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.

By Bill Huber, Partner, ISG, and Kristen Elvinger, Research Associate

Concerns exist over the capacity of Latin American service providers to absorb rapid growth. Several global providers currently have a presence in Latin America, and tax and other trade incentives will help attract more outsourcers to the region. And, many Latin American countries are positioned to further develop emerging areas of specialization. Indeed, lessons learned from India, China, and some Eastern European countries suggest that specialization and quality-focused differentiation will be the keys to success, especially for countries with small populations.

Following is a review of major outsourcing destinations in Latin America, including assessments of strengths and business environments.

Mexico’s Head Start

Mexico benefits from a ten-year or so head start in the outsourcing business (primarily in call centers), proximity to the United States, membership in NAFTA, and a large pool of English speakers. Additional pluses: high-quality telecom infrastructure, good quality road and railway networks, and many airports. Mexico’s growing IT and BPO offerings are expected to increase 10% year-on-year, according to a study by HfS. Several cities offer a variety of trade incentives, including cash grants of up to 50% of total investments, and tax credits up to 30% of R&D expenses. Indeed, competition between states and cities to attract clients is helping to drive Mexico’s outsourcing maturity. While some have expressed concern about Mexico’s ability to develop higher value offerings, a number of initiatives – such as the Programa para el Desarrollo de la Industria del Software (PROSOFT) – are in place to develop skills for the workplace. On the downside, myriad security risks, both real and perceived, have hurt Mexico’s reputation.

Brazil Is Bigger

With the largest IT market in Latin America and the world’s second largest pool of COBOL programmers, Brazil boasts formidable outsourcing resources, characterized by a the presence of several global providers, well-established call center business, many R&D development centers, and a strong global services industry. While English fluency rates are low at 5%, that figure still represents approximately 10 million people, meaning Brazil has the ability to scale. Brazil also has very good telecommunications infrastructure, wide use of broadband, and the second highest number of airports in the world.

With a history as a quick adopter of new technology and methods, Brazil anticipates significant growth in high-value BPO and ITO in the next two years. Labor and export regulations, however, are a negative. And while incentives such as reduction in social security contributions and tax deductions for technology transfers are attractive to IT companies, exports of services are taxed heavily. Moreover, unfavorable labor laws and associated employment costs can be a concern. This paired with their large potential talent base gives them the opportunity to become a large nearshore destination if the government can create better trade incentives and bureaucracy.

Argentina’s Infrastructure and Bilingualism

Argentina boasts the best telecommunications infrastructure, the second-largest IT market, and the largest pool of bilingual employees in Latin America. Following the devaluation of the peso in 2001, Argentina took an economic hit that drove down wages and office real estate, which in turn attracted outsourcers. Responding to the opportunity, the government implemented a plan to develop the IT industry, focusing on software development and technical call centers. The initiative was characterized by a range of incentives for IT companies, including a 60% income tax exemption for software companies, 70% reduction on social contributions, and no restrictions on wiring foreign currencies for imports.

Argentina’s more progressive standards and data protection laws, moreover, are attractive. While Argentina is well-positioned to attract further outsourcing activity, bureaucratic hurdles are an obstacle, as with many other Latin American countries. Also, Argentina is implementing new trade restrictions . To address the challenges, many foreign companies are initially partnering with local providers when entering Argentina’s market.

Chile Seeks Higher Value

Chile’s stable government and currency, well-developed telecommunications infrastructure, and easy immigration policies make for an attractive destination for outsourcers. Recognizing that its small size requires a quality-rather-than-quantity-focused approach, Chile has created longer, more extensive IT education programs geared to high-value KPO, ITO, and shared services. The Chilean Economic Development Agency (CORFO) created InvestChile to provide investment incentives in more high-tech fields. Free trade agreements with the US, Canada, Australia, and China, as well as agreements to avoid double taxation on exports, are also attractive. Although approximately a ten-hour flight from the US, Chile shares time zones with the US. ChileiT is also actively working to promote its members to the international market.

Other Nations on the Rise

Other Latin American countries growing their outsourcing offerings include Costa Rica, Panama, Uruguay, El Salvador, Colombia, and Nicaragua. Most offer a few tax incentives and relatively good language skills. Key requirements will be to improve telecommunications infrastructure, grow English speaking populations, and develop IT skills. At present, most activity is in call centers, with a focus on specialization as a differentiating factor. Costa Rica, for example, touts its expertise in financial services.

Latin American countries are working hard to gain market share and raise their profiles as outsourcing destinations. Years of developing workforces, improving trade incentives, and building political stability are paying off. Concerns over scale are being addressed through pooling across multiple locations. Providers who are pursuing this strategy include Accenture, Capgemini, IBM, TCS, HCL, Cognizant, and Wipro.

