Archive for the ‘Outsourcing’ Category

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What Outsourcers Often Fail to Grasp

Tuesday, October 20th, 2009

By Mark P. Dangelo

www.Innovative-Relevance.com

With unemployment at over 15 million adults coupled with a projection of $80 billion in deficits among state unemployment benefits, expectations are high among a tax paying population that the use of outsourcing would be limited moving into the next decade. After all, with so many professionals out-of-work, productivity down, and the political will strong, why are we even talking about outsourcing at all?

Why indeed. Sentiments aside, the use of onshore or offshore workforces to provide a specialized or highly productive process augmentation continues to grow at a projected 10% for all of 2009 – but down from a traditional 20%+ compounded growth rate.

Outsourcing has been around for hundreds of years in various forms. However, with the exponential increase of global communications and ease of travel started in the 1970’s, outsourcing has mushroomed into an industry with lobbying clout and a combined economic revenue streams in the hundreds of billions. It reaches all corners of the globe including some places that seem strange.

Nevertheless, while the industry has flourished, they are facing a game changing shift that few outsourcers recognize and even fewer are prepared to act upon.

Culturally Challenged

Striking at a time when Congressional bills are being sponsored (e.g., 50:50) to limit the impact on domestic economies, many outsourcers fail to comprehend the need of diversification at all level of operations within their organizations. This is particularly true for offshore firms who prefer to use visa-sponsored foreign nationals rather than domestic workforces to promote a service or integrated product offering. These homogeneous outsourcers continue to “confront” their prospects with workers who frequently do not have empathy for domestic workers, nor understand the socio-economic realities confronting their proposed outsourcing solutions.

This lack of diversity within these foreign operations are often caused by the same mistrust they accuse domestic politicians of possessing. Until these outsourcers understand of the need for radical domestic restructuring and diversification in every country of operation, they will consistently be confronted by those who disbelieve their sincerity of assistance and the economic benefits they are proposing.

Old Market Ideals

Just five years ago, outsourcing contracts were much easier to obtain. For many, they presented a reasonable business case and then took an order for a multi-year, multi-million dollar contract. With an on-going two year global recession, these traditional approaches to the markets have been permanently changed.

This can be superficially witnessed in shifting wealth, government interventions, pay-limits, increased nationalism, and, of course, a rise in consumer poverty and household debt.

But, the go-to-market approaches and discussions for many outsourcers have not fundamentally changed. Why? Because success had instilled organizational overconfidence – and an adamant disbelief that their models might potentially be “out-of-phase” to developing markets and buyer requirements. The outsourcing world is no longer simply about labor arbitrage.

An Out-of-Phase Business Model

The discussions have changed, but the internal workings of how the outsourced business requirements are satisfied have not. The methods by which outsourcing employees are compensated have been largely untouched. Moreover, they also continue to believe “one-size” of outsourcing approach fits everyone. The models used to satisfy client demands fail to recognize adequate gain-sharing, proper governance, hybrid deployments, potential co-operatives, and highly flexible business orchestration.

In general, outsourcers fail to properly frame the need for domestic, onshore collaboration and partnering with existing workforces and future operations. Labor arbitrage is still the model being tightly clung to by sales forces as the way to gain a prospects attention.

For many, the use of non-conventional approaches that benefit both domestic and foreign economies (i.e., the new reality of globalization) are frequently feared and distrusted.

* * * * * * * * *

In summary, until outsourcers accept domestic diversification, new market approaches, and changing business models, they will continue to grow at the expense of country economies. This challenge has been noted not just by bankers, but by the IMF, the UN, and other international bodies all concerned about rising protectionism and in-county sentiments.

As the new decade dawns, the inflection point is being reached where consumer demand is aligning with political will against the wholesale export of jobs. The strange thing I see as a proponent of outsourcing and globalization, it can all be easily avoided where everyone wins.

It really is up to the outsourcing firms to engage domestically with a different discussion, personnel, and delivery models. Otherwise, in the mid-election year of 2010, they may indirectly find themselves under a new class of aggressive regulators and domestic watchdogs.

And yes, there are those firms that “get it.” There are progressive outsourcing operations that are making the needed changes against a new market and organizational reality. Those are the firms that stand the best chance of survival – and of benefiting everyone within the domestically and globally interconnected economies.

Let’s frame one last question. If you are an outsourcing entity, put yourself in your clients place. What bank receiving federal assistance wants to say they have taken taxpayer money and then displaced thousands of American workers? A balance must be achieved – very soon.

