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
As I have explained to many people, you can’t really claim to have “made it” in HR until Bill has you on his show… it’s that passport to HR heaven to which so many people aspire. So we’re delighted to share Christa’s debut on the hallowed stage (click here) where she realized her life’s ambition of joining the HR elite, which she could only dream of when trawling the pubs of Boston’s Southie during her student days…
Christa talked with Bill about four key issues:
1. The Extended Enterprise
Looking at the workforce holistically has long been a missed opportunity for businesses. The workforce is not just the people on the payroll. It’s also contractors, and increasingly not just contingent workers that work for an agency, it’s also consultants that do statement-of-work-type engagements, and third-party service providers doing work on behalf of organizations.
Of note, first-generation outsourcing was not as successful as it could have been because no one really thought about the workforce that was left on either side: the staff that had to manage and motivate third-party service providers. And the staff of the third-party service provider had to be inculcated into the culture and the systems. The knowledge management and sharing required for them to be successful in delivering services is considerable.
The extended enterprise is all of the constituents doing work on behalf of businesses today. This trend has been happening for decades and will only increase – the SAP acquisition of contract labor management software provider Fieldglass is a tipping point. So at HfS we want to help companies look at how to source, manage, motivate, and measure all the people who are doing work on behalf of the business—not just employees – but the entire extended enterprise.
2. Employee Experience
In HfS’s definition, the employee experience is actually quite broad — alot of software companies are looking to make their applications easier to use and consume. They want them to be relevant throughout the course of day-to-day work. But HfS just did an assessment of the core HR service firms, including, payroll, benefits and contact center-type support services, because it’s the foundation of the employee-employer relationship and the facilitative wrapper around software, no matter how good a user interface is.
And what we found was the employee experience really sucked. The systems have not been integrated, there are far too many interfaces, there’s way too much self-service, and not enough consistency across devices. And now companies are struggling with the bring-your-own-device trend.
There has to be some rationalization around systems and investments. But you absolutely have to consider the service wrapper around that. How are you taking care of the employee—not just from a UI point of view, but in how they want to interact and when they want to interact. That shows a company ultimately cares about the workforce.
Software is just a piece of the puzzle. It’s the people that use the software and the people who support a business that will drive growth and expansion.
3. Workforce Enablement
Workforce enablement touches on some of these first ideas—making sure that workers are able to focus on their work and not on compliance or other HR-related tasks and processes.
I’ve done some research into academic and econometric studies on human capital—where the idea is that the investments you make in people for their education and development or their health and welfare should provide you a return in productivity and business contribution. Companies have really lost sight of that. They have to really hone in on what people are doing to contribute to top-line growth—as opposed to just taking out people to get better bottom line results.
Benjamin Franklin coined the term “time is money.” And what he was really talking about was the opportunity costs that result from what a worker was not doing in addition to what they may be doing that’s taking them away from productive work.
To understand and address this opportunity cost, which is likely way bigger than any administrative cost take out you can get in HR functions, companies have to reorient HR to focus on the day-to-day experience of the worker:
What are they doing that’s valuable to the business?
How do you eliminate, automate or outsource administrative tasks that take away from the core work that adds value?
That is what we mean by workforce enablement and think it’s a powerful new lens to look at traditional HR delivery as well as the related software and services markets.
4. Hybrid HCM
Hybrid HCM is the last big issue and frankly major trend in business that is here to stay. Hybrid HCM has many facets, it’s people and technology, internal and external teams, software and services, on-premise and in the cloud.
I’ve been called a SaaS skeptic. To me, it’s just a delivery model. If you have an existing investment in on-premise software, you want to be able to save it and extend it. Certainly, the cloud does bring innovation benefits. Too many people waste too much time trying to put together a business case to upgrade on-premise software. But it takes tremendous effort to stay relevant to the business and give the worker a good experience—given the advancements in UI and mobility and different ways of consuming technology today – so the cloud will play a key role.
Every organization will continue to have on-premises software and cloud software. They’re going to have staff and outsourcers, they’re going to have a range of different types of delivery models to choose from to provide enablement to the workforce.
Hybrid HCM really needs to focus on where the integration points are, where you can simplify and integrate with the most relevant parts of the business to understand where the worker is making an impact.
