By: Michael Santamaria

There’s little doubt that Business Process Outsourcing is here to stay; the lure of “easy” cost savings is just too powerful for companies to resist. But the truth of the matter is that implementing a successful outsourcing project is hard work and realizing those “easy” savings is by no means a foregone conclusion. While data on outsourcing failure is hard to come by, the Aberdeen Group has reported that 21% of outsourcing projects fail to meet stakeholder expectations, and Gartner puts the outsourcing failure rate as high as 30%. Although neither study defines what constitutes a “failure,” the bottom line is a large percent of projects end with unhappy clients.

When an outsourcing project fails, it’s easy to blame the vendor. But having experienced the situation from both sides of the table, I would suggest that more often than not, the purchasing company lays the groundwork for the poor performance. The onus is on the purchasing company to do an adequate due diligence and to manage the project. Can you really blame the vendor when they were put in the position to fail from the beginning? Ultimately, no one wins the “blame game,” you are better off doing the project right the first time around.

To avoid being one of the Gartner statistics, there are four considerations that need to be part of your outsourcing initiative, 1) set an outsourcing strategy, 2) choose the vendor that best fits that strategy, 3) own the transition, and 4) create the structure to manage the relationship.

Strategize Wisely

Setting your outsourcing strategy is the all-important first step. To a certain degree, outsourcing strategies can be classified as either tactical or transformational. The tactical model is designed to take advantage of labor arbitrage and often employs what is referred to as a “lift and shift” approach. Work is lifted from your company and shifted to one in a lower cost area. Vendors of lift and shift models typically use existing processes and work in your existing systems, requiring little change on the part of your company. Essentially, the location of the worker changes, but the work itself does not.

On the other hand, a transformational model almost always involves a software implementation, which leverages optimized workflows. Under a transformational model, your company replaces existing processes and technology with the vendor’s processes and technology. As such, an IT project is embedded within the implementation. Clearly, implementing a transformational model is more involved than lift and shift, but it yields some notable advantages.

So, how do you decide which approach is best for your company? While there are no pat answers, I have found that companies often shy away from “yet another IT project” and end up following the tactical path, which is a mistake. My advice is to start assuming the transformation/software dependent solutions. Many of these solutions are very sophisticated, their processes and technologies successfully encapsulating industry best practices, and they have a large installed base so you can take comfort knowing that most of the bugs have been worked out. In addition, most solutions have a relatively streamlined and formalized client onboarding process, mitigating many concerns about implementing the solutions. In some cases, of course, there are no transformational options that fit your needs, forcing you to go the tactical route. This approach is workable, as each model has its benefits.

Figure 1 below breaks down the strengths and weaknesses of each.

Choosing the Right Vendor

The next step in implementing a successful outsourcing project is choosing the right vendor. If your company’s strategy employs the transformational approach, the process of choosing a vendor will be driven by the software solution, actually making selection easier. Comparison of tactical vendors is more difficult, because, for the most part, you will be comparing intangibles.

Regardless as to the approach, it is necessary to spend adequate time on due diligence checking all references, asking the hard questions, and arranging to visit reference sites in order to observe the process in action. Observing the process in person provides a better understanding of the processes, handoffs, potential issues related to team integration, and challenges communicating across distance. A vendor demonstration cannot compare to an onsite visit. A trip to one or two reference sites will prove to be money well spent.

Once vendor selection is complete, the planning stage begins in earnest. Generally, vendors will provide the overall implementation work plan. That said, since this is ultimately your project, you have the responsibility of owning it! Your company should remain integrally involved in the transition, which means dedicating the appropriate staff, assigning a sponsor, and holding senior leadership governance and gate reviews. It is also necessary to spend time developing a comprehensive risk mitigation plan. Your company needs contingency plans to address potential obstacles, including negative employee-client reaction to temporary performance dips, the PR response if contacted by the local press, transition plans for the local staff, and most importantly, plans to deal with unforeseen departures.

Regardless of severance packages or retention bonuses, once job eliminations are made public, employees begin searching for new opportunities. Needless to say, their departures don’t always align with your company’s staffing needs. Recently, I had the opportunity to experience this issue first hand, when my client on a six-month outsourcing project announced to me that we needed to go live in one week, three months early, because they no longer had the staff in the department to process the work. It goes without saying that the next few weeks were not exactly smooth.

Manage the Vendor

The last factor to consider for your outsourcing project is post-implementation vendor management. Unfortunately, this step tends to go overlooked until problems arise. Communication is one of the most vital elements in making an outsourcing relationship work. I recommend you plan to over communicate at the beginning of the project. The communication plan should include daily supervisor calls, monthly management reviews, and a quarterly sponsor meeting. Over time, if this proves cumbersome, you can dial it back. At the beginning, though, plan to over-communicate.

The daily calls should occur at the supervisor level, last no more than 10 minutes, and address yesterday’s challenges and today’s expected volume. I try to keep the daily calls informal to help forge a relationship between the team’s supervisor groups. Monthly management meetings should focus on the service level agreement (SLA) and performance metrics. It is critical to agree on what will be measured, how it will be measured, and what performance levels are acceptable before going live. In my experience, failure to exercise rigor in this step is where many outsourcing initiatives go wrong. Finally, the sponsor meeting should be a review of monthly trends and discussion of performance issues.

For these meetings, it is important that sponsors treat the two teams as unified and hold them jointly accountable. When issues inevitably arise and a “blame game” begins, sponsors need to be able to cut through the noise and force the teams to work together towards a solution. After all, one team cannot be successful if the other fails.

Outsourcing is not easy. But if you start with a sound strategy, leverage the right vendor, and are prepared to manage the project and relationship you can achieve significant savings. Let’s face it, those savings are hard to ignore.

