HfS Network

Monthly Archives: Mar 2017

The spreading outsourcing disease: barely a third of buyers see real value in their current provider relationships

March 30, 2017 | Phil Fersht

Oh dear - here are the private views of about 60 outsourcing clients we polled today at the HfS Summit in New York.  Close to half the room are either feeling let down by their provider over-promising, or merely feel they are only really getting cheap labor from their relationship. Moreover, barely a third of them actually believe their provider can come up with the goods, provided they pay for them via the legacy FTE pricing model. Now, these buyers are highly experienced and sophisticated, so this data is particularly hard for the outsourcing industry to digest.

So a few simple takeaways from this:

Service providers have to stop the over-promising and start over-delivering.  Over-promising may result in some short-term wins, but the implications of long-term damage caused by missing client expectations are much more hazardous. Sadly, investor pressures to sustain unrealistic growth is forcing several service providers to over-sell without the talent resources to deliver anything beyond low grade offshore delivery.

Many providers are proving their competency, but failing as proactive co-innovators.  As we recently revealed, a third of senior management does see real potential in their service providers to become genuine co-innovation partners, but there is a stark difference between fantasy and reality.  Providers need to prove they are willing to share risks, really roll up their sleeves with their clients - and clients need to work harder to create an environment of trust that they'll stick with their providers, provided they are willing to co-invest with them. Design Thinking anyone?  Maybe it's time to get in a room together and figure this whole thing out.  

Bottom-line: We're going to see a lot of chopping and changing of service providers in this volatile environment.  

Several buyers cited they felt their providers were too comfortable with them and were not worried they would get ejected from long-term outsourcing relationships.  However, with advisors, competitive providers and RPA vendors all touting the magic 40% of cost savings through automation, the leadership layers are exerting unprecedented pressures on outsourcing governance leads to demand change. In many cases, buyers are simply bringing in advisors and RPA tools vendors themselves and running their own pilots, but eventually, they are likely to put their existing deals out for rebid to find providers willing to guarantee the RPA savings.  And that is where the market is going - lots of cut-throat rebids, higher degrees of risk-taking to win business and more clients being over-promised.  We're in a vicious cycle where desperation is trumping good, pragmatic partnerships where both buyers and providers can figure out how to work together in trusted, risk/reward sharing environments.  

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT Services

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Welcome to Judgement Day, where the real future of Outsourcing and the Digital OneOffice will be decided in NY this week!

March 26, 2017 | Phil Fersht

Dear Friends,

Our day of judgment is upon us! Can we really “unlearn” the last two decades and change how we buy, sell, behave and operate? Do we really have what it takes - deep down inside - to get ahead of this maelstrom of change and come out the other side with wealth, happiness and another two decades of double-digit growth?

Of course we can! But only if you book your last-minute spot to the services event of the year, in Midtown Manhattan next week… Join me, my colleagues and the industry’s finest as we engage in the richest dialog yet on how to tackle the most crucial transition our industry has ever faced, and how to come out the other side re-energized and happy to go to work again.

Service Buyers get complimentary access - only a few seats left, so apply now!

To name a few companies which will be represented...

And a few of the power brokers debating the big outsourcing reset in New York...

Find the full line-up here. See you in New York this Thursday, I hope!

Cheers,

Posted in: Digital OneOfficeOutsourcing Events

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The traditional outsourcing model is officially out of value, but the future is bright for co-innovation partnerships

March 19, 2017 | Phil Fersht

Remember all those juicy reasons why companies jumped into outsourcing? Like driving out cost, standardizing processes, perhaps even finding a few nuggets of innovation along the way with better access to talent and technology? Well our new 2017 State of Operations and Outsourcing Study of 454 major enterprise buyers gives a pretty gloomy picture of the current value impact of today’s outsourcing engagements:

 

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What made us happy in the past no longer passes muster

If there was ever one home-banker benefit from outsourcing, it was always the ability to take 30%+ off the bottom line cost of running a process or set of processes.

The VPs and below are those who are managing the engagements – and not even a third of them view their engagements as being very effective at driving out significant cost or making their operations more flexible and scalable. Their bosses are slightly less cynical, but still the vast majority is underwhelmed.