We need to move the employee HR experience from the analogy we used in the recent HRO report: the “sad strip mall” approach (i.e., lots of different stores competing for business and confusion over where to get what you want) to something like the Apple Store, where you have a really cool device but you also have the Genius Bar where you can get expert help on how to consume and apply innovation in a more meaningful way.
Thanks to all of you who have (so far) set aside 15 minutes to complete our most probing study yet on the State of Outsourcing in 2014 (and if you haven’t yet done so, please click here NOW).
Anyhow, we couldn’t resist a little sneak peak at the interim data as it rolls in, and one area that peaked my interest was when we asked advisors (161 so far) how their clients’ demands of them were changing. And for the gray-haired old woolly mammoths, this isn’t great news… their clients are now more interested in advisory services that can help them govern their outsourcing engagements better – and they also want more data and research to help them approach outsourcing more effectively:
Click to Enlarge
While a good number of clients still want more help with their negotiations, it’s clear that most clients with experience of outsourcing also want an advisor who can stick around and provide ongoing support (or at least some project-based support).
So what does this all mean?
Advisors need to do research. 52% of advisors report that their clients have increased (many significantly) their thirst for research and benchmarks. Simply put, buyers want to be more empowered to understand the market, analyze their operations, and compare their performance with other firms. Hence, advisors need to have the ability to arm their clients with data and insight to help them. If they do not have any research, their clients will likely look elsewhere for help.
Advisors need to understand how to support governance processes. 50% of advisors see their buyer clients wanting more help with governance and their provider relationships. This means providers need some advisors on staff who have lived the practitioner experience (with the battle scars to prove it) – they can’t just reel out deal guys who used to broker contracts for service providers to craft governance strategies. There is no written rule book for governance – it’s something that clients need to learn through good advice and real-world experience.
Advisors still need to be good at negotiating deals. Buyer needs for deal help are definitely not decreasing – and close to half are wanting even more help. This means the deal guys can still get paid, but clearly need to up their game if they want to keep winning business with clients. Clients want to hire advisors which can be great at deals, but also great beyond the deal… and we’ve long been at pains, here at HfS, to discuss how clients need the same people negotiating the contract and actually living it after the ink has dried.
Stay tuned for a lot more from this awesome study… coming soon to a web-enabled device somewhere in your life
Gravy trains invariably come to a halt at some stage in their journey, and labor-driven IT and business services, fueled by lower wage regions and robust delivery models are poised to change beyond all recognition in the next few years. However, this doesn’t mean today’s winners have to become tomorrow’s also-rans, if they are smart enough to make discreet investments in the disruptive business models of the future, and gradually introduce these into their traditional models.
The Indian majors have defied their critics to sustain their labor-driven model beyond all expectations – and are in a great position to blend their models to cater for the coming disruptions
You’ve probably been reading from us that we see several of the Indian majors continuing to carve out a commanding position in the global services market, with their market share doubling in the last four years, in addition to their leading revenue and profit generator, TCS, making the HfS IT Services Top 10 for the first time.
And while there are the usual detractors claiming “India will run out of runway and prices are getting too competitive to sustain this growth”, they are still able to maintain their growth numbers consistently in the double-digits. The disruption and havoc the Indian majors have reaped on the incumbent service providers has lasted much longer than many were predicting, and that tail continues to happily wag for them and enterprises continue to gobble up their wares. And with 60% of IT services, and 80% of back office business operations still sitting inhouse, this gravy train has a few more stops left to make on its journey.
When change to the traditional outsourcing model comes (and it is coming), there is no reason why some of the Indian majors cannot challenge whatever new wave of disruptive providers come at them. You only need to look back five years to see how quickly the landscape can shift. There is no “new breed” of service provider on the horizon today, which is an obvious candidate to offer services that are lower-priced than the Indian firms, however, I do see a multitude of significantly disruptive forces already at play that are going to change this market beyond recognition in the medium to long term:
Disruptive forces already on their way to change the services landscape indelibly
In short, there are some very real threats to today’s entire services model underpinned by one factor: client needs are becoming less labor-intensive and more focused on higher-value business needs. Let’s look at six examples of how the new breed of services will emerge.
