Part 2 of a 2 part series about why Outsourcing fails by Jerry Durant, Chairman of the International Institute for Outsource Management. This week Jerry examines the Top 10 Supplier faults. Last week he will be examining the Top 10 buyer Faults

There are three types of people who will choose to read this article; those who are attempting to avoid failures, people who have been there and those who haven’t had any clue whether their current condition is normal for outsourcing engagements. Let me assure you that there is no magic recipes for avoiding outsource relationship failures. On the other hand every single failure is avoidable given diligent attention to the relationship.

We will review some of the hidden reasons why outsource relationship fails. Most of these situations are overlooked in favor of reporting on the obvious. Yet, these underlying conditions will occur again and again until a concerted is undertaken to eradicate these root causes. One should view these items as the top root causes, and not an exhaustive list. Further, no sourcing failure is limited to a single cause; it’s often a combination of multiple causes, happening at different times that are allowed to occur without attention. Last week and this week we are looking at the top ten situations that create a climate for failure from both sides – the buyer as well as the supplier.

Top 10 Supplier Fault Causes
In Sourcing Engagements

1. Don’t Use My Business as an Experiment – Having a website, brochures and business cards does not equate to you being a viable outsource service provider. You are offering a service and you have a dutiful responsibility to be prepared to deliver without risk to the buyer’s business. For this reason outsourcers are obligated to be ready and able (willingness is obvious) to provide risk free service to trusting buyers.
2. No Problem Means BIG Problem(s) – Hunger is an evil thing, it forces us to make statements that we may not be able to live up to. There are times when you may be asked to do something that you are not equipped to perform. This may be from a technical competency perspective or possible a matter of not having adequate human resource to support the engagement. Being forthright can win you deals in the long term.
3. Lack of Self-Investment – A business is an investment and a healthy organization learns to self-invest. The lack of self-investment will place outsourcing contracts at risk because the company will fail to have sufficient viability to remain stable. Investing purely in your operations without an investment in your business is a road map to failure. Living from contract-to-contract will result in slow (or no) growth and sustainable instability.
4. Focus on the ‘Wrong Stuff’ – Outsourcing isn’t the buyer’s business… business is. As a result, size and self-acclaims are the quickest way to set an atmosphere for buyer’s disappointment. If you go so far as growing outlets rapidly to draw sales interest this will create a false operating expectations. Once set anything that is discovered or realized will be a hard hurdle to overcome.
5. Text Book/Model Thinking – Business and relationship management is not something that you can learn from books – it is cultivated from experience that gets immortalized into a company’s operating behavior. Attempting to follow what others have done may be good by way of an example, but not a roadmap to follow (different operating context). Use information to convert to knowledge that will alleviate inflexibility to buyers.
6. Staying In Bounds – Know your limitations. Don’t try to be of service or get involved in negotiations where you are out of your league. Regardless of who you know, know what is right for you and decide appropriately. If you are out of your element for the type of business you are familiar with have the decency to turn away the opportunity. Otherwise, the route to success on these engagements is quite slim.
7. QA? – An integral part of ALL sourcing engagement is quality qualification. No one can do it right the first time, it requires separate oversight to insure that the work being performed is being done to an exacting standard. This standard needs to be right for the service being provided. Excess means more cost, not enough means more cost but in the way of error resolution. Quality assurance is a part of the business model and should be emphasized as an element that buyers can expect. At the same time the buyers should have a role in the quality assurance process that you have outlined to further the positive aspects of the results you are delivering.
8. Loose Cost Control – With falling Western money rates the attractiveness of cost savings in the East are falling. This places added pressure on outsourcers to find ways to economize. These decisions will have an impact on buyers and possibly have profound effect on deliver stability. Cost control is a special craft, one that is not as simple as reducing headcount or reducing labor rates. It involves careful study and adaptation to retain the core values of the outsourcing company. What places added stress on cost control is pressures that occur from contract negotiations. There will be times when you simply have to hold the line unless there are other ways to make up margin. Offering cost saving incentives (if I find opportunities I will be rewarded) are a great way to earn back monies that would otherwise be lost to efficiency gains.
9. Cooked Books – There is nothing more damaging to an engagement than falsehoods. I have seen these ranges from operational statistics to false claims about certification levels. DO NOT LIE…. You are who you are. It’s OK to be small, it’s OK to be new, and it’s OK to be truthful. Be proud and willing to ask for the opportunity to be of service, and back this up with commitments that you are able to fulfill. Once a liar, always a liar…. And recovery is nearly impossible.
10. Abdication – It’s OK to adopt a cloud sourcing mentality but keep your customers informed when you do this. Whether you farm out a bit of work or wholesale the opportunity to another keep the buyer in the loop. Rest assured that the responsibility for the engagement relationship will remain with you, regardless of what deal you have struck.
11. (Why Not One More….) Keep Your Industry Honest – There is nothing more damaging to a business than to work in an industry or region where problems exist. Whether this be fraudulent sourcing brokers, inept service providers or simply an overly zealous self-promotion… keep you world honest. The atmosphere generated by even the most innocent issues has a way of becoming a global problem. This means a proactive professional involvement, self-policing of ill sought gain and a means to properly reflect the social value of outsourcing in both your country and abroad.

