Strategic Outsourcing Professionals

Cebu is a great destination to provide business continuity in your global sourcing plan; this is true even with Manila as an existing destination. The island is far south of Luzon (island where Manila resides) and is surrounded by neighboring islands. Because of the location, it is shielded from most tropical storms and typhoons. If Manila gets pounded with weather, Cebu usually doesn’t feel more than strong rain. Additionally, the island has the fastest growing economy in the island chain and is the second largest metropolis in the Philippines.

Here are some other factoids about Cebu:

• The island boasts a population of about 3.5MM; most speak English well
• Cebu graduates 20K students annually from its universities and offers a strong, educated labor pool
• Power sources are a mix of fuels and geothermal energy, ensuring long term reliability and protection of the environment; all power and water supplies are mutually exclusive of Luzon and the northern islands.
• BPO growth remains strong in the region and is expected to continue as the US economy heads into recession.
• Cebu is the most accessible place in the Philippines, with more domestic air and sea linkages than Manila
• It has one of the best records for peace and order within the country
• It is not in an earthquake zone or typhoon belt, nor are there volcanoes on the island
• Its labor force is oriented towards non-agricultural lines and is one of the most productive in the country
• The development of its infrastructure is balanced; it has all the ingredients necessary to be competitive and sustain investments

And, finally, my favorite tidbit about Cebu…

• Its warm hospitality, white sandy beaches and surrounding rich coral reefs, make it a favorite international tourism destination.

I am ready for some hard work ahead.

As large companies experience growth, especially by acquisition, there will always be opportunities to consolidate and streamline business operations for optimal efficiency and cost reduction. When individual business units are managing the same function, such as Customer Care Operations, there is an opportunity to consolidate the function so each unit and their unique requirements are met while placing a core group accountable for all the operational infrastructure, vendor procurement and relationship management that is necessary to ensure excellent service delivery. For this reason, I am a firm believer and proponent of a Global Operations governance model when managing customer care across multiple business units within large organizations.

The benefits for consolidating the global sourcing function are as follows:

• Responsibility and accountability falls within one group to manage the service and sourcing function for the business to meet the needs of both internal and external customers.
• Promote collaboration between business units and drive toward unified customer experience goals.
• Optimize costs by performing Work Force Management (WFM) to forecast and staff a balanced vendor portfolio.
• Enable an infrastructure to seamlessly transition vendors when better performance, terms or service levels are desired.
• Expand, grow and align the business with strategic partners that can deliver results.
• Build a diversified vendor portfolio for business continuity.
• Build and foster sound relationships to ensure the business is satisfied with performance, costs and customer experience.
• Balance the need for immediate cost savings with customer satisfaction
• Coordinating activities/projects across multiple providers and geographies

I developed this star diagram for a recent presentation on Global Operations. I feel it sums up the function well.

Here are my top ten predictions for the BPO industry in 2008:

1. Outsourcing will once again become a hot topic in Presidential debates as both Republicans and Democrats try and win votes from the masses; expect lots of ‘Keep the jobs in the USA’ propaganda – it should be noted that neither political party really knows what they are talking about.
2. Guatemala of 2008 is the Philippines of 2003. Lock in those highly competitive rates and snatch up the English speaking talent while you can.
3. Locations will be more difficult to identify as market saturation in existing BPO destinations drives increasing costs and emerging BPO destinations offer threatening political profiles.
4. Offshoring market trends for quality English speakers will drive the Philippines to the number one destination for English-based support. This is only true if government officials can agree to disagree and get past their issues. No more bombings and coups are necessary.
5. BPO 2.0 will emerge and become a competitive advantage for vendors as work-at-home platforms have the potential to offer higher quality talent at cheaper prices. The financial services industry has work to do for this model, but it will eventually work itself out. By 2025, owning real estate to house a call center will not even be an afterthought.
6. Opportunities for business development are prevalent in Brasil as the economy will continue to flourish driving demand for Portuguese based services. Latin America provides the best opportunity to provide these services with vendors already providing free language classes.
7. Companies will continue the trend of reintroducing domestic-based services for critical vertical functions that include inbound/outbound sales, customer retention and escalation services.
8. Launching offshore, captive centers within big companies will continue in developed BPO markets. Captive centers will continue to be a key strategy in driving down operational costs while acquiring and retaining experienced resources.
9. Companies will learn to use outsourcing tools to manage SLAs more effectively to drive new and better contract terms with their providers.
10. Eastern Europe was buzzing in 2006/7. The region will not flourish for American business, but will emerge as primarily a European outsourcing destination.

