As we peruse the results of our soon-to-be-released State of Outsourcing 2014 study, one of the core elements that jumps out at us is the widespread dissatisfaction of enterprises in their own internal operations talent to change the processes, automate them, analyze them… or come up with creative thinking on how to improve things in general. The talent dearth is so bad that barely a third of buyers from the 312 enterprises we surveyed has seen any positive impact on their own talent with their current outsourcing relationships using their own internal talent:
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Organizations clearly cannot reach their state of Digital nirvana without professional help. “Digital” capabilities, in this context, relate to the acumen of operational services talent to understand the interplay between their applications and processes to achieve better automation and more productive workflows that can ultimately lead to better analytics to base future business decisions. In addition, these capabilities also relate to the creative flair of staff to align their services with the core business and come up with new ways of doing things to drive value, new ideas for business improvement and, in short, to behave more like a “front office” employee than transactional operator.
Bad IT can be even more culpable than bad BPO. Let’s not throw all the blame for this talent failure at the doorstep of the business operations staff. In so many cases, enterprises would have much more effective process capability if corporate IT wasn’t so constipated with maintenance and infrastructure. In so many client cases, IT still can’t figure out how to code without error, and they’ve done it for decades… at least processes change, but IT continues to be stuck in the dark ages for so many organizations.
The Bottom-line: A Digital talent crunch is coming and this could get ugly for some
At HfS, we predict a major talent crunch coming to the vast majority of ambitious organizations who are struggling to find or retrain their back office staff to be more front office staff and “Digitally savvy” with their approach to services. Two thirds of outsourcing clients are happy with how their internal teams manage costs, keep the basics ticking over (“lights on”) and respond to compliance needs. But, as these “light on” capabilities become increasingly commoditized through more sophisticated global delivery and standardized technology platforms, the need for these armies of back office operators is steadily decreasing.
What is clear is that technology has become a major component for future value of the enterprise (read our earlier study on this topic) and one avenue for operations staff to increase their future value is to train in areas like analytics and process automation where they can add whole new echelons of value to their organizations. Sadly, many of the two-thirds we identify above are not going to make it, and others are simply not going to be needed – the relentless pursuit of increased value and decreased labor costs will see to that. Less is more is the brutal rule for the future of the enterprise operations function.
For forward looking service providers and consultants, these clients are becoming rich hunting grounds for valuable partnerships in the future as the need for the Digital skills and new talent exacerbates. Most clients will find their need to develop or acquire better talent a fruitless exercise and will look to their external partners to plug these operational gaps that will drive future value.
Kevin Parikh is Global CEO and Senior Partner at Avasant (click here for bio)
Isn’t is just so exciting to work in an industry where we are constantly seeing new competitors emerge, seemingly boundless innovation from enterprise clients pushing their capabilities to the limit… and all with such a refreshing lack of confusing verbiage.
OK – I was dreaming there for a moment, but one company we have seen emerge from the ground up in just a few short years to challenge the top advisory firms is Avasant. And most of this is credited to one man and the team he has built since he left Gartner, where he led the firm’s sourcing practice: Kevin Parikh.
So we managed to catch Kevin at his Manhattan Beach home, where he resides with his wife and two daughters, to talk to us about what makes him tick, how his firm is disrupting the advisor space (in dire need of disruption) and how he is intends to tackle clients needs around Digital transformation that is so high on enterprise agendas today…
Phil Fersht, CEO, HfS Research: Good afternoon, Kevin – thank you very much for your time today. You’ve been quietly empire-building in the advisory space for a few years now – I think I first met you about seven years ago when you’d just left Gartner to set up your own shop. Please share with our readers a little bit about your background, how you got into this space and the journey you are on today.
Kevin Parikh, CEO and Senior Partner, Avasant: Yes, we have known each other for several years now. I started my career as an attorney in Washington, D.C., during the Clinton years. I was in the Clinton administration with the United States Environmental Protection Agency. This is pre-Y2K, pre-IT outsourcing transactions, and in many cases, it was just the beginning of when the advisory space really started.
After the EPA, I moved to KPMG to join their LLP assurance practice, continuing my focus on contractual and litigation work that I had performed while at the EPA. During the 1990s, I became increasingly engaged in KPMG consulting activities, including reviews of some of the very first outsourcing transactions. I found myself sitting on panels with John Halvey and Bob Zaylor debating service levels and metrics in some of the early outsourcing contracts.
As KPMG became BearingPoint, I joined Gartner to help lead their strategic sourcing practice, which at that time was under a million dollars in revenue. When I left Gartner, I was the global sourcing lead and the Gartner practice was a hundred million in revenue across consulting and research services. With these experiences I founded Avasant and brought many of the key leaders and experts in the field into our firm.
Phil: So tell us a bit about Avasant – you seem to be very active in the outsourcing space, in particular. But are you a traditional outsourcing advisor or do you have special focus areas that separate you from the traditional advisory players?
Kevin: We definitely have the traditional outsourcing advisory business as part of our service suite, but that certainly does not define us. What we are seeing is somewhat of a race to the bottom, or lowest cost, with outsourcing advisory. And when we say, “established players” or “historic players,” what we are really talking about are the folks who come from the early IT service provider deals such as with EDS, IBM etc. These types of transactions were historically very large, and they were focused primarily on IT infrastructure and applications services. Today’s deals are driving very complex business strategies, and they are focusing on Cloud. They are focusing on the Digital Enterprise.
In that sense, I believe we are quite different than our traditional competition because while Avasant is focusing on larger and more strategic relationships with our clients, we see our competitors focusing on smaller and smaller deals. And what do I mean by that? Well, that’s the race to the bottom I referred to. If you know how to do a certain kind of deal, and you have been doing it for 20 years, it is difficult to stop doing that kind of transaction. And you have hired people that know how to this work, and you have got a lot of investment. But the commoditization of the standard IT infrastructure outsourcing—and more so now with Cloud services layering on top—that commoditization is forcing deals to get smaller. Actually, at Avasant, we see the opposite.
We are involved at a strategic level with our clients, so Avasant’s deals tend to be larger focusing on business drivers. They are bigger because we are focusing on transformational deals that do not only underscore technology, but also focus on e-commerce, the digital enterprise and technology enablement.
I’m very excited about our business today because we are nimble, and we are able to focus on large, not small, transactions. We really do not want to be the “McDonalds” of transaction providers because that business is going away. As we look at where we are growing, we are growing in two primary areas; I’ll give you the first take on this one.
First, we will soon be announcing our digital strategy practice—Avasant Digital—and folks have been asking about it because of all the things we have been doing in this space. We have been waiting to announce this practice until we had a few really good client relationships that we could build on, and of course, a more defined practice. But that is going to be announced in the coming month.
