Whenever you mention the world “Cloud” to an experienced IT infrastructure professional, he or she will likely talk up the dreaded “S” issue as a major obstacle that will derail Cloud ever really being widely adopted across enterprise processes.
Quite simply, Cloud computing represents one of the biggest opportunities and threats to IT professionals today. However, spend some with the CTOs at the likes of eBay, Amazon, Salesfore.com etc., and their eyes will light up talking about their intense development programs, where they are training young IT talent to learn how to Cloud-enable applications that can underpin many different types of business processes.
Cutting to the chase, where industries such as IT services are rapidly commodotizing, don’t they need a new wave of innovation to drive new development, new thinking and new energy to create new levels of productivity and top-line growth into enterprises? Having business processes enabled to be provisioned on-demandin the Cloud is a massive disruptive opportunity for both providers and buyers of global business/IT services. Our forthcoming research wave on Business Process as a Service (BPaaS) is fleshing out the potential versus the reality of this happening (stay tuned).
Anyhow, we did want to get the “S” issue firmly on the table for discussion, so asked our new expert contributor, Andy Milroy, to weigh in with some of his perspective here…
Cloud Security – A Pleonasm?
The IT industry successfully generates billions of dollars each year by selling us security products and services. Security always plays a major role in any corporate IT purchasing decision. But, we are still a very long way from securing our IT environments.
Most security breaches are caused internally by employees or other authorized users of corporate systems such as contractors. It is these groups that are most likely to compromise the integrity of our systems, not external hackers. In spite of this, much more focus tends to be placed on external threats. Each time I work on a client’s site, I am struck by how easy it would be for me to compromise their systems. All I would need to do is insert a thumb drive with malicious code into a USB port and, hey presto, I’ve undermined hugely expensive security investments.
It is reckless to allow employees and contractors to carry highly sensitive data around with little consideration of the consequences of losing the laptops and smart phones that house the data. Amazingly little focus is placed on addressing this particular security threat.
Indeed, enterprises do not sufficiently focus on changing the behaviour of their users by making them aware of security policies and the reasons for those policies. Few ensure adequate control of basic access to their physical premises and to end points that form part of their network. As mentioned earlier, it also seems as though few enterprises track the location of sensitive data that physically moves around with employees and contractors.
Ensuring that everybody who accesses enterprise networks is trained to follow appropriate security policies is an extremely challenging task. For this reason, it is necessary to consider other ways of mitigating the risk of an employee or contractor from compromising security.
One way of doing this is to source as much of the enterprise’s computing resources from the cloud as possible. Managing the security of heterogeneous on-premise IT environments is a highly complex and almost impossible task. Minimising the amount of on-premise resources that a corporation manages mitigates risk associated with security breaches enormously. Ensuring that data is stored in a secure environment (in the cloud) rather than on portable devices such as laptops and smart phones also enables corporations to mitigate risk.
Cloud computing, and I mean public cloud computing, allows us to mitigate risk and in many cases offer greater security that can be provided by spending millions of dollars in an attempt to secure on-premise resources.
Multitenancy and virtualization do indeed add a lot of complexity to providing levels of security that many enterprises require. However, public cloud services providers such as Google, Amazon, Microsoft and Salesforce.com focus heavily on ensuring that their datacenters follow best practice security policies and are using the most up to date security tools. Security can also be tied into service levels.
So, using public cloud services can offer more security than keeping data and other computing resources on-premise. These services can also reduce the amount spent on security massively. Perhaps this is the reason why many in the IT industry are keen to dissuade us from using cloud computing.
Andy Milroy
Security is always a challenge. But, there is little evidence to suggest that using the public cloud is less secure than the traditional on-premise form of computing. In fact, there is more evidence to suggest that using public cloud services can, in many cases, mitigate security risks that exist with on- premise computing alternatives.
The cloud model of computing is much better positioned to address today’s security challenges and concerns than alternative models. So, will the term cloud security soon be considered to be a pleonasm?