Cheers to a prosperous and healthy 2008!

In the BPO environment, a typical governance model will include a mechanism for managing key performance indicators (KPI) to ensure high levels of resource utilization and customer satisfaction (CSAT) while driving down operational costs. Most environments will define measurements that track KPI at an individual resource level, but will then average KPI by vendor, site location and/or line of business to measure success. The data is then traditionally used to identify opportunities for improvement and/or steer ‘spend’. Typically, enterprise-wide initiatives are developed for an entire program where only marginal benefit is achieved because the gaps are not enterprise-wide. What if you could monetize each resource in dollars and cents to understand impacts and/or benefits?

As ‘BPO 2.0’ moves forward, there is a need to measure individual resources with a metric of Earned Value (EV). This concept is founded on the principle that resources are variable; they perform at different and unique levels of efficiency and quality. The more adept a resource is at providing efficient and quality services, the less impact that resource will have on the overall operating cost of the organization. By measuring individual resources with earned value, this opens the door for aligning vendors more seamlessly to corporate objectives and goals.

Benefits of deploying an EV metric are as follows:

• Develop a performance monetization matrix that specifies impacts of resource specific operating costs within the organization
• Incorporate a framework for training development to promote resource grade classifications and drive towards higher quality, higher efficiency and lower costs.
• Develop value stream maps for process improvement and resource development
• Incorporate EV metrics into the scorecard to assess and target opportunities for improvement

Stop and think about the possibilities from both a negotiation and vendor management perspective as the model is developed. Vendor incentives could be negotiated where the best and most efficient resources are aligned to your account. Vendors have the potential to make higher margin; clients would be willing to pay slightly more for resources that are known to operate more efficiently with higher quality because earned value would quantify an actual cost reduction of lower FTE. By developing an earned-value metric, everyone has the opportunity to win. Let’s just hope my boss wants to play!

Within the last six weeks, there have been three serious events in Manila that cause concern for the Outsourcing community facilitating operations in The Philippines. While operating in Manila for two years, this is the first time that a series of dramatic events has occurred in such a short span of time.

On Friday, October 19^th, there was an explosion at the Glorietta mall that killed eight people. The Australian Federal Police, who assisted with the investigation, concluded that there was “no evidence to suggest that the explosion had been caused or initiated by an improvised explosive device.” However, after being in Manila a few weeks ago, the general consensus amongst the people was that it was more than likely a deliberate terrorist attack.

On Tuesday, November 13^th, I was having dinner on top of the Citi building in Makati when a blast went off at the Philippine House of Representatives. This explosion killed three people and wounded several others in the area. This was the first historical attack against the Philippine government building.

Today, November 29^th, there was a resistance movement staged at the Peninsula hotel in Makati (across the street from the Shangri-La where I stay), which was comprised of former government officials and a small military force. The renegade group was demanding the resignation of President Gloria Macapagal Arroyo and calling for a popular uprising against the President. Philippine military forces surrounded the hotel. Approximately 400 hotel guests were evacuated during the siege. Warning shots had finally been fired and tear gas was used to thwart and disrupt the uprising. While this ended with no casualties, it seems far from peaceful.

We have been extremely pleased with our Manila Operations, but it does make you think twice about business continuity and general sourcing strategy. Now, I just need to prevent my wife, or heaven forbid, my mom from seeing this post. The travel would be the least of my worries.

I have been published in a book entitled, Mutlisourcing – Concepts and Applications, edited by Jaya S Krishna. The book was published and released by ICFAI Books, which is a branch of Icfai University in Hyderabad, India.

