Santiago: Sustained vertical drive.

By Dan Berthiaume

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

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

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

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

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

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

Latin American BPO Attracts India

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

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

Costa Rica, Colombia: Strong Potential

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

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

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

Brazil, Mexico, Argentina: Internal Risks

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

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

By Dan Berthiaume

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

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

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

Delivering BPO via Platform

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

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

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

End-to-End Process

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

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

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

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

By Reshaad Durgahee

Lima, Peru: Surprisingly emerging.

In the period 2003 through 2010, Europe and Asia were the largest recipient regions of foreign investment projects in shared services and BPO activities, accounting for 46% and 29% respectively. Meanwhile, interest in Latin America has clearly been growing. The number of shared services and BPO foreign investment projects in Latin America rose year on year until 2010, when the total number of projects entering the region decreased by 15%.

However, in terms of jobs created by these investment projects in shared services and BPO, 2010 saw the highest number in the Nearshore region since 2006, increasing by almost 10% over 2009.

After the Asia-Pacific region, Latin America is now seeing the largest-size centers being set up, and indeed, the region continues to be characterized by a number of labor-intensive shared-services projects, with on average 350 announced jobs per center in 2010.

General trends in announced shared services jobs by world region, 2003-2010

Typical destinations for shared-services establishments in Latin America, such as Colombia and Costa Rica, continued to lead the rankings in 2010, representing 22% and 14% of regional shared-services job announcements. Brazil and Argentina – as dominant markets in the region – also continue to attract their share of investments.

Top ranking SSC/BPO destinations in Latin America & the Caribbean by estimated jobs, 2003-2010

However, it is the emergence of newcomers in the rankings, such as Nicaragua and Peru, that piques the interest of the observer of the outsourcing industry. These two countries attracted large-scale investments in shared services, demonstrating the widening of investor confidence across the region. Companies are now seeing the potential of previously untapped labor markets. Countries such as Nicaragua and Peru offer companies that are willing to take risks a first-mover advantage in terms of potentially lower labor costs, lower levels of competition from similar operations, and the opportunity to become the major player in a new market.

This would be in contrast to already well established shared-services locations in the region, which offer a more experienced labor pool and potentially higher-quality level of infrastructure, but are also starting to experience side effects such as increased levels of competition and elevated attrition rates.

The Rise of the Second Tier

In 2010, leading agglomerations in Latin America in terms of job creation through foreign investment in shared services and BPO included Bogota, Lima, San José, Guadalajara, Managua, and Medellin, the first four of which make the Global Top 20 ranking. Examples of new investments include Sitel, which announced 450 jobs at its new contact center in Managua; National Instruments, which has announced the establishment of a shared service center in San José creating 200 jobs in CRM, finance, IT, and sales; and Convergys, which has established a bilingual contact center and back-office support site in Bogota, creating up to 1,000 jobs.

The appearance of Bogota and San José, as now-seasoned shared services destinations comes perhaps as no surprise. The Mexican city of Guadalajara and Colombia’s second city Medellin highlight the potential of such second-tier cities in the region to operate shared services at lower cost than their capital cities, whilst still maintaining suitable operating environments desired by investing companies. Recent investments include West Customer Management’s bilingual contact center in Guadalajara and HP in Medellin.

Function-wise, investment in this sector into Latin America has been focused on contact centers (primarily to serve the local market and Spain, but also increasingly bilingual centers to serve the United States). In addition, in recent years, more and more companies have seen the potential for more value-added shared services operations in the region’s more mature locations, where there are now multiple finance and IT shared services, for example.

Sources of Investment

By far and away the largest source country of foreign investment in shared services operations in Latin America is the United States, which between 2003 and 2010 accounted for more than half of the jobs created in the region in this activity, generating almost 70,000 positions. Although Europe and Asia remain the most popular regions for US companies setting up shared services and BPO operations, Latin America remains a key market, in particular for nearshoring activities due to factors including timezone advantages and natural availability of Spanish language skills.

