nasscom bpo summit 2012: analyst corner - ever moving targets: keeping ahead of the game

Ever Moving Targets

Keeping Ahead of the

Game

NASCOMM BPO Strategy

Summit

September 5-6, 2012

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 56762SFO 2

KPMG’s Shared Services and Outsourcing Advisory (SSOA)

What to expect from KPMG:

Who We Are: SSOA brings a specialized global

team of more than 400 professionals within

KPMG’s global network of independent member

firms operating in over 140 countries. Our

professionals help clients design, build, and

manage IT and business processes across the

enterprise.

What We Do: We help clients align their business

strategy, organization, and execution to enable

them to manage the entire IT and business

process lifecycle, improving business performance

and laying the groundwork for genuine business

transformation.

How We Do It: We apply focused research,

automating tools, proprietary data, clear business

acumen, and a forward-thinking mindset to provide

timely, objective, actionable advice and practical

approaches for clients.

Cliff Justice

Principal,

U.S. Leader SSOA

Has played an advisory role and had

involvement in more than 53 large scale

shared services, outsourcing and offshoring

transformations for Global 1000 companies

Former Managing Director with EquaTerra,

leading their globalization advisory practice,

and one of the founding members and

Managing Director of neoIT

[email protected]

+1.713.319.2781

mailto:[email protected]



Today’s Discussion

1 Macro global business trends

2 Shared services and outsourcing market trends

3 BPO market trends

4 Implications for clients and service providers



Macro Global Business Trends

Recession, Double Dips & Debt, Uncertain Recovery

Capitalism vs. State Capitalism vs. the State

Demise in the West – or Not – Occupy This!

Populations Shifts in the World – Go East for Growth

Next Gen (Again) IT: Social Media, Cloud, Crowd, Consumerization, Mobility

Global Talent Management – Find, Attract, Retain

What’s a 20+ year old company to do? Balancing risks and benefits across

a myriad of increasingly interrelated choices, but standing still is not a

viable option



2012 Trends with Biggest Negative Impact on User Organizations

5%

10%

24%

26%

29%

29%

31%

32%

38%

39%

50%

73%

Geopolitical event; terrorism; war on terror

Trade protectionism; de-globalization

Emerging market competitors

Rising input and commodity costs

Sovereign debt crisis

Inability to access funding; bank illiquidity

Repressive rules and regulatory regimes

Break-up of the Eurozone; Greek/Italian/Spanish, et al default

Political/government gridlock

Talent shortages/talent management challenges

Weak consumer/customer demand

Weak global/regional economies; "double-dip" recession

Source: KPMG Global Poll on Top 2012 Trends & Predictions, January 2012



2012 Trends with Biggest Positive Impact on User Organizations

8%

9%

13%

15%

15%

18%

23%

27%

30%

43%

48%

51%

53%

Lessening of repressive rules and regulatory regimes

Relative geopolitical calm globally; decline in terrorism

Easing/decline in input and commodity costs

New, more business friendly governments and administrations

Easing/resolution of sovereign debt crisis challenges

Continued trade liberalism; globalization

Improved access to capital at competitive rates

Improving Eurozone conditions and stability

The ability to tap into skilled global talent pools

Improving consumer/customer demand

Expanding emerging market opportunities for selling goods and services

Maturation of/greater access to innovative technologies (e.g., cloud, social media, virtualization)

Improving/rebounding global economic conditions




Top 2012 User Organization Initiatives

4%

12%

24%

26%

26%

30%

31%

31%

36%

39%

47%

51%

69%

Invest and expand in domestic/Western markets

Diversify product and service lines

Shift back-office operations offshore/into lower cost markets

Find, attract and retain talent globally

Optimize global supply chains

Optimize global service delivery chains; excel at global business services

Improve global governance capabilities; reduce global risk exposure

Deliver new/innovative products & services into the market; increase/improve R&D

Engage in M&A or divestitures

Invest and expand in emerging markets such as China, India and Brazil

Redesign/reengineer core business processes

Invest in new/improve IT (e.g., ent. systems, BI, cloud, social media)

