By Stephanie Overby (CIO (US))

Given the maturation of the IT outsourcing market and the introduction of more standardized offerings like cloud computing, you might assume that negotiating IT service deals is getting easier.

Not according to the lawyers hammering out the agreements.

KPMG reports that 41 percent of outsourcing attorneys surveyed for its 2012 Legal Pulse report indicated that complexity in contracting for outsourced services, as evidenced in things like service levels, contract structure, pricing models, use of global sourcing has actually been increasing. (The survey included outsourcing attorneys at 31 law firms.)

Sure, buyers and suppliers are more experienced and new out-of-the-box services are gaining traction. But that may be increasing complications in contracting. More sophisticated buyers are seeking higher-value benefits from outsourcing, globalization is increasing, and business leaders are sending more complex functional and process work out the door.

“As buyers gain more experience they continue to push the envelope in terms of scope, complexity of work outsourced, number and diversity of service providers utilized, geographical scope and mix of service delivery models. Complexity comes with the territory,” says Stan LePeak, KPMG’s director of research for advisory services. “So while the outsourcing market is maturing, it is not necessarily getting simpler, easier, or safer.”

Address IT Complexity Upfront

A complex contract, in and of itself, is not a bad thing. It can result in greater benefits for the outsourcing customer or may better address issues of pricing, performance and risk “Problems arise when complexity is not adequately addressed, recognized or accounted for upfront and in the ongoing management of the outsourcing efforts,” LePeak says.

The key is to make sure that the level of complexity in the legal documents is commensurate with the nature and goals of the outsourcing arrangement and not just the result of a once-burned buyer or overzealous counsel.
Typically, as services markets mature, best practices in contracting tend to cement themselves in the way of standardized pricing, performance assurance and particularly defined terms. However, 27 percent of the attorneys polled reported little or no standardization in defined terms, which LePeak says also points to the fact that while outsourcing is maturing, it’s also been expanding into uncharted territory in terms of scope, objectives, and geography.

The survey asked about the most contentious issue in outsourcing negotiations. The most challenging contractual terms to reach agreement on were limitation of liability, indemnities, step-in rights, pre-defined direct damages, and supplier financial risk all of which involve potential financial exposure to supplier or client. The most challenging commercial terms to come to consensus on were termination fees, termination rights, service levels, transformation and transition fees all of which involve service provider risk.

Arguments over terms related to transformation rated 17 percent higher than last year as more buyers are attempting to include transformation goals in their outsourcing engagements. “Transformation involves building into the contract terms, conditions, or measures for process transformation or for innovation or other nebulous but value-laden keywords,” says LePeak. “The challenge is translating a somewhat conceptual idea like transformation into contracted terms and conditions and factoring in all the events and conditions that could impact transformation being achieved or not.”

IBM, Accenture and HP Play Hardball

The toughest negotiators by far continue to be the traditional global outsourcers like IBM, Accenture and HP, according to the attorneys surveyed. Contracting with India-based service providers such Infosys, TCS and Wipro tended to be a less complex, contentious and lengthy process, according to the KPMG Research, while the easiest to deal with were regional or niche suppliers.

“Some of the legacy firms just have more and more aggressive lawyers, and there are also situational variances and exceptions across all classes,” says LePeak. “But as some respondents noted, legacy firms negotiate harder but remain professional and are less likely to come back later with requested changes and some Indian firms were easier to deal with but would come back later with requested changes or would not negotiate as solid a contract as is possible. So some of it is style and some of it is substance.”

And like complexity, a little back and forth during negotiations can actually be a good thing if it leads to a better or more equitable deal. “Were one side to roll over in negotiating, or if contentious points were ignored or not resolved before the deal is signed, it would be worse,” LePeak says.

“Ultimately you want the best deal and contract and one that has no holes, meets both sides’ needs and reflects the spirit of the effort, and sometime it’s harder and more contentious to get to that point,” LePeak says. “The key is that when all is said and done both sides are satisfied with the deal, and any contentiousness was not so bad that they can’t stand each other and can’t possibly work together going forward.”

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.
Read more about outsourcing in CIO’s Outsourcing Drilldown.