"But how can they be unhappy, we saved them so much money?" I hear frustrated providers cry… 

Well, the answer is quite simply that those costs have been removed from the balance sheet – they no longer exist. Managing operations in a global environment is now the new normal – money that was saved was a onetime experience in the past. It’s like trading in your Hummer for a Prius… you don’t think to yourself, everytime you fill up with gas, “Wow, I’m saving $50 per tank”, but you might even think, “Hmmm… maybe I’ll get a fully electric car next and save even more on my running costs”.

We can go on to bemoan the disappointing lack of effectiveness from analytics, automation and cognitive from over four-fifths of outsourcing engagements, but we know clients are unlikely to have invested actual funds in these areas as part of most of these engagements today – they are getting what they have paid for in the past.

All is not lost as many operations leaders want their service providers to change with them

However, the next wave of engagements have to be set up in a very different way to bring back delights to these jaded customers, which is where the brighter news appears:

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What's encouraging here is that buyers, by and large, do not view their service providers as mere efficient cost take-out vehicles, which was how well over half viewed them a couple of years ago. While 43% of SVPs and above see service providers as competent partners who can deliver the goods, another 35% actually view them as real innovation partners who can work with them to achieve co-defined business outcomes.  This is a breakthrough for the services industry.

The Bottom-line: The door is wide open for ambitious providers willing to invest in developing their talent, but closing firmly shut for those perpetuating what worked in the past

There has never been a time in the history of services where we've arrived at such a pivotal turning point - what used to work for clients is now commodity, and those service providers wanting to avoid this drain-circling spiral into transactional insignificance must make serious investments in their internal capabilities to partner with their clients.  This means more people who can work in close proximity to their clients with real capabilities rolling out automation roadmaps, designing digital business models, working with clients to develop predictive data models and smart cognitive strategies.  Sadly, there isn't much of an available pool of eager college graduates ready to leap into these roles at low wage rates, so providers need to reinvent themselves radically as true learning establishments and universities for their emerging talent... ambitious people will want to invest their careers with firms who are prepared to invest in their talent.  The future isn't about buying packaged consulting, it's about partnering with services firms whose stakeholders want to co-invest in themselves and their clients with a long-term vision and definitive plan.  The model has changed forever... and we can only watch, learn and work with it as it unravels piece by piece.  

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT Services2017 State of Industry Study

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Genpact becomes the first provider to acquire an AI platform

March 14, 2017 | Phil FershtReetika FlemingTom Reuner

While most of the services and operations industry obsesses with Robotic Process Automation to streamline its rudimentary back office processes, one provider that’s never shied away from making bold moves to disrupt illustrious competitors is Genpact, with an imaginative move to integrate true artificial intelligence with its business process service offerings by acquiring the impressive Boston-based Rage Frameworks.

It's almost history repeating itself from a decade ago, when the (then privately held) Genpact turned the BPO model on its head with its disruptive virtual captive proposition that significantly challenged the pricing models and ability to integrate offshore capabilities into the old BPO model. Now, the firm is breaking the mold, yet again, by making real inroads into infusing AI into business processes and introducing these concepts to its huge global community of finance leaders.  

Let’s get to the rub: RPA is all about digitizing the back office, but Artificial Intelligence is where we see the true marriage of business processes with clever technology and self-developing algorithms. We’ve danced for years trying to prophesize when BPO will truly integrate with IT, but we’ve now had reality unveiled: RPA platforms streamline the back office, while AI brings the middle and front together to create that true Digital OneOffice experience. The Digital OneOffice is not about collecting and archiving historical data simply to discover what went wrong, it's about being able to predict when things will go wrong and devising smart strategies to get ahead of them. The Digital OneOffice is about embedding smart cognitive applications into process chains and workflows, it’s about learning from mistakes and new experiences along the way. This is the emerging “organization neural system”, where the needs of the customer can be intelligently supported by real-time, self-learning intelligent operations:

 

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Why is this acquisition significant?

