By Dan Berthiaume

Everyone seems to have at least one story about a nightmare experience dealing with telephone customer service. The fact that many call center providers are located in countries where language and customs are significantly different from US norms only exacerbates the problem. Some experts recommend that companies outsourcing call center functions attack the problem of poor customer service by focusing more attention on serving the needs of customers. But is that always the best strategy?

Michael D. Brown, a corporate consultant and trainer who specializes in developing professional brands, has a slightly different recommendation. “Step back and take care of the employee first,” Brown says. “They will then take care of the customer. Make the employee number one and the customer number two.”

Brown realizes that his advice to place the frontline employee before the customer amounts to heresy in the eyes of many customer service gurus, but he hastens to explain that this is actually the best way to ensure a top-quality customer experience. “When you look at unfavorable dealings with the end user, there is a rush to judgment to put a band-aid on the situation,” says Brown.

Instead of approaching each individual customer complaint as a separate issue necessitating an on-the-spot fix, Brown says companies should make more effort to understand how the frontline call center employees actually spend their day. “Take a side-by-side walk with your frontline employees,” says Brown. “See what a typical day is like; see what types of calls they’re getting and where the roadblocks are. Then ask, ‘Do I have the right processes in place?’”

Brown says real-time communication technologies such as Skype and FaceTime allow US companies to virtually perform side-by-side walking with call center employees who may be working from distant offshore locations.

After performing side-by-side walking (either in-person or virtual), Brown says companies should then go about “smart tasking” outsourced call center employees. “What do the employees do besides just answering calls?” asks Brown. “To deliver a world-class call center customer experience, look at the sequence of tasks employees perform and see if you can make any changes to enable them to deliver a better customer experience.”

Let Frontline Employees Make it Right

Following smart tasking, Brown says companies should provide outsourced call center employees with what he calls “Make it Right” power, or the ability to solve certain problems on their own. “Often the person answering the call can do nothing other than pass on the call to someone else when there is a problem,” says Brown. The customer becomes even more infuriated when they are passed to person after person.”

Instead, Brown says the employee manual should provide frontline employees specific instructions on how to resolve common issues and that the second person they speak to should have the authority to handle all problems.

“Most customer problems are not rocket science,” comments Brown. “The frontline employees hear the same issues day in, day out. Ask them what they are doing day to day and look for organically developed solutions.” Brown says companies should then compile these solutions into a continually growing “What-If Arsenal” of resolutions to common problems that is built from the bottom-up, guaranteeing employee buy-in.

Brown says is it also important for companies engaged in call center BPO to encourage “bubble up innovation,” or innovative ideas that come from frontline employee brainstorming sessions. “Often we don’t have the answers, but need innovation bubbling up from the bottom,” Brown says. “It gives the frontline employees ownership in the workplace.”

Clued In

Brown says all the steps he recommends to achieve world-class customer service in an outsourced call center will not succeed if everyone involved is not relentlessly focused on the same goal. “Does everyone understand the vision, or are people in different silos?” he asks.

Of course, companies also need to simply follow through and make world-class customer service happen at their outsourced call centers. This includes remaining open to making changes in response to changing needs of customers. “Keep it fresh,” says Brown. “Things will change. Look at what happened to Borders. To take call center customer service to the next level, you need to say enough call centers are giving the industry a bad name, it’s time for us to rise to the top.”

An essential part of making it happen is ensuring frontline employees fully understand what customers expect from products and services. “Too often the call center employees haven’t a clue,” he states. “They must understand how things are made, not necessarily from a technical standpoint but in terms of the promised experience. Often the call center employees don’t know what has been promised to the customer.”

By Jerry Durant

Everybody wants ROI from their outsourcing projects. Many (on both the buy and the sell side) claim it. But relatively few have the knowledge or background to calculate it correctly. This not only makes it harder to make good decisions, but saps the credibility of whoever is doing the calculations.

Far too many operations and procurement professionals try to calculate ROI without a sufficient understanding of it.

They also try to convert subjective value measures to quantifiable numbers and fail to relate ROI to business objectives that might not relate to money, but to harder-to-measure benefits such as innovation or the delivery of new products and services to customers.

