KEVIN CAMPBELL, GROUP CHIEF EXECUTIVE TECHNOLOGY, ACCENTURE.

. In this role Mr Campbell has responsibility for all of Accentures capabilities and services across systems integration, technology consulting, application outsourcing and infrastructure outsourcing. Mr. Campbell also leads Accentures quality and delivery capabilities, including its Global Delivery Network, which consists of more than 50 delivery centres across five continents, and leads the companys R&D activities.

Kevin Campbell

Before assuming his current position in September 2009, Mr. Campbell was group chief executive Outsourcing, responsible for Accentures $9 billion outsourcing business. In that role, which he held since 2006, Mr. Campbell oversaw the companys provision of application, infrastructure and business process outsourcing services to more than 650 clients globally.

IS GLOBAL SOURCING RELEVANT GLOBALLY?

adoption of global sourcing is intensifying
THE PERCEPTION OF GLOBAL SOURCING IN THE US, EUROPE AND ASIA-PAC WAS DIVERSE UNTIL ABOUT 18 MONTHS AGO.
In Europe especially, adoption was sluggish. However, in the last 6-9 months there has been a remarkable change and executives across different regions are equally aligned in recognising the potential opportunities of global sourcing. There are some obvious external factors that have influenced their thinking beyond the traditional approaches to outsourcing. One key factor is the impact of the current economic situation that has made organisations extremely cost conscious. To successfully compete and thrive in such tough economic conditions requires cost effective solutions. The second contributing factor is the growing credibility of global sourcing. sourcing as a phenomenon more relevant to American or UK companies. This was because of the prevalence of the English language in global sourcing delivery locations primarily India. However, over the years, the phenomenon has expanded and the global delivery model is now developing into a standard delivery platform. All types of providers are adopting it which has facilitated the emergence of a common level of global costs of delivery of services and access to a vast pool of skills and resources. The third key factor is the rapid growth of emerging economies in Asia-Pac and the tremendous opportunities this presents. Many European companies have set up operations in the region to leverage these opportunities.

Previously Europeans saw global

Over time these operations have expanded significantly and organisations are demanding solutions unique to those markets. To fulfil these growing demands, many companies are increasingly adopting global sourcing. Finally, mergers and acquisitions have extended the adoption of global sourcing. Since the onset of the financial crisis many companies have merged or been acquired. Global sourcing initiatives from either entity have been embraced across the new entity.

Organisations should recognise the changed global environment and look at global sourcing with a positive perspective, and an understanding of the value it can deliver. Executives in some cases tend to be influenced by traditional ways of doing things and fail to appreciate the value proposition. It is not even so much about offshoring, nearshoring or onshoring, since few companies would be hesitant to move operations to a more cost-effective location in an onshore country unless there was a compelling reason not to do so. Similarly global sourcing offers much more attractive cost levels for the

GLOBAL SOURCING IS RELEVANT FOR GLOBAL, GLOBALISING, REGIONAL OR PUBLIC SECTOR COMPANIES
There is a general tendency to regard global sourcing as being relevant to large global companies rather than to smaller regional entities. This thinking is neither valid nor current as almost all categories of companies now realise the significance of, and are gradually implementing, global sourcing. Nevertheless, there will always be the few who would claim that global sourcing is not applicable to them because of their industry or size. Such cases are now few and far between. Though global sourcing is perceived as a complex phenomenon, the value proposition of global sourcing is simple and straightforward and is relevant to all companies.

same global standard services. Thus there is no reason for local or regional companies not to leverage global sourcing. Apart from costs, other reasons such as the availability of skills and resources can be addressed through global sourcing. Companies who ignore global sourcing, believing that it is not pertinent to them due to their size or because of cultural barriers, are likely to face challenges in future. They would continue to operate at higher cost levels than their competitors and in the current economic climate where consumers are cost conscious, this will eventually hinder growth. Global sourcing in terms of manufacturing has been the preferred model for decades, and there are lessons to be learnt from such manufacturing companies in the services sector. Initially there

GLOBAL SOURCING: OPPORTUNITIES AND CHALLENGES FOR EUROPE

would always be reluctance and resistance to global sourcing initiatives in manufacturing. However, preliminary success prompted these manufacturing companies to expand further, eventually internalising global sourcing as key strategy for growth. The same model applies to the services industry. As with the internet, services globalisation will happen whether we like it or not and organisations will embrace it as they have embraced the internet.

