No Payne, no Gain… it’s paradise as usual with IBM’s Bill Payne

One of our greatest anomalies has been to run a blog on global outsourcing dynamics for three years and never actually feature a single contribution from anyone at IBM. 

A surreal sourcing paradise: IBM's Bill Payne takes it all in on the Peak in Hong Kong

Well, the cycle had to be broken at some stage… and with who better to do it, than the most down-to-earth and outspoken IBMer you’re ever likely to meet:  step up Bill Payne.  Bill is IBM’s Vice President for Global CRM and Industries for Managed Business Process Services  (that’s IBM speak for “vertical BPO”). 

Anyhow, we managed to drag Bill away from tendering his beloved vegetable patch to share with us his current experiences of the market and why he’s having another day in paradise, despite the surreal experiences he has when someone stries to sell him their captive center… 

Phil Fersht: Bill, how on earth has the global sourcing world changed since the recession? From a macro-level, what is different these days? 

Bill Payne:  Isn’t there a song and a movie called “Another Day in Paradise”? 😉   

Lets not forget that  in q4 2008, and q1 2009, the market was the proverbial rabbit in the headlights and deals basically dried up.  We all had our doubts about what the future held . At the same time, the Indian and Chinese economies never went  near a recession! 

The biggest change in h2 2009 and 2010 so far is more opportunities in both IT and BPO and more urgency in the US market. I also think in the companies that have found success in outsourced processes are going to go a lot further: more scope, newer processes, bigger plays. This is really a market where we’ve barely scratched the surface of potential and the smarter guys will keep pushing boundaries. 

I think we are now at the wave front of a lot more process outsourcing 

Phil Fersht: Are sourcing decisions being made any faster? Are processes being evaluated for outsourcing different? 

Bill Payne:  Sadly, it seems that there is little real change in decision velocity. We still see some very protracted procurement schedules. Intuitively, you’d think the recession would have driven some dynamism into the procurement process!  What greater lesson could there be to teach companies that they need to be able to quickly reduce costs, quickly scale, and really take control of their bottom lines? 

Unfortunately, there is still a cultural barrier in many companies opposed to Outsourcing process. Maybe we’ll finally see some real change when there is an SVP of Services in every client whose job is to manage Internal service across the board. Then you will have service strategy as part of a company’s DNA. I think that will change the culture faster than any other single impetus. 

Overall, despite a lot of good momentum and energy, we still haven’t quite built a Smart Planet just yet!   

Phil Fersht: Being in the UK, what specifically have you seen change over there? How is this contrasting with US firms and other regions?    

Bill Payne:  I may reside in the UK but given my global role in IBM, I’m able to take a pretty comprehensive view of the dynamically changing world outsourcing markets. I see more urgency in the US to get cost out, and move to “on demand” contracts that allow flex in up and down turns. I see more balanced shore decisions for location of service centers and more interest in industry solution outsourcing. 

In the UK, I see Public Sector as the area with some huge opportunities and contracts on the horizon. There is a crushing need to gain efficiency in both local and national government.  In other European countries I see no real change in consideration or speed of BPO execution right now. In Asia, we see trends similar to the US. In the Growth markets of Brazil, Middle East, China, India, and Africa we see some very large potential opportunities across BPO, especially in wider Industry solutions that have a transformation agenda.  

Phil Fersht: How does this altered landscape impact a giant provider such as IBM?  What opportunities and challenges does it present to the firm? 

Bill Payne:  In many ways it’s Business As Usual, but in many ways it’s a new BAU. 

In our traditional view, I think the BPO market is still there to grow substantially whether it be in the traditional BPO towers or in the traditional BPO markets.  Where the market has changed however is in both what clients want and where they want it. 

I think the winners will need a balanced shore strategy: @home, on shore, near shore and far shore.  We will need to take an industry solutions perspective to deliver service value, and we will be able to provide a long-term secure strategy and financial platform for clients. 

There are new spaces in emerging markets and many new processes to outsource.
I think the biggest challenge we have is to be selective and choose our service growth areas and markets with care.  We have to drive a “Smarter” agenda with our Smarter Process and Smarter Tools initiatives. 

We have to choose which deals to pursue. We have to be able to show clients that we deliver value long-term and we are committed to them. We do not want to engage in badly shaped deals that either can’t be delivered or give poor value to the client or break our financial model. We take pride in doing things right. It serves none of us well in this business to have deals fail for either poor execution or poor commercial arrangements. I think all providers have a duty to their clients and the profession we are in to behave in a controlled and never reckless way! 

Phil Fersht: How do you see the competitive landscape across both ITO and BPO playing out with the impact of the crisis?  Do you see more M&A between providers, or more cautious investments? 

Bill Payne:  Undoubtedly there are many M&A opportunities. There are many captive acquisition opportunities.  Investment cash talks in the market. However, the financials of a number of IT and BPO providers make sobering reading if you go deep into their P&L and some have made some very expensive acquisitions 

I think its tough to realize the benefits of cost reduction/efficiency in an acquisition case, but that’s generally small beans to the ‘miss’ on the revenue growth lever on most acquisitions in this market.  It is all too tempting in the heat of an acquisitive pursuit to show an exponential growth curve based on the market size and estimate of the impact of the transaction. It rarely turns out that way. 

So, given that there are a number of burnt providers out there, caution may prevail on the A side. On the M side it’s quite possible that a merger will take place within the mid-size provider group.  It’s not surprising as they are generally the most cash strapped. 

Phil Fersht: You mentioned in the G8 summit at SSON that many captives are currently being shopped on the market – and many unsuccessfully.  How do you see those unsuccessful captive sales being resolved – will customers phase them out and move onto BPO models, or just stick with what they’ve got and eliminate more cost out of them? 

Bill Payne:  I’ve always thought the selling the captive debate to be slightly surreal!  The purpose of creating a captive in most companies was to reduce cost and increase service to an internal organisation. Only the really good corporations have tried and tested their business case to ensure they got what they wanted, i.e., a very efficient shared service environment! 

However, now try to translate this into a saleable asset somebody else would want. In many cases the captive SSC has been built on internal processes not necessarily ‘industry standard’ or even optimised processes. This leaves all the providers in a dilemma: what value is there in someone else’s processes, buildings, desks chairs, computers, and people? It doesn’t take much of a spreadsheet jockey to calculate that the vast majority of captives warrant little or no cash premium in a deal to the client, and actually if you are a major global player already, you probably don’t need the infrastructure. 

There may be a case for a platform acquisition and the inherent IP, however, never underestimate the work and cost required to convert an in-house tool into a market ready application. 

If you are a medium sized or regional player it may make sense but buyer beware: I don’t see many pronouncing that they met their growth target by buying a captive in BPO world! 

 Phil Fersht:  And finally – what advice would you give to young executives today looking to develop their careers in global sourcing? 

Bill Payne:  Learn about Transition and Delivery. Do the hard yards!  Go work in a delivery centre, learn the ropes, learn the processes, tools techniques, and metrics. That way you can add value to every client. 

Most importantly: always act with integrity. Deliver what you say you can, deliver and show the benefits, and give the client what they want.  These attributes are how you make your own company successful.  Be candid, open, and straight. 

Phil Fersht:  Bill Payne, thanks for your time:  our readers will appreciate reading your views

Bill Payne (pictured above) is VP for Global CRM and Industries Managed Business Process Services at IBM

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, IT Outsourcing / IT Services, Outsourcing Heros