Dec - 2008 - Low Res

cover_India.
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Outsourcing Under the Obama What’ll the New Year Bring

Administration p. 20 for Outsourcers? p. 50
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December 2008 Vol. 03, Issue 35
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VIEWPOINTS FROM SOURCING EXPERTS

Baker & McKenzie l Forrester Research l TPI
l Compass l ValueNotes l Ingram Micro l Infosys
BPO l AMR Research l NelsonHall l Perot

Systems l EquaTerra l NOA l Mayer Brown
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with all Great Achievements you find

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Building on Our Global Heritage Working Together: IT-Enabled BPO

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Masthead_India.qxp 11/21/2008 10:27 PM Page 3
Vision
The gateway to the global sourcing

of IT and BPO services The gateway to the global sourcing of IT and BPO services
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contents.qxp 11/21/2008 10:14 PM Page 4

D e c e m b e r 2 0 0 8 Vo l u m e 0 3 , I s s u e 3 5
FEATURES
18
Global
Sourcing
in a Challenging
ECONOMY
VIEWPOINTS FROM SOURCING EXPERTS
4 GlobalServices www.globalservicesmedia.com December 2008

contents.qxp 11/21/2008 9:24 PM Page 5
SOURCING EXPERTS
Outsourcing Under the Obama Administration 20
By Sam Kramer, Baker & McKenzie
New Market Shifts Will Drive Next Generation IT-Services Outsourcing 22
By Dr. Paul Roehrig, Forrester Research
Outsourcing in 2009: Uncertain as Never Before 24
By Dinesh Goel, TPI
Outsourcing Benchmarks in a Down Economy 26
By Max Staines, Compass
Global Legal-Services Market: Crisis Creates New Opportunities 28
By Neeraja Kandala, ValueNotes
Global Sourcing Strategies 32
By Chris Osentowski, Ingram Micro (Infosys BPO’s Customer) COLUMNISTS
and Vijai Balachandra, Infosys BPO
How to Structure and Execute Your Outsourcing Strategy 35 SHYAMANUJA DAS
By Phil Fersht, AMR Research Shyamanuja pioneered
Revisiting Bank Sourcing in Troubled Times 38 outsourcing
By Andy Efstathiou, NelsonHall journalism in India in
What Can Service Providers Do Learn to Deliver More for Less 40 1998 with bpOrbit, a
By James Champy, Perot Systems newsletter for the
domestic Indian BPO
Mining for Gold in Your Own Backyard 42
By Bob Cecil, EquaTerra
industry. He is now
Editor, Dataquest magazine, Cybermedia.
Small is Beautiful 44
By Mark Kobayashi-Hillary, NOA
The MultiSourcing Alternative 46 ALLAN SCHWEYER
By Daniel A. Masur and Sonia Baldia, Mayer Brown Allan is the President
What’ll the New Year Bring for Outsourcers? 50 and Executive Director
By Imrana Khan, Global Services of the Human Capital
Institute and author of
Talent Management
Systems.
16
WILL THE REAL PHIL FERSHT
NEARSHORING Phil is Research Director,
Business Process
PLEASE STAND UP? Outsourcing, offshoring
By Daniel Tkach and IT sourcing, for
CEO, PartnersMarket leading industry analyst
Consulting firm AMR Research, Inc.
24X7
10 12 15
MORE OF IT-CONSULT- AVERAGE M&A SIZE Q&A
ING SERVICES TO MOVE CONTINUES TO PLUNGE By Pratibha Verma
OFFSHORE FURTHER
By Namita Goel By Tholons
10 13
OCT. JOBS THE PUBLIC SECTOR 14
LOSS HIGHEST IN 5 YRS AWARDS 7 BIG DEALS IN OUTSOURCING
AT 112,884 OCT. ’08 TO UKRAINE Arkadiy Dobkin,
President and CEO,
By Namita Goel By Datamonitor By Pratibha Verma
EPAM Systems

Online content_IK.qxp 11/21/2008 10:15 PM Page 6
g globalservicesmedia.com
l SEARCH FOR: SERVICE PROVIDERS, DEALS, EVENTS

l BLOGS: OPEN TO ALL l NEWSLETTERS l NEWS AND FEATURES
TOP STORIES EXPERT’S VIEWS

Global BPO Market to Reach $975 Billion by 2012 The ROI in Enterprise Web 2.0 and
HR outsourcing market, though accounting for a small share of the global Corporate Social Networking
BPO market, is expected to emerge as the fastest growing service segment, By Allan Schweyer
with a CAGR of 25 percent over the 2008 to 2012 period. How do organizations find creative ways
to recruit, engage and retain Gen Y, and
China’s Service Outsourcing Face Opportunities Amid facilitate strategic knowledge sharing
World Financial Crisis across the enterprise? The answer lies
with Web 2.0 collaboration tools in
China’s outsourcing industry has developed fast in recent years. In 2008,
organizational social networking and
the country’s outsourcing contracts hit $1.9 billion, up 17 percent over
knowledge-sharing.
the same period last year. (Source: ITworld.com)
Wipro to Set up Business Shared Services Center in Brazil TOP BLOG

The shared services center will provide services to AmBev across Latin How to Motivate Your Outsourced
America in the areas of finance and accounting, order management, cus- Offshore Team
tomer services and HR services. By ExecutiveBrief
The success of an outsourcing relation-
Infrastructure Management Services as Next Big Growth ship depends on how well the delivery
Area for India Offshoring team implements projects on-time and
Offshoring of Infrastructure Management Services (IMS) to India to grow on-budget. But while these 3 items pre-
from $1.4 billion to $4.2 billion before year-end 2010, with hardware sup- sent only the quantitative facet of this
port services accounting for the majority of those revenues. The Banking, relationship, the dedication and profes-
Financial Services and Insurance (BFSI) industries are the biggest users of sionalism of the outsource team some-
IMS services (at roughly 43 percent of the market). times tell a different story.
SEARCH TOOLS BLOGS DON’T JUST READ; SPEAK OUT!

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Search for over 1,000 in outsourcing — customers of services, providers, consul-
service providers worldwide tants, analysts, researchers — are invited to blog here
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Editors note_IK.qxp 11/21/2008 11:14 PM Page 8
EDITOR’S NOTE
Agenda 2009
I t seems that the economic crisis would carry on for a good few months into
2009. It is usual to wake up to bad news about rising unemployment, con-
tinuing credit crisis, plunging stock markets and the crisis spreading to other
parts of the world. The question now is — how worse could the global econ-
omy get and when would things start turning around.
The recessionary phase would have a lasting impact on global business;
the effect is more likely to be transformative for many industries includ-
ing global IT services and BPO. We have been in touch with many indus-
try experts on how the outsourcing industry should respond to the current
economic crisis. There’s a common thread that runs through the sage advice
given by sourcing experts. Specifically, from a service provider perspective,
it is necessary to continue to invest in growth and become more adaptable
ED NAIR to customer demands. This would mean investing in new acquisitions, mar-
Editor keting, and training people. While many providers are scrambling to meet
ed@cybermedia.co.in revenue targets, it is best to “farm” rather than “hunt” during this phase.
Spotting opportunities to add value to customers by innovating inside out
and keeping employee morale high would help retain customers and keep
employees productive.
Let us save the trees Living through this phase would be arduous for big and small companies
and go green in 2009. alike. In this issue, as we wrap up a tumultuous 2008, there are loads of point-
ers from experts on how to weather the storm. We hope you would find the
Bookmark your content insightful and actionable.
destination for best Our upcoming annual conference on February 26th, 2009 at NYC deals
content on the global with the same theme as this issue Global Sourcing in a Challenging Economy.
Do check out the details at www.globalservicesconference.com. We also invite
services industry at service providers to participate in the Global Services 100 survey for 2009
globalservicesmedia.com available on our Website.
In keeping with the requests from many of our readers for faster and eas-
ier access to content, we plan to focus our energies more on the online medi-
um. We will continue to bring you cutting edge content on the global ser-
vices industry in the form of online features, news, daily newsletters, special
newsletters, blogs, surveys, e-magazines, online directory, Webinars, microsites
and podcasts. As a result, we plan to discontinue the print edition from 2009
onwards. We promise that you will find the same quality and rigor with our
online content.
So let us save the trees and go green in 2009. Bookmark your destina-
tion for best content on the global services industry at www.globalservices-
media.com. GS

www.globalservicesconference.com
Global Services Conference 2009

February 26, 2009. Sheraton Hotel and Towers, New York City
Revisiting Global Sourcing

in a Challenging Economy
For more information or to register, visit
www.globalservicesconference.com
Sponsorship opportunities, contact:

Satish Gupta, Satishg@cybermedia.co.in
T: +91 9871 997 785
CONFERENCE 2009
Produced by

TM
Partners
100 2009
24x7_IK.qxp 11/21/2008 10:04 PM Page 10
Outsourcing to Ukraine p. 14
Jobscut
24x7
More of IT-consulting
Oct. Jobs Loss Services to Move Offshore
Highest in 5 Yrs BY NAMITA GOEL
at 112,884 I T-consulting services comprising

IT-strategy consulting, IT-infra-
some of the M&A activity in this area.
For example, CSC acquired First Con-
BY NAMITA GOEL structure consulting, package imple- sulting Group to enhance health-care
A t 112,884 jobs cut in Oct. ’08 — a

19 percent increase from the previ-
ous month — clearly indicates the deep-
mentation, systems integration and
data management is poised to go
more offshore. The total offshore
expertise. Similarly, Cognizant had
acquired Strategic Vision Consulting
to strengthen its consulting and system
ening impact of the current economic market of IT consulting in the U.S. integration capabilities in the media
crisis. The financial and automotive is estimated at $104 billion, accord- and entertainment industries.
sectors jointly claim 27 percent of the ing to a report released by Everest MindTree launched a Business
total jobs cut this year, as per Challenger, and Bernstein. “Over the last two to Technology Consulting (BTC) Prac-
Gray & Christmas, a global outplace- three years, there has been a constant tice over a year ago. “Currently, BTC
ment consultancy. thrust among service providers over constitutes 4.5 percent of our rev-
October’s figures are 79 percent high- gaining business through IT con- enue; but more importantly consult-
er than what they were a year ago, sulting. Satyam, for instance, has ing engagements allow us intimate
accounted for a multifold increase in over 50 percent of its revenue com- access to a CIO and his/her IT strat-
jobs lost in the transportation, governing from IT consulting,” says Gaurav egy. Once we gain the CIO’s confi-
ment, media and entertainment sectors. Gupta, Principal and Country dence around the work we do in
During the month mergers and Head, Everest Group. BTC (areas such as IT strategy, gov-
acquisitions, which topped the list of rea- The study points out that the IT- ernance models, portfolio assessment,
sons for jobs loss in Oct. ’08, fell to the consulting market has shifted its value customer experience, and enterprise
seventh position. Instead, restructuring proposition to meet growing needs of architecture) it gives us a chance to
has climbed to the second position at vertical industry customers seeking win the downstream, more annuity
25,063 jobs cut just below market con- solutions for business changes, regu- based work,” says Joseph King, SVP,
ditions — which continues to claim the latory issues, access to new technolo- Global Marketing, MindTree.
first spot in the year-to-date reason cat- gies, and heightened needs for spe- Softtek is experiencing a slightly
egory — at 36,116 jobs. cialized talent. Rod Bourgeo, Senior different trend. “More than offshore
Interestingly, the month reported Analyst, Bernstein Research, argues, IT consulting, we are seeing more
11 percent drop in the number of CEO “In the past, killer software applica- interest in global consulting services,
departures. It dropped from 140 in tions and the economic cycle were the meaning the ability of the provider to
Sept. ’08 to 125 in Oct. ’08. GS primary drivers of IT consulting do a global or regional rollout, which
1 Month
MONTH BY MONTH TOTALS
2008 2007
demand, but our research has empha-
sized that today’s consulting market is
characterized by lessened economic
means customers have the benefit of
right placing, meaning each part of
the work is done at the right location,
l July 103,312 42,897
l August 88,736 79,459 sensitivity and supported by a diverse and in the most convenient propor-
24x7
l September 95,094 71,739 set of demand drivers that vary sub- tions,” says Federico Ferreres, Cor-
l October 112,884 63,114 stantially by industry vertical.” porate Competitive Intelligence
The trend is also evident looking at Manager, Softtek. GS

www.osourcebook.com
The OSourceBook 2008 Web edition is
now live. Search for global outsourcing
providers by name, location, industry,
services, and more at your fingertips.
B
24x7_IK.qxp 11/21/2008 10:05 PM Page 12
Average M&A Size Continues to Plunge

BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS
Acquirer
MEGA M&As OF OCT. '08
Target Area Deal size
($ mn)
T he slowing global economic scenario has
not significantly affected the M&A
pipeline in IT Outsourcing (ITO) and Busi-
l TCS Citigroup Global Service BPO 505 ness Process Outsourcing (BPO) areas. In
l HP Lefthands Network IT software 360 Oct. ’08, firms slated over 54 acquisitions for
l Xchanging Cambridge Solutions BPO 195.5 a total deal value of over $1.63 billion as
l Raiffeisen Informatik Pc-Ware Information Technologies IT software 124 against 59 transactions making up for $2.1
l Il Sole 24 Ore ESA Software IT software 54.5 billion in the previous month.
l Tyco International Vue Technology IT software 43
Oracle, the U.S.-based IT major, acquired
l Logitech International SightSpeed IT software 30
three software firms, two of which are based
out of the U.S. and one out of the U.K. The
l Capita Group ABS Network Solutions IT services 18.8
target firms are providers of macro space plan-
l QinetiQ Commerce Decisions IT software 16.8
ning and enterprise software. In our early
l Enghouse Systems Envox IT software 14
M&A coverage, we mentioned about cash
l Autodesk Softimage IT software 10.6
rich giants acquiring small firms with niche
l Constellation Software Gladstone IT services 9.6 capabilities to expand their offerings. Oracle
l Threepro Group Modulat IT services 8.9 is an aggressive market player sitting on over
l Unnamed Buyer Unnamed Target IT software 7.8 $8 billion of cash in hand, the firm is expect-
l China Railway Logistics Gold Wide Holdings IT services 7.2 ed to leverage existing scenario where small
l Digital marketing Group Cybercom Group U.K. e-commerce 5.2 players are unable to bear market pressure and
l Netyear Tribity IT services 4.9 looking for exit. The acquirers would gain
l Manaccom Star System Solutions IT software 3.5 from the fall in valuations of firms across
l China Railway Logistics Changsha Xinxing Development IT services 3.4 majority of verticals.
l Kofax Optiinvoice Digital Technology IT software 2.7 In another acquisition, India-based IT
l Addnode Strand Interconnect IT services 2.1 giant TCS has acquired Citigroup captive
l Descartes Systems Dexx IT software 2 BPO, known as Citigroup Global Service for
l Numerex Ublip IT software 1.8
$505 million. The acquirer’s existing rela-
tionship with Citigroup has been further
l Proze RIA Soft IT services 1.8
extended by providing TCS with a contract-
l Cna Group Xiamen Leccan Technology IT services 1.8
l Fukui Computer System Co IT solutions 1.2 TOTAL DEAL VOLUME
l Health Systems Solutions Emageon IT solutions 0.5 BY TARGET COUNTRY (%)
l Oracle Advanced Visual Technology IT software —
l GE Healthcare Agility Healthcare Solutions IT solutions —
l SS&C Technologies Micro Design Services IT software —
l Polaris Software Lab SEEC IT software —
l Quantros Medcast Health Analytics IT software —
l Convergys Ceon Corporation IT solutions —
l CA Inc Idfocus IT software —
l Oracle Primavera Software IT software —
l Broadcaster Eyecandy IT services —
l Capgemini Vizuri IT software —
2 l Southpeak
l Imtech
Interactive Gamecock Media Group
ILSIT and Logistics Systems
Gaming
IT services
—
— Germany.: 2 Japan: 7
l Canopy Financial Caregain IT software — Italy: 2 U.K.: 13
l Winshuttle ADAR IT services — Canada: 2 Others: 19
24x7
l Novell Managed Objects IT software — Sweden: 6 U.S.: 43

India: 6
To see the full table, visit www.globalservicesmedia.com
SOURCE: THOLONS SOURCE: THOLONS

