, Europe, Asia Pacific have registered an upswing.
Probably one of the biggest success stories, this year for India Incorporated is Japan, the world's second-largest software and services market that accounts for a whopping 70 per cent of the Asian market and contributes more than 12 per cent to the global outsourcing pie. According to Japan External Organisation (JETRO), the market size for IT in Japan is $100 billion. IDC Japan has forecast that the Japanese market is expected to grow at a five-year compounded annual growth rate of 5.4 per cent and reach 6,474 billion yen ($54 billion) by the year 2004.
Currently, India software exports to Japan are valued at $226 million; insigificant when compared to $3.9 billion to the US, $1.5 billion to Europe or $426 million to Asia Pac (excluding Japan). Indian companies are, however, slowly gearing to tap the proffered potential of the Japanese market. Capitalising on its famed software expertise, Indian service majors such as Infosys, Wipro, Satyam, Hughes, Polaris, NIIT and 265 other Indian companies have set up offices and subsidiaries, or have entered into marketing alliances with companies in Japan - a global leader in hardware but facing laggard growth in the software segment.
The efforts are beginning to show. Wipro has 30 active clients in Japan, including names like Toshiba, NEC, Daiwa Institute of Research. Japan now contributes seven per cent of Wipro's revenues. HSS, specialising in convergent network, is another company to successfully foray into the Japanese market. The company entered into an agreement with NEC Corporation, the world's leading providers of Internet, Broadband network and enterprise business solutions to enhance its routers, switches and IP applications, used for building IP optimised backbones as well as edge and access solutions. Polaris one of the earliest companies to establish a subsidiary in Japan has bagged an order to implement its core retail banking product BankWare across all Shinsei Group companies. BFL Mphasis and i-Flex have also entered into an agreement with Sinshei.
The geographical diversification is not restricted to the Top five or 10 Indian IT service majors. Small and mid-sized companies are now aggressively exploring the Japanese software market. Impulsesoft, a provider of short-range wireless solutions is a 40-member company. A strong believer that size does not matter, the company is supplying components for short-range wireless products to Japanese markets. Tenet India, another mid-sized company bagged a contract from the Japanese communication major, NEC, with business of over $2 million per annum. NEC will outsource core R&D projects to Tenet in communication technologies. The company's 60-member strong dedicated centre will help NEC in design, development and testing of datacom.
In addition, Japanese companies are beginning to realise India's "high value low cost advantage" and are in the process of establishing ODCs in India. Patni runs a dedicated center for Hitachi Japan and Toshiba has entered into an ODC alliance with HCL.
While Japan is an emerging market, Europe has been India' second largest software export market accounting for 24 per cent of India's software exports. One of the biggest India success stories in Europe is Mastek, whose European operations grew by 51 per cent, there was a decline of 37 per cent in US operations in 2002. Many European countries such as Germany, Bavaria, Italy, Denmark and Britain are competing to attract investments from India. UK and Germany, however, top the list. UK is the second largest recipient of global overseas direct investment after the US, attracting 24 percent of all investment in Europe and 8 per cent of world wide investments. Incidentally, India stands sixth on the UK of top investors.) UK bagged approximately 60 per cent of Indian IT investment in Europe during the last year. Around 125 Indian companies involved in the ICT and software sectors now have a presence in the UK. Leading the pack are big names like Wipro, Infosys, TCS, Mastek, PCS and Kale Consultants among others.
Germany is another favoured destination among Indian software companies. Datamatics is aiming to be a Top 10 company in Germany. According to the Frankfurt Economic Development Agency, about 35 Indian IT companies have set up offices in Frankfurt and neighbouring regions. Two years back, Infosys set up a development center with 600 engineers and the company boasts of clients such as BMW, Deutsche Investment Trust, Adidas and Franklin Templeton. Wipro, recently, set up a design center for embedded solutions in Kiel, Germany, which will benefit customers in Germany, Scandinavia, and in the growing market in Northern Europe. The centre will provide system on chip solutions in the areas of PDA, intelligent mobile phones; mobile data capture units, Internet access solutions, networking and automobile electronics and help the company to meet the demand for a more direct customer interface. Geometric Software recently entered into an alliance with Daasault and Sonata has a close relationship with Franklin Templeton.
