Wednesday, December 18, 2013

Transition versus Transformation: Perfecting the PO Customer/Outsourcer Relationship by guest blogger Jack Hess

Procurement leaders may have a vision for where they want to go, but they often lack an action plan for how to get there. Others may have an action plan but lack the financial resources or bandwidth required to move forward. On a broader scale, companies often have severe pain points and change management issues but don’t know how, or don’t have the capabilities, to provide the appropriate corrective actions to resolve them.

With these challenges considered, it is not surprising that many enterprises are turning underperforming procurement processes and poorly controlled spend categories over to specialized providers of sourcing and procurement services.  Enterprises have been aiming to stabilize a core set of strategic competencies with focus on customer service excellence and outsourcing the non-strategic processes which do not impact customers directly.

Procurement service providers offer companies a slew of benefits: the ability to achieve realized savings targets, reduce cost for goods and services, deploy spend management best practices, leverage best in class e-procurement technologies, and deploy effective outsourcing processes – all without taking on the risks and assets required to achieve such outcomes internally within the organization.

In order for both the procurement outsourcer and the provider to succeed in a joint engagement, the provider must become a partner, which means they will have a flexible commercial model with agreed upon Service Level Agreements and a “skin in the game” commitment to support sourcing/procurement success, including tracking savings to the bottom line.

From a tactical point of view, understanding the interdependencies between an outsourced process and a customer’s overall business operations is a critical differentiator between transitioning a process and transforming it.  Once you understand factors like the enterprise spend, stakeholder compliance and requirements, inputs, handoffs, relationships, approval points, and the downstream ‘customers’, you can identify ways to also deliver continuous improvements.  Those improvements will ultimately transform the service into a true value-add for the organization, in addition to transitioning the processes.  Linking sourcing and procurement success to financial business outcomes with a potential 4+ X ROI is essential to long-term success of the project. Even more enlightening, progressive PO providers are working with customers to enhance the commercial model and make the financials more attractive by providing Self-Funding and P&L Positive models. This approach can reduce the risk for the customer and, oftentimes, even identify a payback timeline.

Having a service baseline and transition discipline in place allows a customer to truly understand and measure the improvement gains realized through an outsourcing partnership. Below are several more specific suggestions to consider when outsourcing and ways to perfect the provider/client relationship so both parties win:

  • Avoid the "lift and drop" approach. This is where a customer simply tosses a category/spend management process over the wall and expects a procurement services provider to deliver the process exactly, or better, as it was in-house. Very rarely will the process being outsourced have already been improved to maximum effectiveness, and even if it was a well-oiled machine internally, the economies of scale achieved through selecting a strong service provider should support reexamining the process.  An outsourcer who is truly a partner and has “skin in the game” will be honest about elements of the customer’s process and provide best-practice alternatives.
  • Process excellence must be part of the service. Most organizations seeking to outsource do not have the resources to run continuous improvement initiatives in-house. The service provider should fully understand the customer’s “as is” process and how it relates to other pieces of the business. With those things understood, the provider should then proactively identify comprehensive improvement recommendations before taking it over. Then, the improvement should be accomplished during transition from customer to service provider. Performing this step with process excellence in mind will allow for many benefits, including allowing the service provider to embed a sustainable continuous improvement strategy within the process. 
  • Understand the end-to-end spend management processes. This maximizes the engagement through sustainability. Knowing what inputs feed into an outsourcing process and how the deliverables from the process are used within the customer’s business is critical to success. By doing so, a long term transformation vision can be established, versus offering a limited, one-off outsourcing plan – this is the way to maximize the engagement. Sustainability of savings and continuous improvement can be achieved through a comprehensive end-to-end spend management approach including managing the enterprise spend through five simple, but, essential principles:
                 1. Manage spend in a competitive environment (when working with incumbents leverage
                     benchmarks and market intelligence for better results)
                 2. Manage spend utilizing contracts and agreements
                 3. Manage spend through compliance to contracts
                 4. Manage spend in a PO Management approval process
                 5. Manage spend through e-procurement technology

The sourcing and procurement services market is maturing rapidly with ever-evolving innovative techniques to provide breakthrough savings while greatly improving the end-to-end processes. To ensure maximum benefits are achieved in a PO engagement, it’s helpful to have best practices in mind at the outset of the relationship – such as those listed above. This facilitates a positive, and mutually fruitful, experience for both the provider and the outsourcer.
Jack Hess is Vice President of Solution Design and Transformation for Xchanging, Inc

Wednesday, November 27, 2013

Five Tips for an Effective CSR Program by guest blogger, Bob Gogel

Increasingly, companies are committing to making a positive social or environmental impact on the communities where they operate.  But despite their growth in popularity, Corporate Social Responsibility (CSR) programs are not easy to execute effectively.

At Integreon, we designed our CSR program to build upon our operational strengths. As a global outsourcing company providing integrated legal, research and business support solutions, our strengths include an educated, global and multilingual workforce, as well as integrated technology that connects our associates around the world.

We’ve created a series of live-streamed educational classes that allow our associates to teach classes to underprivileged children who lack access to quality education; so far, teaching hearing impaired children in India from Fargo, North Dakota. Soon, we will be expanding our relationship with this school by involving more of our associates, who can teach courses in many different subjects, including English. These experiences give our associates and the children they teach the opportunity to learn from each other by crossing cultural boundaries with the help of video conferencing technology. This is just one example of our CSR efforts at work; below are additional tips for maximizing a CSR program.

Top five tips for effective CSR:

1) Develop a clear mission & objectives: To gain traction internally around a CSR program, it’s important to develop a clear mission statement or an explanation of your company’s values, and how those values will be carried out in your CSR program. Especially for global businesses, it is crucial to establish common principles that all employees can unite around, whether they’re in London or Mumbai.

2) Demonstrate a measurable impact: The programs and initiatives your company implements will have real effects on people. Each annual CSR report provides an opportunity to track your company’s impact in a tangible, measurable way. At the end of 2012 for instance, The Coca-Cola Company’s 5by20 initiative, a global commitment to enable the economic empowerment of five million women entrepreneurs across the company’s value chain by 2020, was able to report it was operating in 12 countries and had impacted approximately 300,000 women.

3) Tell a story with your CSR program: While numbers and exact forms of measurement are critical success factors, there is an opportunity to bring programs to life by sharing compelling stories. For example, an employee’s experience donating holiday gifts to children or running in a 5K to support a charity will emphasize your program’s positive impact through tangible examples.