Andy Milroy, pictured here, is Expert Contributor for Horses for Sources Research. You can access his bio here. He likes to be tweeted at @andy1994
We’re delighted to announce two new experts who will be adding their tuppence to the HfS agenda.
As part of our new research alliance with EquaTerra, Stan Lepeak will be contributing on a broad array of global IT and business process areas (view Stan’s bio here). Stan leads global research for EquaTerra.
In addition, Andy Milroy, already famous for his recent blog contributions (see here and here) joins us to add his spin on Asia/Pacific IT and BPO dynamics. Andy currently leads Frost & Sullivan’s Australia and New Zealand ICT Practice (view Andy’s bio here).
Due to unprecedented demand for research, (plus the fact we’re kinda new and trying to do some), we’re actively looking to bring on some additional analyst talent.
If you have some excellent experience in global sourcing, love to write, have an opinion and a bit of an attitude, we’d love to hear from you, whether it be as a contributor or full-time analyst.
Drop us an email if you’d like to be considered. All resume submissions will be treated with the utmost discretion.
One of our greatest anomalies has been to run a blog on global outsourcing dynamics for three years and never actually feature a single contribution from anyone at IBM.
A surreal sourcing paradise: IBM's Bill Payne takes it all in on the Peak in Hong Kong
Well, the cycle had to be broken at some stage… and with who better to do it, than the most down-to-earth and outspoken IBMer you’re ever likely to meet: step up Bill Payne. Bill is IBM’s Vice President for Global CRM and Industries for Managed Business Process Services (that’s IBM speak for “vertical BPO”).
Anyhow, we managed to drag Bill away from tendering his beloved vegetable patch to share with us his current experiences of the market and why he’s having another day in paradise, despite the surreal experiences he has when someone stries to sell him their captive center…
Phil Fersht: Bill, how on earth has the global sourcing world changed since the recession? From a macro-level, what is different these days?
Bill Payne: Isn’t there a song and a movie called “Another Day in Paradise”? 😉
Lets not forget that in q4 2008, and q1 2009, the market was the proverbial rabbit in the headlights and deals basically dried up. We all had our doubts about what the future held . At the same time, the Indian and Chinese economies never went near a recession!
The biggest change in h2 2009 and 2010 so far is more opportunities in both IT and BPO and more urgency in the US market. I also think in the companies that have found success in outsourced processes are going to go a lot further: more scope, newer processes, bigger plays. This is really a market where we’ve barely scratched the surface of potential and the smarter guys will keep pushing boundaries.
I think we are now at the wave front of a lot more process outsourcing
Phil Fersht: Are sourcing decisions being made any faster? Are processes being evaluated for outsourcing different?
Bill Payne: Sadly, it seems that there is little real change in decision velocity. We still see some very protracted procurement schedules. Intuitively, you’d think the recession would have driven some dynamism into the procurement process! What greater lesson could there be to teach companies that they need to be able to quickly reduce costs, quickly scale, and really take control of their bottom lines?
Unfortunately, there is still a cultural barrier in many companies opposed to Outsourcing process. Maybe we’ll finally see some real change when there is an SVP of Services in every client whose job is to manage Internal service across the board. Then you will have service strategy as part of a company’s DNA. I think that will change the culture faster than any other single impetus.
Overall, despite a lot of good momentum and energy, we still haven’t quite built a Smart Planet just yet!
Phil Fersht: Being in the UK, what specifically have you seen change over there? How is this contrasting with US firms and other regions?
Bill Payne: I may reside in the UK but given my global role in IBM, I’m able to take a pretty comprehensive view of the dynamically changing world outsourcing markets. I see more urgency in the US to get cost out, and move to “on demand” contracts that allow flex in up and down turns. I see more balanced shore decisions for location of service centers and more interest in industry solution outsourcing.
