By Ilya Bogorad

Innovation is a coveted magic ingredient which is known, ostensibly, to launch companies into the stratosphere of exceptional performance, leaving the competition in a cloud of dust, coughing blood and struggling to catch up.

Apple has excelled at exactly that, and if emulation is the most sincere form of flattery, I am concerned for it going into the Apple’s head, for the sheer amount of emulation of products, functionality and design. Just as I am writing these words, yet another company has announced its own version of a tablet. Tablets has been a lukewarm (I am being generous) market for the past decade, yet now are all the rage due to iPad success earlier this year.

Lean Foundation

In addition to creating new goods and services, innovation is critical for process improvement. Toyota Production and the derivative Lean methodology are based, among other things, on a concept of continuous improvement of business and manufacturing processes. This is innovation in its pure form, originating from and thriving on the factory (office) floor and not ivory towers – established practices questioned, new approaches tried, successful solutions applied.

Innovation ought to be good for anyone, but why would you bother if you are an outsourcer? After all, you can offer to your clients low prices thanks to a low wage, low tax or weak currency environment.

I am writing this article from a small city in South Western Ontario, Canada. Three quarters of Canadian exports are destined for the USA and for the longest time, Canadian manufacturers did very well because of the weak Canadian dollar.

Roll the time back to the beginning of the century and you will see Canadian dollar trading at 65 US cents.  Selling our goods to the USA was easy because the weak national currency allowed offering attractive prices. Today, the two currencies are at par, which has made it difficult for Canadian manufacturers to compete. Many companies went under, unable to adapt to the changing reality and mounting competition.

If you are in the outsourcing business, innovation is vital to you. You need to create new and unique product and service offerings for your existing and new clients, to strengthen the relationships and make switching to another supplier undesirable.

Are You Continuously Improving?

If you are in the outsourcing business, innovation is vital to you. You need to create new and unique product and service offerings for your existing and new clients, to strengthen the relationships and make switching to another supplier undesirable. The sheer amount of competition necessitates continuous process improvement to ensure profitability and competitiveness. This is simply non-negotiable.

Where is your innovation going to come from?

It may stem from unexpected success, something you or your industry stumble upon and then develop, having discovered its potential, much like the 3M sticky notes or the now ever-present frequent flyers’ cards.

Or, will it come from an unexpected failure, much like Ford Edsel, which was one of the key reasons for the success of the popular Mustang line?

May it be borne out of an unexpected external event, such as a political change, natural disaster or a terrorist act? Change creates opportunities, and dramatic events create dramatic opportunities.

Often, innovation comes about as a result of process weakness. I started my career with a courier firm DHL, which was initially created to deliver, par avion, the ship’s bill of landing to port authorities, so that all paperwork and planning could be done ahead of the ship’s arrival to the port, saving large amounts of money to the ship’s owners.

How about the opportunities created as a result of market or industry structure change. Look at the ongoing and pending changes in the US health care, as an example, and marvel at the opportunities it is bound to generate.

Areas of high growth are always a rich sources of innovation. When PCs became a fixture de riguer for any household, the number of applications (and development opportunities) exploded.

What about converging technologies, such as computers and telephony? Skype and iPhone, IP phones, universal cabling, thousands of patents, tons of opportunities.

Another source of innovation is within the ever-changing structure of the society. Pay attention to demographic changes. Today, products and services for seniors is a rapidly growing area, tomorrow, it may be something else.

Are you spotting any changes in perception? Apple sure did when it introduced the iphone. No longer just a cellular phone but a status symbol, an accessory similar to a nice watch.

Finally, are you staying on top of the new knowledge being developed in your industry? Are you looking for the ways to apply it in your work?

Can you forsake innovation today? Absolutely not! If you choose to be in this line of work, you might as well be a long term success, a force to be reckoned with.

Ilya Bogorad, a regular contributor to Nearshore Americas, is the Principal of Bizvortex Consulting Group Inc. a management consulting company with clients worldwide. Ilya specializes in building exceptional IT organizations, decision making and business cases. He can be reached at ibogorad@bizvortex.com or +1 (905) 278-4753. Ilya’s most popular piece for NSAM is here: Why You Don’t Want Beancounters Making Outsourcing Decisions

By Juan Gonzalez

The economic downturn has had two contradictory effects on the outsourcing industry in Latin America. Demand from existing customers has slowed down, especially for those companies with offshore programs and telemarketing operations, but at the same time, this lower demand has been mitigated by new clients adopting outsourcing practices in order to lower costs and improve productivity.

Meanwhile, some clients have asked to freeze their contracts, while others have demanded that additional services be made part of existing deals. Providers have responded by reducing their own costs, diversifying locations (particularly the global companies), improving efficiency, and creating innovative solutions to cope with increasing client demands for better cost structures. Some providers have also been forced to reduce their prices and decrease or freeze hiring and salaries.

The Latin American market continues to grow, but at a slower pace than in previous years. A new report from Frost & Sullivan, “Latin American Contact Center Outsourcing Services Market 2010,” finds that the market earned revenues of $7.5 billion in 2009 and estimates revenue will increase at a compound annual growth rate of 9.7 percent during the 2009-2015 period.

Market Overview

Despite the economic performance of the region during 2009, the contact center outsourcing services market in Latin America is still maturing and witnessing significant growth rates. Irrespective of the country where their operations are based, some providers rely heavily on their offshore business, while others depend exclusively on their local customers. We have identified four main categories of contact center outsourcers in this market:

1. Large multinational companies or U.S.- or Europe-based companies

1. Regional Latin America-based companies (with presence in two or more countries in the region)

1. Large, locally focused Latin America-based companies (with presence in only one country in the region)

1. Small and medium Latin America-based companies

The marketplace has proven to be very fragmented, and competition is fierce. There are 29 global or foreign (U.S.- or Europe-based) outsourcing firms as well as 21 major local or regional companies that dominate the scene in Latin America. In 2009, those 50 companies comprise more than 76 percent of total market revenues. The contact center space remains dominated by major global or foreign providers and large, locally focused Latin America-based companies (with Brazilian companies owning the largest share). Regional companies and a host of small- and medium-size local companies divide the remaining share of the industry.