The second area of growth is our globalization practice, which many are very familiar with. Although this does not comprise a large portion of our revenue, it is different and none of the other established players have this kind of a practice. Today we have 29 national governments that are Avasant customers. They hire us to establish a BPO strategy in their emerging market to attract service providers and buyers to those regions, attracting foreign directive investment and jobs, and we advise them.
We compete with different types of firms in this space. But this is a strategic opportunity for us; we have been doing it for many years. We have a relationship with the World Bank as a result of this, as well as the Inter-American Development Bank and United States Trade Development Agency. And our focus is really broader than just sourcing. We think that by focusing on the emerging markets, we are creating a more diverse opportunity set for our clients than maybe just outsourcing to India.
The second area of growth is our globalization practice, which many are very familiar with. Although this does not comprise a large portion of our revenue, it is different and none of the other established players have this kind of a practice. Today we have 29 national governments that are Avasant customers. They hire us to establish a BPO strategy in their emerging market to attract service providers and buyers to those regions, attracting foreign directive investment and jobs, and we advise them.
We compete with different types of firms in this space. But this is a strategic opportunity for us; we have been doing it for many years. We have a relationship with the World Bank as a result of this, as well as the Inter-American Development Bank and United States Trade Development Agency. And our focus is really broader than just sourcing. We think that by focusing on the emerging markets, we are creating a more diverse opportunity set for our clients than maybe just outsourcing to India.
The third separation is this: Avasant launched a foundation in 2012 called the “Avasant Foundation.” This came about from the Rockefeller Foundation, which provided Avasant a grant to analyze “Impact Sourcing,” which is essentially the outsourcing of services to rural communities and emerging markets. This is regarding certain defined levels of poverty and socio-economically disadvantaged people, and the goal is getting them into the global economy.
That study spawned a foundation, and that foundation now works very closely with several service providers as well as the nonprofit space to help build opportunities in those communities. We are very excited about that. It is obviously not part of our commercial business; it is a separate company.
Avasant also maintains a separate law firm, Avasant Law Incorporated in Washington DC, to support our transactional work and sourcing.
These are some of the differences in how we view the market, why we are expanding into the digital space and continuing to work with emerging markets in addition to sourcing, which is our primary focus.
Phil: When you talk about digital, isn’t that really CMO-led engagements in areas like social, mobile and analytics?
Kevin: It can be, yes. Increasingly chief marketing officers are leading these engagements. But what we are finding is that the smart CIO is not getting left behind. In many cases, the CIO is actually leading and taking these “digital” opportunities to the CMO and saying, “Hey, have you thought about this? Did you know that we could develop a platform on Amazon?” Or, “Did you know we could have the eBay GSI commerce store?” These are the kinds of services that CIOs, historically Avasant’s clients, are struggling with today; they need a lot of guidance to stay relevant. But the buyers are the chief marketing officers and chief strategy officers; we even have a few COOs.
Stay tuned for Part 2, where we discuss the democratization of sourcing and the new levers enterprises can pull in their relentless quest to find new productivity… and the impact this is all going to have on the labor force of the future.
Firms like HfS Research, Constellation and GigaOm have built their brands very quickly, in just a few years, and are now more visible than more established firms.
–Duncan Chapple, Influencer Relations, June, 2014
As if by some freak of nature, the very next day after we stirred the pot questioning whether analysts needed regulating (or self-regulating), the industry’s leading analyst/influencer observer, the venerable Duncan Chapple of Influencer Relations and Kea Company fame, penned a blog that clearly demonstrates the sands are shifting in the analyst world when it comes to wielding influence over enterprise buying decisions:
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Several analyst boutiques are out-influencing their much larger competitors
As these results reveal from Analyst Equity and Kea’s recent Analyst Value Survey of several hundred research consumers, Chapple states that “Firms like HfS Research, Constellation and GigaOm have built their brands very quickly, in just a few years, and are now more visible than more established firms. A great example of this is shown by the Net Influence Score from our survey, shown above.”
The Net Influence Score shows, for each firm, the net percentage of the respondents mentioning a firm as having rising or falling influence. This chart shows the percentages for the firms about which the most respondents had an opinion. Chapple continues, “Newer firms like HfS and GigaOm are coming from a lower base of awareness: that makes it all the more remarkable that HfS was not only one of the two firms which the most people commented on (alongside Gartner) but also had the highest Net Influence Score. GigaOm and Constellation’s scores were almost as high, but far fewer people commented on them. This also reflects HfS’s successful 50:50 income split between vendors and end-user clients, developed through compelling offers like its Sourcing Executive Council.”
Does this mean the analyst industry is going to change overnight?
I believe it is unlikely that we’ll see many new behaviors coming from the incumbents as a result of the gaining traction made by several of these upstarts. While Forrester seems to be making some more dramatic recent moves by replacing several traditional analysts with consultants to sell more strategic/consultative product to clients, the established “big two” of Gartner and IDC are persisting with the same firewalled model and approach that has served them so well for decades. And why change their successful models until they have to? Surely they are entitled to feel immune to disruption and innovation from nimble competitors… they are, after all, comprised of analysts who cover innovation and disruption for a living.
However, what is changing is the emergence of boutiques, often with much deeper specialization, more open collaborative models and a more engaging, personable approach to working with clients. What is also happening is the capability of small firms to influence and make a damn big noise to industry – often bigger than the incumbents. Analyst firms which are steeped in social media and “born in the cloud” are simply more nimble, less costly to operate, and much easier to engage with in an open and collaborative model. They are also not steeped in legacy business practices and bloated bureaucracy that is highly resistant to change.
Duncan Chapple is MD for Kea Group's Influencer Relations Practice (Click for Bio)
Whether these boutiques will ever grow to be the size of Gartner is highly unlikely (those days are over), but it’s clear that the legacy model is being slowly eroded – and – as so many people pointed out in my recent blog-rant, regulation shouldn’t be necessary as many industries a way of evolving and disrupting themselves. Personally, I would like to see the analyst industry impose upon itself some form of self-regulation, but I do not believe we will have many willing accomplices who would join us on said mission.
The Bottom-line: Change is coming – and not everyone will be ready for it
Net-net, just look at how social media and the open information market have disrupted other content-based industries such as PR, media, advertising, publishing and education… surely it’s now only a matter of time until the analysts and consultants get turned on their heads with the nimble, engaging disruptors coming along to change the model forever… there’s a whiff of change in the air and it maybe coming sooner than many of us realize.
One issue that is increasingly rearing its ugly head is the ridiculous – and often insane – demands industry analysts are placing on providers of technology and business services to pony up client references for their scatterplot charts. The situation has become so bad that the integrity of these research processes appear to be reaching a breaking point, and I would argue that some form of regulation is needed to protect the interests of the business consumer.
