Looking forward to a phenomenal couple of days… a great opening buyers session was enjoyed by all!
It’s official: outsourcing is not dying – it’s simply become a key part of a broader enterprise operations strategy: Integrated Global Services. 312 buyers recently shared their investment intentions over the next two years during our 2014 State of Outsourcing study, conducted with support from KPMG, and their operations strategy clear: one in four are reinvesting heavily in their global shared services operations, while seven-out-of-ten are continuing to make (largely moderate) investments in their outsourcing delivery.
The long and short of this is that 93% of enterprises today have shared services and 96% are outsourcing some element of their back office IT and business operations, while 27% are actually reducing their investments in their own internal business units. What’s more, 56% are already increasing investments in their centralized hybrid governance function to manage their mix of service delivery models. To this end, the increasing majority of enterprise buyers today are investing in an integrated global services model that orchestrates their process delivery across all available vehicles of sourcing:
Shared Services makes its strongest re-emergence as a delivery model for a decade. While the broad number of firms increasing their focus on both the outsourcing and shared services models is relatively consistent over the past 3 years, the difference today is the intensity of investment. Outsourcing has slowed to a more moderate pace, while a number of large-scale enterprises are focusing on moving more work into their internal shared services centers – the first time in a decade we are really seeing shared services making a reemergence of this magnitude.
Buyers are shifting more of their higher-value work into their offshore shared services operations. It’s become abundantly clear that buyers are now aggressively globalizing their Read More
As with the airline industry, consulting firms have become highly commoditized with little client service and the willingness to serve others
-Kevin Parikh, Avasant, June 2014
In Part 1, Avasant’s CEO Kevin Parikh talked about his emerging advisory firm and how it intends to help its clients tackle digital transformation. In Part II we warm up the talk to cogitate the impending talent crunch, the democratization of sourcing and the new levers enterprises can pull in their relentless quest to find new productivity… so without further ado, here’s Part 2:
Phil Fersht, CEO, HfS Research: Kevin, traditionally outsourcing advisors were focused primarily on reducing labor cost more than anything else. But now it looks like the decisions of driving out labor costs are democratized within companies. Let’s say they came out to look at Cloud; they can look at crowd sourcing type solutions. They can look at robotics. They can look at a lot of things and not just outsourcing. In fact, in many cases outsourcing is like a band-aid. Do you feel today’s advisors are really equipped to help their clients think through all these variables?
Kevin Parikh, CEO and Senior Partner, Avasant: Phil, I love how you put it—the democratization of sourcing selection. We all have a vote. We can take what we want.
Kevin: And I think Cloud has enabled us to do that. Are the typical advisors prepared to enter this market? Absolutely not. The traditional outsourcing advisor is focused on towers of service, offering templates and financial models. This really requires a strategy-oriented Read More
Wow. When the rumors leaked out about Vishal Sikka being tapped up for the Infosys CEO job, we thought this idle speculation, but a possibility that Vishal could have some role where he could absorb the nuances of the services business to potentially take over in a couple of years.
But – lo and behold – the old guard have decided it’s time to make a dramatic change and a big bold statement to the world by placing the popular tech innovator, Vishal Sikka, in charge of rediscovering that elusive Infosys mojo that has been absent for some time now. So… is the Infosys monarchy behaving like a Premier League soccer club and making a panic play to stave off relegation to the second tier of providers, or is this the boldest move yet from one of the TWITCH* provider family to make a late run at the Champions League?
Vishal is a technologist and much admired by technology-driven executives. His recent departure at SAP demonstrated how loved he was by the techno-purists and was seen by many as SAP Read More
Isn’t is just so exciting to work in an industry where we are constantly seeing new competitors emerge, seemingly boundless innovation from enterprise clients pushing their capabilities to the limit… and all with such a refreshing lack of confusing verbiage.
OK – I was dreaming there for a moment, but one company we have seen emerge from the ground up in just a few short years to challenge the top advisory firms is Avasant. And most of this is credited to one man and the team he has built since he left Gartner, where he led the firm’s sourcing practice: Kevin Parikh.
