Mark Trepanier, Managing Director, HR Practice Group

Change management was the hot topic last week at an EquaTerra roundtable that I had the privilege of hosting. I gleaned insights from largely experienced outsourcing buyers across a spectrum of functions (e.g. Finance, HR, IT and Procurement) and industries.   Our conversation evolved from change management into key success factors for implementing shared services that includes significant outsourcing of transaction processing.

Here are six key themes that I captured from our discussion:

1. Be deliberate in defining scope. Don’t force fit in what isn’t practical.
2. Collaborate with the provider—and expect the same back. “Throwing over the wall” is not going to work, particularly early in the relationship.
3. Leadership needs to be behind the initiative, and stay behind it.
4. Cross-functional integration is key. A finance change can’t be implemented without IT, IT will need HR’s help, and an HR transaction with have financial impacts.  Be proactive in knitting your organization together before beginning the journey.
5. Your culture and your provider’s culture will be different. Acknowledge and leverage that.
6. On communications, remember the multiple audiences.  Business leadership, middle management, impacted employees, non-impacted employees, will all have different perspectives and concerns.  Recognize and respond to those differences.

And as an aside, the venue, the Freedom Center in Cincinnati, OH is a very interesting museum that should be on your itinerary if you are traveling there.

For the latest from EquaTerra in HR, visit www.equaterra.com/hr.

For more on transition and implementation, EquaTerra offers these Library items:
Benchmarking Best Practices for Start-up Services Delivery Organizations: An SSON Interview with Rick Bertheaud
How to Minimize Risk During Transition
Limiting Risk in Global Sourcing Efforts
A Bad Transition is Like Going on Honeymoon and Fighting All the Time

Filed under: How to..., Process Transformation, Shared Services by EquaTerra
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Brian Walker, Managing Director, IT Consulting
Stan Lepeak, Managing Director, Global Research

If you are engaged in an outsourcing initiative and wondering if SaaS¹ (software as a service) sourcing model will work for you, here are five questions you should ask as you to begin the evaluation:

1. Does scope current cross multiple providers? Define a manageable and logical scope for private SaaS efforts. When identifying a target functional area, buyers should identify areas with the most straightforward and well-understood other-area integration requirements. If multiple providers are involved, SaaS may require a restructure of these relationships to free up stranded costs.
2. What is the cost of applications and underlying infrastructure? Although the data from a current infrastructure provider can show server utilization, it’s not always easy to tell which application is running on which physical box and the cost of each. Gather this information to determine the current cost structure.
3. Where are the savings opportunities?  At what cost to service? For example, if one application is running at three percent utilization and another at 12 percent, the opportunity for virtualization is clear. In addition to utilization efficiencies, consider ways to get better service from the contract. Can the service level agreements be more tightly defined? Can performance rewards better align services with desired outcomes?
4. What is the cost to achieve? While in some cases a buyer may choose to open up and restructure or rebid existing outsourcing contracts into a single private SaaS engagement, the preferred approach will more likely involve incremental consolidation over time, coupled with outsourcing additional work to the private SaaS provider. Re-contracting and transition efforts, especially in an outright termination scenario, have potentially significant risks and overhead that buyers must factor in and work to minimize. How fast to proceed depends in part on the maturity of the current contract and the savings potential.
5. How will you define success? Finally, to realize the full potential of the new sourcing arrangement, take care to do it right. Buyers must align the efforts with an overarching IT strategy that defines the objectives and priorities for re-contracting. They must consider the standards for integrating multiple SaaS environments – both public and private – while meeting security and operational requirements. And, as with any outsourcing arrangement, they must carefully evaluate the cultural fit of the potential service provider.

For more on the topic of SaaS and how to identify and eliminate excess costs, read “Private SaaS: A Model for Restructuring IT Outsourcing to Eliminate Stranded Costs.” For a primer on cloud computing please review the EquaTerra article: Cutting Through the Fog: What You Should Know about Cloud Computing and How to Get Started.

¹ Software as a Services (SaaS): On demand applications provided through an Internet browser, eliminating the need to install, run and maintain programs on internal systems.

Filed under: How to..., Information Technology (IT), Outsourcing by EquaTerra
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Michele Gentry and Robert Jacobs, Project Directors

If you are reading this, you may have decided it is time to take knowledge management (KM) seriously. Perhaps you have seen the effects of lost knowledge and are working from lessons learned. Or maybe you are a visionary who understands there is no time like the present to get things underway. So how do you begin establishing your KM strategy? EquaTerra recommends these essential steps.

