The global insurance industry faces a challenging and unprecedented market environment; insurance premiums are falling, and insurance firms’ profitability is nowhere near the pre-recession era. Added to this, insurers in the US and Europe need to battle several regulatory and compliance requirements in the next few years.
The US healthcare reform calls for innovation in risk/price modeling for insurers who will cater to whole new segments of customers in 2014. Similarly, the Solvency II regime has brought risk management and disclosure to the forefront of the European insurance industry.
Compliance is already driving up documentation and administrative workload, and there is a shortage of risk analysts and actuaries to take on the higher level work. Insurers now have an urgent need to manage enterprise risk by harmonizing market, credit, operations and organizational security. In this scenario, outsourcing of select business processes is a highly viable strategy, as several insurers are discovering today. And expense reduction is only one angle; it is no longer the only important reason driving the insurance segment to outsource.
Providers are now business partners, offering to diagnose current and future resource requirements with a focus on efficiency, not cost arbitrage. Outsourcing is increasingly empowering insurers by integrating and transforming processes, tools, technology, as well as risk strategies. These are the major points of discussion we cover in this new HfS Research report, relating to global insurance BPO:
Western Europe and North America make up for more than two-thirds of the insurance market. In terms of outsourcing, while North America is by far the most aggressive, there is now greater traction from the UK and continental European insurers.
Primary insurers make up the majority of offshored business, followed by reinsurance companies and intermediaries.
The selection of processes to offshore is extremely strategic, and depends on the comfort, confidence and outsourcing maturity of each insurer, and their orientation of core and non-core processes.
At the outset, insurance companies were more open to outsourcing simple data entry processing, outbound sales, claims processing, billing and settlement, and policy servicing. Five years ago, the focus was to outsource task-based activities. Insurers are now viewing functional outsourcing as a viable option (e.g., entire claims administration process).
India and the Philippines emerge as the strongest offshore destinations. India will continue to maintain the top spot for the next five to seven years. Certain services within the voice segment are slowly moving to the Philippines, but it is a small component of the growing volumes of offshore business that India is witnessing.
Offshore BPO providers have evolved their insurance practices, and now possess strong domain expertise and technical know-how, coupled with great orientation toward foreign regulatory environments. This has encouraged stronger confidence among overseas clients, and in the last few years, major vendors have slowly moved up the value chain to address opportunities in customer support, underwriting, extensive analytics and actuarial support services.
There is a cautious loosening of purse strings by the insurance carriers this year as they seek solutions which will help augment their top-line and improve their bottom-line as well. Providers are seeing a renewed vigor by insurers, to bring about business process efficiencies and seek greater return on investment from their already outsourced engagements.
Insurers face a challenging environment in the coming years. A well-thought out sourcing strategy will serve their efforts of achieving process optimization and tighter efficiency. Even as they seek cost containment to ride out the recovery, insurers need to think long term about the implications of their outsourced work. Insurers would also be well advised to approach their negotiations with vendors with business outcomes in mind, in line with the move towards transaction/outcome based pricing. With Solvency II requirements being set in place, outsourcing agreements will face stringent supervision and review. European insurers need to prepare their internal process frameworks post-haste, as outsourcing to external vendors in the future will require a transfer of these controls, while maintaining low risk. Insurers must also engage with vendors that are amenable to audit checks by supervisory committees.
Providers must develop best practices in tandem with the new regulations/legislations, to provide maximum value to clients looking for expertise in their regulatory environments. They also have a strong opportunity to cross-sell high-value services to existing IT/BPO clients. For providers looking to compete for core volume-based BPO services, scale is paramount in the coming years. However, for companies vying for complex high-value services, it is domain expertise over scale that will work in their favor. The shift to knowledge intensive KPO services will entail lower number of transactions, coupled with much higher skill levels of workforce employed. Providers must balance their portfolios to accommodate for the significantly different service strategies.
HfS Research premium subscribers can access our new market landcape on the global insurance BPO industry over at our Published Research section.
Lots of frantic noise this week that Cog has been making romantic overtones to Genpact – with India’s press jumping on “speculation“.
Like any other industry observer, you can certainly see lots of romantic potential here – Wall Street’s darlings of BPO and ADM tying the knot to frighten the life out of Accenture, IBM, Infosys et al. However, while its seems like Brad and Angie Part II, I’m afraid this one just ain’t gonna happen anytime soon. And if it does, I will personally send a box of chocolates to Senator Schumer.
Here’s why this is highly unlikely:
Industry media is bored and yearns for big M&A across the new breed of services providers, but they’re not (quite) ready. Everyone’s been predicting major M&A for the last couple of years, but it’s only really happening in very mature industries (for example payroll and benefits administration) or with companies that have been around for many years and need to be acquired to have them broken up and re-balanced (i.e. Perot Systems, EDS etc.). Firms such as Cognizant and Genpact have been on such a high growth trajectory these past 3-4 years, they’re simply not ready to drive such a thunderbolt of disruption into their business operations. We’ll need to observe a significant slowdown of growth for at least two consecutive quarters, before mergers of this magnitude will be entertained by the leading offshore providers.
