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As the new year is beginning, I would like to take this opportunity to put the 2012 3S Awards upfront on your agenda moving forward. Day in, day out, we go about our professional business with hopes that what we do actually counts in some way.  We are all concerned with our impact on internal productivity, bottom line profits and company reputation. However, we cannot be oblivious to the fact that as decision makers we hold the key to ensuring that our impact on the communities we serve as well as the community we work with are positive and meaningful.  The GSC envisions a world where businesses can successfully achieve their goals without sacrificing sustainability. In fact, commercial activities that produce socially desirable outcomes, as documented by numerous studies, greatly enhance the economic results. The GSC is the only organization that is focused specifically on social aspects of sustainability in the outsourcing community. The GSC passionately supports sourcing that empowers the workplace and community.

It is our vision that the 2012 GSC 3S Awards will be a tangible, effective and efficient vehicle of promoting the value of sustainable and empowering sourcing.  The 3S Awards recognize and showcase the exceptional achievements in the global sourcing marketplace by individuals and organizations for their commitment towards Sustainability and Socially responsible Sourcing (3S) practices. A commitment to sustainable sourcing is a new and innovative approach to outsourcing which requires a change in mindset and attitude. It takes time and effort to encourage the outsourcing community to embrace 3S as a business norm. Nevertheless, with the support of private, public and industry partners, the global sourcing sector will have access to best practices that enable the successful adoption of 3S.

Our vision can only be successful with your support. I strongly encourage you to make a commitment today to embrace the concept of 3S within your companies. As an entrepreneurial awards program, financial support is critical to our success. Please take a moment to make a pledge to support the 2012 3S Awards on May 29^th, 2012. All pledges can be made online via the GSC website and are tax deductible where applicable.

I would like to end by wishing you and your family the very best wishes for the New Year. Let’s make 2012 a year to embrace 3S to the fullest!

Angeline Judex, Executive Director of GSC 3S Awards, angeline.gsc3sawards@gscouncil.org

David Kinnear, Chair of the GSC

A reflection on the history, present-day growth and credentials of The Global Sourcing Council as it enters its 5th Anniversary year, 2012.

In life, we control very little. We can influence far more. I think this is one of the most dynamic phases in global history on almost every level. We are seeing economic and socio-economic shifts on an unprecedented scale. I like being part of the debate, helping to influence better outcomes that embrace people and balance – not just winner takes all. None of us has all the answers and these are big issues. Being involved is simply better than not.

From its outset, The Global Sourcing Council has provided a unique forum for crowd-sourced dialog on the critical issues of global sourcing, sustainability and corporate social responsibility. Whereas other organizations may have focused on single issues such as outsourcing or shared services as a central theme, the GSC (as it is commonly known) has always used the terms “global” and “sourcing” – to identify with the broader, deeper issues associated with global sourcing versus just one industry practice. When we first envisaged the GSC and mentioned global sourcing versus simply “outsourcing” many thought we were part foolish and part ahead of the time. It has been extraordinary and indeed encouraging to see how rapidly the view of global sourcing has changed – especially as catalysts like Cloud technology have changed the game so dramatically.

In such a few short years, it has become very evident how the world is in fact a very small, highly-connected ecosystem. We see the connectivity in the issues generated by this also.

The GSC was first conceived in 2006. It was brought to fruition in 2007 through the extraordinary vision, un-tiring leadership and generous support of both past and present Board members who routinely went above-and-beyond to make it all happen. We are entering our 5th birthday year in 2012.

We enjoy a committed, energetic Board and a rapidly growing network community, readership. We’re increasingly leveraging social media tools to access and engage with our community and this is also helping deliver dramatic growth. The surge in interest in our monthly journal is fabulous. We address both goods and services; our audience is a healthy combination of disciplines – covering industry, academia, government and non-profit. There is no charge to join the community, which from inception has been global in nature. We encourage participation at every level of the Supply Chain – not differentiating between individuals in a wide variety of economic environments for whom relative cost of a membership structure would vary widely.

Fundamentally, global sourcing – and a big part of the GSC itself – is all about people. What they’re doing, how it all works together – and how we treat one another. Finding a balance. The world is a fascinating place and the opportunity to communicate, collaborate and celebrate people’s progressive, thoughtful business behaviors has never been more appealing or timely.

How big is the GSC?

Assessed globally, our readership is located in over 80 countries and over 850 cities around the world. We anticipate hitting 100 countries and 1,000 cities in the not distant future. Our network is growing also. We have embarked on the creation of Network Partners – groups and organizations such as GSSOCX and the Retail Industry Professionals Group who share our win-win goals, balanced philosophy and bring valuable information, data and other benefits to our broader community. With other relationships under discussion and shortly to be announced, we will start 2012 with a network community approaching 250,000 globally.

What does the GSC do?