I was contacted back in February to see if I would like to donate my work to the Institute of Chartered Financial Analysts of India, which is a non-profit organization established to impart quality education in Management and Finance. Besides generating original articles and books, they aim to accommodate a plurality of views and multiplicity of ideas for the benefit of learning. For this reason, I welcomed their request to include my thoughts and viewpoints for their publication.

The book is a compilation of articles and white-papers written by industry experts. For this particular book, I wrote the article outlined in Chapter 8, Three Keys to Managing Multi-vendor Environments for Success.

Recently, we have undergone an evaluation of Emerging Markets to explore alternative outsourcing destinations. One of those markets, Guatemala, is extremely appealing when you look at the labor resources available, the price points of services provided, and how the government is setting up the infrastructure to win U.S. based business. Below is a quick snapshot of our findings with regards to Guatemalan vendors offering BPO and customer care services.

Guatemala is trying to establish itself as the premiere Central American country offering Nearshore business process outsourcing and call center services. The country provides the largest population in Central America with 14 million people.  Guatemala also provides 40% of the total GDP for the entire region – the economy is strong and growing. For BPO and call center services specifically, the industry is virtually untapped; approximately 1-2% of the entire Guatemalan labor force works in the BPO industry. 

When looking at the Guatemalan infrastructure to support U.S. business, there are several initiatives underway that promote the growth of the BPO industry. The largest and most compelling initiative is the establishment of the ‘Cluster’ or Guatemalan Call Center Commission. This commission was established by the government to prepare, standardize and regulate companies seeking U.S. clients. The Guatemalan government is trying to ensure that the industry remains healthy and that companies in the commission represent the country well. Call centers must undergo a standardization process, similar to ISO, before they can be granted membership into the commission. The commission also seeks to protect the labor force by enforcing laws around age requirements, employee benefits, fair working conditions and promoting competitive compensation packages.

The main benefits for seeking BPO services in Guatemala are as follows:

• Low Attrition Rates – The Call Center commission tracks employees in a centralized database as a check and balance against employee poaching. Once an individual works for a call center, the individual is not eligible to work for another call center for 6 months. This combats high turnover rates that are present in highly saturated markets like India, Costa Rica and the Philippines.
• Low Pricing – The rates in Guatemala are highly competitive in comparison to other markets. There are American companies who sub-contract through Guatemala, but pricing for American based vendors seem to be 20-30% higher. By going directly to the Guatemalan providers, costs will be lower because there is not a ‘pass through’ provider trying to make their margin.
• Strong English – While Spanish is the primary language, Guatemala has a large English speaking population; this is especially true throughout the Universities. The English capability is far better then India, Panama, Costa Rica and the Philippines.
• High Quality – While we have not yet employed a Guatemalan vendor, our dealings with them have been terrific. They really understand the business and know what clients want in a relationship. Each vendor seems to have the capability to provide a fully-loaded solution that includes data/voice recording for quality management, Work Force Management, ICM integration, favorable personnel ratios and seem very willing to take on aggressive SLAs.
• Strong Connectivity – Telecom response times have been noted at .065 milliseconds. The redundancy in fiber is 99.99% with some major carriers. T1 rates are also some of the lowest in the region.

The benefits for moving operations into Guatemala are compelling. My only advice when researching Guatemala as a future outsourcing destination - ignore the crime rates.

I have been busy the past few weeks so I figured I would post a lighter story discussing my recent business travel. This past week, we went to our facility in Central America to perform a capability and gap assessment of our current operations. While this trip was very productive, my favorite part was exchanging stories with colleagues about our outsourcing experiences. After reading this post, you may want to review invoices more closely for unusual charges. They just might be entertaining enough for you to share; just like this particular line item - One (1) Mean Monkey: 50,000 Rupees.

In India, cows roam the crowded streets, elephants dominate the bus lanes and children can stop traffic with cricket games in alleys. However, there is no substitute for the army of wild monkeys that have invaded the capital city of New Delhi. Monkeys may be cute, but they are actually quite destructive, aggressive, territorial and dirty animals.

