C-Suite Spotlight
Deep Talent - Vast Differences
Virtual Office
page 26
page 22
page 44
Steve Grieco CEO, SourceHOV
Full value of global knowledge workers
A quick look into Virtualization.
GlobalizationToday Bringing Markets Together
August 2012
Putting Together the Global Workforce Puzzle For a Unified Purpose
Also in this issue: Complimentary Research by Hackett Reality of reshoring global manufacturing Page 36
Win-Loss Analysis by Thom Mead Common Sales Mistakes and How To Avoid Them Page 46
Use Desensitization in IT Security By Michele Daryanani Page 54
Recommended reading Discover more about our latest publications Working the Crowd An updated edition of this best-selling book which is ideal for anyone using social media.
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IT Service Management Compatible with the 2011 update to ITIL®, this book covers everything an exam candidate needs to know.
ISBN 9781906124939 $33.99 (£19.99)
Bids, Proposals and Tenders Sales, marketing, project and technical staff will all benefit from reading this book.
ISBN 9781906124892 $39.99 (£24.99)
IT Service Management Practice Questions A wealth of background knowledge and sample questions utilising the experience of established consultants and lecturers.
ISBN 9781780171142 $33.99 (£19.99)
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5 publisher’s Note 6 News Feed
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What’s new and noteworthy in global commerce.
C-Suite Spotlight
Thom Mead interviewed Steve Grieco, CEO, SourceHOV on “Managing a Global Workforce”.
36 Complimentary Research
Hackett Reasearch’s detailed analysis breaks down what is myth and what is reality when it comes to reshoring global manufacturing.
By Michel Janssen, Erik Dorr and David P. Sievers
46 Win or Lose…
What did you learn?
Thom Mead shares key mistakes and how to correct them from various win-loss analysis.
By Thom Mead
54 IT Security
An article by Michele Daryanani looking into user desensitization in security and it’s implications.
By Michele Daryanani
30 22 Deep Talent - Vast Differences Realizing the full value of global knowledge workers. by Frederick D. Miller, Bhushan Sethi, Vivek Sethia with Ryan Alvanos
Virtual Office A quick look into Virtualization. By Joe Meyer, CEO and Co-Chairman of Arise Virtual Solutions
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publisher’S NOTE
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Founder and Publisher
We are pleased to have you with us again as we continue to grow our services, increase our readership, and add more value. Since embarking on the second generation of our company on July 1 2012, we are encouraged by the tremendous receptivity to the changes we have been making. More work to be done, but clearly we are heading in the right direction from what the customers and prospects have told us. We have added new partners, new customers, new sponsors, and significantly expanded our content to bring you more value and insight for globalizing your organization than can be found anywhere else in one single website. We welcome your suggestions since we exist to serve you. In this issue we interviewed Steve Grieco, CEO of SourceHOV, for our monthly C-Suite Spotlight. Steve offers practical advice on managing a global workforce based on his many years living and working abroad. Deloitte and Hackett have provided invaluable research for you on their work studying global workforces. From the field, Arise has provided us with a look into workforce virtualization in BPO. And if you have a few extra minutes, our own Thom Mead has authored an article for you on the criticality of conducting a Win Loss Analysis. As W. Edwards Deming, the father of modern quality would assert, “Fix the process before you seek to change the workers.”
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news feed
NEWS Feed
What You Need to Know in the World of Outsourcing
Accenture Qualifies for $34 Million FBI IT Services www.globalservicesmedia.com
The U.S. Federal Bureau of Investigation (FBI) has selected Accenture Federal Services as one of four contractors to provide technical support and consulting services for Microsoft products under a $34 million indefinitedelivery, indefinite-quantity (IDIQ) contract. The IDIQ has a one-year base contracting period with four, one-year extension options. The IDIQ supports network and enterprise architecture, building and executing technology solutions and IT support services and training. The FBI will use these services to support the bureau’s networks, provide operational training and assist in project development and integration. “The FBI is strategically enhancing its technical capabilities to meet its mission and support its personnel 6
GlobalizationToday August 2012
globally. As a proven FBI partner, we bring our federal and commercial experience to support these mission critical changes,” said Jennifer Pratt, who leads Accenture’s work with the U.S. Department of Justice. The FBI recently awarded Accenture a Blanket Purchase Agreement (BPA) and four task orders to install an enterprise
resource planning system to support the FBI’s Human Resources Information System (HRIS). Accenture’s federal business serves every cabinet-level department and 20 of the largest federal organizations. The U.S. federal portfolio spans across clients in civilian, defense, intelligence and public safety agencies.
news feed
Research Firm: Fewer Outsourcing Contracts Going Around www.computerworld.in
The number of new IT and business process outsourcing contracts worldwide dropped by 20 percent to 411 in the second quarter from 516 in the same quarter a year ago, with average contract values also sliding, a research firm said. The number of new IT and business process outsourcing contracts worldwide dropped by 20 percent to 411 in the second quarter from 516 in the same quarter a year ago, with average contract values also sliding, a research firm said. “The market is growing, but the pace of growth is slowing down,” said Salil Dani, practice director for global sourcing at Everest Group, on Friday. The reduction in number of outsourcing contracts can be partly put down to the debt crisis in Europe and other economic factors. The discretionary spending on IT in Europe is largely on hold, Dani said. But buyers in the U.S. particularly from the public sector are also shying away from outsourcing because of the antioffshoring debate in the run up to the U.S. presidential elections, according to Dani. Although some customers in the U.S. have started outsourcing to smaller cities within the
country, these contracts are few in number because they cannot get the cost advantage and the large number of staff that locations like India or the Philippines can offer, he said. The reduction in number of outsourcing contracts can be partly put down to the debt crisis in Europe and other economic factors. Everest said its estimate of outsourcing contracts is based on publicly disclosed data, and included entirely new transactions as well as some renewals of earlier deals. The annualized value of the new reported contracts in the second quarter was US$2.3 billion in contrast to $2.6 billion in the same period last year, according to research released by Everest. Annualized value is the value of a contract divided by its duration. The number of contracts have been sliding for some quarters now, Dani said. Information Services Group reported in July that the
total value of commercial outsourcing contracts (TCV) was up 7 percent in the second quarter from the same quarter a year ago. Its TPI Index, which covers outsourcing contracts worth $25 million or more, measured total contract value of $21.4 billion in the quarter. The 173 contracts awarded during the second quarter however still represented a drop of 22 percent year-over-year, according to TPI. The market however saw some large deals, it added. A lot of the business particularly in Asia and Latin America, and to an extent in North America and Europe consists of smaller contracts with value of less than $25 million, Dani said. There were however 54 major deals with total contract value exceeding $50 million reported in the second quarter, compared to 61 in the first quarter, including two “mega deals” with total contract value exceeding $1 billion, according to Everest. www.globalizationtoday.com
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news feed
Gartner: Worldwide IT Outsourcing Services Spending on Pace to Surpass $251B in 2012 www.globalservicesmedia.com
Genpact Limited announced that affiliates of Bain Capital Partners have agreed to purchase approximately 68 million Genpact common shares. Genpact Limited announced that affiliates of Bain Capital Partners have agreed to purchase approximately 68 million Genpact common shares from entities affiliated with General Atlantic (GA) and Oak Hill Capital Partners for $14.76 per share, or approximately $1 billion. Closing of the transaction will take place after payment to all shareholders, including GA and Oak Hill Capital, of the special dividend of $2.24 per share announced by Genpact today. “We are excited about this transaction, which is hugely positive for all of our shareholders. Bain Capital’s decision to invest in Genpact is a vote of confidence in the company and our business model, our differentiated service offerings, the value we deliver to our clients and the strength of the management team. Genpact will remain an independent public company, and I, along with our management team, will continue to pursue our 8
GlobalizationToday August 2012
strategic objectives,” said NV ‘Tiger’ Tyagarajan, president and CEO of Genpact. “Bain Capital has a long-term perspective, which is critical to building value, particularly in a company like ours. We look forward to working with Bain Capital as we continue to make enterprises around the world run better by continuously improving their business processes and run smarter through the innovative combination of technology, data analytics and process expertise, resulting in better business outcomes.” “We are pleased to enter this important partnership with Genpact, which is the recognized market leader in the business process management and technology services industry,” said Bain Capital. “Genpact has earned its leadership
position by partnering with global companies to improve business outcomes. Their relentless focus on the client and moving up the value chain has resulted in impressive revenue and client growth since becoming a public company in 2007. We are excited to work with Genpact to build even more value for their clients in the years ahead.” Genpact combines deep process expertise, Lean Six Sigma heritage, smart technology and analytical capabilities with operational insight and experience in diverse industries to provide a wide range of services using its global delivery platform. Genpact delivers services from 18 countries around the world, including the U.S., where Genpact has more than 3,000 employees.
news feed
IBM consider RIM enterprise business division purchase www.sourcingfocus.com
Bloomberg have reported that IBM has informally approached RIM regarding the purchase of its enterprise business division, citing two individuals familiar with the proposal. If the report is accurate, it would see IBM acquire the division that currently operates RIM’s corporate email and messaging servers. RIM has refused to confirm or deny reports of IBM’s approach, saying “RIM does not comment on rumour and speculation”, IBM also refused to comment on the report.
G4S donates £2.5 million to armed forces www.sourcingfocus.com
G4S who failed to deliverer on its Olympic security outsourcing contract, have donated £2.5 million to the armed forces, who were drafted in to cover the gap in security. The donation by the global security firm will be divided between the armed services, welfare organizations and sports groups. A G4S spokesman commented that: “We wanted to recognise the huge contribution made by the military after it became clear that there would be shortfall in workforce delivery.” www.globalizationtoday.com
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news feed
BP to standardize F&A through Accenture www.computerweekly.com
BP has outsourced finance and accounting (F&A) services to Accenture in a deal that will see the energy giant standardize processes and harness analytics. Accenture will work alongside BP’s in-house and captive centers. The value of the multi-year agreement was not disclosed. Accenture will help BP consolidate its global finance and accounting functions through the standardization of reporting and metrics. Accenture will be responsible for providing record to report, order to cash, procure-topay and production revenue accounting services. BP will use Accenture’s business process outsourcing (BPO) technologies to drive end-to-end process standardization and controls. “BP sees this partnership with Accenture as an important milestone in driving standardization in our finance and accounting processes by consolidating our F&A service providers,” said Brian Puffer, group controller at BP. Accenture is part of a huge ecosystem of suppliers in BP’s a massive outsourcing strategy, which it has recently tightened up. For example, 10
GlobalizationToday August 2012
it spent 65% of its $3bn annual IT budget with 3,000 suppliers in 2008, but now it outsources to only seven and has reduced its annual IT budget by $800m as a result. BP is a massive consumer of outsourced services across
its business, and as a result the overheads associated with working with partners are massive. Taking IT inhouse was not an option due to the company’s size, global presence and confluence of diverse business functions.
