Cost is the New Black: The Overbearing Paradoxical C-Suite Imperative for 2015

January 18, 2015 | Phil Fersht

"C-Suite leaders want to drive out cost?  Tell us something new..."  OK, I will, because this time, this cost imperative is different, as the traditional means of driving out cost are reaching their limits.  60% of enterprise C-Suites are actively seeking to reduce their reliance on labor in their operations - but most are discovering they need to work smarter before they can work cheaper.

Enterprise leaders can't keep dipping into their operations functions to find more staff to shift into cheaper locations, or simply remove them - they are having to explore the emergence of As-a-Service solutions as that next lever to pull. The shift from labor to digital is happening, and this insatiable thirst to operate businesses as cost-effectively and flexibly as possible is the overwhelming driver behind this change.

Our new study, conducted with KPMG, shows an impetus on cost take-out coming from the C-Suite at an intensity never seen before:  90% now view cost reduction as an increasingly important-to-critical imperative for their operations.  In addition, a similar number are very focused on achieving cost-effective, flexible services to support their businesses.  And this desire to drive out cost is far more intense than other "value-based" imperatives for operations, such as addressing risk, analytics and talent:

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A paradoxial shift from human to digital has begun in earnest

This reemergence of cost as a key driver clearly indicates that executives believe significant inefficiencies remain in their current operations. It is, therefore, a priority for many executives to realize these cost savings, before shifting focus towards overall effectiveness, and driving new value in other ways.

However, here lies the paradox – the path to future “cost savings” can only be cleared once efforts have been made to standardize and rationalize processes. And these future cost savings are not only going to be derived from traditional means – i.e. shifting of onshore labor to offshore, elimination of labor through software investments, but a fundamental change in the way processes are digitized and automated.

Once processes are digitized and automated, enterprises can take advantage of the business value that analytics, mobility, robotics, cognitive computing and the Internet of Things can bring. This is about working smarter, not cheaper.

The Bottom-line: The as-a-service cost-reduction journey starts with effective SaaS functionality, but the longer-term value comes from the enabling digital skills

For example, many enterprises today have achieved considerable success rolling out the likes of Workday and SAP SuccessFactors to replace their hire-to-retire HR processes with something that is standardized, cloud-enabled and functions effectively. In other words, these solutions are "good enough" to get things done and drive out some immediate unnecessary costs on excessive labor, manual processes and dysfunctional technology. However, this only addresses the top two imperatives described above - some initial cost take-out and flexibility.

In order to achieve value beyond these two initial successes, enterprises need to figure out how to make these platforms work most effectively across their virtual and mobile workforces, how to extract meaningful data from their HR systems of record to manage and develop their people better, and understand how their process flows work end-to-end to help design robotic automation and cognitive capabilities. The SaaS solutions produce a base platform to begin the As-a-Service transformation, but the real value comes from the skills of the buyer and their services partners to apply these digital tools and capabilities to their businesses.

Similar analogies can be applied to most business processes - the more effective the SaaS platform, the more potential there is to develop As-a-Service functionality and capability, whether they be healthcare revenue cycle processes, banking trade settlement transmissions, insurance claim adjudications, procure-to-pay or cash management workflows, inventory management and so on.

To conclude, this is a massive opportunity for ambitious operations executives. While there is some stress in the services industry as service providers rationalize their current talent pools, we are experiencing an interlude where we need to refine the old model to get ready for the new. We need to train up people skills that can apply digital tools for enterprises, that can help with their process design thinking, that can provide analytics and data to support meaningful actions. Many of the legacy traditional skills are simply not as needed as they were, such as pumping automatable reports out of SAP R3, or managing cumbersome helpdesk tickets for apps where clients can use service automation tools.  It's time to upskill our workers - and ourselves to work smarter... not cheaper.

Posted in: Analytics and Big DataBusiness Process Outsourcing (BPO)Buyers' Sourcing Best Practices

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1 Comments

9 Comments

  1. Andy Metcalfe
    Posted Jan 18, 2015 04:15 AM | Permalink Reply

    Phil,

    Great piece of insight. You've superbly articulated the interplay between digital and outsourcing and how it is going to play out.

    Andy

  2. Ramesh
    Posted Jan 18, 2015 03:53 PM | Permalink Reply

    Phil,

    Cost reduction never went away - it just comes back in different forms! It used to be labour, but is increasingly becoming technology,

    Ramesh

  3. Georgina Wright
    Posted Jan 18, 2015 02:11 AM | Permalink Reply

    Phil - what does this really mean to the operations workers? Can they all adapt? Seems like there's going to be a lot of issues with staff redundancy down the road,

    Georgina Wright

  4. Roberto Martinez
    Posted Jan 18, 2015 07:00 PM | Permalink Reply

    Very well written. Which players do you see being most successful in this changing market?

    Roberto Martinez

  5. Larry Cummings
    Posted Jan 18, 2015 08:02 PM | Permalink Reply

    How do you think 'point solution' bundling over suites can win? Beyond being cheaper... @TalentPlatform

  6. Phil Fersht
    Posted Jan 18, 2015 08:27 PM | Permalink Reply

    @Larry - depends on the buyer. Sophisticated ones increasingly becoming "brokers of capability" who can work across multiple SaaS vendors / service providers. Others will prefer the "one stop shop" who does everything for them.

    There is huge opportunity for everyone =)

    PF

  7. Phil Fersht
    Posted Jan 18, 2015 08:29 PM | Permalink Reply

    @Roberto - those which can get the cost model right. The biggest challenge, IMO, is to scale consultative/analytical support across multiple clients using a virtual support model.

    PF

  8. Cost is the New Black: The Overbearing Paradoxical C-Suite Imperative for 2015 - Enterprise Irregulars
    Posted May 15, 2015 01:25 AM | Permalink Reply

    […] (Cross-posted @ Horses for Sources) […]

  9. Cost is the New Black: The Overbearing Paradox...
    Posted Oct 21, 2015 03:32 AM | Permalink Reply

    […] 60% of enterprise C-Suites are actively seeking to reduce their reliance on labor in their operations - but most are discovering they need to work smarter before they can work cheaper.  […]

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