Phil Fersht
 
CEO and Chief Analyst 
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UiPath hyped a market that simply wasn’t there. Now we must build one that's REAL - one we can TRUST
October 26, 2019 | Phil FershtElena ChristopherSaurabh Gupta

Let’s make no bones about it, this has been one sorry saga.  All we could do was warn the industry that cheesy marketeers, some lousy paid-for analysts and poorly-informed investors were forming a vicious web of bullshit that would take a solution with real potential and fake a market that bore no reflection of the one we originally dreamed up seven years ago.

And don’t say we didn’t warn anyone over the past year that the RPA market was in grave danger of being hyped out of existence:

So how can UiPath recover from this capitulation, a week after drawing the entire attention of the industry with its $8 million extravaganza in Las Vegas?  The trust is wafer-thin (or pretty much evaporated), people are worried, and some fired employees are sharing their agony and disappointment freely.  

10 ways UiPath's leadership can recover the trust of an industry that trusted them

1. Treat the market you help build with more respect.  Customers, prospects, partners, and the 500+ employees (or whatever number ultimately turns out to be real) you just sacked who believe(d?) in the vision and the brand.  Read from some of the employees who have risked their careers and families' livelihoods, just to see it all blown away in a few months.

2. Ask for help. Scaling a company and a scaling a relatively new software category are distinct challenges, made harder by them existing within the same company. Don't imperil a fledgling industry with your lack of experience in the former while you trailblaze the latter.

3. Be honest. We should not have to say this.

4. Stop taking schoolyard potshots at competition. Competition gives your brand context and creates a healthy market.

5. Stop counting customers. We will repeat this forever. Start showcasing scale of customers. We are all still learning.

6. Charge for what's valuable. Giving your product away or undercharging for it to create stickiness (while touting obnoxious customer numbers) is a road to nowhere. No one values free.

7. Apologize. Daniel's belated, smug response is insulting to anyone who's done business or is considering doing business with UiPath. Relationships are based on openness. That Daniel letter looks like an attorney wrote it.

8. Stup f-ing up the company and execute on the product roadmap because it's good. Elena's in progress POV after ForwardIII complimented the focus on enabling customers to do more with RPA - enabling functions like process identification and pipeline management, business benefit analytics, and more meat on the AI backbone. 

9. Quit the arrogance.  Releasing a Forrester Wave as the news of its layoffs broke, simply to drown out its layoff noise, where the analyst is clearly biased towards the firm (which also employs his son) just served to anger people who are craving some humility and less bragging.

10. Quit the "robotic butler nonsense". Let’s define what we mean by RPA scale versus counting number of bots.  "A bot for every employee" simply means "buy loads of our licenses". 

The Bottom-Line:  It's a marathon, not a sprint

Let’s build the white muscle capability to run the marathon versus red muscle capability to run the 100m dash.  A few key takeaways for all of us from this:

RPA vendors:  Not all of you are completely innocent of the same behaviors that have led to UiPath's troubles.  Be relieved this didn't happen to you, and make sure it still doesn't.  Focus on value, not potshots and hype.

Service providers and advisors:  Really be careful how you approach RPA alliances, as your choice of partner also reflects on you.

Analyst firm leaders:  If your analysts don't understand this space, then please stop bringing down the analyst industry with clearly flawed research and analysis. I've never seen analyst credibility reaching these depths before.

RPA users:  Use this as a segway to evaluate a multi-product integrated product strategy and do not throw all your eggs in one basket.  There are several excellent RPA, data ingestion, process mining and ML tools out there you need to embrace and integrate into your roadmap.

Is UiPath prepping for a Microsoft sale?
October 24, 2019 | Phil Fersht

We've been speculating for years about who will eventually buy who in this robotic software world.  However, when it comes to "outright" RPA acquisitions, so far it's only been bite-sized stuff like Pega/OpenSpan, SAP/Contextor, Blue Prism/Thoughtonomy.  While there have been a lot of strategic partnerships and development initiatives between "Big Iron" software and emerging RPA firms, noone has - as of yet - made a concerted move to outright acquire one of the "Big Three" of Automation Anywhere, Blue Prism or UiPath.

