It’s taken more than 12 years – ever since the first-ever blog post written right here – but the outsourcing marketing is on the cusp of its most seismic change since the offshore revolution… the majority of enterprises are seeking to pull away from their stale outsourcing relationships and replace people with intelligent cognitive workers which learn context – or simply bots that perform transactional tasks. And the reality of outsourcing is that it’s far easier for an enterprise to eliminate workers that are contracted via a service partner than have to go through all the painful change and resistance when trying to eliminate their own staff directly with software investments. What’s more, enterprises rarely want to bring outsourced work back inhouse until it has been fully automated and the outsourcing offers little future value.
All the lovely fluff about “automation and AI creating jobs” is being proved to be utter claptrap for the services industry when we look at fresh new data from the 2019 State of Operations and Outsourcing Study across 355 operations leaders in the Global 2000, conducted with the support of KPMG:
What’s shocking here is the degree of change in mindset from operations leaders since a year ago, where 62% were still pretty gung-ho positive about investing in their outsourcing model, which has nose-dived to only 28% this year, and a startling 47% actually seeking to decrease their reliance on outsourcing. So if they’re looking at new models to deliver their business operations – and traditional outsourcing no longer fits the bill – what are they looking to do? Let’s take a deeper look:
In short, up to half of major enterprises are looking to find another provider to break their years of painful status quo, while a similar number are looking to embed significant automation into their current engagement. About one-in-six are looking to pull the whole lot back in house and have given up on the delivery model.
Why this change to outsourcing… and why now?
When we look at our reliance on staff to run our operations, we’re seen a substantial reduction over the last couple of decades, mainly due to advances in software applications that embraced process standards (and natively automation). For example, most G2000 enterprises had hundreds of people running finance processes a decade-plus ago, and likely barely have 50-100 based on advances in financial software, combined with efficient outsourcing labor arbitrage models delivered by the likes of Accenture, Genpact, Capgemini, and WNS. Procurement probably had 150 and today barely needs 30… and HR is down to its barebones across most large enterprises. The division most affected by outsourcing – IT – has shrunk from the thousands to the hundreds in most major enterprises over the past two decades. Net-net we’ve been through a very long, sustained period of labor osmosis from enterprises to outsourcers, while shared service functions have stayed largely static.
At the same time, people-driven outsourcing engagements have continued to deliver similar process work back to its enterprise clients with the same number of staff, where the outsourcers have had little incentives to make investments in automation and digital technologies, unless they can directly benefit financially, or have contractually agreed to reduce staff numbers over the course of a long term contract. We are already witnessing the likes of Automation Anywhere, UiPath and AntWorks making significant investments in their own implementation staff as they are frustrated with their lack of traction many outsourcers to incorporate automation and AI technology into the people-focused delivery models.
The new solution is to bypass staff-intensive processes and go “straight to digital”
The big change we are seeing now (and we’ll share more data to back this up shortly) is that the outsourcing models we know and love have long reached their saturation points, and the only real value enterprises can get from them (in the near future) is to remove the number of staff delivering the work and replace them with digital technology. For example, a bank we spoke to recently that is replacing hundreds of staff whose job it is to create customer appointments with a conversationally-intelligent cognitive worker solution. The savings are massive. However, if the bank had outsourced those workers, the only way to force their service provider to replace them with a digital solution would be to demand it upon contract expiry, or bring it back inhouse and do it themselves.
The key is for software and services providers to develop aggressive adoption programs to create the real “straight to digital” ROI
In recent years, we’ve seen many of these digital models evolve – from simple software apps, to chatbots, RPA tools and now more conversationally-intelligent cognitive workers (such as IPSoft’s Amelia, IBM’s Watson, Automation Anywhere’s IQ Bot, TCS’s partnership with Amazon Connect, HCL’s Lucy and Wipro’s solution of Holmes with Avaamo). However, the earlier models where enterprises were being forced to invest multi-millions upfront just to get a cognitive or RPA solution actually functioning without constant human intervention and training, have failed, with the notable inability of IBM’s Watson solution to reach anything like the heights the firm had promised because the market a) wasn’t ready and b) wasn’t convinced the massive outlay would reap massive rewards. And the high-profile struggles of many RPA solutions to replace people with technology (merely augment processes) threaten the rapid rise of those solutions as investors pile on with unrealistic expectations. So the answer is staring us in the face, and it’s pretty straight forward… the winners in this tough new transition market are those which can guide enterprises to take existing processes and move them straight to digital and remove the layer of people delivering them.
The Bottom-line: The only true ROI which created the traditional outsourcing model is now repeating itself with digital solutions
As much as we can spin wonderful stories about augmenting people and enriching jobs etc., the goal of most Global 2000 enterprises is to maximize profits and the stated goals of C-Suites and Ops leaders are to a) reduce operating costs and b) move away from physical to digital environments:
The industry has spoken and it’s clear where they will invest – in partnerships that can accelerate the move to digital without all the painful and costly steps to get there. And the areas most primed to make this happen are where the staff have already been outsourced and the logical next step is to reduce or eliminate them altogether.
The challenge for outsourcers. Defend the clients you really want to keep and attack ones from competitors to backfill the inevitable losses as the model shifts from people to digital. This means you need to develop programs that get your clients leveraging the benefits of automation and AI quickly by hiring talent to make this happen, and forging deep, mutually-be partnerships with software firms to work with you. As we recently discussed at our Robotic Business Outsourcing Roundtable in London, outsourcers face a stark choice between embracing digital models that require less labor, or fading into insignificance.
The challenge for enterprises. Forcing your service providers to cannibalize your business is not an easy task, but if you are willing to work with them to build real digital models that work and become a showcase client for them, you should find a cooperative (and hopefully) ambitious partner to work with you. If you do not, then look further afield for partners willing to invest in your business. If noone wants to transform your operations your business clearly isn’t very attractive (especially if you got a cheap deal to begin with) so you may well be better off bringing operations back inhouse and digitizing them yourself.
The challenge for advisors. Today’s environment should be gravy for you – I’ve heard from several advisor friends that deal flow is really healthy – and it’s mainly outsourcing renewals demanding digital enablement and less people-centricity. Hence deal amounts are declining and demanding more complex tech skills to enable new solutions. Your problem is going to be finding providers willing to embrace disruptive models and work with thinner margins in the short-medium term for longer-term gain. There are several providers out there willing to be aggressive to “land-grab” deals and increase market share, despite thinner margins and scarcity/cost of tech talent. However, you really need to flesh out the providers prepared to put skin in the game, versus those paying lip service.
End of the day, many of the outsourcing partnerships that got so many of us here are unlikely to be the same ones to take us to the next phase…
At HFS, we’re approaching ten years’ in existence – yes 10 bloody years’ of this stuff – and we’re still the “new analyst kid on the block”. As we approach this new phase in our journey, we’re focusing heavily on the massive impact our research has across all corners of the services and tech industry. The traditional channels of slapping stuffy reports behind a firewall and blackmailing suppliers with scatterplot grids are still the predominant way the analyst industry persists in operating (or simply regurgitating supplier press releases dressed up as “insight”), which has helped HFS expand our operations across three continents and bulldoze our way into a small elite group of analysts firms.
However, we’re not stopping there… we want to engage even more digitally and effortlessly with our global community, using video, blogs, podcasts, webcasts, summits, roundtables and various other forms of social media. So were gone and added some serious firepower to our digital prowess with our recent acquisition of Quigley Media, where the founder, Tom Quigley, joins us as Chief Marketing Officer. So let’s hear a bit more from the unassuming Scotsman and his plans for HFS, while he’s not practicing his blackbelt in karate on his three wee lads…
Tom – you’ve been a pretty active figure in the world of global sourcing for some time now – can you share a bit of background about yourself?
