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The Future of Outsourcing
- What to Expect in 2010 -
Sales Leader Series – TeleBriefing #7
        November 19, 2009
Sales Leader Series – Fall 2009
      Escaping Pipeline Purgatory - view                           Sept, 17 2009

      Creating Qualified Opportunities (Not Just Leads)   - view   September 24, 2009

      Sales Readiness for 2010 –view                               October 1, 2009

      2.0 Sales Tools for the Real World - view                    October 19, 2009

      Outsourcing Buyers Panel: “Why We (Really) Buy” - view       October 27, 2009

      Sales Leaders Dream Team - view                              November 5, 2009

      Future of Outsourcing – What to Expect in 2010 - view        November 19, 2009


The Outsourcing Institute / 3forward
All Rights Reserved                                                                     1
Sales Leader Series: Hosts and Sponsors




     Dan Hudson                        Frank Casale                Matt Smith
     President, Co-Founder             CEO and Founder,            EVP, Co-Founder
     3forward                          The Outsourcing Institute   3forward




The Outsourcing Institute / 3forward
All Rights Reserved                                                                  2
Guest Panelist




                                       John Willmott
                                       CEO, NelsonHall
                                       john.willmott@nelson-hall.com




The Outsourcing Institute / 3forward
All Rights Reserved                                                    3
State of the Outsourcing Marketplace


                              John Willmott
                                NelsonHall




Copyright  2009 NelsonHall
                                              4
Contents
• Role of BPO in a Recessionary Climate
• The Good, the Bad, and the Ugly
• Conclusions




Copyright  2009 NelsonHall
                                          5
Role of BPO in a
Recessionary Climate




Copyright  2009 NelsonHall
                              6
Seasonally Adjusted BPO TCV Up 25% in Q3,
    recovering from dramatic fall in Q1 – shows
    emergence of recession-driven contracts                                                                    Key


                                                                                                                 Business Process
                                                                                                                 Outsourcing
Global Outsourcing Contract Value




                                                                                                                 Average 2002-2008


                                     6

                                                                                      -15%
             ($Bn)




                                                                                                                     -40%
                                     4                            +25%


                                                                                                         5.1                   5.1
                                                   4.6
                                     2                                                 4.3
                                                                  3.7
                                                                                                                     3.1



                                                     Q3 2009                                 Q2 2009                 Q1 2009
                                    Copyright  2009 NelsonHall
                                                                         John.willmott@nelson-hall.com                               7
Impact of Recession on
    Sourcing in 2009 and 2010
Action in response to recession                 Taken in 12-   Planned for
                                                months to Q3   Q4 2009 and
                                                 2009 (%)       2010 (%)
Significant review of business strategy             54             21
Revision of operational budgets                     71             15
Organizational restructuring and lay-offs           44             21
Revision of sourcing strategy                       34             16
Review and renegotiation of existing BPO            43             20
contracts
Identification of new BPO opportunities             25             25
Preparation of RFPs for new BPO opportunities       15             48
Award of new BPO contracts                           8             37



    Copyright  2009 NelsonHall
                                                                         8
Organizational Priorities in a
Recession
• First priority is to cut cost-to-serve in core
  operations
• Second priority is to retain and maximize
  value of existing clients
• Third priority is to enter emerging markets
  more quickly
• Compliance, risk management, and certainty
  of outcome are critical
• Investment is severely constrained

Copyright  2009 NelsonHall                        9
Required Outsourcing
Contract Characteristics
 • Greater certainty of business case
 • Rapid pay-back achieving year-one cost
   savings
 • Focus on removing cost from high-volume
   transaction-oriented processes
 • Shift in risk in timing and certainty of cost
   reduction in favor of client
 • Shift in pricing mechanisms to move volume
   risk to suppliers
 • Potential increase in contract scope
 Copyright  2009 NelsonHall                       10
The Good, the Bad, and the
Ugly




