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Global Services Digital Magazine - January Issue


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Virtualization and cloud computing has brought utility back into the discussion though neither of them are a precondition for a utility-based model of IT delivery.

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Global Services Digital Magazine - January Issue

  1. 1. Global ServiceS A CYBERMEDIA PuBlICAtIonAn integrated media platform which connects thevarious constituents of the global technology and Pradeep Gupta Chairman & Managing Director business processing services industry ecosystem. Cyber Media (India) Ltd. E. Abraham MathewDirectory of ServiceS President Ed nairNewSletter EditorA regular digest of key industry happenings. Satish GuptaDiGital MaGaziNe Associate Vice PresidentThe fortnightly digital magazine features research, articles and experts’ views. Available on Smriti Sruthi RamakrishnanwebiNarS Services’ web-based seminars aim to impart niketa Chauhanuseful information related to outsourcing indus- in the form of presentations and discussions Virendra Kumarby industry specialists. offICESWe deliver indepth analysis and research reports Global Services Media llC.on sourcing subjects. 806 Green Hollow Drive, Iselin, NJ 08830 T: 678-665-6005MicroSiteS Global ServicesOnline resource center designed to provide Cyber Media (India) Ltd.focused content on special subjects to the out- CyberHouse, B- 35, Sector 32sourcing community. Gurgaon-122001, India Tel: +911 24 4822222eveNtS Fax: +911 24 2380694 Contact:From multi-day, high-level, resort conferences to breakfast discussions we offer a numberof opportunities that connects the outsourcing Disclaimercommunity. All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher.cUStoM ProGraMCustomized services rendered through different letterS to the eDitormedia platforms. Send letters to, or to any of our writers. We reserve the right to editoSoUrce booK all letters. Postings submitted to our blogs andA directory of global outsourcing service providers. letters to the editor may be published in digital magazine or Website. 3 GlobalServices January 2011
  2. 2. January 2011 volume 2, issue 2 featUreS 10 UTILITy COMPUTING: THE REALITy CHECk by Ed Nair Virtualization and cloud computing has brought utility back into the discussion though neither of them are a precondition for a utility-based model of IT delivery8 18 xperts EMERGING FROM THE EyE OF THE ENGINEERING SERVICES - AN STORM, WAkING UP TO CHANGED OUTSOURCING EVOLUTION RULES by runa Mookerjee, analyst, ValueNotes Sourcing by Sruthi ramakrishnan Practice The main challenge the MPO (mortgage process outsourcing) An increasingly competitive market for engineering services has industry faces today is the changed environment it finds itself in made outsourcing indispensable to the industry, more so follow- ing the downturn16 20 THE NExT STAGE a NEW rolE For BENchMarkS IN MANAGED PRINT by Max Staines, President of North america, SERVICES IS HERE compass Management consultingn by Sruthi ramakrishnan Traditionally a bargaining tool for clients to set pricing targets for Managed print services and IT- BPO proc- service providers, outsourcing benchmarks are increasingly being esses traditionally stood at different ends of used to collaboratively drive transformational initiatives. the services spectrum. Not anymore. 22 GloBAl SERVICES lIVE! FiNaNcE aNd accouNtiNG SolutioNS 23 MESSaGE MiGratioN aNd MaNaGEMENt 25 client: coca-cola Enterprises Provider: capgemini client: a Fortune 100 company Provider: Microland limited ‘liFt & ShiFt’ MiGratioN 24 StrEaMliNiNG oPEratioNal WorkFloW 26 client: owens & Minor Provider: dell Services client: Metlife Provider: ci&t4 GlobalServices January 2011
  3. 3. Global Services LIVE! Q1, 2011 EDITION Releasing March 2011 Case studies are invited from service providers.For more details click here or contact Satish Gupta at
  4. 4. Editor’S NotE Dawn of a New Decade F irst things first, let me point towards two articles in this issue that deal with significant shifts in IT and BPO. Utility computing used to be one of those buzzwords thrown around in the IT circles a few years ago. It was supposed to be a game changer on the IT infrastructure delivery side (which it is), but the IT world got swayed by other developments like service-oriented architecture, virtuali- zation, and business process management. years later we are once again at a point where virtualization, SaaS, IT standards, managed services model, and cloud have come together to change the way IT infrastructure serv- ices are delivered. This has renewed the interest in standards-based utility model where the pricing is based on consumption of services. Ed Nair In this issue, we take a reality check on where utility computing stands today. One key message is that it is not about technology or the sourcing Editor model; rather it is about the behavioral changes needed (on the client side) and the realization that revenue per client would decrease but mar- gins would increase (on the provider side). As we look back Another exciting trend we examine in this issue is about the evolution to the decade and convergence of MPS (managed print services) into broader IT serv- ices and BPO markets. This has implications for many document-driven that went by, the industries like mortgage, insurance, healthcare, and others. The articleoutsourcing industry traces the antecedents of this trend, explains the realignment of serviceor the global services providers, and presents the possible dynamics of this convergence and its impact on the industry. industry had many momentous shifts As we look back to the decade that went by, the outsourcing industry or the global services industry had many momentous shifts. The transi- tion from the previous decade was marked by the culmination of a fren- zied programming effort called y2k, the shift into developing e-business applications, and the boom in call centers in India and the Philippines. We are once again at the start of a new decade. The transition this time is marked by mature global delivery, the promise of the cloud, the convergence of IT and BPO, the quest for transformation, and the clear recognition of global sourcing as a strategic lever. Wish everyone a great and rocking year 2011! GS7 GlobalServices January 2011
