HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services
Today’s CIO is under constant pressure to drive out cost, without impacting business performance. And if tomorrow’s CIO can deliver real business value beyond smart cost-management, then he or she will succeed – and should remain gainfully employed after they’ve stripped out whatever operational cost they can.
Our study blatantly shows CIOs are caught up in an aggressive cycle of providing services to the business that are cheaper to run, faster to access, and more relevant to driving productivity and growth. Gone are the days when CIOs demanded their shareholders underpin massive technology investments in ERP and infrastructure. Those investments have been made, and most CEOs intend never again to make capital outlays of that ilk on technology.
Enter the Cloud. This is driving a new inflection point in the provisioning of business services, that goes far beyond straightforward outsourcing.
So why is Cloud the future?
Simply-put, many of today’s large businesses have already squeezed much of the obvious cost out of their IT departments by having their lower-end support and development needs replaced or supplemented with offshore-based services, while offloading the costly burden of clunky, unnecessary IT hardware to third party IT infrastructure service providers.
For many large business that have maximized their cost-savings potential with outsourcing, Cloud computing gives CEOs hope that another inflection point is upon us, that will not only take out that next 20-30% of cost, but also empower their business functions to access best-in-class services. The potential to slim down the IT department to a “CIO and a crack team of IT service managers” is becoming very real for the sourcing-savvy organization. However, the challenge for the large organization to move to the Cloud is far more cumbersome than most smaller business, which we discussed so vibrantly here.
For the small-to-medum business, Cloud is already pretty much here – and has been for a while. You can access nearly all packaged applications in the Cloud and have a service provider deliver you the services you need via a shared-service utility model. You already have your Ultimates, ADPs, Netsuites, SFDCs and the like processing your pay checks, doing your benefits enrollments, managing your customer and employee data, hosting your accounts etc. in the Cloud – and you can choose how many staff to keep inhouse to service those functions for you, versus having them provisioned by third-party service providers.
Unfortunately, for many of the large businesses using complex ERP apps that are wrenched into all sorts of back-end databases, they are faced with some significant capital investments to find their way to a Cloud-ready environment. And it simply doesn’t suit many of the Cloud-unfriendly software providers to have their clients move to a model that will save them money. The onus is moving to the service providers to build services that can take organizations on a journey of business change and technology change, which we discuss further here.
Our study shows the momentum towards the Cloud is well under way
Firstly, both IT and Business leaders already plan to devote a significant portion of their IT budgets to investing in Cloud. While business executives are understandably bullish, it’s significant that a third of IT executives already see at least 10-20% of their budgets going into Cloud services in the medium-term:
Secondly, the impetus behind Cloud is coming from the top-down. As awareness of Cloud across business leaders increases, so does the pressure on the CIO to develop a Cloud roadmap for their organization. The industry advisors and providers of Cloud see half the CIOs with whom they interact, showing a very strong interest in Cloud, with the less senior IT professionals showing less enthusiasm:
The Bottom-line: CIOs need to broaden their skills beyond provisioning outsourcing delivery and Cloud fits the bill
CIOs need to be seen as innovators, constantly embracing IT delivery models that provide the business with faster, cheaper and more relevant business applications. Many have had to become the conduits for IT outsourcing over recent years, as business leaders demanded cheaper IT provision. The same is happening with Cloud, as more evidence of faster, cheaper, more relevant business services materializes.
Thanks to all of you who took the time to share their views with us on Cloud, and the impact they expect it to have on their organizations: we gleaned the views of over 1000 business (non-IT) executives, IT executives, in addition to industry stakeholders. This has proven to be most comprehensive study ever performed, that has used a vast social media network to canvass such a broad population of our industry.
We would like to thank the Outsourcing Unit at the London School of Economics, which partnered with us to help design and analyze the study, and also John (you know who you are), who introduced us in the first place to make this all happen.
As a special thank you to our industry for investing time to make this study happen, you can access your freemium copy of the executive report “Cloud Will Transform Business As We Know It: The Secret’s In The Source”, by clicking here
In years gone by, TPI’s Index established itself as a bell-weather for all stakeholders in the outsourcing industry – most outsourcing deals were big, everyone knew what there were, and TPI advised on a good chunk of them. The Index was a reliable checkpoint to know what was going on. However, after their recent Q3 outlook, several industry colleagues expressed concern that TPI wasn’t reflecting market reality, with particular reference to their claim that the BPO industry had taken a 15% nose-dive (see slide 4 here) in 2010.
New HfS Research data that encompasses all current Finance & Accounting (F&A) BPO engagements, reveals two key factors that cause us to question the reliability of the latest TPI Index’s BPO outlook:
1) Advisor-led deals are diminishing
Our latest research of all current multi-process FAO engagements, for example, reveals that five of every six engagements signed since the beginning of 2008 have been orchestrated directly by the customer. Many of these were competitive bids, in addition to sole-sourced situations, but what’s clear is a third-party advisor was not involved in process:
2) The average deal size has fallen below TPI’s radar
TPI only bases its Index on deals with total contract values greater that $25m. As our new research reveals, the average deal size for for multi-scope F&A BPO engagements in 2010 is $18m, and fell below the $25m level in 2007:
What’s clear is that 2010 wasn’t a banner year for BPO and growth was not spectacular, but the market certainly didn’t contract – there’s an additional $2bn of TCV to add to it, and at least another 100 new deals.
