I don’t think I’ve ever lived through a period in my life where there’s been so much doom and gloom around the economy… and while I tend to be a naturally negative human being, I am also an obsessive analyst, and I must declare that I am not convinced we’re entering a 70’s style recession. If anything, we might be finally on a weird and rocky road to a much more normal future, compared to our highly abnormal recent past.
In 2008, when we thought the whole capitalist system would fail (and it was close) – and in 2020 when the world locked down practically overnight, we thought seismic business failure would engulf us. But we’ve recovered from both calamities and now face a new set of unknowns… that cancer of capitalism itself, inflation, a shortage of commodities that keep the economic wheels on, and a rebellious workforce that was locked down for the best part of two years.
Why this resembles more of a cooling-off than a recession
We’ve had 14 years of negligible interest rates which have driven businesses and consumers to pump up house prices and stock markets… as there really haven’t been many other places to deposit our excess cash. On top of the amount of practically free money on offer, we’ve printed trillions of dollars of money to prime economies during the two crises, US corporate tax has been slashed, unemployment has reached record lows while major stock markets have just kept going up and up. There’s too much of a good thing, and then there are 14 years of continuous good things…
So, let’s examine the current economic situation for businesses:
Those businesses that were based on hot air and analog business models are failing fast
Where we’re seeing recent business failure is in areas that are almost purely speculative and have very little basis for their value, such as cryptocurrencies and various flavors of AI and automation that just don’t make a lot of sense. I won’t even get into biotech and other markets where reality misalignments disappointed many naive investors. Simply put, there have been many spectacular startup failures where both business and consumer investors gambled on business propositions that were based largely on pure fantasy, where they listened to analysts posing as experts – and believed them. In addition to businesses run on vapor, we’ve seen businesses unable to adapt to digital commerce fall by the wayside – restaurants that couldn’t pivot to home delivery, taxi firms that couldn’t develop apps as easy to use as Uber or Lyft, manufacturers which failed to adapt to making products and equipment that customers still needed. One can argue that many of these businesses were set to fail in any case, and Covid merely accelerated the failure process.
Businesses addressing real market needs will thrive
Conversely, while stock prices have suffered in recent times, those businesses that address a clear market need and have a path to profitability and growth are surviving and will eventually become safe bets for investors eager to escape the madness of these recent speculative times. Core tech suppliers and IT services firms have enjoyed record growth over the past 12-18 months as enterprises rely more than ever on technology to run and automate their operations. Airlines are bouncing back as people are eager to leap out of lockdown purgatory and go on vacation and get their business lives normalizing again. Many consumer product and manufacturing firms are rebounding as two years of pent-up consumer spending is unleashed, while many banks have digitized their business more than their wildest dreams during the pandemic and are eager to reap the record profits of transitioning their painfully unprofitable analogous businesses. We can go on and on, but the customer needs to engage have never been as eager as now… and the fundamentals are all there to project a healthy future for many industries rebounding after the pandemic, or growing more than ever because of the pandemic.
I believe we’re entering a “realistic economy” where companies are expected to be profitable, offer substantive value to their markets, and have a sensible fiscal plan to ride out the current inflationary pressures, especially in terms of keeping their core staff onboard. The cranks and the fakers are slipping away and the real businesses are taking over. And our investor speculators are desperate to dump their dwindling funds into businesses that actually have a realistic business plan.
Two key issues have contributed to today’s economic peculiarities
1. The Ukraine war
The war has resulted in wheat and fertilizer shortages driving the cost of many food products higher. Even commodities like neon gas have been hard hit, which is essential for the manufacture of computer chips, as half the world’s supply comes from two Ukrainian companies, Ingas and Cryoin. Suddenly it’s harder to purchase tech hardware and these prices are steadily escalating. And let’s not mention the massive impact on oil prices which has driven up the costs of every product and service needing gasoline. On top of that, the oil companies are exploiting the situation and raising their profits… because they can.
2. Rampant consumer demand post-pandemic
Many families hoarded cash for two years, some bring topped up by government support, others simply earning good money and saving on no work commute, moving to the countryside getting great mileage out of their old pajamas. On top of that many people have enjoyed wage increases or taken more lucrative jobs due to the labor shortage – without leaving the house. Times are good for many, and they are indulging in buying overpriced vacations, cars, BBQs, household furniture, etc. You can’t even find many Rolex watches on the market these days… we’re in a world where demand is just trumping supply in so many areas.