In the UK, I see Public Sector as the area with some huge opportunities and contracts on the horizon. There is a crushing need to gain efficiency in both local and national government. In other European countries I see no real change in consideration or speed of BPO execution right now. In Asia, we see trends similar to the US. In the Growth markets of Brazil, Middle East, China, India, and Africa we see some very large potential opportunities across BPO, especially in wider Industry solutions that have a transformation agenda.
Phil Fersht: How does this altered landscape impact a giant provider such as IBM? What opportunities and challenges does it present to the firm?
Bill Payne: In many ways it’s Business As Usual, but in many ways it’s a new BAU.
In our traditional view, I think the BPO market is still there to grow substantially whether it be in the traditional BPO towers or in the traditional BPO markets. Where the market has changed however is in both what clients want and where they want it.
I think the winners will need a balanced shore strategy: @home, on shore, near shore and far shore. We will need to take an industry solutions perspective to deliver service value, and we will be able to provide a long-term secure strategy and financial platform for clients.
There are new spaces in emerging markets and many new processes to outsource.
I think the biggest challenge we have is to be selective and choose our service growth areas and markets with care. We have to drive a “Smarter” agenda with our Smarter Process and Smarter Tools initiatives.
We have to choose which deals to pursue. We have to be able to show clients that we deliver value long-term and we are committed to them. We do not want to engage in badly shaped deals that either can’t be delivered or give poor value to the client or break our financial model. We take pride in doing things right. It serves none of us well in this business to have deals fail for either poor execution or poor commercial arrangements. I think all providers have a duty to their clients and the profession we are in to behave in a controlled and never reckless way!
Phil Fersht: How do you see the competitive landscape across both ITO and BPO playing out with the impact of the crisis? Do you see more M&A between providers, or more cautious investments?
Bill Payne: Undoubtedly there are many M&A opportunities. There are many captive acquisition opportunities. Investment cash talks in the market. However, the financials of a number of IT and BPO providers make sobering reading if you go deep into their P&L and some have made some very expensive acquisitions
I think its tough to realize the benefits of cost reduction/efficiency in an acquisition case, but that’s generally small beans to the ‘miss’ on the revenue growth lever on most acquisitions in this market. It is all too tempting in the heat of an acquisitive pursuit to show an exponential growth curve based on the market size and estimate of the impact of the transaction. It rarely turns out that way.
So, given that there are a number of burnt providers out there, caution may prevail on the A side. On the M side it’s quite possible that a merger will take place within the mid-size provider group. It’s not surprising as they are generally the most cash strapped.
Phil Fersht: You mentioned in the G8 summit at SSON that many captives are currently being shopped on the market – and many unsuccessfully. How do you see those unsuccessful captive sales being resolved – will customers phase them out and move onto BPO models, or just stick with what they’ve got and eliminate more cost out of them?
Bill Payne: I’ve always thought the selling the captive debate to be slightly surreal! The purpose of creating a captive in most companies was to reduce cost and increase service to an internal organisation. Only the really good corporations have tried and tested their business case to ensure they got what they wanted, i.e., a very efficient shared service environment!
However, now try to translate this into a saleable asset somebody else would want. In many cases the captive SSC has been built on internal processes not necessarily ‘industry standard’ or even optimised processes. This leaves all the providers in a dilemma: what value is there in someone else’s processes, buildings, desks chairs, computers, and people? It doesn’t take much of a spreadsheet jockey to calculate that the vast majority of captives warrant little or no cash premium in a deal to the client, and actually if you are a major global player already, you probably don’t need the infrastructure.
There may be a case for a platform acquisition and the inherent IP, however, never underestimate the work and cost required to convert an in-house tool into a market ready application.
If you are a medium sized or regional player it may make sense but buyer beware: I don’t see many pronouncing that they met their growth target by buying a captive in BPO world!
Phil Fersht: And finally – what advice would you give to young executives today looking to develop their careers in global sourcing?
Bill Payne: Learn about Transition and Delivery. Do the hard yards! Go work in a delivery centre, learn the ropes, learn the processes, tools techniques, and metrics. That way you can add value to every client.