The number of outsourced positions in the contact center market in Latin America is expected to grow at a CAGR of 9.6 percent between 2009-2015, with nearly 650,000 outsourced positions by the end of that time period.

Trends in Services

Most clients still consider outsourcing from a cost-advantage perspective, but providers have started to see their role as going far beyond the traditional services they’ve  been offering. They are looking to participate in more complex enterprise processes, such as billing, accounting, financial reporting, hiring and recruiting, legal services, and so on.

Contact center providers are repositioning themselves to offer more complex BPO services. Many outsourcing players, though, tend to agree that most of these new, complex services are offered in the form of add-ons to existing customer-care services. While offerings are becoming more advanced in terms of value proposition, regional demand continues to rely mostly on contact center outsourcers’ traditional proposition.

As basic customer care and telemarketing become commoditized, the competitive landscape will be composed of companies that focus on traditional services and companies that have developed a larger portfolio of solutions. As a result of these trends, the number of outsourced positions in the contact center market in Latin America is expected to grow at a CAGR of 9.6 percent between 2009-2015, with nearly 650,000 outsourced positions by the end of that time period.

Offshore Market 2009: Main Highlights

Offshore services represented close to 22 percent of the overall revenues during 2009. As expected, Central America & Caribbean (CaCar) and Mexico are the Latin American regions that generated the highest revenues from offshore businesses in 2009, accounting for over 71 percent of the total revenues. Peru, which already aimed to rank fifth, had already surpassed Colombia when analyzing offshore revenue stream.

Business with the United States remains the most important for Latin America, representing 70 percent of the total offshore revenues. However, an increasing amount of revenue is coming from Spain, which accounted for more than 18 percent during 2009.

Competitiveness levels rose in the offshoring arena. Mexico and CaCar are clearly the main competitors for the U.S. market (together they represent 91 percent of the U.S. offshore businesses in the region during 2009). Argentina, Chile, Peru, CaCar, and Colombia accounted for 98 percent of the total Spanish offshore revenues. In the intra-regional offshore market, CaCar, Argentina, Colombia, and Peru represented 83 percent of the total revenues.

It is interesting to note that even though Argentina’s competitive conditions have decreased during recent years, this country is the only one that stands among the top 3 main revenue generator when analyzing each of the previously mentioned offshore markets.

Juan Gonzalez is team leader and analyst at Frost and Sullivan and a member of the Neashore Americas Power 50 Ranking.

By Jane Siegel, Ph.D., Director, ITSqc, LLC and Senior Scientist, Carnegie Mellon University Silicon Valley

Executives, strategists, and technical professionals who have goals to increase market share and bring increased sourcing work to Nearshore locations often overlook an essential aspect of customer consideration.  Answering this short list of questions helps to point to a key differentiator of service providers.

• Why is India continuing to be a preferred destination for ITO, BPO, and KPO service provision?
• Which sourcing destinations are synonymous with QUALITY?
• Where are certifications/standards widely adopted for quality systems, security and privacy, service management, software and systems development, and sourcing?
• What standards provide risk mitigation for customers?
• Which providers are innovative and can support business transformation?

Customers’ decisions about service providers for both ITO and BPO are aimed at achieving reliable, secure, cost-effective, competent, service delivery and increasingly they are looking to form strategic partnerships for transformative or innovative service design/delivery.  These requirements, especially for privacy, security, and risk management are increasingly important as customers consider Cloud Computing opportunities.  So where are customers taking their business?

Providers winning 3 or more contracts worth more than $25MUSD in 1Q2010 (From TPI) are:

Accenture              HP                         Tata Consulting Services

CapGemini            IBM                       WNS

CSC                      Infosys                  Wipro

Genpact                Siemens

HCL                       T-Systems

Six of these thirteen companies are Indian firms and five others are global providers.  The remaining two providers have their origins in Germany.  So, although there are many providers in Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Mexico and other Nearshore nations who could be on this list, the work and revenues are not coming to Nearshore nations.

A critical differentiator for the providers who are winning the business is their long-term investment in quality standards and quality assessment results.  Customers know that when they send their sourcing business to India, the global companies, and Europe, at a minimum their work will be done in an environment where quality standards are in place and there is a culture committed to quality.

The prevalent and relevant standards/frameworks are:

• ISO 9001-2000/2008 (Quality Management Systems),
• ISO 27001 (Security),
• ISO 20000 (IT Service Management/ITIL),
• CMMi-DEV (Software and Systems Development), and
• eSCM-SP (eSourcing Capabiity – best practices).

Thus, customers don’t even need to think for a moment or ask about the pervasive and deep commitment to quality in the winning organizations – they know the risks and benefits of their sourcing concerns are already addressed when they are selecting providers for their major deals and as their strategic partners for the future.

For example, IBM’s Strategic Outsourcing operations in Argentina and Brazil and Infosys BPO are eSCM-SP certified and also carry certifications and assessment results for most of the other standards and frameworks mentioned here. While the World Bank has ranked several Latin American countries as Top Reformers and as improving their status as “Business Friendly” nations between 2007 and 2009, just five of these nations are actively working to adopt key quality standards and frameworks today (see the table below) and few have attained certified status for more than one or two standards/frameworks.