BLOG BEAT News and Commentary from Bloggers around the World Benefits of outsourcing IT to cloud providers by Andrew Peddie, Managing Director of First Hosted, the cloud consultant and solution provider
www.sourcingfocus.com
Although many businesses and business owners still hold reservations about outsourcing IT and infrastructure to cloud providers, there is a noticeable shift towards increased confidence and adoption. Considering the spectrum of benefits available and the time-proven reliance of mature solutions, perhaps this is not surprising? Quite apart from the obvious freedom from IT a cloud-hosted business application can offer, improved and intuitive interfaces make for more friendly and efficient workspaces. Business intelligence and portable device compatibility accommodate our ever-increasing need to have good data on the go. A good hosted business solution will be a single platform that develops organically at the same pace (or sometimes faster!) as the business environment that it facilitates and is designed to facilitate multiple “tenants” so that all the users can share the application without compromising speed or computing capacity. Strong service level agreements and bullet proof data security means that the location of data is irrelevant and businesses are 100% detached from the physical devices and networks that deliver the service. An annual subscription program with a single all-inclusive price allows for total predictability in expenditure. The ability for organizations to scale at will and to accommodate multi-company and multi-location organizations is dramatically improved in terms of timescales, cost and functionality. Products such as NetSuite, Salesforce, Box and
Google Apps are taking customer relationship management, enterprise resource planning, document management and storage and enterprise email directly into the cloud at an alarming rate. First of all, the price really is the price with a reputable cloud based subscription solution. No more “hidden” costs for patches and upgrades and so on. A single solution means that all information comes from the same source via a simple to use interface. That’s great for creating, scheduling and distributing financial reports and sales intelligence. Training is much simplified with in-built training videos, detailed help guides and just one product for everyone to get to know how to use. Added to this is the obvious saving of removing dependence on hardware and IT resource. The benefit I personally value most is how much time I can save because everything I need is made simple and efficient by my chosen system. This is slightly tempered by the ease of global visibility that I get with a system that can be run from an iPhone or android phone 24 hours a day, seven days a week, anywhere I can get internet access! Start-up organizations consider a world-class cloud-based solution as an essential component to their business and an important element when attracting investors at the time of resale. Some plan to never own any infrastructure. Finally, I feel my sentiments are echoed by the leading analysts in the field, Gartner. One of their leading analysts predicts 19 per cent growth in cloud computing against a backdrop of 3 per cent increase in IT spend.
www.globalizationtoday.com
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C-Suite Spotlight
C-SUITE SPOTLIGHT: Steve Grieco, Chief Executive Officer of SourceHOV In this month’s C-Suite Spotlight, we have Steve Grieco from SourceHOV. Thom interviewed Steve on the challenges companies face managing a global workforce. Thom: This is Thom Mead with Globalization
Today. I’m joined today with Steve Grieco, the CEO for SourceHOV, a leading BPO company out of the Dallas area. Steve has joined us as part of our C-Suite spotlight series where we are interviewing notable senior-level executives from leading companies around the world, and he’s going to offer his insights on the challenges of managing a global workforce. Steve has had significant international experience, and has worked for many leading companies, and we think his insights on the topic will be quite invaluable. Steve, could you give us maybe a minute or two about your background and, perhaps, where some of your assignments have been?
Steve:
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Sure. Thanks, Tom, for the opportunity. Basically, you can think of me with a
GlobalizationToday August 2012
broad functional background. I have experience – my first ten years – in sales. I spent a few years in legal. I have some product management experience, market development experience, and most notably, I’ve managed on-the-ground in three different continents – in Asia, Europe, and the United States. My functional responsibilities and revenue responsibilities included software, hardware, services, and financial services. And places that I’ve lived is Hong Kong, France, and the U.K. Thom: Okay, now, as I understand, you joined
SourceHOV – last year – after the merger of the two companies. Can you give us a little bit of a thumbnail about the company itself?
C-Suite Spotlight our international global delivery platforms. We now have operations that support the company in Canada, Mexico, Philippines, China, and India. So, it’s a company, now, that’s growing in line with the BPS market segment, which is high singledigit, double-digits-type growth, and we’re quite excited about the opportunities ahead. Thom: I agree. It’s an exciting market and I had
the opportunity to visit your facility in Xi’an, China, and I was quite impressed with that site.
Steve:
Thank you.
Thom: So, onto the topic at hand. For people
considering an overseas assignment, from your experience, what recommendations could you offer if this is, perhaps, their first time, to ease their transition into the new culture of the host country?
Steve Grieco Steve: Steve:
Actually, it’s quite exciting. It was a merger between a company called SOURCECORP and HOV Services. We’re owned jointly by Apollo Capital Management and Hands-On Ventures. And I think it’s a really good partnership because, when you look at the two companies, they really had very little overlap in terms of the customer base. So, we’ve had good opportunities sort of cross-selling our products and services from each of the various businesses where they had strength. And the two main areas that we’re mainly focused on, in terms of verticals right now, are public sector and healthcare. I think the other thing that the merger has done is really kind of broadened out
Well, look. I really enjoyed all of my assignments, which was more than ten years, and my advice would be just view it as a learning experience. Really, just embrace it. I really believe that, wherever you are in the world, people are good. They want to help. I would suggest, as I did – not that this is any hard, steadfast rule, but we tried to move in a community that was really local to really get a sense of what it was like, as opposed to going into to an Americanized segment of a particular country. So, it gives you a really good sense of what the local culture is about. And, you know, ways that you can do that – some of the ways that we’ve done is, whether it’s a religious activity, educational opportunity, or through charitable organizations, there’s a www.globalizationtoday.com
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C-Suite Spotlight number of ways to participate. And, you know, we did it differently in various markets, but, you know, really enjoyed it, and really found the love and goodness in people, and that’s what really made it exciting and a great learning experience. “And take it beyond work…just make it part of your overall experience and just don’t get too bogged down in the work side.”
And take it beyond work…just make it part of your overall experience and just don’t get too bogged down in the work side. Keep a good balance and I really expect that good things will happen for you. Thom: Yeah, I’d have to echo that sentiment
having living abroad myself, in that every opportunity out there is an opportunity for new learnings, and it’s a positive experience if you want it to be a positive experience, and it will be a negative experience if you let it be a negative experience.
China. And you can imagine just the number of cultures and languages. So, one that I would throw out there, for sure, is it’s very difficult to learn a language when you’re interacting with 23 or 25 countries. So, what it really did for me is it really sharpened my focus on managing by metrics, and, really, picking some key focus metrics for each of the operations in terms of, you know, what to do each and every day. So, I would say, it’s a Herculean task to learn 25 languages, and so, I learned the culture as best as I could, relied on the local talent, but also, paid a lot more attention to managing by the metrics. “I learned the culture as best as I could, relied on the local talent, but also, paid a lot more attention to managing by the metrics.”
And then, some of the everyday things that crop up that you have to pay attention to, otherwise they can sneak up on you, is obviously you have different labor laws. You have different holidays. You have different benefits, different ways of doing business. And in a region as large as that that I had, you know, you gotta pay particular attention Steve: That’s right. to that and really just document it so that, you know, from day-to-day, just switching gears from Thom: Now, from a management perspective one country to the next, that you can really stay – switching to the business side – what focused and precise in terms of what you’re talking were some of the challenges that you about from an operational point of view. encountered managing workforces in other countries or – which would include Thom: Okay, thank you. You actually began different cultures? And, perhaps, you to touch on a topic that I wanted to know, can you give some examples of touch on as well, which is the different some of those in the different locations countries have different laws, different that you’ve been? norms, ethics for acceptable behavior – particularly in a work environment – Steve: Sure. So, I’ll go to Asia Pacific because it things that, for us, in the U.S., may not was the most diverse, and I was based be considered acceptable or acceptable in Hong Kong, and I basically had all of elsewhere and vice versa. Can you Asia Pacific, stretching from Australia to describe some of those differences? And the Indian subcontinent to all of greater 16
GlobalizationToday August 2012
C-Suite Spotlight how would you recommend going about them – again, from the management perspective – obviously it’s not a metrics question, but it’s more how do you deal with the differences and get to a common culture in a global context? Steve:
that you are recognizing those things early, and not make the mistake of appearing to make dramatic change, and getting the ship a little disheveled early on in the process. So, I think it’s education about what those particular points are, and then, executing against those early.
Yes, I think, again, just to stay with that region because it’ll be a good example Thom: So, in that context, I’ve found, sometimes, throughout, it gets back to what I really language – as you were mentioning said earlier. You really can’t just take the earlier – can be your friend or your approach that you’re going to have a enemy. Many times, we can imply things single point of view in terms of how you in one language, but they get inferred do things. differently in another language. They So, I think what you have to recognize may understand the words, but they as you operate globally is the concept don’t understand the sentence – the of adaptability and flexibility. There are context – that goes with the sentence. certain things that motivate people, and Any suggestions or recommendations help people perform, and do a good job, on how to ensure that your intentions get and I think as a leader of the business you executed? really need to be aware of that, and show those folks that you’re educated about Steve: Yes, a good question. My approach is how that; you’re aware of it. I address things – through trial and error So, I think the fact that you actually really – is to get it into a written format. openly state it, understand it, and ask So, keep it simple. Get it written. And for direction in terms of how to locally the approach that I use is to dot all the Is customize those particular needs and and cross all the Ts is make sure that you interests in each country is an important get a functional reaction to the written first step because, I think, a lot of times, ideas because, you know, sometimes, you know, things sometimes that go whether it’s marketing versus HR versus unsaid are just as harmful as things operations, you’ll find that, there’s that aren’t addressed. So, I always like different sensitivities depending on the to approach it head on and really get functional areas. a sense from the local management So, I always like to get it vetted, get team in terms of what’s important. And, it directed to the functional areas, get even within countries – China being an feedback, and make sure that there example – there are different practices was a functional area for any important from province to province. communication. And once we agree So, you really need to be aware of that the holistic document, or strategy, those. You really need to let folks know or communication was complete, that that you’re flexible about those things, it’s about frequency of communication that you’re willing to adapt, and just really and folks other than just the leader embrace it, and take actions that affirm communicating it. www.globalizationtoday.com
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C-Suite Spotlight So, I always tried to make sure that if it was something important, that not only I was communicating it, or it was in written communication, but that functional leaders, several layers down in the organization, had the same message as well. So, it’s good practice, I think, to just, you know, be thorough, and again, my approach was to take a functional view to it. Thom: Okay, now, from a management style,
to stay with the region, rather than ask the Chinese market to, you know, take a look at what the Americans did, you know, it might be just a good example is to say, “Hey, what practices in the region – whether it be Taiwan, or Singapore, or wherever – look attractive that we might be able to learn from?” So, I intentionally, probably, avoid just a singular market, whether it be American or somewhere else, and really try to just promote a global perspective. And I think if you take that approach, as the world has evolved here in those last 20 years, I think that’s really the key to success.