In addition, rents and house prices are climbing as people move back to the cities and there is a shortage of properties, while restaurant bills spiral because of rising food and labor costs. There is now a shortage of taxi drivers emerging in many major cities as it becomes too expensive to make the job worthwhile anymore. There is a shortage of workers right across the service industries… but as things cool off and the economy corrects, so will these stresses on the cost of living and working. We are all (just about) adapting… even during unprecedented times where you can’t find good willing workers for love or money. We should take solace in the fact that things are at their inflationary peak, and we are still moving forward as an economy. The fundamentals underneath it all are strong…
The Bottom-line: We’re experiencing unprecedented economic and societal challenges, but the fundamentals to get to the other side of this are strong
While we can deplore this shortage of workers who underpin our economies and the impact of this awful war in Europe, which hurts our supply chains and drives the cost of living to unbearable levels for many, we have to look at the bigger picture to realize we’re just in the process of cooling off, and not necessarily plunging into a terrible recession. Businesses based on real substance are – by and large – doing fine, there is a desperate need for workers of all types to support our industries, and there is a lot of excess money sloshing around the place (Deutsche Bank estimates US households have $2.3 trillion excess cash stashed away to weather inflation and higher interest rates).
We also have a sensible Fed which is looking to fix inflation before making other key economic injections, and we are already seeing early signs that inflation is beginning to cool off with these interest rate hikes. If we can somehow fix these supply chain issues and find a resolution to the Ukraine situation, we will get past this current period without too much damage. Yes, there are some big IFs here, but we may just be just going through a readjustment of a rather distorted 14-year-old bubble. And we may be moving into a work of two diverging superpowers
There are surely more normal and rational times ahead, as the past couple of years have been anything but!
We’ve talked a lot about the shift to the full-on digital workplace, and now we’re in this “phygital” purgatory where we’re trying to find the right balance between the delights and convenience of digital with the real-world excitement and empathy of engaging with real people in real physical settings again.
Publicis Sapient is driving this new era of physical/digital experiences for major enterprises
This is driving a dire need for partners who can really address this balance right across our customer lifecycles. And when we look at the changing needs of enterprises to engage their customers with experiences that will create new business opportunities for them, create new data assets, or disrupt stagnating business models from the pre-Covid era, we are seeing some digital consulting firms taking this head-on with innovative skillsets to help them.
One firm that is putting customer experience (CX) at the heart of transforming businesses is Publicis Sapient, the digital transformation hub of communication giant Publicis Groupe. The company really is unique in this world of designing and executing blended digital/physical experiences, so let’s dig into this some more…
Enter the new CXO… the Chief Experience Officer
HFS Research Leader, Melissa O’Brien (pictured top right) got time with Publicis Sapient’s new Chief Experience Officer, Abby Godee (pictured top left), who joined recently from Deloitte Digital where she led the firm’s Customer Strategy, Design and Innovation team… Over to you, Melissa:
As we hurtle toward our new OneEcosystem reality, experience is king. As such, many companies are taking a call to put one person in charge of all things experience. Enter the CXO. I met my first CXO at a Genesys event in 2011 and was thrilled to hear about how these custodians of experience were cultivating experiences across enterprise stakeholders. But back then the world was a lot different and more …. well, physical. Now as we grapple with this new “phygital” reality, creating experiences that blend remote and bricks and mortar seamlessly, where people are eager for real connection yet weary of endless Zoom calls are so important. Now we need real leadership that understands human needs and wants and aims to develop experiences, digital and physical ones, on a very human level.
There’s no time like the present to create and invest in roles like this, now when we are more in need of genuine engagement and strong leadership, and we have found that diversity of all kinds is critical to success. Abby Godee (see profile), 3 months in at Publicis Sapient and bringing a tremendous background of experience design, shed some real light on what it means to be a CXO in 2022, and her vision for enabling experiences for Publicis Sapient’s employees, customers, and the greater community.
Melissa O’Brien, Research Leader, HFS: Abby, the CXO role is still relatively a new one but is rapidly maturing. What is a CXO? Can you tell us what it entails, and the vision Publicis Sapient has for you?
Abbye Godee, Chief Experience Officer, Publicis Sapient: It depends on the maturity of the organization, Melissa. Publicis Sapient has been in the experience business for many years, it gives me the opportunity for my role to be more expansive. At Publicis Sapient my role is about strengthening and scaling the impact of experience. There are traditional design capabilities like UX, product design, and other core capabilities, but we also have strong design strategy and CX strategy. So it dovetails into transformation strategy on one end of the spectrum and on tech execution and platform execution on the other end. My role is to guide the impact experience can have. We are ensuring our approach to technology is not just best in class but informed by human needs. I see my role as being the custodian of the human in experiences. I don’t think we design experiences; we design the opportunity for people to have great experiences. It’s up to us to deeply understand our employees, our partners, the patients, the citizens and so forth, so we can design ways for them to have the right experiences. You have to embrace skills way beyond core design skills to enable that.
