Globalization, IT Outsourcing, and Business Process Outsourcing

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Globalization, IT Outsourcing,and Business
Process Outsourcing

• February 13, 2006
• Hugh Dyar
• Senior Executive, Accenture

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Agenda

• The World is Flat
• Why now?
• IT and Business Process Outsourcing phenomena
• How and Why large companies do these things

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Outsourcing has become a social lightning rod
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The Flat World
The World is Flat Thomas L. Freidman Farrar,
Strauss, and Giroux 2005
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The Three Great Eras of Globalization
Globalization 1.0 (1492 1800) World shrank
from Large to Medium Countries as change
agents Battles of muscle, horsepower, steam,
ships Inspired by Imperialism, Religion, or
both Dominated by Europe
Globalization 2.0 (1800 2000) World shrank
from Medium to Small Multinational Companies as
change agents Battles for markets and
labor Railroads, Telegraph, Telephone, PCs,
Fiber-Optic cable, Internet Dominated by United
States
Globalization 3.0 (2000 2005) World shrank
from Small to Tiny, and Flattening Individuals
collaborate and compete globally Battles for
markets and labor Telegraph, Telephone, PCs,
Fiber-Optic cable, Internet
Tom Friedman, The World is Flat 2005
Tom Friedman, The World is Flat 2005
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The Ten Forces that Flattened the World
Flattener 1 11/9/89 Berlin Wall falls
Microsoft releases Win 3.0
Flattener 2 8/9/95 Netscape goes public
Flattener 3 Workflow software a.k.a.,
Middleware
Flattener 4 Open-Source Software - IBMs
Apache
Flattener 5 Outsourcing Y2K - Indias
WW footprint
Communism Equally Poor Capitalism Unequally
Rich
Proprietary Vs Open
Change your oil, now Fiber-optic overbuilt
Flattener 6 Offshoring Gazelles and Lions
Flattener 7 Supply Chaining Wal-Mart effect
Flattener 9 In-Forming Google, Yahoo!, MSN
Flattener 10 The Steroids Digital,
Mobile, Personal, Virtual
Flattener 8 Insourcing UPS effect
Dec11, 2001 China joins WTO
The China of Companies
Toshiba laptop repair 2 WW GDP on UPS
trucks Jet Blue in home agents
Moores Law Voice Over IP Wireless
Information Access
Tom Friedman, The World is Flat 2005
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The Triple ConvergenceAround 2000, all Ten
Flatteners converged and created a new, flatter,
global playing field.Three BILLION people
walked out onto the Global playing field from
China, India, and the former Soviet Union
Convergence 1 New playing field enables sharing
of knowledge and work in real time, with no
regard to geography, distance, or in future,
language Web Enabled
Convergence 2 New technology combined with new
business processes, employees who understand how
to leverage technology
Convergence 3 3 Billion new players, previously
frozen out, now plugged in and anxious to
play. Legacy-free
Open to more people in more places on more days
in more ways than anything like it before in the
world.
Southwest Airlines ticketing Clueless BizHub guy
Zippies - Liberalizations Children 54 of India
is under 25 yrs old (555M people)
Tom Friedman, The World is Flat 2005
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US companies benefit from Indian hiring
boomExports to India have doubled to 5B from
1990 to 2003
Microsoft windows Intel chips Lucent
phones Network switching by Cisco Network
connection by ATT, others Carrier air
conditioning Bottled water by Coca-Cola 90 of
shares in companies owned by U.S.
Each seat needs
Has upward career path Is an elite college
graduate Wants cell phone Wants American jeans,
movies, etc.
Each new earner
Tom Friedman, The World is Flat 2005
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The Great Call Center phenomenonNew Customer
Support Agent Burdened Cost
A low-wage, low prestige job in America becomes a
high-wage, high-prestige job in India. An
unmotivated, transitory employee in America is
replaced by a highly motivated, productive
employee in India.
FACILITIES
BENEFITS
SALARY 1920/mo
FACILITIES
BENEFITS
SALARY 200/mo
Includes transportation, lunch, dinner
US
India
Hard to attract applicants 30 annual turnover
6 of applicants hired No turnover
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Off-Shoring with Obligation
Employment history of New London, CT
19th century Major whaling center
1960s, 1970s Whales long gone Military-oriented
employers Electric Boat, US Navy, Coast Guard
2000 Mohegan Sun, Foxwoods Pfizer pharmaceutical
research
Over time, people and capital are freed up to
perform more sophisticated work.
Tom Friedman, The World is Flat 2005
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African Proverb
Every morning in Africa, a gazelle wakes up. It
knows it must run faster than the fastest lion or
it will be killed. Every morning a lion wakes
up. It knows it must run faster than the slowest
gazelle or it will starve to death. It doesnt
matter whether you are the lion or the
gazelle. When the sun comes up, you had better
start running.
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Bill Gates Ovarian Lottery
30 years ago, if you had a choice between being
born a genius on the outskirts of Bombay or
Shanghai, or being born an average person in
Poughkeepsie, you would take Poughkeepsie,
because your chances of thriving and living a
decent life there, even with an average talent,
were much greater. Now, I would rather be a
genius born in China than an average guy in
Poughkeepsie.
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Globalization and Outsourcing Factoids