24x7_IK.qxp 11/21/2008 10:05 PM Page 13
Further ITdeals
The Public Sector Awards 7
TOTAL DEAL VALUE
BY TARGET COUNTRY (%) Big Deals in Oct. ’08
BY DATAMONITOR
O ctober saw a landmark IT-services

deal between Citigroup and TCS,
one of the leading Indian IT-services
Network, which includes the tracking
and data relay satellites and associated
ground systems located in New Mexico
firms. The $2.5 billion, 9.5 years con- and Guam.
tract was part of an agreement, which As has been the case throughout
also saw TCS acquire Citigroup Global 2008, the U.S. public sector was at the
Services, the bank’s India-based captive center of much of the major outsourc-
BPO arm, for approximately $505 mil- ing activity in October. Seven of the
lion. The Citigroup-TCS deal is not only month’s 10 biggest deals involved either
the largest contract signed in October, it state agencies (like the Department of
Japan: 1 U.K.: 4 is also the second largest signed in 2008 Education, or the Army) or local author-
Canada: 1 Germany: 8 to date, behind only SAIC’s award from ities such as the state government of Ten-
Sweden: 1 U.S.: 35 the National Cancer Institute, valued at nessee. Verizon had a particularly suc-
Italy: 3 India: 44
$5.2 billion over 10 years and cessful month in the defense space, which w
Others: 3
announced in late September. picking up two deals with the DoD across 19
SOURCE: THOLONS TCS was not the only outsourcing worth a combined $1.1 billion.
processing engagement worth $2.5 billion provider to secure a deal worth over $1 Both of these wins for Verizon were
spread across a period of nine and a half years. billion in October. ITT Advanced Engi- awarded under the General Services
The acquisition will add substantial value to neering and Sciences picked up a project Administration’s Networx Universal con-
TCS BPO and will ramp up its resources from NASA worth $1.2 billion over a tract, a 10-year, $20 billion program
from existing 8,000 to 20,000 employees basic period of five years and three which aims to upgrade the current fed-
spread across seven delivery centers in India. months, with two one-year options. eral telecoms network to a global IP and
The captive BPO will add synergistic bene- Under the terms of the deal, ITT will MPLS-based system. Verizon, along
fits to the banking financial services and support NASA’s Space and Near Earth with rivals AT&T and Qwest Govern-
insurance vertical of TCS, expanding its networks and provide operation and ment Services, was selected in Apr. ’07
trade, retail, cash, card and other domain spe- maintenance services to NASA’s Space to compete for orders under the scheme,
cific offerings.
Acquirers based in the U.S. closed over 56
percent of total global acquisitions and con-
THE TEN LARGEST IT SERVICES DEALS IN OCT. ’08
tributed to over $631 million in deal value. Customer Provider Engagement(s) Value Duration
($ mn) (yrs)
About 3/4th of the total U.S. acquisitions are
domestic and most of the out-bound deals Citigroup TCS Application development, 2,500 9.5
infrastructure mgmt.
targeted the U.K.-based firms. The U.K.
NASA ITT Advanced Maintenance 1,200 7 (est.)
emerged as the second-largest acquirer with Engineering & Sciences
five deals, of which three were domestic. The Amgen IBM Infrastructure mgmt. 800 8
U.K.-based Xchanging acquired 75 percent Department of Defense Verizon Network mgmt. 752 10
stake in Cambridge Solutions for $196 mil-
U.S. Army ICx Technologies Systems integration 711 7
lion. The offshore player employs over 4,500
State of Tennessee AT&T Network integration & mgmt. 600 10
people in the U.S., Australia, India and the
U.K. The acquirer has existing Indian deliv-
ery center at Gurgaon employing around 400
Maxis Communications ZTE Maintenance/support,
network mgmt.
400 —
3
Ethiopian Telecom ZTE Network integration 400 5
people, the majority ownership will deepen Department of Defense Verizon Network mgmt. 368 10
24x7
the reach and presence of the acquirer in

Department of Education CSC Application development 300 10
India, and is inline with business growth strat- & mgmt.
egy formulated by Xchanging. GS
SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE

24x7_IK.qxp 11/21/2008 10:05 PM Page 14
Five things to do
1 Kiev
Kiev, the capital region
and the largest city of
BY PRATIBHA VERMA
Ukraine, is an important
industrial, scientific, educa-
tional and cultural center
with high-tech industries
U kraine, an Eastern European
country, has been an attractive
emerging market for foreign investors.
Ukraine, including an industry asso-
ciation (Ukrainian Association of Soft-
ware Developers) and a professional
and historical places. Its
architecture complexes Despite domestic financial crisis, the organization (IT Committee of the
include the St. Sophia Cathedral and the Kiev country has seen $6.9 billion FDI in American Chamber of Commerce in
Pechersk Lavra (a UNESCO World Heritage Site).
the first half of 2008, which is com- Ukraine), according to the online sur-
2 Kharkiv
This place is famous
for its arms production,
paratively 170 percent more than the
amount calculated in 2007, according
vey Offshore IT Outsourcing and
Transition Economies conducted by
national universities and to State Statistics Committee. Business School of the University of
numerous professional,
technical and private high- The country’s maturing private sec- East London.
er educational institutions. tor, relatively inexpensive and well- In 2007, Ukraine outstripped other
Its main attractions are
Gosprom building, Memorial Complex, Freedom educated workforce, and its entry into Central and Eastern European coun-
Square, Taras Shevchenko Monument, Mirror the WTO on May 16th, ’08 for tries with the highest IT industry
Stream, Militia Museum and many more.
investors’ legal security, are its fortes to growth rates. Ukrainian IT market
lure outsourcing buyers. With an ranked fourth after Russia, Poland
3 Dnipropetrovsk
It is a vital industrial
center of Ukraine famous
increase in the number of IT graduates and the Czech Republic with almost
for the nuclear, arms and by 30,000 every year, and an increase 40 percent growth and over $3.4 bil-
space industries of the for- in IT educational institutions, its lion in volume, according to IDC
mer Soviet Union. The city
has a variety of theaters. remarkable literacy rate has reached 98 survey. A 2006 study of 127 countries
The Museum of History, Diorama “Battle for the percent, which indicates that Ukraine by EIU ranked Ukraine 63rd in its
Dnieper River,” Taras Shevchenko Park and
Monastyrsky Island are few of its attractions. is a potential destination to outsource competitiveness in the technology
IT and related services. domain, particularly in “new technol-
4 Odessa
Odessa is a major sea- The U.S.-based multinationals and ogy development, quality of research
port located on the Black funds make their investments in institutions, activities, and quality of
Sea shore and is a popular
tourist destination, with Ukraine in the sectors of banking and exact science education.”
many therapeutic resorts in financial services, insurance, consumer The World Bank classifies Ukraine
and around the city. The
Filatov Institute of Eye
goods, telecom and commercial real as a middle-income state with its sig-
Diseases & Tissue Therapy is one of the world's estate through their EU-based affiliates, nificant issues including underdevel-
leading ophthalmology clinics here. Its main attrac- according to statistics, which also indi- oped infrastructure and transporta-
tion is Odessa catacombs.
cates that EU member states account tion, corruption and bureaucracy.
5 Donetsk
Donetsk, which is pop-
ular for its education, cul-
for approximately 75 percent of all
FDI. Cyprus and Germany account for
There are fears that the inflow of FDI
would be non existent in 2009 due to
4
ture and architecture, is 40 percent whereas the Netherlands for its economic credit crunch. The gov-
home to scientific research
institutes, prominent uni- 8.2 percent, Austria for 7.4 percent and ernment insists that $16.5 billion
versities like the National the U.K. for 6.5 percent. emergency loan from the Internation-
Technical University and
the Islamic University. Its prominent attractions Several associations have supported al Monetary Fund would help tackle
24x7
include the Cathedral Transfiguration of Jesus, the software development firms in economic crisis. GS
Donetsk National University, and others.
Compiled by Pratibha Verma SOURCES: MARKETWATCH, WEBWIRE, UKRAINIAN HI-TECH, MAGISTERS.COM

24x7_IK.qxp 11/21/2008 10:06 PM Page 15
Q&A
In 2005 the U.S.-based outsourced product development
firm EPAM opened its first development center in Ukraine.
Today, the company has five such offices across the country.
EPAM’s Arkadiy Dobkin spoke to Global Services’ Pratibha
Verma about EPAM & its presence in Ukraine
Which city of Ukraine During the last years
does EPAM have setups? significant development
And what services do was done in Ukraine.
they offer? Many new office com-
EPAM’s five centers in plexes were built, telecom-
Ukraine are located in munication and security
Kiev, Kharkiv, Vinnytsya, infrastructure improved,
Dnipropetrovsk and Lviv. Arkadiy Dobkin, and openness of the coun-
From our 4,500 engineers President and try was brought to a com-
worldwide more than 700 CEO, EPAM pletely new level. All these
Systems
are Ukraine-based. helped us to pass SAS 70
Our services cover application Type II Certification this year.
development, testing and mainte-
nance, and support as well as system Would Ukraine offer a conducive
integration and IT consulting. environment to outsourcing busi-
ness in 2009?
What does the country offer to a It is definitely visible that many
provider like EPAM? customers are worried about the cur-
Ukraine is large enough country rent economical conditions. Hope-
with well developed educational fully within next several months, we
infrastructure. So, there are many would understand how it would
strong skills available covering most impact the outsourcing industry —
of the modern IT areas. There are there are different scenarios and we
several Universities such as National count on a positive one.
Technical University of Ukraine, Whatever is happening around
Kharkov State University and Dne- clearly effects conditions in
propetrovsk State University. Ukraine, but we are absolutely sure
that Ukraine would be able to cope
5
What changes has EPAM seen in with the difficult conditions the
24x7
Ukraine in terms of infrastructure same as the rest of the world would

development in past years? be managing it. GS

Feature_nearshoring_IK.qxp 11/21/2008 8:36 PM Page 16
WILL THE REAL
NEARSHORING
PLEASE STAND UP?
By Daniel Tkach, CEO, PartnersMarket Consulting
N
EARSHORING IS AN APPEALING con- nearshoring requires geographical nearness; by the second,
cept. It has started to be looked upon as a just being closer than an offshore location (typically India,
desirable service option that could give an IT China or the Philippines) is enough, and by the third, a far
global service provider a competitive advan- away country that is on a similar time zone as the outsourcer
tage. The phenomenon is similar to “going would qualify as nearshore. If we take the U.S. to be the out-
green.” “Green is good,” saves the earth, hopefully consumes sourcing country, Brazil would not qualify as nearshore by
less energy and saves money; thus we see the widespread the first definition, which would designate only Mexico and
appending of “green” to pretty much every product coming Canada, but would qualify by the third. And the second def-
out in the marketplace, from cars to vacuum cleaners. And, inition could allow European countries to claim that they
of course, “green IT” is hot. are nearshore to the U.S., especially when the upcoming
Nearshoring is a deceptively simple concept. A quick Aerion jet will start once again flying passengers from New
Internet search will give us definitions that are similar but York to London in three hours.
their small differences hide major variants of the meaning of
nearshoring. For instance, one definition reads: Nearshoring is a Customer Experience
“The transfer of business or IT processes to companies in Customers look at outsourcing services as something
a nearby country, often sharing a border with your own that will solve their problems or satisfy their customers’
country. In the U.S., nearshoring describes work sent to needs. Companies will not choose a global service provider
Canada or Mexico.” based on the providers’ claim to a service attribute, but will
Another one explains: instead care about the total experience of dealing with that
“Nearshoring is the process by which an activity is tran- provider organization.
sitioned from an onshore location to a geography, which is According to Thomas Meyer of Deutsche Bank
closer than an offshore location. Typically, this would be a Research, nearshoring locations score high marks when
short flight away” they lower costs for communication between the pur-
And, yet another one tells us: chaser and the provider of the nearshoring service, for the
“Nearshoring means sourcing service activities to a for- following reasons:
eign, lower-wage country that is relatively close in distance Personal contact: Complex problems are best solved face
or time zone (or both).” to face. Nearshoring locations are closer to the customer,
What is the difference? By the first definition, which makes visiting each other easier and less expensive

Feature_nearshoring_IK.qxp 11/21/2008 8:37 PM Page 17
Nearshoring
Common language: Nearshoring locations, often, have strength, track record of successes, management structure
personnel that are proficient in the language of their cus- and team composition. Transparency also allows trust to be
tomer — even though their official languages may differ balanced by appropriate controls and verification.
Cultural understanding: In most cases, nearshore person-
nel have a better knowledge and understanding of buyers’ Cultural Understanding
cultural background than their counterparts do in offshore Many companies perceive language and cultural dif-
locations. It allows for easier communication as misinterpre- ferences as a hindrance to offshoring activities. For
tations of implicit messages occur less frequently. instance, over 56 percent of U.K. companies see this as a
The four main dimensions of nearshoring are therefore problem despite the close language and cultural ties with
geographical proximity, shared time zone, familiar culture, their preferred offshoring location, India. If cultural
and common language. Each of these dimensions plays a peculiarities are not taken into account, they can quickly
role that is varyingly important result in misunderstandings that
according to the customer’s needs. give rise to additional costs.
Cost reduction is the main “IF THE FIRST STEP IN In North America, shared histo-
underlying driver for most out- ry and common interests facilitate
sourcing deals. In addition to lower BUSINESS PROCESS mutual understanding. Mexican
wages, geographical proximity is EXCELLENCE IS UNDER- and Canadian developers often
probably the most obvious have a better understanding of the
nearshoring dimension that affects STANDING THE PROCESS, American customer’s objectives
cost. In an outsourcing engage- than teams in far away countries.
ment, the need for a larger retained
THEN THE FINAL STEP
organization for project manage- BEFORE SUCCEEDING MUST The Closer the Better, but
ment, in addition to trips abroad the World is Flat!
for analysis, status reporting, audit-
BE DEVELOPING A NEW Distance matters. Geographical
ing and risk analysis can add up to LEVEL OF TRUST AND proximity is indeed the key dimen-
a material percentage of the total sion to reap the benefits of
deal value, and these costs increase
INTIMACY BETWEEN nearshoring. The other dimensions
with distance to the outsourcing ORGANIZATIONS AND THEIR — shared time zone, familiar cul-
location, according to Gartner. ture, and common language — are
OUTSOURCING PARTNERS. all important and many providers
Control and Trust INNOVATION REQUIRES argue that being on a similar time
Cost savings are the most zone — give or take two hours —
important benefit that companies INTIMACY; IT IS INHERENTLY is what matters most, as it enables
expect to achieve from BPO pro- A TRUST-BASED PROCESS.” the distant groups to work as virtu-
jects, an IDC report indicates. The al teams. While it is harder and
same report indicates that loss of Tom Koulopuolos, costlier to establish a trustful work-
control is the greatest challenge Smartsourcing ing relationship if it takes eight
these companies face. This is also hours or more to travel to the
true for ITO projects. Nearshoring remote location.
facilitates the establishment of effective control with much The real nearshore is, therefore, the one that enables
less overhead cost. In particular, geographical proximity competitive advantages in all the four dimensions. And if a
enables resource verification; this ensures, for instance, that provider operates in a country that is strong in some dimen-
the senior programmers that were part of the original team sions and weaker in others, the best strategy is to partner
were not diverted by the provider to more lucrative projects with companies from a country that exhibits complemen-
and replaced with juniors with the excuse of having “a high tary traits. For instance, a Brazilian company could partner
professional rotation.” with Mexican providers that benefit from Mexico’s geo-
Control is a natural enabler of trust, which is the most graphical proximity to the U.S. and the NAFTA treaty
important element in a relationship. Trust is built through advantages, while the Mexican provider could benefit from
congruency between perception and reality, and also Brazilian industry-related skills and access to a wider labor
through interactions: A few face-to-face meetings and field pool with arbitrage advantages in certain areas. It’s a flat, flat,
trips foster trust far better than a hundred phone calls. A flat world, after all! GS
transparent relationship allows for a true understanding of
the service provider’s competency, dependability, financial Daniel TKach is CEO of PartnersMarket and a consultant to MexicoIT.

cover story.qxp 11/21/2008 8:47 PM Page 18
cover story.qxp 11/21/2008 8:48 PM Page 19
Global
Sourcing
in a Challenging
ECONOMY
Special Report
Outsourcing Under the Obama Administration 20
New Market Shifts Will Drive Next Generation IT-Services Outsourcing 22
Outsourcing in 2009: Uncertain as Never Before 24
By Dinesh Goel, TPI
Outsourcing Benchmarks in a Down Economy 26
Global Legal-Services Market: Crisis Creates New Opportunities 28
Global Sourcing Strategies 32
By Chris Osentowski, Ingram Micro (Infosys BPO’s Customer)
and Vijai Balachandra, Infosys BPO
How to Structure and Execute Your Outsourcing Strategy 35
By Phil Fersht, AMR Research
Revisiting Bank Sourcing in Troubled Times 38
By Andy Efstathiou, NelsonHall
What Can Service Providers Do Learn to Deliver More for Less 40
By James Champy, Perot Systems
Mining for Gold in Your Own Backyard 42
Small is Beautiful 44
The MultiSourcing Alternative 46
By Daniel A. Masur and Sonia Baldia, Mayer Brown
What’ll the New Year Bring for Outsourcers? 50
By Imrana Khan, Global Services
Profile_Baker_IK.qxp 11/24/2008 12:53 PM Page 20
Global
Sourcing
in a Challenging
ECONOMY
Outsourcing Under the

