HfS Network

Monthly Archives: Jun 2017

What GBS leaders can learn from the Rise and Fall of Empires

June 26, 2017 | Saurabh Gupta

I was struck by the similarities between Global Business Services (GBS) and Empires after reading ‘Sapiens: A Brief History of Humankind’ by Noah Harari. He says:

An Empire is a political order with two important characteristics. First, to qualify for that designation, you have to rule over a significant number of distinct peoples, each possessing a different cultural identity and a separate territory….Second, empires are characterized by flexible borders and a potentially unlimited appetite…

These two characteristics of an empire are uncannily similar to Global Business Service (GBS) organizations. GBS is:

  1. Multi-function. GBS organizations aim to deliver services across multiple business functions (aka distinct peoples with different identities) such as F&A, HR, IT, procurement etc. all under one organizational umbrella.
  2. Multi-geography. GBS organizations also aim to deliver its services across all regions and countries (aka flexible boundaries) that a company operates in.

The basis of the creation of Empires and GBS also has similarity. For Empires, it is about basic unity of the entire world around a central ideology. For GBS, that ideology is around standardization, collaboration, and effectiveness.

This all becomes troubling when you realize that we all have a very negative connotation around the word “Imperialism”. We tend to associate wars, brutality, coercion, oppression, and so on when we talk about imperialism.

So, is GBS also this brutal? I think it depends on what lens you view it from:

  • People lens. GBS makes total sense if you are sitting in the corporate headquarters but will be a bitter pill to swallow if you are the one who loses your job because of what you and many others consider to be some corporate mumbo jumbo and the latest consultant gimmick
  • Time lens. It feels like an achievement in hindsight but it is really challenging during set-up. Have you thought why almost everyone describes their experience of setting up a GBS as ‘war stories with battle scars to prove it’? I’ve not met anyone who has told me that the journey was smooth and they did not meet any resistance.

Bottom-line: GBS will work as long as we keep people at the core, define our outcomes and keep an eye on the future

However, I don’t think there is any value in painting GBS as black or white. Like almost everything in life, it has shades of gray. The most important question is ‘how can we make it better?’ And I think this is where GBS organizations can learn from the rise and fall of Empires.

  • Lesson #1. Focusing on developing talent is at the crux. GBS is about people and will not succeed without buy-in from people. The tone from the top helps but cannot be the only driver for sustainable success. Phil’s recent rant on this subject is spot on – too many enterprises are obsessed with achieving a scalable operational backbone centered on technology, as opposed to talent
  • Lesson #2. Make sure you know what “success” looks like. Balancing efficiency with empathy is an important concept to keep in mind. Also, there is a diminishing return to efficiency improvements and cost reductions. After a certain point of time, it really does not matter. What matters is business outcomes and for that, you need motivated talent.
  • Lesson #3. All good things come to an end. Every empire eventually falls. GBS is the concept that we are all rallying behind in recent times, but you can be pretty sure we will come up with an even better framework for organizing ourselves to deliver work in future (such as the HfS framework, the Digital OneOfficeTM). The life expectancy of ideas is coming down dramatically, as we jumpS-curves in years not decades. So it is extremely important that we keep looking out at the future. Keep testing, keep piloting, keep investigating. This is how we at HfS Research are designing our future research agenda – but more on that later!

Disclaimer: I am a firm believer in the value and concept of GBS. My sole objective of this post is to make it more human.

Posted in: GBS, Shared Services and Captives



The Dark Side of Shareholder Value: Its impact on the very people it’s designed to benefit

June 26, 2017 | Derk Erbé

Our industry requires a shift in mindset from providers, buyers, AND investors. We need to rethink shareholder value and the integral link it has with the very element it seems to be bent on eliminating – people. In a thought-provoking post, my colleague Phil Fersht called out the fact we are in the people elimination business, wondering how it got so bad. My take: there are two key aspects in this debate; the way we view talent and the (unintended) consequences of decades of shareholder value doctrine.

The importance of talent for the future of services

Buyers need to deal with their cost reduction obsession and recognize talent is still the differentiating factor for their business success – and will be for the foreseeable future. Domain expertise, talent, and local people are critical components of the value service providers produce. This is true in any industry, but for example in oil & gas and the utility industry, the service providers that are perceived as delivering the most value by buyers are those that invest in talent, local people with deep industry expertise, and innovation prowess. These folks are not the cheapest, but bring exponentially more insight and impact on results. Buyers have shared ample examples of service providers that help them tackle the sticky industry problems by bringing the talents of industry experts, data scientists, technology experts and the client’s domain experts together. This teaming leads to multidisciplinary cross-pollination to design and deliver solutions that combine technology, industrial process and ideas and proven concepts from other industries.

We are on the verge of a shift in the way we work, and the outcomes we produce

The future value delivered by the outsourcing industry won’t be people running the accounts payable process, but in knowledge-intensive, decision-rich processes. You need the talent to make the technology work effectively – to drive the results and business outcomes. If we again look at the oil and gas and utility industry, organizations are starting to recognize the talent they need to compete in the new economy aren't smitten with the work and reputations of the oil & gas industry or utilities. The reality is that the competition for data scientists, for instance, is not Shell versus Exxon Mobil, but Exxon Mobil versus the likes of Apple, Google, Facebook and a host of start-ups. Service providers can offer more interesting career paths and are a source of talent that can plug the quantitative and qualitative skills gap these industries face. Long story short; focusing on talent, continuous education and business value creation is the viable path forward for service providers. 

The creed of shareholder value and its disconnect from reality

Too many people are still worshipping the totem of shareholder value, a theoretic and flawed notion from its conception. We are in a slow transition to more stakeholder value focus, more fitting our interdependent world that needs more cohesion and inclusiveness.