The penetration in newer markets displays a commitment to shrug the lopsided dependence on US markets and derisk the export model. Obstacles abound: Indian companies lack an understanding of the cultural determinants that govern business in Europe and Asia Pac. Compared to US, sales cycles in Europe and Japan are, hence, longer than the US. The Indian software services brand name, however, precedes these difficulties and recent high value orders bagged by companies like Sasken show the efforts are yielding results.
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Monday, April 12, 2004
Outsourcing — "The Silver Bullet for Business"
There are new powerful forces driving the outsourcing of IT services. Savings on operational costs and information services flexibility have traditionally driven outsourcing. Companies are also outsourcing for more strategic reasons, such as keeping up with cutting-edge technology and building stronger security measures. Outsourcing has become critical to a company's survival and ability to adapt to meet the new economy's eBusiness dynamics. As a business tool, outsourcing allows companies to focus on their core competencies, thus increasing efficiency and competitive advantage.
Analysts firms, including Gartner and Giga Information Group, have recently authored reports citing booming revenue opportunities around the outsourcing business. In fact, Giga recently estimated that about 75 cents of every dollar spent on IT services is used for managing and enhancing existing systems, not building new ones. According to International Data Corporation (IDC), worldwide spending on outsourcing information technology services will nearly double by 2005, driven by competitive strategies and not just cost cutting. Outsourcing has become the silver bullet for big business.
Getting Behind the Wheel of Outsourcing
In the infancy of technology outsourcing, businesses called in experts to manage their data centers. Businesses retained these experts because they promised to manage information technology with greater efficiency and at a lower cost than the businesses themselves could achieve. For each technology requirement there was a different vendor with different suppliers. From this foundation, the drivers for outsourcing have changed in the past two years primarily because of the new eBusiness economy.
These are the current drivers for outsourcing in the marketplace:
1.Inability to adapt and adopt new technology
2.Adoption of eBusiness to eBusiness practices
3.Increased competitive pressures from new players with lower cost operating structures and intense global competition
4.Business reconfiguration from mergers or acquisitions or staff cuts
5.Scarcity of internal resources and IT staff focused strictly on core competencies
6.Untimely access to data/unreliable Systems
7.Need to increase revenue sources
8.Need to decrease expenses
Developing a New Business Process
Mid-sized companies and those enjoying rapid growth are turning to Business Process Outsourcing (BPO) of non-core functions. In BPO, the supplier not only takes on the responsibility to take over the IT function or business process, but it also reengineers the way it is done. BPO's momentum continues to grow as the factors that force companies to focus on core competencies, such as deregulation and global competition. Non-IT executives throughout the industry are quickly waking up to the idea of outsourcing non-core functions.
BPO also has been driven by the lack of skilled staff to deliver all IT services in areas such as HR and finance. In many cases it would take a company much more time than time to market permits get the same solution from a supplier. While companies can duplicate the investment required for a process, it is not possible to shorten a learning curve. Learning how to do a process is something every company must find out for itself.
BPO has emerged as one of the most important ways to increase shareholder value with the cost savings of outsourcing and a seamless solution for day-to-day business needs.
Security is Always a Concern
As the complexity of information technology has increased, so too have the dangers and opportunities for breaches of the network. The new managed security outsourcing model is rewriting systems integration rules. For all the millions of dollars invested into eBusiness infrastructure many ventures remain unsecured and more companies are looking for expertise from a managed security provider (MSP). Analyst projections estimate $10 billion in revenue for MSPs by the year 2004. (Source: MSP Association)
Lacking internal personnel with the skills to monitor security including firewall activity is a common problem for eBusiness companies. On the other hand, outsourcing security to a managed security provider does not appear to have an obvious return on investment (ROI) for most companies. When you compare loss of service to attacks on a firewall the ROI for security becomes more obvious.
According to Forrester Research, companies will triple security spending to $19.7 billion by 2004. The Forrester study also found that although most companies preferred to have internal security solutions, a lack of money and time are forcing many of them to outsource security services.
An Endless ResourceOutsourcing providers offer a richer and more varied career path than companies whose employees work in internal IT departments that support the core business. With today's shortage of skilled resources, outsourcing providers are able to offer more numerous and attractive career opportunities. At an outsourcing firm, the employees immediately become a revenue generating asset, moving from the expense side of the balance sheet. As their work makes a real difference to the firm's fortunes. Outsourcing providers tend to invest a greater amount in their people. With an endless resource like trained IT staff, companies are choosing outsourcing over training their own internal staff. It also increases shareholder value in the company when choosing a BPO or standard outsourcing model for IT services.