4) Let your employees be ambassadors of your program: Employees are often the ones doing the work of reaching out to local communities, so give them the recognition they deserve. CSR reports, corporate websites and internal communications all present ideal opportunities to showcase employees’ volunteer efforts or charitable donations. In addition, personalized employee testimonials about a volunteer experience can bring a CSR report to life.

5) Evolve to meet society’s expectations: As society’s needs change, you may need to evolve and/or expand your CSR program. Listening to your key stakeholders and being open to change will be critical success factors for an effective program.  TOMS, for example, recently expanded on its “buy one, give one” business model when it opened a manufacturing center in Haiti, a country where TOMS distributes shoes. This new strategy allows TOMS to improve people’s lives beyond “buy one, give one” by offering a stable source of employment to local residents.
Bob Gogel, CEO of Integreon, a global provider of integrated legal, research and business support solutions, has more than three decades of experience as both a provider and purchaser of global outsourcing, technology and consulting services. He is also co-founder of a leading think tank – the European Executive Council (EEC), the editor-in-chief of The State of the European Union annual conference, and a member of the faculty teaching the MBA program at HEC in Paris and Shanghai.

Wednesday, October 30, 2013

Contact Center Management: Motivating Your Employee to Perform Better! by guest blogger Sushma Bendore

Positive reinforcement is a great motivator, whether it is getting your child to complete her homework or driving your team to perform better! When behavior is reinforced positively, we tend to focus more on our strengths and less on our weaknesses. Thus, by regularly praising good work and rewarding targets achieved, you will be able to drive anyone (your child and your team!) into producing exceptional results consistently.

In fact, outsourcing experts recognize the importance of reinforcement in contact center management. They propose that direct, clear communication coupled with encouraging words is crucial for business success. There are two types of reinforcements: external (e.g., monetary rewards, compensation, certificates, gifts, etc.) and internal (e.g., recognition, praise, acknowledgement of a job well done, etc.). Both play an integral part motivating sales and customer service associates to achieve targets and business goals.

We found that that positive reinforcement is an extremely important ingredient in perceptual learning. We conducted a small experiment to understand its effects in contact center deployment. We decided to divide a batch of newly hired advisors into two groups during the training process. Group A was positively reinforced (feedback on performance, areas to concentrate on for further improvement, review of the previous training session, etc.), while Group B did not receive any reinforcement. Testing on the second day showed that Group A performed much better than Group B.

Since it may have been a little early for the second group to show improvements, we moved to the next phase—this time, the new advisors were trained continuously for 10 days and the test was administered on the 11th and 12th days. Once again, Group A was reinforced and Group B was not. The results were the same, group B did not show improvement and in fact indicated a dip in ITS scores (from 75% down to 71%). Group A showed a spike in results from 75% to 85%!

We can see that the performance gap between the two groups is huge taking into account that the only difference among the two was feedback on right/wrong answers. Clearly, just training in perceptual learning even for adults isn’t nearly enough. One of the solutions we came up with to “deliver” positive reinforcement is a sign-in quiz.

This automatically activated application serves a pop-up that presents a question to an advisor who has logged in. She is required to answer the question and gets immediate feedback on it. Her performance reports can be generated at any desired frequency and provide a mix of reporting variables.

The architecture of the quiz application allows us to create multiple question banks for a given program. The question sets are designed and mapped to the skills required by a program. When an advisor logs in, the question that pops up can be randomly generated from any of the pre-determined sets, depending on the desired mix of the questions (low/medium/high complexity). Also, these questions can be regionalized depending on the type and requirement of the program. 

The sign-in quiz app is designed to: 
  • Serve as a skill and knowledge building tool.
  • Serving as a skills re-verification tool on minimum skills and knowledge predefined for the program.
  • Act as a training needs assessment input for identifying key areas that may require training interventions proactively.
  • Provide continuous reinforcement to acquire job-critical knowledge.

We believe that positive reinforcement is not just about encouragement or compensation. It is about inducing continuous learning and ensuring that our employee is motivated to go that extra mile!
Sushma Bendore, Senior Manager-Business Excellence at Aditya Birla Minacs, is responsible for the Design Factory’s training initiatives. This role involves designing, implementing and delivering performance improvement solutions like  eLearning framework, curriculum design and development, trainer certification framework and project management of training application development like BIT (Business Intelligence Tool T&Q) and SIQ (Sign In Quiz).

Monday, October 14, 2013

Everyone has the cloud, but how are you using it? by guest blogger Kristyn Emenecker

Nick Carr’s controversial essay “IT Doesn’t Matter” claimed that IT – just as railroads and electricity – will ultimately become a commodity accessible to all. Consequently, he argued that companies should not overly invest in, or rely on IT as a resource for competitive advantage. Now marking its 10-year anniversary, Nick Carr’s logic certainly panned out with regards to basic technology. Today, this logic still holds as cloud enters the mainstream. Carr predicted that IT capabilities will ultimately be centralized, freeing companies to invest in innovation in places that really matter to their business – in some ways, Carr predicted cloud.

The cloud computing movement pursues this idea of a standardized and efficient IT model, and helps improve overall business performance by providing the ability to upgrade, scale and integrate effortlessly and cost-effectively. But the cloud movement is still, well, a movement, and what Carr did not predict is the emergence of new services we now also have to consider - such as apps, mobile, social media and so on. Outsourced call center services are no exception to the movement. As the transition to the cloud continues to streamline, the importance lies not in simply having the technology. What really matters is how we use it to our advantage.

The Next Step: Truly Multi-channel

Cloud is already here – it’s happened and we’re beginning to embrace it. So where do we go from here? For business process outsourcers, the cloud has certainly proven to be highly cost-effective in addressing their eternal struggle with unpredictability. With ever-changing levels of demand and activity, cloud contact center platforms make it possible for outsourcers to seamlessly scale up or down to fluctuating resources and minimize resource consumption. Frontline Call Center is an example who, located in Ocras Islands, leveraged the efficiency of a cloud platform for their outsourcing needs and saw dramatic cost reductions while agent utilization doubled. But it’s simply not enough to employ the cloud as an engine of cost savings.

According to Forrester’s research on cloud economics, leaders who have mastered the cloud for cutting-costs are now harnessing it as a profit-driver. By leveraging the advantages of the cloud to design new services, or improve existing ones, companies can create new revenue. For outsourcers, an example of such services could be leveraging disruptive social and mobile channels in their call centers as a value add for customers.

Outsourcing companies are the middle man – they are generous providers with an ethos centered on customer satisfaction, but they get very little in return. In an age where social and mobile are the prevailing means of communication, customers are expecting an experience tailored specifically to their needs and preferences, and that includes multichannel services.