Between 2003 and 2009 Spanish companies (such as Telefonica and Banco Santander) accounted for about 20% of jobs created in shared services and BPO in the region, solidifying Spain’s position as the second largest investing country in this sector in Latin America.

Top source countries for SSC/BPO foreign investment into Latin America & the Caribbean, 2003-2010

Much has been written on the rise and dominance of India as a destination for shared services and BPO, but it is also interesting to note the rise of India as a source of such activities. Globally, Indian companies created over 15,000 jobs in this sector in 2010, continuing the year-on-year growth witnessed since 2005, accounting for 12% of all jobs created worldwide by foreign investors in this sector. From a Latin American perspective, in 2010, Indian companies such as Wipro, Genpact, and 24/7 Customer created just over 10% of shared services and BPO-related jobs announced by foreign investors in the region – a 60% increase from the previous year. It all represents a move to get closer to customers in a new market, highlighting the rise of India as an outward investor in shared services and BPO activities.

Profusion of Possibilities

Latin America continues to succeed at offering attractive options for companies wishing to establish shared services and BPO activities, as demonstrated by the increasing number of jobs created in the sector from foreign companies in recent years. These options come not only in the form of mature, well-established destinations, but also up-and-coming locations that companies are now finding worth investigating for outsourcing activities.

That is not to say that the mature shared services locations of the region are in decline. On the contrary, mature locations such as Costa Rica, Colombia, Argentina, and Brazil continue to attract their fair share of investment. In today’s economic climate, many companies have become increasingly risk-averse, and are content with opting for tried-and-tested options in the region, where costs may be slightly higher but where there is an availability of highly experienced shared-services profiles to recruit from. On the other hand, emerging Nearshore destinations offer those companies willing to be pioneers the opportunity to tap into new sources of talent and at a lower cost base, resulting in these locations now appearing next to traditional shared services locations in our global rankings.

Latin America’s profusion of location possibilities – both mature and emerging – means that it continues to develop as a strategic region that companies are considering for their shared services and BPO operations. Be it North American firms using the region as a nearshoring solution, Spanish companies cementing their presence in countries with similar linguistic and cultural affinities, or companies from emerging countries such as India wishing to extend their global footprint and gain a foothold in a new market, Latin America is sure to remain “on radar” for companies for the foreseeable future.

Reshaad Durgahee is a Senior Consultant at IBM Global Business Services’ Plant Location International (PLI) division. More analysis of location trends is available by download here.

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 Patrick Haller

With 2012 in full-swing, a critical look at what lies ahead for Nearshoring  is in order. With a shaky global economy, and some forecasts calling for a sluggish year in IT and BPO sourcing, this is no time to be complacent.  Whether it’s building solid skill sets, creating sufficient scale, matching client’s expectations, managing expansion, or doing business amidst social change and myopic political theater, providers have a lot to confront. We tapped some of the leading experts in the Nearshoring space for their answer to the burning question: What is the single biggest challenge you think the Nearshore outsourcing industry faces in 2012?

David Rutchik

Partner, Pace Harmon, LLC

For outsourcing buyers, Nearshore vendors are often a better buy because of the typically touted travel, time zone, and language benefits, not necessarily the capabilities provided. As Nearshore economies become stronger and currency arbitrage becomes a challenge, Nearshore outsourcing vendors must build out their skill sets so they can stand on their own. For ITO they need to develop a greater breadth of capabilities, and for BPO they need to improve on both the depth and breadth of capabilities.

Anupam Govil

President/Partner, Avasense Inc./Avasant LLC

Globally, 2012 will be an interesting year for outsourcing as technological (cloud) and economic disruptions will shape the future of the industry. Gauging by recession-affected market sentiments, most companies are unlikely to tinker with their current outsourcing strategy (new contracts, change service locations, etc). This would in turn limit new expansion opportunities at a global level.

