Retail Banks & Insurers To Expand Offshoring

According to the recent research presented by Capgemini, retail banks and insurance companies plan to expand their offshoring practices to back offices, IT, and support functions.

from Word Insurance Report 2007

Outsourcing is a key arena in which global insurers are utilizing their scale to move from outsourced/offshore processes and services for multiple subsidiaries in one country to creating factories to serve the needs of customers from many countries. However, few global insurers have yet to move beyond outsourcing basic processes to delve into claims outsourcing.

However, as market competition intensifies, and similar outsourcing arrangements developed by banks prove themselves, insurers are likely to begin outsourcing some or all of their claims and customer service processes.

from World Retail Banking Report 2007

In the next five years, retail banks offshoring practices will largely expand whatever the function. In the future, retail banks expect to have a substantial portion (approximately one-third) of their IT and support function staff offshored. Offshoring will grow rapidly, especially in IT

Back-office offshoring in our surveyed banks primarily concerns payments, consumer credit, and leasing products (see Figure H). Mortgages will also be involved in five years. Administrative and network-facing tasks are the most often offshored tasks, while client-facing tasks are much less frequently offshored.

When offshoring IT, development is almost always the first to go (85% in our sample), with maintenance functions second (approximately 67%) and operations third (41%). IT functions are most often outsourced to India

In support functions, retail banks most often outsource accounts payable, HR (payroll), and accounts receivable, and this trend is likely to continue for the next five years.

Direct link to Word Insurance Report 2007
Direct link to World Retail Banking Report 2007

WEEKLY INSIDER | Expectations Management p2

This is the second material in two-part series on Expectations Management. In the first article i gave definition to Expectations Management (EM) and explained why it is essentially important to manage stakeholders expectation throughout outsourcing project. I've also outlined the "lightweight" EM strategy - which is just a set of activities that go inline with typical marketing dept responsibilities.

While lightweight EM approach might be ideal for small-to-mid size projects, whenever you work with enterprise buyers/providers it is essential to have a formalized EM framework because it is much harder to keep everything under control on this scale. In this case EM becomes a part of Quality Management program rather then marketing dept responsibility.

In order to gain control over big projects EM should include the following components:

• Communication framework
• Status reporting mechanism
• Tool or system for gathering stakeholder expectations and perceptions

Let's take IBM Four quadrant expectation management model as an example and see how each of the components above apply.

Communication framework

In order to address expectations continuously throughout project lifecycle the team should start capturing expectations during the early (inception) phase, at the same time it begins requirements' analysis. Further all documented stakeholder needs as well as budget and schedule are linked to corresponding expectations. Explicit expectations are classified as "stated" and implicit expectations as "perceived." These can be further classified as either "internal" to a domain or belonging to "external" parties. Communication flows from internal to external, and clarity improves as an expectation goes from perceived to stated.

System for gathering stakeholder expectations and perceptions

IBM 4 Quadrant expectation management is the system that capture, document, and maintain the content, dependencies, and sureness of the expectations for persons participating in an interaction, and apply the information to make the interaction successful. Within this formal process the subject of expectation is in the center of coordinates that form four quadrants. The horizontal (x) axis demarcates for clarity: Expectations above the x-axis are stated; those below it are perceived. The vertical (y) axis demarcates for scope: Expectations to the right of the y-axis are external; those to its left are internal.

As long as expectations generate other expectations, including project budgets, timelines, requirements and risks, IBM suggests establishing traceability that includes so called sureness factors. The clarity level for an expectation (stated versus perceived) results in a sureness factor between 0 and 1, depending upon heuristics as well as preceding expectations -- their own sureness factors and how they occur, whether in a sequence (AND) or all together (OR). In addition, a sureness factor can be assigned to expectation results based on the sureness factors for preceding expectations.

IBM 4 Quadrant expectation management is best practiced with Rational Requisite Pro, however the system can be used as a framework with different software products.

Status Reporting Mechanism

Usually part time or full time expectation analyst oversees EM process. This person is responsible for defining formal expectation management and reporting. He or she works closely with project teams and executive management to provide consistency. The team review and revise expectations at regular intervals throughout the project , managing the effects of changes on dependents, such as requirements, with tools -- in much the same fashion as the team manages requirements.

The Role of Expectations Management in Outsourcing Relationships

Expectations management is a part of an effort to achieve transparency and set up flawless communications between buyers and providers. Companies involved in offshore software development must consider that different cultural backgrounds as well as the fact that onsite and offshore teams often can't have a physical contact result in more misconceptions and wrong assumptions than ever.

Expectation management can improve intra- and inter-team communication by promoting a better understanding of stakeholders' stated and unstated expectations. It can capture hidden expectations that render useful information about a project's success criteria and risks.

The impact of comprehensive EM strategy on the quality of offshore service delivery couldn't be overestimated.

Offshoring does not steal IT jobs until labor market is flexible

Over 2 million jobs are created in offshore locations like India and Eastern Europe for European and US markets. Due to ITO sector dynamic growth and more qualified jobs going offshore each year there is a negative talk about outsourcing stealing jobs from industrial countries' labor markets.

Deutsche Bank Research estimates that up to 390-000 additional offshore jobs will be created in 2007 for the markets in Europe and US.

“Outsourcing” and “offshoring” have made it to the headlines of many publications, even though the trade volumes involved are still relativel y low. The debate spiked in 2004 in the run-up to the US presidential elections, but it has cooled off somewhat in the meantime"

In this extensive report, issued in april, Deutsche Bank says IT offshoring is not a thereat for US, UK as well as for China and India labour markets. On the opposite to the above regions, European labour markets are rigid. This Inflexibility prevents efficient staff redeployment and firing, thus making IT outsourcing a potential threat.