Call to action: Nearshore providers should examine the potential business impact of embracing quality standards as a strategic initiative to improve their operations and increase their market share.   Decisions to invest in adopting key quality standards/frameworks should be made now so that Nearshore providers can realize their potential and  improve your competitive opportunities.

Jane Siegel is a founding director of the spin-off company, ITSqc, LLC and a Senior Scientist at Carnegie Mellon Silicon Valley where she teaches graduate Service Management courses. For the past decade she was on the faculty at Carnegie Mellon’s School of Computer Science as director of the Information Technology Services Qualification Center (ITSqc) where the eSourcing Capability Models for Service Providers and Client Organizations were developed to provide a framework for industry best practices in sourcing and service management.  Her Ph.D. is from Carnegie Mellon University, and she also holds an M.Ed. from the University of Virginia and a B.A. from the University of Colorado, Boulder.

By Pablo Velasco, Director, CIO Services, TPI

You don’t get exactly what you pay for in outsourcing relationships (see our earlier article on value leakage), but exactly what you will get depends on how you manage the relationship. Governance is the single-most important variable to the value an outsourcing engagement will provide, and it is also one of the most challenging variables to manage.

Weak governance is the greatest threat to outsourcing success. The early effort you put into governing your outsourcing relationships will determine the value you get out of them.

Implementing good governance practices is challenging everywhere and can be particularly so in Latin America, where companies have high service expectations, are often accustomed to having long-term relationships with their business partners, and may not have a lot of outsourcing experience. Successful outsourcing requires both specific contract terms and a new management discipline that is different to other business relationships.

Good governance, and therefore good outsourcing results, requires more than managing a contract; it is managing a new business model. We have identified 30 core outsourcing management processes that must be actively governed to promote outsourcing success. These processes relate to making sure clients and service providers each understand the scope of their responsibilities, monitoring and maintaining service levels, communication, and organizational change management.

Customers and service providers each must put controls and processes in place to manage the relationship. Service providers have an advantage, because they have much more experience managing outsourcing relationships, so the customer must be informed about both process and what to expect in the new business relationship.

You will need commitment from a senior executive and from a team that is assembled to provide ongoing management of outsourcing activity. Simply signing a contract does not provide the level of commitment required inside your organization. Unfortunately, many companies who sign outsourcing contracts undermine their effectiveness by failing to commit the management resources needed for success.

Five Most Common Governance Mistakes

We are frequently called in to work with companies who are experiencing problems with their outsourcing relationships. There are many types of problems – e.g. expected cost savings are not being realized, service levels are not being met, there is frequent confusion over service provider and client responsibilities, etc. – but the problems could almost always have been prevented by better governance. We see five common governance mistakes, which are described below.

1. Understaffed Governance Teams

Governance is too large a task for any one individual. The most common mistake we see is for a company to designate someone as responsible for managing the outsourcing contract, but providing insufficient resources for the individual to succeed. Companies who excel at governance have strong teams that include subject matter experts (e.g. IT leaders for IT outsourcing, human resources, accounting or other functional leaders for business process outsourcing), business managers, financial analysts, customer service leaders and other stakeholders in the relationship.

2. Lack of Executive Sponsorship

The governance team does not need to be made up of senior executives, but does need representation and support from senior management. Companies need to understand that outsourcing does not eliminate the need to manage the function being outsourced; it only changes how it must be managed. Executives must commit to providing the staff and other resources needed to govern the outsourcing relationship and to support the team should disputes arise with the service provider.

3. Lack of Formal Training and Processes

Commitment includes taking the time and seeking the knowledge needed to develop appropriate governance processes and training the team how to follow them. While outsourcing contracts make provisions for knowledge transfer, that is not the same as developing the knowledge needed to manage the contract.

4. Insufficient Communication Between Clients and Service Providers

Communication should be consistent and scheduled, not initiated only when there is a question or problem. Clients and service provider should frequently share information and insight about how processes are going, potential obstacles to meeting commitments, and day-to-day issues. Regular communication is very effective for preventing small issues from escalating into big problems.

5. Governance Blind Spots

Clients are often unaware of the governance problems they are experiencing. Companies tend to focus on service levels, pricing questions and day-to-day developments, but do not make the link between those issues and potential governance shortcomings that may have caused them. By focusing on governance, many of the problems that relate to it can be avoided.

Weak governance is the greatest threat to outsourcing success. The early effort you put into governing your outsourcing relationships will determine the value you get out of them. By putting strong teams in place at the beginning of the relationship, supporting them with the time, budget and executive attention needed for success, and committing to regular reviews, communication and training, you can be successful from your first outsourcing experience and with all those that follow.

Pablo Velasco, a director with TPI, has more than 35 years of experience in outsourcing and the IT services industry. He has helped numerous clients throughout Latin America to develop outsourcing strategy, assess operations, develop statements of work, create and negotiate contracts, assess performance and develop governance processes. For more information on maximizing the value of sourcing for your company, contact pablo.velasco@tpi.net. To learn more about TPI, visit www.tpi.net.

By Anand Ramesh, Research Director, Global Sourcing, Everest Group

In addition to the thawing of the market and the increased momentum provided by the economic recovery, 2010 is becoming a very significant year in outsourcing. Buyers across the globe will spend in excess of US$100 billion annually on IT, business process sand knowledge process services provided from offshore locations. This is the first year that the global services sourcing market will cross the $100 billion mark. While Latin America currently accounts for less than a tenth of the market, there is a lot of promise.

Early this year, Everest conducted a survey of the market to gauge what plans buyers and service providers had in store for locations across the globe. A total of 366 respondents shared their current scale of offshoring, how they planned to change the scale and across which locations.