As the adage goes… “Takes Two to Tango”. One can point blame at the buyer or the supplier as to why outsource relationship fail. It is usually a case where both parties have shared mutually in the outcome. With no place to turn, and no real way to save the relationship we hold on hoping that things will get better… and often they don’t!

www.Int-IOM.org

Eeny, meeny, miny, moe,
Catch the monkey by the toe.
If he screams let him go,
Eeny, meeny, miny, moe, you are it.

It is amazing how slapdash the selection process for selecting a BPO supplier is. One wonders if the well-known nursery rhyme is actually the methodology used in some cases. Even for the experienced players it is hard to know what is really behind the sales and marketing smoke and mirrors that the BPO vendor puts out.

Stories of over promising and under delivering abound in the industry. It can be a difficult task to find the right outsourcing provider for your organisation. The task is particularly daunting if you are an outsourcing novice, and there are plenty of traps for the new players. So how does one evaluate the capability of an outsourcing provider and stop those screaming monkeys?

Back office outsourcing services have to do with processes associated with running your business and operations such as your contact centre, financial, operations, human resources, and information management. By outsourcing these services, it frees your business up to focus on your core business. It also allows you to reduce the significant expense associated with this element of your business. There is no doubt that if you use an external outsource service provider, you also have an opportunity to increase customer satisfaction and better service delivery.

Peter Springett at FooBoo, a leading BPO Sydney based consultancy says, “Primary in understanding the suitability of an outsourcing provider is to define the results you are looking to achieve and the type of relationship you want. Does the potential partner have sufficient experience in the service you are interested in? Have they done this sort of thing before for other companies like yours?”

Below, as highlighted by Mr Springett, are some basic areas you should look at when evaluating a new outsource provider:

Clients, previous work, feedback from key customers: What sort of experience does your outsourcing company have, the different kinds of customers that they have provided services for and the number of projects that they have completed. Find out if your offshore partner has experience in delivering the required services at the scale of your business needs. Find out from references, more about the quality of service, timely deliveries and customer support services.

Company culture and work ethics: When choosing the right outsourcing partner, make certain that you and your outsource partner are culturally compatible. This is extremely important, as the Outsourer actually become your customer-facing interface. Make sure that your business partner understands your organisation and your employees. It’s important to spend some time with the BPO vendor and really get to know them. Finding an outsourcer who understands your business objectives is integral to the smooth execution of your project. Once your partner understands your objectives and strategies, it becomes easier to communicate standards, targets, changes and updates on performance.

