Monthly Archives: Aug 2019

As 47% of enterprises seek to reduce their reliance on outsourcing... we're going straight to digital

August 19, 2019 | Phil Fersht

It's taken more than 12 years - ever since the first-ever blog post written right here - but the outsourcing marketing is on the cusp of its most seismic change since the offshore revolution... the majority of enterprises are seeking to pull away from their stale outsourcing relationships and replace people with intelligent cognitive workers which learn context - or simply bots that perform transactional tasks.  And the reality of outsourcing is that it's far easier for an enterprise to eliminate workers that are contracted via a service partner than have to go through all the painful change and resistance when trying to eliminate their own staff directly with software investments. What's more, enterprises rarely want to bring outsourced work back inhouse until it has been fully automated and the outsourcing offers little future value.

All the lovely fluff about "automation and AI creating jobs" is being proved to be utter claptrap for the services industry when we look at fresh new data from the 2019 State of Operations and Outsourcing Study across 355 operations leaders in the Global 2000, conducted with the support of KPMG:

Click to Enlarge

What's shocking here is the degree of change in mindset from operations leaders since a year ago, where 62% were still pretty gung-ho positive about investing in their outsourcing model, which has nose-dived to only 28% this year, and a startling 47% actually seeking to decrease their reliance on outsourcing.  So if they're looking at new models to deliver their business operations - and traditional outsourcing no longer fits the bill - what are they looking to do?  Let's take a deeper look:

Click to Enlarge

In short, up to half of major enterprises are looking to find another provider to break their years of painful status quo, while a similar number are looking to embed significant automation into their current engagement. About one-in-six are looking to pull the whole lot back in house and have given up on the delivery model. 

Why this change to outsourcing... and why now?

When we look at our reliance on staff to run our operations, we're seen a substantial reduction over the last couple of decades, mainly due to advances in software applications that embraced process standards (and natively automation).  For example, most G2000 enterprises had hundreds of people running finance processes a decade-plus ago, and likely barely have 50-100 based on advances in financial software, combined with efficient outsourcing labor arbitrage models delivered by the likes of Accenture, Genpact, Capgemini, and WNS.  Procurement probably had 150 and today barely needs 30... and HR is down to its barebones across most large enterprises.  The division most affected by outsourcing - IT - has shrunk from the thousands to the hundreds in most major enterprises over the past two decades.  Net-net we've been through a very long, sustained period of labor osmosis from enterprises to outsourcers, while shared service functions have stayed largely static.

At the same time, people-driven outsourcing engagements have continued to deliver similar process work back to its enterprise clients with the same number of staff, where the outsourcers have had little incentives to make investments in automation and digital technologies, unless they can directly benefit financially, or have contractually agreed to reduce staff numbers over the course of a long term contract.  We are already witnessing the likes of Automation Anywhere, UiPath and AntWorks making significant investments in their own implementation staff as they are frustrated with their lack of traction many outsourcers to incorporate automation and AI technology into the people-focused delivery models. 

The new solution is to bypass staff-intensive processes and go "straight to digital"

The big change we are seeing now (and we'll share more data to back this up shortly) is that the outsourcing models we know and love have long reached their saturation points, and the only real value enterprises can get from them (in the near future) is to remove the number of staff delivering the work and replace them with digital technology.  For example, a bank we spoke to recently that is replacing hundreds of staff whose job it is to create customer appointments with a conversationally-intelligent cognitive worker solution.  The savings are massive.  However, if the bank had outsourced those workers, the only way to force their service provider to replace them with a digital solution would be to demand it upon contract expiry, or bring it back inhouse and do it themselves.