While we commend TPI for performing a valuable service for the industry over the years with its reporting on market trends, it concerns us that such negative reporting is sending mixed signals to the investment community, and other industry stakeholders, that the outsourcing industry is seriously faltering. While TPI’s own stock valuation maybe experiencing a miserable 2010, this shouldn’t reflect on the broader industry, which has managed to continue healthy growth, in spite of the lethargic post-recession economy.
Phil Fersht is named "Analyst of the Year" by the Institute of Industry Analyst Relations
It’s a sad day for our industry when you wake up to learn that Phil Fersht has been voted analyst of the year by 150 analyst relations professionals at the Institute of Industry Analyst Relations.
This now means:
**Everything I say is now correct for an entire year
**HfS Research prices get a 10% hike
**Euan can’t argue that our report titles sound like blog posts
**Our predictions sell-by-date gets extended to the 3rd January
In all seriousness, I would like to thank all of your for your support (especially those who voted for me – you know who you are!). This really does prove there is an independent analyst model that can co-exist alongside the big houses, and we’re super-excited about what’s in store for us in 2011.
I also would like to extend my congratulations to my alma-maters IDC and AMR (Gartner) which also achieved significant recognition – I learned the analyst trade during my years there and can recommend to anyone that the analyst career path is an incredibly rewarding one to follow if you are curious, critical and passionate about covering an industry.
One other award worth mentioning is our research partner EquaTerra‘s recognition, which is a culmination of their tireless work to drive independent thought and advice into the market.
Thanks again – it’s a real honor for the HfS team to achieve such widespread industry recognition as we embark on a very ambitious research agenda,
And here we are, like clockwork, jumping on the tackiest, lamest marketing exercise every analyst, consultant, CEO, and wannabe thought-leader always persists in doing… because you are supposed to gasp “Wow – they are predicting the future!”
Firstly, on behalf of HfS, I would like to personally apologize for jumping on the predictions sausage-factory (like we do every year). In fact, someone has probably designed a software package that automates predictions. In fact again, some provider probably runs a “Predictions on Demand” service that underpins the predictions-generating software with a KPO service that customizes your predictions for you;
Secondly, unlike all the other predictors this year, our predictions will automatically expire on 2nd January 2011, so they will no longer be valid, and will simply become an embarrassing attempt to sound impressive, while grossly misrepresenting reality;
Oh, and thirdly, here are our Predictions:
1. The outsourcing industry will see the first Cowboy and Indian mega-merger
In today’s market, the Western providers have been forced to bring their costs in line to be competitive with lower cost offshore-centric Indian service providers, by expanding and optimizing their offshore/nearshore operations. Both the traditional Western providers and the newer Indian breed can offer low-cost services to take on new business. It’s not really about cost anymore, though, as several Indian-headquartered providers continue to gain marketshare in this environment as many outsourcing customers are fond of their work culture. However, many sourcing managers, a rung down from the CIO, have squeezed as much as they can out of the easy work. The app support, the testing, the simple coding is running about as cheap as they can get it – there is little room left for them to maneuver. Hence, the next wave of growth for the Indian providers is to move further up the value chain to win more consultative assignments and service integration work. Several Indian providers are trying to be more like the Western providers, and the smart Western providers have studied the Indians who’ve been eating their lunch, and are working out a game-plan to win back lost business. The cultures are moving closer together, and HfS believes 2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents.
2. BPO uptake will creep back throughout 2011, as the recovery stutters and buyers pull the trigger on sourcing initiatives, however, many of the deals for the first-time buyer will be small in scope
Many businesses were paralyzed by the Recession and have been operating a “wait and see” strategy through 2010 regarding their Business Process Outsourcing (BPO) options. However, a slowing recovery and a growing pressure to meet budgets will drive a steady wave of increased BPO evaluation and contract signing in 2011, especially in Finance and Accounting and Procurement. HfS demand-side research has pinpointed a strong interest from buyers to increase scope in existing BPO contracts, and close to one-in-four businesses in the mid-market ($1bn – $3bn in revs) are expecting to investigate their first steps into F&A BPO. Moreover, many BPO providers are more determined than ever to “penetrate and radiate” customers with initial small-sized contracts with minimal profit margins, due to the shortage of attractive captive acquisitions and affordable competitive acquisition candidates.