1. Clearly understand what a knowledge lifecycle includes. Articulate your vision and the importance it has on your strategic business objectives to your knowledge stakeholders. Then, compose a team and insure the proper level of sponsorship and attention.

2. Establish a timeline. Determine how much time you want to dedicate to the initiative in terms of lifecycle steps. Investment in the right resources is just as important as the investment in the right technology.

3. Identify a knowledge manager and project owner. Make sure the person serving as the knowledge manager clearly understands the mission and vision. If he or she is not a project manager by nature, enlist the help needed to stay on track.

4. Determine those within your organization today who maintain the largest repositories of intellectual capital. Keep in mind it might be tacit knowledge resulting from years of experience that would be lost if they left the company or a tragedy struck, or more tangible data maintained on hard drives or in file cabinets. How accessible is the information? How close to retirement are the people that possess it? It’s important to understand these factors when considering your approach to knowledge assimilation.

5. Identify what knowledge capture processes exist today. Sources to consider include web portals, collaboration sites like SharePoint, and helpdesk or call centers, either internal or external, that support your customers or employees. Other relevant sources may include HR, legal, communications and risk management departments. If knowledge is managed by a third-party provider, make sure it is transferrable in a format you are able to accept. Should the contract end, you will want to ensure you have all information at your fingertips.

6. Call on all business units and departments to determine and list the information most important to them, where it is housed, and how they would recommend extracting it to a common and secure repository.  For example, business units may seek out data associated with specific customer information, legal entities for information relative to articles of incorporation, policies, signed statements, minutes of previous board or steering committee meetings, or compiled research obtained or purchased on behalf of the organization. HR departments might seek research on insurance vendors  or past practices of the organization in terms of people care.  From an IT perspective, a helpdesk may look at the most frequently received requests or incidents and develop knowledge elements for analysts to expeditiously troubleshoot and resolve. A marketing department might look at the history of campaigns and their resulting successes. Your governing board may place importance on the historical information surrounding the founders of the organization. Your IT department might maintain data within your business continuity plan specific to systems and applications. Every department and business unit should be considered a stakeholder and offer suggestions as it relates to the work they do.

7. Vet and prioritize the suggestions. Then, determine what information is most relevant to the business and how best to assemble or extract it.

8. Label each knowledge artifact to ensure proper tracking. Include, at minimum, the source, current location, format, age and current owner.

9. Validate the information. It will be critical to your initiative that knowledge is evaluated for accuracy and applicability to the business environment. This is part of the overall lifecycle and, once established, will drive the evolution of knowledge over time.

10. Start the lifecycle and don’t forget to measure and report at the stakeholder and leadership levels on how knowledge is being captured as part of your strategic planning efforts. Track the number of defined and prioritized knowledge elements discovered through the preceding steps. Ensure accountability of all process stakeholders through regular communications on the effort and activities to date. Make the updates part of a regular governance review. Follow and trust the process.

As with all new initiatives, getting your knowledge lifecycle up and running will take time and commitment.  To learn more on this topic, read the related white paper, “Knowledge Management Makes a Comeback. A Knowledge Management Primer: What it is, How to Get Started, Manage it Going Forward and Calculate ROI.”

Filed under: How to..., Kowledge Management, Process Transformation by EquaTerra
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Bill Thomas, Executive Director, Europe & Asia Pacific

European buyers of IT services who participated in EquaTerra’s 2009-10 Service Provider Performance and Satisfaction Studies have cast their votes and declared that outsourcing is proving to be an increasingly popular tool, enabling businesses to effectively manage their IT operations by reducing costs, improving process quality and providing access to skills.

Evaluating 2000 outsourcing contracts with a minimum annual contract value of €1 million held by over 750 of the top IT spending organisations across Europe, the research results provide real insight into the European IT outsourcing market and clearly identify how specific service providers are performing in different areas, across various geographies.

Outsourcing buyers participating in this study were asked to score their satisfaction with their service providers’ performance across a range of key performance indicators. Headline conclusions are as follows:

• 84% of buyers are satisfied with their providers and 86% would recommend their providers to other buyers
• Penetration of outsourcing through buyers spend is increasing with 82% of buyers aiming to hold or increase their spend in outsourcing, 54% of buyers intending to probably or certainly outsource more, and only 10% intending to outsource less
• Drivers for outsourcing are clear:
  • 67% of buyers outsource to reduce costs
  • Access to skills drives 39% of buyers
  • Improving service levels drives 38% of buyers
  • And moving to flexible cost models drives 29% of buyers
• The industry is maturing with 73% of buyers now stating that outsourcing arrangements are delivering on the expected outcomes
• Fifty five percent (55%) of organisations are making use of offshored services, with the UK market the most active at 71%

So, in terms of market trends, the results tell a definite success story. Generally, most service providers are doing a good job, and outsourcing is delivering results — so much so that most buyers expect to at least continue outsourcing at their current rate or increase their levels of activity in the near future. But the results are certainly varied for the individual providers evaluated in the research.