Specialization can help Latin countries gain further advantage aside from being a nearshore destination. Although this strategy includes some risk, as outsourcing trends can change, many large destinations got their start using this approach. So far, Latin America has taken great steps in developing better skilled workforces and better business environments to support their Nearshore advantages of shared time zones, cultural affinity with the US, and more accent-neutral English skills. With proper identification of processes to outsource and the appropriate matchup of location and company, US companies can benefit greatly from Nearshoring to Latin America.

Bill Huber is Partner with ISG, a leading technology insights, market intelligence, and advisory services company. Kristen Elvinger is a research associate.

Jamaica’s growing reputation as a top Caribbean destination for investment in Information and Communication Technology (ICT) and other key growth sectors is set to take centre stage on March 1-2, 2012, as the island lays out the red carpet for investors seeking opportunities in the region’s largest English-speaking economy.

The Jamaica Investment Forum 2012, which will be staged at the new Montego Bay Convention Centre, will focus on the business opportunities that exist in ICT, as well as other priority areas such as Tourism, Manufacturing and major privatization and development projects.

The Prime Minister of Jamaica, the Most Hon. Portia Simpson Miller, will head a high profile slate of local and international speakers at the Forum, which is being organized by JAMPRO, the country’s investment promotion agency, in partnership with the Inter-American Development Bank (IDB) and the Compete Caribbean Programme. The opening of the event will feature presentations from Anthony Hylton, the Minister of Industry, Investment and Commerce, and a high-level representative from the IDB.

The sectoral session on ICT will focus on opportunities in Business Process Outsourcing (BPO) and IT Export Services (ITES) and will feature a mix of information and testimonials from expert panellists and existing investors. Among the confirmed speakers for this session are Connie Harvey, EVP, COO, Commercial Solutions, ACS, A Xerox Company; Dr. Harsh Muthal, CEO Tholons Inc.; Ambassador Patrick Casserly, Special Envoy for ICT; and Helena Lawson Brooks, SVP- Specialty Operations, Convergys Corporation. Phillip Vandervoort, Head of Business and Marketing Operations, Microsoft, is scheduled to deliver a presentation during the investment climate plenary.

Participants will have the opportunity to see first-hand some of the select investment projects on specially arranged JAMPRO site visits and private meetings. Prime Minister Simpson Miller will also host a welcome reception at which participants will be able to meet members of the Jamaican Government and senior leaders in the private and public sectors. A special “Jamaica Night” reception will cap off a comprehensive social programme that will offer participants, diverse opportunities for leisure, tours and sightseeing.

Jamaica is home to four of the world’s top 10 outsourcing companies, and currently has over 11,000 full-time agents in the offshore business process outsourcing (BPO) sector. With nearshore access to the United States, a neutral English accent, low attrition rates and high labour force availability among secondary and university graduates, Jamaica continues to offer a very strong value proposition for BPO investors.

Most recently, Jamaica landed a major investment from Convergys Corporation, one of the largest agent-assisted customer service companies in the world. The company is projected to employ nearly 1,000 persons when its first call centre slated for Montego Bay becomes fully staffed in 2012.

The Jamaica Investment Forum will provide potential investors with insightful information pertaining to the Government of Jamaica’s investment policies and incentive regimes; and networking opportunities among existing investors and leaders in the local business community. The Forum has received strong backing from the local business community. Among the many local sponsors are: FLOW/Columbus Communications, LIME, Digicel, Jamaica Public Service Company, and the Bank of Nova Scotia.

By Luke Bujarski

High employee turnover is something that sourcing managers have learned to put up with when offshoring IT and BPO tasks to India. But now the Philippines has also begun showing signs of overheating. Given Latin America’s relatively small labor pools, we worry that the region might follow suit and succumb to the same pressures that have pushed the Philippines to its limits. So far, rampant turnover has not been a major problem with LatAm markets. But just in case, we decided to take another look at some of the details around attrition and other symptoms of hot labor market conditions.

What we found is that while Latin American labor pools are fewer and often smaller, sound management practices at the company level, greater company loyalty, and slower, more organic industry growth have kept attrition rates lower than what has been seen in both India and the Philippines.

What’s Up with the Philippines? 