The key is for software and services providers to develop aggressive adoption programs to create the real "straight to digital" ROI

In recent years, we've seen many of these digital models evolve - from simple software apps, to chatbots, RPA tools and now more conversationally-intelligent cognitive workers (such as IPSoft's Amelia, IBM's Watson, Automation Anywhere's IQ Bot, TCS's partnership with Amazon Connect, HCL's Lucy and Wipro's solution of Holmes with Avaamo).  However, the earlier models where enterprises were being forced to invest multi-millions upfront just to get a cognitive or RPA solution actually functioning without constant human intervention and training, have failed, with the notable inability of IBM's Watson solution to reach anything like the heights the firm had promised because the market a) wasn't ready and b) wasn't convinced the massive outlay would reap massive rewards.  And the high-profile struggles of many RPA solutions to replace people with technology (merely augment processes) threaten the rapid rise of those solutions as investors pile on with unrealistic expectations.  So the answer is staring us in the face, and it's pretty straight forward... the winners in this tough new transition market are those which can guide enterprises to take existing processes and move them straight to digital and remove the layer of people delivering them. 

The Bottom-line: The only true ROI which created the traditional outsourcing model is now repeating itself with digital solutions

As much as we can spin wonderful stories about augmenting people and enriching jobs etc., the goal of most Global 2000 enterprises is to maximize profits and the stated goals of C-Suites and Ops leaders are to a) reduce operating costs and b) move away from physical to digital environments:

Click to Enlarge

The industry has spoken and it's clear where they will invest - in partnerships that can accelerate the move to digital without all the painful and costly steps to get there.  And the areas most primed to make this happen are where the staff have already been outsourced and the logical next step is to reduce or eliminate them altogether.  

The challenge for outsourcers. Defend the clients you really want to keep and attack ones from competitors to backfill the inevitable losses as the model shifts from people to digital.  This means you need to develop programs that get your clients leveraging the benefits of automation and AI quickly by hiring talent to make this happen, and forging deep, mutually-be partnerships with software firms to work with you.  As we recently discussed at our Robotic Business Outsourcing Roundtable in London, outsourcers face a stark choice between embracing digital models that require less labor, or fading into insignificance.

The challenge for enterprises.  Forcing your service providers to cannibalize your business is not an easy task, but if you are willing to work with them to build real digital models that work and become a showcase client for them, you should find a cooperative (and hopefully) ambitious partner to work with you.  If you do not, then look further afield for partners willing to invest in your business. If noone wants to transform your operations your business clearly isn't very attractive (especially if you got a cheap deal to begin with) so you may well be better off bringing operations back inhouse and digitizing them yourself.

The challenge for advisors.  Today's environment should be gravy for you - I've heard from several advisor friends that deal flow is really healthy - and it's mainly outsourcing renewals demanding digital enablement and less people-centricity.  Hence deal amounts are declining and demanding more complex tech skills to enable new solutions.  Your problem is going to be finding providers willing to embrace disruptive models and work with thinner margins in the short-medium term for longer-term gain.  There are several providers out there willing to be aggressive to "land-grab" deals and increase market share, despite thinner margins and scarcity/cost of tech talent.  However, you really need to flesh out the providers prepared to put skin in the game, versus those paying lip service. 

End of the day, many of the outsourcing partnerships that got so many of us here are unlikely to be the same ones to take us to the next phase...

Posted in: Business Process Outsourcing (BPO)Robotic Process AutomationArtificial Intelligence

21

1 Comments

HFS goes bigly... with Tom Quigley

August 13, 2019 | Phil Fersht

At HFS, we're approaching ten years' in existence - yes 10 bloody years' of this stuff - and we're still the "new analyst kid on the block".  As we approach this new phase in our journey, we're focusing heavily on the massive impact our research has across all corners of the services and tech industry.  The traditional channels of slapping stuffy reports behind a firewall and blackmailing suppliers with scatterplot grids are still the predominant way the analyst industry persists in operating (or simply regurgitating supplier press releases dressed up as "insight"), which has helped HFS expand our operations across three continents and bulldoze our way into a small elite group of analysts firms. 

However, we're not stopping there... we want to engage even more digitally and effortlessly with our global community, using video, blogs, podcasts, webcasts, summits, roundtables and various other forms of social media.  So were gone and added some serious firepower to our digital prowess with our recent acquisition of Quigley Media, where the founder, Tom Quigley, joins us as Chief Marketing Officer.  So let's hear a bit more from the unassuming Scotsman and his plans for HFS, while he's not practicing his blackbelt in karate on his three wee lads...