OBAMA ADMINISTRATION
T
he immediate future is indeed sentiments invariably color any discussion
very uncertain for the outsourc- of outsourcing, one must delve beyond the
ing industry. There is consider- general suspicion of any delegation of
able anxiety and speculation duties to understand the attitudes toward
from all quarters on its continued growth the outsourcing industry and how politi-
and profitability. Equity analysts and indus- cal policymaking by an Obama adminis-
try participants are attempting to determine tration may affect that industry.
the likely extent and impact it will have on Obama and his team address the topic
the industry’s and companies’ fortunes. of outsourcing primarily in connection
Barack Obama was elected as the 44th with three policy areas: taxes, national
president of the U.S. on a platform of security and jobs. Like his media coun-
change. He has promised that his adminis- terparts, he refers to “outsourcing” when
tration will change politics as usual in many (but not all) his comments are
Washington, and the way the federal gov- specifically directed at offshoring. This dis-
ernment does business. President-elect tinction is important to keep in mind in
Obama comes into office at a time of SAM KRAMER evaluating the reach of Obama’s state-
unprecedented economic woes, with high Partner, International ments. He has consistently stated that he
unemployment, a spiraling deficit and a Commercial Group, would eliminate tax breaks for companies
Baker & McKenzie
weakened standing in the international that move their operations and jobs over-
community. These challenges will shape and inform the Obama seas. “Barack Obama and Joe Biden believe that companies
administration’s positions on the U.S. domestic economy and should not get billions of dollars in tax deductions for moving
its foreign policy. From Obama’s speeches during the presi- their operations overseas. Obama and Biden will also fight to
dential campaign, his platform posted in his Website, and from ensure that public contracts are awarded to companies that are
various news accounts, we can begin to get an understanding committed to American workers.”, reads a statement on barack-
of his attitudes toward outsourcing and offshoring, and how the obama.com. While this policy statement is frequently cited as
policies of an Obama administration may impact those sectors. evidence of an anti-outsourcing position, it is more of a critique
Outsourcing is a term that is bandied about in the media of tax deferral strategies that U.S. companies use to shelter income
without any real consistency or sophisticated analysis. It is often from U.S. taxes by locating operations outside of the U.S. A con-
used to refer to any contractor relationship or delegation of duties. sequence of this deferral strategy is often to shift operations (and
And most often, the connotation is a negative one, carrying with therefore jobs) to non-U.S. facilities, which can have a similar
it a suggestion of cronyism and abdication of responsibility. The affect on domestic employment to offshoring. Yet, the loss of tax
CNN pundit Lou Dobbs has made a career of using a brand of revenue from these relocated operations is as much of the tar-
populism to denigrate offshoring (which he equates with out- get of Obama’s attacks as is the loss of jobs at home.
sourcing) and any governmental policy that even suggests a ser- Maintaining American jobs had been a central focus of the
vice engagement with an overseas company. While these populist Obama campaign, and it became a high profile issue as the col-

Profile_Baker_IK.qxp 11/21/2008 9:11 PM Page 21
Special Report
lapse of the U.S. economy caused a spike in unemployment. As as opposition research, and regretted its tone and attempts to cast
a candidate for the U.S. Senate, Obama gave the keynote speech aspersions on fundraising by the Indian-American community.
at the 2004 Democratic convention where he spoke about Amer- However, the memo was also highly critical of offshore service
ican workers “who are losing their union jobs at the Maytag plant companies such as TCS, but this did not provoke any specific
that’s moving to Mexico and now are having to compete with rebuttal or distancing from Obama.
their own children for jobs that pay seven bucks an hour.” As a If Obama’s policy statements and stump speeches on the
Senator, Obama co-sponsored the Patriot Employers Act. The campaign trail are a reliable indicator, the Obama administra-
Act provides for a tax credit of one percent of taxable revenue tion will be focused on maintaining jobs for U.S. workers and
to employers who, among other requirements, maintain or reducing the tax benefits for U.S. companies that relocate oper-
increase the number of full-time workers in the U.S. relative to ations overseas. He is likely to try and use tax policy as a chief
the number of full-time workers outside of the U.S., and who method of achieving these goals. However, Obama has not dis-
maintain their headquarters in the U.S., if they have ever been played the anti-outsourcing and anti-offshoring sentiments held
headquartered in the U.S. in the past. S. 1945. The Patriot by many of the populists in his party. Obama acknowledged on
Employer Act would provide tax incentives to U.S. companies the campaign trail that “[w]e know that we can’t put the forces
that maintain or increase American jobs, but would also be avail- of globalization back in the bottle. We cannot bring back every
able to offshore service providers that increase their U.S. head- job that’s been lost.” IT industry leaders in India have shrugged
count through their U.S. subsidiaries. off suggestions that the Obama administration will be anti-out-
As a presidential candidate, Obama frequently attacked the sourcing or seek to ban or regulate the outsourcing industry.
Bush administration for its outsourcing of government func- They point to an expected increase in H-1B visa availability to
tions to private contractors. In a response to a questionnaire bring skilled IT workers to the U.S. and to the cost-cutting
this summer on federal contract-
ing from the Washington Post,
the Obama campaign stated The Indian IT industry, along with the entire
“Senator Obama is concerned by
the rising number of government outsourcing sector, are adopting a wait-and-
contractors that are often unac- see approach with respect to the new admin-
countable and frequently less effi-
cient than government workers. istration’s policy on offshoring, but none
As president, Obama will restore expect a seismic change in the offshoring of
effective oversight of the govern-
ment contracting process and high-tech, and other services to overseas
reduce our nation’s increasing service providers.
dependence on private contrac-
tors in sensitive or inherently
government functions.” On Obama’s Senate Website, there is advantages of outsourcing during an economic downturn as
a link to an L.A. Times editorial from 2007 critical of no-bid, indicators that offshoring services will remain robust during the
private defense contracts, such as those with Blackwater in Iraq. Obama administration. “Obama’s statement [critical of out-
In March of this year, Obama wrote a letter to the International sourcing] was on outsourcing jobs; I think we are more in the
Teamsters Union stating that the practice of outsourcing air- business of offshoring work”, said Partha Sarkar, CEO, HTMT
craft maintenance services overseas raises security concerns. Global Solutions. Reflecting upon Obama’s election victory,
Obama’s policy responses to the outsourcing of government ser- Ganesh Natarajan, Chairman, Nasscom, stated “[T]he whole
vices has been to sponsor legislation to improve transparency restructuring of the financial-service industries that will be taken
and oversight of the contracting process, and not to advocate up by Obama … will provide a greater deal of opportunities for
eliminating the practice altogether. the Indian companies.” The Indian IT industry, along with the
During the presidential campaign, some were concerned entire outsourcing sector, are adopting a wait-and-see approach
about an anti-outsourcing/anti-offshoring bias within the with respect to the new administration’s policy on offshoring,
Obama camp after a memo was distributed by the Obama cam- but none expect a seismic change in the offshoring of high tech
paign during the primary contest entitled “Hillary Clinton (D- and other services to overseas service providers. GS
Punjab)’s Personal Financial and Political Ties to India.” The
memo highlighted the Clintons’ ties to Indian multi-national Sam Kramer is a Partner in the International Commercial Group in the
companies, and insinuated that Mrs. Clinton was financially Chicago office of Baker & McKenzie. A graduate of Northwestern Univer-
beholden to Indian companies engaged in stealing American jobs. sity School of Law, Kramer’s practice focuses on structuring and negotiating
Obama took responsibility for the memo, prepared by his staff outsourcing and managed services arrangements.

Profile_forrester_IK.qxp 11/21/2008 8:43 PM Page 22
Global
Sourcing
in a Challenging
ECONOMY
NEW MARKET SHIFTS WILL DRIVE
Next Generation
IT-SERVICES Outsourcing
A
gainst a background of economic crisis — com-
pounded by concurrent armed conflict, natural
disasters and political upheaval — making
decisions about IT services for global enterprises is get-
ting more complicated. Regardless of whether you think the daily
news points to the Apocalypse or simply a rough patch of road,
today’s turbulent business environment can all but paralyze enter-
prise planning. IT faces this impact as much as any other busi-
ness function, but the reality is that commerce must continue.
IT service delivery is a foundational capability essential to
our modern world, and technology-driven efficiency improve-
ments are vital to business success. But unfortunately, many
firms source and manage IT services poorly, basing decisions
on invalid assumptions that ignore changes and challenges in
the market. Smart executives leverage the IT services provider
landscape not merely to manage technology “plumbing” but
also to profoundly affect business performance.
Today’s Tough Business Climate will Force Firms

to Face up to IT Realities
The reality of outsourcing today is that most enterprise
customers must manage a complex ecosystem of internal and
external service providers. This puts an additional burden on
customers as well as providers that have to work within — or DR. PAUL ROEHRIG
even manage — multiprovider ecosystems, with higher risk of Principal Analyst, Forrester Research
failure and complex interdependencies.
Most IT services decision-makers make daily choices about ing IT-skills gap and the maturation of the outsourcing indus-
how many IT processes (if any) should be handed over to ser- try — that are shaping how IT will be run over the coming
vice providers. But as the outsourcing business matures, and the years. The result is a business context and a provider landscape
broader market exhibits higher levels of variability, these deci- that will tax even the most experienced IT decision-makers.
sions are becoming more difficult and risky. Fallout from the
current (and expanding) global banking crisis is now acting as a An Old World Vs. New World Provider Landscape
force multiplier to other market drivers — including the grow- Making a tough self-assessment of what the firm really

Profile_forrester_IK.qxp 11/21/2008 8:44 PM Page 23
Special Report
wants from IT service providers is one step in helping ensure was the largest IT-services acquisition ever, M&A and
long-term sourcing success. The next aspect of managing alliance building abounds in the IT services and telecom ser-
through complex market shifts is to properly align to vices domains. Other recent examples include the divest-
providers that fit those business and technical requirements ment of multiple components of Getronics (CompuCom
and are well-positioned for long-term survival as business acquired the North American delivery capability), and
requirements change. IT-services customers have always wres- Caritor’s acquisition of Keane. Major deals get most of
tled with how to manage their outsourcing deals, but navi- the press, but the story doesn’t end there. In H1 ’08,
gating through the changing provider landscape presents new Forrester tracked 270 activities that fell into one of the fol-
challenges today. Several major market shifts effectively divide lowing four main categories: M&A; partnership activities;
the service provider landscape as “Old World” legacy firms new solutions and services; and changes in go-to-market and
face increasing challenges by “New World” firms as likely to delivery strategies.
be headquartered in India as Armonk, N.Y., or Cupertino, Customers seek providers that can deliver tomorrow’s
Calif. But this is not merely about the founding date or India- business requirements. It’s tough enough to figure out what
based firms versus North American and European-based is required today, much less five years into the future. This
firms. This is about how these firms deliver services and cre- truism underlies much of the customer dissatisfaction with
ate value. Sourcing professional must keep it mind now that outsourcing, and it’s the charge that IT outsourcing decision-
the next generation of outsourcing providers delivering sig- makers continue to face. Most enterprise customers quite rea-
nificant value to customers, will have to thrive in the disorder sonably seek lower costs, end user productivity support, and
of these new market shifts.
The old notion of “offshoring” should be retired. Global
service delivery is about options for customers that balance Regardless of current weak-
requirements and cost, not just pure wage arbitrage. Now that
the service delivery “center of gravity” can be almost any-
nesses in the broader econom-
where, clients of mature outsourcing firms can have delivery ic market, smart sourcing deci-
from onsite, nearby, or a remote location, regardless of where
the provider is headquartered. In this new business reality
sion-makers will aggressively
“offshoring” no longer equals “India,” so it’s now time for the leverage technology as a busi-
notion of “offshoring” or an “offshore provider” to be replaced
by “global service delivery.” Forward-thinking customers
ness accelerator rather than as
(many of whom are already managing an ecosystem of global a sunk commodity cost.
service providers) recognize this, and Forrester data shows
that use of Remote Infrastructure Management (RIM) —
most often implemented by legacy multinational service improved business-processes quality in the style of “keep the
providers — is set to expand. lights on” Solid Utilities and “meet the SLA” Trusted
Telecom and IT service provider tie-ups will exploit con- Suppliers. But decision-makers are also now looking to
vergence to take market share. Convergence between IT and “Partner Player” providers to enable business innovation, new
telecom service delivery opens up ample opportunity for market offerings, customer retention, and core business
competition — or collaboration — between firms on either process re-engineering.
side of the fence. Alliances spring up to exploit the collabora-
tion option and deliver customer value as a preformed IT Use the Current Economic Turmoil as Fuel for an
ecosystem. Examples include IBM’s diverse network deals IT-to-BT Transformation
with AT&T; HP’s relationship with BT; and Dutch telco Regardless of current weaknesses in the broader economic
KPN’s acquisition of IT service provider Getronics. In addi- market, smart sourcing decision-makers will aggressively lever-
tion, some telecom firms like India’s Bharti Airtel are expand- age technology as a business accelerator rather than as a sunk
ing service offerings into the broader IT-services space. Some commodity cost. The evolution from IT to BT should not go
IT-services customers still choose to manage separate telecom on hold during any near-term market corrections (or even a
and IT providers, but options are growing for customers that recession). Customers who are building, restructuring, or
want to take advantage of convergence, particularly in net- managing outsourcing deals should focus on improving service
work-related services. and contract visibility (potentially building business-services
Service providers continue the path of consolidation and management tools and processes into the deal). GS
partnering. Continuing M&A activity among service
providers only adds to the gastric distress of many IT-ser- Paul is one of Forrester’s leading analysts addressing IT-services outsourcing
vices customers. Although HP’s recent acquisition of EDS and vendor, management.

Profile_TPI_IK.qxp 11/21/2008 8:57 PM Page 24
Global
Sourcing
in a Challenging
ECONOMY
OUTSOURCING IN 2009:
Uncertain as
NEVER BEFORE
By Dinesh Goel, TPI
T
he immediate future is indeed Apart from budgetary reductions, there
very uncertain for the outsourc- will be actions planned on the part of the
ing industry. There is consider- customers to get a “bigger bang for the
able anxiety and speculation buck” or more value for money.
from all quarters on its continued growth Over the next few quarters, we expect
and profitability. Equity analysts and indus- changes in the customer-service provider
try participants are attempting to determine relationship as well as changes in their
the likely extent and impact it will have on respective industry structures.
the industry’s and companies’ fortunes. This will see the emergence of the fol-
We believe that the situation is far more lowing in the relationship between the cus-
complex than is generally factored in to tomer and the service provider particularly
arrive at conclusions on the growth of the in the next few quarters:
industry — it is neither easy nor straight- Pricing pressure — pressure on the price
forward to assess the impact of the current levels being charged to the customer
market and economic conditions on the out- Consolidation of vendors — the cus-
sourcing players. The rationale for the com- DINESH GOEL tomer’s desire to consider consolidation of
plexity is that there are multiple forces at Director, TPI their vendors so that they can negotiate
play. Some forces are clearly pointing toward a slowdown better overall terms by offering a larger slice of the business to
in demand for outsourcing services while others offer a refresh- fewer providers.
ing possibility of an offset. Re-structuring or re-negotiation of contracts
The current financial and liquidity crisis — now that it has Price-driven contracting — gravitation towards favorable deal
spread to the entire developed world beyond just the U.S. main- economics in terms of price levels receiving a higher weight in
ly due to indirect exposures of non-U.S.-based financial institu- the decision making process than usual
tions — will result in a reduction of discretionary spend in gen- Shift from time and material arrangement to managed ser-
eral and IT spend in particular. The focus of the affected vices or fixed-fee arrangements — predictable pricing and
companies is shifting from “growth and innovation” to “cost con- transfer of execution or delivery risk to the service provider
trol and profitability.” Consequently, the Selling, General and Transfer of risk to service providers for inflation and foreign
Administrative (SG&A) spend comes under the scanner when currency volatility — significant volatility observed in the last
they budget for next year, and avoidable budget spend will be easy few quarters which can swing the overall total cost of ownership
targets for cuts. We expect postponements on projects or spend for the customers
that can be pushed out without disrupting the ongoing business Aggressive push toward optimizing onsite-offshore ratios —
and total avoidance on some other non essential spend in the cur- move onsite roles to offshore to the extent possible for an over-
rent mood of austerity. In these times, most CXOs will easily reach all reduced blended rate structure.
a consensus that staying afloat with minimum resources and spend At the same time, there is another set of customers who will,
is the need of the hour. Hence, the harsh reality is that ongoing expectedly, accelerate their outsourcing and/or offshoring pro-
discretionary projects may be impacted and that transformational grams. The penetration of the outsourcing/offshoring industry is
projects that were planned may be abandoned altogether. still quite low relative to the total size of the addressable market.

