We’ve been calling it for seven years now, and finally the chickens are coming home to roost for the outsourcing business: clients are genuinely walking away from outsourcing relationships which provide mediocre value.
And, while some savvy providers are sensing the defections with a few notable re-bid wins of late, many still have their heads in the sand and hoping that once they win a new client, they’ll never leave them… oh how wrong they could be, as revealed by 312 enterprise buyers during our new State of Outsourcing study with KPMG:
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So, why are so many outsourcing relationships hitting the skids?
While we’re at pains to point out that relationships fail to deliver innovation where buyers lack the skills and capabilities, it’s also blindingly obvious that many providers are not coming to the table with the goods either:
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As you can see, it’s the same old story – in fact, buyer satisfaction has actually got worse over the last three years (see our 2011 State of Outsourcing results). At least, back then, the large majority of enterprise clients enjoyed some degree of value from their relationship, while today, barely a third of buyers are seeing positive impact in terms of having improved strategic talent, better operational analytics support, better technologies, process transformation, automation… the list goes on.
The three main issues driving this churn problem – and how providers can address them more effectively
1) Buyers’ expectations – and impatience levels – have markedly increased. The world of business operations has evolved at an almost alarming clip over the last five years – it’s as if the recovery from the worst recession in living memory has driven an impatience from business leaders to advance their capabilities and cost efficiencies much faster than the snail’s pace of yesteryear, when ERP rollouts were calculated by the decade and outsourcing evaluations took three years just to get a meeting together. Suddenly, buyers want to talk about where they expect to be in a couple of years, they’re asking questions about robotic automation and developing meaningful analytics capabilities, they’re asking how their provider can help them improve the way they do things – not merely manage their legacy processes at cheaper rates.
How providers need to respond: Prepare more diligently to manage your clients over the longer-term. You know many are going to start asking for the “what’s next?” quicker than you expected, so be prepared with a plan to deliver it. Otherwise, they may no longer be your client when the re-bid process kicks in….
2) Most providers are still obsessing with the next deal, as opposed to cementing their existing relationships. The real “tangible” money on the table for providers today, is when they win a brand new deal that adds to their win-rate, their Wall Street scripts and feeds their PR machine. However, the cost of losing a client is far, far worse – the lost income, the ignominy, the negative perception from the industry. As more deals begin to churn, the focus will shift to protecting the base, and not just pursing the new.
How providers need to respond: Start replacing the old-school sales guys with the fat expense accounts and standard issue BMWs or Jags (you know the type) with operationally-savvy account managers who understand how operations need to be run. While they may be less fun on the golf course, they’ll be much better-placed to develop your clients down the road.
3) Buyers still think that innovation should be free, despite the fact they bought labor arbitrage. If you didn’t pay for it, why should you get any? The perennial problem with outsourcing is the fact that low-cost still wins the day, with most sourcing advisors strong-arming providers to respond to RFPs in three weeks and allowing very little (if any) interaction time for providers to interact with their clients in advance to develop the right solution and get a stronger balance between delivery capability and desired outcomes. In most these cases, the buyer and provider teams brokering the deal hand them off to the operations teams on both sides to manage, with little room for investment on either side to do anything more than basic delivery with low-end resources.
How providers need to respond: Invest in more direct communications and sales cycles with clients, and be less reliant on the advisor channel for your future business. You need to develop relationships where you can spend more time with your clients to get this right, not second guess their needs and rely on some fudged math to get a deal done.
During the recent 2014 State of Outsourcing mega-study, conducted with the support of KPMG, we polled 312 enterprise outsourcing buyers and 347 outsourcing advisors on how they perceived each of the major 19 IT outsourcing services providers across our Execution and Innovation categories (click here for the full definitions). And the ultimate results might not be quite what you expect:
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HfS’ Charles Sutherland, takes a deeper dive into these results, to understand better the reasons why these IT Outsourcers are being perceived this way:
With 50% of IT outsourcing deals at risk, how are IT Outsourcing providers being perceived?
The fact that Amazon and Google were the highest perceived ITO service providers on Innovation doesn’t come as a huge surprise, after all they are continually lauded for innovation in the press and don’t carry the breadth of “legacy” service offerings that the other ITO service providers do. However, they were also perceived as being at the top for Execution; in fact just 4 of the other 18 ITO service providers were perceived as well or better than they were for Execution capabilities.
What we also see, when we look at these results, is that the best Executors of IT Outsourcing services are generally also perceived as the most Innovative. It suggests to us that as 50% of enterprise IT Outsourcing buyers seek to churn their current IT service provider in the near future, many are also likely to seek out those positioned to the upper-right which can fulfill their higher-value needs, beyond the bread-and butter executional service delivery.
It also suggests that in the wake of greater market differentiation in IT services, both in capabilities and commercial performance, those providers lingering in the lower-left face some very significant commercial challenges over the next several years to remain competitively viable.
