glendonTodd Capital LLC, a private equity firm that focuses on investments in business services companies and investments in real estate, announces the acquisition of Toutatis Inc. by glendonTodd Capital LLC and Performa Partners.

Based in São Paulo, Brazil, Toutatis Inc. is a full service business process outsourcing (BPO) provider in Latin America and offers a wide variety of BPO solutions in human resource outsourcing, finance and accounting outsourcing and procurement outsourcing. The firm has offices in ten countries throughout Central and South America, including: Argentina, Brazil, Chile, Columbia, Ecuador, Mexico, Paraguay, Peru, Venezuela, and Uruguay, giving it the ability to serve international clients with operations throughout the region. The company’s unique ability to deliver BPO services across Latin America from its shared service center in Uberlândia offers flexible and cost-efficient solutions by providing user-friendly, accurate, seamless execution.

Todd Furniss, Managing Partner of glendonTodd Capital explains, “We focus on those industries and companies located in favorable macro-economic environments where we can help create disproportionate value, and we think that Brazil has a very bright economic picture for at least the next five years. Toutatis has a robust services platform and customer base in key markets throughout Latin America that we can leverage for growth. Together with Marcelo Franca, and our great operating partners at Performa, we have the ability to execute on our vision and realize significant stakeholder value creation.”

Marcelo Franca, CEO of Toutatis stated, “Our relationship with glendonTodd, allows us to take advantage of world class operational insights and financial execution capabilities to propel Toutatis onto the global stage.”

The company’s unique value proposition and delivery capability, reinforced by glendonTodd’s and Performa’s strategic capital and operational insights, position Toutatis well for growth and shareholder value creation.

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 Luke Bujarski

Last week’s Bloomberg Latin America Investing conference in New York City was a sobering reminder of Brazil’s precarious economic balancing act hinging on foreign investment, consumption, government stimulus, and inflated commodity prices. Yet, despite mixed signals over the future macro outlook, Brazil’s IT services industry will continue to rage forward. Antonio Gil president of BRASSCOM shrugged off pragmatic panel concerns with confidence, reassuring the audience that IT will expand aggressively at ten percent annually, to reach $210 billion USD by 2020. We believe Antonio’s assertion is correct: Considering this country’s infrastructural challenges and consumption-driven expansion, the public and private sectors will turn to information technology to squeeze greater efficiency out of their operations.

This year’s Bloomberg Latin America Investing conference showcased the top brass of LatAm policy and investment experts, including our very own Alvaro Uribe who keynoted Nearshore Nexus 2012 the week prior. Two camps developed with pariah states Argentina and Venezuela in one corner, and tiger economies Mexico, Chile, and Colombia in the other. The “Nascent Giant” Brazil took center stage driving the conversation around macroeconomic stability and domestic market investment opportunities across the region.

Brazil’s Long-Term Macro Outlook Uncertain

An overvalued real was the major source of debate as investors wondered how long Brazil’s recent local bond rally can last. “The six interest rate cuts [Banco Central do Brasil] since July of 2011 proved to be a risk that paid off,” explained Chris Garman, Latin America Director at Eurasia Group, referring to a steadfast inflation rate. Despite the positive short-run returns on Brazil’s debt market, the country’s fundamentals were put into question. Brazil GDP grew only 2.7 percent in 2011 compared to 7.5 percent in 2010. Panelists and audience inquiries also challenged Brazil’s trade balance with the US, which swung from a $6.4 billion surplus in 2007 to an $8.2 billion deficit last year, as the real rallied and growth in Brazil spurred demand for imports. Moving beyond the impacts of monetary policy, attention swung to government spending and the deep-rooted infrastructural challenges facing Brazil.

“The long-run problem for Brazil is structural and nothing that short-term monetary policy can fix,” argued Joaquin Cottani, Chief Economist for Latin America at Citi Investment Research and Analysis. There is not enough investment in infrastructure, education, and health care.” Brazil is expensive relative to other emerging economies which puts a premium on the cost of labor, impacting the competitiveness of its manufacturing and professional services sector.

Will Argentina’s takeover of YPF kick off a new wave of government takeovers in Latin America and send foreign investors scurrying?