Michael Santamaria is a director at ScottMadden. His consulting experience spans a number of areas including business process outsourcing, process redesign, organization design, operations improvement, and project management. Prior to joining ScottMadden, Michael ran operations for a business process outsourcer, consulted for Clarkston Potomac Group and Emerson Consulting, and held several positions with General Electric. Michael received an M.B.A. from Case Western Reserve University, Weatherhead School of Management and his undergraduate degree from Washington and Jefferson College. He is a certified GE Six Sigma Master Black Belt.

By Robert L. Scheier

Service level agreements (SLAs) are the heart and soul of many outsourcing contracts. They define what the provider must deliver and their penalties for failure, in anything from application uptime to the time required to solve a customer’s problem on a help line.

But at least as currently defined, SLAs often fall short of detecting (and, more importantly, correcting) problems quickly. That was the message at the recent SIG Spring Summit from Senior Corporate Counsel Richard English of Ingram Micro and Shaalu Mehra of Sheppard Mullin Richter & Hampton, who helps the electronic distributor negotiate outsourcing deals.

SLAs fall down, said Mehra, because they don’t change with the customer’s requirements, aren’t defined precisely enough, and often aren’t structured to do a root-cause analysis of the root problem behind multiple failures.

“I love SLAs,” Mehra said in a session on “Best Practices for Ensuring Quality of Service in Multinational Outsourcing Engagements.” However, he continued, they are limited because they are just one “data point” measuring a provider’s performance.

While SLAs are the subject of intense negotiations at the start of engagement, he says, they may not be based on the right metrics to measure the effectiveness of the outsourced service for the customer. In addition, he said, SLAs “can be undermined by even minor changes” to the processes or systems they measure, and are often not updated often enough.

Another factor that limits their usefulness is “single incident limitation, (which makes) root cause analysis subject to an agreement of the parties,” said Mehra. Understanding and correcting the reasons for past failures can also be hindered by what English called a “statute of limitations” requested by vendors on how long a customer can ask for a service credit after a failure.

Both strongly suggested using a common approach to SLAs and other terms with all outsourcing providers, regardless of their location. “While that company may be India-based, and might be doing work for us in Asia, or might be doing work for us in Latin America…we don’t care,” said English. “We’re going to build in one global SLA.”

Two areas where the pair said specialized SLAs might make sense were to measure English language fluency and attrition. While Mehra agreed that “fluency” is subjective, he said it could be measured through a sampling of calls or surveys of whichever end users were being served.

Mehra said such SLAs often measure attrition on a rolling 12-month basis, and is an area where definitions (such as whether promotions, reductions in force or departures for personal reasons count as attrition) are often the cause of hard bargaining. “However reasonable the vendor’s concerns may sound, at some point, we have to draw a line” about where and how the customer will be protected from excessive turnover, he said.

In addition to SLAs, Mehra recommended regular payments based on the achievement of milestones, as well as periodic payments with provisions for holdbacks as a penalty to the provider for failures in delivery.

By Kenneth Hess

No one wants for a relationship to fail but sometimes you have to quit on one that isn’t working. How do you know when to say, “When?”

Relationships are difficult. Band members have creative differences, teammates have ego problems and marriage partners have irreconcilable differences. Likewise, vendors and clients in business-to-business relationships experience all of the pains of band members, teammates and marriage partners. Maintaining a positive relationship is challenging when everything goes well but adding in technological differences, language barriers and time zone disparities has the effect of widening the gap between client and vendor.

But, everyone knows those problems exist and takes steps to mitigate them. Awareness of the potential problem areas is a good start but relationships deteriorate on a subtler level. Relationship failure occurs in much the same way as the boiled frog story. The story is that a frog dropped into boiling water will sense the heat and immediately jump out. However, if you place that frog into cool water and slowly heat the container, the frog will boil and never know until it’s too late.

It would be a better business environment if relationships would fail at the initial introductions rather than waiting until both parties have invested resources. If only we could sense the boiling water at the beginning instead of having the water slowly heat up around us. The reality is that most relationships, personal or business, fail over time and in small amounts. Like the frog, we boil one degree at a time.

The question is, “How do you recognize when your vendor/client relationship has failed?” The answers and experiences might surprise you. There are warning signs that you should pay attention to that point to problems. You have to be brave and be ready to cut your losses before it’s too late to leap from the boiling pot.

Testing the Waters

First time offshore outsourcers smile when they hear the pricing from vendors. And why shouldn’t they when quoted prices are as low as one-twentieth the price of local labor. It’s high-fiving and glass-clinking all around the conference table. The pricing, the promise of short delivery times, the open discussion and the friendly atmosphere coalesce into what can only be described as the business equivalent of “finding your soul mate.”

Everyone walks away happy from those first few “honeymoon” meetings. The calls go without any problem. Your offshore partners on the other end have an uncanny grasp of the English language. And, they understand the urgency and depth of the project ahead.

Taking the Plunge

You and your staff decide unanimously to engage the offshore partner for your project. You set milestones for progress and agree on delivery dates. Your partner keeps you informed, attends meetings conveniently scheduled during your standard working hours, keeps communications open and delivers your milestones as promised. Everyone is happy and you celebrate your win.

Turning up the Heat

The first sign that something’s going wrong in your newfound relationship is when your offshore partner begins to make excuses for non-delivery. Kevin Chandler of C3K Enterprises said that, “Everything went fine until our three week promised delivery stretched into nine months with no usable progress. We found a local resource for the work and enjoy an ongoing and successful relationship with the company.”

Once a commitment had been made between Chandler and his offshore partner, the partner came back to him with, “It’s going to take longer and cost more.” This is a common ‘bait-and-switch’ routine with some offshore companies. This one came highly recommended to Chandler.

