Stability and modest growth should be the best thing that has happened to this industry: companies can plan for the future with greater predictability and make smarter investment decisions. Instead, we’re suffering from a culture of endless hype, copycat marketing and an addiction to hypergrowth.
NASSCOM’s annual India Leadership Forum is always a good bellwether for testing the temperature of the global services industry – and the 2018 rendition this week in Hyderabad served up some real pearls of wisdom (yes, Hyderabad is the world’s leading refiner of pearls).
Getting to the point, the services industry has never found itself in a worse state of bewilderment and confusion. After last year’s sense of looming disaster with President Trump’s proposed Visa reforms, at least the industry has something collective to hang onto – a common fear of being politicked out of business. However, with that panic pretty much diluted, what has been left is a conflicting range of moods, ranging from confusion to depression to uncomfortable modest growth, alarmingly untrue #fakenews, and a never-ending plethora of meaningless buzz words, which have become so deepset in the fabric of our industry, most of us are resigned to using them, as it’s the only language left to communicate basic sentences to each other.
So let’s try and shed some light on the confusion, based on some of the terrific conversations we had this week:
The Indian IT industry is struggling to cope with “modest growth”. With NASSCOM bravely predicting something in the 7-9% range, most credible analysts are predicting 4-5% for the short, medium and long-term. The reality is, the whole DNA of Indian IT has been borne out of hyper-growth, offering genuine riches to ambitious executives who could project-manage their way to a very nice condo in Bangalore or Gurgaon. The gravy train has now firmly ground to a halt, and most of the lovely folks remaining are still coming to terms with their salary increases slowing down, or disappearing altogether. And many are just pleased to cling to their jobs. The level-headed executives have accepted they are now looking at a more modest outlook for their firms and their own futures, and are making some adjustments, while others are still clambering around trying to find the next hype bandwagon to hitch to their next career move (and payrise). Did I hear the words AI, Blockchain, or RPA anyone?
“Digital” provides a sugar frosting for restating revenues as something that is not traditional IT. While we managed to have about 30 structured meetings with service providers, GICs and tech firms, the term “digital” has become so meaningless, it now ceases to be used in any coherent sentence. It seems to be purely a term now for convincing investors and Wall St analysts that, somehow, traditional services revenues have become something mysterious and new that will set services firms on a new pathway to returning to hypergrowth… and very soon. In reality, “digital” is all about designing new revenue channels for customers using emerging interactive technologies. It’s all about collapsing internal silos within business operations to service customers’ emerging digital needs. If you’re telling me that 50-75% of IT services revenues are now “digital”, then please tell me where all the billions of dollars of app testing, app management and IT infra revenues mysteriously disappeared?
Services has fallen hook, line and sinker for its own #fakenews. Suddenly, every services provider has developed the industry’s leading competency for delivering automation, artificial intelligence and blockchain… overnight. While, barely a year ago, exactly the same firms were the industry’s leading maestros at serving up “digital transformation”. Amazing how they could source thousands of experts, and convince so many clients to make this all possible in barely a few months. Until recently, most providers declared they were adopting a “wait and see” attitude to approaching some of these areas, but now are in there fully-fledged and firing on all their lovely blockchain cylinders. Puhlease ladies and gents! At least, in days gone by, most providers would be relatively honest about their core areas of focus and expertise. Now it seems perfectly acceptable for many just to stare you in the eyes and just lie… what on earth has driven us to this place?
DXC continues to baffle everyone. Can someone please explain what DXC is supposed to be doing? I love the Accenture-esque TV ads, but I am still clueless as to what this firm is actually doing to be the next big thing in the industry. While I was very happy with the DXC branded gifts for writing notes and charging my phones, I would rather just get a little postcard explaining what on earth this new-fangled services business is supposed to be doing that is so special…
Sourcing advisors have just fallen off a cliff. Yeah – they just weren’t present. Barely a couple of years ago they still trawled these halls with their promises of big deals (or would try and sell you some “research” to make a few bucks). Now they have all but disappeared from the equation. Maybe their absence is the most notable sign that the good ol’ days are firmly gone forever, and it’s high-time to wake up to something approaching a normal, stable industry?
The Bottom-line: There are some seriously cool things going in in the world of technology services; we just need to unearth them and change the narrative
There is a lot of goodness this industry is capable of achieving if we can just get out of our own way.
