Global Services Digital Magazine November Issue

GLOBAL SERVICES A CYBERMEDIA PUBLICATION

An integrated media platform which connects the
various constituents of the global technology and Pradeep Gupta
business processing services industry ecosystem. Chairman & Managing Director
Cyber Media (India) Ltd.

DIRECTORY OF SERVICES E. Abraham Mathew
President
NEWSLETTER Ed Nair
Editor
A regular digest of key industry happenings. ed@cybermedia.co.in
DIGITAL MAGAZINE Satish Gupta
Associate Vice President
The fortnightly digital magazine features research satishg@cybermedia.co.in
reports, articles and experts’ views. Available on
Pratibha Verma
www.globalservicesmedia.com
pratibhav@cybermedia.co.in
WEBINARS Sruthi Ramakrishnan
Global Services’ web-based seminars aim to sruthir@cybermedia.co.in
impart useful information related to outsourcing Niketa Chauhan
industry in the form of presentations and dis- niketac@cybermedia.co.in
cussions by industry specialists. Virendra Kumar
virendrak@cybermedia.co.in
RESEARCH
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blogs and letters to the editor may be pub-
A directory of global outsourcing service lished in our digital magazine or Website.
providers.
www.osourcebook.com

3 GlobalServices www.globalservicesmedia.com November 2010

N o v e m b e r 2 0 1 0 Vo l u m e 2 , I s s u e 2

FEATURES

10
ARE YOU BEING SERVED?
by Ed Nair
New rules for the services organization

8 21
GLOBAL BANKS TO INVEST IN THE IT OPPORTUNITY IN HEALTHCARE
CREATING FLEXIBLE PLATFORMS LEGISLATION
by Ed Nair by Sruthi Ramakrishnan
Even as the short-term business prospects are bleak, global banks IT reforms are an important and integral part of the reforms
will focus their technology services investments towards managing planned under the Patient Protection and Affordable Care Act
risk and compliance, creating platforms for growth, and improving
customer analytics.

17 23
THE SKY'S NOT PROCUREMENT
FALLING ON THE OUTSOURCING –
INDIAN IT INDUSTRY CHINA'S MISSED
by Sruthi Ramakrishnan OPPORTUNITY
There is more to the increase in MAT and expiry of STPI benefits by Pratibha Verma
than meets the eye and a deeper study shows that the situation is PO, which is still not mature in China, is growing at a slow pace.
not as dire as is being made out to be Due to this its capabilities are untapped by many companies

19 25
ARE ‘ON-DEMAND’ CALL CENTERS IN STRONG CONTRACT
DEMAND? RESTRUCTURING LEADS WEAK Q3
by Vijay Venugopalan by Sruthi Ramakrishnan
More and more organizations are buying/exploring On-demand solu- Restructuring of contracts heavily influenced the last three quar-
tions, the economic situation has fuelled the desire to go on-demand ters, and will continue to influence Q4


Releasing November 29th
To advertise or to participate
contact: Satish Gupta at satishg@cybermedia.co.in

EDITOR’S NOTE

The Theory of
Convenience
C all it the ‘theory of convenience’, to be accorded to Barack Obama, Pres-
ident of the United States of America.
Outsourcing is a word to be used by Democrats ‘before’ elections
to highlight that American national interests should be protected in the so-
called game of globalization; jobs should not move out of the US; compa-
ED NAIR nies that offshore work to other countries should be taxed; countries like India
and companies from India exist to primarily render millions of Americans
Editor jobless and hence should be penalized through criticism, oppressive immi-
ed@cybermedia.co.in gration rules, and threats of further regulation.
If you win the elections, you keep the issue on the backburner and use it
selectively to rouse nationalistic fervor.
Obama’s selective If you lose the elections, you drop the word from your lexicon and instead
preach the benefits of globalization, where the term has a specific meaning
globalization logic and suitable to the context. Globalization now means more jobs in the US through
cozying up to business increase of US exports to countries like India. Like Obama’s recent trip to India
is not going to impact where he announced deals worth $10 B and creation of 54,000 jobs—
calculated to win brownie points back home.
trends in services None of these arguments matter. Globalization in general and globaliza-
globalization. tion of services in particular are trends that are not reversed by political logic
or even economic logic covered with political dough.
American multinational corporations thoroughly understand globaliza-
tion and are doing the right things. Emerging countries like Brazil, China,
and India too understand globalization in their national contexts and out-
side. Obama’s selective globalization logic and cozying up to business is not
going to impact trends in services globalization.
The trends and practices in services arise out of the need to deliver value
back to the business. Mature companies who have been through several gen-
erations of sourcing do this by looking at new rules of services delivery. Read
a few dominant ideas in this issue’s cover story titled, ‘Are You Being
Served?’ (page 10) GS


Releasing December
Case Studies are invited from service providers. For more details
contact: Satish Gupta at satishg@cybermedia.co.in or visit:
www.globalservicesmedia.com/live

Global Banks
Industry Outlook

to Invest in
Creating Flexible Platforms
Even as the short-term business prospects are bleak, global banks will focus
their technology services investments towards managing risk and compliance,
creating platforms for growth, and improving customer analytics.

By Ed Nair

I
BM announced a deal with ABN AMRO (see Box) in
October. The deal has been hailed as a mega-deal in
terms of its value at nearly $1.8 B. At a time when
such megadeals are on the decline, this deal embodies
many of the trends in the large financial services industry
segment globally.
In terms of market environment, the short to medium
term outlook for the industry is difficult for banks in the US
and Western Europe. There is also quite a bit of social back-
lash because of the financial crisis; customers believe that the
banking industry created the financial crisis that led to the
recession.
In terms of market regulation, the combination of in-
country regulations like Dodds-Frank bill in US, similar oth-
ers in UK and Germany, as well as international regulations
like Basel III, and also the expectation that the IMF is going
to put together a fund to prevent systemic failures, are putting
new pressures on financial services companies. Both of these
present a real challenge to profitability. Likhit Wagle
Though the regulations have been watered down (Basel III Global Industry Leader: Banking &
is much less draconian than what it was expected to be) and
Financial Markets, IBM Global
the industry has been given a long time to create the capital
required for Basel III, the return on equity which used to be Business Services
14 percent to 18 percent will fall below 10 percent in the next
couple of years. When you compare this to the cost of capital,
it looks very unattractive. ty is enormous. Even conservatively looking at the next five to
Profit squeeze is being exacerbated in banks where invest- ten years, the global economy would grow at 5.8 percent to 6
ment banking was really driving the profitability in the past. percent annual compounded. Says Likhit Wagle, Global
Banks are being forced to shed hedge funds, proprietary trad- Industry Leader: Banking & Financial Markets, IBM Global
ing activity and such other engines of growth. Profitability is Business Services, “That is significant amount of wealth being
going to be considerably low in the coming few quarters. So created and this has to be disintermediated by the banking
the short-term picture is challenging. industry.”
So, is it all gloom and doom? Hardly. In emerging markets The emerging market opportunity is based on economic
like China, India, Brazil, Middle East, the scale of opportuni- growth in these geos as well as the proportion of population