From a Nearshore point of view it will be a crucial year. While many providers have established significant presence in Latin America, the second stage of scaling-up looks challenging. The key reason for this is the lack of depth in service delivery maturity. Many companies in the region are finding it challenging to replicate quality, and lack maturity models as well as training programs that have been one of the successes in other offshore destinations.

It is imperative for the region to develop a strong mechanism to ensure constant flow of trained professionals and educate middle management on business aspects of remote service delivery (IT management, maturity models, IT security, client relationships, etc.). Some of the smarter providers have achieved this by cross-pollinating resources between their Nearshore and offshore locations.

Atul Vashistha

Chairman/CEO, Neo Group

I think the biggest challenge is the ability to show a value proposition beyond cost at scale. While one can show resources in many locations lower in cost than the USA, one needs to show capability at scale that can show better outcomes: quality and/or speed and/or greater ability to collaborate.

In the end, it’s about credibility.

Peter Ryan

Lead Analyst, Ovum

In my view, the single largest disruptor in the coming 12 months will be political/economic instability in the region. The year has not gotten off to a good start with Daniel Ortega hosting political pariahs Hugo Chavez and Iran’s Ahmadinejad in Managua for Ortega’s inauguration . The optics of this are beyond terrible in the US. Couple that with a Mexican election that no one knows how it will turn out in a country that is facing monumental problems around violence and uncertainty around Argentina’s economic direction, it is possible that American firms may look to other regions, or even domestically. for service delivery alternatives.

Dawn Tiura Evans

CEO, Sourcing Interests Group

The biggest challenge with Nearshore as a “destination,” in my opinion, is that it is truly “many destinations” with few overlapping commonalities, laws, and capabilities. My hope is that 2012 is the year of increased awareness of the issues facing Nearshore, resulting in the initiation of more government support for infrastructure, education, and legal reform. Until Nearshore can start converging as a single destination, it is going to struggle to gain the traction that India or China is capable of creating.

Eric Simonson

Managing Partner of Research, Everest Group

Nearshore outsourcing will face continued concerns about its security risk profile, which may be compounded by rhetoric from the US election cycle. The political spin will potentially heighten the criticism of Nearshore/offshore jobs. More fundamentally, we may see the US questioning its objectives and commitment to projecting itself beyond its own borders. Growth in Nearshoring is likely to face headwinds as uncertainty awaits around most corners.

Jeffrey Sheehan

Senior Vice President, Site Selection Group

To be fair when discussing Nearshoring, it should always be a two-part question:

1.Challenges/Concerns

2. Benefits/Opportunities

This may seem like a broken record regarding the challenges/concerns for Nearshoring, but this is what I believe:

To begin, many companies have gone beyond having concerns for Nearshoring and thus removing the challenge for the growth in Nearshoring. With that being said, we clearly are still seeing companies, when we discuss the opportunities of Nearshoring, having concerns in making a decision to be the pioneer as “they” see it, in making a jump to Nearshore. For many companies, countries such as the Dominican Republic, Costa Rica, and Guatemala are seen as making progress in building their base with a skilled workforce and such but still are a ways away from being ideal to some groups. Countries such as Bolivia and Venezuela are very touchy due to the political environment. With that being said, we are currently looking at sites for various clients in several Central American countries. For manufacturing groups, the economic numbers are too compelling, especially in Mexico; supply chain relief, speed to market, NAFTA, cultural affinity. The challenge for Mexico is simply safety. This has been compounded for the worse with the ongoing perception/reality of the violence….this is a HUGE challenge. The business benefits are great but the perception/reality of doing business there is one that needs to be changed; many companies will not take that risk.

Juan Manuel Gonzalez

Research Manager, Argentina Office & Enterprise Communications Industry Manager,

Frost & Sullivan

I think during 2012 the big challenge that Nearshore providers will face is the pressure from clients for consistent achievement of key performance indicators while keeping costs down, along with the ability to measure customer satisfaction and first-call resolution.