Chandler didn’t give up on offshore outsourcing. He tried a total of five different companies in various countries for his projects. All but one was a total fail for him. For the others, he’s decided to use local US-based resources. He said that he might try offshore outsourcing again but with caution.

Jumping Out of the Pot

Unfortunately, the lure of low cost labor is just too irresistible for some. This lure might not be palatable after several failed attempts. As Paul Midler writes in his book, Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game, the frequently heard phrases, “You heard me wrong” and “Price go up” wipe any cost benefits of going offshore.

Often what happens with offshore partnering is that you end up spending more time mitigating problems than you do producing results. Chandler said that he spent a lot of time on the phone at all hours of the day and night managing projects. One company “flat out lied about their capability,” he said.

You have to know when it’s time to cut ties with your offshore partner. Non-delivery, a breakdown of communications, rescheduling calls to times that are very inconvenient for you, prices that mysteriously rise in double or triple digits and inexplicable or repetitive production delays are all good reasons to sever your relationship. US-based companies want to create good working relationships with their foreign partners and most are willing to deal with a significant amount of delays, misunderstandings and price fluctuation but, at some point, the cost savings aren’t worth the headaches.

Keeping the Waters Cool

All such relationships aren’t bad nor do they have to fall into complete disrepair. When you find that something is going wrong, you have some options to revive the relationship and maintain your margins and your sanity.

What’s needed in such cases is honesty on the part of both partners. A candid phone conversation or a visit to your partner’s location will often resolve problems. One vendor suggests that you maintain close contact with your partner to keep the project and the relationship moving in the right direction. If you find your partnership failing because of missed deadlines or cost overruns, you need to discuss a detailed plan of action with your partner’s management team. You might have to revise milestones and expectations but you should put in the effort to create a productive and ongoing relationship with your partner. But, don’t be afraid to call it quits on a partnership that just isn’t working.

There are many companies, legitimate ones, with which to work on your projects. By selecting the right offshore partner, you can still save money, enjoy decent profit margins, meet your deadlines and not get boiled in the process.

By Luke Bujarski

Montreal’s recent start-up boom is putting Quebec Province on the map as a social media and cloud-driven innovation hub. What used to be a conservative tech city hosting primarily ‘big’ IT including Research in Motion and Nortel Networks is quickly rebranding itself as a top-shelf start-up ecosystem. Companies like Ateneo Digital, Bespoke Mobility, and Art Sumo are just three of what could soon be global household names sprouting out of Montreal. The tech community in Montreal also draws parallels between Silicon Valley in terms of city size, educational resources, and cultural diversity. However, this region’s recent successes might have more to do with a support model that truly understands today’s lean start-up principles. Latin America’s aspiring tech hubs might want to think about rallying behind the Lean model in order to shed negative perceptions toward startup risk, and could also take note of Montreal’s public sector approach to promoting tech entrepreneurship.

Livability is Key to Montreal’s Tech Ecosystem

This bilingual yet proudly French speaking region of nearly four million inhabitants has gone through economic ups and downs during its separatist political movements in the late 80s and early 90s. Nevertheless, according to Montreal native Peter Ryan IT Practice Lead at Ovum, the city weathered the global financial storm of recent years much better than most Canadian and US centers. Rents and overall cost of living have therefore remained stable through the years and continue to be low compared to other North American cities. Low cost of living combined with solid infrastructure, human capital, culture, and a strong IT backbone is what put Montreal right behind San Francisco in the number of technology jobs, according to investment promo agency Montreal International. “These amenities are why Montreal is the kind of city that young professionals are flocking to and see themselves establishing roots in,” stressed to Ryan.

A recent KPMG study also ranked Montreal as considerably cheaper than other North American hubs. In contrast, skyrocketing rents in Boston, San Francisco, and particularly New York are making it difficult for young entrepreneurs to weather the growing pains of starting a new company.

Embracing Lean Start-up Culture is What Makes Montreal Work

Montreal is at "he forefront of Canadian tech innovation" says Alistair Croll, well-known blogger and tech analyst

According Alistair Croll tech entrepreneur and founder of start-up blog Solve For Interesting, Montreal’s investment community was traditionally risk averse when funding local technology startups. Instead of looking inward, Canadian angel investors and VC funds looked more to US cities like Boston and San Francisco when scouting new firms. In recent years however, “Montreal’s startup communities have really flourished. Some successful exits, a more risk-tolerant investor community, a range of tech events, and an increased emphasis on design have all helped propel the area to the forefront of Canadian tech innovation.”

Montreal seems to have overcome some of the same challenges facing tech entrepreneurs in Latin America today. In particular, risk-averse investor attitudes and the lack of seed-stage funding throw a huge roadblock in front of innovative coders and designers trying to adapt to today’s new startup environment. General Partner at MexicanVC, a California based seed fund working with startups in Mexico says that “traditional venture capital can get through [in Mexico], but only if you take it to the next level and deliver a proven product with recognizable traction in the market.”

According to Reid Hoffman co-founder of Linked-In, this “ready-aim-fire” model is light years behind today’s startup realities. New social media, cloud-based, and mobile applications are flying off the shelf so quickly that success depends almost entirely on measuring market demand and understanding a constantly changing technology consumer base. In short, what may be a good idea now may not be a good idea two months from now.

Today’s Lean startup approach is all about iteration, customer discovery, and only then, development. The days of “build it and they will come” are long gone, says Eric Ries the man who coined the term lean startup. Failure is therefore part of the startup development cycle and not just the end result of an ill-fated project.

According to Alistair, Montreal’s tech investors and public sector support agencies really understand this concept. It’s not only the tech blogs, hackathons, and festivals that create the enabling environment and support network, but there’s actually money behind it. Tax incentives offered by the Canadian and Quebecois governments are specifically tailored to startups and R&D initiatives.