Ever since the invention of the term shareholder value, it was adopted as the dominant discourse by Wall Street and institutional investors. It, among other factors, has led to a short-term, myopic circus that reduces the horizon of executives to 90 days, de-humanizing our enterprises. It’s a fact that we are richer than ever before and there is less sickness, famine, and war (you wouldn’t say it if you watch the news). But there are still large swaths of the world struggling to improve the standard of living. And even in the world’s richest countries, large groups of people don’t feel better off. They feel left behind, disenfranchised and powerless. This is about half the population in countries like the US, the UK and France, evidence Brexit, Trump and Marine Le Pen’s rise. 

We need to go full circle on shareholder value
Coming back to shareholder value; it’s time to go full circle. Take a minute to think who is behind the vast pools of capital institutional investors manage… It’s us, the people saving money for their pensions. Shareholder value is a construct that served the money managing industry well but forgot to look at the wider interests of the actual owners of the money…. those shareholders are also your employees. Shareholders are not the clever folks on Wall Street, they are the representatives of the ‘normal people’ in your neighborhood and your company, the people who save their money in a pension fund or 401k.

If you take a narrow interpretation of ‘fiduciary duty,' you can get away with the fallacy that returns on investment is the only metric of interest. But what if you fail to let that money you invest create prosperity for the people you invest it for in their real life? If your addiction to dividends and higher share prices is ruining the jobs of your future beneficiaries? It is time to bring the financial economy and the real economy closer together. 

We can’t ignore the externalities of business any longer. People elimination is one of the challenging externalities that is a short-term lever executive in our industry seem to see as the inevitable answer to competitive pressures and new technologies (RPA, AI). 

The Bottom Line - Taking social responsibility seriously is a critical and foundational aspect of doing business anno 2017

Only ten years ago, when I was doing research about investment preferences of pension fund beneficiaries and their ability to influence pension fund investment policy, corporate social responsibility and socially responsible investing were a theoretic discussion, often painted as the domain of idealistic, money-hating tree huggers. Not anymore. Since the 2008 financial crisis, everyone understands CSR is a real thing, a source of durable value creation, competitive advantage and not a fad you only use as window dressing. CSR has come a long way since. It’s time for service providers and buyers, along with governments, to come up with credible policies to make sure talent is up for the new tasks at hand, to truly augment people with the new technologies instead of using this as an excuse for the next round of layoffs.

Posted in: Global Workforce and Talent



Why have so many sourcing advisors failed with automation?

June 24, 2017 | Phil Fersht

Remember when sourcing advisors has become the "new analysts" and dominated so many outsourcing discussions?  Remember when it was the norm for clients to bring in the sourcing specialists whenever they needed a deal done, not only to get a good price, but also to make sure they selected the right partner and had a strategic view of the future?  Remember when most advisors were not only contract experts, they were also strategists, researchers, sounding boards and respected brands you could hang your hat on... Just look at our 2011 study when advisors lorded the influence over everyone bar direct peer feedback:

Fast forward to today, with all the sourcing advisors doubling-down in RPA to compensate for the drying up outsourcing deals and confidently hoping their outsourcing clients will immediately turn to them to help them grapple with the new outsourcing-cum-automation model.  Surely their ability to craft deals for clients will put them in pole position to take their clients down the RPA path...

Let's visit our brand new (still-in-the-field) study on the 2017 State of Automation, and it's telling us a very different story when we spoke with 56 enterprises actually deploying RPA:

Less than half the RPA buyers view either consultants of sourcing advisors as influential in their automation sourcing.  Even conferences are impacting automation buyers more.

So what's gone so wrong with advisors in automation?

Credibility. Suddenly many advisors who were previously hawking their deep understanding of HCL versus TCS's FTE rate cards are now suddenly adding their names to white papers on automation and trying to insert themselves into serious client conversations about said topic.  It's just not credible.

Smarter clients.  The swirl of information over social channels is so intense these days that most clients' knowledge isn't that far behind the experts.  In many cases, you'll learn more about RPA talking with a client in beta mode than an advisor or analyst trying to impress you at

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Posted in: Outsourcing AdvisorsRobotic Process Automation



A third of enterprises are making significant investments in RPA

June 22, 2017 | Phil Fersht

Tired of the RPA hyperbole?  Well, you'd better get used to it continuing, as key industries have already made significant short-medium term commitments:

Our 2017 State of Operations and Outsourcing study with KPMG, covering 454 major enterprises, shows the hi-tech and financial services industries leading the way with, respectively, 53% and 44%  already making significant investments in RPA over the next couple

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Posted in: HfS Surveys: All our Survey PostsRobotic Process Automation2017 State of Industry Study



Off-Shore-Based Service Providers Look to Develop “Meaningful” Presence in the U.S.

June 22, 2017 | Barbra McGann

The pendulum is swinging back. Over the past year, we’ve seen the increasing focus from India-based service providers to invest in building on-shore presence and capability in the U.S.  While spurred on by H-1B visa limitations and in-flight policies regarding minimum wage and the politics of “protectionism,” the long and short of it is that the U.S. citizens should benefit from local investments. U.S. governments and economic development entities are offering incentives for partnering with these service providers as they seek out “hubs” central to current and potential clients. Two recent examples are Indianapolis, Indiana with Infosys and Jacksonville, Florida with Genpact, where the cities offer tax incentives and colleges and universities can provide a talent pool.

It used to be “too expensive” for service providers to set up on-shore service delivery centers, but with the increasingly integrated and intelligent use of robotic process automation and cognitive computing and the motivation of politics and protectionism, this argument is fading. What is also relevant is when the partnership changes focus from outsourcing a task or point solution such as “collections” to business outcomes such as providing a better patient experience and increasing upfront payment (thereby reducing the need for collections), the service provider needs to be more integrated into the end-to-end process and business operation. That means having a local presence and interaction to provide relevance and create meaning and insight. (See “Recasting the patient billing experience” as an example). 

Our research (see Exhibit) shows the there is a significant drop across the board in the move to “offshore” business and IT work – finance and accounting and HR, in particular.  Case in point, we recently heard from a client about how Sutherland helped set up and recruit into a local service center for F&A services in a matter of a few months for a company that was separating from its parent.

