What is Outsourcing?
The Shift Towards Outcome-Based Outsourcing
by: Carlo Abadilla
Thursday, February 25, 2010 | Comments (0)
Category: Outsourcing Research / Trends
The global outsourcing industry has been typified by outsourcing deals based on quick-fix cost-cutting solutions that don't always consider long-term process improvement. As the economies of major outsourcing players recover, buyers and vendors are presented with an opportunity to divert focus on ways to create value instead; writes Kathleen Goolsby of the Outsourcing Journal.
The key factor towards maintaining a successful relationship, both personal and professional, is trust. Attaining that trust depends on a healthy system of communication. For the outsourcing industry, this means increasing the level of transparency and information-sharing are key catalysts in attaining an outcome-based approach. The shift towards outcome-based outsourcing is described by Genpact's Mohammed Haque as “a journey that can take at least 18-24 months to implement” due to the requirement of a complete data assessment of the buyer's landscape.
Advancements toward value-creating platforms require attaining a more in-depth understanding of a customer's industry. Haque explains that it is "extremely important that the buyer understand the level of risk the provider must take to help the customer achieve the desired business outcome. This will only work if it is a complete partnership type of relationship and if there is strong governance and relationship management. And senior leaders on both sides must work together."
Upon getting a good grasp on the needs of a buyer's business context, it then remains to align service level agreements (SLAs) to meet desired strategic goals. To further solidify the commitment of both parties to a value-adding partnership, industry experts advocate employing a model in which the responsibilities for risk mitigation and maximizing returns on investment are shared.
According to Haque, only 5 to 10 percent of outsourcing arrangements today utilize outcome-based pricing – the other 90 to 95 percent of outsourcing arrangements are based on time, materials, or a fixed fee. However, he predicts that within the next five years, outcome-based outsourcing contracts will grow to 40 to 50 percent.
RP’s Game Development Sector and the Lack of Enough Manpower
by: Karen Cayamanda
Wednesday, February 24, 2010 | Comments (0)
Category: Outsourcing Research / Trends
The Philippines has long been known as a location of choice for voice-based work. Call centers abound not only in Greater Manila area but also in nearby cities and towns. The outsourcing industry soon expanded, including non-voice BPO work in its service offerings. Even during the tough financial crisis, the Philippine outsourcing industry had showed resiliency and it was one of the few industries which raked in revenues that greatly helped the economy.
There’s no doubt that outsourcing has become a major income generator for the country, and it doesn’t stop at call center functions, IT services, and medical transcription. Another promising field is game development, the youngest branch of the industry.
The different factors that make the Philippines an ideal BPO location still apply when it comes to the game development sector. There is no question about talent. Filipino game developers are creative, highly skilled, and innovative. Aside from English proficiency and low operational costs, the immersion with the Western culture is advantageous for game developers in the sense that cultural compatibility makes it easier for them to appreciate and comprehend the games from the West.
What keeps the country from tapping a large part of the game development outsourcing market is the lack of enough trained game developers to meet the demand. In an article entitled "Philippine game developers ready for big players?" by Nestor Arellano, Ranulf Goss, President of the Game Developers Association of the Philippines, said there were about 50 employees in the sector back in 2004. Five years later, more than 600 comprised the game development workforce. "We're the fastest growing industry in outsourcing right now, but definitely we need more manpower."
While there are game development courses being offered in the Philippines, there is no formal training available. For the country to become a game development outsourcing hub, it is crucial to provide the necessary training for those who want to work as game developers.
The country must find ways to beef up the workforce for the game development sector and make BPO players aware that Filipino game developers have the right skills and talent. If the country has enough manpower to meet the demand, this young sector may soon put the Philippines on the map of global game development outsourcing industry.
Factors towards a Successful Sole Sourcing Approach
by: Karen Cayamanda
Monday, February 22, 2010 | Comments (0)
Category: Outsourcing Research / Trends
In an Everest Group Whitepaper entitled “Sole Source Outsourcing: Ensuring a Successful One”, the global research firm cites these seven factors that will lead to successful sole-source approach to outsourcing.
1. Develop the relationship. This is important even in multi-supplier approaches. Since both parties will be investing a lot of time and money in the outsourcing deal, it is crucial to establish a healthy and effective relationship in which both the supplier and buyer know each other’s goals and are committed to make the relationship work.
2. Engage senior leadership. A sole sourcing approach relies on the trust and goodwill at senior executives of the company. People at the highest levels of the organization should be the ones to carry out the decision-making process, specifically when it comes to service delivery and terms of the agreement.
