Pat Speer – Insurance Networking News

Thanks largely to increased regulation, insurers will demand innovation, transparency and stability from sourcing providers.

The global economic climate had a distinct effect on the outsourcing expectations and decisions made by insurers and financial services organizations in 2010. So says a report issued last week by San Francisco -based law firm Morrison & Foerster. In its annual “Global Sourcing Trends” report, the firm includes survey responses from its Global Sourcing Group lawyers in Asia, Europe and the United States to create a state of the outsourcing market across a variety of vertical markets.

It’s no surprise that as insurers sought to recover from financial woes brought on by the 2008-2009 economic crisis, they were weary of entering into new long-term outsourcing arrangements. Outsourcing in 2010 was flat over the year prior, and those deals that were made were largely restructuring of old deals, notes the report’s authors.
Yet the value proposition of outsourcing, namely cost-cutting, has evolved into one of broader benefits—and expectations. Those expectations will put a new onus on service providers for innovation, service quality and value for the money, say the report’s authors. Further they predict that as innovation takes center stage, so will the obstacles to its successful achievement; service provider selection, contracting for innovation, and paying for innovation.

“The worlds of outsourcing and financial services regulation will continue to intertwine ever closer,” says the report.
Of primary concern, say the authors, is capital adequacy requirements for banks and insurance companies imposed through Basel II implementation and forthcoming Solvency II and Basel III requirements. The increase in regulatory requirements will result in insurers looking even more closely at the integrity of the outsourced service providers with whom they contract. “Most immediately, there will be increased emphasis on counter-party risk and the effect on banks’ and insurers’ capital; and more interest from regulators in outsourcing service providers,” notes the report.

Cloud-based solutions continue to grow in importance in the outsourcing market but concerns about data security and data privacy in the cloud remain high. Customers are now demanding that security be built into cloud services, and the market is driving the emergence of highly secure and trusted cloud services. “Private clouds” have gained popularity, especially in regulated industries where security and risk concerns may deter companies and their regulators from moving to genuine “public clouds.”

And where will the biggest deals be cut? In the “Global Outsourcing Trends” report, IBM notes that BPO activity in the Philippines exceeded BPO activity in India. This is a sign that outsourcing continues to become more global, migrating to areas where buyers can take advantage of labor arbitrage, say the authors. Countries such as South Africa are also making a push into the market by changing laws and granting incentives that will reduce costs for companies seeking to outsource there. Meanwhile, established outsourcing destinations such as India are seeking to move up the “sourcing food chain” to retain their piece of the outsourcing market.

Source: InsuranceNetworking.com

Martin Conboy
President Australian BPO Association. www.abpoa.com.au

Welcome back to work for 2011 and good luck for the year ahead.

It’s been busy for the last few weeks as we drew a line under 2010.

We are currently experiencing unprecedented flooding in parts of Queensland, NSW, Victoria and Tasmania so we are bracing ourselves for higher food prices as a lot of the items sold in supermarkets are grown in those areas and a lot of the crops have been completely wiped out. There is definitely something wrong with the weather and it will have to be addressed sooner rather than later.

A knock on effect will be an even more chronic skills shortage across the nation as many parts of Queensland have to be completely rebuilt and all available tradesmen will be required to assist. It will be massive. Once again we will see a focus on the costs of doing business that will drive consideration for outsourcing non-core business processes.

This year we will also witness the financial restructuring of European debt as some European countries will have to introduce austerity measures and cut back on economic programs that are completely unsustainable in today’s world. Again we will see a focus on changing company balance sheets from being capital intensive to being more tax efficient and BPO will play its part to help with operating expenses.

The Economist magazine recently commented that in the blame game that followed the financial crisis, globalisation was an easy target. The interconnectedness of markets was seen as having helped the turmoil to spread. But as our ViewsWire service explains, the fallout from the crisis is unlikely to derail globalisation. Indeed, the world now looks set to enter a phase of even fuller economic integration, driven by the rise of emerging markets.