By David Wilson

With many smaller firms now being attracted to outsourcing or micro sourcing via sites like guru.com and freelancer.com this article serves as a timely warning that one must tread carefully and look to work with firms and individuals that that domain experience and a track record.
- Editor

Fiona Lewis was once fleeced in outsourcing and now puts potential contractors through interviews.

Love it or loathe it, outsourcing means risk. That accountant, typist or coder you hire may prove flaky or dishonest.

According to the security software developer Lieberman, 77 per cent of respondents believe their outsourcers have made up work to earn more money.

In one memorable blog post, entrepreneur Shane Snow complains about once getting billed for seven hours of work when just 20 minutes were spent on a project. Instead of saving you money, outsourcing can waste it.

Two Australian entrepreneurs with outsourcing horror stories now know how best to avoid getting gouged.
Sydney-based tech entrepreneur Fiona Lewis runs several businesses including the internet marketing consultancy, Internet Marketing Profit Centre.

But in “the early days” of late 2008, Lewis made her worst outsourcing blunder when she contracted to have a website designed for a key client.

Production lagged and eventually cost $2500 – double the quoted price, for nothing.

“The coding was so bad that I couldn’t possibly deliver it to the client,” Lewis says.

Worse, the designer proved not to be a one-man-band, as she thought, but a slippery firm that refused to provide a refund.

The outsourcing agency stonewalled, claiming Lewis had not cancelled the project during production. But she contests she could not tell that the site did not work because she only had access to screenshots.

Eventually, she paid another developer $1000 to build the site from scratch.

The ordeal made her feel “very stressed” and “appalled” at the lack of support for entrepreneurs stung by dodgy providers.

Now, after fine-tuning her hiring process, she has some advice.

First, get referrals. “I find that, once you’ve got somebody who’s good, they tend to know somebody else who’s got good work ethic and skill.”

If you cannot get referrals, Lewis says, try an agency you have found trustworthy. She uses vWorker.com, seeking talent on a regional basis.

Eastern Europeans are hot on the technical side and industrious, she says, adding that Filipinos excel at administration and online marketing.

Lewis interviews possible hires rigorously, asking them to answer technical questions she sends via Google Docs. She also conducts a Skype interview, which obliges the applicant to think on his or her feet. If an applicant gets past that stage, the final filter is a quick, paid trial assignment.

Lewis says regardless of who you hire, never let a web developer host a site on their server. By doing so, you lose control. Businesses might find that the site is never even transferred, as has also happened to Lewis.

Whitsundays-based virtual assistant Emma Wilson offers a cloud-based service to clients across Australia. Wilson’s work involves hiring cloud-based subcontractors, which has given her a file full of ordeals over deadlines, dud quality, inexperience and poor value.

In late 2009, she had a stack of audio files that needed transcribing.

Thinking she was being business-savvy, she looked overseas and found an online admin business that seemed efficient, judging by the email conversations she had with her contact. Certainly, the fee was attractive.

“Needless to say,” she says, “the quality of transcription I received back, due to the English not being their first language, was horrific.”

Each of the files, which she sent together, came back with mistakes throughout.

She had told her client she would deliver “come hell or high water”. So she had to redo the transcripts.

“Many sleepless nights followed,” she says.

Wilson says she felt cheated because, after negotiating a discount, she still had to pay half the fee for the useless work. The cock-up cost her $2000.

“But most of all it cost me hours and hours,” she says, adding that other work wound up “on the backburner”.

After the fiasco, she raised her game and devised a list of tips.

Emma Wilson’s top outsourcing tips for small business:

1. Spend time on the service firm’s website to gauge if it is legitimate.
2. Seek client testimonials and examples of previous work.
3. If outsourcing overseas, remember that English may not be the firm’s first language, so if you want accuracy, forget it.
4. Remember that Australia has a strong virtual assistant presence – reputable people running their own businesses offering services ranging from copy writing to graphic design.
5. Stick with trusted providers – ask your friends/ colleagues’ advice on who they have used.