• In 2003, 25,000 US Tax returns done in India. In
  2005, expected to be 400,000
• China has over 160 cities with populations of 1
  million or more
• In China, when you are one in a million, there
  are 1,300 other people just like you
• In 2003, China replaced the U.S. as the largest
  importer of Japanese products
• Since the mid-1990s, cheap imports from China
  have saved American consumers roughly 600M and
  have saved U.S. manufacturers untold billions in
  cheaper parts for their products. Which as, in
  turn, enabled the Federal Reserve to hold down
  interest rates longer.
• Yale Fall 1985 71 Chinese, 1 Russian.Yale Fall
  2003 297 Chinese, 23 Russian
• In 2004, Infosys received one million
  applications from young Indians for 9,000
  technology jobs (1001)
• Between 1980 and 1999, Arab countries produced
  171 International Patents.
• There are 18 computers per 1,000 people in the
  Arab region today, compared to the global average
  of 78 per 1,000
• Only 1.6 of the Arab population has access to
  the internet
• In 2002, the GDP of Spain is greater than the
  combined GDP of the 22 Arab countries combined
• 16 of the 20 most polluted cities in the world
  are in China

Tom Friedman, The World is Flat 2005
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Can America survive? -- Yes!

• America will do fine in a flat world with free
  trade, provided it continues to churn out
  knowledge workers who are able to produce
  idea-based goods and services that can be sold
  globally. There may be a limit to the number of
  good factory jobs in the world, but there is no
  limit to the number of idea-generated jobs in the
  world.
• Todays wants become tomorrows needs Internet,
  Starbucks, Google
• Post WWII, America integrated a broken Europe and
  Japan and yet our standard of living has
  increased every decade since. Our unemployment
  remains under 5
• 150 years ago, 90 of Americans worked in
  Agriculture. Today its
• We can innovate, and retain high function, high
  paying jobs here HP, Dell, Google, Microsoft,
  Cisco
• We remain the worlds largest domestic consumer
  market, full of early adopters

Tom Friedman, The World is Flat 2005
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Information Technology Outsourcing Business
Process Outsourcing Why do companies do these
things? How does the process work? How do
companies sell and deliver it?
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The Changing landscape of IT over 50 years
IT as a percent of U.S. capital
Source U.S. Department of Commerce (Sept. 2002),
IBM analysis
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Gartner Dataquest view of worldwide Business
Process Outsourcing opportunity
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Increasingly, businesses look to business process
outsourcing as a strategic enabler, not only for
cost savings
Q Thinking about outsourcing business processes
such as customer care, logistics, HR, etc., in
2004, is your company going to1

• The number of enterprises planning to start,
  maintain or expand outsourcing of business
  processes is growing
• IDC 55 (August 2004)1
• Gartner Dataquest 37 (July 2003)2

Source Vertical View of BPO Demand A Study of
Five Vertical Industries, IDC, 2003 (Financial
Services, Health Care, Retail/Wholesale,
Utilities/Energy, Manufacturing)
Sources Worldwide BPO Services 2004 Vendor
Analysis Assessing the Strategies of I T Service
Providers, IDC(Aug. 2004) BPO User Wants and
Needs, Gartner Dataquest (July 2003).
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Rethinking the Enterprise
Percent of sales
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Large Companies Tend to outsource to the
following functions.Large Outsourcing Vendors
have built processing centers for these
activities in various parts of the world
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IDC Business Process Outsourcing leadership
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The benefits of outsourcing from tactical to
strategic
Business Process Outsourcing targets reducing a
clients costs and investment in business
processes
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Business Process Outsourcing Solutions deliver
lower cost and higher quality
Global resourcing without transforming is a
missed opportunity
Cost Effectiveness
100 of staff _at_ 100 of Original cost