Tom - you've been a pretty active figure in the world of global sourcing for some time now - can you share a bit of background about yourself?
 
Sure. For this first half of my career I worked in mostly operational roles for two large insurers, Commercial Union (now Aviva) and Prudential UK & Europe. During that time I designed and delivered a 3 year programme of events for the CEO whereby he and the executive directors would travel around the country meeting hundreds of policyholders and doing impromptu Q&A sessions with them, which was pretty disruptive back then. I also delivered conferences in Mumbai and Dubai.
I joined BPO provider Capita in 2009 and headed up the marketing function in one of their nine divisions. When I left in March 2016 I was Head of Marketing, Design and Events for a consolidated number of divisions, overseeing a team of 2 Business Partners, 5 marketers and 8 graphic designers.
 
I joined the National Outsourcing Association as Marketing Director and we rebranded to the Global Sourcing Association (GSA), which we launched in Sofia in October 2016. It was at the time I recognised the emerging talent from central and eastern Europe, and so I set up my own marketing agency providing services to CEE businesses looking for market entry or engagement with the UK and Western European countries. During the last two years I also co-founded and was the CEO of the Alliance for Business Services, Innovation and Technology, with members including Pwc, Cushman & Wakefield, Convergys, Stefanini as well as institutions like IAOP, Nordic IT Association, Bulgarian Outsourcing Association etc. I also met with and successfully persuaded the Bulgarian President to be our honorary Chairman!
 
I stepped away from that role at the beginning of the year to focus purely on the agency and we've enjoyed working with clients from Poland, Romania, Bulgaria, the UK and US during that time. 
 
So you recently sold your firm and its digital assets to HFS... what was behind this move and what can we expect to see from you in the next few months in your new role?
 
Well its quite ironic because I'd been spending the last 2 years telling anyone who would listen that I would never work inside another company again as I was having too much fun being my own boss, so it did take me by surprise at how quickly I said yes when the offer to acquire QM came about. We were just completing brand perception study for HFS Research when I got a Skype message from you late on a Friday night. We met on the Monday, signed contracts on the Wednesday and I was in the Cambridge HQ at my desk on the Thursday - it really did happen that fast!
 
But I've known HFS Research for a number of years and was very well aware of its unique stand in the market. I am a big admirer of the quality of insight and unfettered views it provides - and when the offer came I genuinely had goosebumps, that told me it was the right move to make.
 
As for the months ahead we will launch a new website with improved functionality and integrated multi-platform analytics that gives us a more unified view of our customers, we've just set up a digital studio in the Cambridge HQ giving to open up some new channels and give us more control over our digital content, and we're currently building a number of great marketing campaigns to land some important messages in the coming months. We're also mapping out customer journeys to see how we can improve client experiences as well as establishing a more structured, tier-based relationship with our supplier partnerships to improve speed and innovation. In addition to that we have our New York Summit in October as well as events going on in Paris and Stockholm, so there's lots to come. Our clients will definitely notice a new, more emboldened brand overall with a clear focus on building closer, more meaningful relationships with our communities - not only through our research, thank tanks and other market activations, but also through more targeted communications. 
 
How is the industry different these days?  You've been very involved with emerging locations for several years now - where do you see this headed next?  Is the game changing? 
 
We're in a market of perpetual change now. Technology has overtaken consumer needs as the main driver of innovation, and the lines between BPO and ITO are dissipating. It really is about the provision of integrated digital services and one office. Contracts are increasingly focused on partnership agreements delivering outcomes, providing access to innovation and sandbox environments that will enable businesses to deliver more personalised services to their customers at scale. Central and Eastern Europe has been producing STEM resources for years but they are becoming more even more prevalent because they are forming better and more active networks and alliances, backed by their governments and funded by the European Commission in some instances - they are becoming more adept at integrating themselves into the connected ecosystem. Going forwards location will be come completely irrelevant as technology will enable the proliferation of agile - scaleable - teams that will form virtually to work on multiple projects, before disbanding and reforming on other assignments. I believe we'll eventually see the end of the permanent employee contracts as more millennials become a part of our economy.
 