However, if you happened to catch Microsoft's earnings call last week:

"Now let's turn to our workflow cloud Power platform. Automating workflows across every function will be key to productivity gains for every organization. We are building Power platform as the extensibility framework for both Microsoft 365 inclusive of Microsoft Teams, as well as Dynamics 365. It brings together low-code, no-code app development, robotic process automation and self-service analytics, enabling everyone in an organization to build an intelligent app or workflow where none exists.

Power platform already has more than 2.5 million monthly active citizen developers. Power apps helps domain experts, those closest to the business problem to design, build and publish custom apps fast. And 84% of the Fortune 500 have already created Power applications."

Oh, the mind boggles when you think where this conversation is heading... so

Is it any coincidence that UiPath is rightsizing itself?

One of the Big Iron software houses has to take the plunge soon. Firstly, we have long-speculated that Microsoft may be the likeliest endgame for UiPath, while IBM may be the ultimate home for Blue Prism.  Meanwhile, AA has been fluttering its eyelashes at the likes of IBM, Microsoft, Salesforce and Workday.

UiPath is popular with developers, which appeals to the Microsoft culture. One of the major reasons UiPath has experienced such popularity is its Ui alignment with developers' needs.  Blue Prism has always been the darling of the business process executives who hate code, while the low-code appetites of developers eager to learn RPA have drawn many of them to UIPath.   AA hopes its new platform A2019 is a bridge between both worlds.

Daniel Dines (UiPath CEO) came out of Microsoft, understands the technology overlaps and how they operate.  While one can argue that much of the UiPath tech is already present in the Microsoft UI automation ecosystem  Microsoft clearly lacks the know-how to pull it all together into one coherent platform that puts AI+OCR+Workflow+RPA+BI in front of both the business and IT C-Suite.

The RPA market "standalone" isn't where the broader opportunity lies, but it is a critical piece of the jigsaw.  As we pointed out over the weekend, the market UIPath (and others) has been hyping up is far bigger than what RPA is currently addressing. It's the whole discovery, analysis, mining and management of processes and transformation.  The recent acquisitions of ProcessGold and StepShot are clear moves in addressing the broader process automation opportunity.

The Bottom-line - After seven years of robotic love-affairs, is it time for the market to get serious?

Let's face facts, it's taken an awfully long time for the tech majors to understand what RPA is all about.  Low-code software that business users can operate to fix creaking workflows and tasks?  Actually digitizing manual workarounds instead of using APIs?  Heaven forbid...

But the world of enterprise software is bored, there's only so much you can bleat on about AI without actually delivering anything real.  Rolling your sleeves up and actually using technology to help you redesign processes has always been the Holy Grail, long before ERP came around over two decades ago.  RPA is the first time the worlds of real business processes and IT have come together where both business and IT professionals have no choice but to lock heads and figure out solutions that address highly competitive markets.

The tech purists will tell you that Microsoft does not need UiPath - that they have the tech already.  However, what Microsoft does not have is a 1000+ customer base purchasing RPA specifically because it is RPA.  A customer base where the prime customer is not sitting in the CIO's organization.  It's also clear that the tech majors are all waiting to see who blinks first with RPA.  Just buying up some kit (i.e. SAP/Contextor) isn't going to do much.  Partnering only really works when there is real skin in the game and a colossal global services network to implement and support the product.  UiPath can claim is has built a pretty decent global delivery infrastructure and channel to market - and its huge show in Las Vegas was clearly designed to show that off to the world

The bigger issue is money, and how much these big guys are really prepared to spend on this.  Sometimes a few billion add weight to an area to get attention, but the $7bn number UiPath was declaring was probably turning them all off.  Maybe a little more realism, a little belt-tightening will reinvigorate the desire to take the plunge and make this market real... And there's also Blue Prism, whose market cap is well under $1 billion these days, and Automation Anywhere who's CEO likes to talk about IPO a lot these days.  All three provide a plug-in infrastructure to the likes of a Microsoft which has ambitions in the process automation world.  But - again - who is going to blink first, and did we just see UiPath blink?