Profile_TPI_IK.qxp 11/21/2008 8:57 PM Page 25
Special Report
Many corporations have managed to avoid the distraction of out- FMCG companies will be driving the new demand for IT ser-
sourcing/offshoring so far. With the profitability and recession- vices. Other emerging large economies are likely to follow suit.
ary pressures on the core businesses, there will be incremental
demand that may emerge from the fence sitters or conservative Controlling Risks
firms. In many ways, the current economic conditions will actu- Diversification beyond the traditional markets of the US and
ally accelerate the outsourcing wave. the UK is warranted even from the perspective of currency
Pending that uptick in demand, service providers will mod- volatility. There has been a roller-coaster type volatility between
ify their approach to customers and their own operations. the Indian Rupee and the U.S. dollar over the last two years or
so. Even as Indian Service Providers were worried about the
Customer Engagement rupee appreciating considerably against the dollar in a short span
Customers will expect providers to demonstrate greater flex- of time, the trend reversed and the rupee fell against the dol-
ibility and willingness to assume risks in their outsourced rela- lar — even crossing historical lows. Once again, the rupee has
tionships; hence, in their desire to retain the current share of started to appreciate against the dollar recently. Service
clients’ wallets, and to the extent possible, providers will do so. providers, who will be increasingly expected to bear most of the
They will also be keen to renegotiate extensions and renewals of currency volatility risk in their outsourced contracts, will do well
their contracts as well as shift away from time and material to diversify their book of business across billing currencies. They
commercial arrangements. Despite assuming greater risks by will also certainly need to get more sophisticated with their Trea-
moving away from traditional commercial arrangements, sury Departments as such activity can have a direct impact on
smarter service providers can potentially hope to earn higher their bottom-lines.
margins as well by leveraging the direct incentive of driving
greater employee productivity and higher process efficiency. Solution Orientation
Service providers may also enhance their focus on solution
Business Consolidation
These times are also good for service providers to consoli-
date their businesses — many of them have been growing far By offering bundled offerings,
too rapidly for senior management to spend time on evaluating
their business, opportunities and future direction as a whole.
providers can target potentially
Management can revisit their business, operating models, and higher margins and reduce their
drive greater efficiencies in running them, implement tools and
initiatives to improve employee productivity, reflect on the
dependence on the billing of
learnings from varied customer engagements and projects, employees for revenue growth.
improve the effectiveness of their training programs and spend.
All of the above will position them for more effective and prof-
itable growth when the good times roll again. orientation; solution-based or asset-driven services as opposed
to people-based services. This will serve the cause of non-lin-
New Markets ear growth in the future and help them differentiate themselves
Service providers will be compelled to look beyond their train the crowded marketplace. By offering bundled offerings and
ditional markets of demand and supply and diversification will solutions, providers can target potentially higher margins as
be a key theme. Service providers will expand and enter new well as reduce their dependence on the billing of employees
territories and geographies, set up new facilities, hire new teams for revenue growth.
to sell and deliver business. Emerging markets will assume The current situation of turmoil and recession will likely not
greater significance since the proportion of the world’s GDP last too long; the collective might and wisdom of central banks
contributed by the developing economies will rise considerably and governments will hopefully help the affected economies to
when developed countries are under economic pressure. This recover from the crisis sooner than later. When this will happen
will result in higher industrial growth in emerging markets and is uncertain, but we can hope that 2010 will set in with a high-
thereby higher level of IT-services requirements. With growth er GDP growth and a reversal of the fortunes of 2009.
still expected at over 5 percent in large emerging countries such Until such a time, there are indeed tough times ahead for the
as India, these will become attractive markets for the Service service providers. As always, the silver lining of potentially high-
Providers. It is a small wonder that IBM has invested in builder momentum still tinge the recessionary clouds — all we can say
ing its presence in the Indian market and has been successful in now is ”this too shall pass”. GS
catering to the domestic Indian market. The Indian economy
will see demand for IT services emerge from sectors beyond Dinesh Goel, Director, TPI. He advises on aspects of their global service deliv-
banks and telecom companies. Insurance, healthcare, retail, ery strategy with specialization in the finance & accounting domain.

profile_compass_IK.qxp 11/21/2008 8:39 PM Page 26
Global
Sourcing
in a Challenging
ECONOMY
Outsourcing Benchmarks in a
DOWN ECONOMY
A
s the outsourcing market support and enable business objectives.
matures, customers and service For example, Compass recently ana-
providers are gradually taking lyzed an outsourcing agreement between a
a more strategic view of their financial-services organization and a major
sourcing relationships, and are increas- service provider and found that the cus-
ingly focused on addressing long-term tomer was paying significantly more than
business objectives. market rates for storage technology.
The role of benchmark initiatives in However, the analysis also determined that
sourcing management reflects this evolution. the high costs were being driven by the
By comparing the costs of outsourced ser- customer’s existing environment and
vices in a specific environment against unique business requirements. Specifically,
existing market standards, a benchmark growing volumes of data throughout the
reveals performance gaps and improvement enterprise drove demand for storage
opportunities. From a tactical perspective, resources, while obsolete data processes
these results can be used to drive immedi- and myriad legacy systems failed to keep
ate price adjustments to align with com- MAX STAINES up with the business’ information-man-
petitive rates. While such adjustments are President, North agement requirements.
often necessary, the price and service analy- American Operations, Under the circumstances, a benchmark
sis is ideally used as part of a governance Compass agreement mandating immediate price
process to define and implement a sourcing strategy adjustments by the provider to align with market standards
aligned with business needs. would have had disastrous long-term consequences for the rela-
tionship, as the provider would have been unable to viably sup-
Redefining the Contract Benchmark port the customer, and the customer would have been exposed
One of the challenges of traditional benchmarks is the non- to the risks of an inadequate and insecure data-storage environ-
negotiable contractual obligation for prices to be adjusted based ment. Instead, the benchmark was used as a baseline from
on the findings. The risk of losing revenue puts providers on the which to chart a roadmap toward a future state that aligned
defensive and encourages intransigence, as they come to the with the customer’s business needs. The customer worked with
table prepared to defend their rates, challenge the findings, and the provider to implement a transition initiative to replace lega-
derail the benchmarking process. cy systems with more streamlined storage platforms, and to
In a good outsourcing relationship, a benchmark agreement develop a program to more effectively manage information by
that states both parties will use the findings to support categorizing and prioritizing access to data throughout the
informed discussion and negotiation can actually achieve much enterprise. A win/win resulted in this instance, as the customer
more than one that requires specific and immediate remedial was able to address a significant business challenge (gaining
action through price adjustments. In many instances, a non- control of the storage requirements) and the provider gained
binding agreement can lead to a price and service analysis that revenue and was incented to provide both an innovative and
helps build a business case for furthering IT’s capabilities to cost-effective solution.

profile_compass_IK.qxp 11/21/2008 8:40 PM Page 27
Special Report
Forward-looking Benchmarks practices and an inability to “enforce” appropriate behavior

Another limitation of traditional benchmarks raised by both within the client organization. Joint initiatives developed fol-
customers and providers is that they are “backward” looking, in lowing the analysis have addressed 60 percent the differential
the sense of being based on historical data. — that neither party knew even existed.
From a customer’s perspective, any over-payment from pre-
vious years is a fait accompli. As such, the provider has no Maintain Focus on Long-term Biz Requirements
incentive to complete the exercise in a reasonable timescale. For The current economic climate could potentially influence
a provider, a backward-looking benchmark may mean that a executives to revert to a cost reduction first mentality in their
portion of the revenue stream cannot be recognized until the approach to managing sourcing relationships. A recent Compass
benchmark is completed, leaving no time to reduce their cost analysis of 120 global outsourcing deals worth over $60 million
base to compensate for any revenue changes resulting from the each concluded that contract renewal negotiations are increasingly
analysis. The increasing availability of market data, along with driven by pricing pressure. The analysis found a large percentage
advancements in analytical methodologies, has enabled the of companies were demanding rate cuts of 15 percent to 23 per-
emergence of “forward-looking” benchmarks. Rather than cent across the board, without consideration of whether existing
merely assessing previous performance, a forward-looking services are being delivered at a fair market price. For their part,
benchmark establishes a fair market price for the following year; vendors were in many cases agreeing to price discounts up front
the projection is based on observed changes in market pricing, — in exchange for long-term agreements.
proven reductions in delivery costs, and changes in customer The analysis — conducted, incidentally, before the events
requirements regarding service-level agreements, volumes, sup- of this past autumn — suggests a shift in renegotiation prior-
port hours, and other criteria. ities, from a focus on strategy and future requirements to plac-
A forward-looking benchmark is typically conducted three ing cost cuts at the top of the agenda. Perhaps the most trou-
to six months before implementation of any required price bling aspect of this trend is that these aggressive price-reduction
changes, so that an analysis conducted in December would targets are being arbitrarily defined, with no due diligence
guide implementation the following April. This ensures the around the competitiveness of existing services and with no
customer receives value for money delivered by the outsourcing regard to business requirements.
contract, while the provider is motivated to complete the exer- Negotiating for short-term price reductions in exchange for
cise promptly to maximize the amount of time available to long-term agreements — without a detailed understanding of
implement any improvement activities required to support the existing costs, services, and requirements — is a losing proposi-
future price points. tion. The cuts will eventually become unsustainable, leading to
a de-motivated supplier, a poor working relationship, and poor
Incenting Process Innovation service quality.
Outsourcing contracts combine varying degrees of generic This is not to suggest that cost reduction should not be a pri-
commodity services, along with enhancements and offerings to ority. Nor is it to suggest that benchmarks don’t have a role to play
accommodate a customer’s specific requirements. The latter are in cost reduction. Top-performing organizations are using
generally derived from historical processes and practices within benchmarks to establish a baseline of existing services against mar-
the client organization that pre-date the outsourcing engage- ket rates, and using that baseline to achieve quality performance
ment. Because these requirements are client specific, the service at a fair market price. Moreover, they are using benchmarks to
provider has no way to achieve any of the economies of scale help develop and implement more strategic, enterprise-wide cost
that enable lower pricing and efficiency. reduction initiatives such as rationalizing applications, stan-
These unique — and often inefficient — processes and dardizing business processes, and consolidating sites.
practices represent a significant operational burden, in some Businesses should resist the temptation to use a worsening
instances accounting for price increases of up to 25 percent economy as an excuse to abandon a strategic perspective on
above market rates, with no associated benefit to the ccustomer outsourcing in favor of a quick win approach that uses the
organization. A benchmark initiative that goes beyond standard benchmark as a hammer to pound out short-term price cuts
service delivery costs and analyzes the impact of the customer’s — the benchmark is a far more useful tool than that. In the
management practices and processes therefore has tremendous current economy, the easy thing to do may indeed be to
potential to drive improvement. Specifically, such a benchmark demand immediate cost reductions from service providers. But
can identify inefficient processes, define remedial actions, and effective organizations don’t necessarily do what’s easy, they do
quantify the benefits of change to the customer organization — what’s right. GS
with no negative impact on the vendor’s margin.
For example, a benchmark recently conducted by Compass Max Staines is President of Compass’ North American operations. Compass
found that 8 percent of a large outsourcing contract’s total is a global management consulting firm specializing in improving the IT and
charges were driven by a combination of outdated working business operations of large organizations.

Profile_Value Notes_final.qxp 11/21/2008 8:59 PM Page 28
Global
Sourcing
in a Challenging
ECONOMY
GLOBAL LEGAL-SERVICES MARKET
Crisis Creates New

OPPORTUNITIES
A
n uncertain economic climate coupled with struc-
tural changes in the global marketplace — these are
challenging times for most businesses. And law
firms are no exception. Several law firms such as
Clifford Chance, Cadwalader Wickersham & Taft announced
layoffs while some like Thelen Reid Brown Raysman & Stein-
er have shut shop. U.K. conveyancers as well as U.S. attorneys
are facing an extremely difficult time with the collapse of the
US housing market.
The Changing Marketplace

While many believe that the financial crisis will result in
increased litigation, this may not be enough to offset the
lower business from other customers. We believe that there
will be a considerable drop in billing rates, which is already
starting to show up, as understandably, corporates will look
for ways and means to reduce their costs across the board.
The pressure on billing rates for law firms could result in
greater outsource/offshore possibilities.
Cutting costs and better utilization of in-house lawyers
(especially in the current economic conditions) is a com-
pelling reason for corporates to consider outsourcing/off-
shoring in their strategy. While corporates have been push-
NEERAJ KANDALA
ing law firms to offshore, going forward this pressure will
Principal Analyst, Legal Services,
only increase, and the offshore component will become
ValueNotes
more significant.
financial crisis, the legal-services outsourcing industry
Impact on Offshoring remains competitive because of the very nature of the busi-
At this juncture, the pertinent question is, how will the ness. On the other hand, law firms are likely to have prob-
global financial downturn affect the Legal-process lems responding to the changing market because of their
Outsourcing (LPO) industry? costs and overhead structures. Hence, partnership with a
Even as the world weathers the most significant global local or offshore service provider will be of paramount

Special Report
importance at this time. We expect an increasing number of nificant value and comfort to customers.
alliances between law firms and service providers to address Bundle service offerings: The IT industry successfully
the needs of the corporates. According to Arihant Patni, experimented with productizing and bundling of service
CEO, Bodhi Global Services, “While there will be a slow- offerings. With a large number of firms (with IT parentage
down in terms of decision-making, services such as litigation or expertise) entering the Business Process Outsourcing
support in general will see a spike in demand. However, the (BPO) market and (more recently) the knowledge-services
specific areas within litigation need to be identified. There market, bundling of offerings is the next logical step.
is likely to be a slowdown in services such as legal research Technology, support services, legal support and manage-
and contract review.” ment capabilities together can be bundled for the client. For
instance, the proliferation of electronic documents, increas-
Action Items for Service Providers ing volumes of data and rising cost pressures are leading to
While corporates and law firms need to work on strate- rise in spend on document review. Technology is typically
gies to compete in the new environment, challenges and used to control the scope of the review and cut down the
uncertainties have unlocked opportunities for offshore ser- attorney’s review time. The service provider can combine
vice providers. Now is the time for service providers to re- technology expertise with scalable offshore attorney team to
evaluate their strategies. offer this solution to the customer.
While it is always a good strategy to provide higher-value Clifford Chance, the world’s largest law firm started off-
services to existing customers and keep moving up the value shoring some of its word-processing functions two years ago.
chain, now is a good time to develop/garner a wider-customer Recently, the law firm signed on Integreon to offer a variety
base. Providing services that are scalable and pose the least off- of support services to the law firm. Integreon will act as a back
shoring risk to customers is the best bet for providers. office for the law firm and will also offer accounting services
Focus on high volume services: Almost any activity and IT functions. Going forward, we are likely to see a mix of
whether support services (such as IT, Finance,
Administration) or legal support that is outsourceable or can
be moved away from contract attorneys will improve law While rising legal fee is worrying
firms’ profits if offshored. With the maturing of offshoring,
a range of services such as legal research, transcription, con-
the general counsels as budgets
tracts management and patent services have been offshored. tighten, there are several low-
Among these, higher-value services such as patent and con-
tract drafting that require not just skill, but “knowledge”
value processes that can be
have been sought after as “differentiators” by a large number easily offloaded by the firms.
of service providers.
However, in these turbulent economic conditions, service
providers need to re-evaluate their customer needs. While ris- legal and support services as part of larger contracts.
ing legal fee is worrying the general counsels as budgets tight- While there will always be room for the pure-play legal ser-
en, there are several low-value processes and support services vices providers, the bundled offerings will appeal to several large
that can be easily offloaded by the corporations. Service clients, which could be a threat for some of the existing LPOs.
providers that have focused primarily on so-called “high- Follow the BPO model: For the BPO industry, scale has
end” services need to think of broadening their offering, to been a critical success factor, since BPO is typically a process
include process driven and commoditized services to maxi- driven, volume business. In contrast, most knowledge ser-
mize the current opportunity and expand their client base. vices providers (including legal-services outsourcing
Build project-management capabilities: Offshore service providers) have essentially used “knowledge” as their unique
providers need to take a step back and think outside the box selling proposition.
to see what they can do differently to add value to their ser- However, with the changing environment, and particu-
vices portfolio. larly the entry of large IT-BPO companies like Infosys the
Law firms typically outsource work to contract attorneys, business model is likely to undergo a shift. With many
since they find it easier to manage onshore relationships. providers offering a combination of legal and non-legal sup-
Corporates and law firms have designated internal teams or port services, scale will become an important enabler and
project managers to manage offshore functions/vendor rela- differentiator. According to Poonam Vasudeva, Delivery
tionships. However, by and large, cutomers do not have sig- Head, LPO Services, Infosys, “The economic crisis in the
nificant project-management capabilities to handle offshore U.S. will definitely impact LPO business positively, espe-
projects. Responding to this need by bundling project man- cially in the litigation and bankruptcy space. However, in
agement with other legal-service offerings, will provide sig- order to be able to capture the addressable market for legal