The leading analyst firms are demanding five client references per provider.. and one recently even requested TEN client references. The requests are made with the veiled threat that the analyst will “not have sufficient information on the provider’s performance” if these references aren’t made. When I repeatedly have multiple providers complain about the situation to me, in addition to several of these overused buyers, surely it’s high to get this issue on the table?
Correct me if I am wrong here, but isn’t it these analysts jobs to have regular ongoing conversations with buyers of their covered markets, so added references are merely a rubber-stamp? In fact, why are references even needed if these analysts are so informed, connected to the buyers and have so much valuable data and research to call on?
So why is this a growing problem, I hear you cry?
Can you imagine what it must be like for a provider to ask a good chunk of its referenceable clients to partake in one hour reference calls with 3, 4 or even 5 analyst firms? Not only that, these same clients are being asked to provide even more detailed references to sourcing advisors and management consultants for their procurement and vetting processes. Hence, some of these referenceable clients are being asked to spend many hours of their time talking to analysts and consultants about the same old stuff. I have had several providers openly complain about the strain this is putting on them – and some are almost at the point of simply having to decline to provide any, as their clients are literally fed up with the whole racket and the demands on their time.
While these analysts can argue that providers should have lists of hundreds of clients they can use for referenceable interviews, when we get into emerging areas like analytics, mobility, social, digital, industry-specific processes etc, some providers will only actually have a handful of clients. So going back to the same old well time and time again to reach those outer peaks of excellence in analyst graphs is becoming an increasingly impossible task that has now reached breaking-point.
Why this dog and pony show needs to change
1. The providers better at schmoozing their clients to pony up references win. Some providers invest a fortune in their “red carpet” clients to ensure they will spend a good few hours each week singing their praises to the analysts. This is nothing new – and most smart vendors have figured out how to game the system over the years. However, where the demands on the clients time increases form 3 hours and month to 3 hours a week, the level of schmoozing required reaches new levels of tolerance, and even the cleverest of providers are struggling to stack the deck in their favor – they can’t provide enough World Cup tickets or VIP parties at the Masters to keep everyone happy. But this also brings into question the impartiality of these references – everyone knows they are going to be given through pink-champagne-tinted lenses, so why some analysts even bother with some of them is beyond me…
2. Some analysts clearly do not spend much (or any) of their time talking with buyers if they are relying purely on provider references. To the defense of the analyst firms, why should their analysts have connections with enough buyers in their covered industry to conduct credible assessments of provider performances? They’ve clearly been making a ton of money employing analysts who live in a world of listening to vendor hype, so why should they correct-course and make sure they have their analysts spend more time in the real world of (gasp) talking with buyers? If the provider side keeps funding these analyst firms to keep behaving in the same way, nothing will change and this situation will continue to worsen.
3. Some analysts don’t even bother to include providers in their scatterplots if the vendor refused to “partake”. Yep – this happens, folks. How any credible analyst worth her/his salt can put out provider assessment scatterplots and leave out major players in their market is beyond me. However, there are analysts who literally have no other way to “assess” provider performance if they do not have heaps of marketing guff and a few client attestations to lean on, so they just drop those vendors unwilling to pony up the references and “partake” in their assessment process from their report.
The Bottom-line: The analyst business is caught in a vicious Catch-22 cycle and the only way to break this is to regulate it
Have some sympathy for the providers here – there are clients who make purchasing decisions based on analysts’ assessments, so they have no choice but to jump through the ridiculous hoops some analysts are demanding. Not only that, these vendors are forced to help fund these analyst firms so they can ensure they can monitor the analyst research and get enough face-time with the analysts to get them to portray them as accurately as they can hope. So while the beast is constantly fed, this situation will only continue to exacerbate.
In a world where equity analysts can’t even have a provider buy them a diet coke, why are so many of the industry analysts allowed to perpetuate this ridiculous racket of having providers fund them, and even do their “research” for them? Surely when an industry reaching a quasi-monopolistic situation, like the industry analyst business has, it’s time for fair play to be demanded?
The industry for technology and business services alone is over a trillion dollars annually (and that’s just external spend, not internal). Surely it’s time for government to step in and demand these “research” processes are run fairly, and these analysts are doing their research appropriately? Doesn’t the government have a duty to protect its business consumers to ensure they are getting far and balanced advice for critical business decisions that could significantly impact their futures? Should firms peddling “research” need to to meet standards of quality and integrity to which so many other industries are held? Somehow industry analysts have escaped the real world and create their own rules and economy…
While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.
Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely – whether by an outsourcing provider or their own offshore shared service center. And – as we’ve lamented on this site since the days when ACS was a market leader and people still used Yahoo! – enterprises are just obsessed with driving out cost – and then figuring our things like “transformation of processes” at some future point in time.
However, the difference today is that most of the perceived “risk” of moving offshore has gone and enterprises are simply doing it as part of their day to day operations. The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:
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The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing. While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services – a similar trend to IT infrastructure. Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring – almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations. We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.
The Bottom-line: The story today is about managing integrated services across global operations
1) The game has switched to integrated global operations management. It was barely 2-3 years’ ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost. What’s clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly). They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves. What’s more, many organizations are clearly not very impressed with the quality of their providers’ resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we’re seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called “Integrated Business Services”. We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.
2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS. While it’s not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today. Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.
Net-net, offshoring provides a very durable BandAid for many organizations, and we’re still yet to witness a slowdown in the amount of offshoring that is taking place – in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher. Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.
3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise. Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan. Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa. As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.
Am I smoking something illegal, or has our industry really started to lose the plot with the amount of buzz terms that – quite frankly – only mean something to the sellers and advisors trying to make their wares sound that little bit savvier than their competitors. And even then, I am not too sure whether many of them even fully understand what they are buzzing about either, more simply regurgitating what their competitors are saying.
I’m not trying to be a fuddy-duddy here, and I do empathize with the exuberance of so many sell-side individuals who are simply starry-eyed at all the disruptive technology and evolving business models that are on the horizon, but c’mon folks, can we find a sensible balance between vision and reality? Why has it become so uncool to talk about where we are, as opposed to where we think things might evolve in 5 years’ time?
I mean, wasn’t it barely six months ago when we were still having (relatively) meaningful debates about things such as:
“What is innovation, and how can I get some of that?”
“How can I find a provider to do something more for me than provide cheap labor”
“I really would like some visibility over my order-to-cash process chain”
“Our provider still can’t figure out how to automate our accounts payable processes”
“Do we really get value from outsourcing all this stuff – are there other options to consider?”
Instead, suddenly it’s become terribly untrendy to have meaningful conversations about what we’re actually trying to achieve… like improving processes, trying to do a better job than merely maintain status quo operational performance, and accessing meaningful data to help us get more value from our day to day operations.
