Monthly Archives: Sep 2019

How business and IT teams need to work together to develop real AI capability

September 20, 2019 | Phil FershtTapati Bandopadhyay

If I have to listen to another technologist promoting “AI as a key component of the CIO’s agenda”, I am going to start getting a little irked… AI is not another app that can be installed and rolled out like a Workday, SAP or a ServiceNow.  I even had to listen to an IT executive asking me whether he should “leave AI in the hands of SAP as part of their S4 upgrade”.  Not only that, I noticed a well-known analyst firm promoting a webcast last week advising “CIOs how to rollout RPA”.  Really?

One of the biggest issues in our industry today is the abject failure of the business teams who design and own the processes, to partner effectively with their IT teams to deliver automation and AI that supports the business vision of where the business leaders want to take it.  IT people are not clairvoyant - they can only aspire to deliver what their business colleagues clearly instruct them to do.  Otherwise, they'll just buy all these fancy software suites and say they did their bit for AI...  So enterprise leaders have to knock the heads of their business and IT teams together and get them partnering effectively to design a roadmap that takes them and their data where they need to go to stay competitive.  There's no time to keep pointing fingers, we just need to sit down and figure out how to work together in much more effective ways than we have over the past few decades.

Embracing AI is all about crafting the anticipatory organization, one that is hyperconnected across its ecosystem, its customers, employees and partners

The whole purpose of AI in the enterprise is to have business operations running as autonomously and intelligently as possible, which means we need to build enabling IT infrastructure that supports the business process logic and design.  People are talking about “re-platforming the enterprise”… this is really about redesigning IT to support the business needs, to help the business respond to customer needs as soon they occur, and have the intelligence to anticipate the needs of their customers before its competitors can.  

Enterprises need to be as hyperconnected and as autonomous as possible within their business environments if they want to pinpoint where disruption is coming from, where to disrupt and how to keep reinventing themselves in an unforgiving world when we no longer have time to rest on our laurels:

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The problem for IT is that AI doesn’t come packaged in a nice box with an instruction guide

I’m sorry to be mildly offensive here, but AI and automation are only effective when they are designed to solve process and business problems, not check another box on the CIO’s resume. While it is important to keep the IT team in the communication loop so that it is ready to provide the right infrastructure and technology stacks required for operationalizing AI solutions, the steering wheel of any business application of AI must be in the hands of the businesses. Smart businesses  know their key pain areas and can identify the most relevant and feasible business cases. They own the data, they know the context, and how a process should run when it is augmented with appropriate AI techniques.  

For many firms, the day they implemented their first ERP was akin to pouring cement into their enterprise

The reality is the ERP system of the last 3 decades is no longer the system of record for ambitious, hyperconnected enterprises. It is a rigid suite of standard processes that keep when wheels on a legacy operation.  The emerging system of record is the data lake itself, when the business leaders have the ability to extract the data they need to make the right decisions, or have systems that can start to help make intelligent decisions for them.

So let's examine at the interplay between business and IT with these emerging AI-driven environments with 10 prescriptive activities business leaders and IT leaders need to put into effect, if they want genuinely want to develop AI capability that takes them into this hyperconnected state:

10 AI activities the business teams must lead to ensure AI success 

  1. Prioritize use cases from AI technology availability. The business team must prioritize AI business use cases from the initially identified list of potential AI application opportunities. The team must demonstrate its process knowledge and desired end-state scenario to help the IT team to ensure effective project coordination and outcome-setting. Using external consultants at this phase can be very effective to ensure the best business/technology fit.
  2. Develop the AI Business case: The most critical step, where the business team must set initial benchmarks, define pre- and post-process improvement metrics, and estimate target benchmarks.
  3. AI feasibility analysis and specification development: Business teams must solicit help from IT teams for their expertise with items such as technical feasibility analysis, infrastructure requirement specifications, and technology stack selection. Other areas are technology cost estimation, deployment, and production release, 
  4. AI Technology cost estimation: Developing estimates for the cost of technology stacks and solution deployment efforts must be the purview of business teams, but it requires significant and detailed input from the IT team.
  5. AI Data preparation and identification: Business teams must ensures success by identifying and preparing the data for training algorithms and building models. The team must solicit assistance from analytics and data warehousing teams.
  6. Coordinate with partners: During design phase of the target process model, the business team should must provide input to implementation partners (both internally and with their consultant/services partner) regarding ontology of the problem domain, the existing process models and rules. Teaming here with IT is essential, but the business team must define and communicate the business and process needs effectively. 
  7. AI Testing: The business team must lead testing the models against the project goals during the early POC and pilot phases
  8. Manage effective AI feedback loops: To make use cases fir for production release, the business team must provide detailed, regular feedback on the accuracy and performance. Again, they need  to work with implementation partners, which may be internal teams from an AI CoE or external partners.
  9. AI Training: The business team must be responsible for budgeting, planning and executing the training for large AI user teams, encompassing all of the staffing resources, external consultant costs, processes and task owners that are involved in the implemented use case.
  10. AI Deployment: Deployment doesn’t end once the use case is in production. The business team must continuously monitor the model’s outcomes, maintenance, and updates during the inferencing phase, and if the problem context changes with new rules or data, the team needs to add new dimensions and models and create new clusters. Users may also require retraining, especially as processes may change over time. There will also be the need to monitor change management issues, potential legal issues with data privacy / staffing impacts etc.

The Bottom-line:  AI is a business issue that must be directed and managed by business executives, supported by technology experts.  CIOs who ignore this will fail

The business team should seek help from IT in terms of infrastructure and tech stack needs, but it needs to own and run the AI projects because it owns the data, context, processes, and rules and understands the pain points.

CIOs will face an existential fight if they don't start genuinely enabling the business. The world where IT was all about mitigating outages and avoiding risk is being replaced by one that demands speed, agility, and a genuine understanding of the business.

Being tech-savvy isn't enough anymore… just knowing where to build a data center is pointless if you don't know what the rest of the business has planned. And this IT obsession of continually trying to upgrade ERP solutions, when most business units these days can handle it. That's the pitfall of the old traditional IT approach - we have to make sure we never get cemented in like that again.

Posted in: IT Outsourcing / IT ServicesDigital OneOfficeArtificial Intelligence

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HFS has hired Lisa Ross. Yes we did...

September 13, 2019 | Phil Fersht

Just when you thought we'd had enough services legends making big moves this week, we have our very own to announce:  Lisa Ross (LinkedIn) is joining us as SVP of Strategic Initiatives and Client Partner for major accounts, based out of our Boston office.  Lisa will lead - and advise on - several of our strategic client relationships and work across our sales, marketing, and research teams to ensure we are maximizing value for our research clients. 

I have known Lisa for 20 years as a colleague, client, and friend and know she will be a terrific fit at HFS with her focus on relationships, her keen interest in the services industry and love of research.  During her career, she has been an analyst at IDC, has run her own research venture before spending the last 11 years in senior roles in Genpact, Capgemini, and most recently Tech Mahindra.  She is a consultant, sales expert, has a marketing brain and has a good research grounding.  Lisa also has run advisor relations functions and knows all the key advisors in the Big 4 and is very well connected in the industry with a strong personal brand.  In the little time she will have left to herself, Lisa is completing a graduate certificate in digital marketing from Harvard Business School and teaches Zumba fitness class for older adults (whatever that is). She also has a 9-year-old miniature Schnauzer called Mercedes, a strapping 20-year-old son Zak in Penn State, and a lovely 94-year-old mum who still drives around happily in Massachusetts...

So let's hear from Lisa why she has made this move back to the research world and what she hopes to accomplish with HFS...

Lisa - you've been a very active figure in the world of global sourcing for two decades now - can you share a bit of background about yourself?
 
