Principles and Practices for Orchestrating Digital Value Chains

In this post I discussed how tolerance of a people influences the overall development of a country and thus also its attractiveness as an outsource/ captive destination. This article explores a bit the history behind the exclamations that this is the ‘Century of Asia’ and what this again means for Asia as a destination to offshore activities to. First remark regarding the exclamation is that there is no homogenous Asia. Asia is a continent and countries within it develop at different speeds. Vietnam is not China and The Philippines not Cambodia. Second remark to this is that the ‘Century of Asia’ was for the first time exclaimed in 1905 by the Japanese when they defeated the Russians in a famous naval battle. The second time the term was used was in 1911 when nationalists overthrew the Chinese Empire. After Mao kicked the nationalists out in 1956 there was another opportunity for Asia to become more prominent, but mess ups by the communist government (e.g. Great Leap Forward, cultura...

There were two publications in the Dutch newspaper NRC which caught my attention as they are relevant from a sourcing perspective. One of the articles was about why the United States is a ‘hyper power’ and why China is unlikely to become that anytime soon and the other one about the rise of Asia in general. I will briefly discuss the core of both articles and discuss their relevance to Asia as a destination for outsourcing and setting up shared service centres/captives. Amy Chua (professor at Yale University) investigated how countries become so called ‘hyper powers’ and than fall. She investigated the rise and fall of the Roman empire, Persian empire, Tang empire in China, Mongolian empire, Dutch empire and the English empire. The main finding of her is that tolerance towards people with other believes and culture is one of the main preconditions to become a hyperpower. One of the reasons the United States was/is a hyperpower is their tolerance towards its inhabitants and importing ...

This post continues the my thoughts on the subjects top management of BPO and ITO providers are busy with these days (except for getting (profitable) new clients in and getting existing contracts extended) The first part can be found here and discussed the most pressing agenda points. These were margin pressure, reputation (e.g. Satyam scandal) and legislation (e.g. making offshoring more expensive for U.S. companies). The two last pressing short term topics in my mind are access to capital and adaptation to new business models. The two last topics are also important, but not critical. Access to capital There was a lot of M&A and other activities the last couple of years which required access to non-equity capital and a good deal of the demand for bonds or other forms of debt came from ITO and BPO/KTO service providers. Some indications that there is serious need in the market for capital in the near future: More than €2 trillion ($2.53 trillion) worth of public sector, corporate ...

In this post I want to provide an overview of typical subjects I expect management teams of global operating vendors are looking into these days. I discuss the topic in two different posts as there are several items that the typical senior manager is busy with these days. Low margins A combination of the economic situation, new entrants in the market and over capacity results in a permanent pressure on vendors’ margins, especially in the area of ‘standard’ services and products. I expect this to result in a consolidation wave among Tier 2 and 3 players as soon as capital becomes less expensive to come by (so in 1-2 years). This should enable these smaller players to achieve economies of scale similar to the Tier 1 players. A combination of consolidation and a broad service portfolio is how these players earn their living. Above average margins may be achieved only by innovation, customisation of services or serving niche markets. An in-dept understanding of the client's business an...

I recently red an article in a Belgium newspaper (‘De Morgen’) in which labour unions successfully blocked the proposed outsourcing of sterilisation services of hospital AZ Groeninge. After several weeks of protests by employees and labour unions the management of AZ Groeninge decided that outsourcing was off the agenda, now and in the future. Even though only 30 people were in scope of the outsource engagement did the management have no other choice but to kowtow to the workers and walk away from the idea. In this post I want to write about two little countries within continental Europe, which share almost half their borders, but are different in many ways. One the differences is the way elements of market capitalism are adapted and outsourcing/shared services is used to improve effectiveness and efficiency. For those non-European suppliers who want to get a foothold here in Europe, it provides an idea of the complexity and cultural differences of the 20+ countries that make up the Eu...

I get positive signs from clients and research firms (even though I am a bit sceptical on their reports, see here ) on the performance of various Indian suppliers. They continue to mature and this also helps them to penetrate the continental European market further. Why? One of the differences I see between American outsourcing engagements and European/Dutch projects is that in America it is not uncommon to have a contract stating the scope as “50 IT employees performing network management”. The company basically hires resources and maybe somewhere in the future the contract changes into a more sophisticated model where the client demands certain functionalities and quality levels (e.g. providing 100Mb network bandwidth to desktops with a response time of X and an availability of Y for price $$ per connection). In The Netherlands at least (and I think the same applies for Germany and France) we typically start with the second type of ‘service description’. We focus here less on resourc...