Melissa: Can you share some of your background with us, Abby, and what do you consider to be your greatest influence?
Abby: My educational background is in cultural anthropology and that has always informed my approach. I studied design and was art minor, and can design my share of products, but what’s always driven me is “why do people do what we do?” So there’s a lot of overlap with behavioral design. I worked at Smart Design where we were busyRead More
Barely more than two years ago we did audio calls. Yeah, audio calls – remember those awkward things, where people not only left their mute buttons on, but often just went missing from the discussion altogether? Now we’re all so well organized in our visual virtual worlds that it’s a huge challenge trying to balance the ridiculous notion of wasting time getting dressed, going to an office, and – heaven forbid – actually having voluntary discussions with our colleagues.
We are all human beings and we’re super comfortable in our own isolation. The days when all our colleagues were on Facebook, and our companies had become extensions of our families are long gone. I wonder how many people reading this met their spouses over a water cooler (or company Xmas party)? So how does our relationship with our company change?
Unstructured flexibility is the new “nine-to-five”
I remember once being chastised for sending out emails to my staff over the weekend. Gosh, how dare I ruin that wonderful work-free time, when I can wait until Monday to bark orders? Seriously, I don’t have bloody time on a Monday morning, so I will send out what I need when I have time to ask! If people demand flexibility to cater to their busy lifestyles/family commitments, then this whole nine-to-five bullsh*t died with audio calls.
Now I am the first to laud judging performance on outcomes, but if you’re spending half your day taking mom shopping, kids to soccer practice, taking in a quick 9-hole round, then you’re gonna have to find some time somewhere to meet your work outcomes. If you want to decompress and escape work interactions, then you need to manage that yourself – turn off all work apps, get a personal cellphone… you need to manage your own clock on/clock off these days. If you want nine-to-five structure then go back to the office. Am sure you can be amazingly productive with nothing much else to do than work 40 hours a week imprisoned in a work setting.
Managers need empathy skills… emotional intelligence is the route to the top
I have spent my entire career screaming that people management capability belongs outside of the HR department. Suddenly all ambitious managers are being judged on their ability to retain and develop their teams, keeping their staff focused and motivated. An unstructured work environment demands a lot more cohesion, honesty, and teamwork – and the only way to achieve that is through emotionally-intelligent leaders. That means management is more than dolling out tasks and conducting awkward performance reviews… it’s about getting to know what makes your people tick. When people are happy, they feel trusted, and they value the people around them, they perform. And it today’s work environment you will lose your best people if you can’t bond with them – not only will you likely fail to meet your goals, but your leadership will also notice that you’re struggling to drive your team.
The Bottom-line: An unstructured environment is based on trust and closer emotional relationships between managers and colleagues
We all have bad weeks when we are off our games – so don’t hide, let your manager or team know and they may help you get back in the groove. Good people are sympathetic and empathetic, and so are good colleagues. And if you’re having a period of great productivity, success and inspiration, let people know too… good vibes and passion are infectious and make people want to bond with you. Bare your soul a bit, whether you are an experienced leader or a junior team member, and you’ll find your work environment can be a bit more than a laptop screen and soul-crushing interactions with people who you barely know. There is no defined curriculum anymore when it comes to the workplace… when it comes to trust and passion, that comes from people and their ability to motivate and empathize with each other.
With its proposed contentious Kyndryl-style split and rapid CEO departure, Atos is teetering on the brink. As if its decline in stock price, recent accounting scandals, and lackluster financial performance were not enough, the firm now is more primed than ever for being acquired with these latest developments. In addition, Atos is shackled by the intense involvement of the French government as it manages sensitive tech and data for both the French military and tax collections, with former PM Edouard Philippe being on the Atos Board. HFS believes competitors should move to acquire Atos’ crown jewels now and not wait for the bleeding to start.
We believed buying Kydryl last year made a lot of sense, however, it has lost a lot of talent and could take too long to absorb to make the acquisition worthwhile, even as its stock price is likely to fall below $2bn. Our recommendation would be to make the move now to acquire the crown jewels of Atos – notably big data and cybersecurity – before the business sheds more talent and loses market position.
So what are the lessons learned from IBM’s Kyndryl spin-off and what is HFS’s take on the current predicament in which Atos finds itself?