Posted in Business Model, Financial Services, Innovation, Mortgage, Orchestration, Outsourcing, Protectionism, Strategy | No Comments »

Peering Forward into the Next Decade

Tuesday, September 22nd, 2009

Seasons of Uncertainty Confronts all Aspects of Operations as We Enter 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

Also published at the National Mortgage Bankers Association

What a rebound in markets and sentiments within a short 14 months – from Chicken Little (“…the sky is falling…”) to Mighty Mouse (“…here I come to save the day…”). Is the worse behind us, or yet to come in 2010?

It was just in July 2008, when the wheels started severely wobbling on the traditional finance and mortgage vehicles, and September 2008, when the axle came off causing a financial “pileup” not seen in nearly 80 years. Very recently, global and domestic central banking measures are being allowed to expire, or in some cases, wound down or withdrawn. Consumer beliefs in a rebound are bottoming out, and in some cases, moving positive once again.

The world is apparently reaching a new, constructive equilibrium, while undergoing a rebirth of social responsibility driven by worldwide wealth shifts – West to East. Sanity and risk-adjusted business practices have reached into all corners of finance and mortgage groups (FMG’s). This change has been not just domestically apparent, but globally, as evidenced by Libor inter-banking lending spreads, which have fallen back to 2007 basis point valuations. Last but not least, global commodity prices (e.g., oil, copper, steel) have stabilized, but they are at the mercy of “weed filled” economies, country agenda’s, and day-trade speculators.

Back in 2006, the Case-Shiller Housing Index reached its highest point with origination values exceeding $3 trillion, but since then, we’ve fallen nearly 40% across both indices. Moreover, the once heralded home ownership percentage has beaten a hasty retreat from over 72% nationally to just over 67% in just over two years.

Additionally, receiving widespread coverage last month was a prediction by Deutsche Bank that the worst may be yet to come – nearly 50% of homeowners will owe more than their homes are worth by 2011. Even more dire are increasing economic predictions of a very long and protracted recovery if not another recessionary dip (e.g., a “W” or double bottom).

Foreclosures are still at historic highs, and our own government very recently has predicted millions of additional foreclosures in 2010. Downward pricing pressures on homes are widespread as federal, state, and local governments supported by servicers try to “modify” the legacy of housing’s irrationality against a shell-shocked consumer. The commercial markets are foretelling an unpleasant nightmare yet to come, and per capita household debt is the highest in history – even after rebasing (not including the U.S. Federal deficit obligation of nearly $700,000 per household).

Nationally, it appears unemployment is going to break or hover near 10% for the foreseeable future, and the investment markets needed for lending might be ahead of the fiscal reality, which is still playing out. We’re happy and encouraged by the “news not being as bad as it has been.” We hope never to see this situation again in our lifetimes. Indeed, we are an optimistic lot.

Most recently, as government officials advertized a 17% return on $70 billion invested. I wonder if during the 2010 mid-term election year, if we will have a touted return on the other $2 to $4 trillion portfolioed in the Fed’s balance sheet and the multitude of Treasury programs?

Or, will it merely be a footnote on the $13 trillion in Federal debt (equaling current U.S. GDP and including $5.5 trillion in Fannie and Freddie guaranteed debt) already clogging the books, and the clouding judgment of foreign creditors? What will FHA add to the mix of woes in the coming years?

So, with trillions in capital equity still to be raised, but currently equaling the market value of all FMG’s (approximately $2 trillion USD), what can be done? Where should business and technology investment’s be made in a Western world still full of uncertainty, record deficits, and a falling dollar?

Are we peering into a West versus East recovery that will produce very, very different economies and consumers as we enter the next decade? Is the shine permanently off the housing apple — to be picked up by new entrants supported by new methods?

As we peer forward on a new decade, there are many stories yet to be written, and many roadmaps in need of navigating.

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Posted in Analytics, Architecture, Business Model, Data, Financial Services, Industry, Innovation, Markets, Outsourcing, Protectionism, Regulations, Strategy | No Comments »

The Six “C’s” of Generating Success

Tuesday, September 22nd, 2009

Success = Components + Collection + Consolidation + Cohesion + Capability + Conclusion

By Mark P. Dangelo

www.Innovative-Relevance.com

Also published at the National Mortgage Bankers Association

With all the media sound bites and dire messages, sometimes you just want to hide in your cubicle and do nothing new. It is understandable. However, pragmatically we must move forward ensuring that people, processes, and technologies are once again relevant for the decade facing us, and our vastly different operating ecosystems (see, “Peering Forward into the Next Decade”).

So, where should we invest? What technologies or infrastructures should we use? How could we outsource more business and knowledge processes? Should we hire FTE’s or layoff? How do we measure success, and more to the point, is it merely about profits, government conformance, risk mitigation, or social responsibility?

After two brutal years where finance and mortgage groups (FMG’s) have shed hundreds of thousands of quality jobs, will the recovery be a “V,” a “U,” a “L,” or a “W?” Additionally, what will your competitors do? Who are the “desired” consumers? What are your organizational social and community responsibilities?