3. Involve the board. For many board members who are used to a multi-supplier approach, presenting a sole-source situation may raise some concerns such as whether it is the best and most cost-effective solution for the company or not. Do not leave the board of directors in the shadows. Present the sole-source approach early in the process to give the board some time to evaluate it.
4. Don’t boil the ocean. Before signing any outsourcing deal, make sure you have an accurate and robust business case, reasonable pricing and achievable scope, and a Masters Services Agreement (MSA) that focuses negotiations on terms which are most relevant to outsourcing.
5. Develop a robust business case. Have a well-structured business case that can be easily explained and understood. Aside from stating the base case model, the business case must be clear and comprehensive. It must also take direct cost and business impacts, as well as strategic risks into account.
6. Compare to ensure value. To have a successful sole sourcing approach, “parties must adopt a sophisticated external comparative analysis process to ensure fairness of value sharing.” The buyer must make sure that the supplier has the capabilities to match the scope of services to be delivered.
7. Focus the contract and negotiations on truly important factors. The buyer must set specific milestones and end goals. The contract will also include scope targets and metrics in measuring the success of the proposed solution and the outsourcing relationship.
While a sole-source approach may not be suitable for every organization, Everest notes that if it is well-designed and executed carefully, the sole-source approach can be the most cost-effective and time-saving solution for many companies.
Global Outsourcing Shows Signs of Recovery
by: Karen Cayamanda
Tuesday, February 16, 2010 | Comments (0)
Category: Outsourcing Research / Trends
Results from the Market Vista: Q4 2009 report by global consulting and research firm Everest indicate that the global outsourcing market is seeing signs of recovery.
Everest’s study findings include the following (compared to the Q3 market report):
- Twenty-six percent of deals signed in fourth quarter were held by business process outsourcing (BPO).
- IT outsourcing (ITO) comprised 71 percent of transaction activity.
- The annual contract value (ACV) increased 72 percent to about US$4 billion, mainly due to mega-deals with ITO and BPO components.
- About one-third of deals signed in fourth quarter came from BFSI (banking, financial services, insurance) and MDR (manufacturing, distribution, retail) verticals.
- The BFSI vertical comprised one-sixth of the overall market ACV, while ACV from the MDR vertical increased 44 percent.
- Buyers in the United States and Europe increased global transaction activity, making up 75 percent of total transaction deals signed in fourth quarter.
- Significant increase in ACV was seen in the United Kingdom.
- Captive activity sets two-year high mark, with deals from MDR and BFSI verticals, and 40 new announcements, led by India (14) and remaining parts of Asia (18).
- Tier-I and Tier-II locations contributed equally towards overall offshore delivery.
- Ten acquisitions and 39 new alliances were reported in M&A.
These evidences show that things are looking up for the global outsourcing market. It may be a slow start, but what’s important is that we are seeing steady growth across the world - from US and European buyers to emerging trends and outsourcing locations.
Top 5 Tips for Effective Renewal of Outsourcing Contracts
by: Karen Cayamanda
Thursday, February 11, 2010 | Comments (0)
Category: Outsourcing Research / Trends
When it comes to renewal of outsourcing contracts, Debora Card, Associate Partner at outsourcing advisory firm TPI, said the key is to be prepared before negotiating with the supplier. “Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them.”
Here are Card’s top five tips to get the most out of contract renewal:
1. Start early. If you start renewal planning early, you will have ample time to think about whether to outsource to a different service provider or move business process/es back in-house. For single-process transactions, Card said you need to work on renewal planning about a year before the contract expires. For multi-process transactions, start 24-36 months before expiration.
2. Do your homework. Take a closer look at the current market and see if the relationship you have with your service provider is at par with industry standards when it comes to pricing and service level agreement. Know what alternative suppliers can offer and find out which can provide a better and more efficient solution for your business.
3. Realign with reality. It is likely that there are expectations which are not met. This can happen to both parties. In renewing the contract, make sure to realign expectations and responsibilities. These can involve changes in pricing structure and services offered.
4. Remove the fog. Have a crystal clear agreement. According to Card, parties commonly disagree on two primary areas: scope of services and management or governance. Be clear on your expectations so you will get what you contract for and avoid conflict in the future.
5. Play out your hand. After analyzing the current market, evaluating the alternative providers, and determining your expectations, it’s time to communicate with your supplier. Make sure to document what you want to get in terms of pricing structure, scope of service, and management. It is also important to let the supplier know about your timeline for service delivery.
Don’t wait until the last minute. Be fully equipped with the right information about the existing environment and viable options before your existing contract expires.