Staring down the strategic barrel
Having had a full in-tray from the word go (see earlier post), recently appointed CEO Rudoplhe Belmer presented the findings and conclusions from his strategic review as well as his new management team. The pillar of his turnaround plan is a spin-off of its infrastructure business similar to IBM’s move to spin-out Kyndryl. If that was not enough, just an hour before the announcement was made, news broke that Belmer has since resigned after the Atos board rejected his suggestion to sell off its BDS division (Big Data and Security). Simply put, Atos is teetering on the brink of disaster, not helped by a tanking stock market and IT services firms desperately clinging onto their delivery staff in this cut-throat market.
We were starting to write this analysis looking at the announcement of a Kyndryl-style spin-off. This was more than enough to get our heads around. Before the second coffee news broke that Atos CEO Rodolphe Belmer despite presenting the strategy to investors, had just resigned before the meeting. According to press reports he is said to have lost a power battle after he allegedly wanted to sell off the new business unit comprising security and high-performance computing. Let’s take a deep breath and rewind…
Atos’s Kyndryl is called Evidian, kind of…
The original announcement comprised the following. After a strategic review by the new CEO, Atos is planning to follow IBM by separating its business into two, publicly-traded entities. One focused on a higher-margin business dubbed “SpinCo” but with the brand of Evidian. It consists of two business units Digital (digital transformation, cloud, and applications) and BDS (digital security and high-performance computing). In 2021 its revenues would have been €4.9bn with an operating margin of 7.8%. The entity that is meant to be spun off is dubbed TFCo (for “technology foundation”) and is meant to retain the Atos brand. It comprises the low-margin units of core infrastructure, digital workplace, professional services, unified communications, private cloud, and platforms, as well as BPO. In 2021 its revenues would have been €5.4bn with an operating margin of minus 1.1%. Despite the intended spin-off Atos is continuing to look for a buyer of its unified communications business. And while BPO might have a low margin, it doesn’t really fit into the infrastructure-centricity of TFCo. Probably it is telling that the infrastructure business is retaining the Atos brand, flipping IBM’s logic with Kyndryl.
Separation is the right action, but it will be a long and painful process
Atos’ intent is to deliver the carve-out in 12 to 18 months. As the challenges of Kyndryl have demonstrated, it is tough to deliver on such a spin-off. Kyndryl’s market cap is down to $2.1bn. But that is a pitiful fraction from the $19bn in revenues it started out from. In Atos’s case, its management acknowledged that its talent pyramid needs serious surgery as 40% sit in high-wage economies. Put another way the acquisition of Syntel has at best marginally changed the talent pool. The other headwind is a stuttering sales engine as Atos has to re-engineer a sleuth of unprofitable deals.
The security business is the jewel in the crown. Selling it off might have filled Atos’ war chest but the interdependencies on digital operations are immense. Take Siemens as one of their key customers, re-evaluating and potentially re-engineering operational processes would be immense.
Competitors should give a toss about Atos’ cybersecurity business
The security business is the jewel in the crown. From 2020 to 2021 Atos acquired very promising and innovative companies (Paladion, Digital. Security, SEC Consult, or Motiv) in the cybersecurity arena, and its initial strategy was to go on with further targeted acquisitions combined with organic growth. Atos cybersecurity services revenue has grown by two digits year-on-year over the past 3 years and the total number of dedicated headcounts has substantially increased in the same period. AIsaac (a Managed Extended Detection and Response platform) and Evidian (a Managed Identity and Access Management platform) are the two flagship proprietary platforms that seriously distinguish Atos from its competitors by leveraging the power of automation, AI, and analytics for way more intelligent and resilient cyber defense capabilities.
With one out of two clients belonging to public, defense, or manufacturing sectors, Atos has developed a very compelling end-to-end cybersecurity offering with a distinguished industry vertical expertise and a rich partner ecosystem. Atos works with many defense organizations worldwide on mission-critical programs, where it combines cybersecurity services with a wider range of proprietary products.
Atos’ digital security vision has always been quite ambitious: be a “global trusted orchestrator between the virtual and real-world, assuring digital innovation, defending critical assets and allowing operational resilience between people and systems everywhere”. And Atos has clearly not lost its “Raison d’être”.
Atos needs a cultural makeover
Atos is still very French. Almost all senior executive positions and the new management talent are French. Yet, the necessity for wholesome cultural change goes much deeper. IBM made a bold move for RedHat to drive strategic and cultural change. Suffice it to say even that cultural change didn’t prevent the spin-off of the commoditized infrastructure business. Atos doesn’t have a change agent like RedHat. What Atos needs is more wholesale cultural change akin to Microsoft, which under Satya Nadella went from a toxic brand to an innovation powerhouse and magnet for talent. The separation might have helped in parts but with the CEO’s resignation, any change will be on hold till a new leader has found his feet under the new office desk.