First, one must understand what ROI is not. Consider a typical outsourcing decision, such as whether to outsource your e-mail infrastructure. Just because Option A costs less than Option B, while delivering similar service levels, does not demonstrate ROI. It just means you have lowered the cost of doing business – the cost of operations. You cannot claim ROI because you have not done anything to generate more revenue.

ROI is the result of the Gain from Investment less the Cost of the Investment all divided by the Cost of Investment. You achieve ROI when, and only when, it supports the operation of a profit center, rather than a support center where any savings are likely to be consumed by other areas.

So where do we stand?

1. Distinguish between investment and operating costs. An investment will produce a yield, in the form of an improvement in a profit-making operation, while operating costs allow you to keep the lights on for less than you otherwise would.

2. Know your objective. If it’s labor arbitrage then a simple comparison will reveal the spread between domestic and foreign labor costs.

3. Ensure ‘like’ comparisons. Are the processes you are comparing both fully optimized? All too often, the function you’re considering for outsourcing is not in best operating form. If it’s a simple “lift-and-drop” situation then cost comparisons would be OK, but if the provider is making changes you need to factor that in. So facilitate process improvement/optimization at some point in the relationship, whether pre- or post-engagement, measure the results and take them into account

4. Take into account all costs. It’s not simply a matter of contract cost vs. prior in-house costs. Take into account other costs that must be amortized over the duration of the contract, such as to transition the function to the provider. Remember new, in-house costs such as for a project management office (PMO) that oversees the outsourced relationship, as well as the need to monitor the quality of the outsourced work.

5. Make sure that you have systems in place that can track operating costs against the estimates you used to make your decision. In some ways this is a bold step because you may wind up finding flaws in your decision making. Don’t use this as an opportunity to find fault, but to improve your estimation and sourcing management skills.

6. Factor in whether you’re getting everything from your service provider you were getting in-house, such as a commitment to environmental efforts or working conditions. This is another way of saying “compare apples to apples,” but in an area that can cause big public embarrassment if you ignore it.

Bottom line: When calculating ROI keep in mind the difference between reducing operating costs and actually improving in business. And, when you’re comparing costs and benefits, make sure you’re doing a fair comparison that takes into account both everything you’re spending and everything you’re getting (or not getting.) The health of your organization – and of your own credibility – depends on it.

Jerry Durant is founder and chairman emeritus of The International Institute for Outsource Management, a trade organization dedicated to the assessment, development, and guidance of outsource service providers in the ITO, BPO, call center, and KPO domain areas.

Click on the image to read the E-book

It’s been called “Silicon Valley South” and is one of many locations to be nicknamed “the Silicon Valley of Brazil.” Although Curitiba differs from the original Valley in several key ways – less traffic, for instance, and more trees – it does share one essential similarity: a concentration of technology expertise and software development experience.

Curitiba is capital of the state of Paraná, which is home to more than 260 software companies and six software clusters. Those providers embody more than 50 areas of business intelligence and more than 30 areas of IT specialty. Clients of Curitiba include ExxonMobil, HSBC, Nokia, and Wipro. IBM, Dell, and HP were among the first international tech companies to set up operations in Curitiba.

One of those six clusters is particularly focused on taking Brazilian development skills to a global clientele. Curitiba Offshore is home to 14 software companies, providing services from R&D to application development to systems integration and infrastructure management. The Curitiba Technopark connects IT companies with R&D centers and the area’s many universities in an effort to boost collaboration and innovation. And the city’s emphasis on sustainable urban planning has helped it attract an educated group of people looking for a better quality of life.

KPMG referred to Curitiba as one of the world’s most attractive business locations, and Gartner called it one of the world’s leading IT and software destinations. Find out what’s attracting IT providers and IT buyers to this green Brazilian city in the new e-book, Curitiba, Brazil: A Higher Vision for IT Exports. You can download it here.

Choucair: People said software testing is something users do.

