In the HfS Blueprint Report for Utility Operations, we take a close look at how you can better find support for business model creation, IT/OT integration and customer experience improvement in engagements.
Electricity is the lifeblood of our economy and society. Electricity is what makes your smartphones, computers, TVs, refrigerators, and lamps work. Many core processes in our lives and businesses are electricity dependent, and electric appliances are everywhere. Gas, coal, oil, nuclear, water, wind, and sun – all of these resources are used to power the grid, the world’s largest machine and one of the humankind’s greatest engineering achievements. And today’s infrastructure is overwhelmed.
The current infrastructures are built for a bygone era. Utilities need smarter and seamlessly connected grids that allow renewable production and local energy generation. The emergence of micro-grids and residential- and utility-scale battery storage for electricity, for example, will give a push to local energy systems. But, integrating all these new technologies, building new business models around them and improving customer experiences require utilities to drastically change its way of working. This is where smart utilities leverage service providers.
Employing Utility Operations services to get ahead of being disrupted
The HfS Research Blueprint Report for Utility Operations provides a comprehensive overview of services for the utility industry. This Blueprint looks at business process services, information technology services, and engineering services across the utility value chain areas of generation, market operations, transmission, distribution and metering, marketing and retail, and cross-value chain BPO, engineering, and ITO services.
This report analyses and reviews how the market is evolving toward more business-outcome focused, flexible, and collaborative services and how service providers are (or are not yet) meeting the needs of utility organizations. It also includes profiles and assessments of 14 providers of Utility Operations services.
Top challenges include:
Modernizing the power infrastructure to support renewable integration and optimization
Leveraging digital in the grid infrastructure
How the power generation fuel mix changed for good
Changing customer expectations
Disruption of business models
New competitors enter the arena
Cybersecurity: of paramount importance, but still often overlooked
These challenges underscore three key market dynamics:
Utility Operations services adoption accelerates. The market is vibrant and in growth mode, with several service providers reporting high growth rates for their Utility practice, outpacing other horizontal and vertical practices. This strong growth is a sign of an industry pulling the services lever hard to make up for lost ground. Having been reluctant and conservative about investments in technology and now, in the face of so much disruption and technology-driven opportunities, utilities are partnering with service providers to catch-up. For their part, many service providers have started to strike the right cord with a mix of outcome based services, partnerships, strategy and messaging around technology-driven areas like smart grid, smart metering, renewable energy integration and intelligent automation. There’s a refresh underway for partnerships in this market.
The value of partnerships. No one company can deliver all the services and solutions required for the transformation the utility industry is experiencing. In the digital age, breaking down silos, creating end-to-end processes and information flows, and unleashing the actionable insights derived from advanced data analytics are critical imperatives for survival. We see this in the convergence of operational technology (OT) and information technology (IT) and in the increasing role of digital platforms across the value chain. Leaders in the utility industry are forming partnerships as brokers to find and bring together the best capability to impact. Examples are utilities that partner with service providers and Original Equipment Manufacturers to create resilient, autonomous, solar micro-grids incorporating equipment, battery technology, sensors, analytics and on-demand services. The result is a resilient emergency demand response solution.
Plug-and-Play services emerge. We see interest emerging among service buyers for plug-and-play digital business services, particularly for analytics and retail platforms. These modular, on-demand services give utilities the advantage of easy implementation and the ability to tap into a business outcome, increasing speed to value. Plug-and-play services are in the initial stage of development with significant progress forecasted over the next few years as service providers become more comfortable with being platform developers.
Bottom Line: Utility executives, you will find guidance in this report to reinvent customer experiences, processes and operating models, and to tap the unmatched potential of renewable energy, digital technologies, and storage.
The challenges outlined in this blog and the Blueprint report form an existential threat to the utility industry as we know it. Utilities must face these challenges head-on or risk becoming irrelevant, with others – new entrants or savvy current competitors – taking its role in the value chain and its customers. The service providers in the Utility Operations Blueprint are reliable options to partner with and charge ahead together.
HfS Premium Subscribers can click here to download your copy of the new 2017 Utility Operations Blueprint Report. It includes coverage of the following service providers: Accenture, Atos, Capgemini, Cognizant, Cyient, EXL, HCL, IBM, Infosys, Luxoft, TCS, Tech Mahindra, Tieto, Wipro.
We are now seeing real commercial business applications getting serious about their cognitive potential, with the new announcement of SAP Ariba and IBM joining forces to cognify contracting and sourcing processes, as a start. At HfS, we believe this is just the start of core business applications being immersed in cognitive capability to deliver a new threshold of business value for enterprise clients.
In the recent HfS Procurement As-a-Service Blueprint, IBM, an HfS Winner’s Circle industry leader, invested in transformation-led delivery with a ‘Consult to Operate’ strategy, focusing on on-demand consumable digital processes for procurement fueled by analytics and cognitive.
Looking ahead to 2020, HfS recently wrote: “Towards 2020 IBM will be leading in the cognitive procurement services space. Underpinned by a strong BPaaS platform, most clients will look at IBM first when it comes to new cognitive technology-driven services with vastly improved data analytics capabilities. The biggest challenge for IBM to succeed with cognitive procurement is to bring clients along this journey”.