Both Genpact and Cognizant have been developing their own unique cultures and brands – merging them now is risky. The speed of development of these firms has been staggering, and much of the energy behind this, has been the unique cultures created by dynamic leadership of taking the offshore model to the global enterprise. The management style required to lead a BPO business is also different from ITO – the margins are often tighter, the skills needed to run certain processes often harder to attract, develop, train and cross-train. Taking a unique BPO culture and trying to shoe-horn it into a dynamic ITO culture could very quickly derail a secret sauce that took years to develop.
General Electric is an unlikely proposition for Cognizant to take-on. GE still dominates 40% of Genpact’s business (see earlier post), and Cognizant is unlikely to see major growth potential in this client. It also has a reputation for being a tough one to ingest.
The Indian-centric providers are more focused on cash-based “tuck-in” acquisitions. For several years, the leading Indian-centric providers have been looking at acquisitions that tend to be largely cash-based, relatively inexpensive, and ones they can pick up and grow with their scale-model. For example, InfosysBPO recently acquired the McCamish insurance platform, whereby it could look to turn $1m insurance clients into $50m clients with its BPO scale. Cognizant picked up the UBS Indian captive where it could start to develop BPO/KPO client opportunities based on the niche capabilities it had acquired. Genpact is frequently picking up niche deals that adds piecemeal process competencies. If these firms wanted to buy big, they’d need to entertain stock-based acquisitions, as once they shell out a few hundred million of their cash on one or two larger acquisitions, that money’s gone, and so does their room for future strategic investments.
The more likely M&A will be between a Cowboy and an Indian. As discussed here recently, the more likely M&A in the ITO/BPO industry will come from Western providers and Indian providers coming together, in order to benefit from each other’s competencies and cultures. And this could take many shapes or forms – there is no set way for providers to develop their solutions with the onset of Cloud computing, hybrid sourcing models and verticalization of IT/BPO solutions. Genpact is a highly attractive proposition for many Western firms seeking to take a market leadership position in BPO. And who would discount one company from Redwood shores with the reputation of making bold acquisitive moves, in casting its greedy eyes at the subcontinent?
Mike Salvino, Group Chief Executive for Business Process Outsourcing, Accenture
One of the great double-acts in the early years of the BPO business was always the Kevin Campbell and Mike Salvino show (read our interview from last year). …And it still is!
Not too many people have been on the front lines of the BPO business since the very early days (remember Exult, anyone?), so it was no surprise when Kevin yanked Mike out of Hewitt Associates in 2006 to have him join him at the helm of Accenture’s outsourcing business.
Now, neither of these guys are your typical silky-smooth Savile Row-clad consulting partners – they’re wholesomely direct and open about the trials and tribulations of succeeding in a very complex global environment. Their impact on Accenture is notable – not only among many industry observers, but also many of their clients.
Mike Salvino – or simply “Sal” to his friends and colleagues, has brought a real air or pragmatism to Accenture, where he now leads the firm’s global BPO business. And while everyone else was getting carried away with mixing Cloud computing with nanotechnology (at a recent analyst meet), Mike’s response was simply “well, how about those clients who are just trying to get some results out of their business process deal today”. I realized, then, it was high-time to have Mike on here to grace us with his views of the real world, and he kindly ducked away from his son’s basketball practice to spend some time with us…
Phil Fersht: Mike, since you’ve been on the front lines of the BPO industry from the early days in the 90’s, how do you think things have changed in the last decade? What’s different today compared to 10 years ago?
Mike Salvino: Let’s look at this across a number of different factors. If you dial the clock back 10 years, BPO was about pure cost savings and non-core transaction activities. So in 2000, clients were supposed to define what was core to their businesses and then get rid of everything that was non-core. In the early days of HR BPO I remember having debates that there was no way service providers could do things like recruiting, learning or even expatriate administration because clients viewed those processes as core and would never want to give them up.
The early deal shapes were around having the service provider take on people from the client and try to scale them, versus leveraging the provider’s assets for the client’s benefit. From a geographic standpoint, it was unheard of to have processes delivered from India, the Philippines or Eastern Europe. People wanted to keep their processes close, and were mostly just trying to get it right using onshore resources.
Moving the clock ahead 10 years…any time I see a “take the people”-type deal, I see a red flag. If a provider is pursuing this type of engagement, it is either just trying to get the business or flat-out doesn’t have the capability to do it — and it’s really hard to win business-wise doing those types of deals. The major players in the BPO industry are not taking on large numbers of people from clients.
In addition, BPO providers have proven they have moved beyond the “core vs. non-core” categorization as we’ve been able to push our offerings all the way into the front office. A great example is Navitaire, Accenture’s wholly owned subsidiary for the airline industry. Through Navitaire, our robust solutions are providing the leading edge to nearly every phase of low-cost airline industry. We’re the back office for these airlines. We’re their middle office, which is the scheduling of flight crews and planes from end-to-end. And we’re their front office, running their reservations, ticketing and customer loyalty systems. Ten years ago this would have been unheard of. Now, people are more attuned to looking at these kinds of processes if somebody else has a better mousetrap.
Finally, this is now clearly a global business. Back in 2000, I wasn’t sure how global it was ever going to be. Was BPO just about taking people from a client and going to a different location in the same city? Or could you get leverage and scale and do it globally? In 2000 “following the sun” meant that we could do the work for our client before our client woke up, depending on where the client was. Now with a global footprint, we can literally move the work around the world as we need to. We clearly do this today while before it was just a concept.