An overvalued real – arguably driven by US fiscal policy and quantitative easing – brings down the cost of imports sending Brazilian consumers into feeding frenzy. While China is an export economy, Brazil’s growth feeds on domestic consumption spurred on largely by a growing middle class and government programs targeting poverty reduction. Any fundamental change to fiscal policy is also unlikely, as long as economic growth is perceived as strong. “The Brazilian people have a positive and trustful relationship with government,” expressed Ernesto Araujo Minister Counselor of Economics at the Embassy of Brazil – which puts into question Dilma Rousseff’s ability to make hard choices when it comes to corporate taxation, public infrastructure spending, and direct subsidies for the country’s poor.

High Costs Will Drive IT Automation and Innovation

According to Antonio Gil of BRASSCOM, “pressure on enterprise to bring cheaper and better products to market will fuel IT demand for the foreseeable future.” Brazil’s expensive operating environment will propel IT as an enabler of enterprise agility. In a high cost and consumer-driven market like Brazil, companies look to cut costs across supply chain, back office, and procurement. Government will also look to IT to make health care delivery, education, and transportation more affordable to the masses. Brazil’s high labor costs also leave less room to ignore the value of IT-driven automation and operational efficiency. “Every week I have international IT investors coming to our offices inquiring about new acquisition targets and new market opportunities,” explained Gil.

Cate Ambrose Executive Director of the Latin America Venture Capital Association (LAVCA) also pointed to consumer-focused verticals for new market opportunities. “Anywhere where there is a direct connection to the consumer is where we see new companies and new applications for IT.” Ambrose pointed to retail, health care, and education as the hot sectors with the most startup and innovation activity.

Not Out of the Woods Just Yet

Brazil finally appears to be on the right track toward sustained economic expansion, even if GDP growth rates slumps below Wall Street investor expectations. By all accounts, the days of rampant hyper-inflation seem to flicker in the review mirror. This new epoch of stability should keep IT investment dollars flowing. Yet, Lawrence Goodman, Founder of the Center for Financial Stability warned to never underestimate the power of global economics and the impacts of external shocks. Will China’s slowdown prove to be a hard or soft landing and how will that impact Brazil’s commodities exports? Will Argentina’s takeover of YPF kick off a new wave of government takeovers in Latin America and send foreign investors scurrying? Will a growing European crisis derail global economic progress?

By Michael Blankman

In my recent article, we concluded that the most important aspect of managing remotely is building a strong and trusting relationship. Creating a partnership that doesn’t rely solely on the contract for the outsourcer to get performance security. The partnership is critical because once operations are outsourced, real influence over daily management will and should be limited, or why outsource at all? The partnership needs to be based on respecting each other’s expertise, ensuring roles and responsibilities are clearly defined and that the underlying business model justifying the decision to outsource is protected.

Managing the ongoing performance (real time, daily, weekly, etc.) is the second most important area on which to focus. Performance management is conceptually aligned with the concept of trust, but verify.

Customer service expectations that are critical to the outsourcer can seem at odds with the operational efficiencies targeted by the vendor.

Recapping what we have covered to date:

• The toughest decision, which is to outsource has been made.
• A general observation is that businesses aren’t unique and that it is important to let go and to fit into their operating model.
• The outsourcer has created a small but influential and agile group of subject matter experts to be the primary interface with the vendor; the vendor has assigned dedicated account management.
• Depending on the size of the business, it is important to accept that the overall number of support and management staff dedicated to a program may be small.

Customer Satisfaction / Quality Management

The vendor and the outsourcer may have service and quality goals, which seem contradictory. Putting a process in place is the moment of truth between the supplier and the vendor. That is why it is critical during due diligence process that the vendor’s commitment to quality is understood that they are not providing lip service or view quality as a necessary evil. A vendor’s true commitment is easy to recognize by understanding what local processes they have in place and if they are followed consistently.

A good way to see if customer service and quality are truly integrated into the management process is to ask the staff their opinion and to find out from them what reward and recognition programs are in place. Everybody in every function, whether or not they are writing code or answering calls, wants an opportunity to be recognized. Integration and consistency, although seemingly obvious, are critical. It is interesting to see how many initiatives are the “flavor of the day” and dwindle in importance, replaced by new programs that also dwindle in importance. For example, consider when the last employee of the month was awarded.

Additionally, during contract negotiations change of control protection is critical. It is very easy for a change in ownership and management philosophy to alter customer service dynamics. This is as important as protecting the financial model contractually.