The goal of this partnership is to take cognitive procurement to the next level. SAP Ariba and IBM are creating two centres for Cognitive Procurement, in Palo Alto and New York. The cognitive procurement capabilities will be expanded through a joint go-to-market strategy and a joint development roadmap. But there is more to this deal…
“Making procurement awesome on steroids”
Asked what the biggest benefit of the partnership is, Moray Reid, IBM Procurement’s Global Offerings Leader, took SAP Ariba’s motto up a notch; “Make procurement awesome on steroids”, by really bringing leadership to the procurement space and enabling smart new technologies to allow customers to make better decisions in real-time. SAP Ariba and IBM truly believe this is a case of ‘better together’.
In a recent article – ‘What will The Procurement As-a-Service Provider Landscape look like in 2020?’ – HfS wrote, “IBM has a massive supply chain, which it smartly leverages in its procurement offerings. IBM is bullish on cognitive procurement. IBM BPS is morphing into Cognitive Business Solutions. Its own procurement provides a great playground for applying and road testing all the new cognitive procurement solutions, giving it an advantage over providers who don’t manage procurement for their own organization or have less ‘cognitive savvy’ clients”.
The partnership with Ariba is a serious step forward for the cognitive procurement ambitions of both organisations. SAP Ariba is a dominant player in the procurement space, with a mature, horizontally integrated platform, the world’s largest business network and end-to-end suite of source-to-settle applications that cover all categories of spend. SAP Ariba and IBM are developing the first cognitive use cases together and creating new services, adopting IBM’s Consult to Operate model, leveraging consulting capabilities in operations to deliver value on an outcome basis. One of the use cases under development is in contract intelligence; Watson sifting through structured and unstructured contract data to gain insights and improve contract compliance, a big step towards actually achieving benefits, one of the toughest challenges in procurement. Part of the work will further the development of intelligent procurement solutions and services, with IBM and SAP Ariba working side by side to explore applications of emerging technologies, including blockchain.
What’s in it for SAP Ariba?
SAP Ariba needed a new differentiator as competition is heating up and competitors, like Tradeshift and Coupa, accrue assets and client wins. With SAP Leonardo alongside Watson, it gets a credible cognitive engine. Further, to leverage network effects and grow its value, the network needs to expand by adding more suppliers. Bringing IBM’s huge supplier base on board will boost the value of the Ariba Network increasing its size and scale.
What’s in it for IBM?
Emptoris has been a good foundation for IBM’s procurement services and BPaaS delivery, but lacks the network. Instead of betting on two horses, by continued development of Emptoris for internal use and partnering to provide the business network capability to clients, IBM will, over the coming period, transition all its BPaaS offerings to SAP Ariba. This is a big operation, but it makes a lot of sense. There must be hard assurances and safeguards in the partnership agreement, otherwise it’s a risky bet to put your As-a-Service/BPaaS future in the hands of a partner.
Competing on multiple fronts
Watson is IBM’s big platform bet of the decade – its main challenge is being a bit too far ahead of its time, pushing a cognitive story at clients that simply are too bogged down in other initiatives to take the time and consider the ROI of injecting cognitive capability into their processes. Positioning it as one of the largest procurement platforms makes a lot of sense from the perspective of not only competing for Procurement As-a-Service services with other providers, but also allowing IBM to be a technology provider to competitors via SAP Ariba. If you can’t beat them on the services front (you can’t win them all), at least get a piece of the action via the procurement platform side.
What’s in it for buyers?
Many buyers see cognitive procurement as the next frontier, but don’t have a clear understanding, or plan, on how to make it work for their organisations; the majority of procurement organizations perceive themselves as far removed from advanced innovative procurement capabilities. They are fixing the basics, getting procurement technology to work and pondering the opportunities RPA could bring the procurement function. The gap between cognitive procurement and the (perceived) level of maturity and change readiness of procurement is the hurdle IBM needs to take to make its cognitive ambitions reality or be at risk of running too far ahead of the game.
IBM and SAP Ariba will focus on a step-by-step approach to ease clients into the world of cognitive procurement, the key being small steps with tangible benefit. Buyers who need to see a serious roadmap and a partner with deep domain expertise and consulting capabilities gain a valuable option for their journey to the future of procurement.
Questions left to be answered
How will other partners react? Eleven out of fifteen service providers in the 2016 ‘Procurement As-a-Service Blueprint’ have a partnership with SAP Ariba. Just as when Wipro announced its strategic partnership and investment in Tradeshift earlier this year, the SAP Ariba and IBM folks will be fielding a lot of calls from concerned partners. What will this mean for their partnership with SAP Ariba, IBM or both? How much influence and access will IBM have on SAP Ariba’s architecture, roadmap and governance? How valuable is our partnership to SAP Ariba, now IBM stepped to the plate in such a manner?
The bottom-line: Procurement buyers; there is light at the end of the cognitive procurement tunnel
Two giants putting their weight behind cognitive procurement is a big step in taking the promise of cognitive into the realm of procurement.
Hand holding will be required to take clients along the journey and IBM and SAP Ariba vow to be the ones to extend their hand.
HfS will closely follow the value this partnership will create for service buyers, particularly in the fields of strategic sourcing and category management. How will those upstream procurement areas benefit from the cognitive capabilities on top of a business network? Can it find clever ways to address the scarcity of category talent and expertise? Is this partnership bringing true digital procurement closer, with pulling more suppliers onto the digital platform than before?