Do Lean Startup Principles Work in Latin America?

According to Salazar, Mexico’s cluster driven initiatives have focused too little on changing investor attitudes toward startups, and more on large-scale IT services implementation and consulting. Focus falls on driving adoption but not necessarily innovation; more consulting than startups. Promotional agencies help create business networks, customers, driving costs down, and certifying processes. Government support focuses on innovation in delivery of services, not pre-seed products.

Latin America culture also tends to punish failure which drives talented entrepreneurs away from taking risks. Recent graduates prefer to work for well-established banks or manufacturing firms. “It is difficult to convince people to take the risk and to adopt an “at least you tried” approach,” explained Salazar. Industry support groups across Latin America could look to the Lean Startup model as a way to throw aside these old perceptions about how startups can bloom into billion dollar companies. If anything, Facebook’s recent purchase of Instagram for one billion dollars underscores the potential in today’s startup scene.

Where to Look For Innovation in Latin America

Latin America’s mega cities may not be the place to go for start-up innovation. Places like Sao Paulo, Bogota, and Mexico City are expensive and dominated by large enterprises that devour most technical human capital. Similar to the United States, LATAM’s mid-sized cities are taking on the role of innovation ecosystems. Curitiba, Brazil, Guadalajara, Mexico and Cali, Colombia all have strong potential. Cali for example is cheap and has a good quality of life compared to Bogota. Many of Colombia’s home-grown technology companies were born in Cali, including Carvajal Technologia y Servicios, CompuNet, and Open Systems. Guadalajara is also becoming Mexico’s design and multimedia center of excellence. Curitiba has been on the technology ‘A list’ for quite some time with big name brands as well as flourishing startups.

By Heather Littlejohns

Companies seeking to locate new outsourced or shared services centers to offshore or near shore locations typically focus their exploration on factors such as price, local government support and incentives, cultural affinity with the target market, unemployment rates, labor pool, language skills, etc. But are companies really taking the necessary time to explore, assess and discuss their own points of differentiation as they are perceived by the local population?

Beyond providing a basic salary, what contribution can the business make to the lives of the people who will be employed? These cultural considerations should be an important component of the due diligence process as they are crucial to the long-term sustainability of the business. Unfortunately, they are too often overlooked.

Act “Corporate,” Think “Local”

The most effective way to select a successful and sustainable market, community and location to facilitate an operation is to spend time on the ground with local community leaders and prospective employees, using the language skill with which you expect services to be delivered. In a sense, this is a grassroots and tourist approach to the region, building on a foundation of previously completed market analysis, research and the corporation’s strategic vision.

Before investing in a destination, many basic requirements “on the ground” should be fully identified. These are easily gained through market analysis and research and by speaking directly with economic and government groups within the country/region of choice. The following check list can serve as a starting point:

• Local government investment and support

• Technology and infrastructure

• Education

• Safety and security

• Tourism

• Like industry success

• Transportation

• Labor pool

• Education level and graduation rates

• Language skill–English bilingualism

• Skills learned (preferred)

• Customer service orientation

• Affinity to Western culture

• Employable population–demographics

To truly test the likelihood of success, spend time on the ground in the community. Ask questions, document observations and understand the community from which you will hire and where you will be a corporate citizen:

• Understand how education works in the destination. Is it public or private? Is it mandatory? What is the local government’s degree of engagement in the education system? How do people get to school? Is there an emphasis on learning English/other language?

• Assess the rates of school attendance.

• Visit a school, university or community college. Build relationships.

• Determine who are the economic and community development supporters and funders in the community. When do they meet? Who are the members? Do they live in the community in which they serve?

• Attend a meeting of these community development supporters. Take notes and make observations about interactions and behaviors such as tone and pitch in conversation; gender based interactions; non-verbal communication such as eye contact and handshaking. These observations will help you adapt your body language and mannerisms to put people at ease when interacting with the local population.

• Discover the cultural customs of the local community including holidays, events and religious ceremonies. This knowledge will help when managing your new workforce.

• Understand the demographics of the region. What is the average employable age and are they male or female? What is the current make-up of the population interested in the BPO industry? Are they well-educated males or single mothers? Are they second income earners or primary breadwinners?

• Investigate local restaurants, shopping facilities and tourist hot spots. Eat at local favorite restaurants. Attend a local customary event, read the tourist brochures and spend time in the recommended areas. This will tell you what the local people are proud of within their country. Knowing exactly what gives a person pride can also act as a motivational tool. This can allow you to better identify with the needs of the people that the corporation will employ. It will allow the opportunity to learn, understand and place value on what is important to the team.

• Learn how local services are facilitated and distributed. Are these services valued and utilized? How does the role of the family contribute?

• Research health care, child care, transportation, etc. This will help provide a more comprehensive view of total costs. It will also help you “design the differentiators” that I referred to earlier to strengthen your value proposition as a “glocal” employer, and can help you in “positioning” your corporate philosophy to your future employees.

Integrate Cultural Components with Business Goals

By integrating the “softer”, cultural components of the destination you are reviewing with that of your strategic business objectives and long term priorities, your answers to questions like those below will become far more informed and accurate.

• Is a local staffing agency required to help launch the business?

• Does it make sense to place the business in the duty free zone or is an urban, centralized location more feasible?

• What type of community participation and recruiting event will need to be held?

• What aspects of the corporation should be advertised? What are the value added benefits for employees that will matter most? What are your differentiators as they relate to the community?