Daddy's back to shape Blue Prism's technology roadmap for the next iteration of the RPA kingdom
October 22, 2019 | Phil Fersht

Three of the original RPA pioneers (left to right):  Some grinning idiot, Pat Geary (Chief Market Maker, Blue Prism) and Jason Kingdon (returning as Executive Chairman of Blue Prism)

So almost exactly seven years to the day that RPA was invented, Blue Prism's major shareholder Jason Kingdon has scratched a huge robotic itch to make a return to active duty leading Blue Prism to drive its AI roadmap as RPA prepares for its rebirth in the industry.  Current CEO Alastair Bathgate (interviewed here), who has overseen the IPO and evolution of the firm in recent years, stays on as CEO, but Jason will be driving much of the technology roadmap and vision with Alastair more focused on the business side.

Jason has a PhD in AI from University College London (UCL) and has been commercializing AI for over 25 years. He was co-founder of the Intelligent System Lab at UCL and Searchspace where he was CEO between 1993 and until its highly successful exit in 2005, when he sold the business to US private equity.

Blue Prism must now grasp these three critical challenges and opportunities 

1) Carefully position itself in the industry as the heritage RPA inventor now taking the industry into a new AI-driven phase.  While AA and UiPath have been publicly biting chunks out of each other, Blue Prism has soldiered on with its business with minimal noise and hype.  In fact, the reverberations from Las Vegas and New York only help drive more attention to the industry and Blue Prism hopes to capitalize... not dissimilar to the amazing work IBM Watson did creating an AI industry for everyone.

2) Roll out a technology roadmap that takes RPA into the AI era.  While both its competitors have focused on what Blue Prism calls an "RPA butler service", proving bots for everyone's' desktops, Blue Prism wants to focus on its years of heritage RPA experience managing robots and aligning them with AI capabilities to make them self-remediating and aligned with transformative process roadmaps for its clients.

3) Recreate market energy around itself and its technology roadmap.  In typically British fashion, Blue Prism has ignored the noise generated for its high-impact competitors, but now needs to come back aggressively into the market with a laser-focused technology roadmap that is unique to clients and aligned with their deep-set needs.

Bottom-line:  This is a marathon, not a sprint and Blue Prism has every chance to reaffirm its former leadership position

Blue Prism did UiPath and AA a huge favor by going public when it did a few years ago, as it exposed the challenges of having its activities open to public scrutiny.  However, Blue Prism, under Bathgate's stewardship, has survived it well to be in a position to make critical investments in its platform that many of its large client base will be delighted to embrace.  While its competitors will continue to toy with IPOs and increased private investment, Kingdon and Bathgate now have the luxury of greater certainty with clients and their respect as the original pioneer of low-code technology for business operations professionals.  Having Kingdon's impressive technology passion and prowess at the helm will significantly benefit Blue Prism's standing in the market and help propel the firm's offering into the AI era... 

Now let's get ready to rumble, folks =)

Genpact gets Right to the Point to bring the front and back office together... as OneOffice
October 20, 2019 | Phil FershtMelissa O'Brien

Did you hear the one about the GE finance captive spinoff which ended up as a Top 6 AI Services firm before making a bold move into the front office with the acquisition of the respected Right Point Group?  And did you hear it broke into the world of digital service capability without ever succumbing to the delights of acquiring an IT services shop?  Welcome to Genpact, folks, the former BPO firm which has been breaking the mold of business services for the past two decades.

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This is a serious digital acquisition that brings Genpact right into the customer paradigm

Genpact has been slowly but steadily building thought leadership and capabilities around “experience innovation” over the last few years.  Genpact’s 2017 acquisition of Design Thinking consulting firm TandemSeven was its first demonstration of the firm’s appetite to develop a OneOffice capability, aiming to move beyond its back office roots and help its clients develop more holistic experiences.  It has now announced an agreement to acquire digital consultancy Rightpoint, with a focus on digital transformation, with capabilities for CX, commerce, and mobile application development.  

A highlight of the acquisition and one of Rightpoint’s most distinctive features is its expertise for designing and implementing digital workplaces – its work with Aon, for example, demonstrates Rightpoint’s capability to reimagine the workplace.  This is such an important element that many companies need help with, as they struggle to connect experiences across the organization and align to the customer. 