More than 20 percent of those who plan to expand in India also plan to grow their scale in Mexico and/or Brazil.

Buyers Build Bigger Footprint

Across all segments of buyers, we saw plans of expanding offshore scale. While the extent of expansion differed, in aggregate more than 75 percent of buyers will expand their scale of offshoring. Large adopters, which have already reaped the benefit of offshoring and anticipate a surge in demand, plan to significantly grow offshoring. More than 90 percent of respondents in this group plan to grow by over 500 FTEs. This also represents an improvement in the business sentiment and many organizations believe that the worst of the economic crisis is now behind them.

A similar trend is visible among service providers, although with a notable emphasis on rapidly growing scale. The smaller, more regional or niche service providers reported planned increases of <500 FTE in the next two years. However, the larger service providers who also tend to be multi-geography reported planned increases in excess of 5,000 FTE in the next two years. In general, service providers reported a scaling plan which was approximately 1.5-2.0X that reported by buyers.

Brazil and Mexico Expansion

Approximately 25 percent of our respondents said they currently sourced services from Latin America. When this is lower when compared to India (75 percent), it is much closer to Philippines (40 percent) than expected. This suggests that many companies are already leveraging Latin America delivery in some form – although it is at a much smaller scale than Philippines. This pre-existing foothold is important, because companies (especially buyers) are much more comfortable and aggressive in expanding in a geography they already source services from and less so in terms of entering new geographies.

The most interesting trend relates to the locations that buyers picked as key expansion geographies: Brazil and Mexico. More than 20 percent of buyers indicated that they planned to expand in one or both of these countries. Further, most of those who planned to expand in Brazil or Mexico were large organizations, which suggests that a combination of supporting local operations and leveraging this platform to support North American or European businesses is the likely operating model.

Latin America and  India Synergy

Most organizations plan to continue using India as a key delivery location and plan to expand their presence. This is not surprising, given the legacy experience that buyers in particular have, the credible scale and experience of service providers from India, and the overall value proposition. However, contrary to impressions, the expansion in India is not impacting expansion in other geographies. In fact, more than half of companies who plan to expand in India will also expand in at least one other country. The top five geographies of expansion for companies growing their presence in India are: Philippines, China, Malaysia, Mexico and Brazil. More than 20 percent of those who plan to expand in India also plan to grow their scale in Mexico and/or Brazil.

The mode in which this expansion will happen is interesting. Less than half of those who plan to expand in Brazil currently leverage the country as a delivery location. A significant portion of the growth in Brazil, therefore, will be driven by buyers who have not leveraged the country previously and are entering the market. This may mean that the initial volumes are small, but the significant number of new entrants creates a large opportunity for service providers. In contrast, only those buyers who currently source services from Mexico plan to increase their scale in the country.

Concerns related to the security environment in Mexico have persisted. While services delivery operations (service providers or captives) have not been impacted at all, and the violence is restricted to a few locations, the sensitivity to this aspect is at a sustained high. Service providers based in Mexico and the government need to more proactively manage these perceptions. Especially for service providers, this may create an impediment to being able to penetrate new companies.

Key Takeaways

• Demand for offshore services will grow in the next two years as buyers reinvigorate and accelerate plans for expansion. Most organizations will expand offshoring, with large adopters being much more aggressive than other segments
• In addition to growing in India, most organizations plan to growth in other geographies. A portion of this growth will be in Latin America, mainly in Brazil and Mexico. Brazil will see several new entrants in the next two years, while growth in Mexico will mainly be driven by companies who are already in the country
• Service providers based in Latin America have a unique opportunity to position themselves for this wave of offshore expansion and interest in Latin America. However, they will carefully need to manage perceptions and positioning to maximize gain from this opportunity

Anand Ramesh is  Research Director for Global Sourcing at Everest Group and a member of the 2010 Nearshore Americas Power Rankings.

By Robert Janssen

The diversification of economic activity places Brazil at an advantage when compared to other rising off shoring destinations, especially the near shore rivals. Along with that diversification comes the development of long standing business expertise, which ever so more, has become critical for the new types of customer relationships that are beginning to become main stream, and where there is big load of expectations on client market strategy alignment by the vendors.

The “business expertise” advantage coupled with its easiness for cultural alignment makes a strong case for Brazil to always be part of a select “short list” of top destinations for off shoring IT services worldwide. The Brazilian Government has an official goal to become one of the 3 top world leaders together with India and China.

Walk the Talk

However, in order to keep pace with the developed economies and especially in the face of what the emerging economies are currently doing, the country needs to walk the talk and invest much more in education and training of its human capital.

Currently, Brazil has a deficit of approximately 350,000 qualified IT professionals, just to address the immediate domestic demand alone. This number should climb  drastically, as pressure is expected to rise because of all the infra structure projects related to the Soccer World Cup in 2014 and the Summer Olympics in 2016, which are planned to be rolled out in the second half of 2010.

While being able to graduate around 200,000 engineers and IT professionals a year, which will not suffice the current need, it is also much behind the direct competition of India and China, who pump out the same number just in master degrees in engineering alone.

Education: In Sync

The problem is really at its roots, where basic and fundamental education is very poor and needs to overhauled, so it can become aligned with the current market trends and in sync with employment demand.  There is urgency for government and academia to come together around a new strategic vision of quality of education and the role it plays in the country’s competitiveness and of its citizens.

Brazil needs to train and upgrade the teaching skills of its teachers, so they in turn, can help educate better and prepare the citizens to operate properly in a globalized environment. It needs to stimulate the better teaching of Math and Sciences. The Brazilian government needs to create incentive programs for the universities to prioritize the graduation of more and better teachers.