As with Kyndryl, predators might hover but none has taken the bait as yet
Our assessment of possible suitors for Kyndryl holds true for Atos as well. Its unified communication business remains up for sale and the UK-centric BPO accounts look out of place in the new infrastructure-centric TFCo. But where it gets more complicated is Atos’ entrenchment in European and French public sector and defense deals. With GAIA-X the European cloud initiative being top of mind. Political involvement and backroom maneuvers are highly likely.
However, with the stock market in peril, especially with the looming interest rate hikes to combat inflation, the timing for acquisitions is a lot more attractive today than last year
Lasy tear, many of the major service providers were avoiding big painful acquisitions while they were killing it with double-digit growth – but are all now desperate for delivery resources. You have to think acquisitions like Atos / Kyndyll are starting to make more sense just for added scale. Especially at these cheap prices (Kyndryl’s market cap is close to $2bn, despite colossal revenues of over $18bn. For example, Accenture will likely be over a million staff soon to deliver on its growth promises… the firm has to find the scale somewhere. M&A motives have to be shifting from “fuelling pure growth to delivering on what they have taken on”. This is the same for all the other leaders who’ve bitten off more than they can chew. You can easily see the likes of Cognizant, HCL, Infosys, and others intensely considering the possibilities of added scale to dominate the market.
HFS believes competitors should move to acquire Atos’ jewels now and not wait for the bleeding to start
The issue is also that most CEOs don’t want to risk large mergers when they are in strong growth periods, but when things start to look dicey they are much more open to making strategic bets. HFS believes competitors should move to acquire Atos’ jewels now and not wait for the bleeding to start. HFS believes buying Kydryl last year made a lot of sense. Now it’s lost a lot of talent and could take too long to absorb to make the acquisition worthwhile. Our recommendation would be to make the move now to acquire the crown jewels of Atos – notably big data and cybersecurity – before the business sheds more talent and loses market position.
Bottom-line: With another vacuum in leadership Atos is likely to be carved up rather than carving its infrastructure business out
Rodolphe Belmer is said to stay on till September to help with the transition. Yet, Atos can ill afford another transition period. Even if suitors don’t take the bait, it will be challenging to sign up for new strategic deals. Also, we shouldn’t forget that the macro environment is worsening with recessions a likely scenario. Thus, as HFS said in its most recent analysis is that Atos needs a new strategic playbook more than it needs a new CEO. Today this has increased humongously in poignancy.
Finally, you’re free from the house-slavery! You escaped and are now back in conference land. While it barely feels like the last 2.5 years of your life just happened and you’re right back in the swing of physical interaction, there is something weird lurking around your inner consciousness:
1. Those Zoom and Teams calls have become a plague on your life
For chrissakes, I am back in the world of humans, people. Just f***ing leave me alone with the soul-crushing Zoom calls. I am at a REAL CONFERENCE talking to REAL PEOPLE. No, I do not have hours and hours to stare into that video-call abyss… I am back in the real world and that’s really IMPORTANT!
2. Everyone’s lacking stamina
What happened – we used to be such a youthful bunch, hanging around the hotel bar, sneaking off to a nightclub/cigar club etc. Now people can barely make it through three boring panels without having to take a sneaky nap. “Just going to say goodnight to the kids ” is the last thing you’re hearing from loads of people these days as they discretely slip into the elevator…
3. You just don’t hate people like you used to
Oh those people you avoided eye contact with are now chatting to you like long-lost friends… omg am I enjoying human contact? Did I just press the flesh with people?
4. Content takes a backseat as Covid may have actually killed PowerPoint (gasp)
Seriously, this could be one pandemic benefit we hadn’t noticed, but no one likes staring at cardboard PPT anymore – we actually like talking and engaging with each other. We’ve had enough watching people reading off scripts. Let’s cut loose and TALK!
5. Noone’s talking about bloody Covid
Yeah, the topic-du-jour is now taboo… it’s just mind-numbing to engage in yet another conversation about everyone getting sick… yet again.