• Many operators have low cost offshore facilities
  few have the capability to manage the change
  and transformation required to deliver the full
  potential benefits.
• The IBM approach leverages cost effectiveness and
  process efficiency and transformation.
• Cost effectiveness is achieved through optimized
  service delivery model (three tier architecture
  on site, near shore, offshore)
• Process efficiency is achieved through
• Standardisation
• Performance monitoring
• Process technology transformation
• Transformation of the entire process and value
  change

100 of staff _at_ 40-70 of Original cost
Process Efficiency and Transformation
60 of staff _at_ 100 of Original cost
60 of staff _at_ 4070 of Original cost
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Typical split of activities within Finance
Accounting
Finance Admin
Accounts Payable
Fixed Assets
Accounts Receivable
Cash Banking
100
100
Financial Accounting
80
Management Reporting
70
70
FA Outsourced
50
50
30
20
30
FA Retained
Credit Monitoring Physical collections
Report finalization Books ownership Tax liaison
Cash Management Bank Relations Contract Financing
Report Analysis
Supplier relationship Procurement Goods
Receipt Invoice approval
Price maintenance Sales Invoicing Credit
Management Customer Queries
Capitalization Decision Physical
Inventory Physical Tagging Local Reporting
Communication of expectations re cash movts
Accruals Write-Offs Some closing activities
Budgeting Analysis Business Commentary
User Activities
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Many groups of functions with major corporations
can be charasterized by pyramids.The
transformation of HR begins by organizing work
to best leverage the talent in the HR function
Future State
Current State
20-50 Cost Savings
HR Strategy and Policy
Customer HR Organization
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15
10
HR Subject Matter Experts
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Customer HR Organization
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BPO Provider
50- 60
HR Administration
40 - 50
30
55
BPO Outsource
Automation Self- Service
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Is this the whole Outsourcing story?
Not just Bangalore
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Delivery Center Bangalore
Embassy Golf Link Campus (EGL)

• Facilitate combining AMS and BPO Operations at
  one facility
• To house over 5,000 employees securely
• Complex of 3 Buildings
• State-of-the-art facility
• Intra-City BCP

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Typical Vendor Delivery Center Bangalore
The Operations
Highlights

• Large Contiguous Space Availability
• 4th Flr 33K Sq.Ft (In operation)
• 5th Flr 33K Sq.Ft (In operation)
• Reliable Connectivity
• 4 Lease Line Provides On Site
• VSNL Earth Station
• Reliable Back Up Power
• 9 MW Back Up Generator
• 100 Redundancy In Power
• Round The Clock Security
• Guard Patrols, CCTV, Door Alarms
• BMS Fire System/AC/Power/Security
• Amenities
• Cafeterias / Malls / Banks /Health Club
• In-house Transport Options

Capacity
Links
47 Mb
International

43 Mb
Domestic

• High quality management and staff with experience
  in transitioning over 4000 Western roles to India
• 1000 BTO staff, 2000 by end of 2004
• All staff are English speaking graduates

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The Philippines

• Labor force of 29 Million
• 3rd largest English speaking nation
• Literacy rate of 94
• 380,000 graduates/year
• Low attrition rate (less than 15 among Customer
  Contact Centers)
• Quality management staff
• Highly Trainable
• A fraction of labor cost of US and EU
• Telecommunications costs have dropped 70 in last
  3 years

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Many Outsourcing companies have centers all over
the globe
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Three-tier delivery strategy maximizes delivery
value
Tier 1
Tier 3
Tier 2
Global Support Centers
Regional Support Centers
Onshore Expertise Support

• Standard transactions
• Lowest cost with high quality
• Multi-client facilities
• Highly leveraged

• Standard non- transactional activities
• Remote center
• Leveraged multi-client facility
• Regional expertise

• Expertise Support Centers
• Co-located with client
• Dedicated
• Location-specific requirements

• Delivery Capabilities
• Three-tier delivery strategy for maximum
  flexibility
• Delivery Centers with 33,000 process and delivery
  experts in 15 countries
• 50,000 consultants with expertise in 17
  industries and multiple business process areas
• 50,000 Application Management Services
  Professionals