Also, as a result of the lack of a strategic vision and direction, there is a weak link between the academia and the R&D in the private sector. While Brazil currently produces around 2 % of all of the world’s scientific content, and this is on par with how much overall wealth it produces, it still has not been able to tie this production to a business outcome. Brazil has learned to convert money into content, but still has done very little to learn how to turn knowledge into wealth.

The origin of this complete shortsightedness by government stems from of our colonization days and the “mercenary” mentality by the Portuguese. The Portuguese and their “extractivist” attitude left an inheritance that is still very much prevalent today, where being part of government is perceived as being part of the royal family. Many government officials are generally separated from population and actually think they are in fact royals upon whom some deity laid the mantle and transferred the power to govern the people.

Many government officials really think they do not have an obligation to serve the people who pay their salaries. Some think they are actually doing a favor to the citizens. This absurd mindset prevails in several aspects of government and must be tackled head on in order to implement successful market sensitive education upgrade initiatives.

Global Mind

Bottom line, Brazilian government officials need to understand that we are in a globalized world, which requires a different train of thought and approach. It requires greater understanding of how local legislation and incentives affect the competitiveness of its country fellowmen and private enterprise. It requires they realize they can’t sit on top of a fiscal reform for over 10 years, and do nothing, while the national companies lose ground to the international competition.

Brazil and specially the officials in public office are at a crossroads, where the wrong turn can represent the difference in becoming a truly developed country, or remain as the “forever sleeping giant”. It is time to stay tuned with the upcoming presidential elections. Let us see if new winds will blow, and hope it will be able to harness some true “global sense” in the mindsets of the Brazilian people. After all they are the ones that elect and also govern.

Robert Janssen is the managing partner for Outsource Brazil, providing advisory services for business growth and market development strategies for organizations wanting to expand business in the North and South American markets and Europe.

By Lynn McNeal, Partner, TPI; and Gerardo Fernández, Senior Advisor, TPI

Outsourcing can provide many benefits to businesses – including more flexibility, improved service and reduced costs – but it almost never provides these benefits at the levels that are expected. The most successful outsourcing programs typically reach only 95 percent of the service levels and cost savings that were expected – and were contracted for. Less successful programs may miss their targets by 30 percent or more.

The difference between the value and services that are contracted for in an outsourcing agreement, and those that are actually delivered, is known as value leakage. A company’s size and where it is headquartered geographically aren’t major factors it its risk for value leakage. We have seen firsthand that some midsized, Latin American companies are global leaders in managing outsourcing relationships and maximizing the business benefits from their outsourcing activity. The keys to success are to understand contract terms and industry best practices – and how to enforce them. This article will show you how to recognize value leakage and how to prevent it.

To prevent value leakage from occurring over time, companies must carefully manage their service providers, which often requires processes and approaches that companies do not already have in place.

Understanding Value Leakage

Some value leakage occurs in all outsourcing engagements, and most are still successful even if all contract terms are not met. TPI’s research and experience covering thousands of outsourcing engagements indicates that outsourcing transactions typically provide between 70 percent and 95 percent of the expected value. While those levels are common, they don’t have to be acceptable. If we go to the grocery store, we do not expect the clerk to accept 70 to 95 percent payment for what is in our basket. When we receive a paycheck, we expect it to be for 100 percent of our salary. What is the difference between these examples and outsourcing transactions? When we work and shop, the terms and conditions are usually well understood by both parties, and easy to enforce. Outsourcing engagements are highly complex, so they usually lack this simple clarity, especially for companies with limited experience. <strong>Different Forms</strong> There are many forms of value leakage, both direct and indirect. Direct causes may include billing for services that were not performed, or failing to apply a volume discount. Not submitting a monthly report is an example of indirect value leakage. The omission may not cause a problem or a direct expense, but is an instance where the client does not receive what it contracted for.

It is important to remember that outsourcing provides value beyond labor cost savings. To realize the full value from outsourcing, companies need to make sure they are receiving all the benefits they contracted for, including technology and security upgrades, service levels, risk management and increased operational flexibility. Over time, seemingly small things like failing to provide reports or documenting small changes in procedures can lead to confusion over rights and responsibilities that can escalate into disputes. Such disputes, and the time and expense required to resolve them, can be avoided simply by following the established service terms.

Minimizing Value Leakage

Why are some companies much better at governing outsourcing relationships than others? Experience is a very important factor, but it isn’t a requirement for success. One of our clients in Chile has excelled at governance starting with its first outsourcing contract and is one of the best companies in the entire world at maximizing the value of its outsourced services. Another company in the region with a similar business model, which is a much larger corporation with more outsourcing activity throughout its global operations, continually struggles with value leakage despite its experience. The major difference between the two companies is how they govern their relationships.

Our experience working directly with clients clearly shows the companies who have the least value leakage are the companies who do the best job of monitoring and managing their service agreements. The risk of value leakage in an outsourcing contract relates directly to the company’s ability to govern the contract.

As our Chilean client proved, first-time outsourcers will not necessarily have high value leakage. Inexperience can be overcome by serious management focus, adequate budget, strong staff and implementing industry best practices. To prevent value leakage from occurring over time, companies must carefully manage their service providers, which often requires processes and approaches that companies do not already have in place. Value leakage occurs throughout the life of the outsourcing engagement, and typically increases in the later years of the contract. Companies who are accustomed to having long-term relationships with their customers and suppliers may not realize they need to manage outsourcing service providers more actively and aggressively than the other firms they’ve done business with for years.

Management Consistency

Attention to detail is essential. If contract terms are not managed consistently, small things like late or incomplete deliverables, service exceptions and gradual loss of content in routine contract adjustments become the norm. The longer they are allowed to continue, the more they degrade the quality of the relationship. Once performance levels and responsibilities become unclear, it is very difficult to return them to contracted levels without dispute or a time-consuming renegotiation of the relationship. In these cases, value leaks because client company managers and executives lose productivity by investigating and resolving issues that could have been prevented by proactive governance.