“BPO firms [in the Philippines] are experiencing difficulty in hiring and retaining “capable employees,” thus, resulting in higher attrition rates and an increase in hiring and retention costs,” noted global consulting firm Tholons in a recent report. Other sources suggest that up to 75 percent of the Philippine people speak good English, so it’s no surprise that the BPO industry (in revenues) has been growing at 20 percent annually. Market research firm XMG Global also expressed concern over the growing “talent problem” in the Philippines – not only with today’s labor force, but also with high dropout rates in the labor pipeline in primary and secondary school. As a result of this and other factors, labor costs are expected to go up by 25-60 percent over the next five years.

Despite these warning signs, the Business Process Outsourcing Association of the Philippines, in a joint report with Everest Research, anticipates the industry to almost double by 2016 to 900,000 employees. For those service providers already battling it out with runaway training and recruitment costs, wage inflation, disrupted project workflows, and inconsistency in service level quality, those projections may be a hard pill to swallow.

LatAm Sensitivity to Demand Pressures 

When it comes to contact centers and BPO, English-speaking labor pools in Latin America are relatively small and hence tend to be more susceptible to demand and supply misalignment. Central American countries are a case in point as is currently being witnessed in Guatemala, where a growing price war for bilingual agents is forcing companies like 24/7 Customer to diversify their coverage base into Nicaragua. Going forward, as even smaller markets like Belize and Honduras grow into the BPO industry, service providers should take care not to over promise and under deliver on total cost and service level agreements. Likewise, government officials should be careful not to ‘over promote’ their regions’ capabilities, without backing up their initiatives with matching training and education dollars.

Concern over employee churn also has a lot to do with the type of business that you’re in. According to Tony Mataya from Think Solutions, on the whole, Mexico’s IT services industry has not seen the type of attrition rates experienced in India. Chris Snyder CIO of Hulcher also said that it has a lot to do with the fact that just like Americans, “Indians don’t want to work the third shift if they don’t have to” – referring to the 12-hour time zone gab between the US and India. This is particularly true when dealing with agile, scrum and other live-time software development methodologies. “We tried agile with India, but turnover got to the point of ridiculousness.” Snyder also noted that they’ve had much better luck in Brazil, although they’ve found it increasingly difficult to retain and recruit talent since signing on with Stefanini Solutions three years ago.

Market Fundamentals: Mexico vs. India vs. the Philippines 

When looking at macro-level data there are a couple of things to be mindful of when analyzing labor markets. Consumer price inflation is perhaps the most indicative of rising wages, since employers typically need to adjust salaries annually in line with overall inflation. Below we see that the cost of living has more than doubled in India over the last five years, while Mexico and the Philippines have seen lower inflation year on year. GDP per capita is clearly much higher in Mexico, which puts a premium on wages. Likewise sheer market size in terms of population emphasizes India’s dominance as an offshore hub to both Mexico and the Philippines.

Attrition Boils Down to Economics, Management, Culture

Personal expectations and the promise of higher wages is what ultimately cause BPO employees to jump ship. However, work culture and company management style also has a lot to do with it. Eric Simonson Director of research at Everest pointed out that “the Indian work mentality is focused more heavily on ‘getting ahead’, rather than subject matter expertise. We’ve seen good things coming out of Poland lately partly because the work culture follows a more artisanal approach focused on mastery and domain expertise.” Mataya from Think Solutions also backed up this claim and mentioned that it is “not uncommon to see BPO workers in India move companies for ten cent raises”.

Second Annual Nearshore Nexus Comes to New York City this April

Nearshore Nexus, the only North America investor conference focused entirely on the Caribbean and Latin America IT and BPO sector, will take place on Thursday April 19, 2012, in New York City.

Nearshore Nexus will feature the best minds in global services to examine the growing role Latin America is playing in delivering quality outsourcing services to businesses across the Americas. The outsourcing sector in Latin America has been growing at over 20 percent per year – noticeably higher than the global average. The theme for the 2012 edition of Nexus is: “Intelligent Analysis of Outsourcing in the Americas.”

“I’m very proud of the fact that we will attract delegates and sponsors from over 15 countries in Latin America. This testifies to the strength of our business and the appeal of this topic,” said Kirk Laughlin, CEO and Founder of Nearshore Americas, the company staging the conference. The event brings together CIOs and IT leaders, global sourcing decision makers, procurement heads and country representatives. Besides analyzing complex ideas and generating stimulating debate, Nexus is also a place to enjoy something different. Musical entertainment will be provided during the event, and multiple networking opportunities are built in.

”The Nearshore outsourcing market is extremely robust,” noted Laughlin, “yet a good percentage of U.S. buy-side sourcing customers continue to lack sufficient knowledge of Latin America to make good business decisions. Our conference is all about accelerating that awareness and generating high-value connections.”