Copyright  2009 NelsonHall
                              11
Realizing Business Value
          Risk Factors                       What works
•   Cost reduction based on       •   Labor arbitrage
    major IT platform             •   Continuous
    change                            improvement/six-sigma
•   IT-centricity                 •   Improved agent
•   Extensive subcontracting          management
•   Taking on scope beyond        •   Interfacing with client
    supplier cost levers              systems
•   Using the wrong               •   Channel shift
    location/channel              •   Technology fixes
•   Client abdicating             •   Limited scope platform
    responsibility                    BPO
•   Leaving service               •   Operational focus
    unchanged                     •   Strong client management

    Copyright  2009 NelsonHall                                  12
Philips Case Study
• Strategy
      – Salary arbitrage (1)
      – Process improvement savings (2)
• Issues
      – Need for increased automation
      – Improving organizational agility
      – Sustainability/what’s the value proposition to staff?
• Actions
      –   Development of transformation roadmap
      –   Tool for measuring error rates and timecycles
      –   Moving global hubs to India and China
      –   Leverage technology: PTP platform, general ledger cockpit,
          OCR, electronic invoicing…..
Copyright  2009 NelsonHall
                                                                  13
Key Lessons: BPO Service
Management
• Day-to-day operational management is the
  key requirement
• Be process-led and aim to standardize but
  continuous improvement is arguably more
  important than major change
• Start with the possible not the impossible
• It takes time to stabilize operations & to
  change operations
• Offshore services take time to introduce within
  complex multi-service contracts
Copyright  2009 NelsonHall
                                                14
Drivers of Reduced Total Cost
per Policy

                                            Ratio of supervisors
                                            to personnel




                                            Ratio of managers to
                              Cost impact
                                            personnel



                                            Proportion of
                                            customer files in
                                            image format



Copyright  2009 NelsonHall
                                                                   15
Impact of Staff Turnover
        50

        45

        40

        35
                                              • Low staff turnover often
                                                regarded as an end in itself
        30
 Cost




        25
                                              • But needs to be:
        20
                                                 – The right staff
        15
                                                 – Creative tension
        10

        5

        0
        <12%           15% to 20%      >25%
                      Staff turnover


Copyright  2009 NelsonHall
                                                                           16
Key Lessons: Use of Technology
• Be pragmatic. A single platform is not always
  necessary or appropriate
• Do not under-estimate the complexity
  embedded in legacy platforms and processes
• Systems integration projects are still late and
  over-budget, even within BPO contracts
• Channel change means changing customer
  behavior as well as technology
• Technology is only part of the answer. People
  management is ultimately more important


Copyright  2009 NelsonHall
                                                    17
Use of Tools/Technology

• Digitization & Workflow
      – Scanning, automatic queuing, work distribution &
        agent management
• Specialist applications
      –   Auto cash application
      –   Invoice duplication avoidance tool
      –   Online payments
      –   Collections tools
      –   Collaborative dispute resolution
• Self-service

Copyright  2009 NelsonHall
                                                           18
Planned IT & BPO Initiatives
Initiative                                 High Extent (%)
Greater use of standard software                 50
packages without further customization
Simplification of business processes             47
Use of cloud computing/standard supplier         40
managed IT infrastructure
Use of BPO services based on supplier            27
hosted software
SaaS (hosted software using supplier             23
best practice)




Copyright  2009 NelsonHall
                                                             19
Future of BPO lies in Combination of
Inward-Out and Surround-the-Core


                                  Non-core
                                  functions

                                  Core
                                                     Process
                                  functions
                                                     improvement
                              - Client systems
                              - Labor arbitrage
                              - Channel optimization
                              - Technology “gap fillers”