  5. 5. industry- specific Processes Emerging from the Eye of the Storm, Waking Up to Changed RulesThe main challenge the MPO (mortgage process outsourcing)industry faces today is the changed environment it finds itself inby Sruthi ramakrishnanM ortgage processing was one of the verticals directly affected by the economic collapse in the US. Now that the economy seems to be on the path of recovery, this industry toois attempting to find its feet. But the main challenge faced by the industry is thechanged environment it finds itself in -- one of increasedregulation and caution, not to mention the general para-noia that the economy might slip into recession again. AsTaylor Woods, president and CEO, Genpact MortgageServices, puts it, “ The post- recession period saw a bit ofoverreaction to the type of lending that was seen, and thatcreated a very difficult environment for people to borrow,versus what we’d seen in the run-up where everybodycould get loans. As a result of the fewer eligible people inthat space, it resulted in lower (origination) volume.” Taylor WoodsChanges Wrought by the Crisis President and CEO, Genpactkeshav R. Murugesh, Group CEO, WNS Global Services, Mortgage Servicessees two major changes in mortgage processing since reces-sion began. One, changes in the appraisal process that wasmuch abused in the pre- recession time, and second, the value caused significant pricing stress that quickly began torigor around verifying earnings, debt ratio calculations affect the entire market,” he says.and sub-prime mortgages. “Historically household income “Much stricter rules have been brought into play toreported on mortgage applications were checked with a prevent a reoccurrence. To correct the inflationary apprais-reasonable amount of rigor. But in the early 2000s, with al scam, strict regulations have now been enforced on howthe value of real estate climbing steadily, the rigor was often a house can be appraised and also many strict guide-loosened in favor of faster processing. This lack of rigor led lines and review processes have been put in place. Theto many families taking on too much debt backed by hous- increase in processing rigor has had an effect on the MPOing that dropped in value once the bubble burst. With a market, requiring better training of processors, significantnumber of families overextended, a small drop in housing increase in quality reviews, and financial penalties if proper controls and reviews are ignored.”8 GlobalServices January 2011
  6. 6. industry- specific ProcessesBack in Business about for now. “Due to the recession and the number ofA MarketsandMarkets report ‘Post Crisis Changes in mortgage companies that closed down entirely, I think theMortgage Lending in U.S. - Forecast & Analysis 2010- amount of work being offshored went down dramatically,”2015 ‘ says that currently, conventional fixed rates are says Woods. “But the pressure around costs is very their lowest in decades, with pricing of 30-year and More work is starting to be offshored and we are seeing a15-year fixed-rate mortgage at its lowest. Such low rates are recovery now.”generating significant refinance activity in the housing sec-tor. Refinance in 2009 increased by approximately 78% to Strong Opportunities, New Investments$1,364 B, indicating that borrowers have been responding Companies are looking at the new opportunities presentedto low mortgage rates. by the changed industry scenario. “Firstly, there continues Genpact saw its business pick up the same year. “In to be strong opportunity for mortgage origination and2009, the market sort of stabilized in volume and activity within that, the strongest components seem to be areas likestarted increasing,” says Woods. “Those outsourcing part- underwriting, processing and even sales. The loan officer orners who were able to survive during the downturn for the origination activity- these are the highly skilled elementslast couple of years were able to pick up business”. of the origination process that are in really high demand,” The various mortgage modification programmes says Woods. “Number two, there is very significant pres-(Countrywide, Making Home Affordable Program con- sure on existing portfolio, existing investments in realsisting of HAMP and HARP) estate. The demand comes from— started to help borrowers pay the number of people strug-back their mortgages through There have been two major gling to make their mortgageloan modification, provided payments.”they met certain criteria— have changes in mortgage process-also, to some extent, helped ing since recession began- one, Genpact expects its invest-third party providers garner ments in technology over thebusiness. “The government is in the appraisal process which past couple of years to pay offrunning its programmes pri- was much abused in the pre- now. “We invested in two majormarily through Fanny Mae and ways. First, we have a propri-Freddie Mac. Through these recession time, and second, in etary platform within our origi-two entities there’s tremendouswork that is being outsourced the rigor around verifying earn- nation offering. In our platform we have tremendous amountprimarily through components ings, debt ratio calculations of pipeline management, work-serving individual companies to flow management and automat-provide very specific services, and sub-prime mortgages. ed communication. Secondly,much of which have been along we made an investment early inloan modification and mortgage 2010 for automation of proc-origination,” says Woods. esses that takes the processing time down. Our investment allowed us to gain a very strong additional market activityNot a Cakewalk and also loan origination that we are taking into the nextBut such programmes have also run into rough weather, decade,” says Woods.with allegations, among others, of mistakes in the review WNS looks to grow by utilizing its “collective knowl-process of foreclosures. This had led some accusing fingers edge that is transferrable across WNS clients” and “pro-to point at third party servicers, but the latter are unper- viding cost margins that can only be realized by using anturbed. “Those who are negative on outsourcing may experienced and trusted MPO provider” which wouldattempt to blame an MPO for the issues that have been help offset the pricing and margin pressures that occur inencountered in the processing of mortgage origination a down market.documents. In reality MPOs like ours carefully follow So while the third- party MP servicers are hoping forregulatory and client policies and procedures. It is always some sunshine after the recession storm, how they will farepossible for a human error to occur, but that is true of any in the coming year is linked to the fate of the mortgageprocess, business or industry,” says Murugesh. industry. GS The US government’s anti-outsourcing stance,which could potentially affect offshore servicers, is alsosomething they are not choosing to worry too much9 GlobalServices January 2011
  7. 7. Special report Utility computing: the reality check
  8. 8. Special report Utility computing: the reality checkutility computing: the reality check Max Staines, in a chat with Ed Nair makes the case for utility computing
