SIG Speaks Blog

When Public Sector Outsourcing Doesn't Work…

Over the Easter weekend I had what ended up being a rather disturbing conversation with an old friend, which I thought sufficiently relevant to this space to share with you. This friend has very recently started a new job, working in an outsourced contact center providing advice to, and processing applications by, users of local (public sector) health and social services (I need to be relatively vague here, for obvious reasons...).

One of the main tasks she has to perform is vetting people who call looking to get access to one particular healthcare-related service. Due to the nature of this service, applicants are invariably over pensionable age (65, more or less, here in the UK) and suffering from illnesses or disabilities that restrict mobility - this is an important point: we're dealing with some pretty vulnerable people in (often serious) need. My friend has to take them through a survey and, at the end of the call, inform them whether or not they've qualified to receive this service.

The problem - one of the problems - is that certain responses to some of the survey questions can disqualify applicants outright. My friend explained some of these to me and, frankly, it's an outrageous situation. For example, applicants who say they're using certain medical apparatuses which haven't been prescribed by their General Practitioners (GP) won't qualify, even though these specific items are the kind of thing one might buy oneself, be given by relatives/friends/charities or procure in some other way simply because they're useful, rather than even considering going to the GP to be prescribed them.

Jamie Liddell, Editor, Outsource

Is There a Huge Hidden Cost to Retail Innovation?

The mini-supermarket at the bottom of my road is closed for a couple of weeks for refurbishments (this may seem like an incredibly mundane topic with which to start a blog, but bear with me). The signs announcing this closure were only put up a couple of days beforehand, and somewhat surprised I asked the cashier - with whom, like many in my neighborhood, I have a friendly relationship – what was behind the chain. The shop is part of a very large national chain, but has a "local" atmosphere unlike, in my experience, most such establishments. She replied that the shop is being redesigned to include several self-serve tills - and was, of course, unwilling or unable to answer when I inquired if that means job losses amongst the current staff.

An elderly man being served next to me then said something which got me thinking: "It's computers, isn't it? Everything will be run by computers soon, and there'll be nobody left to talk to." In this particular instance, at least in the short term, that gentleman was of course being premature - that shop will still have a complement of human staff, and won't be entirely based around self-serve points of sale (POS) - but there as everywhere else in the country, technology is driving vast change in the retail sector, with ramifications that go far beyond that industry and which have the potential to affect the whole fabric of society.

Jamie Liddell, Editor, Outsource

Mexico: Top Destination for Engineers?

Over the years, Mexico has had its fair share of negative headlines due to drug trafficking, violence and more recently because of the recent elections. Mexico is painted as a dangerous country that should be avoided. Unfortunately, this outdated, negative view is one that many Americans, as well as others around the world, still hold on to despite the fact that it doesn’t come close to matching the reality. Don’t believe me? Keep reading and I’ll see if I can change your mind.           

It may be surprising to many that when it comes to producing talent in engineering, manufacturing and construction, Mexico ranks as the 8th highest in the world. When interviewed in June, former president Bill Clinton weighed in on the issue, “All we read about is the violence and the drug war,” said President Clinton. “The truth is that the previous president built 140 tuition-free universities. Two years ago, the Mexicans produced 113,000 engineers. We produced 120,000. They’ve had very brisk growth.” This growth that the former president mentions doesn’t seem to be slowing down any time soon either. From 2005 to 2012, the percentage of students graduating with degrees in engineering increased from 15.5% to 21.3% and is still continuing to grow steadily.

Brittany Miller, Marketing Analyst, SIG

Part II - Does Outsourcing Really Need Better PR?

Last week I posed the question of whether or not outsourcing needs better PR. In this follow-up, I continue the dialogue.

Because we're not short of positive perspectives on outsourcing: again, anyone attending even one SIG Summit would come away with plenty of evidence for its value, and the outsourcing community and media such as Outsource have more than enough material to make an overwhelming case for why the model has been a good - a great - one for organizations right across the size spectrum. But the benefits aren't confined to individual companies: a wealth of scholarly work has been carried out to demonstrate how, in direct opposition to the assertions of its detractors, outsourcing (even offshoring) is good for those very economies it is supposedly corroding.