3. IT Outsourcing will have a banner year as market peaks, however growth will tail-off towards year-end as wage-arbitrage begins to become saturated
HfS Research shows that 75% of ERP development work is still carried out onshore, and expects the steady growth of application development and maintenance deals to continue apace throughout the year. However, with much of the “lower hanging fruit” operational software work from the global 2000 moving to offshore-centric providers at such pace, HfS expects to see the first genuine signs of this market reaching its peak towards the end of the year, as buyers exhaust their arbitrage opportunities. The mid-market will provide a lot of new ITO market growth, however, these deals will be smaller in nature and often less profitable for providers, having smaller scope and often high complexity, that will prove a drain on delivery resources.
4. Service integration becomes the new fad, replacing innovation as the buzzword of the day
Too many business have failed to achieve innovation within their outsourcing engagements because they have struggled to bring together common goals and objectives across their sales, general and administrative services. The only way to start achieving new thresholds of productivity is to integrate the management, orchestration and delivery of their sourced operations, where the service integration leadership has the clout, investment and expertise to work with a service integration provider to make this happen.
5. Service providers will start to break out of vertical silos to help their clients collaborate
Outsourcing services customers are increasingly eager to learn from peers and share best practices, but this is continuously challenging for them when their service providers are structured in narrow industry silos and struggle to help them collaborate with clients in other industries. Service provider leadership is also looking at ways to help their delivery teams develop better utility models across multiple clients to drive down their margins, and the only way to do this is break from the industry-silo culture. Moreover, they are suffering from the high cost of sales and marketing by having multiple vertical businesses operating independently from each other.
6. Integrated offerings from service providers with broad capability gain market share. Distinction between BPO and ITO blurs
With the leading IT services providers all heavily pushing BPO capability, there will be increased blurring of offerings as industrialized process solutions become more popular. Process-only BPO will continue to proliferate across horizontal offerings where there is significant labor arbitrage opportunity, namely finance and accounting, order management and procurement, however within industry-specific process, platform-enabled offerings are the only way providers can develop cost-effective utility models across their clients.
7. Many CIOs will thrive or fail because of Cloud demand from their business function leaders
With both Business and IT decision-makers expecting to allocate 30% of their IT budgets to the Cloud over the next five years, it is going to demand new IT and business operating models and radically different sourcing mind-sets from CIOs and business function leaders. The ability to access business applications quicker, faster, cheaper and in a virtual business environment are the major drivers – and it’s the business side of the house which is getting seriously engaged by the potential value than the IT-side, with two-thirds of business leaders seeing huge appeal in the Cloud value proposition. For many CIOs who fail to deliver this value, the business side will be forced to look at alternative avenues for Cloud enablement.
8. Successful advisors shift their business models to be “lighter” or more full featured
The death of the advisory business has long been predicted and failed to materialize. However in 2011 and beyond, buyers will seek a more cost-effective, lighter touch solution from their advisors or seek alternatives. Several trends will contribute to this shift in demand: the significant experience base of enterprise buyers; smaller deals with smaller savings will make expensive consultants hard to justify; industry consolidation is likely, perhaps finally fixing the cost model issues of the advisory world; mid-size buyers looking for advice have many options other than traditional advisory firms. At the high end of the market, however, there is an opportunity to provide a more full-featured offering that goes well beyond transaction facilitation. These clients demand vertical and process expertise, front office integration, cloud strategy, shared services advice, and implementation of all of the above in a single, strategic engagement.
9. Onshore and nearshore alternatives hit the mainstream
A number of economic and political phenomena will contribute to the growth of onshore and nearshore alternatives, primarily the shrinking of the arbitrage gap fueled by a weak dollar and even weaker Latin American and African currencies. Almost all providers are investing heavily in Latin American capability, and will be highly motivated to drive demand to fill their capacity.
10. HfS Research will achieve world-domination
Having rocketed to double-digit employee growth in 2010 (well, reaching a double-digit number of employees), HfS will continue its social-media fuelled surge to change the entire face of the research industry. People want immediate, compelling, data-driven and relevant advice, and have limited patience and ever-reducing attention spans to get it. HfS will be there to deliver it. Its management will become so wealthy they can turn the firm into a not-for-profit and bring Larry King out of retirement to conduct all future HfS blog interviews. In addition, HfS will fire the White House as a client because they won’t give us any tax breaks….
If you believe any these predictions to be disturbing, please contact your local predictions support agent at 1-800-BANDWAGON and we will be happy to assist – remember to press #1 for English, otherwise you’ll get a load of incoherent rubbish . Alternatively, if you think we’re full of it, feel free to say so right here…
Today, we’re delighted to announce the official unveiling of the “HfS 25” – a collection of 25 sourcing leaders working with us behind closed doors with us to help define our industry, the like of which hasn’t been done before.
HfS Research is pulling together an intimate forum for the leading minds who live and breathe sourcing everyday. And what has surprised us, when we reached out to sourcing leaders in the HfS network, is their sheer enthusiasm to be part of this group – they want to get out and network, share ideas, meet peers in other organizations, and add their tuppence to the future direction our industry is taking.
