Outsourcing, TPI, John

Interview on BPO's value and staying power

01 Sep 2003 | (Interview)

TPI, a leading global sourcing consultancy, focuses on what happens before, during and after BPO transactions. So it's no surprise that TPI's John Buscher believes "this isn't a business for tourists". We spoke with him to find out more.

sharedxpertise.org:
As an independent outsourcing advisor, TPI offers a wide range of outsourcing consulting capabilities in an increasingly global market. What do you think sets TPI's capabilities apart from those offered by the competition?

John Buscher:
The first major point is the very senior and experienced people we hire who average 23 years of industry experience. Our people are outsourcing practitioners with diverse skills sets. We hire people from the vendor's side of the table, where they've led big marketing and sales efforts or the delivery aspects of an outsourcing transaction. We hire people who've actually gone through an outsourcing transaction and lived with it afterwards. We also hire former clients and people who have been responsible for managing outsourcing transactions. I would say that as a consultancy we have an odd leverage model. For most sourcing transactions we deploy very experienced personnel. They manage a large client staff typically at a ratio of anywhere from 1:10 to 1:20 TPI'ers for every client team member. Most of our competitors tend to match an equal number of client personnel.

We're also a uniquely independent firm. Most other firms combine consulting with service delivery and have a vested interest in seeing a decision go a particular way - specifically, they are incented to do a deal. We're completely independent because we don't actually provide IT outsourcing or BPO services - we simply consult on them. We also take zero fees from suppliers so there are absolutely no conflicts of interest. So, unlike other consultancies that take consultants and train them in outsourcing, we take outsourcing practitioners and train them to be advisors.

I believe that we're actually shaping the industry and creating sourcing standards. Over 12 years, we've performed more than 350 outsourcing transactions, valued at US $ 200 billion in revenue to suppliers. We've really been on the crest of the wave of the whole outsourcing boom, so we're aware of the latest market terms and conditions, the latest thinking, suppliers' capabilities as well as current practice in marketplace delivery models.

We're unique in that we have two external programmes. The first programme is our partner (i.e. buyer) programme, which provides a confidential forum for outsourced executives interested in problem-solving issues. These executives are on the client side of the business, but don't have to be a TPI client to participate - anyone who is in a business that has outsourced is welcome. While there have been other attempts at these sorts of forums, ours is proving to be successful globally. We have about 30 members in Europe with a prestigious board of advisors who share best practices and sourcing techniques. The US forum is similar in size.

The second external programme is our supplier conference, which we've been doing for four years now. At our last conference we had 85 supplier organisations present. The supplier conference is really the inverse of the partner programme - it's where TPI and suppliers aim to better the sourcing industry by understanding suppliers' issues and letting suppliers know what our partners would do differently in the next transaction.

Finally, we're also different because we actually invest in the management of transactions. We used to spend all our time doing the deal and as soon as it was signed we were off doing the next one. Now our clients are telling us "hey, we need you to help us manage this contract!" One of our hiring strategies over the past two years has been to bring on board senior individuals that have actually managed large-scale sourcing transactions. Now we have built the capability to assist the client to more effectively manage the outsourcing arrangements once the deal is signed. We ensure that the transition and transformation goes smoothly by converting the in-house organisation from a 'manager of people resources' to a 'manager of a service contract'. This is tough for some organisations as it's a major transition both in mindset and resources.

A mistake that many clients make in attempting to do it themselves is entering into a big qualification process to assess whether or not the supplier is capable of running their IT department, for example. In many cases, at the end of the qualification process, they're unable to make a decision. Our process not only qualifies the vendor, but also culminates in a crisp decision-making process ultimately ending in a well-constructed contract. Not only do we discover the capabilities of the supplier, we also document the transaction as we go along so that it can be put into a detailed contract and hence saves the lawyers a lot of rework and the client therefore saves money. We have detailed statements of work, detailed service levels and detailed pricing. We know what the supplier is going to do, we know at what level they're going to do it, and we know how much it's going to cost.

In one case we helped an investment bank that spent over a year gathering all kinds of data but couldn't get any closer to finalising the contract. We came in mid-process, took all the data that they had already collected, helped them put it in the form of a proposal from the suppliers that they could understand, identified gaps, helped them determine what had been agreed and what had not been agreed and then quickly helped them move to contract. While they were spinning their wheels for a year, we helped them synthesise all the data and get it analysed and contracted in about three and a half months' time.

In another case we helped a transportation company that went through an outsourcing process but had taken the decision to down-select too early. They were left in a position of no leverage (ie. they didn't have another supplier to create a competitive situation). We came in and identified some key terms and conditions for negotiation. Because we're fairly well-known in the marketplace, we were able to help them put some leverage back into the transaction and get some movement out of the supplier. We brought pressure on the supplier to do a standard market deal at a time when the deal was just about to be shut down for lack of movement. With our help, both parties arrived at a win-win transaction.

sharedxpertise.org:
TPI has clearly introduced a rigorous and reliable process that guides outsourcing transactions from end to end. Tell us a bit more about how 'M-STEP' works on the supplier end.

John Buscher:
'M-STEP' is also an educational tool for suppliers, making it possible for everyone to understand what the steps are, what the goals and objectives are, and what we're trying to achieve against the timeline.

One of the most powerful aspects of the methodology is all the IP we've collected over 11 years - IP that takes the form of tools, in-house financial base case models (i.e. 10 year financial projections), data collection documents, RFPs, letters, responsibility matrices, supplier evaluation tools, statements of work (IT, HR, Finance & Accounting, Procurement, etc), communication schedules and meeting agendas. We bring all this IP with us to the table on day one.