have you found receptivity or resistance to, perhaps, the American management style or something – that’s what you were carrying forward – when you’re – “try to just promote a global perspective… working abroad? Or did you encounter I think that’s really the key to success. “ that, “not-invented-here” type thinking and how do you address the different ways that companies approach doing Thom: Makes sense. How about switching the other direction? For foreign companies business? trying to penetrate the U.S. market, what Steve: Sure. So, early on in my career, say 20 advice can you offer on subjects such as hiring and managing a sales team in the years ago, and no comments about my U.S. where, again, there’s that cultural age, please – but I would say that, early disparity, and language differences, and on, if I were to, do a lessons-learned - kind such? What do you think are the keys to of approach that, it was always heard that success to the U.S. market? American companies expanding globally were trying to take their ideas and impress upon, you know, local cultures, Steve: I’d take the same approach. I mean, think global. You’ve got to do your local markets, and trying to sell American homework as I would take an American products that weren’t quite adapted to product to Asia or vice versa. I think the local markets as best they could. all the sort of fundamental work – the You know, the approach that I kind of segmentation, the market analysis, the quickly figured out early on in my career – competitive analysis – you’ve got to get and probably where I grew up. I grew up some focus. in a very integrated neighborhood when Whenever you enter a market, you I was young, but, you know, I tried to have to get some focus and do one or avoid the “American” word, or, you know, two things. Get some early wins. Get the “American approach”. The examples some success. Get some traction, and I always tried to use on really important then, build from there. So, I would say strategic initiatives were global. the preparatory work, the analysis of So, if you could get the global the markets, thinking globally, again, impression and, you know, as an example,
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GlobalizationToday August 2012
C-Suite Spotlight getting some early wins, would probably be go with the best people you can find from a my suggestions and advice in terms of how to global perspective and that’s how you enter enter the U.S. market. any market. “Whenever you enter a market, you have to get some focus and do one or two things. Get some early wins. Get some success. Get some traction, and then, build from there.” Thom: Would you advice hiring locally – the
Thom: Works for me. It’s been my experience
– and I find that foreign companies are often more successful establishing operations in a foreign country than they are trying to market or sell in a foreign country. What’s been your observations and why do you think that’s the case?
talent – to do that and, perhaps, bringing over a senior manager? Or how do you Steve: Yeah, I kind of touched upon it in your – from an execution standpoint, how earlier question. I think, early on, a lot would you approach it? of companies, regardless of where they were from, would probably try and take Steve: Yeah, I would say the same about whatever product and service that they what we’re trying to do at SourceHOV. were selling in their local market, and try, Maybe it’s just my upbringing or my, and impress it upon other markets, and see number of years overseas; I don’t really what kind of traction that they would get. see any, you know, national boundaries And I think it really gets back to the in terms of how I think, or where homework. You know, you have to have people are from, or what race they the basics. You have to have the right are. I think you’ve got to hire the best language. You have to have the right people regardless of country, religion, size, and some markets, you know, size whatever. of offices and facilities are smaller, the And, you know, I think America has a look and feel, the culture. And I think if lot to do with all that. You have some you do those things well and you take pretty good diversity here already, the time early up front to really show whereas I would say, maybe in some that you’ve invested culturally in those foreign markets, there’s a little bit less markets from a product perspective – diversity. But I think, you know, wherever product and service perspective – you’re people are from, if they’re successful, much more often going to get success, I think they can perform and I don’t as opposed to just trying to cookie think, in today’s environment, it’s very cutter a product made for another challenging to, you know, set out and market and see how well it does in the say, “I must have an American.” I think market you’re trying to enter. a team approach, a diverse approach So, it really gets down to the homework, is probably the best way forward, and the preparatory work, and the I think that plays particularly well now customization for the local markets that in America. really are going to determine whether So, my advice would be, I think you you have success or not. www.globalizationtoday.com
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C-Suite Spotlight Thom: Yeah, I think that goes back to one of the
what’s really important to employees and this is dictums of the quality guru, W. Edwards an area to easily make mistakes. Deming: “Well begun is half done.” So, take your time. Be patient. Get the thorough Now, much like – I wanted to drill down a understanding. Vet it through the functions. little bit more on your point earlier about Have it in written format, and then, act. implementing practices and policies. Just like creating a global brand, managing a Thom: Makes sense. Author, consultant, and professor at the London School of global work force requires acting local, Business, Dr. Gary Hamel, stated in the but thinking global, as you mentioned past that many successful companies have earlier. In structuring HR policies – a strategic intent rather than a strategic which is really where the rubber meets plan. Doing so creates a common the road from a consistency standpoint company philosophy, a mindset, if you – what challenges does that pose to will, that serves as the foundation for creating a common culture and, again, all company actions. What would you how would you approach that? Again, say, in the case of SourceHOV, is your Asia Pacific being quite different than company’s strategic intent and how India, being quite different than Latin would you go about implementing that? America and the U.S.
Steve:
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Yeah, I think I might have, again, drifted Steve: Sure. So, what we’ve set out to do is really become a global provider of into this answer on a earlier question, but, products and services. Really want to again, I think you have got to vet the idea move the company to more of a growth to all functions. It’s gotta be in written company orientation, so the growing in format. You need to make sure that, you the double-digit – double-digit revenue know, you’re in compliance with all of growth patterns. the laws. There’s not just national laws And, you know, again, we want to keep in some countries; there’s also provincial the message short and sweet to a couple laws in some countries. And you really of key priorities. So, those would be the need to make sure that you have that two or three areas that we want to get, well-vetted and understood before you across the company, fully understood. actually implement. And we’re doing that by some of the So, I would say to the old adage, you things I said earlier. We’re trying to have know, “Measure twice and cut once” basic, daily events, such as operations just to make sure that you’ve captured meetings, in foreign cities. We’re trying everything, because it’s easy to, move to make sure that the people we hire quickly and omit unintentionally – and have global titles. We want to make sure I’ve done it myself – things that are that we have frequent communications. really important to the local culture. So, So, we’ve set up videoconferencing again, I would just say, you know, be very in all of our facilities so that not only thorough, move at a slow pace, especially headquarters can communicate to things in the HR area, which tends to the various locations, but that there’s mean laws, regulations, benefits. This is
GlobalizationToday August 2012
C-Suite Spotlight
communication amongst the various countries and facilities where they can interact on a much more frequent basis. So, the first couple messages are short and sweet, but really about global growth, and growing at double-digit, and our vision is really to be a billion-dollar company in the not-toodistant future. Thom: Well, it sounds like SourceHOV is in
very capable hands on that front and the challenges of bringing together two companies, even if they were of a common culture in one country doing a merger and acquisition are daunting enough; bringing together two international companies and doing so has, you know, got that added measure of complexity. So, it sounds like they did a great job in bringing you on board to lead the charge in making that transition and taking the company to the billiondollar mark and beyond. So, with that, Steve, I want to thank you for your time today. It’s been some very good lessons learned and some very candid insights that, hopefully, our readership and companies that are venturing into this for the first time would be able to take to heart and make actionable on their end as well.
Steve:
Well, we really appreciate your time and look forward to catching up with you in the not-too-distant future.
Thom: Likewise. We’ll be in touch. Thank you. Steve:
Thank you.
Steve Grieco Chief Executive Officer of SourceHOV
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Global Workforce
DEEP TALENT, VAST DISTANCES Realizing the full value of global knowledge workers by Frederick D. Miller, Bhushan Sethi, Vivek Sethia with Ryan Alvanos
C
ompany leaders are often quick to acknowledge, even revere, the importance of human capital in their organizations. “Our growth depends on people” and similar sound bites echo through many CEO speeches and litter corporate homepages like the last refrain in a many-versed ballad. Yet, catchphrases and buzzwords offer little clarity when it comes to the ins and outs of building and keeping a workforce. Fast-paced, global markets often pin growth strategies on knowledge work—from complex analytics to product design—and these aren’t always easy jobs to fill. As a result, the pursuit of the almighty employee leads many organizations overseas: by 2010, offshoring knowledge work will become a $17 billion industry. After finding an abundance of available workers on another continent, however, many companies encounter performance shortcomings that seem to undermine their hopes of easing workforce shortages by going overseas. Even as talent management mantras become cliché, making knowledge work productive may represent the first great management challenge of this century, 22
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Illu
ustration by Josh Cochran
Global Workforce just as manual labor was to the last. Opportunities for growth can buckle under the profound challenges of enabling a global workforce. Among the most vexing are: • Management and staff resistance to working across borders • Underutilization of staff capabilities in developing countries • Ineffective handoffs between organizations • Staff turnover and rapidly escalating wages in developing countries • Lack of shared goals and objectives to drive effective collaboration • Negative impacts on staff morale and working climate Addressing these challenges and improving the effectiveness of global organizations require answers to two structural questions. First, how will companies manage decision-making—the assignment of responsibilities and roles in a project—across geographically and culturally diverse operations? The second question concerns workflow: How will global organizations move information, activities and products from one location to another, and how will this impact an organization’s effectiveness? In the absence of formal frameworks or guidelines for managing these issues, companies
have taken a variety of approaches. Some acquire businesses that already conduct knowledge work in emerging markets. Others hire people in developing countries in hopes of cultivating a talent pool that will eventually assume middle management positions. Others have opted to move in-house knowledge work to external global service providers. Each of these alternatives can flounder without attention to decision-making and workflow because they lack a formalized structure for addressing challenges as they arise. Companies beginning offshore operations soon discover that there are more than oceans dividing their workforce. Cultural and working norms, motivational factors, types of incentives and rewards, and attitudes toward new processes or tools can hinder talent management across borders. Complications abound. As Western interests exhaust the supply of available knowledge workers, ambitious employees embrace an up-or-out mantra, forcing companies to renegotiate salaries frequently in order to retain their workforce. Additionally, the deeply ingrained Asian cultural sense of hierarchy can stifle dialogue with remote managers. Just the same, companies tend to overlook formal integration and governance of workflow across geographic locations. They need to consider the interplay between decision-making and workflow to address the
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Global Workforce various facets of organizational design, including the alignment of incentives and rewards, the development of knowledge work capabilities, the management of intercultural differences, and the utilization of communication processes and tools. Two Dimensions
A model for framing governance and workflow across global operations would look something like figure 1. The first dimension of managing knowledge work across borders involves workflow, the horizontal axis of the model. Effectively dealing with globalization requires an understanding of how to apportion knowledge work across different locations. Most effective global operations use one of the following three approaches: Independent workflow With this approach, standalone, vertically integrated organizations perform work in different locations. For instance, a pharmaceutical company might organize independent research centers in different locations, each focused on a specific drug or disease family. All research on hypertension drugs might take place in a developing country, research on cancer drugs in Europe, and so on. Because each entity is a stand-alone unit, companies often find this structure comparatively easy to manage – as long as they can also find sufficient talent at each location. One trade-off involves cost, as this model requires duplicated functions at each location. Sequenced workflow Here, each location performs one part of an overall process and then hands projects off to the next location. This model could work well for a pharmaceutical company. Genetic research to identify prospective drugs might happen in 24
GlobalizationToday August 2012
“Companies beginning offshore operations soon discover that there are more than oceans dividing their workforce. Cultural and working norms, motivational factors, types of incentives and rewards, and attitudes toward new processes or tools can hinder talent management across borders.� one country, then an office in a second country would assume drug development tasks. A third location might conduct early-stage testing, and a fourth would complete subsequent trials. Work tends to be uni-directional, with a small number of definable handoffs. This value chain model can be more economical than the independent work model, but it requires a higher degree of collaboration across locations. Integrated workflow This approach allows knowledge workers in different locations to collaborate within single phases of a project, even working around the clock as employees pass projects to collaborators in different time zones. Companies generally find this to be the most challenging model because it requires the most coordination, which often calls for sophisticated collaboration and version control tools. These varying approaches to workflow represent ideals for describing how work is organized on paper. Combinations and accommodations among these models improve their effectiveness in the real world. It is also worth noting that these approaches are not a hierarchy or a maturity model. There is no reason to believe that organizations should pursue increasing interdependency over time. Instead, the nature of the work and the scope of the relationships between locations should determine which will be most effective. The second dimension of the model deals with the
Global Workforce
governance that structures decision-making responsibilities pertaining to knowledge work. These responsibilities include financial and capital investment decisions, managing human resources, setting performance expectations, and monitoring quality requirements. Three structures seem to encompass most effective endeavors pertaining to decision-making: Centralized decision-making This structure refers to governance coming from a single country, usually the company’s home country. Most decisions come from a centralized decision-making group, such as a head office or a virtual decision-making committee.