So we managed to catch Kevin at his Manhattan Beach home, where he resides with his wife and two daughters, to talk to us about what makes him tick, how his firm is disrupting the advisor space (in dire need of disruption) and how he is intends to tackle clients needs around Digital transformation that is so high on enterprise agendas today…
Phil Fersht, CEO, HfS Research: Good afternoon, Kevin – thank you very much for your time today. You’ve been quietly empire-building in the advisory space for a few years now – I think I first met you about seven years ago when you’d just left Gartner to set up your own shop. Please share with our readers a little bit about your background, how you got into this space and the journey you are on today.
Kevin Parikh, CEO and Senior Partner, Avasant: Yes, we have known each other for several years now. I started my career as an attorney in Washington, D.C., during the Clinton years. I was in the Clinton administration with the United States Environmental Protection Agency. This is pre-Y2K, pre-IT outsourcing transactions, and in many cases, it was just the beginning of when the advisory space really started.
After the EPA, I moved to KPMG to join their LLP assurance practice, continuing my focus on contractual and litigation work that I had performed while at the EPA. During the 1990s, I became increasingly engaged in KPMG consulting activities, including reviews of some of the very first outsourcing transactions. I found myself sitting on panels with John Halvey and Bob Zaylor debating Read More
One issue that is increasingly rearing its ugly head is the ridiculous – and often insane – demands industry analysts are placing on providers of technology and business services to pony up client references for their scatterplot charts. The situation has become so bad that the integrity of these research processes appear to be reaching a breaking point, and I would argue that some form of regulation is needed to protect the interests of the business consumer.
The leading analyst firms are demanding five client references per provider.. and one recently even requested TEN client references. The requests are made with the veiled threat that the analyst will “not have sufficient information on the provider’s performance” if these references aren’t made. When I repeatedly have multiple providers complain about the situation to me, in addition to several of these overused buyers, surely it’s high to get this issue on the table?
Correct me if I am wrong here, but isn’t it these analysts jobs to have regular ongoing conversations with buyers of their covered markets, so added references are merely a rubber-stamp? In fact, why are references even needed if these analysts are so informed, connected to the buyers and have so much valuable data and research to call on?
So why is this a growing problem, I hear you cry?
Can you imagine what it must be like for a provider to ask a good chunk of its referenceable clients to partake in one hour reference calls with 3, 4 or even 5 analyst firms? Not only that, these same clients are being asked to provide even more detailed references to sourcing advisors and management consultants for their procurement and vetting processes. Hence, some of Read More
While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.
Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely – whether by an outsourcing provider or their own offshore shared service center. And – as we’ve lamented on this site since the days when ACS was a market leader and people still used Yahoo! – enterprises are just obsessed with driving out cost – and then figuring our things like “transformation of processes” at some future point in time.
However, the difference today is that most of the perceived “risk” of moving offshore has gone and enterprises are simply doing it as part of their day to day operations. The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:
The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing. While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services – a similar trend to IT infrastructure. Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring – almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations. We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.
The Bottom-line: The story today is about managing integrated services across global operations
1) The game has switched to integrated global operations management. It was barely 2-3 years’ ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost. What’s clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly). They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves. What’s more, many organizations are clearly not very impressed with the quality of their providers’ resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we’re seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called “Integrated Business Services”. We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.
2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS. While it’s not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today. Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.
Net-net, offshoring provides a very durable BandAid for many organizations, and we’re still yet to witness a slowdown in the amount of offshoring that is taking place – in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher. Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.
3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise. Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan. Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa. As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.
Am I smoking something illegal, or has our industry really started to lose the plot with the amount of buzz terms that – quite frankly – only mean something to the sellers and advisors trying to make their wares sound that little bit savvier than their competitors. And even then, I am not too sure whether many of them even fully understand what they are buzzing about either, more simply regurgitating what their competitors are saying.
I’m not trying to be a fuddy-duddy here, and I do empathize with the exuberance of so many sell-side individuals who are simply starry-eyed at all the disruptive technology and evolving business models that are on the horizon, but c’mon folks, can we find a sensible balance between vision and reality? Why has it become so uncool to talk about where we are, as opposed to where we think things might evolve in 5 years’ time?