Some of the most important steps organizations can take to minimize value leakage include:

• Understand contract terms, service levels and how they are measured
• Institutionalize the knowledge in the organization; do not rely on a few key professionals to understand the outsourcing relationship
• Build both executive- and operations-level relationships with the service provider and align expectations at each level
• Put processes in place to ensure both the service provider and your own staff are meeting their commitments
• Continually monitor performance and communicate the findings

While the points above provide specifics, the key to success can be summarized in two words: good governance.

It doesn’t take a large company, or an experienced one, to govern outsourcing relationships well. Even though outsourcing has not been widely adopted in Latin America, there are no geographic, business or cultural barriers that will prevent companies here from being extremely successful in their outsourcing efforts. The key is to implement good governance practices, which we will cover in our next article.

Lynn McNeal,TPI Partner, leads the global firm’s sourcing advisory team for the Latin American region. His deep, broad sourcing experience and expertise across a wide variety of industries spans sourcing strategy, sourcing process and negotiation and renegotiations, transition management, divestitures, acquisition integration, operational assessments and service delivery models.

Gerardo Fernández, senior advisor with TPI, offers Latin American clients extensive experience with and for industry leading organizations. Gerardo’s expertise includes information technology (IT), governance processes and business transformation. His knowledge spans strategic planning, financial analysis and performance reporting, project management, product management, account management, financial reporting and marketing. For more information on maximizing the value of sourcing for your company, contact lynn.mcneal@tpi.net, or gerardo.fernandez@tpi.net.

By Juan Gonzalez
Over the past several years there has been gradual growth and -  since 2009 – explosive development in the use of social networking on the Internet.
While the purely-social use of networking tools such as Facebook, Twitter, Linkedin and other continues unabated, increasingly so people are using social networking to ask each other questions and share experiences about the products and services they buy and are interested in.

Various groups within enterprises, particularly large B2C enterprises, are beginning to see opportunities with social networking. Sales groups see the opportunity to find new customers, public relations groups see the opportunities for brand promotion, product development groups see the opportunity to get product feedback and new ideas, and customer service groups see both the cost savings values of customers answering each others questions and the imperative to connect with this peer-to-peer customer support activity.

Early adopter enterprises are engaging social networking for customer service in three primary areas:
- Establishing customer communities or forums which support on-line virtual customer communities.
- Use of listening platforms, which are applications for monitoring social conversations on the Internet and elsewhere.
- Building contact center application support for processing inbound and outbound customer contacts via social media, such as Twitter messages.

Leading enterprises have recognized the importance of tapping into these customer-to-customer communications and are following a number of paths to learn, participate, support their customers and in other ways leverage these social conversations for their business’ benefits.

Main Drivers

There is a growing awareness of social networking power. One important justification for enterprises’ investments in social networking programs is the desire to better support customer retention initiatives. Providing excellent customer support across customer interaction channels, including social networking, is one aspect of enterprises’ customer retention strategy.
Also, increasingly enterprises, particularly those in the most mature and globalized industries, are relying on excellent customer service for competitive advantage. These competitive strategies are driving investments in social networking for customer service programs and functionality.

As with the customer retention and competitive advantage drivers, many enterprises are increasing their focus on tracking and providing excellent customer experiences for their customers and prospects. Support for social networking and its seamless linkage with other customer interaction channels is a natural extension of a comprehensive customer experience program.

Finally, leading companies are discovering the strategic business value of comprehensive approaches to pro-active customer contact. Again, pro-actively addressing customer questions and issues which are expressed in social networking settings is a natural extension of a comprehensive pro-active customer contact program.

Besides the fact that the current down economy (in which both enterprises’ capital budgets are tight and credit hard to get) makes investments in new technologies and applications particularly challenging, there is a widespread perception that social networking is a cultural phenomenon engaged in primarily by young people and has little or nothing to do with business. Social networking is also viewed to be an employee time-wasting activity and a potential security risk for company confidential information.
As well, it is still early days for social networking and its value for business. In many enterprises the awareness of the potential of social network and the imperative to engage with it are just emerging. Departments within enterprises view the opportunities differently. For example, sales sees lead-gen opportunities, public relations see brand promotion and defense, product management sees crowd-sourcing product/service feedback and ideas, and customer service sees another channel for support. Very few enterprises have pulled together these departmental views/opportunities to create enterprise social networking strategies or programs.
Lastly, selling customer contact solutions to SMBs has its own challenges; products and services must contain SMB-appropriate levels of functionality, must be easy-to-use, low-cost to support, priced competitively, and sold/serviced by local-to-the-SMB suppliers. Most, certainly not all, of the currently-available customer service-related social networking solutions have been designed for large enterprises and are being sold and serviced directly by the vendors.

Cultural Shift
It is clear that social networking has been and continues to be a cultural phenomenon. It is quickly also becoming a business phenomenon. Increasingly, current and prospective customers are using social networking to communicate about the products and services they buy or intend to buy.
These communications are sometimes happening instead of contacting the companies who offer the products and services. Leading enterprises have recognized the importance of tapping into these customer-to-customer communications and are following a number of paths to learn, participate, support their customers and in other ways leverage these social conversations for their business’ benefits.
However, the business cases for these social networking activities in support of customer contact are just emerging. Actual costs for establishing and supporting a customer community vary greatly. Likewise, benefits for customer communities vary, but primarily based on calls deflected (answered in the forum) most enterprises are realizing a payback within 12 months. Business cases for monitoring of social conversations are less clear. But, with or without clear business cases support for social networking has become a high priority for early adopter enterprises, particularly large B2C enterprises.

