Everest Research Institute Study Predicts 30% Finance & Accounting Outsourcing Growth in 2007

Finance & Accounting Outsourcing Market Surpasses $2 Billion in Expenditure in 2006 with 45% Annual Growth

The global Finance and Accounting Outsourcing (FAO) market is predicted to grow in excess of 30 percent in 2007 as the global infrastructure matures to enable F&A solutions that take advantage of low-cost offshore talent and robust supplier process offerings underpinned by F&A technology, according to a new report released today by the Everest Research Institute.

The global FAO market has grown by more than 45 percent since the beginning of 2005 and reached $2 billion in expenditures in the United States last year, according to the Institute’s Finance & Accounting Outsourcing (FAO) Annual Report 2006. The study reports North America-based contracts continue to account for over half of FAO revenues, with increasingly rapid growth in Continental Europe. Among the industry verticals, manufacturing and energy and utilities are leading the FAO adoption, capturing nearly 50 percent of the market. Retail and financial services are the most under-penetrated sectors with high untapped demand.

“Our analysis reveals that the number of multi-process FAO contracts signed doubled between 2004 and 2006,”

said Phil Fersht, vice president, BPO Research Group at the Everest Research Institute.

“We expect that existing buyer success stories, suppliers’ investments in further developing F&A process capabilities and a global footprint will drive growth in the near future.”

The FAO annual report for 2006 activity examines the global FAO market and provides insights, detailed analyses and implications for stakeholders along three key dimensions:
(1) market size and buyer adoption,
(2) transaction characteristics and value proposition and
(3) supplier landscape.

The report found that offshoring is now established as the key value lever in FAO with more than 80 percent of all contracts including an offshore component. While India has emerged as the premier offshore destination with the largest number of scaled FAO centers, Eastern European locations are also becoming an integral part of supplier strategy to support European operations.

Regarding supplier activity, the report suggests that the FAO industry is witnessing an increasingly level playing field. In 2006, Genpact, HP, Infosys BPO, and Xansa significantly increased their market share. Accenture, IBM, ACS, and Genpact currently lead the market on a capability market success matrix, but there is still an intense battle for overall market share.

“The leading suppliers are looking to expand their global delivery capabilities through the acquisition of both captives and existing shared-service centers,”

said Fersht.

“Moreover, we expect further acquisitions of smaller FAO suppliers from the global leaders, and increased partnering with niche suppliers to fill out capability gaps. Several leading FAO suppliers are also looking to broaden their offerings with increased bundling across ITO and procurement services.”

The Institute also reported that despite the phenomenal growth over the past few years, the FAO market is grossly under-penetrated across all regions and verticals, and there is still substantial opportunity for growth.

“The market is now experiencing an aggressive growth phase fueled by cost reduction from offshoring and the adoption of multiple accounting processes integrated within a single outsourcing provider,”

said Saurabh Gupta, senior analyst, and co-author of the report.

“Innovation in F&A is taking center stage as FAO is creating incremental value for new and existing buyers by creating both a business and strategic impact, supported by a streamlined, low-cost sourcing infrastructure.”

For additional information and samples from the report, please visit www.outsourcing-center.com and select the link, FAO Annual Report 2006.

Convergys has acquired AOL contact center in Albuquerque, New Mexico, from Time Warner. The call center employs about 800 employees. Convergys has already started its operations from the facility in New Mexico. The company aims to recruit more employees for the center from Albuquerque city and is also planning to expand its presence in the US by opening new call centers in the country. AOL has been planning to close the center as a part of restructuring. The company's business has been affected by losing most of its clients; and also helpdesk calls have been reduced to about half the number.

Yahoo! has announced its plans to open a research lab at Bangalore, India. The company plans to have R&D centers globally to deliver next generation of businesses. It also has centers in other locations, including four facilities in the US, one in Spain and in Chile. The company has already initiated the recruitment process to acquire scientists from diversified fields, including computers, sociology, economics, and other related fields, for the new center. In addition, it also operates an R&D center in Bangalore employing about 700 professionals, including developers and researchers.

BPO Salaries USA

BPO Manager in New York, NY $192,000
BPO Manager in Palo Alto, CA $184,000
BPO Manager in Boston, MA $165,000
BPO Manager in Los Angeles, CA $135,000
BPO Manager in Seattle, WA $134,000
BPO Manager in Boulder, CO $124,000

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Deloitte to Increase Indian Headcount


Deloitte Touch Thomatsu, a New York-based accounting services provider, has announced its plans to increase its Indian headcount from the present 7,500 to 12,000 professionals by 2010. According to Manoj Singh, CEO–APAC, Deloitte, the company is planning to invest about USD 50 million by 2010.