Industry Outlook

ABN AMRO extends Infrastructure Services
Agreement with IBM
ABN AMRO signed a contract to extend its services agreement with IBM. IBM will build and provide a new
computing environment while integrating the existing infrastructure of ABN AMRO and the former Fortis
Bank is an extension to the original contract. Next to that the infrastructure services for the former Fortis
Bank Nederland will come in. Both banks legally merged on July 1, 2010. Systems development will con-
tinue to be undertaken by a number of suppliers including Accenture, Infosys, and TCS.
On 1 September 2005 IBM announced that it signed a global contract with Dutch global bank ABN
AMRO to implement an on-demand IT infrastructure that will enable the bank to more rapidly roll out
additional services while significantly reducing IT costs. The contract, worth about EURO 1.5 billion over
5 years, supports ABN AMRO operations worldwide and represents the most extensive rollout of IBM's
data center automation technology, called Universal Management Infrastructure.
Further information from Nelson-Hall reveals:

I Data center management, with IBM managing the IT infrastructure on ABN AMRO premises in
Amsterdam. The existing data center infrastructure will be moved to a private cloud environment
I Desktop services. These services will retain a conventional desktop approach rather than moving to a
virtualized environment, with a major emphasis on improving collaboration through use of common
email infrastructure and community based collaboration utilizing web chat technology
I Service integration, with IBM taking overall responsibility for the roll-out of new systems on-time and
on-budget. A single set of KPIs are being shared by IBM and the applications development suppliers.
Andy Efstathiou and John Wilmott, analysts from Nelson Hall opine, “ABN AMRO is seeking to simplify
its operating model to achieve a reduced cost:income ratio while also improving its ability to comply with
the regulatory environment and improve its time-to-market. The service integration role being undertaken
by IBM is key to achieving these goals. The contract is also an early example of a major bank moving to a
private cloud-based server infrastructure.”
IBM’s clients include Russia's largest bank, VTB, as well as Danske Bank in Denmark and Nordea in
Sweden – meanwhile a number of financial services companies in Europe are currently in negotiations with
IBM for Services contracts. Worldwide, IBM’s clients inlcude Citi, VietinBank, one of the largest banking
institutions in Vietnam, the Agricultural Bank of China, Discover Financial Services, and the National Bank
of Canada.

that is underserved— conservative estimates put it at 750 mil- Organizations are sitting with expensive legacy systems
lion upwards and a third of which includes people with rising and want to take costs out, not incremental costs, but whole
incomes. This translates to growth rates of 25 percent or more areas of costs. This involves rationalizing systems, reengineer-
per year. So, the medium term view is very bullish. ing applications, and making the system more flexible. It
The IT services spend in the global financial services sec- requires creating a platform that is standard and flexible. For
tor is largely marked towards three areas: a)getting the orga- instance, in the ABN-AMRO deal, both ABN and Fortis will
nization ready in the area of risk and compliance b)creating migrate onto this platform that would in turn help them to
platforms that are standardized and flexible and c) getting become more customer-centric.
customer analytics in place. Many of these new services are From a strategic point of view, the traditional approach
being provided using new technologies like cloud. Says at banks has been to free up more budget to run the bank
Wagle, “The approach is to avoid either doing a wholesale as opposed to changing the bank. However, the balance is
rip-and-replace or a band-aid kind of quick fix. The objective now changing when banks are investing in application
is to simplify the operating model and the ABN-AMRO deal development, infrastructure refreshes, and process out-
is a good example.” sourcing. GS


Are You Being Served? Special Report


Are you being served? Special Report

Are You Being
Served?

The new rules for the services organization: consolidate and standard-
ize delivery; balance internal, external, and virtual capabilities; and
manage services like a portfolio.
By Ed Nair

I
f you are in global sourcing of ser- CJ: In the last two years, clients have
vices, talking with Cliff Justice is been demanding more from their
great investment in time, espe- sourcing advisors in the area of value
cially if the consultant’s clock is not creation through optimization of sev-
ticking. Cliff Justice is the National eral functions or their own internal
Leader, Shared Services and services organization and seeking
Outsourcing Advisory, KPMG. He more value out of managing SG&A
has been advising companies on glob- areas.
alization, services delivery models, Whereas, ten years ago we were
outsourcing, global sourcing and brought in as advisors to help them
such for over 20 years. Cliff ’s work centralize shared services models or
with NeoIT, TPI, Equaterra- all advise them on the structuring of
reputed sourcing advisory compa- outsourcing contracts and helping
nies— where he either worked or make deals.
managed partnerships, puts him as a Today it is much more around
leader in the sourcing advisory space. enterprise services, enterprise trans-
His insights are thorough and amaz- formation, and aligning that transfor-
ing; his ideas are path-breaking and mation to drive competitive advan-
impactful. Excerpts from a conversa- tage to clients. More clients are ask-
tion with Cliff Justice on the new ing— how do I get competitive Cliff Justice,
rules and models of services delivery: advantage through handling SG&A, National Leader, Shared
through partners, through the way I Services and Outsourcing
GS: We are just out of the recession. move services up the value chain, Advisory, KPMG
What are your clients asking you to how do I access data and knowledge
do today? How’s it different from in a better way, how do I leverage the
yesterday? maturity of the services organization