Yes, folks, if we aren’t creating Digital Services on SMAC platforms, we’re going to fail with Big Data and the Robots will come to replace us… so let’s see what 312 major buyers – in the brand new State of Outsourcing Study we conducted with KPMG – really understand about today’s latest slew of sexy savvy-sounding soliloquies:
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All joking aside, there is a serious message here: too many buyers are getting lost in the verbiage and the lack of relevance to their businesses and simply don’t understand exactly what is being sold to them. Let’s be honest here, SMAC doesn’t mean anything to 70% of buyers beyond being a concoction of new technologies lumped together… finance executives have been talking about “Big Data” for four decades and nothing is really new except the fact there is better technology to help them analyze it… I can go on. Oh – and nearly a third of buyers don’t know what “transformation” means to their business? Seriously?
The Bottom-line: Our industry is simply terrible at communicating to clients and needs a major reality check
There is an abject communication problem in our industry, when such vast numbers of operations executives are baffled by the BS their providers and advisors are lobbing at them via boring white papers, instantly-forgotten PPT decks and thousands of automated inane tweets.
It’s time for the industry side to start tying all this buzz to the reality of operations – where we can educate how enterprises can learn more about where the world is heading, how they can start to evaluate the pace of change that will impact them and develop change programs and new operations strategies that make sense to their businesses.
We have got to stop jumping on the bandwagon of spewing poorly communicated rubbish that has little meaningful relevance to businesses today, and instead explain in plain English how processes and interactions can be digitized, how robotics could one day enable our business systems to become more cognitive and less reliant on manual steps, how new analytics tools and expertise can help our staff become more relevant and valuable, as opposed to turning widgets and updating spreadsheets. Most of the stuff I read today is focused 95% on flashy terminology and only 5% on the actual substance on what businesses can do with all this stuff.
It’s time to get meaningful people and stop this feeding frenzy of confusing jargon…
The residential mortgage services market is one of the most established and competitive segments of the global BPO industry. Most of the major service providers have been in this market for a considerable time providing services across the process chain of mortgage origination, mortgage servicing and the (sadly more significant these days) area of loan default and foreclosure management.
It used to be that most service providers were simply providing domestic or offshored labor to augment the capacity needs of the large lenders, but that old operating model is being changed as a result of the consequences of what happened to our global economies post 2008 – and especially in the US. Whereas before the crash the entire mortgage industry was going through such a “gold rush” that volume took precedence above all else, now, as a result of increased regulations and reduced volumes that have driven up the cost of completing a loan origination, the focus is elsewhere.
Today, this is an industry looking closely at the processes and technologies that underlie the business and turning to industry savvy service providers which can provide cost effective, compliant delivery that increasingly includes a significant component of sourced technology solutions as well. This mature market is changing and, as a result, so too is the roster of BPO service providers who are meeting those evolving client needs. So let’s take a closer look at the innovation and execution capabilities of the leading service mortgage services BPO providers:
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HfS has evaluated the innovation and execution capabilities of service providers catering to the origination, servicing and default/foreclosure management processes of residential mortgage lenders. We asked our EVP of Research, Charles Sutherland, who led this blueprint initiative, to share some of his insights arising from this Blueprint Report.
Charles, what are some of the key challenges facing lenders today?
This is a market segment undergoing a profound level of change. First, of all there is a dramatic fall in customer demand for new loans as post-crash engine of refinanced loans is coming to an end. Second, is the rise in the overall costs of originating a loan, which are now up several thousand dollars versus where they were before the crash as a result of new regulations and closer scrutiny over the origination processes. Third, has been huge growth in defaults and foreclosures which has brought increased costs, risks and scrutiny to part of the industry leading to a need for new solutions, technology and insights as to how to move forward with a reduced risk profile. Fourth, regulatory changes and large fines for procedural misconduct have led to a fundamental re-examination of processes and in some cases to all out exits from the market as well. Finally, gaps and weaknesses in the legacy loan origination and servicing platforms of major lenders have also been identified which requiring either all out replacement of these technologies or at the very least new tools and enablers to cover these shortfalls in functionality and effectiveness.
And how are service providers adding value to lenders after the global real estate meltdown of 2008-09?
More than anything else, service providers are adding value by changing their core offering. They have moved away from a model that was often based on providing just labor to cover demand peaks to one, which is consultative, technology driven and analytics based. Service providers are working with their lending and servicing clients to identify and re-think broken processes, to bring technology solutions into even the most entrenched of legacy application platforms and they are building up their rosters of industry experienced staff to provide insights based off the increasingly sophisticated analytics engines and tools which are being included in the service provider solution sets.
How did they winners shake out?
The Winner’s Circle features recent entrants, pure-plays, globally scaled players and visionaries
The leaders in our analysis all have the capability to support the most demanding of mortgage lending institutions but approach the market in very different ways:
Accenture who was a late entrant into this market when they purchased Zenta in 2011 but who have come on strong with an additional acquisitions and an offering that seeks to transform the processes of the largest lenders first in the US and now in Brazil as well.
ISGN who are the only pre-play mortgage services provider in our Blueprint and who have differentiated through their flexible technology solutions in all areas but especially in Origination.
TCS who have built a global scale out of their core Citibank N.A. relationship and supplemented it with nearly 6,000 person strong delivery capability
Wipro who have sought to especially address the needs in the default and foreclosure management process and recently purchased Opus CMC to add leading capabilities to assess mortgage risk and meet the due diligence needs of investors in the mortgage market.
All of these service providers have built global delivery capabilities, invested in supporting technologies, brought their considerable continuous investment capabilities to bear from areas to fix broken processes, realized the emerging value of analytics, and have undertaken exceptional account management and client engagement efforts. We recognize Accenture, ISGN and TCS for leading overall Execution, while Wipro leads Innovation although it should be noted that all four Winner’s Circle members lead the market in Innovation criteria.
High Performers Represent Strong Competition. High Performing service providers including Cognizant, Genpact, IBM, Infosys, Sutherland GS and Xerox have strong execution skills and are also innovating to respond to the changing requirements of their buyers.
And finally, Charles, what is your key takeaways from this study?
» Most buyers are ready to look at new solutions. Our client interviews highlighted the change in mindset amongst lenders in the years since 2008-09. Yes, they are still sourcing labor to cover demand above the baseline levels of their own operations but they need and want more today. They want service providers who bring a vision for the market, solutions that address significant market challenges and which reduce both their direct costs but also their risks. For a mature BPO market like mortgage services that represents a fairly fundamental shift in mindset as to what is being sourced and valued by buyers today.
Charles Sutherland, report author, is EVP Research, HfS (click for bio)
» That Service Providers are re-upping their investments in this market. We saw across the board from the largest service providers to the smallest that they see a real opportunity to help their clients today and going forward by investing in deeper capabilities. Its not just about minor investments either, service providers are really stepping up with acquisitions and technology investments to build their capabilities to meet the increased demands on their clients.