Global
Sourcing
in a Challenging
ECONOMY
services, it is imperative for LPOs to start leveraging the
BPO delivery model. Managing scale will only be possible if The increasing cost pressures
delivery and process frameworks are mature and stable.
Moving from a vendor relationship to a partnership, looking
coupled with the economic
at adding value through business transformation should be downturn, will ensure that off-
the key focus of the industry.”
shoring becomes an imperative
Huge Growth Potential for most corporates as well as
With increasing realization of the merits of offshoring, cou-
pled with the pain that will accompany the recession in the US
law firms.
and Western Europe, the legal segment has a huge growth
potential. Though the legal services offshoring industry is grow-
ing rapidly, it addresses a mere 3 percent of the offshorable in demand.” Services such as word processing, coding, docu-
potential. Indian revenues from the legal-services offshoring ment review, litigation support, risk management, contract
were $225 million for the calendar year 2007, and are expected drafting and legal research will witness increasing demand.
to reach $640 million by end 2010. While offshore legal ser- According to Mark Ross, VP, Sales and Marketing,
vices industry has been reporting over 40 percent growth annu- LawScribe, “Irrespective of whether they relate to BPO or LPO,
ally, we can expect an even higher than average growth over the outsourcing initiatives of any substantial scale require a major
next two years. Says Rohan Dalal, Managing Director, degree of investment on the front end, in terms of time, effort,
Mindcrest, “While certain specific areas such as M&A due dili- money and firm or corporate wide buy-in. It is entirely normal
gence will see a temporary softening, definitely services like lit- for the due diligence, RFP and pilot-project processes, for a
igation support and bankruptcy work will see a noticeable spike Fortune 500 company, or Am Law 200 firm, prior to engage-
ment with an LPO, to take six to 12 months or more. Key
stakeholders on the customer side have their hands quite full at
Offshoring Maturity the present moment dealing with more pressing matters than
new outsourcing initiatives, such as department closures, layoffs
Phase I Phase II Phase III
Relatively Increase in the Move toward and plummeting stock values. In the short-term it is conceiv-
smaller contracts size and scope larger and longer- able that the growth in the LPO industry will plateau while the
of contracts term contracts markets are in such a state of turmoil. This however, is purely a
short-term perspective. The argument for outsourcing, howev-
er, is stronger than ever before. I have no doubt that in the
Current Indian medium to long term we will once again be reporting on record
LPO position growth in the space.”
Looking at the larger picture, the impact of U.S. downturn
will be less severe on the LPO industry than it has been for
other sectors. In fact, the increasing cost pressures coupled
with the economic downturn, will ensure that offshoring
becomes an imperative for most corporates as well as law
firms. The momentum will build up further once companies
Captive of cor- Some of the Mix of legal and
wake up to the reality of economic changes, and start to look
porates (GE, larger deals: support ser-
Oracle, Dell), Clifford Chance- vices and value- at how to retain their competitive advantage by lowering the
smaller con- Integreon; Allen added services cost (or increasing capacity) of the traditionally very expensive
tracts and pilots & Overy-Office across all the legal services. GS
by law firms Tiger; Haynes & segments
(Bickel & Brewer) Boone-
Neeraja Kandala is a Principal Analyst, Legal Services at ValueNotes, a
and legal pub- Inventurus
lishers (West) research and business intelligence firm. She has authored several reports on
various knowledge segments including “Offshoring Legal Services to India.”
SOURCE: ValueNotes Research

company index.qxp 11/21/2008 9:40 PM Page 31
Companies’ Index
ABS Network Solutions . . . . . . . .12 Everest Group . . . . . . . . . . . . . . . .10 Optiinvoice Digital Technology . .12
ACS . . . . . . . . . . . . . . . . . . . . . . . . .50 Eyecandy . . . . . . . . . . . . . . . . . . . .12 Oracle . . . . . . . . . . . . . . . . . . . . . . .12
ADAR . . . . . . . . . . . . . . . . . . . . . . . .12 First Consulting Group . . . . . . . . .10 PartnersMarket Consulting . .16, 17
Addnode . . . . . . . . . . . . . . . . . . . . .12 Forrester Research . . . . .19, 22, 23 Pc-Ware Information . . . . . . . . . . .12
Advanced Visual Technology . . . .12 Fukui Computer . . . . . . . . . . . . . . .12 Technologies
Agility Healthcare Solutions . . . .12 Gamecock Media Group . . . . . . . .12 Perot Systems . . . . . . . . . .19, 40, 41
Amgen . . . . . . . . . . . . . . . . . . . . . . .13 GE Healthcare . . . . . . . . . . . . . . . .12 Polaris Software Lab . . . . . . . . . .12
AMR Research . . . . . . . . .19, 35, 37 Gladstone . . . . . . . . . . . . . . . . . . . .12 Primavera Software . . . . . . . . . . .12
AT&T . . . . . . . . . . . . . . . . . . . . . . . .13 Gold Wide Holdings . . . . . . . . . . . .12 Proze . . . . . . . . . . . . . . . . . . . . . . . .12
Autodesk . . . . . . . . . . . . . . . . . . . . .12 HCL . . . . . . . . . . . . . . . . . . . . . . . .50 QinetiQ . . . . . . . . . . . . . . . . . . . . . .12
Baker & Mckenzie . . . . . . .19, 20, 21 Health Systems Solutions . . . . . .12 Quantros . . . . . . . . . . . . . . . . . . . . .12
Bernstein Research . . . . . . . . . . . .10 HP . . . . . . . . . . . . . . . . . . . . . . .12, 50 Raiffeisen Informatik . . . . . . . . . .12
Broadcaster . . . . . . . . . . . . . . . . . .12 IBM . . . . . . . . . . . . . . . . . . . . . .13, 50 RIA Soft . . . . . . . . . . . . . . . . . . . . .12
CA Inc . . . . . . . . . . . . . . . . . . . . . . .12 ICx Technologies . . . . . . . . . . . . . .13 Satyam . . . . . . . . . . . . . . . . . . . . . .10
Cadwalader Wickersham & Taft .28 Idfocus . . . . . . . . . . . . . . . . . . . . . .12 SEEC . . . . . . . . . . . . . . . . . . . . . . . .12
Cambridge Solutions . . . . . . . .12, 13 Il Sole 24 Ore . . . . . . . . . . . . . . . . .12 SightSpeed . . . . . . . . . . . . . . . . . . .12
Canopy Financial . . . . . . . . . . . . . .12 ILSIT and Logistics Systems . . . .12 Softimage . . . . . . . . . . . . . . . . . . . .12
Capgemini . . . . . . . . . . . . . . . . . . . .12 Imtech . . . . . . . . . . . . . . . . . . . . . . .12 Softtek . . . . . . . . . . . . . . . . . . . . . .10
Capita Group . . . . . . . . . . . . . . . . .12 Infosys . . . . . . . . . . . . . . . . . . . . . .50 Southpeak Interactive . . . . . . . . .12
Caregain . . . . . . . . . . . . . . . . . . . . .12 Infosys BPO . . . . . . . . . . .19, 32, 34 SS&C Technologies . . . . . . . . . . . .12
Ceon Corporation . . . . . . . . . . . . .12 Ingram Micro . . . . . . . . . .19, 32, 34 Star System Solutions . . . . . . . . .12
Changsha Xinxing Development .12 ITT Advanced Engineering . . . . . .13 Strand Interconnect . . . . . . . . . . .12
China Railway Logistics . . . . . . . .12 & Sciences Strategic Vision Consulting . . . . .10
China Railway Logistics . . . . . . . .12 Kofax . . . . . . . . . . . . . . . . . . . . . . . .12 System Co . . . . . . . . . . . . . . . . . . .12
Citigroup . . . . . . . . . . . . . . . . . . . . .13 Lawscribe . . . . . . . . . . . . . . . . . . .30 TCS . . . . . . . . . . . . . . . .12, 13, 38, 50
Citigroup Global Service . . . . . . .12 Lefthands Network . . . . . . . . . . . .12 The Nielsen Group . . . . . . . . . . . .50
Clifford Chance . . . . . . . . . . .28, 29 Lehman Brothers . . . . . . . . . . . . .39 Thelen Reid Brown . . . . . . . . . . . .28
Cna Group . . . . . . . . . . . . . . . . . . . .12 Logitech International . . . . . . . . .12 Raysman & Steiner
Cognizant . . . . . . . . . . . . . . . . . . . .10 Magisters.com . . . . . . . . . . . . . . . .14 Threepro Group . . . . . . . . . . . . . . .12
Commerce Decisions . . . . . . . . . .12 Manaccom . . . . . . . . . . . . . . . . . . .12 TPI . . . . . . . . . . . . . . . . . . .19, 24, 25
Compass . . . . . . . . . . . . . .19, 26, 27 Managed Objects . . . . . . . . . . . . . .12 Tribity . . . . . . . . . . . . . . . . . . . . . . .12
Constellation Software . . . . . . . . .12 MarketWatch . . . . . . . . . . . . . . . . .14 Tyco International . . . . . . . . . . . . .12
Convergys . . . . . . . . . . . . . . . . . . . .12 Maxis Communications . . . . . . . . .13 Ublip . . . . . . . . . . . . . . . . . . . . . . . .12
CSC . . . . . . . . . . . . . . . . . . . . . .10, 13 Mayer Brown . . . . . . . . . .19, 46, 48 Ukraine Hi-tech . . . . . . . . . . . . . . .14
Cybercom Group U.K. . . . . . . . . . .12 Medcast Health Analytics . . . . . .12 Unnamed Buyer . . . . . . . . . . . . . . .12
Descartes Systems . . . . . . . . . . . .12 Micro Design Services . . . . . . . . .12 ValueNotes . . . . . . . . . . . .19, 28, 30
Dexx . . . . . . . . . . . . . . . . . . . . . . . . .12 Mindcrest . . . . . . . . . . . . . . . . . . . .30 Verizon . . . . . . . . . . . . . . . . . . . . . .13
Digital marketing Group . . . . . . . .12 MindTree . . . . . . . . . . . . . . . . . . . . .10 Vizuri . . . . . . . . . . . . . . . . . . . . . . . .12
Emageon . . . . . . . . . . . . . . . . . . . . .12 Modulat . . . . . . . . . . . . . . . . . . . . . .12 Vue Technology . . . . . . . . . . . . . . .12
Enghouse Systems . . . . . . . . . . . .12 NelsonHall . . . . . . . . . . . . .19, 38, 39 Webwire . . . . . . . . . . . . . . . . . . . . .14
Envox . . . . . . . . . . . . . . . . . . . . . . . .12 Netyear . . . . . . . . . . . . . . . . . . . . . .12 Winshuttle . . . . . . . . . . . . . . . . . . .12
EPAM Systems . . . . . . . . . . . . . . . .15 NOA . . . . . . . . . . . . . . . . . .19, 44, 45 Wipro . . . . . . . . . . . . . . . . . . . . . . .50
EquaTerra . . . . . . . . . . . . .19, 42, 43 Northern Rock . . . . . . . . . . . . . . .39 Xchanging . . . . . . . . . . . . . . . . .12, 13
ESA Software . . . . . . . . . . . . . . . . .12 Novell . . . . . . . . . . . . . . . . . . . . . . .12 Xiamen Leccan Technology . . . . .12
Ethiopian Telecommunications . .13 Numerex . . . . . . . . . . . . . . . . . . . . .12 ZTE . . . . . . . . . . . . . . . . . . . . . . . . .13

Profile_strategies_Infosys_IK.qxp 11/21/2008 8:48 PM Page 32
Global
Sourcing
in a Challenging
ECONOMY
Global Sourcing
STRATEGIES
By Chris Osentowski, Ingram Micro (Infosys BPO’s Customer) and
Vijai Balachandra, Infosys BPO
T
he adoption of Business Process Outsourcing (BPO) pool skills, build solutions and access the ecosystem of third-
as an integral part of an organization’s operational party expertise.
and financial strategy is more than a decade old.
With the advent of emerging markets, ubiquity of Sourcing strategy
technology, changing demographics and compliance focus, ser- The sourcing strategy needs to meet the contrasting imper-
vices sourcing has evolved and taken on a new dimension though atives of superior service to retain customers as well as main-
global sourcing and BPO, accessing greater cost efficiency, capa- tain financial focus. Hence, the sourcing strategy needs to be
bility and capacity. flexible, capable of accessing customer-facing, shared services
BPO is now mainstream and sourcing strategy is aligned and outsourced capabilities. The most profitable and service-
to organizational strategy and, hence, to the external econom- critical customers need to be serviced by the customer-facing
ic environment. The subject of this article is how the ecosys- business units; support services and other customer segments
tem of client business leaders, provider companies and advi- may be serviced through a mixture of shared services and out-
sors has shaped sourcing strategy in line with the changing sourcing based on competency areas. In general, services
economic climate. Specifically, how in these uncertain times, delivered across the enterprise such as F&A, HR, IT are best
we re-examine some of our traditional attitudes to sourcing serviced by outsourced partners who have developed compe-
and tweak our practices to help the businesses serve customers tency through best practices across their industry sectors.
better, preserve profitability and remain competitive in future. What can customers do? Customer sourcing strategy
We identify the following characteristics in an uncertain should exploit the role of the shared services organization
economy and what it means for organizations, as relevant rather than treat it as an either/or compared to outsourcing.
to sourcing. We consider a typical outsourcing cycle and ana- The role of the shared services is to act as the incubator, cre-
lyze what these strategic imperatives could mean for global ating standard services out of functions embedded in line
sourcing strategy in each phase of this sourcing cycle. organizations. Shared services teams need to be multifaceted
Partnership remains key to the success of sourcing and the fol- and have the ability to bring critical/customer facing process-
lowing principles only become more relevant now: es back in-house. This gives the business the confidence to
Transparency — overcome barriers in traditional supplier- stretch the outsourcing envelope without constantly worrying
customer arms-length relationships to share and leverage about the risk to customer satisfaction. The success of out-
information not just in service delivery but commercial struc- sourcing depends on a few key change agents; this is the core
ture and relationship management competency of the shared services function
Share risks and rewards — align provider and customer What can service providers do? Providers need to look at
organizations to business imperatives and strengthen the offering flexibility in all services. Flexibility should extend
alignment with robust governance beyond making cost variable; they should be able to move
Investment mentality in service providers and customers to processes across organizations and geographies and having the

Special Report
ability to support multi-provider service delivery. There may and executive commitment, clients could do a rapid market
even be niche capabilities that the client acquires through scan, starting with the existing partner set. Sharing detailed
M&A consolidation but cannot invest in to scale up; the abil- information about process and system landscapes in scope,
ity of the provider to assimilate these capabilities and drive a engaging in-house business owners and BPM teams early in
set of standard services (for example, material planning and the procurement process helps build a better solution though
forecasting into overall inventory planning) across geos, divi- at high cost. This, however, has the advantage of enabling the
sions and businesses is a win-win for provider and client. provider to invest in and drive process definition. Client
sourcing organizations need to demonstrate greater flexibility
Procure in requirement identification, vendor evaluation criteria, and
Comparing capability, measuring price-performance equa- selection processes to ensure that business objectives are met
tion and achieving projected value creation has traditionally without significantly impacting procurement objectives. The
been difficult and time consuming in the world of outsourced business needs to have a self-imposed ROI discipline during a
services. The need to bring greater objectivity, optimize the downturn.
procurement process (typical cycles are nine to 15 months) to While we are accelerating the procurement process, we
accelerate savings realization acquires greater importance in a need to ensure that the commercials and contracting proceed
downturn. We can fall back on some of our guiding principles with the right preliminary understanding on positions. A
such as transparency, investment and risk-sharing. terms sheet could be issued and agreed upon in advance, with
For back-office enterprise: Wide processes, we have seen a both parties.
more standard approach work — gather benchmarks from What can service providers do? Providers significantly
internal, external sources and leverage subject matter expertise contribute to the cost of procurement in their quest to differ-
to screen, arrive at a shortlist of vendors that possess the track entiate their services.
record and executive commitment to potentially meet your Providers should modify their marketing mix and focus on
requirements. Spec out the technical and business case those customer segments which are a strategic fit with their
requirements to a level of detail that enables your vendor to capability and overall strategy. Having a list of must-have cus-
have adequate visibility to offer a solution based on tangible tomers and building strong executive relationships there by
commitments. The structured use of third-party intermedi- making themselves relevant and visible is the way to go; the
aries like process consultants brings greater clarity to the temptation to spread oneself thin in an uncertain market is
requirement and predictability to savings realization. high but counter-productive. In the contracting phase,
For processes that are more context-specific or strategic, providers also need to give customer stakeholders other than
the solution needs to be collaboratively built with the right the decision makers (key influencers and future collaborators
subject matter expertise and partnership model to achieve in the LoBs) an opportunity to express their views and par-
success. Creation of such solutions will require significant ticipate in converting the solution into a process definition.
investment appetite and contextual knowledge. Provider- This is key to eliminating the unknowns — identify key risks,
selection criteria for such processes tends to accord a higher incorporate the perspective of real-world practitioners and
weightage to existing strategic relationships in the area or an most importantly, an important change management exercise,
appetite from vendors to build the same. With a small list of secure their buy-in. This is also a good time for the provider
shortlisted service providers, a collaborative solution building sales and solutions teams to bring in its practitioner SMEs.
exercise typically takes place to arrive at one to two providers Converting the defined processes into a detailed SoW brings
who can be engaged with in due-diligence and contracting greater predictability to transition.
discussions. The traditional RFI/RFP process will have to be
significantly tweaked to this extent. Transition
The complexity of work packages and company culture In the traditional outsourcing model, transition refers to
will drive multiprovider scenarios. Where the vendors are the lift and shift of an identified set of processes supported by
diversified and have a good execution track record, the safer a cutover plan that ensures the seamless handover of respon-
practice is to have relationship breadth as compared to multi- sibilities and knowledge transfer. Success is a function of how
vendor scenarios. well the scope is defined, the training is provided and the cov-
What can customers do? In an ideal world, clients need to erage is planned to ensure gradual handover of responsibili-
have proactively invested in gathering benchmark informa- ties. However, in uncertain times, the need to ensure seamless
tion on services and providers. Especially for companies new service delivery cannot come at the cost of schedule and cost
to outsourcing, having specialized third-party expertise on overruns. Project management discipline and the flexibility to
hand to spec requirements is a worthwhile investment. More move and modify work at any point in the relationship to
experienced clients can prioritize solution creation and opti- meet end-customer satisfaction are 2 key requirements of the
mize vendor selection. Based on an evaluation of track record transition structure