As the name suggests, the remit of the GSC is broader than just Outsourcing/Offshoring though we cover these sectors and many of our community work in these fields. We address the sourcing of both goods and services and there is an increasing correlation between these vast sectors if you look at Supply Chain and the issues of eWaste recycling for example. We encourage positive behaviors, applaud innovation and support those who show it can always be done better.

Perhaps we have a more proactive stance on addressing consequences, implications and future state. Beyond all the PowerPoints, millions of people are impacted positively and negatively by global sourcing in all its forms – and it’s becoming a significant factor in governmental considerations also. In the second decade of outsourcing, change will occur much faster via technology and this will alter the competitive landscape. That translates to job figures, economic projections – up and down. As global sourcing settles into the broader economic dialog, it is getting a closer look.

I’ve heard about the GSC 3S Awards. What is this?

The GSC also drives & supports key leadership initiatives, such as The 3S Awards. Authentic and timely, this event is in its third year of recognizing leadership in the sourcing community that transcends the size or value of the participant organization. While some may applaud scale, we seek out true leadership at every level. We look beyond scale and brand for examples of the people leadership we seek to promote – the leadership that defines both the socio-commercial balance and people stewardship that will be so necessary in the global marketplace going forward.

We’re not an advocacy group and we don’t throw rocks at industry or government. We find ways to encourage progress on a host of issues – built on a premise of making it better, building for the long-term. We believe there is a way to do business better and it is built on a respect for the individual and for the socio-economic implications of our actions.

A lot of the outsourcing industry has been built around sales-based Powerpoints. We promote a more balanced view that addresses more of the issues – both short and longer term. Beyond the deals, beyond the quick wins, there are people, cultural, fiscal and compliance issues. We see a fusion of cultures, the adaptation of laws and regulations. We see a future-state workforce that is multi-cultural, multi-faceted, multi-part and very global. This has enormous socio-economic implications for governments and raises critical strategy issues for clients, providers and advisers. These issues become more accentuated in an economic downturn such as we have experienced.

In essence, we encourage dialog, communication and community – promoting balanced sourcing and a future-state of greater win-win than may be seen at present. If one focuses on outsourcing, it’s a relatively young industry that will surely have to adapt further. Aggressive sourcing practices have consequences. And technology changes the game for everyone.

We are not advocates for a given industry or sector view. From the outset, we have provided a neutral, professional and open forum for information exchange – identifying issues and facilitating dialog. We see information, debate and dialog as key to the development of longer-term improvements and growth. We drive a balance in representation of the issues, reflective of the balance of stakeholders we enjoy. From the outset, we have shown how there is a growing link between the short and longer term issues of global sourcing, sustainability and corporate social responsibility.

Why should I get involved in the GSC?

In the world around us, we are seeing economic and socio-economic shifts on an unprecedented scale. Being involved is simply better than not.
We have removed every barrier to entry to encourage all professionals and participants in all countries – to engage, to be involved, to help shape and move the debate forward. What’s not exciting about that?

When we look at the stats on GSC’s daily growth – especially the growth in country and urban level participation – it is very energizing and inspiring. It is fabulous to know that individuals in almost 85 countries are online and engaged, that they are part of this crowd-sourcing of more information and better answers. Wow!

Why am I involved?

I’m a parent. It’s as fundamental as that.

What we are discussing is a picture of the future – not just for our generation but also for that of my daughter and future generations. It’s as practical as that for me. My actions and those of industry and government leaders will dictate how this turns out – who wins, loses or what balance is struck. The world is now a very small, connected place. The oceans and national borders are a flimsy barrier between vast economically-connected collections of people. We have to figure out how to live and work with one another. Some will do this better than others. I personally think this is the best recipe for unlocking all sorts of new value, innovation and next-generation economic opportunity.

I first had the idea for the GSC in 2006. As I looked at the outsourcing industry, it struck me that it’s largely a big staffing puzzle. Beyond the spin, it’s a people industry. And as it gets to a certain scale and level of maturity, it begins to have macro socio-economic implications for governments. In short, I didn’t think that discussion was happening in the marketplace nor did i feel that a forum existed for the debate. There was too much focus on short term, not enough on collaborative debate and perspective on the long term.

When we first spoke of global sourcing, we got a lot of polite smiles. With the advent of Cloud and the acceleration in technology adoption, the conversation is changing as the implications of global sourcing become more clear. While outsourcing is not going away, there is a growing awareness that we’re moving into a different phase, structure in how services are procured and services are delivered. The role of labor is fundamentally changing.

The world is indeed smaller and more connected these days – and that is a source of great fear for many who nurture concerns about competition and how it all works out. What we foster is a dialog on how we get it right; how we find the win-win solutions that move us all forward. It’s no easy proposition but ask Edison if it’s worth being persistent…

The first half of 2011 has been marked by declines in the number of FDI projects, capital invested and jobs created. However, there are growth stories in some regions, sectors and business areas.