» That the next frontier is global for mortgage services. Service providers are moving even faster than their clients to become global service providers. It’s not just about meeting the needs of US based lenders now, it’s about Canada, UK, Australia, India and now Brazil as well and we expect to see this move to global capabilities accelerate in 2014 and beyond.
HfS subscribers can click here to download their copy of the 2014 Mortgage Services BPO Blueprint Report
When we recently calculated the profit margins of top IT service providers in our HfS IT Services Top 10, it was very apparent that TCS enjoys the highest profit margin, by a considerable distance, of 28.4% among the top 10 global IT services providers and also among the leading offshore centric IT service firms. Hence, not only does TCS enjoy the highest revenue growth in the IT services industry, it is also the most profitable – so what’s the secret sauce?
In a world where there is constant downward pressure on services pricing and there is increasingly availability of disruptive alternatives that should begin drive down the reliance on an FTE-based delivery model, how – on earth – does TCS do it? So we asked HfS Principle Analyst Pareekh Jain, to take a deeper look, and it was quickly apparent that the firm has increased its proportion of “freshers” (recent college grads) has increased from 50% to 80% since 2007:
Click to Enlarge
The interesting metric to analyze is employee cost per headcount, which has grown from Rs 1.155 Million in 2007 to Rs. 1.240 Million (US $21,200) in 2013 – an annual increase of just 1.2%. This is an outstanding achievement given the high wage hikes in India and other countries. A conservative estimate of 8% annual wage hike in India, 2% hike in developed countries and 4% hike in other developing countries will lead to about 7.5% weighted average annual wage hike for TCS mix of employees.
As shown in the following exhibit, TCS has effectively achieved 6.3 % reduction in average employee cost every year. This is one of the secrets of profitability model of TCS:
Pareekh, the data shows the percentage of freshers increasing from 51-81% from 2007-2013 – which appears to be the primary reason for maintaining this low headcount cost. How does this increase in freshers impact the overall TCS business, in terms of the type of services it offers clients? While it clearly increases the cost-effective scale of delivery it can offer clients, does it broaden the scope of services, or limit it to more transactional activities? (i.e. are they investing more in the “top and bottom” of the firm and removing the fat in the middle?)
The increase in percentage of freshers impacts service mix in TCS in two ways – Firstly, hiring more freshers gives TCS the flexibility to deploy them in lower value and transactional activities thus freeing other high calibre experienced resources for higher value work. Secondly, training freshers for new skill is easier than retraining old resources for new skills. Thus the increased fresher mix gives TCS the flexibility for cost effective and faster scale-up in new services as well as scale-up in higher value added services. For example, TCS can scale faster and cost effectively in SMAC with freshers, than scaling up with old resources. On the flip side, the increased fresher mix has potential to cause disruption on existing projects. So far TCS has managed its projects well, which is reflected in their repeat business from over 90% of their existing clients.
Yes, TCS is investing more in the “top and bottom” and removing the fat in middle. While this move is good for profitability, it has medium and long term HR consequences. With disappearing middle layer the growth path of employees will be uncertain. “Top and bottom” structure in TCS and other IT firms could become similar to the structure in management consulting industry with “up or out” policy. The middle layer in management consulting gets absorbed in industry in either operations or corporate planning roles but in IT there will be no such large scale opportunities. As long as IT services is in the strong growth phase, overall there are opportunities for all IT services professionals and party can go on. The moment the growth suffers, the Indian IT industry will find itself sitting on the HR time-bomb.
It appears the profitability endurance is much more tied to controls over labor costs, than advances in delineating headcount from revenue. Is this correct, in your opinion?
Yes absolutely. The control over labor costs had significant impact on profitability, whereas delineating headcount from revenue had very little to no impact. There are two reasons why delineating headcount from revenue had not had any significant impact. The first reason is that over all share of delinked revenue is very small. For example in 2013, the revenue from asset leveraged solutions (the non-linear revenue) for TCS was only 2.7% of total TCS 2013 revenue. The second reason is that the growth in headcount-delinked revenue had not been consistent. For example, TCS had negative growth in asset leveraged solutions in 2013. The asset leveraged solution revenue declined by 9.5% in 2013 in comparison to 2012. In my opinion we are few years away when headcount-delinked revenue starts showing any significant impact on profitability.
On a related note, there are different management challenges in managing headcount delinked revenue which IT service providers are not able to overcome effectively. Last week, Infosys has formed a separate subsidiary for products, solutions and platforms (PPS) called Edgeverve Systems. We don’t know whether this is an isolated case or it will be the trend and other IT service providers will follow this separate subsidiary path for products and headcount delinked revenue.
How, in your opinion, is TCS able to maintain the highest growth AND the highest profit margins of all the Indian majors? Surely its competitors can simply copy the model?
TCS is very competitive on pricing and it tries to manage its costs instead of price increases. From 2007 to 2013 the average revenue per headcount only increased annually by 0.3%.
However, TCS was not the profitability leader among Indian IT services majors few years back. The gap in profitability between TCS and its peers has grown recently as the firm has increased its scale. TCS was able to beat Infosys in profit margin from Oct 2012 only (prior to that, Infosys was profitability leader among Indian majors). The profitability levers we discussed in our TCS study are adopted by all Indian majors, but the difference is in aggressiveness and execution. For example, TCS is most aggressive among Indian majors in using Tier II and Tier III cities. It is constantly scouting for Tier II and Tier III cities and developing facilities to provide future capacity of 8000-10000 FTEs in each of these new cities. We have not been able to compare freshers percentage among the new hires across Indian majors because of lack of credible freshers data, but we believe that TCS will be the most aggressive of all the Indian majors.
Finally, it is the cycle of high growth and high profitability which is complementing each other in TCS’ case. Because of the high growth, TCS can afford to use both new facilities with economics of scale in Tier II and Tier III cities without disruption to its existing centers, as well hiring more freshers without letting go its middle-level employees. This, in turn, increases the profitability of TCS, and TCS can offer aggressive pricing for both in services to new customers as well as in cross selling opportunities with existing customers. The aggressive pricing increase growth further and the cycle goes on.
Pareekh, many people argue the Indian model will eventually breakdown as the firms cannot move away from the FTE driven model, and new advances in areas like automation, and Cloud platforms will disrupt the way the services are priced and delivered – and the intensity of labor needed is simply going to reduce. However, I would argue that several of the leading Indian providers are as well placed as any of the Western providers to take advantage of these disruptive technologies to break the linear model. What’s your view point in on this?