Qualitative versus Quantitative

Many of the relevant statistics will be relatively easy to track and done systematically.

In call centers, vendors will focus more on agent performance and outsourcers more on qualitative data that will enable them to understand the underlying reasons for a call and to apply that data to specific customers, where appropriate. In the call monitoring process, vendors will target a statistical sample by agent to quantify performance versus call type and client specific metrics favored by the outsourcer. Important also is the ability to disposition calls correctly. Vendors often bristle at free form wrap and want to rely on system driven algorithms to deliver MIS. Attention needs to be paid to the integrity of this process or the data derived will not be useful.

Call Monitoring: Call monitoring is the best process for both parties to really understand quality and make improvements. It is also labor intensive but can be done efficiently.

The Program

• Call monitoring has to be a dedicated function on both sides: don’t engage with a vendor unless it is already a part of their quality process.
• There needs to be agreement on what metrics are tracked during monitoring and the vendor should try to accommodate the outsourcer’s needs, especially where regulatory attention must be paid. Some expansion to the vendor’s current process will most likely have to take place.
• Whatever the final process looks like the outsourcer will always have to monitor additional calls. There are nuances to the businesses and clients that the vendor will never understand completely. To avoid undue bias and potential line of business conflicts, call monitoring at the vendor should reside as part of an independent quality group. This is not an attempt to create layers – the assumption is that the vendor already has this group in place for their own monitoring and other quality initiatives.

A multi-tiered process should be established. For example:

• Both quality teams should monitor calls together according to a formalized schedule for calibration purposes. Ultimately the vendor will monitor the majority of the calls therefore both sides need to be in synch.
• Calls need to be monitored separately as well with the results distributed and reviewed by all parties.
• Underlying clients, where possible, should be included in some of the monitoring sessions (relationship management should also be involved so the vendor hears the voice of the client).
• Utilization of third party remote monitoring organizations as an independent counterbalance should also be considered.
• An underutilized and sometimes poorly managed tool is mystery shopping. Mystery shopping is a tool to gage your own service and an opportunity to compare the metrics and best practices of your competitors. The outsourcer can accomplish mystery shopping internally by calling both competitors and the vendor or by hiring an independent firm.

Anytime multiple sites or vendors can be utilized, the ability to competitively benchmark and drive improvements is enhanced. To emphasize, quality and reward programs need to be consistent and tightly managed with tangible goals.

Michael Blankman, a global outsourcing senior advisor, can be reached at: michaelblankman@aol.com

By Kevin Church 

Latin America has received lots of buzz in recent years as a preferred location for shared services operations. An educated and affordable labor pool, business friendly climate, and the necessary infrastructure all make Nearshoring a very attractive option. At the same time, companies establishing new shared services centers have migrated directly to process-centric structures to maximize the benefits of their service-delivery model. One such process model, Purchase-to-Pay (P2P), can provide significant benefits to organizations if an integrated process is established and the appropriate technology is in place to support it. As such, the collaborative workforce and the high rate of technology adoption in Latin America make it an extremely attractive market for P2P solutions.

Companies are increasingly evaluating sourcing options in Latin America. In 2009 the outsourcing industry in Latin America grew by 11.3%, as shown in Nearshore Americas’ and PA Consulting’s “Executive Buyer’s Guide to Nearshore Outsourcing,” 2010. At the 2011 Shared Services and Outsourcing Week, Latin America ranked second as the “primary location of choice” for shared services and outsourcing, ahead of the United States, India, and Eastern Europe. Although India still reigns supreme in terms of cost, global businesses increasingly appreciate factors that are not necessarily captured in cost-to-do business. For instance, according to the Outsourcing-Center study: U.S. Companies Prefer “Farshore” to Nearshore Outsourcing, Send Higher Value Work Abroad, 2012, an increasing number of businesses consider location-specific advantages, such as time zone, when determining the location for their service center. Many Latin American countries also rank above their global competition in terms of overall competitiveness, as shown in Figure 1.

Figure 1 

The shared services industry in Latin America is young, but the region has been quick to adopt new technologies. In Latin America, 95% of businesses have either implemented or have plans to implement cutting-edge, real-time strategies, which is significantly higher than the global average of 76%, as noted in Oxford Economics and SAP’s, “Real-time Business,” 2011. Moreover, as determined by the Shared Services in Latin America Survey, 2011, Latin American countries are more receptive to multi-functional shared services centers than the rest of the world, with 72% implementing multi-function versus 47% in other regions in the world. It is important to note that this figure is largely driven by companies planning to install such systems (69%), which gives an indication of the transformation that is happening in the region at this time. Indeed, all signs show that the Latin American shared services industry is rapidly maturing, as multi-national companies global operations centers are added to local and regional plays.