1) Cloud vendors: Firms like Rackspace, Google and Amazon are already subbing to the major providers to deliver data center solutions for enterprise clients. There is nothing stopping them from moving up the value chain to the client end, displacing the Indian majors altogether as more IT operations become automated and less reliant on human intervention. These firms already have the SME market saturated and can easily move up into the enterprise space once their standardized solutions become “acceptable” at the enterprise level, and less customization is needed. In addition, IBM is making huge bets on selling more cloud-driven platforms to clients, that can replace traditional outsourcing models, which could bear significant fruit for the firm in the future.
2) Robotics-driven vendors: This is more of a threat to current BPO delivery models, where advances in robotic automation software are enabling clients to reduce their “already offshored” services by a further 20-30% by replicating manually operated processes in robotic software solutions. We are seeing this with certain emerging enterprise clients, and some service providers are already piloting robots with clients. As robotics become more mainstream, because of client requirements, those providers with strong ability to replace labor with robotic process automation are going to be at an advantage. This will carve out the bottom layers of many BPO operations and will also change the help desk and IT support functions in ITO as well as BPO.
3) SaaS solutions: Advances in SaaS products often negate the need to outsource entirely, especially where back office processes are becoming dated and obsolete. This is already having a real impact in areas such as accounts payable, payroll, indirect procurement, employee performance management and benefits administration. Specialized solutions such as Concur, Cornerstone, Ultimate and Coupa are already making great strides in these areas, which are not labor-intensive with their delivery. As these current specialists find more ways to integrate together the opportunities for integration services may decline as well. Clients already require software development and API skills in emerging areas like PaaS to support their solutions, with is creating new opportunities for ambitious service providers willing to invest in these capabilitles – and challenges for those persisting with servicing legacy environments.
4) SaaS + services + crowdsourcing: Solutions like LegalZoom in the US provide a lot of self-help managed services that traditionally went to outsourcers, especially in the SME space. There’s no reason why these companies can’t move up to the large enterprises as clients get better at “servicing themselves.”
5) CMO-driven digital services: We estimate 15% of IT deal flow is already being driven from the CMO’s office in digital areas that have strong social media requirements, are analytics-driven with a significant mobility requirement. Most of this technology is already available today and the requirements on the service provider are to “digitize” existing business processes. Hence, the winning providers in digital will be those that can develop relationships and delivery teams that can work for CMOs and other business units, not solely IT departments—not a direction in which many Indian majors have oriented their sales and solution teams.
6) “Born in the cloud” clients: Most of the smaller, growing firms today are doing everything in the cloud, and many new capabilities they add are sourced. We would wager that when we look at the Global 2000 firms in 5 years’ time, many of them will operate like this. Their needs are going to be very different from the labor-intensive services of today, where clients will expect most operations to be “pay by the drink” and any people-based support will be highly analytical and value-add.
The Bottom-line: Labor is the diminishing variable in services – and tomorrow’s winners are already making investments to provide alternative offerings
The winners in tomorrow’s market need to adapt constantly to the developing needs of enterprise clients to stay ahead of the game. The market is going to be hugely different in 3 to 5 years and we are likely to see a new set of providers emerge that can balance the above variables to succeed. But one variable is certain: the use and provision of labor is the one cost on the decline in the services industry, and those providers which fail to recognize this (and some are already guilty) will gradually fade away.
If I had a Bitcoin every time someone claimed that BPO is “dead” / “hitting the bottom” / “merely staff augmentation that’s going away soon”, I could commission a whole team of robots to write this blog until the new year. And Accenture’s recent decision to drop outsourcing from its tag-line and submerge “BPO” under the broader term “Operations” felt somewhat like a death-knell for the troubled terminology.
However, I would argue that BPO is just at the beginning of a much more dynamic phase of its existence and is at least three years’ away from the term being put to bed. BPO will evolve into “progressive operations” in time, but as our research illustrates (read on), the BPO market is still immature and has some room to grow before it becomes mainstream.
BPO is a powerful term – it genuinely implies the transferral of the management of processes
As negative as the connotations of BPO have been in recent years, it has a powerful meaning for businesses today. “Outsourcing” has always signified the transferral of the management of work to a third party, while the broader term “services” just means “work”. “They performed services for us” can mean anything, from little projects through to a much larger array of operational delivery. “I outsourced my xxxx to them” means you actually transferred work to the third-party to manage for you on a consistent, ongoing basis.