Focusing Watson on processes that can significantly benefit from tangible cognizant results, especially areas like contract management and general sourcing, is a smart way forward. HfS expects IBM to follow this with other initiatives across other business processes where the firm has real strength and depth, such as HR and F&A – and eventually broader supply chain. We should also expect further forays of Watson in the healthcare sector, where IBM has proven credibility supporting medical research and life sciences work (see our earlier report on Watson’s potential in medical research).
This standing room only crowd for an industry conference’s AI session, something seen with great regularity these days, is actually from last week’s American Payroll Association event in Orlando. You read that correctly.
While the payroll function and services market likely weren’t among the first AI or RPA candidates written on white boards in innovation labs, this obvious level of interest might suggest a “can’t see the forest through the trees” dynamic operating in some of those innovation labs. Back-office corporate functions such as payroll are in fact fertile ground for RPA and intelligent automation overall, given the preponderance of recurring manual tasks and transactions not dependent on person-to-person interaction.
Innovation labs are now on the case.
The speaker for this session called “Prepare Your Teams for the Future of Payroll: Robotics, Automation & Shared Services” was Brian Radin, President of global payroll services provider CloudPay and long-time entrepreneur in the HR Tech space as well. Brian immediately got everyone’s attention by factually reporting that the number of bank teller jobs did not decrease in the years following the introduction of ATM machines. Teller numbers actually went up due to shifting staff costs to support new, higher value services within retail branches, which ultimately allowed more local branches to open up, tellers in tow.
Using AI in the realm of HR operations, including cognitive computing and RPA (Robotic Process Automation) or bots, has been explored in my blog posts and also a recent POV. Radin’s session focused specifically on AI’s current and future use in payroll operations, including via services providers like CloudPay and over a dozen others to be profiled in my HfS Blueprint Report “Payroll-as-a-Service: 2017” (published this July).
Some Easy Questions, Some Hard Ones
Radin’s talk directly addressed some key questions about “AI in Payroll”; e.g., how can (or will) these capabilities help payroll clients spend less time on manually intensive, routine or recurring tasks, ones that machines can often handle with more alacrity? And are there other tasks where resourcing can be toggled between human and bot staff depending on availability? Here the presenter highlighted examples like data validations and checks pre and post-payroll run (payroll has quite a few of those), machines fixing errors or automating the consolidation of data, and of course, chatbots to answer recurring questions like “what is my accrued PTO?” or “when will I receive my first check?” (Questions which come up hundreds of times per year.) Allowing RPA tools to handle these will benefit clients of providers like CloudPay and any other vendor investing in these capabilities. And as far as highlighting a “resourcing agnostic” (bot or person) type of activity in payroll, the example given was using people or bot staff to train new staff.
One of the highlights of the session for me was listening to questions attendees were posing at the podium afterward, away from the large audience. One gentleman told Radin that training and re-skilling of staff were already going on in his company in areas where RPA would be heavily leveraged, but it sometimes provided only a year or so of “job runway” for employees until RPA would impact their next job. Then re-skilling would have to start again. Radin’s response was both admirable and accurate: “Re-skilling decisions in the RPA era is very much a work in progress.”
Machines that Do, Do and Think, and Learn
CloudPay’s VP Marketing, David Barak, elaborated for me after the session on Radin’s slide which highlighted these three different categories of RPA capabilities: “Do” describes the use of RPA to move and manipulate payroll data without human involvement, as one example. “Do and think” capabilities include the machine flagging and fixing hundreds of data issues pre-payroll run; and while “Learn” is an RPA capability in payroll processing that’s still being tested and improved upon (as with machine learning in most areas), it includes anticipating spikes in payroll processing costs based on time of year, business cycles, new regulations, etc. This information can then guide the customer in optimizing staffing levels.
Bottom Line: Payroll departments and services provider clients will increasingly benefit from emerging RPA and cognitive capabilities. It will probably be a few steps forward and a couple backward until something akin to a “human/bot hybrid resourcing homeostasis” is figured out – in general, and also reflecting specific customer contexts. Predicting how far / how fast with any precision, in any industry or discipline, is almost a total crapshoot. One thing we do know, machines are not nearly as susceptible to errors due to work overload or distractions.
EXL is going broad and deep from its core strength in analytics. At its recent EXL Client, Industry Analyst, and Advisor Day, the service provider showcased its theme of “Accelerating Digital Transformation” driven by “look deeper” with analytics.
We heard from both EXL and clients during the day that while clients appreciate that “digital” can help “transform” their staid businesses into one seamless capability that is more flexible and responsive, it doesn’t feel real or short-term. Their businesses are too siloed, risk averse, and focused on the day to day. The sense I got from the day was that EXL is “right there” with its clients facing these challenges – meaning, it is not behind, and it is not way ahead and looking over its shoulder. EXL is working shoulder to shoulder with its clients — at the grassroots level– to figure out the vision for a more customer-centric, insight-driven, and agile business, map it out, and take the steps to get there. The service provider is doing this by keeping its focus on the core strength of analytics, and addressing gaps it has had in data management and automation in particular.
The front office is only as effective as the middle and back allows it to be
EXL’s traditional strength is in the middle office with industry-specific services support and analytics and in the back office with finance & accounting BPO. The front office cannot be effectively customer centric—responsive and personalized—if it doesn’t have a flexible data infrastructure through this middle and back office to drive context and act with speed, precision, and fluidity. EXL is working with clients where it sits – in that middle and back office, particularly in insurance, healthcare, and financial services.