Read more: http://www.smh.com.au/small-business/growing/i-got-gouged-the-horrors-of-outsourcing-20120409-1wk4o.html#ixzz1soO3N3I3

By David Kruzner, senior vice president, iGATE Patni (Network World)





This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter’s approach.

With the nation’s focus on the need to create jobs, the habit of outsourcers to cite the traditional value of cheap labor will no longer be of adequate value for an increasingly sophisticated clientele.

This is forcing outsourcers into a new age of value-based solutions and accountability. Accountability involves more stringent control of services delivered based on an overall business outcome (value-based) — not according to time and materials. Relationships are structured as long-term consultations and management, not short-term labor arbitrage projects. The workforce is more skilled, as domain or vertical experts and located across the globe, including increasingly in the U.S.

These pressures create a tremendous opportunity for the IT industry. Here are a few things your organization should know about how to take your vendor relationship to the next level.

* Think about creating value, not lowering cost: In a traditional outsourcing engagement, IT examines a particularly manual or cumbersome process and then evaluates the options for conducting it more efficiently and frugally. But, chances are, your business has already taken that step — you probably took it years ago. The next step is about technology-driven engineering and productivity. This productivity is measured on one key tem — business value.

In a value-driven engagement, vendors are evaluated based on the business outcome they create, not the time and materials they consume. It’s about the final output from the client’s success, which is a mutually beneficial relationship for both parties. The risk is shared among both parties — and when risk is involved, it’s not just about pricing and cost. The key currency in a vendor relationship is value, which can be a welcome change for any company that’s seen an outside party run up the bill based on number of FTEs.

* Align the vendor with your business: In order for an outside vendor to deliver business value, the vendor needs to have a clear idea of both the business’ and IT’s overall business goals and strategy. In these visibility-driven engagements, they’re handled as long-term consultations, not short-term cost-cutting projects.

Outsourcers embed themselves in the IT department, using their technology expertise to suggest ways the business could be run more efficiently. In many cases, this uncovers problems or opportunities a client did not know existed. It’s an additional level of sophistication, evaluated not by the needs of the outsourcing client, but by the needs of the client’s client. When overall business goals are met, this creates a relationship of optimum value to the customer.

* Focus on management: In a particularly uneasy and pressure-packed time in the economy, your biggest ally in a vendor relationship is organized and strict management practices. These aren’t traditional benchmarks; they’re best practices that align directly to a business outcome. If a vendor is held to a particularly high standard in a business context, that vendor will utilize its full array of expertise and resources to ensure client success.

But effective measurement does not come without visibility and clarity in the beginning. One shortfall from the “gainsharing” days in the 1990s was that these types of projects failed because of their lack of structure and true visibility. The outside party tied its work to client success, but the projects were structured in a way that never articulated what success was and the attributes of the success were not visible. If success is tied to solid, measurable business outcomes, then the vendor and client can march toward the same goal as true partners, with shared risk and investment.

We are at a crux point in the IT services industry. The traditional days of labor arbitrage are over, leading to a more sophisticated level of vendor-client relationship. With change comes opportunity, and savvy clients can use these pressures to create a more productive and long-term engagement.

An accountable outsourcer is not just a marketing term; it represents the next step in a 35-year-old business idea. With additional accountability, we see a future where both vendor and client is set up well for success.
Kruzner is a senior vice president, iTOPS Solutions and consulting at iGATE, an outcomes-driven outsourcing provider and systems integrator based in Fremont, Calif.
http://www.techworld.com.au/article/421627/next_stop_outsourcing_accountability/?fp=16&fpid=1

The Global Sourcing Council, a non-profit organization that fosters dialog on critical issues in global sourcing and supply chain management release a joint report, with Pandiva called The State of Global Trade in 2012, which highlights key concerns, challenges and opportunities facing those engaged in global trade. Based on a survey of buyers and suppliers worldwide, the report found that half of global trade professionals are optimistic about the global economy in 2012 and nearly three quarters plan to spend at or above 2011 levels.