Indeed, there are many questions all encased by considerable economic uncertainty. Yet, the time for action is now. The time for pervasive technological and process transformations is past due.

So, what is the formula for success as we close out 2009 and peer into 2010? Whereas, no one formula or idea can capture all aspects of viability and the technology needed to deliver quality profits, the following simple framework is able to create desired organizational action.

Success = Components + Collection + Consolidation + Cohesion + Capability + Conclusion

I know, it sounds like a lot. However, let’s briefly explore the six “C’s” of success, and what you might be able to do to capitalize on the operating environment and constraints, which are poised to completely redefine FMG players, processes, and BAU (i.e., competition and intent).

Components, the Sum of the Parts is Greater

Historically, process and technology solutions were frequently viewed as one-offs left to astute and charismatic divisional heads. Technology investments, and the business lines / products they supported, were made against segmented silos of functionality and compartmentalized budgets. As the current decade draws to an undesirable conclusion, the idiosyncratic nature of these sunken ROI projections becomes all too apparent measured against new markets and upstart competitors.

In general, future technologies and co-dependent processes appear to be taking on increased importance outside of the once hallowed walls of IT – that is, “not invented here” personnel have been translated into “no longer work here.” Technology and the capital investments needed for their realization are being created in foreign cities with little geographical familiarity for domestic personnel.

Although, as the component technology pieces are being created elsewhere, the heralded death of internal IT (i.e., the “IT Killer”) by the Cloud, by SaaS, by virtualization, or even by outsourcers, are mere pipedreams.

To be sure, the IT roles of the next decade and dogmatic desires to “control from within” a corporate center are no longer a critical success factor. The roles of CIO’s and CTO’s will increasingly disappear – to be redefined in a new technology world ripe with continuous transformations and multi-faceted governance. With a historical FMG tenure of 5 years and an average salary exceeding $300K, IT leaders will have a lot to justify this next decade.

For internal IT, the ability to rapidly integrate and adapt externally developed and defined components will be greater than traditional technology provisioning. The sum of the parts is rapidly the greatest enabler for the next decade spurred by changing consumer behavior, fast cycle product demands, and competitive reactions requiring collection and cohesion of widely dispersed data sources.

Collection, It is No Longer Just About Money

Collection activities for bankers today have taken on a huge importance. Yet, collection today and tomorrow is frequently more about data than it is mere money. Not just data within a given set of delinquency or workout processes, but data that spans the over 60 distinct functional processes throughout the comprehensive mortgage cycles.

Data collection is just the first aspect of a new decade of new requirements for corporate governance and compliance. The ability to transcend the interlinked processes, both forward and backward, can no longer rely on any manual item, faxed document, or singular “swim lanes.” To achieve proper consolidation and cohesion of increasingly specialized data sources, collection must first accept the challenges of interconnectivity, while preparing for aggregation of compartmentalized data spread throughout siloed applications.

Or more simply, if garbage (inaccessible and non-searchable data sources) is allowed into the value chain of data, it pollutes the entire downstream series of demands needed for risk, decision making, and compliance.

I have to wonder, if we had electronically stored, catalogued, and managed the entire master sources of data for the millions of loans in distress during the last five, would the modifications, legal fees, and political backlash be this pronounced?

Consolidation, the Devil is in the Data

Data. Data. Data. Consequently, if data is everywhere and widely available, why is it that decisions are made that prove inadequate or let’s face it, are out-and-out wrong?

Some would argue that collection challenges are the root of evil when it comes to success driven by sound data (e.g., KPI’s) and decisioning analytics. However, FMG CEO’s ask an important question of why nearly $2 billion annually is spent on power for data center computer equipment? With a compounded yearly increase of data storage now, by some estimates, exceeding 50% annually, what should be contained or consolidated on this equipment that isn’t already there? Where’s the value?

Consolidation of data sources for future success resides with disciplines and technologies that are still not widely in use within the mortgage industry (e.g., master data management, data deduplication, aggregation, augmentation, scrubbing, federations, structured, non-structured, et al). Some of this is cost related and others are more about skill sets and perceived need by executives for investment or action.

Consolidation, within the success formula, is also about the growing third-party portals and data providers along the segmented mortgage processes – fraud, reporting, servicing, investments, hedge funds, FOREX, systems of record, and the list grows with each passing week, and sorry to say, new government program introduced (or withdrawn). Without the first three “C’s” internalized and properly framed, the last three variables in the success formula can lead to money traps and false security.