that has been in place to really drive chain helping quantify value cre- Sourcing advisory has to include peo-
better business value. In the last two ation. ple and change; process transforma-
years, these were the dominant con- This requires going back to the tion in all functional areas like
versations. business and is a lot more challeng- finance, HR, IT, supply chain; and
The other important conversation ing; it requires lot more insight into enterprise risk management.
centered on managing risk. Back in the business— more than just doing Transactions services are fine; you
the day of pure outsourcing con- a base case analysis and measuring have to have those best-in-class. But
tracts, the risk question was a side savings of a transactional service. if clients really want the leverage, they
question. Now it is incorporated as They are table stakes that have to be have to think about service delivery
part of the value preservation discus- done. more organizationally, integrate with
sion. business partners, and drive value
GS: This is like more business con- back to businesses.
GS: Sourcing advisory as a business sulting work.
has been in turmoil. What is threat- CJ: We have always been doing that. GS: You mentioned about SG&A. Is
ening a change there? How has it There’s always a component of busi- it time to rewrite Porter’s value
evolved? chain? Are support functions
CJ: In the very early days, say getting to the core?
from 1997 to 2003, it was “The economy has caused CJ: What we are seeing is that
really about identifying the slowdown in major transfor- traditional support-oriented
right outsourcing vendors, functions contain lot of data
scoping out the outsourcing mation investment, but that’s and knowledge. There’s lot of
contract, structuring the deal, changing. Companies are look- cost and expense to those
putting in the governance functions and there’s lot of
mechanisms, and managing ing at creating sustainable value that comes out of those
the deal. From 2003 to 2007,
it was all about optimizing
services organization as functions. Organizations that
can think in terms of virtual-
those relationships. From opposed to chasing labor ization, in terms of harnessing
2008 onwards, we started hit-
ting the rocky shores, it was
arbitrage,” the capabilities that reside
within the company and har-
about how do we really opti- ness those well, as well as har-
mize and create value and nessing outsourcers and virtu-
competitive advantage out of
Cliff Justice al platforms, SaaS, and cloud
the investments that we made National Leader, Shared platforms, can create a much
into shared services and out- more dynamic model that can
sourcing partnerships.
Services and Outsourcing address new questions to the
Some industries are Advisory, KPMG business, changes to the busi-
approaching this for the first ness faster than before. It is all
time and wondering how to support, but it is the new
leapfrog. For example, the value that support can con-
pharma industry was late into the ness strategy that has to be aligned to tribute.
game, but they are now incorporating sourcing strategy. It was being done The core is still the core, it is real-
things like pharmacovigilance into a even ten years ago, but it is more vis- ly about how your SG&A functions
centralized shared services model, ible now. There were larger dollars are treated and addressed that they
some enabled by external parties, attached to sourcing deals and a lot of can become a competitive advan-
some not. The line between them is perceived external and internal value tage.
getting blurrier. We are structuring in traditional sourcing advisory. These are not necessarily revenue
them in a very similar way whether it We have a developed a platform generators; some industries may hive
is provisioned internally or externally, that is comprehensive and holistic. It them out and create a profit center. It
we are seeing lot more hybrids than helps a client look at a long-term is probably still not their core busi-
what we ever had, and more mature roadmap, not just a tower or two, on ness, but it enables their core business
companies are moving up the value how you provision the function. to become more competitive.


* Offer extended till November 10, 2010


The Service Delivery Maturity Curve

Level 5 - Integrated
Ex: Globally Integrated Services Portfolio with
Rational Balance of Outsourcing Relationships and
Standardized and Integrated Delivery Centers and CoE’s Extended Global

Value Capture and Performance Sustainability
Enterprise Services Portfolio Management and Enterprise (EGE)
Governance
Service Delivery Management Maturity

us
Foc

Characteristics of a mature EGE
Level 4 - Optimized
er

Ex: Optimized Balance of Internal and External • Integrated services portfolio consisting of
om

Delivery Capabilities – Best of Breed Global Sourcing internal and external service providers
st

Customer focused Governance Organization that operating on a standard platform
Cu

Manages Customer Value • Central service portfolio management
capability
Level 3 - Strategic • Common services architecture across
Ex:Traditional Outsourcing Relationship with Global functions
Delivery, Non Integrated Internal (SSC) Capabilities
Functional Governance Organization that Manages • Balance of virtual and physical capabilities
Vendors and Contracts • Rational mix of global service delivery
models
Level 2 - Rationalized • Services organization is focused on
Ex: Single Function SSC with Tactical Onshore or Offshore beyond cost arbitrage and on sustainable
Vendor Relationships competitive advantage
Limited or Cost oriented Vendor Management

Level 1 - Sub Optimized
Ex: Decentralized and Duplicative Functions Traditional Outsourcing
Little Central Control over Business Support Services and Shared Services

Source: KPMG Time

GS: So what rules are you rewriting? services organization that serves more balance and external balance by
CJ: The rewriting of the rule is— business units. These are centers of managing services as a portfolio.
whether you can take these and man- excellence for that service. For exam- Looking at internal provisioning and
age them to the lowest cost and oper- ple, research centers combine massive comparing and benchmarking
ate them purely on efficiency; or do knowledge and data or take shipping against the external market is impor-
you put enterprise-wise strategic ini- companies that carry lot of data on tant. That’s what leading companies
tiatives in place to drive innovations trends. do. More importantly, what we see is
into those services. That’s what we are that services portfolio organization
talking about. GS: Going back, you mentioned across the enterprise should have a
Drive the innovation, add a rea- proper balance between internal and broad view across the organization,
sonable cost, create a flexible model. external capabilities. How does that cross the enterprise, helps the com-
The cloud discussion is bigger than work? pany realize the services strategy.
tech; it is really a way of thinking CJ: The desire for control over the Drive and quantify the synergies
about flexibility in business. services, the ability to control risk, that are sometimes not obvious
Create an extended global enter- the specificity of the function, when you go to an end-to-end
prise with internal, external and vir- understanding whether the service is process. That’s for a lot of companies
tual capabilities, many of which can something that third party providers seeing true value. It is true for an
be provisioned quickly, as and when have the maturity in providing— end-to-end process like say procure-
new businesses are introduced into these are the questions to be asked. to-pay.
the environment. It is not about the price you are This is hard to do because you are
One of the key things that we going to pay; lot of things can be breaking the traditional functional
talked about in the framework is how moved out for a lower price, but structure; it requires a lot of change
companies can take high value add productivity could get impacted. in management. But there are some
services that may be best in class Hence, we are saying that companies good examples of companies out
within a business unit and create a should look at optimizing internal there doing this.