Testing firm’s founder overcomes skeptics and machismo with a ‘humanist’ operating  philosophy

By James Bargent

When Maria Clara Choucair founded Choucair Testing in 1999, it was the first software testing company in Colombia and one of only a handful in Latin America. The company started with a workforce of one – Maria Clara Choucair. Thirteen years later, Choucair Testing has 450 employees, branches in Medellin and Bogota and Lima, Peru, and a host of big-name clients.

Maria Clara Choucair first encountered software testing when she worked on a joint venture between software developers Ecosoft and Intuit. “What I learned from the experience,” she says, “is that we Latin Americans are very intelligent but we’re not very methodical.”

When Choucair – who is #10 on the 2011 Nearshore Americas Power 50 Ranking – decided to set up her own company in Colombia, she was met by widespread skepticism. “Testing here didn’t exist,” she says, “they told me I was crazy, they said there was no use for that because the users are the ones who test.”

What gave her the confidence to challenge that prevailing wisdom was her strong belief in the benefits of software testing. “The product was very good for society,” she says.

That type of thinking characterizes Choucair’s approach to both life and business. Choucair Testing, she says, is informed by a “humanist philosophy with ethical roots,” something that has played a key role in the development of the business by establishing trust and confidence with clients. “It’s a business philosophy. I always ask this question: What kind of friend would you like to have? Because for us, a business relationship is like a friendship.”

Despite the global financial turmoil of the last few years, Choucair has continued to grow steadily and has recently expanded into Peru.

Laborwise, Start from Zero

As pioneers of software testing in Colombia, Choucair Testing had to start from zero in developing its human capital; they not only had to fully train their workers, they also had to instill the concept of testing. Choucair’s answer to this was to design technical and personal profiles outlining exactly what level of training and personal characteristics she was looking for in any given role. From there it was a matter of the right training. “We have a method,” she says, “training and tools that help people change their state of mind.”

Today, both software testing and the IT sector in general have grown exponentially in Medellin and in Colombia, and Choucair operates in a much more competitive environment. The Colombian education system has not kept pace with business growth, the founder says, so the company now faces the dual challenges of both training and keeping the best talent. Choucair herself, however, remains philosophical. “We teach them and they go,” she says. “But I think it has also made us more competitive – it is not a bad thing”

Attrition rates are high, but Choucair says “lower than the market average.” She puts this down to creating a working environment where people enjoy their work, have good relationships with their co-workers and management, and see the potential for personal development in the company. The firm tries to achieve this through a range of strategies, from arranging education and training to perks such as meals out. They are also developing personal “projection maps,” plotting an individual’s potential for career progress.

John Jairo Gomez helps them act "more like a corporation."

Intelligence Over Macho

In late 2009, Choucair handed over day-to-day management and business strategizing to her long-time associate and former Choucair customer John Jairo Gomez, allowing her to concentrate on what she loves – software testing. Gomez has brought in a more refined, formal, and disciplined management style, which they both agree was necessary. “Because of the company’s growth,” Gomez says, “we need to behave more like a corporation.”

As a woman, Choucair’s success stands out even more in a country renowned for its culture of machismo. However, sexism has not been an issue for her. “It helps that I work in [a] technical [industry],” she says, “because in a technical market they appreciate your intelligence, your manners, and your way of working.”

The Choucair labor force is evenly split between men and women, while the management team is all women apart from Gomez. According to Choucair, this is not by design. “The only thing I care about is that they are honorable and they do a good job,” she says.

Despite the global financial turmoil of the last few years, Choucair has continued to grow steadily and has recently expanded into Peru. “[Doing business in Peru] is like a university,” Gomez says. “We have learned a lot and we have had a lot of fun doing that job … [it is] a different culture, a different way to do business”

Choucair says her attention, however, remain focused on her home city of Medellin and the IT sector’s ability to help realize the city’s potential. “When I see the comunas [the poverty stricken hillside neighborhoods of Medellin],” she says, “it is my dream to get those people out of there, because we have a lot of opportunities [in IT].”

Choucair Testing currently works in partnership with local educational institutions to help people in the comunas access those opportunities. Even so, Choucair says, more needs to be done. “The universities and the schools have to be faster in capturing these people without resources because this is an opportunity to help get them out of that hole.”