A 2006 Harvard University study entitled 'The Politics and Economics of Offshore Outsourcing' articulates the truth of this superficially counter-intuitive position very nicely. Authors Gregory Mankiw and Phillip Swagel found that "outsourcing appears to be connected to increased US employment and investment rather than to overall job loss. Some US jobs are certainly lost to other countries. On the whole, however, firms involved with offshore outsourcing are not shifting net jobs overseas but instead are creating jobs both in the United States and in other countries... Outsourcing will create winners and losers, and the pain of dislocation will be real for workers and their families. Taken together, however, these conclusions suggest that offshore outsourcing is likely to be beneficial for the United States as a whole."

Jamie Liddell, Editor, Outsource

Part I - Does Outsourcing Really Need Better PR?

A recent episode of 60 Minutes investigating outsourcing and the increasingly under-fire H-1B visa program in the USA has prompted a good degree of debate on social media and elsewhere, about this always-controversial practice. As readers of SIG blogs (and indeed members of the sourcing and outsourcing community globally) will need little reminding, outsourcing and its practitioners present an easy target for anyone with an economic axe to grind looking for someone or something to blame for the perceived ailments of the American (or any other) economy, especially unemployment: those giving voice to the old lament that outsourcing (conflated, of course, with offshoring) "sends our jobs overseas" now also point to the H-1B visa and charge those companies not "guilty" of exporting jobs with the equally heinous crime of keeping them onshore but giving them to foreign workers instead. 

Yet despite decades of such negative PR the model continues to prove an indispensable tool for organizations large and small. Earlier this month, to take just one recent example, Lloyds Banking Group in the UK announced plans for a £1.3bn ($1.6 bn) ITO deal with IBM which will see over 1,900 jobs transferred to the latter; the deal is intended to save approximately £760m ($948 bn) in costs, according to the Financial Times  (which, incidentally, quoted the Lloyds Trade Union - "which is no longer recognized by the bank" - as writing to its members that "staff transferred to IBM will be kept on for a year but most would be laid off within four years and replaced by cheaper, offshore workers").

Jamie Liddell, Editor, Outsource

Can you speak the language of sourcing?

I have always valued the power of communication. When I entered college, I didn’t know exactly what I wanted to study. I realized that although I was “good” at many things in school, there was one thing I excelled at – communication. I was a strong writer, and an even stronger speaker. I saw that when most of my classmates dreaded speaking in front of others, that I always enjoyed the experience, and was excited by it. This was the turning point when I decided to focus my career in communications and marketing.

The power of effective communication cannot be underestimated. It is a critical component of life. I’ve seen the impact of effective and ineffective communication in many types of businesses. Ineffective communication has the ability to break businesses. If you can’t communicate effectively with your customers, your intended messages won’t be received or understood – it’s like you’re speaking an entirely different language from them.

So how can you speak the same language as your sourcing clients?

I’ve worked with many companies that provide services and solutions to sourcing and procurement professionals. It’s very clear what separates the successful providers from the rest of the pack – effective communication with their clients. In order to serve and advise sourcing clients in the best way possible, your team must be able to communicate to them through a common language of sourcing. It’s not just about being highly knowledgeable and educated on all things sourcing, it’s about effectively communicating by speaking their language.

Here’s how you can grow your business and better serve your clients through effective communication:

Heather Young, Senior Marketing Manager, SIG

Equivalent Revenue: “Added Value” By Another Name

Traditionally, one of the inherently daunting challenges in Procurement and Sourcing is to quantify and report on cost savings, cost avoidance and/or cost reductions, which can be collectively referred to as "added value."  One very effective way that I have been able to successfully communicate added value and metrics to many C-suite members is by positioning it in a different way. I have found that by using the terminology and calculation for “Equivalent Revenue,” it is generally better received. Since it is a much more common business term and quantification, the C-suite can relate to it and it can be directly measured against the company’s overall revenue. As such, it is more widely accepted than trying to describe such value as only cost reductions or savings. 