I would also argue that “outsourcing” is appropriate during the early stages of transferring work to a third party. Once that relationship is fully operational and the management of said work already outsourced, then both the client and provider will naturally start calling it something else.
Outsourcing is the correct term to use when the externalization of operations is nascent
Synonymous to this theory is IT. Remember how everyone used the term “ITO” in the late ’90s through mid-2000’s to describe their sourcing of IT to the EDSes, IBMs and so forth? But today, “ITO” is pretty old-hat – people just call it “IT services”, even though so much of it has already been outsourced. Outsourcing was a more appropriate term during those years clients and providers were grappling with all the challenges to make outsourced IT operational and effective.
However, once outsourcing had become the norm with how most enterprise clients received a portion of their IT services, it was no longer outsourcing – it merely became the way they ran their IT. It’s the same with manufacturing, which has been outsourced longer than anything else, for example, many years ago, Apple outsourced its manufacturing to a Flextronics, but now it’s merely how Apple makes its gadgets.
Four-fifths on business operations are still in inhouse
I believe the same will eventually happen to BPO as more companies do it, but as our recent study of 343 major enterprises with KPMG discovered, around four-fifths of business operations are still sitting inhouse, either in decentralized business units or in shared services, still burning up the payrolls of the majority of global enterprises:
Click to Enlarge
On average, close to 40% of IT (apps and infra) is outsourced today. “Outsourcing” of IT is pretty mature – it still clearly has a lot more wiggle room to grow, as close to half of IT is still run from shared services operations, but the level of outsourcing of IT is double that of finance, HR, procurement and supply chain. Until these business process areas surpass at least 30% outsourcing penetration, most firms are still in these early, nascent phases of externalizing the management some of these processes and are hence doing “BPO”.
BPO isn’t the dirty word anymore… it’s “operational labor costs”
Cutting to the chase, today’s corporations are on an inexorable quest to reduce their reliance on operational staff and align as much of their talent with the “front office” where they interpret data, sell, market or strategize. Noone wants to hire operational staff these days unless they really have to. And BPO is just one of lever of several levers for COOs to pull these days, as this quest gathers steam.
Hence transactional/operational labor costs are the new no-no – and if you’re in IT or business operations today and merely doing operational work, there’s a strong chance, over the next 2-3 years you will be:-
a) Replaced with a SaaS app;
b) Outsourced;
c) Robotized; or simply…
d) Fired.
So that means many IT/ops staff may be forced out of their firms into manual jobs, or (if they’re lucky or smart enough) will shift to the “front office” where they interpret data, sell, market or strategize. And many may opt to ply their trade with BPO providers.
The biggest single problem facing the future of the white collar industry is what to do with all these “operational” people as they can’t all be reemployed as “value-add staff” – there won’t be as many vacancies to fill and many staff simply do not have the skills. In short, we’re likely facing an employment crisis of unforeseen proportions, due to the sheer speed of automation and commoditization today – and this will especially affect the mid-career folks who have waited too long to re-skill themselves.
The Bottom-line: BPO is one of several levers for COOs to pull as they seek to refocus their internal talent on front office activities
In short, providers can call “BPO” whatever they want. In their eyes they are providing managed expertise – and the leaders like Accenture, Capgemini, Genpact, Infosys, HP et al. want more than just the BPO piece of the pie – they want the IT enablement, the end-to-end process… they want the operations to run. And the BPO opportunity is much more than simply taking on a few back end processes at lower cost – it’s about freeing up enterprises to focus on areas that are relevant to their growth and competitiveness. The better the providers get at delivering the standard BPO services, the greater the opportunity for them to take a bigger piece of the pie. And this is eventually when BPO will fizzle away as part of a broader operational service that is being provided… but it’s not for a few years yet as the data above clearly tells us.
But let’s not get caught up in terminology – the real issue is how ambitious enterprises are taking a much more mercenary approach to running their operations in today’s market – why add staff to support processes that are becoming obsolete? In areas where common standards represent an acceptable level of performance, SaaS will rule – such as payroll, accounting, indirect procurement and so forth. You can buy your SaaS and be done with it. Smart firms “born in the cloud” are not looking to hire operators anymore, unless they absolutely have to. You can run a company off Legal Zoom, Intuit, Google etc with a small number of (or none at all) operators.