Phil Fersht: So now, at present day coming off the recession, we seem to be moving into a new era where some of the deals are getting smaller, more incremental. A lot of clients seem to want to move piece by piece rather than the whole ship at once. How are you seeing the landscape changing?
Mike Salvino: I think things went a little over-the-top before the recession. Billion dollar deals were being done and we are just not seeing that right now. Today it’s all about the client’s business case, the dollars and cents. We can choose any process we want as long as we can show a business case. Then, obviously, if we show a business case, we need to follow up with the delivery capabilities and referenceable clients. This makes it hard to get into potential new areas, but some clients are very focused on what they want us to deliver to them. So they are willing to go into those new areas, such as clinical-data management or engineering services, processes you could say are going to be the core of BPO. Whatever the process, clients want us to help define the business case, and then they want us to put skin in the game around delivering on that business case. And that’s fine, because I think they are clearly separating the pretenders from the real contenders.
We do see the deals getting smaller, but we also see the deals being more bundled in terms of F&A, procurement, sourcing and even some HR. We also see them more bundled with IT. But we’re seeing clients more frequently wanting to first do a “pilot”, and then scale from there.
Phil Fersht: Accenture has made a lot of noise in recent talks around bundling processes across towers. You mentioned you’ve been doing deals where you’ve seen alignment among procurement, F&A and bits of HR. Do you see this mixed bag continuing to proliferate? How is that developing?
Mike Salvino: It’s not developing the way we once thought it might. Before the downturn, we felt we could do bigger deals by bundling all the services together at the outset. But what we are seeing is, if we successfully deliver F&A for a client, it gives us the door to swim upstream into procurement and extend that into an F&A and procurement deal. Then, if we’re good at doing the procurement, it allows us to get into the sourcing strategies, which then allows us to get into the demand forecasting and demand generation areas.
Bundling is happening, but over an extended period of time. We are not going in with a huge bundled deal with all these processes at one time. What we’ve seen over the last 18 to 24 months is many of our new bookings are extensions. Extensions are not just expanding the existing work, but instead extending our clients into new work. So for example, we are Microsoft’s back office. We are touching HR, we are touching procurement, we are touching F&A and we’ve done that over the course of four years. But you aren’t really seeing RFPs hit the street for everything under the sun, unless it’s someone trying to sell its captive operations.
Phil Fersht: We’re hearing a lot of noise, particularly from the ITO sector, on developing BPO competency around these IT/BPO synergies. We’re certainly seeing them in vertical areas, like your Navitaire example. How are you seeing this coming together of technology-enabled BPO? Is it more hype because you’ve got IT services companies trying to develop pockets of BPO, or do you generally see this as a way solutions are going to develop in the future?
Mike Salvino: I think it’s real. It’s hard to ignore, because we have existing IT and people are buying new ways to deal with that IT. Then you’ve got newer technology coming down the pipe…cloud, analytics, mobility. We have to figure out how that’s going to affect BPO and whether or not it’s going to be another game changer. But no matter which direction the IT companies go, they still have to process transactions. You can’t be in this business without processing transactions.
BPO companies know how to process transactions, and are trying to apply technology to those processes. But some of the IT companies are saying, “We have technology and are trying to get it into the BPO business. We can naturally jump into BPO.” However, it’s not that easy. If you don’t have the processing knowledge, it’s very hard to figure out how you’re going to make the technology work. I think the biggest effect on the industry from a technology standpoint is as much about the cloud and mobility as it is about analytics. Most people continue to talk about analytics, which is important, but cloud and mobility could change the whole game.
In Part II, we’ll ask Mike about his view on the future direction of the industry and the emergence of industry-focused offerings and Cloud Business Services
Mike Salvino (pictured) is Group Chief Executive for Business Process Outsourcing at Accenture. He is responsible for the firm’s BPO growth platform, and its comprehensive portfolio of cross-industry and industry-specific business process outsourcing (BPO) services globally. He rejoined Accenture in 2006 from Hewitt, where he served as global sales and accounts co-leader for Hewitt’s HR outsourcing group. He also served as president of the Americas region for Exult Inc., responsible for the company’s business in the United States, Canada and Latin America, prior to that company’s acquisition by Hewitt. You can access his full bio here.
Horses for Sources and the London School of Economics to collaborate
Folks – we’re delighted to announce that today we launched a groundbreaking study, in collaboration with our friends at Outsourcing Unit at the London School of Economics, to gain real insight into how business plan to adoption Cloud Business Services.
When we spent time with Professor Leslie Willcocks and Dr Will Venters to discuss their research work with CERN and it’s parallels with a Cloud business environment (see our recent blog interview), we realized the industry was in dire need of a definitive study that looks at how Cloud computing will impact the future of work for both business and IT professionals.
Key dynamics being surveyed will include those aspects of Cloud that appeal to both business and IT professionals, inhibitors that are holding back adoption, current intentions and future plans, intended use of third party service providers and consultants, and determination of specific organization functions where Cloud will have the most impact.
Professor Leslie Willcocks, The London School of Economics
Professor Leslie Willcocks (pictured), Professor of Technology Work and Globalisation at the LSE, and renowned expert and author on global outsourcing and technology dynamics, is leading the initiative for the LSE. He added, “In our 2002 book Netsourcing, we predicted a strong move towards renting applications, services and infrastructure over the Net. It seemed to peter out with the bursting of the e-business bubble but in fact we are now witnessing the ten year convergence of streams of technology and capability that pose the question: how do we leverage this strategically for business advantage? That is one thing we want to investigate. The other is the longer game – is this going to be a dominant trend, the only game in town, or, if not, what sort of hybrid futures are likely?”