  9. 9. Special report Utility computing: the reality check Utility Computing: The Reality CheckThe concept of utility computing is not new. In the first phase, it failed to becomemainstream. Virtualization and cloud computing has brought utility back into thediscussion though neither of them are a precondition for a utility-based modelof IT delivery. On the other side, from the sourcing world, managed services ofvarious types rose to maturity and popularity and it contained some flavors of utilitycomputing. But we learn here that utility computing is sourcing agnostic.Regardless, by whatever name you call it, IT delivery is increasingly moving towardsa multi-tenant, consumption-based, standardized services model. Like a utility. So let’sonce again call it utility computing.Max Staines, President-North America, Compass Management Consulting (recentlyacquired by ISG which also owns sourcing advisory company, TPI) advises leadingorganizations on performance management and benchmarking of service providersand brings in unique insights into the value creation process in service delivery. Here,in a chat with Ed Nair, Max Staines makes the case for utility computing and revealsthe nature of its evolving dynamics.G S: What’s the case now for utility comput- its requirements as follows: access to desktop resources ing? for 10,000 users, from between 9:00 a.m. and 5:00 p.m. MS: Traditional improvement initiatives drive Eastern. Under this approach, importantly, the client pays incremental efficiency gains within the exist- only for those resources that are actually used. Managinging operational environment, typically resulting in savings the infrastructure to deliver those resources is left to theof between 10 percent and 20 percent. A transformational internal or external IT service provider.approach to improvement establishes a new, optimized ITdelivery model that fully leverages the benefits of stand- GS: What’s your best argument about utilityardization and utility computing, often yielding overall computing?cost savings of up to 40 percent. MS: It is my opinion that the largest component of a prop- Regardless of your business, 90 percent of your IT is erly structured utility-based compute model of standardstandard and common. Once an organization recognizes service offerings is that technology capabilities are not thethat most of its IT requirements can be addressed through only drivers in making the dreams of utility consumptionstandard services, it can develop and implement appropri- based computing services come true. Rather it is the abil-ately tensioned pricing mechanisms that create incentives ity for IT provisioner (in-house or outsourced does notto drive standardization and increased efficiency. matter) to have a very pragmatic conversation with their For the rest of 10 percent, by identifying the cost of customers about behavior, about proper demand manage-specialization, the business can make value-based decisions ment, about educated demand management. These discus-and support comprehensive demand management. sions are based on clear and well- articulated understand- The important point here is the recognition by ing of what is cost and what value is derived from variousbusiness that defining IT requirements in consump- kinds of service delivery.tion-based, utilitarian terms yields a critical competitive As such, utility computing is less a technical innova-advantage. tion than it is a reflection of a maturing marketplace that For example, rather than managing the TCO of produces more effective commercial agreements for the10,000 desktops, a client organization can now define delivery of services.12 GlobalServices January 2011
  10. 10. Special report Utility computing: the reality checkGS: How far does the buyer community or could easily consider it to be ‘commodity’.the provider community understand this? The rest need special attention.How much of the former’s understanding This generic, one-size-fits-all approachis colored by the latter’s tall promises? to service delivery is becoming increas-MS: It is like once bitten twice shy. Service ingly viable, thanks to growing businessvendors need to know and accept that rev- acceptance of the proposition that up toenue per client is likely to go down. But, 90 percent of the IT requirements of mostwhat they get in return is margin control organizations can be addressed throughand they are willing to take less revenue if it standardized services. In other words,means they can control margin. They’re will- while a bank’s activities are obviously verying to do so for a number of reasons. One different from the activities of a retailof which is that they believe that if they can manufacturer, the basic IT functional-start to get people to standardize, and yes, ity that each business requires to supportcharge less for it, then they can attract more critical processes and systems is largelyclients on to that virtualized state of IT identical.infrastructure. That’s a key point in the There is bound to be a real paradigmoutsourcing view of this. “As standardized shift; you will have historic premiums. When it comes to the internal view,the most progressive IT operations - the service deliv- There will be initially a barrier to get to a truly standard utility based model.ones who already have a better than ery continues to As time goes, those historic hurdles willaverage relationship with their business be out. The mind set shift will start tocustomers - are the ones who are going to grow, key sourc- take hold. At a conference in Octoberhave an easier time taking it further. ing decisions will , a group of vendors were talking about Clients who have implemented a well their ability to deliver their services on adefined catalog of services are going to be be around how consumption model and they were evenable to take the next step of removing the best to drive willing, in right commercial circum-constraints. There needs to be a discus- stances, to have virtually no contract—sion about demarcating who does what or standardization which means pay-as-you-play and opt-who is responsible for what (between the and utility-based in and opt-out as you wish. If they arevendor and the client). It is going to be going to do that kind of a model, thena tough decision in some cases, because consumption of IT they are going to have to have an eco-some business units through the hard as extensively as nomic base of a very large estate whereknocks that they have gone through with they can leverage enough. So, invest-their IT provisioners (even internal), are possible.” ments are being made in setting up thatused to having a quite a bit of say. kind of estate to let people come in, Now, if you can have a discussion that plug in, plug out. That’s another shiftsays are you sure you need that or are you Max Staines happening, another enabler.sure you can’t let us do that for you ormake those decisions for you, so that we President-North GS: When you approach an organiza-can standardize across the much broader America, Compass tion with this idea of utility-basedset of IT assets – application infrastruc-ture so on- to get the cost of producing it Management computing services, how do they gen- erally respond? How does one preparedown. If you can make that business case, Consulting to start with utility computing?that’s the decision those CIOs and CFOs MS: The very first thing you need towant to happen, that’s for sure. do is to understand how ready you are. That gives you an indication howGS: What are some of those sub-trends far you need to travel. Also, that givesthat are making utility computing a real possibility? you an indication of what kind of investment it’s going toMS: Governance tools are making it possible, as well ana- take and if you can also model what the future could looklytical agents are making it possible to properly understand like, then you can start to lay out proper business case forconsumption in a meaningful way. There is a new mindset change. So, you need to take a very well structured look atthat 90% of what is accomplished in the IT shop, you how you deliver currently. Ask questions such as what’s in13 GlobalServices January 2011