Credibility and accomplishments of the top management: Make sure that you’re outsource partner is financially secure, as this is a critical factor in outsourcing. You could also find out more about the outsourcing service provider’s directors and managers, their experience and their qualification. This is especially true for large projects as a vendor with a small balance sheet may not be able to carry the credit terms required. Geared with such detailed information, you will be able to analyse if a particular outsourcing service provider can match up to your expectations.

Check your outsourcing partner’s infrastructure and technology: Visit your outsourcing partner’s workplace and find out if your outsourcing partner uses best-of-breed infrastructure and high-end technology. Visiting your outsourcing service provider can help you analyse if your offshore partner has the right equipment to handle your project. Visiting your outsource partner can also help you to better understand their processes, methodologies and team amongst others. Anybody can put nice pictures on a web site; take the time for a site visit. After all you would not buy a house without having a look at it. Why then would you not visit the place that is going to be handling your most important asset – your customer relationship?

Certifications that assure a certain quality standard: Internationally recognised certifications like Six Sigma, ISO, eSCM, DNV and so on, ensures that the prospective outsource partner meets a minimal level of standards and capability. Though you should not make your decision based purely on what certification an outsourcer has, it can add a certain element of confidence as compared to an organisation that hasn’t had its business evaluated and certified by an external body.

Part 1 of a 2 part series about why Outsourcing fails by Jerry Durant, Chairman of the International Institute for Outsource Management.

This week Jerry examines the Top 10 buyer faults. Next week he will be examining the Top 10 Supplier Faults

There are three types of people who will choose to read this article: those who are attempting to avoid failures, people who have been there, and those who haven’t had any clue whether their current condition is normal for outsourcing engagements. Let me assure you that there is no magic recipes for avoiding outsource relationship failures. On the other hand, every single failure is avoidable given diligent attention to the relationship.

We will review some of the hidden reasons why outsource relationship fails. Most of these situations are overlooked in favor of reporting on the obvious, yet these underlying conditions will occur again and again until a concerted effort is undertaken to eradicate these root causes. One should view these items as the top root causes, and not an exhaustive list. Further, no sourcing failure is limited to a single cause… it’s often a combination of multiple causes, happening at different times, that are allowed to occur without attention. We will look at the top ten situations that create a climate for failure from both sides, the buyer as well as the supplier.

Top 10 Buyer Fault Causes in Sourcing Engagements

1. Disconnection between Organistional Strategic Objectives and Operational Needs – This is a case where business goals are set but their effect is not transferred down to operational delivery. As a result, the operational groups responsible for evaluation and implementation concentrate solely on delivery without relating this to whether it is adequate supporting the strategic business needs. One would think that it would be transparent and effortless, but it isn’t. A case in point is a client company who looked to improve customer service. In turn they decided that in order to do this they would utilize an offshore call center to support their customers on a 24/7 basis. Unfortunately, the choice of suppliers diminished the level of personalised attention that they had become accustomed to. Issues like scripted attention and linguistics had a big play into why the well-intentioned strategy was operationally flawed in terms of implementation selection.

2. Believing that Service Transitioning is Automatic – There are a lot of great ideas around but an idea has to be proven before it can be viewed as a viable solution. The concept of lift and drop assumes one key element, that both environments are equal. Just the mere fact that you are dealing with different cultures and time zones places a challenge on the movement of services. Above all there are hidden aspects to every buyer side service need. These are things that we overlook because it is simply too customary. Companies who have attempted to use templates to transition still find transition failures because of these hidden elements.

3. Cultural Bias – If we did a poll and ask whether your organisation has biased opinions, most of you would say no. Unfortunately, opinions are often overshadowed by how we behave. Two prevalent biases involve buyers being viewed as service providers (slaves) vs. strategic partners that are there to help us to realise business objectives. The second is a bias concerning the level of involvement that the supplier will undertake. In this case, suppliers look to resolve and to support the engagement beyond what would be considered as reasonable. Such is the situation when a buyer transfers known operational (or systemic system) issues without attention to internal buyer side resolution. Even when acted upon, the outsourcer will be held accountable for the situation when it doesn’t meet the expectation of the buyer.