Nearshore Nexus features a list of top tier speakers from organizations such as GE, The McGraw-Hill Companies, Pace Harmon, Pegasus Solutions, UBS, HfS Research, Tata Consultancy Services, Ci&T and A.T. Kearney. Topics range from the current state of outsourcing in Latin America, getting smart about site selection, and how to manage vendors in a multi-vendor, multi-location environment.

Sponsors include Tata Consultancy Services (Diamond); Ci&T (Platinum); BRASSCOM, MexicoIT and Pro Mexico (Gold); Belatrix Software Factory, Common Sense, Invest Pacific, Nearshore Call Center Services, Neoris, ProBarranquilla, VSI Nearshore Outsourcing and Wipro (Premier). Partners include Avasant (Advisory Partner) and HfS Research (Research Partner).

This year’s conference will be held at the elegant Crowne Plaza Times Square Manhattan, which offers a luxurious oasis in the middle of Manhattan’s most vibrant and iconic neighborhood. Nearshore Nexus has secured a special room rate for attendees of $309 per night. This rate expires on March 16, 2012.

Nearshore Nexus is an invitation-only event. Individuals who are outsourcing services decision makers may request an invitation to the conference by sending an email, with your title and company name to invitation@nextcoastmedia.com . After submitting your registration request, your qualification status will be verified for eligibility. Qualified invitees are granted complimentary access to the entire conference. Vendors, service providers, business parks and government/private promotion and investment agencies may obtain access to the conference through sponsorship.

For information about Nearshore Nexus, visit www.nearshorenexus.com or contact the conference office at (516) 277-1108. Nearshore Nexus social communications can be found on Twitter and LinkedIn.

Speed is of the essence, DeMent says.

By Patrick Haller

Success of a shared-services operation depends upon more than just a good plan and solid execution – like any good relationship, it requires constant monitoring and regular maintenance. Without a serious, ongoing commitment by the CEO, CFO, CIO, and managers throughout the company, shared services will implode. The entire corporate way of thinking has to change.

With a shared-services approach, support functions such as finance, HR, IT, and supply chain are run as if they were outsourced even though they are still internal to the company. “You change the mindset from being aligned to corporate offices to being aligned to business units,” says Brad DeMent, partner at management consulting firm ScottMadden.

One of the first fundamental decisions to deal with when developing a shared-services organization is whether the center will serve a single function or multiple functions. The former has been more common in the US, where a company might have a financial services center in Tennessee and its HR services in Missouri. Whereas the trend in Latin America is to open combined centers so that all of the shared services are operated from one location and under one manager, who most likely will report directly to the president of company.

That is the case with Alpina in Bogota, Colombia, which has about 300 employees working in the same location, as opposed to a company like Pfizer, which has centers throughout the US. DeMent recommends the same-location approach. “By combining all of these functions, you can instill one culture, under one leader. You can even build a shared services center within a shared services center,” he says.

Not only is it easier to coordinate various areas in a multifunctional center, there are also economic benefits and the ability to cross-train employees, enabling them to become a resource across the organization as opposed to being rooted in one area.

There Will Be Resistance

When considering opening a shared services center, those involved should be prepared to confront the “big change barriers.” Getting over the hurdle of the corporate headquarters not wanting to relinquish control is one of the greatest challenges. DeMent points out that friction can be especially heated when it is time to release people from existing business units, and hire new people at a remote location. Having strong executive support for such a momentous organizational change is integral or else the shared-services operation can become fragmented.

“Speed is your friend; there are a lot of things that can happen, such as turnover and a change in executive leadership,” says DeMent. “We were working with a pharmaceutical company in Bogota, they got through initial phases, then the company sold off a large business unit. You want to knock these things out as fast as you can – in less than a year.”

Rather than trying to build a shared operation all at the same time, it is more efficient to phase it in. Start with the functions or departments that are more isolated, such as finance, which is very transactional and doesn’t touch everyone in the company. Save things that affect everyone, like HR, until later. For example, during a two-year timeline, Alpina went live with finance after seven months, HR four months after that, and IT one month later. This approach allowed the organization to adjust to the idea of a shared-services operation and react to any problems as they arose.

Take a Tiered Approach

DeMent recommends using tiers to create the most beneficial shared arrangements:

Tier 0 – Provide as many self-service, automated, on-line procedures as possible so that people can get as much done by themselves without interfacing with a human.

Tier 1 – Establish transactional procedures, move fast and automate.

Tier 2 – Provide excellent customer support; the shared services center should treat the business unit as a client (this is part of what distinguishes it from corporate operations).

Tier 3 – Establish centers of excellence made up of very small groups of people who know specific areas, to establish uniform policies and procedures.