While TandemSeven gave the firm a flavoring of customer experience design, the sheer size and scale and depth digital tech implementation across North America puts Genpact right on the digital map, with a unique value proposition of leading with process transformation, enabled by AI and digital capability where we can expect a significant jump from its current position, which we assessed earlier this year in our 2019 Design, Sales and Marketing Services Top Ten report.  Genpact landed at #14 in the rankings, largely as it just begun developing

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Day One Fund… Day Two Bummed... Bezos sets a chilling example for the future of work
October 13, 2019 | Ollie O’DonoghuePhil Fersht

In 2018 Amazon founder and CEO Jeff Bezos (and his now former wife MacKenzie) announced they would commit $2billion to fund existing nonprofits that help homeless families and to create a network of preschools in low-income communities. They called their project the "Bezos Day One Fund”.  Barely one year later, the same man slashes basic healthcare insurance to 1900 of his lowest income part-time workers

Today’s emerging young workforce cares deeply about the values of their business leaders – and those who pay lip service to their staff will be those who fail to create long term loyalty, passion and productivity from them.  Let’s discuss how the successful companies’ of the future are going to be those where leaders follow through with their promises, and staff are motivated to take responsibility because they have trust in the leadership to deliver on the mission.

Leaders can’t keep getting away with rhetoric and fail to follow through with their promises

The challenge with most equations and narratives predicting what the future of work looks like is that they are built primarily from two assumptions:

  • The labour pool will acquiesce and comply with whatever the future demands and
  • Corporations and their leaders will show unprecedented philanthropy.

History tells us neither will hold true.

And we don’t need to look too far back – literally a couple of days – to see the failings of this equation laid bare before us. First off, a few weeks ago, a group of business heavies and CEOs from the G2000 got together and declared an end to shareholder supremacy. Throwing Milton Friedman’s leafy tomes into the furnace, perhaps replacing them with the more ethically focused Doughnut Economics by Kate Raworth (a fantastic read).

Freeing themselves from the tawdry world of stockholder returns, these captains of industry could now work to please all stakeholders – from employees to environmentalists. All good so far. But fast forward a few days, and it’s clear to see that once the marketeers and journalists

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Crunch time is here for UiPath, AA and Blue Prism... Here are the 25 tenets which will decide who wins this bot war
October 07, 2019 | Phil FershtSaurabh GuptaElena Christopher

Well what a week that was in the world that is automation software... while 11 automation leaders at the HFS New York Summit pretty much all agreed that the world that was called RPA is stuck in the mire of making legacy tasks work better, we then were treated to Automation Anywhere's launch of its new platform upgrade A2019 right afterward at the Nasdaq center, where CEO Mihir Shukla declared he wanted a "Digital Assistant for Every Worker".  A2019 claims its ease-of-use in the cloud, its new plug-ins into Microsoft Word and Excel, and its ability to be run from a mobile device make it the best task support tool in the business.  Oh, the timing!  Will UiPath stay safe with its status as the "developers favorite", will Blue Prism stay true to its "friend of the business pro", or will AA's focus on bridging a solution for both business and IT with the day?

So all eyes now turn to UiPath's flagship Forward III event in Vegas next week, where CEO Daniel Dines and his team are under intense pressure to drive an even more powerful narrative for the industry to keep itself at the forefront of robotic software. The onus is on the UiPath leadership, more than ever, to seize the initiative, especially as their noisy competitors are unlikely to keep the brakes off the PR Newswire next week... (Oh and HFS mega analyst Elena Christopher is there speaking, who co-authored the now-infamous "RPA is Dead, Long Live Intelligent Automation" blog. And Kudos to the UiPath folks for having the courage to bring in an untethered analyst viewpoint after some of the recent utter mush we've been subjected to at these things.  Oh and a woman too, thank God! 

Here are the 25 key tenets where UiPath, AA and Blue Prism must draw battle as they look to cross that chasm from RPA to a true digital workforce

Consultants, fellow analysts, here's everything you need to advise your clients... steal away as HFS is just giving it allll away....

1. Stop counting customers. Start counting and showcasing growth with accounts/scale...  40% of engagements are still in pilot mode, so these cannot be considered long term clients until they get into some form of live usage.

2. Stop hiring armies of salespeople who have no idea what they are selling.  Sorry, but we really needed to say that one...

3. Stop amassing as many partners as possible. Prioritize quality not quantity (which would require well thought out partner programs).

