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The CoE Wave In Global Sourcing
(InvesTrend Via Thomson Dialog NewsEdge)
April 14, 2008 (FinancialWire) (ValueNotes Outsourcing Watch: Insights
for Investors) Accenture (NYSE: ACN) has a center of excellence (CoE)
dedicated to Oracle in Bangalore, India. The center employs more than
2000 professionals and aims to be a powerhouse of Oracle skills and
innovation globally. Accenture s innovation center is a cluster of CoEs
built around key strategic functions like communications, electronics,
high tech and media.
The services of Infosys (NASDAQ: INFY) are similarly organized around
CoEs for testing, technology, R&D, etc while Wipro has a CoE for
PeopleSoft. More and more outsourcing companies are aligning their
delivery operations along centers of excellence - building and
leveraging specialized skills within their organizations.
The concept of a CoE came into focus as businesses started to get more
and more global. The objective was primarily to facilitate knowledge
sharing and capability building in niche areas such as pharmaceuticals,
automobile, telecom or for specific functions like innovation,
technology, R&D, testing, etc. The adoption of CoEs by outsourcing
companies has been a recent phenomenon, but is rapidly gaining
traction. The model is offering service providers much-needed
flexibility, productivity, cost and resource efficiency in managing
their increasingly global businesses. It is also finding better
acceptance among buyers. For instance, Infosys Technologies and Triumph
Group, an aerospace systems company, signed a 3-year CoE agreement to
utilize Infosys aerospace engineering services capabilities and manage
its engineering resources more effectively.
Insurance company Aviva initiated a build-operate-transfer (BOT)
arrangement with three leading BPO vendors in India with proven
expertise in financial services offshoring
24/7 Customer, WNS Global
Services and EXL Service. The three companies worked in partnership to
set up, manage, and hand-over in 2007, a Finance and Accounting Center
of Excellence (CoE) for Aviva s global insurance business units. The
CoE served to centralize resources, standardize processes, share
strategic knowledge and more importantly, put in place a roadmap to
sustain and develop operational excellence. The choice of locations
was strategic - India allowed rapid scalability from an abundant
manpower pool (the CoE in India employs close to 8,000 people), while
Sri Lanka was chosen for the large number of UK certified accounting
professionals.
Changing Roles In Global Sourcing
The service provider is being increasingly seen in the role of a
strategic partner , aligned with the buyer s business objectives such
as cost reduction, efficiency improvement, process re-engineering,
innovation and business continuity. Contract sizes have been reducing
and the large mega-deals of the past are getting restructured into
smaller contracts to multiple vendors, often to specialized service
providers who are best-in-breed. Vendors are expected to be able to
provide services from multiple locations around the world and at times,
expected to partner with competitors, acting as active participants in
the clients business, rather than mere executors of contracts.
Going Forward
While broadly, it sounds like a win-win situation for the client and
the vendor, there are several challenges in operating a successful
center of excellence, mostly related to implementation and
sustainability. Setting up a CoE can be highly cost-intensive and
necessitates a comprehensive business plan for the longer term, to
transform the CoE from a cost center to a profitable unit.
Consequently, skeptics question the capability of an excellence center
to succeed in the absence of broader organizational maturity.
For now at least, the large-scale acceptance suggests that the concept
is likely to witness rapid growth over the next few years. A large
number of buyers and suppliers will organize their activities around
CoEs to gain from economies of scale and to leverage other strategic
advantages.
ValueNotes Outsourcing Watch: Insights for Investors is a unique news
and analysis service from the ValueNotes Outsourcing Practice, focused
entirely on outsourcing; This weekly publication analyses events in
outsourcing, outsourcing companies, trends in the sector, impact of
global competition from offshoring to established US companies, and
emerging investment opportunities.
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