When properly implemented, outsourcing allows a business to focus on its core competencies and not to try to master technologies that are both exasperatingly complex and ever changing. Today's eCompanies must be built upon strong core functions and with a scalable IT infrastructure. Outsourcing gives companies the opportunity to compete in the global marketplace without being hampered by day-to-day business operations.
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Source: http://www.xwave.com
There are new powerful forces driving the outsourcing of IT services. Savings on operational costs and information services flexibility have traditionally driven outsourcing. Companies are also outsourcing for more strategic reasons, such as keeping up with cutting-edge technology and building stronger security measures. Outsourcing has become critical to a company's survival and ability to adapt to meet the new economy's eBusiness dynamics. As a business tool, outsourcing allows companies to focus on their core competencies, thus increasing efficiency and competitive advantage.
Analysts firms, including Gartner and Giga Information Group, have recently authored reports citing booming revenue opportunities around the outsourcing business. In fact, Giga recently estimated that about 75 cents of every dollar spent on IT services is used for managing and enhancing existing systems, not building new ones. According to International Data Corporation (IDC), worldwide spending on outsourcing information technology services will nearly double by 2005, driven by competitive strategies and not just cost cutting. Outsourcing has become the silver bullet for big business.
Getting Behind the Wheel of Outsourcing
In the infancy of technology outsourcing, businesses called in experts to manage their data centers. Businesses retained these experts because they promised to manage information technology with greater efficiency and at a lower cost than the businesses themselves could achieve. For each technology requirement there was a different vendor with different suppliers. From this foundation, the drivers for outsourcing have changed in the past two years primarily because of the new eBusiness economy.
These are the current drivers for outsourcing in the marketplace:
1.Inability to adapt and adopt new technology
2.Adoption of eBusiness to eBusiness practices
3.Increased competitive pressures from new players with lower cost operating structures and intense global competition
4.Business reconfiguration from mergers or acquisitions or staff cuts
5.Scarcity of internal resources and IT staff focused strictly on core competencies
6.Untimely access to data/unreliable Systems
7.Need to increase revenue sources
8.Need to decrease expenses
Developing a New Business Process
Mid-sized companies and those enjoying rapid growth are turning to Business Process Outsourcing (BPO) of non-core functions. In BPO, the supplier not only takes on the responsibility to take over the IT function or business process, but it also reengineers the way it is done. BPO's momentum continues to grow as the factors that force companies to focus on core competencies, such as deregulation and global competition. Non-IT executives throughout the industry are quickly waking up to the idea of outsourcing non-core functions.
BPO also has been driven by the lack of skilled staff to deliver all IT services in areas such as HR and finance. In many cases it would take a company much more time than time to market permits get the same solution from a supplier. While companies can duplicate the investment required for a process, it is not possible to shorten a learning curve. Learning how to do a process is something every company must find out for itself.
BPO has emerged as one of the most important ways to increase shareholder value with the cost savings of outsourcing and a seamless solution for day-to-day business needs.
Security is Always a Concern
As the complexity of information technology has increased, so too have the dangers and opportunities for breaches of the network. The new managed security outsourcing model is rewriting systems integration rules. For all the millions of dollars invested into eBusiness infrastructure many ventures remain unsecured and more companies are looking for expertise from a managed security provider (MSP). Analyst projections estimate $10 billion in revenue for MSPs by the year 2004. (Source: MSP Association)
Lacking internal personnel with the skills to monitor security including firewall activity is a common problem for eBusiness companies. On the other hand, outsourcing security to a managed security provider does not appear to have an obvious return on investment (ROI) for most companies. When you compare loss of service to attacks on a firewall the ROI for security becomes more obvious.
According to Forrester Research, companies will triple security spending to $19.7 billion by 2004. The Forrester study also found that although most companies preferred to have internal security solutions, a lack of money and time are forcing many of them to outsource security services.
An Endless ResourceOutsourcing providers offer a richer and more varied career path than companies whose employees work in internal IT departments that support the core business. With today's shortage of skilled resources, outsourcing providers are able to offer more numerous and attractive career opportunities. At an outsourcing firm, the employees immediately become a revenue generating asset, moving from the expense side of the balance sheet. As their work makes a real difference to the firm's fortunes. Outsourcing providers tend to invest a greater amount in their people. With an endless resource like trained IT staff, companies are choosing outsourcing over training their own internal staff. It also increases shareholder value in the company when choosing a BPO or standard outsourcing model for IT services.