                                - Platform BPO
                                - Labor arbitrage




Copyright  2009 NelsonHall
                                                                   20
Increasing Optimization of
      Channels and Delivery Locations
Channel                     Role
IVR                         Routing (customer and company controlled) and presenting
                            options; simple transactions
Web Self-Service            Obtaining information; changing static info; simple purchases
Email and chat              Technical support and problem-solving
SMS                         Outbound notification
Agents
- India                     Low cost; technical support; back-office; analytical
- Philippines               Low cost customer service with increased cultural acceptance
- Onshore                   Ability to retain, cross-sell & up-sell
- Onshore WAHA              Graduate-level; domain-specific capability to retain, cross-sell
                            & up-sell
      Copyright  2009 NelsonHall                                                              21
Key Lessons: Partnership
• Work towards common goals, not hidden client or
  vendor goals
• Improve strategy alignment
• Challenge one another to achieve best solution e.g.
  imaging paper vs. moving to Internet
• Vendor should disclose cost & profitability forecasts as
  well as current costs & margins
• Introduce lean sigma to improve service quality and
  staff motivation
• New services will emphasize partnership aspects more
  than cost reduction
• Formalize innovation and consider use of “innovation
  budgets”
Copyright  2009 NelsonHall
                                                             22
Impact of Outsourcing on Application
of Business-Oriented Metrics
                                                       How does outsourcing help
Role of Business-          High-           High            in business-oriented
Oriented Metrics       effectiveness
                       in-house (%)
                                       effectiveness
                                        outsourced
                                                            metric application?
                                            (%)        •   More reliable/consistent
                                                           metrics
Improving                                              •   Easier access to
                                                           metrics/improved techniques
service                       47           84              for data gathering
delivery                                               •   Increased standardization of
Improving                                                  processes
business                                               •   Improved knowledge of how to
                              24           54              use information to drive
value                                                      change
achievement                                            •   Separation of management
                                                           from implementation




Copyright  2009 NelsonHall
                                                                                      23
Timing of Introduction of
Business-Oriented Pricing

                              Proportion     Why establish initially?
       Stage
                                 (%)       • To establish good
                                             knowledge of operations
Initially                        13          at this stage
                                           • To reduce the time
Once costs &                                 involved in setting
service levels                   81          metrics and SLAs
established
                                           • To increase speed of
                                             process transformation
Never                             6


Copyright  2009 NelsonHall
                                                                        24
Conclusions
• Business value realization has three
  components:
      – Cost reduction and SLA compliance
      – Ongoing contribution to process improvement
      – Support for wider business objectives
• Core functions remain dependent on labor
  arbitrage, process improvement, channel
  optimization and technology tools
• Non-core functions increasingly susceptible to
  platform BPO
• Client needs to participate proactively
Copyright  2009 NelsonHall                           25
TAKING OI ON THE ROAD… Outsourcing 2.0: From Theory to Reality
                                           Are you still doing it the old fashioned way?
                             London, Dallas, San Francisco, Miami, Washington DC, New York, Chicago

                                  Outsourcing 2.0 - the new outsourcing and what it means to you - your
                                   strategy, your process and your career. More Cities coming soon…

                                              Check out www.outsourcing.com/roadshow


With the largest outsourcing network in the world and the
most trafficked outsourcing portal on the internet at
Outsourcing.com, OI is the go-to-source for those seeking
targeted sales and marketing traction and ROI in the
outsourcing space.

    If you need:
    - Qualified Outsourcing Leads,
    - Exposure to outsourcing decision-makers
    - Thought Leadership opportunities
                                                             Contact Jared Gleason at 516-279-6850 x712 or
                                                             e-mail jgleason@outsourcing.com to request an
 2009 The Outsourcing Institute                              overview summary on promotional vehicles.
3forward’s Sales Transformation ModelTM


            Sales 2.0 Design and Deployment


              Social Media
              & Networks
                                     Lead Generation and Management

                                      Outbound
                Events &
               Broadcasts
                                      Messages      Sales Readiness Essentials
                                      Executive
                                     Appointment
                                       Setting
                                                     Markets      Targets    Messages
              Research &              Intelligent
              Surveillance            Nurturing




                                       To Discuss: Dan.Hudson@3forward.net
3forward, LLC; All Rights Reserved                                                      27
Resources
                                          The Outsourcing Institute Group
                                            3forward – Sales Readiness