By Luke Bujarski

Sheltered services is an approach that has long been standard practice in the manufacturing industry, but now it’s becoming more of an option for customers of IT and BPO services too. Because of time zone alignment, the sheltered model can be particularly effective for customers of Nearshore providers – especially for North American customers of providers based in Mexico.

Sheltered services can remove much of the painstaking due diligence and commitment involved in setting up a captive center. Likewise, since the execution of core services and value creation rests with the buyer, substantial cost savings can be achieved. Those advantages make the sheltered option worth considering by small and medium-size enterprises (SMEs).

Offshoring often involves the multimillion-dollar question – whether it is better to outsource or to go it alone. Working with an outsourcing vendor can be less of a hassle, particularly in hard-to-maneuver and unfamiliar markets, but concerns over data security and operational excellence continue to push some enterprises to open their own captive centers. The sheltered services model is a third option: neither completely outsourced, nor completely captive.

This is the sheltered model in a nutshell: The buyer works with a partner on the ground that sorts out all or most of the things needed to get the operation up and running. This includes finding the right facility, getting the ICT connections, and most important, recruiting the right talent. From there, the buyer takes over and manages the team directly as it would any other department onsite, focusing on its core business. The difference between this arrangement and a captive operation is flexibility. As the needs of the buying organization change over time, the sheltered services provider works to adjust certain aspects of the operation, including the size of the office space, the number of staffers and their capabilities, and other needs.

Attractive for Smaller Businesses

The sheltered model is quite novel in the space of professional services. Nearshore operator Vangtel adopted the sheltered approach after seeing it in action in the manufacturing space. Opening its doors in 2006, Vangtel focuses on contact centers, IT and BPO services, and now coordinates close to 1,000 employees out of its facilities in Hermosillo, Puebla, and most recently Guadalajara.

“Our success has come thanks in part to the growth in the number of small to mid-sized companies getting turned on to the idea of offshoring,” says Arturo Rodriguez of Vangtel. The reason the sheltered model is so compatible with the SME market tier is ultimately cost and flexibility. Setting up a captive center is not cheap, and requires the kind of critical mass and commitment that most mid-size companies do not have. Likewise, going with one of the full-service outsourcing providers is also more expensive, because you’re paying for technical and operational expertise.

Working with a sheltered service provider (SSP) takes these two things out of the equation. It drastically reduces initial start-up costs, and it eliminates the brand-name premium that the larger multinational organizations typically pay for working with the bigger full-service providers.

The sheltered model can also be ideal for organizations that need scalability across different functions. Augmenting your team with five to ten junior .NET or Java developers at a cost savings of upwards of 50 percent is a strong value proposition. That same company can leverage the SSP to build out a customer contact operation capable of handling level-1 customer and tech support. A prime target for sheltered services might be a web development firm based out of the US that has about 200 clients.

Nearshore Suited for Sheltered Services

Because the sheltered route requires direct management of your offshore team (providers like Softtek and TCS do most of this work for you), being able to communicate and work in real-time is that much more important, particularly for certain functions. Customers that buy into the sheltered model do find themselves traveling to their offshore facilities more often, but with the rapid spread of videoconferencing technology the need to travel has been minimized. “Many of our clients hold daily videoconferences with their teams in Mexico,” says Rodriguez. That’s similar to what you would expect with agile software and web application development. That level of interaction would clearly fall short with a 12-hour time difference. Likewise, when travel is needed, catching a one-hour flight from Phoenix to Hermosillo beats an over-night flight to Bangalore.

Where the sheltered model might fall short is in its ability to deliver longer-run value through innovation, which might otherwise be harvested via continuity and critical mass. Since the different company teams in a sheltered facility work independently of each other, you don’t get a culture of optimization that you would see with a full-service provider, working across different customer needs. At least in theory, full-service providers keep all of their best practices in-house working from customer to customer, learning and applying new approaches as they move forward.