Most importantly: always act with integrity. Deliver what you say you can, deliver and show the benefits, and give the client what they want. These attributes are how you make your own company successful. Be candid, open, and straight.
Phil Fersht: Bill Payne, thanks for your time: our readers will appreciate reading your views
Bill Payne (pictured above) is VP for Global CRM and Industries Managed Business Process Services at IBM
We are excited to announce a major development in our journey to be a truly distinctive analyst voice in the global services industry. Today, we are officially engaged in a research alliance with global business advisory firm EquaTerra to develop a new category of data-driven research, ‘Actionable Intelligence’.
Actionable Intelligence
We are combining the immediacy of social networks with industry and advisory insight to provide technology services and BPO executives knowledge for improved decision making. We are not merging our organizations, moreover, we are dedicating resources to develop research that we believe will fill intelligence needs in the industry that are currently under-served. You can read the full press release here.
As new research clearly demonstrates, enterprise sourcing and shared services practitioners are increasingly using social networks for insight and knowledge-sharing, and we feel we are creating a compelling platform to take actionable research to an entirely new level with this alliance.
On behalf of HfS, I would like to issue a personal thank you to so many of you who have been coming here over the last three years, now we have reached this exciting point in our evolution. It has been your willingness to engage in our research studies, engage in our discussion and provide so many views and experiences, which has made it possible to take actionable, rapid intelligence and insight to an entirely new level. Combining the talents of our analyst team and our quantitative research, with such an innovative advisor as EquaTerra, is a testament to the power of social networks, and the collective desire of our community to share knowledge and constantly seek to improve everything we do.
Why are we forming a research alliance?
Enterprises are in desperate need of rapid, actionable, forward-looking intelligence. HfS provides a unique platform to rapidly study enterprise and industry dynamics, with a proven team of research analysts. EquaTerra has unrivalled advisory talent close to the enterprise buyer, which lives and breathes sourcing issues every day. Delivering joint research products will provide enterprise with the insight they need in a market that is currently moving at a relentless pace. There has been a strong desire between our firms to increase our level of collaboration – and you may recall the recent paper we co-wrote with EquaTerra’s Bob Cecil.
What are the added benefits to EquaTerra and HfS?
EquaTerra will have access to HfS research depth and vast industry network; HfS has access to key EquaTerra advisor talent and global resources to augment its research.
What will the research products look like?
We will be rolling out some new research products we are co-developing, that will provide rapid, immediate insight and knowledge. These research deliverables will cover buy-side strategies and tactics, service provider performance and satisfaction studies, industry-specific dynamics, and market analyses in key and emerging services and technology domains.
A sneak preview of what you can expect to see unveiled include:
• “Rapid Intelligence” Sessions: designed to provide clients with highly impactful insight, advice and data, supported by combined analyst and advisor experts from both HfS and EquaTerra.
• Expanded Industry Pulse: HfS will jointly develop and co-brand EquaTerra’s existing, established and very successful Industry Pulse survey to encompass an unprecedented view of buyer dynamics, advisor insight and service provider intelligence.
• Service Provider Performance and Satisfaction Studies: HfS and EquaTerra will jointly develop and co-brand these across some critical market domains, such as ITO, Cloud services, Recruitment Process Outsourcing, Multi-process HR Outsourcing and Finance & Accounting Outsourcing. EquaTerra has already been delivering these studies in Europe. We will broaden these into new domains at the global level.
• Joint market studies: We will also be combining resources to explore emerging market domains, such as real estate management, and established markets, such as public sector and financial services
How does this impact existing research clients of HfS?
There is no change to HfS’ existing subscription research services, simply added value and insight provided from EquaTerra. The new products that both HfS and EquaTerra are rolling out are adjunct data services that clients can choose to purchase. Similarly for EquaTerra clients, there is no change to services beyond the added enhancement of HfS research and the ability to select the new adjunct services.
What is the proposed duration is this alliance?
The initial agreement is for one calendar year. There is no co-ownership of equity, with both parties continuing to operate as individual organizations.