Wild monkeys in New Delhi have invaded rooftops of operations centers across the city. When this happens, monkeys will become an immediate nuisance to your employees. They are known to break-off roof tiles, destroy power lines, rip down rain gutters and pick employee pockets. If that is not enough, their hoots and howls have been known to penetrate concrete walls. Employee focus, productivity and efficiency are quickly impacted if monkeys are allowed to settle into facility rooftops. If the problem is not actively addressed, a pack of monkeys can destroy buildings. Now, add the cost of a new roof with the increased distraction of construction, and you have a pretty expensive and complicated problem. When you put all the pieces together, the lost employee productivity, efficiency and cost associated with property damage can be a serious constraint to facility margins. It is definitely a problem that needs a resourceful solution.

So, how do you solve the problem? Well, the answer is easy - find a monkey handler and outsource a ‘Mean Monkey’. Mean monkeys will not assimilate with other monkeys and will infiltrate monkey packs to disband the group. Further, they will proceed to take on the territory as their own. By releasing a mean monkey on your roof, you will guarantee that all the nuisance monkeys will soon move to another rooftop. Then, the only worry is the one mean monkey on the roof. If you throw him some bananas and dates, he will call your rooftop home and then you don’t have to worry about future monkey infiltration.

While this story explains the logic and business need of procuring a mean monkey, I started thinking about more innovative solutions. Realistically, if monkeys move to another roof they become someone else’s problem. That just doesn’t seem like an ethical service or business. Given my nature and personality, my entrepreneurial spirit got the best of me. There must be a way to scale and grow a monkey business. I thought hard about how I could profit by combating the India monkey problem. I came up with the options below.

1. I can launch an extermination business? PETA might not approve of this, but then again, India is a long flight for animal rights activists to stage a protest. Although, given what PETA does protest, it wouldn’t surprise me if some folks made the journey. The last thing I want to be is the individual responsible for triggering the establishment of an Indian PETA affiliate group. For this reason, I am not sure primate extermination is the best idea.

2. I could breed a terminator monkey. When you think about it, humans with extra Y chromosomes are overly aggressive and usually find themselves in jail by the time they are eighteen. Monkeys with an extra Y chromosome will ensure aggressive and potentially ‘terminating’ behavior. I could probably guarantee quality with a genetically engineered monkey. On the flip-side, monkey clean-up may become a new problem, and costs for genetically engineered primates may get expensive. Further, Arnold Schwarzenegger might be displeased that his movies motivated my business plan. I think profits may struggle with this model.

3. I could develop a humane way to capture and release monkeys? I guess I could argue that this doesn’t really solve the problem if monkeys continue to return to rooftops, but then again, profits may be solid with a recurring revenue model. Maybe this could also spin-off a business to help fight deforestation so the monkeys have a habitat of their own. Who knows, I may be Time Magazine’s Man of the Year for my work to fight global warming while providing a humane way to relocate hundreds of thousands of monkeys from New Delhi. Better yet, I may be able to join Al Gore - Brad Rubin, Nobel Peace Prize Winner.

Ugh, I don’t know what the best solution is for the problem.

Do you think if the vendor just accepted the mean monkey as a cost of providing service, I wouldn’t be thinking about all this monkey business? I am going bananas!

It seems pretty easy to outsource IT or Business Process functions. The concept is simple enough. You draft requirements, build a plan for implementation and then transition to your outsourced vendor for execution. Ah, if it were only that simple. Obviously, there is a lot to successfully sourcing the correct vendor to perform services for your business. Any serious sourcing professional understands the process and challenges, but for those that are just diving into the outsourcing realm, there is one ‘gotcha’ that you need to think about – working with offshore providers brings a new set of challenges with cultural barriers.

