BenefitsEngaged Workforce

Of Labor Arbitrage, Technology, and Corporate Realignment

From her beginnings at PricewaterhouseCoopers to her work overseas, Deborah Kops has witnessed the market evolve as a buyer, provider, and consultant. She explains why delivery is the key to today’s BPO market.

by Joseph Vales, Kerry Ann Vales

Deborah Kops has a unique perspective on the transformation industry, having served in executive positions as an outsourcing buyer, provider, and advisor. As one of the outsourcing industry’s most respected thought leaders, she has identified, shaped, and implemented many of the best practices that drive the global outsourcing market today. Currently, she is head of program planning and development for SharedXpertise, based in London.

Deborah and I worked together at PricewaterhouseCoopers, where she was one of the founding partners of the PwC BPO service line. Her corporate experience includes Deutsche Bank, where she was responsible for developing and implementing strategies and tactics for outsourcing non-core processes, and Fleet Bank, where she served as managing director, FleetBoston Financial, Fleet Services Group. Her career also includes a consulting partnership at Arthur Andersen, focusing on business process improvement.

She is one of the smartest executives in the global IT services marketplace and someone I will always admire and respect for her passion to do whatever it takes to drive innovation and deliver world-class service for her clients.

In this interview, Deborah discusses how the BPO market has evolved, what it takes to be a good client, and how new technology and software may change what we call outsourcing.

JV: In the 1990s you were one of the early pioneers and a visionary who passionately shaped the global footprint of the BPO market. What attracted you to BPO?

DK: It was a fluke. I was running a large consulting practice. PW had started a BPO business, and a major bank called to discuss outsourcing of processes in my sweet spot. I jumped at the opportunity to be accountable for results as part of a BPO solution. As a consultant, one advises on strategic issues, but at the end of the day, implementation is the client’s responsibility. Outsourcing gave me the opportunity to not only understand how business process improvement really happened, but because I had skin in the game, it made me refine my thought processes to deliver results.
JV: What was the direction of the BPO market in 1998 or 1999?

DK: The ITO market was maturing, nobody really understood how the value proposition could be expanded into business processes. The initial large BPO deals were driven by firms with large consultancies such as PwC, Arthur Andersen, Accenture, Ernst & Young, Capgemini, and Deloitte. The major ITO firms—IBM, EDS, and CSC—closely followed the market but had not yet made the commitment to brand and build BPO businesses. At the same time, emerging offshore firms were almost exclusively focused on application development and Y2K projects. In this competitive environment, BPO solutions and thought leadership focused on process improvement and systems integration: the core skill sets driving IT consulting practices.
    

This consulting-oriented approach began to capture the hearts and minds of buyers and fueled BPO solutions based on custom software or complex technology implementations. Providers marketed radical transformation; the terms “lift and shift” or “mass customization” were hardly mentioned. The challenge of transforming people performance was considered important, but the challenges of implementing a global delivery platform to drive down costs were not fully understood.

JV: So let’s flash forward to 2007. What is driving today’s BPO marketplace?

DK: In the late 1990s, few could define “delivery.” Today, the market is all about delivery. The price of entry for a provider, the sustenance and building of a client relationship, is centered on good delivery. The “consulting sell” and “consulting solution” no longer work. Few companies are asking providers to showcase their process guru. Rather, buyers are saying “Find a way to meet our needs and reduce costs by leveraging labor arbitrage on a technology platform with a semi-customized ‘plug and play’ solution.” Clients now know that BPO is a labor arbitrage business, a system investment business, and a delivery business.

JV: What makes outsourcing contracts so difficult to manage?

DK: Managing one contract is merely challenging; managing delivery across scores of contracts with multiple providers means a new level of complexity. When a company outsources a number of functions, the business model changes, the risk profile of the organization changes; the control of information changes; and the need to leverage common management processes becomes very important.
    

