Discuss, debate and exchange ideas on latest trends and opportunities in the Business Process Outsourcing (BPO) landscape. Deliberate on adding “business value” to clients, vendors, employees and various other stakeholders to enhance customer satisfaction and sustain long term partnerships.

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February 20, 2012

A critical business link - hire to retire planning for talent in sourcing and procurement (S&P)

Let's face the paradoxical situation that has not changed from the last many years though 2012 has arrived. Effectively skilled S&P talent continues to remain in short supply for most of the firms' supply departments (S&P) themselves.  The not-so-favorable impacts which such a situation can cause are quite intuitive and are mainly - high supply & business risks, and lack of spend % under professional management.

Whether it is the rising economies of India, China, and Brazil or the stagnating major economies of Japan, US and Europe, the situation continues to be the same. Causal factors for rising economies have scope creep and speed level challenges, while major economies suffer adverse demographic factors limiting talent supply (e.g. baby boomers retiring big time post 2010) in addition to flux in their economic situations. Time to look at some credible data points now which details what is being felt within the firms. 47% of the 121 respondents to a survey by Aberdeen reported "lack of staff with appropriate skills" as one of the "barriers to strategic actions for the CPO". In the same report, 34% of the respondents ranked "lack of category expertise in strategic spend areas" as one of the six "top pressures facing procurement leaders". Obviously, the impact of such a state continuing can have impact on procurement performance and as well as at COGS and SG&A levels of firm.

So why does this situation exist and what can be done about it remedially? Simply stating - there are only 2 approaches and solution buckets.  I call the first one as "Do it all yourself approach" and the second one as "Get it done under your control approach".  For the sake of simplicity, let's name the first approach as "Do" and the second one as "Get done". Considering a firm's goals and strategy which approach should it choose and why? There are only 3 criterions in my view - Investments (I), Attention (A) and Procurement Performance (PP) that is planned by firms in the near future. So if the firm is sure that it can provide sufficient quantum and rates of I and A to hire, train, retrain and maintain procurement professionals to achieve the desired PP levels, it should choose the "Do" approach. It should choose the "Get done" approach if the reverse of this is true. A simple weighted average model can be built and surveys run with all the internal stakeholders to quantitatively validate this.

So how to execute whichever approach is found as the preferred one? Simple again. A CPO/decision maker in the firm has to just wear the Sourcing hat. He/she has to compare on a TCO model, how will the firm benefit if "Do" is chosen or if "Get done" is chosen. More often than not, the "Get done" option would be found having the lowest TCO. For example, in the same report, "managing internal staff/procurement department" was rated as "Top costs for the procurement organization" by 21% of the respondents, while "costs of managing outsourcing" was rated least cost by 8% of respondents out of the 6 cost head choices they were given. Conventionally also, S&P professionals know that "buying" is usually cheaper than "making/manufacturing" for non-core/strategic materials as well as services. A third option or combination approach also might be possible to be found i.e. "Do and Get Done". This would be applicable when say for Direct materials and services ,  a firm decides to manage talent supply and development on its own while it outsources all the spend categories (Indirect, MRO, Capital) to a procurement BPO who has established hiring, grooming and training programs. For example, Infosys BPO has an in-house procurement academy where over 1000 procurement professionals have been certified at various levels. Those who need to know more about Procurement performance and maturity may also find this short post useful.

So what do you think? Look forward to get responses and maintain the discussion.

February 2, 2012

Which Business Process Will You Consider Moving to a Process Utility Model?

Internal process utilities in staff functions like Finance, Procurement and HR have been successfully implemented in many financial services firms. We also see internal utilities gaining traction in areas like reconciliation, reference data and reporting where implementing a common platform and process is helping drive efficiencies. These line functions are a good fit because they can be standardized on a common industry-leading platform, and are usually performed across different asset classes/business lines that will benefit from consolidation.

On the operational front, creating internal shared services utilities have made it easier for firms to run them on a global delivery model from places like India, Poland and Brazil -- whether through their own organizations or through outsourced arrangements. And as we know outsourced arrangements today could be a combination of people, underlying technology platform, and also hosting arrangements.

Interestingly we are also seeing discussions in the area of Fraud operations that today are being executed by a host of different systems, and are decentralized across the bank's branches in retail banking. They are also run in separate organizations for the other parts of the bank's portfolio. A utility model - while challenging to implement in Fraud operations - would provide significant benefits in reducing the fraud losses incurred by banks, while at the same time enhancing compliance.

External utilities are used by many financial services firms, like say custodians and securities processing firms who have a platform + services outsourcing model. While this model has been prevalent in Human Resource Outsourcing (HRO), we also see its adoption in areas like Sourcing & Procurement and it would be interesting to see a discussion on this Community which is focused on the challenges and opportunities in implementing external utilities.

After reading a recent Colloquium Point of View on Delivering Transformation by Creating the Right Internal Utilities, I got really curious about which business processes are most likely to move to a process utilities model. There are a lot of potential candidates -- Deposit Processing, Fraud, Account Opening, Clearing, Payments, Credit, Loan Processing, Collections, Research, Reporting, Billing, Risk, Reconciliation, Sourcing & Procurement, Compliance. Which of these, or any other, makes sense to you as a utility and why? I look forward to your views.

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