And how about the research industry - you've been on the outside looking in for your entire career... how do you see it evolving?  Is it looking any different from the inside? 
 
Well I've only been on the inside for a couple of weeks now, but I'm not sure the analyst industry IS actually evolving at the same pace. Sure the analysts are reporting on technology and how businesses are thriving or otherwise in industry 4.0, and the means of capturing research and analysing data has advanced but for the most part I don't believe the research industry has become transformative enough. Some companies appear to have become machine monoliths, churning data and reports that seem pretty vanilla and without much of a voice; if you laid out reports and magic quadrants from a number of them and then covered up the logos I doubt many people would be able to distinguish who is who. Let me be clear, the analysts themselves are highly credible, very clever people regardless of what organisation they work for, but I think the 'corporate machine' sterilises a lot of what they actually produce.
 
This is where HFS Research stands apart, and the reason I'm so excited to be here. I know how different it is observing from the outside but I can see how different it is operating from the inside. Our purpose, our culture and how we operate has completely different DNA from other analyst firms. Last week I listened to Mark Hillary's first ever podcast talking to you about why you progressed from writing a blog to starting your own analyst firm, and I can see that the values that drove that decision are still very much alive in everyone involved with HFS today - and that podcast was recorded 10 years ago. My job is to make sure our clients and the market at large are aware of that, and recognise the value in choosing HFS Research as their partner going into the hyperconnected future-state!
 
And finally, there's a rumor going around that HFS is going to be ten years old soon... any plans to celebrate?
 
Next March marks the 10th birthday of HFS Research, and yes we will definitely be celebrating with our people, partnerships and communities. But you'll have to wait a little bit longer to discover exactly how..!
 
Welcome, Tom - and we're hopeful that many of our clients can meet you in New York this October 1 and 2 for our next major HFS Summit!

Posted in: Outsourcing Heros

0

0 Comments

With 44% dissatisfaction, it's time to get real about the struggles of RPA 1.0

July 31, 2019 | Phil Fersht

Who remembers this classic "statistic" from a couple of years' ago, where we caught some friends declaring RPA fantasies that are simply miles from reality:

We've been keen to share with the world that RPA satisfaction has been in positive territory for more than half of the adopting enterprises, which is OK for a relatively complex new type of solution that takes a while to get right, and we revealed a 58% a satisfaction rating a few weeks later.

Sadly, two years on, satisfaction ratings have not improved

Our brand new study of 355 operations leaders, conducted with the support of KPMG, has revealed that only 56% of the Global 2000 express a positive experience from process automation and robotics:

Click to Enlarge

What's alarming about this is we asked operation leaders to assess the satisfaction levels of all key C-Suite directives, such as the adoption of AI/ML, enabling hyper-personalization, ever the old faithful of "driving down operating costs" ...and process automation finishes dead last.  I would argue this isn't because process automation and robotics initiatives have been a disaster, but more likely, expectations from the sell-side have been vastly over-inflated.  While this may sell more licenses and consulting days in the short-term, it will stunt longer-term growth for the industry.  Let's delve deeper here...

Why are process automation and robotics lagging in terms of satisfaction?

The over-hyping of how "easy" this is. The problem we have in this industry right now is an obsession with glittering outcomes and not enough real-world guidance on how to achieve them. The majority of robotic adopters have never ventured into double-figures of bots deployed, and many simply have little idea how to progress their adoption beyond a handful of pilot projects. The focus of the narrative needs to be directed to helping clients develop broader robotics strategies across organizational areas. We're also hearing about some enterprises aborting some major RPA projects because they just didn't expect the cost and scale of the effort to be so large. So we need to be realistic and balance the great benefits of robotic software with the challenges of training people on it, scaling the technology and gaining buy-in across business units.