I mean, wasn’t it barely six months ago when we were still having (relatively) meaningful debates about things such as:
Instead, suddenly it’s become terribly untrendy to have meaningful conversations about what we’re actually trying to achieve… like improving processes, trying to do a better job than merely maintain status quo operational performance, and accessing meaningful data to help us get more value from our day to day operations.
Yes, folks, if we aren’t creating Digital Services on SMAC platforms, we’re going to fail with Big Data and the Robots will come to replace us… so let’s see what 312 major buyers – in the brand new State of Outsourcing Study we conducted with KPMG – really understand about today’s latest slew of sexy savvy-sounding soliloquies:
All joking aside, there is a serious message here: too many buyers are getting lost in the verbiage and the lack of relevance to their businesses and simply don’t understand exactly what is being sold to them. Let’s be honest here, SMAC doesn’t mean anything to 70% of buyers beyond being a concoction of new technologies lumped together… finance executives have been talking about “Big Data” for four decades and nothing is really new except the fact there is better technology to help them analyze it… I can go on. Oh – and nearly a third of buyers don’t know what “transformation” means to their business? Seriously?
The Bottom-line: Our industry is simply terrible at communicating to clients and needs a major reality check
There is an abject communication problem in our industry, when such vast numbers of operations executives are baffled by the BS their providers and advisors are lobbing at them via boring white papers, instantly-forgotten PPT decks and thousands of automated inane tweets.
It’s time for the industry side to start tying all this buzz to the reality of operations – where we can educate how enterprises can learn more about where the world is heading, how they can start to evaluate the pace of change that will impact them and develop change programs and new operations strategies that make sense to their businesses.
We have got to stop jumping on the bandwagon of spewing poorly communicated rubbish that has little meaningful relevance to businesses today, and instead explain in plain English how processes and interactions can be digitized, how robotics could one day enable our business systems to become more cognitive and less reliant on manual steps, how new analytics tools and expertise can help our staff become more relevant and valuable, as opposed to turning widgets and updating spreadsheets. Most of the stuff I read today is focused 95% on flashy terminology and only 5% on the actual substance on what businesses can do with all this stuff.
It’s time to get meaningful people and stop this feeding frenzy of confusing jargon…
The residential mortgage services market is one of the most established and competitive segments of the global BPO industry. Most of the major service providers have been in this market for a considerable time providing services across the process chain of mortgage origination, mortgage servicing and the (sadly more significant these days) area of loan default and foreclosure management.
It used to be that most service providers were simply providing domestic or offshored labor to augment the capacity needs of the large lenders, but that old operating model is being changed as a result of the consequences of what happened to our global economies post 2008 – and especially in the US. Whereas before the crash the entire mortgage industry was going through such a “gold rush” that volume took precedence above all else, now, as a result of increased regulations and reduced volumes that have driven up the cost of completing a loan origination, the focus is elsewhere.
Today, this is an industry looking closely at the processes and technologies that underlie the business and turning to industry savvy service providers which can provide cost effective, compliant delivery that increasingly includes a significant component of sourced technology solutions as well. This mature market is changing and, as a result, so too is the roster of BPO service providers who are meeting those evolving client needs. So let’s take a closer look at the innovation and execution capabilities of the leading service mortgage services BPO providers:
HfS has evaluated the innovation and execution capabilities of service providers catering to the origination, servicing and default/foreclosure management processes of residential mortgage lenders. We asked our EVP of Research, Charles Sutherland, who led this blueprint initiative, to share some of his insights arising from this Blueprint Report.
Charles, what are some of the key challenges facing lenders today?
This is a market segment undergoing a profound level of change. First, of all there is a dramatic fall in customer demand for new loans as post-crash engine of refinanced loans is coming to an end. Second, is the rise in the overall costs of originating a loan, which are now up several Read More
When we recently calculated the profit margins of top IT service providers in our HfS IT Services Top 10, it was very apparent that TCS enjoys the highest profit margin, by a considerable distance, of 28.4% among the top 10 global IT services providers and also among the leading offshore centric IT service firms. Hence, not only does TCS enjoy the highest revenue growth in the IT services industry, it is also the most profitable – so what’s the secret sauce?