Sure. For this first half of my career I worked in mostly operational roles for two large insurers, Commercial Union (now Aviva) and Prudential UK & Europe. During that time I designed and delivered a 3 year programme of events for the CEO whereby he and the executive directors would travel around the country meeting hundreds of policyholders and doing impromptu Q&A sessions with them, which was pretty disruptive back then. I also delivered conferences in Mumbai and Dubai.
I joined BPO provider Capita in 2009 and headed up the marketing function in one of their nine divisions. When I left in March 2016 I was Head of Marketing, Design and Events for a consolidated number of divisions, overseeing a team of 2 Business Partners, 5 marketers and 8 graphic designers.
I joined the National Outsourcing Association as Marketing Director and we rebranded to the Global Sourcing Association (GSA), which we launched in Sofia in October 2016. It was at the time I recognised the emerging talent from central and eastern Europe, and so I set up my own marketing agency providing services to CEE businesses looking for market entry or engagement with the UK and Western European countries. During the last two years I also co-founded and was the CEO of the Alliance for Business Services, Innovation and Technology, with members including Pwc, Cushman & Wakefield, Convergys, Stefanini as well as institutions like IAOP, Nordic IT Association, Bulgarian Outsourcing Association etc. I also met with and successfully persuaded the Bulgarian President to be our honorary Chairman!
I stepped away from that role at the beginning of the year to focus purely on the agency and we’ve enjoyed working with clients from Poland, Romania, Bulgaria, the UK and US during that time.
So you recently sold your firm and its digital assets to HFS… what was behind this move and what can we expect to see from you in the next few months in your new role?
Well its quite ironic because I’d been spending the last 2 years telling anyone who would listen that I would never work inside another company again as I was having too much fun being my own boss, so it did take me by surprise at how quickly I said yes when the offer to acquire QM came about. We were just completing brand perception study for HFS Research when I got a Skype message from you late on a Friday night. We met on the Monday, signed contracts on the Wednesday and I was in the Cambridge HQ at my desk on the Thursday – it really did happen that fast!
But I’ve known HFS Research for a number of years and was very well aware of its unique stand in the market. I am a big admirer of the quality of insight and unfettered views it provides – and when the offer came I genuinely had goosebumps, that told me it was the right move to make.
As for the months ahead we will launch a new website with improved functionality and integrated multi-platform analytics that gives us a more unified view of our customers, we’ve just set up a digital studio in the Cambridge HQ giving to open up some new channels and give us more control over our digital content, and we’re currently building a number of great marketing campaigns to land some important messages in the coming months. We’re also mapping out customer journeys to see how we can improve client experiences as well as establishing a more structured, tier-based relationship with our supplier partnerships to improve speed and innovation. In addition to that we have our New York Summit in October as well as events going on in Paris and Stockholm, so there’s lots to come. Our clients will definitely notice a new, more emboldened brand overall with a clear focus on building closer, more meaningful relationships with our communities – not only through our research, thank tanks and other market activations, but also through more targeted communications.
How is the industry different these days? You’ve been very involved with emerging locations for several years now – where do you see this headed next? Is the game changing?
We’re in a market of perpetual change now. Technology has overtaken consumer needs as the main driver of innovation, and the lines between BPO and ITO are dissipating. It really is about the provision of integrated digital services and one office. Contracts are increasingly focused on partnership agreements delivering outcomes, providing access to innovation and sandbox environments that will enable businesses to deliver more personalised services to their customers at scale. Central and Eastern Europe has been producing STEM resources for years but they are becoming more even more prevalent because they are forming better and more active networks and alliances, backed by their governments and funded by the European Commission in some instances – they are becoming more adept at integrating themselves into the connected ecosystem. Going forwards location will be come completely irrelevant as technology will enable the proliferation of agile – scaleable – teams that will form virtually to work on multiple projects, before disbanding and reforming on other assignments. I believe we’ll eventually see the end of the permanent employee contracts as more millennials become a part of our economy.
And how about the research industry – you’ve been on the outside looking in for your entire career… how do you see it evolving? Is it looking any different from the inside?
Well I’ve only been on the inside for a couple of weeks now, but I’m not sure the analyst industry IS actually evolving at the same pace. Sure the analysts are reporting on technology and how businesses are thriving or otherwise in industry 4.0, and the means of capturing research and analysing data has advanced but for the most part I don’t believe the research industry has become transformative enough. Some companies appear to have become machine monoliths, churning data and reports that seem pretty vanilla and without much of a voice; if you laid out reports and magic quadrants from a number of them and then covered up the logos I doubt many people would be able to distinguish who is who. Let me be clear, the analysts themselves are highly credible, very clever people regardless of what organisation they work for, but I think the ‘corporate machine’ sterilises a lot of what they actually produce.
This is where HFS Research stands apart, and the reason I’m so excited to be here. I know how different it is observing from the outside but I can see how different it is operating from the inside. Our purpose, our culture and how we operate has completely different DNA from other analyst firms. Last week I listened to Mark Hillary’s first ever podcast talking to you about why you progressed from writing a blog to starting your own analyst firm, and I can see that the values that drove that decision are still very much alive in everyone involved with HFS today – and that podcast was recorded 10 years ago. My job is to make sure our clients and the market at large are aware of that, and recognise the value in choosing HFS Research as their partner going into the hyperconnected future-state!
And finally, there’s a rumor going around that HFS is going to be ten years old soon… any plans to celebrate?
Next March marks the 10th birthday of HFS Research, and yes we will definitely be celebrating with our people, partnerships and communities. But you’ll have to wait a little bit longer to discover exactly how..!
Welcome, Tom – and we’re hopeful that many of our clients can meet you in New York this October 1 and 2 for our next major HFS Summit!
Who remembers this classic “statistic” from a couple of years’ ago, where we caught some friends declaring RPA fantasies that are simply miles from reality:
We’ve been keen to share with the world that RPA satisfaction has been in positive territory for more than half of the adopting enterprises, which is OK for a relatively complex new type of solution that takes a while to get right, and we revealed a 58% a satisfaction rating a few weeks later.
Sadly, two years on, satisfaction ratings have not improved
Our brand new study of 355 operations leaders, conducted with the support of KPMG, has revealed that only 56% of the Global 2000 express a positive experience from process automation and robotics:
What’s alarming about this is we asked operation leaders to assess the satisfaction levels of all key C-Suite directives, such as the adoption of AI/ML, enabling hyper-personalization, ever the old faithful of “driving down operating costs” …and process automation finishes dead last. I would argue this isn’t because process automation and robotics initiatives have been a disaster, but more likely, expectations from the sell-side have been vastly over-inflated. While this may sell more licenses and consulting days in the short-term, it will stunt longer-term growth for the industry. Let’s delve deeper here…
Why are process automation and robotics lagging in terms of satisfaction?
The over-hyping of how “easy” this is. The problem we have in this industry right now is an obsession with glittering outcomes and not enough real-world guidance on how to achieve them. The majority of robotic adopters have never ventured into double-figures of bots deployed, and many simply have little idea how to progress their adoption beyond a handful of pilot projects. The focus of the narrative needs to be directed to helping clients develop broader robotics strategies across organizational areas. We’re also hearing about some enterprises aborting some major RPA projects because they just didn’t expect the cost and scale of the effort to be so large. So we need to be realistic and balance the great benefits of robotic software with the challenges of training people on it, scaling the technology and gaining buy-in across business units.