Does this impact HfS’ independence?
Absolutely not! This is purely an initiative to develop rapid, data-driven actionable and compelling research. HfS will continue to provide independent guidance to clients when seeking to select a consulting firm for outsourcing and shared services support. Naturally, EquaTerra believe that delivering compelling insight will encourage clients to select their services.
Where can I learn more about this alliance?
Drop us an email and we’ll attempt to get back to you soon with more information
Without further ado, let’s dive back into our discussion with Genpact’s President and CEO Pramod Bhasin, who graciously abandoned his golfing buddies to spend time with us. In Part I, we talked about how Genpact survived the Recession; in Part II we delve into how Genpact is striving to retain a unique identityin the industry as a pureplay BPO provider, in the face of increasing competition and the convergence of Cloud, SaaS and BPO delivery models….
Phil Fersht: Pramod, there is a concerted drive from the service provider community, particularly those with an IT services heritage, to diversify into BPO by pushing “productized solutions”, whereby you have the IT componentry underpinning the BPO. My view is that BPO is critical for these offerings, providing the “personalization” that can mould them effectively into client scenarios. Is Genpact pursuing a similar “product” strategy, or do you have a different angle here?
Pramod Bhasin:You and I are in exactly the same spot on this one. IT companies are going into our industry and I am convinced that it is more because of their ability to access customers than it is with “convergence of BPO and ITO”. I am pretty sure about that. Why do I say this? If you look into how companies are running their business process areas, they are running them very separately. It is not that they are running them to get any great traction, which is where you might say there is real convergence between the two at a meeting point across the board. Of course, there are areas, which have meeting points. There are areas like healthcare claims and insurance platforms where you can process a lot of transactions. There are the HR and payrolls platforms that one can use. So, yes, you can have this kind of convergence.
But I think that the vast amount of movement that we do on the process side is very, very different from the IT side. I think that is obvious when you look at the skill levels, and how these people need to be managed. I also think, Phil, that much of it will be left up to the technology companies because there are more of them. Ninety, ninety five percent of the companies in our space are technology companies. So, of course, they are going to say, “That it fits right in with what we do.”
I do think though – and it doesn’t happen enough – but is happening more and more, that there is increasing recognition by companies that managing business processes is still too much of an art. I think that there is increasing recognition also, and it always been there, that people say “if we automate, we’ll eliminate and that’s the only cure”. Whereas, now there is a greater recognition that there are many capital light, efficient solutions for making business processes much more effective and efficient. Those need to be pursued vigorously.
Most companies can’t tell you how good or bad their business processes are. And yet, their health depends upon it. How much money they make depends on it. How they make their money depends on it. This is an astonishing statement in a world where companies have existed for centuries with business schools and everything else. Yet every company tends to be willing to find a simpler process for accounts payable all by itself, that is brand new in their own way. Everyone reinvents the wheel a thousand times. If you ask someone at a C-level how good of a value processes are, they can never give you a quantifiable answer. All they can give you is “good”, “somewhat good”, “not good enough”, “could be better”. That is really a killer switch for a company. Surely, all of us need to know, “I have process XYZ and how well it is doing, what it is expected to do. Is it 50 percent, 80 percent, 90 percent, how well is it doing? That is the real weird thinking of the world.
We want to build a science and it is a real unique opportunity. We then erect a form firmly in the middle of that space that we think is a large vacuum in the world and we want to be among the best, if not the best in the world at managing and improving business processes. This includes analytics, technology tools, enablers, platforms, call it what you want for processes and expertise. That is what fundamentally companies want. Point solutions are over for them. If not, I hope that it will be. They are saying, “I may put a technology tool in here but leaking on the other end of the system is destroying any benefit that I get.”
Phil Fersht: How can customers achieve process innovation with BPO?