On the surface these concepts are relatively simple, logical and one would assume being facilitated, however, this is not the case in many situations. Cross-cultural communication and a grassroots approach is not often practiced for a wide variety of reasons. These include the assumption that knowing the statistical facts about unemployment rates and government incentives is enough to be successful, aggressive timelines, low price points driving a quick transition, lack of regional expertise within the organization or simply an attitude that cultural considerations are an “after thought.”

To truly minimize new geo risk, not only should the selection team conduct the formal process, but drive the due diligence from a grassroots perspective and through a cultural prism. Once this knowledge and, more importantly, experiences are gained, the transition or execution team should act as the “cultural interpreter” for the enterprise. This is crucial to see a new operation through to success.

Heather Littlejohns, Director-Operations at Aditya Birla Minacs and also an independent consultant, is responsible for strategic Country and Site Leadership and Client Relationship Management. She also serves as Partner & Contract Liaison, Implementation & Launch Project Sponsor and Government Point of Contact. Heather brings 16 years of rich and varied experience in directing, developing and implementing effective near shore and offshore BPO global service delivery solutions. Heather.Littlejohns-Brown@minacs.adityabirla.com

By Robert L. Scheier

As the global economy improves, customers are looking to outsourcers to not only save money, but to drive growth, improve quality and drive innovation.

Those were among the key themes from two days prowling the corridors and break-outs at the Sourcing Interest Group (SIG) spring summit. Speaker after speaker, whether the topic was procurement, category management or macroeconomic trends, described how their employers are trying to use outsourcers not “just” to save money but to make a more strategic contribution.

Beyond Short-Term Savings

The need to drive strategic, ongoing business benefits runs throughout the top concerns presented during a summary of the executive roundtable. They include:

Revenue enhancement: The need to drive more sales, and higher profit sales. Outsourcers and other service providers can help by suggesting new products, services or delivery channels and then helping to create them.

Cloud and what comes after: Understanding the various flavors of the cloud, the true nature of the risks and benefits, and how to use it effectively is confusing for most organizations. It can also be a great opportunity for outsourcing providers, especially those who can tailor their regional advantages (such as in Latin America) to the requirements of the cloud. Execs at SIG also want partners who can help them understand the Next Big Thing after the cloud.

More automation: Also known as the “relentless elimination of non-value added activities.” Automating ongoing processes is a great way to deliver “sustainable” savings over time, versus one-time cost savings that can fade as business requirements and outsourcing requirements change.

Managing complexity: As customers use more different outsourcers for more different functions, the environment gets more complex and harder to manage. This is an area where an outsourcer with the best practices for managing “portfolios” of applications, services and relationships can deliver the most value to customers.

Close interaction with the business: This also comes under the heading of “alignment.” It means really understanding the most strategic, long-term needs of the entire business, rather than the short-term, tactical needs of individual departments. Achieving this alignment requires both the outside partner and the internal purchaser to have the attention and respect of senior management.

Outcome-based contract: Rather than pay outsourcers per full-time equivalent (FTE) or per transaction (both of which incent the provider to do more work, even if it’s not useful) many customers hope to pay vendors based on their ability to deliver business results. This is still a hoped for, rather than a usual, state of affairs. It requires changes in both thinking and processes, which speaks to the next area of concern:

Organizational readiness: There was a lot of talk at SIG about the need for customers to change their own behavior to accept new and better practices from their outsourcers. This means not only developing ways to measure the benefits of innovation, but changing incentives so internal departments don’t act like “junkyard dogs” protecting their own turf and keeping out new, better processes from a partner.

What all these concerns have in common is they reflect the need to move beyond short-term cost savings (especially those where the savings fade over time or drives up costs elsewhere in the organization) to newer, fundamentally better processes that drive value over time. That’s what some leading customers say they want – now comes the hard work of implementation.

This article originally appeared on our sister publication Global Delivery Report 

By Patrick Haller

Andy Wasser, Associate Dean at Carnegie Mellon University, has been instrumental in building the university’s Masters of Information Systems Management, Masters of Science in Information Technology, and the Masters of Science in Information Security Policy & Management programs. These programs have earned the reputation of being the highest ranked graduate level Information Systems programs in the US, and have educated top IT talent from around the world through a unique distance learning methodology that teaches over 200 students a year.

The program is offered as a dual Master’s program in partnership with Tech de Monterrey and has helped adult learners expand their professional networks while imparting knowledge that is immediately applicable to their daily tasks. Wasser, like his colleagues, is not only an instructor, but he brings many years of real-life experience to the virtual classroom.

Wasser discussed with Nearshore Americas the particulars of creating and sustaining such a program, and the stark differences between Latin America and other countries when it comes to IT education and global competitiveness.

NSAM: What is involved with designing, implementing and teaching distance IT education programs?

Wasser: Carnegie Mellon has a unique retro style for distance education. What has to be noted is that when you get to a prestigious school we are not talking about scale. I have slightly over 200 students in the Master of Science of Information Technology (MSAIT) distance learning program. There are things that the bigger and for profit institutions like Kaplan, Phoenix and Drexel can do because they have 25,000 students and can spread costs across students, but we can’t because we don’t have the scale. Our strength is that the guy who is teaching you Supply Chain Management, Risk Management, etc. is immersed in his subject. We know that the faculty is a world class faculty; great instructors, researchers, experts in their field.

We video tape the entire class from beginning to end – nothing is edited. The student gets the full video of the entire lecture, plus transcript, plus slides, in a package and interacts with faculty member through all of the delivery vehicles. This has the following benefits:

1. As a student I hear word for word what the Masters students on campus hear. It’s not MIT light or Columbia light.

2. When they do a straight video the faculty member comes across like Al Gore – very wooden. But with a class of students in front of them they are more animated. There is a certain level of genuineness in this mode.

3. It is streamed and they also get the DVD which is a very effective delivery vehicle.

NSAM: What makes an ideal student for these classes?