From Internal to Outsourcing

Shared services are growing to include legal operations, engineering, marketing, corporate communications, and plant maintenance. Some companies, when they feel they are competitive as an outsourcer and when the corporate office gives the green light, have been offering their services to others. Doing this creates another profit stream, but it can also create a situation where the services center becomes too focused on making money and loses sight of its primary client – the parent company.

DeMent suggests that companies set up a mirror organization that can market and provide outsourcing while the core operation still concentrates on the business units it was created to assist. Procter & Gamble had such an arrangement with its hemispheric employee services center in Costa Rica. That facility caught the attention of IBM, which took it over and started offering those services to P&G and other clients.

Organizations tend to make the mistake of thinking that once their shared-services operation is up and running that it will take care of itself. There is always the possibility of self-sabotage if the company slips back into a duplication of efforts, or the type of corporate oversight that was in use before the center was established. One productive way to help prevent this from happening is to create a unit dedicated to continuous improvement. This would involve a staff member who is designated as shared-services quality champion; he or she attends conferences, learns about new practices, keeps up with and tests new technology, and stays abreast of any developments in the shared-services space.

Complacency is the enemy of an effective shared-services operation. “Stagnation will kill you,” DeMent warns.

By Daniel Berthiaume

A crucial aspect of many IT outsourcing and BPO initiatives is internal staff reduction. Despite the cost savings and more efficient operations that might result, few managers look forward to determining who stays and who goes when a department outsources certain functions. But properly evaluating employees in the event jobs need to be terminated is absolutely critical to BPO success.

Michael D. Brown, a corporate speaker, coach, and trainer who specializes in personal and professional development, has a few tips for managers trying to successfully execute an outsourcing-related staff reduction.

Think of the Customer

Although reducing staff is an internal process, Brown advises managers to begin with an external focus. “Define the experience you want to create for your customer, and then assess whether you have the right skills to deliver it, to be competitive, and to stay fresh and take it to the next level,” he says. “If you have some folks who can’t deliver this kind of customer experience, that’s your first filter.”

Doing the Job Is Not Enough

Brown also advises managers to be leery of employees who are willing to “do the job,” but little or nothing else. “Let go of people who never went above and beyond their job and never proactively went outside the job’s parameters to take things to the next level,” he says. “You want people who seek personal growth and have a hunger for more. People lacking these qualities or who are myopically focused on their jobs, you can do without.”

Brown warns that employees who strictly adhere to the official boundaries of their jobs don’t provide the necessary bandwidth for a company to grow. “You can’t pay for every piece of an employee’s contribution. Something has to come from passion and loyalty,” he says. “You want to keep people who say, ‘I know this isn’t my job but I really like what I’m doing,’ and develop their own skill-set on the job that they can also use in other areas of life.”

Be Honest and Open

Frequently, companies will shroud staff reductions in a veil of secrecy, leaving employees who will potentially be affected nervous and prone to gossip and innuendo. Brown says by maintaining an honest and open approach, managers can minimize disruption in the workplace.

“Be transparent early, quickly, and frequently,” Brown says. “Don’t let people hear things someplace else. If there are things you aren’t in a position to reveal, inform your employees, ‘I can’t tell you everything now.’”

Brown also recommends that managers help keep control of the inevitable office rumor mill by maintaining an open door, which can include making information available online or via a phone hotline. He further advises managers to provide transparency by holding meetings with individual departments or small groups of employees, in addition to large corporate meetings.

“Some people won’t want to ask questions in a big group setting,” he says. “People can deal with change but they cannot deal with uncertainty.”

Treat Everyone with Dignity

While Brown is clear about which employees should be the first targeted for a staff reduction, he is just as adamant that everyone, especially those whose jobs are terminated, be treated with dignity and respect throughout the process. “Don’t damage your brand with layoffs,” he says.

“The people you let go will eventually become your customers or have influence on your customers. They understand things happen and will get over it [if reductions are handled correctly], but with the effect of comments on social media like Twitter and Facebook, brand damage from disgruntled former employees can cost you more money trying to undo than the cost of creating a dignified process with features like help lines, extended benefits, retirement planning seminars, and resume workshops that help employees have a smooth exit.”

Move Forward

After reducing staff, managers must then act to assuage any fears or concerns remaining employees might have. “Reinforce why your business strategy required layoffs,” Brown says. “Don’t get into reasons why individual employees were terminated. Instead, explain why the employees who kept their jobs were chosen and how they can make themselves more competitive.”

And finally, Brown says managers should provide a direct answer to any questions about possible future staff reductions: “If people ask whether this will happen again, you need to be honest. Say, ‘We’re in a dynamic and changing marketplace and will respond accordingly.’ You can’t promise it won’t happen again.”