                                                         OI
                                                      3forward


                                                 The OI Roadshow


                                             3forward Sales Leaders Blog


                                            3forward’s New Tools Directory
                                  Other       OI’s Recruiting Home Page
                                                   Outsourcing 2.0

The Outsourcing Institute / 3forward
All Rights Reserved                                                          28
Sales Leader Series – Fall 2009
      Escaping Pipeline Purgatory - view                           Sept, 17 2009

      Creating Qualified Opportunities (Not Just Leads)   - view   September 24, 2009

      Sales Readiness for 2010 –view                               October 1, 2009

      2.0 Sales Tools for the Real World - view                    October 19, 2009

      Outsourcing Buyers Panel: “Why We (Really) Buy” - view       October 27, 2009

      Sales Leaders Dream Team - view                              November 5, 2009

      Future of Outsourcing – What to Expect in 2010 - view        November 19, 2009


The Outsourcing Institute / 3forward
All Rights Reserved                                                                     29
Thank You For Joining
The Future of Outsourcing
Sales Leader Series – TeleBriefing #7
        November 19, 2009

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Future Of Outsourcing

  • 1. The Future of Outsourcing - What to Expect in 2010 - Sales Leader Series – TeleBriefing #7 November 19, 2009
  • 2. Sales Leader Series – Fall 2009 Escaping Pipeline Purgatory - view Sept, 17 2009 Creating Qualified Opportunities (Not Just Leads) - view September 24, 2009 Sales Readiness for 2010 –view October 1, 2009 2.0 Sales Tools for the Real World - view October 19, 2009 Outsourcing Buyers Panel: “Why We (Really) Buy” - view October 27, 2009 Sales Leaders Dream Team - view November 5, 2009 Future of Outsourcing – What to Expect in 2010 - view November 19, 2009 The Outsourcing Institute / 3forward All Rights Reserved 1
  • 3. Sales Leader Series: Hosts and Sponsors Dan Hudson Frank Casale Matt Smith President, Co-Founder CEO and Founder, EVP, Co-Founder 3forward The Outsourcing Institute 3forward The Outsourcing Institute / 3forward All Rights Reserved 2
  • 4. Guest Panelist John Willmott CEO, NelsonHall john.willmott@nelson-hall.com The Outsourcing Institute / 3forward All Rights Reserved 3
  • 5. State of the Outsourcing Marketplace John Willmott NelsonHall Copyright  2009 NelsonHall 4
  • 6. Contents • Role of BPO in a Recessionary Climate • The Good, the Bad, and the Ugly • Conclusions Copyright  2009 NelsonHall 5
  • 7. Role of BPO in a Recessionary Climate Copyright  2009 NelsonHall 6
  • 8. Seasonally Adjusted BPO TCV Up 25% in Q3, recovering from dramatic fall in Q1 – shows emergence of recession-driven contracts Key Business Process Outsourcing Global Outsourcing Contract Value Average 2002-2008 6 -15% ($Bn) -40% 4 +25% 5.1 5.1 4.6 2 4.3 3.7 3.1 Q3 2009 Q2 2009 Q1 2009 Copyright  2009 NelsonHall John.willmott@nelson-hall.com 7
  • 9. Impact of Recession on Sourcing in 2009 and 2010 Action in response to recession Taken in 12- Planned for months to Q3 Q4 2009 and 2009 (%) 2010 (%) Significant review of business strategy 54 21 Revision of operational budgets 71 15 Organizational restructuring and lay-offs 44 21 Revision of sourcing strategy 34 16 Review and renegotiation of existing BPO 43 20 contracts Identification of new BPO opportunities 25 25 Preparation of RFPs for new BPO opportunities 15 48 Award of new BPO contracts 8 37 Copyright  2009 NelsonHall 8
  • 10. Organizational Priorities in a Recession • First priority is to cut cost-to-serve in core operations • Second priority is to retain and maximize value of existing clients • Third priority is to enter emerging markets more quickly • Compliance, risk management, and certainty of outcome are critical • Investment is severely constrained Copyright  2009 NelsonHall 9