Continue to drive down operating costs




Top Challenges to Successfully Undertaking 2012 Initiatives

6%

6%

15%

16%

21%

24%

25%

31%

33%

39%

47%

51%

69%

Inadequate/antiquated local market physical infrastructure

Restrictive government trade policies

Competitive pressures from traditional competitors

Lack of global scale

Lack of access to capital; poor liquidity; inadequate funds to invest

Restrictive government regulatory policies; hostile business environments

Competitive pressures from new/emerging market competitors

Inadequate management/board skills and capabilities

Inability to innovate

Inadequate/fragmented global business services capabilities

Lack of adequate & skilled talent; inability to attract & retain talent

Inadequate/antiquated IT infrastructure and systems

Dysfunctional/fragmented org./operating models, designs & processes




Top Capabilities Required to Successfully Undertake Top 2012 Initiatives

3%

8%

8%

12%

16%

16%

19%

24%

25%

30%

33%

36%

40%

41%

43%

44%

50%

Supportive local market trade policies

Creative use of social media

Supportive local market regulatory policies & regimes

Research and development capabilities

Access to emerging market talent & skills at a low cost

Cloud computing

Strong brand

Globally integrated supply chains

Adequate access to capital and funding

Strong global governance policies and procedures

Business intelligence/harnessing "big data"

Global business services

The ability to find, attract and retain talent globally

IT systems and capabilities beyond cloud

Alternative service delivery models-shared services & outsourcing

Reporting and analytics to make business decisions

Smart/innovative management and management practices







3 BPO market trends




Shared Services and Outsourcing Market Overview

Macro Trends

Negative global economic conditions continue to

weigh heavily on organizations’ decisions on how,

where, and why to invest in global business services

(GBS).

– Organizations are expanding the use of blended

GBS models, deploying, and more tightly

integrating retained operations with domestic,

nearshore and offshore shared services and

outsourcing efforts.

– Many organizations’ GBS remain fragmented

across functions, geographies, and business units,

complicating governance and detracting from

potential business benefits.

Cloud and other innovative technologies are still

“wildcards” in the services market but are

increasingly viewed as elements in a continuum of

GBS infrastructure and delivery components.

The challenge today for organizations is to drive the

collective maturity of GBS efforts–balancing the costs

of doing so with the opportunity costs of not.

Current Market Trends

Organizations are using their growing portfolio of GBS

efforts to drive value into the organization in an

increasingly diverse range of ways. Reducing

operating costs remains a paramount driver for GBS

efforts, but there is a growing focus on using GBS

to improve the effectiveness of the services being

delivered, and create more tangible and measurable

business value.

Progressive organizations are realizing that by

capturing and leveraging synergies across multiple

functional areas and geographies via shared

services, they can improve capabilities to do things

such as enter new markets, integrate new acquisitions

faster, adopt new processes more rapidly, and access

and analyze a wide range of data that serves their

customers, business partners, and employees better.

There continues a slow death of the traditional one-

dimensional model of global outsourcing focused

purely on labor arbitrage. This is in part due to

shrinking wage disparities across markets, but also

because aggressive GBS adopters have already

driven extensive costs out of their operations.



Top Drivers for Improving GBS Capabilities

Combined Advisor and Service Provider Totals

Source: KPMG Quarterly Global GBS Pulse Survey 2Q12

0% 20% 40% 60% 80% 100%

Reduce future investment costs

Gain access to external skills/talent/resources

Gain economies of scale

Redirect resources to more strategic activities

Improve financial flexibility/create more variable cost model

Support business growth/expansion agendas

Improve process performance

Improve global delivery & operating models

Reduce operating costs

Service Providers Advisors



The Journey: Typical Stages of Development in Business Services Maturity

A KPMG Research Effort V

alu

e C

ap

ture

an

d P

erf

orm

an

ce

Su

sta

ina

bilit

y

The Journey . . . Development Stages . . . Time

Level 1 – Sub-optimized Decentralized and duplicative functions ; little

central control over business support services

Level 2 – Rationalized Single function shared services with tactical

onshore or offshore provider relationships

Level 3 – Optimized Traditional outsourcing relationships with global delivery;