Organisations may move certain jobs offshore because those jobs can be performed at a third of the cost. However, chasing labour arbitrage may only bring short term savings as the cost will have to be constantly managed and may be impacted by currency exchange, market conditions and other factors. Organisations need to look beyond simple math based on near-term costs. A focus on productivity is key in making global sourcing decisions. A certain process may use 100 resources to perform a job but through productivity improvements the same job may be performed using 50 resources. Such productivity improvement can bring about much greater benefits than just focusing on the cost aspect. It is important to create an environment where a focus on cost optimisation is also directed towards productivity improvement.

Productivity is key in making global sourcing decisions.

Organisations are now realising the payback from the internet and are evaluating the potential payback from global sourcing. Once they understand the timeframes and accelerated payback from global sourcing, adoption will be much more rapid. The focus of organisations is shifting towards becoming more competitive, and the recent economic crisis has convinced them that sticking with the status quo is not a competitive strategy. Thus organisations are beginning to clearly recognise the emergence of and rapidly embracing global sourcing.

CAPTIVE IS A STEPPING STONE TO OUTSOURCING...FOR SOME

Many European companies tend to explore global sourcing through their own captives. Though there has been some recent activity with captives, it is difficult to conclude that captives are growing. There have been recent cases where some leading captives such as UBS and Citi sold their operations to providers. Having had captives in India for the past few years they realised that the flexibility and ability to change their captives was limited.

ULTIMATELY OUTSOURCING IS ABOUT IMPROVING OVERALL PRODUCTIVITY

Global sourcing is not really a debate about onshore, offshore or lower costs. It is about improving overall organisational productivity.

Still, captives may be important for some organisations, since they are perceived to provide, at least initially, a more acceptable model of global sourcing. Organisations tend to believe that captives give them greater control, and that getting buy-in from their own organisation would be easier as compared with outsourcing, although the evidence shows that outsourcing can actually give companies much greater control through the commercial relationship established. The challenges of managing captives over the long term, however, include attracting and retaining talent, and making the investments needed to stay competitive with third-party services. Companies establishing captives should also ensure they have a viable exit strategy in place in the event they wish to monetise the assets of the captive at some point as the outsourcing provider community consolidates, sellers may find there is a shortage of buyers. Thus, while for European organisations captives may seem an attractive option, and can help companies understand the benefits of global sourcing, executives should carefully consider the costs and management challenges associated with establishing and running a private offshore operation, and be clear about their exit strategy.

GLOBAL SOURCING IS NOT JUST ABOUT CAPACITY SERVICES

The global sourcing provider landscape is changing. Global providers are expanding operations in low cost locations while Indian providers are expanding their footprint in Europe and America. The providers will continue to change not so much to offer lower costs but to cater to changing expectations of customers. At Accenture our accounts are managed with account managers. They are the best judges of what customers need and are enabled to offer the optimum solution. They decide the most appropriate strategy for their customers, whether it is cost or value optimisation, and follow our overall strategy that is driven by meeting the needs of our customers. Capacity or T&M deals will continue to exist and providers will continue to offer capacity services as part of a range of sourcing options for clients. Accenture has long provided capacity services, employing an offshore-centric delivery model, alongside our managed services offerings, and we often operate both models within the same client. In the past few years most Indian tier 1 providers have started moving toward a managed services model. This is also good news for the industry as competition will increase and customers will have more choice and options across both capacity, managed, and blended service models.