This article was originally published on BPO Outcomes

By Stephanie Moore

When Forrester published its first Indian vendor consulting Wave in 2005, Indian vendors were just starting their journey into management consulting. At the time, none of these vendors could compete with traditional management consultants – such as Accenture and Deloitte – from a scale, brand, or experience perspective. Given the rapid growth that these vendors achieved in the pure IT services space, however, it seemed only a matter of time before they would challenge vendors such as Accenture in the IT management consulting arena. Six years have gone by and these ambitious Indian IT service providers are still trailing the traditional management consultants.

Much like 2005, Indian vendors are still trying to move up the value chain into management or business process consulting in order to stave off commoditization, secure executive-level relationships and endorsements, and increase deal value and margin through preliminary strategy consulting.

Meteoric Rise

Is this lackluster growth fueled by a lack of desire? Although several of the vendors profiled in 2005 know where they’d like their consulting organizations to go, none has achieved its desired end state yet. The top-tier Indian vendors were relatively small and unknown at the beginning of the century, but today they are multibillion dollar IT and business process outsourcing (BPO) powerhouses that dictate the way in which all vendors — including the likes of Accenture, Computer Sciences Corporation (CSC), and IBM — deliver IT services.

Given their meteoric rise to power in the areas of IT and business process services, it seems strange — at least at first glance — that they have not been able to make similar inroads into management consulting. Certainly, Cognizant, Infosys, and Wipro have all grown their consulting groups; however, pure management-consulting-partner–caliber staff still number in the hundreds as opposed to the thousands. When you consider the fact that these vendors employ 118,000, 133,000 and 120,000 people respectively, it’s easy to see the disconnect between what a vendor says about its consulting capabilities and the actual commitment to the model.

True Value

Management consulting and technology service delivery require very different business models. The Indian offshore outsourcing model has been predicated on an extremely high margin available to the vendor through labor arbitrage and industrialized delivery. Although in the early days executives thought that the value of Indian vendors performing management consulting was in saving money, it quickly became clear that management consulting had to be done by local consultants, largely on-site.

For sure, tasks such as research and prep work can be performed in lower-cost locations, but that project team distribution looks quite different from an applications maintenance project team distribution. Factors that discourage vendors from investing in management consulting include high startup costs, low margins and volumes, and lack of urgency: Indian vendor growth rates continue to outpace the rest of the IT industry, even during recent economic recessions, so the idea that management consulting is required to feed the huge implementation engines back in India is not yet an immediate concern.

Ultimately, to compete with global multinational corporations (MNCs) such as Accenture, Deloitte, and IBM, the India-centric vendors must have full-fledged management consulting capability in all the verticals they serve. Absent that, they will end up playing the role of technology subcontractors to the management consultants or to internal vendor/demand management organizations — in an increasingly commoditized world. Some vendors, such as Cognizant, Infosys, and Wipro, are well on their way to achieving their vision. Still, given the investments and time required to build up the capability, there is the risk that these publicly traded companies will lose their conviction and go for the short-term gains as opposed to preparing for the future.

Build On What They Have

If the India-centric providers can build up their vertical business consulting capability, they will be very strong candidates for business transformation consulting work. Their deep technology roots, combined with savvy industry and business process expertise, will undoubtedly help companies through innovation, transformation, and optimization cycles as well or better than the traditional management consultants. Using one vendor to develop and implement a business transformation strategy could drastically reduce the value leakage that occurs when a pure technology vendor is engaged to implement a strategy or solution developed by a pure business consulting vendor.

For now, however, evaluate the management consulting capabilities of their providers on a case-by-case basis. Some of the management consulting capabilities we predicted in 2005 have not come to fruition, but the Indian players are making strong progress, enough to merit consideration by clients seeking to integrate IT strategy with IT implementation.

For compliance and regulatory and tax-related activities, which may be only peripherally connected to technology solutions or only technology-enabled, companies are likely still better off working with their traditional business-focused management consultants and then perhaps implementing solutions recommended using the more technology-focused India-centric providers where required. Vendors such as Wipro are aware of the opportunities in this area and are also building up the capability to qualify for this type of work. In the short term, however — and especially in heavily regulated industries — it may be less risky to use a vendor with a history of performance here.

Stephanie Moore is a vice president and principal analyst at Forrester Research, where she serves Sourcing & Vendor Management Professionals.

By Patrick Haller 

Forrester's Lutz Peichert recommends "a holistic view" of a supplier.

