HfS Research and The Outsourcing Unit at the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Service
The colossus Cloud Business Services study we just conducted, in conjunction with the Outsourcing Unit at the London School of Economics, has served up some contrasting concerns that business executives are having versus their IT counterparts: Cloud’s potential impact on work culture versus its impact on the value of the today’s IT department.
Essentially, two-thirds of business executives have expressed concern over the impact Cloud business services could have on the speed by which they could be driven to operate in virtual environments. Moreover, a similar number expressed concerns over Cloud impeding their ability to collaborate with other businesses.
Conversely, IT executives are hugely worried (80%) by the potential for Cloud providers to exploit customers, but contradict these fears by also worrying about competitors leveraging Cloud to steal competitive advantage from them:
The bottom-line: when the business execs look at Cloud, they sense a major cultural change in the way they work, while IT executives are terrified by the potential curtailment of their value as the technology-enabler of core business processes.
The fact that the IT side of the house recognizes the competitive advantages Cloud can give business (see Part I), creates a massive challenge to the CIO today: how can their IT department become a vehicle for helping their organization find competitive value from Cloud. Because if the CIO fails to deliver this value, the business side will be forced to look at alternative avenues. We’ll talk about the business transformation implications of Cloud shortly. Stay tuned for more…
While the rest of the outsourcing world has been carrying on through challenging times, the most challenged of its citizens, Mahindra Satyam, has been quietly rebuilding a global business under the charismatic and candid leadership of Atul Kunwar.
A no-nonsense leader with a strong M&A background, he has charted a course to more than double the size of Mahindra Satyam and its sister company Tech Mahindra in three years. HfS would normally be skeptical of such a claim, but there is compelling evidence that this is a reachable stretch target.
In the unlikely event you have not heard of what caused the former Satyam’s challenges, here is the short version: In late 2008 and early 2009, it became known that the company’s chairman and founder and his brother had inflated profits and more as importantly, cash, for years, to the tune of almost $2 billion. At the time, the company was India’s fourth largest IT services provider and had an enviable portfolio of big-brand clients. After a brief period under government control, the Mahindra group stepped in to rescue it and turn it around, assuming its large and previously under-reported debt.
While investors suffered immensely as a result of the fraud, customers were relatively unharmed, as operations continued without interruption in most cases.
Today the company has completed a difficult stabilization period and is adding new logos, while pursuing growth in four key foundational segments:
End to End Manufacturing
Telecom
Enterprise Services
Vertical BPO
This Rapid Insight Report offers HfS Research’s take on Mahindra Satyam’s strategy and what it might mean to enterprise customers who consider working with the company.
Folks – I’ve made no secret of my admiration for analyst-extraordinaire, Ray Wang, who is a true dynamo in the world of software. You can read a great dialog we had with Ray earlier this year.
Ray (view bio here) has made his name as a superior analyst at Forrester Research, with spells at PeopleSoft, Oracle and E&Y, before co-founding advisory firm Altimeter Group. He also has an industry-standard blog “A Software Insider’s Point of View“. Plus, he doesn’t have a single gray hair for a 38-year old workaholic insomniac…
Today, Ray announced the launch of a very exciting new research venture entitled Constellation Research, which comprises a collection of really smart and remarkable individuals and friends who are – quite literally – changing the way market research, commentary and insight is being served up to the technology buyer.
HfS Research is delighted to be the alliance partner for IT sourcing and BPO research to Constellation’s buy-side community, where we’ll be cross-pollinating some research with each other and collaborating to help educate the sourcing buyer make smarter decisions.
I, personally, have really enjoyed my interactions with folks such as Vinnie Mirchandani and Dennis Howlett over several years (in fact, Dennis remembers me when I was still in my analyst nappies back in ’95). We’re honored at HfS to get the chance to work with such a stellar collection of cosmic energy!
If you have any questions regarding the research alliance, please drop us a line at [email protected]
The "B" issue in outsourcing: always invited to the party, but rarely adds much value…
Anyone close to the world of outsourcing deal-brokering and performance measurement has been exposed to the infamous “B” issue.