According to William G Parrett, CEO, Deloitte, the company has offices in about 13 locations across India and the company is investing in personnel, technology, and infrastructure sectors in the country and Asia Pacific region. The company provides various services, including audit, tax, consulting, and financial advisory services.

After the BPO and telecom consolidation, various small firms in the Knowledge Process Outsourcing (KPO) industry are expected to merge with each other by 2008. At present, the KPO industry is worth about USD 650 million, as compared to USD 400 million in 2005.

According to a Frost & Sullivan report, KPO is expected to be a USD 32.5 billion industry by 2014 and will employ about 4,00,000 professionals with a CAGR of about 63 percent. The industry employs about 10,000 professionals currently. The KPO industry provides services to various verticals such as financial services, retail, manufacturing, telecom, and healthcare services. In addition, the KPO industry is likely to have a shortage of skilled professionals in the next few years.

Westpac Drops Outsourcing Plans to India

The Australia-based Westpac Banking Corporation has dropped its decision to offshore about 300 administrative jobs to India from its Concord West-based transactions and unsecured lending operations center. The center processes dishonored checks, electronic payrolls, Internet banking, and deceased estates. According to a statement by Westpac, the offshoring proposal did not meet their financial and stakeholder criteria.

The bank also reported that offshoring would not save as much as estimated earlier. The outsourcing plan would have affected about one-third of the center’s 1,000 member staff. The Finance Sector Union of Australia had earlier stated that about 50,000 jobs of the industry’s 280,000 jobs could be offshored.

US HRO to reach USD 19 Billion

According to a report titled, 'Worldwide and US HR BPO 2006 Vendor Analysis: The Answer is in the Margin' by IDC, the HR BPO segment of US HR services will grow at a CAGR 16 percent to reach USD 18.9 billion by 2010.

It also reports that with the growth in the HR BPO segment, the obstacles for the new entrants in the market will also increase. However, the trend might change in the future with the entry of new Indian HR firms. The major reason for the growth of HR BPO services is that most companies, including the mid-sized companies, are aiming at global recognition. As a result, most of the firms are establishing their operations outside their headquarter country. Among the key findings, about 37 percent of the US HR services spend in 2004 was spent on HR BPO services and is expected to reach 46 percent by 2010.


via: GlobalOutsourcingNow

Source: Nelson-Hall study

BPO Sector in 3Q ’06 on the Rise – NelsonHall

NelsonHall, a US-based BPO analyst firm, has reported growth in the BPO sector contracts. The level of BPO activities is more in Europe as compared to North America. Europe showed an increase of about 36 percent, while North America reported a decrease of 26 percent, in the first nine months of 2006.

The major reasons for this increase in the BPO market include the outsourcing of HR, F&A, and procurement services. The value of about 36 percent of BPO contracts depended on the types of the services provided by the company in the quarter ending September 2006, as compared to 24 percent in the corresponding year-ago period. The BPO contract value for the back-office services has increased by 36 percent, as compared to the decrease in the industry-specific services contract value by 28 percent by the end of September 2006.

The BPO contract value of outsourcing HR, F&A, and procurement services accounted for 40 percent in North America, as compared to 31 percent in Europe by the end of September 2006. The manufacturing and retail BPO contracts accounted for 27 percent by the end of September 2006, as compared to 13 percent in the corresponding year-ago period.

Source: GlobalOutsourcingNow

India And U.S.A.: Top Destination for R&D

source:globalservicesmedia

Top 100 Outsourcing Deal Value Down to $67.9Bn - IDC

More Globally-Scaled Deals, More Network and Desktop Outsourcing, and Reduced Combined Deal Value.

The tenth annual IDC study of the top 100 worldwide outsourcing deals reveals fundamental changes in the outsourcing marketplace, including an increase in deals with more global reach, an increase in the number of serious competitors, a dramatic rise in network and desktop outsourcing, and a reduction in combined deal value. These developments demonstrate increased competition and customer demand for greater provider capabilities, and create pressure for outsourcers to alter their business models in order to successfully compete and expand in the coming years.

The total contract value (TCV) of the 100 worldwide outsourcing deals decreased by 3.1% from $70.1 billion in 2004 to $67.9 billion in 2005. The study finds a reduction in the number of both megadeals and deals ranging from $500 million to less than $1 billion TCV. However, the number of deals with less than $250 million TCV has seen a dramatic increase from eight in 2004 to 23 in 2005. The study also finds that the number and value of business outsourcing deals declined in 2005, while the value and number of IT outsourcing deals increased. Within IT outsourcing, the share of network and desktop outsourcing deals climbed substantially from 14.6% of total IT outsourcing deal value in 2004 to 32.4% in 2005.