Pramod Bhasin: As long as we can do it at the right level, we see enormous recognition of what we are trying to do, in terms of innovation. They may say, “We are not ready yet, we are trying to solve far too much right now, this is too slow in coming”, (lots of things like that), but the fact is, that all of them recognize and say, “This is what I need. I have no means of assessing how well or badly my processes are running. Maybe you can give me something that allows me to do that. This is the only way that I can anyway.”
The point that we make to them is that good work versus average work is not 15 percent. It is five times that. That is the amazing part about this. It is like what they talk about in cloud computing. The benefit of cloud computing is not incremental savings. Maybe there is an analytic solution, but unless you can look at it end-to -end, and we can help, then we are missing the boat.
I use simple examples. One person processes 4,000 invoices per month for the UK subsidiary of a pharmaceutical company. We make it to 6,000 and everybody is delighted and say how wonderful and what a great job, except if you look at the same company in the US, they process 20,000 a month. The difference is huge and that is because nobody looked at how good their processes truly are.
Pramod Bhasin: a true “Horses” fan…
Phil Fersht: We’re seeing the very first seeds of companies looking at integrating delivery components like SaaS, Cloud and BPO to create new levels of cost arbitrage and efficiences. How is Genpact approaching this?
Pramod Bhasin: It is a fascinating area, everybody is shooting at it, everybody is trying to sail it out. I don’t know how many are trying to get it out – or will. We will find out that answer anyway and I hope that many of us will be successful. We are doing the metrics to align the arrangement to work off of the cloud with the ERP platform. As an example, we just signed an alliance with Netsuite, for example, to do exactly this. We think that we can take this platform, wrapped with our BPO offerings, to our clients. I think that we have a better chance of doing that than the technology companies, because we understand processes much more than they do. At the end of the day, the platform is going to be the common factor that will be provided by companies that make platforms really well.
And so, on the ability to wrap finance and accounting, HR support, payroll, back office, in a box: we are already doing this an aggregator in some recent deals. In India, for example, we have become an aggregator of Cloud Computing power by building the F & A, the contract and process management with the company and its various other suppliers, for its entire IT infrastructure delivery.
On top of that we are building HR systems now to deliver HR off a platform, off the cloud, getting increasingly into gain-sharing. We are really coming out and asking “how much of a slice can we take”. That is the amazing part. Companies will look at that and, in fact, to your point on the relentless economy, they like it because they don’t have to pay me unless I deliver something. So, this whole wrap-around of Cloud with software applications, combined with BPO offerings, will continue.
The Betting’s open as to who wins, we feel very comfortable that knowing business processes as well as we do, that we can do a lot. Now, IT companies are stepping in fast. They say that, “Look, we bring in the Cloud, all of the technology capabtilties, and now we have enough business process capabilities also”. But they are different skills. So, I worry that people who try too much integration manage to get themselves blown up in small pieces all over the place. Where will it strike first? Maybe to small-to-medium scale enterprises, so one of the experiments that we are going to get into is how do we tackle the SMEs.”
In the final part of this interview, we ask Pramod about consulting, the future of labor arbitrage, and his advice for budding sourcing execs today… stay tuned
At HfS Research (sorry, we have to start using that acronym – if I have to keep spelling out “Horses for Sources” every five minutes…), we’re focusing our microscope on the healthcare industry with our new research agenda (drop us a note if you’d like more details on our research coverage). Our resident healthcare analyst, Anthony Calabrese, has a pretty decent point of view here…
Healthcare Payors Reshuffle Their Priorities
Unlike medical product manufacturers and pharmaceutical companies’ industries, healthcare reform will absolutely transform the healthcare payor industry. Mandated medical loss ratios, state-run insurance exchanges, guaranteed coverage, and required purchase requirements will restructure the payor’s business models. The trickle-down impact on operations will be significant, shifting priorities in a manner that will eventually impact outsourcing priorities.
Healthcare Reform – The Big Changes
Few people understand the healthcare reform laws signed by President Obama. While the laws are lengthy, the list of major changes is not:
Consumers must purchase insurance and companies with more than 50 employees must provide insurance. Those who fail to do so will be subject to fairly substantial fines.