The methodology helps create a transaction that can survive in the long term - from five to ten years. All the suppliers know our methodology, subscribe to it and endorse it. In fact, when suppliers know that TPI is involved in a transaction, they understand that they don't have to spend their marketing dollars chasing an opportunity that may NOT turn into a deal. They know that TPI is there, levelling the playing field, they know what the process is, they know the timeframe, and they know that the process isn't going to come off the rails. Most of all, they know that TPI has tested the client's management will, organisational readiness and capability to source effectively so there is a very high probability there will be a transaction if the goals and objectives are met. It's not wasted sales and marketing dollars, somebody's going to win the deal.

sharedxpertise.org:
A particularly refreshing aspect of TPI's take on outsourcing is the emphasis placed on the outsourcing possibilities open to small and medium sized companies. Giving these companies access to the same technologies, skills and resources as the Fortune 500 means that TPI consultants are also enablers of small business growth. What would you say to the operations professionals in small and medium sized companies who are unsure that outsourcing is for them?

John Buscher:
First I would say that outsourcing is an approach or tool to achieving business objectives. Regardless of size, there are common outsourcing benefits. It's not just taking what you have and giving it to someone else. Outsourcing can help convert fixed costs to variable costs by adding a small company's volume to the volume of a group of other commercial clients - thereby creating synergy and cost-efficiency against unit price.

For example, a small chemicals company that we helped viewed outsourcing as a strategic tool to enable them to grow their business. If they kept their capability in-house, they would have had all kinds of requirements for capital, training, hiring and technology. They were able to rapidly meet their business growth objectives in an outsourced environment and have the IT capability keep up with the growth.

sharedxpertise.org:
Looking at the bigger picture, TPI's global consulting and advisory group president, Peter Iannone, has voiced his optimism in the media about the outlook for outsourcing despite the economic slowdown. TPI's continuing growth, combined with the encouragement that buyers of IBM and EDS stocks are receiving from financial analysts, certainly indicates that the market is buoyant. Why do you think the outlook for outsourcing is so promising despite these troubled economic times?

John Buscher:
Here's a takeoff on a famous Mae West quote: In good economic times outsourcing is good and in bad economic times outsourcing is very good. In good economic times, companies are focused on building and selling products and counting revenues. In bad economic times, it's about finding ways to do things more efficiently, converting fixed costs to leveraged costs and reducing capital expenditure. Outsourcing is a tool to do just that.

Outsourcing also acts as a tool for cost containment, because it provides visibility. For example, it can show what's actually being spent on IT. Sometimes normally hidden costs are more visible in an outsourcing transaction. By outsourcing in troubled times, companies can focus on their core business. It's just a better delivery model that supports the [virtual] networked organisation

If you look around the globe today, it seems that most corporations have outsourced about 20% of their operations in some form. I think it's really important that companies begin to recognise that the managers they need to manage service contracts are different from those they need to manage groups of people. They've got to invest in negotiation skills and vendor-management skills. This is a really important aspect of making transactions succeed. In fact, when we come in and perform an audit on a troubled transaction, the press may report that it's the vendor's entire fault, but I can assure you that what we find is that it's about 40% the client's fault. Again, you must have a well-documented transaction and strong governance to keep the spirit of the contract moving forward.

Lastly, I would suggest that companies should not only use consultants to help them evaluate and contract through the process, but also to help them manage the transaction. At TPI, we put in one of our consultants to manage the long-term relationship with the client. That's a big focus for us at the moment and we're placing a lot of emphasis on helping clients manage these transactions effectively.

About John Buscher

John Buscher has over 20 years of experience in the information services industry. His industry experience includes oil and gas, retail and investment banking, insurance, manufacturing, energy, health care, transportation, retail and government. Some sourcing engagements upon which he has advised include: Schlumberger, AstraZeneca, Kvaerner, Cable & Wireless, Alcatel, GMAC, General Motors, DuPont, Textron, McDermott, Western Digital, Apple Computer, Ashland Oil, Ralcorp and Halliburton.

John's experience includes thirteen years at Electronic Data Systems and Perot Systems. Serving as a business development manager, John's responsibilities included needs assessments, financial analysis, financial costing, application/system software evaluation, hardware evaluation, data centre operations and creative problem solving. He has participated in and managed over forty outsourcing marketing efforts across diverse industries. While with the supplier organisations, major outsourcing marketing efforts John has participated in include First City Bank, NCNB/Nations Bank, Europe Car, ICH Insurance, East Midlands Electricity, Occidental Petroleum, Harcourt General Insurance, Racal-Milgo, Resolution Trust Corporation (RTC), Browning Ferris Industries and ACER Computers.

About TPI

TPI, the premier global sourcing advisory firm, offers services for sourcing strategy assessments, IT outsourcing, BPO, contract and relationship management and contract re-negotiation. TPI also supports clients' e-commerce related sourcing needs through e-sourcing offerings. TPI aligns its approach to the size of the transaction for clients in the Americas, Europe and Asia. TPI assists clients with total transactions ranging from US $ 50 million to over US $ 4 billion and is a growing firm of over 130 professional advisors who have performed transactions in over 30 countries. The fact that TPI is an independent contractor and works solely for the buyer differentiates TPI in the marketplace.

See www.tpi-sourcing.com for additional information.

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