Shared decision-making In this model, governance and knowledge work occur at the same location. The company then organizes the decision-makers to direct the project with a single voice. Decentralized decision-making Governance occurs on-site here as well. Unlike shared decision-making, however, these decision-makers act independently of one another. The many facets of workflow and governance go a long way in determining the outcome of an offshoring program. Companies have to balance the integration of people and resources across cultural and geographic www.globalizationtoday.com
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Global Workforce divides and maintain the ability to control an maintain cost competitiveness, so it developed organization across several fronts and manage an offshoring program in India that used performance. It’s all in the structure. an integrated model for product design and coding projects. Interestingly, they developed Workflow at Work a rigorous talent model that divided workers across geographic locations into productA North American hardware and software focused teams. Rather than organizing its developer decided to move most of its entry workforce based on function (teams of coders level engineering workforce over to Asia in an working with teams of designers), the company attempt to reduce costs. The existing U.S.-based created teams based on the needs of a specific workforce remotely managed and developed project. Managers simply needed to specify their colleagues overseas. Workflow, in this which work tasks were required by a given example, was integrated across levels of U.S. project, and staff with the necessary skills would management and the Asian workforce, and be assigned, which improved their ability to decision-making was centralized in the United develop several products simultaneously. The States. company divided job domains into a detailed In practice, however, things did not go list of tasks and requisite skills. well. Morale suffered and turnover became Staffing decisions could then consider cost an expensive problem. Asian employees requirements. Overall, the company reports plugged along with the same work as their that this staffing model has worked well. U.S. counterparts, but began to wonder when By spreading work across many countries, they would ever be able to manage their own the second company reduced the opportunity work. They also believed that their inability for animosity along specific geographic lines. to interact with clients stunted their personal Yet, much of the discontent among Asian development. At the same time, Western workers in the first company focused on a managers saw the ranks they climbed now lack of opportunities for promotion. The operating at a fraction of the cost from across second company didn’t use straightforward the ocean. With good reason, they began feeling promotional paths; instead, it left career insecure about their own positions. Rather than trying to integrate with the Asian office, Western workers tried to improve relations with their bosses at the expense of their offshoring operations. Time difference and language barriers became ongoing problems that were never really addressed, so frustration rather than opportunity prevailed in their offshoring program. Workers on both sides of the pond began asking the obvious questions about career paths, and the company couldn’t come up witha good answer. A second Western technology company wanted to grow its global presence and 26
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Global Workforce progression undefined, accepting a high level of turnover among its lower-cost workers. Working for a big, brand name company carries a great deal of cultural and professional weight in India. Many employees agree to lower salaries in exchange for strong résumé lines and prestige. This made it easy for the company to recruit replacements using their well-known brand, but harder to retain the talent they already had. Combining sequenced or integrated workflow with centralized decision-making may have many advantages, including being easier to launch, but it appears to raise many questions in the area of career paths. This combination can lead to perceived professional dead ends for offshore employees and Western managers alike: offshore employees bemoan limited prospects for climbing the Western corporate ladder, while Western managers worry about shipping career paths overseas.
“Workers realized that “low-cost centers” imply they’re working for less than their Western counterparts. At the same time, rewards, bonuses and other perks like cars and accommodations are a big deal when determining compensation.” of the home office, and challenges were not communicated or resolved in a timely manner, resulting in significant delays. Failure to provide training programs, international experience and defined career opportunities to the center’s employees hindered productivity and morale. It also failed to align salary structures with the local expectations. Workers realized that “lowcost centers” imply they’re working for less than their Western counterparts. At the same time, rewards, bonuses and other perks like cars and accommodations are a big deal when
Governance at Work
The divergence of decision-making models had interesting implications for two pharmaceutical companies. The first, a North American pharmaceutical giant, saw India as an opportunity to reduce costs and deepen its talent pool, so it relocated its clinical data management center. The center’s responsibilities included analyzing and cleansing clinical data and creating reports to support clinical trial evaluation. Its approach combined a sequenced workflow structure and centralized decision-making – a head office issued requirements to teams. Several challenges arose due to insufficient investments and inadequate consideration of cultural differences among the workforce. Most notably, work produced in the offshore location did not always satisfy the expectations
determining compensation. The operation did not deliver against its expected outcomes, resulting in high turnover, loss of quality and credibility, and an eventual management decision to close the facility and outsource its operations. In another example, a major European pharmaceutical company also sent its drug www.globalizationtoday.com
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Global Workforce development operations offshore, but with some much needed light on a few important different results. It opened two centers in Asia points about organization models: to cut costs and address critical talent gaps. It gave these centers responsibility for preclinical • The independent model appears easiest and post-drug-development support. Based to operate if the requisite talent exists on employee skill sets, the centers adopted in one location because it requires less three different approaches: sequenced interaction across borders. However, this workflow for statistical analysis, integrated is usually the most expensive approach. workflow activities across preclinical trials, and independent workflow for medical writing • Sequenced and integrated workflows require projects. All were governed by centralized greater degrees of management over the assigned decision-making from Western headquarters. tasks and handoffs between locations. Sequenced To date, the results from all three operations workflows require clear break points at which have been good. one phase ends and another begins; integrated The contrast between the two pharmaceutical workflows do not. To make either approach companies is striking. The second, more work, management must address how career paths will operate in all locations. This issue is effective approach paid substantial attention to critical to morale, retention and cooperation. how different types of work were organized. The first company’s sequenced approach may have been appropriate, but its decision-making— • Independent workflow can coincide with too tightly controlled from the center—did not decentralized decision-making. However, allow the offshore organization to flourish. As it is difficult to imagine how decentralized the second company’s situation shows, central decision-making could provide adequate governance over an integrated workflow. control is not a prescription for failure. However, Closely connected workflow requires careful attention must be paid to how control more active and consistent leadership. is shared across locations. Spreading control of decision-making too thin across a company compromises its efficiency and organization. • Shared decision-making seems desirable, At the same time, tight, centralized control but it requires more time and effort. can constrict the development of offshore operations. Ultimately, companies need to • Centralized decision-making works in some strike a balance between these two extremes so cases but not in others. Proximity to endthat offshore operations are governed enough product markets and customers should to perform and flexible enough to develop. determine governance models. For example, if the end users of a product or service are based in Planning Structure and Considering the United States, centralized decision-making Talent in the United States is likely the most effective approach because it’s most connected to the From these four case studies, the mixed results consumer base. If markets are more diverse, of globalizing knowledge work are very evident. decentralized governance can add flexibility and These representative effective and ineffective understanding of consumer needs to address a approaches to complex offshoring programs shed broader set of expectations. 28
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Global Workforce
Offshore Flow The financial success of a global organization may well hinge on the ability to manage knowledge work across national borders and navigate a diverse set of personal and professional expectations. Formalizing workflow and governance structures across offices can help knowledge work become more effective and give multinational companies opportunities for expansion while addressing the challenges and growing pains that inevitably arise. Organizations trying to design effective global knowledge work should consider the following actions: • Analyze how much interaction the offshored work requires, and design an organization to support that interaction effectively. • Take the time to clearly define the roles and responsibilities of organizations, functions and jobs and the time to help all participants understand those definitions. • Think through the governance model that is in use. Has it been modified appropriately for the new global structure? • Build recruiting, retention, performance management, and career development policies and procedures that recognize both local requirements and the inevitability that employees in different locations will need to collaborate and will share information. • Align existing incentives and rewards across the global knowledge workforce. This does not mean that all people in all geographies are treated exactly the same, but the system should be perceived as equitable.
“We believe global knowledge work can rise from being “a good idea on paper” to one that delivers real benefits. The world is ripe withtalent, and offshoring work remains an immensely rewarding strategy.” Proactively monitor working relationships across borders and handoffs in the value chain to determine how effectively they are working, and make any necessary changes quickly. • Provide opportunities for face-to-face interaction between workers in different geographies to promote relationship building. With this perspective, we believe global knowledge work can rise from being “a good idea on paper” to one that delivers real benefits. The world is ripe with talent, and offshoring work remains an immensely rewarding strategy. It is up to management teams worldwide to put in place the workflows that fully utilize their hard-won talent. Dr. Frederick D. Miller is a director with Deloitte Consulting LLP in their Organization and Change service line. Bhushan Sethi is a senior manager with Deloitte Consulting LLP in their Organization and Change service line, and deputy lead of Deloitte’s Organization Strategies service offering. Vivek Sethia is a senior consultant with Deloitte Consulting LLP in their Organization and Change service line. Ryan Alvanos is a writer and editor in Deloitte Research, Deloitte Services LP.
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Virtual Office
Virtualization is Enabling the Workforce of the Future By John Meyer, CEO & Co-Chairman Arise Virtual Solutions Inc.
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Virtual Office
THINK OUTSIDE THE OFFICE T
echnology has enabled new ways for organizations to operate and pioneering companies are once again leading the evolution of business with the use of cloud computing and the virtualization of business services. The disaggregation of talent, orchestrated centrally by virtual business process outsourcing (BPO) organizations, enhances productivity and creates a competitive advantage. Similar to the way e-commerce business models have transformed the retail and video
rental industries, the virtualization of business services represents the most significant shift in the structure of business organizations since the original concept of outsourcing introduced by Ross Perot at EDS in the 1960’s. In an intensely competitive market, with significant financial pressures demanding greater productivity at a lower cost, organizations are completely rethinking how to structure their workforce in order to become more nimble and responsive to the market while remaining customer-centric. www.globalizationtoday.com
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Virtual Office
All Done in the VIRTUAL World Defining Virtualizatinn: • Virtualization is not simply a work-at-home solution, also known as telecommuting, it is crowd sourcing a network of free agents with highly specialized skills and passion for work • Virtualization enables organizations to leverage latent talent pools where the talent resides, not necessarily where the company resides • Virtualization leverages technology and minimizes unnecessary fixed costs like real estate
“Virtualization is the next evolution of outsourcing!”