Effective vendor management requires more than monitoring service level agreements and keeping a watchful eye on things after the contract has been signed. Buyers can save themselves a lot of grief by examining certain criteria in advance that might not currently be part of their due diligence process.

Many companies seem to be aware of the fact that they need to improve their vendor management processes. In the latest Forrester’s Forrsights Business Decision-Makers Survey, Q4 2010, 48% of the respondents indicated that they will expand their vendor management capabilities.

And 56% plan to have a special innovation council in place within the next 12 months. In most cases, this council will include internal employees and external suppliers and a strong role for the most strategic suppliers within the organization.

The Forrester report suggests a variety of things a vendor manager should to to guarantee a productive, cost-effective relationship with a provider:

• Examining the vendor’s financial stability
• Soliciting feedback from the vendor’s current and former customers
• Acquiring information on the vendor’s wins/losses
• Monitoring the vendor’s product strategy
• Understanding the vendor’s industry/geographic focus
• Gauging the supplier’s flexibility and willingness/ability to be a partner

Nearshore Americas discussed details of the report’s findings with Lutz Peichert, Forrester Research Vice President and Principal Analyst.

NSAM: What is the most important thing that customers should be watchful for when managing vendors? 

Lutz Peichert: In general there are two things to observe: the delivery performance of the vendor and establishing a good relationship with the account manager. Delivery performance is being monitored anyway as part of the vendor management duties. And not only monitoring the performance to ensure “what we get is what we pay for,” but analyzing performance consistency and stability over time gives an indication of the vendor’s stability in the area we source. And a good relationship with the account manager or the account team will provide an information channel that can add a lot of insights when used in the right way. Through this channel a client may receive information about management moves and changes, product strategy changes, and other information.

NSAM: Do you recommended not using new vendors and only those with a track record?

LP: Not at all! For sure new vendors can’t provide a long-standing financial track record. But not using them would sacrifice any innovation, as new vendors fuel the market with innovative ideas and solutions. Financial stability in respect to the research I have published does not mean that we will not utilize “new kids on the block.” We will simply have a closer look at those vendors – i.e., the time between the financial analyses of those vendors would be shorter than the frequency in which we check “established” vendors. When Forrester supports clients in vendor selection activities we propose to ask for a three-year financial track record. But if there is a vendor in the market that is not in business for that period but the solution will help to better do business – we would take this into account when defining the risk mitigation strategy.

NSAM: How many customers should be consulted in order to get a good picture and understanding of the vendor? 

LP: This can vary heavily. In most cases – for the large vendors – the professional network of the sourcing and vendor management (SVM) manager will provide sufficient information through regular meetings. Other than that most vendors provide “user groups” or “customer advisory boards” as well, enabling the SVM professional to get in touch with peer clients of those vendors. Having a good relationship with three to five other clients shall be enough if the other sources are not sufficient. But it is important that those clients are selected by the SVM professional – not by the vendor.

NSAM: How do clients find information on the vendor’s wins and losses? 

LP: SVM professionals will need to tap into various sources. Press, Internet, or analyst firms will provide such information. A good relationship with the account team can be used as a source as well. And the relationships through customer advisory boards, user groups or other professional networks will help.

NSAM: Is it more important to ensure the vendor can provide the products needed by the client as opposed to understanding the product strategy? 

LP: For me as a client it is most important that there is a stable product strategy in place for the goods and services I purchase as my ability to deliver relies on those solutions. If the vendor’s strategy changes, this may have a negative impact on his delivery performance for the products I use. And understanding and monitoring the product strategy will allow a client to discuss any contingency plans with the vendor early enough – if the vendor doesn’t automatically inform the client about upcoming changes.

NSAM: Should it be required that the provider advise the client well in advance of changes in its industry/geographic focus? 

LP: Sure – in an ideal world, yes. But broadly forming strategic relationships is new to the market. When a real relationship is formed – all of those discussions may go away as there is a trust level between both parties. Or all of the mentioned information is provided by the vendor and openly discussed as part of the relationship. But until this level of trust is established, the SVM professional is the responsible person for vendor analysis. And it is his sole job to monitor and manage the external supply.

NSAM: What is reasonable to expect when it comes to supplier flexibility? A client could make too many changes or demands that the vendor is unable or unwilling to comply with. 

LP: Yes – but as said in my research document – it is the holistic view on the vendor’s behavior. And professional SVM managers do know the line between “reasonable” change requests and a demand that will require an addendum to an existing contract or even new contract negotiations. The intent of this measure is not to ask the vendor for all we need for free. And I am not saying we want it all for free. Flexibility can mean as well that the vendor moves first and the client and the vendor will find a mutual agreement after solving the issue. Rather than the vendor asking for a contract before moving at all. The notion of all of this is a level of partnership that needs to be established. And a partnership requires investments from both sides.