4 Principles of Extended Global Enterprise Model
I It’s blind to the organizational structure and therefore immune to any limitation that such a struc-
ture might impose. Driven by customer need and not organizational structure:
I One-size-fits-all service offerings have been replaced with a balanced portfolio of retained, out-
sourced and centralized service offerings with tiered, tailored and bundled services across func-
tions.
I The “set and forget” approach or simple vendor management has been replaced by a more sophis-
ticated Services Portfolio Management organization.
I Business transformation is all about business simplification. It’s really a reduction in complexity
–consolidating and standardizing services delivery and then simplifying those service delivery stan-
dards. Instead of a siloed and redundant approach with fragmented planning – one services deliv-
ery strategy for IT, another for HR, and so on – you’ll have a single, common strategy within a com-
mon services delivery framework to achieve a common goal.

GS: For many, shared services have Enterprise model all about? Sounds how to build a shared services orga-
become unwieldy. Why make when like yet another consulting method- nization, how to build an outsourc-
you can buy? Are shared services on ology. ing deal, how to manage shared ser-
the decline? CJ: Extended Global Enterprise is vices, how to manage outsourcing
CJ: No. Not at all. It’s just the oppo- KPMG’s philosophy, framework, contracts, and many others. EGE
site. More companies are looking at methodology, point of view or what- helps companies approach their ser-
shared services, but the blend in pro- ever you call it; it’s a holistic view on vices in the way they want. It gives
visioning is changing. service delivery of enterprise ser- them the enterprise capability that
In the past, shared services and out- vices. It addresses companies that are goes across functions and creates a
sourcing were two distinct service both very new to services as well as common way to access services.
delivery models. That distinction is those that are extremely mature in There are different degrees to this
going away; they are becoming highly services. It is a comprehensive set of like different levels in a maturity
blended. A company provisions its ser- principles that we as a firm use to model. At the top is a completely
vices in a very centralized way and enable our partners, advisors, integrated end-to-end services orga-
enables more or less through third employees, to work with clients that nization with complete service port-
party. Some companies don’t even call leverage the practices that we believe folio management (SPM). The
it outsourcing. That is, provisioning of will drive value into their services SPM is a very simple interface to
services through partners within shared organization. It is a roadmap to cre- request and manage services. The
services unit is certainly on the rise. ating a long-term services strategy goal is to create an organizational
You can see this growth at the ser- and the framework helps clients capability that can interface
vice provider’s end. Even in a down design and implement a comprehen- between a complex multi-tower ser-
market, they are growing, their sive services model that continues to vice delivery organization and the
pipelines are full. evolve over time. It is agnostic to business and its customers. SPM
The economy has caused slow- both outsourcing and shared services helps the adoption of services with-
down in major transformation invest- in that it doesn’t recommend one out worrying about different con-
ment, but that’s changing. over the other. tracts, different pricing, different
Companies are looking at creating SLAs— the SPM handles all that
sustainable services organization as GS: How do you compare this with and it constantly evolves and aligns
opposed to chasing labor arbitrage. the other frameworks? all of the services to the services
CJ: I am not aware of any that is strategy. GS
GS:What’s this Extended Global similar. There are frameworks on


IT Market Dynamics

The Sky’s Not Falling
on the Indian IT Industry
There is more to the increase in MAT and expiry of STPI benefits
than meets the eye and a deeper study shows that the situation is
not as dire as is being made out to be
By Sruthi Ramakrishnan

T
wo things which have been making news companies, including those operating in Software
recently and are projected to have grave Technology Parks, already pay this tax. The real cause of
implications for the Indian IT industry are worry is that firstly, it it is planned to be extended to the
the proposed extension of MAT to the hith- SEZs, and secondly, tax benefits will change from being
erto tax- free Special Economic Zones profit-linked to investment-linked.
(SEZs), and the expiry of the Software Technology Parks of "For SEZ, the tax benefit is for a period of 15 years,"
India (STPI) scheme in March 2011. says Raju Bhatnagar, VP, Government Relations and BPO,
The concern about both is that they will increase the NASSCOM. "this is structured as a 100% tax benefit
tax burden on the IT companies across the board, irre- available only for the first five years, 50% tax benefit for
spective of size, location or turnover. The truth is that the next five years, and the last five years has a tax benefit
there is more to these measures than meets the eye and a of 50%, provided the profits are invested in certain pre-
deeper study shows that the situation is not as dire as is determined avenues. So after the tax holiday is there from
being made out to be. lets say 2006-10, you get 50% tax holiday, on the remain-
ing 50% you have to pay full tax.
The MAT Math For an organisation that is halfway in the SEZ benefits,
It is not the increase in the tax itself, which actually comes they are paying normal tax. So the normal tax paid versus
to less than a percentage point, which is worrying. Most IT the computed MAT, whichever is higher is what would be