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Independent contractors have performed services for years, however the ability to organize and orchestrate independent contractors for the provision of services on behalf of large scale operations has evolved only recently. In our consumer oriented culture, it is no surprise that the customer service industry is leading the way with the adoption of virtualization. Customer service is a function with well defined, highly measured and constantly evaluated results. This is only the start as organizations begin to define the next tier of contact centerlike functions such as health claims processing, mortgage servicing and financial planning. The use of independent contractors enables organizations to leverage highly skilled professionals and match them with customers with similar interests and location. Brand enthusiasts interact with their clients and consumers with passion, resulting in an enhanced customer experience, which often leads to improved up selling and cross-selling of additional products or services. By matching customer service representatives with customers based on geographic location, the customer experience is highly localized, resulting in a high degree of cultural affinity and, again, an improved customer experience compared to far away locations like India and the Philippines. Arise pioneered the virtualization of customer service in the 1990s, and has continued to innovate and
Virtual Office
enhance its ability to utilize a vast network of independent businesses with access to over 25,000 Client Support Professionals certified to provide customer care, sales, and technical support services to Fortune 500 companies. A virtual network of certified professionals delivers a higher quality of service at a lower price and with greater flexibility. Customer service professionals ramp up and down quickly to adjust to changing business needs due to seasonal fluctuations or even within a specific day. Organizations in other industries are also using virtualization to transform their industries. For example, Axiom, the largest and fastest growing provider of managed legal services to Fortune 500 companies, is transforming the legal industry. Axiom organizes over 800 attorneys with specialized skills, all available to provide legal services to a multitude of clients with zero unnecessary overhead.
Virtual Workforce for the FUTURE In the past, individuals preferred the traditional employee-employer model because it offered the perceived concept of financial stability with a steady income, pension and additional benefits. The Great Recession of 2008 has proven that the traditional worker model has forever morphed, as organizations shift people resources to adapt to changing business needs. Companies endure a great deal of expense to adapt their business using the traditional model, and workers suffer from a lack of an income as “jobs” are reduced. Increasingly, the traditional model is a lose-lose scenario for both employers and workers.
“An Independent Business Owner model enables a much more efficient relationship between an organization and an individual or group of individuals.” The future of work will consist of organizations establishing business relationships with individuals who bring specific skills to the table. An Independent Business Owner model enables a much more efficient relationship between an organization and an individual or group of individuals. It is the highest form of economic efficiency, allowing the free market to set supply and demand, much like Adam Smith, the author of The Wealth of Nations and father of modern day economics and capitalism first advocated. Organizations and the professional both gain unmatched flexibility and, contrary to conventional wisdom, greater financial stability and security. Independent business owners work when they want, for as many hours as they want, from any location and for multiple companies. Compensation is based on performance, with the best performers receiving the highest compensation. Due to the flexibility of virtualization, organizations can easily access a latent talent pool of highly intelligent and educated individuals who were not part of the workforce due to location or the demand of a typical fulltime job. Stay-at-home moms, bounce back retirees, and college students who typically require flexibility are now accessible. Talented individuals located in rural or remote locations are also becoming more and more accessible www.globalizationtoday.com
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Virtual Office
as the adoption of high-speed broadband increases. Military families, including military spouses who in the past had difficulty maintaining a career as they moved from base to base and veterans who offer tremendous discipline and passion for meaningful work opportunities, can now become valuable members of the economy as owners of independent businesses and highly trained professionals. Virtualization changes the dynamics of work. Rather than marching to the tune of a command-and-control culture, people march to their own tune based on their individual needs and desires. Workers who have their own businesses are more accountable, take on more responsibility and are passionate 34
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about delivering the best experience possible. By aligning all the incentives from customers to virtual BPO providers to Independent Business Owners, value is maximized across the entire ecosystem with results and rewards being truly transparent. Geoffrey Moore, the author of Crossing the Chasm, a highly respected book on the adoption curve of major business trends, recently remarked, “To prepare for the impact and capitalize on the opportunities introduced by the future of work, enterprises must revisit their internal organizational models and cultures, their external relationship models and commitments, and the IT systems needed to connect all parties together in a productive, responsive ecosystem.�
Virtual Office
“Smart organizations are already using virtualization to access better talent and drive increased productivity while becoming more cost effective and flexible” working from home. Workers also reported substantially higher work satisfaction and psychological attitude scores with job attrition rates falling by 50%. Improved performance and productivity, like those found in the Stanford University report and corroborated by leading growth consulting firm Frost 6 Sullivan, help explain why virtual call centers are the fastest growing segment of the outsourcing industry. As business service providers offer more sophisticated approaches to leveraging virtualization, organizations must question Why Shift to Virtualization? what is core to them and what can be virtualized. Social networks and the concept of being in a • Lack of specialized resources within one networked environment have dominated the geographical region, such as languages millennial generation. or technology skills Virtualization offers a link between the • Seasonality of business demand requiring freedom and connectivity we experience using the social web and mobile devices in the ultimate flexibility our personal and professional lives. The future of business is a co-mingled combinatioo of • Desire to have interaction completed in internal and external resources, collaboratively the home country of the customer accelerating results. The virtualization of business services is a • Improved performance and productivity highly efficient economic system, perhaps the A recent study by Stanford University titled, most advanced and evolved system yet. Adam Does Working From Home Work?, found a 12% Smith would be proud of his inspiration and performance increase from call center agents the evolution of business. www.globalizationtoday.com
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Complimentary Research
RESHORING GLOBAL MANUFACTURING: MYTHS AND REALITIES By Michel Janssen, Erik Dorr and David P. Sievers
By next year, China’s cost advantage over manufacturers in industrialized nations and competing low-cost destinations will evaporate. Executive Summary New Hackett research indicates that the manufacturing competitiveness of China compared to advanced economies and low-cost geographies is eroding. Stagnant or declining manufacturing wages in the West, rising transportation costs, concerns about intellectual property protection, and Chinese wage-rate inflation have brought traditional calculations about global manufacturing sourcing strategies to a tipping point, encouraging companies to reshore some manufacturing capacity while moving additional capacity from China to other lowcost geographies. Companies need to stay abreast of this trend and develop sophisticated analytical models to improve manufacturing sourcing decision-making processes.
In a departure from our usual focus on the impact of globalization on business services organizations (IT, finance, procurement and HR), in this research we turn our attention to the operations side of the business, specifically on manufacturing sourcing strategies. In these pages, we analyze the ways that companies are adapting their business strategies to changing global and regional market conditions. 36
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Complimentary Research
Additionally, using hard data from our 2012 Supply Chain Optimization study, we were able to closely analyze the trend in “reshoring” of manufacturing capacity. Our findings debunk a myth about the future of manufacturing that has been much discussed in the press recently: that manufacturing capacity is returning in a big way to Western countries as a result of rising costs in China. The reality is that the net amount of capacity coming back barely offsets the amount that continues to be sent offshore. Our study confirms that China’s relative competitive position is indeed eroding rapidly, to the detriment of its overall economy. However, few of the low-skill Chinese manufacturing jobs will ever return to advanced economies; most will simply move to other low-cost countries. Finally, we offer recommendations on how companies should plot their manufacturing sourcing strategies in light of these and other study findings.
THE ECONOMIC IMPACT OF GLOBAL MANUFACTURING SOURCING
I
t has been several decades since globalization of manufacturing sourcing began with movement of low-value-added activities from developed economies to emerging economies. For many companies, the trend brought about a complete rethinking of the manufacturing footprint, including changes in suppliers and sourcing locations. The transition to a global supply chain has been a hugely important engine of economic growth around the world. Between 1990 and 2010, the nominal value of global exports of manufactured goods more than quadrupled (Fig. 1). When adjusted for inflation, this equates to a near tripling of value and a compound annual www.globalizationtoday.com
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Complimentary Research
growth rate of 5.5%. To put this into perspective, during the same period, the combined GDP of North America, Europe, Japan and the BRIC countries grew at a compounded rate of around 3.0%, resulting in real GDP growth of about 80%. China has been the biggest beneficiary of these developments. Between 1990 and 2010, its share in global manufacturing exports grew from 1.8% to 14.4%.
“Total landed cost” defined Total landed cost is the set of end-toend supply chain costs to transform raw materials and components into a finished good ready for sale. Key components include: • Raw material and component cost • Manufacturing costs (fixed and variable) • Transportation and logistics • Inventory carrying cost • Texes and dities
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MANUFACTURING SOURCING DECISION DRIVERS
The macro trend discussed above is the outcome of the business strategies and manufacturing and sourcing decisions of individual companies. These are guided by specific criteria and an evaluation of market and other conditions in different geographies against these criteria. Our study confirmed that the most important decision driver in the development of a manufacturing sourcing strategy is total landed cost (Fig. 2). Product quality, protection of intellectual property rights and supply chain risk trail in importance. Regulatory regime ranks as the least important criterion.
The relative importance of individual criteria varies by industry. Factors like scalability, time to market and capacity ramp-up speed tend to be more important in highly dynamic industries with short product life cycles and high levels of demand variability. Consumer electronics is an example of this type of industry. Conversely, less dynamic but highly price-sensitive industries such as furniture manufacturing ascribe more importance to total landed cost. The success of Chinese
Complimentary Research manufacturing can be explained largely by the fact that for many industries the country offers the highest value proposition when measured against the various criteria illustrated above. Other geographies may be more attractive in one or two criteria for manufacturers that especially value those specific factors. However, with the possible exception of protection of intellectual property, China historically has offered the most balance among the range of key decision drivers. Changes in manufacturing sourcing strategy can be brought about by changes in the performance of low-cost manufacturing destinations against these decision drivers. At present, the overall picture reveals a gradual maturing of low-cost manufacturing destinations (Fig. 3). The three most-improved areas are all related: time to market, responsiveness and scalability. Quality has improved for most manufacturers. However, in the first, third and fourth-highest-ranked criteria in terms of importance (as shown in Fig. 2) – cost, intellectual property rights and supply chain risk – the number of companies reporting deterioration is about equal to those reporting improvement. This is an indication that improvements are becoming increasingly difficult to achieve, and in turn, more companies are starting to evaluate alternative sourcing options for manufacturing. www.globalizationtoday.com
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Complimentary Research Apple’s iPad® assembly sourcing strategy The Chinese labor-cost component of an entry-level iPad retailing for $500 is estimated at $10, or 2% of revenue, while the profit margin is estimated at $150, or 30% of revenue. If Apple were to move production to the USA, and if one assumes that assembly costs would triple (to $30), it is conceivable that Apple could convince customers to pay for a large portion of the price increase based on the appeal of a “made in the USA” product. The impact on margins of any cost that could not be passed on would be modest. Furthermore, in light of recent negative publicity about Chinese labor conditions, and considering the high unemployment rate in the U.S., such a move could substantially boost Apple’s corporate image. However, the U.S. lacks the sheer labor capacity that would be required in order to ramp up production of iPads at the speed needed to maintain the company’s edge in the hyper-competitive tablet and mobile device market. Also, U.S. regulations on working conditions, as well as cultural factors, would make it impossible for domestic manufacturing facilities to achieve the productivity levels of Chinese facilities. Thus one may assume that Apple’s manufacturing sourcing strategy is primarily motivated by scalability and supply chain risk, and only secondarily by total landed cost.
