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:
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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:
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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.
As we predicted last year, TCS has now become the first of the Indian majors to break the Global IT Services Top 10 for revenues, replacing CGI.
Click to Enlarge
Talk to any incumbent Western service provider today, and the one making them all tremble from the sub-continent is TCS. So what’s the secret sauce?
TCS’ aggressive targeting of renewals and new business, particularly in continental Europe is an important factor in driving its assault on the leaders. Moreover, TCS is frequently seen as being the most flexible service provider on pricing and terms, and has a developing reputation for winning any deal anywhere in the world at any price, if it really wants: it depends on what its leadership thinks is important, what its perception of the market is, and what it needs to tell its stock-holders.
The firm is increasingly being perceived by many today as an alternative provider to the Western Tier 1s, that can come in and fix messy contracts and implementations; it has shown an appetite and willingness pick up a lot of the low margin, low value work that seemingly every Western Tier 1 wants out of and make the deals profitable and leverageable across clients. Not only that, TCS is having much more success de-linking the direct correlation of revenues from FTEs: the firm has a laser-sharp focus on managed services, fixed price projects and has successfully monetized its product group. The sheer size of its referenceable client base and the executive connections of its leadership, is a huge strength. In addition, its tunnel-vision on developing its platform-based solutions is really helping the firm move gradually away from the FTE-pricing model, with real progress already being recognized in banking and insurance verticals.
Cognizant highly likely also to make the Top Ten in the next 2-3 years – most likely at the expense of CSC
It is interesting to note another important characteristic that is starting to differentiate the providers in this list, is the margin of the providers – and we believe the need to maintain margin is slowing growth for many of the Western incumbents. As can be seen in the chart above, the average operating margin for the Top 10 (excluding SAP and Oracle) is 11.5%, with IBM, Accenture and TCS the only top 10 providers with margins in excess of 10%. IBM and Accenture growth may have slowed in the past 24 months, but they have maintained margins. What is worrying for some of the other providers is growth and margins have been compressed by recent market conditions, namely price-squeezing and service commodotization, making it more difficult for them to invest in restructuring / offshore infrastructure / technology imperatives needed required to halt the decline.
As a result, the next likely entrant with strong Indian roots will be Cognizant, where the likely formula for entry being CSC to lose a further $1 billion in revenues and Cognizant to gain another $3 billion – a very likely occurrence based on the recent trends, when you consider Cognizant’s recent growth surge and ability to maintain margins at the 19% level.
The Bottom-line: The naysayers will claim the Indian majors will run out of steam, but who’s really going to challenge them as the delivery model matures?
Jamie Snowdon is Applications Services guru, HfS (click for bio)
As we discussed last month, the Indian majors doubled their market share in global services in barely four years – and while access and management of lower cost offshore talent is a key factor, even when that advantage peters out, the sheer passion and culture of the Indian firms sets them apart from many of the flagging Western incumbents. Moreover, as IT services continue to commodotize, it’s becoming almost impossible for many of the incumbents to come back.
At HfS, we see longer-term disruptive factors, such as advances in automation and robotics and cloud platforms, which could actively negate the need for outsourced labor, as the bigger threats to the Indian majors, but these are still a few years away from making significant inroads into the mighty IT Indian services model.
You can read more about the HfS IT Services Top 10 in our new report “TCS Breaks into the HfS IT Services Top 10”, authored by Jamie Snowdon and Phil Fersht, by clicking here.
No joke, but where else can you hear a discussion about reproducing the cerebral cortex in a piece of software? Where else can you truly understand how paychecks will be processed and IT systems will be remotely operated by robotic human clones in the near future?
Had something better to do than be one of the 800+ registrants for yesterday’s Ultimate Robotic Automation Debate? Or, were you so enthralled with the debate that it’s left you hungry to devour more information on how and when to deploy your very own, round-the-clock robot?
Well, fret no further as HfS Research’s powerful, little, semi-automated, back-end assistant makes it a practice to disseminate our webinar slides and replay for your robotic revelry.
Oh – and a special thank you to our excellent panelists: Lee Coulter (Ascension Health), Pradip Khameni (Blue Shield of California), Chetan Dube (IPSoft), Alastair Bathgate (Blue Prism), Ian Barkin (Sutherland) and Charles Sutherland (HfS).
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 
No joke, but where else can you hear a discussion about reproducing the cerebral cortex in a piece of software? Where else can you truly understand how paychecks will be processed and IT systems will be remotely operated by robotic human clones in the near future?