Santiago: Sustained vertical drive.

By Dan Berthiaume

Latin American nations make up about one-quarter of the 2012 list of Top 100 outsourcing locations compiled by global outsourcing research/advisory firm Tholons, and that is no accident. As Manuel Ravago, president for research at Tholons, explains, Latin America is an up-and-comer in the world of BPO. And more agile smaller countries might make the most of that.

“We view Latin America as the next important outsourcing destination globally,” says Ravago. “The world will soon realize Latin America can do more than speak Spanish.”

Latin America possesses several factors that give it an edge over more traditional BPO locations such as China and India, according to Ravago. “First of all, Latin America has Nearshore value due to things like time zone and general proximity, which India and China can’t compete with,” he says. “From an operational perspective those things can make a huge difference.”

Ravago also cites Latin America’s linguistic advantages, but not just in terms of Spanish. “There are a lot of other languages in Latin America,” he says. “There are pockets of many other populations, like Italian and German speakers.”

Furthermore, Ravago says outsourcing certain business processes to Latin America can help US firms better serve the rapidly expanding domestic Hispanic market, which represents the country’s fastest-growing minority group. “If a company is looking to offer Hispanic consumers customer support, can India provide it?” asks Ravago. “No. Can Latin America provide it? Yes.”

In addition, Ravago says China is still relatively focused on serving its domestic BPO market, with “nearshore” for China meaning other Asian nations such as South Korea and Japan. “Those are not markets Latin America has to compete with,” he states.

Latin American BPO Attracts India

According to Ravago, the BPO potential of Latin America is bright enough to attract the interest of many major Indian BPO providers. “A lot of Indian companies want to break into the US Hispanic market, and Latin America is a stepping stone,” he says.

There have already been a number of Indian BPO delivery centers established in Latin America, says Ravago. “They will see the wealth of skills available and move into higher-value services. The number of delivery centers and investments is set to expand in the near term.”

Costa Rica, Colombia: Strong Potential

Tholons’ report on the top Latin American global outsouring locations cites Costa Rica and Colombia in particular as showing strong growth potential. According to Tholons, Costa Rica will benefit from its skilled labor force as the global BPO market moves toward vertical-specific, high value services. Costa Rica is also trying to attract more investments in its creative services outsourcing industry.

Meanwhile, Colombia has enacted a program known as “Transformacion Productivia” which acknowledges IT-BPO as a key growth activity. This effort includes a widescale focus on more effective training and capacity-building programs for its KPO and ITO segments.

Tholons also calls out Santiago, Chile, in particular for a sustained drive to hone expertise in vertical-specific processes.

Brazil, Mexico, Argentina: Internal Risks

According to the Tholons report, three of the most established Latin American BPO provider nations – Brazil, Mexico, and Argentina, need to address internal social, economic and political risks, including inflation, to “regain lost momentum.” If these countries do not counteract internal risks, Tholons warns smaller “upstart” Latin American destinations such as Peru may capitalize on their lost market opportunity.

Ravago added further commentary on Brazil, noting that as an emerging market it offers economic opportunities on par with India and China, but saying Brazilian BPO providers must adopt a less provincial outlook. “A lot of Brazilian BPO providers are ‘eccentric in their outlook; they are not looking for Nearshore or offshore opportunities,” said Ravago.

Peru, Puerto Rico, Brazil, and Colombia drive forward with big projects

By Clayton Browne

Latin America has long been considered a laggard in terms of global infrastructure development, but that perception should be changing. Countries such as Brazil, Mexico, Chile, Peru, and Puerto Rico have all begun major long-term infrastructure projects ranging from roads to dams to telecommunications towers to airports. Infrastructure development in the areas of energy, transportation and telecommunications have seen the greatest recent growth, with estimates ranging as high as $450 billion, to be spent on infrastructure in the area between 2011 and 2015.

Up until 2009, Latin American infrastructure spending was on a rapid growth track and there were dozens of major projects planned in almost every country in the hemisphere. The global recession has put a little damper on the pace of the growth, and a number of projects have been delayed or revised, but overall the impact of the recession on infrastructure expenditures does not seem to have been as bad as feared. Several countries such as Brazil and Chile have just announced new projects and updated schedules for planned and ongoing projects in 2012 and beyond.