  • 11. Required Outsourcing Contract Characteristics • Greater certainty of business case • Rapid pay-back achieving year-one cost savings • Focus on removing cost from high-volume transaction-oriented processes • Shift in risk in timing and certainty of cost reduction in favor of client • Shift in pricing mechanisms to move volume risk to suppliers • Potential increase in contract scope Copyright  2009 NelsonHall 10
  • 12. The Good, the Bad, and the Ugly Copyright  2009 NelsonHall 11
  • 13. Realizing Business Value Risk Factors What works • Cost reduction based on • Labor arbitrage major IT platform • Continuous change improvement/six-sigma • IT-centricity • Improved agent • Extensive subcontracting management • Taking on scope beyond • Interfacing with client supplier cost levers systems • Using the wrong • Channel shift location/channel • Technology fixes • Client abdicating • Limited scope platform responsibility BPO • Leaving service • Operational focus unchanged • Strong client management Copyright  2009 NelsonHall 12
  • 14. Philips Case Study • Strategy – Salary arbitrage (1) – Process improvement savings (2) • Issues – Need for increased automation – Improving organizational agility – Sustainability/what’s the value proposition to staff? • Actions – Development of transformation roadmap – Tool for measuring error rates and timecycles – Moving global hubs to India and China – Leverage technology: PTP platform, general ledger cockpit, OCR, electronic invoicing….. Copyright  2009 NelsonHall 13
  • 15. Key Lessons: BPO Service Management • Day-to-day operational management is the key requirement • Be process-led and aim to standardize but continuous improvement is arguably more important than major change • Start with the possible not the impossible • It takes time to stabilize operations & to change operations • Offshore services take time to introduce within complex multi-service contracts Copyright  2009 NelsonHall 14
  • 16. Drivers of Reduced Total Cost per Policy Ratio of supervisors to personnel Ratio of managers to Cost impact personnel Proportion of customer files in image format Copyright  2009 NelsonHall 15
  • 17. Impact of Staff Turnover 50 45 40 35 • Low staff turnover often regarded as an end in itself 30 Cost 25 • But needs to be: 20 – The right staff 15 – Creative tension 10 5 0 <12% 15% to 20% >25% Staff turnover Copyright  2009 NelsonHall 16
  • 18. Key Lessons: Use of Technology • Be pragmatic. A single platform is not always necessary or appropriate • Do not under-estimate the complexity embedded in legacy platforms and processes • Systems integration projects are still late and over-budget, even within BPO contracts • Channel change means changing customer behavior as well as technology • Technology is only part of the answer. People management is ultimately more important Copyright  2009 NelsonHall 17
  • 19. Use of Tools/Technology • Digitization & Workflow – Scanning, automatic queuing, work distribution & agent management • Specialist applications – Auto cash application – Invoice duplication avoidance tool – Online payments – Collections tools – Collaborative dispute resolution • Self-service Copyright  2009 NelsonHall 18
  • 20. Planned IT & BPO Initiatives Initiative High Extent (%) Greater use of standard software 50 packages without further customization Simplification of business processes 47 Use of cloud computing/standard supplier 40 managed IT infrastructure Use of BPO services based on supplier 27 hosted software SaaS (hosted software using supplier 23 best practice) Copyright  2009 NelsonHall 19
  • 21. Future of BPO lies in Combination of Inward-Out and Surround-the-Core Non-core functions Core Process functions improvement - Client systems - Labor arbitrage - Channel optimization - Technology “gap fillers” - Platform BPO - Labor arbitrage Copyright  2009 NelsonHall 20
  • 22. Increasing Optimization of Channels and Delivery Locations Channel Role IVR Routing (customer and company controlled) and presenting options; simple transactions Web Self-Service Obtaining information; changing static info; simple purchases Email and chat Technical support and problem-solving SMS Outbound notification Agents - India Low cost; technical support; back-office; analytical - Philippines Low cost customer service with increased cultural acceptance - Onshore Ability to retain, cross-sell & up-sell - Onshore WAHA Graduate-level; domain-specific capability to retain, cross-sell & up-sell Copyright  2009 NelsonHall 21