Capability-wise Indian service providers are at par with the western service providers and can offer automation and cloud based business models. But whether they will do it is another question. Historically, disruption in any industry it is not led by the incumbents.The incumbents have vested interest in maintaining the status quo, or a slow growth in disruptive innovation, so that their existing revenue streams are not cannibalized. Kodak didn’t suffer because it had no capability in digital photography, more its failiure to see the speed of transition to digital photography – and it didn’t refocus and reorient its large profitable film business in time. In the IT services industry, the last major disruption was offshore outsourcing, which was led by India based service providers. The India based service providers scaled so fast that the western providers were left playing catch up (and many failed).
Similarly I feel next disruption of automation or cloud based solutions in IT services could be led by the new breed of service providers which can adapt and scale so fast that the existing incumbents (both Indian and western providers) will be left dying on the vine.
And finally, Pareekh, how about that Indian election? How will Modi impact the services industry? Is this a good thing for the industry, in your view?
The victory of Modi and the BJP is very positive for India and Indian economy, however, for IT services it will be a mixed bag. In last couple of days, Sensex has shot up and the Rupee has appreciated. It is believed that there will be strong bull run in Indian economy, driving the Rupee to appreciate further, negatively impacting the profitability of the Indian centric service providers
Pareekh Jain is Principle Analyst, HfS (Click for Bio)
On the positive side, the economy is expected to be back on track. The policy paralysis of the previous government has led to the slowdown in new projects and foreign investments. Now new projects will be implemented and foreign direct investment will increase, which will stimulate growth in the domestic IT services sector.
Overall growth in the economy will remove many supply side constraints – better power and infrastructure with improve the business environment in Tier II and III cities, which, along with greater tax stability, should be a catalyst for IT services growth. So far the BJP ruled states – Gujarat, Rajasthan, Madhya Pradesh, Chattisgarh and Goa have been laggards in becoming preferred IT services outsourcing destinations, however, with the BJP government, I expect more IT services attraction in Tier III cities in BJP ruled states, such as Jaipur, Ahmedabad, Indore, Goa, Raipur and others.
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Thanks for your insights, Pareekh. Readers can download their complimentary POV article entitled, “Decoding the Profitability Model of TCS”, by clickinghere.
Forget the Ryder Cup… this June we are assembling the ultimate pool of European and American services talent to duke it out on the hallowed lawns of Cambridge University’s Gonville and Caius College to find our who’s really delivering above par.
Yes, we’re flying over a team of sourcing leaders from the USA to compete for the first ever global sourcing crown against the determined Europeans, who believe they have a strategic approach to their game that will ultimately deliver more value.
Are we finally ready to cross the value chasm?
We’re counting down the final days before the next “HfS Blueprint Sessions“ summit (click here to apply for a place) at Gonville and Caius College, Cambridge University, on 24-25 June this summer. This will be the the most revealing and intimate discussion yet on the future of integrated enteprise services, outsourcing and operations models. And where better to have the conversation than in the oldest University in the modern world – where we guarantee less of the dinosaurs and more of the dynamics?
The sessions will kick off with a buyers-only session in the afternoon of the 24th, where we will discuss North America Meets Europe–Who’s Outsourcing Smarter and Where Can We Improve? Discussion leaders include Suzanne Ryder, Global Finance Processes Director at WPP, John Haworth, Globalization COE Lead at Cigna, Jim Loftin, Head of Outsourcing at Silicon Valley Bank and Lee Coulter, CEO, Shared Services at Ascension Health. This is where America and Europe really get up close and personal…
Add buyers, providers, advisors and leading academics… and what do you get?
After several bouts of boisterous banter, the bevy of buyers will be joined by a selection of leaders from the major service providers and advisors for drinks on the Fellows Lawn in Gonville Court and dinner in the main dining hall in Gonville and Caius College. After many rounds of desert wines and ports, the delegates will be escorted to their rooms in the Stephen Hawking Building, which will have everyone reminiscing of their old college days, only slightly tarnished by the fact they do not have the option of skipping out on lectures the following morning.
The best research meets the best minds in the services supply chain…
Day two will kick off with The Services Supply Chain Mega Trends: Crossing the Value Chasm co-led by Phil Fersht and Charles Sutherland of HfS, immediately followed by the Aligning Corporate Goals and Developing Value Levers with Evolving Outsourcing Needs led by Sheilagh Douglas-Hamilton, Head of Outsourcing at Lloyd’s Banking Group.
Managing the Deal: From Isolation to Collaboration. Astrazeneca’s Global Outsourcing Lead, Jackie Gardner, will lead a discussion on how to bring together the internal stakeholders to promote and execute the capabilities of their outsourcing experience across the internal business units, the governance teams and their operational leadership.
Developing a Digital Roadmap to Drive Next-Generation Services. The SEC’s own John Ashworth will then tackle how his firm, Pearson, is leveraging advancements in technology and digital services to improve its BPO outcomes and create a more innovative environment. Pearson has had to contend with a publishing industry that has been through unprecedented secular change over the past decade, and its BPO experience has created new avenues for scalability and focus, as Pearson evolves its product portfolio.
Moving to the Cloud Corporation. Back by popular demand, London School of Economics’ Professor of Technology Work and Globalization, Leslie Willcocks, will deliver a keynote on his latest research on the Cloud corporation. Leslie will also be sharing new copies of his book, sporting the same title.
Commenting on his upcoming talk, he added, “With ‘Cloud’ we need to see how to deploy these technologies well, and there are good examples, but I see all too few businesses ready for ‘Cloud’ converging with mobile internet, automation of knowledge work, internet of things, robotics, social media, and digital fabrication. Join us to examine the near and long term challenges, opportunities and impacts, and what they mean for you.”
Integrating Services Governance across the Extended Enterprise. After lunch, we will hear from Roy Barden, who has taken on the role of Head of Next Generation Shared Services, Cabinet Office, Her Majesty’s Government. Essentially, how is the UK public sector looking at evolving its approach to outsourcing and shared services? Discussing his session, Roy stated, “I’m looking forward to sharing and learning from the best brains in the world of shared services and outsourcing.”
Are Providers Selling what Buyers Actually Need? Next, it’s time for the breakout sessions, where messrs Lee Coulter and John Haworth will be among the captains leading designated teams of buyers and providers to explore whether buyers are buying what they really need sellers selling to them. Oh.. and whether advisors are advising what buyers should be buying and sellers should be selling.
According to Cigna’s Haworth, “Enterprise buyers are struggling to make sense of the implications of cloud, crowd-sourcing, crowd-funded innovation, robotic process automation, big data, and the end of bricks-and-mortar. The persistently labor-arbitrage-heavy services that most of the prominent service providers offer seem increasingly beside the point. Are the service providers a leading or lagging influence, and will their business models last? Ultimately, are they selling what buyers need?”. Yes – we’re getting right to the nub of these issues…
Managing and Executing a Meaningful, Effective and Lasting Contract – based on what we learned today! And finally it’s time to get back to reality and figure out how to take all the things we collectively agreed and build them into a future-proof contract. And who better to lead this discussion than Microsoft’s head of Strategic Deals, Srini Krishna, accompanied by “we need to stop being good at irrelevant stuff” Lee Coulter.