In a world where there is constant downward pressure on services pricing and there is increasingly availability of disruptive alternatives that should begin drive down the reliance on an FTE-based delivery model, how – on earth – does TCS do it? So we asked HfS Principle Analyst Pareekh Jain, to take a deeper look, and it was quickly apparent that the firm has increased its proportion of “freshers” (recent college grads) has increased from 50% to 80% since 2007:
The interesting metric to analyze is employee cost per headcount, which has grown from Rs 1.155 Million in 2007 to Rs. 1.240 Million (US $21,200) in 2013 – an annual increase of just 1.2%. This is an outstanding achievement given the high wage hikes in India and other countries. A conservative estimate of 8% annual wage hike in India, 2% hike in developed countries and 4% hike in other Read More
Forget the Ryder Cup… this June we are assembling the ultimate pool of European and American services talent to duke it out on the hallowed lawns of Cambridge University’s Gonville and Caius College to find our who’s really delivering above par.
Yes, we’re flying over a team of sourcing leaders from the USA to compete for the first ever global sourcing crown against the determined Europeans, who believe they have a strategic approach to their game that will ultimately deliver more value.
Are we finally ready to cross the value chasm?
We’re counting down the final days before the next “HfS Blueprint Sessions“ summit (click here to apply for a place) at Gonville and Caius College, Cambridge University, on 24-25 June this summer. This will be the the most revealing and intimate discussion yet on the future of integrated enteprise Read More
We should change the image of the industry, there are fantastic opportunities for people who want to get involved and we should do a better job of attracting talent
- Chris Stancombe, Capgemini, May 2014
One of the main features of the BPO industry since the Great Recession has been the emergence of several providers with a progressive outlook, which are now driving the market. One of those has been Capgemini, which has captured third spot in market share and made the Winner’s Circle for finance and accounting (F&A) BPO.
In addition, the BPO service line has been promoted to a tier one delivery unit for the global Capgemini organization, giving the division added strategic focus and resources. Great credit has to be given to Hubert Giraud who has overseen the growth of the BPO business and has now been moved upstairs to lead HR and transformation of the whole Capgemini company – clearly great recognition of his success leading and growing the most people-centric business unit for the firm.
Filling his shoes has been one of the mainstays of the BPO business, quietly asserting his practical style and approach to operations and global services. Since joining Capgemini in 2005, Christopher Stancombe has overseen the expansion, growth and maturity of the Capgemini F&A BPO business, before advancing to the COO role for the whole BPO division last year and then taking on the full CEO role from Hubert this year.
For those of you who don’t know Chris so well, he actually started his professional life as a geophysicist and even ran an African engineering business before venturing into the world global service provision. He’s a straight-talking, pragmatic chap who likes to get to the point… so without further ado…
Phil Fersht, CEO, HfS Research: Good afternoon, Chris, and welcome back to HfS. I think it’s been three years since we last had you on here (see interview). So I imagine quite a lot has changed. Can you just tell me what you’ve been up to? How have the last three years fared?
Chris Stancombe, CEO, BPO Division, Capgemini: Thanks Phil, it’s a pleasure to speak with you again. This year we are celebrating our ten year anniversary of BPO at Capgemini and I’ve been here for nine of those now. So it has been a good time for reflection. People always say it, but the pace of change is incredible. Over the last three years I’ve been very focused on the delivery side as Read More
Can you believe the HfS Blueprints have been circulating the industry for over a year now since we announced ourselves so modestly last March ?
Of course you didn’t! But anyways, we are proud to announce out first Blueprint for cloud infra services, led by the quixotic cloud cryptic himself, Dr Thomas Mendel:
Thomas, how are we defining “Cloud Services” for the Blueprint?
In contrast to our competitors, we use a buyer view of an end-to-end business process made up of Read More
Thanks to all of you who have (so far) set aside 15 minutes to complete our most probing study yet on the State of Outsourcing in 2014 (and if you haven’t yet done so, please click here NOW).