6. The end of the world is nigh, so let’s just enjoy what we have left
After that apocalypse that was posing as some faded version of Davos, where nuclear war and hyper-stagflation were combining with the fact no-one’s doing squat with this net-zero stuff to destroy the last remnants of humanity… most of us are trying to focus on more positive dynamics in the world. Like the fact that recessions can breed more focused behaviour and investments from enterprises. Plus the fact that enterprises are starting to use technology more effectively and not simply buying up licenses of software with no idea how to deploy it. And let’s not forget the fact that our employers have to pretend to be nice to us and actually want us these days. And we can always talk about the Metaverse…
7. Oh… and we can always talk about the Metaverse
Yeah – from blockchain to VR goggles, that thing the Metaverse, where we’ve already been spun several definitions, is going to save us. Yes, folks, it will because everyone says so. Service providers will start reporting “metaverse revenues” soon… Gartner will surely come out with “Meta-automation” next and HFS will be handing out mandatory VR goggles at its September Super Summit… surely?
According to the 33rd President Harry S, Truman, “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
In the case of the IT services and outsourcing industry, it’s the neighbors who are in trouble, and service providers are in pole position to take full advantage. There will be no services depression… and recessions only last a few quarters.
A recession may just be a blessing in disguise for IT and business services
It pains me to say this, but a recession could drive a healthier long-term outcome, not only for the IT and services industry but for economies in general. We’ve been living on printed money for 14 years, venture capitalists have bankrolled billions in business plans that make no sense (and will leave a trail of destruction), and many people can’t even motivate themselves to leave their houses to go to the office. Let’s be honest folks, the global economy is unsustainable on its current trajectory and we need a big reality check.
Moreover, the IT and business services industry is likely to benefit considerably from a global recession as cost-control takes center stage, in addition to the urgent need from enterprises to migrate securely to the cloud, automate processes and get cleaner, quicker access to data. Let’s examine why this is a likely scenario…
Slowing attrition will repair fractious client relationships and stem the bleeding
Staff turnover in IT and Business Process services deals has reached levels where many customers are screaming at their service providers to stem the bleeding, and we’re seeing some contentious situations developing, including some supplier switching. While some providers claim to have their attrition more “under control” than others, the problem is massive and widespread, and having (almost) entire project management teams take flight midway through complex cloud migrations has become all too common over the past few months. In short, if this situation persists, many clients will just bite the bullet and bring more IT back in-house.
Economic recessions have historically driven growth in services and outsourcing and this time should be even more aggressive as cost reduction becomes hugely significant
As attrition slows, there will be enough scale in India to respond to the needs of enterprises in dire need of reducing costs and accessing capabilities. While wages have increased in services (likely 10-15% on average), there is easily enough profit margin from all the TWILTCH providers to compensate and be able to offer clients 30%+ cost savings, on top of whatever innovations they provide. After the 2008 crash, we saw a significant spike in offshore IT services, in particular application development, which has pretty much carried us through to this 2022 recession. Since pandemic times, focus has shifted more to the frantic rush to the cloud and the focus on cost savings has been overshadowed by this great “hurry” to move enterprises into these critical virtual environments. However, we see a swing back to cost as the major impetus to outsource as industries like hi-tech, financial services, and healthcare have no choice but to improve their profitability to survive.
The Bottom-line: Cost reduction has traditionally been the conversation starter for outsourcing… and it’s back again in spades.
However, deep customer scrutiny on attrition and execution capability will dictate which providers come out on top. We know service providers can keep pushing the cost reduction capabilities, but they have to get ahead of these critical attrition issues fast – and they have that opportunity with the global economy tightening.
The turmoil in global supply chains and challenges of remote workers should work in favor of using smart outsourcing models, especially for enterprises that are struggling to retain their own key talent in areas such as cybersecurity, hybrid cloud migration, app dev etc. The leading outsourcers are those which have a depth of resources in critical areas (and at less expense) which make themselves such critical partners for their clients. I would add a huge caveat here that service providers have to get their own attrition under control, but a recession will slow down the great resignation and should stabilize this work environment.
Cost is king when recessions bite, and outsourcers that can deliver 30%+ cost savings via access to lower-cost labor at scale, combined with strong cloud delivery and automation, will be sitting pretty.
We’ve talked a lot about the shift to the full-on digital workplace, and now we’re in this “phygital” purgatory where we’re trying to find the right balance between the delights and convenience of digital with the real-world excitement and empathy of engaging with real people in real physical settings again.
Publicis Sapient is driving this new era of physical/digital experiences for major enterprises
This is driving a dire need for partners who can really address this balance right across our customer lifecycles. And when we look at the changing needs of enterprises to engage their customers with experiences that will create new business opportunities for them, create new data assets, or disrupt stagnating business models from the pre-Covid era, we are seeing some digital experience firms taking this head-on with innovative skillsets to help them.