Public Sector vs Public-Private Initiatives

Large-scale private-public partnerships for infrastructure development have been rare in Latin America until relatively recently due to a combination of cultural and business factors. There is a deep suspicion of private involvement in large public infrastructure projects in many places in Central and South America due to the fact that graft and misappropriation of public funds has been endemic in many such projects in the past. And in some countries such as Venezuela, there is outright hostility toward private enterprises being involved at almost any level in government projects.

The other side of the coin is that historically many public sector infrastructure projects in Latin American countries have also been inefficient graft-plagued projects where a few politicians or their friends and family greatly enriched themselves at the public expense.

But all of this is changing as the 21st century gets under way, and many countries like Brazil, Chile, Puerto Rico, and Peru have crafted innovative new regulations to encourage public-private partnerships (PPPs) for infrastructural development. A few have even created quasi-governmental agencies to encourage PPPs, such as the Puerto Rico Public-Private Partnerships Authority.

That said, there are still a good number of ongoing and planned Latin American infrastructure projects such as airports that are deemed to be of sovereign interest, and are being developed solely with public funds.

Energy Infrastructure Supplanting Telecom

The development of telecommunications infrastructure has been a high priority throughout Latin America since the late 1990s, and there were more projects and more money spent on telecommunications infrastructure in Lain American countries than any other category for almost a decade. The trend continued until 2009, when investment in telecommunications declined by 37% compared to 2008, and no major new projects were undertaken.

The energy sector has seen rapid growth in the last few years in many Latin American nations, with energy infrastructure investment jumping by 127% with 43 new projects from 2008 to 2009. Brazil has been especially active in the energy sector since 2008 with two new hydroelectric plants and half a dozen major electrical transmission-related projects.

Major Projects in Selected Countries

Brazil

Brazil was one of the leading per capita infrastructure dollars to GDP spenders in the world in the 1970s and early 80s, but infrastructure expenditures dropped off significantly for the next decade or so after that. But Brazil has recently kicked off a massive campaign of new infrastructure projects of all types, dubbed the Growth Acceleration Plan. Many of these projects are being developed through the Brazilian National Development bank (BNDES), and BNDES estimates that Brazil will spend a minimum of $145 billion in the three-year period from 2010-2012. While the fact that Brazil is becoming the largest economic engine in Latin America is clearly behind most of the current surge in infrastructural development, a good bit of it is certainly related to the fact that Brazil is hosting the 2014 World Cup and the 2016 Summer Olympics.

Ongoing/Near-Future Infrastructure Projects

• Recently completed a three-year, $30 billion roads and highways improvement project.

• Almost 50 stadium, road, airport and train-related infrastructure projects slated to be finished on time for the 2014 World Cup.

• A high-speed train linking Rio de Janeiro and São Paolo due to be completed by the 2016 Olympics.

Colombia

Colombia has taken great strides in both sociopolitical and infrastructural development in the last decade or so, but it was very much needed and a great deal that remains to be done. Colombia’s current National Development Plan estimates spending $17 billion between 2010-2014 to develop the highway and railroad system, with up to half of the money coming from private funds.

Ongoing/Near-Future Infrastructure Projects

• Nearing completion of the multi-year, three-phase Ruta del Sol, a major highway project designed to connect the interior of Colombia with the Pacific Coast.

• The Central Railroad System, a project linking the two regional hub cities of Honda and Chiriguana, is under construction.

• Development of a new program to encourage the investment of private capital in infrastructure investment projects that helps link up the various parties involved, including the headquarters of the Superintendent Notary and Registrar.

Peru

Peru began a major infrastructural development push in the late 90s and continues to make steady improvements in infrastructure in the first decade of the 21st century. In Fact, the 2010 Infrascope, an index created the Economic Intelligence Unit (EIU) ranking countries by political, legal and economic policies encouraging infrastructural development, ranks Peru as the third best country in all of Latin America (behind Chile and Brazil).