  11. 11. Special report Utility computing: the reality checkthe IT group, what are the activities and what are the costs, to drive standardization and utility-based consumption ofwhat’s the value contribution to the business, and such. IT as extensively as possible. In some cases, outsourcing The other thing you need to do is to take a model will be preferable. In others, where, for example, in-houseof standard IT services, take a well functioning model of incident management capabilities are more mature thanIT services and you start to lay the groundwork of what the service provider’s, or if assets are already owned by thethe future could look like so, you actually lay out a sce- client organization, a retained approach will prevail.nario or two of what if we did the following standardiza-tion or utility type activities to get us to a future state. GS: normally, in any kind of standardization you loseWhat could that future state look like? Interrogate that some flexibility. What do you have to say in this case?model, analyze the assumptions and you make a very well What would the organization end up losing? flexibilitythought through future state assessment. Now, you also has a bearing on agility.have a current and future and you make a roadmap to MS: Agility is one thing, standardization is another. yougetting there. you do all that in paper before you unplug do not have to be bespoke in everything you do in order toa server. be agile. Look at any standardized service for example- dial tone, I can make a call any time I want, I can disconnectGS: How dependent is all this on your sourcing model- any time, I can do call forwarding and it is standard. I havein-house, offshore, outsourced…..? the same dial tone as you have. you may not need any ofMS: you need to look at not where it comes from, but those fancy services. That is the difference. But how youwhat’s delivered. As long as the organization can provide deliver has to be standard. you will lose some control as theas efficiently as a professional sourcing arm would. Then, client, but that is part of the bargain. you have to be par-that’s no reason to look elsewhere. What matters is how its ticipatory with IT provider. This is not a one way stream.delivered, where it comes from is secondary. That’s where, I go back to the point about modeling out As standardized service delivery continues to grow, key what the future would like and knowing what is going tosourcing decisions will no longer be around outsourcing, change not only on cost side but also on the behavioraloffshoring, or repatriation, but rather, around how best side. GS
  12. 12. 15 GlobalServices January 2011
  13. 13. emerging trendsThe Next Stage in Managed Print Services is HereManaged print services and it- BPo processes traditionally stood atdifferent ends of the services spectrum. Not Sruthi RamakrishnanM anaged print services (MPS) have tradition- ally been associated with document print- ing, faxing, scanning— basically managing the document- related functions and infra-structure of an organization. Handled mostly by imagingfirms, these services were not something that could be, orwere outsourced to traditional IT/ BPO service providers. But the past 2-3 years have seen developments whichpromise to change this. HP’s acquisition of EDS (ElectronicData Systems) in May 2008, xerox’s strategic alliance withHCL and its more recent acquisition of ACS, Canon’s2010 collaboration with Accenture- all these clearly markthe growing convergence of the hitherto completelydistinct MPS and IT/ BPO markets. “There is a hugeopportunity at the intersection of document managementand business process outsourcing, much of which centersaround paper intensive tasks. This creates a real demandfrom enterprises and governments for the services wecan deliver, including MPS, on a global scale,” says RussBuchanan, vice president of Worldwide Alliances (a divi-sion of xerox’s Global Services unit).Not Unexpected “The (Xerox- ACS) deal givesThis convergence was not entirely unanticipated. Print/ Xerox the scale to attack thedocument output has come to be viewed, as James Joyce,senior vice president, xerox Enterprise Print Services’ put $150B BPO market through ait, “the last unmanaged frontier when it comes to opti- combination of services, tech-mizing IT infrastructure” (‘Managed Print Services DriveValue for Businesses’, Global Services Media, July 02, nology and innovation,”2010). But the maturing of managed services as a wholehas been greatly responsible for this. “As we start gettinginto Stage 3 and 4 (of the evolution of managed print serv- Russ Buchananices), there is an awful lot of IT integration potential withdocument management systems,” says Edward Crowley, VP of Worldwide Alliances (a divisionCEO, Photizo Group. “So it’s clearly becoming a focus of Xerox’s Global Services unit)area for the IT organizations. And in fact we see that in16 GlobalServices January 2011
  14. 14. emerging trendsnearly 70 percent of MPS engagements, it is driven by IT Geographical expansion has also motivated some oforganizations, they are the ones actually managing that”. these partnerships, like in Canon’s case. Growth in Europe How has this integration come about? “Customers are was one of the key reasons for its collaboration withlooking for companies that can help them do two things: Accenture last year, besides that of expanding its servicesone,solve the big, complex problems they face in today’s fast line. As Gary Horsfall, Head of Consultancy Services,moving and highly competitive marketplace and two, focus Canon Europe had commented at the time, “One of theon core business areas where they can create differentiation biggest challenges faced by European organisations todayfor their products and services. An outsourcing partner that is the management of their information, imaging andcan help them do both is very attractive,” says Buchanan. media assets. Through our collaboration with Accenture, “Imaging or document technology and document man- we will create a series of propositions delivering custom-agement companies have great expertise in a particular area, ised solutions for large European organisations to managebut the scope of their expertise isn’t always sufficient to solve this challenge. The launch of Consultancy Services is fur-the customer’s real business problems.” This is where IT/ ther evidence of Canon’s transition towards a service-ledBPO companies come in. “By acquiring or partnering with organisation, which is a key strategy in supporting ourITO/BPO companies, these companies can address a much continued growth in Europe.”bigger set of customer problems in a more comprehensiveway, significantly expanding their addressable market oppor- The More,The Merriertunity.” The results are there to see from xerox’s acquisition The prospects are not lost on smaller players. With MPSof ACS. “The deal tripled xerox’s services business to more burgeoning with opportunities ranging from software, ITthan $10B. And, it gives xerox the scale to attack the $150B services and hardware manufacturing and management,BPO market through a combination of services, technology this space is set to be crowded by many more providersand innovation,” he says. than could be imagined less than a decade ago. “While the traditional OEMs have recognized the opportunity andThe Next Big Opportunity necessity for developing services, this is not their