By the Power of SSON

Just what the economy needs: another financial scandal to kick off the year. OK, so it’s not quite as big in terms of cash value as Mr Madoff’s truly phenomenal effort – do you think he’s applied for a bail-out yet? – but the rapidly developing Satyam story will surely have massive consequences for the Indian outsourcing industry and, if today’s 7.2% plummet of the Sensex is anything to go by, for India’s economy as a whole.

The scale of erstwhile Satyam CEO Ramalinga Raju’s deception (don’t worry, lawyers: he admitted everything in his resignation letter… although he might have been joking, I suppose…) is staggering: India’s biggest-ever corporate fraud involving over $1bn of, apparently, entirely fictitious funds. Satyam’s share value plunged nearly 80%, laying the company open to all manner of possible bids (and the blogosphere has unsurprisingly been positively frenzied considering the ramifications). Many of India’s big tech players took noteworthy hits – although Infosys and Wipro shares both rose as investors took positions on who stands to gain the most from Raju’s naughtiness – and analysts scrapped over the moral high ground as the possible damage to India’s integrity as an investment destination began to make itself clear.

Fingers are already being pointed – towards Raju, of course, who could face up to seven years in clink, but also towards auditors PwC who have at the very least some explaining to do – but I think it’s clear where the responsibility lies: karma.

Let me explain. For months I’ve been trying to get an interview with Raju as part of my ongoing “Sourcing Superstars” series. I’ve hustled, bustled, pestered and technically harassed Satyam’s comms department, and I’d got as far as sending a list of questions to Raju’s office in advance of a phone interview which was never scheduled – and now, lamentably, never will be – but which was dangled before me like a carrot before a particularly trusting and dull-witted ass. On and on I trudged, with nothing to show for it but sweat and tears. And now: meltdown.

It’s clear to me that the one is evidently a consequence of the other. And this terrifies me. Superstars, beware. For the sake of your shareholders – for the sake of the global economy – you simply must pick up the phone.

Jamie

Boo!

Hallowe’en today*, and appropriately enough the spectre of recession continues to haunt the global economy (NB: that will be the last attempt at topical humour in this paragraph. Bet yer ghoulies on it.) while the markets continue to display an inordinate degree of volatility (anyone reading this who invested in VW six months ago can buy a round of drinks for the SSON community) matched only by John McCain when his follicular integrity is called into question, and by the almost psychotically unstable reaction of a portion of the British public to one of the most pathetic showbiz scandals of our time.

The issue of how long the crisis-induced uncertainty is going to affect the outsourcing space in particular was one of the issues debated in a roundtable debate I hosted on Wednesday looking at “Sourcing in the Face of a Financial Crisis”. The panel – comprising some of the sharpest tools in the sourcing box – was split on the question, with some seeing a clarification emerging in a month or so and others predicting a much longer period of instability. Of course there are plenty of factors in play here and the fog is definitely still impenetrably dense: however, the lively discussion threw up a great many ideas as to the eventual repercussions of the crisis, and one thing was agreed by all: sourcing will never be the same again.

One issue in particular which seized my imagination was the roundtable’s thoughts on the impact on captives. In the eyes of a number of participants, the captive model will become increasingly unjustifiable now as service providers up their game and cost-savings become even more paramount (if that’s possible: semantically minded pedants can email me to their hearts’ content here). Phil Fersht in particular sees captives as being in a very precarious position going forwards:

“I think unless you’re a big-brand, well-resourced organization where you want to invest in having high-quality processes running offshore – and a lot of the captives now are very high-quality, they do very good work, they’re just expensive – in a down-market or volatile market it goes against the model of being predictive and being nimble. I think we’ll always have specialist areas remaining within certain captive operations, but I think it’s going to be more in areas like engineering than in back-office, data-analytics, areas like that where we’re getting a proven model. Offshore companies are very good at doing this stuff: it doesn’t make sense to keep it all in-house.”

I’d like your thoughts on this: please do drop me a line if you’d like to comment.

Away from the crisis – although especially pertinent right now when every penny counts (though when doesn’t it?) – yesterday I recorded a podcast with Catherine Escarcha of Siemens Shared Services and Jim Arnold of Apex Analytix on “Continuous monitoring and fraud prevention in financial shared services”. Fraud costs firms a mind-melting sum each year and Catherine and Jim gave me some good tips on how companies can minimise their exposure to such bottom-line-busting crimes. I did learn also that in order to avoid the risk of liability for slander, Siemens Shared Services eschews the term “fraud” in favour of “Questionable Vendor Activity” – very diplomatic, if slightly less convenient to type when blogging.

I’m off to change into my scary costume. Have a great weekend and remember:

BE AFRAID. BE VERY AFRAID.

(I was going to paraphrase Alien with “in the shared services and outsourcing space no-one can hear you scream” but I thought better of it…)

Jamie

* Or not, depending on when you’re reading this. It might be next Hallowe’en I suppose. Spooky