Ongoing/Near-Future Infrastructure Projects

• Peru currently has over $8 billion in public infrastructure projects planned or in construction

• Several regional projects to develop areas selected in coordination with the petrochemical industry

• Long-term plan to develop the island of San Lorenzo, located 4 km off of the coast of Lima, into a “satellite city on the sea, with special areas for production or recreation with the latest technologies.”

Puerto Rico

The last couple of decades of the 20th century saw Puerto Rico make great strides to catching up to most of the rest of the U.S. in terms of public infrastructure in terms of electricity productions, roads, hospitals and so forth. However, the school system and low-income housing lagged behind and were the most pressing infrastructural needs of the island nation. Fortunately, the American Reinvestment and Recovery Act of 2009 provided a $7.2 billion stimulus funding to Puerto Rico.

According to José Basora, the Executive Director of the Puerto Rico Infrastructure Financing Authority, “The government decided to put most of the stimulus money to work in a variety of new infrastructure-related projects, and to date we have spent over 88% of the funds allotted.”

Ongoing/Near-Future Infrastructure Projects

• The Schools for the 21st Century Program has built or remodeled 103 schools throughout Puerto Rico for a total cost of $756 million. This program has improved the education facilities of over 45,000 students and 3500 teachers.

• Ongoing public and public-private weatherization and energy conservation programs that have resulted in major home or building energy-efficiency upgrades for over 15,000 homes of senior citizens and low-income families as well as 600 government and private buildings.

• PPP projects developed through the Puerto Rico Public-Private Partnerships Authority include a recent $120 million education and training initiative to which Intel contributed $12 million as seed money.

Benjamin Quadros, CEO of BRQ, on why the desire to do business in Brazil differs from India.

São Paulo: Making Manhattan look cheap.

By Filipe Pacheco

High costs are one of the prices international companies must pay for doing business in Brazil– especially when it comes to the services industry. Now one of the most plugged-in financial institutions in the world, the International Monetary Fund, has released numbers that demonstrate what many suspected anyway: The cost of living in Brazil in 2011 rose to slightly higher than that of the United States.

Considering a list of 150 emerging economies, Brazil is basically the only one that had an expected GDP forecast for last year based on purchasing-power-parity (PPP) lower than the real GDP – which means the prices converted to American dollars are higher than in the United States.

The IMF estimates that the Brazilian GDP was US$2.51 trillion, which makes the country the 6th biggest economy in the world. Emerging economies typically have a higher PPP GDP than their real GDP, which means that, even though they might produce less than the United States, the same amount of money can buy more within their boundaries.

Brazil is essentially the only exception. Here, you can buy less than in the United States with the same amount of money. The other BRIC countries – Russia, China, and India – are all cheaper in the same comparison. Just four other emerging economies had results similar to those of Brazil, according to the IMF, but the comparison is not quite fair. They are St. Vincent & The Grenadines, a small archipelago in the Caribbean; Zimbabwe, with a hyperinflation economy that has destroyed the national currency; and the oil-rich regions of Kuwait and the United Arab Emirates.

What brings the prices higher in Brazil is the cost of services, since they cannot be imported. If national industry comes up with high prices for goods or machinery, for example, there is the possibility that competing goods or machinery can be imported, even though there are taxes that fall upon them. Those prices have become considerably lower recently, due to a depressed economic situation in the rich countries and China producing lots and lots of everything.

The Real Problem

Added to that is the value of the Brazilian real – today traded at about R$1.80 to every US$1. That price is affected by the exportation of commodities – Brazil is among the biggest exporters of iron ore in the world, for example – and the large inflow of foreign money that enters the country to take advantage of the high interest rates that still prevail here and the good prospects for the local economy. Another reason pointed to as an explanation for the high cost of living is a problem that is also considered a barrier for the IT industry as well: the high rate of taxes.

“This inversion shows that things here do not fit the normal pattern, because the currency rate is completely out of synch with historical activity, with a huge valuation in the past few years,” Armando Castelar, economist at Fundação Getúlio Vargas, one of the most recognized economic institutes in the country, told the newspaper O Estado de S.Paulo.