CEO of HfS Research, Phil Fersht, who will co-lead study, commented, “There’s been so much noise focused on the technology implications of Cloud, and not enough attention placed on how business executives intend to apply Cloud services within their own business environments. At the end of the day, some firms will succeed in driving down IT infrastructure costs using Cloud models, but the real momentum will come from the business processes that can be delivered to organizations that have all the associated application workflow and infrastructure already provisioned in the Cloud. This study will be the first in industry to draw out these dynamics to help us visualize the future of work.”
HfS is inviting readers to take 10 minutes to complete our online survey. Respondents will receive a report on the report findings, co-written by both HfS Research and the LSE study teams.
Esteban Herrera: Research VP for HfS' buy-side enterprise sourcing practice
So while we’re busily creating more employment onshore, one of our new recruits, Mr Esteban Herrera, has already been found guilty of submitting us a headshot that makes him look about 18. So we’re delighted to present the young gentelman looking a little more like his true age of 35 – which is still pretty young, but getting nearer that “you should be a home with your pipe and slippers” stage in life. And here he is to explain why exactly he made the move to the orange side…
Hello everyone! I’ve been anxiously waiting the moment I could address the Horses readership from the “inside.” I’d been an advisor for the last ten years, so this move was deliberately considered—I was just getting good at what I used to do! Yet no career change has ever felt so right. Now that moment is here, I thought I would start with sharing some of the many reasons I am so excited to be where I am:
1. The outsourcing industry as a whole has grown stale and it needs innovative delivery models and deal structures to realize its potential. Nobody is truly addressing the dissatisfaction that colors so many outsourcing relationships, but HfS will.
2. HfS is a unique and timely platform from which to influence the entire industry—how much more exciting could it get (for an outsourcing geek)?
3. As a committed globalist, I am thrilled with the global nature of this community, and I believe that learning to do business (well) across geographies, regions, and cultures will be my generation’s lasting legacy. HfS gets this—I am not sure that others do.
4. I believe the “traditional” outsourcing advisory model is fundamentally broken and will not last as currently configured. HfS offers me and my (hopefully plentiful) future clients a new and improved way to add value.
5. I get to join my good friend and blogging hero Phil Fersht, and the brilliant team he has built (in no time flat, in case you did not notice), on the professional adventure of a lifetime.
I could go on, but I’ll be exploring these and other topics soon and there’s no sense in boring you, our loyal “reader”, right off the bat. The quotes around “reader” signal what makes this company different and special—we actually don’t have readers, we have a dialog of some of the best outsourcing minds from all sides of the industry. With your permission, I’m ready to throw myself into the conversation.
Esteban Herrera to join HfS as Research VP, Enterprise Strategic Sourcing Practice
These are exciting times for HfS as we expand our global remit to build out an analyst team with a powerful combination of research skills and real life “feet on the street” outsourcing experience.
Since we launched HfS six months’ ago, our prime area of focus for business growth has been with the buy-side practitioner who needs solid, expert advice on how to tackle outsourcing, which service providers they should evaluate, and how to find “new thresholds of performance” once they’ve moved into an outsourcing end-state. They want us at the end of a phone, to turn up for workshops, to distill data and explain what this all means to them, and validate what they should do next.
We are delighted to announce that one of the most highly-respected (and popular) outsourcing advisors has decided to make the career switch from consultant to analyst and join HfS to head up our buy-side sourcing strategies practice. No more endless billable hours trudging hallways in enterprises labelled as the “outsourcing guy”, Esteban Herrera can now give HfS clients the real deal based on his years of vast experience, where he has lived and breathed every aspect of the complex outsourcing environment.
Esteban joins the HfS executive management team as Research Vice President for the firm’s strategic sourcing practice for buy-side enterprises. Herrera will drive a definitive research agenda that encompasses strategic advice, best practices and governance support across all aspects of IT outsourcing, BPO and shared services.
He joins HfS from leading outsourcing consultancy Alsbridge, where he served as Managing Director, overseeing several major ITO and BPO contract negotiations and strategy endeavors with global enterprises. Prior to Alsbridge, he served as President of NovaSphere Group, and an Executive Vice President at The Concours Group, where he led both the Sourcing Advisory Services and Global Shared Services practices. He has also held executive positions with both Infosys and Accenture, where he managed large global delivery P&Ls. Today he is a recognized thought-leader on outsourcing strategy and highly sought-after by clients needing expert advice.
Herrera brings deep international experience to HfS clients, having lived and worked in four continents. He is fluent in English, Spanish and Portuguese. He also co-authored the influential book “Outsourcing: The Definitive Point of View, Applications and Implications”, and led the landmark Research “Life After Outsourcing”, which was the first to focus on the behaviors and processes that can make or break outsourcing success.
Esteban is also a prolific blogger and writer – a great table-stake for life on this side of the fence. Now he has sold his Porsche, his chief pastimes involve his wife, Patricia, and baby son Lucas, and when he’s not wasting his time watching the Dallas Maverick’s he can be found tuning into the Speed channel to watch Formula 1 motor racing.