strength.Robert T Sethre, senior consultant, Photizo Group sees New market entrants who excel in the software, IT andthis growing integration as the next profit opportunity process management and consulting space will discoverfor both groups. “Imaging OEMs (Original Equipment and start to leverage these opportunities. Interestingly,Manufacturers) and vendors recognize the need to develop these non-traditional players can also add hardware prod-and support services, at first “close to home” with a strong ucts and service offerings through partnerships withoutdocument management component, then later promoting being forced to develop a complete hardware portfolio onIT services independent of the document space. IT serv- their own,” says Sethre.ices and BPO consultants may have been disinterested in The USP factor here would be the range of services adocument management, or possibly simply overlooked the provider offers. This is what the big players are trying topotential, as it has been traditionally “messy” both from the build on, in a bid to grab the biggest slice of the MPS mar-technical support as well as from the financing and admin- ket pie. “One of the core premises of MPS is that nobodyistration standpoint. But they will address the topic as well. has a lock on all of the necessary skills or product offerings.MPS provides a framework where both groups, emerging As a result, we see new players entering the market as theyfrom their core business base, will discover the profit oppor- start to address that new opportunity. The usual group oftunities— MPS is in this sense a true facilitator,” he says. players may be surprized and even threatened by new ven- HP was the first to recognize this opportunity. The EDS dors. Some respond through partnerships and acquisitionsacquisition was done keeping in mind the company’s Phase (xerox/ACS, HP/EDS, Canon/Accenture). The newcom-2 goal- ‘to develop a layer of leading software applications, ers will bring a unique set of skills that the establishedwith a particular emphasis on management automation, to players cannot offer,” he says.optimize the performance of HP’s hardware and differentiate The net result will be a great benefit for the market andit in the marketplace. Phase Three has addressed the services respective users, but the process, he predicts, will be messyside with a goal of bringing the business into the forefront as different vendors jostle for attention and position. Theof global providers’. xerox and Canon followed suit, each winners, as Buchanan puts it, will be “the ones that gocollaborating with or acquiring IT and BPO heavyweights beyond traditional MPS to address production print andto provide more fully integrated end-to-end services, thus virtual/mobile print needs, and offer complementary capa-creating “a new class of solution provider,” according to bilities in BPO and ITO to deliver innovative solutions forUrsula M. Burns, xerox chief executive officer. a broader range of client business needs.” GS17 GlobalServices January 2011
  15. 15. aDviSory xperts by Runa Mookerjee Engineering Services - An Outsourcing Evolution An increasingly competitive market for "���� $�%��� engineering services has made outsourcing indispensable to the industry, more so #��������� !� following the downturn !�E "�����#�� 2008-2009 global ngineering services outsourc- During the Going beyond traditional ing is likely to skyrocket fromfinancial recession, several engineer- outsourcing ����� � $15B in 2010 to around ing manufacturing companies had to Our survey findings indicated that � $200b by 2020. In a recent cut back on their costs and downsize outsourced engineering services areValueNotes survey1 we found that in terms of operations, processes and popular in aerospace manufacturing,traditional design and manufacturing employees. This benefited the out- industrial and automotive domains. A �� �������services make up the largest portion sourcing industry as more was out- decade ago, the nature of engineering �!�of outsourced engineering services. An sourced, and the trend is expected to work being outsourced involved lowerincreasingly competitive market for continue through 2020. end services like creating digital modelsengineering services has made out- Certain regions which are also and drawings and sending these backsourcing indispensable to the industry, among the favoured outsourcing desti- to the buyer who then incorporated �� ���������������more so following the recent global nations are more popular for engineer- these in his designs. However, engi-economic downturn. ing service buyers. Besides, led by rapid neering work currently undertaken ������ An increase demand for engineer- industrial growth some of these Asian involves a substantial portion of the �����������ing services is leading to a correspond- countries form the client base as well as actual design activity. This has come asing increase for outsourced services. provide outsourcing services. a result of buyers realising that to have �Current spending on engineering serv- $�%��� "����ices of $750B is expected to increase #��������� !�to $1.1T by 2020. Industry sources !� ���� ���������������expect India to play a large part in the "�����#��outsourced engineering services sector. � ���������� � ��� ��Growth drivers include �� ������� �!�Changing demographics amongwestern countries - as a ‘dominant ��������������� ����������������engineering service employed’ baby ������ ���������� ��boomer generation reaches retirement, �����������the availability of skilled engineering � �������������workforce is on the decline in the �������west. ��������������� ��� �� � � Outsourcing helps clients concen-trate on core services – the avail- ����������ability of specialised talent that can �������������deliver regular processes helps the firm ��to focus on its core competencies ordevelopment of newer technologies. &������(����)����������* &������(����)����������*18 GlobalServices January 2011
  16. 16. aDviSory design process for its high selling Prius model. Toyota’s is a case where open innovation and crowd sourc- ing merge- adopting a best practice method that invites all the best minds (albeit at large!) to participate in its collective effort to cut back costs and come up with a better design for its product. Boeing: Testing the model Boeing also made optimal use of open innovation technologies to stress test the hydraulics of the 787 Dreamliner, combining the inputs of companies in the US, Uk, Japan, China. Boeing allowed over a 1,00,000 entries in its World Design Team, an Internet based global forum encouraging participa- tion and feedback from various stake- holder groups during final states of development. Their ideas and inputs were then collected through online surveys, in turn providing updates as the design of the plane’s exterior and interior evolved. This novel innova- tion method allowed Boeing to build a prototype using inputs from several thousand engineers and run tests asa competitive edge, they need to realise an ‘open and usually interactive plat- the design emerged.the full value of outsourcing rather than form’. The tasks outsourced could be Though the use of open source tech-just cost savings. Subsequently, service as simple as generating competitive nologies is a debatable issue, its