Lack of real experiences being shared publicly. Enterprises RPA adopters are fed up with the constant deluge of “motherhood and apple pie” being served up by the industry when they know full well these deployments are among the biggest challenges their customers have ever faced. The RPA vendors – and several of the leading services firms – will be far more appreciated if they started sharing the real customer experiences with the world. For enterprise operations and IT executives, being successful at automation and AI is career critical – they want to learn how to be effective and how to invest their time wisely. If this stuff was easy, they’d be out of a job pretty quickly, but fortunately for them, it is not, and they can embrace these experiences to increase their value to their firms and their careers.
Huge translation issues between business and IT. Simply put, most IT folks have little understanding of RPA and think all their world problems can be solved with an API. RPA – for most operations executives – is the first time they have had to work with actual software development and get involved in some low-code activities. And they approach it with a “process first” context – how can I use these tool to integrate these apps / screen views / objects / documents etc? I can honestly say I have been to two major software developer conferences where RPA is on display and the developers are simply clueless with regards to how RPA fits into their world of platform modules and APIs. If we can’t bridge this divide, we run the risk of RPA being relegated to the scrap heap of failed technologies.
Obsession with “numbers of bots deployed” versus quality of outcomes. If I hear another executive claim he/she has deployed over 100 bots, and that is their prime measurement of success, I will start naming and shaming =) In all seriousness, there is no race the finish-line with this, and can see many enterprises still grappling with automation projects for many years to come. The ones whom I have met who have expressed the most dissatisfaction are those who have bought far more licenses than they know what do to with, and have real issues trying to explain this their over-investment to their bosses. I’ve even seen some fired because of it.
Failure of the “Big iron” ERP vendors and the digital juggernauts to embrace RPA. Let’s be honest, with the exception of SAP’s small acquisition of Contextor, which didn’t even warrant a mention at the recent Sapphire event, the IT bellwethers haven’t fallen in love with RPA. It’s just not sexy and scaleable enough for their suites, and if you read some of the guff on social media from IT “thought leaders”, they have no bloody clue what RPA really is – and does. IT people just struggle with a technology that starts with a business process headache – they prefer to work with code-intensive products that can be shoe-horned into businesses, which they can make really complicated to install and manage. Only Pega, from the world of large enterprise software, has made greater efforts to embrace process automation with its 2016 acquisition of OpenSpan, and I was quite impressed with the prominence it gave digital process automation at the recent PegaWorld event, but, even at Pega, it’s clearly a challenge to communicate the true benefits of RPA to the Pega traditionalists, whose entire world revolves around its shiny CRM orchestration platform. While we can point to all the lovely partner announcements we hear from the big three RPAs about their Google, Microsoft, Oracle, Workday, IBM etc partnerships, the truth of the matter is excitement and investment levels from the IT glitterati have been nothing close to what we were hoping/expecting just a couple of years ago.
Bottom-line: Over-setting expectations is putting the automation industry at risk of failure, not setting it up for the success it should be
The lesson here is that the sell-side is pushing too hard to sell too much too quickly and is setting up too many clients for disappointment. We just need to set expectations better and get the balance right…. Rome wasn’t built in a day. We need to hear the RPA big daddies talking about how enterprises are grappling with real issues of internal change management, training and education. We need to hear our IT leaders finally reach their “aha!” moment when they finally understand how robotic software is pulling in their frustrated business operations leaders into their world of embracing technology to help achieve real business outcomes. Because one adage has rang true for 30 years now – design your processes the way your business needs them to achieve the business outcomes you crave… then invest in the right technology to make this happen. RPA has the potential to be the first true catalyst to make this a reality, and we mustn’t waste this opportunity. Let’s create an industry that can flourish for the next 30 years, not one that we’ll break in the next couple with our greed to get rich and close that next contract…
While the UK government is busily doing a tremendous job destroying the country’s position as one of the world’s great financial centers and multi-cultured commercial environments, one unlikely scenario is unraveling: the steadily devaluing currency, availability of labor (especially in its former manufacturing cities), and adequate education system is placing the country up the league as, now, the third-most attractive location to source business operations and IT support. This is according to the brand new data from the HFS 2019 State of Operations and Outsourcing study, conducted with the support of KPMG, where we interviewed 355 operations leaders from 355 of the Global 2000:
Bottom-line: As value from low-cost labor levels out, the focus shifts to increased complexity and talent closer to the business
As we reveal more of the new survey data, you’ll see a prominent shift away from enterprise intentions to invest in traditional outsourcing pivot towards a strong desire to find partners which can support technical complexity in AI, hyper-personalization, and automation. Net-net, enterprises need support staff close to the business with the ability to understand process and technical complexity that they have never before needed. This doesn’t mean that popular locations like India and Philippines will see their service industries plummet, it just means outsourcers and GBS leaders need a healthier balance of onshore/nearshore/offshore to bring it all together. It also signifies a shift from “outsourcing” to “expertise partnering” that changes the location playing field significantly. While the USA and China are no surprise as their host the world’s largest economies and businesses, the UK is the surprise mover, as political conditions have created a more competitive market to invest in support services.
Watch this space for more as we drip-feed you this incredible data over the next few weeks…
We’ve reached a stage where we can start to assess the capability of leading service providers to deliver comprehensive services across key AI platforms, especially Microsoft’s Azure AI platform and Google’s emerging AI platform suite. So without further ado, let’s ask HFS’ Research Vice President, Reetika Fleming, how she fared leading the two major Top 10 efforts this year…
Reetika – how are services around AI platforms progressing? And specifically, what have you learned with regards to Google and Microsoft platforms?
We’re continuing to see AI ecosystems evolve around the big cloud vendors – Microsoft, IBM, AWS, and Google. From our recent deep-dives into the AI services alliances developing around Microsoft and Google, I can tell you that there are different strategies at play here. Google and Microsoft themselves have their own strengths and priorities, and the SI and consulting alliance partners are collaborating with them in different ways.
Google’s portfolio of AI components, such as text-to-speech and computer vision, is a great starting point for a fundamental development layer. Google’s AI R&D leadership is well respected among clients and service providers alike. What has been missing are combined applications of these technologies to solve specific business challenges for major business functions and industry verticals. This is where service providers have a critical role to play, and they are filling the gaps by building solutions either in collaboration with Google developers or with clients in selected industries that are ready for AI.
Microsoft is emerging as the most ‘enterprise friendly’ AI ecosystem. As enterprise clients grow more comfortable with AI initiatives using the Azure technology stack, the services market is quickly developing around client demand. We expect this market to pick up significantly in the coming year as AI services and technology as a whole see greater adoption and as Microsoft and its services partners make more concerted efforts to bring more relevant and timely AI solutions to large enterprises.
Large service providers, including IT services firms, boutiques, and consulting houses, have established or expanded their ecosystem alliances to work with MS and Google on AI. Joint go-to-market activities are taking the form of:
capability development (POC and pilot funding, talent development);
market awareness creation and sales planning (joint account planning, campaign work such as Microsoft’s “Make AI Real” workshop series); and
technical collaboration (joint research, IP creation).
What is driving firms to invest in AI – is it a real desire to meet newly designed outcomes, or more a compelling need to keep on top of emerging tech?
Most of the clients we’ve spoken to in the last year have gone through the learning curve of viewing AI simply as the shiniest new toy the need to be seen to have a strategy around. This is finally starting to become about plugging real business problems and tapping into new opportunities using the evolving range of AI technologies.