We broke the perception map out into 4 quadrants that have some common characteristics:
Messaging Opportunity. These are the ITO service providers which scored lower on the perception of execution and innovation relative to their peers. For these ITO service providers, the task ahead is to increase awareness of their capabilities and, in particular, to highlight investments in innovation for ITO service offerings and perhaps to break away from potential linkages in buyer minds to legacy ITO offerings, especially given the levels of potential market churn that the survey identified.
Solid Delivery.These ITO service providers were perceived as strong execution partners for buyers, but still being perceived as lower than the leaders on innovation, although they were seen as more innovative than the service providers in the first quadrant. This does not mean they are necessarily candidates for churn, although if their areas of execution become less significant going forward, that could spell future trouble.
Future Promise. Currently an empty quadrant, this area where perceptions of innovation out-strip those of execution, can be the resting space of up-and-coming ITO challengers, whether new or coming up from Messaging Opportunity, where they start rolling out leading edge services before they are necessarily fully time-tested.
Tomorrow Today. ITO service providers in this final quadrant are leading the way in terms of buyer perceptions, both on innovation and execution, relative to their peers. An interesting group of asset heavy (Amazon, IBM, Google) as well as asset lite (Accenture, Cognizant, TCS), they have as many or more differences between themselves in terms of offerings and market strategies, as they have anything in common, other than being the service providers best positioned today to take advantage of the high level of potential market churn.
The Bottom-line: The traditional IT outsourcing market as we know it is being disrupted, and the next year will likely flesh out the thrivers, the survivors and the also-rans
Report author, Charles Sutherland, is EVP Research at HfS (Click for bio)
The intention from an enterprise to churn a current service provider, may be much less complex than actually completing the process of switching out to another provider, and we will be looking at the market dynamics over the next 12 months to see just how many significant contracts in ITO are moved. In particular, we will be observing closely how many hosting and IT management deals make their way over to the disruptive presence of Amazon and Google from incumbent service providers. In addition, how the ITO service providers at the lower left and upper right hand portions of our perception study fare, will provide a good input on the understanding as to how the ITO market is changing and what measures incumbent service providers need to be taking, not merely to survive, but also thrive in this fast-evolving marketplace.
HfS subscribers can click here to download the full POV “With 50% of IT outsourcing deals at risk, how are IT Outsourcing providers being perceived?”
Yes, the HfS Blueprint Sessions are coming back to North America for an eighth installment this November, at Chicago’s famous Drake Hotel, for the biggest naval-gaze yet at our analog present and digital future of global services.
This will be the most intimate and significant gathering yet of enterprise buy-side operations leaders, who will come face-to-face with the prominent thinkers and operators from the service provider and advisory world. This will be the time when the global services and outsourcing industry takes a collective long-hard look at itself to develop a future roadmap that is sustainable and value-driven; where operations executives can progress their careers, and challenge themselves to stay ahead of the changing needs and skills demanded by today’s ambitious enterprises.
We are on a mission to legitimize the industry of services professionals and break from the bad-old habits that have been plaguing us for far too long. We need you to be part of this with us – and have some fun in the process.
We’ll be tackling two key themes throughout the two days:
1) Resetting the Analog table-stakes of today: Where are today’s global services relationships succeeding and failing – and how can both buyers and providers work towards collectively realistic and meaningful expectations. What needs to change with the way buyers operate, providers deliver, and advisors advise? Click here and hereto cogitate some of the key takeaways from Cambridge.
2) Envisioning the Digital stakes of tomorrow: Recent HfS research (click here) shows that enterprise buyers are falling short with their own “digital talent” and need real help from providers and advisors to develop the analytical and creative skills they need to take full advantage of plug-and-play “as-a-service” models, process automation and other digital solutions. How can buyers break from legacy on-premise ERP models and tired, stagnant FTE-based outsourcing relationships to lay the framework for their digital operations of the future?
Roy Barden, who has taken on the role of Head of Next Generation Shared Services, Cabinet Office, Her Majesty’s Government, said of his recent experience at the European HfS Blueprint Sessions, “I found the summit as one of – if not the – most valuable events of its type I have attended”. So if we’re good enough for the Queen’s service delivery, we should be good enough for yours 🙂
On behalf of the HfS team, we sincerely hope to meet many of you in Chicago.
The act of “outsourcing” is really only that initial phase of activity where an organization takes a technology/business process or function and transfers the management responsibility over to a third party to ensure the smooth running of said process or operation.
Once the outsourced processes are running functionally with the third party, the “outsourcing” is now complete and those activities on the buy-side become “service governance” activities, and the third party provider is delivering a “service” or an “operation” to its client.
The clients’ needs now fit into a set of governance functions that are centered on managing the provider relationship(s); communicating with – and reporting to – the internal business units and various stakeholders; aggregating, analyzing and reporting the appropriate performance and process metrics; managing risk, compliance and issue escalations. The more sophisticated and experienced the governance unit becomes, the more of a high value consultative entity the team can become for their organization as it seeks to centralize more operations under the governance function and align them to the business goals.