use inproviders have evolved into providers or cost cutting ideas or as complex generating ideas for products is more ofof specialised services with a better as the designing of an entire product a win-win situation for engineeringunderstanding of their customer prod- range or a completely new product. In firms. Even if the design comes outuct lines. They have also had to build a multi polar global space the knowl- eventually flawed, the firm then has anew competencies, such as knowledge edge process outsourcing industry has prototype which is a test of ‘what canbased engineering, life cycle manage- grown beyond conventional outsourc- go wrong’. On broader level, it is clearment, technical publication - to adapt ing. Apart from using third party serv- that outsourcing engineering services isto changing customer needs that allow ices for regular engineering services, here to stay and go even further in thethem to support complete product increasingly, engineering service pro- coming years. GSdevelopment. viders are turning to outsourced inno- (ValueNotes conducted a survey Some companies are successfully vation to contribute to the ‘product across the engineering services indus-turning to technology to further their design’ itself. try to gauge sentiment for outsourcingengineering services needs, effectively Let us take a look at some examples among buyers and service providers.using Web 2.0 technologies to an out- that showcase just this – A subsequent report gives in depthsourcing advantage. These companies insights to these trends.)take the help of means such as ‘open Toyota: Outsourcedinnovation’ and crowd sourcing - i.e. innovationoutsourcing of tasks which are tradi- The Japanese auto maker’s ‘value inno- Runa Mookerjee is Analyst, ValueNotestionally performed by an employee vation’ strategy involves its suppliers Sourcing Practiceor contractor to a large (undefined) beyond cost cuts and lower pricesgroup, community (a crowd), through for supplies – engaging them in the 19 GlobalServices January 2011
  17. 17. aDviSory xperts by Max Staines A New Role for BenchmarksTraditionally a bargaining tool for clients to set pricing targets forservice providers, outsourcing benchmarks are increasingly being used tocollaboratively drive transformational initiatives. The result: an enhancedpartnership and significant performance improvement.B enchmark analyses of computing models. In this context, IT delivery model and utility com- outsourcing contracts are benchmarking is the first step in a puting, often produces overall cost a longstanding and com- mutually agreed program of client/ savings of 40 percent or more. monly applied manage- provider transformative change. In other words, rather than tighten-ment tool to gauge the competitive- ing the screws on the way things haveness of service delivery in the context The Optimization always been done, IT leaders are estab-of competitive market standards. Opportunity lishing a new and significantly better Traditional benchmarks are often While the utility concept of a model way of doing things – a clean slate thatused to set a target price for service has been around for years, implemen- fully leverages the benefits of stand-providers. In justifying an aggressive tation capabilities have been lacking. ardization and utility computing.number, clients will argue that top Now, thanks to a combination of The improvement reflects bothperformance should be the goal and better measurement tools and more increased delivery efficiency fromstandard that service providers aim for. mature pricing mechanisms, busi- the supply side, as well as improvedService providers, meanwhile, typically nesses are increasingly looking to reap commercial management from thecounter that top-performance targets the benefits of usage-based standard demand side.defined by the benchmark are arbitrary, service delivery. Growing interest in optimizedinaccurate, or based on cherry-picked Compass data shows that tradi- service delivery is raising the bar fornumbers from myriad environments, tional improvement initiatives drive the comparative benchmark standard.not necessarily reflective of the unique, incremental efficiency gains within The question is no longer, “How doescustomized, and often constraining the existing operational environment, performance compare to the what isreality of the individual client. and typically produce annual savings of existing performance (either aver- In this context, the process often of 10 percent to 20 percent. A trans- age or top quartile)?”, but rather,becomes contentious, and the bench- formational approach to improve- “How does performance compare tomark’s role is limited to that of a club ment, characterized by an optimized an optimal what could be state?” Into wield during the negotiation proc-ess. The task of finding efficiencies Total Monthly Costand savings rests, moreover, largelywith the service provider. As a result,the lower the price target, the lower Cost delta due to imposed constraintsthe vendor’s profit margin. These traditional rules of thegame are fundamentally changing.Increasingly, benchmarks are beingused to define and implement broad- Current Cost Optimized Cost Constrained Cost in Unconstrained Environment Environmenter transformational change programscharacterized by demand manage- AMS Desktop Network Hostingment, standard service delivery, and SIAM Retained Constraintsusage-based “pay by the drink” utility20 GlobalServices January 2011
  18. 18. aDviSorythe could be state, client organizationseffectively manage demand and serv-ice providers to drive efficiency andleverage economies of scale. Here,the target is no longer the best thatcan be achieved in the existing envi-ronment; rather, it becomes the bestthat can be achieved in a transformedenvironment.Squeezing Out ConstraintsFollowing a benchmark analysis defin-ing the “size of the prize” of standardservice delivery, usage-based pricingmodels can be applied to gain trans-parency into the business drivers of ITspend as well as the cost implicationsof business decisions regarding howIT is used. A business can then apply thistransparency to create “tensions”between the demand for and supplyof IT services. Ideally, the tensionsproduce incentives for the business tocost-efficiently manage consumption improvement redefines the roles and into new initiatives, which can be newand for the service provider to cost- responsibilities of client and service opportunities for the service providerefficiently manage delivery. provider. Rather than place the onus to generate revenue and strengthen Pricing tensions can also be applied solely on the service provider, the the assess the operational constraints process is becoming collaborative; spe- That said, it’s certainly true thatidentified by the benchmark analy- cifically, clients are assuming increas- approaches to sourcing negotiationssis and to determine whether their ing responsibility for looking inward and contracts will have to adjust, ascost is justified in terms of value to to identify the historical behaviors and account managers are typically com-the business. These constraints typi- operational constraints that lead to pensated by revenue or size of the deal.cally come in two forms, either “con- inefficiency and high costs. By allowing