In December the Australian BPO Association played host to a high level Chinese BPO trade delegation, lead by Mr Lu Hua, Deputy Director of the China Investment Promotion Agency (CIPA), which is the investment promotion agency of the Peoples Republic of China. CIPA is in charge of “Inviting in” and “Going global” (outbound investment) two-way investment promotion work in line with China’s economic strategies. It is a part of the Central Government’s, Ministry of Commerce. CIPA is now affiliated with the ABPOA and anybody interested in doing business in China can connect with CIPA via the ABPOA website.

China’s BPO industry is growing significantly, currently valued at US$36 Billion, and is now only second in size to the longer established Indian service sector. China’s growth rate is accelerating and it is expected to overtake India in size and value within the next couple of years. This was an important visit and hopefully there will be many more interactions as we strengthen our ties with China. It was great to get up close and personal with them, as their tales of growth and change are astounding.

One of the issues that came out of the various meeting was the fact that Australia is once again experiencing a persistent skills shortage especially in our resources sector. Needless to say this was of interest to the Chinese delegates as they pointed out that they have 6 million university graduates a year and 40 per cent are in engineering disciplines.

Analysts say that excessive restrictions on Australian 457-visa sponsorship and poor retention of older workers will contribute to big skills shortages for various sectors especially IT, over the next five years. Further more rapid growth in the mining, resources and infrastructure sectors was pushing up labour demand, and wages.

At one of the working sessions with the Chinese delegation Andrew Banks, the CEO of Talent 2 – a leading listed HR and recruitment firm who are HQ in Australia with offices in Asia, was expressing his frustration with the Australian government saying that unless the government moved to ease restrictions on sponsoring 457-visa workers, outsourcing work to countries where skills were available would become increasingly common. He has a strong view that a type of special visa could be implemented that allows companies to bring skilled workers for specific projects and be repatriated once the project is finished.

It’s not always easy to move human resources around global markets to match demand, however we are witnessing a hybrid model. Another business strategy along the lines of if the mountain will not come to Mohamed then Mohamed must go to the mountain, or maybe not, we are now seeing knowledge workers in other countries completing tasks via web-based browsers and cloud-based applications. It’s not applicable for every business process, however it is proving a godsend for companies who can outsource some of their non core business processes in order to get their work done.

The IT Cloud is giving a new meaning to the term knowledge worker. These workers can work from anywhere, anytime and anyhow from any device. In the future, knowledge workers will bring their own Internet access device in much the same way that a tradesman brings his own tools to do his work. They simply plug into the Internet and away they go.

Cloud computing has come a long way in the last few years. Formerly dismissed as a fad or marketing term, it is now rapidly emerging as an inexpensive option for developing IT infrastructure. Cloud computing is likely to have a very significant effect in outsourcing markets

The Australian BPO Association was invited to attend a Microsoft CIO breakfast in December as Microsoft was rolling out its plans for the Cloud. The Cloud is not an easy thing to get your head around as it means different things to different people and depending upon where you sit will determine your ability to make it work for you. The IT cloud is not a person, place or thing yet we treat it like it’s a noun.

According to Brian Prentice Gartner’s VP of research speaking at the Microsoft CLOUD Summit in Sydney, the Cloud is “a style of computing where scalable and elastic IT related capabilities are provided as a service to customers using internet technologies”.

Interestingly, he said that Gartner Australian research showed that in 2009 ‘The Cloud’ was number 16 on the CIO priority list, however it had catapulted into the number two position in 2010. Mr. Prentice indicated that it was the marketing departments that were leading the push for organisations to adopt the cloud not the IT departments.
Prentice argues that there will be a shift from end user licenses to service level agreements. In other words from a ‘Capex’ to ‘Opex environment with all of the tax benefits that that brings.

The cloud will spur on growth in BPO as remote Knowledge Workers can access company databases without having to be in the same location. We will see new business support models being developed without the need for expensive real estate and facilities to support and house them.

There is no doubt that as the New Year unfolds that Cloud IT will have an impact on BPO. So looking ahead it appears that we are in for another interesting year.

The severe cold snap blowing across Europe is seeing more and more businesses struggling to keep their offices open as employees struggle to get to work and it couldn’t come at a worse time as the UK economy gears up for Christmas. However, it’s business as usual for companies using remote knowledge workers via Cloud Computing.
Small companies are hit hardest by loss of productivity and the figure could exceed the £12bn loss figure reached during last January’s bad weather.