Perhaps most importantly, it is really as simple as taking the actual quantified “added value” and dividing that figure by the company’s overall net profit. A quick example: If the total aggregate added value amount is agreed to be $10 million, and the company’s overall net profit margin is 8%, the Equivalent Revenue needed to generate the same amount of that net profit would be $10 million divided by 8%, which equals $125M.  By representing the figures in this light, C-suite members can readily identify and appreciate how much time, effort and expense would be needed to generate the same amount of sales revenue, and therefore clearly recognize the importance of an efficient and effective Procurement and Sourcing organization. 

Guest Blogger, Dave Gallaer, Head of Procurement and Sourcing, NatWest Markets/Royal Bank of Scotland Securities, Inc.

The Law of Diminishing Returns

Of the many laws that affect the international outsourcing space, one of the most important must be that of diminishing returns. At its heart outsourcing is about efficiency – a provider can only offer a decent value proposition, and turn a profit, if it can achieve a desired output more efficiently than can a would-be buyer of its services – and yet there’s only so much money in the hypothetical pot to invest in driving efficiencies: as a very basic example, if one can spend $x to achieve 10% savings, by the fifth investment of $x the savings made are only around 60% of what was achieved with the first tranche. The returns diminish. After a while, it becomes less and less worthwhile to invest $x in that project, when the same amount put into another deal can yield significantly more.

Finding the right balance between investment and returns (and knowing where is the line beyond which further investment will yield returns too paltry to justify) is vital in any business, but especially one as efficiency-based as outsourcing, where relationships have historically often featured buyers demanding constant and consistent efficiency gains and savings – and, moreover, where the necessary investments in technology and people can be gigantic. Hence the desire on the part of providers to share the value gained by any given investment across as many clients as possible – and the complications resulting from buy-side demands for bespoke work and customisation without a simultaneous understanding of why this of necessity means higher costs, which need to be passed on somewhere, somehow…

Jamie Liddell, Editor, Outsource

The Future is...Now

For the past 60+ years, the standard joke about Artificial Intelligence (AI) has been that it is “the future.” In 1950, Alan Turing questioned whether machines could think like humans…and less than ten years later, Marvin Minsky founded the AI lab at MIT. For decades, people tinkered, pondered and philosophized about robotics. Factories installed automation to remove workers from redundant tasks…but advancements in office settings didn’t progress at the same level. People hypothesized about flying cars, but few could imagine cognitive computing. I think it’s finally safe to say that the future is now. AI and Robotic Process Automation (RPA) are no longer conceptual ideas…they are business strategies that will continue to impact our lives in radical ways.

A recent Forrester study predicts that by 2021, 6% of U.S. jobs will be replaced by robots. While it may not sound like a lot in the grand scheme of things, consider that it represents growth from 250 million in 2016 to 2.9 billion in 2021. Sure…we’ve all dealt with AI and technological advancements already: call centers that put us through a series of (irritating) steps before you can finally talk to a human; travel aggregators that find the best deal across all airlines…ads that stalk you online after one quick search for a new printer…but until recently, it was hard to see how it would really affect the world of sourcing and procurement.

Sarah Holliman, Chief Marketing Officer, SIG

Is this a Digital Revolution...or Evolution?

The word “revolution” gets thrown about a fair bit at present (not least by me…) when discussing the new wave of automation technologies which are transforming the way organizations do business. But are we talking about “revolution” or “evolution” – sudden and dramatic, or gradual change? Well, it’s a bit of both: the technology itself is evolving. We can trace, for example, the evolution of IBM Watson back to the Deep Blue chess computer which beat Gary Kasparov back in the mid ‘90s...which can in turn be seen to have evolved from its predecessor Deep Thought...which itself was a successor to ChipTest (developed in the 1980s at Carnegie Mellon University)...and so on, back to Turing and beyond. While there have been revolutionary moments along this path – the transistor, the integrated circuit etc. – it’s clear that this is an evolutionary sequence, at a pace which may seem very far from “gradual” to those who’ve been alive to observe it but which, nevertheless, consists of successive advances built upon what’s gone before.

Jamie Liddell, Editor, Outsource

Pages