One firm that is now past the $10bn mark and really making its name for enmeshing advertising with digital tech design and execution is Publicis Sapient, which represents the is the digital transformation hub of advertising giant Publicis Groupe. The company really is unique in this world of designing and executing blended digital/physical experiences, so let’s dig into this some more…
Enter the new CXO… the Chief Experience Officer
HFS Research Leader, Melissa O’Brien (pictured top right) got time with Publicis Sapient’s new Chief Experience Officer, Abby Godee (pictured top left), who joined recently from Deloitte Digital where she led the firm’s Customer Strategy, Design and Innovation team… Over to you, Melissa:
As we hurtle toward our new OneEcosystem reality, experience is king. As such, many companies are taking a call to put one person in charge of all things experience. Enter the CXO. I met my first CXO at a Genesys event in 2011 and was thrilled to hear about how these custodians of experience were cultivating experiences across enterprise stakeholders. But back then the world was a lot different and more …. well, physical. Now as we grapple with this new “phygital” reality, creating experiences that blend remote and bricks and mortar seamlessly, where people are eager for real connection yet weary of endless Zoom calls are so important. Now we need real leadership that understands human needs and wants and aims to develop experiences, digital and physical ones, on a very human level.
There’s no time like the present to create and invest in roles like this, now when we are more in need of genuine engagement and strong leadership, and we have found that diversity of all kinds is critical to success. Abby Godee (see profile), 3 months in at Publicis Sapient and bringing a tremendous background of experience design, shed some real light on what it means to be a CXO in 2022, and her vision for enabling experiences for Publicis Sapient’s employees, customers, and the greater community.
Melissa O’Brien, Research Leader, HFS: Abby, the CXO role is still relatively a new one but is rapidly maturing. What is a CXO? Can you tell us what it entails, and the vision Publicis Sapient has for you?
Abbye Godee, Chief Experience Officer, Publicis Sapient: It depends on the maturity of the organization, Melissa. Publicis Sapient has been in the experience business for many years, it gives me the opportunity for my role to be more expansive. At Sapient my role is about strengthening and scaling the impact of experience. There are traditional design capabilities like UX, product design and other core capabilities, but we also have strong design strategy and CX strategy. So it dovetails into transformation strategy on one end of the spectrum and on tech execution and platform execution on the other end. My role is to guide the impact experience can have. We are ensuring our approach to technology is not just best in class but informed by human needs. I see my role as being the custodian of the human in experiences. I don’t think we design experiences; we design the opportunity for people to have great experiences. It’s up to us to deeply understand our employees, our partners, the patients, the citizens and so forth, so we can design ways for them to have the right experiences. You have to embrace skills way beyond core design skills to enable that.
Melissa: Can you share some of your background with us, Abby, and what do you consider to be your greatest influence?
Abby: My educational background is in cultural anthropology and that has always informed my approach. I studied design and was art minor, and can design my share of products, but what’s always driven me is “why do people do what we do?” So there’s a lot of overlap with behavioral design. I worked at Smart Design where we were busyRead More
Self-insured or self-funded employers underwrite the medical risk of over 84 million of their employees and their families in the US. In 2020, self-insured enrollment by employers themselves surpassed the enrollment in health plans underwritten by health insurers, becoming the single largest market segment for healthcare. I caught up with our healthcare practice leader, Rohan Kulkarni, to learn more…
The 2020 inflection point at the start of the pandemic is a seismic event that passed off with little attention given our combined attention was on COVID-19, the economy, and yes, the 2020 US elections. Still, the growth of enrollment in self-insured employer plans holds tremendous promise of systemic change in US healthcare without the drama of national politics. It opens new opportunities for service providers, technology enablers, and consumers. It will unleash new business models, better health outcomes, and potentially address the runaway train of healthcare costs.
Health insured enrollment decline is offset by self-insured employer enrollment growth
If there’s one industry that has struggled with its identity over the past two decades, there’s no bigger culprit than Business Process Outsourcing (BPO). Ten years ago India’s IT body NASSCOM* voted among its BPO council leaders to rename itself “Business Process Management” (BPM) to amplify the nature of services being undertaken as “managed” by service providers as valued business partners, and not merely low-cost providers of outsourcing via cheap labor. However, most of the tech industry associates BPM with Business Process Management software and it’s arguable that the nomenclature only served to confuse enterprises further.
The value is in the Data. Processes provide the underlying execution to get at it
Data and processes are inextricably linked. The focus on value has shifted firmly to the strategic value of data and how designing processes can help you achieve the data outcomes that create the value. Enterprises must re-think what should be added, eliminated, and simplified across their process workflows to source this critical data. In short, enterprises want to buy continuous access to data outcomes and experience great service partnerships to achieve them. That is what BPO is all about why HFS has termed the phrase “Business Data Services”.