Direct link to Deutsche Bank "Offshoring work, not jobs" report

WEEKLY INSIDER | Expectations Management

Weekly Insider is the column about management and development methodologies behind BPO and Application Development Outsourcing (ADO) i'll be running. The first one is about Expectations Management (EM). The article comes in two parts: the first part introduces readers to Expectations Management and gives advice on how to start with EM cost-effectively. This material is based on practices of ITO services provider , but can be helpful for those on the buyer's side.

In this article we will answer the following questions:

• What is Expectations Management?
• Why there's a need for Expectations Management?
• How Expectations Management patterns may differ?
• What is the fastest way to start with EM?

Essentially, EM is about communication management aimed at flawless and continuous exchange of information about projects, products and processes between all stakeholders.

Instead of relying on client's objectiveness, providers must pull all available information about the project and initiate discussions at all management levels timely. Comprehensive EM strategy will help to avoid erroneous assumptions about client's needs and also manage client's expectations to realistic levels if needed.

Ill Communication

While ideally project team and their counterpart on client's side would interact iteratively to create and solidify requirements, in reality people tend to rely on assumptions instead. Here are examples from IBM "Four Quadrant Expectation Management" article which we will cover in detail later on:

"..inadequate understanding of scope typically results when the scope is poorly defined; this sets incorrect expectations and invites misinterpretation. Users expected the scope to be X, whereas the project team thought it was Y. Sponsors expected expenses to match X, but the project manager spent for Y. The project board expected the project to be complete within a reasonable timeframe for X, whereas the project needed the time to complete Y."

A whole new dimension of the problem emerge when we take in to account expectations that are not explicitly stated. Here is a perfect example from the same IBM paper:

"Developers might expect to use their same old comfortable but ineffective development process. An IT director who secures a project by underplaying the resource and time requirements might expect the project to make him look good and gain him a promotion."

Clearly there's a need for a strategy to manage internal and external expectations throughout service delivery cycle. What are the common approaches here? Should the framework be heavily formalized or general guidelines will do the trick?

Here we will outline formal and informal approaches for EM. The pattern may vary depending on the nature of the project: for small to mid size projects EM can be loosely structured and informal, while for large scale effort more formalized framework must be established. While informal method requires minimal efforts and is quite easy to adopt, we recommend investing more for a full-fledged EM strategy if you plan exponential growth.

Getting Started

The easiest way to adopt EM is to facilitate more communications at all levels. The initiative should involve more efforts from HR and marketing depts towards interconnecting employees inside organization and setting up scheduled on-line meetings and conference calls with client's managers and programmers involved in the project.

Marketing function should be extended to include regular "reality-check" within each project - this can be short satisfactory surveys sent out biweekly. It is also important to arrange a single touch point per client and encourage to contact this person whenever there are questions or concerns.

Your "lightweight" EM strategy should include the following initiatives:

• Healthy Intranet
• Informal Venues
• Scheduled Interactions with Clients' Workforce
• Feedback generation throughout the project

To Be Continued

ITO FUN | Because I Can

Humorous situations in IT industry always come with a grain of salt because too often its Worse Than Failure . However, we could and should learn from mistakes of others. I've decided to put all humorous stories / anecdotes about ITO in one place (for the time until we migrate to the corporate domain, under one header and picture). Let's call it ITO FUN for now. The pic i will use here is a custom-tailored coffee mug from dannysullivan


I picked the first story at Dian Schaffhauser who blogs at Outsourcing Mag.

According to the article on Siliconvalley.com, publisher and editor James Macpherson, who runs pasadenanow.com has just started advertising for a reporter based in India to cover, at the very least, city council meetings, which can be watched via the Net.

Now what is this? Is outsourcing to India so "kool" that everyone must try it at least once?
As Dian states, and i totally agree, it won't take too much time for James to realize he shouldn't have followed the hype:

All he has to do is edit the pieces coming in from his reporter to realize there are cultural, political and geographical gaps that will make the cost savings he'll presumably enjoy not worth the effort or his publication's reputation.

Do you have fun ITO stories like that? Send it in. alexey (dot) linkov (at) gmail.com

Practitioner Advice

In the recent IDC survey companies that outsource to Russia give recomendations to those planning to go offshore. According to IDC, the recommendations respondents would give others considering the use of nearshore/offshore resources can be divided into three groups: pre-engagement, start-up phase, and during the engagement. The verbatim recommendations create a clear checklist:

Initial considerations:

• "Be clear on the reason for going offshore."

• "Consider the time zone. Cost and convenience of traveling to/from theoutsourcing location can make a difference."

• "Start small."

• "Be clear about the requirements, the size of the project, and the expertise needed."

• "Do your research. Speak with people who have worked with the companythat you are considering."

In the start-up phase:

• "Be very thorough about selecting the remote management team (who from the outsourcer will manage your project?)."

• "Get your people motivated."

• "Communications is #1 priority. Establishing a process for daily communications is essential in any outsourcing relationship."

•  "Allow time for communication and team building – build it into the project plan. Relationship-building is very important, it will make the project easier."
  

• "Select the right people and let them carry the program, make it their mission."

Throughout the duration:

• "Develop strong relationships with the management of the firm and the project."

•  "Learn each others' cultures – exchange team members."
  

• "Allow time for knowledge transfer."

• "Build the trust. Forge a strong relationship."

• "Stick to the schedule. Use them as experts, in some cases, they know more than you do."

• "Keep on top of what needs to be monitored."

• "Spend time talking to them, explaining requirements."

Direct link to IDC survey