4. Stop referring to SaaS as cloud. Seriously just stop. Now.

5. Make the gap between unattended and attended seamless because customers don't actually want to decide what flavor of automation they need, they just want automation.

6. Start addressing governance and meaningful management of bots in the context of broader workflow. Don't let massive attended automation and freedom to automate shift from democratization to chaos. address how attended is managed in a way that does not make the IT shops in all of their clients want to abort mission

7. Bring IT and business visions together as one integrated approach. Education must focus for technical and non-technical resources – into communities and educational institutions globally.

8. Shift focus to an integrated automation roadmap – expansion of functionality beyond RPA/RDA to AI and smart analytics. Badging everything as RPA is definitionally incorrect and fails to give clients a roadmap to follow to advance beyond (legacy) repetitive task automation, desktop and document automation.

9. Provide proven scale and depth of professional service to support the SI/advisor channel.  This is the battleground where the winners and losers will be decided... if you have the support available to train the channel and your major direct clients, you will get your clients into double-bot figures.

10. You must drive digital change management to help enterprises grapple with transformation with its services investments.  Relying purely on Big 4 advisors and service providers for change management will cost clients a fortune and drive many away.  This is a key area UiPath needs to take the lead on.

11. Prove it has the lowest-code capabilities of all the bot players.  The shift from low-code to no-code is on... proving real no-code abilities is becoming increasingly critical as frustration build with the ease-of development of some of these solutions. This is the real key to proving "one bot for every employee" is truly possible.

12. Really demonstrate you can win in the cloud.  This is the impressive push from AA that UiPath and Blue Prism needs to counter... the ability to create public, private and containerized solutions for large automation is one of the main avenues to moving out of pilot mode into a fully industrialized approach.

13. Have the most mobile-enabled bot solution.  Moving bot development into the hands of code-hating business professionals is key and having really cool mobile interfaces is becoming increasingly important.  

14. The developer ecosystem must be expanded to extend functionality, libraries etc.  Commit to specific goals for how much of their codebase will be available on Github et al to build an industry solution skewed against technology-vendor lock-in.  Much of this RPA functionality is not rocket science or any trade secret.

15. Commit specific sums to meaningful partner relationships with leading service providers and consultants, including opensource partner technical support systems, events, education resources, and people to help the industry grow

16. Commit to funding local academies (building on their online academies) especially in blighted neighborhoods near its biggest offices to bring young coders and potential customers together with employees for on the job real-world training

17. Must get focused on core business processes by industry, such as supply chain in manufacturing, core banking in BFS, underwriting in insurance, billing in telecom etc

18. Revisit its client engagement model to ensure it is best serving its customer base – its rapid growth in salespeople may expand capacity, but if sales lacks vision, then clients may not be well served (as per comments in our recent survey above)

19. Commits to drawing down technical debt (Every SW company has it, some more than others).  As illustrated above, our customer surveys point out which elements of their platforms and solution are known to need immediate re-engineering and investment

20. Identify and subsidize hands-on automation industry experts and influencers whose independent thinking deserves funding and not just focus on checking boxes with legacy analysts.  The automation industry is being impacted by many unique stakeholders.

21. Kick off an enduring and sustainable initiative modeled after Salesforce's 1-1-1 program

22. Invest in cross-technology customer events that will expand overall value creation, for example partnering more aggressively with the likes of Salesforce, Microsoft, Amazon, Google etc.

23. Spearhead an Automation Industry Technology/Business Roadmap that shows a clear path for enterprise clients to progress from basic robotic task automation through to integrated automation and then to achieving genuine AI value

24. Provide sensible RPA pricing options. A “bot” is not a standard unit of measure. It is an abstract measure and a UiPath bot is different than AA and not the same as Blue prism. Yet most continue to price RPA as some of the function of “bots”

25. Focus on actual business transformation. We are using RPA to run ineffective processes cheaper and faster. That is not transformation and is a short term game.

True leadership will come from those who make the most advancements in these versus fancy rhetorical statements and press events. If you want to be a leader.... then bloody act like one!

Live from New York! Scaling automation and AI most impacting business stability and growth
October 03, 2019 | Phil Fersht

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.

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.

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....