Find out more:
Click here to view EquaTerra’s European Service Provider Performance & Satisfaction Report Management Summary.

Click here to learn about EquaTerra’s Research programs, including other Service Provider studies.

Filed under: Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra
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Stan Lepeak, Managing Director, Global Research

EquaTerra released today the 2Q10 edition of The Echo, a quarterly wrap-up and analysis of events and trends in the global business and information technology (IT) services markets. I excerpt  here some final thoughts on 2Q10 activity in the third-party business and IT services marketplace:

A growing question in the market for third-party business and IT services is whether the second straight quarter of unexpected slower growth is an aberration, a residual impact of the hangover from the bad economic times of 2008-2009, or the early signs of a more fundamental shift in buyer sourcing preferences. It is clear that long term SaaS and BPaaS models will lead to a permanent decline in the use of third-party systems integration and implementations services. To most involved – except larger providers of these services – this is a good thing given the mixed track record of under-fulfilled expectations and over-budget costs these efforts have entailed.

The situation with ITO and BPO is more complex. This market has for some time been moving beyond  the legacy model of taking over problematic buyer assets, processes and resources and hoping to improve them over time (“your mess for less”). Buyers “plugging into” standardized best practice service offerings from third-party providers (i.e., ADP payroll on a grander scale) has long been the industry mantra and is now becoming more often an industry reality. Cloud services, whether from upstart or legacy software and service providers, will further enable this. The ultimate winners on the provider side will be those firms that can combine the best of legacy software and outsourcing models with new capabilities enable via the cloud.

This is clearly a long-term proposition for providers and even more so for buyers. Larger buyer organizations have significant sunk costs in existing IT and business process systems and resources. Moving away from them to a cloud model is an incremental process that will often prove as painful as moving to commercial ERP platforms and global service delivery models. As with many things, the winners – or those organizations that can exploit new software and service delivery capabilities to the greatest extent – are those firms that excel at execution of a realistic, yet appropriately aggressive service delivery strategy. So while it’s exciting to ponder the future wonders of cloud computing, those buyers that are developing an overall strategy and are also in the weeds of when, where and how cloud services can truly create a competitive advantage are in the right place at this time in the evolutionary cycle.

Lastly, it stands to reason that buyers today are spending more time looking inward for the resources and skills to address their most pressing business problems. This is, however, a cyclical and short term phenomenon. It is a function of operating under more cautious and prudent market conditions and recognition that some of the sourcing efforts undertaken over the past few years are unpalatable in today’s more risk averse environment. Longer term, however, most western organizations are operating in an environment of scarce and expensive skills, aging workforces, rapidly advancing technologies and, perhaps most importantly, increasingly strong global competition. These collective market trends will continue to drive increased specialization and increased use of third-party services and supporting technology solutions, albeit ideally in ways that are easier to deploy and more successful in their usage.

For more from EquaTerra on market trends, read the 2Q 2010  EquaTerra Advisor and Service Provider Pulse Survey Results.

Filed under: Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra
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Paul Cornelisse, Managing Director Information Technology Advisory, The Netherlands

The recently published results of the 2010 Dutch Strategic Outsourcing Study investigated over 460 outsourcing contracts held by over 150 of the top IT spending organisations in the Netherlands. In addition to market trend analysis highlighted in my previous blog, service provider performance was assessed against nine key performance indicators which, in summary, comprised of: quality, price, risk, operational relationship, strategic relationship, innovation, flexibility, governance and transition.

For each outsourced process, survey participants (senior executives with influence over corporate and outsourcing strategy) also rated their general satisfaction with their service providers – a qualitative, yet critical point for analysing the success of the outsourcing relationship. Overall, respondents stated that they were satisfied with the service they are receiving from providers across each of the process areas considered: Application Management, Infrastructure Management and End User Management. Eighty-one percent of all participating organisations are satisfied with their service provider (in terms of general satisfaction) and 82 percent of buyers would recommend their service provider(s) to someone else.