Unfortunately, negative perceptions regarding legal and statutory requirements for invoice processing have perhaps impacted the P2P growth in Latin America. Although there has been an increased amount of public and private collaboration in the region, there is still considerable confusion between a local process variance and a law. As organizations establish their shared services operations, distinguishing myth from fact in the regulatory and legal space is an effort they must approach in a methodical and thorough manner.

Even though there are aspects that position Latin America as a shared services center hub, there are other factors that may pose challenges. The workforce as a whole is not as proficient in languages as other parts of the world. Even though the literacy rate is good in most of Latin America, the educational system varies greatly from country to country, as seen in Figure 2 below. Security is a perennial issue in parts of Latin America. This is improving in some countries in the region (e.g., Colombia) while degrading in other parts (e.g., Mexico). Sometimes these challenges will restrict locating your service center in Latin America, while others can be overcome through careful strategy or extra investment.

Figure 2

The Deloitte survey also found that in Latin America, 90% of existing shared services operations include finance, while only a fraction of that (36%) include supply chain and purchasing. This presents a significant opportunity to establish P2P service centers, which marry the finance and purchasing operations into an integrated process model. The high adoption of technology in Latin America supports P2P structure and enables remote processing. The receptivity for multi-functional processing models provides a collaborative environment to implement the typically difficult P2P structure.

Organizations can take advantage of advances in leading practices, improved invoice processing laws, and new technologies to implement highly efficient P2P operations in Latin America.

Technology advancements have also enabled the deployment of P2P delivery models that would have been challenging to implement just three to five years ago. The adoption and acceptance of vendor catalogues, e-invoicing, and portals have permitted service centers to take advantage of leading practices and support tools to achieve dramatic improvements in shorter time frames. As a result, shared services organizations are able to take advantage of more remote and cheaper locations and still achieve high performance levels.

An often cited challenge to P2P service center implementation in Latin America is the regulations and how they vary across the region. In recent years, some Latin American countries have passed regulations to ease the constraints surrounding invoice processing, but a great deal of confusion still exists. Thus, how these regulations specifically impact P2P service centers can be open to multiple interpretations. Fortunately, by following a proven methodology, organizations can separate myth from fact when establishing a P2P service center.

In order to do so, organizations must review each process from end-to-end to evaluate local process variants and determine legitimate legal requirements. This involves asking key questions at each step in the process in order to understand invoice formats, electronic invoicing regulations, and payment methods. The evaluation also reviews key policies including documentation retention, signature requirements, and storage regulations and then compares them to local laws. Regulations will vary across the region, so this evaluation must be completed for each country that will interact with the service center.

The methodology helps organizations distinguish the validity of exceptions or variants from standard process models. Project teams review each step in the process and focus on the key questions that must be answered, as shown in Figure 3. Multiple iterations of review may need to be undertaken for more complex requirements, but it is typically only a small portion of the total effort. In these cases, variants will need to be evaluated by more knowledgeable resources before the final determination of its validity can be reached.

Figure 3

 The approach escalates process variants to specific resource groups based on the complexity of the regulation. These levels include:

• Level 1 – Local in-country staff
• Level 2 – Country investment agencies
• Level 3 – Local or country auditors

The Level 1 review engages local in-country staff to review and validate the identified statutory requirements within their processing areas. Accounting and procurement resources experienced in completing these transactions are familiar with the local processing requirements. This group can help explain the need for the process exceptions and support the review of regulations to validate whether they are truly legal requirements. Including this group in the first level of review also has the benefit of building local buy-in on process decisions and improving the overall acceptance of the delivery model.