non-integrated internal shared services capabilities

Level 4 – Strategic Optimized balance of internal and external delivery

capabilities, global sourcing with multifunction focus

Level 5 – Integrated Globally integrated services portfolio with aggressive

use of alternative and mixed delivery models

Top Third of

Respondents*

Key Differentiators

• Multifunctional

• End-to-End

• Global

Accelerators

• Governance

• Commercial

Orientation

• Talent Management

* Initial sample of 18

multifunctional shared

services organizations with

tenure over 5 years

Leaders

1/3 of KPMG Survey

Participants



Integrated Global Business Services Dimensions

Taking it to the Next Level

10

9

8

7

6

5

4

3

2 1

Fully Integrated

Enterprise Services

Function Process

Solution

Sourcing

Commercial

Talent

Supply Chain

Global

Business

Intelligence

Business

Linkage Across

Broad, Multifunctional

Scope End-to-End

Process

Ownership

Integrated Process

& Technology

Platform

Seamless

Delivery Across

Hybrid Portfolio

Financial

Transparency

Across Enterprise Seamless

Connectivity with

Trading Partners

Globally Networked

Delivery Centers

Data & Analytics

Combined with

Transaction

Services

Strong Brand,

Alignment and

Governance between

GBS, Customers &

Stakeholders

Integrated

Resource View of

Human Capital






3 BPO market trends




BPO Market Trends

BPO mega-deals in HRO are dead and never materialized in other BPO areas.

Larger “horizontal” BPO deals continue to lose buyer interest in favor of more

specialized and vertical specific BPO.

BPO emphasis is on smaller and more targeted deals, specialized vertical industry

functions, incremental expansion of existing efforts, and exploration of cloud and

platform based services.

Adoption and expansion of shared services for business functions continue to

grow in relative importance and interest compared to traditional outsourcing.

Economic conditions globally are not materially changing the nature and scope of

buyers’ BPO efforts, though some work is being brought back onshore into shared

services centers. Overall buyers’ appetites for global services remains strong.

Cloud continues to grow in popularity for business functions and its adoption is

increasing–though many buyers still struggle to decipher the true business case

for cloud–especially relative to longer-term cost savings opportunities.



Advisors: Top Approaches to Improve Service Delivery Capabilities

Organizations continue to focus on maximizing

and better managing existing GBS investments

over aggressively making new investments.

Insourcing and moving work onshore is a hot

topic among western firms though the volume or

work remitted is relatively small and often

involves extensive efforts to automate activities

involved.

Organizations are showing relatively more

interest in expanding shared services usage

over traditional outsourcing.

BPO market activity is strongest in industry

specific services and not in generic, horizontal

BPO.

Cloud adoption is a key element in global

sourcing efforts though to date most firms have

not optimized efforts to take full advantage of

cloud capabilities.

Social media will significantly impact global

services efforts long term though the data to

impact is nascent.


0% 20% 40% 60% 80% 100%

Investments into cloud computing services

Use/expansion of offshore captive SSCs

Investments into/improvements to

enterprise software systems

Use/expansion of BPO

Use/expansion of ITO

Use/expansion of SSCs

Internal process improvement/re-engineering

efforts

Improve current SSC/outsourcing governance

2Q12

1Q12

4Q11

3Q11

2Q11



Buyer Global Sourcing Preferences & Demand

Combined Advisor & Service Provider Totals

Source: KPMG Global Pulse Survey 2Q12

2% 2% 4% 3% 1% 2% 7% 10% 14% 12%

4% 13%

48% 53%

48% 46%

41%

38%

39% 31% 31%

36%

50% 37%

3% 4% 3% 4% 4% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic SSC Nearshore captive SSC