Here’s an anecdotal indicator of how things are skewing towards business – at least half the number of AI leaders and sponsors we’re speaking to are business stakeholders, whereas this was squarely an IT/Digital/CoE skewing peer group in years past. Enterprises in our research are certainly looking at business outcomes from their AI investments, including driving up customer experience with AI-enabled apps with virtual assistant support, improving the quality of anomaly detection in manufacturing equipment, and reducing turnaround time on invoice processing. This is good validation for our thinking earlier in the year that AI needs to be driven by the business, with IT as a key partner.
What type of services are you seeing drive the AI industry right now? Is it more service providers delivering “support” work for clients who’ve already figured out what they need, or are you seeing real “co-innovation partnerships” where provider and enterprise work together to design new process flows to achieve pre-defined business outcomes?
The last few years has seen many services firms go from completely opportunistic AI exploration to the formal development of AI practices. This is no small feat considering:
the technologies are still evolving, at a point where new academic papers are leading to breakthroughs all the time
the talent is “thin on the ground” for both technical skillsets in data science, applied ML engineering, and distributed computing, and non-technical understanding of the application of AI into business
the range of capabilities needed to make enterprise AI a reality require massive amounts of collaboration within a service provider’s organization (and their clients) going from data, analytics, cloud, infra support, business domain expertise, consulting, design thinking, product development…
Pure support work is still a norm today, as many clients will test the waters with service providers at the execution level on a project or two. But doing pilots and POCs on repeat can only take a service provider so far. They have learned over time that they need to bring a multi-disciplined team together with industry-specific solutions to actually “collaborate” with their clients.
A few market-leading service providers have certainly developed these types of co-innovation partnerships with their strategic clients. They jointly ideate and vet AI opportunities, and are able to connect across business and IT stakeholders within these firms because of their reach. Here’s how you know these engagements are really partnership-driven – the service provider will be as invested as the client organization in helping the client develop their own AI capabilities, whether that’s through training talent, setting up CoEs, advising on governance and control, or investing to solve unique client problems.
How are you seeing AI impact enterprise “experiences” in terms of customers and employees? How do you see this advancing as AI evolves?
We’re seeing tremendous interest in using AI to drive better experiences, particularly to improve customer relationships. Phil, you talk about the hyperconnected future state where enterprises need to not just respond to but anticipate customer needs. AI technologies are perhaps the biggest catalysts for hyperconnectivity, because of their ability to “hyper-personalize” customer experiences.
I love the concept of AI ultimately becoming invisible or just natively being built into the process. You don’t know you’re using it, don’t need specialized skills or training, you just get the benefits, whether you’re a customer, partner, or employee. The best experience in these terms is either delight (e.g. this company knows exactly what I want) or effortless engagement (e.g. it doesn’t take me what feels like a million years to serve this customer!) We’re going to start to see new standards emerge for major enterprise platforms and systems in the next few years for AI-driven user experiences based on this concept. It’s no coincidence that the SAPs and Salesforces’ of the world are pouring millions into AI.
Casting your eye ahead 2-3 years, who do you see winning in the services space – will it be one of these early leaders, or can you see new players emerging with a different approach?
As we see the further formalization of the AI services market, we’ll need to watch for:
Who can find the most successful talent models for AI? Whether that’s crowdsourcing a la Wipro-Topcoder, EY’s “Badges” program to recognize employees’ new skills, or TCS’ investment with Cornell Tech through their new innovation hub in NYC… there’s different strategies on AI talent development for the future, and not all will pay off.
Who is able to develop and successfully sell digital change management to clients – we see this all the time right? Change management is set to the side because clients believe they can do it all internally, but change management for AI is fundamentally different than other initiatives – you have to alter job roles, the workings of entire processes and decision-making points, establish and continually monitor governance and transparency of new models, and so on. Not everyone can firstly sell digital change management along with AI implementations, and then deliver successfully, and it can be what makes or breaks AI engagements.
Who is able to make AI easy to develop and scale – internally and for clients. Centralizing and creating libraries of reusable assets, investing in “autoML” type of capabilities that can compress the data prep and training time, containerization of capabilities and existing platforms…these are all indicators of prioritizing scalability for AI.
Who is able to bring an integrated approach to automation technologies like AI? It’s an easy tell when a service provider’s RPA team has no idea what their AI practice is doing. As we always say, clients want to buy outcomes, so the more service providers can bring a holistic set of capabilities to the table, the more their AI pitch will actually land.
Who is able to partner with technology vendors most effectively? This includes joint account planning, joint go-to-market and product engineering AI specialists like kore.ai and of course the cloud vendors.
I see the market leaders in these early days pulling ahead, but there will also be a few new logos on the board in the next 2-3 years because of these factors. The service providers in the middle might be left doing some of that support work you referenced earlier.
Lastly, we’re in the final phase of analysis for our comprehensive Enterprise AI Services Top 10 report, so check back with me in a few weeks for more on this.
HFS Premium Subscribers can click here to access the 2019 Microsoft AI Services Report and here for the 2019 Google AI Services Report
When it comes to staying relevant in today’s workforce, let’s get to the heart of the matter – YOU have a simple choice to make:
Do nothing and be part of the “Frozen Middle”. Decide you can’t be bothered to learn anything new, so make sure your firm has the same attitude (or has a thin veneer of innovation masking a cesspool of lethargy and love of perpetuating legacy processes and business practices). And ride this next wave of hype out for a few years before you can quietly ride off into a comfortable sunset, or…
Become a change-driver. Decide you have to get ahead of emerging technologies and their massive impact on business ecosystems and make sure your firm has what it takes to sponsor your burning ambition to drive cultural changes, new learning and ability to rethink how business processes and practices are wired.
Once you decide which of these two categories which you wish to belong, then make sure you’re in the right company to execute your survival plan… otherwise, leave and find one that is.
Because the data from the recent World Economic Forum jobs study shows half of enterprises are being held back because their staff fails to understand the disruptive changes in their industry, and an alarming 37% of enterprise leaders do not feel their current workforce is aligned to their innovation strategy:
There are no half-measures here, folks – you can’t dip in and out when it comes to driving automation and AI solutions – people are quickly getting found out for having a veneer of understanding. Either you decide to focus on really understanding how to apply these solutions to your business, or decide you can’t be bothered and focus on maintaining the old way of keeping your business’s operations lights on.
Assuming more people who visit this lovely blog are in category (2), then let’s review what we can do to actually become an AI change-driver….
Saving our jobs when they become “AI-able”
So the automation/AI marketing spiel is firmly espousing that our jobs will be so much richer when we offload as many of our “operational” activities to RPA loops and self-learning algorithms. Isn’t it so cool that all these new un-computerizable activities will just magically appear to fill our job voids to make our lives so much more enriched and fulfilling?
The truth is that people will only truly buy-in to AI and automation when they are secure enough to hand off a lot of the tasks they currently do, with the transition to the new work already in place to maintain their relevance and value to their employer.
Let’s identify how to learn the new stuff so we can offload the AI-able activities
Let’s be direct – in today’s swirl of constant shiny new things, it’s becoming overwhelming for many of us who got by on a traditional education and an ability to deliver routine tasks, handle the usual game of corporate politics and command an ability to “know enough to be dangerous” to stay relevant to our colleagues and management.
Sadly, everyone is now being scrutinized whether they have certain “skills” that will make them worthy of employment as more and more of their job can be replaced by algorithms and automation loops. So let’s take a look at these skills that came top in the recent World Economic Forum Future of Jobs report, where 100 of the leading firms within each industry were interviewed:
Cognitive Flexibility. The ability to generate or use different sets of rules for combining or grouping things in different ways.