4. Lousy Buying Practices – Buying global source services is not like buying a product from around the corner. Yet how many companies rely on their procurement department to faithfully undertake the task? The combination of global procurement, specialised service acquisition, and frail frameworks for measuring suppliers results in bad decisions being made. Even when combined with subject matter, expert’s decisions are often made based on size, location and brand recognition. It is arguably safer than dealing with unknowns in these areas, but the failure now shifts to selections that aren’t the best choices. Every selection process should involve two fairly exhaustive evaluations; one involving viability and the other focused on capability. A company can be very capable of delivering the service you need, but if their viability as a business is weak, the relationship is put at risk. For this reason first time or seasoned buyers who have had a rocky road in outsourcing need to consider getting external guidance. Use a bit of that soon to be newfound savings and use it to mitigate failure risk.

5. Excessively Demanding Contract Negotiation and Service Level Agreement (SLA) Conditions – It’s all well and good to negotiate hard but realise that for every win you gain, it has a direct impact on the supplier. As the sands shift from one side to the other is not without effect. Every engagement has room for negotiation, but when this flexibility is consumed steps must be taken to compensate on the part of the supplier. Maybe it’s using low skilled staff, moving you down on the attention priority scale or possibly using fewer staff on a flexibility basis. These counter-acting measures will have a definite effect on buyer expectations. SLAs are another area where the measures used are not always sound. The result will have a punitive effect on the supplier and does irreparable harm to the relationship. At the end of the day it’s all about service, cooperative service improvement, and less about damage assessment fees.

6. I Know it All – Buyers should consider any relationship as a mutually privileged opportunity. In truth, the buyer has profound understanding and knowledge about their business needs. Sometimes, as alluded to in point #6, known problems are not resolved and transferred. Only the buyer is equipped to propose a position on resolving these issues, yet they choose to pass it along to suppliers. At the same time buyers try to force operational behavior on suppliers by demanding certain means of delivering the contracted services. A frequent example is for ITO application services where a particular development method is required, rather than permitting the supplier to utilise a known and established method of their cultural choosing, a preferred approach is mandated. As the phrase goes, “there is more than one way to solve a problem.”

7. Failure to Speak and Be Heard – Problems are a natural part of any business. Successful operations result in an organisation’s ability to detect, respond and to reach a resolution without an excessive amount of debate. If the buying organisation has been challenged by this (internally), one can only expect the effect on the sourcing relationship to be multiplied several fold. The primary reason is the ability and the mode of communication we used. Is your message being sent in such a way that it receives the attention that it deserves? If you are using email to convey an urgent issue (without using other means of communications), it is likely to not receive the attention/response that you want. On the other hand, is the message even understood? This is another common problem when communicating across long distances. I had a client who waited up until 21:00 each day to listen to a status meeting of their supplier. The habit had been so ritualistic that when subtle indication of problems occurred they were simply overlooked, the tedium had become too passive. Suggesting a taping and a separate review helped to promote the real situations and allow attention to be given.

8. Overlooking Social Impact – Unlike any other decision that a company makes the choice to outsource will be met with social opinion. This is particularly true when it involves people, jobs and the sense of control is being lost. It is unlikely that the choice and the resulting opinions can be totally abated but they can at least be presented with the context of the decision. Further, having an official position on how the impact will be managed represents sound social responsibility on the part of the buying company.

9. Expecting Way Too Much – Sourcing is not a panacea; it’s a business decision. Keeping emotions and desires in check will help to hold expectations at a proper level. Unfortunately, the process of justification and reaffirmation forces us to be excessively optimistic in order to avoid curtailment. Once the bar has been set, it’s seemingly impossible to return to right-thinking.