However, in the areas where enterprises can still gain competitive advantage, namely where there is room for innovation, growth and productivity improvements, this is where companies will need help selling, marketing, strategizing, analyzing, designing etc. It is these people in the “front office” who need to lead the decisions on an operations backbone to support the business, but it’s how these operations and their supporting systems are configured to support business usability that really matters.
The core questions will be “how can I get the data I need to make this decision” and “how do I find the right supply chain partners to get my products to XYZ quickly” and “how do I find the right channels to promote my product” etc. Their systems need to support answers to business problems, not create more problems (like how do we get the stuff from Salesforce into that new analytics tool we bought and run a profit/loss scenario in the accounts system etc).
And the scary part that is coming, is if operational heads can’t design these operations and supporting systems effectively, their COO (or whomever) will cut a deal with a partner who can. There will be no room for prisoners any more.
So when firms like Accenture drop the term “Outsourcing” and replace it with “Operations” they are really saying “stop trying to fix the little things, just hand it all over to us as you know you can’t run them effectively yourself”.
When you’re feeling a tad queasy as a service provider and the prognosis is for lower-than-expected growth in the year ahead (4-6% in this case), one of the prescribed treatments is usually a healthy dose of M&A activity to boost market potential and make the competition sweat instead.
This inorganic medicine can be especially effective when the treatment aligns to a client vertical where you have a strong competitive position. So when Genpact announced the acquisition of Pharmalink Consulting earlier today, a global provider of regulatory services to the life sciences industry, it seemed like the patient was on the right treatment regimen. Charles Sutherland takes a deeper look into the merits of this new acquisition…
Genpact has been a leading performer in the life sciences vertical for several years now, being especially dominant providing finance and accounting BPO for a host of the leading pharma giants such as Astrazeneca, Pfizer, Sanofi and GSK. In addition to Genpact’s horizontal strengths in pharma and life sciences, the firm has been competing head-on with the likes of Accenture and Cognizant in industry-specific process areas such as Clinical Data Management (CDM), Pharmacovigilence (PCV) and Commercial Services. These BPO/IT service providers also compete in these industry-specific processes with a specialized set of life sciences companies called Clinical Research Organizations (CROs) who include such brand names as Quintiles.
All of these offerings are designed to reduce operating costs for life sciences companies, in particular to address the single most important business outcome in the industry, which is increasing the likelihood that a new drug will come to market with increased speed and with greater commercial success. BPO service providers have been helping clients for years to reduce time to market through improving the efficacy of clinical trial information through CDM capabilities and in tracking the efficacy of new drugs and compounds including measuring their adverse effects through PCV but until recently they weren’t in a position to help clients bring those together with support for managing the regulatory environment under which new drugs are evaluated by the Food & Drug Administration (FDA) and other bodies.
Accenture took a gamble at bringing these services together when it purchased another regulatory consulting company Octagon Research Solutions (read analysis here) in August 2012 to get access to their regulatory management software and consulting skills and now Genpact appears to be following a similar path with today’s announcement. We know that service providers also looked at a third regulatory services company, Liquent prior to it being swallowed by a CRO, Parexel in January 2013.
Charles Sutherland is EVP Research, HfS (click for bio)
Prior to their being acquired, all of these regulatory services firms primarily focused on software platforms and consulting services but both Accenture and now Genpact clearly believe that their life sciences clients are ready to move traditionally project based regulatory work into longer-term BPO arrangements. These arrangements will allow greater efficiencies in regulatory management and bring together CDM, PCV and regulatory services together with additional analytics services to have a meaningful impact on reducing regulatory times and bringing new blockbuster drugs to market sooner.
With this new model beginning to prove itself out with Accenture, we look forward to talking more with Genpact in the weeks ahead to see how they are going to create their own blockbuster compound of clinical data management, pharmacovigilence, commercial services and regulatory services in the life sciences BPO marketplace. We’ll be back with more insights and views on where this market is headed after that.
