A Helping Hand
The term outsourcing conjures up mixed reactions depending on which industry executive you speak with. This month, CGT sat down with Bhanumurthy Ballpuram, vice president and vertical head, retail solutions, Wipro, to discuss the unique challenges our industry faces, the specific areas that companies are outsourcing and the potential for benefits to be realized.
What factors contribute to a company's strategic decision to outsource?
Leading consumer goods (CG) companies stay ahead of others by innovative strategies, consumer focus, brand equity and optimized operations. Over the years, successful companies have become larger, more focussed and more global -- at times ahead of the retailer when it comes to being truly global. Global markets, global teams, global production and global competition require these companies to leverage best resources across the world.
Companies have stayed ahead of their competition by not only staying focused on their core competencies but also leveraging outsourcing partners for contextual competencies as a strategic lever and growth enhancer. Let us talk about challenges that arise from consumers, customers, governing bodies and markets and how outsourcing fits in.
Challenges are faced in the form of stagnating growth and fragile brand loyalty. Compounded annual growth of consumption in food products have been just 2.6 percent from 1996 to 2004, while it is just 2.2 percent in the home and personal care market. Following the consumer trends (health and wellness in case of food) and addressing the international and emerging markets are growth imperatives. This needs an agile and dynamic organization that has an ability to learn, unlearn and learn again in a sustained manner. It calls for focus on the key aspects of the core strategy and leverage industry leaders on the solutions, services and products that are world class by outsourcing.
So, you view outsourcing as a means to promote growth?
Yes, one way to bolster growth is through a deep focus on product innovation, given the looming threat of private brands and their acceptance. The direct impact on outsourcing would be in the in the areas of product lifecycle management and product data management. While to an extent these would be core activities leading to new product introductions, areas such as master data management, data synchronization, data cleaning and integrity are key areas that can be outsourced.
Challenges from customers come in the form of growing retailer power. Retailer consolidation and growth in private label share brings with itself opportunities and challenges. A concentrated customer base helps create and build targeted products (by channel, store profile and shopping occasion) and deliver higher level of service. The challenges would be exclusive SKUs for retail customers like unique packages to result in SKU proliferation. The IT impact of Retailer consolidation would be in the areas of building collaboration engines and strong analytics to manage product categories, customer service and consumer behavior, which are the possible areas for outsourcing.
Government regulation like inclusion of product information such as trans-fat composition in food products, Sarbanes-Oxley compliance and its direct relevance to Trade promotion audits are some of the examples. Examples like package design and development could be an outsourced BPO activity and so also trade promotion administration and analytics.
Increasing pressure on profitability from rising commodity costs makes companies to rethink their commodity procurement methods. Executing strategic sourcing becomes critical here. Procurement process could be a highly specialized activity calling for outsourcing it to experts and new solutions to build electronic market places for both direct and indirect items for procurement.
What new areas are companies beginning to outsource, beyond IT?
We are seeing two trends. First, companies that earlier started with Application Outsourcing are now venturing into related areas such as infrastructure management, testing services and IT helpdesk services. These services are related to and sometimes bundled with the application outsourcing, and the nimble vendors have moved fast to add these capabilities to provide a single point for a wide array of related services.
Second, we are seeing a realization that the offshore model can be extended to other knowledge based services. While outsourcing back office services such as finance and accounting have been around for years, we are finding CG companies at the leading edge of outsourcing now looking at marketing analytics, planogramming and procurement optimization. Successful delivery of these services requires a deep domain capability and specific market knowledge, and leading vendors with a strong vertical industry focus have added this.
What geographical and logistical challenges do U.S.-based companies face when outsourcing projects to Indian-based companies?
Outsourcing to India based companies has matured now and today there are lot of organizations who have done it, know it and are comfortable with it. There are multiple approaches companies have tried and have succeeded -- start small, start big, co-source, outsource, partnership models where vendor and customer collaborate. Retailers and consumer goods companies are more mature as organizations when it comes to handling challenges related to geography and time-zone. The core learning comes from the fact that they themselves have been expanding their markets over the years hence the experience. Specifically in terms of challenges faced, some are:
Managing expectations and bringing in clarity on roles and responsibilities. It is important to define clear goals, and constraints, identify resources both at the vendor end and more importantly at the customer's end, define roles and responsibilities and establish timelines at the engagement start. It is equally important to communicate the goals and implication of the outsourcing projects to the internal stakeholders -- both the existing teams and the management.
Integrating the teams. Vendors can work as well as one lets them work. That makes it important for owners of the engagement on vendor and customer teams to relate well to each other, understand the styles, understand the teams and execute a plan for team integration addressing -- team motivation, team building and cross cultural aspects.
Change in work methods. Some basic changes that come with outsourcing of projects are felt in the actual work methods. It calls for more discipline, structured process to document and well-defined review mechanisms. On the management side, it is important to communicate within the customer organization that the India based team is an extension of customer team and not as if one is dealing with a black box. This will strengthen the team alignment with the customer business.
Management commitment. CG organizations need to support the outsourcing initiative with a sponsor who is well-regarded within the company.
With any large scale project, companies are challenged to realize benefits. How can companies realize an ROI on outsourcing projects?
Outsourcing needs to be looked at from the strategic perspective to make it a success. Companies need to have clear goals and expectations from their outsourcing projects. Objectives of outsourcing could be in form of cost savings, speed and capability enhancement. Based on the core objectives, customer and vendor need to establish a governance framework that defines and tracks qualitative and quantitative measures for the project. Special attention needs to be given to account for many hidden costs and benefits through effective monitoring. Where possible, it is important to break the larger projects into smaller and more clearly measurable projects. Also the benefits are typically realized once a critical mass is established.