Exhibit: Changing use of offshoring – shared services and outsourcing


Source: HfS Research in Conjunction with KPMG, “State of Operations and Outsourcing 2017”  Sample: n=454 Enterprise Buyers 

Click to enlarge

How service providers are expanding local, U.S.-based presence

Investments by service providers in having short- and long-term U.S-based capability for clients include local service delivery centers and increasing co-location delivery teams as well as work-from-home options; education support through curriculum development in local colleges and universities as well as programs for K-12 to “entice” and enable interest in STEM (e.g., code.org and Girls Who Code) to create the workforce of the future; and transitioning workforces from clients to their own organizations.

Examples include:  

  • Genpact: In July, Genpact will add to its network of 12 U.S.-based service support and delivery centers by opening one in Jacksonville, Florida. This one will focus first on mortgage service support with processing, underwriting, and closing services for residential mortgage loans for a leading financial services institution 
  • Infosys: A new entry into this discussion, Infosys has far outstripped other service providers in pursuing H-1B visas to date and is now refocusing on building local presence and brand recognition. Infosys intends to develop four locations in the U.S., centered in “client clusters” and focused on particular capability areas such as artificial intelligence, user experience, and enterprise cloud. Its approach is to partner with local colleges and universities and offer incentives such as investing in student tuition and curriculum development. Infosys is also preparing for more long-term needs by looking at ways to entice a broader interest in STEM. The first partnership in this effort is in Indianapolis, Indiana, the heart of the U.S.
  • Cognizant: Its recent acquisition of Health Care Services Corporation’s TMG Group adds Medicaid and Medicare support in offices in Texas and Pennsylvania. This move provides its clients access to more local resources – people with knowledge and depth in government health as well as infrastructure.

Bottom line: Indian-based service providers have been building near-shore and onshore presence for a few years now, but it takes on new meaning and significance now as the context changes – politics, the impact of technology, objectives for partnering, and changing priorities around the skill sets that are needed. As a service buyer or government, university or economic development organization, be creative and also take a long-term view as to how these service providers can funnel the investments they are increasingly willing to take to have value locally to grow their businesses.   

Posted in: None



Microsoft Dynamics Gets Saas-y

June 20, 2017 | Khalda De Souza

HfS has just published its first HFS Blueprint Report: Microsoft Dynamics Services 2017. The report looks at the capabilities and vision of nine global Microsoft Dynamics service providers. As this report forms part of HfS’ SaaS services research, a small weighting was applied to the service provider’s specific experience in deploying the cloud products.


What are the Microsoft Dynamics cloud products?

That’s not an easy question to answer! We have traditionally looked at the services market for stand-alone SaaS products (Workday, Salesforce and SuccessFactors). The Microsoft Dynamics ERP and CRM products are different and can be deployed on-premise, on a private cloud, on a public cloud, or with a hybrid model.  Many buyers love this because it gives them maximum flexibility and control which is future proof.

The majority of Microsoft Dynamics deployments have been on-premise, especially for the ERP products, which have also been more popular with mid-market buyers. The CRM cloud product, CRM Online, has been more popular in recent years with mid-sized and large enterprises alike. The new Dynamics 365 platform, launched in Q4 2016, delivers a combination of Microsoft Dynamics ERP, CRM, productivity, and other applications on the cloud. We expect this platform to be a key growth driver for the adoption of cloud in this market over the next few years.

So, which service providers stood out in this Blueprint?

We included leading, global Microsoft Dynamics service providers. They all have good experiences and have made impressive investments to grow this aspect of their service practice. All of the service providers were positioned either in the Winner’s Circle or High Performers category. Notable performances from the different providers include:

  • DXC Technology, which impressed with its overall experience in deploying Microsoft Dynamics.
  • Those with the best cloud experience in engagements were Accenture/Avanade, Capgemini, HCL (PowerObjects), IBM and KPMG.
  • Accenture/Avanade and KPMG also impressed with their investments in consultative tools and technologies.
  • DXC Technology, IBM, Infosys, Wipro and TCS particularly stood out for their industry sector tools investments.

So, where do we expect this market to be headed in the next few years?

As the Dynamics 365 platform gains momentum, we expect increased service opportunities across our Value Chain of consulting, implementation, management and optimization services. One of the biggest challenges service providers have is keeping up-to-date with Microsoft’s product developments and training consultants to meet increasing buyer demand. As with all SaaS service markets, key differentiators lie in the ability to hire, motivate and retain good talent to maintain client project continuity.  Buyers are becoming increasingly selective of the specific team members on projects.  Look out for notes detailing recommendations for service providers and buyers on the HfS research site soon.

Posted in: SaaS



We are in the People Elimination business. How did it get this bad, and can we change course? (Rant warning)

June 18, 2017 | Phil Fersht

Talent is still the most precious asset firms have and it needs to be nurtured as the real proponent of growth and success, not merely the fancy technologies that can automate workflows. Our technology and business services industry desperately needs a mindset shift - and one that requires a longer term view, than the next quarterly Wall St announcement. Whilst we are not the only guilty party here, our technology and business services industry is still rooted firmly in people capability, much more than technology and commodity products, hence the desperate need to correct course and avoid circling the drain...

I was interviewing with the Delhi branch of NPR the other day on the layoff paranoia engulfing the Indian IT industry, and it dawned on me just how inhuman our business has become. These are normal people who still view the world as one where employers have responsibilities to their employees, where people still care about the welfare of others, when you got up in the morning and went to a job that had a purpose and a future.

The poor interviewers simply couldn’t comprehend why major employers enjoying ~20% profit margins and continual 5-10% growth were so focused on making massive staff reductions.  “Don’t these firms have a responsibility to their employees, Phil?” was the question. “Of course they don’t, it’s all about their shareholders” was my immediate hair-trigger response.  Ugh – I suddenly felt ashamed of the business of which I was part. 