I recall a debate with several experienced buyers, who had anything from 250 to 1500 benchmarked line-items in their respective service level agreements. When I asked them how many of these they actually cared about, no-one could think of more than a dozen… Over to our roving expert in sourcing best practice, Esteban Herrera to discuss the matter further…
Benchmarker Beware! How to use Benchmarking Successfully in Outsourcing
Benchmarking is a misused and misunderstood tool in outsourcing. Almost everybody’s contract has a provision for benchmarking, and in almost all cases it drives the wrong behavior for both parties. A good benchmark (and there aren’t many good ones out there) can be a valuable tool to start a conversation, yet our industry tends to use them as the end of a conversation. Benchmarking data is only useful in the context of a Market Intelligence Program. HfS Research defines a Market Intelligence Program as a coordinated set of insights, professional networks data sources, industry research, and processes that give outsourcing buyers a complete, accurate view of their deal relative to the industry.
Unfortunately, I’ve seen clients artfully leverage expensive benchmarks to unwittingly reduce the value proposition they are receiving from their providers. I’ve seen well-intentioned providers ruin large relationships over benchmarking result disputes. Most often, I see the clause that cost hundreds of hours and thousands of dollars to negotiate be ignored in full or in part. So clients and providers spend lots of time and money (and “relationship capital”) arguing over the minutiae of a provision that isn’t likely to ever be used, and is even less likely to be implemented if it ever is used, and if accepted could have the exact opposite result it was intended to have!
The obscure methods of the benchmarking industry and the motivation of some individuals or groups to debunk results do little to help. Credibility of benchmark results seems to be at an all time low, and nobody seems to be capable of accurate BPO benchmarking. For these and many other reasons, users must tread carefully to get value from their efforts.
HfS Research has spoken to hundreds of client and provider teams to determine the proper way to leverage benchmarking, and to help clients determine whether benchmarking is even appropriate for their situation. You can get some pragmatic benchmarking advice in our HfS Rapid Insight piece Benchmarker Beware: How to use Benchmarking Successfully in Outsourcing, or by contacting your local HfS Research analyst at 1-800-BENCHMARKS-NOW-PLEASE
Guy Fawkes ponders service integration strategy and blowing up the outsource model
Euan Davis, Managing Director of HfS Research’s European Practice, lives in the UK, and has the pleasure of celebrating Guy Fawkes’ Night ever year, where they burn an effigy of the man who tried to blow-up Parliament in true paganist style… accompanied by fireworks.
Curious, as I’m sure anyone who tries to blow-up Congress would likely be hero-worshiped stateside, or asked to join the Tea Party or something…. anyway, it’s as close as the Brits ever get to Disney.
Today, as Euan readies for his annual trip to a bonfire, he muses on fireworks–municipal ones and the type he expected at a session about service integration last night, at PA Consulting Group’s SSON networking evening. Take it away, Euan…
Service Integration: Guy Fawkes Fireworks or Damp Squib?
Friday, November 5 is Bonfire Night over here in the UK. Like many others I will be heading down to our local municipal bonfire to watch a proxy “Guy” thrown on top of it followed by some great fireworks—some towns really go for it and burn effigies of our politicians or pond-life celebrities. Trying to explain the concept to my kids (especially the burning of the catholic at the stake thing) is always tricky but as they get older and learn more history at school they start to get it (I hope). So I was expecting fireworks when I attended attend PA Consulting Group’s SSON networking evening to talk about how UK energy firm Centrica was tackling service integration, a topic close to my analyst heart…
Unfortunately the executive in charge of shared services at Centrica wasn’t able to attend so we didn’t get to hear how the company managed its many IT suppliers and IT contracts and connected them to its overall business performance. There is a great story here at Centrica I suspect as I’ve heard rumblings of multisourcing and systematic deal-making over there for some time and I know of several other energy and utility firms investigating systematic multisourcing models. What we did hear last night was PA Consulting outline its new service line focused on Service Integration and Optimization—it’s in the right direction but I am curious to see how this works in practice and if they can actually sell it. They made the point that it’s the dynamic people that pull the levers around service integration who really make it work. But my thinking is they need a structure within which they can operate. So key questions I want to ask is around ownership: who owns the contract? Who owns the overall program management? Who owns the interface to the internal stakeholders? Where do the red lines sit between a customer and its service integrator?