While a cloud platform allows for efficiency such as call routing and callback services, it can also facilitate seamless multichannel communication through SMS, chat and social media. By integrating these types of service add-ons, BPOs are able to accommodate service preferences, providing the new services their customers are looking for. What’s more, outsourcers are presented with an advantageous selling point. Beyond the satisfied customer, outsourcers can upsell these additional features to generate more business opportunities, growth and income. Frontline, for instance, implemented a new tool enabling clients’ customers to connect to an agent from their website without picking up the phone. This gave clients and prospects another reason to use their service, and in two years, they saw a 400% spike in business growth.

While cloud-based IT is to become the norm, simply transitioning to the cloud is only the beginning. Beyond leveraging its abilities to cut costs, integrate quickly, or ramp up and down flexibly, new services and offerings such as social and mobile communications can provide BPOs with a strong competitive advantage whilst simultaneously meeting today’s customer expectations.
Kristyn Emenecker, Vice President, Product Marketing for inContact, has 18 years’ experience in the contact center industry, serving in a variety of operational, consultant, and senior leadership roles.  She is active in a number of industry groups, published in multiple trade journals and a regular on the industry speaking circuit. Twitter:  @LIVinEden

Thursday, September 26, 2013

Insights into Q3 2013: What to Watch! --- by guest blogger Atul Vashistha

The following summarizes some of Q2’s more interesting developments from around the world as extracted from Neo Group’s Global Supply Risk Monitor℠ (GSRM℠), which tracks hundreds of the world’s leading Countries, Cities and Suppliers in the global services and sourcing realm. From thousands of observations, we’ve filtered a number of key highlights from Q2 with potential impact in the periods ahead. 

Here’s what to watch:

1. The Rupee x Three? Perhaps the biggest ongoing news was the continued currency slide in the world’s largest offshore destination as the Indian Rupee hit lows of 60.76 per US Dollar. Paired with a high fiscal deficit and continued heavy capital outflows, the trend points to 2013 becoming the third straight year of net Rupee/USD depreciation with the accrued 2013 slide fast approaching 2011′s 18.8% overall decline. In the short run, the trend helps boost some suppliers’ results, but in the long run it may lead to buy-side clients seeking contract concessions. To read more, check out this recent article by CIO Magazine, How IT Outsourcing Customers Can Benefit from Weak Rupee.

2. Shanghai Goes Free. In China meanwhile, the State Council approved Shanghai’s newest Free Trade Zone. Don’t hold your breath for instant action, though – the new zone won’t be completed for another 10 years. Once finished, it could prove an alternative to the Hong Kong Free Trade Zone; although the latter has been highly desirable due to its sound legal system and market openness. In any case, a new Free Trade Zone is always an attractive option for opening new supplier delivery- or company-owned centers. Not content to stand still on the SEZ front, the Indian Government did away with the minimum land requirements for SEZs and has agreed to exempt service tax charges on developers and units operating within the country’s special economic zones (SEZs). The moves should benefit India’s IT industry.

3. Philippines Uptick. Over in the Philippines, strong government stability compelled rating agency Fitch to upgrade the country’s debt ratings from a ‘BBB-’ to ‘BBB’. That move should help prompt more investors to enter or enlarge their presence in the market. Over time, this will lead to a more mature outsourcing market.

4. Visas Down Under. During the quarter, Australia proved that the US is not the only buy-side location exhibiting anti-sourcing sentiments on the Visa legislation front. On June 28th the Australian Government passed changes to its ’457′ temporary work visa programs. These changes include a requirement that companies must hire Australian workers before considering immigrant workers for open positions, and they must pay Australian market salary rates to any foreign workers they do employ on a 457 visa. This could invariably increase supplier rates, as suppliers will end up spending more on offshore personnel traveling to Australia on 457 Visas, similar to the current US situation.

5. Split City. Country risk alone never accounted for all location risk, and India’s Hyderabad provided perfect evidence this past quarter. Political uncertainties again rose towards the end of the quarter, as the Telangana issue gained momentum ultimately leading to the bifurcation of the current state of Andhra Pradesh. Hyderabad is likely to serve as the joint capital. Tax revisions may be on the horizon. Hyderabad may adopt the VAT rate of either Telangana or AP. For a kicker, the city also faced increased power outages and an overall power deficit. While investors will explore coming back to the state, there remains much uncertainty around distribution of revenues, natural resources (power, water), tax rates, etc.

6. Mind Thy Neighbor. Q2 also offered us a reminder that Location Risk may not be a function of only the offshoring country in question. Pollution hit a peak in Malaysia, caused by smoke fog from Indonesian forest fires (??). That’s right, Indonesia. Malaysia had to declare a state of emergency in Johor. Schools and colleges were closed as the air pollution index in two districts exceeded 750 points, versus an acceptable level of 350 points. This is likely to bring down the Quality of Life rating in the country, always closely watched by ex-pats.

7. Vietnamese Boost. Vietnam’s software development industry posted strong growth in Q2 2013. The primary driver was Japan shifting from Chinese to Vietnamese providers (maybe they couldn’t wait around for that Shanghai Free Trade Zone). Moreover, economic recovery in the US, France and Germany also had a positive impact on the Vietnamese outsourcing industry. Despite these advances, the industry still faces difficulty in identifying new markets; evident in the fact that 70% of the total software export is attributable to Japan.

8. Enter Mother Nature. Geo-political risk was seemingly everywhere in Q2. India witnessed devastating floods in Uttarakhand in mid-June with over 6,000 feared dead, while Mumbai experienced monsoon rainfalls that disrupted trains, planes, automobiles and busses, stranding thousands of industry commuters. A major earthquake in the Sichuan Province of China killed 194 people and injured more than 12,000; while metro-Manila experienced massive June floods that paralyzed parts of the city. As if to again prove Geo-Political Risk is not limited to developing nations, torrential rains and severe flooding tormented Western Canada, and severe thunderstorms and snowstorms affected other parts of the country including Newfoundland, Saskatchewan, Manitoba, Ontario and Alberta, all leading to massive power outages. In Brazil, people proved as disruptive as Mother Nature herself as nationwide strikes brought millions of people to the streets over several weeks in a fight against corruption.

9. Bigger Pay Days. In Supplier news, no fewer than three Tier-I provider companies – Infosys, Wipro and TCS – announced wage hikes in the range of 6% to 8% for offshore employees and 2% to 3% for on-site employees. Meanwhile attrition rates ranged from 11% to 17% across GSRM covered suppliers. The equation means more stability, but perhaps some forward margin pressures, too. We’ll have to wait and see.