Similar to captive arrangements, the sheltered model tends to be a top-down process when it comes to process improvement. This might make it more suitable for organizations looking to supplement their teams with added savings from an offshore team, but not for larger enterprises looking for a long-term global delivery partner. However, innovation and value creation is not always what the buying organization expects. Sometimes the offshore journey is all about cost savings.

By Bill Huber

Forecasts for cloud computing range from predictions that it will be the great destroyer of outsourcing as we know it to calmer expectations that it will simply be another means of providing access to tools and data. Bill Huber of TPI recently interviewed Ramesh Gudalur, head of global BPO for Cognizant, and Paul Roehrig, director of strategy for Cloud Business Solutions for Cognizant, to get their assessment of the potential effects of the cloud on BPO solutions, and to find out how the cloud is affecting services today.

Bill Huber: As experts, how do you see the cloud having an impact on the way BPO services are delivered?

Paul Roehrig: Our belief is that cloud-based solutions are beginning to offer disruptive advantages when woven together with more traditional delivery models. Looking at services as “cloud” or “not cloud” might not be the best direction. Very few enterprise decision-makers are ready to suddenly throw everything into a cloud delivery model. Concerns about security, the ROI of cloud services, legacy applications, etc., will continue to keep decision-makers cautious about widespread sudden leaps to cloud services.

Nevertheless, cloud-enabled next-generation solutions can offer disruptive levels of productivity improvement and business enablement. We see its role as an innovator/integrator/guide to help users find the optimal balance of cloud enablement with traditional delivery methods.

Cloud enablement cuts across all lines of service from a horizontal and vertical business perspective. Increasingly, cloud providers are integrating offerings such as Software as a Service (SaaS), Infrastructure as a Service (IAAS), and consulting and analytic services along with BPO to deliver an end-to-end solution for key processes. The real “over-the-horizon” take on this is that next-generation deals are just beginning to emerge at the enterprise level. These deals demonstrate a new class of solution weaving together infrastructure, applications, and business process services, and deliver business outputs back to customers via more of a consumption-based billing model. These cloud-enabled, vertically aligned solutions require deep understanding of the business, and they leverage global service delivery and a robust alliances ecosystem to deliver value.

BH: What example can you use to illustrate how this is happening?

PR: We have some examples of these solutions in clinical data management and analytics as a service in Cognizant’s life sciences business, and several other service providers also have examples of these solutions, and industry analysts and advisory firms are indicating that these business process solutions are gaining traction.

Based on a foundation of cloud services and traditional capabilities from providers, customers have a new opportunity to create differentiation based on innovation leveraged into more progressive service offerings. These are the early days, but these are real solutions delivering real value today – not just slideware.

BH: How can cloud technology assist the outsourcing of vertical business processes?

Ramesh Gudalur: In vertical processes, there is a need to change processes to drive the next level of value. For example, in healthcare claims, new processes have been implemented to put multiple types of claims together and analyze them concurrently rather than in a sequential manner, driving a whole new level of business intelligence. As industry wrappers are created that can change processes, you actually achieve changes in the process available on the cloud that will affect multiple companies.

The result is the avoidance of significant reinvestment by clients. Buyers need to unbundle processes in a different way to drive increased value. They now have the opportunity to think about “Claims in a Box” solutions and to focus on the insights from analytics of the data rather than being a claims processor. This will help them to move from a claim-centered view of processing to an issue-based view of processing, driving higher fraud-impact identification and mitigation, for example.

BH: What should BPO clients do differently in going to market?

PR: There is an opportunity for advisors to help drive a new view of cloud-enabled business process services within their clients. Advisors can help clients understand the change to solution sets and offer new ways to take advantage of these emerging technology and commercial models. IT decision-makers are thinking differently about how to utilize technology. Those advisors who keep everything entirely templatized may put their customers at greater risk because value could remain locked in inefficient process and technology.

Cloud-enabled technology and commercial models can also provide benefits through business analytics and lowering run rates. To take advantage of this emerging trend, business and technology decision-makers should start by building a vision, not just slides, for next-generation sourcing solutions. It’s a great time to clarify and refine the true technology and business goals and then wrap the sourcing strategy around those goals.