In a nascent market where stakeholders stumble through smoke and mirrors to make any sense of the many claims around Intelligent Automation, M&A is a clear indicator that the market is starting to mature. When in December 2016 ISG bought Alsbridge and CA acquired Automic, HfS suggested that Intelligent Automation was at an inflection point and that the focus on automation tools will shift toward the likes of Google, Amazon, and Facebook around deep learning and the integration of unstructured data. While we have not yet seen the Internet giants play their hand, Genpact’s acquisition of Rage Frameworks is underlining exactly these market dynamics. And this is the first time that a service provider is driving automation capabilities through M&A.

Rage Frameworks drives pre-built automation engines deep into unstructured territory

Whereas the broader market remains misguidedly focused on the intricacies of RPA, Rage’s focus is not on automating specific process steps, often on sub-process level, but on developing a broad ranging platform (RAGE Enterprise) for custom solutions with a deep vertical footprint. While RPA is largely focused on structured information, Rage will take Genpact deeper into integrating semi and unstructured data. Their development effort over the last two years to build enterprise applications for financial industry processes (wealth management, commercial loan processing and financial statement spreading) is shifting the focus from automation tools and capabilities to providing an end-to-end process leveraging a model driven business transformation platform.

In our view, the value proposition of Rage Frameworks is centred on leveraging Machine Learning and Natural Language Processing to build out highly vertical engines in Financial Services, Capital Markets, and Supply-Chain. The functionality of these engines ranges from managing business rules to real-time integrating content to data access and NLP all built around a process assembly engine. These engine building blocks can then be assembled for custom solutions that automate business processes or can be used as one of three pre-assembled financial services industry applications: LiveWealth, LiveCredit, and LiveSpread. In addition, broader capabilities including front desk automation, real-time intelligence, and pricing are transforming how commercial lending, policy underwriting, financial statement analysis, investment research, and multi-system reconciliation can be performed.

RAGE’s industry applications are a big part of the allure for Genpact, which has spent the last few years going deeper into its commercial banking and capital markets operations accounts with data and analytics solutions trying to solve the same client operational challenges as Rage. In our recent HfS Capital Markets Operations Blueprint, Genpact placed in the Winner’s Circle, with an HfS callout about its need to bring more technology enablement to capital markets. The service provider has examples of using emerging technologies such as machine learning, automation, dynamic data extraction, etc., in LOBs as retail banking. What Rage brings to the table for Genpact is a more strategic approach for impacting client operations through technology-led change.

Genpact continues to lead the automation discussion from the front

From Genpact’s perspective, the acquisition is reinforcing the perception of being a pioneer in Intelligent Automation. Having led the market with the first publicly announced partnerships with AutomationAnywhere, Exilant, and Automic around its Rapid Automation program, Rage Frameworks fits in well with Genpact’s holistic approach to automation. Within that context, Rage’ assets will further advance the integration of unstructured data: Genpact has invested heavily in analytics and big data with a dedicated research lab in Bangalore, India. They have developed a Data Engagement Platform using big data technologies, in order to be able to harness structured and unstructured data from multiple sources. Thus, its Lean Digital strategy is aligned with HfS OneOffice concept. But the company has to demonstrate that it is starting to link up back, middle and front-office.

The broader market will follow with accelerated M&A activity

Regulations and risk management requirements are forcing banks to rethink the way in which they capture, store, manage, and distribute the growing volumes of transactional and trade data. Structured data from multiple departments and asset classes are maintained in silos, and unstructured data present new challenges as well as opportunities for automation and analytics.

Despite the continuing noise around RPA, we believe the market will shift toward operational analytics and the broader notion of AI. Not only are the leading RPA tool providers expanding in that direction, but we expect the investment focus to progress toward Deep Learning, Neural Networks, and broad NLP capabilities. While it might sound trite, data really is becoming the new currency. But this currency needs to be integrated into delivery backbones on an industrial scale. Thus, service providers need to reinforce their efforts on service orchestration. We haven’t seen many proof points for a successful expansion into data-centric scenarios, but those deployments will be a clear demarcation between the leaders and the also-runs.

Central to this will be the articulation and delivery of business outcomes for specific industry functions through the use of operational analytics, RPA, BPO and AI. Can Genpact put together a financial spreading function by leveraging its operational expertise in BPO and RPA, the RAGE LiveSpread application and analytics interventions to deliver more efficient and effective credit risk management?