We’re delighted to have him start with us shortly – and you can reach him at esteban dot herrera at horsesforsources dot com.
Euan Davis is a great friend of mine since university days, whom I coerced into the analyst industry in 1996 – and he still hasn’t forgiven me. After a five-year spell at IDC where he cut his teeth on European services (he also set up their Spanish services market coverage from their Madrid office), he went onto lead Yankee Group’s European IT/BPO research before an excellent five years at Forrester Research, where he has cemented his reputation as Europe’s premier – and most prolific – analyst covering services markets. He once even guested here.
Now he’s coming back for his revenge as Research Vice President for HfS, fulfilling a global analyst role for HfS, in addition to spearheading our European research practice. We’ll be rolling out our beefed-up research agenda very shortly that will include much of Euan’s planned research.
In his spare time, Euan is a formidable skier, retired party animal, father of Rosa and Oliver with his long-time partner Hannah. He’s also based in Cambridge, UK, about a mile from my parents house…
You can reach Euan at euan dot davis at horsesforsources dot com – but he doesn’t start until 20th September, so don’t expect a rapid response.
In order to understand better the business potential of Cloud-esque environments to drive innovation, you could do a lot worse than have a look at the scientists who’ve been using their own version of Cloud for years: Grid Computing. When you get into areas such as particle physics, these folks need all the computing grunt and pooled brain-power they can muster to succeed.
At HfS, we’ve partnered with the Outsourcing Unit at the London School of Economics (LSE) to determine the future potential of Cloud Business Services by studying the needs, concerns, intentions and views of business-line executives, and not solely the IT department.
There’s been so much noise focused on the technology implications of Cloud, and not enough attention placed on how business executives intend to apply Cloud services within their own business environments. At the end of the day, some firms will succeed in driving down IT infrastructure costs using Cloud models, but the real momentum will come from the business processes that can be delivered to organizations that have all the associated application workflow and infrastructure already provisioned in the Cloud.
We’ll be launching a study very shortly with the LSE and will appreciate all of you taking part, but first we wanted to talk about the LSE’s experiences with the Worldwide LHC Computing Grid (WLCG); a global collaboration phenomenon that links grid infrastructures and computer centres worldwide. Its purpose is to distribute, store and analyse the immense amounts of data generated by a gigantic scientific instrument on the Franco-Swiss border, called a Large Hadron Collider (LHC) at The European Organization for Nuclear Research (CERN), which is used by physicists to study the smallest known atomic particles. This LHC is the largest scientific instrument on the planet, producing 15 Petabytes (15 million Gigabytes) of data annually, which thousands of scientists around the world access and analyse.
The idea is to provision a data storage and analysis infrastructure for the entire high-energy physics community – not too dissimilar from a Private Cloud environment where users can plug in to the shared environment and access the applications they need, without stacks of IT hardware in the basement to house the data, or IT personnel on site needed to maintain and support the infrastructure. Today, the WLCG combines the computing resources of more than 100,000 processors from over 130 sites in 34 countries, producing a massive distributed computing infrastructure that provides more than 8,000 physicists around the world with near real-time access to LHC data, and the power to process it.
OK – that’s a lot of numbers, so we managed to grab the LSE’s Dr Will Venters as he was venturing off the squash-court to his local pub, to explain more to us business philistines why this project is to relevant to Cloud services and outsourcing…
Dr. Will Venters, the London School of Economics
Phil Fersht: Will, you’re involved in a fascinating research study that focuses on how thousands of particle physicists around the world are collaboratively using the grid – a microcosm of the cloud – to capture, process and analyze huge volumes of data being produced by CERN, Europe’s particle physics laboratory in Geneva. For readers who aren’t well-versed in particle physics, would you please give us a brief overview so we can understand the importance of using the grid for the data the physicists are working with?
Dr. Will Venters: Sure Phil. Particle physicists recreate the conditions just after the “big bang” and analyze particle collisions to discover the mechanisms by which the universe, and therefore the atoms and molecules that form all matter came into being. They reproduce these collisions in CERN’s Large Hadron Collider, or LHC, which produces vast numbers of three-dimensional pictures of particle collisions for the physicists to analyze for “new physics” events. One of the most interesting examples is to discover the Higgs Boson, the so-called “god particle,” which could provide an explanation for “mass” in the universe, hence linking gravity into the standard physics model. But finding one Higgs is like finding a needle in 20 million haystacks, so the physicists must analyze a massive number of pictures – which equates to 12 to 14 million gigabytes of data per year – if they are going to find enough evidence to prove it actually exists. So the LHC Computing Grid, which consists of many distributed computers, CPUs and disk servers at over 170 computer centers around the world, was created to give 8,000 physicists in 34 countries the ability to draw on very large amounts of computing power to collaboratively review and analyze all the particle collisions created in the LHC.
As a lecturer in information systems at the London School of Economics, I was fascinated by how they coordinate themselves and go about developing and managing this widely distributed resource. I therefore got a research grant and employed a team to follow the particle physics community in the UK and CERN as developed its grid for the LHC..
Phil Fersht: So what have you observed during your research?