I do foresee demand for specialized “service integrators” growing and not only for running and enhancing an existing set of contracts, but also for setting the terms of play with an ecosystem of providers. These best of breed providers will stretch between business processes, applications and infrastructure and pull together around clear business outcomes—see my thoughts on CSC’s position here.
The question in my mind is would firms like Centrica want to do this role themselves or are they rethinking how some of the red-lines fall between their internal governance teams and an external service integrator because there simply not enough dynamic people to do it. Are they really prepared to let the fireworks off, rethink their sourcing models and use best in class service management to couple service delivery to business outcomes, drive cross provider innovations to improve processes and reduce cost? I can’t wait to find out.
Always happy to discuss further – you can email me at euan dot davis at hfsresearch dot com
What are you desperately seeking? Rosanna was Desperately Seeking Susan. Phil and Esteban? If you know them like we do, you know they’re Desperately Seeking Innovation.
So, as official provider of research and insight for SSON’s premium buy-side members, Phil and Esteban are teaming up to lead a session for the entire HfS Research and SSON communities:
Desperately Seeking Innovation in BPO Tuesday, 9th November 2010 3:00 PM GMT 10:00 AM ET Register here.
The session, being made available to all HfS Research and SSON members this time only, will be based on the recent HfS Research study, Desperately Seeking Innovation in Business Process Outsourcing: Enterprises Speak Out. The report discovered most buyers of BPO services alike trimming 30% of their costs on one process–at the start–then 50% on another. But once those costs disappear from the balance sheet, they are quickly seeking new initiatives to attain new thresholds of productivity or revenue growth: what we terms “innovation.” In the call, we’ll share the views of the nearly 600 shared services and outsourcing executives who we surveyed as part of the report.
This call is part of a series of of Group Member calls we’ll be hosting specifically designed for SSON premium members. We’ll explore the experiences and expectations of today’s enterprise buyers when it comes to achieving innovation and we’ll offer actionable recommendations for devising a strategy to improve your innovation agenda.
Desperately Seeking Innovation in BPO
Phil Fersht, HfS Research Founder and CEO
Esteban Herrera, HfS Research Senior VP
Sumit Sachdeva, Head of Cognizant's Healthcare BPO Practice, atop Mount Pilatus in the Swiss Alps
Healthcare has been on everyone’s minds in the US, in the wake of the acrimonious legislative fight and with the recent elections.
And when any industry gets the squeeze, us sourcing-folk immediately think “hmmm, will they now do some outsourcing…?”. (Read our earlier piece on the impact of healthcare reform on healthcare payors).
So we thought we’d turn to someone who has the lovely task of actually selling outsourcing to healthcare organizations. Not an easy task – I can assure you, having once worked as an advisor on a healthcare BPO evaluation… and was nearly lynched and deported before being forced to watch an entire viewing of “Scrubs”.
Sumit has spent last 8 years of his career in the Healthcare BPO industry and has seen it evolve. He joined Cognizant BPO in 2006 as a part of the initial management team and has been instrumental in its growth. Prior to Cognizant, Sumit worked with Hexaware and Xerox India in various roles, before relocating over to the States.
A dedicated globe-trotter, you’ll always find Sumit sampling some local cuisine or culture… or even climbing a mountain, like Mount Pilatus, nearly 7,000 feet up in the Swiss Alps. And a mountain’s a pretty good metaphor for the healthcare sector. It’s massive, hard to figure out, and riddled with uncertainty. So we turned to Sumit to brief us on why there’s so much activity in the healthcare sector, and the impact of healthcare reform in the US…
Phil Fersht: Sumit – thanks for taking time to talk to HfS Research today. So tell us about the healthcare business. Why is it so busy right now?
Sumit Sachdeva: Oh, there’s quite a bit of momentum that we have. So that’s keeping us busy. We’re all set for a significant growth this year and are expecting this trend to continue for the next year or two.
Phil:What sort of work are the clients demanding?
Sumit: I think across the board, different types of customers are looking at different pieces of the pie but – once at the table – you can end up having several different discussions! We’re more focused on the vertical services – the very core operational areas within health plans. And there is significant demand in those services I feel.
Phil:So, the fact that you are vertically focused–is that playing to your advantage in the healthcare space?