“Either Brazil gets cheaper and improves its productivity or we will become a services economy at an early stage,” argues Júlio Sérgio Gomes de Almeida, director of the Institute of Studies for Industrial Development (or Instituto de Estudos para o Desenvolvimento Industrial). He warns there is a risk of Brazil becoming an expensive country based only on a services industry, and without a strong industrial base.

Office Space Deluxe

Research done this month by the consulting company Cushman & Wakefield South America has shown that renting a business office in Itaim Bibi, in São Paulo, or in the charming neighborhood of Leblon, in Rio, is often more expansive than in fancy commercial areas of Manhattan or Washington DC.

In Leblon, the price for a square meter of commercial rental space is US$69.4 a month, while in Midtown Manhattan, a square meter may cost around US$63. In São Paulo, in the business regions of Avenida Faria Lima, Jardins, Avenida Paulista, or Chácara Santo Antônio, the average price for a square meter is about US$60.

In the past year, Brazilian office-space prices have risen 22.6% in comparison to the same period of 2010, according to Cushman & Wakefield. Even though the prices are high, the vacancy level is quite low – in Itaim, only 0.9% of the offices are vacant.

When it comes to services, a few other examples can give you a good sense of how expensive some things can be in the big Brazilian cities. Going to work out at a Rebook Center gym in São Paulo costs R$690 (US$385) per month with an annual membership, while in New York, the average price for the same chain is around R$382 ($US210).

Going to the movies costs, per person, R$28 (US$16), while in a good movie theater in New York, that would be R$24 (US$12). A cheeseburger with soda at the local unit of PJ Clark’s is around R$37 (US$21), while in the States that would be about R$32 (US$18). On your way back home, a ride from Avenida Paulista, in the heart of the city, to the International Airport at Guarulhos may cost R$108 (US$60), one dollar more than going from Manhattan to JFK – R$107 ($59). The numbers are drawn from research done by O Estado de S.Paulo.

“São Paulo scares me more and more each time I am here,” Raphael Quintella, who has lived in New York for five years, told the newspaper. “Going to a good restaurant in the city costs me more than going to one of the same level in New York. That is applicable to a good Japanese restaurant or to a churrascaria [typical Brazilian barbecue house].”

By Katy Demong

Companies that want to grow their bottom line while saving money by speeding software cycles are turning increasingly to Agile development. But how can companies combine the cost savings of Agile with the economies of Nearshore while protecting themselves from miscommunication and the mismanagement of time and resources?

Traditional development contracts include terms such as cost-per-hour and date-of-deliverable and include an addendum with a long list of requirements, says Russ Fletcher, who has managed IT efforts at Global Systems and XanGo and currently works as an Agile coach and trainer at Davisbase. “The challenge with that is, what happens when the world changes?”

Since Agile development involves many iterations of work on sub-units of software, rather than a smaller number of hands-off of larger chunks of work, “the ideal contract would say, I will make you happy for X amount of money,’” says Fletcher. “But of course, you can’t say that. The best you can do is try to define what ‘making you happy’ looks like and then assign a value.”

True Cost

With Agile development, value is not produced when an idea is developed, but when the code to implement it is delivered. Thus, charging by the hour encourages developers to work less efficiently, says Fletcher. Instead, he suggests results-oriented labor costs, through a contract that allows the client to charge by the number of story points (specific functions within the software) the team delivers. “This changes the labor cost paradigm to create value by producing visible results,” he says.

Peter Stevens, a self-described “Corporate Thawing Agent,” and author of the blog Scrum Breakfast, warns that in Nearshoring, “long communication lines can create inefficiencies which cancel out the price advantages.” While the best co-located scrum teams have been documented to be 10 times more productive than the average team, he warns that if you have only an “average capability” offshore team you must carefully consider whether offshoring will provide a financial benefit.

Timeline Estimation

Contacts can go awry when development teams fail to meet deadlines or inaccurately estimate the amount of time and staff required to complete a project. A major benefit of Agile is the ability to measure the “velocity” of a development team’s output, says Fletcher, by evaluating the working product as it evolves and providing constant feedback to the team about the users’ (perhaps) changing expectations. “This creates a healthy dialogue that a traditional contract doesn’t allow for,” he said.

