With the increasing momentum of Robotic Process Automation and comprehensive business platforms solutions in BPO, it seems like a good time to step back and take a look at what really occurs “under the covers” of most BPO delivery. Let’s hear what HfS’ Charles Sutherland has to say about deconstructing those “human” elements of processing work – and how they will evolve with all the technology-enablement underway…
HfS' Charles Sutherland (pictured right) and Tom Ivory deconstruct BPO in a Dallas parking lot
When you get right down to it, BPO isn’t all that complex and, regardless of whether it is a horizontal or industry vertical based process solution, there are only a few basic components that are used to construct a solution. Understanding this will be critical to making BPO work in the new “As-a-Service Economy”.
Architecting a BPO solution is not all that different from being a writer of a comedy movie, whether that writer happens to be based in Hollywood, London, Paris or Mumbai. If you watch closely, most comedies are based on the interweaving of a few recurring plots involving the key cast members. These might include:
Mistaken identity (in all forms)
Boyfriend/girlfriend that got away returns to town
A couple works together for the first time
Eccentric in-laws come for a visit
Friends feel that someone is hiding something and decide to investigate
A family vacation
Dad gives horrible advice to son/daughter about dating/relationships
A protagonist suffers accidental memory loss
Competition for a prize
Unexpected arrival of a windfall of $
A surprise party/birthday/pregnancy
Accidental ingestion of a mind-altering substance
The only difference, therefore, between most generic comedies, whether they involve Kate Hudson, Peter Sellers, Jacques Tati or Priyanka Chopra, is which mix of these plots is involved.
And it’s the same with BPO – when you deconstruct the actions in a BPO process, what you will generally find is that they comprise some combination of these human elements:
Opening an envelope
Answering the phone to interact with customers/suppliers/partners
Keying or scanning in data
Repurposing content
Starting or closing a case
Comparing data fields on screen and or on paper
Identifying an exception to a process and flagging it for remedy
Making a decision based on a business rule
Requesting/Authorizing/Making a payment
Updating status field in a system
Hopefully by now you recognize the repetition of the elements, both in comedy movies and, more importantly, in your business processes. But why does this matter, why should I even think about deconstructing a process into its human elements at this point in time?
It’s useful to do, because the way that you will need (or want) to combine those elements together in your BPO process, is going to change in the next few years, if not already for you today.
We believe that with robotic process automation, the digitization of previously “analog”, or paper-centric processes, enabled by the advent of As-a-Service intuitive solutions, will result in many of these 10 human elements being less critical to the “plot”, if not being eradicated outright.
Therefore, if you aren’t already thinking about what you really have in your business process and what your people are really doing, you aren’t going to be as prepared for this new disruptive world as you will need to be.
In short, we believe that process automation is going to impact dramatically these human process activities over the next 5 years:
Keying or scanning in data
Repurposing content
Starting or closing a case
Comparing data fields on screen and or on paper
Identifying an exception to a process and flagging it for remedy
Making a decision based on a business rule
Updating status field in a system
The Bottom-line: The roots of the As-a-Service Economy have already been planted – and BPO is taking on a very different solution form
The broad-based adoption of As-a-Service business platforms will radically impact how these 10 human process elements are transacted tomorrow, compared to how they they are transacted today.
This is our future for BPO, which will likely not even be called BPO for much longer as more and more processes are digitized and technology-enabled to form components of automated solutions where the outcomes of these processes are taken for granted. For example, does anyone with half a digital brain cell even think about photocopying receipts for their expense submissions anyone when a quick scan onto your mobile in the taxi will be only “manual” component necessary? And why will be we need to employ call center reps to prepare auto-insurance quotes once all the data points can be pulled together and a computer generated quote can be automated for the customer in seconds?
This is the future that HfS is researching to understand how it will turn out and by when. That’s, at least, what keeps us up at night rather than watching re-runs of “Being There.” We’ve already been here and we want to see where we all end up before long.
We really didn’t want to over-toot our horn with regards to our performance with the recent excellent 2014 Analyst Value Survey, which canvassed the views of 1093 enterprises, analysts and vendor consumers of research. However, we were extremely excited (and proud) to see how effectively our research has penetrated European organizations:
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We’ve been trying very hard to increase our readership and client uptake in Europe and this really validates our open model for getting our research into the nooks and crannies of global enterprises. It also goes to show how much noise you can make with a “Born in the Cloud” business model these days, when a small boutique like HfS can outperform a host of firms many times our size, because of our ease of access and quality of work. It’s also a great validation for the services industry when we have firms like ISG, Everest and NelsonHall also outperforming many of the mainstay traditional analyst firms. This is also very apparent when we look at the rankings global for “Value for Money”:
Well, that’s the last of our horn-tooting for now, but a special shoutout to the team at Kea, especially Duncan Chapple, Bram Weerts and Derk Erbe, for doing such a tremendous job pulling off this innovative and unprecedented research. Oh – and people can purchase a full copy of the data for a few shekels here.