Simply put, an increasing number of mature enterprises governance teams are doing a lot more than managing vendors and periodically bashing them up to lower their rates – they are using advanced software platforms that help drive real value, continuous improvement and insight from the operations under their oversight. Most clients need realtime support to help them do this, and a small handful of ambitious advisors are developing managed governance services functions to support this need.
So we tasked our resident governance guru, Mike Beals, to venture in into the post-outsourcing transaction services industry to develop an HfS Blueprint Report that evaluates the managed services and software solutions available today that support clients managing their global shared services and outsourcing operations. And here is how they shook out:
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So, Mike, what exactly are these Governance Solutions providers?
HfS Research defines Governance Solutions as the set of software applications or managed services focused on the management and optimization of shared services and outsourcing service delivery environments for business service functions.
These software applications and/or services are one level of management removed from operational delivery management tools and services. For example, an enterprise that uses a Service Management Software (SMS) tool like Remedy, Tivoli or ServiceNow for operational management still needs a tool or service to manage the complexities of a commercial outsourcing relationships and their peculiar methodologies.
Based on your many client interactions, why are Governance Solutions needed in this market today?
First, let’s start with some of the trends we see impacting the shared services and outsourcing industry, then I’ll drill into the answer. The big trends we saw in 2013 and confirmed in the 2014 State of Outsourcing Study are rapid adoption of GBS, or at least a hybrid delivery model, a shortage of skilled talent, and the desire to accomplish more strategic objectives than in the past.
Without delving into too much detail about those trends, the implications to overall enterprise SSO governance capability is the need for consistency in the way shared service and outsourcing environments are managed. Going forward, enterprises can’t afford to let each governance group define and execute governance its own way based on who’s in the group.
Because of the hybrid model most enterprises are adopting, the number of data sources has grown dramatically. Governance needs a way to aggregate that data into a structured repository. Without this ability, providing end-to-end service level and organization-specific financial reporting and analytics is virtually impossible.
Descriptive analytics that tell you what happened have been available for quite some time, but predictive and prescriptive analytics that forecast what will happen and what you should do about it are incredibly important to accomplishing the strategic objectives enterprises seek.
To address the talent shortage, enterprises must fully leverage their available resources. Since a significant portion of the work of governance is routine in nature, it can be automated. That frees up limited staff to focus on higher value activities like collaborating with service providers or consulting with the business.
Governance Solution providers, whether delivered via software or services, help address each of these challenges.
What capabilities do these Governance Solutions bring to enterprises?
Depends a bit whether they are a product company or a services company. Software firms can assist by taking documented governance process flows and enabling them using workflow. All of the business rules and decisions are codified, so when key team members move on to other jobs, their knowledge is retained and leveraged. Additionally, this drives consistency across multiple governance groups if they use the same core processes and only configure procedures peculiar to their environment.
The benefits of automation can also be significant. For example, these software applications, once configured, can extract source data from operational systems, calculate service levels, determine consumption buy business units, create pro forma invoices for verification, and many other routine, but time consuming tasks. Governance tools can also automate a huge percentage of the associated reporting requirements.
Governance software tools also provide a repository for all agreements and governance forms. Having a full-text searchable, secure, version controlled repository can save a huge amount of time and effort, particularly when you are reporting on that information or status.
From a managed governance services (MGS) perspective, each of these providers leverages an enabling platform and provides additional services to compliment the software capabilities we just discussed. Additional services range from governance staff augmentation, to providing compliance and risk audits, to offering coaching, to providing strategic sourcing recommendations based on industry trends or proprietary market benchmark data. There are a number of options to quickly improve a governance group’s overall capability and maturity.
So… who are the leading providers and what differentiates them?
Enlighta, ISG, and KPMG are the top providers in this year’s Blueprint Axis. Enlighta offers a software application called Govern that provides comprehensive governance functionality. It is the most robust and flexible tool that we evaluated in this study. Enlighta also offers another product, Deliver, that actually runs on the same platform as Govern, that competes in the Service Management Software (SMS) category against products like Remedy and Tivoli. A key differentiator is that enterprises seeking an integrated service management and delivery platform for their business service functions can go with Enlighta.
ISG (formerly TPI) has been in the sourcing advisory space since the beginning. They were also the first to offer managed governance services to their clients. Their approach has been to partner with various tool providers to create an enabling platform configuration unique to each client. Some of the software partners include Enlighta, StatusGreen, Apptio, and Blazent into what they call “ISG Labs.” The ISG Managed Governance group offers managed governance services as well as Service Integration and Management (SIAM) services.
KPMG’s Managed Governance Services (MGS) offerings originated at EquaTerra, which was acquired by KPMG in 2011. EquaTerra had a proprietary governance platform called EquaSiis Enterprise that was sold as a software application. When EquaTerra, and EquaSiis, was acquired by KPMG a managed governance group was formed that leveraged EquaSiis Enterprise, now renamed Governance Workplace. The KPMG MGS group leverages the comprehensive functionality of Governance Workplace with a well trained staff to provide as set of very competitive services to Information Technology and non-IT business service clients alike. As you would imagine as part of an audit firm, particular attention and functionality on risk management is emphasized.