Despite the obvious brand identity challenge, BPM did represent the emerging era of BPO beyond cost savings (see 2010-2020 below), but after a decade, surely it’s time to revisit the very identity of business services to address the most critical need 600 of the G2000 enterprises really want… data:
Smart enterprises want to buy services that provide them with specific types of data. They care less about buying “effort”
When we reflect on the phases through which BPO has evolved we can clearly identify three different eras: (1) Globalization, (2) Digital Pontification, and (3) Business Data Services:
A brief history of BPO… from ‘people and process’ to ‘data outcomes and experiences’
We can date BPO back to Adam Smith’s Wealth of Nations in 1776 where he discussed the “gains from the trade that exists in dynamic, free markets. Companies and countries that overcame the barriers to trade would reap the rewards. Those that did not overcome the barriers would forever be beholden to those that did.” He also declared that “Wealth is created through productive labor, and that self-interest motivates people to put their resources to the best use”. Was he thinking about core/non-core? Had he planted the very kernel of partnerships to drive customer impact and competitive advantage?
However, we have to fast-forward to the 1940s when ADP started handling payroll for companies outside of their own operations, and the ’60s when EDS developed an integrated system to process health insurance claims. In the ’70s and ’80s, we saw the rise of call centers first in UK and US before work was shifted to Ireland and Canada in the 1990s because of cheaper salaries and lower employment benefits. We also saw American Express, British Airways, and GE open ‘captive’ units in India to take full advantage of moving non-core work out of the main enterprise to have the work executed at a much lower cost over the medium-long term. Basically, any processes that couldn’t be tied to an ERP rollout – and executed as such – became a target for outsourcing. The advent of the Internet and real-time access to data had made many news things possible to run a virtual business that could access talent and technology anywhere in the world.
Old school BPO (pre-2010). Once the ambitious Indian entrepreneurs saw how effectively these major globals could run operations out of India, upsprung hundreds of BPO delivery firms over the next decade, with India at the heart of functional data-centric work, the Philippines becoming the epicenter of voicework. From customer services, to finance and accounting, to HR, to procurement to insurance claims processing and payment processing… the half-trillion-dollar a year BPO business was born with offshore labor at the core, and getting the work shifted as expediently as possible the hook to the eager enterprise clients.
Digital ponitification (2010-2020). This was the era where we cogitated and really saw the art of the possible. We saw the value and potential of end-to-end processes bringing employees closer to their customers aligned by common goals (OneOffice), and the blurring of the boundaries between business and technology as business executives invested in the value of SaaS and automation, helped by advancements in low-code technologies. In short, these BPO providers were making the shift from order-takers to partners. However, there needed to be a catalyst to drive the rhetoric to reality – we knew what was possible, but there wasn’t much of a burning platform for change during these years of economic growth.
Business Data Services (2020++). The collision of disruptive forces has provided the catalyst to take BPO from its pontification decade to enacting these ideas into reality: the rush to operate in a global business environment, the pandemic-induced talent crunch upping the ante to invest in an automation backbone, and providing a more challenging and rewarding work environment. Throw in spiraling inflation, a military conflict in Europe, and a desperate need from enterprises to hurry into functioning virtual models and hyperconnected supply chain ecosystems, and enterprises need more help than ever from third-party outsourcers and their armies of millions of staff to keep their businesses moving forward.
The Bottom-line: Today the onus for enterprises to buy services is to get the data they need to be effective operationally and make decisions to be competitive.
When enterprise leaders look at their operations, they need data on their people and performance, their accounts and cash flow, their spend management, their customer engagement and satisfaction, their inventory levels, their sales effectiveness, their marketing impact etc. Do ambitious business leaders really care about the effort levels being made to get this data anymore? Whether it was 150 FTEs, 50 RPA licenses, some smart AI feedback loops, and a few chatbots? Of course not. What they care about is getting the data they need to stay in the game and be successful. Having the best possible partnerships to achieve that data on an ongoing journey provides them with the ecosystem they need to be competitive.
*HFS is partnering with NASSCOM to study these dynamics of business services in-depth to shape the future of this industry
I don’t think I’ve ever lived through a period in my life where there’s been so much doom and gloom around the economy… and while I tend to be a naturally negative human being, I am also an obsessive analyst, and I must declare that I am not convinced we’re entering a 70’s style recession. If anything, we might be finally on a weird and rocky road to a much more normal future, compared to our highly abnormal recent past.
