Archive for the ‘Business Model’ Category

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.

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.

Indian Banking at a Glance

Tuesday, September 22nd, 2009

“Sunny with a Chance of Clouds”

By Mark P. Dangelo

www.Innovative-Relevance.com

Also published at the National Mortgage Bankers Association

Approaching the Next Decade

As 2010 approaches, the domestic market for Indian banking and capital markets is poised for a resumption of very strong growth. With GDP estimated to grow at 6% to 8% this year reaching nearly $1 trillion USD, it is an economy that has an increasingly educated population seeking enlarged global recognition. The last two years have spared the Indian public and private sector banks much of the chaos of their Western peers, due to their underlying social mission supported by durable supervisory oversight.

Consumer credit, loan products, and retail banking are all ready to once again resume their hyper-growth – albeit using very different banking models, measurements, and performance criteria. With a population of over 1 billion, the potential for market penetration of consumer financial products is not lost on public and private bankers both domestically and foreign.

While prohibiting much of the global derivative exposures, agencies and their regulators have a growing burden of non-performing debt that was based on social charters designed for a world of 50 years ago. Moreover, the next decade of Indian banking and capital markets presents new domestic challenges that have analogies within the Western banks – but a process and infrastructure capability that is still limited in sophistication.

Lingering risks with domestic credit portfolios, unsecured lending, commercial quality, and newly introduced product implications may expose weaknesses with internal systems and the underlying data needed for accurate decision making. Banking and technology investments and infrastructure are poised to amplify the consumer potential and market demands.

So, while the prospects are good for increased consumer deposits (> 20%) and support of domestic investments, banking and capital market consumer expectations will demand the highest operating standards for public and private firms – and the regulators that oversee their integrity.

A “Knee-of-the-Curve” Transformation

The lessons learned from the global recession of 2007—2009 are many. Yet, there are several key banking and capital market realities and emerging trends that must be enhanced within many of the public and private domestic banking organizations.

· End-to-end performance management across products and operations,

· Comprehensive and adaptable risk management balanced against social responsibilities,

· Adhere to the “letter” of regulatory compliance – and the spirit of its intent,

· Market, securitized, and portfolioed credit instrument quality against global markets,

· Cross-border M&A’s and the need for greater participation in global financial products,

· Consumer behaviors, rising educational standards, and shifting global wealth, and

· Adoption of consumer credit standards, infrastructure, and governance.

Underpinning the aforementioned directions are data and the analytics needed to determine success. The delivery of meaningful and correlated strategies and information will present difficulties for Indian internal teams to create from scratch – time to create, cost of delivery, and accuracy of integration. India is a set of regional markets poised for meteoric growth in the next decade. The ability to leverage the lessons learned, while avoiding the pitfalls of others, may determine if they become an Asian banking leader in just a few short years.