Wasser: The students in the distance classes are technology professionals with over three years of experience. Database administrators, managers of application systems, business analysts, data analysts, architects, project managers. It’s not just three years of being a software engineer. The discussion threads are very robust. They are sort of sharing the group pain of what they face during their day to day life in their profession.

NSAM: How long are the classes?

Wasser: Classes are either seven or 14 weeks long with an additional test week. Three hours of lectures per week – but it is interactive. We focus on the class content itself and tell a story so that at the end the student will say that was a great course.

NSAM: Are there special courses for CIOs?

Wasser: The CIO Institute is taught out of Arlington, VA. It’s not packaged for distance learning yet because one of the main benefits is the interaction amongst the professionals. And the professors learn a lot that they take back to their other classes. Since it is in Arlington, there is a bit of focus on the federal sector.

Classes are delivered as workshops Monday through Wednesdays, with a total of eight workshops over 24 days of classes. People from Japan, or from Mississippi, fly in for the classes.

NSAM: How about from Latin America?

Wasser: Close to zero from Latin America. We have been approached by Tech de Monterrey to put some of these classes together for Mexico City and Monterrey but the problem is that pesos don’t translate into dollars very well. And we have to pay our professors in dollars.

The dual degree program was going to be pretty expensive by Mexican standards, but then it doubled at Tech de Monterrey because of the currency valuation. And the students need to pay in dollars.

NSAM: Do all students need to speak English?

Wasser: All degree programs are in English. It is amazing that when we talk to universities in China, France, Germany and say that we need to do it English and they are in English – when it comes to Graduate Education programs are in English.

NSAM: Do you find the same to be true with Latin America?

Wasser: The students are generally from wealthier households and have gone through K – 12 with bilingual education. But I am disappointed with Latin America when you look at China, for example and how many students speak English. When you get to Latin America it is abysmal.

I also teach global sourcing and we talk about EBL – English as a Business Language. If you are in technology, finance, consulting and certain other industries – everything is global – that’s the way it is. One of the problems why English isn’t picked up more South of the Border is that there is so much critical mass. If you are from Norway, and you are speaking your local tongue and you want to do something like watch a movie, you have to pick up another language. But if you are from Venezuela; you can do pretty well just speaking Spanish.

NSAM: How is the dual degree program with Tech de Monterrey coordinated?

Wasser: It is a hybrid program that is taught in English. Students spend a week on campus in Pittsburgh where they get to know each other and us. Then they go back to their home country, and they take a class with us and a class with Tech de Monterrey. We all use Blackboard as a common platform. It’s like having two sets of grandparent, where one lets you jump on the bed and the other doesn’t. Whereas we are more relaxed in some respects, Tech de Monterrey is much more rigid and you can tell the difference.

NSAM: Is there a way to gauge effectiveness of the distance learning classes?

Wasser: Yes, we have the same programs on campus. For example, I teach IT Global Sourcing and we read the papers of on campus students and distance learners and surprisingly enough the students who are balancing all these things (the distance learners) – kids, work schedule – life – take it more seriously than the students that are younger have nothing going on except their studies.

NSAM: It is also part of professional growth rather than just a degree.

Wasser: Yes, the person coming to campus is looking for a change. The distance student is someone happy in their job, but is looking to career advancement.

NSAM: Do you find that employers are paying tuition?

Wasser: Sometimes the employer pays a certain amount. We started at the request of GM and they paid in full for their employees – but a high potential employee. We did that 11 years ago and GM has stuck with this program. And when they went through the dark days, of all the things they cut they never cut this program and we talked about that. They said that the only way they would come back would be to keep their best and brightest, and the only reason the best and brightest stayed with them was because they were getting this Master’s degree.

NSAM: How is academic learning applied to the real-world?

Wasser: There is a lot of experiential learning. Right now we have Thomson Reuters conducting an Innovation Case competition, and ComScore is coming in a few weeks to do the same thing. We do project work with ebay and the Pittsburgh Penguins – this is not learning for learning sake – it is applied learning. On the distance side we do a project with the employer as the client because we want to hear the students say that they are learning something today that is applicable to their job right now. When Andrew Carnegie started this university metallurgists were going into the steel mills and working there. It has always been experiential.

NSAM: With so many new technologies developing daily, how can IT managers choose what is right for their organizations?

Wasser: Observe the enterprise architecture: look at your current state of affairs where only you and your organization know what is needed. Create separate data marks, a spin-off, redundant systems, overlapping data then try to paint picture of the world you want as you want it be. What’s more interesting is what the steps are going to be from the current state to the future state. As you try to map that out, you realize that by time you get to the future state – the future has moved. What is really important are the first six steps in the path; by time you get to three or four you have to remap. Getting people to change is not a technological issue – it is policy; culture, incentives and the like. It takes change agents to get it done. It comes down to leadership.

NSAM: And sometimes the leader leaves or is reassigned –

Wasser: In the CIO institute we talk about how in the military sector the CIO is reassigned, and then the new CIO sloshes the projects of the old CIO and comes up with their own projects, but they never get done. There is a need leadership and consistency of thought that says that it is a five year initiative or create six-month initiatives so that each module can stand on its own.

NSAM: Who or what is the biggest enemy of the IT department?

Wasser: I think the biggest enemy is the lack of context. People are told to do this or that but they don’t understand the business drivers. If you understand the problem and what is being achieved you can come up with new ideas, but if you’re not given the context, you are an order taker and going through a lot of steps and effort but not solving problems. If the sourcing company is in India and they are following all the policies and rules, but don’t understand what makes that company tick – they are not a partner. There really are a lot of organizational dynamics that need to be understood.