10. No Escape Plan (aka Retro-sourcing) – Everything we do should have consideration given for an alternative, yet outsource deals have a tendency of being ‘right decision’ based. If and when things start to fail, there is no escape route to follow. This often results staying in relationships that have failed (for some of the reasons noted in this article). ALL outsource engagements should have a retro-sourcing plan that fully details every step that must be taken, including backup service providers. Don’t be afraid to exercise it, regardless of how deep or how shallow you are into the engagement relationship. It’s better to run than to be trampled.

11. (Why not one more….) Review and Adapt Industry Advice – Advice and direction abounds from all corners of the globe. Not everything that is written is factual. Often it is heavily influenced with personal opinions. Unfortunately, seldom is this fact disclosed to the uninformed public. Just today, October 19, 2010, I read two accounts from leading analysts where one said that outsourcing would grow and the other stated that it would diminish. Who is right? If you only read one without an awareness of the other, then how might this effect your sourcing decision? The bottom line is making a decision that is right based on your business and not simply a blind following to trend information.

As the adage goes… “Takes Two to Tango”. One can point blame at the buyer or the supplier as to why outsource relationships fail. It is usually a case where both parties have shared mutually in the outcome. With no place to turn, and no real way to save the relationship, we hold on hoping that things will get better… and often they don’t! www.Int-IOM.org

To ensure the future ongoing success of an outsourcing relationship requires the client aligning goals and metrics with the supplier, crafting solid SLAs and contracts and ensuring these arrangements have the scalability and flexibility to meet the changing needs of the client organisation. However, assessing the long term ROI and benefits from an outsourcing arrangement can be a demanding and challenging task.

The best outsourcing agreement is not necessarily the one with the lowest price. In fact, successful outsourcing contracts are those that strike a balance and focus on the primary goal of meeting business needs on day one and throughout the life of the contract.

According to the National Outsourcing Association (UK) and research from outsourcing firm Cognizant, who surveyed 263 CFOs from European countries, less than half those surveyed have tried to quantify the financial contribution of outsourcing to their bottom line. Of those who have tried, just 19 percent are ‘very confident’ in their calculations.

The research also highlighted how 78 percent of CFOs that cut back on their outsourcing cited “Unclear value for money”, though they could not quantify this further. The problem may stem from the fact that at the beginning of the outsourcing arrangement the initial metrics may have focused on short term cost savings. As time goes on and the relationship evolves, where the business objectives of the client organisation have changed, it becomes difficult to measure what exactly the relationship is contributing to the bottom line.

According to Nagendra Bandaru of Wipro, all too often in the world of business process outsourcing, the measures that focus on day-to-day operations have no relevance to the end reality. They are transactional. Performance metrics need to focus on the core areas that affect the organisation’s performance.

“The biggest challenge for any organisation is how to focus on those aspects that create real value. More often than not, both the supplier and the customer focus on schedules, on-time delivery, go-live dates, and many non-value-added metrics”, says Bandaru.

Meeting deadlines is important, but it is not a metric buyers need to measure. And the best outsourcing agreement is not necessarily the one with the lowest price. In fact, successful outsourcing contracts are those that strike a balance and focus on the primary goal of meeting business needs on day one and throughout the life of the contract.

According to Ben Trowbridge CEO at Alsbridge, Inc. there are five guidelines to help companies align their outsourcing agreements with internal strategies and requirements. These are:

• Contract Terms – It is important for you to fully understand the terms and conditions you will live with for many years to come.  Governance, delivery locations, and clear termination language are critical pieces of a successful outsourcing agreement.
• Statement of Work (SOW) – SOWs should clearly define the roles and responsibilities of the provider as well as the client side. Trowbridge recommends organising the SOW into market-based towers, such as Server Management, Contact Centre Management, Applications Development, etc.  which results in easier ‘apples to apples’ comparisons of competing providers. Setting up the SOW this way also makes it much easier to benchmark the price of services periodically over the term of the contract.
• Service Levels – It is imperative to have a Service Level Agreement (SLA), set up so that the provider will provide you with significant service level credits in the event that minimum target levels are not achieved.
• Transition and Transformation – Document your transformation needs early in the process, this way you will be in a good position to ensure the business value of the transformation. Clearly articulated milestones and changes in the scope of work needed are critical to a balanced agreement. The scope should address things such as transition/transformation management, objectives, methodology, high-level schedule, roles and responsibilities of each party, the content of the forthcoming detailed project plan, third-party transitions, security transition, procedures manual development, personnel transitions, a description of how cross-tower services will be implemented (such as change management, incident management, problem management, configuration management and service level reporting), and a description by tower of the changes that will be implemented.
• Pricing – Expect your outsourcing costs to go down over time. One of the best ways to ensure the long-term success of your outsourcing agreement is to start with an agreement based on market prices. This means you are starting the relationship in the right place, and any future pricing adjustments (such as benchmark adjustments) will not be as extreme or emotional as they otherwise might be.

Real value comes from an outsourcing arrangement, when it is viewed not so much as purely a cost cutting measure, but as a means for the client organisation to leverage the core competencies of the provider. The provider’s performance is measured not just on speed of delivery or price, but also on the ability to transform and innovate core as well as non-core business functions.

To maintain and understand the long-term value of an outsourcing arrangement you need to have in place transformational metrics. Transformational metrics describe overall business outcome goals. They differ from KPIs in that they provide contractual incentives for performance, but also differ from operational service level metrics in that they indicate end-state objectives. Examples include project milestones, process performance objectives, and implementation goals.

Finally, all metrics must be defined thoroughly and their method of calculation clear and precisely described so there are no misunderstandings. It must address what is being measured with a high level of precision.

According to Dr. John Langley, Professor of Supply Chain Management, Georgia Institute of Technology, “Many shippers regard logistics and supply chain management as key components of their overall business success. Increased use of outsourcing and high satisfaction levels suggest that 3PL (Third Party Logistics) providers can certainly take some credit for helping shippers to weather the recent economic storm.”

A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides a one stop shop service to its customers of outsourced (or “third party”) logistics services for part, or all of their supply chain management functions.

Third party logistics providers typically specialise in integrated operation, warehousing and transportation services that can be scaled and customised to individual customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.

Dr. Langley added, “Despite a challenging environment, 3PLs have an opportunity to continue to mature and grow by offering an increasing number of value-added services for shippers.”

However, a recent Third-Party Logistics Study published by Capgemini shows that shipping organisations continue to only outsource transactional, operational and repetitive activities, and less so those activities that are strategic, customer facing and IT-intensive despite a greater range of 3PLs offering more advanced services. The study surveyed 1,900 shippers and logistics service providers in Asia Pacific, North America, Europe and Latin America.

To some extent this is contrary to the current trend in outsourcing, where organisations are moving up the value chain from the traditional ‘lift and shift’ approach to outsourcing, thereby reducing costs, to outsourcing relationships that improve the quality and value of the functions being outsourced.

According to Michael Alf, VP for Capgemini, outsourcing requirements vary greatly from organisation to organisation and from industry to industry within the supply-chain arena. Alf commented, “For FMCGs, costs and reducing costs is the primary consideration, which automatically reduces the desirability of outsourcing strategic elements. The study highlights how large volumes and low margins mean FMCG companies need to respond quickly to deliver in-demand, on-trend products to increasingly demanding shoppers.”

After cost reduction, the survey highlights FMCG companies’ top priorities for logistics, which include perfect order fulfillment, rapidly sensing and responding to changes in consumer demand and shortening new product time-to-market and supply chain integration.