But as the U.S. economy appears to be rebounding in the beginning of 2012, larger organizations may still have doubts about a full recovery. In fact, respondents at companies with over $100 million in revenue were two times more pessimistic than those at companies with less than $100 million in revenue (30 percent vs. 14 percent). Regardless of company size, the three top concerns about the economy were a slump in global demand, volatility in commodity prices and rising labor costs (31 percent, 23 percent and 18 percent, respectively).

Other key findings from the report include:

Buyers and suppliers both see opportunity in U.S. – Almost a quarter (24 percent) of buyers named the U.S. as a sourcing alternative to China. Further, 63 percent of overseas suppliers pointed to the U.S. as a region they will target for new business; suppliers were less interested in seeking to supply goods to Europe (56 percent) or China (41 percent)

Suppliers and buyers vary when it comes to rising labor costs concerns – only 7 percent of suppliers cited rising wages in manufacturing hotspots as a biggest economic concern for 2012, compared to 26 percent of buyers.

Buyers are shifting sourcing outside of China – Although 73 percent of buyer respondents currently source from China, 68 percent of them cited sourcing outside of China as “much more important” or “more important” in 2012 as compared to 2011. In fact, 34 percent of all buyers cited sourcing in new geographies as their top way of managing costs in the year ahead.

Other Asian nations remain the top sourcing alternative to China – More than half (53 percent) of respondents pointed to other countries in Asia as where they plan to source goods beyond China.

According to David Kinnear, founder and chairman of The Global Sourcing Council and managing partner of BK Advisory Group, “We see a growing maturity in the global outlook and perspective of buyers, suppliers and consumers alike – resulting in a more balanced view of sourcing methods and locations. There is a greater depth of view and a palate of perspective beyond simply price. Of recent, we also see a new wave of understanding and action on the issues related to labor and workplace conditions with some high profile headlines driving public debate. Balancing geo-economic and socio-economic considerations in the goods and services supply chain is a critical decision for present day senior management teams – especially in the current political and economic climate. The right balance is one that we feel will greatly benefit companies and their customers alike in the short and longer term.”

The State of Global Trade in 2012 report is currently available for free download on Panjiva’s website, http://panjiva.com/blog/whats-new/the-state-of-global-trade-in-2012. The report is based on a survey of over 250 professionals engaged in global trade conducted in February 2012. The respondents represent buyers, suppliers and others engaged in global trade from companies of all sizes from around the world.

By Mark Atterby – Senior Staff Writer

How well one manages stakeholder expectations may make or break a BPO or outsourcing venture. Who are the stakeholders in a BPO relationship? How does one develop a sound understanding of these expectations? What’s at stake if you get it wrong?

Narayanan Sampath from Infosys, believes that successful outsourcing ventures have governance models and practices in place that balance the expectations of stakeholders (from both the retained and the outsourced organisation). Superior governance requires regular interaction, information exchange and meaningful action — ultimately resulting in better solutions that more effectively meet stakeholder needs.

Prior to commencing a BPO relationship, according to Sampath, a detailed analysis of stakeholders and their need for information needs to be carried out. Stakeholder groups may include senior executives, IT personnel in both the retained and outsourced groups, the service provider and the “users” of the services (employees, customers, suppliers and others). This analysis should take into account impact, influence, urgency, legitimacy and interest of stakeholders. In other words what are their expectations and how are these expectations going to be met.

Once the list is reasonably complete it is then possible to assign priorities in some way and identify the ‘highest priority’ stakeholders. While it may be impossible to please all stakeholders at the same time, the governance procedures put in place should strive to balance each group’s needs over the term of the agreement. An effective communication plan needs to be devised to ensure all stakeholders are notified when they need to be and in the most appropriate format.

Formal governance boards and steering committees are essential, but informal stakeholder involvement is the way successful relationships are built and maintained over time. Stakeholder involvement results from an effective combination of information exchange and action. For example, a governance group can set up ad hoc advisory teams, actively pursue the opinions and participation of key business leaders, and offer informal educational presentations such as “lunch and learn” seminars that stimulate the exchange of information.

The channel and nature of the communication should be determined by the needs of the stakeholder community. Stakeholder involvement results from an effective combination of information exchange and action.