The globalization wave is peaking, and many maturing enterprise service buyers are struggling to find incremental value from the traditional model, such as accessing more meaningful data, deploying end-to-end process delivery, and driving down operating costs to a minimum, with globally accessible technology platforms based on common standards enabled by the cloud.
Looking at this next evolution of value, it is coming from technology-driven “As-a-Service” advances that directly enhance employee, partner and consumer effectiveness.
This emergence of As-a-Service represents the most disruptive series of impacts to the traditional IT and business services industry that we have seen.
The way service buyers receive services and the way service providers sell and deliver them, is going to be very, very different in a few short years, and already is already impacting some process areas where the technology is already available.
For those legacy service providers still thinking this is a passing fad, it may already be too late…
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The Ten Key Tenets Providing the Foundation of the As-a-Service Economy
As the As-a-Service Economy continues to emerge and evolve, it is the belief of HfS that the model will follow the following tenets:
1. Services and technology are available on an as-needed (plug-and-play) and/or subscription based model. Traditional commercial models from pricing to contract durations will be replaced by “As-a-Service” solutions meeting an increasing buyer expectation that flexibility is at the core of the service provider proposition.
2. Further automation changes the focus of services staff from cost take-out to value-add. By automating formerly manual tasks and replacing legacy applications, business services staff will have more time to drive business outcomes, as opposed to keying in data, cross-checking data tables or the other tasks that were integral to service delivery before.
3. End-to-end process delivery becomes standard. Business services teams will be able to design/drive/enhance end-to-end global business processes across multiple technologies including: mobile/SaaS/Internet of Things all supported by a mature global delivery model.
4. Analytics capabilities can be more readily tapped. Both clients and service providers will no longer have to recruit and then train highly specialized data scientists to perform largely descriptive analytics tasks. Instead both will be able to use more intuitive As-a-Service applications together with less specialized business service staff to produce analytics to support both operational and market decisions that overcome the data gaps and system complexities of the present environment.
5. Services become fungible. Formerly niche services will be easier to “plug-and-play” into a multi-sourced or GBS model – and can be slithers of process (i.e. FP&A) sourced from specialists that give service buyers more options when building comprehensive solutions that go beyond turning to a one-stop shop service provider, whose niche capabilities may be missing or inferior.
6. Specialization trumps scale. Service providers will deliver more specialized services that are: enabled by technology and priced by outcomes, require less arduous implementations on the front end, and provide more consultative ongoing, “light touch” support that can be delivered inexpensively and virtually. These will ultimately be smaller in scale than legacy people-based services, but higher-margin and operable on the one-many utility model.
7. Operations talent become “Brokers of Capability”. Services governance staff will need to become “brokers” of service delivery, where they manage multiple supplier relationships (tech implementers, BPOs, process specialists, consultants) to deliver maximum value to their organizations.
8. Incumbency is not a right. In the “As-a-service” economy, service buyers will, over time, migrate to the solutions and service providers which offer the best combination of capabilities and flexibility, so that service buyers are no longer as locked-in to a service provider as they may have been in the past. While this was less of an issue when service buyers were predominantly sourcing staff augmentation, as their solutions evolved to include more technology, legacy solutions often locked in service buyers to a specific solution, well beyond the point where it was creating any incremental further value. Service providers will also be expected to be much more transparent as to how migrations to and from their “as-a-service” environments can be undertaken by enterprise clients.
9. The past will stay in the past as legacy technology investments are written off. Even today, many service buyers are dissuaded from buying new technology-enabled solutions, as their organization has made significant past investments in legacy technology solutions and feel they have a certain degree of “technology debt” that needs to be repaid. Forward-thinking enterprises are now realizing that many past investments in technology platforms and services have now become redundant with the availability of Business Process-as-a-Service (BPaaS) offerings that negate the need for major future technology investments. Advanced BPaaS solutions will make the technology investment a redundant issue, as cloud-based process delivery does not entail a need to invest significant in technology, but more the interfaces to create the appropriate integration points between the “leased” process and the necessary in-house systems. As enterprises move more and more of their solutions into the cloud, their future integration headaches will be caused by “islands of cloud” cropping up in various process areas, and their having to figure out the right intersection points and APIs to make it all work effectively.