Process exceptions are escalated to Level 2 if the initial review fails to verify the validity of the variant. These reviews utilize country specific investment agencies to assist with independent research and evaluations. The complexity of regulations will vary by organization, but often only 1-2% of the exceptions will be escalated. Investment agencies provide access to local expertise to help clarify country laws and work with local authorities to help understand how they are enforced. Examples of agencies in Latin America that provide this support include:

• ProMexico
• CORFO (Chile)
• CINDE (Costa Rica)
• ProExport (Colombia)

Level 3 evaluations employ external auditors to provide more detailed evaluations of complex regulations or validate the output from Level 1 and Level 2 reviews. External auditors provide local legal and statutory expertise and can be excellent resources to complete final validations on key design decisions. Many auditors have offices across the region and can provide country-based resources to support the evaluation.

With each level using different sources of experience and expertise to determine the validity of process variants, the approach may generate multiple interpretations regarding how the local requirement is to be applied. As such, local authorities should be included to support the final decisions for more complex regulations. Engaging the local authorities early in the process ensures that the processes are compliant and establishes a good working relationship with the officials who will interact with the center once it is operational.

Latin America is well situated to host P2P service centers. Organizations can take advantage of advances in leading practices, improved invoice processing laws, and new technologies to implement highly efficient P2P operations in Latin America. However, companies must be prepared to undertake a complete and thorough analysis of their processes to separate myth from fact during their implementation. There will always be some local variants in the P2P process, but a relentless pursuit to minimize exceptions will maximize returns.

Kevin Church is a Director with ScottMadden, Inc. Church has over 15 years of experience with operations and organization transformations. He is also experienced in leading shared services deployment teams in conjunction with rollout of ERP systems and other leading technologies.

]]> http://nearshoreamericas.com/establishing-nearshore-purchase-to-pay-operations/feed/ 0 http://nearshoreamericas.com/managing-outsourcers-governance/ http://nearshoreamericas.com/managing-outsourcers-governance/#comments Tue, 01 May 2012 19:15:20 +0000 phaller http://nearshoreamericas.com/?p=19831 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 [...]]]>

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.

Uribe highlighted positive social, political and business developments in the Latin American/Caribbean region

Kirk Laughlin, CEO of Nearshore Americas, kicked off today’s Nearshore Nexus Conference at the Crowne Plaza in New York City by stating nearshore outsourcing has gone from “novel to mainstream.” Laughlin promised that conference speakers would illustrate how outsourcing destinations in Latin America and the Caribbean are “no longer in the shadow of India or China,” but have instead become vibrant providers of sophisticated IT and business outsourcing services in their own right. The first speaker, former President of the Republic of Colombia Mr. Alvaro Uribe, delivered on that promise.

Uribe Highlights Positive Developments in Latin America

Rather than focus exclusively on Colombia (although he did touch on how Colombia has transformed itself into a stable, secure democracy which attracts foreign investors), Uribe highlighted positive social, political and business developments in the Latin American/Caribbean region as a whole. The region has about 600 million people with an average age of 28. While 170 million people are in poverty, another 40 million have left poverty in recent years and Uribe classified 64% of the region’s population as members of a “progressive middle class.”

Uribe stressed that with a few exceptions, Latin American countries now abide by the “rule of law” rather than dictatorships. “Public indebtedness, defaults and hyperinflation are the province of the past,” he stated. Uribe also highlighted Latin America’s extensive natural resources, including 30% of the world’s oil resources, 26% of the world’s beef, and a potable water supply expected to account for half the global total in 2030.

Moving to human and political resources, Uribe stressed that with a couple of exceptions such as Venezuela and Ecuador, Latin American countries are following the example of Colombia in creating a “triangle of cohesion” based on security, free investment, and social cohesion. Uribe’s prepared remarks led directly to a Q&A session with CNN Senior Latin Affairs Editor Rafael Romo, who began with a question about the message Argentina’s recent decision to nationalize its leading oil company YPF.

“Maybe Argentina has made mistakes,” said Uribe. He said Argentina is privatizing key elements of its oil industry because of concerns there is not enough exploration, but would have been better served by discussing the matter with private industry. “In Colombia and Brazil there is a middle ground,” he said. “The government has an important role in oil production, not a monopoly.”

During his conversation with Romo, Uribe also discussed some of the specific ways Colombia has bolstered its BPO industry. “We consulted with private industry and identified five or six sectors where Colombia would become world class (including BPO),” he explained. “We had 2,000 BPO jobs and now have close to 100,000.” As part of its efforts to boost Colombia’s BPO industry, Uribe said the government eliminated the value added tax (VAT) on business services and is working on advancing education to provide workers with skills BPO and ITO buyers require, including by offering free university education to poor citizens.