10. Inorganic Growth. Acquisition activity was significant during Q2, with Accenture agreeing to acquire Mortgage Cadence, closing on the acquisition of Acquity Group and Fjord, while IBM closed acquisition of SoftLayer Technologies and CSL International. Not to be outdone, TCS completed the acquisition of French enterprise solutions provider Alti SA. Perhaps more interesting than these acquisitions is WIPRO’s minority investment in Opera Solutions as well as its investment of $5 million in Leading M2M Platform Axeda. Investments in Big Data Analytics and cloud-based machine-to-machine companies may speak volumes about where the industry is heading.

11. The Tax Man Cometh? (Why stop at 10 when there’s an incident with potential impact to the industry’s future dealings?) On the heels of Vodafone, Nokia and Shell, industry provider WNS is the latest multinational that has come under the microscope of tax authorities on the subject of transfer pricing practices. Tax authorities in India are seeking an additional $101.9 MM, stemming from WNS’s acquisition of the UK-based Aviva’s BPO services. The company, however, has challenged the Income Tax (I-T) notices in the courts of law. Stand by for more.

These, and many other developments in the second quarter ending on June 30, remind us that the countries, cities and suppliers we turn to for effective global delivery are ripe with constantly changing risks – and constantly changing opportunities – that require proactive monitoring in order to achieve program success.
Global Supply Risk Monitor (GSRM) is the leading cloud-based supply data, analytics and monitoring subscription tool. GSRM monitors location and supplier risks and opportunities on more than 350 parameters across 50+ Countries, 100+ Cities, and 200+ Suppliers. To learn more about GSRM visit us at or contact us at
Atul Vashistha, Chariman, Neo Group

Wednesday, August 21, 2013

Six Keys to Success in a Multi-Sourced Ecosystem: Right Sourcing 101 & 102 by guest bloggers Randy Vetter and Beth Anderson

Embarking on a new sourcing relationship is a more complex endeavor than ever before. Multi-sourcing, hybrid in-sourcing and shared service structures all make for a diverse and highly interactive environment that demands operational alignment among stakeholders, collaboration and innovation. There was once a time when cost savings was the singular focus of a sourcing strategy. However, today’s sourcing strategies are focused on innovation and agility, access to specialized skills and an ability to focus company resources on core strategic priorities such as superior business alignment and areas of competitive differentiation. The focus today is on “Right Sourcing.”

This new focus on right sourcing brings added intricacy to the nature and breadth of organizational change and transition planning that is required for enduring sourcing relationships in a multi-sourcing eco-system. No longer are the right scope, right business case, right provider(s), and right contract sufficient for success.  Now it is the right operating structure, vendor management framework and contract simplification that are drivers of sourcing effectiveness.

In Alsbridge’s experience, many clients are surprised by the amount of internal organizational change management, transition planning and execution needed to make the multi-sourcing strategy both productive from the start and sustainable into the future. It takes active and focused preparation in six key areas to achieve a successful initial transition and a viable relationship that achieves planned business case benefits, including:
  • 1 - Transition Management
  • 2 - Communications Management
  • 3 - Organization Redesign
  • 4 - Vendor Management
  • 5 - Operational Alignment
  • 6 - Service Management

There is a lot to consider when right-sourcing functions and resources. Your organization will need to be able to ask and answer several interrelated questions that will be paramount to your future success. This two-part series from Alsbridge addresses each of the following questions in order to help set you on the right path:

  1. What should our plan to transition and transform functions, knowledge, tools, people, projects and processes to our new hybrid sourcing model look like?
  2. How do we prepare our people for the change and the opportunity the change represents?
  3. When and how do we communicate what these changes mean for our organization to individual team members?
  4. What operational components should we retain for non-sourced functions?
  5. How should the retained organization be structured?
  6. How do we select and prepare members for their changing roles?
  7. How do we align our new organization and its established processes with the internal shared services functions, insourced functions and outsourced processes to achieve the desired outcomes for the business?
  8. How do we manage and optimize the new multi-provider relationships to achieve the promised results, incentivize cooperation among providers and to support the business strategy?
  9. How will multi-sourcing change the process of engaging with our business customers?
  10. What should we do to improve the provisioning of services and to better align IT services with business
Organizations contemplating an right sourcing decision, a transition to a new provider, or an hybrid sourcing situation, are faced with a need for transition and internal change planning and execution to begin (or end) the relationship on sound footing. Some may not have either the capability (know-how, discipline, skill set, deep experience), or the capacity (cycles, time beyond managing their day job), to effectively design and execute the necessary detailed plans. 

The experience of an external advisory firm can better ensure that multi-faceted plans are comprehensive and, because of the advisor’s intellectual property, are put in place more quickly and cost-effectively. However, whether you seek the assistance of an experienced third party sourcing advisor, or decide to ‘DIY’ (do it yourself), the preparation described in this two-part series needs to be done, and done thoroughly, to reduce transition risk and lead to successful sourcing relationships.
Randy Vetter, Director, Alsbridge and Beth Anderson, Managing Consultant, Alsbridge

Six Keys to Success in a Multi-Sourced Ecosystem: Right Sourcing 101
Six Keys to Success in a Multi-Sourced Ecosystem: Right Sourcing 102

Wednesday, July 31, 2013

Examining the Top 5 Misconceptions Surrounding the Gainshare Commercial Model in Procurement Outsourcing: Part 2 by guest blogger Simon Woodcock

In Part I of my analysis of the top misconceptions around the gainshare model in procurement outsourcing, I discussed the stereotype that gainshare agreements are high risk and don’t deliver significant, in-depth savings.  Both of those statements were shown to be misconceived.  In this post, I’ll look at the misconceptions related to alleged high fees, collaboration and contract length.
Assumption 3: Providers can “get lucky”: If the provider implements large savings on a very easy project, the customer ends up paying a disproportionately large sum of money as fees

Facts: With a fee-for-service model, the reverse of this is true. An organization can pay for a project the delivers low savings and end up paying a disproportionately large relative fee. The key here is to ensure robust SLAs are in place. This discussion relates only to project-based consumption. With a managed services model, the provider will take the rough with the smooth; some projects will deliver more value to the customer and provider, and some will deliver less. Over the course of a three-to-five year contract managing all spend across all categories, those peaks and troughs will level out.

Assumption 4: Gainshare restricts collaboration: Successful results come from collaboration and this will be minimized if both parties are constantly ascribing a ‘who did what and when? ‘ or ‘whose idea was that?’ mentality.

Facts: This would appear to be an argument more in favor of the gainshare model. With a fee-for-service model there is risk that the provider charges for an artificially high amount of effort or that scope-creep occurs if the statement of work turns out to be less than comprehensive. The beauty of a gainshare arrangement is the collaboration it fosters. Standard SLAs require a provider address the majority of spend and a road map of projects to achieve that will be created mutually within a governance structure. From then on in, both parties have a vested interest in successful delivery.