The day of the “sourcing leader” is truly upon us – and the goal of HfS is to produce a vehicle for the collective voices of today’s sourcing leaders to make a difference. Anyhow, we brought onboard Esteban Herrera to help drive this vision into reality, and am delighted today to have him tell you more about this journey that only just beginning…
Why we launched the HfS 25
Shortly after my arrival here at HfS, Phil and I started quietly working on pulling together the most influential network of sourcing buyers that the industry has known. We are delighted to share with you that we have accomplished that goal, and are officially launching the HfS Research Executive Council in 2011 that is already being called the “HfS 25”.
This is an elite group of 25 buy-side (only) sourcing thought leaders, created to be the preeminent influencer of the direction of the sourcing industry. The Council is a by-invitation-only program designed to foster networking, debate, and best-practice sharing amongst the most senior sourcing executives of large global enterprises. This powerful forum will shape the industry, influencing other buyers, service providers and intermediaries across both BPO and ITO areas. HfS will host periodic meetings and contribute by sharing candid, unbiased opinions based on current, highly relevant research data and deep outsourcing expertise. Basically, my job is to get the people together, play host, and provoke!
We have sourcing leaders from many Fortune 500 Insurance, Banking, Retail, Manufacturing, CPG, Utilities, and Oil & Gas industries committed to participate in the program and are looking forward to bringing everyone together early next year (and no, we will not be disclosing the location to non-members!)
Why is this important, you ask? This group, in addition to adding value to each of its members through collaboration with peers, will shape our research agenda, the topics you read about here, and will generally serve as a catalyst for advancing the sophistication and value of the outsourcing industry.
While I realize these are some pretty big claims, I have no doubt, based on the maturity of participant organizations and the enthusiasm of their delegates, that the forum will produce unprecedented insight, exceeding even my lofty expectations.
If you would like to get involved in the HfS 25, please drop us a mail here.
Business leaders want to accelerate to Cloud and half of them expect to rely heavily on third party expertise to help them with governance, change management and business process transformation.
HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services
With both Business and IT decision-makers expecting to allocate 30% of their IT budgets to the Cloud over the next five years, Cloud is going to demand new IT and business operating models and radically different sourcing mind-sets from CIOs and business function leaders.
What’s more, it’s creating a major headache for many of today’s service providers, which are enjoying comfortable growth with their ERP and software maintenance and development work. Which service providers truly have the appetite to invest in the consultative expertise and the software development skills to be truly Cloud-capable for their clients, versus those which simply want to shut their eyes to all this and plug away with the same-old IT support work?
Ultimately, Cloud will drive disruptive change in the way services are both received and delivered, the pivotal challenge being whether those who resist this radical shift can ultimately survive.
It’s heady stuff, but this is the seismic finding from our Cloud Business Services study, conducted in conjunction with the Outsourcing Unit at the London School of Economics. Essentially, business users want to accelerate to Cloud Business Services, while IT wants to mitigate its many risks. However, we reach a critical impasse with both business and IT looking for external support to make their move to Cloud Business Services a reality…and the different type of support both sides want point towards a profound reorganization around Cloud…
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The bottom line: Cloud Business Services are going to create a revolution in how organizations provision IT and business services. Business leaders are looking to transform many core businesses processes around Cloud, and show serious intent to make it happen—40% revealed to us how they want support transforming IT and business relationships, and want change management support to make the transformed organization effective. But the eye-opening finding is how critical business leaders view governance capability in achieving a Cloud operating end-state—over 50% of business respondents see governance as critical compared with only 36% of their IT counterparts .
At HfS, we believe we are seeing a new mind-set emerge as firms start to rethink their IT operating models around “digital” governance structures to support the move to Cloud Business Services. Why? Because they expect to source Cloud into the delivery mix and will want their internal IT teams to turn themselves into Service Integrators. Cloud Business Services are not hype: they are going to revolutionize IT delivery and business performance. Vineet correctly pointed out (in his own flamboyant way), that the industry has a long way to go with regards to Cloud-enabling many critical business applications and developing more realistic cost-models, but we’re definitely moving past that hype phase in terms of preparing for disruptive change.
Vineet Nayar, CEO at HCL Technologies, has firmly cemented himself as one of today’s outspoken visionaries in the world of IT services. Never afraid to offer an opinion that may rub a few folks the wrong way, the self-styled CEO booked his ticket to notoriety at HCL’s analyst conference in Boston this past week, where he described Cloud, well, as bullshit.
Unfortunately for Vineet, some of the HfS Research team had also made their way to the sessions, and we weren’t going to let Vineet off lightly, without getting him to share some of his views with our readers. So Phil Fersht and Esteban Herrera were only too pleased to grab some time with him on Thursday after his flamboyant keynote to get him to elaborate a little further…
HfS Research: Thank you for joining us today, Vineet. Can you elaborate on your statement this morning that “Cloud is Bullshit?”