And finally, what are the key takeaways you would like to leave us with?
Mike Beals is Vice President, Governance Research and Strategy, HfS Research (click for bio)
There are many, but let me focus on three. First, risk and compliance are having an increasingly important impact on governance and these solution providers. The increasing amount of regulatory requirements, and the specificity on outsourcing governance means that these governance solutions, both products and services alike, are investing in risk and compliance functionality and capabilities.
Second, there is blurring of the lines between Service Management Software (SMS) products and governance tools/services — both categories of products access the same data, but for slightly different purposes. We see the potential for SMS products to move into this space via acquisition, or building out specific outsourcing governance functionality into their existing products.
Third, analytics is becoming increasingly important. As companies shift their sourcing objectives from tactical to strategic, having access to sophisticated analytics will be critical. We believe that governance solutions that provide this functionality will be a key success factor in the ability of enterprises to mature their overall governance capability.
Mike, we really appreciate learning from your experiences and research into the emerging Governance Solutions marketplace and look forward to reading more of your insights from the HfS Governance Institute. HfS readers can click here to view highlights of all our current 16 HfS Blueprint reports.
HfS subscribers click here to access the new HfS Blueprint Report, “Shared Services & Outsourcing Governance Solutions”
Our new research reveals the majority of enterprises are failing to develop the talent they need to be effective in the Digital Economy.
Working environments have become increasingly difficult to manage and too many staff are simply not motivated to drive value to their firms. Simply put, the old way of managing staff in today’s self-entitled employment world is just no longer working, and there needs to be a significant mindset change from both employers and their staff to re-humanize the enterprise. Otherwise, the ROI of hiring people will really become unattractive.
When I penned the now-infamous post “Welcome to the age of Digital cruelty, where two-thirds of operational jobs are under threat“, I was thinking about how enterprises can develop change programs to reorient staff to add more “Digital Value” to their organizations, and how they can leverage their partner relationships to help plug the Digital gaps and improve their existing talent potential.
Then HfS’ workforce and talent analyst, Christa Degnan Manning, shared her insights with her new Talent Acquisition Services Blueprint, which brought forward many of the issues surrounding talent retention and creating a work environment where (motivated) staff can develop their careers with their employers with a long-term goal in mind.
So we revisited our recent workforce study which covered 5,000 enterprise employees globally, to understand how motivated today’s talent is to stick with its current employers:
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Barely 4 out of 10 staff intend to stick with their employer for more than a couple of years
Ouch. Yes, people, the day of the long term company job is truly dying on the vine, where close to half of today’s workers are already looking for a new employer, while another third are readying to move on in another year or two. At the same time, as our recent State of Outsourcing Study fleshed out, two-thirds of enterprises feel their existing operations talent is falling well short in “Digital” areas such as analytical capability, being creative with new ideas, driving better automation etc. So what does all this mean?
Poor talent leadership and unmotivated staff is a recipe for corporate failure
It’s becoming abundantly clear that many staff that stay with a single employer for too long are losing relevancy, when it comes to delivering new value and insights. This is because most employers are clearly failing in reorienting existing – or hiring new – talent to stay ahead of the curve and keep adding value beyond routine transactional activities. Moreover, the majority of staff are clearly not being motivated by their employers to want to build long-term careers in a single company anymore (or may just not be motivated at all).
Clearly, there is a major employer-employee breakdown occurring: employers are not focused on investing in the right talent strategies, and their talent isn’t that focused on investing their careers in them either. The result is management being pissed off with the value their staff are delivering, and their staff being pissed off with the value they get from their organization – it’s a recipe for failure and poor enterprise performance. And if internal labor investments are fast becoming a negative commodity for many firms, they will naturally look elsewhere to achieve its goals – such as improving automation and leveraging third party services relationships, where the talent can quickly plug the gaps.
The old ‘nine-to-five job mentality’ must quickly evolve into a value-based work culture for organizations with emerging Digital Cultures
Simply put, most effective workers today do not start work at nine and clock-off at five. As peoples’ personal lives become digitally-entwined with their professional responsibilities, most want to spend time during the day on their electronically-driven social activities, which means they frequently need to compensate for this during their evenings and weekends. Moreover, the working styles of management and staff need to evolve to become most outcome-focus and less task-focused.
Managers need to think less about “what do Jane or Peter actually do between nine and five” and more about “what business outcomes have Jane and Peter produced for the firm this week – and how are they adding value to the organization.” This means that enterprises need to ensure they have forward-thinking managers who understand the shifting mindsets and lifestyles of their staff in order to get the best out of them.