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A more detailed inspection of trends in total landed cost (Fig. 4) and its two main underlying drivers, productivity and labor cost, reveals that the total landed cost gap with China is shrinking rapidly, primarily due to wage-rate inflation1. Other contributors are higher fuel prices and the resulting rise in transportation costs. In a testament to the extremely rapid maturing of Chinese manufacturing industries, companies in our study project that by 2013, the productivity gap with China will have disappeared. However, by then, total landed cost will have shrunk to 16%. During the same period, the total landed cost differential in other low-cost geographies is expected to remain relatively stable, at around 20%, due to improved productivity and more-moderate increases
in labor cost. In conclusion, China’scost advantage is eroding, both relative to domestic manufacturers in advanced economies, and relative to competing low cost destinations. Projections vary widely depending on company and industry. In industries with a high labor-cost component in total landed cost, the financial advantages of offshore manufacturing continue to be extremely compelling and sustainable. But in many others, companies must constantly reevaluate manufacturing sourcing decisions based on changes in regional market conditions. There are also some instances where, regardless of the cost gap, domestic manufacturing is simply not feasible due to a lack of capacity and scalability (see sidebar).
Complimentary Research
UNDERSTANDING THE DYNAMICS OF MANUFACTURING SOURCING STRATEGIES
An important factor explaining the dynamics of manufacturing sourcing strategies is the cost threshold for companies to move capacity in and out of geographies (Fig. 5). According to our research, companies begin to consider moving capacity out of high-cost industrialized economies when the cost gap approaches 20%. Of course, in practice, extensive financial modeling is required to build the business case, including factoring in the costs of transition cost and operational risk. A second important parameter is the threshold at which it makes sense to move capacity from one low-cost geography to another. Not surprisingly, the decision point is about the same. This implies that when the rate of inflation (usually driven by wage rates) in a given geography begins to exceed that of a competing geography, the situation will trigger substantial movement of manufacturing capacity from one to the other. A third threshold metric
relates to the much-discussed phenomenon of “reshoring.� According to study participants, when the total landed cost gap narrows to 16%, moving capacity out of low-cost geographies and back into domestic markets becomes a viable option. In Fig. 4, we saw that the total landed cost gap with China is expected to reach 16% by 2013. (It is important to recall that total landed cost is an important consideration for many manufacturers, but scalability and ramp-up time factors may trump this factor for others.) There are a number of conclusions that can be drawn based on our study data. First, reshoring will accelerate and reach an inflection point over the next few years, growing from impacting 9% of manufacturing capacity (2009-12) to a projected 19% (2012-14) (Fig. 6). At 24%, movement between low-cost countries will impact the highest percentage of capacity, closely followed by the ongoing movement of capacity away from high-cost countries into low-cost geographies.
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Complimentary Research
However, the analysis also shows that the continued outflow of capacity from advanced economies will more than offset any capacity being reshored. This finding is further confirmed by data about the lifecycle stage of the different types
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of manufacturing sourcing strategies discussed. Thirtyfive percent of manufacturers studied are actively involved in moving capacity from highcost to low-cost countries (Fig. 7), far more than the 20% actively undergoing reshoring
initiatives. In fact, there is no dominant movement of capacity in any single direction. Rather, companies are continuously optimizing their manufacturing footprint in response to changing conditions.
Complimentary Research
China is affected the most, given a net decline in the total capacity share both through reshoring-driven outflows and movement of capacity to other low-cost geographies (Fig. 8). While the data on which this finding is based is solely from companies participating in our study – a self-selected group that already has substantial manufacturing capacity in low-cost geographies – the projection of China’s declining share of global capacity remains statistically relevant. As domestic demand rises in China and other fastgrowing markets, additional
manufacturing capacity will be needed. At present, China excels in low-skill manufacturing work, making products developed elsewhere and shipped out for Western consumption. To
stay competitive and maintain growth in the face of its eroding cost competitiveness, China will need to modernize and spur innovation in its manufacturing industries.
ACTION ITEMS
There are a number of things that executives can do to optimize their manufacturing sourcing strategy. These involve developing a clear picture of the company’s global supply and demand dynamics; gaining an understanding of total landed costs – both current-state and longer-term trends; and establishing a process for conducting ongoing manufacturing sourcing reviews supported by strategic, cost and performance triggers. Action items include: 1. Develop a global manufacturing review process: With so many factors affecting global manufacturing, we recommend that www.globalizationtoday.com
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Complimentary Research companies establish a systematic, forward-looking process to drive decision making (e.g., make-vs.- buy, core competencies). This should integrate the views of manufacturing, procurement, finance and business-unit leadership. 2. Clarify the global demand picture: Critical inputs to manufacturing strategy are demand by region and possible approaches for satisfying this demand. Create a model that considers demand forecast, differentiated product needs, supply-base capabilities and local competitive threats. 3. Embrace supply chain analytics: Interest in this area is growing, yet for a number of reasons, companies have difficulty establishing this capability. To allow greater focus, create a Center of Excellence for analytics and develop a capability that includes scenario modeling and financial analysis to support decision making. 4. Build a strategy for talent management: Being competitive requires a deliberate strategy for acquiring, developing and retaining manufacturing operations talent with needed skills. Ensure that ongoing investment in talent is prioritized as a critical element of the operations strategy. 5. Establish a game plan to deal with risk: Geopolitical, supply base, environmental and commodity risks are a given. Establish a proactive approach to anticipate risks, creating mitigation plans with clear triggers for implementation. 6. Broaden the decision making approach beyond total landed cost: Changes in supply/demand characteristics and risk profiles can impact profitability from a revenue perspective. Revise the decision-making methodology to include an evaluation of supply-chain responsiveness, opportunistic demand, and revenue at risk due to changing supply-assurance considerations.
The Hackett Group 44
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7. Identify the dominant factors and prioritize programs accordingly: Determine the factors to which your organization is most sensitive, based on an assessment of impact to profitability, risk and responsiveness. Establish a long-term roadmap tailored to address the areas where the potential impact is greatest.
Complimentary Research
About the Advisors
Erik Dorr
Senior Research Director, Finance and EPM Executive Advisory Programs
Michel Janssen
Principal and Chief Research Officer Mr. Janssen is responsible for developing The Hackett Group’s core intellectual property, including thought leadership. He works with the company’s Executive Advisory Council to understand the strategic impact of new and emerging trends on the business functions. He also heads Hackett’s team of researchers and analysts in the US, Europe and India in the design and implementation of research studies; analysis of results; and production of resulting findings. Previously Mr. Janssen was president of Supplier Solutions for Everest Group and co-founded the Everest Research Institute. In addition, he provided strategic oversight for Everest’s Outsourcing Center, the world’s largest outsourcing community and vehicle for identifying early industry trends. He was also a senior director in Gartner Group’s Strategic Sourcing practice and held numerous management positions with EDS.
Mr. Dorr started his professional career of over 20 years as an IT consultant, and then moved on to a CIO position at a large manufacturing company. Next, he worked as a research analyst covering enterprise business applications and technology strategy. Leveraging the extensive experience he gained working with financial organizations and optimizing financial processes, he was named to his present role in early 2010.
Martijn Geerling
Europe Practice Leader, Global Business Services Mr. Geerling has over 10 years of consulting experience in business process redesign, shared services development, outsourcing and benchmarking. During this time he has worked with global companies delivering transformation engagements in finance and other business functions. Prior to joining The Hackett Group, he worked at KPMG Consulting assisting clients in finance function optimization and compliance management. www.globalizationtoday.com
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Win or Lose…What did you learn?
Win or Lose…
y d i d t a Wh
? n r a e l u o
By Thom Mead
A
t different times during my career I have had the privilege to head the Sales and/ or Marketing function for several leading outsourcing companies…some F500…others a fraction of that size. During that time I have been involved in the identification, structuring, negotiating and closing of more than $17 billion in contracts, large and small, with more than 100 client companies. I have been fortunate to work with some amazingly talented salespeople along the way, and have learned much from all those with whom I worked. But when it comes to understanding why we won or why we lost, the salesperson was usually not the best person to ask to gain this valuable insight. It is all too easy to play the helpless victim as a matter of self-preservation. Often, when asked, the salespeople will chalk up their wins as being a result of them articulating clearly the value their employer offers and the competitive advantage they were able to convey to the prospect. Conversely, when queried as to why we lost, the answers were the polar opposite (and not their doing). Comments such as, “our price
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was too high”, “they didn’t feel we had any value add”, “we were just not competitive” would be characteristic responses. Now in all fairness to the salespeople, in almost every circumstance, while they had input into the pricing, they were not responsible for the price that was ultimately agreed upon. That was something orchestrated by the Finance team and had multiple approvals, as did any change during negotiations. In any deal of significance, the salespeople typically do not have the latitude, sole discretion and signature
Win or Lose…What did you learn?