We’re in the business of increasing profits for investors, not creating new business value from people

Is our sole purpose now simply to eliminate people? We spend a couple of decades displacing "expensive" workers because we could find less expensive able ones to do the job. Now we’re getting rid of them altogether just to keep the Buffetts and Elliotts happy? And why are we literally obsessing with labels to describe what we do:  Digital, Machine Learning, Intelligent Operations, Robotic Process Automation… or my favorite “Digital Labor”. 

Let’s be honest, what all these things really signify is “how to get work down without the need for people”. And how can you call something “Digital Labor” when the labor is no more… unless we start redefining RPA recording loops based on optical recognition software as “labor”. Maybe we need to revisit what labor actually is, according to Merriam-Webster:

Definition of Labor (Merriam-Webster): 

"1) The human activity that provides the goods or services in an economy; 

2) The services performed by workers for wages as distinguished from those rendered by entrepreneurs for profits."

Correct me if I am completely losing my mind here, but we’re no longer in the business of promoting human activity to stimulate economies… we’re in the business of increasing profits for investors.  Is there any way to dig ourselves out of this hole, or are we on an inexorable nosedive to the lowest common denominator of creating and promoting business operations that no longer require people?

As technology and operations professionals, we must rediscover our purpose or we’re just promoting the end of labor

I wish I had a silver bullet solution to help us take this dramatic U-turn, but sadly, all I can offer are some ideas on how we can re-humanize what we do:

Find meaningful work for our people to do - not just fire them. In the past, when most businesses had some excess staff capacity, there were always useful things for them to do – such as consulting and outsourcing firms deploying their benched consultants to work gratis with existing clients on special projects that could eventually lead to future business – or just

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Posted in: Business Process Outsourcing (BPO)Cognitive ComputingDigital Transformation



Time to hangout with the real robo-bosses at the FORA Council this September

June 17, 2017 | Phil Fersht

When an industry is enduring a secular shift that is literally redefining how we do work, it's pretty important to get some real, unfettered dialog going among all the key stakeholders this impacts. We need to break free from the glitzy paid-for sales presentations, robot keyrings, stress balls, nasty logo-ed leather notepads and greedy events firms vying for a quick buck from vendors eager to part with cash to promote themselves to all their competitors.

That's why we're assembling 100 of the industry's finest leaders in a single room for a whole afternoon to thrash out the mandate for the future of operations in the robotic age for our inaugural FORA council session in Chicago, 19th September. And we promise no sponsors, stress balls or bad white papers to take away...

Here's just a sample of the industry robo dignitaries who've already committed:

  • Alastair Bathgate, CEO, Blue Prism
  • Chetan Dube, CEO, IPsoft
  • Chip Wagner, President, Emerging Business Services, ISG
  • Cliff Justice, Partner, US Leader, Cognitive Automation and Digital Labor, KPMG
  • David Poole, CEO, Symphony Ventures
  • Daniel Dines, CEO and Founder at UiPath
  • Jesus Mantas, Managing Partner and General Manager, IBM Business Consulting, IBM US
  • Lee Coulter, Chair for the IEEE Working Group on Standards in Intelligent Process Automation
  • Dr. Mary C. Lacity, Curators' Distinguished Professor of Information Systems, UMSL, and Visiting Scholar MIT
  • Max Yankelevich, CEO, WorkFusion
  • Mihir Shukla, CEO, Automation Anywhere
  • Peter Lowes, Partner, and Head of Robotics & Cognitive Automation, Deloitte US
  • Shantanu Ghosh, SVP, CFO Services and Consulting, Genpact
  • Thomas Torlone, U.S. Leader of Enterprise Business Services, PwC
  • Tijl Vuyk, CEO and Founder, Redwood Software
  • Weston Jones, Global RPA Leader, EY

We also have leaders of cognitive and automation initiatives from the following buyside firms already signed up to get stuck into the debate:

So let's cut to the chase - it's time to have the real, hard conversation about where we really are as an industry. Why aren't those 40% cost savings happening, each time someone slams in some software and hopes it somehow eliminates manual labor because they can access a bot library? In fact, why are a third of RPA pilots just left hanging with no result? Yes, people, it's

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Posted in: Robotic Process Automation



HCSC’s Sale of TMG Health to Cognizant Shows A Move to Focus – and Partner– for Better Outcomes

June 16, 2017 | Barbra McGann

Earlier this week, Cognizant announced its intention to expand its footprint to support U.S. Government health operations through the agreement to acquire the TMG Health subsidiary of Health Care Services Corporation (HCSC).  On the flip side of that announcement, HCSC has carved out its Government health support function to be run by a partner – Cognizant. HCSC can benefit from Cognizant’s dedicated, prioritized, and leveraged (cross-client) resources to manage the operations services. However, to impact the health, care, and financial outcomes of its healthcare consumer base, HCSC will need to partner with Cognizant in a way that creates the OneOffice™ – a seamless flow of data, insights, and infrastructure for the front, middle, and back office. 

TMG Health’s relationship with HCSC started back in 2005 when HCSC selected it to provide BPO services in support of its entry into the Medicare Advantage market. At the time, TMG Health provided some measure of enrollment, eligibility, claims, and billing support to a total client count of 30 plans covering 2.8 million lives. In 2008, HCSC acquired TMG Health for $100m, tucking in the BPO provider as a subsidiary. TMG Health has since added support for Medicare and Medicaid claims processing and member services and has local resources in Pennsylvania and Texas – for 32 health plans (+2 since 2009) and more than 4.3 million lives. TMG Health has not really grown its portfolio of clients although the footprint of services has expanded over time.  And public health programs continue to grow – in numbers and complexity as the industry moves to greater coverage and value-based care. The changes in the healthcare market driven by consumerism and compliance are driving healthcare plans to “rethink” their business and operations strategy.  

By exiting the “back office business,” HCSC can focus its investment and resources on becoming a more consumer-oriented company.