So delighted to be here, Phil. I feel as if my career truly has come full circle!  In this new role, I've returned to my heritage in research which started 23 years back (!), with IDC, Ross Research and FAO Research while leveraging the marketing and new logo sales expertise gained supporting revenue growth in the supplier space since 2008.  How exciting to be in a position of interfacing with many of the sourcing leaders who I've worked with over the years plus the leading sourcing advisory firms that I know so well.  Teaming with you and the HFS Research team on strategic growth and new business opportunities is so very exciting, so...thank you for this opportunity.
 
And why HFS Research?  Why make a return to the analyst advisory business now?  And what will you be doing at HFS?
 
As most industry folks realize, you and I have known one another for 20+ years...as colleagues, competitors, clients, and friends...so there is a huge level of trust between us that served as the impetus for our initial discussions about this role only a few weeks back.  I'm a huge believer in serendipity, so the development of an innocent conversation that turned into a job offer and my decision to join HFS was unexpected yet exactly as it was meant to occur.  I 'get' the value of research and insights as drivers of supplier, advisor and investor knowledge and how to use the data/info to propel growth.  With HFS at the forefront of where the market is heading, I've been impressed by the breadth and depth of what your research folks have done and the buyer-facing education and networking opportunities that your team has enabled.  My hope is to bring different perspectives and fresh ideas as a leader here and position to help your biggest clients get the most benefit out of their engagements.
 
How is the services industry different these days than 5-10 years ago?  You've been very involved with business process and IT services for several years now - where do you see us headed next?  Is the game-changing? 
 
It's quite interesting - so much has changed, yet so much has remained the same.  Whenever I check LinkedIn or see folks at industry conferences or supplier events, it's always fun to see the same faces but oftentimes with different company affiliations.  And many of companies I have followed are no longer, either integrated into new ones or rebranded, even though they contributed significantly to this industry.  The biggest change, however, is the positioning that suppliers have embraced, either real or perceived, in terms of their offerings and positions of strength.  There are many areas that have stagnated, in my opinion, but have so much potential to be game-changers - like sales tactics that work the best, how to treat employees better, how to be stronger leaders and, most of all, how to be more likeable (!), and I'll share insights with the HFS community in due time.  And like you, I'll be helpful yet unabashedly honest.
 
And how about the research industry - you've been on both supplier and research sides of the fence, so how do you see it evolving?
 
The draw of research firms, back in the day, was the primary research data and information that we could strongarm and the insights we shared.  Reports with the "thud" factor commanded the highest prices.  There was a finite number of suppliers and a broad yet deep array of topics/subjects to cover.  Suppliers and advisors had few opportunities to interact, and there were only a handful of industry conferences at which influencers could showcase their knowledge and suppliers could interact directly with existing and potential customers.
 
Today, we have what I see as a convergence of business and IT opportunities and an expansion of opportunities beyond the word "outsourcing" that make it nearly obsolete.  RPA, digital and AI are at the forefront of thought processes, enabling a slew of new entrants with possibilities we had not even considered.  And investors are chomping at the bit, not even fully understanding the value (or not) of their investments.  We're all trying to make sense of it all, and there's certainly is no shortage of "friends" willing to charge more than an arm and a leg to provide counsel (when even they do not have a full handle on what's outside their limited purviews).  Advisors are trying to make money off of suppliers (talk about strong-arming!), advisors are masking digital expertise with thousands of more dollars of proposed spend by their prospects, and buyers are like WTF do I do now?!  
 
Throughout it all, and as cliché as it sounds, the research world has remained constant while upping the ante - still providing thought leadership in addition to now advising suppliers on how to sell, market and operate more effectively and moreso working with the buyer community to educate and inform and help build community.  That last bit...the connection piece, is what I enjoy the most; we all want to feel as if we're part of a community.  People do business with people they like in the Services space, so if research firms are trustworthy, likable and smart AND continue to focus on what the rest of us do not even know we do not know, I have a feeling that HFS Research will continue to be valued highly in our space.
 
Finally, what issues would you like to see our services industry address to make it more attractive to folks working in this space?  And in an ideal world, what would you like to change?  
 