Bottom-line: Genpact is progressing toward True Digital OneOffice capabilities

Genpact’s announcement can be crystalized to its ambition of blending RPA in the back-office with AI in the middle-office, which is why the firm, still regarded by many as a "pureplay BPO" managed to break the top 10 in the recent Digital OneOffice Premier League, despite not dragging a multi-billion dollar IT services business around.

Thus, BPO is ever more changing to becoming technology-led. We expect that this strategy will be increasingly underpinned by neural networks and notions of self-remediation to enhance the Digital Underbelly and the Intelligent Digital Processes of the OneOffice concept. While Rage Frameworks is one of the superior suppliers across the Intelligent Automation Continuum, the more providers that are progressing toward the notion of AI, the more inflated the valuations for M&A will become. Against this background, valuations for RPA providers could look like peanuts very quickly. But then again, M&A is rarely rational in today's foggy market.

Posted in: Business Process Outsourcing (BPO)Cognitive ComputingFinance & Accounting BPO

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Deconstructing Q4 2016 – Growth in the Traditional Services Model close to Flatlining

March 10, 2017 | Phil FershtJamie Snowdon

The traumatic Q4 results season has finally ended and our Chief Data Officer, Jamie Snowdon, is able to report on the final Q4 standings...

We’ve visualised the latest set of results for Q4 in the diagram, the top chart shows our usual margin v growth view (excluding AWS). With a chart showing the quarterly growth for Q4, an estimation of the annual (calendar) growth and the Q4 operating margin.

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For each of the providers the results look like this:

 

Growth Q4 (%)

Growth 2016 Calendar Year (%)

Margin Q4 (%)

Comments

Accenture

6.3%

7.1%

15.6%

Good quarter for Accenture with plenty of success stories around digital, cloud and security. Constant currency growth around a percentage point above the actual growth for the quarter. Annual services growth is 7.1%.

Atos

6.8%

9.7%

9.6%

Coming down from the highs of its recent acquisition-fuelled growth of the last couple years - Atos remains solid with organic growth at 1.8% for the year and 1.9% for the quarter. Benefiting from strong execution and its investments in analytics, security and automation.

Read More »

Posted in: IT Outsourcing / IT ServicesTrends Analysis

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Watson and Einstein Sitting In A Tree: IBM-Salesforce join forces to give you more ways to buy AI

March 10, 2017 | Phil FershtReetika FlemingTom ReunerKhalda De Souza

The time for smart partnerships to drive real innovation and new thinking in Artificial Intelligence (AI) and cognitive computing is now. This means we need to see the industry’s deep-pocketed innovators become increasingly open – and eager - to working together to help the services industry make the shift to true digital, intelligent, cognitive capabilities.

Recent HfS research shows adoption of Artificial Intelligence (AI) and cognitive computing to enhance operational analytics and Machine Learning is strongly accelerating, with 72% of senior operations executives citing cognitive as becoming a critical component of the future operations strategy:

Digital and Cognitive are Driving Enterprise Operations

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Source: “Intelligent Operations" Study, HfS Research 2016; Sample: Buyers = 371

While the market perception around these topics remains refreshingly blurred, AI is a critical building block as organizations increasingly look to progress from legacy labor-driven service delivery to progress toward notions the As-a-Service Economy and the Digital OneOffice (see link). While AI is capturing the imagination of many PE investors and VCs and is being used to hype up media reporting and conference circuits, the market dynamics are far from clear.

Against this background, the fundamental question being posed is “Who will be in the driving

Read More »

Posted in: Analytics and Big DataCognitive ComputingIntelligent Automation

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Crush that cobol... at last a standard org chart for your disruptive digital hierarchy

March 07, 2017 | Phil Fersht

Finally! We've just saved you hours upon hours of mind-numbingly dull hangouts trying to figure out all your fancy new digital job titles and reporting lines... now time to get combatting all that disruption to make your firm a true transformative digital pioneer in this emerging quantum era, where you can be a digital Michael Phelps diving into your own datalake:

Posted in: Absolutely Meaningless ComedyDigital TransformationDigital OneOffice

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