Dr. Will Venters: The particle physics community has a long history of developing quite advanced prototype computer systems. It’s also a community with a long history of collaborative work practice. And they collectively understood the only way they were going to be able to realize the data from the LHC was to get the grid to work. One very interesting thing we observed is they didn’t go about it way normal project managers would do it. They approached it as scientists and as a scientific endeavor, rather than as developing a large-scale computer system the way a big systems integrator might. They have very informal organizational structures. There is a strong hierarchy in that somebody is the leader, but they don’t have the power or muscle to drive things. They just use more charisma and soft leadership type techniques in order to drive the project forward. But it’s a project being collectively driven by a very committed group of people. Interestingly, they use pretty un-advanced collaboration tools. They use blogs, wikis and very simple video conferencing – but they use them an awful lot. They’ve developed a way of working with these relatively simple web tools that not only helps pull the project together but also helps hold the sense of community together in a much different way than the formal control type management you might see elsewhere.
Phil Fersht: The dynamics within this collaborative community sound fascinating. Can you talk a bit more about more about the scientists go about organizing discussions, learning from each other, sharing findings etc.?
Dr. Will Venters: We developed a distinctive description of the physicists work practices based on the idea of paradox and tensions… the only way we can effectively describe what this community is doing is the idea of paradox. While they’re individually being quite fluid and flexible, they were also quite tightly focused on developing their grid and getting it to work so they could produce data. But there was tension coupled with anxious confidence due to the community’s long history of previous creative and successful work. One of the things we observed was the idea of learned improvisation – that you don’t improvise just because you can. You actually learn how to do it in the same way you learn play to jazz, and even though jazz is highly improvisational, there are actually themes running through it. Similarly, this community had themes running through it, and the members improvised based on many things they’d done and learned in the past. Another thing we observed was the tension between wanting to organize, control and have strong collaborative structures, versus the need to say, “We’re all clever individuals and work really hard, and so we should all be allowed to have individuality and the ability to work on our own.” When you visit CERN, you see the kind of rocket science side of things, this massive, great experiment. But parts of CERN are like a 1950’s university campus with drab offices and basements filled with old bits of rusting technology. I think that well describes how they are collectively comfortable with accepting bits of imperfection as long as the important parts are working.
Phil Fersht: When you look at the project in its entirety and where it is today – what has been achieved that wouldn’t have been without the grid?
Dr. Will Venters: They wouldn’t be able to do the extremely high level of precision analysis required without access to the grid. The huge volume of data produced by the LHC needs something in the form of grid technology to allow the physicists to keep track of it and to do the analysis. They couldn’t do it with clusters of computers or individual computers – they would just get lost in a jumble of data.
This project has also driven forward the science agenda in other sciences. In some sense, they’ve shown leadership in how to develop grid computing which has led to new developments in other areas of science.
Phil Fersht: What’s next for this project? Do you think this grid will move into more of a Cloud-based environment, or do you think it’s going to build upon its own infrastructure?
Dr. Will Venters: There is a move to see if the National Grid Service (electrical power) in the U.K. should become more of a Cloud type of resource for supercomputing. They are looking at whether they should be using cloud for peak demand and when the demand outstrips the capacity of even their grid. They are also looking at whether they should be providing a cloud resource to other areas. But once they can do the data analysis out of the LHC, their interest in the development of the grid will start to wane as working with 12 to 14 million gigabytes of information will become a trivial challenge in the long term. Their experience on previous experiments, and their hope, suggests that 10 years down the line they could buy a commodity piece of hardware, sit it in a machine room and it will probably be able to do the analysis on the LHC data on its own. Then the next experiment will come along demanding something new and different, and they’ll start developing something new themselves.
Phil Fersht: In terms of the business world and what we see going on commercially with the development of Cloud, etc., what do you think are going to be the key opportunities and challenges for businesses trying to move into these types of collaborative networks?
Dr. Will Venters:I think a huge benefit they have in working in distributed collaborative ways is a sense of working and collaborating together, being open rather than closed. But the challenge is learning how to coordinate a group of individuals who have individual aspirations and motivations to a higher goal or bigger aim. Another challenge is supporting an unstructured network – what we call a knowledge infrastructure – not only their website, the wikis, the blogs and the communication infrastructure but also their sense of history and their sense of organizing themselves, who they communicate with and how they organize themselves into clusters of competence around particular areas. But the benefit comes from understanding they don’t need to be constrained by how they organize what they’ve done in the past, and how they manage that history and culture alongside these things so they can capitalize on what they know, and develop new knowledge, new techniques and new technologies. I think that the knowledge infrastructure around their work is the key part of it, and perhaps something the businesses would benefit from learning. But I also think doing so would require a large amount of cultural change to achieve what the particle physicists have. There are dramatic differences in culture and history of collaboration.
Phil Fersht: In many organizations, it can get a bit political when we dare to question the stranglehold that many IT departments have over managing these networks and their infrastructure. Do you think we’re still many years away from these types of Cloud networks becoming a mainstream business reality, or do you think it is closer than we envision, given the speed in which the LHC grid was developed?
