Principles and Practices for Orchestrating Digital Value Chains

In this post I mentioned that vendors are in a tight spot as both revenue and margins are hit by the current economic situation (like almost any other company with the exception those who can capitalise on the Mexican flu). In this post I provide my thoughts on the health of the vendor market and how clients can protect them agains a vendor which goes into a Chapter 11 situation. To start of first some recent figures related to the financial results of some BPO en ITO vendors: Getronics, provider of IT services, announced Q2 2009 revenues were down 1.3% to €531 million; Manpower, provider of human resource BPO services, announced Q2 2009 revenues down 35.7% to $3,796.6 million; Tech Mahindra, provider of IT services, announced fiscal Q1 2010 revenues down 16.3% to $228 million; Altran, an R&D and IT service provider announced Q2 2009 revenues were down 17.2% to €349.7 million; Transcom, provider of customer management services, announced Q2 revenues down 14.6% to 135.7 million; TCS...

This post is a follow up on this post in which I describe the rough outlines of an approach to reduce the expenses one has to include in the business case related to ensuring regulatory compliance. This post is not meant for the average company which has to worry about SOX and standard privacy laws. This post is based on my experiences of working for a large international bank which did a lot of outsourcing, but did not know well how to translate the large amount of national and international laws and regulations into a manageable and cost effective control and monitor framework. What does regulatory compliance cost? A study of the Work Bank in 2005 shows that in the Netherlands, the United Kingdom, Belgium, Sweden and Norway on average 8 to 11% van the total expenditures by the government goes towards regulation of the business. Figures from the United States over 2004 indicate that there a total of 14.9% of the Gross National Income is spent on laws and regulation (11.2% on national...

I started a discussion on LinkedIn on the potential impact of new legislation by the Obama Administration on the offshore outsource industry and I got some interesting feedback I also wanted to share here. You can read my original post on this topic here . This comment is from Guy Kirkwood and he mentioed among others the following: "Protectionism is defended by two major arguments. The first is that protectionist policies save jobs in domestic industries. This argument reasons that if a domestic industry is forced to compete against a foreign country that provides services more cheaply, such as India, then that domestic industry will have to lay off hundreds or thousands of workers in order to stay competitive. Entire communities whose livelihoods depend on the service or industry will be decimated by poverty. The second argument, a corollary to this one, is that eventually, left to compete for too long against an offshore location, a domestic industry might collapse completely,...

There are various elements outsourcing can learn from the way mergers and acquisitions are handled. Especially the attention Private Equity (PE) firms pay to the exit when considering the acquisition of a company is something companies outsourcing can learn from. The last couple of years the situation has improved a lot (at least in the Netherlands) and much more attention is being paid to this topic. For those who are less familiar with the subject here the minimum exit to-do list: define the exit requirements the vendor has to comply with, include exit fees in the business case and contract and make sure the vendor delivers an exit plan based on the requirements within 6 months or so. But applying M&A to outsourcing has more to offer, even though quiet some elements are already common practise. The synergies and learning points I found are: Approach of engagement The activities undertaken during both types of engagement show substantial similarities as both incorporate elements l...

Not all risks related to outsourcing can be mitigated in the same manner. Some risks and its mitigation are fully retained within the client company while others can only be mitigated with the cooperation of the external vendor. SAS70 , due diligence and audit rights are the most commonly used assurance mechanisms, but are: limited in their use (e.g. SAS70 focuses on controls for IT systems which function can have a material effect on financial statements and is thus of limited use to mitigate other types of risks). expensive (e.g. both auditing by the companies own auditors or SAS70 statements requires the vendor (and third party auditor) to invest a lot of hours in collecting and presenting evidence. The bill for an SAS70 type II can easily end up in the area of $100-200k. showing a snapshot of the situation (e.g. due diligence is typically a one-off exercise which is performed typically as part of the selection or contracting phase, same applies for a SAS70 type I report). In order ...

In two previous posts ( here and here ) I wrote that the outsource market in Q4 2008 and Q1 2009 was severely impacted by the effects of the economic meltdown. Especially the volume of big, complex deals was hit badly and the attention shifted to smaller deals to reflect the lower risk appetite of most companies. I see quiet a lot of activity going on within smaller Dutch outsourcing advisory boutique firms and some of these firms are actually actively hiring sourcing consultants again. So despite the fact that outsourcing introduces additional risk can many companies not resist the temptation. Outsourcing with as a main driver to cut operational cost in the shortest time possible also means that sourcing advisory firms will be asked to a) spend the bare minimum on advisory and b) get a signed contract as soon as possible. I expect that this will result in cutting corners and thus an increase of advisory work in the area of renegotiation and mitigation within one or two years. See t...

I have been writing several posts on the impact the current economic situation has on the outsource market, but besides these specific challenges both clients and vendors have to face is there also a generic base with success factors. In my experience these are: the right services/products and quality are delivered. The client company has two basic ways to obtain a service from a vendor: a) hiring somebody with a certain skill set or b) receiving a pre-described functionality (e.g. orders are processed within 1 day after receiving for 99, 5% of the total volume). In both cases is it very important to have a clear understanding what both parties can expect from each other, both in terms of quality and quantity. In many cases are the expectations of the client not translated properly in a contract schedule (e.g. service catalogue, job profiles) resulting in tension between both parties. the right, market conform, fee is charged. The question on what a ’right’ fee is starts with defining ...