Service providers and advisory firms are all positioning to help navigate new service models and business implications. Also, get smart about next-generation solutions. Pick less-critical functionality; storage, e-mail, platform-as-a-service (PaaS), and SaaS offerings seem to be the most common pilots, and get smarter about cloud services by trying them out. Then go search for true business solutions.

Bill Huber is a partner at TPI.

This article was originally published on BPO Outcomes.

Cliff Schertz: More maturity would help

By Dan Berthiaume

Latin America may not be the first region that comes to most people’s minds when they think of software testing, but Nearshore software development service providers are starting to offer a more sophisticated level of testing services. Cliff Schertz, CEO of Tiempo, a provider of software development and BPO services to US companies with development centers in Mexico, compares the maturity level of the testing market in Mexico to that of a “teenager.”

“Mexico’s software testing market is more mature than that in some developing areas like Vietnam, but is not on par with that in the more mature software development markets,” said Schertz. “For a lot of countries, the first initiative is to develop core software engineering talent. Behind that, they realize there is a big gap in testing capabilities.”

Schertz cautioned that software companies looking to outsource testing need to focus on providers who are also involved in broader software development activities. “If you’re just focused on (providers of) software testing, you won’t find mature resource capability,” he said, adding that in Mexico IT service providers are still building mature software development capabilities.

The Impact of Agile

According to Schertz, a general movement away from “waterfall” software development, where testing is performed separately from core development activities, and toward “agile” developemt, where testing and development resources are integrated into same team, bodes well for Nearshore testing providers.

“Testing while developing changes the necessary skillsets and how you go about testing,” said Schertz. “It highlights why the Nearshore model provides an advantage being close by. Proximity offers advantages not just in terms of time zone, but in traveling back and forth, since agile development often requires user involvement.”

As a result, Schertz said some US companies who outsource software development according to the waterfall method will send their core development activities to an overseas provider but send the testing to a Nearshore provider.

Schertz said one popular agile development method is known as “scrum,” with the name taken from the rugby term for the mass of players who huddles around the ball when the game needs to be restarted. “All the skillsets needed are at once huddled together, and you move the ball downfield in short bursts,” he said. “You turn the skillsets into self-organized and managed teams. According to Schertz, Tiempo has a standard two-week “sprint” development process where every two weeks the company delivers something to the client, including development and testing services.

Government, University Support Should Improve

Historically, Schertz said one obstacle to the development of a mature software testing market in Mexico has been the lack of support from the government and higher education in providing the proper training. However, he said this situation has been changing and should continue to improve in the future.

“The government and universities will continue to focus on capacity,” he said. “It’s an effort to turn raw material into trained technology talent. But if you look back, there were no programs in the universities, now there is more educational effort and a specialized curriculum. The improving base knowledge of testing will move more work into the region.”

By Marc Tanowitz

As outsourcing buyers use service levels to measure the performance of a provider, service level agreements (SLAs) are one of the buyer’s fundamental vendor-performance management activities. An SLA’s agreed-upon quantitative provider requirements establish the baseline performance levels and define the monetary credits or other remedies associated with a provider’s failure to meet the standards. The principal role of an SLA is to align buyer and provider objectives.

First Things First: Constructing a Relevant Service Level Portfolio

Developing an effective SLA starts with creating service levels that relate as closely as possible to the buyer’s key business imperatives. After determining those imperatives, the buyer can effectively construct individual service levels.

Here are a few tips on setting truly relevant service levels:

• Service levels should focus the provider on understanding and meeting the buyer’s desired business outcomes.

• Service level design should be driven by requirements, not data. Just because a parameter is easily measured doesn’t make it suitable as a service level, and relating provider performance to its impact on the buyer’s business is more relevant than focusing on commodity transaction counts.

• An ideal set of service levels should be both collectively exhaustive – meaning a provider cannot fail to meet expectations without failing to meet at least one service level – and mutually exclusive, meaning no two SLAs measure different aspects of the same symptom.