While retaining a partnership with Cognizant for its support/back office services, we expect HCSC to focus on becoming more consumer-oriented; to channel its resources to becoming insightful, tech-enabled, and overall “savvy” to impact health outcomes for its constituents. In the meantime, it can rely on Cognizant to provide a steady and increasingly optimized rules-based foundation. We expect Cognizant to tap into the Medicare/Medicaid COE it told us about in our last Healthcare Operations Blueprint research. The consolidation of its subject matter expertise, IP, and tools in the COE is to help manage the tricky business of complying with government policies and the continued growth of Medicare, Medicaid, Medicaid Advantage, and Dual-Eligible consumers – providing support for eligibility, enrollment, billing, claims, and applying its solutions around quality and reporting (e.g., STARServe). Cognizant has the right experience plus industrialization and scale and has the Trizetto and RPA capabilities to drive increased efficiencies and free up resources to support new growth in the Government Health operations business.

The Bottom-line: HCSC and Cognizant will need to partner to keep – or establish – integration between front and back office to impact health, care, and medical outcomes.

One place this arrangement could break down is if the back office support that Cognizant provides is not integrated with the front- and middle-office of HCSC (and its other clients). In order to impact health, care, financial, and quality outcomes, healthcare payers need to be healthcare-consumer oriented – understand the health, financial, economic, and social determinants of their constituency. A lot of that data is part of those back office systems and processes, so HCSC and Cognizant will need to be partners in defining workflows of the future that will support an insightful, consumer-oriented business that complies with government standards and also enables HCSC to better manage the health, care, medical, and financial outcomes of its public health base.

Posted in: Healthcare and Outsourcing



Look into my eyes – I can see the future.

June 14, 2017 | Jamie Snowdon

A question I get asked a lot is what do I think about the future of outsourcing? In this case in a few hundred words. I thought I’d share, but forgive me if it becomes evangelical:

The future of outsourcing is linked very strongly to the future of technology and its use in the enterprise – often it’s very hard to distinguish between the trends of these two things. Essentially outsourcing is the commercial arrangement between technology (and business services) organizations and their customers – it’s how you put a price on an operational service between the two.

The big shift will be the level at which you quantify an amount of service. The most popular way to quantify outsourcing arrangements has been by the number of people, per FTE models. But over time these transformed into a hybrid of FTE, transaction/consumption based and the slightly misleading outcome based pricing – which was often just an emphasis shift toward an achievement or variant of the first two, essentially the same but with a stricter KPI focused on a specific goal.

Cloud and as-a-service types of the contract have made consumption/transaction based pricing the norm for IT and IT services – we expect this to pretty much remain. The twist in its tail will be the unit being consumed will not be an IT measure. The unit of consumption will start to be linked more directly to a business metric, not an outcome. So, for example, all of the costs associated with hiring a bicycle from a city-wide hire scheme could be paid for in bike hire units – the provider only gets paid when a bike is hired – irrespective of the technology being consumed. This is a simple example – but as we see better use of automation and AI within IT and within transaction management, which reduces idle costs and we will reach a point where this type of deal has little risk. The cost of keeping the IT running could be negligible – this won’t be risk/reward in the traditional sense as the IT firm carries very little risk if the client doesn’t achieve the desired volume. The build and run deal, where the client doesn’t pay for the implementation will require the same type of calculation as current build and run deals – but the measure used for payback will be different.

Additionally, as these models develop we expect the level of risk within the contract to be better understood. This means the risk equation can be better calculated into the mix as analytics dictate the acceptable level of risk and the appropriate price points.

We have quantified this shift to more consumption-based services in the chart below – if you look at the proportion of IT services contracts that will be as-a-service by 2021, it is jumping from its current 19% level to almost 40% by 2021. We define AaS is a turnkey managed service solution based on a standardized platform delivered via the Internet – uniform standards across clients with relatively low levels of customization (<25%) – not lift and shift, but adopt, change and adapt. The price of the service is directly proportional to a transaction or measure of consumption. We also include consulting and professional services that advise upon and wrap around this type of service.


Another shift, particularly in IT outsourcing will be the merging of applications and infrastructure – which we have already seen to a certain degree. Cloud and DevOps have helped to break the silos between applications and infrastructure intrinsically linking these two pieces – making separate outsourcing deals for these two parts of an organization increasingly unlikely as the applications and infrastructure continue to merge. This will be particularly true in industries where applications are developed for customers, and the infrastructure requirements are linked to the success of the application. The adoption of the app dictates the scale of the infrastructure – which increasingly means monolithic, inflexible infrastructure deals fade away. Replaced by more application focused deals including the infrastructure paid for based on consumption linked to business use.

Bottom line – outsourcing will continue to exist, but the variable won’t be as directly linked to the cost of people. It will use technology to form new blocks of consumption.

Outsourcing is one of the commercial wrappers for consuming technology and business services. As these services become more software and platform based, the commercial models will become more As-a-Service. So consumption based models will be and already are becoming the norm. However, the most critical shift in will be the commercial parameters changing to fit the technology being outsourced. Automation and AI technologies will be used to allow outsourced IT (and business services) to split into new blocks of consumption, more linked to business requirements. With AI even helping to match risk levels to specific price points. True As-a-Service outcome pricing is born. 

Posted in: IT Outsourcing / IT ServicesThe As-a-Service Economy



It'll be a very windy city this September... so don't miss the flagship HfS Digital OneOffice Summit

June 14, 2017 | Phil Fersht

The windy city will get extremely blustery this September 19-21, when HfS stages the inaugural FORA Council session, immediately followed by our annual HfS Summit "The Digital OneOffice: Redefining How We Get Work Done"


Someone just described going to an HfS event as the whole industry being bludgeoned with a blunt instrument... how dare they? Yes, friends, it's nearing the time for the next, immense iteration of that HfS summit, where we're cementing together the biggest, boldest and

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Posted in: Digital OneOffice



America Last: Why Trump’s running away from ‘Paris’ is so foolish

June 14, 2017 | Derk Erbé

I have refrained from political commentary since Trump took office because so much has been unclear. Not that his stated views during his campaign that climate change is a Chinese hoax and climate rules are designed to hurt American businesses or his appointment of staunch climate change-deniers to the EPA and Department of Energy, promised anything good. But now the long awaited, reality TV decision about the Paris Climate Agreement showed the real Donald Trump meant what was really going to do what he promised: The United States will “withdraw from the Paris Climate Accord,” “seizing all implementations right away."