The study found that while six players captured 54% of the top 100 contract value in 2004, it took just five players to capture nearly the same amount (53.5%) in 2005, with IBM Global Services leading the way, followed by EDS, BT Group, CSC, and T-Systems.

Source: IDC Press Relase

ICICI OneSource Launches New BPO Facility in Argentina

ICICI OneSource, an Indian outsourcing services provider, has announced the launch of a new BPO facility in Buenos Aires, Argentina. This is the fourth overseas delivery center for the company. Apart from the overseas centers, the company operates 10 delivery centers in India.

The company will initially use the center to provide back-office transaction processing services to one of its US-based telecom clients. It is expected to leverage the new center to add Spanish language capabilities to its services portfolio. The new center has a capacity to accommodate 400 employees, and is a part of the company’s strategy to capture a pie of the telecom outsourced services market, which it expects to grow at a CAGR of 10.7 percent in the next five years. At present, the telecom vertical contributes about 30 percent to the company’s revenues.


Source: GlobalOutsourcingNow

Watson Wyatt has won a GBP 1.2 billion mandate with the Whitbread Group. Watson will provide investment advisory services for a pension plan of the group.

According to a Capgemini survey at the IDC Midwest Conference, outsourcing results in a substantial return on investment. Around 85 percent of the respondents stated that they managed to save at least the expenses which they had incurred on outsourcing, with 26.4 percent reporting their savings quantum to be about twice the size of their investment on outsourcing. In terms of investments, around 60 percent of the respondents reported having spent up to USD 50 million on outsourcing, while 18 percent of the respondents reported having spent up to USD 100 million.

About 9 percent of the respondents had invested between USD 100 million and USD 200 million, while an equal percentage of respondents had invested more than USD 500 million. Cost reductions, increased productivity, along with opportunity to redeploy the resources for executing core functions were identified as the prime underlying drivers of outsourcing decisions.

About 94.8 percent of respondents stated that outsourcing helps in augmenting the shareholders' value. About 70 percent of respondents stated that the US is their preferred choice for outsourcing.

International Technology Alliance (ITA), has won a ten-year, USD 135.8 million contract to provide research services for the US Army Research Laboratory and the UK Ministry of Defence.
ITA will provide research and development services to investigate advanced technology for secure wireless and sensor networks. The alliance will work towards enhancing the effectiveness of military establishments by contributing to their capabilities pertaining to the collection, interpretation, and distribution of battlefield information among themselves.

According to a study by Boston Consulting Group (BCG), Multinational Pharmaceutical Companies (MPCs) are increasingly exploring India and China as they are seeking various offshoring options for their R&D function.
The upcoming trend is attributed to the improving regulatory and competitive environment in the two countries. Amongst the findings, almost all the top 20 MPCs have outsourced their chemistry work to China.
The report states that the MPCs wishing to establish successful offshore R&D operations in India and China should adopt an integrated strategy, as against the ad-hoc strategies which are currently being followed by some of the companies operating in the domain.
The offshoring strategy should be flexible enough to incorporate the changes in the R&D capabilities of the two countries.

Genpact, a business services and technology solutions company will acquire Irvine-based MoneyLine Lending Services, a specialized provider of end-to-end mortgage origination and fulfillment services. Established in 1996, MoneyLine is a provider of outsourced mortgage services for more than 50 financial-institution clients. Terms of the deal, expected to close in August, were not disclosed.

Read the press release here

Lessons Learned from Diamond Cluster Global Outsourcing Study:

In the qualitative portion of the research, DC asked Buyers and Providers to share their insights and experience with their peers. The following is a representative sample of their first-hand observations from the front lines of outsourcing.


Buyers
• Outsourcing is always harder than you originally thought.
• Cost savings alone is not a good reason to outsource.
• Leverage resources with experience and skills in outsourcing to help you develop your own sourcing strategies and execution roadmaps.
• Clearly define your goals, measurement metrics and exit strategies up front.
• Well-defined governance structures and proactive management and communication are the keys to success.
• Structure your vendor relationships as win/win propositions.
• Outsourcing your problems won’t solve them. You should fix potential problems first before you hand over the process to someone else.
• Establishing very specific and measurable SLAs is crucial for evaluating performance.
• Give providers a chance to be successful. Transitions take time.
• Due diligence on providers is essential if you want to avoid surprises.
• Internal resistance to outsourcing can be managed but you have to foster proactive and candid communications to succeed.