Vineet Nayar: My view on Cloud is that I always look for disruptive technologies that redefine the way the business gets run. If there is a disruptive technology out there that redefines business I am for it. If there is no underlying technology there, and it is just repackaging of a commercial solution, then I do not call it a business trend. I call it hype.
So, whatever we have seen on the Cloud – whether it is virtualization, if it’s available to… now before I go there, and the reason I believe what I’m saying is right, is because you have now a new vocabulary which has come in Cloud, which is called Private Cloud. So now it is very difficult, so what everybody is saying is “yes, it is private Cloud and public Cloud” So, in my vocabulary Private Cloiud is typically data center and when I say Cloud it is about Public Cloud. So let’s be very clear about it.
All the technologies that have come in so far—whether it is VMware on virtualization, which is the driving force in cloud, or Azure or Spring—are available for the enterprise customers to implement in their data center and to create a robust infrastructure which is a shared platform for their applications to deliver to their consumer. So the question I ask is: “Why should they step out from their data center and go into somebody else’s data center which is shared?” Why would they do that?
They would do it because they believe that with shared infrastructure, assumption one, they will get a better return on investment. Now, that did not happen with grid computing with IBM and IBM On Demand has been a very big campaign.
Is there something I see out there that tells me it will happen now? Yes, it is happening where your usage requirement is time bound—that means you need it for three months for SAP testing, you need it for one month a year for tax consolidation. But, am I going to put my IP on the Cloud, am I going to put my financial accounts on the Cloud, and I going to put my HR applications on the cloud? I have not seen any technical reasons for that to happen.
Then the second reason you can do that is there is commercial benefit that somebody is offering you, which is flexibility of you being able to use the infrastructure at a higher or lower on a significant level—that means you can go up 50% or down 50%. When you look at the pricing available for those kinds of flexibilities, they are commercially unattractive. Which leads me to believe that whoever is selling services of variable infrastructure as Cloud is selling them as leasing connections, rather than selling them as true variable connections. I don’t have a problem with that because there is no underlying technology which makes sharing more productive rather than not sharing. So if there’s no underlying technology, obviously it has to be leasing connections.
And then we go to applications like leasing of Azure, which creates a bus so you have to create more efficient applications rather than inefficient applications. I believe Azure will be a standard tool for creating applications inside the organization so that people, whenever they use those features and services, will use them inside the organization.
So, do I need to I need to go out on the Cloud to use azure or Spring? The answer is no. the only reason I would go out on the Cloud is for shared services—for applications which are not available for me to buy. Salesforce.com now you can buy as an enterprise license. So the purity of the Cloud is also going away. And you will see a lot of Salesforce.com being inside the enterprise because they will reuse their existing infrastructure.
Now, public citizen services is an area which would lend itself to application sharing. And the same is true with communities coming together—export communities, auto component manufacturing communities—whose owners on a standalone basis are not big enough to buy an ERP system but can come together and buy a shared ERP system.
Now, you can force me to call it Cloud. Or you can force me to say that they will an entrepreneur out there who will see an opportunity to construct a data center, construct and ERP, charge everybody a fee and say that my business is to serve you—and you create a shared services platform.
So my view is that I have not seen anything from a technology point of view which is not available for the enterprise for usage for me to get very excited and saying, “Hey all of this is going to move to the Cloud.” And that’s the reason I’m not as bullish about the Cloud as somebody else is.
HfS Research: You mention about shared services and I think that’s interesting. Do you see the growth of these “shared services” happening more with the small to mid-market businesses? And it’s those companies, as they get bigger, where everything they’re getting, is being provisioned as a shared service in the Cloud. Whereas it’s the large enterprises—the global 2000—where there’s a lot of legacy IT apps and infrastructure, and the business case for Cloud isn’t quite there yet.
Vineet: I think if you take it two-by-two—if you take small and medium enterprises and large enterprises, short term and long term: The small and medium enterprises for long term, and the large organizations for long term is where the Cloud or shared services will be used. That means, if I want to do testing for three months, large organizations will use it. A small organization testing for three months—no one will give them the shared services. So the small guy will have to commit long term and the larger guy will find usage in short term. Those two quadrants will be where the opportunity should be.
I’m glad you’re using the word shared services. Shared services will be there. So what happens is I can create my enterprise data center and allow people to share it. And you can, if you like, force me to call it Cloud.
I don’t call it Cloud.
HfS Research: You mentioned about the Private Cloud, one of the things I’ve said sometimes—and it’s not been well received—but I wonder if you’d agree, is that Private Cloud is nothing more than a re-architecture of your existing apps and infrastructure. There’s nothing terribly innovative or different about it, except that some of the technical architecture behind it may have changed.
Vineet: I think there is one difference. And that difference is that everybody asks the CIO, “Have you implemented Cloud?” And the CIO gets away by saying, “Yes,” when you call what you’re rightly saying is an enterprise re-architecture of your internal data center as Private Cloud.