So this means you need to know your audience and adapt your ideas to suit their needs. You can’t just repeat the same things to everyone – you need to be great at listening and communicating, so you can pull together common threads and continually adapt. Plus, people need to know you listen to them – there’s nothing worse than being that old windbag who just spouts off the same old guff because they love the sound of their voice. For example, if you are convincing your HR head about your firm investing in an AI platform, they are likely to focus on the ethics and regulatory/data privacy issues. Your CFO, on the other hand, will probably want to focus more on the cost/benefit and ease of use. Your CIO will want to understand why your firm can’t use existing tools they already have invested in. There are three sets of conversations you need to find common threads across if you are going to get a consensus to invest.
Creativity. The ability to come up with unusual or clever ideas about a given topic or situation, or to develop creative ways to solve a problem.
Creativity is so important, especially in markets where differentiation points are wafer-thin. Take our beloved IT services providers, for example. Most of them today are offering an identical solution and their pricing is usually similar, and each of them can churn our analyst reports which portray them as the best. Big fancy business terms, cardboard stories of transformation won’t cut it anymore… So the differentiation is increasingly shifting to “who do you want to work with” at a people level, so the onus must shift to really listening and understanding your client needs and proving to them you really get them. Hence, creativity and emotional intelligence are so closely aligned here.
Problem Sensitivity. The ability to tell when something is wrong or is likely to go wrong. It does not involve solving the problem, only recognizing there is a problem.
My least favorite phrase these days is “fail fast”, as this is usually a term people use in hindsight after they screwed up. But in fast-moving industries such as consumer goods or online travel, it is often not critical is you launched a poorly thought-out product or service. In slow-moving industries, such as process manufacturing, a poor decision could affect a single process that takes years to get right, and could be fatal (hence “fail fast” only works in pilot phases, not in real business). For example, your firm could be launching a recruiting campaign that you realize could be accused of discriminating candidates by age or gender, which would have been par for the course a couple of years ago. You realize this could have serious implications for your firm in today’s hyper-sensitive data privacy environment, and alert you management asap to change course. You may not have the solution, but you were sensitive to the problem. Here, your ability to think laterally and other variables is so important.
Monitoring Self and Others. Monitoring/assessing performance of yourself, other individuals or organizations to make improvements or take corrective action.
The ability to assess performance for your firm – and pinpoint improvements – is incredibly valuable to your management. As the WEF data emphasizes, two-thirds of financial services firms (for example) see an insufficient understanding of disruptive changes as a significant barrier to change. At the same time, half of them see a poor alignment between their workforce strategies and their firms’ innovation strategies. This indicates that staff who can pinpoint how to test their own understanding of the changes within their industries, and also the awareness of their colleagues, and then suggest ways to work together as teams to train themselves how to close these knowledge gaps, will be highly appreciated.
So if you work in a traditional bank, for example, and you recognize several digital startup banks that could really hurt your business as they target millennials who are prepared to switch banks because they have a better app experience, you need to make sure you are ahead of the game and your team is also. Being able to bring in experts to educate you and your team, or forge enlightening discussions with disruptive startups willing to share their business model ideas are great examples of how you can be a great performance evaluator. This is where we see a lot of cognitive flexibility and creativity aligned with emotional intelligence – and a willingness to put your ego to one side.
The Bottom-Line: When times are good is the time to hone your skills and get ready for when times get tough. You have an amazing opportunity to rise to the change, so please don’t waste it
Remember all the discussion about the carnage automation and AI were going to bring to the market place? Forrester claimed 1 million US B2B sales jobs will go away by 2020; Gartner predicted one in three jobs will be converted to software, robots and smart machines by 2025; an Oxford University Study claimed about 47 percent of total US employment is at risk; Stephen Hawking (may he rest in peace) warned us that AI would be the biggest – and possibly the last – event in human history. At HFS, we have bleak predictions too about the future of job as most modern ambitious companies are simply stopping creating the jobs we’re doing today, and refocuses on the additive needs they have in the future, that technology cannot deliver them.
The simple truth is that change that necessitates the fundamental retraining and learning of new ways of working, new attitudes and collaborative cultures is much slower moving that analysts, academics and pundits can predict. Merely slamming in new tech kit and expecting change to happen is the ultimate recipe for failure in today’s market. Remember it took enterprises two decades to adapt to ERP solutions (many still are)… it even took accountants a decade to adapt from Lotus 1-2-3 to Excel. Why would we expect today’s business and IT professionals to adapt much faster to new tools and solutions that actually require real training – and all that coupled with making real changes to processes that have been operating exactly the same way as they did 20/30/40 years ago, with the only “innovation” being models like offshore outsourcing and shared service centers, cloud and digital technologies enabling those same processes to be conducted steadily faster and cheaper? Let’s be honest, most companies still operate with their major functions such as customer service, marketing, finance, HR and supply chain operating in individual silos, with IT operating as a non-strategic vehicle to maintain the status quo and keep the lights on.
Coupled with the pain and pace of change and the lethargy of enterprises to do anything fundamentally different, is the fact that it’s been over a decade since we experience a real economic downturn. We’re operating at a time where it’s challenging for firms even to populate the call centers and find junior staff willing to perform mundane routine activities. And talk to any C-Suite executive and they will tell you finding leadership talent and managers with “transformational” skills is nigh-on impossible – and incredibly expensive.
We are lucky to live at a time where we have a multitude of established and emerging change agents at our disposal: global sourcing, Design Thinking, Robotic Transformation Software, AI, Analytics, IoT, blockchain among others. So use this time to learn-up and take advantage of the demand for talent, as one day the climate isn’t going to be so rosy for talent, and jobs that can be automated / AI-ed will never resurface. The time to challenge yourself and make this crucial choice is now, please don’t sit on the fence and wait until it’s too late.
Are you as confused are we are with some of the recent analyst matrices floating around the industry this year? Some products are performing completely differently depending on the analyst and how they “define” the market and whatever methodology they used to score each product.
However, one thing is clear: at HFS we ensure we rely on a lot more than a briefing and a handful of rose-tinted clients served up by the suppliers themselves. We reach out across our global network of power users (enterprise clients, advisors, and service providers) to get the true unvarnished experiences of robotic software.
This is why we scrapped the 2×2 matrix last year and went for a direct ranking of suppliers, based across three critical variables: execution, innovation and the voice of the customer. HFS subscribers can click here to access the full 2018 RPA Top Ten report.
On 2018, we introduced the “Voice of the Customer” to rank the leading RPA products across the experiences of 352 power users
In short, there are growing questions about whether “RPA” can deliver transformation on the promised ROI and outcomes, especially as most RPA initiatives continue to be small and piecemeal, with truly scaled RPA deployments are rare (only 13% of client boast any true scale to date). The industry is still struggling to solve challenges around the process, change, talent, training, infrastructure, security, and governance – hence our shift to re-categorizing and evaluating these RPA products by their ability to support clients’ desired business transformations.
With the mission to demystify this confusion and uncover the truth to successful RPA deployment, last year we conducted a first of its kind RPA CX research to develop the list of “HFS Top 10 RPA Products”. The research was based on interviews with over 350 clients and product partners across the ten leading RPA products across:
Ability to execute based on product functionality (Ease of integration with legacy IT, Unassisted automation functionality, OCR functionality, Scheduling functionality, Development tools, Exception handling, Required set-up coding, Ease of product configuration); integration and support (Service extensions and connectors, Documentation, Certification program, Training and customer support, Experience in serving multiple geographies, Adoption across multiple industries, Required IT skill-sets), and security and governance (Uptime and SLA commitments, Version control and upgrade management, Centralized controls, Regulatory compliance, Enterprise security, Disaster Recovery (DR) and Business Continuity Planning (BCP))
Innovation capability based on flexibility and scalability (Accommodating process / environment changes, Licensing model flexibility, Ability to handle multiple processes, Workflow templates and library of processes, Handling multiple inputs) and embedding intelligence (Processing structured, semi-structured, and unstructured data, Operational Analytics, Dashboards, and Artificial Intelligence (AI) capabilities)
Voice of the customer based on the RPA products ability to drive business outcomes (Realizing cost savings, Speed-to-market, Overall satisfaction, and Client reference ability)
In 2019, we’re refocusing the market on the ability of robotic software to support clients’ desired business transformations
HFS Research has redefined Robotic Process Automation (RPA) software as Robotic Transformation Software (RTS) in order to put the emphasis on transformation and track how well automation software firms are enabling enterprise change.