For example, with one client that started as a headcount-based cost reduction BPO play in F&A, EXL proposed a number of workflow process and “digital” enablers such as RPA and chat to have a more interactive and responsive function. The client has been able to remove itself from a fairly heavy-handed “oversight” of the day-to-day and EXL has been able to find and implement efficiencies for faster processing, fewer errors or points of confusion, and greater satisfaction all around. A key solution element here was the human-centered approach: the team took the time to interview people involved in the current process at the client and at EXL, understand what was not working, and design and test out solutions that were people, process, and technology oriented (a.k.a. design thinking).
Building out the data chain
Over the past couple of years, EXL has hired, acquired, and developed a broader spectrum of capability in analytics modeling and reporting to build out this core strength. It’s been a differentiator for execution, but not across the full analytics spectrum and not at scale. Now it’s expanding upstream into data and data management, built-in proprietary technology and partnerships for “bots,” and supplementing the shift through its data acquisitions such as RPM Direct and Datasource.
Its viewpoint of the impact of data and analytics was demonstrated through an example in the middle office of an insurance client. EXL created a digital interface for customer acquisition, combined it with its LifePro policy admin system and data analytics. The client uses the database to target and segment customers for campaigns. Interested customers can use mobile or internet portal access to apply. Based on the back end integration with the underwriting and pricing engine, the customer gets a quote and the company can bind the policy online.
The role of robotics
The conversation around robotic process automation and artificial intelligence (the latter less of a focus and still a point of view to be developed, it seems) is constantly tied to analytics. EXL’s observation is that “clients now seem to be taking a more pragmatic approach to intelligent automation” – how to institutionalize it, not just use it. One client example was of setting up a COE in a “build, operate, transfer” approach where EXL initially builds out the automation strategy, governance, use cases, service orchestration layers and bot skillsets. If you are interested in this approach, it’s one that we haven’t heard quite as clearly articulated from other service providers, and an area that we do hear is a challenge for global business services centers, for example. Some companies like Ascension Health and SEI Investments have to take the leadership on their own, but others may appreciate this kind of support to get RPA not just used but infused into the organization. I do get the sense this is a newer offering for EXL, so do your due diligence on the availability of skills and capabilities across different suites, but we often hear from clients that EXL makes a responsive, transparent partner.
Another place EXL is building scale is in its library of function- and industry-specific bots and partnerships with third parties including WorkFusion, Automation Anywhere, and Blue Prism. With automation, the service provider is willing to guarantee productivity and cost benefit, and change the traditional BPO engagement model. As you consider how you want to partner with EXL, take a look at its bot library, its subject matter experts, and consider the balance with your own capabilities. When you look at solving a problem and impacting an outcome and then designing the solution in between, rather than the previous outsourcing approach of lift and shift, you have more flexibility in your business.
Bottom line: Rethink your partnership style and challenge EXL.
Tap into these areas where it is investing: analytics; platform-based services; “advanced automation”; and human-centric digital transformation. What to watch: the need to scale in these focus areas and become a more credible powerhouse in consulting to lead the charge.
My colleague Steve Goldberg recently wrote about artificial intelligence finally getting incorporated into payroll processes. And I recently spoke with IBM about how they’re working to reinvent finance processes using blockchain. Intra-company processes present an interesting use case for blockchain, although they don’t actually have many of the common characteristics of the most popular use cases. Why?
Typically, we talk about blockchain being best for processes and operations where there is:
Low trust among participants
Lower existing technology investments
Low transparency or visibility into the process
Long cycle times in completing transactions
In contrast, finance and HR tend to be:
Medium to high trust (business partners tend to be known and therefore trusted by finance, for example, and certainly employees are known and vetted by the employer)
Relatively strong on investment in technology (although worse for HR than finance)
Decent transparency for internal aspects of the processes, but still poor for the parts of the process that interconnect with third parties – such as purchase orders, confirmation of delivery of products/services, etc. Transparency of data is less in HR, where the data starts at the individual level and then rolls up to the divisional and corporate levels.
Respectable cycle times for transactions. Understanding that companies always want to close the books faster, etc., cycle times aren’t as bad for internal processes as for multi-party processes.
So, if finance and HR don’t meet the general criteria for blockchain use, why would companies consider it as a viable option? We recently heard from IBM and Infosys about blockchain’s potential in finance, and our other research also shows the following likely benefits:
Security. A blockchain-based application tends to be more secure. Currently, it’s considered impossible to hack the data in a block, although it’s possible to hack at the edges, such as someone’s access point. However, the security for blockchain transactions and recording are much better than many of the systems companies use today. Consider the risks of letting employee or applicant data being hacked and blockchain becomes more attractive.
Immutability. When transactions happen quickly and permanently, then companies reduce the likelihood of duplicate payments for the same invoice and double spending (using the same money twice because it looks like it’s still available for a period of time after it’s actually been spent.) It also helps with employee data such as payroll information and benefits distribution.
Smart contracts. The business logic of transactions can be encoded into a blockchain app so that the rules get implemented automatically, taking out human error and increasing the accuracy of the transactions. For example, a contract between a client and a materials vendor can be coded into a blockchain, then the payment of the invoice gets made automatically after data about the materials’ quality, timeliness of delivery, and other terms of the agreement are incorporated.