So the Private Cloud vocabulary is a convenient way of shutting down any conversations around Cloud. So that’s the reason I support Private Cloud in my CIO conversations, otherwise it is exactly what you’ve said. Otherwise you are saying, “How come you have no strategy for Cloud?” Every board is asking for a Cloud strategy. So you might as well have a Private Cloud strategy and call it a Cloud strategy and get it over with and put a tick in the box and get on with life.
HfS: Let me switch to some perceptions that the analyst community and certainly your competitors have, and that is that on both sides of the Atlantic you’re winning a lot of sole source deals. So that the growth is clearly there. There’s a perception and I’m not sure you’ve been too public about it as a deliberate strategy. And I wonder if you can comment on whether it’s deliberate—and whether it is or isn’t, why are you winning those? What’s the difference?
Vineet: I want to be careful in answering that one. (Laughs) So, the answer is, yes we are winning a lot of sole source deals. And it is deliberate to keep quiet about it. And the reason for that is that we are increasingly finding that our whole business benefit-based approach starts very early in the cycle. And if we are able to convince our customer on the business benefit, then sourcing becomes an irrelevant issue. Where the amount of IT spend irrelevant compared to the business benefit, we are able to do sole source. And that is what our focus is.
HfS: Now everybody’s jealous of you because you are getting many sole source deals, which is clearly a more cost-efficient way to sell. What is it that you, as HCL, are doing differently that allows you to do it and your competitors not so much?
Vineet: I would just say that we have figured out a few things, which lends itself to business benefits. We have figured out a lot of things that don’t. And we are in the business of focusing on the few and ignoring the many. Sharp targeting.
HfS: That’s actually one of my other questions, but I’m going to skip to the most rumor and innuendo-fueled of my questions. The extraordinary success of HCL in terms of growth is really driven by your personality and you getting personally involved in the sales cycle with senior clients. You’re nodding your head so that may or may not be true. What happens to the organization as it continues to grow? Can you stretch yourself that thin?
Vineet: First, it is more a fear in the mind of a losing sales guy. It’s very easy to justify why you lost is because Vineet was personally there. So the rumor as you rightly said is forming in the excuse of why you lost the deal and that my CEO was never there. And you can’t dispute that logic. However, I can assure you that not a single CIO will buy complex transformation transactions based on my limited knowledge of his business and my limited knowledge of the solution we’re offering. My knowledge in both cases is very limited. He will buy only because on the ground he sees people with higher energy, higher passion, innovative solutions, aggressive pricing, more business case, more aligned. So my role in HCL is around strategy, as you saw, making sure that what I presented to you is delivered inside the organization. Today, I am in the US meeting you. The next five days I am only spending with employees. I am going to Seattle, then I’m going to San Francisco, then I’m going to Dallas, then I’m going to London, then I’m going to Paris, then I head home. I have three customer meetings during this trip. I truly believe in what I say—that if I can get my people fired up they will do the magic. So that’s one.
Number two, what happens when I’m no longer there? That’s a very interesting conversation. I truly believe, you must understand that I was the CEO and promoter of HCL Comnet. When I left HCL Comnet it was $70 million. Then I was replaced by another guy—Anant Gupta—who is not as much an extravert as I am. He has a different personality. He has taken that company from $70 million to $550 million—far faster than I did in bringing the company to $70 million. Why? Because you must understand at HCL it is not personality and charisma, and presentation which makes a difference. If you remove all of that and look at the thought in the presentation—the thought in the presentation could not have come from me. It’s not one person who can think through that because the subjects we cover are cultural, technology, customer relationship, employee management are a culmination of thought. Now when the organization is moving toward a strategy that is unique, and starts thinking in that fashion, the leader doesn’t matter. And, therefore, Comnet as an example from 2005-2010, if I’m not in HCL Technology, I can assure you it will grow faster.
HfS: Some would have their doubts. But let me go to one of the cornerstones of your strategy which is very catchy. I think it’s very powerful with customers. I think it’s a great marketing tool, which is the Employee First culture and you back that up with action. However, I still think from our interaction with buyers, many know that HCL is employee first, but if I ask them what does that mean, they can’t answer that. So I think HCL has a gap there that still needs to be addressed, because while it’s catchy and compelling I don’t know that people know the difference between being an employee at HCL and doing the same role at one of your competitors. Can you talk a little about that?
Vineet: I think that that’s true—that one of the failures at HCL is the fact we’ve not been effective at communicating what it is. But let me flip the coin on the other side. The other side is that every single one of our customers knows what Employee First is—every single customer knows. Every single one of my 70,000 employees knows what Employee First, Customer Second is. Every one of my competitors know what EFCS is. And it’s just a matter of time. In my mind, a great idea is going to catch on. Whether it still does a good job or not a good job, if the idea it will reach over the years; if the idea is bad, irrespective of my marketing it, it is not going to reach over the years.
One of the reasons I have held back on glitz around Employee First is because what you rightly said in the beginning is it’s a great marketing tool. I don’t believe so and I do not want it to be seen that way, I don’t want it to be projected that way, I don’t be used that way.