Juan Gonzalez is team leader and analyst at Frost and Sullivan and a member of the Neashore Americas Power 50 Ranking.

By Ilya Bogorad

Nine out of ten business cases that cross my desk contain material errors, which often lead to incorrect recommendations worth tens of millions of dollars. If you ever wondered why two thirds of change initiatives fail, here’s your answer: many of them are based on a fallacy, a case that does not exist. The issues run the gamut from poor understanding of objectives to complete disregard for the established methods of economic analysis, from strategic ignorance to financial ignorance.

Decisions on outsourcing and insourcing are also not immune from this flawed approach. In fact, many of them are deficient for one specific reason which I will outline here.

“We’ve spent the last three years transitioning our business from a focus on on-premise computer systems and infrastructure, to a Cloud Computing model that involves providing software and computing resources as a service rather than something you buy and house and manage” – Doug Girvin, President and CEO of Stantive

The problem

There is a discipline studied in all accounting and most finance programs which is known as managerial accounting. Managerial accounting provides managers with answers to questions like “How much does it cost us to manufacture one extra widget?” “How much of the factory overhead should be trimmed to decrease the cost of a widget by 10 cents?” “How many widgets should we produce to break even?” Given the known direct and overhead costs, production volumes and the established price for which a widget is sold, it is possible to calculate the cost of each widget and the margin realized. Naturally, one would want to maximize the margin by trimming the costs.

It works reasonably well for manufacturing of commoditized widgets with an established market but we are in trouble when the same method is applied to knowledge work. Take one of the largest overhead costs, IT. The typical reasoning, which is bound to get the attention of the Board goes like this: “We can hire a person there for one third of what we pay here. Therefore we can reduce our personnel costs by two thirds.”

There are a few issues here.  First, it is assumed that a worker is a worker, knowledge or assembly line. Second, the new coordination costs don’t typically enter the picture. Third, risks are not typically discussed. Fourth, and most importantly, it is assumed that the amount of economic value generated by a group of knowledge workers will remain the same. Unlike on the factory floor where the economic value of a widget is its established price, the value created by one group of knowledge workers may be very different from the one created by another.

If you are working on an outsourcing decision for a function which has produced mediocre economic value, due to stunted innovation, support function mentality, poor leadership, it is incredibly limiting to decide its future based on the input cost of a worker. Instead, one needs to look for a way to significantly increase the value produced. Whether it is done best in-house or by outsourcing is not the most important problem at hand. Yet the mentality of bean counters often prevails and a mediocre is substituted by a cheaper mediocre. You cannot get to the top by pinching pennies.

What’s even worse is when we see the faith of highly innovative groups decided merely on direct (personnel) costs without any regard for the value they produce. Exceptional productivity is not easy to reproduce and should never be taken for granted.

If you are engaged in strategic planning today, eschew this limiting approach. Figure out the way to create exceptional value which would leave your competition in the dust and the rest will be history.

How One Company Does It

Kingston, Ontario is a small Canadian city of 120,000. It’s a home to Queen’s University, a few jails and some government offices. Not exactly a high technology hotbed, but it is here that I met Doug Girvin, President and CEO of Stantive Technologies Group Inc.

In the last year, while most of the world weathered the economic storm in a fetal position, Doug’s business grew 400 per cent. All of his staff is located in Kingston and not in a low-cost locale, and he is planning to hire aggressively in the next few months. How can they do so well working out of Canada, which is definitely not the cheapest place in the Americas to set up shop?

First, they are clear on the strategy. Mr Girvin explains: “We’ve spent the last three years transitioning our business from a focus on on-premise computer systems and infrastructure, to a Cloud Computing model that involves providing software and computing resources as a service rather than something you buy and house and manage.  This market space is taking off while the older idea of computing is consolidating and being commoditized.   We saw this coming five years ago and were determined to in this direction with as little disruption to our business and customers as possible.  The result has been very gratifying.”

Secondly, they understand how to generate value for their clients. Mr Girvin continues: “There is always room at the top, and I fanatically believe that sustainable advantage only comes from the level of value that is provided. Value requires leadership because it is inherently differentiated from other products or services, so there is risk that the value will not be recognized.  We are constantly seeking the highest value that resonates with customers and work hard to be responsive to those high value needs as they’re expressed in the marketplace.  Customer engagement is very important as tool to hear the pattern of requests for different kinds of value.

We engage customers and prospective customers in conversations, understand their business and their organizational challenges and aspirations, and the opportunity to provide value becomes evident very quickly. Executing on the provision of that value has been a key component of our success to date.”

If you learn to create exceptional value, input costs will become a mute point. This is how the most successful companies think and act. What’s stopping you?

Ilya Bogorad is the Principal of Bizvortex Consulting Group Inc. a management consulting company with clients worldwide. Ilya specializes in building exceptional IT organizations, decision making and business cases. He can be reached at ibogorad@bizvortex.com or +1 (905) 278-4753 begin_of_the_skype_highlighting              +1 (905) 278-4753      end_of_the_skype_highlighting.

By Ann R. Harts and John R. Roberts III

It’s never easy to figure out exactly what decision makers in contact center site selections might be thinking or what issues they deem most critical. This is especially true in today’s ever-changing economic environment. However, one thing is certain, fundamentals still matter!

Decision makers need to free up “bandwidth” to deal with this dynamic economic environment. The old adage, “you only get one chance” has never been truer than in today’s fast-paced economic development world. (Scroll to bottom of post to read Ann and John’s “Must Dos” for Latin America Economic Development Agencies.)