Through this study we also found a significant positive correlation between the strategic importance of the outsourcing relationship and general satisfaction levels of clients. The trend was very clear – clients who viewed their relationship with their service providers as transactional typically had far lower levels of general satisfaction than those viewing the relationship as being strategic.

Incredibly, there were a number of service providers whose clients all gave a satisfied score (either very satisfied, satisfied or somewhat satisfied) – these were Centric, Cognizant, Infosys, TCS and Verizon Business. The top ranking service providers overall for general satisfaction are shown in the chart below.

To dig deeper into these findings take a look at the management summary or full report produced by EquaTerra. The management summary of the report is available on the EquaTerra website. To purchase the full report please contact Anton Joha: anton.joha@equaterra.com.
(The focus of this research is IT services outsourcing contracts with an annual value of more than €1 million)

Filed under: Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra
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Paul Cornelisse, Managing Director Information Technology Advisory, The Netherlands

Looking at market trends specifically, the results of The 2010 Dutch Strategic Outsourcing Study highlighted that outsourcing continues to increase in The Netherlands. Seventy-eight percent of all respondents involved in this study confirmed that they will continue to outsource at the same rate or more, with 58 percent saying they will ‘probably’ or ‘certainly’ outsource more (see chart below). This supports what our advisors are experiencing when working with organisations, in that the focus is on relatively small and short-term outsourcing deals which typically have cost-saving or quality improvement as a driver.

Dutch ITO Buyer Outsourcing Plans 2010

However, thirteen percent of organisations anticipated outsourcing less. This trend has held across all the European markets polled in the EquaTerra research programme and in our view is typical of a more mature outsourcing market, where companies re-evaluate their outsourcing strategy and may be considering insourcing specific operations and components.

Another market trend highlighted in the study is that Infrastructure Management (IM) is the most frequently outsourced area for 80 percent of study participants, followed by Application Management (AM) at 64 percent. Application Management is the biggest growth area, with 28 percent of the respondents answering that they have plans to outsource (more) AM.

The 2010 Dutch Strategic Outsourcing Study investigated over 460 outsourcing contracts held by over 150 of the top IT spending organisations in The Netherlands. The total annual value of the contracts included in this study was over €3 billion – accounting for more than two-thirds of the total Dutch outsourcing market in terms of annual contract value.

I invite you to view the management summary of the report on equaterra.com.  If you desire to purchase the full report, please contact Anton Joha at anton.joha@equaterra.com.
(The focus of this research is IT services outsourcing contracts with an annual value of more than €1 million).

Filed under: Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra
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EquaTerra results from its 2Q10 global Pulse survey released via a webcast held on Thursday, July 15th.

Deal flow for third-party business and ITO services remained choppy for the second quarter in a row according to EquaTerra advisors polled. While inherent outsourcing demand remains positive and is growing overall, many buyers remain cautious in their efforts, especially when it comes to making upfront investments and entering into complex deal arrangements. Buyers continue strenuous efforts to reduce operating costs and overhaul service delivery models, with internal process improvement and alternative delivery models like shared services gaining in importance as change agents. Cloud computing models, especially Software as a Service (SaaS), are generating significant interest among buyers both as a complement to and in lieu of traditional outsourcing; however, most buyers are still assessing cloud computing opportunities and defining overall strategies.

Business and IT service providers polled in the 2Q10 Pulse survey were less optimistic then they were last quarter on current and near-term demand for outsourcing. While overall market demand continues to grow, the time and effort it takes to close deals on favorable terms and conditions remains high. Improving existing contract profitability is challenging as is expanding scope with existing clients. Demand for non-outsourcing services like consulting and packaged software services remains weak for most providers. While all providers cite long-term opportunities to make money off buyers’ cloud computing initiatives, it is unclear which providers will benefit the most and how much these new revenue streams will offset declining traditional systems integration work and potentially the loss of some traditional outsourcing business.

The reasons cited by both service providers and EquaTerra advisors for this slowing in outsourcing demand growth are similar. Buyers are more carefully weighing all their options, including internal process improvement or doing nothing for the time being. More buyers are pushing for hard – and sometimes too hard – bargains from service providers, especially around pricing. Providers, sensitive to their own profitability and averse to taking on too risky deals or clients, are pushing back on these demands. In some cases buyers find they do not have serious provider competition for their business based on current desired terms and conditions. Most service providers indicate that growing business in existing accounts, where positive relationships already exist and capabilities have been proven, remains more preferable, lower risk and a higher priority in today’s market.