Dr. Will Venters: I think at some level it’s a big challenge for business. To put it into perspective, a person I know recently told me a story about when he was shown an amazing usage-based piece of computer software at CERN which was written by a post-doctorate. My friend asked, “What happens if the post-doc falls under a bus?” The physics professor didn’t even blink, and said, “Well, we would find another post-doc straight away and get him or her to do something different.” The particle physics community is accepting of the incredibly challenging and experimental nature of their work – they readily accept a good enough, kind of messy around the edges but ultimately very innovative, very new thing. The concern I have about the debate around cloud for business is that we get too bogged down around the safety, the belief that we must massively mitigate risks. The conservativeness you sometimes see in businesses, and particularly in IT departments, will cause impediments to speedy cloud adoption. But I think we’re seeing stuff with the cloud happening in innovative parts of businesses; they’re just not necessarily being led from the more conservative IT departments. There is a serious risk that competitors and innovators will collaborate using cloud resources – this risk of competition is something we should consider in our cloud models alongside risks of security, cost, lock-in etc.
Phil Fersht. Will – thanks for your time with us – we’re excitied to be working on this upcoming study with you and the team!
Dr Will Venters (pictured) is a Lecturer for the Information Systems and Innovation Group at the London School Economics. His research is centered on the development and use of IT technologies to support collaborative working. He is currently researching the development and use of Grid computing technology among experimental particle physicists for the LHC experiments at CERN. More details on his publications can be accessed here.
Reetika Joshi is a research analyst at ValueNotes Sourcing Practice
We recently debated how the nature of global service delivery is going to change in this climate of leveling prices, increasing buyer expectations and post-recession lethargy. This is clearly a pivotal time for the industry.
We decided to get a flavor from India, where their BPO providers are eagerly ramping up for taking on new business, and asked our friends based in the beautiful university city of Pune, ValueNotes, to share some insights with us. One of their lead analysts, Reetika Joshi, who can boast the Accenture prize for best student on her Marketing Management Masters course at Aston University (UK), has shared her insights with us. Not sure what that prize actually was, so let’s hear her views on the Indian BPO provider dynamics instead:
The hunters and the hunted: Indian BPOs readying for a rebound
As the world recovers from recession, the major Indian BPO providers eagerly await a return to the BPO boom, which has paused in the past 18 months as companies have sought to cope with riding out the tough-times.
As HfS Research recently revealed with a new study of enterprise BPO demand, many enterprises are seriously looking at outsourcing to solve many of their performance issues, however, it’s clear many are taking their time before jumping into large contracts. In fact, we’re actually seeing more piecemeal engagements from companies making more tentative moves into BPO. While the bounce-back has hardly been resurgent, BPO is clearly firmly on the corporate agenda and many of the leading Indian service providers are expanding staff, acquiring competitors, and making new marketing plans to widen market share and penetrate new sectors, such as the mid-market.
Even amid the doom and gloom, the Dataquest Top 20 annual industry survey reported that the Top 20 Indian BPO firms increased their combined export revenues by 15 percent in fiscal 2009-2010, with revenues of $6.1 billion, slightly down from the growth of 17 percent achieved in fiscal 2008-2009. After a year of relatively sluggish growth, Indian service providers are now expecting business to grow. Financial and managerial pressures are easing up across major markets, with a collective agenda to optimize costs and efficiencies. Recent research has suggested that in the next two years, companies plan to offshore more, to countries such as Mexico, China, Philippines and of course, India. Accordingly, Q12010 (Apr-Jun) results have already shown volume growth beyond expectations for the major Indian BPO providers such as TCS at 8.1%, Infosys at 6.9%, and Wipro at 4.7%.
So although things are looking bright for India in the next few years, the next logical question is – are Indian vendors prepared for a rebound? As they await the uptick this financial year, this much is clear; the industry is not sitting still. In fact, Indian BPOs are attempting a makeover to emerge stronger than ever, by gearing up in two ways:
Increasing organic capacity: Most service providers are extremely aggressive about scaling. TCS and Infosys have hiked their annual hiring targets, to 40,000 and 36,000, respectively. There is an outright ‘war for talent’ emerging, and service providers are doing everything they can to retain employees, amid the current rise in attrition. But there is only so much they can do, organically.
Strategic acquisitions: To achieve their ambitious expansion targets, BPO service providers have been busy with several strategic acquisitions that play to their unique strengths. Although consolidation is inevitable as the industry matures, the pace of these acquisitions suggests that only the strongest (and biggest) will survive the melee.
Here are the top five drivers for these service providers to execute strategic acquisitions. It is actually more than likely that a combination of these competitive advantages is motivating providers towards inorganic growth, as the examples below illustrate.
1.Expanding reach – eyeing the mighty global delivery model
Whether it’s the tier 1 providers like TCS, Infosys or Wipro, or relatively smaller contenders, global reach for outsourcing providers is becoming not only the norm but a long-term competitive necessity. Multinational companies such as IBM and EDS had an early lead. But as the rest of the industry caught up, the importance of tapping diverse locations became apparent. The preference has been delivery centers in low-cost offshore (e.g., India, China) and nearshore (e.g., Mexico, Poland) destinations, coupled with R&D, marketing and sales activities in onsite locations (e.g., US, UK). Therefore, some of the larger BPO players in India have been expanding in Eastern Europe and Latin America. The bolder ones have also moved to emerging outsourcing destinations such as Sri Lanka and Mauritius to setup their offshore centers. Increasing capacity this year will likely be higher in these emerging destinations.
Recent acquisitions to expand global reach:
DiacriTech – LaurelTech Integrated Publishing Solutions (2009), giving the Chennai based firm great client market presence in the US.
EXL Service – Schneider Logistics (2009), bringing EXL delivery capability in Eastern Europe (Czech Republic).