10. The “Born in the Cloud” businesses will have an advantage over the legacy enterprises. HfS believes the make up of the Fortune 500 in five year’s time, will be very different from today’s. One of the key reasons for this is the rapid evolution of new business where all their services are in the cloud and their entire infrastructure delivered to them on a seamless “As-a-Service” model. These firms will (and many already are) enjoy significant cost and speed-to-market advantages, where they are not beset by poor technology, over-bloated with back office personnel.
The Bottom Line: How service buyers receive services and service providers sell and delivery them, is going to be very, very different…
Engagements are getting smaller in scale as ambitious service buyers seek to de-couple the payment for labor from the delivery and ultimate outcomes. However, while the demand for scale in terms of labor is diminishing, the need for skills and expertise to provide nimble, specialized delivery that is SaaS-driven, is at an all time high.
We’ve thrived on new innovations and disruptions for the last five decades… from mainframes to Client/Servers to ERP to web-based architectures to cloud computing. The only difference, today, is the pace of change and innovation is considerably more aggressive – digital technologies such as mobility, analytics and social are generating new business value when legacy business processes are dragged into a digital business environment, while new developments in robotic automation platforms are making it much easier to create fluid workflows for operations to become more efficient. On top of that, add the possibilities of artificial intelligence, cognitive applications and advanced data science, and you have a maelstrom of immense change and new complexity challenging the status quo of corporate systems and processes. Looking at this next evolution of value, it is coming from technology-driven “As-a-Service” advances that directly enhance employee, partner and consumer effectiveness.
With this onset of true As-a-Service solutions, the onus is shifting away from massive technology implementation costs to business-reengineering programs to enable the SaaS delivery. Yes, there will always be some upfront investment in technology integration to knit together workflows and different systems, but that is already shrinking for many SaaS platforms. At HfS, we believe the opportunity for smart service providers with As-a-Service enablement weaved into their offerings is massive.
This means providers wishing to profit from the As-a-Service evolution need to make significant investments in their technology and talent (see our recent POVon the winning investment strategies service providers need to make). At HfS, we believe the landscape for As-a-Service providers in the business and IT services industry will be very, very different from the leaders today. In fact, there will likely be new brands which have not even been established or founded yet. And many of these As-a-Service providers will be more nimble than today’s incumbents, but very profitable – and will chip away at the existing business logic which dictates that many of today’s huge global monolithic service providers still have the best model for long term health and success in this marketplace.
In short, there will likely be a whole new ecosystem of niche specialists right across the services spectrum, offering technology-enabled services in horizontal areas such as finance and HR, through to industry domain specialties such healthcare, life sciences, manufacturing and financial services. There will also be many regionally focused As-a-Service providers services who understand the uniqueness of local business conditions. For those legacy service providers still thinking this will pass with time and who therefore aren’t already onboard the As-a-Service train, it may already be too late.
I don’t know about you, but I’ve been getting really tired of people lamenting that jobs are being robotized, our operations talent is too transactional and we’re all, basically, screwed.
I’ve also been guilty, in the past, of preaching the doom and gloom scenario for the workforce, as our enterprises find new ways and means to improve efficiencies and effectiveness, however, as business models evolve, so do our labor needs – and this often translates into an even greater need for talent. I also have an increasing amount of faith in the capability of most workers to evolve and adapt, and our new research supports this theory.
In short, industry has been striving to minimize the reliance on manual labor to support processes for centuries, since the invention of the water wheel, the steam engine, the spinning jenny, the motor vehicle and – of course – the computer. All this means, is that skills which become redundant need to evolve to ones that are in need – and in today’s digital era, the need for creative minds, for talent which can use analytics tools and other apps, for knowledge workers which can use their judgement, for customer service reps which can delight customers, HR reps which can delight their managers, accountants which can improve cash flow and support tough decisions, healthcare administrators which can work the changing systems and regulations etc. has never been higher.
Complexity and change drives the need for expertise – and the need for talent has never been as intense as it is today. Society, education and businesses simply need to ensure today’s workers have the environment to adapt to the new methods. In fact, the electronic revolution is only driving the thirst for new skills to an even higher intensity. People adapt – they always have and they always will. Just go on LinkedIn to see all the fancy new job titles and career resumes being aligned with the evolving needs or today’s employers. Human nature is to adapt and survive, and today’s “digital” environment is creating challenges for some, but great opportunities for the majority, to further their careers and perform more intellectually challenging and rewarding jobs.