After all the hype… after the endless stream of blogs and articles every woman, man and dog have found irresistible to conjure up (or just cribbed from whatever we’ve already published and passed off as their own, but who cares…), we’re enraptured to publish the first Robotic Premier League Table of service providers delivering robotic-esque automation to their clients.
And congratulations to Sutherland, TCS, HP, Capita and NorthgateArinso for making the early pace in this race for robotic royalty.
So, without further ado, let’s hear from HfS’ own commandant of cognitive computing, Charles Sutherland…
Kicking off the first Robotic Premier League (RPL)
At HfS Research, we really enjoy our sport and so with the English Premier League season in its final throes and the Indian Premier League just starting, we thought it would be an excellent time to launch the Robotic Premier League of BPO Service Providers.
While it is too early in the evolution of robotic process automation (RPA) to apply our comprehensive Blueprint Methodology to this market as sufficient reference clients don’t yet exist to feed into our execution criteria, we still wanted to provide our assessment of where the innovation in this market is coming from. Having been the first analysts to start exploring RPA back in 2012, we have had the benefit of dozens of service provider and technology supplier briefings and have taken that insight and applied it to 5 major scoring criteria (using a 1-5 scale) to create an initial pre-season league table of BPO service providers in RPA.
These five equally-valued scoring criteria are as follows:
Credibility of RPA strategy
Support of business leadership for RPA
Breadth of internal tools and external partnerships for RPA
Effectiveness of marketing effort behind RPA strategy
Apparent actual client activity underway
Like the English Premier League, we have 20 teams (BPO service providers) in the premier division that we felt had showed some level of interest in RPA so far in 2014. Using our own judgment and experience against these criteria, and some pre-season comments and observations from the providers’ training sessions, here is our initial RPL league table:
We also want to recognize emerging start-up specialist RPA solution provider UK based Genfour which is our current candidate for the mostly likely service provider to be promoted into the RPL over the coming year.
As we said before, it’s still the “pre-season” for RPA in BPO and as we see the first client pilots turn into reference clients in the months ahead this initial league table will likely be turned upside down and around by service provider efforts. In the meantime, reflect on where your service provider(s) are in our rankings and watch to see how aggressive they are in moving up this table as the “real season” of client delivery for RPA begins.
Patrick Cogny is Genpact's Global Business Leader for Manufacturing (Click for Bio)
I think it was back in 2006 sometime that I was working with a major global enterprise which was deliberating a wild swathe of BPO deals, and there was this upstart little Indian company, which had just shed its weird name (“Gecis”), and was vying to win the F&A business, in spite of fierce competition from the likes of the traditional establishment that included Accenture, ACS, IBM et al. The conversation quickly turned to “which one of these providers can actually do supply chain accounting for multiple European destinations”.
“Not to worry everyone, we have ze perfect set up in Romania for you” piped in a dashing young Frenchman. And there closeth the deal, at the time one of Genpact’s largest, and I first met Patrick Cogny. Since then, Patrick has quietly developed a very strong reputation as a deep thinking and very personable executive, helping first grow Genpact’s European capabilities before taking on the role of leading one of G’s largest industry practices, manufacturing and services,almost three years’ ago.
Anyhow, we managed to lure Patrick away from his newly-formed habit of wandering aimlessly around the streets of his adopted New York City to get some lowdown on the crazy early days of Genpact, and how the firm is approaching the manufacturing sector with what he calls the “New Industrial Revolution”…
Phil Fersht (CEO, HfS): Hi Patrick, thanks for spending time with HfS today. You’ve been one of the real characters behind Genpact’s rapid growth, both in Europe, and now in the States. However, before we get into your current role and plans, can you give some insight into your background – how you started your career and why you found your way into the Genpact organization.
Patrick Cogny (Genpact): I started my career with GE a long time ago – disclosing details would betray my age – I spend 12 years in the Healthcare business of GE, most of them in a high-tech division designing and manufacturing X-ray sources. I held roles there in supply chain, sourcing, manufacturing, Six Sigma, Quality and After Market Services, and worked both in beautiful Paris, France and Milwaukee, Wisconsin.