By Dan Berthiaume

Shared services, or the combining of similar outsourced functions, provide BPO customers the opportunity to create savings and spur improvements in specific areas of the company. However, end users are now going further and are applying shared services across different sectors of the company and using them to get a better analysis of the future, improve their management of human resources, among other solutions.

At the upcoming 16th Annual North American Shared Services & Outsourcing Week in Orlando, Florida, March 7-9, BPO end users from a number of major companies will be speaking about how they are applying the shared services concept to maximize the return and extend the benefit of their BPO initiatives. Following are brief synopses of some of the applications they’ll be describing.

Deep Analytics

Through its shared services analytics program, global media company AOL offers business partners insight into functions such as spend management and operational trends, as well as identifies efficiencies within its own processes.

“Analytics is the key to unlocking your future,” says Cindy Gallagher, VP and assistant controller. “We have improved our control environment through analyzing our balance sheet and P&L in an innovative way.”

HR Management

Best Buy, a global retailer of technology products with 180,000 employees worldwide, relies heavily on outsourced providers and shared services to help deliver HR services. According to Craig Warren, director of employment practices, the complexity of Best Buy’s BPO environment necessitates shared services for effective management.

“We’ve learned that management of these outsourced HR relationships requires a skillset not typically found in HR professionals,” says Warren. “These include deep HR knowledge, continuous improvement skills, procurement skills, and business operations skills.”

Digital Publishing

Pearson, the world’s largest educational publisher, also provides assessments and information and owns Penguin Books. Like all publishers, the company is undergoing an industry evolution. At the conference in Orlando, Lew Bader, senior VP, will discuss how Pearson is using shared services to meet these evolutionary challenges.

“The business is changing dramatically because of digital services, as well as software and other services we offer,” says Bader. “Traditionally we’re a ship and bill organization, and we have great challenges now due to the changeover to digital and software services.”

Bader calls this digital changeover Pearson’s biggest challenge in 2012 and moving forward, and says getting staff ready is a primary effort of a major finance transformation project the company is undergoing.

Global Business Support

EMC, a global developer of IT solutions, runs an internal Global Business Services (GBS) unit to support what Erin Champlin, VP of global business services, calls the company’s “journey to the cloud” as a shared services provider to areas such as finance, sales, consulting and general & administrative expense (G&A). Champlin cites GBS accomplishments during the past three years including growing from 500 to 1,000 employees, increasing its number of service areas from six to 18, lowering total cost of ownership by more than 30% to the bottom line, and redistributing work from high-cost to low-cost regions so there is now a 50/50 mix.

In addition, Champlin says GBS makes sure talented employees stay with the company. “We focus most on retaining key talent. We measure that very formally through satisfaction measures and attrition tracking.”

By Linda Tuck Chapman

Outsourcing is serious business and will have a long-term impact on your company’s future. Let’s improve the odds that it’s a positive one! Your customers and shareholders shouldn’t and won’t differentiate who delivers their services – your company or a third party. So the time you invest in planning your outsourcing program and sourcing the right service providers is time well spent.

Before you set your sights on a service provider or a destination, spend time setting strategy and planning. During an initial discussion with a client about expanding their small offshore program, they quickly realized that there was no consensus across the senior leadership team about their long term outsourcing strategy or the appetite for more offshoring in the current political climate.

Questions Precede Success

The questions you must answer are numerous and wide ranging: What value are you hoping to capture? What needs to happen to increase the probability of success? Every company that makes the decision to outsource wants to save money or avoid capital investment, so what else do you want to get out of the relationship? Is there visible executive support and who are the internal champions? Which countries and companies should you be looking at? What are the key constraints? How can you make the engagement process easy and predictable? What are the obvious mistakes that other companies have made and how can you avoid them?

The good news is that while there are lots of questions there are many, many successful offshore programs. And you don’t have to reinvent the wheel.

Determining what is most important to internal stakeholders is important but it doesn’t have to get complicated. Typical goals that are readily satisfied by outsourcing include: 1) Cost savings or cost avoidance 2) Access to a large, high quality and skilled labor pool 3) Capacity that flexes with your demand 4) Exposure to sophisticated processes and knowledge transfer 5) Access to superior technology, processes or a platform.

Keep on Track

Once there is consensus on goals and objectives write it down, validate that you got it right, then re-state the goals and objectives at each phase. It is amazing how much drift can occur if you ignore this tactic. Re-validating goals and frequent stakeholder communication are fundamental to managing expectations and driving wildly successful programs.

The next consideration is potential service providers and locations. Although India and China are leaders, Nearshore service providers are quickly climbing the value chain with competitive talent pools, robust technology and viable solutions. And they offer something that India and Asia can’t…. same-time work hours. The value of which should not to be under-estimated.

Sourcing a Nearshore service provider means also means that cultural differences are not as extreme, geo-political risks are better understood, travel for site visits and operational management is far less onerous and costly, and the opportunities for collaboration should be more likely and frequent. And cost savings are comparable.

Do the Right Work Up Front

You need to be thorough during sourcing and contracting. This means investing enough time to think through and finalize everything possible during the sourcing contracting phases. Make sure you do your research, benchmark pricing by role and location, and adopt published best practices. Set up a simple pricing model, anticipate current, near-term, and future needs including specialized skills. Design a competitive but manageable number of performance metrics and minimum service levels, and define respective roles and responsibilities. Establish time-specific targets to increase the ratio of offsite/onsite resources, and strategies to minimize turnover of resources assigned to your account.

Once you have a strong foundation, a user-friendly engagement process will become the key to a successful program. If your program is for IT application development, maintenance and/or testing, developing a good set of requirements is far more important than ever before. If you have a PMO, good news. If not, source or quickly develop training or leverage your outsourcer to help develop this key skill within your team. Your project teams need to write solid Statements of Work and be able to size the work effort. You can publish examples on your intranet, deploy proactive support and mentoring, and establish internal user groups.