Hmmmm...you've touched a nerve, as I've worked with and for some of the largest organizations in the world as well as privately held, culturally diverse, global organizations, so...I've seen a lot (not to mention my age!).  Some immediate areas for improvement, off the cuff, focus on people issues: 
 
1) Education:  I'm a big proponent of growing and learning; yet, for some of us, it's been quite some time since we've invested personally and/or professionally in bettering ourselves - leadership skills and topically...and we risk becoming dinosaurs which clearly would have ill effects on our employers;
2) Employee Engagement:  Across the board, we need to focus more on how we treat our employees...empowering them with better culture, support, growth opportunities, encouragement and diversity, and inclusion (ahem!)...as we risk revolving doors or really expensive, ineffective employees and colleagues with depressive disorders or worse;
3) Sales Effectiveness:  This issue revolves around back and front office:  Internal - motivating our salespeople differently, in ways that encourage them to succeed continually, and External - making it less about us and more about them...the client or prospect...speaking to their needs and how service providers can help versus 100's of slides on their cookie-cutter skillsets;
4) Connection:  We spend the majority of our waking hours in a people business, so inasmuch as we can find opportunities to interact with actual people, even in an era of social media engagement, we need to do more of that.  For me, at least, I've built my career and reputation on relationship management.  We all need to get much better at that stuff, myself included; and
5) Self Care:  We've all been guilty at some point/s in our careers of eating too much, not exercising enough, sweating the small stuff and ignoring what really matters, both professionally and personally.  Lack of spirituality, focusing non-stop on the state of affairs, and working incessantly makes us no good to anyone. Having stayed in the vortex that is the Services space, I know firsthand the importance of self-care and struggle to stay centered. Connection helps.
 
Welcome back to research, Lisa...there couldn't be a more interesting time to be in this space! 

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesOutsourcing Heros

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Time to walk Mike's way... Salvino to run DXC

September 11, 2019 | Phil Fersht

Just as the industry was running out of steam, just as we're writing the obituary of the outsourcing model... suddenly we have sal-vation.  We're an industry desperate for leadership, for new ideas, for personalities we want to work with, for a new culture that inspires us to get out of bed in the morning.

So how about one provider many of us were giving up on recruiting one of the most charismatic, energetic and determined leaders who grew Accenture Operations from $1.5bn to more than $7bn.  How about the guy who jump-started one of the most impressive machine learning businesses in the industry? How about the guy who pioneered whole new approaches to service delivery with the Six Generations of BPO and the As-a-Service Economy?  How about the guy who drove an acquisition so smart it locked up an entire market vertical

Just as we thought DXC was caught in a perennial treadmill of mere survival, they have made one of the most ambitious, creative - and smart - CEO appointments the services business has witnessed in Mike "Sal" Salvino - someone I have known as a friend and industry peer for two decades.  Sal is proven to take legacy business, mine the gold, bring in the talent and make strategic moves, which is exactly what DXC needs at a time this industry is in transition. We'll have Mike at our HFS Summit on 2nd October to have a more candid discussion with industry leaders if you want to try and grab a last-minute spot.

So what are Mike's challenges and opportunities according to the HFS analyst team?

Developing market position and messaging. The new combined entity still trying to find its unique market positioning. DXC needs to hit the ground quickly to consolidate and clarify its combined offerings and transform internally to cater to the changing market needs.

Double-down on tech where it can win.  DXC has oodles of capability and talent in automation, digital enablement and AI, in addition, to a $2bn business process services business.  There is gold here if it can bring it to the surface and take it to market in the right way.

Expanding its base. DXC has a significant existing client base of nearly 6,000 customers especially in healthcare, public sector, and CPG. Large deal heritage from CSC and HP.
they have capabilities across OneOffice but have been reduced to a me-too player. No one knows what they stand for... Mike needs to change that, and fast.

Find a way to highlight some of the hidden gems in their incredibly complex patchwork of assets and capabilities from past acquisitions. The "blanket DXC" is drowning out some of their areas of differentiation because they're not talking about them anymore.

