by: Karen Cayamanda
Thursday, September 29, 2011 | Comments (0)
Category: Outsourcing Research / Trends
“U.S. BPO Contract Analysis 2006-2010 by Vertical” is a report released by global market intelligence firm IDC that summarizes trends of contract values in different industry sectors in the United States. A sample was selected among new and renewed business process outsourcing (BPO) contracts in five primary industries: financial services, manufacturing and resources, infrastructure, services, and public sector. The findings include the following:
Trends in the study are presented per vertical in the report. Ruthbea Yesner Clarke, IDC program manager for Vertical Markets Research, says the government, infrastructure, and services industries have been stable at maintaining contract lengths, unlike the financial services and manufacturing sectors that posed a significant decrease.
The analysis identifies the top 5 outsourcing vendors in the 13 industries covered by the report - this is considering contract value during 2006 - 2010.
The study took into account the US contracts signed by BPO services, as well as the total number of deals, agreement length, geographical location, and key vendors. Data was acquired from IDC’s BuyerPulse Services Deals Database which has very comprehensive information on market deals. Furthermore, the study includes an analysis of consumer budgets, their buying behavior, and spending trends.
by: Karen Cayamanda
Wednesday, September 28, 2011 | Comments (0)
Category: Outsourcing Research / Trends
Everest Group, a consultancy and research firm, reported a 12.5 percent growth in the Benefits Administration Outsourcing (BAO) market. The current upsurge in demand for BAO is primarily driven by employers who need direction and advice in complying with healthcare reform measures recently introduced in the US. While the industry has long been sustained by the need to reduce cost and improve employee engagement, news on healthcare reform brings employers to increase enrollment and regulation of insurance plans.
Research director Rajesh Ranjan says it will take years before the said reforms are in its full effect, but a number of provisions are expected to directly affect companies’ benefit plans for the year. Buyers look into outsourcing in an effort to understand and navigate through the reforms as well as identify ways to lessen costs.
More highlights in the report concerning the BAO segment:
Aon Hewitt and Fidelity are the largest service providers in the BAO market, holding close to half of the market share. Other players included in the report are ACS-Xerox, ADP, Infosys, Secova, and Towers Watson.
The BAO industry is a competitive market and mergers continue to spur progress in the industry. Providers continue to thrive and differentiate themselves by altering technologies, by improving service models and processes, and by specializing based on scope and geographical location.
A webinar will be held on October 11, 2PM GMT to present the rest of the findings. To register, visit research.everestgrp.com/Events/Webinars.
Small companies generally do not have the resources to undertake massive volume orders or major shifts in technological infrastructure. Outsourcing, whether offshore or nearshore, serves as a strategic tool for small companies to maintain profitability and to ensure efficient customer service.
In any business operation, IT infrastructure is an important aspect. Unfortunately, small companies have limited budgets in hiring IT personnel or purchasing IT equipment. Outsourcing enables small companies to hire world-class IT personnel or to use virtual IT equipment at low cost.
However, compared to large, multinational companies, small and mid-sized businesses (SMBs) generally do not have the skill and know-how in managing outsourcing service providers. Kevin Casey of InformationWeek.com has interviewed TeamLogic IT’s vice president for information technology, Vince Plaza, for an insight into how SMBs can fully take advantage of IT outsourcing.
Do not hesitate to ask questions. Asking questions creates an atmosphere of transparency and accountability. A transparent working relationship ensures that all issues are attended to immediately. At the same time, any possible challenges can be foreseen and resolved. A typical question that may be asked in an outsourced IT relationship may be related to general details such as the software and hardware used by the service provider. Software may refer to the applications and technologies employed to deliver the services – it may even help to understand the different levels of service that an outsourcing agreement covers.
Outline a clear job description for the outsourcing service provider. Not all SMBs have their own IT departments. However, tension may occur in an outsourcing relationship that involves two IT managers – the in-house IT executive and the outsourced IT staff. A clearly outlined role and responsibility for the outsourced IT provider helps to reduce this tension. Plaza said an approach like “call on us when you need us” will place the outsourcing service provider in a supporting role.
Regular meetings ensure that the outsourcing relationship is proactive, instead of being reactive. Internal company meetings are done regularly to address issues and avoid problems – why not do the same with an outsourcing service provider? A proactive outsourcing relationship means that problems are anticipated and avoided, resulting to less downtimes and more operational hours.
Do not sacrifice security. Being an SMB does not equate to having less secure IT resources. Awareness of data security is very important, especially for SMBs that capitalize on a specific product or service. Security policies and procedures that do not require additional equipment and staff can be developed and used.
Be fast in solving problems. Even if an outsourcing relationship is proactive in dealing with challenges, inevitably a problem arises. How many times have you dealt with a project that did not proceed as planned? Speed is critical in solving problems, especially problems that may hamper service delivery.
Outsourcing as a business strategy has gained prominence even in the supply chain industry, where outsourcing fills in the inherent inadequacies of small companies and leverages the comprehensive capabilities of multinational companies. Research firm Gartner, Inc. has culled eight best practices that can help supply chain executives in identifying, evaluating, and choosing the right outsourcing service providers for their operations.
Best Practice No. 1. Create an outsourcing strategy that will integrate into your existing supply chain strategy.
Since the outsourcing service provider will be essentially integrated into the supply chain, strategically, any decision with regards to the scope and magnitude of outsourcing must support the overall operation of the company. At the onset, the outsourcing service provider must be willing to work hand-in-hand with the client-company in improving profitability.
Best Practice No. 2. Ensure that the company is ready to manage an outsourced service provider.