  • 23. Key Lessons: Partnership • Work towards common goals, not hidden client or vendor goals • Improve strategy alignment • Challenge one another to achieve best solution e.g. imaging paper vs. moving to Internet • Vendor should disclose cost & profitability forecasts as well as current costs & margins • Introduce lean sigma to improve service quality and staff motivation • New services will emphasize partnership aspects more than cost reduction • Formalize innovation and consider use of “innovation budgets” Copyright  2009 NelsonHall 22
  • 24. Impact of Outsourcing on Application of Business-Oriented Metrics How does outsourcing help Role of Business- High- High in business-oriented Oriented Metrics effectiveness in-house (%) effectiveness outsourced metric application? (%) • More reliable/consistent metrics Improving • Easier access to metrics/improved techniques service 47 84 for data gathering delivery • Increased standardization of Improving processes business • Improved knowledge of how to 24 54 use information to drive value change achievement • Separation of management from implementation Copyright  2009 NelsonHall 23
  • 25. Timing of Introduction of Business-Oriented Pricing Proportion Why establish initially? Stage (%) • To establish good knowledge of operations Initially 13 at this stage • To reduce the time Once costs & involved in setting service levels 81 metrics and SLAs established • To increase speed of process transformation Never 6 Copyright  2009 NelsonHall 24
  • 26. Conclusions • Business value realization has three components: – Cost reduction and SLA compliance – Ongoing contribution to process improvement – Support for wider business objectives • Core functions remain dependent on labor arbitrage, process improvement, channel optimization and technology tools • Non-core functions increasingly susceptible to platform BPO • Client needs to participate proactively Copyright  2009 NelsonHall 25
  • 27. TAKING OI ON THE ROAD… Outsourcing 2.0: From Theory to Reality Are you still doing it the old fashioned way? London, Dallas, San Francisco, Miami, Washington DC, New York, Chicago Outsourcing 2.0 - the new outsourcing and what it means to you - your strategy, your process and your career. More Cities coming soon… Check out www.outsourcing.com/roadshow With the largest outsourcing network in the world and the most trafficked outsourcing portal on the internet at Outsourcing.com, OI is the go-to-source for those seeking targeted sales and marketing traction and ROI in the outsourcing space. If you need: - Qualified Outsourcing Leads, - Exposure to outsourcing decision-makers - Thought Leadership opportunities Contact Jared Gleason at 516-279-6850 x712 or e-mail jgleason@outsourcing.com to request an 2009 The Outsourcing Institute overview summary on promotional vehicles.
  • 28. 3forward’s Sales Transformation ModelTM Sales 2.0 Design and Deployment Social Media & Networks Lead Generation and Management Outbound Events & Broadcasts Messages Sales Readiness Essentials Executive Appointment Setting Markets Targets Messages Research & Intelligent Surveillance Nurturing To Discuss: Dan.Hudson@3forward.net 3forward, LLC; All Rights Reserved 27
  • 29. Resources The Outsourcing Institute Group 3forward – Sales Readiness OI 3forward The OI Roadshow 3forward Sales Leaders Blog 3forward’s New Tools Directory Other OI’s Recruiting Home Page Outsourcing 2.0 The Outsourcing Institute / 3forward All Rights Reserved 28
  • 30. Sales Leader Series – Fall 2009 Escaping Pipeline Purgatory - view Sept, 17 2009 Creating Qualified Opportunities (Not Just Leads) - view September 24, 2009 Sales Readiness for 2010 –view October 1, 2009 2.0 Sales Tools for the Real World - view October 19, 2009 Outsourcing Buyers Panel: “Why We (Really) Buy” - view October 27, 2009 Sales Leaders Dream Team - view November 5, 2009 Future of Outsourcing – What to Expect in 2010 - view November 19, 2009 The Outsourcing Institute / 3forward All Rights Reserved 29
  • 31. Thank You For Joining The Future of Outsourcing Sales Leader Series – TeleBriefing #7 November 19, 2009