When we recently asked 115 major enterprises about the capability of their operations governance staff with the impact of digital transformation, we were pleasantly surprised by the confidence most enterprises have with their operations workers’ abilities to reorient themselves to be effective in a digital business environment:
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In nearly all digital scenarios, the vast majority of enterprises feel they have talent with some capability to be effective – and, in many cases, very capable. Only 11% bemoan their lack of analytical talent and 90% are convincing their leadership that a digital roadmap is adding real value to their operations. Where there is a worrying death of capability is in the area of creating-thinking and the ability to drive effective change management programs, but, even in these areas, there is a clear capability to improve. It’s a largely positive picture with regards to how today’s enterprises can cope with the shifts and get ahead of them in time.
The Bottom-line: the digital era is not only changing the way we work, it’s improving it
Accountants who used to spend their days pumping reports out of SAP can now spend more time exploring data correlations and global markets to prepare reports for their Board. With today’s massive advances in technology and automation, HR reps who used to spend all day filing benefits and payroll information can now spend more time hunting social networks for new talent… procurement staff can develop valuable relationships with suppliers than simply beat them up over a cost spreadsheet all day… healthcare administrators can spend more time prepping doctors with critical patient information, than wrestling with archaic scheduling and insurance systems…. IT staff can focus on creating an environment of usable digital tools and apps for their organization, than maintaining help desk tickets and writing lines of horrible code. The world of work’s just so much more interesting and rewarding today that it was even five years’ ago.
So let’s stop bemoaning the fact we may one day get replaced by a piece of software or an actual robot… or will simply become an unemployable lump of wasted humanity. The future needs us to adapt and flourish with challenging roles we never dreamed of just a few short years ago.
And finally, the results of the Analyst Value Survey, which canvassed the views of 1093 enterprises, analysts and vendor consumers of research, have been released. This is – by some margin – the largest study ever conducted to gauge the influence and value of the industry technology analyst firms, and even the most optimistic followers of HfS couldn’t have expected this result:
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And not only did we enjoy a huge uplift in influence of the last 12 months, this also also builds on our influence increase over buyers and providers the previous year (see last year’s results):
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I really don’t want to bore you with a sales pitch as to how we have been achieving this recognition (hopefully you have your own ideas, and if you were one of the nice people who voted for us, I thank you personally – and owe you a drink).
All I will say is “thank you” to the HfS team for working their socks off and making this all possible. And also a thank you to YOU for reading our stuff, saying great things about us and believing in our approach and determination to change the face of the analyst industry forever.
I would also like to thank the hard-working people at Kea Company, which today has adopted the mantle of “analyst of the analysts” for pulling off such a terrific and comprehensive study.
If you would like to purchase a full copy of the results, you can access them here. If you are a provider marketer who needs some conclusive data and a decent steer where to invest your analyst relationship time, you could to a lot worse than spend some time with these guys.
Last week, HfS attended and presented at NASSCOM’s buzzing BPM Strategy Summit 2014 in Bangalore.
We asked our EVP of Research, Charles Sutherland, to share the team’s thoughts on the event and what were the key themes that came out during the various sessions and how those relate to NASSCOM’s ambition to grow Business Process Management (BPM) exports from $20 Billion in 2014 to $50 Billion by 2020. The simple fact that Charles actually shaved for this conference tells you in was quite the big deal…
Charles Sutherland closes out this year's Nasscom BPM Summit in Bangalore
Phil, let me begin by first acknowledging strong attendance (~500 people) for this year’s Summit and the high level of engagement from across the NASSCOM membership during the day and a half of sessions. The theme of the Summit was what NASSCOM member’s could be doing to drive hyper-growth to bring the exports of BPM services from India to $50 Billion by 2020 a CAGR of ~16.5% which really is hyper-growth by anyone’s calculations especially for an industry with 25+ years of history in India.
To borrow a metaphor provided before to HfS by Anantha Radhakrishnan, SVP and Global Head of Enterprise Services at Infosys BPO, we liken the final goal that NASSCOM wants to create with this $50 Billion to the equivalent of an especially tasty meal of an Indian Biryani (a mixed rice dish comprised of many different ingredients that also has many different regional variants across India) made up of various existing ingredients that the BPM industry has at its disposal today, plus a few that are just now emerging. Based on the panel discussions and all of the hallway conversations during the Summit, we identified the following as being the key ingredients that most NASSCOM members believe will comprise the final dish.