Assumption 5: Gainshare encourages ‘short-termism’: Organizations require long-term and sustainable strategic guidance but gainshare encourages first year savings in lieu of long-term service.

Facts: This first half of this point is certainly correct; organizations need a long-term and strategic approach but the misconception occurs in the second half because gainshare can absolutely be fundamental to a long-term strategy. Gainshare is best used as part of a managed service model that ensures every category is addressed more than once in a deliberate, planned and phased manner so that it can bring in long-term behavioral changes in the management of each category. The ad hoc, ‘point-and-shoot’ approach of a fee-for-service model is more likely to lack a long-term or holistic outlook. Any fully managed service proposal should plan to address 100% of spend at least once over a three-year contract, which is anything but ‘short-termist ‘.

To conclude, there is no ‘right’ or ‘wrong’ commercial model in procurement outsourcing. Different circumstances require different solutions and gainshare is clearly an option with merit.  When implemented correctly, gainshare can bear many benefits for customer and provider as risk, reward, and the incentive to create value are mutual.
Simon Woodcock, Sales and Solution Manager at Xchanging Procurement Services

Thursday, July 11, 2013

Examining the Top 5 Misconceptions Surrounding the Gainshare Commercial Model in Procurement Outsourcing: Part 1 by guest blogger Simon Woodcock

Within the realm of sourcing and procurement services, there are contrasting schools of thought regarding effective commercial models, with gainshare and fee-for-service sitting at either end of the spectrum. Gainshare is a model in which the provider receives payment as a proportion of, and upon successful delivery of, savings to the customer. A fee-for-service model, sees customers pay a fixed fee for a pre-defined piece of work or on a time and expenses basis.

Pure gainsharing in procurement services contracts is still quite rare. Analyst firm Everest Group analyzed 254 contracts for its 2012 research report on the topic and found that only 4% of 254 contracts uphold the model. Proponents of the model feel quite passionate about it but with its’ limited implementation so far, procurement professionals may still not fully understand the benefits it offers.

Both models, gainshare and fee-for-service, have their merits and, depending on the circumstances, each might be the ideal model to implement as part of a sourcing and procurement outsourcing initiative. Everest Group found that gainsharing works well in cases where the desired outcome and accountability can be clearly defined and captured contractually (Gainsharing in Procurement Outsourcing 2012). Using that thinking as our guiding principle, I’d like to analyze common industry assumptions regarding gainshare and the truth behind them, as the gainshare model proves to be an increasingly viable choice in the evolving BPO landscape.

Asssumption 1: Gainshare agreements are high risk: Gainshare agreements foster a culture of high risk and high stakes which may not lead to good or sustainable results for the organization.

Facts: This point focuses on the risk of the provider squeezing suppliers to the point that they are unable to adequately provide the services to which they are contracted, thus creating a business continuity risk. Well what about the risk of contracting with and paying a provider on a fee-basis without any incentive for them to actually deliver true value? In reality, both are extreme hypothetical situations engineered to discredit the other model and the key in both instances is to implement robust SLAs that will ensure risk mitigation. Some of the longest procurement outsourcing contracts in the market are based on a gainshare model – up to fifteen years – quite sustainable in our eyes.

Assumption 2: Quick saving vs. complex projects: Gainshare agreements incentivize the provider to deliver quick and easy savings, not large and complex savings.

Facts: Assume that both the quick and easy project and the lengthy and complex project deliver the same amount of savings but the time and complexity adds cost to deliver for the provider, which, in the case of fee-for-service, will be passed on to the customer. When paying a third-party to manage projects, gainshare will be relatively more expensive than fee-for-service for quick projects and relatively less expensive for complex projects. So if you are addressing both projects then it makes little difference what the commercial model is. If you are allowing the provider to pick from a choice of the two then, theoretically, the gainshare provider is incentivized to deliver the quick projects and the fee-for-service provider to deliver the complex projects. But there is one more factor to consider and that is the time value of money. There is a financial impact of delaying savings, which is why, no matter what commercial agreement is in place, ‘quick and easy ‘ projects should always be pursued first.

In Part II, we’ll examine more misconceptions surrounding the gainshare model and make a fact-based case in favor of the model.
Simon Woodcock, Sales and Solution Manager at Xchanging Procurement Services

Thursday, June 27, 2013

2013 State of Price Benchmarking - report courtesy of Alsbridge

With the global economy still in recovery, today’s business leaders remain challenged to “do more with less” by seeking ways to streamline operations, cut costs and become more efficient. More than 80% of companies engage in outsourcing to reduce expenses, gain access to variable resources, increase time-to-market, and focus on core competencies. As the global economic recovery continues, IT and business process budgets continue to grow, but slowly.

The total 2013 global outsourcing market is nearly one trillion dollars with approximately two-thirds in Information Technology Outsourcing (ITO) and one-third in Business Process Outsourcing (BPO). The magnitude of outsourcing spend is enormous and vitally important to companies as part of their overall management strategy. With this much at stake, Alsbridge polled its subscriber base comprised of sourcing buyers, providers, and consultants from global companies to determine the current state of price benchmarking in the IT and business process market.

The full 2013 State of Price Benchmarking report provides insight into the current state of information technology and business process price benchmarking on a global basis. The report, based on 662 survey respondents, takes and in-depth look at:

  • The history of price benchmarking 
  • The need for benchmarking 
  • Different types of benchmarks
  • Best practices for benchmarking
  • Key takeaways
  • The benefits of benchmarking 
  • Major study findings

Ten major findings emerged from the 2013 study. These findings most often speak to the distinctions between the various benchmarking types and the results that can be achieved from each. Alsbridge’s evaluation highlights key findings for each topic.

Major findings include:

  • Finding 1: “Do It Yourself (DYI) Benchmarks are Still Common 
  • Finding 2: Smaller Contracts are Benchmarked More Frequently
  • Finding 3: IT-Related Scope Benchmarked More Frequently than Others 
  • Finding 4: General Price Checking Drives Benchmarking 
  • Finding 5: Benchmarking Delivers Results in Less Than 90 Days 
  • Finding 6: Slightly Less Effort Needed for In-House Benchmarks 
  • Finding 7: Greater Savings are Identified by using Independent Benchmarks 
  • Finding 8: Independent Benchmarks Deliver More on the Savings Promise 
  • Finding 9: In-House Benchmarks Produce Less Value 
  • Finding 10: Buyers Most Often Renegotiate or Re-Compete Their Contract 


  • Benchmarking can work and help deliver lower contract prices.
  • Decide the approach you will employ and the level of granularity you need based on your benchmark’s purpose and objectives.
  • Benchmarks can be conducted in a fairly short timeframe thus leading to a potential savings opportunity for those who may be renegotiating an end-of-term contract.
  • Given the general success and ROI achieved by benchmarking, ensure you stay in-line with market prices by benchmarking on a regular basis.
  • Benchmarks are most often conducted to position the buyer for renegotiating, re-competing, repatriating and adding more services to a contact.
  • There is significant value (greater achieved savings, greater ROI, defendability with providers) in having an independent benchmark.

