Asia Pacific & Japan: market expansion and M&A driving CFO's BPO expectations

As our "Sourcing Superstar" series continues, we move to the Asia Pacific & Japan region, to ask HP's Global Head of Business Analytics & APJ what's driving his market. Asia is where "it's all happening right now," he tells us. CFOs in this region are investing heavily in M&A activities. And that brings some fairly tough challenges with it. Barbara Hodge probes him further... BH: What is your role at HP Enterprise Services? AD: I’ve been at HP for seven years now. My current role is split across three areas: One is from the Asia-Pacific and Japan perspective, where I run all the global delivery sites that we have in the region, so I am responsible for delivering on those deals against cost, SLAs and quality that we assign for the clients. The second part of my role on the APJ side is that I’m responsible for the growth and profitability of the business in the region. I’m accountable, for example, to grow Japan, Korea, Hong Kong, Singapore, India, China, etc, as markets – with the exclusion of Australia and New Zealand. The third part of my role is a global responsibility for the BPO Business Analytics function. I’m responsible for creating and developing the BPO analytics products with F&A and Customer Engagement Management (CEM) Service Lines (formerly known as CRM) and with our internal Applications & Software groups – and enabling our sales functions to sell the product globally, eventually being accountable to solution & deliver on them to the clients. I originally joined HP’s internal shared services organisation, which we now call GBS. I was responsible for operational excellence in the supply chain part of the business. Then I moved to the external client side and was the global process tower lead for the Record-to-Report tower for one of the client accounts. Then I ran the delivery in Asia-Pacific, for global delivery in India, China, Manila, KL as well as regional delivery in Australia & New Zealand. Now I have the role of growing the APJ market as a region and handling the global role of the business analytics in addition to APJ global delivery. So, in terms of analytics, I’ve come to the right place. Yes, that’s the big topic now. You mentioned you started on the corporate side, within GBS. We know your colleagues there well – they are doing a great job for HP. Is that a common path to take for people in Enterprise Services? Meaning that you’d start inhouse and cut your teeth within the shared services environment before moving across to the provider side? Yes it is, though when I started, we had GBS and the BPO organisations housed together. Then we decided to separate them, so that we would be leaner and quicker in terms of our go-to-market focus and hold ourselves against the growth and profitability targets of the external business. There are a bunch of people who moved out from the GBS organisation into the BPO organisation and vice versa, and we still continue this cross-pollination. The reason that we do this is that we created our internal shared services 15 or 20 years ago and we are essentially "drinking our own champagne" and leveraging this experience with our external clients. We started off with a regional model – one in Atlanta for the Americas, one in Germany for Europe, one in Singapore for the entire Asia-Pacific. We ran that for ten years and then we thought: "We can consolidate this globally." So we did. We created a new centre in Bangalore as our first global delivery location. It’s obvious and natural that we leverage that capability and experience for ourselves: as a $125 billion company operating out of 170 countries, with 200,000 channel partners and 1 billion customers, there are significant opportunities. So, when we talk about finance consolidation, supply chain, procurement, and all of that consolidation, we know what we’re talking about. We’ve experienced it ourselves. When you talk to clients, what are they really looking for today? And how have their requirements changed? That’s a good question. I think the changes we have seen specifically in the last one to three years is that clients no longer see BPO as just a cost reduction on their balance sheet. Today, there are a couple of things that clients are looking for: One is the entire stack of services – the end-to-end capability, right from managing infrastructure to implementation, and then running the business on top of it. That’s a key driver for clients, from a BPO perspective; to have us provide them with a business solution. The second one is that clients are now familiar with providers’ capability, and want things beyond the technology stack. They expect us to leverage our experience of the end-to-end business process and put that together with the analytics capability. Even in Asia-Pacific, clients are looking for that analytical capability: What is it that we can do for them beyond the contract? What more can we tell them about themselves that will help them to grow into new markets, to increase speed to market, to develop more profitable products, to understand partners and end customers better? The APJ region is different from others. A lot of growth has been driven from this part of the global markets, and I expect the profile of CFOs is different in Asia than in Europe or the US. So their appetite for risk may differ. What is it that drives them? Shorter time periods? I think the most interesting thing about Asia-Pacific is that if you really want to establish your business on this planet, it’s all happening here right now. There is just so much activity. Most companies in this region are expanding to new markets – in India or China or Southeast Asia. Most importantly, they are going through a lot of mergers and acquisitions. Right now, for example, there are a lot of companies in Asia that are buying up American or European companies, as their valuations are cheap at the moment. So Asian companies are buying into new markets as well as into other companies, and that means a lot of them are getting into new systems – different ERPs, no ERPs, legacy systems, maybe advanced systems – sometimes all at the same time. Asian CFOs are expecting BPO providers to provide a variety of "new" types of support – from understanding new regulations, to local country laws – apart from, of course, the ability to ramp up their back offices as they’re ramping up in growth markets. In a word: it’s about "flexibility." The other thing they want is the ability to get testing done when they consolidate systems. There’s usually not a lot of budget, during M&A activity, to hire people to do the testing of new systems and move them onto a common ERP platform. So we are seeing a lot of interest in that area, here in Asia. Let’s move on to Business Analytics. Do you think there’s full recognition on the part of your clients of what Business Analytics means and what it can do for them? The understanding of Business Analytics is absolutely there, yes. The actual