Global Special Report
Sourcing
in a Challenging
ECONOMY
What can customers do? Customers should create an out- In uncertain times, we need to focus the energy and cost
sourcing PMO to manage outsourcing across towers and base of the PMO, shared services and outsourced functions on
vendors, with strengths in program management and change value-adding activities aligned to business metrics. Metrics
management to execute the sourcing strategy. As the rela- such as cost of services, working capital efficiency, revenue
tionship matures and is poised to enter the exit or expand leakage, can be linked to operational metrics such as Cycle
phases, strengths in transition and knowledge management time, productivity and accuracy for different product and cus-
become critical. In an uncertain economy, even a perceived tomer segments through a value realization model, that
dip in customer service or back-office processes can impact providers like Infosys offer. Reinforcing this with a strong gov-
end-customer satisfaction; The outsourcing PMO needs to ernance structure ensures that dashboards capture operations
set up a knowledge management infrastructure (documenta- performance for senior management as well as reflect the real-
tion library, process-based organization, SMEs) with the ity of value delivery and customer satisfaction.
provider to ensure processes can be transitioned in-house or What can customers do? After the initial period of hand-
to another vendor with minimal impact. Also, scan the holding in steady state, customers should focus on imple-
provider market to identify new trends in operating model, menting a strong operational governance and reporting
delivery locations, tools enablement that the relationship mechanism. Supervisors in the retained organization should
can capitalize on. Predictability at the beginning and flexi- move from managing people to managing service levels.
bility at the end is the holy grail for transition! Business leaders should work with the client PMO and
provider management to build account business plans that
deliver service excellence. Customers should involve
While there are going to be provider personnel in client strategic initiatives that are rele-
increased challenges and risks vant to outsourced scope and align provider transformation
objectives to their own BPM objectives
in outsourcing, the volatile eco- What can service providers do? Providers need to bring
nomic environment ensures in best practices, make strategic investments and focus their
efforts on building strong relationships within the customer
that doing nothing is one of organization. This will position them to identify opportuni-
the riskiest options. ties, customize solutions and create value for both parties.
The service provider’s ability to innovate combined with
ROI discipline can enhance the competitiveness of the client
What can service providers do? With tough economic con- in the marketplace.
ditions in the market as well as delivery geographies, providers
are wary of getting caught in a ‘race to the bottom’ that will In Summary
commoditize service as well as kill incentive to innovate. In an uncertain economy, it is time to renew the vows of
Building a dedicated, enterprise-wide Transition practice offers partnership. Even as we speak, customers are conferring with
a great opportunity to take upside from on-time and superior their global sourcing providers to revisit their outsourcing
migration as well as enhanced flexibility to the business. strategies, procurement processes, transition and delivery com-
Providers can package these benefits as sourcing accelerators, mitments for what is expected to be a soft year. Transformation
learning systems, project management services with a commit- and innovation has become the lever of choice for the hi-tech
ted value proposition aligned to the needs of the business. ecosystem to serve customers better, preserve profitability and
sustain growth. While there are going to be increased challenges
Managing service delivery and risks in outsourcing, the volatile economic environment
Changing the structure: Service delivery today is seen as ensures that doing nothing is one of the riskiest options. GS
the activity of meeting and exceeding operational service lev-
els. These SLAs tends to be at the task level as outsourced Chris Osentowski serves as Director, Outsource Service Provider (OSP)
activity itself is task-based to start with. SLAs and metrics Engagement for Ingram Micro North America (Infosys’ customer). Vijai Bal-
need to evolve with the relationship and with changes in the achandra serves as the Lead for the Transformation Office for Manufactur-
customer’s business model and external environment. ing within Infosys BPO.

Profile_AMR_IK.qxp 11/21/2008 8:38 PM Page 35
Global
Sourcing
in a Challenging
ECONOMY
How to Structure and Execute Your

OUTSOURCING
STRATEGY
By Phil Fersht, AMR Research
W
ith the challenging eco- invest or divest in shared services, in an
nomic outlook, AMR offshore or nearshore captive center, and
Research sees an increased determine which IT and business should
focus on outsourcing be retained in-house versus those which
strategies as 2009 budgets tighten and are candidates for being transitioned over
enterprises look for new strategies to reduce to a third-party outsourcing provider.
costs. And whether you choose to invest in This is where you must conduct a major
a sourcing consultant, or prefer to work on information-gathering exercise to under-
your outsourcing strategy yourself, we sug- stand what your peers in other organiza-
gest you use the following structured tions are going, conduct a deep-dive
methodology as a guide for working analysis of the outsourcing service
through the service-partner selection providers to understand their offerings,
process and beyond. their strengths, weaknesses, operational
Entering into an outsourcing engagement performance and stability.
is not a decision that should be hurried, as a Once you know what the supply side
termination of your relationship with your PHIL FERSHT can offer, you have to develop a business
service provider is normally a costly and Director, Global Services case across the relevant IT and business
painful experience, which can have multiple and Outsourcing, processes to understand whether out-
ramifications for your and others’ job secu- AMR Research sourcing is feasible, whether significant
rity and your company’s overheads. We advise you take cost-savings can be reaped, and the business risks you are going
an organized approach to designing your global outsourcing strat- to take if you decide to proceed with an outsourcing engage-
egy, by developing a detailed scope of work, negotiating a suit- ment. Enterprises which fail to develop a strong business case
able engagement, through to governing the service provider rela- for outsourcing can reach insurmountable — and often costly
tionship and retained organization. — problems if they move into a provider selection process
Figure 1 is a structured methodology we have developed without having conducted significant prior due diligence.
through multiple experiences working with outsourcing cus- In addition, you need to develop and execute an internal
tomers, that can help you avoid many of the landmines a glob- communication plan for what you are doing to build consensus
al sourcing deployment can plant in your way and support across key staff. Many enterprises have failed to
take their sourcing initiative past Phase 1, because they made
Phase 1: Sourcing Evaluation fundamental errors approaching the whole issue correctly.
This is the most crucial phase in the process where you We recommend you allow four-to-six weeks to complete
assess the right options for your company, namely whether to this phase of the process.

Global
Sourcing
in a Challenging
ECONOMY
Figure 1
The (Out)sourcing Evaluation Process

Phase 1 Phase 2 Phase 3 Phase 4
Sourcing Go/No-Go Solution Go/No-Go Contracting Go/No-Go Transition & Go/No-Go
Evaluation Decision Design Decision Decision Governance Decision
Define strategic Select analyst/adviser Conduct detailed work- Implement new roles
objectives support shop reviews with and responsibilities for
Conduct internal busines Conduct detailed collec- service providers retained organization
case tion of baseline data to Down-select providers Develop ongoing work-
Interview key staff develop financial model Negotiate best pricing ing governance plan
Conduct market analysis Conduct detailed opera- Refine solutions Manage vendor relation-
Review comparative tional review of process- Refine SLAs ship nad SLA manage-
case studies es in-scope Engage corporate legal ment
Communicate plans with Conduct detailed IT-busi- council Conduct daily meetings
middle management ness process impact Align key stakeholders with vendors to imple-
Engage HR to discuss review and seek leadership ment knowledge transfer
potential people and Distribute initial request approval activities
compliance issues for information Implement transition Deploy issue escalation
Attend peer forums/net- Conduct initial round of action plan procedures
working groups with workshops with potential Revisit corporate com- Hirwe new personnel for
other enterprises outsourcing vendors munications plan identified governance
Evaluate options (in Review progress and Ensure SAS-70 and SOX roles
house vs. outsource vs. potential business compliance Implement rapid talent
captive vs. hybrid) impact with IT and other Finalize initial roles for retention strategy
Conduct workshops with functional leaders retained organization Conduct internal work
key stakeholders Draw up provider Select provider(s) shops with middle man-
Conduct exploratory dis- shortlist Finalize contract agement and operating
cussions with expert Distribute RFP to select- teams
analysts and advisors ed providers Define strategy and
Gain internal consensus Begin transition planning objectives for continu-
for initial go/no-go ous innovation: ongoing
decision cost containment, ongo-
ing quality, and ongoing
best practice
Perform ongoing change
management
Perform ongoing cultural
integration
Phase 2: Solution Design on average, $2 million to reach the contract-negotiation phase

Once you have a plan in place to advance with an out- for an outsourcing engagement that has been put out to com-
sourcing initiative, you need to scope out how the solution is petitive tender. For example, most enterprises will draw up an
likely to work, and how you are going to execute on it. This is initial “longlist” of eight to12 service providers for a typical IT
the phase where you will make your first communications to outsourcing initiative.
outsourcing sourcing service providers to ascertain their inter- Typically, you would send out a higher-level “Request for
est. It is a costly exercise for service providers to commit to bid- Information” scoping document, which outlines from a high-
ding for your business; we estimate it costs service providers, level what you are looking to do, and service providers then

Special Report
have an opportunity to ask initial questions to decide whether U.S. and Western Europe, the legal segment has a huge growth
they want to enter a into a competitive bidding situation. You potential. Though the legal services offshoring industry is grow-
would then progress to conducting an initial round of working rapidly, it addresses a mere 3 percent of the offshorable
shops with prospective service providers, where you have an potential. Indian revenues from the legal services offshoring
opportunity to discuss possible solution-scenarios, pricing were $225 million for the calendar year 2007 and are expected
options, employee re-badging, transition-planning, location to reach $640 million by end 2010. While offshore legal ser-
options and process and technology issues. vices industry has been reporting over 40 percent growth annu-
During this phase, you should invest time with getting to ally, we can expect an even higher than average growth over the
know several service providers — their ideas, solutions, key per- next two years. Says Rohan Dalal, Managing Director,
sonalities and project team that would be assigned to your Mindcrest, “While certain specific areas such as M&A due dili-
engagement. At the end of the day, you are going to be ven- gence will see a temporary softening, definitely services like lit-
turing into a long-term relationship, so it makes sense to get to igation support and bankruptcy work will see a noticeable spike
know more about the capabilities and culture of your future in demand.” Services such as word processing, coding, docu-
service-partner. ment review, litigation support, risk management, contract
After the workshop phase, you would then compile a drafting and legal research will witness increasing demand.
shortlist of up to four service providers to respond to a
detailed RFP (Request For Proposal). In most cases, there are A Structured Approach to Outsourcing is Crucial
three strong candidates, and it is often advisable to add a All-in-all you can take your company through an out-
fourth, in the event one of the service providers drops out of sourcing evaluation process in four-to-six months, provided
the bidding and you lose negotiation leverage. Remember, you dedicate staff resources to it to manage it effectively. The
service providers often know which other competitors they key is to have experienced advice, support and resources
are bidding against — they have their sharpest business devel- along the way, or this could prove to be an insurmountable
opment executives leading these pursuits, who are very canny
at finding out what is going on.
You should explore engaging the services of an experienced It’s not a good time to go to
outsourcing consultant during this phase (or earlier), who can
help administer the RFP development and facilitate the ven-
your board and ask for another
dor-selection. If you cannot afford these services, you can also $20 million to bring a new
request lighter consulting support, or research analysts such as
AMR to provide subject-matter knowledge and a reassuring
provider into the mix, or rip up
validation-point. your current contract.
We recommend you allow six-to-eight weeks to complete
this phase of the process.
challenge for your enterprise. However, by laying out a
Phase 3: Contracting focused methodology as we have described above, with
Once your RFP has been drawn up and released to your defined tasks and milestones, it will be far smoother for you
short-listed service providers, you can request they submit their to stick to the core objectives, manage the critical communi-
response to you within a two-to-four week period. cation you need to drive consensus and support for the ini-
Outsourcing service providers are accustomed to time-windows tiative throughout your management team. Ultimately, you
as short as two weeks these days to scope and price a statement need to invest time and resources to ensure the pre-and-post
of work. It’s vital at this stage to ensure you include service lev- contract phases will help steer the firm into an outsourced
els and pricing that work for you. You want to ensure, whichev- environment successfully.
er service provider you select, they are going to deliver ongoing It’s all about outsourcing smartly these days, and not simply
technology upgrades, ongoing quality and process acumen and acting out of desperation. Too many customers we speak with
ongoing cost-reduction. Take time to investigate service levels are locked into outsourcing contracts that are miserable experi-
and pricing being deployed by peers on other enterprises that ences they can’t escape from for years, and now live to regret
can drive this behavior from your service provider. their decision. It’s not a good time to go to your board and ask
We recommend you allow four-to-six weeks to complete for another $20 million to bring a new provider into the mix,
this phase of the process. or rip up your current contract. GS
Phase 4: Transition and Governance Phil is Research Director, Global Services and Outsourcing, for leading
With increasing realization of the merits of offshoring, cou- industry analyst AMR Research. He also authors the popular blog “Hors-
pled with the pain that will accompany the recession in the es for Sources.”

profile_nelsonhall_IK.qxp 11/21/2008 8:52 PM Page 38
Global
Sourcing
in a Challenging
ECONOMY
Revisiting Bank Sourcing in

TROUBLED TIMES
By Andy Efstathiou, NelsonHall
B
anks are reconsidering their the key drivers of outsourcing in the
sourcing strategies and activities sector are positive.
in response to changing eco- Exhibit I shows the most important
nomic circumstances. They are drivers for outsourcing and how
facing very aggressive cost pressures and bankers believe those drivers will influ-
are severely capital constrained. Can ence levels of new BPO contract activi-
banks aggressively reduce cost with lim- ty between now and end 2009.
ited investment funds, managerial time, The largest single driver for out-
and limited growth prospects? sourcing business processes will be a
NelsonHall’s research shows that recession, which will lead 60 percent of
banks are rethinking their sourcing banks to increase levels of outsourcing.
strategies in detail. Banks use a disci- Increasing foreign competition and reg-
plined approach to service acquisition ulatory oversight will drive 1/3 of banks
and delivery, which is not surprising to higher levels of outsourcing.
considering that banking, which has the In addition to external factors, the
highest propensity to outsource of all increasing maturity of the BPO supply-
industries, have been outsourcing IT ANDY EFSTATHIOU side is also having an impact in increas-
and select processes for close to 40 Research Director, Banking ing adoption of BPO. This will drive a
years. Banks have also been early to off- Sourcing Practice, NelsonHall greater percent of processes out to
shoring, as evidenced by Citibank’s out- third-party service providers.
sourcing to India in 1986 and setting up its own captive there It also appears unlikely that the U.S. Presidential election
in 1991 (recently acquired by TCS). will have an adverse impact on new BPO contract activity sim-
ilar to results we found in 2004. In fact, 25 percent of banks
Drivers of Change in the Banking Industry surveyed expect they will increase their levels of outsourcing as
Globally, the banking industry is facing the greatest set of a result of the election.
challenges since the 1930s. These challenges will bring about In short, the industry expects to aggressively its levels of out-
increased regulatory oversight and the attendant increase in sourcing in 2009 to meet the challenges of recession, regula-
compliance costs. In order to better understand how bank exec- tion, and competition.
utives are making their sourcing decisions in this environment,
NelsonHall recently conducted a survey of 80 senior bank exec- Sourcing Services
utives. The study looked to establish: Banks have many choices in how they develop and execute
Customer requirements, in support of business initiatives a BPO strategy. Understanding choices made about how to exe-
Market drivers and inhibitors cute provides deeper insight into what is important to banks.
Planned BPO purchasing intentions. Exhibit 2 shows the manner in which banks expect to alter their
We found that there is likely to be a significant increase in activity between now and end 2009 in response to an econom-
BPO contract activity in the banking sector in 2009 since all ic downturn. The top of the exhibit shows that banks are plan-