Speed. While finance processes are ok today, any increase in speed helps the company. For example, if international payment transactions can be shortened, it improves the company’s operating margins by getting revenue quicker. The speed improvements will be particularly noticeable in processes that touch third parties.
Auditing and compliance. When the data are in a blockchain, there is complete transparency of that data. As a result, searching for records and validating data in order to audit and prove compliance becomes a faster and more accurate effort. Many believe that the reduction in cost and time of auditing and compliance are enough to justify the investment in blockchain for the back office.
Also, it’s important to note that we’re not advocating replacing ERP and other systems right away – you can record data on blockchain without doing the transaction on the chain. So in the interim blockchain can supplement rather than replace.
Bottom Line: Back-office processes may not be as world-changing as other blockchain use cases, but there is still significant potential for finance and HR to get reinvented with the technology.
Let’s turn that common lament we hear of a “talent shortage” on its head. What if you created a pipeline of talent that fit the needs of your business as it is growing and changing? While at the Infosys Confluence event recently, I heard about how AT&T has been taking steps for the last two years to create the very workforce it needs to achieve its vision.
First, determine what skills and capabilities your workforce will need in the future
“Based on industry and corporate direction, we chose six areas, including big data, IP networking, and software-defined networking, that we specifically want to attack as the skills of the future,” shared Candy Conway, VP, Global Managed Services Operations, Business Solutions and International at AT&T.
AT&T defined a set of roles that map to these areas, determined the associated competencies, and evaluated employees against the future landscape. They identified over 100,000 employees who will need to have a different or a more varied or developed set of competencies than they have today. “We then developed a roadmap and plan for getting these professionals into a relevant and meaningful career path that maps to the future of the company and the industry,” said Candy.
AT&T is a little over two years into this program. At this point, each employee has a prescriptive program managed through a learning portal – it identifies the role they are in currently, the one they target the future, the associated competencies for each role and the learning and education path to get there. For example, an employee could be in the network center and want to be a software engineer, and has a learning path mapped out.
The nuances of the skill areas also change quickly. “It used to be that skills would change a decade at a time, and that’s now accelerated,” said Candy. AT&T designed a program that would offer a number of options and flexibility – from internal designed and led courses, to “nano-degrees” in niche areas like web development and virtual reality to online master’s degrees from Georgia Tech and social-media based programs with badges (157,000 options) awarded as people complete courses.
Investing in future skills is of value to the employee and the company
This plan is mapped to what roles that AT&T believes it needs to have in the future…. so employees can look for open roles and bid on the ones they want to fill. There are no guarantees that these roles will be filled by employees desiring them at AT&T, but the program still provides an advantage to the employee since AT&T is defining these roles (such as data scientist) with a forward-looking view, and therefore helping employees develop these competitive and marketable skills. Certainly, having invested in the person’s training, AT&T has an interest in keeping these people in-house and this is a way of creating loyalty, stickiness and a workforce of the future.
This kind of investment can help a company attract and keep the “best and brightest” with the most potential for helping grow a company. Individuals who feel a company cares enough to invest in their talent development, keep their skills relevant (and competitive), and give them options in a career are more likely to stay with that company. AT&T also will have skills relevant to the future – the future workforce – without having to go out and ‘find them’.
The bottom-line: Become a learning organization in order to be relevant to your customer base, stay competitive, and grow.
Take a look at the vision for your company. What do you want to be able to deliver to your customers? What experience do you want to create for them? What outcomes matter over time? Determine what roles and competencies, and what training, education, and mentoring will develop your workforce to achieve it.
Businesses need to be increasingly agile to address the rapid changes driven by consumer expectations and digital technologies. That means employees also need to be agile – and managed in a way that encourages and rewards-based learning. The market is increasingly competitive for candidates who have future-oriented “soft skills” like critical thinking, problem-solving, and creativity, and the ability and interest in learning. This program provides a model for how a well-established, “legacy” brand can embrace a learning culture to enable an agile workforce relevant for competitively positioning the company for growth long-term.
I have refrained from political commentary since Trump took office because so much has been unclear. Not that his stated views during his campaign that climate change is a Chinese hoax and climate rules are designed to hurt American businesses or his appointment of staunch climate change-deniers to the EPA and Department of Energy, promised anything good. But now the long awaited, reality TV decision about the Paris Climate Agreement showed the real Donald Trump meant what was really going to do what he promised: The United States will “withdraw from the Paris Climate Accord,” “seizing all implementations right away.”
Trump frames the climate change fight, not as one of our world’s biggest challenges but an economic zero-sum game of the US against the rest of the world. In his speech, Trump tried to tie leaving ‘Paris’ to the protection of the American people. This is a narrative weaned from reality.
Here are some sobering facts to put Trump’s decision in context
Withdrawing from Paris doesn’t impact much in the medium term, regarding real climate policy and action. Withdrawing from the agreement will take a full four-year period. Ironically the US can only officially withdraw the day after the 2020 presidential election.
Paris is a voluntary agreement, of which many critics claim lacks teeth. Every nation sets its own goals. Obama pledged to reduce carbon emissions by 26 percent during the 2005 – 2025 timeframe. The US could have simply adjusted its ambitions and goals if it felt Obama’s goals are unattainable. Trump has already gutted the Clean Power Plan, an essential part of Obama’s efforts to reduce emissions by fossil fuel burning electricity plants and increase the use of renewable energy and energy conservation.