I think it’s a great idea. It’s a great journey of experiment that started in HCL. Let it take 10 years to reach its end destination. Any management guru you talk about they know about Blue Ocean; everybody knows what Blue Ocean is all about. In the first three years nobody knew anything about that book or the concept. After three years, everybody knows it. So, with Employee First, we’re not in a hurry. You must understand, my company thinks five years at a time. I don’t think one year at a time. In 2015, if you can show me any CIO who does not know about what Employee First is, I think that is going to be an interesting conversation.
HfS: The part I’m still curious about is the employee experience. How does an HCL employee, or someone who’s considering becoming an HCL employee, know the difference?
Vineet: Let me explain what Employee First, Customer Second is, then let me explain how an employee experiences it, how a customer experiences it, how a potential employee experiences it.
What is your core business? To create value for your customer—differentiated value. Where does value get created? In the interface of our employees and customers. Who creates the value? The employees create it. What should the business of manager and management be? Enthusing and encouraging employees to create value for your customers so that you can grow faster. That’s the concept in a box.
OK. How does an employee feel it? There is a 360-degree appraisal system happening right now—including my appraisal. If you come into the company, you see CEO, my manager, my manager’s manager and you’re being asked to rate them. There was another analyst in before you, and I asked him what do you think is different between HCL and anybody else, because they’d done this customer support feedback and HCL was number one in an independent assessment of customer satisfaction—ahead of IBM, Accenture, and everybody else. So I asked, “What is it that you heard?” And he told me that “HCL knows how to say no.” And I said that, where did HCL learn how to say no? Well, if you’re doing your boss’s appraisal you get a different degree of confidence. So that’s the first experience that happens.
Number two, your boss suddenly is very nice to you. What can I do for you, what value can I create for you? So at least he’s nice three months before the 360 and three months after the 360. So you six months out of one year I have made your boss in your service. And in each passing year it becomes better and better. You feel empowered. You feel encouraged.
Third, the energy level in the organization is very high. Why? Because of the collaborative culture. Because of open appraisal systems, politics is not there. Everybody knows if you’re playing politics, your employees are going to screw you up. The whole company is going to know about it. You can’t play that. It’s not just your team. Your 360 is done by his team, his team, his team because if you are negatively influencing his team performance you’re going to see it in 360. So an employee feels energized, motivated, collaborative, and he has all the tools he knows the company has aligned towards him.
Is it perfect? No.
How does the customer experience it? If you ask them the energy, the enthusiasm, the passion in the eyes of the employees—they have not seen before. And that’s what the customer cares about. He gets a motivated employee rather than a demotivated employee.
A potential employee is sick and tired of the blue book and that a****** who’s his manager. And he says, there must be a better company. That’s a reason 33,000 employees, can you believe it, 33,000 employees in the last six months crossed the border. So there must be something very attractive. And they would not cross after reading a book. They’ll pick up a phone and talk to a friend and say, “This is what happens in my company. What happens?” And the conversation is like this: “That guy is not giving me approval.” “Why do you go to him for approvals?” So when those kinds of conversations happen, you must understand that 77,000 mouths is a lot of mouths—and a lot of Tweets and a lot of blogs.
And that’s one reason I don’t call it marketing. You can’t keep it in a box. Because all of them are talking about it. And when I wrote the first book, I know, Krishna and everybody said, “Vineet don’t do it because there’ll be a lot of people who’ll talk about it.” And that’s exactly what I want. I want my employees to say, “This is not true.”
Go and say it if it is not true.
So that’s what a potential employee sees. Nobody’s challenging it—everybody’s loving it, because all the dirt is in you and I.
HfS: When you look at the next year, and after what we’ve been through in the past two or three years, where are you going to be investing in the next 12 months in terms of your own business.
Vineet: I will be investing, number one, in creating new services around business services—business services and ecosystem business incubation around Cloud, mobility and other stuff. That’s the first investment in service lines. Second, I have to make a huge investment in new generation organization architecture for Gen Y and gender parity. That’s the second area of significant investment. Third, in new geographies: Continental Europe, South Africa, Asia are significant investments for us from a geography point of view. The fourth area is we need have to redefine what our competitive position is going to be with a new competitor. We are creating a new competitor who doesn’t exist today.
I have some assumptions of how technology companies may snuff out competition by suffocating it, by making billions of dollars worth of purchases so that those technologies are not available to us as service providers for our provision to customers. So if you are my competition, that’s the thing you should do. So how are we going to react to that? That’s going to be very important.
And the last is innovation. What is it that HCL needs to do to drive innovation? Because innovation is happening at a very high speed, we don’t understand it to the extent we need to understand it. What is that big idea so that we can transfer momentum behind innovation, so that we can deliver, so that we can be the most innovative company in the IT services landscape by 2015? What is it that we need to do today to get us to that position in 2015? These are the five areas in which we are making investments.