IT Market Dynamics

applied." Thus the MAT increase may not impact too Calling for extension of benefits is not wrong. But
much after the first 5 years of tax benefit is availed. believing that the Indian IT industry's USP is solely the
So the real challenge seems to be the change from prof- tax sops and incentives offered by the government is.“Our
it-linked to investment-linked approach to tax benefits, as tax liability will go up to 25% next fiscal from around
the latter approach would benefit sectors with large capi- 21% in the present fiscal on account of this,” V
tal investments. "If there is a tax benefit that is being Balakrishnan, CFO, Infosys told Financial Express regard-
allowed, let us say for the SEZ, and MAT is levied, upto ing the end of the STPI tax benefit. But a company of
two-thirds of the tax benefit gets nullified," says Infosys' size and spread- across services, industry verticals
Bhatnagar. and geographies- can surely absorb the increase in tax out-
But this may not impact the big players like Infosys and flow. After all, it was none other than Infosys' Founder-
TCS significantly, who have multiple units in various stages Chairman Narayan Murthy who said that “Asking for tax
of operation in SEZs, besides subsidiaries operating outside exemption for 10s of years in my opinion is not the
India. "There are several non-financial charges that they are smartest thing” and believes that IT and software sector
able to take credit of which are allowed as per the Income should and are capable of paying taxes just like other
Tax law," he says. "Besides, they have subsidiaries operating industry sectors.
in foreign countries. So they pay tax in those countries for Alternatively, they can shift operations to their delivery
which they are eligible to claim credit in India. So when centers outside India. That is one advantage the services
you talk of the effective rate of tax for a company which is sector enjoys. "In services you can, pretty much at the drop
a conglomerate, it is not sim- of a hat, pick up your service
ple, there are multiple aspects delivery center and shift it,"
that come into play." Believing that the Indian IT says Bhatnagar.
Where does that leave Admittedly, this can work
smaller companies? "So far as
industry's USP is solely the tax both ways, and drive away for-
those companies which are sops and incentives offered by eign companies with Indian
not in SEZs are concerned, subsidiaries to countries offer-
they will have to in any case
the government is wrong ing more tax benefits. But
pay under normal income tax, what needs to be kept in mind
and not get incentive deduc- is that the Indian IT industry
tion. So they will not be affected by MAT," says Sunil Shah, took the world by storm on the basis of its strong skill sets,
a partner at Deloitte Haskins & Sells. talent pool and innovativeness and not solely low costs.
Thus the proposed extension of MAT to SEZs doesn't The former, combined with India's rising status as an IT
imply an uniform increase in taxes at one go, but a phased market, continue to propel India's IT story.
increase according to the age of each unit of a company.
Survival of the Fittest
Concern about STPI With the partial loss of their protective cocoon, companies
Regarding the other major concern about the expiry of the will have to increase efficiency and become more compet-
STPI exemptions in March 2011, firstly, it is the benefit itive to retain customers. Smaller companies today already
provided by Section 10A of the income-tax law (100 per understand that going niche is the way forward.
cent deduction for 10 years of export profits derived by Companies which are good at what they are doing, espe-
units set up in any STPI, which is in accordance with the cially if its specialized services, will always be in demand
scheme notified by the Central Government) alone that is even if they chose to marginally increase their prices.
coming to an end. "Under the STPI scheme there are mul- In short, the industry need not hassle itself over mea-
tiple benefits that are available, like the income tax benefit, sures which will, at best, cause a marginal increase in their
bonded delivery center, duty free imports from within tax outflow. While they will, in the short term, hit the
India, etc. Of these benefits, one which is the income tax "Infosys' and TCSs of the future which are still in the
benefit will expire. The rest remain open-ended, they don't process of growing", as Bhatnagar puts it, expecting exten-
have a sunset date," says Bhatnagar. sion of exemptions endlessly is unrealistic. In an industry
Besides, its end does not come as a surprise for the where low cost is fast ceasing to be the deal clincher, all
industry. It was known from the inception of this scheme providers will eventually have to depend on the efficiency
that this particular benefit has a ten-year horizon, which and quality of their work to survive. The sooner the Indian
was later extended to 12. industry admits and adapts to this, the better. GS


BPO Market Dynamics

Are ‘On-Demand’ Contact
Centers in Demand?
More and more organizations are buying/exploring On-demand solutions,
the economic situation has fuelled the desire to go on-demand

By Vijay Venugopalan, CRM Capability Lead, APAC, BT Global Services

O
n 4th Sep 1882, the world’s first power sta-
tion started its operation in New York
City. 85 customers in lower Manhattan
received enough power to light up 5000
lamps and they paid US 5$ per Kilowatt-
hour in today’s dollar terms. Until then, people relied on
expensive battery powered ‘lighting bulb’. Power on-
demand took over battery based power rapidly in its devel-
opment cycle.
That’s the history of electricity. Let’s look at computing;
Growth of computers was slow until IBM released
Mainframe systems in the mid-80s. Due to the size, com-
plexity & cost of Mainframes, the ‘Digital Computing’ era
actually started as a hosted model - one centralized main-
frame with ‘dumb’ terminals deployed across the enter-
prise. Had we continued in this path, perhaps all of us
would be paying monthly PC usage bills like our power
bills – well, I wouldn’t have had the opportunity to write
this article!
The point is many of what we use today such as tele-
phone, power (even cars and real estate!) have changed
Vijay Venugopalan,
from ‘buy’ to ‘share’. CRM Capability Lead, APAC,
The ‘Microprocessor’ generation which made BT Global Services
PCs/servers possible, fundamentally changed the trajecto-
ry of ‘Digital Computing’. Long story short - mainstream of the single largest expenses and it makes their businesses
IT solutions moved to outright purchase as it made perfect less agile to change. What causes the shift in mindset?
business sense from a Cost/Benefit perspective. Unpredictable and escalating costs of IT operations, tech-
Organizations invested on technology infrastructure to nology obsolescence and changing customer demands!
empower their businesses. IT assets were depreciated over In the ‘credit crunched’ economy, a corporate executive
3 – 5 years. Happy days! wants to improve efficiency, productivity and to make
In my opinion this history sets the context for the their business agile to ‘change’. Hence executives tend to
future of IT services. invest the scarce resource ‘dollars’ on core business func-
In the last 10 years, many global organizations have tions such as R & D, product enhancements, emerging
realized that their IT assets are cumbersome and expensive markets.
to manage. Some CFOs even claim that technology is one On the other hand, consumers want to have personal-