authority to negotiate and close the deal. More typically, they represent the deal to the prospect. It is often said they bear the 9 months of labor and management shows up at the moment of birth to take credit. Done correctly, everyone is involved all 9 months. I often found it curious too that the eventual account manager, saddled with the deal from hell, is quick to blame the salesperson for structuring a bad deal and only interested in getting their commission. In fact, Sales, Finance, HR, Operations, Transition, Legal, IT, Sales
Support and numerous other players all weighed in and helped shape the deal. I suppose blaming senior management repeatedly is more career limiting than blaming the salespeople. If one asks the prospective client why they chose one vendor over another, you will likely get a muted, couched response, if any at all. They want to consider the case closed and get on with the challenge of implementing the deal. Hiring a 3rd party to conduct win loss analysis is one way to obtain a more objective www.globalizationtoday.com
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Win or Lose…What did you learn? perspective. If a 3rd party deal advisor was involved in structuring the deal, and if you have good relations with them, they often will debrief with you to help you understand what you did right, what you did wrong and why you really won or lost. But such insight cannot be taken in isolation. You need to understand it from many, many wins and many, many losses to see trends and traits that need to be understood. To take the input from too small of a sample set can be analogous to steering not by the stars, but by the lights of each passing ship. Follow this practice and you will crash on the rocks. That said, insight from a particular deal can be helpful, if it can be obtained in a timely manner. When I ran Outsourcing Sales at Unisys, we were competing for a medium size contract ($67MM) with a large Western state. We were confident our bid was more than competitive, we partnered with best of breed companies to build a compelling solution, and we had a successful history of wins with that state. We were emboldened entering into contract negotiations that we would be the winner in the end. To our amazement they chose one of our well known rivals. When we approached the prospect’s team as to the reason for us not being selected, we got a “non-answer” that reflected that factors other than our solution and price were the reasons. We filed an appeal with the state, citing the specific areas that our competitor did not meet the requirements and further elaborated on the problems their approach would create when implementing. Six months later, our competitor was formally removed for failure to perform, and we were invited to come back, revise our proposal (to undo the new mess also), and we were awarded the business. You cannot win everything, but if you do not understand why you lost, you may be prone to repeat your mistakes and not have a credible footing upon which to appeal a decision. The importance of regular Win-Loss Analysis 48
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cannot be underestimated. I would recommend it be done annually. Every other year at worst. There are new players emerging all the time, new offerings to compete against, new price points, and the buying criteria of the market shifts through the years. What worked 5-10 years ago simply will not cut it in today’s market. Adapt or die. It is sheer stupidity to continue to compete on the same basis upon which you repeatedly lose. This is usually not the problem of bad salespeople…rather it is a systemic problem of the organization. The employee burn and churn model many companies use in search of sales success, in actuality, only exacerbates the root causes of their losses, thereby making a bad situation worse. At one company, one vertical business unit had a 400% turnover of the sales force in a 5 year period…with no change in the person heading Sales. When these same salespeople sold for other vertical business units in the company, they were top performers, both before and after their brief stint in the lackluster business unit. Care to venture a guess where the real problem resides? At another company, when I came on board as the Chief Sales and Marketing Officer, I conducted a Win-Loss analysis. In the prior 12 months, the company had bid on 144 opportunities and had won only 2 of them, and they were small ones. That’s a win rate of less than 2%. Central to the problem was the company was bidding on too many opportunities. To quote the famous Chinese military strategist Sun Tzu, “The army destined for defeat fights every battle in the hope of winning. The victorious army chooses which battles it must win before engaging with the enemy.” This company was sending out mass boilerplate proposals, generic pricing (though sometimes the wrong pricing went into the wrong proposals), and with only 2 proposal writers on staff, proposal writing was viewed as a mindless cut and paste function with a high
Win or Lose…What did you learn? attrition rate. When I suggested we need to bid on fewer opportunities, triage and qualify them, and stop blindly bidding on RFPs, the CEO’s response was pretty clear. Where the head goes, the body follows.
“If I hear of an RFP on the street and we are not bidding on it I will fire anyone responsible.”
and there is a law of diminishing returns the more opportunities you bid. People buy from people they know and trust. If you have never met the client, or the opportunity/RFP caught you by surprise, then the odds are stacked greatly against you and you have virtually no chance of winning. Yes, blind squirrels do find acorns…but they eventually die of starvation. If you have relationships in place with the prospect, have some understanding of their real (often not articulated in the RFP) business issues and drivers, and can tailor your proposal to highlight how you can help them find the elusive value they are not experiencing currently, your proposal will resonate much more strongly. They will give you coaching, guidance, insight, and help you navigate the company politics associated with the decision.
But while every company has its own way of doing things, there are a few universal truths that seem to be prevalent at every company I have worked for in my career. In discussions with my industry peers, they often experience the same frustration. For those seeking to change companies to get out of these companies, be sure you are running “to something”, not “from something”, lest the same maladies that caused you to leave your former employer will likely be present at your new employer. While you may 2. No Value: If your proposal has no inherent value in the eyes of the prospect, they will not see your company experiencing all of these not become your client. A classic mistake symptoms, if you are experiencing 3 or more you is when companies, hoping for a few quick should seriously consider doing an in-depth, 3rd wins, use the cookie cutter approach. They party run, win-loss analysis to help get you back take their winning proposal and change the in the winning game. prospect name and use it for similar RFPs. Or even worse, send it out unsolicited, as From the numerous win-loss studies done in my career, here are the common mistakes if the value the one prospect saw would I have seen and how to correct them: be a universal problem and others would rush to sign on also. A related problem in 1. No Relationship in Place: This is particularly this area is taking something the prospect symptomatic of companies that bid too sees as a commodity and calling it “valuemany opportunities or too many RFPs or added”. Until your “value add” addresses a churn their salespeople. When you bid too need of the prospect in a way others cannot, many opportunities, your salespeople cannot it is not value added. It is value parity. provide the focus, care and feeding necessary to shepherd a deal along. The bigger the deals 3. Kings want to meet with kings: As typically means a longer sales cycle. If you sell mentioned earlier, the salespeople, the front one big deal a year, you are fortunate. If you lines of your revenue generating effort are sell 2 per year, you are “Good”, if you sell 3 or sent forth to represent the company. To get more, then you are lucky. For smaller deals with better access to the senior executives at the shorter sales cycles, similar proportions exist prospect company, many salespeople are www.globalizationtoday.com
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Win or Lose…What did you learn? often given the title of “Vice President”…yet they have no direct reports, have no P&L or budget, and no signature authority. For the last 10 years, “Vice-President” has been the new “salesperson”. But for the prospect to feel they are important, they want to meet their organizational peer, not just a one time, obligatory courtesy visit…but throughout the process. Here again, if you do not triage and qualify opportunities, your senior execs will spend their life needlessly on the road and not moving the needle in the process. Years ago, after my employer suffered a staggering loss of a $2.8 billion deal, the 3rd party advisor told us it came down to lack of executive presence and not making the prospect feel important. The lead person running the deal for our competitor, was a SVP and direct report to the CEO of their company. He was also named to be the account manager if the deal signed. For my employer, our salesperson also reported directly to the CEO…directly…through 6 layers of management. During contract negotiations, our competitor was empowered to make decisions and had signature authority. Our deal lead, was not authorized to make any changes and repeatedly had to seek approvals back in Dallas for any change requests. Our competition completed their contract negotiations in under 3 days. Our team completed their negotiations in a little over 3 weeks. It was construed, if it was this laborious to make a change so they could win the contract, what would it be like make a change request later when they already had the business?
because we were excellent in other areas to offset it and it was easier to have one throat to choke. With our approach deeply etched in stone, we believed we had the recipe for success. We mistook momentum for leadership. In the process we began to listen less and tell more in sales conversations. We simply knew what was best for the prospect. Recognizing that to compete with us, our competition knew that being “good enough” would not be good enough to win. They had to do better. They assembled a “best of breed” dream team, even partnering with would be competitors…with one goal in mind… to win the contract. It ushered in the era of coopetition. They listened to the prospect and the 3rd party advisors and did what they needed to do to win. A year later on a $6.7B deal, learning from our past mistakes, we used their approach against them, partnering with our rival, and we emerged the winner.
4. Arrogance does not equate to excellence: My employer was the undisputed industry leader at the time, but competition was increasing from all quarters. When we were 5. Less is more: By being proactive, we began to formally manage alliances…not on an ad about the only game in town, we could do it hoc basis, but as a deliberate, proactive part all. Being average in some areas was accepted 50
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Win or Lose…What did you learn? place, all of which gave prospects a higher level of confidence. It also increased our win rate and correspondingly, our revenue.
of our sales strategy. Wanting to keep the choicest parts of the deal, we would previously wait for the RFP to come out, dissect it, and assess which pieces we wanted to do ourselves (naturally the more profitable, attractive parts that assured our future interactions with client senior management), and subcontract for the parts we felt were undesirable. The problem was, the people who could do those parts exceptionally well, even better than us in some cases, wanted the attractive, higher profit parts also. This led to a failed marriage from the start, and sometimes we would find ourselves still needing partners a week before the proposal was due. When we made the alliance function a corporate managed activity, not deal specific,
“Our greed and arrogance was leading us to have 100% control of a string of failed proposals.” we could better articulate a solution based on the synergy of the organizations in the alliance inherent in our respective core competencies. A stronger message, a more compelling value proposition, governance models already in
6. Take action based on facts, not emotions: When I was asked to build and run the analyst & consultant relations program at EDS, our Chief Marketing Officer gave me some straightforward and simple advice when she gave me the job. She said, “I don’t know what we are doing wrong that is giving us such a bad reputation and why we are losing so many deals when 3rd parties are involved. So my only guidance for you is find out what we are doing now and why it is not working…and whatever it is just don’t do the same thing and it will probably be better than what we have now.” She clearly did not have high expectations at the time. But I appreciated her confidence in me and took her advice and spent a few months meeting with analysts, consultants, lawyers, authors, researchers, ratings firms, and others who were influencing our image and revenue. I met with a large number of senior EDS executives, sales managers, salespeople and lawyers who had issues with the role of the market influencers. I did some a win loss analysis of nearly 100 deals where these intermediaries were present. Armed with emotion and stinging from losing deals, the EDS management was of the opinion that when an intermediary was involved, our chances of winning were less than 10%, and without them we were winning most everything we bid on. The helpless victim syndrome rears its ugly head once more… just at a higher level. But when I was asked to present my findings to senior management, there was silence in the room as the facts painted a very different picture. Reality was, our win rate was good, but our win rate when an intermediary was involved was nearly double www.globalizationtoday.com