profile_nelsonhall_IK.qxp 11/21/2008 8:53 PM Page 39
Special Report
Exhibit 1
ning to increase their activity in areas that reduce cost, such as Drivers of Change in BPO Contract Activity
operational consolidation, increasing the proportion of pro-
cessing activity carried out offshore, and outsourcing. At the Area Increase Unchanged Decrease
same time they are likely to exit or divest existing businesses Potential economic 59 37 4
downturn
where these show low profitability and to retrench towards core Increasing competition 35 62.5 2.5
product portfolios. The bottom of the exhibit shows that banks from emerging markets
will avoid activities that require investment. They will decrease Regulatory oversight 31 69 0
levels of new product introduction and product diversification Influence of U.S. 25 62.5 12.5
Presidential elections
in mature markets, and reduced spend on acquisitions.
Increasing maturity of 19 81 0
In short, banks are unwilling to commit investment funds BPO vendor offerings
to operational growth initiatives. However, they are willing to Exhibit 2
consolidate services and operations to drive scale processing in Change of Activity in Response to Economic Downturn
areas of strength. It needs to be highlighted that the willingness
Area Increase Unchanged Decrease
to offshore more work is only for third parties. Banks are no Cost saving initiatives 100 0 0
longer pursuing new captive initiatives. Offshoring to third Moving more processing 68 32 0
parties has the added benefit of providing some down sizing work offshore
scaling capability, since most allow for some volume declines Operational consolidation 62 38 0
without penalties. Exiting existing businesses 35 62 3
Outsourcing 32 68 0
Increasing range of 21 79 0
Processes that Matter activities performed in
While banks are focused on cost control, they still need sup- shared service centers
port for revenue protection and generation from their BPO ini- M&As 15 15 70
tiatives. Exhibit 3 shows which activities they intend to focus Geographic diversification 8 74 18
Product diversification 3 23 74
on to improve their cost base. The high priority of customer
facing activities underscores the industry’s need to drive revenue Need to Improve Cost Base: Retail BankingExhibit 3
regardless of temporary economic downturns.
In short, a complex changing business environment makes Area High Importance (%)
Overall organization 63
process sourcing choices difficult where process transformation Customer service & customer care 71
is required. However, economic deterioration, cost pressures Finance & accounting services 71
and a changing regulatory environment have made it impera- Customer account administration 65
tive that banks increasingly change their service delivery capa- Payments processing 65
bilities to deliver those processes in a flexible, robust, and com- Securities processing 52
Knowledge process services 47
pliant manner. The third-party services for banking processes HR services 42
will continue to grow for the foreseeable future because overall Mortgage processing 43
there are no credible alternatives. Card processing 42
Today, aggressive strategies are frequently required. For Indirect procurement 32
example, a cost saving 40 percent of only 1 to 2 percent of your SOURCE: NELSONHALL
cost base via say F&A outsourcing is insufficient to save a taking longer to revise their sourcing strategies and begin to re-
Lehman Brothers or Northern Rock, where immediate liquidi- evaluate BPO opportunities
ty of many tens of billions of dollars is required. In those Banks less impacted by the credit crunch, where they
instances, outsourcing is unlikely to work as a short-term fix, are revising sourcing strategies, today, and seeking new
and banks require governments or acquirers with deep pockets, contracts now.
possibly coupled with a need for major lay-offs and restructur- In the short-term, the banks that drive contract activity
ing. These fixes typically need to be implemented in days not are likely to be those that have existing sourcing strategies in
the months and years required to implement and derive returns place and not among those most severely impacted by the
from outsourcing. Banks typically need to have largely stabi- credit crunch. However, despite the contract slowdown in
lized themselves financially prior to outsourcing. This has 2008, the credit crunch will subsequently lead to increased
resulted in a contract signing slowdown in 2008. BPO usage as banks achieve a more stable but still highly
Banks are now beginning to address their business strategies demanding environment. GS
and the sourcing decisions required to help them achieve their
goals over the next 12 to 18 months. We are finding that banks Andrew Efstathiou is the Director for NelsonHall’s Banking Benchmarking
are segmenting into two groups: and Sourcing Program. Andy brings to NelsonHall 25 years experience in
Banks greatly impacted by the credit crunch, where they are banking and financial services.

Profile_Perot Systems_IK.qxp 11/24/2008 12:54 PM Page 40
Global
Sourcing
in a Challenging
ECONOMY
WHAT CAN SERVICE PROVIDERS DO
Learn to Deliver
MORE FOR LESS
By James Champy, Perot Systems
Work will continue to flow to where it
T
he “uncertain” economy is no
longer that uncertain: All signs can best be performed. Difficult financial
point to a global recession. The times will offer more opportunities for
only questions are how long work to move offshore. Customers will be
and how deep the recession will go — and open to moving their work to where it can
how service providers should respond. best be performed — in terms of both qual-
Many service providers in both India and ity and price. Companies will be looking for
the U.S. experienced a sales slowdown dur- more options to improve their performance.
ing the last quarter of 2008. In other indus- A recession should not reverse the general
tries, the market drop-off has been more trend of out-sourcing and offshoring. In fact,
sudden and severe: Orders to providers in there is growth opportunity in this market
India and China have been curtailed, plants for service providers that have sound cus-
have been closed, and workers laid off. tomers with the appetite to become more
For the first time in recent history, effective and efficient.
both Indian and the U.S.-based IT service Long-term customer relationships
providers have also seen a significant num- JAMES CHAMPY will be more important than short-
ber of their customers in distress. This has Chairman, Consulting, term profits. Service providers who want to
been especially true for the large banks that Perot Systems keep customers will have to respond to their
are a big part of the business of Indian IT service customer’s need for more and better services at an even lower cost.
providers. Without playing the fault game of arguing who cre- Service providers will have to improve their own operating effi-
ated this economic mess, service providers must now adjust their ciencies, but will also have a choice of keeping customers at
own way of doing business to accommodate what their customers reduced margins. In the long term, it’s important to keep those
want and need: More and better service for less. customers. Service companies will be remembered and reward-
But the business scenario does not have to be dark. I’m both ed for how they helped a customer through tough times. And a
an optimist and a realist. Service providers can still grow during good, steady backlog of customer business is critical to the busi-
these challenging times. The reality, however, is that their profit ness model of the IT-services industry. You don’t want to have to
margins will come under pressure. So service providers will have resell business every year.
to adjust their business models to prosper and grow. Business Solve customers’ business problems. Service work is more than
models will have to become more efficient and effective, and more a series of transactions. It’s important to understand what cus-
flexible and transparent. There is no one business model that will tomers are going through in tough times. If you understand their
fit all service companies, but here are some principles to consid- operations, how they generate profits, and serve their cus-
er as you learn to deliver more for less. tomers, you will be a better business partner. Customers want part-

Profile_Perot Systems_IK.qxp 11/21/2008 8:56 PM Page 41
Special Report
ners who add extra value during tough times. Customers will Delivering more for less means delivering more with less.
expect innovative ideas about how they can become more effec- In order to deliver what customers want — more for less —
tive and efficient. Just keeping a customer’s lights on and networks service providers will have to learn how to deliver more with
operating will not be enough. less. That doesn’t mean a service business should shrink. The
Add more value at the same time that you are reducing costs. ideal vision for a new service business model is one in which
If you focus only on reducing costs to a customer, you may loose the operations of a provider become dramatically more efficient,
the opportunity to help a customer improve its own operations. enabled by great operational processes and the use of tech-
Just reducing costs — the customer’s and the service provider’s nology. A service company that learns to deliver more with less
— often leads to a reduction in service levels. Remember that cus- should also be able to grow its top line and add to its customer
tomers will need more quality and service in order to compete base — providing opportunities for people as they move
— so new business models must also focus on increased service from inefficient to more efficient operations. This should be
levels and business innovation — at the same time that they the company’s ambition.
become more efficient. During these times, it’s important to remember that smart
Take advantage of the opportunity to restructure work. Dur- companies perform even better when challenged. Smart com-
ing good times, customers are often reticent to make radical
changes in how their work is performed. They argue that their
work is unique — when, in fact, it is not. They resist virtualiza- A service company that learns
tion and the use of standard processes and systems by service
providers. Economic challenge makes customers more open to
to deliver more with less should
work and process change, to the consolidation of their non-crit- also be able to grow its top line
ical operations with the operations of other companies. Service
providers should now take that opportunity to offer customers
and add to its customer base —
the improved service and efficiencies that standard processes and providing opportunities for peo-
virtualization offer. Customers will consider more options in
tough times.
ple as they move from inefficient
Hold on to your people, even at the cost of reduced profits. to more efficient operations.
As I have already observed, service providers and their customers
will both come under margin pressure. Because the largest cost
to a service provider is normally people, head-count reduction is panies will look different at the end of this recession. We must
often the first action that a service provider takes to hold on to also remember that great business opportunities remain. The
profits. Service providers should move carefully in considering staff economist Paul Samuelson was once asked what would happen
reductions. A great service company is a combination of people, if a monetary crisis, then looming, actually happened. “The sun
process, and technology. It takes years to build that people com- will come up tomorrow,” he said, “and the bridges will contin-
ponent, to develop the capabilities and skills that a service com- ue to bear the traffic.” Each day of this recession will bring chal-
pany needs to compete. That capability can be destroyed in days lenge, but each day will also bring opportunity for companies with
if a service company coldly decides that it must jettison people the appetite and will to change. GS
to maintain its profitability. Of course, if there is no work for peo-
ple or the survival of a service company is threatened, a reduc- James Champy is the Chairman of Consulting for Perot Systems. He is the
tion in staff may be necessary. But it is an action that must be care- co-author of the best seller, Reengineering the Corporation. His latest book
fully taken. is OUTSMART!, How To Do What Your Competitors Can’t.

Profile_Equatera_IK.qxp 11/21/2008 8:40 PM Page 42
Global
Sourcing
in a Challenging
ECONOMY
MINING FOR GOLD

in Your Own Backyard
I
n times like these, companies be knitted together. Finally, and
everywhere are looking for ways If this change manage- maybe most importantly, the inher-
to increase cash flow and reduce ent fear of failure tends to paralyse
costs. This business imperative ment has to occur people and organizations alike.
is becoming an increasingly important through multiple lan-
competitive advantage in today’s cred- Seeding Change
it-constrained marketplace. One of the guages & multiple time While many businesses undertak-
best and arguably easiest ways for zones, it could ignite ing these transformations underesti-
organizations to do just that is by mate the effort it takes to achieve a
migrating O2C processes into a shared multiple turf battles. simplified, streamlined and consis-
services or outsourcing environment. tent process across multiple business
But despite these opportunities, units in all regions, they also grossly
organizations have been slow to underestimate the potential rewards.
migrate full O2C activities to shared services. Even fewer have Therefore, lead with a carrot: Talk early and often about
incorporated O2C into their outsourcing model. However, with benefits. In large organizations one can often reduce operating
the proper level of sponsorship, good advice from a trusted advi- costs 20 to 30 percent by transitioning finance and accounting
sor, stakeholder alignment and, above all, reasoned change man- operations to a shared services model and a full 30 to 50 per-
agement, you can successfully move O2C processes into a shared cent with Business Process Outsourcing (BPO). In O2C, the
services or outsourcing environment. In fact, it should be done. direct savings can be similar.
But that is just the beginning. The most notable economic
Why it Can Be So Difficult benefits are in improved working capital, typically in the range
In any organization, the principal proponents of “process” in of 0.25 to 1.5 percent of impactable revenue. These benefits
support services often reside at the CIO and CFO level. come in the form of improved past due receivables, reduced
Because many of the activities in O2C are managed outside of unauthorized and preventable deductions and allowances and
finance — order taking, invoicing, credit management, dispute reduced bad debt. While these working capital benefits are sig-
management, and such — many people need to get on board nificant, they often are also front-end loaded, enabling compa-
in order to take O2C to the next level of efficiency. Not every- nies to fund other improvements at a faster pace.
body thinks that’s a good idea. People in sales and marketing, Beyond the economics, other benefits include increased cus-
for example, are often understandably concerned about how tomer satisfaction (customers applaud when things happen
any change in process will touch customers. more accurately and faster), improvement in on-time account
The issue often boils down to simple inertia. If your pre- reconciliation, a reduction in processing time and reduced
sent system is “working,” or at least not obviously broken, errors throughout the entire O2C process, all while complying
why take risks? If this change management has to occur more easily with Sarbanes-Oxley and global regulations.
through multiple languages and multiple time zones, it could One of the first things to understand is it’s not just the CFO
ignite multiple turf battles. Fragmented processes will need to or the CIO or the head of procurement that need to board this

Profile_Equatera_IK.qxp 11/21/2008 8:42 PM Page 43
Special Report
train. Depending on who owns what part of the process, deci- You’ll also need to consider investing in training and recruit-
sion makers can also be the heads of sales, logistics, customer ment, since responsibilities will change.
service, etc. To complicate matters, when undertaking a multi- Here are the steps you can take to make this transition a suc-
business unit or multi-country project, key stakeholders can be cessful one:
multiplied many times, particularly when distribution channels Identify stakeholders who can really make it happen
and/or business models differ. Educate them in the art of the possible by introducing them
You have to go into this battle knowing true change man- to people and organizations that have moved O2C to shared
agement will involve communicating effectively to many dif- services or BPO
ferent functions, and you’ll have to do it while battling com- Involve them in the vision and process design
mon misconceptions (i.e., good customer service cannot co- Maximise the use of technology in the solution
exist with cost control). Communicate well and often
Implement comprehensive performance measurement
Implementation Tactics down to individual employee levels
Pick your first skirmish carefully. One of the keys to success
is starting with an effective test of concept, design and imple-
mentation. Too small a test proves nothing and one that is too If some people in the organiza-
large or complex increases the risk of failure. Avoid an across-
the-board multi-country, multi-business simultaneous rollout.
tion are nervous about cus-
Consider a pilot based on a complete business segment or tomer reaction, consider a cus-
country, standard policies and procedures, thorough cross-
functional training and the use of self-service tools to deal with
tomer facing split of activities
simple queries regarding, for example, invoices. Also consider for process scope.
using proven collections tools such as eCredit, GetPaid, I-many
or a series of proprietary service provider tools. If some people
in the organization are nervous about customer reaction, con- Create accountability throughout the process not just in the
sider a customer facing/non-customer facing split of activities transactions processing activities but in sales, customer ser-
for process scope. Starting small, even with no customer-facing vice and such
activities, will give you a much better chance of success and of Get regular feedback from customers and employees and act
gradually expanding scope to some of the customer-facing on it
activities such as e-mail notifications. Implement process improvement tools — Six Sigma for cus-
tomer payment pattern analysis, for example.
Key Lessons The standardization, re-engineering, consolidation and out-
The most common reason for the failure of shared ser- sourcing of non-core company functions are never easy tasks
vices/BPO is inadequate executive sponsorship. The second is a to undertake. But if you have the vision and the determina-
failure to align with stakeholders. Because the O2C process pass- tion to take the steps just outlined, the results will make your
es through many functions, there is a greater likelihood of either company stronger, more profitable and place it at a distinct
or both of these reasons having an adverse impact. competitive advantage. GS
The key is to develop a compelling business case. Disarm
potential resistors by providing a clear idea of what a shared ser- Bob Cecil is Executive Vice President of F&A and Shared Services
vices and/or outsourcing operation will do for them. for EquaTerra.

Profile_NOA_IK.qxp 11/21/2008 8:54 PM Page 44
Global
Sourcing
in a Challenging
ECONOMY
Small is
BEAUTIFUL
F
rom here in London, the business outlook seems
gloomy. As I look outside at the miserable English rain
I’m wondering if the hopeful audacity of U.S. President-
elect Barack Obama can really change anything. Amer-
ican friends have tried several times to convince me that things
are going to get better after the election. So it’s now the end of
the year and I’m not the only one casting around for opportunities
— everyone in business everywhere is now asking if there is going
to be a new dawn for 2009?
Outsourcing is particularly vulnerable in a downturn. Most
of us involved in the industry have spent years trying to shift
perceptions from slash ‘n’ burn cost-cutting to strategic sourc-
ing. Now employees fear for their job and company executives
fear for the future, the emphasis is back on cost again. And don’t
let anyone tell you otherwise — strategic niceties are discarded
when survival is all that matters.
Yet, the companies most affected by a downturn are also the
least likely to have explored offshoring, or even outsourcing, in
any form. These are the Small to Medium Sized Enterprises
(SME in British jargon), where outsourcing is far less common
than in larger organisations. MARK KOBAYASHI-HILLARY
The main issue for a small company is that they have Director, U.K. NOA
probably not developed the scale or resources to build a com- the start of 2003. Almost all of these enterprises (99.3 percent)
plex internal structure that can support offshore outsourcing. were small (0 to 49 employees). Only 26,000 (0.6 percent) were
There always needs to be some form of buffer zone between medium-sized (50 to 249 employees) and 6,000 (0.1 percent)
the executive management and the portfolio of partner were large (250 or more employees).
organisations, even if this is just a small management control These are government definitions of what constitutes small
office where performance is monitored. The resource to or large, but the implication is obvious — a few thousand larg-
monitor a partner relationship may be just too much for a er companies have explored and accepted offshoring as a part of
small company, yet small and medium companies make up how they do business, yet millions of small companies have yet
almost all of registered businesses. to even dip a toe in the water, let alone jump in the deep end.
In the U.K., there was an estimated 4.3 million private-sec- And the impact of smaller companies on the economy is not
tor business enterprises back in 2004. This compares with an just in the sheer volume of company registrations — that could
estimated 4.0m comparable business enterprises in the U.K. at be explained just through a lot of one-person companies or tax