Many “legacy” energy jobs are already gone. Coal jobs won’t come back, nor will the jobs in Oil & Gas that were lost in the downturn over the last three years. Coal has lost its ground and competitive edge to natural gas, solar and wind. Mostly for competitive pricing reasons, not policy reasons. Coal companies acknowledge this, saying they don’t see a future for coal and jobs will continue to diminish. The production of oil and gas has rebounded from the slump of 2014-2016, but jobs have not. This is due to new efficiencies in the field, primarily driven by automation.
The new jobs re in clean energy and Paris promotes their creation. The jobs Trump is so eager to create are not in the fossil fuel industries but in clean energy. The solar industry is the biggest engine of job creation in America. In 2016, one in fifty new jobs was in the solar industry. Grid modernization driven by renewable energy has created 100,000 new jobs in 2016, according to the Department of Energy. The Paris Agreement created a lot of momentum for the adoption of clean energy. For the first time in history, the world united to curb emissions and set a framework to act against climate change. The Paris Agreement provides a big push for the energy transition that is underway across the globe, a transition that some experts expect to create a ten-trillion-dollar economy for renewable energy and is already creating large numbers of blue-collar manufacturing, installation and service jobs in the US.
Any deal on climate change is terminal while Trump is in power. There won’t be a new deal of a re-negotiation of the current agreement, as Trump alluded to in his Rose Garden spectacle.
Will it change US progress in the inevitable move to renewable energy?
The simple answer is no. Besides the damaging effects of Trump’s actions at the federal level, for businesses, states, and cities, the only common sense course of action is to continue down the path of renewable energy. Directly after Trump’s decision, California, Washington, New York, Connecticut, Massachusetts, Rhode Island, Hawaii, Oregon, Vermont, Minnesota, Delaware, Virginia and Puerto Rico – representing roughly 35% of the US economy – formed the United States Climate Alliance, vowing to uphold the Paris Climate agreement within their borders. Eleven other states, including Maryland, Ohio, North Carolina and Illinois, have also supported the Climate Agreement.
The historic Paris Climate Agreement has already been ratified by most parties to the treaty and was signed by all countries except Nicaragua, who find the agreement not far-reaching and aggressive enough, and Syria, for obvious reasons. The Paris agreement is an agreement with intentions, not with automatic actions. The interpretation and subsequent actions heavily rely on industry and civil society. And they are now further encouraged to take action. While the Trump administration is doing everything to shut down forward-looking energy policy and climate change policy on a federal level, such as overhauling Obama’s Clean Power Plan, on a state and city level, the majority is acting; investing in renewable energy resources, adhering to the Paris Agreement guidelines. Since Trump’s announcement, governors, mayors and business leaders have spoken out and showed their intentions to stick with ‘Paris.’ California’s governor flew to China to sign an agreement with the Chinese to collaborate on climate and clean tech, emphasizing the resolve from states to act and move forward.
A symbolic policy shift with diplomatic and reputational impact first and foremost
The announcement to withdraw from ‘Paris’ is a symbolic move more than anything. And it is symbolic for all the wrong reasons
The backlash is starting to show; there is a negative impact on the reputation of the US – the rest of the world effectively sees Trump’s move as the withdrawal of the US from the world stage. The diplomatic backlash will be felt beyond the climate realm.
Impact on American businesses – US businesses fear they will be at a disadvantage seizing the opportunities in the renewable energy market, while they, until Trump’s decision, where well-positioned to lead in the global clean energy market.
It highlights the missed opportunity to jump on the renewable energy train. Trump is missing a great opportunity to make a concerted effort on infrastructure and the job creation in the renewable energy market. Last year, one in fifty new jobs in the US was created by the solar industry. Think about that. And only 50.000 people work in coal. Pick your battles, Mr. Trump. Instead of trying to save a small number of coal mining jobs with the red herring of ‘clean coal’ and withdrawing from Paris, focus on re-training coal miners for the manufacturing, installation and service jobs in the wind and solar industry.
The bottom-line: Trump will be gone when Mar-a-Lago is swallowed by the sea
As Oscar Wilde famously said: “With age comes wisdom, but sometimes age comes alone.” Trump’s announcement was short-sighted and removed from reality and science, catering to a small fraction of people with extremist and ancient views on climate and energy
The good news is that the clean energy transition is well underway and won’t be stopped by the Trump administration, not in the US and certainly not abroad. But, as many critics of the climate agreement emphasize, it might be too little too late. The Paris deal was a strong message from all nations, coming together in the endorsement of curbing global warming and the impacts of climate change, but the climate fight needs more ambitious goals and most importantly actions. The world can’t wait any longer and play an economically motivated game of chicken, with the well-being of our planet at stake.
Earlier this week, Cognizant announced its intention to expand its footprint to support U.S. Government health operations through the agreement to acquire the TMG Health subsidiary of Health Care Services Corporation (HCSC). On the flip side of that announcement, HCSC has carved out its Government health support function to be run by a partner – Cognizant. HCSC can benefit from Cognizant’s dedicated, prioritized, and leveraged (cross-client) resources to manage the operations services. However, to impact the health, care, and financial outcomes of its healthcare consumer base, HCSC will need to partner with Cognizant in a way that creates the OneOffice™ – a seamless flow of data, insights, and infrastructure for the front, middle, and back office.