BPO Market Dynamics

ized, timely service anytime anywhere via multi-channel. been providing network based on-demand services for over
This trend has led to interesting survey results: a decade and have addressed these concerns already.
“80 per cent of businesses think they deliver a superior Optimized on-demand contact center services are available
experience, yet only eight percent of customers agree” at a global scale – these services have the unique ability to
[Source: Frost and Sullivan] collect the contact (not just calls!) from anywhere in the
This ‘paradigm shift’ in expectations has paved the way world and deliver it to an agent with the right skills work-
for ‘On-demand’ services. ing anywhere in the world – with secure platforms and
An on-demand contact centre meets these criteria, data privacy [It is mandatory for SPs who are registered
combining hosted IP telephony and automated, voice-acti- data controllers under the data protection act]
vated software-as-a-service to deliver a package that is Wondering how? The contact center services are hosted
deeply scalable and can be purchased in new and flexible on a very large voice and data network that spans across
ways, such as per concurrent agent and by the hour. This 170+ countries.
new level of cost granularity will allow chief operating offi- Just deciding a best on-demand platform alone is not
cers and heads of customer service to measure the efficien- adequate. Organizations adapting to on-demand models
cy and cost of operation, unlock service improvements and should be prepared for an internal transformation – to
additional cost savings in the make changes to their operat-
future and its needless to say ing model, process, gover-
these fully managed services Organizations adapting to on- nance and people. Such
will remove worries about risk changes will determine the
of technology obsolescence. demand models should be pre- success factor of the on-
Some of the early net- pared for an internal transfor- demand deployment. If an
worked IT services providers organization gets its internal
[SPs] like BT Global Services mation – to make changes to transformation right, on-
have invested quality time and their operating model, process, demand platform will fit in
effort (and dollars!) on market like a charm.
research, designed mar- governance and people In 2010, finding the right
ket/industry relevant packaged technology partner to move
on-demand applications and created business models & contact centres into the cloud, and the right commercial
return-on-investment tools around it and have acquired model to buy those services, will be vital.
customers.
The first agent logged into BT’s contact center On- Long term
demand platform back in 1999. If we take the long term view of the On-demand contact
Many global MNCs have changed their operating mod- centers, say 5- 10 years from now, many organizations
els to adapt to on-demand contact centers and have seen would have procured contact center applications as a
benefits. More and more organizations are buy- shared service. We are talking about hundreds of thou-
ing/exploring On-demand solutions, the economic situa- sands of agents using on-demand service which will invari-
tion has fuelled the desire to go on-demand. ably bring down the cost per agent.
Comments I hear in Asia are ‘Are these on-demand con- Business models will evolve to provide the service for
tact centers fit for purpose?’ or ‘On-demand contact cen- free as auxiliary revenue streams like network will make up
ters are only fit for short term deployments’. To get some for it. After all, free is better than cheap if it results in a
clarity around this, let’s analyze the future of On-demand win-win deal for customers and partners.
in 2 parts –Short & Long term. What's more, on-demand call centers will also be a
means to gain points on ‘Corporate Social Responsibility’
Short term as arguably, On-demand services will reduce carbon emis-
In Asia, we are in the transition stage from outright pur- sion compared to on-premise rivals. Hence, organizations
chase to On-demand services. While many organizations will evaluate which SP to choose rather than which tech-
see the benefits of On-demand contact centers, they have nology to choose and buy.
concerns around security, data privacy and some say – ‘In On a long term perspective, it’s obvious that on-
the long run hosted or cloud based contact center services demand contact center solutions are the way to go and it
are expensive’ will be very difficult to justify an outright purchase busi-
Global networked IT service providers like BT have ness case! GS


IT Market Dynamics

The IT Opportunity in
Healthcare Legislation
IT reforms are an important and integral part of the reforms planned
under the Patient Protection and Affordable Care Act

T
he US healthcare reform bill, even before solutions on insurance exchange because we believe there
being passed into law (the Patient Protection is a huge opportunity in trying to create an insurance
and Affordable Care Act) in March 2010, was exchange. It constitutes essentially six buckets- product
touted to bring a huge boom for 3rd party configuration; quoting engine; payment gateway; applica-
service providers. But while the BPO oppor- tion processing; reporting certain tools which will inter-
tunity is quite visible- in the form of increased customer face with individuals and their families, employers, agents,
service, claims processing, etc- the IT aspect of it is less payers, which will extend towards data migration; and
obvious. Nevertheless, it is an even more important and automated enrollment processes. That can be extended to,
integral part of the planned reforms. from an infrastructure perspective, to solutions in cloud
"There is going to be a need to invest more in IT sys- computing."
tems to not only support a The federal plan to launch
larger user base for goods and a healthcare information
services, but also to support the superhighway, the Nationwide
administrative side of deliver-
The federal plan to launch the Health Information Network
ing these services adhering to Nationwide Health Information (NHIN) also requires expand-
the additional regulations ing and uphauling the existing
coming on board. It is going to Network (NHIN) requires expand- IT infrastructure. Mark Boxer,
require more systems, greater ing and overhauling the existing Senior Vice President and
automation and integration of Group President of ACS
the existing systems in order to IT infrastructure Government Healthcare
be able to support these ser- Solutions, now part of ACS
vices on a practical basis, and Xerox, says," For the EMR
also to achieve greater efficiency and effectiveness," Stan (Electronic Medical Record) to be meaningful, it has to be
Lepeak, Managing Director of Research, EquaTerra had aggregated and it has to be shared. We have got the data
said in a March 2010 podcast (What Effect Will Healthcare assets, the aggregation engine to aggregate EMRs into EHRs
Legislation Have on IT Services and Outsourcing?) organised (Electronic Health records). EHR cuts across hospital sys-
by EquaTerra. tems, And then EHRs can be shared on a Health
Service providers in the IT space are well aware of the Information Exchange, which would be filled by states.
opportunities that the legislation has brought. “From an In addition to all the stuff that build the infrastructure,
application development perspective, we believe that the we also have critical rules engines that sit on top of the
opportunity that lies for us is the requirement for new health exchanges that prospectively identify patients that
claims administration application,” says Pradep Nair, Vice are at risk of getting diabetes, heart disease, etc. So this can
President & Head – Global Life Sciences Practice, HCL. help physicians take action before it becomes a critical issue.
"From infrastructure, there is an increased storage require- That is the promise of the healthcare reform."
ment." So there is a lot of potential for growth for the service
He sees insurance as another segment with huge providers. For healthcare providers and payers, there is a
potential for IT expansion. "There is the framework of major incentive to increase outsourcing to them- cost ben-


IT Market Dynamics

Key Vendors in US IT Hospital Market

Top Enterprise Healthcare IT Vendors Top Consulting Firms for Hospitals
Cerner Corporation Healthland Accenture
CPSI Keane Healthcare Services ACS (acquired by Xerox)
Eclipsys Corporation McKesson Provider Technologies Beacon Partners
Epic Systems Corporation Medical Information Technology BearingPoint
GE Healthcare QuadraMed Corporation Cerner Corporation
Healthcare Management Siemens Healthcare Courtyard Group
Systems CSC
Niche Vendors Deloitte
Encore Health Resources
Vendor Specialty Environment Hayes Management
ADP payroll services IBM
Kronos time and attendance systems McKesson Provider Technologies
Lawson Software enterprise resource planning Perot Systems Corporation (acquired by Dell)
Mediware pharmacy, blood bank Siemens Healthcare
Oracle Corp./PeopleSoft enterprise resource planning
Philips Healthcare intensive care systems, cardiology information
Top Firms Providing Outsourcing
systems, PACS systems for both radiology and Services to Hospitals
cardiology, and obstetrical systems ACS
Picis/MSM operating room management, emergency CareTech Solutions, Inc.
department, and intensive care unit (ICU)
Cerner Corporation
applications
CSC
SCC Soft Computer laboratory, radiology, pharmacy
Eclipsys Corporation
Sunquest Information Systems laboratory and radiology
IBM
Surgical Information Systems operating room management
McKesson Provider Technologies
3M Health Information encoding, dictation, transcription, and HIM
Systems management applications Perot Systems Corporation (acquired by Dell)
Unibased Systems Architecture enterprise scheduling Siemens Medical Solutions