Trump frames the climate change fight, not as one of our world’s biggest challenges but an economic zero-sum game of the US against the rest of the world. In his speech, Trump tried to tie leaving ‘Paris’ to the protection of the American people. This is a narrative weaned from reality.

Here are some sobering facts to put Trump’s decision in context

  1. Withdrawing from Paris doesn’t impact much in the medium term, regarding real climate policy and action. Withdrawing from the agreement will take a full four-year period. Ironically the US can only officially withdraw the day after the 2020 presidential election.
  2. Paris is a voluntary agreement, of which many critics claim lacks teeth. Every nation sets its own goals. Obama pledged to reduce carbon emissions by 26 percent during the 2005 – 2025 timeframe. The US could have simply adjusted its ambitions and goals if it felt Obama’s goals are unattainable. Trump has already gutted the Clean Power Plan, an essential part of Obama’s efforts to reduce emissions by fossil fuel burning electricity plants and increase the use of renewable energy and energy conservation.
  3. Many “legacy” energy jobs are already gone. Coal jobs won’t come back, nor will the jobs in Oil & Gas that were lost in the downturn over the last three years. Coal has lost its ground and competitive edge to natural gas, solar and wind. Mostly for competitive pricing reasons, not policy reasons. Coal companies acknowledge this, saying they don’t see a future for coal and jobs will continue to diminish. The production of oil and gas has rebounded from the slump of 2014-2016, but jobs have not. This is due to new efficiencies in the field, primarily driven by automation.
  4. The new jobs re in clean energy and Paris promotes their creation. The jobs Trump is so eager to create are not in the fossil fuel industries but in clean energy. The solar industry is the biggest engine of job creation in America. In 2016, one in fifty new jobs was in the solar industry. Grid modernization driven by renewable energy has created 100,000 new jobs in 2016, according to the Department of Energy. The Paris Agreement created a lot of momentum for the adoption of clean energy. For the first time in history, the world united to curb emissions and set a framework to act against climate change. The Paris Agreement provides a big push for the energy transition that is underway across the globe, a transition that some experts expect to create a ten-trillion-dollar economy for renewable energy and is already creating large numbers of blue-collar manufacturing, installation and service jobs in the US.
  5. Any deal on climate change is terminal while Trump is in power. There won’t be a new deal of a re-negotiation of the current agreement, as Trump alluded to in his Rose Garden spectacle.

Will it change US progress in the inevitable move to renewable energy?

The simple answer is no. Besides the damaging effects of Trump’s actions at the federal level, for businesses, states, and cities, the only common sense course of action is to continue down the path of renewable energy.  Directly after Trump’s decision, California, Washington, New York, Connecticut, Massachusetts, Rhode Island, Hawaii, Oregon, Vermont, Minnesota, Delaware, Virginia and Puerto Rico – representing roughly 35% of the US economy – formed the United States Climate Alliance, vowing to uphold the Paris Climate agreement within their borders. Eleven other states, including Maryland, Ohio, North Carolina and Illinois, have also supported the Climate Agreement.

The historic Paris Climate Agreement has already been ratified by most parties to the treaty and was signed by all countries except Nicaragua, who find the agreement not far-reaching and aggressive enough, and Syria, for obvious reasons. The Paris agreement is an agreement with intentions, not with automatic actions. The interpretation and subsequent actions heavily rely on industry and civil society. And they are now further encouraged to take action. While the Trump administration is doing everything to shut down forward-looking energy policy and climate change policy on a federal level, such as overhauling Obama’s Clean Power Plan, on a state and city level, the majority is acting; investing in renewable energy resources, adhering to the Paris Agreement guidelines. Since Trump’s announcement, governors, mayors and business leaders have spoken out and showed their intentions to stick with ‘Paris.' California’s governor flew to China to sign an agreement with the Chinese to collaborate on climate and clean tech, emphasizing the resolve from states to act and move forward.

A symbolic policy shift with diplomatic and reputational impact first and foremost

The announcement to withdraw from ‘Paris’ is a symbolic move more than anything. And it is symbolic for all the wrong reasons 

  • The backlash is starting to show; there is a negative impact on the reputation of the US – the rest of the world effectively sees Trump’s move as the withdrawal of the US from the world stage. The diplomatic backlash will be felt beyond the climate realm.
  • Impact on American businesses - US businesses fear they will be at a disadvantage seizing the opportunities in the renewable energy market, while they, until Trump’s decision, where well-positioned to lead in the global clean energy market.
  • It highlights the missed opportunity to jump on the renewable energy train. Trump is missing a great opportunity to make a concerted effort on infrastructure and the job creation in the renewable energy market. Last year, one in fifty new jobs in the US was created by the solar industry. Think about that. And only 50.000 people work in coal. Pick your battles, Mr. Trump. Instead of trying to save a small number of coal mining jobs with the red herring of ‘clean coal’ and withdrawing from Paris, focus on re-training coal miners for the manufacturing, installation and service jobs in the wind and solar industry.

The bottom-line: Trump will be gone when Mar-a-Lago is swallowed by the sea

As Oscar Wilde famously said: “With age comes wisdom, but sometimes age comes alone.” Trump’s announcement was short-sighted and removed from reality and science, catering to a small fraction of people with extremist and ancient views on climate and energy 

The good news is that the clean energy transition is well underway and won’t be stopped by the Trump administration, not in the US and certainly not abroad. But, as many critics of the climate agreement emphasize, it might be too little too late. The Paris deal was a strong message from all nations, coming together in the endorsement of curbing global warming and the impacts of climate change, but the climate fight needs more ambitious goals and most importantly actions. The world can’t wait any longer and play an economically motivated game of chicken, with the well-being of our planet at stake. 