Offshore captive SSC

Domestic outsourcing

Nearshore outsourcing

Offshore outsourcing

Significant decrease Some decrease No change Some increase Significant increase



1.00 2.00 3.00 4.00 5.00

Managing/governing multiple engagements, service providers, geos

Assessing/accounting for service provider risk

Location assessment for captives or outsourcing

Assessing/accounting for financial, geo. & legal risk

Assessing/accounting for data, data privacy & IP risk

Service provider selection; assessing providers' global capabilities

Service Providers Advisors

Buyer Global Sourcing Maturity & Sophistication

1=Very unsophisticated/immature, 5=Very

sophisticated/mature Source: KPMG Global Pulse Survey 2Q12



Service Providers: Demand by Function and Industry


0% 20% 40% 60% 80% 100%

Customer care

Procurement/source to pay

HR

Bundled multiple business functions

Bundled business functions with IT

Vertical industry specific services*

F&A

IT

2Q12

1Q12

4Q11

3Q11

2Q11

* New category 2Q12

0% 20% 40% 60% 80% 100%

Telco

Bus Svcs/Consulting, Const./Eng.

Govt (Fed, State, Local), Edu., Non-Profit

Energy/Utilities, Oil & Gas

Ent./Media, Hospitality/Travel

Pharma/Biotech

Healthcare

Manufacturing

CPG, Food & Bev., Retail, Wholesale

BFSI

2Q12

1Q12

4Q11

3Q11

2Q11






3 BPO market trends




Implications for Clients

Continue to Innovate or Sell

What the best are doing . . . . And what they are achieving

Expanding services from back-office to front and

middle office

Business model alignment, impact, relevance to

business

1. Breaking through functional boundaries to create

end-to-end process ownership

Transformation, innovation, standardization, ability to

drive global process management

2. Industrializing the service delivery platform

including adoption of cloud solutions

Speed to implement, reduced investments, broader

transformation

3. Optimizing the global service delivery footprint Economies of scale and place, consistency, flexibility

to quickly ramp to serve new markets

4. Optimizing the mix and form of outsourcing and

captive relationships

Cost variability, best of breed delivery, shared risk,

access to talent

5. Creating an Analytics capability Depth, insight, relevance

6. Managing talent across GBS boundaries Accountability, leadership, “employer of choice”

7. Creating an outcome based commercial

orientation and GBS brand

Goal alignment with internal customers, relevance,

rejuvenation

8. Creating seamless connectivity with trading

partners

Synchronization with suppliers, external customers,

and other partners

9. Installing service portfolio management to

manage internal and external relationships

Ongoing competitiveness in supply chain; stronger

governance and performance

10

9

8

7

6

5

4

3

2

1



Implications for Service Providers

New Relationships: Incumbency no longer equates to strong chance at renewal if you don’t engage at a new level. Many different alternative models and alternative providers.

End-to-End Solutioning: Collaborative and integrated design; performance assurance for business

outcomes; value based pricing.

Complexity Management: Array of solutions to different process and geographic needs; broader set of competencies to realize the opportunity; change and transition management.

Multi-vendor Environments: Integrated performance assurance and accountability support for customer GBS governance; collaborative governance with clients and other providers.

Retained Organization Impact: Assistance with organization, process, and technology redesign and rationalization; linkages between internal and external service providers and business units to drive business insight.

IT: Enablers, and who brings them with what economic model; impact on agility; integration.

Compliance and Risk: Service providers approaching core functions – the implications for related risk mitigation and allocation; solutions for financial controls, operational and regulatory visibility and audit.

Data Security and Integrity: Evolution of technical solutions and impact on appropriateness of market standards.

Outcomes Based Agreements: So many questions – appropriate when? What are the hurdles to effectiveness? How close can we map to business outcomes?

Third Party Support of the Relationship: From benchmarking to . . . what?

© 2012 KPMG LLP, a Delaware limited liability partnership and

the U.S. member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are

registered trademarks or trademarks of KPMG International.