Verticalizing their offerings effectively. DXC spent a bunch of time slinging what HP + CSC can do and came up with 8 master offering buckets. But it was all horizontal. They are struggling to build relevance by industry. If they could fill the white space with their gigantic customer base alone would ensure success. 

Finding a thumb for the dyke. Stemming the flow of long term infrastructure customers getting poached by aggressive ITO competitors and AWS.

Build a true brand association and a mission. DXC doesn't have a clear story for anyone outside of very specific groups, and that's really dependent on who you speak to. It's the same for clients - as part of a major branding project where we interviewed some industry luminaries who all struggled to understand what DXC is up to, what differentiates them, or why they should even think of working with them.

Target (and execute) on acquisitions that provide true differentiation. As Mike looks at strengthening vertical offerings and service delivery areas, there will me boundless firms on the block to evaluate. Time is not on DXC's side and the right targets need to be integrated effectively, alongside the current firms in the organization.

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesIntelligent Automation

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Why going straight to digital from your legacy outsourcing engagement is like buying a Tesla

September 01, 2019 | Phil Fersht

As we discussed last week, the 2019 State of Operations data shows a strong appetite from enterprises to dump legacy outsourcing practices and reinvest in operating models that can take them straight to digital. 

While the desire to invest in an outsourcing model nose-dived from 62% in 2018 to 28% this year, it's also worth looking at the definitive actions enterprises plan to take when their current outsourcing engagement come up for renewal:

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There is a clear appetite for change and complacent service providers are in serious trouble

Several service providers have already commented that they "just don't see their clients wanting to change this aggressively" since our recent roundtable in London and the recent blog post which amassed huge attention across the industry. However, many are clearly in denial that we're deep in a critical transition from the traditional labor-driven model to one that is much more touchless and less physical in nature.  In my view, the issue here isn't that these peoples' observations are wrong, they're just not having the right conversations.  Most of the BPO executives admit they are "feeling their way" to address their clients' needs for more RPA and digitization of their processes, but simply do not have the scale of people on hand with the necessary training and skills to help them.  Instead, they are simply waiting for a burning platform that forces them into some sort of action.  Worryingly, when we look at this data, when this burning platform finally appears under their posteriors, it's already going to be far too late for them to save themselves. 

Why going straight to digital with your outsourcing engagement is like buying a Tesla - it's a big change, can be expensive and requires a very different type of service partner to make it viable 

Most enterprise operations leaders are unlikely to tell their provider's client partner "we're fed up with spending the same dollars each year for the same tired old processes and small army of staff to deliver them".  That is like going to your car dealer and saying you're sick of paying extortionate sums for gas to fuel your car, and you're also sick of polluting the environment.  Unless your car dealer is fully up on electric cars and has a great financing model to switch you up, you're more likely to find a dealer who specializes in what you need.  The only way your existing car dealer is going to have a chance of retaining your business is if his firm has invested in mechanics who are trained in electric car maintenance, sales people who know enough to sell you one, and a financing partner to get you "fully electric" with a financially affordable package.  

So what can we expect today's enterprises to do when their current outsourcing engagements expire?

Barely a quarter of enterprises content to stick with their gas-guzzlers.  As the data clearly tells us here, not even a quarter of clients intend to stay true to their tried, trusted, stable (and stale) relationship.  Perhaps they just don't care that much and can quietly drift along to retirement by merely "keeping the lights on" with their legacy business practices that just about get the job done.

Another quarter wants to move the needle, but may opt for a hybrid model. Meanwhile, 27% are getting itchy to kick their service provider up the rear end and get them embedding some real automation into their delivery if they are to renew with them.  This means they want to see real commitment to reduce the dependence on the staff army and see real investments in process automation to digitize their delivery.  This could perhaps be the car dealer selling you a hybrid vehicle as you look to move to an electric model, but need a defined transition period to get there. It is also less extreme for a car dealer to invest in hybrid cars as they require less specialization than fully electric vehicles, so this is often a great compromise for both parties.