In April 2011, fDi Intelligence released its annual Global Outlook Report, which focused on FDI trends in 2010. In 2010 a 0.38% decline in greenfield FDI projects was reported along with declines of 16% in capital investment and 4% in job creation. A decline was first reported by fDi Markets in 2009 and it seems this trend is continuing through to 2011, although to a lesser extent. Between January and June 2011, fDi Markets recorded a 6% decline in the number of projects, while capital investment was down 10% and job creation 18%.

A 2011 half-year review provides a glimpse of the continuing trends, and a view as to where the market looks to be heading. Using data from fDi Markets, which provides real-time tracking of global greenfield investment, this report compares FDI from the first six months of 2011 to the same period of 2010.

Source Analysis

Recurring trend

Western Europe has remained the top source region for FDI projects in the first half of 2011, accounting for 47% of global FDI, matching its market share for the same period in 2010. Western Europe, North America, Asia-Pacific and Latin America and the Caribbean all posted increases in outbound FDI.

In the first half of 2010, the ‘Rest of Europe’ region was the only one to experience an increase in outbound FDI projects. However, in the first half of 2011 the region invested in 24% fewer projects. Despite this, the Rest of Europe has increased the capital invested in overseas projects by 25% to $20bn and created more than 35,000 jobs, an increase of 23%.

Despite investing in fewer FDI projects in the first half of 2011, Africa has increased its investment capital by 180% and created an additional 1681 jobs, an increase of 22%. FDI from companies headquartered in Latin America in the first six months of 2011 fell in terms of project numbers but capital invested is up 134% to $14bn on the same period in 2010, and jobs have increased by 169%.

The Middle East continued its sharp decline as a source region. It experienced a decrease on all fronts with project numbers, capital invested and jobs created declining 15%, 3% and 12%, respectively.

Still top source

The US has remained the leading source country for greenfield FDI, a position held since fDi Markets began recording data in 2003. It accounted for 26% of global overseas projects in the first half of 2011. US-based companies also contributed 15% global capital invested in FDI and 19% of the estimated jobs created.

The top five source countries in terms of project numbers remained the same in the first half of 2011 as they were for the same period in 2010, with the UK in second place behind the US, followed by Germany, Japan and France. Of these countries, Germany recorded the highest increase in capital investments with a rise of 45%, while Japan created 160,808 jobs, an increase of 53% on the first half of 2010. All of the top five countries experienced an increase in terms of project numbers with the US also taking the top spot for capital invested and jobs created.

London looks abroad

Again London topped the source city table for the first half of 2011, with companies headquartered in the city accounting for 356 projects (5% of the global total), investing an estimated $20.5bn and creating more than 40,000 jobs. Ranked eighth for the same period in 2010, Mumbai increased its project numbers by 27%, which sees it rise to fifth in the source city rankings. The Tata Group, which is based in the city, has already made multiple FDI investments in the first half of the year helping to establish Mumbai as a vital source market.

Hong Kong increased its capital invested by 139%, more than doubling its spending to $8.5bn, while Japan-based companies created the most jobs after the US, increasing the Far Eastern country’s job creation by 53%.

Destination Analysis

Attractive destinations

Asia-Pacific has maintained its position as the leading region as a destination for FDI. Project numbers, capital invested and jobs created have all increased. The region attracted a total of 2075 FDI projects for the first half of 2011, an increase of 6%. Capital invested in the region also increased by 5% with more than 68,000 jobs created, an increase of 16%.

Latin America is also on the up, with the region experiencing an influx of FDI. Project numbers in the region increased by 41%. Capital invested increased by 86% to $43.3bn and jobs created have reached 210,996, an increase of 72%, ranking it second in both categories. Movistar and Telecom Argentina both announced investments of $2.5bn each in information communications technology (ICT) and infrastructure in the region contributing just over 11% of the total capital invested. In the first half of 2010, 12% of global FDI capital was invested into the Latin America region, with this figure increasing to 20% for the first half of 2011.

Inflows of FDI remained relatively stable across the regions, with some areas experiencing a small increase or decline in project numbers. Jobs created in Africa increased by 58% for the first half of 2011 reflecting an increase of 21% in project numbers.

Western Europe and the Rest of Europe were the only two regions to witness a decline in FDI projects, falling 8% and 2%, respectively. Contributing to this drop was Germany, which witnessed a 50% decrease in FDI projects. However, this decline is not mirrored in capital invested or jobs created where the country achieved small growth.

BRICs on the rise

The US has maintained its ranking as the most popular destination country for global FDI in the first half of 2011, with project numbers rising 9% to 753. However, both capital investment and job creation dropped significantly, with $7bn less invested and 25% fewer jobs created.