There is a major trend developing this Northern winter as more companies have geared up to enable remote working for their workers as the cost of the technology has started to fall. However, many small companies are still not geared up for staff to work from home, which means their productivity suffered.

Piers Linney, joint CEO of Outsourcery which services 10,000 SMEs in the UK said, “In our business work is a place where you do not actually have to go to. The disruption caused by the recent snow has created immense problems for thousands of businesses across the UK with many employees not being able to make it into work.

With more snow predicted, the current cold snap will only further underline how businesses need to find alternative ways to keep their company running regardless of the weather conditions. With large numbers of workers having to work away from the office in the harsh weather conditions, businesses are finding that they need more effective ways to stay in touch with important stakeholders in their businesses.”

As companies take advantage of the falling costs of remote working and growing concern of the cost of disruption to their central operations, allowing staff access to mission-critical documents and emails means they are seeing the value that providing remote access brings to their businesses.

A significant driver of remote working is Cloud Computing and as it gains momentum and acceptance, SMEs now have access to professional business applications, through a subscription payment model which allows IT to be ‘rented’ from an IT specialist, on a per user per month basis – turning it from a capital expenditure to an operating cost, making affordable for all sizes of organisations, and not just the large corporations as was in the past.

Linney continued, “Many firms are recognizing the value of real-time communications tools such as instant messaging, presence information, voice and video conferencing, Live Meeting for group discussions and document sharing can bring to their businesses.  Employers can see the availability of all their employees – whether they are talking on the phone, in a meeting or online – and contact them in a most time-efficient way and the benefits are really brought into focus during the current weather conditions.”

The Cloud is not an easy thing to get your head around as it means different things to different people, and depending upon where you sit will determine your ability to make it work for you. The cloud is not a person, place or thing yet we treat it like it’s a noun. According to Brian Prentice, Gartner’s VP of research speaking at the Microsoft CLOUD Summit in Sydney this week, the Cloud is “a style of computing where scalable and elastic IT related capabilities are provided as a service to customers using internet technologies”.

Interestingly, he said that Gartner research showed that in 2009, ‘The Cloud’ was number 16 on the CIO priority list; however it had catapulted into the number two position in 2010. Mr. Prentice indicated that it was the marketing departments that were leading the push for organisations to adopt the cloud, not the IT departments.
Prentice likened the Cloud to the changes in the Electricity market as it evolved over the 20th century. The parallels are:

• Massive improvement in technology
• A shift in protocol from Direct Current (DC) to Alternating Current (AC) and
• A shift in business models

So according to Prentice, the cloud is enabled because of dramatic improvements in technology and data storage and the access to IT capabilities via the Internet.

A shift in the way we use technology from desk-based systems that are based around perpetual payment models to a user pays subscription model that can be turned on and off according to demand.

The traditional IT model is based around maintaining on premise systems whereas the cloud will allow companies to potentially have no equipment at all, except the devices that they need to access the web, be it a phone, PDA laptop or PC.

Prentice argues that there will be a shift from end user licenses to service level agreements. In other words, from a ‘Capex’ to “Opex environment with all of the tax benefits that that brings.” People talk about ‘Time Boxing’ wherein knowledge workers will get done what they can in an agreed time.

The cloud is giving a new meaning to the term knowledge worker. These workers can work from anywhere, anytime and anyhow from any device. In the future knowledge workers will bring their own Internet access device in much the same way that a tradesman brings his own tools to do his work.

Mr. Prentice went on to suggest that IT departments will be freed up to focus on core IT projects and in fact will use the Cloud to beta test projects in a fraction of the time and cost taken currently. IT departments would have an ‘accelerated time to value’ by increasing their productivity with fast deployment. There would be no need to ‘patch’ software and no maintenance requirements, as that is all the responsibility of the host.

The Microsoft ‘ecosystem’ is broken into three areas:

• Cloud Infrastructure – the machines and equipment (server farms) needed to host the downstream services (IaaS)
• PaaS or Platform as a service. This is the applications framework and management infrastructure and
• SaaS. Software as a Service. These are the applications that run on the frameworks. In the Microsoft matrix these three levels are divided between ‘On Premise’, ‘Partner Hosted’ and ‘Public Cloud’”.