Posted in: Energy



The Robotic Process Automation market will reach $443 million this year

June 10, 2017 | Phil FershtJamie Snowdon

Have we ever got so excited about a market that isn't even yet past the half-billion dollar spend level? Are we getting over excited about solutions because of their potential before they are fully tried and tested in reality?  Let's get to the realities of RPA by examining the size and five-year forecast for software and related services expenditure:

The global market for RPA Software and Services reached $271 million in 2016 and is expected to grow to $1.2 billion by 2021 at a compound annual growth rate of 36%. The direct services market includes implementation and consulting services focused on building RPA capabilities within an organization. It does not include wider operational services like BPO, which may include RPA becoming increasingly embedded in its delivery.

RPA describes a software development toolkit that allows non-engineers to quickly create software robots (known commonly as "bots") to automate rules-driven business processes. At

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Posted in: Cognitive ComputingRobotic Process Automation



Fractal plugs consulting gap with 4i acquisition

June 07, 2017 | Reetika Joshi

Fractal Analytics’ bets, on AI and machine learning as its future, are set to be bolstered with its new acquisition of consulting and analytics firm 4i Inc. 

We noted in 2014 in Profiling An Analytics Rising Star: Fractal Analytics, that “Fractal is now more bullish about its analytics consulting presence onshore, and its technology investments – a clear aspiration to move away from the offshore analytics model”. Our interactions and observations of the service provider since that time - including this latest announcement - seem to confirm our hunch about this pivot.

As one of the last few pure-plays left in the analytics services business, Fractal has come a long way from 2000 when it was set up in Mumbai, India to tackle niche analytics projects for U.S. based banks and consumer goods companies. It now has a global presence in 12 locations, serving well-known global brands such as Philips, Kimberly Clark and P&G. Fractal was already growing rapidly (e.g. it has grown at 60% CAGR over the last six years). We expect this move to add to their topline growth with an expanded base of U.S. clients and front-end consulting capabilities to aid sales efforts. In the last few years, it has aligned resources towards a long-term growth strategy focused on high-touch client interactions and machine learning and AI technology-led solutions.

Increasingly high-touch local interactions supported by global network 

Along these lines, Fractal’s acquisition of 4i is interesting because it:

  • Brings CPG consulting chops: Analytics consulting was the critical missing piece for Fractal as it rounded out its services portfolio. With clients like Colgate, Kraft foods, Post, and Del Monte, 4i’s focus on CPG is evident. Its “foresight-driven approach” will align well with Fractal’s focus on predictive analytics that can help clients be more proactive vs. reactive with their analyses and decision making.
  • Improves client collaboration: 4i’s capabilities add to the high-touch client interactions that strategic analytics initiatives need to be successful. Fractal’s clients love the attention they get from the service provider’s management team and its long-standing relationships are a testament to this culture. 4i’s presence in a central location in the U.S. (Chicago) will help deepen client relationships. More importantly, this onshore presence will help Fractal’s analytics services be more impactful. A lot of analytics clients value “high touch” engagements where analysts can spend more time on-location to really understand business context and priorities and with the operations teams to get the best results.
  • Extends the delivery network: 4i brings operations presence in Ukraine and Mexico, which Fractal will need to build out a diversified and global delivery backbone. Analytics talent in India is increasingly in short supply as every IT service provider, analytics startup, and enterprise IT organization tries to scoop up analysts, statisticians and data scientists in the major cities. Add to it the smaller subset of machine learning and AI specializations that Fractal will need going forward, and you can see why tapping other talent hubs around the globe makes sense.

How this local/global expertise is complemented by artificial intelligence

These factors will bring some significant advantages to Fractal, particularly as it rolls out its strategy for incorporating machine-learning into its analytics solutions. Fractal has spent the last two years building out its product portfolio of machine-learning solutions and even reorganized its management structure to give it more focus. Its solutions present “here and now” practical applications to enterprise challenges around infusing insights into every business decision. For example, Fractal Analytics’ Trial Run solution helps teams run experiments on their existing datasets, to see the potential benefits before rolling out to a wider base. Its Customer Genomics “hyperpersonalization” platform is helping companies target customers with more relevant and meaningful dialogues based on individual wants and needs. Enterprise clients that are working with Fractal on these solutions have mentioned to us how valuable their partnership is to access and explore machine learning technology together in these early days.

That word – partnership – is a great way to describe the type of engagement that enterprises need with their technology and service providers to build out AI applications today. As my recent blog post on IBM Watson services pointed out, “Cognitive technology falls in the 'innovation' realm for most enterprises. It requires thorough experimentation, risk/opportunity assessment, project prioritization, steep learning curves on skills development, and above all, education and change management for the employee/customer base that is involved in the process.” Consulting capabilities are thus a critical part of this journey for any hopeful AI service provider. With this tuck-in acquisition, Fractal is playing catch-up to its competitors such as Mu Sigma and Accenture, whose consulting capabilities are at the forefront of their analytics services businesses.

The outstanding challenge is just that: how to stand out, particularly against better-known brands with similar capabilities

Fractal has already made investments in the actual technology, including its own R&D, and acquisitions of Imagna and Mobius Innovations in the last couple years. It has the foundational client relationships that it can leverage. 4i will help it bring all these capabilities together. However, there are several emerging AI-based personal assistants, personalization platforms, etc. that Fractal is competing with through its product group. Its key challenge will be differentiating itself in this new and increasingly crowded market.

What Fractal needs to do next is craft a vision for its AI applications and services specifically within its key verticals of CPG and BFSI instead of the familiar trap of becoming a generalist. 4i has complementary vertical strengths and Fractal will do well to leverage these and build out what HfS calls vertically-infused insights. Overall, we give this acquisition a “thumbs up” verdict at HfS, with an eye on how Fractal articulates its value as a more comprehensive analytics services provider going forward.