The Ultimate Industry Leaders Panel: How We Can Fix This Industry to Cross the Value Chasm. And finally we cap off the day with our famous “face/off” between buyers, advisors and providers, as yours truly asks the hard questions that no-one wants to answer.
And, this time we, will pit the USA against Europe in one final shootout more to finally decide who wins the Services Ryder Cup, where Deloitte’s European services supremo, Peter Moller, will captain his side against the USA’s GBS judge Cliff Justice of KPMG.
So there we have it – one-and-a-half extraordinary days of sourcing soliloquies served up in a serious sojourn of spontaneous serendipity. In addition to the discussion leaders mentioned above, we already have the pleasure of hosting executives from the likes of the BBC, GlaxoSmithKline, Syngenta, Orange, Coventry Building Society, UBS, Whirlpool, Maersk, Rio Tinto and Kimberly-Clark – will you dare to be part of this?
As you can imagine, there aren’t too many places left to fill for this occasion, so I do urge you to submit your registration here, or drop us a line with any questions you may have about what it may take for you to become part of these shenanigans.
We should change the image of the industry, there are fantastic opportunities for people who want to get involved and we should do a better job of attracting talent
– Chris Stancombe, Capgemini, May 2014
Christopher Stancombe is Chief Executive Officer, BPO strategic business unit, Capgemini
One of the main features of the BPO industry since the Great Recession has been the emergence of several providers with a progressive outlook, which are now driving the market. One of those has been Capgemini, which has captured third spot in market share and made the Winner’s Circle for finance and accounting (F&A) BPO.
In addition, the BPO service line has been promoted to a tier one delivery unit for the global Capgemini organization, giving the division added strategic focus and resources. Great credit has to be given to Hubert Giraud who has overseen the growth of the BPO business and has now been moved upstairs to lead HR and transformation of the whole Capgemini company – clearly great recognition of his success leading and growing the most people-centric business unit for the firm.
Filling his shoes has been one of the mainstays of the BPO business, quietly asserting his practical style and approach to operations and global services. Since joining Capgemini in 2005, Christopher Stancombe has overseen the expansion, growth and maturity of the Capgemini F&A BPO business, before advancing to the COO role for the whole BPO division last year and then taking on the full CEO role from Hubert this year.
For those of you who don’t know Chris so well, he actually started his professional life as a geophysicist and even ran an African engineering business before venturing into the world global service provision. He’s a straight-talking, pragmatic chap who likes to get to the point… so without further ado…
Phil Fersht, CEO, HfS Research: Good afternoon, Chris, and welcome back to HfS. I think it’s been three years since we last had you on here (see interview). So I imagine quite a lot has changed. Can you just tell me what you’ve been up to? How have the last three years fared?
Chris Stancombe, CEO, BPO Division, Capgemini: Thanks Phil, it’s a pleasure to speak with you again. This year we are celebrating our ten year anniversary of BPO at Capgemini and I’ve been here for nine of those now. So it has been a good time for reflection. People always say it, but the pace of change is incredible. Over the last three years I’ve been very focused on the delivery side as head of global operations, running all of our centres as well as all of our client engagements across the world.
We’ve worked pretty hard, as I’m sure you’re aware, on our Global Enterprise Model—I’ve been driving that to ensure we have a standard approach across the globe to deliver transformation for our clients. We also reorganized last year to shift from a service-based structure to an industry-focused organization. I’m a great believer in being more and more client-focused, and our industry-focused organization really helps with that.
Phil: And again congratulations are in order, (or commiserations) now you’ve been promoted to the CEO of the BPO Division. So what can we expect from your leadership? Are you going to be doing anything different?
Chris: Hubert and I have worked very closely together over the last two or three years. As you know, I used to run our Finance and Accounting service line, which is a big part of what we were about as an organization. I think what you will see from me as CEO is that same energy and enthusiasm across all of our service offerings.
For example, we’re increasingly strong in the supply chain area, including our procurement offering, and we’ve been building more and more capability in our analytics offering. In addition to that, using those capabilities, we continue to build vertical offerings such as the demand-driven supply chain for consumer goods and retail clients, insurance claims for financial services and participations in the media and entertainment sector.
We’re also introducing BPO as a stack, where we’re looking across traditional boundaries between the service, process, application and infrastructure layers. We’re bringing all of those together to reduce the total cost of service for our clients and also improve quality and timeliness. Overall, we will continue to drive the transformation agenda: delivering strong outcomes for our clients built around the Global Enterprise Model as a framework and leveraging more technology.
Phil: So, in our latest research into the future of BPO (see here), we spoke to a couple hundred experienced enterprises with BPO deals that are in varying stages of maturity. And when it comes to the technology enablement of BPO services, the desire to move down this path from clients is actually quite startling; 50% of buyers expressed that they expect to move into a transformational environment enabled by technology within a two-year timeframe. Now, providers said they’re even more confident that their clients will do this. Do you think this is realistic, or are you skeptical that this industry is trying to move too quickly for itself?
Chris: I think the half-life of technology is getting shorter and shorter. Cloud is enabling rapid deployment, and the speed at which you can now move from innovation to implementation is quite remarkable. Last year there was a need in one of our clients involving a particular activity that was a subset of one of our service lines. Within six months we had designed, built, piloted and gone into full live, global rollout of the solution on a platform base.
Client expectations are – rightly – increasing all the time. People are used to using their tablet to look up an app, and that app does something for them – they expect that same sort of response from their service provider now. Is the industry ready to handle a full-scale ERP replacement at this kind of pace? I think that’s a little way away yet. But certainly, using tools around the outside to facilitate some of the smaller activities, I think is absolutely here with us today.
Phil: So what, in your opinion, needs to change in this industry for buyers to move beyond legacy, lift-and-shift type engagements? Do you think some providers would prefer to stay with the status quo where they can just keep charging clients for hurling more labor at them? Do you think there’s going to be conflicting goals amongst providers as we look ahead?
Chris: I think you have different providers offering different things. So if you just want to buy trained labor and it’s to supplement what you retain, then I think there are people who will fulfill that need. But increasingly, and we’ve talked about it for years, clients are focusing on their core businesses. With the maturity of organizations such as Capgemini BPO and others, we now understand that our core business is BPO.
Just take F&A as an example: we employ so many qualified accountants because that is our core business. So why would a client not accept leadership from us related to what it looks like as opposed to trying to maintain and do it themselves? Therefore our clients, are saying, “Great, that’s what you’re good at. We’re good at something else. Let’s work together.”