According to Nick Mayhew, Director of Enterprise Operations at Microsoft, “This is a massive spectrum and Microsoft is the only one with the depth and breadth across the board. In Microsoft ‘s case this is run out of big regional data centers. We have an economy of scale that only two companies in the world can do, that’s Microsoft and Google.”

There are of course some downsides and these revolve around security and the potential of smaller hosting providers going bust. “The whole area of security and data sovereignty is a little bit like fear of the unknown rather than necessarily being fact-based. One of our jobs is to help people understand that (the risks). The physical security at the Microsoft data centers is unmatchable and the electronic security as you can imagine is the best that you can get. When people compare that with existing on-premise security, they realize that our security is far, far greater. This is world ‘s best practice. The stakes are so high for us; we have 40 million seats of paid online services. The defacto leader of SaaS in the marketplace, Salesforce.com has about 20 times less than us already.”

According to Gartner, by 2016 all Ford Global 2000 companies will use public cloud services, where the industry is forecast to reach $US 148.8 billion in 2014. It is set to change the paradigm and redefine the relationship between the providers and consumers of IT-based solutions. It will have a significant impact in the way BPO providers invest in and deploy technology to provide services for their clients. This week we canvassed the views of three leading players in the cloud space.

Michael Costigan, director of Avnet, observes, “At the moment, organisations are in the investigative or starting point stage. They are experimenting with the cloud and evaluating the potential it can offer. This will change dramatically in the next two or three years.”

Paul Luketich, managing director of Noble Systems, forecasts a similar time frame for adoption, where numerous players will be entering the market and trying to carve market share over the next 18 -24 months.

As the cloud and the associated technologies and vendors are redefined in the next view years, there will be a range of changes and significant opportunities for BPO and call centre outsourcing providers. Simon Burke, CEO of IPScape, commented, “As opposed to traditional or virtual approaches to contact centre technology, cloud is different for two main reasons. Firstly, is the agility that it offers, wherein you can make changes to the technology on the fly. Secondly, and more importantly, cloud provides true elasticity in capacity. It means you can burst capacity as is needed and then cut back when demand or queue volumes diminish. An inbound caller would never need to receive a busy signal.”

Costigan believes it will be the mid-market where the greatest deployment of cloud will occur. “The larger banks will want to keep their data internally. It’s the smaller organisations that want to keep infrastructure and technology costs to a minimum, yet have the potential to scale when they need to, who will be most keen when it comes to cloud computing.”

Paul Luketich, managing director of Noble Systems believes that the cloud, by reducing the need of deploying extensive on-premise technology and infrastructure, will make it easier for new players to enter the market. But Luketich also believes it offers the larger BPO players a number of opportunities in terms of running campaign activities, “If they have a quick campaign they want to ramp up, cloud computing allows them to expand the capacity of their existing infrastructure quickly and cost effectively.”

Once cloud computing becomes established and endemic it will become a whole lot easier to outsource an entire business process.

For BPO providers and other outsourcers that can experience significant peaks and troughs in workloads, the cloud offers significant opportunities by allowing them to deploy IT and telephony technology only when they need it. It will allow them to increase and decrease capacity as required, minimising the amount of resources and infrastructure to have available but not being utilised.

Another potential benefit of cloud computing is the greater use of more sophisticated technology in running BPO contact centres and customer service bureaus. Luketich believes, “In Australia, we’re a little bit behind in terms of utilising contact centre technology, much of that I believe is due to the cost associated with on-premise technology solutions. The cloud should give Australian contact centres and BPO providers cheaper access to more sophisticated technology such as digital recording, speech analytics and predictive dialing.”

Cloud will generate a shift in the relationship between the providers and customers of IT-based solutions, heralding a new range of technology solutions that will impact the way the BPO industry provides its services. Exciting times are ahead.

The conversation about the realities of cloud computing took an interesting turn last week as technology vendors, customers, analysts and service providers came together at Fox Studios in Sydney to debate just how quickly the game is changing in the local market.