Uribe also said he thinks Latin America should approach education on a regional, cooperative basis. “Twenty-five years ago, economists recommended countries in Latin America needed to change from commodity-based to knowledge-based economies,” he said. “They need to do the same today to add value to commodities.”

Eliminating the Software Factory

In the morning keynote, Leonardo Matiazzi, VP of International Business for Ci&T, said it is time to eliminate the “factory approach” to software development. “IT is the one industry that can change the world,” he said. “The mental model organizations use to develop software is optimized for mediocre results. It won’t be a total failure, but will be mediocre.”

Matiazzi compared developing software to writing a book. “Can you write a book by copying the first page 250 times?” he asked. “Try and come up with a book writing factory. You can’t. Writing software is the same as writing stories. You’ll end up with a dull book nobody cares about, just like you end up with dull software nobody uses.”

Matiazzi acknowledged moving away from the “software factory” model will be difficult, but necessary. “It’s not easy to throw away,” he said. “The concept has been part of the IT culture for so long.”

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 James Bargent

When consultancy firm Everest Group last year asked offshore service providers around the world where they planned to expand their global footprint, South Africa ranked firmly in the top three answers with only China and Brazil offering serious competition. We decided to examine what is so appealing about South Africa – and more importantly – what strategies investment  agencies are executing to win a surprising amount of global attention. 

The South African offshore BPO industry grew over 85% between 2007 and 2010 and in 2009-10 it contributed nearly $250 million to South African exports, according to the public/private trade promotion group South Africa BPO. The sector currently supports 10,000 jobs, with over 10,000 more committed by leading companies. There has been a steady stream of major multi-nationals such as Microsoft and Amazon outsourcing operations to South Africa and five of the top 10 BPO voice providers now have operations in the country.

Gareth Pritchard is the CEO of BPeSA Western Cape, a Cape Town BPO trade promotion group. He believes South Africa’s rapid growth can be explained by a combination of natural advantages and key improvements to the business environment for BPO operators. (Convergys, which has operations in South Africa, is one of the nation’s biggest advocates – telling Nearshore Americas in March at a Montego Bay, Jamaica conference that South Africa’s investment promotion is among the world’s best… adding that Caribbean and Latin America players can learn from their strategies.)

Call Centers Dominate Landscape

Outsourcing in South Africa is currently dominated by call centers, a sector in which it has a clear linguistic advantage over many of its rivals. According to Pritchard, South Africa produces 345,000 English speaking graduates a year, making it the third highest English servicing BPO supplier and South African English is widely considered a neutral accent.

The sector has also benefited from a dramatic drop in telecommunications costs, which had previously been an obstacle to investment. Telecom costs plummeted 85% between 2003 and 2009, according to Pritchard, and will continue to fall by 15-25% a year over the coming years.

Above all, the crucial factor for Pritchard is the cultural affinity between South Africans and the British – who make up the bulk of the South African market. “The average South African understands the average Brit exceptionally well,” he said, “and if you are talking about a value proposition that’s what we are working on – making people understand how close that cultural affinity is.”

“We’ve explained to the market that cultural affinity aspect and we’ve explained to the market what we’ve got – we have very strong infrastructure, we have good people and we have a competitive cost structure – putting it all together it is becoming formidable.”

Improving Market Share

However, the South African success story has not only been based on these advantages but also on learning how to successfully market them. “We haven’t done a good job at selling ourselves in the past,” said Pritchard. That, he says, has now changed. “Over the last two years we have positioned ourselves better. We’ve explained to the market that cultural affinity aspect and we’ve explained to the market what we’ve got – we have very strong infrastructure, we have good people and we have a competitive cost structure – putting it all together it is becoming formidable.”

The outsourcing boom in South Africa has also been fuelled by strong government backing. The South African government made the BPO sector one of its top three priority sectors in its Industrial Policy Action Plan and has been promoting investment through aggressive incentives programs. “All the companies here should be able to survive without those incentives,” said Pritchard, “but they are making heads turn dramatically.”

With the latest incentive scheme launched in January 2011, Pritchard has predicted a further 20% drop in cost arbitrage, which had stood at 50-60% from source destinations. Current incentives include large grants for each offshore job created with bonuses if the company reaches 400 and 800 seats. “That is the one that is making people raise their eyebrows and say ‘well, why wouldn’t we be there?’” said Pritchard.