What factors contribute to a company's strategic decision to outsource?
Leading consumer goods (CG) companies stay ahead of others by innovative strategies, consumer focus, brand equity and optimized operations. Over the years, successful companies have become larger, more focussed and more global -- at times ahead of the retailer when it comes to being truly global. Global markets, global teams, global production and global competition require these companies to leverage best resources across the world.
Companies have stayed ahead of their competition by not only staying focused on their core competencies but also leveraging outsourcing partners for contextual competencies as a strategic lever and growth enhancer. Let us talk about challenges that arise from consumers, customers, governing bodies and markets and how outsourcing fits in.
Challenges are faced in the form of stagnating growth and fragile brand loyalty. Compounded annual growth of consumption in food products have been just 2.6 percent from 1996 to 2004, while it is just 2.2 percent in the home and personal care market. Following the consumer trends (health and wellness in case of food) and addressing the international and emerging markets are growth imperatives. This needs an agile and dynamic organization that has an ability to learn, unlearn and learn again in a sustained manner. It calls for focus on the key aspects of the core strategy and leverage industry leaders on the solutions, services and products that are world class by outsourcing.
So, you view outsourcing as a means to promote growth?
Yes, one way to bolster growth is through a deep focus on product innovation, given the looming threat of private brands and their acceptance. The direct impact on outsourcing would be in the in the areas of product lifecycle management and product data management. While to an extent these would be core activities leading to new product introductions, areas such as master data management, data synchronization, data cleaning and integrity are key areas that can be outsourced.
Challenges from customers come in the form of growing retailer power. Retailer consolidation and growth in private label share brings with itself opportunities and challenges. A concentrated customer base helps create and build targeted products (by channel, store profile and shopping occasion) and deliver higher level of service. The challenges would be exclusive SKUs for retail customers like unique packages to result in SKU proliferation. The IT impact of Retailer consolidation would be in the areas of building collaboration engines and strong analytics to manage product categories, customer service and consumer behavior, which are the possible areas for outsourcing.
Government regulation like inclusion of product information such as trans-fat composition in food products, Sarbanes-Oxley compliance and its direct relevance to Trade promotion audits are some of the examples. Examples like package design and development could be an outsourced BPO activity and so also trade promotion administration and analytics.
Increasing pressure on profitability from rising commodity costs makes companies to rethink their commodity procurement methods. Executing strategic sourcing becomes critical here. Procurement process could be a highly specialized activity calling for outsourcing it to experts and new solutions to build electronic market places for both direct and indirect items for procurement.
What new areas are companies beginning to outsource, beyond IT?
We are seeing two trends. First, companies that earlier started with Application Outsourcing are now venturing into related areas such as infrastructure management, testing services and IT helpdesk services. These services are related to and sometimes bundled with the application outsourcing, and the nimble vendors have moved fast to add these capabilities to provide a single point for a wide array of related services.
Second, we are seeing a realization that the offshore model can be extended to other knowledge based services. While outsourcing back office services such as finance and accounting have been around for years, we are finding CG companies at the leading edge of outsourcing now looking at marketing analytics, planogramming and procurement optimization. Successful delivery of these services requires a deep domain capability and specific market knowledge, and leading vendors with a strong vertical industry focus have added this.
What geographical and logistical challenges do U.S.-based companies face when outsourcing projects to Indian-based companies?
Outsourcing to India based companies has matured now and today there are lot of organizations who have done it, know it and are comfortable with it. There are multiple approaches companies have tried and have succeeded -- start small, start big, co-source, outsource, partnership models where vendor and customer collaborate. Retailers and consumer goods companies are more mature as organizations when it comes to handling challenges related to geography and time-zone. The core learning comes from the fact that they themselves have been expanding their markets over the years hence the experience. Specifically in terms of challenges faced, some are:
Managing expectations and bringing in clarity on roles and responsibilities. It is important to define clear goals, and constraints, identify resources both at the vendor end and more importantly at the customer's end, define roles and responsibilities and establish timelines at the engagement start. It is equally important to communicate the goals and implication of the outsourcing projects to the internal stakeholders -- both the existing teams and the management.
Integrating the teams. Vendors can work as well as one lets them work. That makes it important for owners of the engagement on vendor and customer teams to relate well to each other, understand the styles, understand the teams and execute a plan for team integration addressing -- team motivation, team building and cross cultural aspects.
Change in work methods. Some basic changes that come with outsourcing of projects are felt in the actual work methods. It calls for more discipline, structured process to document and well-defined review mechanisms. On the management side, it is important to communicate within the customer organization that the India based team is an extension of customer team and not as if one is dealing with a black box. This will strengthen the team alignment with the customer business.
Management commitment. CG organizations need to support the outsourcing initiative with a sponsor who is well-regarded within the company.
With any large scale project, companies are challenged to realize benefits. How can companies realize an ROI on outsourcing projects?
Outsourcing needs to be looked at from the strategic perspective to make it a success. Companies need to have clear goals and expectations from their outsourcing projects. Objectives of outsourcing could be in form of cost savings, speed and capability enhancement. Based on the core objectives, customer and vendor need to establish a governance framework that defines and tracks qualitative and quantitative measures for the project. Special attention needs to be given to account for many hidden costs and benefits through effective monitoring. Where possible, it is important to break the larger projects into smaller and more clearly measurable projects. Also the benefits are typically realized once a critical mass is established.