• In general, eight to 10 service levels should be sufficient to align the overall goals of the buyer and the provider.

Keep the Structure Flexible

When initially designing an SLA framework, the buyer should keep its structure flexible enough to be substituted with alternative metrics as their needs change, especially in the case of broad, complex, and/or long-term service relationships. These metrics should include key performance indicators (KPIs), which are additional meaningful metrics not initially considered as critical as service levels. Each metric has a performance target but no associated credit, although credits may be implemented for missing an aggregate number of KPIs.

In addition, alternative metrics should include reports, metrics against which the provider is required to report to inform of potential issues, but which carry no explicit performance targets or credits/remedies. The circumstances under which a buyer can exchange SLAs and KPIs should be defined, such as a cap on the number of exchanges per year and the automatic promotion of KPIs to service levels if a provider fails to meet the prescribed performance a certain number of times in a specific period.

Building Individual Service Levels

Once the service level portfolio is defined, focus shifts to making individual service levels measurable and relevant. The effort expended to define and implement high-quality service levels will be repaid many times through the contract period.

Following are three key pointers on how buyers can properly construct individual service levels:

1. Take time to ensure the service levels are as unambiguous and quantitative as possible. While “user satisfaction” might seem to be the ultimate expression of a desired business outcome, the details of implementation typically make it meaningless in practice. With sufficient effort, the buyer can generally define what “user satisfaction” really means and convert that to measurable parameters, such as responsiveness or availability.

2. Do not be bound by convention in making service levels closely reflect the user experience across the entire scope of the provider’s responsibilities. For example, SaaS vendors (to the extent that they offer SLAs) will typically measure availability, response time, etc., from within their data centers. This methodology excludes the performance of the provider’s Internet connection, routers, and security/VPN termination infrastructure.

3. To minimize ambiguity, include the following components: Short name reference (for manageability and ease of reference), a full definition (description of the measurement, points of demarcation), measurement parameters (data sources and data fields used, frequency of measurement), calculation (calculation frequency, averaging approach used ‐ preferably in form of a formula), required performance from the provider, and specific exceptions/exclusions (beyond broad exclusions dealt with in the master agreement such as Force Majeure), with performance excused only to the extent affected by, and only for the duration of, the exception circumstance.

Provided by Pace Harmon

In BPO agreements where services are often labor-based, service levels relating to the timeliness (productivity) or quality (data entry accuracy) of execution provide meaningful measures of delivery performance.

Marc Tanowitz is a principal at outsourcing advisory firm Pace Harmon.

This article was originally published on BPO Outcomes

By Clay Browne

Once a sleepy backwater of Central America, and known more for its beautiful beaches than the strength of its economy, English-speaking Belize is beginning to spring to life as a 21st century outsourcing destination.

Belize’s economy has long been dependent on agriculture, but tourism has grown significantly over the last couple of decades to become the largest foreign exchange earner in the country. The BPO industry in Belize is still quite young.  Yet there are clear signs that private industry and public agencies are seriously examining how to create the right ecosystem to foster long term growth.

The call center industry is, not surprisingly, where the action is for Belize. The country employs an estimated 1,500 agents, mostly around Belize City and Belmopan (about 90 minutes from Belize City). Maturity of operations spans from the basic, commodity-driven service provider like Ready Call (among its clients is the notoriously hard driving TracFone) to the more feature rich and high-touch operator like Transparent (described below).

One of the biggest hurdles the country faces is its tumultuous ICT environment where the local telecom player – Belize Telemedia – has been reclaimed by the government after a bruising battle with the former chief investor, and behind the scenes financier,  Lord Micheal Ashcroft . (Much has been written about Ashcroft’s complicated relationship and financial influence in Belize, including this piece in The Guardian.) Critics argue that Belize Telemedia (BTL) has behaved like a predatory monopoly player, shutting out competitors and offering little in the way of ICT innovation.