When properly implemented, outsourcing allows a business to focus on its core competencies and not to try to master technologies that are both exasperatingly complex and ever changing. Today's eCompanies must be built upon strong core functions and with a scalable IT infrastructure. Outsourcing gives companies the opportunity to compete in the global marketplace without being hampered by day-to-day business operations.
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Source: http://www.xwave.com
Sunday, April 11, 2004
Survival Strategies: The BPO route
In a sluggish economy, Indian IT companies played it smart and quickly capitalised on the scotching pace of growth offered by ITES. In the earlier issue of Tattler, AssureConsulting.com had argued that ITES is not IT. ITES players cover a wide range of multiple verticals, constituting banking and insurance telecom, retailing, utilities back roll processing are poised for immense growth. This has little in common with traditional IT constituting software development, testing and maintainance. Dismayed industry observers are crying foul, over the industry's shifting focus from high end products and services. But for IT service companies, whose growth rates were painfully crunched by the downturn; ITES offered a humongous growth opportunity too good to be bypassed. Consider these factoids.
ITES grew at a rate of 73 per cent in 2001-02, as against 14 per cent for the overall IT industry.
The ITES industry is expected to grow to Rs. 81,000 crore in 2008; from Rs. 7,100 crore in 2001-02. The sector is expected to contribute 37 per cent of total software and services exports in 2000.
Forex inflows will increased ten-fold from $6.2 billion in 2001-02 to $60.72 in 2008 (IT plus ITES)
World-class IT infrastructure, idle capacity, flat growth, pricing pressures, tight squeeze on IT budgets and declining profits have accelerated beleaguered IT sector's pace towards ITES. In the last six months, Indian service icons have announced their BPO foray to shore up margins and improve top line growth. Wipro acquired a majority stake in Spectramind, Infosys launched Progeon, Satyam ventured into the BPO space with Nipun, HCL launched E-Serv, Polaris floated Optimus to execute back office operations and Hughes also made a departure from its positioning of high value-added R&D work in the Telecom sector to debut in the BPO space. Certainly considering the success of BFL Mphasis, the strategy appears to be paying at least in the short term. MsourcE, the company's BPO arm was the main driver of growth and pulled in Rs 14.5 crore in revenue and a profit of Rs 2.2 crore. Though the software business remained flat, Mphasis delivered another quarter of growth when most companies registered a decline in quarterly profits. Lessons from the Mphasis story are now being emulated across companies.
Indian IT companies are capitalising on the track record in delivering world class services to global icons and established SEICMM level processes to bag orders. Infosys' one quarter old BPM venture Progeon Limited, has bagged a contract worth approximately $30 million from GreenPoint Mortgage, one of the largest US wholesale mortgage lender. The contract, the second for Progeon, will run through five years. Indian companies are also tapping established marketing networks, as they provide an opportunity for strategic cross selling between the IT and IT enabled businesses. For instance GreenPoint was already an Infosys client before Progeon bagged the order. And pre-established relationships from the IT services era are helping companies to reduce sales cycles in their ITES ventures from 6-9 months to three months. MsourcE, the BPO venture of MphasiS-BFL Ltd currently has 10 active clients, five of whom were MphasiS clients and outsourced work to MsourcE based on their earlier interaction. Two MsourcE clients also became MphasiS clients after they began outsourcing IT projects. Kshema Technologies is another company gearing up for its BPO venture to focus on requirements of existing clients.
The long-term impact of the strategy to move to low-end services is debatable. In a recent report, Gartner compared the ITES scramble to the dotcom boom but later withdrew the report. According to the report the size of the ITES opportunity is grossly overestimated.
"A lot of people are touting the entire global BPO market of $127 billion in 2002 as the potential market for Indian BPO companies. Of this $127 billion, 60 per cent is in the US. As of now the trend for BPO going offshore is evident primarily in the US and of the companies in the US that we surveyed only 5 per cent said they were going offshore for their BPO work. So we estimate that the offshore opportunity that Indian companies can tap into is about $6 billion, and Indian companies are competing for this business with near-shore companies in countries like Mexico and Canada, and offshore companies in the Philippines and Ireland." The report was later withdrawn but many are questioning the hype around IT.
However the Indian IT industry influenced by global market trends is loathe to let go the short term benefits and healthy profits offered by ITES. Also companies such as Spectramind are making strong attempts to expand the scope of services offered by entering the high-end BPM segment. Spectramind is setting a knowledge center for one of its clients and hiring Ph.Ds. If IT companies are to pull it off in the long term, they must quickly ramp up the BPO chain.