Anyhow, we couldn’t resist a little sneak peak at the interim data as it rolls in, and one area that peaked my interest was when we asked advisors (161 so far) how their clients’ demands of them were changing. And for the gray-haired old woolly mammoths, this isn’t great news… their clients are now more interested in advisory services that can help them govern their outsourcing engagements better – and they also want more data and research to help them approach outsourcing more effectively:
While a good number of clients still want more help with their negotiations, it’s clear that most clients with experience of outsourcing also want an advisor who can stick around and provide ongoing support (or at least some project-based support).
So what does this all mean?
Advisors need to do research. 52% of advisors report that their clients have increased (many significantly) their thirst for research and benchmarks. Simply put, buyers want to be more empowered to understand the market, analyze their operations, and compare their performance with other firms. Hence, advisors need to have the ability to arm their clients with data and insight to help them. If they do not have any research, their clients will likely look elsewhere for help.
Advisors need to understand how to support governance processes. 50% of advisors see their buyer clients wanting more help with governance and their provider relationships. This means providers need some advisors on staff who have lived the practitioner experience (with the battle scars to prove it) – they can’t just reel out deal guys who used to broker contracts for service providers to craft governance strategies. There is no written rule book for governance – it’s something that clients need to learn through good advice and real-world experience.
Advisors still need to be good at negotiating deals. Buyer needs for deal help are definitely not decreasing – and close to half are wanting even more help. This means the deal guys can still get paid, but clearly need to up their game if they want to keep winning business with clients. Clients want to hire advisors which can be great at deals, but also great beyond the deal… and we’ve long been at pains, here at HfS, to discuss how clients need the same people negotiating the contract and actually living it after the ink has dried.
Stay tuned for a lot more from this awesome study… coming soon to a web-enabled device somewhere in your life
Gravy trains invariably come to a halt at some stage in their journey, and labor-driven IT and business services, fueled by lower wage regions and robust delivery models are poised to change beyond all recognition in the next few years. However, this doesn’t mean today’s winners have to become tomorrow’s also-rans, if they are smart enough to make discreet investments in the disruptive business models of the future, and gradually introduce these into their traditional models.
The Indian majors have defied their critics to sustain their labor-driven model beyond all expectations – and are in a great position to blend their models to cater for the coming disruptions
You’ve probably been reading from us that we see several of the Indian majors continuing to carve out a commanding position in the global services market, with their market share doubling in the last four years, in addition to their leading revenue and profit generator, TCS, making the HfS IT Services Top 10 for the first time.
And while there are the usual detractors claiming “India will run out of runway and prices are getting too competitive to sustain this growth”, they are still able to maintain their growth numbers consistently in the double-digits. The disruption and havoc the Indian majors have reaped on the incumbent service providers has lasted much longer than many were predicting, and that tail continues to happily wag for them and enterprises continue to gobble up their wares. And with 60% of IT services, and 80% of back office business operations still sitting inhouse, this gravy train has a few more stops left to make on its journey.
When change to the traditional outsourcing model comes (and it is coming), there is no reason why some of the Indian majors cannot challenge whatever new wave of disruptive providers come at them. You only need to look back five years to see how quickly the landscape can shift. There is no “new breed” of service provider on the horizon today, which is an obvious candidate to offer services that are lower-priced than the Indian firms, however, I do see a multitude of significantly disruptive forces already at play that are going to change this market beyond recognition in the medium to long term:
Disruptive forces already on their way to change the services landscape indelibly
In short, there are some very real threats to today’s entire services model underpinned by one factor: client needs are becoming less labor-intensive and more focused on higher-value business needs. Let’s look at six examples of how the new breed of services will emerge.
1) Cloud vendors: Firms like Rackspace, Google and Amazon are already subbing to the major providers to deliver data center solutions for enterprise clients. There is nothing stopping them from moving up the value chain to the client end, displacing the Indian majors altogether as more IT operations become automated and less reliant on human intervention. These firms already have the SME market saturated and can easily move up into the enterprise space once their standardized solutions become “acceptable” at the enterprise level, and less customization is needed. In addition, IBM is making huge bets on selling more cloud-driven platforms to clients, that can replace traditional outsourcing models, which could bear significant fruit for the firm in the future.
2) Robotics-driven vendors: This is more of a threat to current BPO delivery models, where advances in robotic automation software are enabling clients to reduce their “already offshored” services by a further 20-30% by replicating manually operated processes in robotic software Read More