Upon arriving in office two years ago, Prime Minister Dean Barrow decided enough was enough and took action against BTL, which has resulted in the carrier being nationalized. Despite this change, true telecom service liberalization has yet to occur. Recently an agreement was reached to enable ‘rationalized Bandwidth pricing ‘ to be provided to BPO operators in Belize – substantially reducing service fees.

Belize is one of the most sparsely populated countries in Latin America, with a population of around 350,000. Around one-fifth of the population, upwards of 60,000 people, live in the capital Belize City.

Belize has a reasonably good public school system, with functional literacy estimated to be around 75 percent for the country and above 80 percent in the urban areas. Belize has never had much of an industrial base, so the work force has traditionally been focused on service industries. Belize City has developed an above-average infrastructure over the last decade or two, including reliable Internet and cell phone service throughout the area.

The IT outsourcing industry is just in its infancy in Belize, but BPO companies report that there is already a good supply of entry-level software developers available.

“We are pleased that several local investors have expressed interest in developing Data Parks…our Government is willing to offer attractive incentives to those willing to invest in these facilities” – Prime Minister Dean Barrow

Call Centered

Call centers are by far the largest sector of Belize’s BPO industry, with five operations of varying sizes underway and several more in the exploratory or planning stages. Ready Call opened the first call center in Belize in 2005, and there will be at least ten call centers operations in Belize by the end of 2012. The large pool of native English speaking potential employees is obviously a big plus, and the relative stability and increasingly business-friendly climate of Belize are also attracting attention.

The Belize Trade and Investment Development Service (Beltraide) is a governmental organization founded in 2000 to foster business development and encourage investment in Belize. Malcolm Sobers, a BPO/ITES & Financial Services Industry Specialist for Beltraide, is an eloquent spokesman for the organization who points out how a wide range of recent changes in Belize have made it much easier for call center operations to do business in the country.

“We have undergone a restructuring of Beltraide and have developed a specific division that is focusing on ITES (Information Technology Enabled Services). The BPO industry, along with other services, falls under that umbrella,” Prime Minister Barrow told Nearshore Americas’ Kirk Laughlin, during a recent visit to Belize.

Mr. Barrow went on to say that one of his biggest concerns is the lack of available facilities. “We have been working with many building owners that have empty space, but only some are adequate for housing large numbers of workers,” he said. “We are pleased that several local investors have expressed interest in developing Data Parks…our Government is willing to offer attractive incentives to those willing to invest in these facilities. ”

Also on the plus side, the country has recently liberalized its labor laws. Beltraide, has also launched a BPO Certification Program with support from the Ministry of Education. This program teaches Belizeans the basic technical and customer service skills they need to work in call centers. The initial 80-hour pilot training program was very well received and graduated 160 ready to work employees in just a couple of months, and the full-scale program is expected to produce a minimum of 1500 trainees in 2012. Beltraide works directly with the individual call center companies to provide them with a trained labor pool for their current and future needs.

Sobers also emphasized the financial and tax benefits to doing business in Belize. “Belize does not tax corporate profits on the national or local level, and our laws allow 100 percent repatriation of profits as well as allowing businesses to establish local bank accounts in US dollars.”

Transparent BPO

Scott Newman, CEO of Transparent BPO, is unabashedly enthusiastic about Belize as a place to do business. Transparent BPO is headquartered in Baltimore, Maryland, but has all of its call center operations in Belize. Transparent BPO began with a small 30-seat call center in Belize City in 2009, moved up to a 110-seat operation in 2010 and is now doubling capacity again, with construction of a 220-seat call center underway.

Newman acknowledged that there were some significant issues to be ironed out when they first set up their operation, including a generally negative attitude about the call center industry.

“But the business climate for call centers has improved dramatically since we began,” he continues, “and Belize is a great place to do business today.” Newman credits the establishment of Beltraide as the watershed moment when both the bureaucratic barriers and the negative attitude toward the BPO industry started to break down.