Companies that successfully outsource continuously “take the pulse” of all stakeholder groups to balance their needs over time. Communication is an imprecise science, and misinterpretation increases when people attempt to bridge the language and experience gaps across functions and cultures. By taking special care to develop a deep understanding of stakeholders’ motivations and expectations, governance group members can negotiate more creative and mutually beneficial solutions.

By Maddy Miller

In today’s economy, being efficient and operating at a low cost is no longer considered a competitive advantage; it’s a requirement to survive. While Business Process Outsourcing (BPO) is widely used across all industries as a revenue enabler, many companies who don’t implement their BPO strategy properly end up backing themselves into a corner…or a bad contract with the wrong partner.

Source One has teamed with noted BPO expert, George Brooke, and has released a new whitepaper providing a high-level outline of the processes necessary to ensure a successful BPO implementation. This whitepaper outlines seven steps, starting with internal evaluation and ending with negotiation and implementation. “Seven Steps to BPO Success” details the questions companies need to ask themselves when they are looking to outsource a business process and helps them to recognize when doing so would be advantageous to their business.

“BPO providers that also propose to host and license the enabling applications on which the in-scope transactions are performed may be of great convenience and benefit, but require a much more comprehensive, two-phased evaluation. We strongly recommend an evaluation of the application “fit” first and then a separate evaluation of the competitiveness of the BPO capabilities.”

Seven Steps to BPO Success, Step #5: Selection of “Best Fit” Provider
To request your free copy of “Seven Steps to BPO Success,” visit Contact Us page, complete the form at the bottom, and select BPO Whitepaper from the drop-down menu

By Mark Atterby – Senior Staff Writer

Managing one outsourcing relationship can be a challenge. One of the main reasons for the lackluster performance of a BPO relationship, results from the client allocating insufficient resources in managing that relationship. So, why would you want anymore than you already have? Are you doubling your headaches? What are the benefits and disadvantages of managing a portfolio of service providers?

Over the years, as highlighted from Everest Group research, the increased growth and adoption of ITO and BPO has created more outsourcing relationships. As a result most large companies are now engaged in multiple outsourcing initiatives. For some companies outsourcing is a standard practice or at least a preferred model for handling non-core functions and activities. These days outsourcing is a standard business practice, and organisations are expecting more from outsourcing as they tackle the challenges of managing increasingly complex global operations and the technology environments needed to enable them.

An organisation needs to reach a certain level of experience and maturity in utilising outsourcing services, before it can successfully consider adopting a multi-vendor approach. With multiple providers, you can allocate regions to those best equipped for that geography or allocate processes to the best BPO specialist. Multiple BPO providers help avoid the risk of putting all your eggs in one basket. When a BPO provider exits the business, goes out of business, (it does happen) becomes difficult to deal with, doesn’t perform as contracted, or gets acquired, the buyer can more easily switch out that provider for a suitable replacement.

Depending on the organisation and if they have the resources to manage it, developing a portfolio of providers will offer a number benefits over bundling a range of functions to one provider, domain experience aside.

In a multi-vendor environment, governance is more costly, and inherently more complex, to manage than with a single vendor. As well as governing specific/individual outsourcing relationships, client organisations need to adopt some form of enterprise governance model that stretches across multiple outsourcing relationships[1]. Building and sustaining such models across a large enterprise can be extremely difficult, but are necessary if outsourcing is to deliver true strategic and operational value to the organisation.

Setting up multiple outsourcing agreements, according to Allan Hopwood from KPMG, especially simultaneously, requires significant attention to interdependencies. The client maybe caught in the middle between service providers if there are hand-off issues[2]. As a company’s use of outsourcing increases the entanglements of an increasing number of suppliers becomes more pronounced.

Ensure sufficient time and analysis is spent in evaluating potential providers. Suppliers with broad offerings and capabilities may be used as anchor providers, who can expand the scope of your outsourcing initiatives[3]. Combine these with providers who have strengths or domain experience in particular areas or functions. A multi-provider strategy gives the buyer more leverage and can increase the probability of healthy, competitive tension on their account over time. This works particularly well when the buyer is a well-recognised, global brand.