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Client EXAMPLE -- Scope Description
CRM
FA
Key business processes, not just backroom
operations
Financial Services Global AP TE EMEA OTC
processing US Collections Cash Apps
Contact Center AG and EMEA Inbound and Outbound
Data Programming AG and Europe Information entry
from public records Product Fulfillment
Oracle OTC Migration Implementation Services
Transaction Processing Europe only Data Entry and
error re-work
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Client EXAMPLE Solution Map
Bethlehem, PA 104 FTE
Mississauga, CA 35 FTE

• US Gold Service 13
• US Sales and Service 53
• Personalized Investigations 8.5
• Advanced Customer Update - 4
• Error Resolution Screening - 10

• US Sales and Service - 13
• Family Tree / Linkage 1
• ACUG 4
• DP Canada - 14

Manchester, UK 27 FTE

• EMEA Customer Support - 24
• EMEA Gold Service 3

Lehigh Valley, PA 71 FTE DP US CAN Trade
5 DP SMS/RMS 23 DP US SMS - 43
High Wycombe, UK 24 FTE

• EMEA Customer Support - 4
• DP EU Delivery 18
• TP - 2

• Waltham, MA 7FTE
• Technical Support - 7

• Milan, IT 66 FTE
• EMEA Gold Service 4
• EMEA Customer Support 20
• Service Failures 1
• TP - 41

• Inbound CS
• Inbound Tech S
• Revenue Generation
• Contract Admin

• Rotterdam - 66 FTE
• EMEA Customer Support 5
• Service Failures 3
• Family Tree 21
• Re-Investigation 10
• DP EU Trade - 3

Bari, Turin, IT FTE Svc Failures 24

• Almelo, NL 45 FTE
• EMEA Customer Support 1
• Service Failures 38
• TP - 6

• Tucson, AZ 88 FTE
• US Outbound

• Austin ,Texas 122 FTE
• US Sales and Service 69
• Technical Support 13
• DunsVoice 6
• Contract Administration 24
• Usage and Billing - 7

• Greensboro, NC 95 FTE
• US Outbound - 95

Not Included The outbound European Telecenter
operation is outsourced to CSC. Data collected
on UK, Germany, Italy, Spain, Portugal.

• Outbound Telecenter
• Data collection DB updates
• Self-Analytic product sales

• Data collection DB updates
• Self-Analytic product sales
• File maintenance file builds

Current State 750 FTE
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Client EXAMPLE Solution Map
Manchester, UK 27 Rebadged FTE
Greenock ( 170 FTE ) ENG,Italian, FR, Flemish,
Dutch
Bethlehem, PA 66 Rebadged FTE

• EMEA Gold Service
• EMEA Customer Support
• ACUG
• Family Tree
• Re-Investigation
• DP SMS/RMS
• TP

Mississauga, CA 13 Rebadged
High Wycombe, UK 4 Rebadged FTE
Rotterdam Almelo, NL - 6 Rebadged FTE
Austin ,Texas 69 Rebadged FTE
Milan, IT 24 Rebadged FTE

• Buenos Aires Sao Paulo ( 417 FTE )
• ENG, SPANISH, PORTUGUESE
• US Sales and Service
• US Gold Service
• US Outbound
• Family Tree
• Errors / Screeners
• Technical Support
• Contract Administration
• Usage and Billing

• Bangalore ( 83 FTE)
• DP SMS/RMS
• DP US SMS
• DP Canada

Future State (1st step)
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Client EXAMPLE Solution Map
High Wycombe, UK
Allentown, PA

• AP/TE Processing (4 FTEs)
• Europe OTC Processing (17 FTEs)

• AP/TE Processing (7 FTEs)

Milan, Italy
Bethlehem, PA

• AP/TE Processing (5 FTEs)
• Europe OTC Processing (7 FTEs)

• US OTC (38 FTEs)

Krakow

• AP/TE Processing (8 FTEs)
• Europe OTC (10 FTEs)

Tulsa
Brussels/Rotterdam

• AP/ TE Processing (1 FTEs)
• Americas Collections (2 FTEs)

• AP/TE Processing (1 FTEs)
• Europe OTC Processing (2 FTEs)

Bangalore

• AP/TE Processing (4 FTEs)
• Americas Collections (30 FTEs)
• Europe OTC (19 FTEs)

Current (81) and Future (74) States
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Its a lot more than this!!!!
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Thank You