So I was a real industrial guy, and then a phone call from an ex-boss got me into a role at GE Corporate in Brussels to lead the back-office optimization initiative for GE Europe, across all of the GE businesses. Genpact – then known as Gecis, the then captive unit of GE – thus became a key supplier and partner. I loved what I saw, so when Genpact was spun-off as an independent business, I immediately accepted the offer to join them as their CEO for Europe in early 2005. It was lots of fun to build that business from the grounds up, getting our first clients, recruiting folks, training them in the arts and science of our trade, and setting up new sites in Bucharest, Cluj, Rabat, Lublin…
In the summer of 2011, I took on a global role leading our Infrastructure, Manufacturing and Services vertical, leading a global team of about 15,000 associates. I’m now based in (really beautiful) New York, after having lived in the past 10 years in Paris, Brussels, Budapest and Bucharest.
Phil: So tell us a bit about the crazy early days when Genpact was still a little upstart frightening the life out of the established BPOs. Looking back, you guys really changed the industry and brought a whole new competitive bit to BPO, as we know it today. What was it like to be part of it?
Patrick: Loads of fun is the obvious thing that comes to mind! It felt like being in a start-up – albeit a large and well-funded one. But it was also scary – we were going up against the big boys, competitors who had literally decades of relationship with their clients, who knew everyone on their leadership teams. But as my first client in Europe said – “having an established relationship works both ways” – his company was simply fed up with being taken for granted by their large incumbent, tired of a track record of poor execution, and for them like many others we were a breath of fresh air.
Phil: And how different is Genpact today? Have you gone all “corporate” now, or do you still have some of the old spirit, attitude and values?
Patrick: Some things have not changed at all: the absolute maniacal focus on customers satisfaction, the hunger for growth, the curiosity and the passion for bringing new solutions to life, and a very hands-on “get it done” culture that comes from our deep operational roots. At the same time, we have changed a lot of things, every year. This market has been everything but static, and year after year has presented new challenges and opportunities.
When I look back, I see a huge evolution in the way we do things compared to 10 years back. Labor arbitrage is not a topic anymore, productivity and business impact are. We’ve gone from being IT agnostics to having strong points of view on technology solutions that drive process transformation. We used to rely extensively on Subject Matter Experts experiential knowledge, we now leverage the Smart Enterprise Processes compendium of benchmarks, practices and best in class designs. We would only do outsourcing and offshoring, we now do design of end-to-end processes and help our clients setup captives and GBS models.
So, along the way we’ve become more sophisticated but I see the same basic principles on how we operate on a daily basis in terms of culture and values. There is one tradeoff though we had to make – due to the growing sophistication of our offerings and solutions, we had to focus – focus on select verticals, where we have folks who grow their deep understanding of client context, and focus on key solutions where we can invest and provide transformative solutions.
Phil: You talk a lot about the New Industrial Revolution. Can you share your vision with our readers – and how your role plays into this?
Patrick: Well the industrial world is becoming sexy again ! There’s a lot happening in Manufacturing itself, such as nanotechnologies, 3D printing of parts, that will make new types of products possible, and will enable unprecedented levels of flexibility and customization. This will require a reshaping of supply chains, and an entire new level of Analytics there, for which we are very well positioned.
But the piece that most excites me is that products are becoming intelligent and communicant. You just read the papers today, we are just starting to realize how much data our phones, but also large pieces of equipment such as aircrafts, are constantly collecting and broadcasting. And we are just starting to realize that few organizations (apart from the NSA!) are equipped to handle and leverage that information. We have been associated with the most advanced manufacturing organizations for a long time, and have worked side by side with them to Connect their equipment, Collect the data they gather, Compute the information to gain insights, and use it to Control the equipment and improve its reliability, output, or profitability. We are bringing this experience and the tools and methodologies we are developed there to the field of Industrial Machinery in a big way, and we are doing this with a combination of Engineering depth in understanding the equipment’s applications and features, Analytics skills to exploit the Big Data that is collected, and Process management skills to setup industrial strength reliable and repeatable control and feedback loops. This Machine to Machine, or Internet of Things space is very fascinating, at the intersection of engineering, after market services, big data, cloud, and we believe Genpact can bring tremendous value and impact there, so watch this space for more!