To maximize this benefit, Stevens says, “it makes sense to contract experienced teams rather than individuals, and as a supplier, it makes sense to keep teams together over longer periods of time.”

 Unambiguous Reporting

Checking progress has always been an integral piece of ensuring a project is on track. With Agile, say both Fletcher and Stevens, unambiguous reporting can be simple when compared to traditional development methods.

Development teams demonstrate the working functionality of the software following every Sprint (or two-four week development interval). Meanwhile, progress for the entire project is measured on a burn-down chart. Stevens explain, “If a feature is finished, the team may deduct the estimate for the feature from the total time estimate of remaining work to be done. So a Scrum project is considered 50% done when 50% of the features are complete. If 50% or less of the time has passed, then everything is in good shape.”

A significant paradigm shift with an Agile project, where you no longer have the flag at the top of the hill, is that progress reporting boils down to whether you are on track or not on track, adds Fletcher. “It’s not everything or nothing, but just asking ‘Are we still on the path?’”

Better Processes, Better Contracts

While both Fletcher and Stevens are proponents of Agile methodologies, they agree that contract processes must change to make the most of it. “For me the most important sentence of the Agile Manifesto is the first one: ‘We are uncovering better ways of developing software…’” says Stevens. “It’s a voyage and you can always learn and improve. ‘We are uncovering better ways of writing contracts…’ would be just as true.”

“When we write traditional contracts and use Agile methods to achieve them, what we have is a constant project schizophrenia,” says Fletcher. For Agile to truly work, customers need to create contracts that reflect Agile processes, he says, but there are very few attorneys that understand this. “It’s the next biggest hurdle to overcome,” he says.

By Dan Berthiaume

Labor arbitrage, or the moving of jobs from more expensive to less expensive locations, has long been seen as one of the chief potential benefits of BPO. And while reducing the cost of labor by shifting it overseas certainly remains an appealing option for many BPO customers, with the assistance of technology the BPO model is starting to evolve to a point where, in many cases, labor can be removed from the equation entirely.

“BPO is migrating to a continuous-improvement model where technology solutions take the labor out of the cost of BPO,” says Marc Tanowitz, principal of Pace Harmon, a consulting firm specializing in outsourcing advisory services. “Taking labor out is a better solution than labor arbitrage.”

Tanowitz says the removal of labor costs from BPO via automated technology solutions makes the whole cost of BPO go down. “There is market saturation [of labor-based solutions],” he says. “The next wave of BPO solutions will leverage technology to drive costs of BPO down.”

Delivering BPO via Platform

Using technology to minimize or remove the labor factor from the BPO model also allows BPO vendors to create a new, platform-based model of delivering services that resembles the traditional model of delivering IT services.

“Platform-based BPO solutions create a competency- and utility-based BPO model with variable, transaction-based pricing,” says Pace Harmon senior associate Dave Borowski. “Back-office processes are still very labor-intensive, but there is a new interest in creating an incentive for the BPO vendor based on outcome.”

Borowski cautions that delivering BPO via a platform model is not a simple task. “It takes a lot of work to move BPO toward becoming a truly managed service,” he says. “There is a lot of talk about it, but it’s a less proven model.”

End-to-End Process

Tanowitz says that removing the labor cost from the BPO model and creating a platform-based means of delivery can also help evolve BPO into a truly transactional “end-to-end process,” as opposed to the traditional less flexible, labor-based model.

“The typical BPO approach looks at how many people are performing a process today, assumes there will be that many throughout the process, and provides a cost based on that amount of labor. We are moving away from this model towards a transaction-based model.”

Borowski estimates that by integrating technology into BPO solutions, approximately 50% of its savings compared to in-house process management is driven by increased efficiency and automation, and 50% of its savings through leveraging low-cost labor location(s). He also notes that Pace Harmon does not necessarily advise a client having business process issues to pursue a full-blown BPO solution.

“We go into an assessment without a predisposed conclusion that outsourcing is the best answer,” he says. “That could mean we advise re-engineering processes or migrating to a captive shared-services delivery model, rather than outsourcing.”