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Source:http://www.assureconsulting.com
In a sluggish economy, Indian IT companies played it smart and quickly capitalised on the scotching pace of growth offered by ITES. In the earlier issue of Tattler, AssureConsulting.com had argued that ITES is not IT. ITES players cover a wide range of multiple verticals, constituting banking and insurance telecom, retailing, utilities back roll processing are poised for immense growth. This has little in common with traditional IT constituting software development, testing and maintainance. Dismayed industry observers are crying foul, over the industry's shifting focus from high end products and services. But for IT service companies, whose growth rates were painfully crunched by the downturn; ITES offered a humongous growth opportunity too good to be bypassed. Consider these factoids.
ITES grew at a rate of 73 per cent in 2001-02, as against 14 per cent for the overall IT industry.
The ITES industry is expected to grow to Rs. 81,000 crore in 2008; from Rs. 7,100 crore in 2001-02. The sector is expected to contribute 37 per cent of total software and services exports in 2000.
Forex inflows will increased ten-fold from $6.2 billion in 2001-02 to $60.72 in 2008 (IT plus ITES)
World-class IT infrastructure, idle capacity, flat growth, pricing pressures, tight squeeze on IT budgets and declining profits have accelerated beleaguered IT sector's pace towards ITES. In the last six months, Indian service icons have announced their BPO foray to shore up margins and improve top line growth. Wipro acquired a majority stake in Spectramind, Infosys launched Progeon, Satyam ventured into the BPO space with Nipun, HCL launched E-Serv, Polaris floated Optimus to execute back office operations and Hughes also made a departure from its positioning of high value-added R&D work in the Telecom sector to debut in the BPO space. Certainly considering the success of BFL Mphasis, the strategy appears to be paying at least in the short term. MsourcE, the company's BPO arm was the main driver of growth and pulled in Rs 14.5 crore in revenue and a profit of Rs 2.2 crore. Though the software business remained flat, Mphasis delivered another quarter of growth when most companies registered a decline in quarterly profits. Lessons from the Mphasis story are now being emulated across companies.
Indian IT companies are capitalising on the track record in delivering world class services to global icons and established SEICMM level processes to bag orders. Infosys' one quarter old BPM venture Progeon Limited, has bagged a contract worth approximately $30 million from GreenPoint Mortgage, one of the largest US wholesale mortgage lender. The contract, the second for Progeon, will run through five years. Indian companies are also tapping established marketing networks, as they provide an opportunity for strategic cross selling between the IT and IT enabled businesses. For instance GreenPoint was already an Infosys client before Progeon bagged the order. And pre-established relationships from the IT services era are helping companies to reduce sales cycles in their ITES ventures from 6-9 months to three months. MsourcE, the BPO venture of MphasiS-BFL Ltd currently has 10 active clients, five of whom were MphasiS clients and outsourced work to MsourcE based on their earlier interaction. Two MsourcE clients also became MphasiS clients after they began outsourcing IT projects. Kshema Technologies is another company gearing up for its BPO venture to focus on requirements of existing clients.
The long-term impact of the strategy to move to low-end services is debatable. In a recent report, Gartner compared the ITES scramble to the dotcom boom but later withdrew the report. According to the report the size of the ITES opportunity is grossly overestimated.
"A lot of people are touting the entire global BPO market of $127 billion in 2002 as the potential market for Indian BPO companies. Of this $127 billion, 60 per cent is in the US. As of now the trend for BPO going offshore is evident primarily in the US and of the companies in the US that we surveyed only 5 per cent said they were going offshore for their BPO work. So we estimate that the offshore opportunity that Indian companies can tap into is about $6 billion, and Indian companies are competing for this business with near-shore companies in countries like Mexico and Canada, and offshore companies in the Philippines and Ireland." The report was later withdrawn but many are questioning the hype around IT.
However the Indian IT industry influenced by global market trends is loathe to let go the short term benefits and healthy profits offered by ITES. Also companies such as Spectramind are making strong attempts to expand the scope of services offered by entering the high-end BPM segment. Spectramind is setting a knowledge center for one of its clients and hiring Ph.Ds. If IT companies are to pull it off in the long term, they must quickly ramp up the BPO chain.
Sitemap
Ecommerce
Financial
B2B
Free Evaluation
Source:http://www.assureconsulting.com
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