Insurance companies cannot deny coverage or price individual policies based on prior medical conditions.
State-run exchanges will be created to directly offer individual policies.
Federal electronic enrollment protocol standards will be developed to allow consumers to enroll, view, and manage their enrollment in insurance.
Healthcare companies have mandated medical loss ratios (MLRs) of 85% for large groups of more than 100 and 80% for small groups and individuals. If payors manage to generate lower MLRs, they must refund the difference to enrollees.
What does this mean to the heathcare payor industry?
The changes are substantial:
First: payors can expect to compete for over 30 million new enrollees that are required to purchase insurance. While some of this business will be generated by small groups who previously did not provide insurance to employees, the bulk of the 30 million new enrollees will come through individual insurance. As witnessed by the payors go-to-market implementation of Medicare Part D, the enormous spike of sales and new customers requires significant planning and operational bandwidth. This impact sales and customer service activities, requiring substantial investment in customer service teams, technology readiness, and enrollment processes.
Second: transactional workflow associated with individual enrollment will need to be completely reengineered. Prior to reform, transactions flowed through underwriting groups who priced each individual plan. With the advent of state-run exchanges, insurance plans will be codified in just four basic formulas (Platinum, Gold, Silver, and Bronze) and offered through online exchanges. There will no longer be a need for underwriting to review enrollments for pricing or previous medical conditions. Furthermore, the implementation of federal standards for electronic enrollment transactions will require investment in transaction gateways and internet portals.
Third: state exchanges will likely greatly reduce the role of the middle men – the insurance brokers. Individual will be able to browse available rates and compare products online – and then purchase plans directly from payors. Without the ability to incentivize brokers on the profitability of different enrollees, broker compensation models will change dramatically. However, the need for payors to compete directly changes their consumer sales operations significantly. Expect more direct marketing investment, greater focus on churn management, and larger investments in direct and indirect sales operations.
Fourth: the implementation of state-run exchanges will also incentivize payors to invest in competitive intelligence systems to track competitive activity, similar to the investment of the airline industry to track similarly complex airfare changes and offerings.
Fifth: the implementation of compulsory MLRs will cause a seismic shift in the industry. While the standard calculation to be used by insurers has yet to be written, the current results are eye opening.
The Outsourcing Buyers Should Brace for Strategic Changes
Outsourcing governance organizations will need to reassess existing relationships and the scope of potential opportunities. Here is some advice as to where they should begin:
Prepare for Significant Change Orders and Terminations – One way or another, the law is going to impact existing operations. It will change how enrollment occurs, at a minimum. It may materially change the size of your programs, causing a need to change locations. Existing inbound customer service suppliers may be needed to provide inbound sales support duties. Margin pressures may create opportunities to renegotiate contracts. Regardless, use these changes to your strategic advantage – map the planned changes comprehensively and prepare you negotiation strategies in advance.
Review Existing Contracts for “Change of Law” Clauses – Depending on how your contract is written, changes caused by health care reform laws could be the buyer or the vendor’s burden or could create unplanned termination options for either party. Ensure you understand the your contract’s specific handling of changes in law.
Brace for January 1, 2014’s High Volumes and Low Predictability – New market entry of 30 million new members plus the high likelihood that all existing individual policyholders will change policies will create the need to support sales, enrollment, and backoffice transaction processing operations. How much marketshare your company will win is uncertain – witness the Medicare Part D free-for-all that was accompanied by substantial marketing efforts. Vendor governance teams will need to develop plans to handle the uncertain volumes, recognizing execution failures could lead to acquisition shortfalls and member churn. Whatever happens, the bracing will begin long before 2014 as operations must be mobilized and ready in advance.
Get Comfortable with Federal and State Outsourcing Compliance Processes – CMS leverages offshore subcontacting attestations filed by all payors with a subcontractor (or a subcontractor’s subcontractor, etc.) operating outside of the 50 states or US territories. You need to seek guidance from Federal and State regulators as to how they will review offshore outsourcing, especially given the difficult economic climate and the negative public attention politicians could attract. Develop a comprehensive public affairs strategy and leverage your current public affairs and state regulatory relations infrastructures.