Posted in: Knowledge Process Outsourcing & AnalyticsIntelligent Automation



Not-So-Elementary Considerations For IBM Watson Services Buyers

June 05, 2017 | Reetika Joshi

Whether you have successfully started working with Watson, are evaluating it, did a PoC 18 months ago and swore off it, or have an enterprise license sitting around, you have realized that Watson is not your average prepackaged software application. As IBM’s umbrella brand term for all things cognitive, Watson capabilities range from analytics to cognitive solutions and virtual agents, available as individual APIs or prepackaged products to develop Watson applications. As cognitive technology like Watson falls in the “innovation” realm for most enterprises, it requires thorough experimentation, risk/opportunity assessment, project prioritization, steep learning curves on skills development, and above all, education and change management for the employee/customer base that is involved in the process.

When you’re working with a service provider through this journey, chances are they are on the same learning curve because of the newness of the cognitive market for business use. While IBM is taking Watson to market through its GBS organization, Watson APIs and products are being used by business and technology services providers in a variety of ways (see our POV paper on this subject here). IBM Watson technology has been around officially for a few years, and PoC projects are the norm so far. However, HfS hears a lot of industry optimism and “gearing up” for 2017-2018 being the years of more substantive implementations through this growing network of services partners.

Considerations for using Watson services

As you explore Watson in your organization:

  • Understand where and how your service provider is investing in Watson to offset cost: Perhaps the biggest barrier to Watson adoption for enterprises has been its high price tag for entry. Service providers have been trying to circumvent this by exploring options to host the Bluemix and Watson licenses plus external databases. Their clients can then access both the technology and data, particularly for proprietary solutions where cognitive APIs are being leveraged. Enterprises that already have access to the Bluemix cloud computing environment are getting started with Watson on it as an incremental investment. As Microsoft Azure, Amazon AWS and other competing cloud environments all have their own machine-learning technologies, the decision to which cognitive ecosystem you go with will likely be influenced by these larger technology-buying decisions.
  • Find the provider that Is collaborating with IBM in areas that matter to you: Watson APIs and products are being constantly revamped, retired, and regrouped and it will help to have advance knowledge from a service provider that is deeply involved with IBM in advancing specific areas. We heard instances of how by providing feedback to the IBM Watson product development team and working collaboratively, some service providers influenced the release of new functionalities that benefitted their clients’ projects directly. Look for the connections that your service provider team has been able to establish that could impact your particular use cases.
  • Find the Service Provider That Is Investing in Your Vision - Or Using Design Thinking to Help You Develop One: Even in these early days, we see industry, functional, and technological strengths developing among service providers. The experience gained and customization achieved with specific solutions – like Hexaware’s superannuation bot or Accenture’s mortgage advisor Collette – are valuable to companies that have already outlined these areas for Watson or are looking for new levers for value to their business and customer base. In areas where there is not a relevant standard solution, your leadership team will often have competing priorities. Consider service providers that offer Design Thinking workshops to establish the top business priorities, the process and technology roadmaps, and the definition of your own version of a future-state with an “augmented workforce”.
  • Don’t Underestimate the Power and Influence of Naysayers - Educate Them First: As shared by a financial services VP, “Internal stakeholders require fundamental lessons on what Watson is and isn’t…Our skeptics didn’t fully understand what cognitive or data mining benefits Watson brings; we should have expected it earlier on and addressed it head first”. Without aligning organizational buy-in, companies in our research have seen significant slowdowns in each stage of their projects. Make sure your key representatives understand the breadth of the technology and its suitability to your use case before kicking off and then check in regularly.

The ripple effect of Watson services 

With these considerations in mind, do note that whatever cognitive initiatives you undertake will invariably impact more than one part of the business and way of working. As a department undertakes the required data curation, reference architecture, process remodelling, and rollout, it will interact with and influence other departments or processes and advance their maturity toward more intelligent operations as well. For example, a retailer could go from a production pilot in personalized shopping on its website into cognitively determined best next actions for its sales channels, then on to cognitively driven merchandising and supply network on the back end to better predict demand. The core customer and product data can be leveraged across these functions and can become a powerful way to reinvent the entire customer engagement process.

The focus on better enabling the customer and/or stakeholder experience is driving significant enterprise interest to explore Watson services.

In our latest report, HfS Emerging Market Guide: IBM Watson Services, we further explore this theme of getting started with IBM Watson – the use cases so far, the progress on and beyond PoCs and pilots and the emergent role of service providers. The investments today are helping establish new norms for people, processes, and technology that will pave the way for “industrial scale” Watson in the future.

Posted in: CognitiveIntelligent Automation



Welcome back to the analyst community, Saurabh Gupta

June 01, 2017 | Phil Fersht

I am proud to announce we've unveiled a very exciting analyst talent to lead our global research team, based in Chicago US, as our Chief Strategy Officer (see bio).

Saurabh Gupta worked with me at Everest over ten years ago where I helped train him up to help lead the firm’s BPO research team. After a distinguished career at Everest, where he earned a very strong reputation as a highly focused and respected analyst in the areas of BPO, banking, F&A, procurement, analytics and the underlying technology platforms, he went onto the buyside with AbbVie (the spin off shared services for Abbott Labs), where he helped craft the firm’s BPO and shared services strategy, working across various service lines and service provider relationships. He then had a spell with Genpact, where he has been instrumental helping them devise and shape the firm’s CFO service offerings and digital strategy. 

Saurabh has long eyed a return to the analyst fold and coming onboard HfS is the ultimate challenge for him, where he'll be leading our global research team and working with all of us to write about real buyer experiences and mapping where enterprises are on their Digital OneOffice journeys, how fast they need to move and what is preventing them getting to their ideal states.  I caught up with Saurabh this week to share more with you all what you can expect...

Phil Fersht, CEO and Chief Analyst, HfS Research: Saurabh - it's just terrific to be working with you again after a decade since we were at Everest together!  What took you back to the research industry after your recent years on the buyer and supplier side of services life?

Saurabh Gupta, Chief Strategy Officer, HfS Research: Thanks Phil. I am thrilled to be here. I am passionate about business research and being an analyst was the best thing that happened to

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Posted in: Outsourcing Heros