The 2019 HFS Robotic Transformation Experience Survey will paint the truest picture yet of the software companies that are really enabling change and embracing integrated automation capabilities. This research will benchmark the collective customer experiences of the leading RTS products across multiple dimensions including:
· Functionality and ease of use · Implementation, service, and support · Security, governance, and controls · Scalability and flexibility · Innovation and embedded intelligence · Ability to transform business processes and deliver business outcomes
The research will provide a credible, unbiased, collective voice of the customer that assesses business results and transformation potential, based on actual customer experience rather than market hype and rose-tinted client references bragging about their number of bot implementations.
Note: This survey is designed exclusively for users/clients of RTS and partners (consultants and service providers).
All responses will be kept strictly confidential and it will take approximately 15-20 minutes of your time.
We will award two lucky participants with a years’ free access to HFS premium research where you can access the industry’s leading data on automation and AI solutions – and have priority time with our leading analysts:
BPO (Business Process Outsourcing) grew up because of all the exceptions enterprises have to process that were not able to be absorbed into the standard ERP software. Yes, we found people equipped to do this work at lower wages housed by efficiently run service providers. And that work we couldn’t initially send to the BPO providers we just found manual workarounds to get it done until we eventually found an outsourcer who would find a model to take on that work for you.
However, just as many enterprises were running out of places to find (yet) more and more hidden costs they could quickly remedy through (yet) more outsourcing, along came their perfect new toy to unearth costs they had never thought possible to eliminate: RPA.
Yes, folks, this stuff is just the thing to keep you occupied for the next few years to keep your greedy CFOs at bay – and even includes the word “robot” to conjure up images of human work displacement, creating hours upon hours of repetitive (robotic) debate at conferences from people who literally sprung from seemingly nowhere to become lifelong experts in this new dark art.
And, oddly, most of these new RPA maestros seem to be exactly the same people who were hawking the delights of business process outsourcing just a couple of years ago. So maybe the connection between BPO and RPA is a lot closer than we think?
Let’s examine the findings from the recent State of Operations and Outsourcing study, conducted with the support of KPMG across 381 Global 2000 organizations, where we questioned operations leaders about their intentions to keep investing in both RPA and outsourcing. This data shows the tranche of operations leaders making significant investments in RPA and outsourcing, sliced by industry sector:
Financial services firms, where outsourcing is most mature, are showing voracious appetites to go down the RPA path
While banks and insurers are showing the smallest appetite (10%) to keep pursuing aggressive outsourcing strategies, they are right at the front of the queue (50%) when it comes to RPA. Insurers were one of the first industries to explore BPO and offshoring twenty years ago, so it’s little surprise that RPA is so appealing to these firms, where they can find completely new ways to mimic highly repetitive, intensive processes, plagued by manual workarounds, using smart software solutions. In addition, many of these firms have been outsourcing back-end processes that have become very stale over the years, and RPA provides the perfect shakeup to rethink how to rework these.
Sometimes RPA provides the perfect catalyst to force an outsourcer to get back to the table to reinvest in their client or risk losing them to a hungrier competitor. Banks have always been a bit weird when it comes to outsourcing – they have tended to move massive amounts of IT development and maintenance work to service providers over the years, in addition to infrastructure, but have been very shy when it comes to BPO, often preferring to move process work into their offshore shared service centers, citing issues around privacy and compliance as their reason to keep it inhouse. It’s surprising that the appetite to explore RPA is so strong (58% making significant investments this year) when you consider that most banks have to comply with various regulations which necessitate a human to oversee pretty much every process that is conducted within their organization.
However, with the sheer quantity of legacy detritus plaguing banking IT systems, such as spaghetti code that began its life several generations of programming languages ago, where some of the original COBOL guys who started it have since deceased (no joke), and mainframes that really should be moved to one of Kim Jong’s testing sites, RPA can actually help breathe new life into fixing some of these processes in a way that can have a massive transformative effect on their operations. (Read our POVs on Banking and Financial Services RPA uptake here to learn what 80 of them are doing, and read here to deep dive into the insurance sector and its attitudes towards automation.
Industries that need to shed costs as fast as they can to remain viable are aggressively jumping in
Telecom was always a bit late to the game when it came to heavy outsourcing, partially because its systems are so complex and they are so dependent on microtransactions which are very difficult to outsource. However, the high throughput, high-intensive nature of telecom processes places the industry right at the forefront of RPA appetite. With such a strong impetus also on outsourcing, expect to see more of these automation-led outsourcing deals transpire. Utilities firms, on the other hand, still tend to be very slow adopters of new models, and most are still very focused on getting their outsourcing models operational, after many painful years of dealing with labor unions and archaic IT systems. Surely RPA beckons soon, but expect this sector to be behind the others.
Retailers have always struggled from decentralization (often growing through many years of painful M&A) and horrific ERP experiences. With the pressure to adopt digital customer channels more intense than ever, RPA does provide some significant benefits to fixing legacy processes that were simply not cost-effective to outsource in the past. It’s a similar story for travel firms, especially those making major efforts to up their customer digital experience. RPA can be a huge help linking customer portals with back-end systems that have suffered from manual workarounds and poor integration for decades.
Manufacturers have been one of the pioneers of outsourcing, especially as many focused on core supply chain areas first, before moving onto IT and BPO in more recent years. Most manufacturers ran out of room to optimize their outsourcing engagements many years ago, and stagnated when it came to improving poorly-integrated supply chain and accounting systems. These firms are all about driving out every ounce of cost, and if they can do it, while making process fixes they have neglected since the days of MRP and JIT, then RPA is something they really want to get moving on.
Energy firms have always been massive outsourcing customers with a strong SAP underpinning – both for IT and BPO work. With the massive cost pressures impacting energy firms, and a major impetus to transform their operating structures away from legacy labor-intensive models, it’s no surprise that energy firms are among the early adopters of RPA (click here to read more about the transformation issues facing oil and gas firms, and here for a decent case study of NPower and its RPA experiences).
Healthcare has always been the “odd duck” when it comes to operating models and transformation. Starved of funding, held hostage by unions, and a culture of never changing anything, healthcare is typically at the back of the line when it comes to being bold and exploring radical new opportunities like RPA. However, with the tumult being created by the impact of Obamacare and whatever is going on with its unraveling, there are pockets of healthcare organizations now exploring more innovative ways of saving themselves, and RPA can be very effective for many (read here for some greats example of how some healthcare orgs have adopted RPA).
Bottom-line: Robotic Business Outsourcing is looking like the new BPO. People and bots delivering activities interchangeably
However which way we were looking at it, the outsourcing space was slowing down, and it’s hard to get too excited about a market growing at 1-4% each year. We have been brought up in a world promising 50% savings and achieving 30%. We’ve needed to find the next thing to grab onto that was back-office focused, a bit messy, quirky, and loaded with hype. We could bore you to tears with a lots of caveats of how to avoid screwing up your RPA, how to focus on “value” and not “cost” (who are we kidding), how you need to align business and IT, how you need to get right on top of change management and cultural impact. But read the RPA Bible if you want all the caveats, the best practices, the pitfalls… and how to avoid RPA hell.