Profile_NOA_IK.qxp 11/21/2008 8:54 PM Page 45
Special Report
avoidance schemes. Here in the U.K., small companies employ in the present market climate none of them would turn away
58.5 percent of the entire labour pool and smaller companies good business, no matter how small.
generate 51.3 percent of all business revenue. Software as a Service is redefining outsourcing. Smaller
Smaller companies often find they are squeezed in a down- companies can effectively outsource their email and docu-
turn as they usually rely on larger companies for survival. All of ment management to Google, their telecoms to Skype, and
us sit somewhere in the value chain with a dependence on those their sales control to Salesforce.com. Is that how you would
higher up for patronage. Either their clients also start struggling define outsourcing? I think that purchasing a service that is
and bills go unpaid, or a cash flow crisis develops as the larger delivered across the web is still outsourcing. Companies
clients suddenly decide to take longer to settle accounts. One offering services to smaller clients should think about how
month is the normal expectation for invoice payments here. web delivery can offer a robust delivery platform for any of
Two months is the more common reality. Three months is fair- their services.
ly usual, but once it goes beyond that then small companies can Offshoring is getting easier. Going offshore and setting up
face a serious shortage of operating capital. your own facility is no longer the wild adventure it used to be.
Enter the global sourcing solution. The SME that explores Advisers such as QuickStart Global are now greasing a path to
some form of strategic sourcing can not only start controlling
costs in the short term, but also build in some certainty over cost
projections into the future. But I can hear you asking why this Forget about President Obama
has not been explored before? It has. Consulting firms have been
trying to get small companies to explore outsourcing for several
changing the business environ-
years now, with varying degrees of failure. I can even recall one ment, in 2009 it’s going to be
consulting firm that offered their services as a form of aggrega-
tor. They would find one company requiring some legal
the SMEs going global that
research, or web site maintenance, or some other service that can change business forever.
feasibly be sent offshore. Then, they would hunt around for sim-
ilar clients so they could increase the size of the contract to
something that a reputed offshore supplier would take seriously. extremely easy offshoring for those who want more control
Of course, it never worked. It was a nightmare to admin- than a supplier can offer.
ister and was fundamentally flawed by using a conventional So the market conditions are creating a challenging business
consulting model, including high-priced local consultants environment at present, but also allowing new opportunities to
doing the aggregation work. Perhaps this kind of model emerge for smaller companies. When these smaller companies
might work in a crowd-sourcing environment where the ‘wis- enter the outsourcing equation we are going to see the sourcing
dom of crowds’ theory allows a particular supplier to win a market grow considerably. It’s in the interest of the entire indus-
bundled contract, but that is a solution for the future. In the try to make sure that smaller companies can enter the market
immediate future, smaller companies have some other factors and get the outsourced services they need. Forget about
counting in their favour: President Obama changing the business environment, in 2009
The providers are getting clever. Offshore suppliers, partic- it’s going to be the small and medium sized companies going
ularly in India, have been doing this for several years now. They global that change business forever. GS
know the tricks and the pitfalls and so long as the smaller cus-
tomer prepared to trust their supplier, the larger providers are Mark Kobayashi-Hillary is the author of Who Moved My Job? and a Direc-
capable of delivering for them. The suppliers are still busy, but tor of the U.K. National Outsourcing Association (NOA).

Profile_Mayor_IK.qxp 11/21/2008 8:51 PM Page 46
Global
Sourcing
in a Challenging
ECONOMY
OUTSOURCING IN A CHALLENGING ECONOMY
The MULTISOURCING
Alternative
By Daniel A. Masur and Sonia Baldia, Mayer Brown
A
dverse economic condi- used in outsourcing transactions
tions, especially if cou- The multisourcing aggregates functionalities with one
pled with financial provider, and, therefore, has relied
tumult such as that in model may present a on large dollar, long term deals to
late 2008, invariably can put intense particularly effective create business value.
pressure on firms to curtail costs Unlike single source transac-
substantially, eliminate waste and strategy for companies tions, on the other hand, the
improve efficiencies while preserving to achieve the most multi-sourcing model is based on
capital. Over prior business cycles, supplier specialization and compe-
outsourcing and offshoring have favorable results in tition within the specialty space,
proven to be strategic vehicles for stormy markets. meaning that the customer
achieving significant cost reductions employs multiple best-of-breed
and improved efficiencies, both by providers to perform specific func-
putting non-core functionalities in tions in parallel. For example, mul-
the less expensive, but no less and perhaps better qualified, tisourcing IT customers would allocate scope among two or
hands of suppliers and freeing up internal resources to focus more suppliers in parallel, with each supplier servicing spe-
on core competencies. cific IT functions, such as, among other things, IT infra-
Whether a company is an existing customer or is newly structure, network management, application development,
evaluating outsourcing opportunities, to navigate and lever- or application support and maintenance. Accordingly, to
age market conditions and to capture fully outsourcing’s maximize the premium of the model’s purpose, multisourc-
dual benefits of reduced costs and improved efficiencies, a ing deals tend to be smaller in dollar value and of relatively
company must make certain critical upfront strategic deci- shorter durations.
sions, including the sourcing model to be employed. Many Since 2005, the number of Information Technology
companies today are increasingly recognizing the possible Outsourcing (ITO) and Business Process Outsourcing
benefits of a newer strategy known as “multisourcing,” (BPO) contracts, and the related spend, have continued to
which may well be a particularly effective strategy in rough rise. Total Contract Value (TCV), however, has steadily
economic times. declined because the single sourcing model is giving way to
the multisourcing model. This shift is not surprising.
The Multisourcing Trend and its Utility in a Dif- Because the industry has substantially matured, sophisticat-
ficult Economy ed buyers can now leverage the experience and expertise nec-
The traditional “single sourcing” strategy historically essary to manage multiple supplier relationships and a rapid-

Special Report
ly growing provider pool has created a broad range of spe- effective strategy for companies to achieve the most favor-
cialized service offerings from which these customers can able results in stormy markets. Deal values and durations are
pick and choose. shorter, creating less overall risk and greater flexibility to
Deploying a multisourcing strategy can create com- react to changing market conditions. The use of multiple
pelling advantages that companies involved in outsourcing service providers also permits customers more nimbly to
cannot afford to ignore, particularly in the current econom- scale up or scale down outsourced functionalities and creates
ic climate. A successfully implemented multisourcing strat- greater inter-supplier competition, favorable front end
egy gives customer access to best-of-breed providers for negotiating conditions and ongoing performance and
strategic operational and geographic efficiencies. It also pricing incentives.
empowers customers to keep competitive pressure on
providers for continued cost savings and improved perfor- Considering the Multisourcing Model
mance throughout the term of the arrangement, unlike the More Closely
single source model, which concentrates customer leverage On a more specific level of analysis, the multi-sourcing
in the procurement stage of the outsourcing process. In strategy is trending upward so significantly for a number of
addition, multisourcing provides a more surgical risk-man- reasons that companies should consider.
agement tool in that the customer can diversify operational First, single-provider “full-scope deals” still abound
risk over multiple service providers rather than be subject to because they do provide a turnkey solution and create sub-
the performance and fortunes of a single provider. Indeed, stantial negotiating leverage by concentrating reward for a
single provider risk is especially magnified in difficult eco- single vendor. They also present certain significant chal-
nomic conditions. It also diversifies monetary risk because lenges, however, due to the basic transactional structure,
the total spend is spread over these same multiple providers. which include the following: (i) the customer is “locked in”
Not surprisingly, in this present downturn analysts and with a single provider, and has few alternatives to deal with
sourcing advisory firms again predict that a slowing supplier inefficiencies, (ii) the customer carries high opera-
economy will spur increased offshoring volume to countries tional and monetary risk by putting “all of its outsourcing
such as India and China that offer labor arbitrage without eggs in one basket,” (iii) the structure generates prohibi-
sacrificing quality. tively high exit costs associated with in-sourcing or re-
Despite possible increase in demand, because of new sourcing, (iv) incumbent providers have fewer incentives to
provider entrants in the market in the last several years, deliver ongoing innovation and service improvements, (v)
firms considering the relative benefits of an outsourcing single suppliers have less ability to provide flexible technol-
model should perceive these times as an opportunity to ogy platforms or pricing mechanisms in pace with a cus-
extract favorable terms at lesser cost for new business. In try- tomer’s changing business needs, and (vi) there are fre-
ing market conditions competing providers also place a quently hidden costs or unrealized cost savings contrary to
greater premium on customer retention and satisfaction and customer expectations.
preservation of existing cash flows. Such conditions, there- As a result, experienced sourcing customers are re-exam-
fore, offer an opportunity for existing customers to examine ining the relative benefits of the single-sourcing model as
carefully their sourcing arrangements to determine if terms, applied to their individual needs and are increasingly
such as scope or pricing, can be favorably revisited or restructuring or implementing parallel arrangements with
whether arrangements should be terminated and re-bid so as more than one supplier to hedge risk more effectively and to
to obtain greater savings or support. position themselves to take advantage of rapidly changing
The multisourcing model may present a particularly industry developments and competitive market conditions.

Global Special Report
Sourcing
in a Challenging
ECONOMY
Second, first-time customers may find it intimidating or municate and align competencies among multiple providers
daunting to launch a full-scope, single-sourced project with- and customer-retained organizations.
out prior experience or existing expertise. The multisourcing While the value proposition of the multisourcing strate-
model allows such new customers to avoid biting off more gy can be compelling for many companies, as with a single
than they think they can chew. Instead, such new customer sourcing model, it presents its own unique set of challenges
can market more specific, compartmentalized test projects, and complexities that must be carefully assessed and
providers and geographies in tandem through pilot projects addressed upfront to realize the full benefits of this strategy.
without sacrificing time to market. Specifically, customers should carefully consider following
Third, in today’s market, a customer’s sourcing decisions critical success factors (i) the approach should align with the
are driven not just by cost savings, but also by the desire for short and long term goals and objectives of the customer’s
greater value, including specialization and domain knowl- sourcing strategy (such as cost savings, operational efficien-
edge, innovation, flexibility, transparency, predictability, cies, and transformation through innovation), (ii) the nature
scalability, and geographic versatility. Implementing a multi of the outsourced services and the anticipate spend should
provider best-of-breed solutions approach can position a be conducive to multisourcing, (iii) the customer should
customer to achieve each of these values, without sacrificing efficiently manage the upfront transaction costs, (iv) the
cost savings. number of suppliers should be closely scrutinized so as to be
optimum, (v) the responsibilities of each provider and the
interdependencies among them and a customer’s retained
Multisourcing provides a more organization should be clearly understood and defined, (vi)
the contractual terms negotiated with each provider should,
surgical risk-management tool to the extent possible, be consistent and include the obliga-
in that the customer can diver- tion to work cooperatively with other providers, (vii) the
customer should possess or acquire the internal capabilities
sify operational risk over required for governance and on-going contract manage-
multiple service providers ment, and (vii) metric-based, inter-provider operational-
level agreements should be implemented to achieve the
rather than be subject to the appropriate level of collaboration and end-to-end service
performance and fortunes of a governance, where necessary.
single provider. Conclusion
The multisourcing model presents companies with an
alternative strategy apart from the single-source model to
Fourth, as the sourcing industry continues to mature, the realize the benefits of reduced costs and increased efficien-
provider pool continues to grow exponentially with cies that outsourcing offers. Although creating a more com-
providers increasingly developing proprietary technologies plex provider-management environment, the model permits
and niche areas of expertise to gain market share and sustain greater market flexibility and leverages more developed and
competitive advantage. This is leading customers to leverage competitive service provider pools and specializations and
multiple specialists rather than engage a single generalist in diversifies both operational and monetary risk. In challeng-
implementing their sourcing strategy. ing economic circumstances particularly, the multisourcing
Finally, providers are quickly adapting to the changing model can present substantial opportunities for outsourcing
customer behavior and market realities, and are, therefore, customers to achieve mission critical directives to imple-
proactively adopting common standardized processes and ment cost saving measures and generate process efficiencies
architecture standards to facilitate the multisourcing trend. with capital outlays and transaction costs significantly less
For example, the provider community and many IT organi- than with a traditional single-source strategy. GS
zations have adopted industry standards and frameworks
such as ITIL, CMM, Six Sigma, TQM, ITSM and ISO D.C., Dan Masur and Sonia Baldia are Partners in the global Business
20000 that provide a common language for parties to com- & Technology Sourcing Practice Group at the law firm Mayer Brown.

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Global
Sourcing
in a Challenging
ECONOMY
What’ll the New Year Bring

FOR OUTSOURCERS?
By Imrana Khan, Global Services
T
he New Year is going to lion deal, TCS is to integrate and cen-
be different; the bash will
be low budget, the guests’
So far, IT has been inte- tralize multiple systems, technologies
and processes on a global scale and
turnout will be lesser, and grated with back-office will also deliver outsourced finance
fewer bottles of champagne would
pop. But the hosts (service providers)
services or maybe with and accounting and HR services.
Platform BPO will be the major
will try to make the party as enter- support services. Now, part of these integrated offerings. The
taining as possible by conjuring a few
new tricks. Call them the new trends
the integration will hap- development of such platforms will be
especially focused on back-office and
in outsourcing in 2009. pen between big major transaction-processing services.
A new cocktail— bundled ITO
and BPO services — will be the
horizontal areas. IT-infrastructure management
outsourcing deals will see a boost
biggest hit among the new guests. We further. Outsourcing businesses are
expect to see highly bundled out- under enormous pressure of lowering
sourcing deals in the year to come. This trend has already start- operational costs in a turbulent global economy. It is estimated
ed gearing up. Earlier this year in March, Council for Affordable that companies spend about 60 percent of their IT budget on
Quality Healthcare (CAQH) awarded a multimillion-dollar, five IT infrastructure. The CIO’s concern to reduce these spending
year, bundled outsourcing deal to Affiliated Computer Services will encourage outsourcing of such services to conserve their IT
(ACS), the Dallas-based IT-services company. Under the terms spend. That means IT-infrastructure outsourcing deals will dom-
of the deal, ACS is responsible for providing a range of Business inate the list of “big” outsourcing engagements in 2009. IT-ser-
Process Outsourcing (BPO), IT Outsourcing (ITO), and cus- vices firms such as Accenture, CSC, HP and IBM — which are
tomer care solutions including mailroom services, document well established into the space — will bag most of the big deals
imaging, application processing, and data entry. Initially, Indi- in the next 12 months. Even Indian biggies Infosys, TCS, and
an service providers such as Infosys and TCS bagged most such HCL can also expect to bag a few of the megadeals structured
deals — of course the ones that work on global delivery mod- around the “remote” delivery of infrastructure-management ser-
els. But now the trend is no more restricted to these vendors. vices. Small, diversified companies with “not so” strong balance
Changes will also be seen in terms of bundling the out- sheet will have to struggle.
sourcing services. So far, IT has been integrated with back-office Outsourcing will continue to be a lever for transformation.
services or maybe with support services. Now, the integration will Adding business value will become the norm. Services providers
happen between big major horizontal areas — such as HR func- will be pressed to drive business transformation that creates sus-
tions with IT services, or finance & accounting functions with tainable value for their customers. They, especially, Accenture,
IT infrastructure and application developments — that used to ACS, CSC, HP-EDS, IBM, Infosys, TCS and Wipro will bag
be outsourced alone. One of the initial, important examples is most of deals. Governance will automatically become top of
the deal signed between The Nielsen Group and Tata Consul- mind, as the key to successful transformational outsourcing deals
tancy Services (TCS) in Oct. ’07. As per the 10-year, $1.2 bil- are measurement, base-lining and benchmarking. GS

GATEWAY
to the Global Sourcing of IT and BPO Services
Connecting the global buyers and providers of IT and business process
outsourcing services. Global Services, your own global media platform, not
only helps you to choose your partner but also enables you to leverage its media
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includes a magazine, a website, newsletters, events and custom solutions.
globalservicesmedia.com
RNI No.DELENG/2006/17056
Posting Date: 29&30 of advance month. Posted at MBC/1B. DPR No.DL(S) 01/3284/2007-2009

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cover_India.

qxp 11/24/2008 12:20 PM Page 1

Outsourcing Under the Obama What’ll the New Year Bring

December 2008 Vol. 03, Issue 35

The gateway to the global sourcing of IT and BPO services

VIEWPOINTS FROM SOURCING EXPERTS

BPO l AMR Research l NelsonHall l Perot

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Subscription Letters to the Editor

December 2008 www.globalservicesmedia.com GlobalServices 3

The gateway to the global sourcing of IT and BPO services

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December 2008 www.globalservicesmedia.com GlobalServices 5

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Average M&A Size Continues to Plunge

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Ukraine in terms of infrastructure same as the rest of the world would

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WILL THE REAL

By Daniel Tkach, CEO, PartnersMarket Consulting

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Outsourcing Under the

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December 2008 www.globalservicesmedia.com GlobalServices 21

NEW MARKET SHIFTS WILL DRIVE

Today’s Tough Business Climate will Force Firms

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December 2008 www.globalservicesmedia.com GlobalServices 23

24 GlobalServices www.globalservicesmedia.com December 2008

December 2008 www.globalservicesmedia.com GlobalServices 25

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Forward-looking Benchmarks practices and an inability to “enforce” appropriate behavior

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GLOBAL LEGAL-SERVICES MARKET

Crisis Creates New

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28 GlobalServices www.globalservicesmedia.com December 2008