Workers who cannot motivate themselves to add value beyond ‘just enough not to get fired’ will see their career potential rapidly decline
It is also the responsibility of employees to adapt to being judged more on outcomes than “time served”. There are far too many staff today who still “work the nine to five mentality” but barely spend 2-3 hours today actually working (we all know many, I am sure!). These people need to understand they will be quickly replaced if they cannot adapt their working styles and motivate themselves to add value. From my experience, staff become motivated when they are encouraged to use their creative energies and are judged on the quality of their outcomes – when they are simply checking the boxes and doing just enough not to get fired, is when the employment model falls apart. I would bet a champagne lunch on the fact that most of the 62% of frustrated staff only do barely enough for their employer to avoid the sack.
The Bottom-line: The working cultures and attitudes of management and their staff both need to evolve to be effective in the Digital Enterprise
The current employment model is broken. There is a sense of entitlement among too many workers that all they need to do is show up to warrant their paycheck and all the accompanying benefits. At the same time, there is too much legacy management going on, where enterprise leaderships persist in judging their staff on effort-based inputs, as opposed to value-based outputs. Yes, the old “time sheet” for knowledge workers is probably the worst invention for the enterprise since on-premise ERP software…
I recall when I graduated in ’94 during the pit of an economy and you couldn’t find a job anywhere – you had no choice but to hustle and adapt to whatever job you could get not only to build your career, but also to earn a living. My first job was answering the phone is a burglar alarm firm – you turned up, you worked hard and you kept at it until something better came along. Sadly, that “hustle mentality” is clearly shot in today’s workforce – I find people either want to work, or they don’t – and smart employers are figuring that out in today’s much looser, more complex, work environment. You basically need to hire people who want to work and manage them by their outcomes – it’s really that simple.
So there needs to be a significant mindset change from both employers and their staff if we want to re-humanize the enterprise, otherwise we might as well give it all up to the robots…
Has anyone noticed a much harsher mentality towards “labor” these days? I can recall presenting at an HR Outsourcing conference in 2004 where there was a large gathering of anti-globalization protestors outside the hotel bearing placards and shouting obscenities are us through the window.
“Outsourcing” was a truly dirty word, and shame on any callous corporate executives for instigating the use of low cost foreign labor to substitute their own. Even poor old Mitt Romney was associated with evil “outsourcing” practices during his corporate days at Bain Capital, which hurt his (unsuccessful) attempt to become elected US president.
But all of a sudden, noone really seems to care about protecting jobs anymore – if people are just performing “transactional” tasks, for chrissakes automate them quickly, or buy a SaaS platform to get rid of the unnecessary waste. Where are the demonstrators outside of SAP headquarters in Waldorf, or Oracle HQ in Redwood Shores as these firms desperately try to convince the world they are cloudifying their products so their clients can start to do away with some of those unnecessary jobs on-premise software provides.
And what about that evil Workday, which only provides cloud-based software and enables its clients to do away with HR admin people making a living cobbling together archaic hire-to-retire processes? And where are the tears shed for all those lovely marketing admins who used to earn a crust managing customer databases… their jobs literally obliterated by Salesforce.com? Not to mention those jovial IT maintenance people no longer needed to support crappy old email systems now their companies have started using Google apps or Office365…
Why did companies get such terrible rep for using lower cost overseas labor, but get a completely free PR pass when it comes to eliminating positions altogether through better technology? At least they were providing jobs somewhere…
Job protectionism really has left the building
In all seriousness, organizations are already democratizing their decisions to do IT outsourcing and BPO and, instead, looking at ways simply to erase labor altogether (see earlier). If you only outsource your labor to a provider, you’re likely going to be stuck with it for some considerable time – just at a lower price point. You’ve simply passed on your labor costs to someone else to manage for you – more efficiently and cheaply. And once it’s been outsourced, it’s not as easy to eliminate those passed-on labor costs – you have to convince your provider to replace the labor with better automation and make less money from you, which it is not going to do unless create genuine incentives in place to do it.
Hence, the pressure is really now on for corporate leaders to eradicate that need for labor in the first place to ensure those costs are expunged for good… never to return. Suddenly, reducing transactional labor has become the accepted norm for enterprises – not some wicked, insensitive capitalist strategy being driven by greedy corporate leaders. Essentially, if you’re only managing routine operational work with limited interpretation of meaningful data, or failing to provide creative ideas that drive value or income for your company, you may already be on that short-list to be eliminated.
Why the new wave of Digital capabilities is challenging the workforce like never before
Organizations have been trying to reduce their labor costs for decades, but something feels very different about the new Digital reality in which we operate. Many people thought the onset of web technologies would be the big game changer with how we utilized labor, but it actually increased our reliance of humans – many business processes became web-enabled, which necessitated training on new applications and helped us work more effectively – but they didn’t fundamentally change how we operated – the web really just enabled us to run things the same way as perviously, just with more global capabilities and much more efficient communication. It was this previous wave of Digital which really enabled the great outsourcing boom of the last 15 years, as communication costs plummeted and web applications made it possible to work with people anywhere/anytime. The initial web evolution helped globalize the workforce, but didn’t have as much impact on how we could automate processes, mine vast pools of data, leverage mobile applications to interact with our employees, partners and customers.