implementation though is just coming into picture in the last year or year and a half. I think everybody understands that there is a humongous amount of data floating around in this planet. As reports suggest, 90% of the total data in existence has been created in the last two years; 10% of the total data is what was there before. What to do with that data has been one of the challenges. When I’m talking to clients, I see a couple of good things: I think the entire IT infrastructure and backbone to capture the data has been put in place over the last four or five years. Companies have done a lot of stuff in terms of data warehousing, systems integration, and all of that. The gap right now is to deploy the talent and people on top of that IT infrastructure to actually churn that data into meaningful insights. That’s where the discussions are focused. The other part of it is that it’s not just about deploying BPO analytics and, say, offering a cash optimisation project. It’s about really engaging the client and making them understand where they stand in their analytics journey and how to get from point A to point B. That entire life cycle includes the IT-enabled business intelligence and the business analytics to sit on top of that. We can help them understand the key benefit for the business outcome they would see. What have been some of the big wins for you in analytics? One case that is interesting relates to a media company where we worked on the web analytics piece. It’s not project-driven but utilizes a run-time approach. We are supporting them with price and inventory optimisation, and have analyzed marketing spend analytics. We’ve come up with a set of numbers against which we have actually made a direct impact on their business outcomes and continue to do so on a regular basis. What are the biggest challenges in your region for BPO and analytics providers? I don’t just mean the market, but also the competition that is building up around you. BPO in Asia-Pacific and Japan is a very interesting market. APJ has been the hub of the shared services or BPO industry from a delivery point of view for at least 15 or 20 years. And centres here have been servicing the Americas and Europe for that long. But from the market perspective, it’s not a very mature market. Nevertheless, certain economies are just picking up in the last three or four years, which means that there is definitely a lot more interest from the service provider’s perspective to getting into those markets. The uniqueness of the Asia-Pacific market is that you would need to have a lot more IT-driven, platform-driven, or cloud-driven solutions to truly enable and service clients. So, that’s one of the big challenges. It’s not a labour arbitrage game over here. More often than not, clients are operating in an environment where their labour cost is much lower than where we would propose to deliver shared services from. So, the challenge for us is not to talk about a cost-plus approach, but to talk about total value of ownership – TVO. Then you get the clients interested. From a competition’s point of view it’s very interesting. If you really look at Japan, which is a huge market – more than half of the total addressable market of the entire Asia-Pacific market, including Australia, is in Japan. Even though this is by far the largest market for BPO not many multinational companies that have gone there have been successful. So, you have a lot of regional players against which you are competing for some of these niche markets. That’s one challenge from a competition point of view. Another point is that the competition is actually coming from the unlikeliest of sources. For example, today software providers are converting themselves into "Business Process as a service (BPaaS)" providers. So, if you are providing the software and the licences, you just need to provide a service on top of it and make it a software service. Unlike Europe and America, the competition in APJ is coming from these kinds of unexpected sources, and from regional providers. This is a very tempting market, a very exciting market to be in. The economies are growing in India, China, Southeast Asia … and Japan is opening up, or at least warming up, to outsourcing in a far bigger way compared to the last 10 or 15 years. And of course Australia is still there – it’s one of the largest markets in APJ and it is not fully tapped yet. And then there is the platform: With the advent of the cloud you now also have the ability to cater to the mid-markets in Asia, which is another very interesting facet of how we are approaching BPO here. We estimate that 90% of the companies, of potential customers, are in the mid-market, and we are slowly and surely getting our focus set on that sector. So are you saying that you expect 90% of your growth to come from the mid-market? No, what I meant is that 90% of the companies are in the mid-market space. That does not necessarily mean that 90% of the buyers are in the mid-market space. At one end of the spectrum you still have those bigger companies, which are now doing a lot of mergers and acquisitions, so, they have a different set of requirements. The mid-market players are causing service providers to develop a different business case to service that mid-market play, leveraging the cloud and all of that stuff. What kind of things are you doing to prepare for the mid-market customer? This is essentially about investing in the platform, putting these companies on the cloud, and actually providing a business process utility kind of model, where they would not have to pay any upfront money on the capital expenditures, on the servers or data centres and all of that stuff. They are essentially paying as they are using, on a day-to-day basis. So, if they ramp down, we have the ability to ramp down. If they ramp up, we ramp up. Nobody has perfected that space yet, but it’s a space that is maturing, and one we invested substantially in this year. We also plan to invest substantially in this space over the next 12 to 24 months. So, we are in battle mode and ready to cater to that market as we continue to cater to the bigger organisations in the Asia-Pacific region. What’s the percentage of work that comes from domestic companies, or heritage companies, as opposed to work that you are delivering to offshore locations like the US and Europe? From a business perspective, APJ headquartered firms are possibly around 15%. And the remaining 85% is from services provided to companies sitting outside the region. But the good thing is that APJ market is growing pretty fast, certainly faster than America and Europe. Which industries are you seeing most activity in? In Asia-Pacific there is a lot of interest from retail, CPG, and manufacturing. From an F&A perspective, the banking industry is just warming up in this space. Thank you, Arindam. [inlinead]

Asia Pacific & Japan: market expansion and M&A driving CFO's BPO expectations

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