2. Acquiring specialist skills – When synthesis isn’t enough
Whether you’re a top notch BPO focused on insurance, or the largest outsourcer to healthcare providers, there are always more products and services that could enhance your portfolio. Specialized skills often stem from those small firms that are almost off the radar, save for their highly innovative offering(s). BPOs are always on the lookout to make their value proposition stronger by incorporating the best that the industry has to offer. Whether it’s a single feature on a platform BPO product, or a niche analytics skill-set, BPOs are making more acquisitions that align with and enhance their core business areas.
Recent acquisitions to gain specialist skills:
Genpact – Symphony Marketing Solutions (2010), allowing Genpact to offer a broader range of services, ranging from core finance and accounting, procurement and supply chain to data management and advanced analytics solutions.
Infosys BPO – McCamish Systems LLC. (2009), where Infosys BPO gained from McCamish’s domain expertise in platform BPO services.
3. Reducing risk by entering new vertical markets
The recession underscored a central truth of business: you’re only as stable as your clients. For BPOs, this is all the more important because there are many so-called vertical specialists. For example, more than half of EXL Service’s business comes from the insurance sector. The annual reports of most of these vertically focused BPOs state very clearly that they face huge risks in catering to a niche clientele. It then makes business sense to enter additional verticals through acquisitions that deliver a strong client list to build on, thereby reducing risk. In Q1, there was broadbased growth, with media, retail and communications segments matching pace with financial services. All the large BPOs have expressed interest in entering new verticals, eyeing segments such as healthcare and utilities, so we can expect to see more activity in the coming year.
Recent acquisitions to enter new verticals:
Sutherland Global Services – Adventity Global Services (2010), to tap new verticals, including BFSI, airline and travel.
4. Scaling up – there is only one way to go from here–up
BPOs are very often evaluated by their clients on their ability to scale, which is fair? One of the major reasons for outsourcing is labor arbitrage, especially if the labor in question is in significant numbers. Companies looking to expand in certain geographies find that acquiring another company in the region is the easiest way to build human capital. Acquisitions of this kind make most sense products and services have synergies. With strong pipelines and insufficient resources, Indian service providers are likely to build capacity addition through acquisitions this financial year, because organic growth isn’t going to be enough.
Recent acquisitions to scale-up:
Aon – Hewitt Associates (2010), resulting in ‘Aon Hewitt’ revenues $4.3 billion, with 29,000 associates globally, and over 3000 Hewitt clients.
On the flipside, Infosys just closed its BPO in Bangkok due to its inability to scale up. Though they intended this from the start, the reason they bought the center from Philips in the first place is explained in my last point below
5. Extending business relations –capturing captives
Like other firms BPOs are keen to extend business relationships with their clients. One of the biggest ongoing trends in the industry is the buying captive units or shared service centers (SSCs) from client organizations that aren’t able/willing to sustain them. This leaves BPOs with deliciously long contracts and an army of specialized employees to go after other clients in the same vertical.
Recent acquisitions to extend business relations:
EXL Service – American Express Travel Services captive (2009), where EXL gained a $160 million outsourcing contract spread over eight years, along with 800 employees.
Intelenet – FirstInfo SSC of FirstGroup UK (2010), where Intelenet will continue to handle customer management, correspondence, ticketing and other back office processes for FirstGroup’s rail customers, and FirstGroup gets to focus on its core transport business.
Cognizant – UBS SSC (2009), allowing Cognizant to offer BPO, KPO, IT and remote infrastructure management services to UBS divisions globally.
Patni Computer Systems – CHCS services Inc, fully owned subsidiary of Universal American (2010), where Patni will enter third party administration business as extension to its insurance services portfolio, significantly enhancing its existing BPO capabilities to deliver end-to-end platform based solutions.
These mergers and acquisitions don’t necessarily indicate a singular trend, but rather a wave of consolidation. BPOs are racing to match pace with global demand, and inorganic growth seems to be one of the ways to ensure long-term growth. The plan may be to go global, enter niches, acquire skills for nonlinear growth, or extend business relationships. There was no single driver for inorganic growth in the last year. Instead, outsourcing companies used acquisitions to fortify themselves and build up momentum, while they played the waiting game.
In 2010, we can expect these BPOs to reap some of the benefits from their bold expansion moves. As business picks up, and client organizations warm up to offshoring once again, BPOs are definitely better positioned to take on the immense challenges set before them. Improvements in scale, reach, and range have been largely addressed due to the many completed and scheduled strategic acquisitions (along with organic capacity addition). It then looks to be an eventful, and I daresay, extremely successful year ahead for BPO!
Reetika Joshi (pictured) is a research analyst at ValueNotes Sourcing Practice. She has undertaken several research assignments across the outsourcing spectrum, including BPO, medical transcription, research & analytics, and e-learning. She can be contacted at reetika at valuenotes dot com.
The global insurance industry faces a challenging and unprecedented market environment; insurance premiums are falling, and insurance firms’ profitability is nowhere near the pre-recession era. Added to this, insurers in the US and Europe need to battle several regulatory and compliance requirements in the next few years. 
In order to understand better the business potential of Cloud-esque environments to drive innovation, you could do a lot worse than have a look at the scientists who’ve been using their own version of Cloud for years: Grid Computing. When you get into areas such as particle physics, these folks need all the computing grunt and pooled brain-power they can muster to succeed. 