Providers
• Successful outsourcing requires strong buyer commitment.
• Be prepared to talk to buyers in terms of business value.
• Buyers and providers need to be long-term partners.
• Buyers should recognize that providers need time to be effective. Bringing on an outsourcer can’t happen over night.
• Buyer expectations and objectives are always evolving. Make sure you understand them at the outset and are nimble enough to satisfy them when they change.
• Resistance to outsourcing and uncertainty about its value are still issues in many organizations.
• Contracts and negotiations need to be customized for each situation.
• It’s still difficult for outsourcing firms to differentiate themselves and cost is still very important to buyers.
• You’ve got to be able to work closely and communicate clearly with buyer management to be successful.
• Cultural differences need to be acknowledged and managed.
• Establishing a mutual understanding about governance structures, SLAs and performance expectations is critical.


Profile of the Participants:

DiamondCluster’s Global Outsourcing Study includes the insights of 210 buyers and 242 providers of outsourcing services.

All of the participants are either directly involved or highly aware of their company’s outsourcing-related decisions.

The number of total employees in the participating companies ranged from 100 to more than 50,000. The number of IT employees on staff ranged from less than 100 to more than 50,000. IT budgets of participating companies ranged from less than $5 million to more than $500 million. Buyers participating in the survey conduct business in the financial services, professional services, insurance, consumer products, retail, telecommunications and public sectors.

The providers participating in the study range in size from less than 100 to more than 10,000 employees. Many of the outsourcing providers had operations in multiple locations, including Brazil, Canada, China, Egypt, France, Germany, Hungary, India, Malaysia, the Netherlands,Romania, Russia, Spain, Ukraine, the United Kingdom, the United States, and Vietnam.

Source: DiamondCluster Research

Now, It is CEOs' Attrition in India


Several top-level executives in the frontline offshoring companies have quit in the last one year drawing attention to the attrition in this segment. The good news, however, is that the movements are within the industry, in almost all cases, proving that it is just some readjustment and not a cause for concern...

Raman Roy who had started Spectramind in 1999, that soon became the No 1 BPO company in India and was sold off by Roy to Wipro.
Now Mr.Roy's planning his new venture QuatrroBPO.

Rizwan Koita and Jagdish Moorjani, who started Transworks, which was later acquired by Indian business group, AV Birla. The two have already started a company focusing on the healthcare space.
(Called ‘1shore’, the new company will offer end-to-end healthcare services and also provide financial services. They are currently in talks with a couple of US firms to provide end-to-end healthcare BPO. Read the story here)

Prashant Sahni quit as CEO Tecnovate-eBooker to start something fresh.

The Other CEOs/country heads who have quit in the last few months include...

Rakesh Chopra, as head of Amex offshore operations to EXL services
Romi Malhotra, as head of StanChart's offshore operations to Dell offshore Ops
RK Rangan, as head of Prudential offshore operations to Lehman's offshore

Convergys has lost two country heads in the past 12 months with Jaswinder Ghumman and Rakesh Chopra leaving, for some BPO heads movement has become par for the course.
Mr Chopra has travelled from Genpact to American Express, EXL, Convergys and back to Genpact.(Meanwhile Dr. Bawa Singh is the interim Vice President and Country Manager of Convergys India Press release)

Sunil Mehta, vice-president, Nasscom, told EconomicTimes India:

The industry is growing at 38-40% annually. Considering the growth, senior level
movement is not surprising.

Need more?

Aparup Sengupta GTL-Mumbai
K R Viswanath - CEO Epicenter (Mumbai based Collections co.)
R Mohan - CEO of Hinduja TMTR Venkatesh Iyer - President, NIIT SmartServe

The following fellows have remained in this industry...

Sujit Baksi - President vCustomer India - joined Lehmen Brothers - quit- joined Tech Mahindra
Ravi Chandaran quit HP to head ANZ Grindlay’s back office
Kiran Shah - moved from Bank of America to join Goldman Sachs BPO
Ravi Bhatia quit World Bank BPO to join Genpact
Rakesh Kumar - President Global VantEdge ( joined IntelliRisk )
Anshuman Kankan - Head India Ops ePhinay (F&A BPO) (joined COLT Telecom India Offshore Center)
Shailaja Puranik - COO/Head India ops. Sitel ( Now COO Vertex India )

There are instances of top honchos in BPOs leaving to explore options in private equity. Sanjeev Agarwal leaving IBM Daksh for Helion Venture Partners and Akshay Bhargav leaving Progeon to join 3i are cases in point.

The good news, however, is that the movements are within the industry, in almost all cases, proving that it is just some readjustment and not a cause for concern.

I like the comment of Shyamanuja about this trend ...

... we blame the 20-somethings for changing jobs because they prefer the canteen
of XYZ to that of ABC... They are at least are clear about why they are doing
it!

Source: Global Services, Convergys Corp, EconomicTimes, The Time Magazine, GoldmanSachs, McKinsey & Co Alumi, Managing Offshore