India is still the main offshore destination for those companies that want to deploy labour arbitrage to reduce their cost. This approach to reduce cost by replacing jobs in the U.S. and European countries with jobs in Asia and Africa is not something American and European politicians like to see (now even less then before). This political sentiment is demonstrated by among others president Obama who is thinking about ending tax breaks for companies that "ship jobs overseas. What the effect could be on offshore suppliers is however not clear yet. Most likely he wants to eliminate U.S. multinationals' ability to deduct business expenses associated with overseas operations while deferring tax payments on profits earned abroad (companies don't pay taxes to the U.S. government on income earned abroad until they bring the money back ('deferral'). In that case companies with their headquarters in the U.S. and delivery centres (shared service centres/ captives) outside th...

This post is a follow up on this post in which I started with an overview of the different types of sourcing advisory services out there. This post continues with an overview of the different services. In a future post I will look into the (dis)advantages of the delivery models deployed by sourcing advisory firms and where I think sourcing advisory services are heading too in the future. Tax Advisory: when outsourcing activities in many countries or setting up a captive in another country it might be wise to ask a tax specialist for help. Tax specialists can help with some financial reengineering allowing for a reduced slice of money going to the government and with ensuring the company does not run the risk of breaking any country specific tax laws. These services are provided by Big 4 firms and boutique firms. Pro’s: optimizing the tax structure can potentially reduce the total cost of ownership of the engagement and make sure the company stays compliant with country specific tax...

This post is based on the answers I gave on questions from the Dutch IT website Computable on nearshoring. They have a couple of expert groups and one of them is on outsourcing and I provide comments so now and than on topics related to outsourcing. You can find the expert site here (Dutch) and my profile here . As nearshoring is a relevant topic for many continental European companies hereby the questions and answers in English. Question 1 : What are the most important considerations and attention points for Dutch (client)organisations to decide for nearshoring? Answer 1 : Nearshoring of activities introduces a number of extra risks on top of the generic/inherent risks associated with outsourcing. These additional attention points are among others: the difference in language and culture, other laws and regulations (e.g. tax and privacy laws), political stability (e.g. North Africa/Jordan, Ukraine, Balkan countries), redundant employees (when nearshoring they are not always transferr...

Sourcing advisory has come a long way and there are several well established (boutique) players which providing a broad scale of services. There are basically three types of advisory firms: Independent one-stop-shop . Firms like KPMG, PWC and Deloitte have a broad spectrum of skills and knowledge, including people which focus on sourcing advisory, tax and SAS 70 assurance. Independent niche players. Firms like Equaterra, TPI, Quint Wellington Redwood, Everest Group, Gartner and many more focus on helping clients with the design & implementation of a shared service centre or finding a suitable vendor to outsource certain activities to. Other nice players focus on helping clients to draft an adequate legal contract, deal with specific HR topics, benchmarking or optiming the tax structure of the deal. Supplier-dependent niche players . Suppliers themselves have sometimes (small) departments which also provide advisory services in the area of outsourcing (e.g. setting up a sourcing go...

The term ‘shared service’ is very popular as companies see it as a means to reduce cost through economies of scale. The same principle is at work when opting for centralisation, but there are distinct differences. This post describes how shared service centre differ from centralisation and why it matters to make this distinction. What do sharing and centralising have in common? Common ground 1 : I found among others the following definitions they are an indication that both terms are closely related: Centralisation : is the process by which the activities of an organization, particularly those regarding decision-making, become concentrated within a particular location and/or group. Shared Service Centre : A shared service centre (SSC) is a centralised business unit that undertakes internal business functions for divisions or subsidiaries of a particular company, rather than having those functions conducted separately Common ground 2 : shared objective is striving for improved productiv...

I have been blogging for a little bit more then a month now and wrote some 30+ posts in that period. I don't think I can keep up this high frequency but will try. However, I plan to provide monthly overview of the postings of the previous month, divided in a couple of categories. This should prevent readers looking for certain information to work their way through the whole list... The categories I want to start off with are: Sourcing, its risks and opportunities. This post describes the outlines of a framework aligning value creation (e.g. increase productivity) and outsourcing. I argue that an outsourcing engagement should primarily be steered on output performance (e.g. value drivers) and less on activities. Measuring value also means discounting expected future cash flows, but many companies still use one Weighted Average Cost of Capital (WACC) to calculate the NPV of outsourcing initiatives and other (des)investment decisions. This despite the higher average inherent/gross r...