The existing base ingredients in this Bangalore Biryani:
» Analytics. Perhaps the most recurring topic through the Summit was whether analytics could be the driver for BPM growth through 2020 that Y2K was for the Indian IT industry in the late 90’s. We sat in on discussions around pricing models and operating models in analytics along with whether clients would be most interested in offerings based on descriptive or predictive analytics solutions. Some panelists stated that analytics could be the second biggest area in Indian BPM export mix by 2020 bypassing F&A, which implies that analytics could be $11 billion-plus sector from the current levels of only $825 million.
» Omni-Channel Contact Center. The Customer Interaction Services (CIS) is the largest component in the Indian BPM export mix and the consensus during the Summit was that it will remain so by 2020. There were discussions around the evolution of CIS to multi-channel or omni-channel contact centers, and how consumers, who now interact with companies through numerous channels, expect superior services and a seamless experience across all the channels. These companies then in turn expect the same from their BPM service providers which will be the challenge for NASSCOM members as they seek to have this sector drive a significant portion of the overall growth ambition.
» Finance & Accounting (F&A). The second largest component of the Indian BPM export mix today and from discussions at the summit it was clear that the service providers think that F&A will continue to be a high growth offering through the rest of this decade fueled by untapped customer demand and the depth of capabilities available from service providers across the NASSCOM membership.
» Healthcare. There was also great interest in healthcare primarily driven by the fast approaching second operational year of the Affordable Care Act. The announcement of Cognizant’s acquisition of Trizetto just before the Summit further validated the healthcare opportunity and signaled how service providers are willing to make big bets in this vertical.
The emerging base ingredients in this Bangalore Biryani:
» Partnerships. Partnerships are a cornerstone of the growth strategy for BPM service providers who don’t have capabilities in all the possible delivery technologies and process domains. In the past we saw that BPM service providers were occasionally naïve in their approach to technology and service partnerships but that is changing quite dramatically. In our side-bar discussions and in the panels, we saw many, many examples of new and extensive partnership strategies emerging to drive growth especially from traditionally “pure play: BPM players which don’t have an extensive library of proprietary platform plays today.
» Platform Plays or Business Process as a Service (BPaaS). While not a large source of export revenue today, the discussions around the Summit were that business platforms need to be a central component of BPM solutions across vertical and horizontal offerings going forward. During individual service provider discussions, the specific business platforms they have or will be bringing to market were always near the top of the agenda with our HfS team.
» Robotics Process Automation (RPA). I presented a closing keynote session at the Summit that introduced the concept of a Maturity Model for RPA which in turn generated significant discussions as to whether this was an enabler or an impediment to the $50 Billion growth target. HfS believes that RPA will for many service providers act as an enabler of growth breaking the current near linear linkage between FTE growth and overall revenue growth in the BPM industry. That said, for those NASSCOM BPM members whose core service offerings are based upon data entry or other process steps which are easily replaced by RPA the future will not be anywhere as rosy and in fact RPA will likely be a very significant threat to even the current business.
The flavorful ingredient on the top of this Bangalore Biryani is:
Yes, we just had to add a Biryani pic
» Acquisitions. Perhaps fueled by the size of Cognizant’s Trizetto acquisition, the Summit was buzzing with discussions as to whether ramping up acquisitions in the BPM industry especially of software and business platforms could to really solidify the hyper-growth or to keep with our Biryani metaphor – to add the final flavor which makes the dish totally enticing. Sadly, we didn’t hear any juicy new rumors to share with you here but it’s clear that the industry is willing to step up from broadly having a strategy of small “tuck-in” acquisitions to targets which are much bolder and potentially harder to digest.
So overall, we clearly saw during the Summit what this $50 Billion Bangalore Biryani is likely to be comprised of, and we will be eagerly watching all the chefs congregate in the NASSCOM kitchen to deliver this tasty treat by 2020. We will check in again next year and see how all of this is coming together and what else the industry might yet add to create the final dish.
Authors: Phil Fersht and Ray Wang: Industry Analysts who still give a sh*t
(This is a collaboration and represents our individual points of view and not necessarily our employers. Oh wait, that’s us…. moving on…)
Is the analyst business stuck in its own trough of disillusionment?
We called it three years’ ago and we can now officially proclaim that the industry once known as “research” is close to meeting its maker.
Okay, the reality is it’s rare these days for analysts to comb for obscure facts, ask the hard questions, reach out to customers, dig deep with the system integrators, and circumvent corporate communication teams by going direct to employees for the inside scoop.
In fact, the alarming observation of analysts, especially in the large firms, is that most of them are spending all their time on evaluation matrices (e.g. MQs, Waves, Marketscapes, etc.). There seems to be precious little (or any) research coming out of these places anymore. Where are the big ideas? Where’s the insight? Where’s the thought leadership? What do these people stand for anymore?