First-Tier Issues

There are obvious threshold issues that must be addressed up front by those seeking contact center investments. Among those fundamentals that must be in place include:

• Assurances regarding the free movement of capital
• Infrastructure (telecommunications, electricity, water, sewer, transportation)
• Labor availability (accurately represented)
• An accurate inventory of economically usable real estate

Yes, the economist’s adage of “land, labor and capital” is still among the most important location criteria. A top-notch economic development agency will be able to clearly demonstrate these fundamentals, associated costs, and provide a reassuring amount of discussion on reliability.

Make information and analyses easy to access, relevant and comparative. Is the labor and demographic information up-to-date and reliable? Are there trends that can be highlighted to make a point and make your clients’ job easier?

Efficient Client Servicing

After first tier issues come an important second tier, which is what we’ll call “customer service.” It’s not just about putting a smile in the voice; it is increasingly about time-expedient service, with the key word being “expedient.”

A book on this titled, “The Best Service is No Service: How to Liberate Your Customers From Customer Service, Keep Them Happy & Control Costs”, where authors Bill Price and David Jaffe urge in their second of seven key points:  “eliminate dumb contacts.” For the purposes of this article, we change the negative to a positive by simply saying, “maximize smart contacts.”

In other words, make each contact with site selection and corporate facilities executives as productive as possible. Make it easy for prospective investors to contact your key people. Don’t worry so much about being modest. Get to the point firmly and quickly, and make information and analyses easy to access, relevant and comparative. Is the labor and demographic information up-to-date and reliable? Are there trends that can be highlighted to make a point and make your clients’ job easier?

Along with this ease of client interface comes the need for consistent messaging (do you have consistent messaging and if so, is it being broadcast as a clear, easy-to-grasp message in the media, at trade shows, on your web page, to your stakeholders, etc?), information integrity (are the facts you present soundly based and referenced?) and staff tenure (how successful is your organization at keeping staff?). It is counterproductive to encourage job- and tax-generating investments in an environment where staffing changes are so frequent that familiar and trusted contacts move through an ever-revolving door. It’s important for corporate facilities directors and site location consultants to have a key contact to see a project through from beginning to completion.

Two-Part Service Model

The most efficient and effective corporate facilities directors and site location consultants increasingly want a combination of guided investigation and self-help. So if, after a site tour, your clients have returned to their headquarters and are compiling a report on their recommendations or findings, they must be able to easily access information on their own and quickly. They’ll get back to you if they need additional follow up, but for the basics, it’s most productive if they have the choice and flexibility to find necessary information from their desktop. Is the data you have provided at the site visit and via your web page easily accessible and understandable? In a format that is useable?

To sum up, this approach increasingly has two facets: the individual relationship (nurture, build confidence, serve as the “lifeline”) and the archival (richness and relevance of database and relevant information, ease of access of the information, integrity of the data and its sourcing and verifiability).

Follow Up

Follow up is essential for a number of reasons, not the least of which is building a reputation as a professional, reliable and facilitative economic development organization. “Word-of-mouth” is efficient in the corporate facilities executive world, and you will be known for the service and information you provide.

But just as important is that in the current world, facilities investors in job-generating investments are likely to follow a successful investment with a second or expanded investment. You want to be positioned to capitalize on this. Let your hard work do double-duty. If the investment is productive, it is a validation of your organization, with hopefully more successes to follow. Does your organization have an after-care department or follow-up procedures in place?

Between cultures, there is always a nuance or two that gets lost. The new law, the new ethic, the new market condition and the new technology keeps this a dynamic process. Maintaining and nurturing a customer service structure as outlined will go a long way to gaining trust, creating and maintaining a reputation as a leader in economic development, and ultimately favor, by those whose jobs rely on their performance in these site and facilities ventures.

17 Must-Do’s for Latin America Economic Development Agencies

1. Don’t be modest. Promote what you have relative to other offshore destinations.
2. Have a consistent message.
3. Continuity of staff is critical, especially when a new political party is elected.
4. Have enough staff to see projects through to completion.
5. Create “one-stop shopping” for site location consultants and corporate facilities directors.
6. Keep demographic information up-to-date and at-the-ready. Have consolidated demographic data specifically for BPO/contact centers.
7. Know the English bilingual labor and its capabilities of your area. Similarly, have good English language training programs in place and know their capabilities.
8. Don’t just sell the benefits of your country; always provide solid facts. Do not over-promise and under-deliver. Be in this for the long term.
9. Trade shows – it’s more than just attending and having a booth. Do the following:
   1. Pre-set appointments with potential clients. Be prepared to present case studies of success stories and what differentiates your city/country from the competition.
   2. Bring in-country private sector investors to accompany you to provide testimony.
   3. Network, network, network and tell your story
   4. Host an event with select potential clients
   5. Be a presenter or on a panel discussion. Be seen as the expert.
10. Get mentioned in the media space that potential investors read and trust.
11. Find out what differentiates your city/country over the competition (and know your competition)
12. Work and partner with in-country developers but do not let them lead the economic development process. Your organization needs to be seen as the lead liaison between developers and investors.
13. Ensure your country has good data protection laws and be well-versed about them
14. Know and promote cultural affinity with the country of origin for your client.
15. Have floating Free Trade Zones with processes that allow for quick turn-around. Be intimately familiar with the process and timelines.
16. Remember…it’s all about “speed to market.” How can your organization expedite this process for the client?
17. Once the project is complete, don’t forget about your client. Follow up with an “after care” program

Ann Harts is CEO and President of HartsGroup, Inc., in the Kansas City, KS area and is a frequent columnist for Nearshore Americas. John Roberts, CEcD EM, is in Sacramento, CA and has published on international investment and corporate facility locations in Dow Jones’ Asian Wall Street Journal and the Journal of the American Economic Development Association.