The rising stars in the FDI destination table are Brazil and India, which both achieved growth in project numbers, capital investment and job creation. Brazil attracted 62% more FDI projects in the first half of 2011 than in 2010, with capital up 134% to $38bn. There was also a 71% increase in job creation, with nearly 98,000 jobs created in the country.

India also experienced growth across all indicators as a destination for FDI. The country attracted $38bn in capital investment, and both job creation and project numbers also increased by 27% and 26%, respectively.

China and Russia, which partner with Brazil and India to form the BRIC countries, also performed very well. China maintained its top five ranking as a destination across all indicators and achieved a small growth in project numbers and capital investment, losing only 2% in job creation on the first half of 2011. The four BRIC countries all appeared in the top five countries for job creation. They generated an aggregate of nearly 430,000 jobs; 37% of jobs created globally.

Germany was the fifth most popular destination for FDI in the first half of 2010. However, in the first six months of 2011, the country has dropped to sixth place to be replaced by Brazil. Another winner in 2011, is Indonesia, which has attracted capital investment of $15bn in the first half of the year, which is an increase of 435% on 2010. This jump can be accredited to some major investments, including Cyprus-based Solway Group’s $3bn nickel smelting plant in the Maluku Islands, and China Gezhouba Group’s $1bn hydroelectric plant.

Targeting new cities

The top five most popular destination cities for FDI have remained the same as in 2010. Singapore attracted the highest number of projects of all cities, as well as the most capital. Of the $410bn invested globally in the first half of 2011, $8bn was destined for Singapore. Within the top five, Dubai achieved the largest growth on 2010 with 29% more projects.

Capital invested in FDI was targeted at Singapore, London and Chennai, with two new cities entering in the top five: Barcarena in Brazil and Rizhao in China, which attracted $5.7bn and $4.6bn, respectively. This jump in figures can be attributed to some landmark projects, namely Indonesia-based Asia Pacific Resources International’s $4.6bn pulp mill in China and Mir Steel UK’s $5bn steel joint venture with Usipar in Brazil.

The top city for job creation was Chennai, where 19,712 jobs were created by FDI. This figure represents a 189% increase for the city compared with the first-half 2010 figures. Chongqing in China also experienced growth on its 2010 figures, with 483% more jobs being created through FDI projects. This increase was bolstered by companies such as the Taiwan-based Foxconn, which has embarked on significant expansion projects in the city.

Sector Analysis

Holding strong

Software and IT, business services and financial services are still the top three sectors for global FDI projects in the first half of 2011. In the first half of 2011, software and IT services has achieved 18% growth, widening the gap between it and business services in second place. Financial services was the leading sector in both 2008 and 2009, but has dropped to third place with 705 projects in 2011 to business services’ 719, which accounted for 13% of global FDI. The top five sectors in the first half of 2011 are the same as in 2010, and all except industrial machinery have achieved growth.

Software and IT services experienced significant growth across all indicators, including a 54% increase in capital expenditure. Job creation in the software sector also increased by 74% with more than 56,000 jobs created in 2011 so far compared with 72,000 over the whole of 2010. Both job creation and capital investment decreased in the software sector in 2010.

Business services has remained the second most popular sector for FDI in the first half of 2011 and achieved a 7% growth in project numbers to represent 11% of global FDI. Despite this increase in project numbers, the number of jobs created decreased, with 23% fewer than in the same period in 2010. Capital investment in the business services sector remained stable, with 1% growth.

On the rebound

While financial services has failed to regain the top sectoral ranking it had in 2009, it has rebounded well from 2010 when it experienced a drop across project numbers, capital investment and jobs created, by achieving a 5% increase in project numbers and job creation. In the first six months of this year, financial services has created 24,100 jobs and nearly attracted $14bn in capital investment.

The top five
sectors for project numbers also included the industrial machinery equipment and tools sector as well as communications, which, when combined with the top three sectors, account for 45% of global FDI.

Galvanising further growth

The metals sector experienced significant growth in the first half of 2011 with a 38% increase in project numbers. Metals was the ninth most popular sector in terms of project numbers for the whole of 2010 but has risen to sixth in first-half 2011. In 2009, the metals sector did not even feature in the top 10. Capital investment in the sector is up 100% to $72bn and job creation is at 121,000 globally in the first half of 2011. Job creation in the metals sector represents 11% of total global job creation in the first six months of 2011.

The rubber sector experienced an increase in capital of 193% from $2bn in the first half of 2010. Conversely, project numbers in the hotels and tourism sector dropped by 42% to 121 in the first half of 2011. Capital investment and job creation also dropped 31% and 48%, respectively, with the sector creating nearly 15,000 fewer jobs than it did in the same period in 2010.

Business Activity Analysis

Manufacturing a recovery

The top three activities for the first half of 2011, namely manufacturing; sales, market and support; and business services, accounted for almost three quarters (73%) of global FDI. Manufacturing remains the lead business activity, accounting for 27% of global FDI projects, a rise of 19%. An estimated $212.46bn was invested in manufacturing projects in the first half of 2011, which created 689,354 jobs, an increase of 31%. Full-year figures in 2009 showed manufacturing was declining; however, it picked up again in 2010, topping the table. This growth story is continuing in the first six months of 2011, with the trend showing no signs of stopping.