Unfortunately, selecting which model is best for your organisation is not a straightforward exercise. A multiple BPO provider solution is certainly a viable alternative to a one-stop shop approach, but you need to plan carefully and ensure your organisation has the resources to manage it effectively. Developing a strong profitable relationship with one vendor is difficult enough, each one you add to the mix adds significantly to the challenge.

It is prudent to seek outside consulting advice.

1. http://www.accenture.com/SiteCollectionDocuments/PDF/MultipleOutsourcingRelationshipsFinal.pdf.
2. http://www.equaterra.com/_filelib/FileCabinet/Research/6080EU_EquaTerra-KPMG_Position_Bundling-Outsourcing_Multiple_Business_Functions_Dec2011.pdf.
3. http://www.accenture.com/SiteCollectionDocuments/PDF/MultipleOutsourcingRelationshipsFinal.pdf.

Experts at Horizon Business Solutions are recommending that companies look at outsourcing payroll functions in order to free up staff time and allow more focus on core competencies.

Experts Advise Outsourcing Payroll Allows Focus on Business 
Experts are advising the outsourcing of business processing to increase employee focus and flexibility. According to business management expert Dan Robins with Horizon Business Solutions, “The advantages of outsourcing far outweigh any potential problems.”

Business process outsourcing (BPO) began in the manufacturing business with corporations such as Coca Cola outsourcing segments of supply chain management. As small and medium-sized companies began to see the advantages of outsourcing BPO grew. Today BPO involves contracting with third party service providers to management all kinds of operations, processes and functions. Outsourcing payroll has proved to be a major resource and capital saver for companies and organizations. 
The outsourcing of payroll is known as the outsourcing of a back office function and often includes the outsourcing of all accounting and finance processes. When a U.S. company outsources payroll to another country this is called offshore outsourcing. This practice has been the cause of some hot political and economic debates. The cure for this, obviously, is conducting business with a U.S. business management firm, such as Horizon Business Solutions.

“Companies need to focus energy and staff time on their core competencies,” says Dan Robins. “Key employees are freed from the burden of administrative processes and they can focus on doing what they do best, not tied up with payroll.” 
Robins says BPO allows companies to increase their flexibility. Because most BPO vendors offer products on a fee-for-service basis companies can transform fixed costs into variable ones. A variable cost structure helps a company respond well to changes in capacity. Companies also don’t have to invest in assets. This creates more flexibility, says Robins.

Robins goes on to say, “You can reduce your response time to change.” The business management firm specializes in the business services that they are contracted to provide. They stay up-to-date on technology, news and trends in their business and keep their customers’ processes current and efficient.

But potentially most important, says Robins, is a company’s opportunity to focus on their own core competencies without being weighed down by the burden of bureaucratic restraints. Key staff members are free from completing non-core process. They invest more time and energy into their core business processes. A focus on core competencies can give a company the competitive edge that they need to win in today’s tough market place.

BPO also increases the speed of business processes like payroll. The effective use of partners in business increases speed. With experts focused on processes that they specialize in, speed and accuracy increase.

Maintaining entrepreneurial agility is key to a company maintaining its place in the market. Outsources payroll allows a firm to retain their flexibility and focus on creating new business. It helps companies avoid a more bureaucratic mode of operation. Staff can focus on creativity and using expertise. This could actually allow a company to grow faster, as it will be less constrained. Dan Robins says, “Just the equipment savings is huge. Equipment can take years to amortize and may be out-of-date quickly.”

While outsourcing is a major capital saver, Robins acknowledges that no business enterprise is completely without risks. That’s why he says companies should be careful in selecting the outsourcing firm that they use. Robins says, “Horizon Business Solutions offers transparency. There are no unforeseen or hidden charges. Companies should be wary of vendors that don’t offer a clear menu of services that is complete with pricing.” Robins also says outsourcing companies must be able to demonstrate that they can meet services levels and change as the customer’s needs change.

According to the experts at Horizon Business Solutions the few risks of outsourcing payroll are far fewer than the benefits. Freeing staff time to focus on growing business leads and using expert knowledge can and has provided the edge that businesses need to become a leader in their field.

Source: Virtual Strategy