It is important to mention that all of the above points have to be seen in a holistic approach. The main reason for performing those activities is to enable clients to get indications if something changes on the vendor side. So a single indicator may not tell a big story – but comparing it with other facts and analyzing the information in relationship will provide a holistic picture. And will enable the client to take actions before something happens. Or at least be warned to react fast if something happens.

By Patrick Haller

Shanker: India has a better grasp of "the training concept."

The prospect of managing multiple locations in the US, India, Mexico and Japan can be daunting for many people. But Ravi Shanker, Sales Director for HCL America, Inc., has been doing it for years. His experience overseeing IT development projects began with Polaris Software in the early 2000s, then with HCL. As an insider, he has been directly involved in a market that has shifted from Indian-centric software development to new destinations like Brazil and Mexico. We asked Shanker about the current state of outsourcing, the trend toward onshoring, and what countries need to do to remain relevant or become more competitive.

NSAM: What is the main challenge of coordinating delivery centers in different countries?

Ravi Shanker: For customers, getting delivery from four different locations is a challenge. Things like time zone differences and communication are the main issues. There is a 12-hour difference between North America and India, and communication continues to be a challenge especially for Mexico and India. Language is secondary, what is primary is what they [the delivery center] mean when they say something – especially in India. They can have only a third of the work done, and the client will ask if they can deliver the next day and they will say yes.

NSAM: How do you manage this?

RS: The coordination is done by program managers within the organization that deal with the issues. They make the customer aware of the status; these people have been onsite for a number of years and have about ten years experience of dealing with customers.

NSAM: Where is the most IT activity happening now?

RS: There was an incentive for IT managers to go to Mexico for testing, including mobile testing and content management, which is being done from Mexico and India. There is a lot of BPO coming out of North Carolina.

NSAM: What regions or segments are providing the best advantages or seeing the most action right now?

RS: Middle-market companies with revenues of $250 million or less are not getting enough attention from the major players and they spend $3 to $5 million dollars annually on IT services. When comparing costs, in China I can probably get four or five FTEs, and two to three in India, for the cost of one FTE in New York City. The East European locations like Hungary and Poland are getting some traction. And Nearshore locations, especially Brazil and Mexico, maybe Colombia, are getting a lot of traction.

NSAM: What will be the next hot spot?

RS: There are three criteria to measure this: majority, expertise, and scale. Getting the majority will take time to develop in Nearshore locations. India has been in the space for many years and they are in the majority, most of the developers are on level five. In China they are at level one, two, and three. Scalability in Mexico is not comparable to India and China. In China, India, and Mexico the attrition rate is 10% to 16% annually.

It depends on how much focus Nearshore providers are willing to put into the three criteria. When you compare the resources, how well can these markets perform? There is a lot of emphasis on training in India. Someone like Infosys will hire 25,000 people each year, 80% could be fresh out of college or even high school and 20% could be from the market. They will undergo an intense 60- to 90-day training program and enter the workforce with strong capabilities. The new grads will be able to do most tasks at a low wage, and the more complex programming will be given to the experienced programmers who earn three times more. Even though in India the annual salary increases 15%, FTE costs have not really gone up because of the influx of fresh graduates.

I am not sure that firms in Mexico and Brazil understand the training concept as they do in India, and they need to establish strong training programs for new graduates.

NSAM: Will there be a growing move toward US onshoring in 2012?

RS: Yes, absolutely. States are coming up with incentive plans for companies to establish locations and hire locals. North Carolina is an example where we got a good incentive to create 500 jobs there. Onshore capabilities are being developed mostly by Indian players who are building in various states. Accenture and IBM are building facilities as well.

NSAM: Does this create internal competition?

RS: There are certain capabilities available onshore which are not available offshore. For example, mainframe operations are not easy to get in India, so they are delivered from onshore.

NSAM: What is the attrition rate in the US?

RS: In the US attrition is around 3%.

NSAM: How will competition for good candidates increase if onshoring continues to grow?

RS: Competition for experienced workers will increase, but not for fresh grads. The ability for organizations to train grads in IT systems is really great; there are so many tasks that can be performed by high-school grads. It is not necessary to have computer majors or people with experience in IT to work for an IT company because the company provides specialized training.

Five years ago, 90% of the employees would be coming from offshore to work at onshore facilities. Now it is reversed. A company needs to have the ability to train fresh graduates, putting them into 60- to 90-day training programs. Use training as a tool to create scalability.