Reassess Outsourcing Opportunities – Payors have been largely shielded from economic drivers of outsourcing resulting in limited outsourcing of core operations and shared services. Furthermore, the complexity of payors’ claims processing systems means that few companies have entered into comprehensive, transformational application development and maintenance contracts. Given fixed MLRs and what is expected to be a highly competitive marketplace, payors should comprehensively reassess outsourcing opportunities in operations, shared services, and IT. Manage transitions in advance of 2014 to ensure success – you have about three years from today to assess, select vendors, negotiate contracts, transition, and stabilize operations. That isn’t much time, especially in critical medical management outsourcing to disease management vendors and direct sales support operations.
Understand Your Service Providers’s Industry Intelligence – Across the industry, vendors are salivating at the perceived impact healthcare reform will cause on outsourcing deals. New service providers in the industry will develop capabilities and existing ones will need to improve the robustness of their operations. Develop strong relationships with your provider and seek to understand their strategies, their process capabilites, their onshore/offshore models, in addition to what they are hearing from your competitors.
We’ll be delving deeper into the challenges and opportunities facing the healthcare payor sector in Anthony Calabrese’s forthcoming report, as part of our HfS Research program
As we deconstruct the recording of our interview with Genpact’s President and CEO Pramod Bhasin, one factor keeps springing out of the discussion, that makes me realize how far today’s organizations have to go, before they can truly claim they are satisfied that they are maximizing their potential:
“Most companies can’t tell you how good or bad their business processes are”
Cutting to the chase, those providers which can offer services to help clients evaluate their current level of “goodness” or “badness” and execute a plan to reach the next level, will be the ones which win out. Hence, it’s not solely about sitting down with a client and claiming: “this is the best-in-class claims processing workflow”, it’s being able to help that client evaluate whether it’s worth changing what they currently have, and demonstrating the chops to execute on a plan to help them achieve that next performance level. That means providers need real process experts which have the consultative prowess to help clients think through their options.
Essentially, as the BPO industry matures, it’s becoming an attractive playground for many of the Indian IT services giants to dabble their fortunes, as they look to diversify their business models and take advantage of IT-BPO synergies, the onset of SaaS and the future potential impact of Cloud Computing. They are realizing the importance of genuine BPO capability to help their clients consider end-to-end business-IT solutions, and start to attempt answering that excrutiating question: how good or bad are our processes?
For a long time, most BPO deals were essentially dominated by Accenture, ACS (Xerox) Capgemini, Genpact and IBM, with HP popping up occasionally if it fancied a nibble, but today’s competitive landscape is shaping up quite differently with the likes of Cognizant, Infosys, TCS and Wipro looking to claim their piece of the action.
Pramod poised and primed to preach more process…
However, some providers are finding the transition from IT to BPO a greater challenge than they imagined, with the different skill levels and diverse talent requirements that need to be managed. The scalability and training issues for managing process versus programming is a whole new world. But these firms dominate the global technology industry, they are embedded in all the major global enterprises, and as they see their own IT services business commodotize further, many will increasingly dive into BPO endeavors with their clients. It’s inevitable, and it’s already happening.
During Part I of this discussion, Pramod gave us his take on the recession, how Genpact tackled the worst of it to emerge as a more focused organization, with increased investments in industry-specific processes and geographic regions. Recent financial results indicate he’s practising what he’s preaching with solid performance and a positive pipeline for future growth in both the near-and-medium terms. Part II of this discussion (coming shortly this week) will focus on these IT-BPO synergies, the relentless quest for innovation, and how the competitive landscape is developing as a result of the changing environment.
So where is this all headed? Well, if we told you the entire answer, you wouldn’t keep coming here, but stay tuned for Part II, zoning its way shortly to an LED display near you…