However, if you contract with your BPO service provider to deliver you your preferred mix of bots plus humans to execute your work, they will absorb much of the RPA hell for you and work with your teams to get everything in some sort of functioning order as quickly as possible.
Today is the “new outsourcing”, where deals are spiked with RPA to deliver the numbers. So, it’s time to love with what we have created and see if we can somehow make it all work. In a couple of years, RPA will be a hygiene commodity tool in the big box of efficiency tools (or most likely as part of a broader automation platform that integrates these tools together). The future is all about managing data and partnering with smart firms to help you do that effectively so you can keep your business ahead of the curve… this RPA phenomenon (or whatever we end up calling it) is simply one additional lever to pull to knit together broken activities and move data around the company faster and cheaper.
Blue Prism yesterday announced the acquisition of Thoughtonomy, a SaaS-based integrated automation platform with Blue Prism RPA baked into its core. After six years and much flirting with potential suitors, Terry Walby’s Thoughtonomy successfully exits into the welcoming arms of Blue Prism. This was always the logical end-game for Terry’s business, which he bootstrapped from day 1 and tirelessly pushed at the automation world. HFS was particularly inspired with the firm’s work at the UK’s National Health Service (NHS) (which you can read here).
Essentially Thoughtonomy is RPA + cognitive capabilities + cloud. Net-net, Blue Prism is buying a cloud (SaaS) wrapper for its own product; arguably, it could have (and should have) built that itself, but decided instead to pay a tidy sum. However, this cloud wrapper puts Blue Prism in the ring with Automation Anywhere’s V12 cloud product, which is drawing a lot of plaudits from enterprise users (our forthcoming Robotic Transformation Software Top Ten will reveal its performance across several hundred enterprises). More importantly, it increases Blue Prism’s attractiveness as an acquisition target itself by upgrading its cloud-readiness from “available cloud reference architecture” to a legitimate SaaS-based offering. We touted Blue Prism as a potential target for IBM three years ago, and with a scalable cloud story and IBM/s major pivot around Cloud with its RedHat acquisition, surely this Cloud-ifying of Blue Prism makes the firm even more attractive to them.
Finding the synergies to justify the price tag – cloud with a potential side of cognitive capabilities, but the focus is too UK centric
Now, Blue Prism can contend with Automation Anywhere’s claim that “BotFarm is the first and only enterprise-grade platform for scaling bots on demand”. The midmarket can benefit from Blue Prism’s RPA technology, with very little setup cost or initial investment. Mid size companies that considered automation out of their reach can enjoy the democratizing effects of cloud, avoiding the hassle of on prem infrastructure.
The shopping basket also contains Thoughtonomy’s gross assets, reported at 31 May 2018 as £5.6m and established relationships with Thoughtonomy’s big-name clients including NHS, AEGON, and Sony. Partner implementation and reseller arrangements are in place across many of the usual suspects in SI and consultancy such as Computacenter (from where Terry Walby moved to IPsoft before setting up Thoughtonomy).
Like Blue Prism, Thoughtonomy is UK based so there’s not much by way of additional footprint synergies to be realized. Blue Prism, therefore, will only be adding a limited new channel and will have to rely on its existing sales and delivery channel to make this acquisition pay off. The US market is where the bulk of new demand for automation solutions is surfacing, and Thoughtonomy isn’t adding to Blue Prism’s US team, which is under huge pressure from US-centric competitors with much larger pools of funding.
In HFS’ 2018 study of customer satisfaction with RPA, client ratings of Blue Prism and Thoughtonomy reveal some additional areas of complement – notably Thoughtonomy’s embedded intelligence (see Below). Blue Prism used some of the $130M it raised in January of 2019 to establish an AI lab to further the addition of cognitive capabilities to its product stack. Thoughtonomy now helps shorten R&D cycle time.
However, Thoughtonomy is small and not (yet) profitable and has never benefited from funding. For the twelve months to 30 April 2019, it reported revenues of £9.8m and an adjusted operating loss of £3.6m. It has suffered from the difficultly of being ahead of its time, offering a general purpose integrated automation tool as a service when most enterprises are still experimenting with RPA and other piecemeal automation solutions. Enterprises that have made the leap to integrated automation tend to be those that have both a clear digital transformation execution strategy and an informed perspective on which tools they need in their toolkit to achieve their objectives. Thoughtonomy offers a great integrated bundle, but, unless enterprises know what to do with it and what it helps them solve, it’s value will not be recognized. But, as we recently articulated in “RPA is Dead. Long Live Integrated Automation Platforms”, this is where the market is headed, so the potential is there.
Businesses and organizations ought to look beyond desktop automation to deeper integrated automation
It’s time for businesses of all sizes to begin their automation journey and going deeper is possible. As it’s cloud-based there’s no infrastructure capex, just the ongoing cloud opex. Furthermore, Thoughtonomy has, since its inception in 2013, had a strong view and vision on scaling its virtual workforce. Never intended as an attended or desktop solution, the plan was always to effect automation using Blue Prism’s RPA platform at a deeper level. Single automations can replace up to thousands of workers as opposed to the desktop automation route where automation is applied at the individual worker level and usually to tasks rather than processes or workflows.
Off-prem accessibility unquestionably matters, especially to the smaller business, what’s odd is that it’s not that difficult, time-consuming or expensive to build. However, with this acquisition, Blue Prism can now strike that off the list of things to do. Thoughtonomy currently has 54 employees, of which half are “dedicated to product-related activities”. Assuming the bulk of those are product development and not other ancillary product management or product marketing functions there is a team that has worked with Blue Prism’s platform in two ways that are of value:
Putting a cloud wrapper together around the RPA platform
Integrating it with AI services: Computer Vision, Natural Language Processing and Machine Learning
This technical knowledge is an important part of the value here, and it’s really hard in an acquisition to guarantee that talent below the C-suite stays in place post-acquisition, many leave and there’s not very much the acquiring company can do about it. With UiPath, Automation Anywhere and other key service providers all hunting aggressively for automation talent across both sales and technical areas, the merging entity will be vulnerable as they integrate the teams.
Consideration for the acquisition is mainly in shares – is this a brave gamble on both sides?
The payment terms of this deal comprise cash and ordinary shares. The initial cash payment of £12.5m on completion of the deal will be followed by a payment of £4.5m 18 months after completion. The remaining £63m is scheduled to be paid out at regular intervals up to two years post deal completion. The payment schedule for the deferred consideration for the acquisition includes a condition that Terry Walby and “relevant recipients” remain with Blue Prism.
With this purchase, Blue Prism is opening itself up to the scrutiny that goes with the process of acquisition at a point in time when it too is still loss-making, and its losses are deepening, increasing from £5.5m to £37.6m (IAS) in HY2019, despite revenues rising by a staggering 82% yoy. Presumably, Blue Prism must be confident of one of two things:
Delighting the stock markets sufficiently to raise more capital – and hypergrowth is in its favor here or
Being snapped up by a larger player that will ultimately pick up the tab
It would be more reassuring if Blue Prism had a clearer message and roadmap plotting out how this acquisition will help them grow and move into profit. But the share price drop suggests that the stock market is not yet impressed by this news.
The Bottom Line: Blue Prism’s end game is that it’s priming itself as an acquisition target; its market capitalization, currently in excess of £1b, is prohibitive for many would-be acquirers
The RPA landscape is at a peculiar point right now with three dominant players – Blue Prism Automation Anywhere, and UiPath – each with skyrocketing valuations which presents a stark contrast to enterprise confusion and difficulties in scaling. More worryingly, interspersed among the success stories, many stories of abject disappointment are quietly told.