For your next benchmark, you may want to reflect on whether your company has the capability (know-how, discipline, skill-set, experience, current market database, analytics) and capacity (cycles, time beyond managing their day job) to properly develop your benchmarking strategy and execute a benchmark project.

Tuesday, June 18, 2013

Don't Build Fences, Build Bridges by guest blogger Atul Vashistha, Chairman, Neo Group

As we struggle in America to figure out how to stimulate the economy, we are seeing a rising sentiment against outsourcing.  So, I wanted to take this opportunity to share my thoughts, though others have made many of these points in the last ten years. I did write a similar article five years ago too.

Globalization of services is making significant positive contributions to global economies and to the buying power of the USA, India, China, Mexico, Brazil and other countries.  Still, outsourcing is seen as an alarming issue for many government officials, media, corporations and individuals.  As a participant in the industry, I feel it is important to provide a balanced view to the debate over the globalization of services.

It is always unfortunate when an individual loses their job.  It is even more of a concern when the job loss occurs in a down or slowly recovering economy.  The reality is that this trend is real, irreversible and another step in the globalization of the American and global economy.  In the short term, it will continue to present challenges to industry, government and individual employees.  Yet, it is also important to note that clients are not sending all jobs offshore.  They are carefully evaluating what jobs are best suited for each global location.  As companies go through this difficult decision, they are also creating programs to minimize the short-term pain for their employees.  They are offering their employees reeducation programs, severance packages and outplacement services.  As an advisor to these companies, I see companies looking at innovative solutions to help manage this difficult personal and corporate change.

 While this will continue to be a controversial and emotional debate, it is important to keep in mind that the re-distribution of resources to efficient global locations results in freeing up of capital, lowered costs for consumers and new opportunities for investments.  Protectionism hampers innovation and cripples growth, which in turn can lead to higher unemployment.  The failure to innovate is to cede technological leadership and, ultimately, economic strength.

Globalization is a structural evolution of the American and global economy.   America is part of a global economy and American companies will flourish by staying competitive.  This requires them to leverage resources and opportunities globally.  This is helping American companies stay competitive and thus enhance shareholder value and stay healthy.  This enables them to not only save jobs but also create new jobs by expansion and new service/product introduction.  Many companies that do not leverage this globalization strategy have filed bankruptcy and as a result lost even more jobs.  These are companies that may never have the opportunity to create new jobs or provide a return to their shareholders.

As the US population ages, there will be a shortage of resources.  In fact it is projected that are current productivity levels, we will face a shortage of almost 15 million workers in the year 2015.  Also, over the next decade, more jobs will be lost to productivity and technology rather than globalization.  The following was written by Heritage Foundation, “Chinese manufacturing employment peaked in 1996 at 126 million workers. The privatization of inefficient state-owned enterprises and the adoption of productivity-increasing technology eliminated tens of millions of Chinese manufacturing jobs between 1996 and 2002. Chinese manufacturing employment partially recovered to 113 million by 2006, but was still well below its 1996 level.The same factors that have eliminated American manufacturing jobs have also eliminated millions of manufacturing jobs in China. Congress cannot bring back manufacturing positions eliminated by technology by restricting foreign trade.”

What can we do to create new jobs or keep jobs?

     Expand the R&D Tax Credit.  Since first introduced more than twenty years ago, the R&D tax credit has helped stimulate innovation and kept high-skill, high-wage jobs in the United States.  Lets expand the R&D tax credit to reward further the risk-taking and innovation that keep our economy growing.

     Increase Federal Spending on Research.  Federal research funding in the physical sciences and engineering as a percentage of GDP has declined since 1985 by nearly one-third.  Let’s reverse this trend and dramatically increase federal spending on basic research.  The money we spend will come back to us many times over in the creation of new jobs in new industries making products yet to be invented. Let’s have a Manhattan kind of project along with a stable revenue model for clean energy.

     Deal with Rising Health Expenses. Offer small employer tax credits, funding for employer-based group purchasing pools, increased funding for high-risk pools, build on Medicaid and the State Children’s Health Insurance Program, and permit a Medicare buy-in for the near-elderly.

     Enforce Trade Agreements.  Keeping markets open and opening new markets for U.S. goods and services will also help increase employment in America.  Push for better enforcement of our existing trade agreements, and for negotiating trade agreements with countries that offer lucrative markets where U.S. companies could increase their sales.

     Support Lifelong Education.  Education provides the skills necessary to unleash Americans’ creativity and helps prepare them for the jobs of the future.  Improve, consolidate, and expand education tax incentives; to increase scholarships for engineering students; to fund the No Child Left Behind Act fully; and to support community colleges.

     Trade Adjustment Assistance.  TAA has helped thousands of manufacturing workers get retraining, keep their health insurance, and make a new start.  Improve TAA and expand it to cover service workers who lose their jobs to offshoring.  People should get retraining whether they work in services or manufacturing.  Workers, employers, and the American economy all benefit when we equip our workers with the skills they need to fill jobs in growing industries.

     Visa Program. Expand the H1B and other such visa program for technical and advanced degrees. Limiting visas for technical workers will only make the skills gap and dearth of talent more acute for American employers.

Many of the ideas above have been championed by Senator Baucus but we also need the outsourcing industry and professionals to rally to support the above. Let's go IAOP!

Atul Vashistha is the Chairman of Neo Group, a leading Supply Analytics and Monitoring, Governance Support and Sourcing Advisory services serving global clients since 1999.

Friday, June 07, 2013

A Case Study: Procter & Gamble’s Five Rules for Transformative Outsourcing by guest blogger Joe Stolarski

Transformation is on every CEO’s mind these days. And, to effect change, many companies are beginning to outsource an increasingly larger set of non-core activities. Few have managed the outsourced relationship as effectively—and unconventionally—as Procter & Gamble (P&G). The global manufacturer uses a “five rules” approach that illustrates the principles of “Vested®”, a hybrid business model for hyper-collaborative relationships, as identified in research conducted by the University of Tennessee’s Center for Executive Education.