Electricity had fallen between 2009 and 2010. However, in the first half of 2011 project numbers are up by 28%. This is partly due to the rise of alternative/renewable energy. Also on the increase is the number of jobs created by the activity, with figures increasing by 33%.

Construction continues to fall

Construction as a business activity experienced one the greatest declines in the first six months of 2011, with project numbers falling 34%. Capital invested in this activity and jobs created also declined. Conversely, ICT and infrastructure is continuing its successful growth spurt with capital invested up 103% to $37.33bn and jobs rising by 85%. US-based data centre services provider Equinix invested highly in this business activity, setting up data centres globally in 2011.

Fewer companies invested in pure R&D activities, as represented by its 28% decline in the first half of this year. Design, development and testing (DDT) is, however, on the up with project numbers increasing to 343 (an increase of 18%). Capital invested in DDT has also risen by 32%, while its rise in job creation sees the business activity now account for 5% globally.

Courtney Fingar
Editor, fDi Magazine
fDi Intelligence
The Financial Times Ltd

John Hall, Principal Consultant, PA Consulting Group

Shared services companies are driving business performance improvement to deliver ever increasing stakeholder value to remain competitive and they require market performance comparisons (benchmarking) to calibrate their measurement systems to understand their competitors. Moreover, companies managing their outsourced business partners need to know how their chosen sourcing partners are performing both from a quality and cost point of view as costs escalate contractually each year and quality doesn’t always increase at the same rate.

Most sourcing contracts have a benchmarking clause built in for this very purpose but benchmarking studies don’t always deliver what’s expected so companies need to be aware of what they can expect from these studies. Custom shared services benchmarking studies compare the individual process performance of the target organization with a statistically significant sized panel of shared services companies in the market. Defined metrics representing the full scope of each process are compared but no two organizations are the same. This makes direct comparisons inaccurate and unfair. Adjustments in a process called normalization need to be made to the panel metrics to adjust to the individual characteristic differences of each company so that comparisons with the target company are fair.

The analysis cannot be completed without a set of market metric performance data covering all of the shared service processes and ready access to comparative data for the source company. In addition to this a thorough understanding of the performance of the market comparator companies and the target company is necessary.

Such analyses have many dimensions and are potentially fraught with difficulty and inaccuracy. To make the results useful in defining continuous performance improvement actions requires that 10

The ten key steps:

1. Agree on a crystal clear scope up front – the scope of the study i.e. processes or departments included, defines the data to be collected as well as the dataset required for comparison. For best results the full scope of shared service processes should be included together with the full breadth of each process.

2. Define metrics that cover the full process – by working closely with the process owner, define a set of metrics measuring the end to end process. The metrics should be a balanced mix covering all quadrants of the balanced performance scorecard, most importantly business customer satisfaction.

3. Gather company data to support the metrics – this is usually a trade-off as the metrics schema of the target is different from the industry standards. The trade-off should deliver sufficient metric data to cover the process while ensuring sufficient comparison to the peer group

4. Collect peer benchmark data to support the scope – Using the metric data elements, collect peer data aligning with that. This peer data will be normalized for comparison with the target company metrics.

5. Understand market performance best practices – its vital to understand what industry best practice is driving best-in-class performance. This is a key input to the normalization process as well as to the essential improvement recommendation options based on the benchmark comparisons

6. Develop an understanding of distinguishing performance characteristics of the target processes and perform normalization adjustments – Adjustment of the peer data to align with characteristics of the target so that comparisons are meaningful and gaps can be explained

7. Build comparative tables of metric quartile performance – normalized metric quartile break points are based on the peer metric performance data. Peer data only is normalized while target data remains unadjusted. Ensure the calculation basis aligns with the peer metrics such as annual average, monthly average or year-end monthly actual

8. Validate the metric calculations with each process – Confirm all input data and metric calculations to ensure they reflect actual performance.

9. Create a report which provides value adding actionable results based on best practices – Report quartile performance for each metric highlighting where improvement is necessary and define the practices most likely to deliver the improvements. These results can easily be reconciled with the shared service customer satisfaction index if it is well structured.

10. Repeat the benchmarking regularly to support continuous improvement – benchmarking comparisons are valuable in evaluating performance and for calibrating the targets in balanced performance scorecards but are most valuable when performed regularly, at least annually, so that continuous improvement efforts are sustained, supported by rich industry comparative performance data.

Such studies are complex in nature but the methodologies are well proven, and should have been used in multiple studies. Get the benchmarking partner to provide their track record and references so that their performance can be confirmed before signing up for a costly study. A well-structured and disciplined process will provide peace of mind that the sourcing services are being delivered as contracted or better. Such a study will deliver reliable results that drive substantial performance improvement if the stretched targets are conscientiously applied by the organization.