HfS: Thank you so much for your time this afternoon- and for sharing your views with the HfS readers.
Vineet Nayar (pictured above) is Vice Chairman and CEO at HCL Technologies. You can read his full bio here.
I recently heard a true tale being recounted where a service provider’s RFP response arrived at the prospective client’s headquarters with a child’s lolly-pop stick stuck to the opening page.
Nothing beats first impressions when a provider declares its intention to be your service partner. It’s like someone viewing your profile on an Internet dating site – if you fail to pass muster with that first encounter, you’ll most likely get jettisoned to the rejection pile before you even get to show up for the first date.
Many of you in the sourcing industry will have come across Jolie Newman at some point in your lives – she has tirelessly supported companies such as EquaTerra, Exult, Millbank Tweed and SSON over the years as a communications specialist. Jolie has even helped out HfS on occasion with her editing skills (and she frequently remarks on our typos…). After many years of toil, Jolie’s realized that many service providers are just plain awful at submitting a pristine proposal when they are seeking a sourcing marriage with a client. So she’s launched her own company, aptly-named “ProEdit Solutions“, that’s focused on helping service providers put their best foot forward when they respond to RFI and RFPs – and we, at HfS, feel she fully deserves a plug for her new firm’s services.
Quite why she turned her back on a budding career as an opera singer to trawl through details on payroll-support abandon rates, I will never fully comprehend, but she’s a super-nice lady who deserves every success with her new venture…. so over to you, Jolie:
The secret of outsourcing success – write to read
In the words of Nathaniel Hawthorne, “easy reading is damn hard writing.” With apologies to this 19th century romanticist obsessed with the inherent evil of humanity, when reading outsourcing proposals, presentations and sales collateral I’d say the reading is pretty damn hard!
In an industry in which differentiation is critical and prospective buyers look for quality in every meeting and communication, it’s surprising that few providers invest in the development of clear, concise and compelling proposals and presentations. Granted, while clients and advisors sometimes force providers down rabbit holes with the number of irrelevant questions for which they demand answers, reading their RFP responses sometimes takes the likes of a cryptographer to decipher.
“Cut and paste,” florid sentences in incorrect business English that run on for a paragraph, “non answers” and lack of proof points all detract from a provider’s message to its prospects. But document after document repeats the same mistakes. Is it haste? Hubris? Inability to string together a cogent, coherent sentence? A lack of comprehending the correlation between clear and concise technical communication and company growth?
Most providers understand the importance of communicating in an existing client relationship, but when it comes to explaining their value propositions in the written word, they are at a loss. Therein lies the problem – without good, high quality communications on the front end, which speaks to the needs of their prospects, providers unwittingly miss out on deals.
It’s a big ask to think the staff of offshore and nearshore providers can suddenly forsake “In-glish” for American or British business English. But it is fair game to ask them to close the communications gap, developing proposals, marketing and sales materials that resonate with their prospects and don’t bore the socks off their readers.
How can providers do so? In our global business environment, one solution is glaringly obvious…”reverse outsource” the creation and editing of their written communications in order to make them readable, cogent and compelling. There are individuals and companies who can help….and the results – stronger RFP responses, understandable collateral – speak for themselves.
We all know that writing is damn hard. But perhaps moving the editing and creation onshore will make for easier reading…
Jolie Newman, pictured above, is founder of ProEdit Solutions, a specialist firm helping outsourcing service providers develop professional RFP/RFI responses. You can email her directly here.
Savvy CIOs are developing themselves into Cloud-enablers by honing their sourcing and service integration skills. Our Cloud Business Services study, conducted in conjunction with the Outsourcing Unit at the London School of Economics, contrasts many differing views and expectations from business and IT executives about Cloud business services… however, both sides do agree on one thing — the crucial enablement role that IT executives must adopt in order to provision Cloud business services.
While business execs are more gung-ho on Cloud than their risk-averse IT counterparts, both sides agree on who should enable this – it’s going to be the IT function. The survey reveals that 42 per-cent of business respondents expect to rely extensively on their own in-house IT function to implement a move to the Cloud:
The bottom-line: Cloud business services creates a massive opportunity for the IT department to realign itself to the business
HfS sees the future of the inhouse IT function as being the conduit between the business and the providers delivering Cloud business services. The successful IT executives will be those who develop governance expertise in sourcing and service integration to make Cloud a reality.
Business stakeholders want Cloud, and they know smart CIOs can mitigate their risks. However, HfS believes IT professionals must tool-up to deliver cloud to their business stakeholders, otherwise they risk a gap growing between business demand and IT supply. Tooling-up for the Cloud calls on CIOs to develop new internal skills and embracing third-party expertise to accelerate the sourcing of Cloud services. Security, compliance, and integration are huge issues that predicate success with Cloud, as our survey will reveal when released later this week. Running due diligence on service providers is critical to ensure any potential cracks in service delivery do not cataclysmically impact performance. Stay tuned for more…