Moreover, while the concepts oftracted” – whereby the client dictates the service provider to leverage econo- utility computing and usage-baseda particular custom requirement, or mies of scale and, potentially increase pricing mechanisms are gaining“non-contracted,” whereby lack of profit margins, this approach makes increasing credibility, much workclarity surrounding processes, roles, the aggressive cost reduction target remains to be done in terms of refin-and responsibilities drives duplication more palatable to the outsourcer. ing these mechanisms and establish-of effort and inefficiency. Indeed, many vendors are embrac- ing effective metrics to measure and Realistically, not all of these con- ing the concept of usage-based pricing manage IT delivery and consumptionstraints and premiums can or should and standard service delivery, because in a utility-based environment. Thatbe eliminated. But a benchmark anal- it provides them with greater control work is underway among service pro-ysis, coupled with tensioned pric- to leverage economies of scale and viders and advisors who have proac-ing, identifies and quantifies the con- their expertise at efficiently deliver- tively recognized the opportunity, asstraints, allowing the business to more ing IT services. Coupled with the well as by others who are being pushedeffectively apply value-based decisions increased incentive to drive efficiency, by competitive pressure to meet theto its IT investment. this creates a significant opportunity reality of changing business require- to grow profit margins. ments. GSEmbracing the Concept In addition, the savings generatedA focus on transformational opti- through a utility exercise are likely to be Max Staines is President of North America formization rather than incremental re-invested by the client organization Compass Management Consulting.21 GlobalServices January 2011
  19. 19. Platinum Sponsors22 GlobalServices January 2011
  20. 20. CONSUMER PACKAGED GOODS COCA-COLA ENTERPRISES Finance and Accounting Solutions Capgemini enabled Coca-Cola Enterprises to achieve major cost savings through a finance optimization project The Client: million per annum in CCE’s transac- Coca-Cola Enterprises is the world’s tion work, through a finance opti- At A Glance CLIENT largest marketer, producer and dis- mization project. Coca-Cola Enterprises tributor of Coca-Cola products. SERVICE PROVIDER Operating in 46 U.S. states and Solution: Capgemini Canada, CCE is the exclusive Coca- CCE chose Capgemini to implement INDUSTRY Cola bottler for all of Belgium, con- comprehensive finance and account- Consumer Packaged Goods tinental France, Great Britain, ing (F&A) solutions throughout SERVICE PROVIDED Luxembourg, Monaco and the CCE’s global business to create an effi- Finance and accounting solutions Netherlands. Sales represent 16% of cient process in a cost-effective envi- SOLUTION The Coca-Cola Company’s world- ronment for order-to-cash services, A unique order-to-cash approach wide volume. purchase-to-pay accounting, and to the transformation project record-to-report activities, as well as a Situational Analysis: comprehensive document manage- SUCCESS METRICS In early 2007, Coca-Cola Enterprises ment solution. The transformation The contract with CCE will run for (CCE) conducted a benchmarking project focuses primarily on a joint seven years from July 2008, and the exercise to see how the organization’s CCE-Capgemini unique order-to-cash total contract value amounts to approx- effectiveness and efficiency stacked approach, utilizing a best-of-breed imately $137 million. The partnership up against the competition. With credit toolset designed to increase the will realize the following benefits for this study they identified that to effectiveness and efficiency of credit their business: become more efficient, CCE would and collection departments. In addi- � Accelerate the transformation and need to conduct as much of its trans- tion, the automated credit module help achieve near world-class perfor- action processing as possible in a low enables CCE to apply a single set of mance through standardizing and streamlining operations. cost country, either with a third party approved rules and procedures to every � Deploy a global unified solution outsourcer or a captive shared ser- credit decision, improving the efficien- across all CCE business units to sup- vices center. The economic goals cy and consistency of the decisionmak- port the business that includes stan- “ were to achieve cost savings of $20 ing process. dardization and process improve- ment while maintaining high stan- We are on track to achieve the targeted dards of control and compliance. � Achieve a minimum savings target savings at the tail end of the transition with of 25% Capgemini. Our internal benchmarks have gotten � Mitigate risks while transitioning better, and through good people management, the work and implementing new tools, systems and technologies. we have reduced severance costs. The concept of Capgemini’s Rightshore solution is a definite plus ® on their side of the ledger.” For more information on Capgemini, write to Claude Hartridge, Vice President, Executive Sales JOE HEINRICH, VICE PRESIDENT, FINANCE GLOBAL INITIATIVES, CCE at 19 GlobalServices December 201023 GlobalServices January 2011
  21. 21. OWENS & MINOR HEALTHCARE‘Lift & Shift’ MigrationDell Services used a “lift and shift” migration to modernizea heavily customized ERP platformThe Client: changes to current systems duringOwens & Minor, Inc., a Fortune 500 the migration period At A Glancecompany, is a leading national distrib- � Sustaining adequate performance CLIENTutor of name-brand medical and surgi- of applications in the Windows Owens & Minor SERVICE PROVIDERcal supplies and a healthcare supply- environment Dell Serviceschain management company. � Ensuring that the project stayed INDUSTRY within the approved budget HealthcareSituational Analysis: SERVICE PROVIDEDThe company needed to modernize its Solution: Mainframe Migrationsystems to provide for future enhance- Dell Services used a “lift and shift” SOLUTIONments and growth, while improving migration to Windows to modernize Used a “lift and shift” migration toperformance. Owens & Minor’s heavily customized WindowsThe decision to migrate all mainframe ERP platform. The first aim of the liftprocessing of its mission-critical enter- and shift migration was to achieve a SUCCESS METRICSprise resource planning (ERP) system “like-for-like” system by runningto a framework based on Microsoft® extensive testing. The implementa- � Cost savings. The project is expect-Windows® was also governed by the tion of a relational database manage- ed to yield substantial annual sav-need to preserve the company’s 20 ment system reduced risk by introduc- ings while improving efficienciesyears of IP-based data, systems, and ing minimal change to applications, for supply chain management.unique business logic. while providing for data tier modern- � Planning for the Future. TheSpecific project goals included: ization. migration ensured that the compa- � Achieving timely or early project The key steps followed by Dell ny’s core IP remained intact and completion to allowing termina- Services in the migration exercise were: achieved greater optimization. tion of