Developed to offer a frank and fearless environment for the honest exchange of ideas and opinions, ‘theCircle LIVE’ attracted chiefs, integrators, customers and experts from across the business spectrum. The audience included industry heavyweights such as EMC, Cisco, VMware, SAP and CSC, with the conversation moderated by respected IT journalist Mr. Mark Jones.

“Consumer-oriented cloud services have promised a lot and opened our minds to stretch what can be achieved. All our data and computer services live in the cloud and just like a utility we flick a switch and everything just works. Yet there is still much debate around how this will actually be delivered – even the very definition of ‘cloud’ is disputed,” explains Clive Gold Marketing CTO of EMC Australia and New Zealand, the world’s leading provider of information infrastructure solutions. “So theCircle LIVE presented a rare opportunity to bring some brilliant minds from the industry together with customers, in order to get a genuine conversation started.”

The big issues of the day were covered in a broad ranging debate, with experts from the health, legal and security fraternities weighing in to argue the relative merits of private vs. public cloud models. Security, privacy and compliance concerns were recurrent themes amongst the audience, with members of the health, legal and security communities weighing in.

The future of Cloud BPO was tabled by legal firm Truman Hoyle in relation to new Australian Privacy Principle 8, which will – if adopted in 2011 – require organisations storing information about Australian citizens in offshore data centres to ensure they select providers that meet Australian privacy standards in the absence of informed consent by each “affected individual.” That informed consent will have to be obtained after advising customers (or “affected individuals”) that there will be no obligation on the Australian company to take reasonable measures to ensure that the overseas provider will meet equivalent standards of privacy protection.

Absent this informed consent: “There is a specific issue for organisations using offshore operators because if an Australian company puts its consumer data – its private data – into the cloud, it has to make sure that the service provider can be shown to have an equivalent number of safeguards in place as required under the new Australian Privacy Principles,” Mark Vincent, Partner at Truman Hoyle said. “Organisations that suffer a breach can also be held strictly liable for that breach even where proper due diligence was conducted to ensure their offshore cloud provider was compliant to the required level, something that is currently not the case under the existing Privacy Principles.”

“The legal intricacies of utilising public cloud service offerings that are based offshore is just one of the many complex and important conversations that theCircle LIVE is facilitating in the market,” said EMC’s Clive Gold.

“What is clear is that when something this disruptive hits, it is vital that industry engage in open and rigorous critical thinking and debate. It is good for the industry and it’s valuable for the many customers in the market that are looking to vendors and integrators for honest answers.”

According to Nemertes’ 2010/11 “Communications and Computing Benchmark,” nearly 97 per cent of organisations are currently using or planning to use some form of outsourcing, documenting a solid increase from 2009 when the figure was 85 per cent. Currently, 73 per cent of research participants use managed services (the largest component of outsourcing), up from 65 per cent in 2008. In fact, managed services have seen a tremendous run since 2006, when only 27 per cent of organisations used managed services.

Outsourcing consists of a range of options on a continuum from managed services to hosted services to Software as a Service (SaaS). Managed services typically include outsourcing management of a specific application, technology or function, often including maintenance. Usually, managed services consist of managing onsite equipment at the customer premises, though with a service such as business continuity/disaster recovery (BC/DR), onsite equipment is at a provider facility. Hosted services deliver applications via either the Internet or dedicated network using MPLS, Carrier Ethernet, or leased line. SaaS is similar to hosted services with the same delivery model. However, SaaS is intrinsically multi-tenant, on-demand, with pay-as-you-go pricing. In comparison, hosted services are often not multi-tenant, on-demand, and typically have multi-year pricing.

Several factors drive the adoption of managed services. The top reason IT staff outsource is to save money, a driver 69.5 per cent of organisations cited. The greatest savings results from reducing the staff and perhaps 24 x 7 facilities to house them. Providers take advantage of economies of scale to offer management and maintenance services at rates lower than it costs organisations to provide the services internally. A lack of staffing skills is the next greatest driver: About 30 per cent of organisations indicate a lack of internal skills as a primary managed-services driver, and about 25 per cent of organisations identify lack of staff as a primary driver. IT leaders often decide against employing staff to manage systems they view as commodities and use those headcounts for more strategic functions.