John Hall is a principal consultant with PA Consulting Group, specializing in performance and asset management and organization design.

Impact Sourcing, a new concept in the sourcing world revolves around the premise of creating social impact through the economic lever of Global Sourcing. The concept focuses on employment generation within the poorer and less educated sections of the society by providing access to job opportunities such as data management, content editing and low-end transcription. By connecting latent demand for such tasks from large global companies to an untapped pool of labor at the bottom of the pyramid, Impact Sourcing has the potential to change the socio-economic landscape in underdeveloped regions of the world.

The BPO sector has proven to be a huge source for employment generation with a multiplier effect in the surrounding economy of 4 to 5 times. It has transformed whole countries, as is prominently visible in the booming industries in India, Philippines and China. Besides providing an upwardly mobile path to non-engineering and non-management graduates, this industry also acts as a catalyst in globalizing heretofore remote regions that are now connected through a digital process-driven chain to clients and consumers in other parts of the world. The accompanied rise in buying power and consumption patterns act as a stimulus to the entire economy. Recognizing the BPO sector’s potential for job creation, both public and private sector firms are diversifying into lower income regions to provide employment and income sources for people with traditionally lower levels of education and language literacy. Traditionally most BPO employees have had college education, however, as the industry has matured and due to increased pressure on the qualified labor pool, the employment threshold is being expanded to include high school graduates as well. Owing to enhanced training techniques, innovative delivery tools and improved process efficiencies, even a less qualified labor pool in far flung locations in Africa as well as rural India can be as effective as their more qualified counterparts in big cities. This model has been embraced by private sector organizations such as SamaSource and Digital Divide Data as well as donor organizations like World Bank and Rockefeller Foundation. By removing the stigma of outsourcing and simultaneously providing a social benefit, Impact Sourcing has developed a win-win formula for a sustainable and socially responsible business practice.

The genesis of Impact Sourcing lies in several technology and business model evolutions that have occurred over the last few decades. Akin to the Electronics industry that modularized and standardized in order to disaggregate its supply chain, Crowd Sourcing and now Impact Sourcing sectors have de-skilled and dis-integrated the services chain so that even higher end projects can be broken down into low-end tasks, which could be farmed to any part of the world. Right skilling of work and trainable tasks have enabled development of targeted skills based training to increase the employable population. Socially minded service providers are playing a key role of evangelizing the socio-economic benefit of this model within the buyer community and providing innovative solutions to ensure that these rural-sourced BPO services meet the quality criteria of even the most discerning buyers.

Corporations and governments around the world are beginning to realize the huge potential of this outsourcing market and have boosted investments in this sector. In Africa, for instance, the official Development Assistance has increased from USD 15 Billion in 2000 to about USD 50 Billion in 2011. A lot of the developmental funds are being spent in improving infrastructure and educational facilities on the continent. This has provided a solid foundation for building an Impact Sourcing program. Organizations such as Rockefeller Foundation are playing a significant role in development of this sub-sector. Working together with private sector partners and various entities in the ecosystem, they have evangelized the model of generating employment in underprivileged sections of the society through Impact Sourcing.

Organizations such as Samasource, which act as intermediaries that market and sell Impact Sourcing services to global clients, have received grants to enhance the impact sourcing sector in Africa. Samasource has pioneered the ability to manage “microwork” in a sort of virtual assembly line that spans 1,600 workers across Haiti, India, Kenya, Pakistan, Uganda and South Africa ― some of them living in refugee camps. Digital Divide Data, another BPO firm with an emphasis on social impact, has been operating out of locations in Cambodia and Vietnam and recently received funds from the Rockefeller foundation to begin operations in Kenya. They would be training and employing 300 youths from Kenya’s slums in the BPO sector. Their approach is to provide longer term education and concomitant employment.

But what is the nature of outsourcing functions that Impact Sourcing can tackle, given its model of hiring the less educated in the remotest corners of the earth? Well, it turns out that with the profusion of Zettabytes of data, there is an increasing need to cleanse, manage and make sense of this digital information. Ever expanding digital content and the need to manage information on the internet has created a huge demand for tasks such as digitization, data mining & managing content of social networking sites. Given the right tools and processes, these tasks could be outsourced to a distributed workforce. These projects can be broken down into micro-tasks which can be assigned to trained workers anywhere in the world, provided they have a desktop and connectivity. Simple data driven tasks such as changing locations on Google maps as per changed addresses, tagging images, creating digital e-cards etc. have created an emerging opportunity and a lucrative avenue to train and hire people with limited education or work experience. As per a recent survey conducted by Avasant on the behalf of the Rockefeller foundation, it was found that almost all BPOs operating in the African region provide digitization as a key service. And these same firms employ between 40 to 80% of their agents from the underprivileged sections of the society. Not only does this make economic sense, it also has a huge social impact on these communities. This transformation of the global sourcing ecosystem is a testimonial of the fast emerging field of Impact Sourcing.