Source: Executive summary of HIMSS Anaytics Report ‘Essentials of the U.S. Hospital IT Market’ 5th edition.

efit. "For firms, particularly the smaller to mid-size organi- cies, and 43 percent vacancies for business software imple-
zations, the equation has changed as to what is the fully mentation and support personnel. These figures are only
loaded cost of an employee, and that's going to change the set to grow as the country begins implementing the
equation of whether it makes sense to add that next person Health IT Workforce Development Program, leading
or to invest in technology to automate that activity or rely more agencies to look at outsourcing as a way out. "While
on third parties," says Stan Lepeak. in some cases firms may make the investments themselves
Besides IT systems, another resource which will be and deploy management systems, in many cases they are
equally in demand are the IT personnel skilled to man going to look outside to the IT experts, so that they can
and maintain the systems, for whom there is already a concentrate on their piece of healthcare and let third par-
glaring shortage. According to a College of Healthcare ties manage the back office IT systems," says Lepeak.
Information Management Executives survey of 182 Thus for the country's healthcare system to meet the
healthcare CIOs, there is already a 71 percent shortage of huge targets set by the Federal govt in the next few years, IT
clinical support implementation and support personnel. will have a big role to play, and in that third party providers
There are 44 percent vacancies for infrastructure vacan- will have a dominant say. GS


Procurement Outsourcing

Procurement
Outsourcing:
China’s Missed
Opportunity
The potential for China to make it big in procurement outsourcing is huge.
Though lot of ground needs to be covered, there’s ample reason for hope.

By Pratibha Verma

C
hina’s role as the global hub for manufacturing and companies in favor of domestic suppliers with "indigenous
procurement has not translated into leadership posi- innovation," according to The Wall Street Journal.
tion in procurement outsourcing. It’s like the top De Gucht also expressed concern on behalf of EU compa-
medical school not having any hospitals around. nies that are becoming increasingly agitated about the lack of
Is this a missed opportunity for China? Is the tide slowly protection for intellectual property in China.
shifting in China’s favor? Will China make it big in procure- "There's so much discussion about China's indigenous
ment outsourcing? innovation policy, because it forces European companies to
register as a Chinese company to get access to private pro-
Difficulties of the China Way curement markets, he says."
China is a complex place for foreign businesses. Regulations Saurabh Gupta, Analyst, Everest, says, “The biggest issue
are sometimes unclear, and often not with China is that there is a lack of service
helpful. Contract enforcement can be culture. Chinese Government philosophy
tricky. Its business culture differs from is based on producing cheapest and
that of India or Philippines. And most world- class goods unlike India whose
importantly, language is a critical barrier. philosophy is to provide best services at
The European Union has recently low cost. The mindset is different. You get
turned up the growing international pres- a lot of benefit if you open a shop in India
sure on China to give foreign companies but you don't get them in China. Lack of
access to its national procurement deals. government support and language also
EU Trade Commissioner Karel De deter companies from investing in PO.”
Gucht said, “China needs to improve When it comes to Procure-to-Pay
investment opportunities for foreign com- process, which is transactional in nature,
panies, as European businesses are raising China is not the attractive destination to
"serious questions" about China's pro- do that. The value proposition comes in
curement policies. Many companies have only when you deal with the country for
expressed concern that recently drafted low cost country sourcing. It is difficult to
policies will discriminate against foreign set up a center in China. People want to


Procurement Outsourcing

set up shop in China and buy from local Chinese manufac- dealing with a number of clients but none of them have huge
turers, but only a few large service providers have delivery cen- clients. They are all getting themselves positioned for an
ters in China. upcoming wave of procurement outsourcing.
Accenture started its procurement delivery hub to serve
Change in Procurement Practices multi-national clients in 2002 in Dalian and established itself
Michael Rehkopf, Analyst, TPI says, “In procurement out- as a strong procurement service provider over a period of 8
sourcing, direct activities like buying raw material are huge, years.
and often it's done in-house. When we look around, we see a David Conte, Senior Executive, Accenture's procurement
few firms doing one or two key grand deals but nobody would BPO services group says, “China not only provides access to
do 20 or 50 in numbers. Procurement outsourcing revenue in a large, highly skilled talent base of procurement professionals
China is sort of going slowly but spend control is slowly being but, just as importantly, it provides access to local suppliers
shifted to China.” and low cost services.”
As organizations become more comfortable to see where He opines that China's cost competitiveness will remain a
they want to locate their control for their spend, they move to key differentiator for multi-national clients.
the region where they have got the manufacturing facilities. Conte also says that with other markets, there will be new
In the past, MNCs in China were focusing on their top- opportunities for growth in China as the supply base contin-
line growth and the spends were ues to mature and expand into
relatively small. There has been new segments. Additionally,
a rapid change in that area. For “Local companies in China China will continue to be an
suppliers, PO base is slowly important location for helping
becoming strong. Organizations believe that they can do every- clients manage and balance sup-
are starting to shift their focus thing themselves and at a cheap- plier risk. More generally, we
not only to increasing their also expect to see continued
spend but also to do PO work er rate. But what we see in the demand from clients to help
more efficiently and effectively. coming years is that they would them add value and analytical
Rehkopf says, “We have wit- insight from their BPO engage-
nessed two trends. The first one no longer have sufficient data ments back into their business.
is the movement of that activity
from Europe and North
and robust quality processes.” Gupta says, “PO is growing
in China but I haven't seen too
America to the region where many suppliers from Chinese
things are being procured and
Michael Rehkopf, Analyst TPI origin coming into play. They
the second one is the decision are all global suppliers. There is
on whether they should be done this value proposition that
in-house or outsourced. We are seeing both the things hap- country operates on low cost country model. That is distinc-
pening simultaneously.” tive and unique about China and no other geography can
One of the biggest differentiators for China is language. support this.”
China is perceived as a very good destination for people who Nearly 10 to 15% of all PO deals signed in the last 3 years
deal in Chinese, Japanese or Korean. have China as a delivery location. The key locations in China
Rehkopf says, “Local companies in China believe that they from a PO perspective are Dalian, Guangzhou, Shenzhen,
can do everything themselves and at a cheaper rate. But what and Shanghai.
we see in the coming years is that they would no longer have Everest classifies 20+ PO suppliers into emerging sup-
sufficient data and robust quality processes. Then they might pliers, leaders and major contenders based on a compre-
start depending on outsourcing not only for cost benefits but hensive assessment of capabilities and market success.
also for overall benefits.” Nearly a third of all these PO suppliers have presence in
“A lot of MNCs have been controlling their spends from China. However, it is interesting to note that while all PO
other parts of the world. I anticipate that there is significant leaders have a China-based presence, only 25% major con-
uptick in this kind of outsourcing in the next four-five years. tenders have delivery capabilities in China and none of the
People have now stated thinking that outsourcing makes sense.” emerging players is present in China. So it is evident that
China is an important cog in the overall delivery strategy
Service Providers Troop In for established PO suppliers and is emerging as a differen-
Some suppliers have set up their centers in China and are tiator. GS