Cohesion, Leveraging more than IT

Cohesion in this context is defined as “the ability to positively relate various sources of information to each other.” To borrow a term from the pharmaceutical industry, it is about data efficacy. Moreover, driven by new markets and required insights, integrations of the past are not the integrations of the future. In fact, the ability to efficiently and accurately integrate growing and sometimes conflicting data has recently cost many good IT professionals their career and livelihood.

The new decade dawning is already being dominated by new, virtually provisioned infrastructures (e.g., IaaS) supporting fast-cycle business functionality– e.g., Amazon, Sales Force, Microsoft, and Google. As these initial “cloud” identified offerings evolve, their robustness and business criticality takes on new importance across the enterprise. And what do these new layers of infrastructure create spanning processes and business lines? Data. Data. Data.

Therefore, the cohesion of these growing sources increases in importance. The challenge of their integration is not merely an ETL (i.e., extraction, transformation, and load), but a core shift in competencies that was once viewed only from an internal IT need. As systems are provisioned within layers of cloud infrastructures (e.g., data, voice, processes), the skill sets of cohesion and the efficacy it demands are in short supply and represents a job growth area for every IT leader and astute business person.

Capability, Fenced by Risk and Regulation

If we thought the rules of operation were cumbersome and draconian in the past, we may be severely disappointed with the future. In various speeches and interviews, the Executive and Congressional offices are all positioning for changes. Politics and lobbying being what it is, the final regulations may be some time coming – but something will change, especially if this drags into the 2010 election year.

Therefore, as more and more capabilities are delivered via cloud technologies and outsourcing relationships (just look at the numbers, acquisitions, and press releases), organization capabilities will be fenced by how quick we can react to shortened regulation cycles and risk aversion advocates (e.g., Fed, regulators, public sentiments).

Capability moving forward will be still be about systems and technology – but the time needed and patience for “failures” will be drastically shortened. Tolerance to achieve meaningful capability success will be shortened not by mere history, but by decreased CAPEX budgets, time-to-market, consumer products and their profitability, and of course, regulatory compliance.

If we are indeed confronted with a jobless recovery (the “L” or “U” scenario), how much will budgets be increased for new functional capability? What happens if a “W,” or double bottoming, is experienced in 2010? Future success requires new capabilities, but the methods and techniques of defining, provisioning, and bringing on-line will test our operations and vendor partners alike.

Conclusion, Achieving Incremental Reality from Ambiguity

With five of the six “C’s” integrated into the algorithm for success, you might be tempted to think that 83% of the equation is a passing grade. Uh, no. This last variable has proven to be the most difficult to achieve with accuracy and consistency — as it is subject to internal influences and organizational biases of beliefs. The historic methods for conclusions were often more about art than science – hubris over content

Today and more importantly tomorrow, the art of the conclusion or decision is being hurriedly replaced with analytics. Objectivity based upon vetted facts, statistics, and the other five “C’s” is ruling the discussions in the boardrooms and with investors.

In fact, spending on business intelligence tools which support robust decision making continue to increase at double-digit growth rates – an aggregated market that exceeds $60 billion. All-in-one solution sets are being deployed along the entire success equation by industry leaders IBM, Oracle, InfoSys, and SAP.

Achieving “conclusivity” is also supported by a wide range of dashboard offerings (e.g., Visual Mining), analytical and industry specific KPI firms (e.g., Intelli-Mine, Inc.), and vertical benchmarking solutions (e.g., LPS).

Linked together, the six “C’s” are a powerful formula for the changing reality of a new and ambiguous decade. Also it should be noted that the conclusions desired within FMG will no longer be reached in domestic isolation. World governing bodies, global creditors, and wealth rebalancing all will bring a stark new set of consequences for success.

Did I forget to mention the seventh “C?”

* * * * * * * *

In conclusion, successes of tomorrow cannot be redressed on the methods of the past or the behaviors of a few. Continuous vigilance will be demanded to ensure any investment in infrastructure, the cloud, or business processes are exceeding expectations and measures. “Provision and forget” cannot be a path forward for lasting success.

As we move forward, one thing is very understandable – the methods used to measure results in a virtual, highly specialized FMG ecosystem will be distinctive and non-insular. The IT approach to provisioning, integration, and maintenance will also be different. Even the standards of interoperability and exchange will be uncommon – but likely converging.

S-U-C-C-E-S-S. No matter how it is defined, spelled, or framed, success must be generated from within. Are we really prepared across people, processes, technologies, and markets to orchestrate success in an uncertain decade?

In closing, as I get ready to attend my fifth MBA Annual show in San Diego next month, I sincerely wish everyone the best of success during this industry leading event. Make sure you say “howdy!” if you see me.

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Posted in Analytics, Architecture, Cloud Computing, Continuous Organizational Innovation, Dashboards, Data, Financial Services, Innovation, Markets, Orchestration, Outsourcing, Strategy | No Comments »

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