HfS Network

2017: The year of the “BandAid Economy” as the new digital world gets smarter and the old one just gets dumber

January 02, 2017 | Phil Fersht

Thank the Lord 2016 is over. It’s easy for any old big head to claim they “were not surprised with Brexit and Trump,” but they would be lying – this surprised even the most brilliant minds and political experts.

Noone saw this coming – but it’s opened the eyes of many business and political leaders that we are living in transitional times and we desperately need to focus on ensuring we transition our economies, businesses, health and educational establishments to a more stable, secure place, where we can all plan for the future, with a clearer vision of where the world is going. Many people voted for change, without much idea what that change was, besides turning back the clock and ejecting politicians they didn’t trust and didn't talk their language. It is my belief the global economy is inexorably moving in one direction and there's little politicians can do about it, beyond starting World War 3 (heaven forbid).

Moving into 2017, the future is foggy for so many people. However, what is clear is those who keep trying to paper over the cracks will slip further behind in this secular shift to a global digital economy. But there is one constant we can rely on: focusing where new wealth and fiscal growth is being created and aligning our investments and education around it. This is exactly what we need to do in our world of business operations and technology; it’s time to rip off that legacy BandAid and embrace the future.

I believe the fog will start to lift as the new world emerges and people see where the opportunities lie. Small-thinking politicians will try to hold back innovation with anti-immigration measures and restrictive trade policies, but the building blocks for the global digital economy are already in place.

The inexorable journey to the global digital economy has started and this train won't be stopping

We’re in a transition economy clouded by confused politics and too many people looking backward, not forward. Many legacy businesses are already being replaced by emerging digital businesses. This is inevitable, and legacy politicians will only speed up this process. It’s happening in our own industry, with traditional offshoring being gradually morphed into (global) digital operating delivery models that include intelligent automation and cognitive capabilities. 

“Offshore” will cease to exist as a word – it’ll just be about companies staffing themselves with whatever talent they need to deliver their services and satisfy their customers. Whether China has the best availability of Hadoop programmers or India analytics skills for a particular business function, or the UK the best RPA expertise, it really doesn’t matter anymore – there won’t be this obvious “replacement” of onshore staff with offshore / whatever-shore, it will simply be organizations tapping into whatever services they need in an on-demand model.

So, while dinosaur protectionism rears its head in 2017, the likes of which Messrs Trump and Schumer are threatening, it will only speed up the death of legacy outsourcing. All they are really doing is helping accelerate the global economy to its natural destination – larger numbers of agile, lean, intelligent digital businesses, operated by talent which is in tune with the needs of its customers. There will no longer be a front and back office… only OneOffice that truly matters in the modern business that has survived this transition from the old world to the new world. Yes, you can penalize firms which import overseas staff to support themselves, and even stifle the obvious “lift and shift” of closing down onshore facilities to move the work to cheaper overseas ones, but you can’t stop smart digital business tapping into globally dispersed resources as they grow. Hence, you can only punish the legacy businesses for ripping out cost, but not the emerging business for building their global digital support infrastructure.

We’re currently experiencing what I am calling a “BandAid Economy”. While we’ll see our legacy traditional service providers, consultants, and IT suppliers struggle for growth, we all need to start looking deeper at the emerging businesses – and focus on the creation of new wealth around the digital economy. The Fortune 500 in 2020 will be dominated by businesses that are very different from today’s characters – they will be all about the ability to scale up and down to meet business demands, without massive incremental infrastructure investments, about having immediate access to people to service their customers, and native digital business models that cater for their needs, as and when they arise. Moreover, they will drive new spend from customers, because of their ability to predict intelligently their behaviors and their needs.

I bet all of us here are spending a lot more of our income as a result of digital business channels, than we would have done in the past (the likes of Amazon, AirBnb, InstaCart, Ocardo, NetFlix, SocietyOne, UAccount, targeted Facebook ads etc) this is the emerging present and future - smart digital businesses running on intelligent technology... all enabled by people. These businesses are generating increasing wealth without making the linear capital investments of yesteryear - but they do need talent to scale, just less office space, legacy IT system perseverance and expensive shop fronts.  In fact, they won't really need RPA as automation is native to their systems and processes. But one thing is clear, money is flowing into talent and tech like never before...

The Hi-tech sector is leading the way into the new economy

Cutting to the chase, I believe our salvation will be in the digital economy, where the hi-tech firms make up one huge growth sector that still cares about talent, ideas and new business models. Our new State of Operations and Outsourcing study with KPMG clearly dictates which industry sectors are gearing up for growth versus those merely playing a survival game. In the software and hi-tech sector, the C-suites are as keen as anyone to cut costs, but they also are the least focused on restricting talent investments (only 11% view restricting people investments as mission critical), close to half (44%) are very concerned about aligning the back office with the customer (OneOffice), while two-thirds are hell-bent on getting new products to market as quickly as possible (compared with only 18% of financial services firms):

Click to Enlarge 

The Bottom-line: Money is flowing into talent and technology like never before, not into the legacy juggernauts stuck in the old world

We’re moving to a very different tech-dominated economy - so many emerging startups and consulting firms are emerging and many have not even yet been formed. While some of today's current crop of service providers are trying to build the parallel model by making ongoing tuck-in acquisitions of digital consultancies, their bread is still very much buttered by their legacy clients, many of whom are really struggling to keep up with the current pace of change.  

Digital business models are what drives growth from the vast majority of today’s customers who want to buy from digital businesses. This is where so much creative talent is heading / developing – people who are figuring out how to develop business models designed for digital environments, where purchases are made over apps, customers are targeted using intelligent cognitive tools and serviced by people who can understand their needs on a much more individualized basis. The new world is getting smarter, while the old one just continues to get dumber.  

Posted in: Digital TransformationPolicy and Regulations2017 State of Industry Study

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1 Comments

2 Comments

  1. Jim Emerick
    Posted Jan 03, 2017 09:31 AM | Permalink Reply

    Phil is always on point - the right message for 2017

  2. Rajeev Lal
    | Posted Jan 05, 2017 01:42 AM | Permalink Reply

    The way the world will go is well articulated by you. Digital marketplaces for getting technical solutions have not succeeded much till now, except for getting mobile Apps developed. Do you expect this to change now? What are the impediments?

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