Lack of real experiences being shared publicly.  Enterprises RPA adopters are fed up with the constant deluge of "motherhood and apple pie" being served up by the industry when they know full well these deployments are among the biggest challenges their customers have ever faced.  The RPA vendors - and several of the leading services firms - will be far more appreciated if they started sharing the real customer experiences with the world. For enterprise operations and IT executives, being successful at automation and AI is career critical - they want to learn how to be effective and how to invest their time wisely.  If this stuff was easy, they'd be out of a job pretty quickly, but fortunately for them, it is not, and they can embrace these experiences to increase their value to their firms and their careers.

Huge translation issues between business and IT.  Simply put, most IT folks have little understanding of RPA and think all their world problems can be solved with an API.  RPA - for most operations executives - is the first time they have had to work with actual software development and get involved in some low-code activities.  And they approach it with a "process first" context - how can I use these tool to integrate these apps / screen views / objects / documents etc?  I can honestly say I have been to two major software developer conferences where RPA is on display and the developers are simply clueless with regards to how RPA fits into their world of platform modules and APIs. If we can't bridge this divide, we run the risk of RPA being relegated to the scrap heap of failed technologies.

Obsession with "numbers of bots deployed" versus quality of outcomes.  If I hear another executive claim he/she has deployed over 100 bots, and that is their prime measurement of success, I will start naming and shaming =)  In all seriousness, there is no race the finish-line with this, and can see many enterprises still grappling with automation projects for many years to come.  The ones whom I have met who have expressed the most dissatisfaction are those who have bought far more licenses than they know what do to with, and have real issues trying to explain this their over-investment to their bosses. I've even seen some fired because of it.

Failure of the "Big iron" ERP vendors and the digital juggernauts to embrace RPA.  Let's be honest, with the exception of SAP's small acquisition of Contextor, which didn't even warrant a mention at the recent Sapphire event, the IT bellwethers haven't fallen in love with RPA.  It's just not sexy and scaleable enough for their suites, and if you read some of the guff on social media from IT "thought leaders", they have no bloody clue what RPA really is - and does. IT people just struggle with a technology that starts with a business process headache - they prefer to work with code-intensive products that can be shoe-horned into businesses, which they can make really complicated to install and manage.  Only Pega, from the world of large enterprise software, has made greater efforts to embrace process automation with its 2016 acquisition of OpenSpan, and I was quite impressed with the prominence it gave digital process automation at the recent PegaWorld event, but, even at Pega, it's clearly a challenge to communicate the true benefits of RPA to the Pega traditionalists, whose entire world revolves around its shiny CRM orchestration platform.  While we can point to all the lovely partner announcements we hear from the big three RPAs about their Google, Microsoft, Oracle, Workday, IBM etc partnerships, the truth of the matter is excitement and investment levels from the IT glitterati have been nothing close to what we were hoping/expecting just a couple of years ago.

Bottom-line: Over-setting expectations is putting the automation industry at risk of failure, not setting it up for the success it should be

The lesson here is that the sell-side is pushing too hard to sell too much too quickly and is setting up too many clients for disappointment.  We just need to set expectations better and get the balance right.... Rome wasn't built in a day.  We need to hear the RPA big daddies talking about how enterprises are grappling with real issues of internal change management, training and education.  We need to hear our IT leaders finally reach their "aha!" moment when they finally understand how robotic software is pulling in their frustrated business operations leaders into their world of embracing technology to help achieve real business outcomes.  Because one adage has rang true for 30 years now - design your processes the way your business needs them to achieve the business outcomes you crave... then invest in the right technology to make this happen.  RPA has the potential to be the first true catalyst to make this a reality, and we mustn't waste this opportunity.  Let's create an industry that can flourish for the next 30 years, not one that we'll break in the next couple with our greed to get rich and close that next contract...

Posted in: Robotic Process AutomationRobotic Transformation Software

35

1 Comments