We have entered an era today where there is real capability to change how we run our businesses – from the back office processing to the front office customer interaction: we have tools and apps to target and interpret meaningful data, we have developing software solutions to automate and even robotize processes like we never could in the past and we have all submerged ourselves in a mobile culture where all forms of business are conducted on all types of devices and interfaces. Perhaps even more importantly, cloud-based platforms are being developed which allow us to share these capabilities, re-invent the way we run services and process transactions that require such a lesser amount of human intervention and oversight.
Hence, the onus shifts to the capabilities of our talent to add value to their organizations that are insightful to help base decisions; that are creative, which help try new ways of doing things, or targeting new markets; that are innovative, where their organizations can find entirely new ways of competing, or developing unique products or services. Whether their work in finance, HR, marketing, procurement, IT, supply chain… their job is to leverage Digital technologies and platforms effectively so they can refocus their time adding value, because the need to people to sit around and fill in spreadsheets all day is being gradually eliminated. People need to do a lot more thinking, and less executing.
Two-thirds of today’s operations talent is falling short when it comes to supporting Digital Transformation
Which brings us to our new State of Outsourcing study, conducted with the support of KPMG and covering the experiences of 312 enterprises, where two-thirds of operations jobs are now under threat. Simply put, barely a third of enterprises today are happy with their internal talent’s ability to drive positive outcomes from their analytical and creative capabilities with their current outsourcing engagements:
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Steps enterprise leaderships should undertake to prepare for Digital Transformation
What’s clear, is that company leaders are bemoaning the lack of capabilities of their operations staff to adopt Digital technologies and provide the acumen to make them effective for the business. If two-thirds of them are not providing the capabilities to help automate processes, analyze meaningful and targeted data, or come up with creative ideas and solutions for the organization, then their leadership needs to take on the following measures:
1) Evaluate the Digital Transformation capability of existing internal staff
The burning issue today is whether people have the capability to change the way their work, as doing things the same old way and expecting different results is the known recipe for failure. Staff need to be evaluated whether they not only have the intelligence to develop their analytical and creative skills, but more the willingness and motivation to do things differently. Simply put, most people in the white collar workplace are smart enough, but whether they have the mental fortitude to change the way they work is another matter. Future research will tell, but we already see millennials and younger generation staff showing a more Digitally-aligned mindset to how they work, and can embrace their technology environment to be effective. The mid-career people can go either way – some embrace change (or do it through fear), while others just seem incapable of deviating their work habits – and choose to jump jobs than step up to the challenge of actually being better at how they apply their skills to the workplace.
2) Introduce formal training to change the way capable staff approach managing operations
Once organizational leaderships have evaluated the right candidates which want to re-align their skills, then lies the challenge of beginning the training. Consultants can be useful at bringing in organized programs, structured methodologies and smart learning tools, but ultimately organizational leadership needs to drive the change. The change is more than merely “doing things differently”, it is about thinking differently, it is about changing the work culture. It is about having staff understand how they are going to be measured in the future, what is expected of them, and how they need to spend their time. It is about these staff understanding how to embrace the technology toolsets around them to do their job smarter and collaborate with other like-minded staff to come up with better ideas for the business and better ways to achieve results.
3) Evaluate and engage with existing and future potential partners to create a Digital culture across your organization
Most companies really struggle with change, and only relying on steps 1 and 2 might not be that effective alone. However, the nature of third party relationships can forge a very powerful catalyst to do things differently. The successful providers of the future will be those which can work with their clients to advance their skills beyond transactional. For example, if you buy finance and accounting services, a provider which only does the transactional grunt work isn’t going to be very relevant in the future when you can get much of the work done using automated technology.
Providers need to be the ones helping develop the Digital mindset with your staff, so they can work with them to be more analytical and creative. They need to provide teams of data scientists and creative thinkers who can work in hybrid teams with your own staff to create a whole new training ground and environment to take advantage of the new wave of Digital. If your current provider cannot offer those capabilities, then evaluates those who can. And these partners aren’t necessarily the usual suspects of today, many of whom have already become legacy (and are only just realizing it). The partners of tomorrow are going to look very different, may have different brands, working styles, leverage different platforms and tech. Many aren’t traditional service providers, but operate with different models where delivery staff might be in the less traditional locations, or may simply be consulting firms which prefer to work with clients on longer-term service models. They may simply be SaaS vendors with great support capabilities. The landscape is going to look very different in three years’ time…
The Bottom-line: The business world is becoming a harsher place to be, and many workers will struggle if they can’t adapt
The talent crunch is already coming. The old safety nets of years gone by have bigger and bigger holes in them – you only need to look at the job ads and the types of skills smart companies are now looking for to understand quickly how irrelevant you could become if you don’t embrace the Digitally transforming world we are now living it. It really is time to get with the program, people, or start preparing for an early retirement…
The world of work has become a very, very different place in just a few short years. Today’s workers need to adapt, develop and promote their skills to make themselves attractive in today’s Digital economy – and savvy employers need to try harder than ever to ensure they are finding staff who can do more than simply transact – they increasingly want people who can think, create, analyze, collaborate and sell; people who are embracing today’s technology to create value to their organization. Ambitious employers want talented workers which can align themselves with where they want their businesses to go, not with the legacy environment from where they are trying to evolve.