In Ghana, for instance, out of the 2500 odd seats in the BPO sector, almost 30% can be classified as Impact Sourcing seats. In India, the Impact Sourcing sector has seen a lot of traction in the last few years with many main-stream BPOs like Aegis, Infosys, Wipro & Genpact making a foray into tier III cities as well as rural locations. A number of pure play Rural BPOs like Rural Shores, Harva, eGramIT and Village BPO have also sprung up in the last few years, serving a dual purpose of creating social impact and tackling escalating costs in the tier I cities. Rural BPO, though still at a nascent stage, has been able to transform thousands of lives and is estimated to employ about 5000 people in the rural areas of India. Government incentives as well as interventions from NGOs to provide training and funding to these organizations have been helping this sector to mitigate challenges of high training costs, poor connectivity & limited infrastructure.

With many countries in Africa aggressively adopting e-governance programs, there is a huge potential for outsourcing of Government digitization projects, which can be another catalyst for Impact Sourcing. The Government in these emerging regions can in-fact act as the anchor client for Impact Sourcing service providers. A majority of the service providers in the African Region, when asked about key enablers to growth, indicated that a concerted government effort to outsource eGovernance and digitization projects to local providers would be very important to sustain this sector.

Every new sector comes with its own set of challenges. Impact Sourcing service providers have cited issues such as lack of initial demand or awareness in the buyer market as a key constraint. Difficulty in sourcing the right talent and long training periods are some of the other issues limiting the growth of this sector. To mitigate these challenges proactive governments have offered various incentives and some service providers have adopted unique approaches. A few state governments in India for instance, have been specifically promoting Rural BPO and have also created initial demand by outsourcing government work. Various incentive programs focusing on underdeveloped regions offer lucrative financial incentives for job creation and investment in such areas. Service providers have built custom training programs tailored to a stratum of the society with minimal education and work skills. They have developed sophisticated tools to manage a distributed workforce and build in redundant process and quality controls.

As per a recent study concluded by the Monitor group, it is estimated that the Impact Sourcing sector has a potential to grow to be a $20 billion market by 2015, directly employing 780,000 socioeconomically disadvantaged individuals, thereby promoting a sustainable and socially relevant growth of the Global Sourcing industry.

It is also important to note that Impact Sourcing providers themselves adhere to a strict code of conduct.

Samasource, which lists companies like Facebook, Google and LinkedIn as its clients, performs strict quality checks when distributing work to other outsourcing firms. It requires that providers reinvest at least 40% of revenues in training, salaries, and community programs and that they hire workers who were earning less than $3 a day. It is worth noting that these same workers generally more than double their prior income and on an average earn more than $5 a day.

So as the Global Sourcing industry matures and the outcry against offshoring continues to escalate, Impact Sourcing could be that beacon that demonstrates a more holistic way of creating business value while also doing good. Through innovative use of Distributed application platforms, crowd-sourcing processes, low cost and virtualized infrastructure and targeted training techniques, Impact Sourcing is breaking new ground. It is engendering a global supply chain of talent and resources that can be leveraged anywhere and anytime. It is fostering a business model that is the classical win-win – it’s a good business practice, it is socially responsible and it provides hitherto undiscovered efficiencies and cost savings in mundane tasks that were thought to be unsuitable for outsourcing. Impact Sourcing is enabling businesses to connect to an untapped pool of global talent to achieve increased flexibility, efficiencies and dynamic scalability at an affordable price. Smart governments, investment promotion bodies, service providers as well as buyers of outsourcing services will have a major role to play in the growth of this sector in the coming years.

Kevin Parikh, Global CEO & Senior Partner, Avasant

Kevin Parikh is the CEO and Partner of Avasant. Mr. Parikh specializes in IT and business process (BP) outsourcing contract and service-level negotiations, strategic management, business risk evaluation and software licensing. His practice engages in both nearshore and offshore sourcing solutions. Mr. Parikh is based in Los Angeles, California.

Anupam Govil, Partner, Avasant & President, AvaSense

Anupam Govil is a Partner with Avasant and President of Avasense, a Sourcing Governance software company (wholly owned subsidiary of Avasant). Anupam joined Avasant after the acquisition of his previous company Global Equations, a leading Globalization Advisory firm.

Most organizations today are involved in a significant amount ofoutsourcing, from business process to IT.  Typically organizations planning outsourcing conduct a competitive tender and down-select to a couple of vendors for negotiations and final contract award.  However, many organizations find themselves in sole source situations where they are negotiating with only one provider.

The fundamental question is how can the organization engaged in a sole source negotiation create leverage so as to enable an effective outcome and deal?