Before setting out to engage the services of an outsourcing service provider, ensure that there will be someone in the corporate hierarchy who is sufficiently equipped to manage outsourcing partners. Supervising an outsourcing service provider is different compared to managing an in-house department. Besides, there are different types of outsourcing services, and a company keen on contracting outsourcing services must be familiar in getting the right outsourcing deal for its requirements.
Best Practice No. 3. Be clear on what you need to outsource.
Decide on what processes to shift to an outsourcing service provider. Essential operations that involve sensitive company data, such as intellectual property (IP) and confidential customer data, may or may not involve an outsourcing service provider. Among providers, competition is so fierce that outsourcing companies are combining and expanding service offerings in an effort to attract more companies into the outsourcing fold.
Best Practice No. 4. Outsourcing is more than cost reduction.
An outsourcing deal that is primarily pegged on reducing cost may be sacrificing other important factors, such as quality assurance and customer service. Some companies have tripped on the mistaken notion that outsourcing deals will solve their problems and return them to profitability. Aside from cost-service analysis, companies considering outsourcing must also factor into their risk assessment the following: quality control, customer feedback, and past performance.
Best Practice No. 5. Carefully consider the variety of risks involved in outsourcing locations.
Consider the location - outsourcing deals are, more often that not, offshore, too, in nature. In Asia alone, IP legislation and enforcement differ widely between India, China, and the Philippines. Corruption in the public and private sectors in the three countries mentioned also varies.
Best Practice No. 6. Open communication channels are vital to an outsourcing relationship.
Communication and transparency, especially involving personnel movement, processes, and capabilities, are important in maintaining an efficient supply chain outsourcing deal. Surprises are not needed in an outsourcing deal that places a premium on predictability and reliability.
Best Practice No. 7. Be clear on managing service level agreements and performance indicators.
Documentation is an important part of any partnership. With clear documentation, qualitative and quantitative assessments can be quickly made and brought up in regular meetings. The impact of the supply chain outsourcing can be safely measured against the performance of the company.
Best Practice No. 8. Take advantage of the outsourcing service provider's skill and experience.
In any outsourcing deal, sharing is as important as having a clear service level agreement (SLA). A partnership between companies is meant to guide both companies to profitability - a mutual relationship that aims to assure mutual growth. A client-company will gain from a specialized outsourcing service provider who has the tools and the immediate know-how that the client-company can take advantage of, instead of having to invest time and resources to have those same skills and knowledge within the company.
In many cases of outsourcing business functions offshore, it is inevitable to give service providers some sort of access to certain systems and information on processes to get the job done. Depending on the outsourced work, the clients are somewhat exposing the way they do business to an external provider, and that makes them at risk.
Today’s global outsourcing market continuous to flourish and as more and more companies realize what outsourcing can do, it is highly important to evaluate business relationships with service providers to mitigate the risks involved in transferring processes to vendors.
In a CIO.com article by Stephanie Moore, Vice President and Principal Analyst at Forrester Research, she enumerates several recommendations on risk mitigation:
Make sure the vendor has the right certification. Vendors adhere to delivery standards to ensure the highest quality. For instance, CMMI Level 5 is the highest rating today. This indicates lower risks when it comes to executing programs. Keep in mind, though, that not all service providers have the certifications you may need. Smaller or new vendors may not have the right certifications required for your business.
Assess the qualifications and certifications of employees. Software development work requires employees who have undergone training and have the right qualifications and certifications. Make sure to get proof of certification from the service provider.
Analyze the HR and recruitment capabilities of the vendor. Finding talent is one of the most crucial steps when it comes to outsourcing, but after hiring the right employees, the vendor should be able to retain them and keep attrition rates to a minimum.
Look at the vendor’s vertical expertise. Clients must look at the vertical capabilities of service providers. It is important to know how they incorporate innovation and technology with their expertise in certain verticals and the industry.
Evaluate rates and productivity in terms of quality of work. Outsourcing enables clients to save on operational and labor costs, but this does not mean getting deliverables of low quality. Clients need to assess the pricing of projects and ensure that the employees meet their requirements.
Beware of managed services agreements. As with all other business contracts, service level agreements in outsourcing must be crystal clear, making sure that the vendor is not employing, for example, shortcuts in the software development life cycle (SDLC). Evaluate managed services engagements carefully to prevent problems later on.
A study done by outsourcing analyst firm HfS Research and the London School of Economics shows that mid-sized companies get more out of their IT outsourcing deals compared to large organizations.
In the article “IT Outsourcing: What Big Companies Can Learn from Midsize Companies ” by Stephanie Overby at CIO.com, with the 277 outsourcing buyers who participated in the survey, 63 percent of mid-sized firms said outsourcing had been successful for them in terms of cost reduction. The report also shows that 42 percent of mid-market clients indicated that their deals have met their compliance and regulatory requirements, compared to only 30 percent of large companies.
According to HfS Research founder Phil Fersht, "Quite simply, mid-market organizations have to bundle more processes together into one broader deal to make it large enough to warrant the attention of the leading services vendors. [They] rarely will have the luxury of outsourcing step-by-step." Larger companies usually outsource services part by part over a long period of time and because of their size, they can tell the service providers how they would like to outsource.
Fersht says this type of strategy is weighing large companies down and the cut up process hinders further developments in contracts. "By and large, organizations outsource processes that probably aren't very well run in the first place. [Their] 'softly, softly' approach to outsourcing is prolonging the disruptive change a buyer needs to go through to reach its desired global operations end-state," said Fersht.
When it comes to outsourcing vendors, Fersht said they should focus not only on big clients but also those in the mid-market where contracts are more flexible.