These drivers directly reflect plans to adopt managed and even hosted services in 2011. The top managed services are for functions seen largely as commodities in IT: Network/router management and IP Telephony. IT leaders who continue to grasp internal control of network/router and IPT management should closely evaluate the cost of outsourcing versus internal management.

Cloud based call centre technology promises outsourcers and BPO providers, greater agility and capacity in managing multi-channel contact centres while reducing costs. One of the leading providers of this sort of technology, IPscape, is based in Sydney.

IPScape now have over 7000 contact centres agents using their technology and that number is rapidly growing. A number of their large clients are in the outsourcing space such as TeleConnections and TelePerformance – who use it as a disaster/recovery service to support their contact centres in the Philippines. It’s not just about phone calls, because of the agility and flexibility that the cloud offers, all communication channels can be integrated into a single queue that can be more effectively measured and managed.

When an outsourcer wins a contract they were only starting a long set up process to get ready to serve that contract. An expansion requires truckloads of large boxes being wheeled into an air-conditioned room with a false floor. These boxes contained the hardware and software to run the ACD, IVR, Predictive dialling and all the other functions required of a call centre.

Engineers, time and money would need to be spent to install, connect and carry out all of the Systems Integration (SI) with the telephone network and the desktops of the individual contact centre agents. Numerous lines, depending on the number of seats, would then need to connect the contact centre to the PSTN.

The evolution of Internet based telecommunications technology where telephony functionality is increasingly deployed as a software application, combined with the evolution of On-Demand or SaaS (Software as a Service) allowed for the development of the Virtual Contact centre.

In a virtual call center model, the BPO operator does not own, operate or host the equipment that the call center runs on. Instead, they subscribe to a service for a monthly or annual fee with a service provider that hosts the call center telephony equipment in their own data center. Agents connect to the vendor’s equipment through traditional telephone lines via the PSTN, or over the Internet.

Calls to and from prospects or contacts originate from or terminate at the vendor’s data center, rather than at the BPO operator’s premise. The vendor’s telephony equipment then connects the calls to the call center operator’s agents.

Over the last 3 – 5 years we have seen the emergence of cloud based solutions. IPScape, is one of the organisations that is leading the development of cloud-based solutions globally, was established in Sydney in 2007. Simon Burke, CEO of IPscape, commented, “As opposed to traditional or virtual approaches to contact centre technology, cloud is different for two main reasons. Firstly, is the agility that it offers, where you can make changes to the technology on the fly. Secondly, and more importantly, cloud provides true elasticity in capacity. It means you can burst capacity as is needed and then cut back when demand or queue volumes diminish. An inbound caller would never need to receive a busy signal.”

The advantage this may offer outsourcers running short term contact centre based campaigns or projects, is that they can deploy, basically on a plug and play basis, and pay for the technology as they need it, without the upfront costs of building IT infrastructure or paying for idle capacity between projects. It allows for a rapid go to market deployment. This is particularly important, as Simon Burk mentions, when margins are tight and strict control and management of costs need to be maintained and speed is of the essence.

Typically, a cloud computing platform will provide a range of APIs (Application Programming Interfaces) that allow contact centre functions to be integrated with CRM applications such as salesforce.com and other applications. The APIs typically provide programmatic access to two key groups of features in the call centre platform: Computer Telephony Integration (CTI) APIs provide developers with access to basic telephony controls and sophisticated call handling and configuration APIs that provide programmatic control of administrative functions.

Important to the success of IPScape are the alliances they maintain with organisations such as Macquarie Telecom and (CRM heavyweight) Salesforce.com. Burke says, “In terms of telecommunications infrastructure and data centre capacity we have a very strong alliance with Macquarie and about five other telecommunication providers”. These alliances enable IPscape to distribute its services and technology. “ Recently, we have just signed a deal with British Telecom to distribute our technology and services in the UK, which demonstrates, not just the quality of the technology, but the rapid adoption rate that this type of technology is currently experiencing.”

“Our solution, as opposed to anything we’ve seen on the market, has been born and developed exclusively in the cloud using SIP termination. An important alliance for us, in our ongoing development, is with Salesforce.com where we are developing CTI and screen pop integration with their solutions.”