Finally, as all these changes take place, I think that large industrial conglomerates will realize they have an opportunity to drive the next generation of outsourcing. Most large industrial organizations went on the SSC journey very early on, and have established already a footprint of back-office centers, often captive. There is still huge value to be realized for them by moving to modern outsourcing constructs. See when they were setting up their captives a decade ago, the game was labor arbitrage, and industrial companies had already started setting up plants in lower cost locations.
The BPO providers landscape was also not mature, with little competition among very few large providers, so it was a very logical step to build captives at the time. The situation has changed a lot, there is a healthy competitive BPO offering now, and the game going forward for back-office is one of automation, analytics, which frankly is completely outside of industrial companies’ core expertise. We can now build solutions for a company that has already a low cost SSC footprint, that save them 30%-50%+ on costs, whilst giving them the flexibility they need in a rapidly changing environment, and freeing up investment capacity for their core areas of focus.
Phil: Our latest research into the future of BPO and its technology-enablement is quite startling – namely 50% of BPO buyers expect to move into a transformational environment within two years, where they have re-engineered and standardized their processes and engaged in some degree of tech-enabling them. What’s more, providers are even more confident that their clients will “cross this chasm”. Do you think this is realistic, or are you skeptical?
Patrick: No I’m not skeptical at all. Of course we are going through the usual cycle of over-hype and over-selling on expectations and capabilities, but it is happening and the process of the future will be IT enabled. Where I would offer a different point of view to what we hear today in the market is really how it will play out. Large legacy IT providers are finding themselves in a pickle as the large ERP implementations are losing steam. They have delivered on implemented a single platform of record, but the costs have been huge, and these ERPs have largely failed in being effective platforms of engagement – they have poor workflows, weak and cumbersome reporting capabilities, and don’t have any flexibility to adapt process flow and business rules to new requirements.
So we believe the future is in cloud-based platforms of engagement, and that’s effectively a new space for everyone, where legacy SAP or Oracle knowledge is not that relevant, but instead understanding of business process design and configuration is the key relevant skill. We have a huge advantage there, with our experience driving Smart Enterprise Processes and process re-engineering over the past decade with our clients.
But we also needed to upgrade our tools-set – tools which again the IT providers don’t have as they have been focused on the platforms of records, and with our acquisition of Akritiv and the subsequent investments we have made in technology and partnerships, we are now extremely well equipped with the suite of best in class, cloud-based platforms of engagements that we are bringing to the table in the areas of F&A and Industrial Asset Optimization.
Just to give you an example: Genpact’s cloud-based F&A BPaaS solution helped a large door manufacturer drive growth and accelerate expansion in emerging markets – this involved successful completion of three acquisitions in less than 6 months and a fully operational back office in 12 weeks’ timeframe.
Phil: And finally….if there were two things you could change about BPO today, what would they be?
Patrick: Our ability to drive business impact to our client has gotten to be really strong, but it is still hugely under leveraged. We have to find ways to work through political agendas of various stakeholders to unlock these big projects that will make them and us successful in the eyes of the CxO suite. We also have to convince clients that giving more end-to-end responsibility to your partner is a good thing, not a threat, so that we can drive more impact. I would also wish that some consultant’s “Source to Stay” push for captives would abate. Captives have their place, but too often the reason for them being set up are the wrong ones : a few internal stakeholders looking to preserve their jobs, or consultants wanting a steady multi-years revenue stream.
Phil: Thank you for your time today and for sharing some of your views and thoughts with our readers.
Patrick Cogny (se bio) is the Global Business Leader for Manufacturing at Genpact. On a more personal note, he enjoys reading, especially about technology, economy and social science. He also loves walking around New York, which remains an amazing place to discover after 3 years. He would like to have time for other hobbies, but these will have to wait till an elusive retirement, as in between business trips he prefers to spend time with his family and friends.
Gravy trains invariably come to a halt at some stage in their journey, and labor-driven IT and business services, fueled by lower wage regions and robust delivery models are poised to change beyond all recognition in the next few years. However, this doesn’t mean today’s winners have to become tomorrow’s also-rans, if they are smart enough to make discreet investments in the disruptive business models of the future, and gradually introduce these into their traditional models.
If I had a Bitcoin every time someone claimed that BPO is “dead” / “hitting the bottom” / “merely staff augmentation that’s going away soon”, I could commission a whole team of robots to write this blog until the new year. And Accenture’s recent decision to 