Effective outcomes can be achieved in sole source negotiations by focusing on five key factors:

1)    Obtain an in-depth understanding of the market

An in-depth understanding of the market is essential in order to assess whether other alternatives exist, such as other providers who could supply the services required, ‘bundling’ services differently and possible combinations of internal resources and outsourcing.  Finally, should the sole source negotiation not end successfully, what other options remain open for the business?

Deep market knowledge is essential to enabling effective development of pricing models and benchmarking.  Are there hosted services or cloud models where you pay for consumption of the services, or are more tailored solutions required to meet the organization’s requirements?  Once pricing models are clear, an effective approach to benchmarking the services or service components can be developed.

Finally, understanding the market includes developing knowledge of the industry standard contract terms and conditions and vendor positions.  Being able to challenge specific terms and assumptions during negotiation by referencing market norms provides a ‘backbone’ to the negotiations.

2)    Elevate the focus from the transaction to the relationship level

It is essential during negotiations to raise focus beyond the details of the specific deal to the nature of the supplier relationship, which may already exist.  Focusing the supplier on the possibilities of a stronger (e.g. longer term, higher volume) partnership across a number of areas provides the opportunity for improved pricing.  At the same time, it focuses the supplier, during negotiation, on the need for a quality solution so that they do not jeopardize their current business and potential future business portfolio.

3)    Leverage economies of scale from the existing supplier relationship

There are potentially significant economies of scale associated with the management and operation of the existing supplier relationship.  Supplier management will not have to deal with a new supplier.  Existing account teams and governance are already in place and process interfaces (which, done properly, typically take significant effort to establish) such as service desk, procurement, infrastructure and reporting will be, for the most part, tried and tested.

4)    Closely manage business demand

A significant challenge during sole source negotiations is often a relaxing of discipline in the level of information shared and the management of change with the supplier.  Significant change of scope during the negotiation process can result in price increases during negotiation and/or a series of costly change requests queued up for early stages of implementation.   Clear articulation of the scope of work in the Statement(s) of Work is essential before confidence in the proposed pricing can be achieved. Taking a short- and long-term approach to business demand management is essential as significant value can leak from a deal when changes are made after the upfront negotiation.

5)    Give yourself time to complete the deal

There is always a trade-off between time, quality and price in outsourcing negotiations.  Given a customer’s potentially weak pricing position in a sole source situation, it is imperative to ensure that adequate time is taken to negotiate a quality agreement at the right price.  Do not be in a hurry to close the deal or make it a ‘must have’ deal – you need to be able to walk away if the deal is not right for your organization and move forward with an alternative option. Effectively managing executive stakeholder expectations is key to buying that time.

Conclusion

While sole sourcing is typically not a preferred approach, affording consideration to the five factors above can help your organization create the right leverage so as to enable an effective outcome and deal.  The benefits of this approach will deliver a stronger partnership and relationship and a win-win negotiation.

Nick Semple, Managing Consultant, PA Consulting Group

Nick Semple is a Managing Consultant with PA Consulting Group and has over twenty years project and program management experience in IT operations and Telecoms consulting across strategy, operations, sourcing and end-to-end service management.  His experience covers global firms in both North America and Europe. He has been involved in a number of strategic sourcing projects from initiation to operational launch, and most recently has been providing sourcing advice on major infrastructure transformation programs.

Bob Merrill, Principal Consultant, PA Consulting Group

Bob Merrill is a Principal Consultant with PA Consulting Group and specializes in IT sourcing strategies, contract negotiations, program/project management, service management and acquisition integration. He has extensive experience in all facets of the outsourcing life-cycle, including design, vendor selection, negotiation, implementation and management of IT sourcing strategies and agreements. Bob combines deep IT sourcing knowledge and experience with business acumen, financial and risk management, project management, IT strategy and implementation skills to deliver outstanding results for clients. Bob has diverse experience spanning healthcare, bio-pharma, banking, retail, IT service provider, insurance, transportation, utility and packaging industries.

From the Desk of the President, Michael Gibbons 

Last month’s newsletter contained an interesting article by Robert Clarke, founder & CEO of Ecodesk entitled, “Fighting the ‘Dirty Cloud’: Responsible Tech Firms Hit by Cloud and Supply Chain Confusion.” The article talked about cloud computing and the impact it has made on companies’ carbon emissions, ranking individual firms involved with cloud computing by their carbon emissions. Carbon emissions are a key component of sustainability and reducing the output is of interest to all global citizens. I recently read a fascinating article that takes this concept to the global level.

There is a ranking known as The Human Development Index (HDI) which is used to rank countries by level of “human development” and separate “very high human development”, “high human development”, “medium human development”, and “low human development” countries. HDI measures life expectancy, literacy, education and standards of living for countries worldwide. It is a standard means of measuring well-being, especially child welfare. (more…)