As P&G’s real estate services provider since 2003, JLL has been privileged to experience this powerful approach first-hand. Here is how it works:

  • Rule 1: Focus on outcomes, not transactions. Our compensation is linked to our success in achieving specific outcomes established in collaboration with P&G – not on property commissions. This structure ensures that both parties share a vested interest in bringing new ideas to the work and for achieving our shared goals. 
  • Rule 2: Focus on the what, not the how. Rather than defining service minutia in the contract, P&G delegated these details to us. For example, at the outset, approximately 550 P&G employees were transferred to our company. Most had never worked for any company other than P&G, but we were trusted to affect the change in mindset and motivate the new employees.
  • Rule 3: Establish clear and measurable desired outcomes. We worked with P&G to define big-picture metrics rather than measuring the program against individual task performance. For example, in 2005 we focused on the successful integration of P&G’s Gillette and Wella acquisitions. An annual review and yearly goal-setting keeps our program aligned with business strategy.
  • Rule 4: Create a pricing model with incentives. Multi-tiered incentives align P&G and service provider goals. The contract features cost pass-throughs in which P&G retains responsibility for bills; a management fee-at-risk structure in which a portion of our fees are withheld until results are achieved; pre-structured compensation for above-scope work; and shared savings incentives.
  • Rule 5: Provide insight balanced with oversight. We incorporated a proactive governance structure into our contract to ensure an ongoing “win-win” relationship, establishing both companies as co-owners of the corporate real estate function, with shared goals and aligned processes.

Most critically, P&G expected us to take charge of its facilities, not just take care of them, to achieve cost efficiency while exceeding customer satisfaction targets. It’s a profound difference in mindset that continues to inspire our work.
Joe Stolarski, International Director at Jones Lang LaSalle

Tuesday, May 21, 2013

Your Provider Hates Your Outsourcing Contract Too by guest blogger Ben Trowbridge

Outsourcing agreements are typically multi-year contracts ranging from three to five years in length. As the client environment changes over time, a client may determine that it is in the company's best interest to pursue an early renegotiation of the outsourcing contract in order to achieve different business results.

Are you too nervous to approach your provider about renegotiating your outsourcing contract? Are you afraid that the mere mention of the "R" word will lead to degradation of services and of the relationship? Don't worry – chances are, your provider hates your outsourcing contract too. It has been found that providers, once they have a chance to absorb the message, are willing partners in the outsourcing contract renegotiation process.

Four of the most prevalent reasons for renegotiating an outsourcing contract from the provider's point of view are described below.

  • 1. The Ability to Extend the Contract Term - You may be concerned about the impact of requesting price reductions as part of the renegotiation process. While the provider may not initially like this (why would they?), they understand that market forces are driving IT support costs down and will be open to lower run-rate pricing in return for extending the contract term by a couple of years so that they can maintain (or even improve) their overall total contract value (TCV). As long as the contract is structured to allow you to realize the benefit of future cost reductions and improvements, this is an acceptable trade-off that results in a win-win for everyone.
  • 2. The Ability to Realign Prices with Their Internal Costs - As technology, support structures, and the outsourcing market evolve, the pricing mechanisms currently included in your contract may no longer be relevant for either you or your provider. For example, perhaps you currently have an Additional Resource Charge (ARC) for adding a server to your environment, but the rate seems too high in the current market. For the sake of this example, assume you currently do not differentiate between server instances and physical servers - they are all treated the same. During the contact renegotiation process your provider will probably concur that the current rates are too high and come back with a different price structure that can be used in return for reducing the overall server support rate. So, perhaps you devise a pricing mechanism for "server instances" at a much lower rate, and you develop a higher rate for "physical servers." Net/net, your overall server support costs go down, but the provider is protected because their real cost driver (in this case the addition of a new physical server) is still covered. This is only one example - there could be many variations of this theme across each of your towers.
  • 3. The Ability to "Re-Transform" the Environment - When your original outsourcing agreement was implemented, there was probably an assumption of the "new" or "transformed" technical environment that would be implemented and supported by the provider. Chances are, things didn't go quite according to plan, and even if they did, the environment in place today probably doesn't represent the best-in-class environment that would provide the highest performance and availability at the lowest support cost. Through a renegotiation, the provider may be able to propose some one-time transformation activities that implement tools, technologies, and architectures which allow them to better support the environment at a lower cost to you. Typical transformation activities can include things like applications rationalization, server consolidation, remote infrastructure support, and service oriented architecture. By carefully considering these types of transformation options, it is possible for you to improve the performance and flexibility of your IT environment while also making it easier and less costly for the provider to support.
  • 4. The Ability to Restructure Service Delivery - In order to achieve your desired price reduction while also aligning their services to their standardized offerings, the provider may want to move more support offshore, standardize server platforms, and implement or increase the use of remote infrastructure support. Assuming they can address any concerns you may have regarding service delivery, your provider should be able to reduce their support costs by standardizing operations and using low cost labor, while maintaining (or possibly even improving) service delivery to you. Depending on your current contract, it is possible that the provider can technically do some of this work now, but the reality is that a certain amount of equilibrium usually sets in, and it usually takes a significant event such as a renegotiation to truly make these kinds of changes.
It is possible to have positive, productive discussions with your provider regarding outsourcing contract renegotiations. In addition to satisfying your requirements while maintaining overall revenue and/or profit, the provider can use contract renegotiation to improve their long-term ability to support you while realizing additional standardization and cost efficiencies. 
Ben Trowbridge, Founder & CEO, Alsbridge, Inc.

Thursday, May 09, 2013

BPO Governance- Are You Still Following The Pied Piper? by guest blogger Ben Trowbridge

In the past few years there's been a great deal written about governance; yet, it's still a misunderstood subject. In most cases, it's an afterthought only considered once the "transaction" is complete and the provider is selected. Unfortunately, this practice relegates governance to no more than a box to be checked off on the path to program implementation. In order for governance to have a chance to realize the business case for which it was created, it must be more than this. 

Considering the governance structures of providers, as well as most advisors, one sees that there is a blending together as though all are dancing to the same "sheet of music." Each has their organizational alignment charts, communication plans and list tasks that need to be accomplished. But, if this is the silver bullet to program success, then why is there such a high failure rate and common dissatisfaction among most buyers? Has the reliance on the "same sheet of music" turned everyone into following the Pied Piper? Or, perhaps it has led to the kind of pack mentality that caused the lemmings to run off of the proverbial cliff.