And we are genuinely seeing some strong partnerships now whereby the market is segmenting. It’s being more driven by clients than providers because providers meet a need, don’t they? But the maturity of the providers is creating a market for clients where they can buy both process expertise and application expertise and implement all of that through cloud deployment. It’s really, really fascinating.
Phil: Yes it is, isn’t it. Because of many of these higher level incremental improvements, and innovations that clients want, we’re hearing a lot of noises now that a lot of the consulting firms are in direct competition with many of the service providers as BPO, as the game becomes much more progressive and transformative. Do you see this intensifying as clients mature and the demand moves to more strategic and complex areas? Do you think we’re going to get to this rather gray issue of co-opetition emerging?
Chris: Yes, I think so. Within Capgemini BPO, we’ve created our own team of consultants—we call it business transformation services. As you say, there’s almost been slight competition with our Capgemini Consulting colleagues but we’ve learned how to work together—to the benefit of both parties and the clients. I think that’s one of Capgemini’s strengths, that sense of collaboration for the benefit of both, of working in mixed environments with different delivery partners. We’re really quite strong at that. I think we will see more and more transformation being driven by the BPO providers but I do think there is also a place for consultants.
Many of our team in the BTS organization have strong delivery, transition and change management expertise. Some of that experience and knowledge is invaluable, as you’re aware. They run engagements, they’ve worked across global organizations, they know how to deliver service from multiple centers, and they’re used to working in a wide variety of different cultures.
Phil: So as you look at your own business and how that’s built up over the years, where do you see the main areas of growth coming from as you look out two or three years? Is it just more bread and butter F&A or are you seeing more deal opportunities open up in other areas such as verticals like insurance or analytics? Where are you seeing the big growth opportunities for Capgemini?
Chris: It’s very interesting. I think there are big growth opportunities in expanding from our core services. A lot of the analytics solutions that we’ve developed have really grown out of supply chain or F&A. We’re providing business advice to our clients and really building strong partnerships with them and meeting their demands. Obviously our knowledge and experience, our access to data globally, the fact that we benchmark all of those things, has really helped us provide strong analytics. Another example is looking at controls. We’ve built a controls business, a Governance, Risk and Compliance (GRC) offering that has been a development of the core services. So I think there is a lot of growth around the edges of more and more value-added services.
The renewals market is also quite interesting. So yes, there are more and more people coming to the market but there are a lot of clients coming back to the market as well. We’re seeing quite a strong pipeline in that area because a lot of those clients have gone through a first phase and their lift and shift hasn’t really put them where they thought they were going to be. So now they’re more prepared to go for transformation.
Phil: That’s a very good point, Chris. And what is your growth pipeline telling you?
Chris: So I think that we’re seeing quite strong growth in the pipeline of the secondary market because it didn’t really exist before. Then you’re right, the third area really is in those vertical specifics, using our existing capabilities and building out into areas where there are strong capabilities and strong trust levels, for example with participations in media and entertainment.
I hate to say it, but it’s similar to accounts payable – it has a lot of the characteristics of accounts payable. Clearly, it’s very specific to that industry and it has a lot of nuances that you need to understand, but at its core you are ultimately making payments to people. So it’s not entirely dissimilar from accounts payable and we can build on the strengths and capabilities that we already have.
Media and entertainment is a good industry for us, as you know; we do F&A for four of the top five companies in that sector so we’re particularly strong. Those are the areas where I think you can really go and build new “appliances”. I don’t really like that word, but I think in some ways it’s a good description. You go in and build those appliances and do that up the platform – running and approving the processes that are all designed around delivering world class outcomes.
So I think it’s a matter now of choosing which opportunities are right for us. There’s a lot of opportunity in the BPO world. For those of us in it, it’s probably as exciting as it’s ever been and therefore it’s like being in a sweet shop, isn’t it? It’s about choosing your favorites, because you’d be sick if you tried to eat them all.
Phil: So that leads me to a great final question. So if you were appointed as the Lord of BPO for one week by some higher power, some spiritual power, what three changes would you make to this industry?
Chris: I know the first one is I would create a training course for all analysts and advisors to understand the art of the possible. I think some of the providers have fantastic capabilities – I look at what we do and I look at some of our competition. Some of what can be done for clients is outstanding, really.
People like yourself who’re very interested and excited and passionate about it, you know what’s out there. But there are still a lot of people that don’t and I think if there was some way that we could make that information more available and make people more interested in learning, then that would be the first thing I would do. I do think there are a lot of clients out there that are missing out because they’re not necessarily being made aware of the benefits that they could be getting.
For the second thing, I still think that some of the commercial relationships that are being put in place don’t necessarily reflect the spirit of the partnership or the transformation. Some commercial arrangements are much more suitable for the old-style lift and shift, as you put it. You’ve got to make sure that the contract is more reflective of the desired transformation. Are you driving the right pricing and if the provider is taking a risk are you enabling them to take a share in it?
I think providers should say, “look, if you want lift-and-shift, here’s the standard contract, if you want transformation here are some of the changes to the standard contract or here’s a different way of thinking that you should be applying.”
And for the third area I would change, it would be nice if there was more celebration of what has been achieved in the BPO industry. I think we tend to shy away from the limelight. A lot has been achieved in a record amount of time, not just by Capgemini but by the whole industry: analysts, advisors, clients, suppliers. It’s a fantastic success story but sometimes people think about lift and shift and labor arbitrage as if that’s all it really is, just taking jobs from high cost areas and moving them offshore. It’s so much more than that.
So, I think we should change the image of the industry – there are fantastic opportunities for people who want to get involved and we should do a better job of attracting talent. People sort of stumble into it to some extent and many don’t realize what a promising career path BPO can offer. For those of us inside it, it’s a fantastic place to be and really exciting and full of potential – we really need to change our image to reflect this.
Phil: Good, three very good answers, Chris! I am sure our readers will enjoy reading your views.
Christopher Stancombe is Chief Executive Officer, BPO strategic business unit, Capgemini. You can view his bio here
One issue that is increasingly rearing its ugly head is the ridiculous – and often insane – demands industry analysts are placing on providers of technology and business services to pony up client references for their scatterplot charts. The situation has become so bad that the integrity of these research processes appear to be reaching a breaking point, and I would argue that some form of regulation is needed to protect the interests of the business consumer.
While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.
Am I smoking something illegal, or has our industry really started to lose the plot with the amount of buzz terms that – quite frankly – only mean something to the sellers and advisors trying to make their wares sound that little bit savvier than their competitors. And even then, I am not too sure whether many of them even fully understand what they are buzzing about either, more simply regurgitating what their competitors are saying.