So what better strategy to adopt than hire a service provider to take care of this talent headache for you? Surely it’s time to explain to your HR department that fishing through resumes on LinkedIn is unlikely going to net you the best people? Surely it’s time to partner with a recruiting expert that can quickly understand your business, the talent you need, and how to go out into today’s people marketplace to find it?
So we tasked our global workforce and talent expert, Christa Degnan Manning, to assess those services providers helping organizations fill their open positions. The Talent Acquisition Services Blueprint is the second in a series of HfS Workforce Support Services Blueprints reexamining and redefining how organizations are creating operating models and solution portfolios to support today’s workforces. And here is how the providers today shake out, after Christa had put them through the HfS Blueprint mincer:
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So Christa, what exactly are Talent Acquisition Service providers and how do they fit in with the overall research you are doing?
A key principle of my Workforce Support Services research approach is that the traditional HR “hire to retire” process-driven solution approach is completely obsolete in the modern workplace. We can see from the Power to the People research few people are actually planning to stay with their current firm until retirement, and they are struggling to focus on the right work to stay engaged and be productive.
So companies have to think differently about how they identify the right workers, support them in their collaboration and development on a day to day basis, and recognize and reward them in more meaningful ways. The first Blueprint we did was on Rewards, Remuneration and Recognition services, earlier in 2014 which took a new look at global payroll, benefits, and employee contact center providers and how they are moving away from simply processing paychecks to really help keep workers focused on work and appreciative of the support they get from the business.
Then given what HfS saw in terms of both the disengagement in the workplace and this massive workforce exodus upon us, I targeted Talent Acquisition Services next. HfS defines Talent Acquisition Service providers as those third-party firms that support companies in the strategy, sourcing, and engagement programs and processes required to attract and activate workers as businesses desire today.
Talent Acquisition Service delivery is evolving from the traditional recruitment process outsourcing (RPO) and contingent or contract work managed service providers (MSP) worlds as companies seek access to more flexible labor pools and talent sourcing and management support models as well.
We know that work is getting done today across an extended enterprise of traditional workers, contract laborers, and third-party service partners, so our new Blueprint explicitly assessed if third-party service firms could support clients across types of labor: staff (traditional full- or part-time employees) and contract (contingent labor).
And to achieve business outcomes of quality of hire, faster time to productivity, or better engagement and retention, these services providers are having to go deeper into traditional talent management areas like workforce strategy and planning, helping clients answer: what is the employer value proposition to potential workers? What makes them productive or retained over time?
This gets into more qualitative issues than simply sourcing and placing workers, so we also looked at capabilities amongst the service providers in terms of how they could support talent strategy and engagement as well.
And what are the important service provider capabilities companies are looking for today?
First, it’s talent. Recruiters who know how to find passive candidates, assessment experts that understand people and organizational psychology, creative communicators who can help identify and amplify a company’s unique employer brand and value proposition, and analytical and proactive account staff that can look across a client’s business as well as network and share with their peers to identify opportunities or challenges and offer suggestions for solutions.
Given the dynamics of hard to find skills and the geographic differences in labor markets, companies are looking for specific talent acquisition focus and sophisticated expertise, including in new technologies.
Second it’s the availability of the technology solutions themselves, particularly social media sourcing and passive talent community development, because firms are no longer simply filling reqs, but supporting the complexities of matching the right people to the right roles at the right time, which is much less of a transaction and more of an on-going supply chain and relationship development set of issues.
Of note, this has meant some early multi-HRO players with administrative transactional models are opting out or just catching up in the Talent Acquisition Services marketplace, while others have successfully doubled down and are being recognized for developing talent strategies and changing outcomes, not just doing support tasks.
Yet new entrants are also emerging specifically to deliver technology-enabled talent acquisition services that support overall talent management objectives like engagement or retention. They don’t even use the term “outsourcing” to describe themselves really, it’s just good service delivery.
So which providers are leading this emerging new Talent Acquisition Services market space?
Companies in the Winners’ Circle were those that have aggressively targeted providing progressive service delivery as we define it and incorporating the use of new sourcing methods and technologies, specifically:
Accenture – seen as a strategic client advisor with technology, global footprint, and C-level trust
Cielo (formerly Pinstripe Ochre House) – a growing global player rising to the top of the talent services “sky”
KellyOCG – leading the industry in adapting acquisition to supply dynamics and methods
TheRightThing! – an early leader in progressive outsourcing being absorbed by ADP
Seven Step – savvy strategy and seamless services stalwart poised for greater success
Neeyamo – a complete human resources outsourcer featuring flexibility and focus
WilsonHCG – a tech-enabled talent acquisition specialist going global
High Performers were AonHewitt, IBM, Peoplescout, and WNS who are clearly going after talent acquisition clients, but have room to develop either in terms of broader strategy and engagement capabilities recognized and used by clients, or across traditional staff and contract labor support, or both.