TMG Health’s relationship with HCSC started back in 2005 when HCSC selected it to provide BPO services in support of its entry into the Medicare Advantage market. At the time, TMG Health provided some measure of enrollment, eligibility, claims, and billing support to a total client count of 30 plans covering 2.8 million lives. In 2008, HCSC acquired TMG Health for $100m, tucking in the BPO provider as a subsidiary. TMG Health has since added support for Medicare and Medicaid claims processing and member services and has local resources in Pennsylvania and Texas – for 32 health plans (+2 since 2009) and more than 4.3 million lives. TMG Health has not really grown its portfolio of clients although the footprint of services has expanded over time. And public health programs continue to grow – in numbers and complexity as the industry moves to greater coverage and value-based care. The changes in the healthcare market driven by consumerism and compliance are driving healthcare plans to “rethink” their business and operations strategy.
By exiting the “back office business,” HCSC can focus its investment and resources on becoming a more consumer-oriented company.
While retaining a partnership with Cognizant for its support/back office services, we expect HCSC to focus on becoming more consumer-oriented; to channel its resources to becoming insightful, tech-enabled, and overall “savvy” to impact health outcomes for its constituents. In the meantime, it can rely on Cognizant to provide a steady and increasingly optimized rules-based foundation. We expect Cognizant to tap into the Medicare/Medicaid COE it told us about in our last Healthcare Operations Blueprint research. The consolidation of its subject matter expertise, IP, and tools in the COE is to help manage the tricky business of complying with government policies and the continued growth of Medicare, Medicaid, Medicaid Advantage, and Dual-Eligible consumers – providing support for eligibility, enrollment, billing, claims, and applying its solutions around quality and reporting (e.g., STARServe). Cognizant has the right experience plus industrialization and scale and has the Trizetto and RPA capabilities to drive increased efficiencies and free up resources to support new growth in the Government Health operations business.
The Bottom-line: HCSC and Cognizant will need to partner to keep – or establish – integration between front and back office to impact health, care, and medical outcomes.
One place this arrangement could break down is if the back office support that Cognizant provides is not integrated with the front- and middle-office of HCSC (and its other clients). In order to impact health, care, financial, and quality outcomes, healthcare payers need to be healthcare-consumer oriented – understand the health, financial, economic, and social determinants of their constituency. A lot of that data is part of those back office systems and processes, so HCSC and Cognizant will need to be partners in defining workflows of the future that will support an insightful, consumer-oriented business that complies with government standards and also enables HCSC to better manage the health, care, medical, and financial outcomes of its public health base.
The pendulum is swinging back. Over the past year, we’ve seen the increasing focus from India-based service providers to invest in building on-shore presence and capability in the U.S. While spurred on by H-1B visa limitations and in-flight policies regarding minimum wage and the politics of “protectionism,” the long and short of it is that the U.S. citizens should benefit from local investments. U.S. governments and economic development entities are offering incentives for partnering with these service providers as they seek out “hubs” central to current and potential clients. Two recent examples are Indianapolis, Indiana with Infosys and Jacksonville, Florida with Genpact, where the cities offer tax incentives and colleges and universities can provide a talent pool.
It used to be “too expensive” for service providers to set up on-shore service delivery centers, but with the increasingly integrated and intelligent use of robotic process automation and cognitive computing and the motivation of politics and protectionism, this argument is fading. What is also relevant is when the partnership changes focus from outsourcing a task or point solution such as “collections” to business outcomes such as providing a better patient experience and increasing upfront payment (thereby reducing the need for collections), the service provider needs to be more integrated into the end-to-end process and business operation. That means having a local presence and interaction to provide relevance and create meaning and insight. (See “Recasting the patient billing experience” as an example).
Our research (see Exhibit) shows the there is a significant drop across the board in the move to “offshore” business and IT work – finance and accounting and HR, in particular. Case in point, we recently heard from a client about how Sutherland helped set up and recruit into a local service center for F&A services in a matter of a few months for a company that was separating from its parent.
Exhibit: Changing use of offshoring – shared services and outsourcing
Source: HfS Research in Conjunction with KPMG, “State of Operations and Outsourcing 2017” Sample: n=454 Enterprise Buyers
How service providers are expanding local, U.S.-based presence
Investments by service providers in having short- and long-term U.S-based capability for clients include local service delivery centers and increasing co-location delivery teams as well as work-from-home options; education support through curriculum development in local colleges and universities as well as programs for K-12 to “entice” and enable interest in STEM (e.g., code.org and Girls Who Code) to create the workforce of the future; and transitioning workforces from clients to their own organizations.
Examples include:
Genpact: In July, Genpact will add to its network of 12 U.S.-based service support and delivery centers by opening one in Jacksonville, Florida. This one will focus first on mortgage service support with processing, underwriting, and closing services for residential mortgage loans for a leading financial services institution
Infosys: A new entry into this discussion, Infosys has far outstripped other service providers in pursuing H-1B visas to date and is now refocusing on building local presence and brand recognition. Infosys intends to develop four locations in the U.S., centered in “client clusters” and focused on particular capability areas such as artificial intelligence, user experience, and enterprise cloud. Its approach is to partner with local colleges and universities and offer incentives such as investing in student tuition and curriculum development. Infosys is also preparing for more long-term needs by looking at ways to entice a broader interest in STEM. The first partnership in this effort is in Indianapolis, Indiana, the heart of the U.S.