Uncertain economic conditions continue to impact buyers’ decision making processes (see figure below) especially in Western Europe. While there was hope that the global economic recession bottomed out in late 2Q09, recent economic turmoil in Europe, ongoing high unemployment levels, difficult debt situations for both consumers and countries, concerns over a slowing China economy, and stock market turmoil have cast doubt over the strength of the economic recovery in western countries and markets.

• The combined response levels for advisors and service providers show that 49 percent feel market conditions are driving more outsourcing. This level represents a slight increase from last quarter, but is lower than levels registered throughout most of 2009.
• Thirty-nine percent overall indicate that economic conditions are causing buyers to slow or rethink outsourcing decisions. This level is down one percent from last quarter, above the levels registered for most of 2009, and still more than ten percent lower than levels reported 4Q08-1Q09.
• Advisors and providers in Europe are more likely to cite that the economy is slowing outsourcing efforts and deal flow.

For a full analysis, download the full 2Q10 Pulse report.

Filed under: Information Technology (IT), Market Trends and News, Outsourcing by EquaTerra
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Mark Trepanier, Managing Director, Human Resources Advisory Services

According to the July 12, 2010 Wall Street Journal, “Hewitt Associates, Inc. (NYSE: HEW) announced today that the boards of directors of both companies have approved a definitive agreement under which Hewitt will merge with a subsidiary of Aon. The aggregate consideration is valued at $50 per Hewitt share, which represents a 41% premium to Hewitt’s closing stock price on July 9, 2010”. The Journal further said, “Following the close of the transaction, Aon intends to integrate Hewitt with its existing consulting and outsourcing operations (Aon Consulting) and operate the segment globally under the newly created Aon Hewitt brand. In addition, Russ Fradin, chairman and chief executive officer of Hewitt, will serve as chairman and chief executive officer of Aon Hewitt reporting to Greg Case, chief executive officer, Aon Corporation”.

As with any acquisition scenario, there are opportunities as well as challenges. Here’s EquaTerra’s take:

The good:

• Hewitt will be part of an organization that is three times as big
• The combination will clearly be a benefits powerhouse with both benefits outsourcing and consulting
• There will be strong focus on leveraging the combined consulting capabilities of Aon and Hewitt
• Russ Fradin has driven Hewitt forward,  and will continue to have a leadership role, so this is a “friendly” transaction

The bad:

• The transaction will not close for another four to five months, so uncertainty will continue
• Clients may not be able to get clear answers on technology spend and contract issues during this period

The unknown:

• Aon has an unsuccessful track record in HRO, and HRO will only be 11 percent of the combined businesses, so commitment to this business line is uncertain
• Will senior Hewitt leadership be with the new entity for the long term?
• Aon’s strategy of synergies and cost reductions makes Hewitt’s intended investment plan (mainly technology) in the HRO business uncertain
• Aon is the survivor and buyer. Its culture will be the dominant one. Does that fit well with Hewitt clients?

Net/net: Existing or new (before the transaction closes) Hewitt clients should speak with their Hewitt account leadership to gain clarity on the relationship going forward. Many clients will have an opportunity to ensure commitments through their contractual consent/change in control provisions.

Looking for more? Read Service Provider M&A – Change of Control Doesn’t Have to Mean Loss of Control and the Chicago Tribune coverage of the acquisition.

Filed under: Human Resources, Market Trends and News, Outsourcing by EquaTerra
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Carl-Henrik Hallström, Regional Director, The Nordic Region

I recently hosted a global sourcing event attended by over 40 leading Nordic organisations and was overwhelmed by the enthusiasm for global sourcing as a business tool. Hot topics of discussion included how best to manage global sourcing contracts, how to secure the best rates and how to realise the full potential of sourcing services from a range of locations – Application Management and Infrastructure Management are often the processes which are outsourced from the Nordics, and India seems to still be the leading destination of choice for these services.

There was a lively discussion and the attendees were well placed to get very practical answers from EquaTerra advisors, service providers and fellow guests who were keen to share their own experiences and solutions.

What I found most pleasing about the very ‘hands on’ experience of the attendees representing end-user organisations is that it clearly illustrated that global sourcing is no longer viewed in the Nordic region as a mysterious and magical process to reduce costs, access skills and increase efficiency, but a proven and pragmatic strategy to help deliver those business objectives. The trend is clearly for greater investment in global sourcing from the Nordic region – a fact also supported by the findings of our latest Nordic Service Provider Performance Study.

Filed under: Market Trends and News, Outsourcing by EquaTerra
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