A third is more decisive and likely to make the switch.  32% have clearly got to know their current outsourcing provider only too well over the years and have zero hope they can get any real co-investment out of them.  As we have discovered over the last couple of years, some providers have made real investments in competencies like automation and AI, while others have merely added a little sugar-frosting and persist with selling the same old model with some cost shaved off the package, and some added incentives for performance (i.e "outcomes").  Moreover, ambitious outsourcers are heavily targeting their competitors' disaffected clients and are willing to offer eye-catching deals to win their custom.  This can include attractive pricing tied to aggressive delivery staff reduction over a 3-5 year amortization plan that is offset by efficiency savings due to automation and digitization.

In some cases, it may also prove more attractive for the legacy provider to shed the business than fight to keep a client that will quickly become unprofitable (and the industry is littered with those engagements). In many of these cases, this is more like a car customer moving towards a brand they haven't driven before, most likely a hybrid, and having an acrimonious split from their current model because their dealer tried to sell them a car that just didn't check the boxes.  However, in several services markets, we are seeing emerging offerings from providers where they are offering fully digital offerings (with vastly cheaper support), such as TaskUs in the customer call center market, or nDivision in managed IT operations, which can undercut traditional outsourcers so aggressively, there is no feasible way the traditional providers can compete.  In addition, we are seeing several India-centric service providers offer $-per-chat support models for some transactional services that are essentially chatbots offering basic-level support services at costs as cheap as 15 cents a chat... we are finally seeing "digital disruption" attack the traditional outsourcing market that has somehow staved it off for years thanks to lethargic clients and lock-in contracts.  

The 17% who have given up and will just look at something very different.  Maybe the cost of changing the model is just so abhorrent it's time to pull the work back and fix it yourself.  Maybe you're so fed up with the lack of innovation in changing anything you've realized you have smarter people on staff who are better deployed to take the work back, staff up to execute it while you explore all your digital and automation options.  Maybe you want to invest in an integrated automation platform, and you want to use the funds saved by backsourcing the work to invest in an automation backbone that enables you to perform work in a touchless, smarter manner?   Maybe you've seen that shiny new Tesla in the showroom window and decided to take the plunge and to hell with the upfront cost...

The Bottom Line - after years of providers complaining about their clients being unwilling to invest, the outsourcing chickens are coming home to roost

The problem with outsourcing is that it has always been underpinned by financial models that give the buyer or provider little wiggle room to make investments to do anything differently.  Most firms still run most of their processes exactly the same way as they did 20/30/40 years ago, with the only “innovation” being models like offshore outsourcing and shared service centers, cloud and digital technologies enabling those same processes to be conducted steadily faster and cheaper.  However, fundamental changes have not been made to intrinsic business processes – most companies still operate with their major functions such as customer service, marketing, finance, HR and supply chain operating in individual silos, with IT operating as a non-strategic vehicle to maintain the status quo and keep the lights on.  

And the poor whipping child over the past couple of decades has been the poor outsourcer, who's taken on the putrid old processes and attempted to deliver them for their clients at lower cost, where the necessary investments needed to redesign the processes and improve the technology backbone would far outweigh the slim profits being eked out through using cheaper labor and following sensible process delivery templates.  Sadly for our lovely outsourcers, they have little choice but to suck up the fact that they ventured into this business to turn a profit, and if they want to remain in it, they need to make some new investments to get into a position to turn more profits in the future.

As we can see, 59% of their clients are open to doing things differently or using a different partner altogether, so the opportunity is there if you're willing to take some short term pain for longer-term gain.  This means retraining current delivery staff; this means adding skills in areas like RPA, ML and AI; this means smarter partnering with software firms and specialist consultancies.  This means you need to get out of your niche and provide solutions that your customers need, not merely force them to buy what is convenient and profitable for you to sell them.  This means you may need to start selling Teslas, not gass-guzzling SUVs....

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesDigital OneOffice

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