“Whereas for Life Science (including pharmaceuticals, medical supplies and equipment), it is very complex in terms of the supply chain. Cost is always important but it is not necessarily the number one priority. Like hi-tech companies and telcos, they want the 3PL provider to step up to the plate and become a strategic partner,” said Alf.

Within the Life Sciences industry, according to the survey, careful and expedient handling is often critical for product safety and because of this, control and visibility is essential. Logistics priorities here include product integrity and compliance requirements, an inherently complex trading partner ecosystem and demanding customer service and cost requirements.

The Capgemini study highlighted that accurate reporting and analysis of total landed cost (TLC) as a critical capability shippers are increasingly expecting from their 3PL provider when outsourcing their logistics and supply chain operations. TLC refers to the sum of all costs associated with making and delivering products to the point in the supply-chain where they produce revenue. Michael Alf states, “TLC demonstrates the increasing maturity of the supply chain professionals as they are looking at, not only the transportation costs, but the end-to-end costs.”

The availability of sound and comprehensive TLC calculations can add significant value to the outsourcing relationship, including more agility and confidence in decision making, better insight into the financial performance of products and partners and improved supply chain visibility. The study highlighted however, that only 45 percent of respondents reported that they made extensive use of TLC calculations. Also the precision and level of detail of those calculations differ widely varied greatly from company to company.

The main challenges for organisations when it comes to TLC calculation, according to Michael Alf, are the lack of data on the end-to-end costs as well as the lack of tools to perform the calculations. He said, “For some it is quite a challenge as they don’t have the right data or the right tools or are using spread sheets. Defining all the factors contributing to total cost, and then obtaining all the necessary data, can be challenging. Too often, businesses rely on only partial data or inaccurate estimates that can lead to incorrect results, with 58 percent of 3PLs reporting a hesitance from shippers to share information with them.”

Overall the study showed continuing improvement in 3PL/Supply-chain outsourcing relationships, where 89 percent of respondents rate their 3PL relationships as generally successful and 68 percent indicate that their providers offer them new and innovative ways to improve operations.

With business confidence and consumer sentiment on the rise, buttressed by a resilient Australian economy showing positive signs of ongoing growth, more and more entrepreneurs are seeking new investment opportunities to take advantage of this upward trend.

But which industries are presenting entrepreneurs with the biggest gains, and which are predicted to continue their free-fall? Business information and research group IBISWorld has identified the top start up opportunities for 2011, and while the news is all-positive for those with a trade or in professional services, the picture is not quite as rosy for service-oriented businesses tackling the rapid pace of technological advancement.

Especially related to BPO the number 1 BPO opportunity for 2011 was Accounting Services.

Although it has suffered three consecutive years of declining revenue, this industry has fared the rough economic climate reasonably well. In 2011-12, revenue is expected to grow by 5.6% and 309 new accounting enterprises will start-up.

Increased regulation stemming from the global financial crisis will lead to more demand for accounting services to ensure compliance with new reporting rules. Other regulatory changes expected to provide a boost to this sector over the next five years include the anti-money laundering and counter- terrorism reporting requirements, which have been rolled out over the past two years.

Although large multinational accounting firms dominate the top end of the industry, there are thousands of small businesses dealing with BAS statements and personal tax issues Robert Bryant, IBISWorld General Manager (Australia).

The $14.35 billion industry is relatively recession-proof, with annual business accounts and tax returns needing to be lodged regardless of economic conditions. There is a need to be aware that the key to success is strong client relationships.

Image Processing and Printing Services did not make the winners list. In fact, Ibis stated that this sector was in serious decline.

Advances in technology are bad news for operators in the Image Processing and Printing Services industry with revenue set to fall by 15.4% over the next five years.

Operators in this industry have been struggling for several years due to the digital revolution. Digital images are far less likely to be printed by consumers for multiple reasons.

Alternative means of displaying images, for example via Facebook or Flickr, or on increasingly common digital frames – means that there is another factor mitigating the need to keep physical prints of images.