Sumit: I think so, because what’s happening is that when you go and position yourself as, “Hey, I can do F&A or I can do HRO or I can do procurement” and all of that kind of stuff and then you also say “I can do also claims, etc.,” what happens is that when you’re talking to the business guys who are the core functionaries—not the CFO or not the procurement organization, etc., when they see this array of services, they feel that you are generalist BPO company. Right?
But when we go to them and say, “Hey, you know what? This is our service offering. This is what we will breathe, eat and sleep,” I think we start seeing the discussions are a little more focused.
I think the vertical BPO push and positioning that we have been following for the last three years is now gaining ground in the industry. In fact, in the last analyst session we had in New York, a lot of people were curious about, “Hey, I heard about this vertical BPO. What is it? How is it different?” So I feel that it’s gaining traction. What’s your take on it?
Phil: We’re currently ascertaining the current environment and whether health reform has been impacting sourcing demand from several healthcare organizations. I think it’s taking a long time to get the legislation introduced and then pushed through the key channels. However, we’re definitely seeing increased pressure and interest from the buy-side to look at specific processes. We’re seeing a lot of interest in claims processing, revenue cycle management services, for example. Is that where you folks are seeing most of the growth in terms of your process focus?
Sumit: Yeah. I would put it into different buckets. So if you look at the large plans where they have outsourced a lot of the low-end work, those type of health plans are now starting to look at, “Hey, what else can I do? How can I get ready for this change and reform and control my costs?” So they are pushing things to the next level. So, for example, we’re seeing this huge demand coming in, in terms of benefits configuration because as we all know that the healthcare reform is going to have an impact on the benefits plans. So starting right now, as an example, coverage denial for children with pre-existing conditions has gone away, the lifetime limits have been removed from several plans etc. So there’s a significant demand for how to go about making those changes into the benefits plan. Now if you’re a BPO organization, it’s very difficult for you to get into that space because it’s a fairly high complexity, high domain area. But since we’ve had invested in those kind of domain competencies, it has been easy for us to get in and start growing into that space.
So that’s one example of how the healthcare reform is driving demand in more complex areas. When you come to the smaller and mid-sized plans—typically more of the smaller plans where they’ve had couple of systems or their systems are a little arcane and they’ve been very manual—they are increasingly coming under pressure to do something regarding their whole operations because with the healthcare reform coming in, they know that their costs had to come down. But more importantly they have a looming regulatory requirement of complying with HIPAA 5010 and ICD-10 changes, which are pretty big changes and would require significant outlay. Especially when you have two or more systems, that’s where the dilemma is coming in: “Hey, what do I do with the two systems? Do I remediate two systems and double my 5010 and ICD-10 remediation cost? Or should I use that just as a point and consolidate it into one system? And is my system, the right system—or should I look in the market and get another system?”
So, I think, in that sense you’re seeing a kind of a trend picking up where some of the smaller plans are now looking at more of an end-to-end service. “You bring the platform. You kind of do the whole IT and BPO and infrastructure combined and just give me the service.”
Phil: Do you feel that the way BPO is moving in healthcare, it’s going to remain on a vertically-centric course like this? Or do you think that we’re going to see more horizontal areas like HR and finance open up in time?
Sumit: I think so for some time. I think that the horizontal services will open up. We’re seeing some initial trends however timing is something that we need to look for. The reason why I’m saying timing is that there are only so many balls an organization can juggle at a given point in time. So what’s happening right now is that there is so much pressure and so many changes currently happening in the environment for the next two or three years.
I don’t know how much focus would be there on, for example HR or F&A, which in a health plan environment would have a limited impact on their operations side. To give you a sense of the scale, for example, a large healthplan might have 200 to 300 people in finance and accounting but they would have 5,000 to 7,000 people in claims. So where’s the bigger bang for the buck? That’s something that will probably drive some of that timing.
Phil: Do you feel that most of the client situations you’re getting pulled into require both a technology as well as a process element? Or do you feel a lot of it is very process-only type engagement at this point?
