Other stories explained that the Bank of India had been facing increasing competition from both public– and private-sector banks and multinational corporations. It realized that it needed to adopt Web-based banking, standardize and upgrade its computer systems, lower its transaction costs, and generally become more customer-friendly. So it did what any other multinational would do-it gave itself a chest X-ray and decided to outsource all the funtions it did not believe were part of its core competency or that it simply did not have the internal skills to do at the highest level.
Still, when the Bank of India decides to outsource its back room to an American-owned computer company, well, that just seemed too weird for words. “Run that by me again,” I said, rubbing my eyes. “HP, the folks I call when my printer breaks, won the outsourcing contract for managing the back room of India's 750-branch state-owned bank? What in the world does Hewlett-Packard know about running the backroom systems of an Indian bank?”
Out of curiosity, I decided to visit the HP headquarters in Palo Alto to find out. There, I met Maureen Conway, HP's vice president for emerging market solutions, and put the above question directly to her.
“How did we think we could take our internal capabilities and make them good for other people?” she answered rhetorically. In brief, she explained, HP is constantly hosting customer visits, where its corporate clients come to its headquarters and see the innovations that HP has brought to managing its own information systems. Many of those customers go away intrigued at how this big company has adapted itself to the flat world. How, they ask, did HP, which once had eighty-seven different supply chains-each managed vertically and independently, with its own hierarchy of managers and back-office support-compress them into just five supply chains that manage $50 billion in business, and in which functions like accounting, billing, and human resources are handled through a companywide system? What computers and business processes did HP install to consolidate all this efficiently? HP, which does business in 178 countries, used to handle all its accounts payable and receivable for each individual country in that country. It was totally chopped up. Just in the last couple of years, HP created three transaction-processing hubs-in Bangalore, Barcelona, and Guadalajara-with uniform standards and special work flow software that allowed HP offices in all 178 countries to process all billing functions through these three hubs.
Seeing the reaction of its customers to its own internal operations, HP said one day, “Hey, why don't we commercialize this?” Said Conway, “That became the nucleus of our business process outsourcing service... We were doing our own chest X-rays and discovered we had assets that other people cared about, and that is a business.”
In other words, the flattening of the world was both the disease and the cure for the Bank of India. It clearly could not keep up with its competitors in the flattening banking environment of India, and, at the same time, it was able to get a chest X-ray and then outsource to HP all those things that it no longer made sense to do itself. And HP, having done its own chest X-ray, discovered that it was carrying a whole new consulting business inside its breast. Sure, most of the work for the Bank of India will be done by HP employees in India or Bank of India employees who will actually join HP. But some of the profits will find their way back to the mother ship in Palo Alto, which will be supporting the whole operation through its global knowledge supply chain.
Most of HP's revenues today come from outside the United States. But the core HP knowledge and infrastructure teams who can put together the processes that win those contracts-like running the back room of the Bank of India-are still in the United States.
“The ability to dream is here, more than in other parts of the world,” said Conway. “The nucleus of creativity is here, not because people are smarter-it is the environment, the freedom of thought. The dream machine is still here.”
Rule #6: The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists-not to save money by firing more people.
Dov Seidman runs LRN, a business that provides online legal, compliance, and ethics education to employees of global companies and helps executives and board members manage corporate governance responsibilities. We were having lunch in the fall of 2004 when Seidman casually mentioned that he had recently signed an outsourcing contract with the Indian consulting firm MindTree.
“Why are you cutting costs?” I asked him.