Keeping a Handle on Growth

However, such rapid growth can bring its own problems, especially in ensuring human capital development keeps pace with expansion. In a bid to avoid exhausting its human resources, the South African government has initiated a training program that has already trained several thousand people in entry-level skills as well as offering tax incentives to companies for training employees. Nevertheless, there have been serious shortages at the mid-management level – something Pritchard identifies as the single biggest limitation to continued growth.

Kobus Van Der Westhuizen is a senior vice president at leading global outsourcers Aegis and the head of its South African operation. After arriving in 2009, Aegis South Africa more than doubled in size in its first two years of operations and it currently employs approximately 2,000 people in 13 contact centers. In attempting to manage such quickfire growth, Van Der Westhuizen has found the labor shortages at management level have increasingly become an issue.

“When you grow this fast then skills are always a challenge and you have to invest a lot in education, training and development of skills in the sector – not just on entry level but on middle and senior management levels as well,” he said. “When you grow too fast then you get scarcity in those skills and your costs escalate.”

External Interference

According to BPO analysts Fifth Quadrant, South Africa could also find external pressures limiting its growth. As it moves away from the pack of emerging locations, South Africa will increasingly have to compete with the established outsourcing powerhouses of India and the Philippines while still fending off competition from other developing markets in China and Latin America.

However, for the moment the sector is projected to continue to grow at around 30% a year. Most of that business continues to be from the UK, which makes up 56% of South Africa’s current offshoring market. For Van Der Westhuizen, the reason for South Africa’s success in capturing so much of the British market is simple. “It is in the same time zone, there are overnight flights so you don’t lose working hours … [and] people growing up here they speak the same language, they watch the same sports, they have the same cultural alignments and affinities,” he said. “We are seen as Nearshore.”

If Latin America is going to capitalize on its Nearshore advantage in the same way, Van Der Westhuizeen believes it must find a balanced approach. “To be successful you have to get the supply and the demand right,” he said. “We had to work hard on getting the supply right on this side – specifically skills, technology, infrastructure, all of that had to mature and be developed – but now the demand is coming strong.”

By Robert L. Scheier

A recent study out of Duke University shows that American companies still prefer India, China and the Philippines to the Latin American Nearshore for IT infrastructure and application development and maintenance (ADM). The percentage of finance and accounting work done in Latin America rose from 10 percent in 2009 to 16 percent in 2011, with application development and maintenance (ADM) work rising from seven to 12 percent in the same period, according to the International Offshoring Research Network Project at Duke’s Fuqua School of Business.

And yet, the researchers found, the percent of ADM work done in Asia rose from 66 percent in 2009 to 70 percent in 2011. Among the reason for the preference for Asia (especially India), they say, are customer familiarity, the maturity of the IT and BPO industry. And China, which some predict may outpace India as the largest outsourcing provider in the world by 2020, already has 10 percent of America’s outsourcing business, the study found.

Another factor, as reported on Alsbridge’s Outsourcing Center, is that relocating to the nearshore or even back to the US is not free of cost or complications. It requires planning, management effort, possible disruption to operations (and other) transition costs, says Arie Lewin, a professor of strategy and director of Duke’s Center for International Business Education and Research.

Lewin also points out that the decision to outsource, and where to outsource, is being driven over time more by strategic concerns such as the need for innovation, or to move into a fast-growing developing market, than by cost savings alone. While it’s little surprise that India continues to be the home of choice for mature, well-understood disciplines such as application development and maintenance, Latin America can carve out specialties for itself in newer areas such as the development of mobile or social applications.

There’s no doubt, as we recently saw at the Sourcing Interest Group’s spring summit, that growth and innovation are key customer concerns as the global economy recovers. For customers looking to “transform” their organizations, the greatest concerns might not be where to outsource, but what specific skills and expertise a partner (wherever they are located) can provide.

The onus is thus on Nearshore governments to provide the appropriate training to their populations and to keep providing hopefully smart incentives to foreign as well as local start-ups. Just as important, Nearshore based service providers must keep moving up the value chain and differentiating themselves from their hungry Asian competitors. The current differentiators of location, language and cultural affinity will only go so far before the Nearshore must distinguish itself with value-added skills in area such as agile development, software testing or multimedia.

This article originally appeared on our sister site Global Delivery Report