Of note, we also include 8 short profiles of companies in the traditional recruiting or staffing agency space that appear to be targeting this market, but shy away from official analyst RFIs. These service providers will have to embrace new scrutiny though as they ultimately compete against the breadth of technology-enabled business service providers investing in the talent space.
And what are some of the key take-aways of the study, Christa?
In light of all of the changes and challenges in the modern workforce and workplace, I see talent acquisition today as the tip of the spear to broader workforce transformation. To deliver value beyond cost take out, Talent Acquisition Service providers are now being tasked with partnering with clients to acknowledge – and in many cases address – fundamental workplace and workforce issues beyond simply posting requisitions and screening workers. They are having to deal with the issues that impact quality of hire and company performance through approaches such as culture match and soft skills assessments which completely changes the way a company sees and values talent in many cases.
From competitive pay data benchmarks and labor mapping to identifying employee engagement elements and career development initiatives, the bar is being raised against which the service providers are assessed for their ability to impact the quality of hire. But this also means buyers have to change how they operate and treat people in order to secure and retain the best workers today.
Many of the enterprises I spoke with acknowledged that they are relying on their services partners to both strategically guide as well as tactically support them in on-going talent transformation efforts and it’s going to be a long but ultimately necessary journey – and one they have to take with a third-party to be able to achieve results because they simply don’t have the resources or expertise themselves today.
An interesting aspect of the research you did was to document how fat Talent Acquisition Service providers are along the path to “progressive service delivery”, which we often talk about, can you expand more on this concept?
With the expectations being raised with regard to the business transformation impact from talent acquisition services, more and more buyers say they are collaboratively partnering with service providers who they see as an extension of their own organizations, in many case completely transparent to their candidates and employees.
In this way, talent acquisition buyer/service provider partnerships are exhibiting the acknowledgement and commitment to Workforce Support Service orientations, where they actively work to culturally match the staff on their accounts with the client, find ways to motivate and reward extended teams based on a joint mission to drive business outcomes, and to provide ways they can connect across their organizations and regions as an extended enterprise.
In delivering their services to the marketplace as third-parties specifically sensitive and focused on people and talent, I’d say Talent Acquisition Service providers are leading examples of the characteristics of successful enterprise workforce extension. The service providers in our Winners Circle were recognized for developing an on-going partnership mentality to focus on outcomes not just the “hire” but in securing a well-matched and engaged worker with a positive experience in the business.
Also of note, while a number of long-term traditional outsourcing type contracts were analyzed as a part of this research report, more and more companies are seeking to buy Talent Acquisition Services in shorter contract durations, including project-initiated ways, with an eye to expanding to broader on-going service delivery as their needs dictate – and scaling down when necessary. This was clearly a flexibility that the Winners Circle service providers embraced. They are also very open to having discussions with their partners to add additional capabilities and technologies that ultimately involve new business and pricing models.
With regards to technology, Christa, you’ve called it out as a contentious issue, can you elaborate?
Christa Degnan Manning is SVP, Workforce and Talent Strategies at HfS (Click for bio)
As most early RPO and MSP engagements were tactical and administrative in nature, buyers of services often asked their service providers to use the buyer’s internal enterprise applicant tracking systems (ATS) and contract labor vendor management systems (VMS); others were open to suggestions from their providers or to interact with their proprietary systems if they had to.
Today the market is still split on technologies, some not expecting much beyond what they offer to their service provider staff, others who want new technologies and innovations brought to them part and parcel of the contract. Notably some of the latter are very vocal about who should pay for access to technologies – they say if the service provider team can and should be able to benefit from tech across their customer bases, there should not be separate and equal fees as if they were buying the technologies themselves.
With an accelerating pace of SaaS-based innovation across HR and talent, the use of technology will be a deciding factor in the future success of talent acquisition broadly. I predict the Talent Acquisition Services space will lead a transformation in the SaaS marketplace itself, where SaaS firms negotiate wholesale or volume agreements with service providers so they can help implement and consume the technologies, wrapped by their staff and proprietary service delivery capabilities, and analyze the data that is thrown off and provide advice.
I believe that is the way that enterprises will and should expect to engage with operational capability service providers – not as separate SaaS or outsourcing in and of themselves – in the future. Don’t you?
Christa, thanks for taking the time to share your new research… we look forward to more of your continued coverage of the global workforce in the coming months. HfS readers can click here to view highlights of all our current 15 HfS Blueprint reports.
HfS subscribers click here to access the new report, “Talent Acquisition Service Providers – Partners on the Path to Total Talent Management”
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Our new research reveals the majority of enterprises are failing to develop the talent they need to be effective in the Digital Economy.
Has anyone noticed a much harsher mentality towards “labor” these days? I can recall presenting at an HR Outsourcing conference in 2004 where there was a large gathering of anti-globalization protestors outside the hotel bearing placards and shouting obscenities are us through the window.