It sometimes looks as if the real product here is not necessarily RPA platforms, rather high growth companies striving to become unicorns, or to launch on the stock exchange or be bought for a tidy sum – and to be fair, if that’s what success looks like then Thoughtonomy has definitely made it. When the long tail of others outside the Big 3 in the RPA market is battling to get a strong foothold it’s difficult to compete for mindshare and revenues. Thoughtonomy was number four in HFS’s Top 10 RPA products 2018:
One strategy is worth pursuing; whether it was intentional from the outset or not, Thoughtonomy made use of Blue Prism’s platform in a way that is now so useful to Blue Prism, it’s finally making this purchase.
And as for Blue Prism in the longer term, some of its founders have already cashed in portions of their holdings, revenues are rising, it’s still in hypergrowth, but loss-making. But the stock market has high expectations and the requirements of publishing results mean the current deepening of losses is highly visible. The same could well be happening elsewhere, but we can’t see published numbers and the market is dominated more by private equity financing, as opposed to rocketing enterprise spending on the software and services. The current land-grab is taking place with an apparent absence of profit considerations – are we really just seeing growth at any cost?
HFS has previously speculated as far back as 2016 that IBM would or should buy Blue Prism. IBM is in the habit of buying competitors that appear to pose a threat and/or can significantly enhance its go-to-market strategy. While a price tag in the billions, as opposed to millions, would deter many, the $34b Red Hat acquisition last year demonstrates that IBM has no fear of big numbers. Right now, Watson isn’t being talked about as much as in the past and IBM uses Blue Prism extensively in intelligent automation solutions – is IBM happy to use, resell and create solutions from Blue Prism eggs or would it rather own the whole Blue Prism chicken?
We all remember when Jack Nicklaus played his last Masters, and when Sir Alex Ferguson managed his last game for Manchester United. These guys were godfathers of their trades, not unlike Azim Premji has been for IT services, the man who oversaw a firm which diversified from diapers and vegetable oil into one of the largest IT services firms in the world. However, when they retired, they left a legacy that enabled many to follow in their footsteps (albeit noone has come close yet). Premji’s legacy, which forever is written into the annals of IT services folklore, is still unfinished, which may be a good thing for his successors… there is still a lot of work to do to get Wipro to the place Premji always envisaged.
The current market situation facing Wipro’s leadership
To recap, Wipro’s Executive Chairman, Managing Director and philanthropic champion Azim Premji is retiring by end July. His son and Wipro’s Chief Strategy Officer, Rishad Premji will take over as the new executive chairman and its current CEO Abid Neemuchwala will become the new MD.
Azim Premji’s father founded Wipro in 1945, with Azim taking over in 1966 on his death. Azim led Wipro’s diversification into information technology in 1980. Today it has become one of the leading service providers in the industry and a big force within the India heritage IT service providers (lovingly called the TWITCH – TCS, Wipro, Infosys, Tech Mahindra, Cognizant, and HCL). However, Wipro has lost a bit of its cutting edge in the market. While its operating margins improved to 19.8% given the focus on the quality of revenues but overall revenue growth dropped to 2.8% YoY – the lowest growth rate of all the TWITCH service providers in 2018. It even lost its standing as the third biggest TWITCH supplier (albeit not permanently) last year to HCL.
We’ve assessed Wipro’s competitive positioning across execution, innovation, and customer experience across major markets (see summary below) and while it mostly performs commendably (ranked #5-#10 in most of our evaluations), it misses out on the Top 5 positioning in most areas of our assessment.
Only 3 of the large IT Services firms with revenues higher than US$5B grew at over 10% in calendar 2018: Accenture (14.8%), TCS (10.3%) and HCL (10.2%), this excludes Amazon Web Services. All of these have an excellent service delivery, but the stand out factor is the ability to differentiate and know themselves and their strengths – which means they market services effectively and to the right customers:
We believe that the increased authority to the young and dynamic duo of Rishad and Abid to shape the overall business will be a boon to Wipro. Rishad has shown tremendous energy and passion for the business, especially with his recent development of Wipro Ventures, which is the most strategic innovation initiative for the firm. And Abid is a proven and seasoned leader. HFS continues to be impressed by his astuteness since his TCS days where he built a stellar BPO capability for the firm till just last year, where Abid was instrumental in getting Wipro’s largest ever engagement $1.6 billion multi-year TCV from Alight.
The Bottom-Line: The “What” is clear, now Wipro need to focus on “why” and “how.” HFS recommends five focus areas for the newly appointed executive chairman Rishad and CEO and MD Abid
Rishad and Abid already have a strong base to drive an aggressive growth and differentiation strategy. Wipro is a respected brand, offers large scale services with 160,000 employees across the globe, and brings capabilities across emerging technologies to its clients. The “What” in terms of its 4 stated big bets (digital, cloud, cybersecurity, and engineering) makes sense but the “Why Wipro” and “How it will help clients” needs better articulation of value and Wipro’s unique point of view. Here are the five areas that Rishad and Abid should focus on:
Competitive differentiation. Wipro needs to stand for something. Its recent financial results say that customers don’t understand what makes it different from all the other IT services firms – this lack of differentiation is not unique to Wipro and applies to several of its Indian-heritage competitors. If it is to thrive rather than survive, this needs to change.
Digital capabilities. Wipro has seemed two-speed since the acquisition of DesignIT. It needs to integrate the whole firm around its digital message – this means building out its offer and making a splash with some strategic M&A and client acquisitions. Success in the digital long term means helping customers change their DNA – not just providing new IT. Wipro’s digital message needs to demonstrate it can help customers find new revenue streams, new business model and drive customer experience as well as harmonizing business silos (or the One Office).
Change management. Digital is about enabling change – so to differentiate itself in the noisy and overcrowded digital space Wipro needs to focus on change management. It needs to demonstrate that it can manage complex change process that penetrates its clients the businesses and drives value beyond just digital adoption. Wipro’s narrative around “zero touch change” and agile cell teams is a good starting point, but it needs to embed change management in all its engagements. Rishad and Abid also have to change the internal culture and bring together all the business units and service lines to reduce internal frictions and improve internal collaboration.
Fresh talent. Injecting fresh blood and energy into the firm’s leadership, under the guidance of Abid will be important. Wipro has a credible track record of retraining ground staff as well leveraging the gig economy (courtesy of Topcoder) but needs to aggressively look at revitalizing its talent base, especially near to its clients. Service providers need to be able to draw on a broader range of skills – which means a richer mix of partnerships, on and offshore talent.
Integrated go-to-market. Wipro has a broad suite of capabilities across emerging technologies (Wipro Holmes AI platform, Wipro cloud services, an end-to-end IoT portfolio, and robust blockchain offering) but to differentiate itself it needs to create an integrated go-to-market across all these capabilities that solve real business problems. The strategic focus has to be on what clients want to buy versus the capabilities that it is selling. Co-innovation with its strategic clients, partnership ecosystem, and aggressively leveraging start-ups (through Wipro Ventures) will need to be core components of how it approaches the market. As one of the best application service providers, it is in a good position to help modernize these clients application portfolio as part of an integrated suite of digital capabilities focused on delivering business value.
Rishad and Abid have very large shoes to fill in with Azim Premji’s retirement, but it also represents a golden opportunity for Wipro to scale new heights. Rishad and Abid together bring the energy and a pulse on the changing market dynamics to transform the IT-services behemoth. We wish them and Wipro all the very best!