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Win or Lose…What did you learn? what it was on our own. Management would 8. Triage: No company that I have come across exaggerate one visible loss to be characteristic has the depth and breadth of talent to bid on and blame the intermediaries for deals they everything. Yet too many seem to try. I was lost where no intermediary was involved. told by one Business Unit president, “We can’t One thing EDS was renown for was its ability win if we don’t bid”. I replied, “The more you to change, and for a company its size, EDS bid, the less you will win”. Their approach could change to seize market opportunities of casting seeds in the hopes that something quickly. If our win rate was this good when we would germinate with no further attention considered the intermediaries as a worthless was overly parochial. When I was doing the obstruction, how might it be if we opened our win-loss analysis for this business unit, they arms, and our doors to help them know us would often say, in hindsight, “Yeah, that better? Take action based on fact, not emotion. was a bad deal, we never should have bid on it. It was a waste of time and money.” The 7. SWAT: Yes, just like the police. The deal key is to turn this knowledge gained from intermediaries often were involved in the hindsight into a rules based, objective criteria “Mega-deals”, defined at the time as any deal to triage future opportunities and not repeat greater than $500 million. By virtue of their the mistakes of the past out of desperation to size…these were “deals”…not sales. Doing demonstrate sales effort. You can’t manage an outsourcing deal of any meaningful scale sales by spreadsheets detailing the number is more like doing a merger, acquisition or of calls made, nor predict probability of divestiture than it is the sale of hardware, “Nobody cares about effort. software or managed services. When you It’s results that count. “ are doing deals valued at multiple billions of dollars, you don’t put your new sales person winning by what “stage” of the sales cycle on it when the biggest deal he/she ever did the deal is in currently. By pursuing deals was $20MM. That would be analogous to that meet predefined criteria you will pursue betting your life savings on the US Amateur fewer deals and have greater focus on those champion winning the Masters. While it you choose to pursue. You can channel the can be done, the odds are against it. At EDS, dollars saved into better and more effective Michel Janssen, Tom Fox and I collaborated Marketing to drive more good deals your way. proposed and created the Mega Deal Team But triage takes discipline, and commitment comprised of a dedicated team of senior during the period of transition where you executives, highly experienced salespeople, go from high volume/low win rate to low finance, sales support, technology and legal. volume/higher win percentage. That valley A dedicated team whose sole purpose was of despair is common in most any change developing a repeatable model and building management effort. Steer by the stars… the depth of experience that enabled us to win successively larger deals with greater 9. You are what you eat: Part of the role of frequency. I re-created this model at later triage is to align your strategy with your employers with similar success. If you are sales execution so the deals you win will going big game hunting, it helps to have some become part of the brand of your company big guns. or business unit in the market. If you pursue 52
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Win or Lose…What did you learn? smaller deals and grow them in 5-10 years to be bigger deals…that is a viable model. But if that is not what you aspire to be known for, then you will become a victim of your own success as people will not consider you as qualified to bid on larger deals. If your largest deal was $20 million, it is unlikely you will be on the bidders list for a deal at $200 million. Conversely, if you have a strategy to be known for doing only big deals, then that is what you will be invited to bid on. Exult was a great example of this approach. They set their target as only companies with 25,000 or more employees. They quickly secured deals with BP Amoco, Bank of America, International Paper, Prudential, Unisys and others and became perhaps the fastest growing outsourcing company, growing from a standstill start (no captive spinoff) and competing in a space they created. The leadership was capable and bold. No shrinking violets here. No pilots of 25-50 people for 6 months and slowly ramp from there. For their first deal, BP Amoco…they had been officially in business about 6 months, had 40 people and were bidding on a global contract for 5 years valued at $600 million. Upon winning, their employment grew by more than 800 people as they transitioned from the BP Amoco payroll to Exult. They ate large, very large, HRO deals frequently and in roughly 2 years had a market cap of nearly $4 billion on a revenue base of about $400 million annually. I often wonder when the time will come that a nearshore, Latin America powerhouse will emerge. Can China really scale and create its own version of Wipro or TCS? 10. Needs based selling: One common complaint from buyers and intermediaries alike is the vendors throw a bunch of stuff into their proposals that the prospect did not ask for and sees no value in either. This only serves
to pad the price and make the vendor appear to be missing the mark. It only has added value if the prospect feels it helps to better address business challenges they are facing. It’s no different when buying a car…if I don’t want the Chevy Tahoe with a 3rd row seat, don’t try to sell me on the merits of it. I am single and looking for more room for my dog to spread out in the back. Removing the 3rd row seat, the uneven surface is uncomfortable for him and poses a safety hazard for my dog’s feet. Listen to the prospect and the 3rd party advisors for the spoken and unspoken needs. Of course if you never met either of them and you are bidding blindly, refer back to rule #1. Selling is not easy and winning is harder. But if you find yourself reading the above rules and saying to yourself 3 or more times, “Yeah…we have that problem”, then you are overdue for some serious Win-Loss analysis and some corrective action. After all, second place is the first loser.
Thom Mead Thom has been a key figure in structuring and closing more than $17B of outsourcing transactions in his career. Thom was VP of Marketing, Alliances & Channels – North America for Firstsource, CMO for EXLservice, SVP - Sales for Spherion, VP of Sales and Marketing for Unisys Outsourcing and VP of Global Marketing for ACS where he also served as president for an ACS BPO subsidiary. Thom can be reached at: 770-769-7795 thom.mead@yahoo.com www.linkedin.com/pub/thom-mead/0/224/a98
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IT Security
User desensitization in security By Michele Daryanani
L
ike most security professionals, I am quite vociferous when it comes to the role that user education plays in IT security. Hence, if we bombard users with security warning messages, surely that should aid in educating users – even if they only read a handful of the messages, right? Or is less really more in this case? I was asking myself this precise question a couple of years ago – just about when Microsoft introduced elevation requests (in the form of ‘User Account Control’ – which was quite widely hated). Similarly, Apple has been using the concept of elevation since swapping to a *nix core (dare I say BSD?). The implementations aren’t identical (OSX used to request passwords for each elevation request), but they are similar enough to pose some comparison. At the time, I was an Apple System Administrator and found that a lot of my mobile users had issues with the ‘keychain’ program (which in essence is a password vault). Under certain circumstances, it would come un-sync’ed and prompt the user for credentials every time it tried to use a password from the vault. While the solution was quite simple, it appeared that most users wouldn’t think twice and would just provide their credentials each 54
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time they were requested. For some users, this would occur for every web-page that has a password field. The issue (and opportunity) was that the credential request popup for keychain was almost indistinguishable from the elevation request popup. As I was doing an MSc in software and systems security at the time, I suggested that that there may be an opportunity for research in the area. At the simplest level, there were two ‘pools’ of users - those who were used to seeing Apple’s popup, and those who had not. In conjunction with the University of Oxford, and with the blessings of CUREC (the Research Ethics Committee) I set up a simple test. An online questionnaire was set up, and halfway through the questionnaire a phishing attack was launched on the respondent. The phishing attack consisted of a popup window set up to look like an elevation request; but when/if the user released their credentials, instead of sending them back to the server, some client-side scripts would verify if a password was entered then wipe it (we need to remain ethical after all!).
IT Security
Thus, we had three possible outcomes:
users giving their passwords versus 20% giving their password. Hence, it was quite obvious that those users who saw more of the security popup window were desensitized and thus were more likely to give away their private details. While that may seem obvious in retrospect, it does raise a few very important points. Firstly, user education does not mean an incessant bombarding of security messages. Secondly, less really is more when it comes to security warnings. Hence, if we bombard users with security warning messages, the user effectively ‘switches off ’. At the same time, without any information, how is the user to make a decision, especially an educated decision? The middle ground is one that needs to be found carefully – from one side the manufacturer wants the software to be seen to be doing its job (especially when it comes to anti-malware), but on the opposite most users are quite happy never seeing an anti-virus alert (or other security warning message). At the same time – does this apply to education? Is it actually possible to ‘over-educate’ a user in IT security? Could too much awareness have a detrimental effect? At first, it would appear not; but I’m open to opinions!
• those users who saw more of the escalation windows would be more vigilant, and realise that the window was fake; • those users who saw more of the escalation windows would be desensitized to the popup and be more likely to give away their credentials; • having seen the escalation windows before would have had no impact whatsoever to If you are interested in reading more, a full copy of the study can be found on: www.europoli.org/MSc/ responses. Phishing is the practice of masquerading as an
After over 300 responses, 5.19% of responses official entity to trick users into revealing confidential released their credentials – this was perfectly information. This is usually done via phishing emails. in line with research published by Sophos, who found that ‘Phishers are able to convince up to About the Author 5% of recipients to respond’ (www.sophos.com/ Michele Daryanani is a security consultant by whitepapers/sophos-phishing-wpuk.pdf). day and an adventurist, traveller and cook by Of the 5.19% who gave their password, 87.5% of night. In the name of charity, he has driven across the Sahara Desert (twice) as part of these had been previously exposed to the elevation the Timbuktu Rally and both participated and popup, while only 12.5% were deemed not to have helped organise the White Hat Rally. been ‘desensitized’. Looking at it against all the respondents, it equates to 1.6% of non-desensitized www.globalizationtoday.com
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2012 GSC 3S Awards October 22, 2012 presented by
Sourcing that EMPOWERS Today’s world faces multiple challenges stemming from rapid globalization and unequal economic development, leaving some societies at an economic disadvantage, while others are prospering and moving forward. Unless there is a more equitable distribution of the impact of economic growth on these vulnerable populations, the well-being of many communities around the world will continue to deteriorate. It is the easiest option to source labor from a third-world country in order to cut production costs. But how many executives ask themselves: Are your sourcing techniques ethical? Are they sustainable? What do you give back to the community that provides you with their labor or services? Are your actions environmentally-friendly? If you consider yourself an advocate and an example of socially responsible and sustainable sourcing, APPLY NOW FOR THE 2012 GSC 3S AWARDS! The 2012 3S Awards (Sustainable and Socially Responsible Sourcing awards) recognize exceptional achievements in the global sourcing marketplace by individuals and organizations who exhibit a combination of positive social and economic leadership. The awards bring to the forefront individuals, start-ups, and companies (e.g. suppliers, buyers and advisory organizations) that have worked tirelessly to innovate, implement and improve communities and the environment through sustainable and socially responsible sourcing practices. All aspiring applicants are expected to submit a video presenting how they reflect the essence of the GSC 3S Awards by September 1, 2012. Tickets can be purchased at www.gsc3sawards.com.
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“ I have been in the sourcing industry for 12 years, and it was very refreshing to come across an organization to which you can come in order to connect with other leaders.” Yenifer Lam Co-Founder, Glocal Connection
“I have been in the sourcing industry for 12 years, and it was very refreshing to come across an organization to which you can come in order to connect with other leaders,” said Yenifer Lam, co-founder of Glocal Connection, one of the 2012 3S Awards nominees. Glocal Connection is a business platform that works with communities in underdeveloped countries in order to help them choose and implement supply chain solutions, so that they can position their products in overseas markets and promote their economic development..”
“When we found out about the 3S Awards it was very exciting that there is an organization out there that puts effort into getting companies and individuals that are really focused on sustainable sourcing,” said Nicole Bassett, Director of Sustainability at prAna, one of the 2012 3S Awards nominees, that in 2010 was one of the first apparel companies in the United States to start offering fair-trade certified apparel. “Our pool of nominees this year is diverse and inspiring,” said Angeline Judex, Executive Director of the 2012 GSC 3S Awards. “From socially conscious business consultancy firms, through fair-trade products distributors that create local jobs, to BPO centers hiring the disabled local workers, 3S Awards nominees help empower local communities.” -Angeline Judex, Executive Director of the 2012 GSC 3S Awards
Join the challenge! Deadline September 1, 2012. Visit www.gsc3sawards.com
Featured Current Contestants: Glocal Connection (U.S.); Forgotten Shirts (Uganda); soleRebels (Ethiopia); VOS (U.S.); PrAna (U.S.); VADS (Malaysia); Community Alliance Network (global); AVASANT (U.S.); Pt. Iin Era Sejahtera (Hong Kong, Taiwan, Singapore, Malaysia); Intel Corporation (U.S., Democratic Republic of the Congo); McGraw-Hill Companies (U.S.); Rafflesia Luwak Coffee (Indonesia); Techno Brain BPO ITES Ltd (Kenya)