The complexity of multiple outsourcing relationships requires an organization to acquire a different set of capabilities. The traditional corporate manager does not necessarily have the skill sets to strategize for, source, implement, and govern sophisticated contracts. The individual who succeeds in a vertically integrated model is not necessarily the same executive who will succeed in an organization where processes are delivered globally by third parties.

JV: So what do companies need to do to handle the increasing complexity of managing outsourcing relationships?

DK: Companies need to change their organizational model and leadership structure. As I meet with the leadership of companies who have outsourced a large number of functions, I see the emergence of a new corporate leadership position with responsibility for global services delivery. This position is often termed “Global Services Leader,” reporting to a C-suite executive and is the architect and control point for all sourced—outsourced and shared services—relationships across the company. His/her skill set requires a blend of capabilities—change, sourcing, people, risk, governance, and performance coupled with institutional knowledge of the organization.

This leader must be someone who can effect change internally while managing outside service providers. To achieve this, s/he must be empowered within his or her company to develop rules and tools to ensure performance of services on a global basis and across business lines.

JV: What are companies doing to support the managers who interact daily with their outsourcing service providers?

In addition, universities in both Europe and the U.S. are beginning to offer degreed programs focused on managing offshoring and outsourcing. At SharedXpertise, we firmly believe that change management must be at the core of any outsourcing skills training program. Fundamentally, outsourcing is about changing the way companies work. You have to get the support and, more importantly, the hearts and minds of the business units for a relationship to perform.

JV: One of the issues that you have recently written about is the increasing control of the buyer in outsourcing negotiations and
relationships. How have you seen that shift over time?


DK:
I think this is just the normal shift in the growth of any service. If you look back at the ITO market, providers “owned” the market and set the terms for a number of years. Over time, as the customer became more sophisticated, s/he started to understand the differences between value propositions and what works and what doesn’t. Managers began to share information within their companies and to reach out to their peers in the industry to exchange lessons learned. Many engaged sourcing advisors to guide them through the process. These advisors had the expertise to level the playing field for their clients when dealing with outsourcing providers.

The BPO market has similarly evolved. The buyer is becoming king, changing the sales dynamics of the market. Buyers are demanding more value, asking for shorter-length contracts, reducing contract size by multi-sourcing, and shifting more of the risk to the outsourcing provider. As such, outsourcers have become much more selective in responding to new opportunities.

JV: But if the buyer is now the king, doesn’t that shift come with a new set of responsibilities?

DK: I call it the shift alleviating the “post-champagne syndrome.” The hard work starts at the signing of the contract. The client must assume the responsibilities of a client, pure and simple. This is when the headaches start and the client has to demonstrate leadership. A contract is not a partnership. The relationship might have partner-like characteristics but at the end of the day, there is a buyer and a seller. Acting like the client is not necessarily easy or intuitive. One has to understand what to ask for and what not to ask for, understand when to give and when not to give. Outsourcing is not a passive exercise—outsourcing is a contact sport!

Outsourcing works when the ways of working are changed. The client has the responsibility to change processes and relationships on the business side. Good clients get good results. The client’s responsibility cannot be overemphasized.

JV: As you see the market evolve, there is a lot of buzz in the software industry about Web 2.0 and software as a service. Will new technology dramatically change the outsourcing marketplace?

DK: I think we are still in an outsourcing market where the primary tool is labor. Perhaps in five years we will begin to see a major shift in what outsourcing actually looks like, but right now outsourcing is fundamentally a people and process transfer. Today, technology is part of the tool kit; in five years I foresee that technology will advance to the extent that the need for offshore delivery centers will be reduced. Technology is becoming so much smarter through artificial intelligence, providing on demand service, and navigating processes. Stay tuned—it will change what we call outsourcing today.

Deborah Kops can be reached at deborah.kops@sharedxpertise.org.
    
This article was co-authored by Kerry Ann Vales. For more information she can be reach at KAVales@aol.com

Tags: Benefits, Engaged Workforce

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