BPO Governance

The importance of having a good governance structure should never be underestimated and planning for it should begin the first day, i.e. the day you begin the feasibility study and not the day you sign the contract! As Stephen Covey noted, you must "begin with the end in mind." Don't just look at the numbers, but at the organization itself and ask:

Can the organization make the transition?
Is there sufficient process documentation and metrics?
Are the right people in the organization to make it happen?
Is there adequate executive commitment and oversight?

If the answer to any of these questions is 'no', then fix it immediately!

Planning for the retained organization and Program Management Organization (PMO), must be holistic in nature and take into account the larger imperative for change. It is crucial to understand the key drivers: people, process and performance. Each driver must be coordinated by the PMO to work together. The retained organization and the provider's staff (people) must understand the process and the KPI's (performance) by which they will be measured. The metrics must be realistic, measurable and repeatable. From this basis, continuous improvement can be imbedded throughout the delivery model.

Outsourcing is a long, multi-year journey and you must realize that you are picking a strategic partner and not a vendor. Yes, you want a fair price, but in the end you'll get what you pay for. Driving for rock bottom prices will deliver you a provider that looks for every excuse not to improve the process, thereby giving you sub-standard results. This too must be planned for up front; you have to define the financial targets that must be achieved to meet the business plan. Then, when reached, back off and focus on the relationship.

In Conclusion

What is the lesson here? Ask yourself the following:

Is my company just following the Outsourcing mantra to reduce cost without an overarching plan or strategic alignment?
Is there a central PMO set up to coordinate and standardize outsourcing efforts?
Are there effective change controls in place?
Does my company know how to measure performance and program success?
Is my program floundering and about to derail?"

If you don't have warm fuzzies after reviewing these questions, then you have a governance issue. And just like in the ERP days, it fundamentally comes down to effective program management, change management and performance measurement - all of which adds up to governance.
Ben Trowbridge, Founder & CEO, Alsbridge, Inc.

Thursday, April 25, 2013

Will Bionic Hill Turn Kyiv into Eastern European Bangalore? by guest blogger Viktor Bogdanov

In the mid-1980s the Indian government launched an ambitious “Software Technology Parks of India” program that envisioned tax-free use of land for construction of high-tech parks and freeing all IT companies from income tax and VAT. That is how one of the world's poorest countries managed to build a powerful high-tech industry - now the key driver of the whole Indian economy.

Ukraine has started realizing its own IT potential only recently and is yet to fully realize it in the years to come. Last year's hot topic on the Ukrainian IT arena was construction of the first Live-Work-Learn-Play Technology Park in the outskirts of Kyiv, the capital city and biggest IT hub of the country. Bionic Hill – that is how the project was called – had been initiated back in 2011 by UDP, one of Ukraine's leading investment companies and supported by the Kyiv municipal administration. In August 2012 the state-funded “Technopolis” project that aims to foster innovative IT infrastructure development within the country included Bionic Hill in its agenda. In November – December 2012 the project went on road show and was presented at Stanford University (California), Washington, Chicago and Toronto. The Bionic Hill project team spent some time in the Silicon Valley to borrow best practices of the tech parks' construction, functioning and management.

The Bionic Hill will be similar to any other innovation park and will include a huge business center to host both domestic and foreign IT companies, business incubators and tech labs, venture funds, banks and other service providers, and own “University”. The latter is said to be a joint effort of Bionic Hill, Kyiv Mohila Academy (one of the oldest and most respected higher education institutions in Ukraine) and leading IT companies. I wouldn't really call it so pretentiously as it's only going to be an IT training center for JAVA specialists, testers, cloud, iOS and other technologies as well as client service management and foreign languages. That said, the “University” will supposedly fill in the gaps that currently exist between technical education and real-life business needs.

The project promises significant benefits for the national economy such as 35,000 new workplaces, $900 million in annual revenue from the resident companies, over $600 million in value-added software products export, more direct investments, access to cutting edge technologies, stimulation of innovation clusters in industries other than IT (e.g., energy, biotechnology, etc.) and regular cash inflows into the state and local budgets. Sounds like a true dream town, doesn't it? If we believe the promises, of course...

Some Ukrainian IT leaders and C-level execs are very optimistic about the project outcomes and view Bionic Hill as a panacea for today's issues facing IT industry actors in Ukraine. Roman Khmil, COO of Ciklum, a Danish based company with operations in Ukraine, believes that even though Bionic Hill won't be able to fully solve the brain drain problem, it will provide a next-gen level of comfort for Ukrainian IT geeks. “IT industry has grown immensely in the last 10 years,” says Khmil. “When I returned to Ukraine [from US] in 2002, the average salary was $500, now it's $2,500. IT specialists' wellbeing is a way better than the average national rate. However, there're very few good business centers downtown with a good price – quality ratio. Freelance model works well for small projects only. Big project teams of 30 people and more should be stationed together and managed properly. Now only big and experienced outsourcing companies can afford to host such teams. Therefore, outsourcing to freelancers accounts for no more than 5% of the market. ” In his opinion, Bionic Hill will be able to provide excellent conditions for work, leisure and learning.

Igor Fedulov, CEO of Intersog, a global provider of mobile apps and games development services with 3 development centers in Ukraine, is less optimistic about the project. “My opinion is that techno-parks are a myth and they don't work. Most other attempts to start a high-tech park in Russia, Belarus or Kazakhstan didn't produce any marginal success. If you're modeling against Silicon Valley or MIT or Cambridge you need to have one major recipe for success. One. It's called government spending on actual innovation that happens in those parks. I'm talking about major government spending, close to 80% of entire park revenue. Without this any attempt to realize synergies from the fact that the commercial firms will have direct access to the talent which is taught at the same location is a pipe dream.”

Construction of Bionic Hill is set to start in Q2 2013. Phase 1 including a business center, residential real estate and social infrastructure objects is planned to be commissioned in Q1 2015, while the ultimate completion of Bionic Hill is expected in 2020.

I personally think Ukraine has already lost its chance to benefit from high-tech parks. We'll never reach the level of Silicon Valley or India. We don't have any conditions for creating high quality techno-parks due to several obvious reasons. Firstly, we can't physically build them around the tech universities (parks like Silicon Valley have grown organically around the biggest universities) or as modern oases amidst ubiquitous poverty (like in India's case). Secondly, in Ukraine IT business isn't consolidated at all, IT companies are disseminated across the major IT locations such as Kyiv, Lviv, Odessa and Kharkiv and it makes no sense to bring them under the same roof. Instead of investing in such mythical parks and creating new ways of money laundry, we'd rather improve our foreign investment climate and IT education...IMHO.

(Roman Khmil's quote in Russian is available here.)

Viktor Bogdanov, PR Manager, INTERSOG (global provider of mobile apps and games development solutions), twitter @Intersog, link to profile -