Sumit: I think, like I said, smaller organizations are looking for a lot of platform stuff. The larger organizations understand that a combination of technology and process can play a very key role in terms of driving the process to the next level. And that where IT+BPO Synergy plays a key role. There are two key contextual pictures here
When I interact with customers across the board, one of the things that continuously comes out is: “We know that there are low-hanging fruit that can be leveraged and have a good ROI, if you just look at it in the context of a particular process. But in the context of the larger organization, that ROI is relatively small so we never get that budget or that focus or attention to do this particular kind of IT initiative.” So when we come in as a vendor, we just focus on that particular process. It’s much easier for us to bring that attention and that focus to drive that process improvement. And a lot of times, these kind of opportunities get built in pricing of the contract, etc. So that is one context.
Then the second context is where the customer says, “We understand that there are opportunities for process improvement. And we also know that there are so many different opportunities that we won’t be aware of. So if an organization can come in and drive this process enhancement, they feel that “Okay, I’m going to get the assured benefit of the identified opportunity but there are opportunities to get more.”
So that’s what the buyers are starting to look at and that’s where that whole IT/BPO synergy kind of thing starts to play very effectively.”
Phil: All right, so what do you think are the main barriers holding back firms in the health care from looking at global sourcing right now? Is it still a big barrier for them to cross—to think about using the sources outside of the country etc? What do you see?
Sumit:I think the barriers, if I may say, are, in the current economy—obviously, job losses. Spreading all of that information in the community which they service is an important factor that starts going in their mind.
The second piece is the appetite to undergo that change, because healthcare organizations have typically had the opportunity to continuously increase their premiums, although they have been under pressure to reduce costs. But that pressure has not been as intense as in some other industries, like manufacturing, retail or even banking and financial services.
And the third factor is a tendency of a lot of people internally thinking that, “Hey, we are here for the good of the society. We service the society.” So that is the kind of mentality, especially in the hospital side. But that is changing now because we are seeing that people are saying, “We are doing Social Service, we are not for profit but then I need to be viable to survive. I need to make sure that I’m covering my costs.”
I think those are some of the reasons this industry has been a late starter. But now those perceptions are changing, people are becoming more business- and top-line-, bottom-line-focused. And so that’s why we are seeing a little more traction. It will take a little time for that momentum or inertia to move more in the offshoring and outsourcing direction.
Phil:In terms of the Healthcare Reform Act, is this something that you’re seeing driving a lot of these decisions right now? Is it very much on people’s minds when you talk to your clients or do you still think that it’s being put on the back burner until it actually comes into action? What’s been your experience?
Sumit:I think definitely Healthcare Reform is forcing organizations to rethink their strategy and their business model. There is opportunity and there are challenges. They’re kind of both. A lot of organizations are now realizing that the only way to address the Healthcare Reform is to control your costs or optimize your costs and at the same time, grow. If you do just one of them, the chance of survival will be very limited. So that’s where it gets challenging for the health sector.
If you have to optimize cost then how do you invest in growth? How can you do that in combination?
And that’s where a lot of organizations are thinking about: “Hey, should I look at outsourcing? Should I invest the dollar that I have to focus on growth and then leverage a strong partner to help me in terms of optimizing some of my costs?” I think that’s the kind of thinking that is permeating in the industry in several places that we’ve been interacting and having some discussions with. However people are still kind of absorbing the whole impact.
They’re still strategizing how they are going to look at the next four years in terms of the reform and its impact. Before they were looking at how the first wheel of changes get accepted, acknowledged, etc., and now this anxiety for the November elections is also something that, especially from an outsourcing perspective, is making people, take a wait and watch approach. “Let this election pass. Let’s see what happens. The government policies might take a change or turn or whatever it is.” So I think that’s where a lot of organizations are, especially the medium and the smaller ones. There are certain organizations which are some of the more aggressive organizations have or some of the organizations have already decided that: This is an opportunity to make a big change so let’s go ahead and do that.” So we are seeing more actions in there. They are some of the more progressive organizations.
Phil: Sumit – thanks so much for your time today – our readers will certainly appreciate your insights and experiences.
Sumit Sachdeva (pictured) is Head of Cognizant’s Healthcare Business Process Outsourcing practice. He can be reached at sumit dot sachdeva at cognizant dot com
Deborah Kops joins HfS Research as Contributing Analyst
There really is only one Deborah Kops. Because if there were two, we’d be in serious trouble. Not too many people can truly say they’ve “been there, seen it, done it” in our lovely sourcing business, but Debs (as only a few of us are allowed to call her) really does have the scars to really prove it.