All of these trends show no signs of abating according to IBISWorld research. In fact, it is possible that they will accelerate. Photo companies have attempted to actively encourage consumers to print digital images, to little effect.

www.ibisworld.com.au

BPO deals are usually struck in US dollars and ideally for fixed terms like 3 – 5 years. This is good for all sides as it gives certainty and stability to contracts. That’s all well and good when currency markets trade within a relatively narrow band. However, the decline of the US dollar is causing many to reach for their heartburn pills. Many of the deals are struck on razor thin margins with no significant hedge for currency fluctuations.

Arbitrage is the simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but arbitrage opportunities are often precluded because of transaction costs.

Thus, we can assume that the market for labour Arbitrage which unpins the offshoring industry and is really a lift and shift play is not a perfectly efficient market. Unfortunately, many of the BPO providers don’t have the skills to trade in foreign exchange markets and are delighted when they originally ink their deals for lengthy periods of time. The decline of the US dollar against most international currencies is a bitter pill to swallow for those that are tied to deals struck in a more stable foreign exchange environment.

The Philippine business process outsourcing industry is starting to hurt from the strong peso, Oscar Sañez, president of the Business Process Association of the Philippines (BPAP), said.

“When the peso is very strong, it is not good for business. In fact, a big part of economy will be seriously affected by a strong currency. If you look at other countries, Japan and China make their currency as weak as possible to attract investments and increase revenues,” Sañez said.

Sañez said BPO contracts are usually long term so if deals were struck at P46: US$1, operators would be losing 4 percent of revenues at $44:US$1.

“At 43 pesos (to the dollar), small operators would be hurting as they would already be operating at a loss.”

It could also make the country less attractive as a location. “BPOs are all worried and watching (the exchange rate) closely,” Sañez said.

Extracts from a story by Andrew Heasley who is an aviation reporter for the Sydney Morning Herald:

Last week, the Football Grand Final in Melbourne coincided with the breakdown of Virgin Blue’s (Australia second major airline) check-in system and it gave passengers a glimpse of what goes on behind the scenes in airline operations. To say it was a bad day for Virgin Blue is an understatement – it was a disaster with a capital D. Virgin’s outsourced reservation system malfunctioned and their back up systems took 21 hours to kick in.

AS THE screens froze and then went blank at Virgin Blue’s check-in counters around Australia on Sunday morning, the glitch did more than ground the travel plans of 50,000 people for a couple of days. Unintentionally, the breakdown exposed the secret life of airlines.

These days, airlines are not what they seem. Increasingly, airlines outsource their business processes to private companies that do the unglamorous stuff, from loading bags and cleaning the toilets, to the glossier roles of front-of-house check-in and boarding duties, and plenty in between.

These companies provide meals and snacks, run IT systems to sell you tickets online, and to run the call centres that take your calls. (Customers who call discount airlines’ help numbers invariably end up in Asian call centres, some even lease aircraft – that come with their own pilots and crew – from an aircraft leasing company or even a rival airline.

These modern airline machinations include the phenomena of outsourcing and unbundling – each the opposing face of the airline business coin. With outsourcing, airlines look at ways of cutting costs so they can offer fares cheaper than competitors or provide a better return to shareholders. They do this by finding specialist companies that can offer new or better ways of doing things.

But outsourcing and unbundling can fail spectacularly and this came as a shock to the tens of thousands of travellers around the country’s airports on Sunday and Monday who had simply bought a ticket for a plane flight, only to find people in airline uniforms didn’t have a clue what had gone wrong and what was to be done about it and when.

It’s striking the right balance of providing us the expertise in that area and providing us with the cost efficiencies across the country we need.

But questions are being asked why an airline would want to entrust mission-critical systems and customer liaison to outsiders? The answer is because it saves money, opens the airlines to new skills or ways of doing business, and because rivals, more or less, are doing the same thing.