Most folks in the outsourcing community will agree that one of the largest challenges with successfully transitioning a business function is transferring knowledge to a distributed environment. Further, once the knowledge transfer occurs, results have the potential to vary greatly. I call this effect ‘Lost in Translation’. It is similar to playing the game ‘Telephone’. Do you remember that game from your childhood? Basically, a group gets in a circle and the first person communicates a message and asks the next person to relay that message. The process continues through the circle and by the time the message gets to the last person, it tends to be dramatically different from what was originally communicated. In outsourcing, this unfortunate ‘game’ of communicating is commonplace. When you think about it, collaboration with internal teams can be challenging enough with a virtual environment; when introducing a global collaboration paradigm where broad cultural differences exist, the challenge grows exponentially.

I have yet to find the golden answer to overcoming this problem in the outsourcing environment, but there are things you can do to mitigate this risk. The concepts may seem simple, but then again, so does communicating. So, without further ado, here is my advice to overcome communication and cultural barriers in the global workplace.

• People tend to be more productive and assume greater ownership with face-to-face communication. When outsourcing, make sure key managers get together once a quarter and leverage teleconferencing for other key meetings. It is easier to develop relationships when you are able to see the people you are engaging. Body language is a key indicator; you need to understand if resources have blank stares or if people are onboard with key discussion points.
• Provide a solid training overview of your American business and segue into why the vendor resources are necessary to complete the company objectives. This will provide background and will help facilitate ownership of responsibilities for the vendor resources.
• Empower employees and vendors to collaborate with software. Whether you are in a Manufacturing, IT or BPO environment, there are plenty of tools in the marketplace that will manage both SLAs and Change Management. For success, use tools to your advantage.
• Introduce American cultural in a simple and entertaining manner. Be resourceful and forward movies, commercials, magazines and just about anything else you can think of that provides a reference to American culture. Yes, this really works; especially in a call center environment. Agents will absorb this material and build more rapport when engaging customers.
• Empower communication through instant messenger software. In a global footprint, instant messaging is a great forum for communication and can help your resources get clarification faster.
• Brand the vendor facility with marketing materials to develop a sense of corporate pride. People are more productive and will engage in conversation or email more frequently when they have a sense of belonging.
• Manifest collaboration to deliver positive results by making a point to know your co-workers and partners. Encourage your team to do the same. At the end of the day, the more you know about your co-workers and vendors, the more comfortable, productive and enjoyable the partnership(s) will become.

I hope this post doesn’t seem ‘Lost in Translation’.  If you have other ideas to combat this problem, please let me know or comment to this post.  I am all ears.

Recently, our team sat down to review and discuss proposals from vendors providing services exclusively in the Asian and Central American markets. The conversation flowed like many sourcing discussions; we talked about how the vendors differentiated their service offerings and the value they could bring to our business. For the most part, all the proposals were well prepared and we enjoyed the discussion with the exception of one thing - the global footprint under review.

With the Asian and Central American markets already saturated, it is extremely difficult to keep an offshore BPO provider in these regions operating seamlessly. Vendors in these regions are constantly battling attrition with employees moving for increased wages or better opportunities. The vendor attrition rate puts a strain on customer interactions for the American business, which in turn drives down brand-equity. This is not anything new to an outsourcing professional, but it is flabbergasting to understand how vendors, both large and small, are responding to the market saturation.

It comes as no surprise that the Indian Rupee, Filipino Peso, Costa Rican Colon and plenty of other foreign currencies have gained momentum against the declining US Dollar. When you couple the declining dollar with globalization, you have an issue of thin margins for outsourcing vendors. To hedge risk, vendors are now asking customers to accept a currency fluctuation clause in the contract with regards to pricing. This is what drives me to challenge vendors pitching the acceptance of currency risk clauses in contracts; the concept defeats the key principles of cost and risk reduction with outsourcing.

I understand how it can be hard to stay competitive in the BPO marketplace; especially in Asia and Central America. However, vendors should make an effort to develop creative solutions rather then simply asking for a customer to burden additional risk to an increasing problem. I would offer the suggestions of hedging foreign currency and start researching new outsourcing destinations so your customers don’t need to accept unwanted or undesirable risk. I hear Mauritius is a real nice place, cheap too.