She was instrumental in PwC’s global business process outsourcing (GBPO) practice in the ’90s before embarking of a tour of sourcing duty that culminated in a three-year experience with WNS, where she was instumental in helping elevate the Indian-headquartered BPO provider to become a serious candidate for major top-tier engagements. Check out her bio for the full rundown of her rumbustious career.
Name me many other woman who have successfully held a market-facing leadership role for such a length of time in the male-dominated world of an offshore outsourcing provider. Apologies if I just flouted all the rules of today’s political-correctness with what I just said – but it’s true.
Many of you know Deborah as a versatile straight shootin’ gal who’s seen the BPO industry’s growing pains through the lens of buyer, provider and consultant. Well, she’s now focusing her prodigious energies…and her pen…on sourcing change management through www.sourcingchange.com, which is the first resource devoted to the issues and challenges of getting stakeholders to adopt, embrace and expand outsourcing relationships.
At HfS Research, our clients are in desperate need of advice and knowledge from peer experiences when they undergo the difficult operational change that accompanies a global sourcing endeavor. Sourcing Change, under Deborah’s leadership, delivers experienced, meaningful advice fill the knowledge gap in the market. Having worked with Deborah for many years, there is no one more qualified to deliver this insight. We look forward to expanding industry understanding through our collaboration with her.
Deborah’s diverse background gives her a unique take on the industry, and her inaugural contribution to HfS Research (click here for freemium access) focuses on a significant tradeoff the industry makes for cost arbitrage—a rapid generational shift to younger workers that we grumble about but don’t really acknowledge. “Imperfect Arbitrage,” starts the debate about the tradeoff we make when we source offshore.
Over the next year, you’ll be able to sample innovative thinking in sourcing change through Deborah’s frequent columns and commentary exclusively for HfS Research. Look for surveys and analyses which, for the first time, portray the actual state of outsourcing change management, and a schedule of webinars and workshops that will help buyers and providers alike enjoy more success. You can reach Deborah at deborah dot kops at sourcingchange dot com.
HfS Research and the London School of Economics have surveyed 1053 organizations on the future of Cloud Business Services
This week, we’re beginning to unravel the colossus study we just ran with the London School of Economics delving into the future potential of Cloud Business Services.
We managed to receive 1053 participants across business buyers, IT buyers, advisors, providers and industry influencers – if anyone else in the industry has performed such as exhaustive study of Cloud business services, please enlighten us! Thank you to all our loyal readers who completed the study, and our friends at SSON who helped engage their network. A complimentary report of the study findings will be winging its way to you all very soon.
One of the unique angles of our study has been to contrast the views and intentions of the non-IT business community, and solely IT executives. And – as we suspected – the dynamics driving the future direction of Cloud adoption within the business functions is going to come from the business function leaders who “get it”.
Cloud Business Services are no longer hype – both business and IT executives are buying-into the value Cloud can bring to their jobs and their organizations. Let’s examine further:
*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 even more engaged by the potential value than the IT-side.
*Most notably, half the business respondents seriously value the focus Cloud brings to transforming their business, as opposed to their IT. Barely a third of IT respondents were as enthralled by this.
Does this mean that the real impetus behind future adoption of Cloud Business Services is going to come from business function leaders with heavy influence over IT spending for their function? And what role will Cloud Business Services play in altering the make-up of today’s outsourcing and integrated services engagements?
Stay tuned for Part 2, and Part 3… and probably Parts 4 and 5 as well…
I was sitting through a conference the other day and I realized I’ve been listening the same old “how to do outsourcing” presentations for years. Each presenter just kept reeling off the same old dull-as-dishwater drivel about “labor arbitrage”, “transformation” and “how to eliminate risk”. TELL US SOMETHING WE DON’T KNOW! JEEZ – THIS IS THE SAME FLUFF WE WERE BEING SERVED UP TEN YEARS AGO.
Seriously, if our industry doesn’t pull its head out of the sand and start talking about how businesses can innovate, how they can leverage a globally-sourced environment to be more successful, how new developments in Cloud computing can turn global business models on their heads, we will kill ourselves with freaking BOREDOM.
Maybe I should read the old man’s patter instead… am sure it’s far more inspiring.