Cognizant: Its recent acquisition of Health Care Services Corporation’s TMG Group adds Medicaid and Medicare support in offices in Texas and Pennsylvania. This move provides its clients access to more local resources – people with knowledge and depth in government health as well as infrastructure.
Bottom line: Indian-based service providers have been building near-shore and onshore presence for a few years now, but it takes on new meaning and significance now as the context changes – politics, the impact of technology, objectives for partnering, and changing priorities around the skill sets that are needed. As a service buyer or government, university or economic development organization, be creative and also take a long-term view as to how these service providers can funnel the investments they are increasingly willing to take to have value locally to grow their businesses.
Our industry requires a shift in mindset from providers, buyers, AND investors. We need to rethink shareholder value and the integral link it has with the very element it seems to be bent on eliminating – people. In a thought-provoking post, my colleague Phil Fersht called out the fact we are in the people elimination business, wondering how it got so bad. My take: there are two key aspects in this debate; the way we view talent and the (unintended) consequences of decades of shareholder value doctrine.
The importance of talent for the future of services
Buyers need to deal with their cost reduction obsession and recognize talent is still the differentiating factor for their business success – and will be for the foreseeable future. Domain expertise, talent, and local people are critical components of the value service providers produce. This is true in any industry, but for example in oil & gas and the utility industry, the service providers that are perceived as delivering the most value by buyers are those that invest in talent, local people with deep industry expertise, and innovation prowess. These folks are not the cheapest, but bring exponentially more insight and impact on results. Buyers have shared ample examples of service providers that help them tackle the sticky industry problems by bringing the talents of industry experts, data scientists, technology experts and the client’s domain experts together. This teaming leads to multidisciplinary cross-pollination to design and deliver solutions that combine technology, industrial process and ideas and proven concepts from other industries.
We are on the verge of a shift in the way we work, and the outcomes we produce
The future value delivered by the outsourcing industry won’t be people running the accounts payable process, but in knowledge-intensive, decision-rich processes. You need the talent to make the technology work effectively – to drive the results and business outcomes. If we again look at the oil and gas and utility industry, organizations are starting to recognize the talent they need to compete in the new economy aren’t smitten with the work and reputations of the oil & gas industry or utilities. The reality is that the competition for data scientists, for instance, is not Shell versus Exxon Mobil, but Exxon Mobil versus the likes of Apple, Google, Facebook and a host of start-ups. Service providers can offer more interesting career paths and are a source of talent that can plug the quantitative and qualitative skills gap these industries face. Long story short; focusing on talent, continuous education and business value creation is the viable path forward for service providers.
The creed of shareholder value and its disconnect from reality
Too many people are still worshipping the totem of shareholder value, a theoretic and flawed notion from its conception. We are in a slow transition to more stakeholder value focus, more fitting our interdependent world that needs more cohesion and inclusiveness.
Ever since the invention of the term shareholder value, it was adopted as the dominant discourse by Wall Street and institutional investors. It, among other factors, has led to a short-term, myopic circus that reduces the horizon of executives to 90 days, de-humanizing our enterprises. It’s a fact that we are richer than ever before and there is less sickness, famine, and war (you wouldn’t say it if you watch the news). But there are still large swaths of the world struggling to improve the standard of living. And even in the world’s richest countries, large groups of people don’t feel better off. They feel left behind, disenfranchised and powerless. This is about half the population in countries like the US, the UK and France, evidence Brexit, Trump and Marine Le Pen’s rise.
We need to go full circle on shareholder value Coming back to shareholder value; it’s time to go full circle. Take a minute to think who is behind the vast pools of capital institutional investors manage… It’s us, the people saving money for their pensions. Shareholder value is a construct that served the money managing industry well but forgot to look at the wider interests of the actual owners of the money…. those shareholders are also your employees. Shareholders are not the clever folks on Wall Street, they are the representatives of the ‘normal people’ in your neighborhood and your company, the people who save their money in a pension fund or 401k.
If you take a narrow interpretation of ‘fiduciary duty,’ you can get away with the fallacy that returns on investment is the only metric of interest. But what if you fail to let that money you invest create prosperity for the people you invest it for in their real life? If your addiction to dividends and higher share prices is ruining the jobs of your future beneficiaries? It is time to bring the financial economy and the real economy closer together.
We can’t ignore the externalities of business any longer. People elimination is one of the challenging externalities that is a short-term lever executive in our industry seem to see as the inevitable answer to competitive pressures and new technologies (RPA, AI).
The Bottom Line – Taking social responsibility seriously is a critical and foundational aspect of doing business anno 2017
Only ten years ago, when I was doing research about investment preferences of pension fund beneficiaries and their ability to influence pension fund investment policy, corporate social responsibility and socially responsible investing were a theoretic discussion, often painted as the domain of idealistic, money-hating tree huggers. Not anymore. Since the 2008 financial crisis, everyone understands CSR is a real thing, a source of durable value creation, competitive advantage and not a fad you only use as window dressing. CSR has come a long way since. It’s time for service providers and buyers, along with governments, to come up with credible policies to make sure talent is up for the new tasks at hand, to truly augment people with the new technologies instead of using this as an excuse for the next round of layoffs.