As for project pricing, it is okay to start out with time and materials pricing using negotiated rates. Within six months you should have enough experience and expertise to move to fixed pricing. And over time, if you commit a minimum number of resources or spend, you can evolve to “development centers,” dedicated teams who identify with your company and are exclusively assigned to your projects. This will help you to control costs, improve quality and increase your offsite/onsite resource ratios. Your informal leaders will emerge, so identify these internal champions early and noisily celebrate their successes.

If you want your outsourcing program to be wildly successful, here are three key tips to take away:

• invest time to develop an enduring strategy and take time to plan
• finalize every detail possible during the contracting phase
• make it easy for users to engage

Linda Tuck Chapman, ONTALA Performance Solutions, is a former Chief Sourcing Officer and is now an expert advisor in Outsourcing, Strategic Cost Management, and Vendor Governance.

By Patrick Haller

When making sourcing decisions, a lot of attention is paid to the pricing structure and qualifications of service providers, while their actual location is sometimes a secondary  consideration. However, when assessing a destination, it’s important to realize that what might be favorable today can morph into a nightmare scenario tomorrow. Don’t be caught unaware and unprepared for the ever-changing dynamics of  the Nearshore.

The best-shoring process goes beyond looking at the usual criteria like cost effectiveness, employee attrition and service capabilities, and examines issues such as the hidden aspects of hiring and firing, how non-performance claims are managed, a country’s political stability, propensity for natural disasters, nationalization of businesses, and concerns about infrastructure. It’s dangerous to give these critical factors short shrift when concentrating on which provider offers the best financial deal.

International management consulting firm A.T. Kearney advises that “the best-shoring evaluation process selects the most favorable location by applying a comprehensive set of criteria, which include not only current cost effectiveness and scenario analyses, but also an assessment of service and quality levels, as well as the question of warranty.”

“There are several items that are driving the trends towards best sourcing of solutions,” said Ed Fitzpatrick, director of Managed Services at Charles River Development, during a podcast about IT development, “The key thing is the competitive nature of the industry. Especially coming off the last couple of years in the worldwide financial situation, it’s about proving competitiveness, lowering costs, driving operational efficiencies, getting more value out of their investments in technology and systems, better aligning costs and values, and of course, reducing the strain on limited internal IT resources.”

Looking deeper than immediate cost savings, buyers should take into consideration driving factors, such as:

• Available Talent – How big is the current qualified labor pool? Will the operation be able to scale-up over the next five to ten years? Who are the competitors for the same talent? What are the strengths and weaknesses? Are wages expected to increase from year-to-year? Do the labor laws favor workers or employers?  For example, even though Brazil has the largest population in South America, can the country offer better software developers than Colombia? Can Colombia compete on the wage scale with Chile? Will Chile produce enough qualified candidates for contact center work over the long-term than Argentina? Will wage inflation and restrictive labor laws in Argentina have an adverse effect on the ability to continue operations there? Which nation is known for a strong work ethic as compared to the others?  When it comes to hiring and firing, every aspect of the country’s employment law should be examined carefully.

• Soundness of Infrastructure – Just because a country was known for having solid infrastructure in the past does not mean it will be true in the future. For instance, Chile was thought of us being relatively sound in this regard, but recently President Piñera warned executives that Chile would face an energy crisis during his administration due to an estimated annual demand increase of up to 7%. Other nations too might face energy crises, or an inability to keep up with the need for improved telecommunications technology and internet access. Safe roads and highways, efficient and adequate transportation systems, accessibility to international airports are also major considerations. El Dorado, the main international airport in Colombia’s capital city, Bogota, is being completely rebuilt in order to accommodate the heavily increased passenger traffic. However, observers have noted that by time the new facility is completely operational it will already be inadequate. Therefore, plans are under consideration to build a second airport.

• Natural Disasters – No country on earth is safeguarded from nature’s wrath. However, some are more prone to disasters than others. As charted by PreventionWeb, Chile is more prone to earthquakes than flooding, Colombia can suffer from flooding and earthquakes, Argentina is also susceptible to flooding whereas drought is the biggest threat to Brazil. Whatever the hazard, be sure redundant systems are in place and assess how quickly business can resume.

• Claims for Non-performance – Even though the contract might contain very specific clauses relating to non-performance issues, what jurisdiction will the contract be enforced in? If in the provider’s home country is there a enough of a history of similar cases in order to establish a precedence, and if so, who have they favored? If not, how would such a case be handled?

• Political Risk – Are foreign business entities welcome to operate freely within the selected country? Does the country have a history of nationalizing private enterprises, or are there indications to suggest this will start happening? Can the government close down an operation that is deemed contrary to their philosophy? Will a foreign entity, or a company hired by a foreign entity, be abruptly shut down? These are very real concerns, especially in Latin America where the political dynamics change rapidly in some nations. Closely examine the policies of countries such as Venezuela and Argentina who have been shown to be volatile environments, whereas Chile and Colombia stand as recent examples of political stability.

• Immigration Policies – Providers might need to hire employees from other countries, even on a temporary basis, in order to ensure they have the right individual in the right position. Also, companies that have shared services or captives most likely will want at least some high-level personnel from established business centers to oversee their operations. What countries are more welcoming to foreign workers? Where are the least restrictive immigration policies? Can foreign employees be arrested or deported without cause? Be sure to research these policies in-depth and gain an understanding of a particular country’s record, and pay attention to the “writing on the wall.”

Do not underestimate the importance of digging into these fundamental aspects of sourcing. Remember that the relationship is not only with your provider, but also with their country.