mainframe services � “Lift and shift” Cobol from � Higher performance. The new IT � Preventing disruption to ongoing Mainframe to Wintel infrastructure delivers greater per- business operations � Configure Database I/O routines formance capabilities. � Delivering defect-free software in in Wintel Environment � Enhanced customer service. The the Windows environment � Retrofit user interface modernization will � Implementing change control � Test and Fix deliver better online tools for “ processes to allow business-critical � Implementation Owens & Minor customer service representatives. This was a complex and mission-critical � Increased staff productivity and project, and we are proud of the benefits efficiency. Simplified business this successful collaboration brings to Owens & processes. Minor. The migration establishes a powerful and flexible computing platform to drive future growth and innovation.” For more information on how Dell can help your organization, please contact or CHUCK LYLES, PRESIDENT OF DELL SERVICES PUBLIC SERVICES Please also visit SECTOR for more information on their capabilities.26 GlobalServices24 December 2010 January 2011
  22. 22. DIVERSIFIED A FORTUNE 100 COMPANYMessage Migrationand ManagementMicroland ensures Six Sigma class email At A Glance CLIENTavailability and zero error migrations for A Fortune 100 company SERVICE PROVIDERthe world’s largest Microsoft Exchange Microland Limited INDUSTRY Diversifiedinstallation SERVICE PROVIDED Messaging Management & MigrationThe Client: Solution: SOLUTIONThe client is a Fortune 100 diversified Microland started this engagement in Leveraged Six Sigma and FMEAcompany with a strong set of global 1999 and continues to manage the methodologiesbusinesses in infrastructure, finance messaging infrastructure for the client.and media. The client operates across At that time, the infrastructure consist-multiple segments including aircraft ed primarily of Exchange 5.5 servers. SUCCESS METRICSengines, power generation, medical Over the years, in addition to manag- � TCO Reduction: Vendor managementimaging, television programming and ing the messaging ecosystem, costs reduced by 30%; Data center con-consumer goods.The client is listed in Microland also undertook platform solidation and virtualization reducedthe NYSE and is a constituent of the migration from Exchange 5.5 to server footprint by 30%; Delivered year-Dow Jones Industrial Average (DJIA). Exchange 2000 and later to Exchange on-year reduction in cost per mailbox 2003. � High Performance: Maintained emailSituational Analysis: The salient points of the Microland service availability at 99.9X%; Ensured defect free-migration and deployment,The client houses the largest enter- solution are and zero end user impact on migrationprise Microsoft Exchange setup in � A total ecosystem based approach � IT – Business Alignment: End to endthe world today, with over 400,000 for managing the messaging and service delivered to client’s shared ser-mailboxes. The messaging infrastruc- the associated infrastructure viz. vices group offering them ease of man-ture is spread across 19 data centers instant messaging, security, mobil- agement and chargeback; Newwith over 500 servers around the ity, storage, backup etc site/cluster deployment time reducedworld. In addition to this, the infra- � Consolidation of the exchange from 32 to 9 days, thus increasing thestructure also caters to about 50,000 environment and a single SLA IT’s teams’ responsiveness to businessmobility users. The client needed a driven ITIL based messaging needs; Enabled automatic retrievalpartner who could: management model across the and download of warranty and contract � Manage the messaging infrastruc- organization details and triggered automatic alerts 30/60/90 days before warranty expira- ture and the user accounts from a � Extensive leverage of Six Sigma tion, thus streamlining and internal centralized offshore location while and FMEA (Failure Mode Effect business process for the client’s IT team ensuring continuous availability to Analysis) methodologies to ensure the business continuous process efficiencies � Lower the operational costs & � Proactive monitoring and man- implement a shared services model agement of incidents using across the organization automation frameworks � Migrate mailboxes to newer � High visibility and control of For more information on Microland Limited, write to or visit Microsoft Exchange platforms operations to the client through a when needed customized CIO Dashboard2523 GlobalServices January 2011 December 2010
  23. 23. METLIFE BANKING, FINANCIAL SERVICES & INSURANCEStreamliningOperational WorkflowSituational Analysis: sulting, application outsourcing andMetLife was looking for a solution to digital marketing services to its cus- At A Glance CLIENTstreamline its operational flow, tomers – with its innovation, exper- MetLifereducing the amount of manual tise and skill set. Through the part- SERVICE PROVIDERprocesses and consolidating proposal nership, MetLife was able to work Ci&Tinformation into a single database with Ci&T’s experts to streamline INDUSTRYwhile continuing to meet the compa- life insurance issuing process, creat- BFSIny’s high quality standards. In order ing a state-of-the-art automated sys- SERVICE PROVIDEDto do this, MetLife needed a reliable tem named Morpheus. This allowed Mainframe Migrationpartner to provide: MetLife to achieve higher workforce SOLUTION productivity and better databank Created a New Automated � A new, automated operational control management, vital in accom- System flow for life insurance issuing plish its goal of increasing clients to process 100 million worldwide by 2010. � High-quality IT applications, Ci&T was able to meet every pre- process controls and business established milestone and the project rules. was completed within five months. � Project deliverables in a timely � MetLife has achieved a reduction SUCCESS METRICS and well-scoped manner. in the time required for issuing Ci&T was able to meet every pre-estab- life insurance policies from 10 lished milestone and the project was com-Solution: days to less than 24 hours. pleted within five months.MetLife chose one of the top applica- � MetLife’s Brazilian unit reduced � MetLife has achieved a reduction in the time required for issuing life insurancetion development companies in the the insurance proposals approval policies from 10 days to less than 24world, Ci&T. Ci&T delivers con- time by 90 percent. hours � MetLife’s Brazilian unit reduced the“ insurance proposals approval time by 90 percent “When we invested in the implementation of a new application by Ci&T, MetLife sought an innovative tool that would allow the issuance of policies with significantly greater efficiency. Once successfully in use for our individual and SMB customers, we decided that our corporate clients would benefit from the tool as well. What For more information on this service from Ci&T, began as an isolated support tool is now critical write to or visit their office to the daily operation of our business.” at Ci&T, 640 Freedom Business Center, Suite 210, King of Prussia, PA 19406. Phone: +1 610 482 4810 Fax: +1 267 775 3347 BRENO GOMES, CHIEF INFORMATION OFFICER, METLIFE BRAZIL26GlobalServices8 GlobalServices December 2011 January 2010