When we sat down to talk to our client base, our analysts, and our clients, we determined that there were eight common reasons, namely:
1. Legacy business models are built on scare-to-play. The only way the legacy firms are making money is through selling reprints of vendor positionings. Sales folks tell vendors that if they don’t pay for briefing hours and advisory time, analysts will ignore them.
2. Tele analyst approach reinforces an ivory tower image. Today’s legacy analysts have no other means of getting data. Sadly, most rarely ever talk to buyers of services or users of technology. The situation is so bad, that many vendors are forced to provide 15 to 50 customer references because the analyst has no means to reach out to real customers.
3. Stone soup research model reflects the laziness of analyst firm methodologies. They are essentially having the vendors do their “research” for them. Another way to look at this, legacy analyst firms are strong-arming vendors into providing references as their primary method of reaching out to customers. Some analysts today are demanding three hour briefings with vendors to educate them – they are essentially making vendors pay to give them the knowledge they need to appear smart.
4. Egotistical narcissism drives power trips in evaluations. Legacy analysts love the attention of vendors pandering to their demands. In one case, a legacy analyst asked for 35 client references for a scatterplot chart. Vendors humored him just to play along.
5. Information often confused as insight. Many legacy analysts have precious little fresh insight of their own. Often legacy analysts operate on limited data and base “facts” from old surveys run at the corporate level. The result – dated insight not grounded with the reality of the buyer’s point of view. In fact, many have become so enslaved to the vendor evaluation model and have forgotten that they really are an analyst who’s supposed to provide insight to the world – not simply regurgitate vendor-fed marketing hype.
6. Limited practical experience hampered by siloed’ coverage areas. The legacy analysts firms create specialists blinded by the big picture and intensely focused on the hyper specific. Clients often express frustration in having to schedule conversations with multiple analysts who often can not match experience with context.
7. Lowered expectations reinforce lowered standards. Let’s face it, the legacy analyst firms have lost touch with their clients when it comes to research. Clients aren’t expecting insight anymore, and most the analysts just aren’t producing it.
8. Failure of research firms to bring in visionary leaders. Most of the traditional analyst firms prefer to have 20 year veterans as their lead visionaries to the market, many of whom have never worked in the real world and refrain from hiring dynamic analysts who can outshine them. Many refrain from talking to clients, speaking at conferences as they have lost touch with their customers – and are not incentivized to inspire – simply keep their money machine cranking along. They have become slaves to their internal politics and P&Ls, as opposed to shaping new ideas and insights to delight their markets.
The Digital Chasm Among Analyst Firms Is Growing
Buyers must seriously ask if legacy analyst firms are still analyst firms or are they merely advertising agencies for vendors smart enough to play their game? With the dearth of enterprise journalists and media, has the analyst become the new media for the enterprise market?
Gartner’s model is smart. It continues to create more categories to include more vendors with the goal of monopolizing a vendor’s resources and time. Many vendors now have multiple FTE’s dedicated to just Gartner’s evaluations. This model crowds out other independent voices and puts pressure on the other legacy analyst firms. Those dedicated to the analyst relations function have little time to see a different point of view.
We believe that should this continue, there may not be a research industry left in 2 years’ time. We believe that this model of racking and stacking vendors will no longer be sustainable.
The Bottom line: The only way to resurrect research is to bring back talent – and motivate it
Rebels without causes? Two fresh-faced analysts from back in the day…
We can talk about new business models for hours, but the one missing ingredient in today’s fading research business is the lack of passionate people who want to know everything about their area, who are talking to the people who buy and sell technology and services… who care about what they represent and articulating what they think and do.
Where are those people? Are they hiding, did they retire, or did they just give up? Or did they just figure out how to check the boxes as analysts and give up caring about their careers?
Without passionate talent, we’re doomed and research can – and will soon – be put to bed as a distant memory that once was. Maybe a couple of smart individuals will save this industry, but it needs some serious saving…
After SAP lashed out $8.3 billion on Concur, it’s making Cognizant’s flagship acquisition of TriZetto look like the bargain of the decade. So we grabbed a few minutes with Cognizant’s CEO, Frank D’Souza, to talk about why the US-headquartered company made this move and what we can expect to see unravel as a result…
Phil Fersht, HfS: Frank, in a nutshell, why did you make this investment?
Frank D’Souza, Cognizant: Hi Phil – the acquisition of TriZetto is in response to some powerful trends that are fundamentally changing the U.S. healthcare industry today—including the Affordable Care Act, shifting responsibilities between payers and providers, and the desire for employers to contain risk and reduce cost. By combining technology and operations, we have a phenomenal opportunity to build ‘the winning business model of tomorrow’ and play a key role in keeping people healthy and well.