Market analysis

Strong Contract Restructuring
Leads Weak Q3
Restructuring of contracts heavily influenced the last three quarters,
and will continue to influence Q4

T
he TPI Q3 analysis shows that a pause in the market they initially took at the start of the recession. Projects involv-
recovery has dampened year-to-date momentum (see ing new scope and budget approval are once again being
Fig.1), but data and service provider feedback suggest delayed. Restructuring which bring quicker and potentially
that a more active 4Q10 is underway. easier returns to bottom lines tend to move forward unim-
Restructuring of contracts has heavily influenced how the peded,” said Keppel.
last quarter, and in fact the annual TCV (Total Contract In numbers, restructuring constituted 20% of the market
Value), have shaped up. “In the 1st quarter of this year there for both ITO and BPO and about 1/3rd of TCV. The relative
was an unprecedented 42% of global TCV which were strengthening of BPO contract restructuring shows the
restructuring related. At that maturing of the BPO market
time we anticipated more as some of the larger oppor-
renewals were on the way. In tunities awarded in the mid-
Q3 they make 48% of global “Some of the 7- 10 year dle of the decade come up for
TCV,” said John Keppel, contracts rewarded in the early renewal.
Partner & Managing On the other hand, new
Director, TPI Research, part of the decade are up for scope activities were down,
Analytics and Intelligence at renewal. At the same time, some not just in terms of global
The TPI Index webinar. market share but also by
“Restructuring TCV repre- of the recent 3-5 year contracts. absolute TCV numbers. New
sents about 34% of the global
market, compared to the 20%
As a result, there were more scope TCV was down signifi-
cantly, by about 50% QoQ
we’ve typically seen over the contracts being restructured and YoY. Clearly, new trans-
past 3 years.” actions are not entering the
The past quarter saw some
simultaneously,” market as quickly as they
large restructurings- General John Keppel, Partner & Managing used to in previous years.
Motors, Bank of Ireland, This is being attributed at
ABN Amro, etc. In fact, six of
Director, TPI Research least partly to the recession
this year’s nine mega-deals and delay in new projects.
were restructurings.
One of the reasons for this extent of restructuring activity Industry- wise
is the change in the timing of renewals. “Some of the 7- 10 For ITO, which has seen consistent performance since 2006,
year contracts rewarded in the early part of the decade are up a huge Q1 followed by two weaker quarters has resulted in a
for renewal. At the same time, some of the recent 3-5 year flat year. Most of the ITO mega-deals awarded have bundled
contracts. As a result, there were more contracts being restruc- Infrastructure and ADM together. Much of the activity in this
tured simultaneously,” said Keppel. space was restructuring related.
Another reason is that larger economic difficulties still While BPO TCV is typically comprised mostly of new
cover outsourcing adoption. “In North America especially, scope, an increasing amount is restructurings. The traditional
CIOs and CFOs are returning to a restraining posture that BPO strengths- contact centers, FSO, HRO, F&A generally


Market analysis

3Q10 and YTD Headlines

Restructurings include renegotiations, renewals, extensions
Source: The TPI Index: An Informed View of the State of the Global Commercial Outsourcing Market
Third Quarter 2010

trended downwards and have been lower that their 2006 lev- ond largest outsourcing market in the world in 2010, and
els, while there was some pickup in HRO and FSO. More the Dutch market provided strength in Europe. The results
than half the activity in multi-process BPO was restructuring in both geographies have been heavily influenced by large
related. The emerging R&D KPO activity is picking up in restructurings signed during the first nine months of this
volume and contracts. year.
Geographically, APAC has shown the most fluctuation, at
Region-wise 49%, due to a few large deals.
The Americas experienced a decline in both the number and
TCV of contracts in the past quarter. This is important espe- Vertical-wise
cially since the Americas, and the US IT market in particular The Financial Services sector has grown the most this year,
have been leading the market recovery which began in 3Q last supported by large mega-deal restructurings. Driven mainly
year. Despite this, TCV for this year is high because of by EMEA region, the growth in this sector has been support-
extremely strong first half performance and this makes the ed by megadeal restructurings in the region, like that of ABN
Americas the largest buyer of outsourcing services so far this Amro. Manufacturing has not improved on the same lines,
year. “The US, which is traditionally the dominant force in though the Americas saw activity in this space.
the Americas region, has improved its share of the global mar- Retail, travel and transport, and hospitality sectors have
ket from 36% to 44& YoY to date. The Americas is expected adopted outsourcing at an increasing pace over the last year.
to end this year on the upside,” said Duncan Aitchison, Retailers, still experiencing top line pressure, are looking at
Partner & President, TPI EMEA. outsourcing to help reduce costs. Hospitality, travel and trans-
More contracts were granted in EMEA than Americas port have nearly doubled their contract values.
this quarter, but this region is still lagging behind Americas Looking at the number of deals coming up for renewal,
in both metrics. Within EMEA, there seems to be a lot of 2011 again looks like it will be very active on the restructur-
activity in less mature markets. The Nordic region, the sec- ing front, though not as much as 2010. GS


Global Services Digital Magazine November Issue

Global Services Digital Magazine November Issue

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