Today, approximately half of the U.S. insured population have their health benefits managed by TriZetto software, and we see tremendous synergy opportunities to join that with our $2.5 billion healthcare and life science practice. By marrying TriZetto’s world class products with Cognizant’s consulting, IT and business process services, we are confident that we can capitalize on opportunities that neither company could access individually.
This move is also consistent with our overall three-horizon strategy, and brings new markets, new technologies and new delivery models to our portfolio. It moves us very significantly in the direction of adding non-linear, IP based revenue.
Phil, HfS: How will this change Cognizant? Doesn’t this turn you into a software firm, in addition to services? How will this impact your culture and they way you work with clients? Will you need to bring in new skillsets of sales/marketing/engineers, etc.?
Frank, Cognizant: We are committed to offering services across a range of products and technologies. We also believe that there is a growing demand for fully-integrated technology and operations using newer delivery models made possible by Cloud and digital technologies. These so called BPaaS or utility models are very powerful and this is what TriZetto represents for us in healthcare.
Our approach has always been to start with the market and focus on how best to satisfy our clients’ needs. This acquisition is driven by that client-focused strategy. Our clients are looking to us to provide integrated, end-to-end solutions that drive differentiated results for their own customers. And, of course, everyone wants to lower costs.
A few weeks ago we announced the signing of a Letter of Intent for a seven-year, $2.7 billion engagement with Health Net, a top 10 managed care organization in the US. The business model resulting from this deal is expected to be a benchmark for the industry, enabling Health Net to improve its quality of service, reduce G&A spending, and increase its agility in launching new products and participating in new markets. We think there are significant opportunities in the marketplace for deals such as Health Net and the combined capabilities of TriZetto and Health Net accelerate our ability to win such similar deals.
On your question of culture, an important factor in our decision to acquire TriZetto is that it’s a company we have known and done business with for many years. Currently, we are supporting TriZetto platforms for more than 30 clients. We are very familiar with the company, its people and its culture, and are excited to have their team join Cognizant.
Because TriZetto brings in very differentiated capabilities, we think it is important to maintain TriZetto as a separate business within our Healthcare business segment. In doing so, we will continue to leverage the Trizetto brand and look forward to benefitting and learning from TriZetto’s strong, product-oriented culture.
Phil, HfS: Is healthcare becoming the “new financial services” in your view, with the amount of secular change, regulatory impact and disruption going on?
Frank, Cognizant: There are two major forces impacting healthcare today:
The first is technology-based, as clients are looking for industry-focused, as-a-service solutions that leverage the latest technologies (such as SMAC and digital), enhanced by the insights that come with managing large pools of data.
The second force is the massive transition underway in the U.S. healthcare industry driven by the Affordable Care Act, demographics of an aging population, the desire of employers to shift risk and contain costs, and shifting responsibilities between payers and providers. At about $2.7 trillion of total spend, the industry is equivalent to nearly one-fifth of U.S. GDP. The combination of these two factors is driving fundamental changes to every constituency in the value chain.
At the same time, payers and providers in particular need to focus on making their operations as efficient as possible, while at the same time investing to drive growth and innovation in an increasingly competitive environment. We call this the ‘dual mandate’ and it’s what makes the combination of Cognizant healthcare with TriZetto so strategically compelling for our healthcare clients.
We see clients like Health Net as indicative of the broad need in healthcare for end-to-end solutions that respond to the dual mandate, and we believe our combination with TriZetto will provide a unique market alternative for healthcare clients looking not only to survive, but to thrive in the new healthcare context.
Phil, HfS: Do you see major ramifications from the services industry at large from this move? Do you expect to see your competitors making similar investments or will their heads remain in the sand in denial that the fundamentals of the services industry are rapidly shifting?
Frank, Cognizant: We and our peers in the services sector have talked for a long time about adding non-linear, IP-based revenue. For us, this acquisition is an important step in that direction. And we are taking this step with one of our strongest verticals.
TriZetto’s current revenue base of $711 million (for twelve months ending June 2014) is highly predictable and non-linear. About two-thirds of TriZetto’s revenue is recurring. Also of note is that 40 percent of Trizetto’s revenue comes from payer software and 20 percent from provider software-as-a service model. This has led to a comprehensive portfolio of offerings to approximately 350 payers and approximately 245,000 providers.
Like Cognizant, TriZetto is successful because it marries highly refined processes with deep domain expertise. This is why we are truly excited about what TriZetto brings to our business and customers. Jointly we can help our healthcare clients to meaningfully lower healthcare costs, improve quality of care, and make a positive difference to millions of lives.
Phil, HfS: Thanks for taking time out of your insane schedule to talk to us – we appreciate it, Frank!
Francisco (Frank) D’Souza (pictured) is Chief Executive Officer of US-Headquartered service and technology provider Cognizant
What ever happened to the days of the tiddly little sub-$10m “tuck-in” acquisitions that Indian providers used to make (and we all forgot about pretty quickly afterwards)? Well, the game has changed forever as Cognizant shelled out a whopping $2.7 Billion on healthcare technology firm TriZetto (read our research POV here).
This wasn’t only Cog’s largest acquisition – it’s the largest one – by a country mile – from any Indian IT/BPO services major. Ever:
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Four reasons why this changes the game for services:
1. Cognizant becomes a true BPaaS, software and services firm. Most of the pureplay services firms buy little technology tucks-in to improve their services, and have technology tools and platforms that differentiate them with proprietary workflow and IP. However, services firms have always sold services first and foremost, with software as the value differentiator that creates client stickiness and allows greater scalability of skills and standard processes. By acquiring a platform the size and scale of TriZetto, suddenly Cognizant is adapting to selling software, and not just service provision. In my opinion, the only way true BPaaS will ultimately be successful is when the services firms elect to sell the software first and then figure out with the client how to implement it, redesign the processes, do the change management etc. I call this the “Workday effect”. Essentially, have the client fall in love with the software, slam it in, then figure out the rest afterwards. It’s like buying Google – they just force you to figure it all out after you’ve been bought into using their platform.
2. BPaaS will replace legacy outsourcing – it’s just a matter if time. As our new State of Outsourcing data illustrates, close to one-in-three enterprises are already using (or about to use) BPaaS / cloud as an alternative to legacy outsourcing in areas such as HR, industry-specific operations (such as TriZetto), finance and accounting and procurement:
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Having a provider which understands – and can implement – a cloud platform, support the transformation and provide the necessary services that add real value to the front-office is the Holy Grail for many buyers. With half of today’s outsourcing contracts potentially up for grabs, those providers with genuine platform plays are in pole position to pick off legacy outsourcing contracts that have hit the wall, in terms of finding future value.
3. Healthcare becomes the new “financial services” for IT/BPO. In the past, most of the big bucks in industry-specific IT/BPO was in sorting out the quagmire of complexity, dysfunction and legacy in the banking and financial services space. Now, with the ACA hitting us in full-force, it’s plainly apparent that there’s a ton of opportunity taking healthcare payers and providers into BPaaS and sophisticated outsourcing models. Watch this space for further acquisitive moves in this sector, where tech-centric healthcare suppliers, such as Emdeon and McKesson, are becoming increasingly attractive targets.
4. The BPaaS gauntlet in thrown down to Accenture, TCS, Infosys and Wipro to respond. Cognizant’s main competitors are rocked by this one – and they need to figure out how to raise the ante with their own BPaaS plays. Infosys is enjoying a return of its mojo, with a software innovator Vishal Sikka now at the helm and figuring out its EdgeVerve strategy, Accenture has brought together Operations (including BPO) and Cloud Infrastructure to form a super group of BPaaS potential, Wipro has enjoyed a solid rebirth under TK Kurien and has been doing some cool things with Base))) and its mortgage platform play, while TCS has long been a pioneer of “PlatformBPO” with a series of developing offerings, notably in the insurance and banking space. Oh – and let’s not forget dear old IBM, who’s off trying to cure cancer with Watson…
The Bottom-line: Cognizant has upped the ante… Now it’s time for the ambitious providers to open their war-chests
You can just feel it in the air, can’t you? The global economy’s buzzing again, ambitious enterprises are willing to spend again. Meanwhile, the ITO labor arbitrage game is finally showing signs of drying up – and Cognizant, a major bell-weather for the health of offshore services, has responded with a massive, massive bet on the future of the industry – and few would dare to fault this move.
Now the winners need to place their bets on the solutions and industries where they can find new growth opportunities – they all have serious funds available, and can likely get access to even more capital if they need to. There are clear yawning gaps in the market for (more) winning BPaaS offerings in areas such as finance and accounting, supply chain, retail and manufacturing… not to mention healthcare, life sciences and financial services. The future path for BPaaS is really starting to unravel and we’ll likely know in the next 18 months who’s willing to make the investments and business model changes needed to evolve with it.