For starters, we’re seeing the fastest revenue growth from several middle-tier providers who are big enough to go after some large complex deals, small enough to work on new concepts with clients and lack the legacy business to focus on going after greenfield disruptive opportunities that the big guys cannot consider. We are seeing some of the major providers unearth new gold by taking ambitious clients to new places of business value, with a high-risk / high value mindset, using technology that is here today and working with them as a trusted long-term partner. We’re seeing real advances in automation, machine learning and digital enablement that are here today – they are now a reality, not some future innovation that is still some years away. We are also seeing a feverish desire from many clients to experiment with blockchain, despite the fact it’s still a long way from providing many meaningful business applications today.
The present is now the future and this should be the most exciting time ever to be innovative, courageous and entrepreneurial. So let’s stop trying to pretend to be something we’re not and focus on the real potential that is staring us in the face. Everyone’s tired of the #fakenews… it’s time to change the channel!
The good old customer BPO business has taken quite a battering in recent years, where the same old usual suspects have embarked on selling predominantly the same old voice services, with most choosing to compete with ever-cheaper global locations to prop up their fragile profit margins. While many of the services majors have chosen to steer clear (or quietly exit the market), the importance of creating an amazing customer experience has never been so critical to customer-facing businesses. Something has gone sorely wrong here…
In an era where every firm aims to be “digital” (and has a Chief Digital Officer to boot), the focus on engaging customers with both digital and voice communications has taken center stage… yet, these legacy call center practices continue to hound the services industry as most of the call center firms continue to fight it out to the lowest common denominator: who can delivery average customer service as cheaply as possible? But you can’t just blame the service providers alone for this behaviour: many of the FORTUNE 500 propagate this behaviour by playing everyone off to squeeze every last drop of cost (and subsequently value) out of their delivery capability… preferring to talk a big digital customer experience game than truly investing in one.
One leader in the space who has taken it upon himself to declare war on these legacy practices is Concentrix President Chris Caldwell, who has masterminded the impressive growth of the firm over the last 12 years, which has included some major acquisitions, notably, the IBM contact center business, BPO firm Minacs and the Australian digital outfit, Tigerspike. The company today boasts annual revenues greater than $2bn with over 100,000 employees globally. Having observed this rapid rise, I thought it high time to invite Chris on here to share a bit more about his story and his views on why this industry needn’t be an FTE hell any longer…
Phil Fersht, CEO and Chief Analyst, HfS Research: Good morning Chris. It’s great to finally get you here on HfS. I would love to hear about your journey on how you wound up running the Concentrix business.
Chris Caldwell, President, Concentrix Corporation: Of course, Phil, It’s bit of an interesting story. I’m not sure if anyone starts out saying that they are going into a career to beat your business, or a call center business. But I worked for a parent company, SYNNEX where I was looking after M&A and the diversification of their business model from the core distribution business. One of the businesses that we bought, very small at the time, was a BPO business, about 30 people which was barely doing over $1m a year and had begun to lose money after some time. And my boss who was the CEO of the other company, said to me, ‘you bought it, you fix it.’ That was the start of the BPO business and that’s when I took over Concentrix at the time. I then had to learn the call center business very quickly; figure out how to grow it and do something with it, which happened in approximately 2005.
Phil: Chris, you then went through this much, much larger acquisition of the IBM call center business in 2013. Can you talk a bit about how Concentrix got to that point, the relationship with SYNNEX, and how things have really progressed since you made that major acquisition?
Chris: Sure, It’s interesting. When we originally invested in Concentrix it was to provide additional services to SYNNEX vendors. SYNNEX is an IT distributor and I can still remember our first services for lead generation for some of the IT vendors, which were very basic offerings.
What became clear very quickly was that the vendors of SYNNEX alone weren’t going to be able to grow us. And so, we had to develop a service offering for new clients and discover something that was compelling for the marketplace.
At the time we looked at doing renewals for vendors, technical support and various other things. We developed this philosophy around how to drive lifecycle management for our end customers and our clients, which was successful. This enabled us to expand in the Philippines and in Latin America. We bought some software technology that covered renewals to drive our value and we grew the business up to about $200 million over several years. Just before the acquisition, we reviewed the marketplace, where we felt that ‘we are too small to be big, and too big to be small. And we either need to double down in this business, or we frankly need to get out.”
We therefore looked at a lot of different companies, and one of the businesses that was coming in the market was the IBM CRM and BPO business. It was a massive undertaking. But when we looked at, it was clear that it would allow us to get into verticals that we would have a very hard time to break into just by ourselves. It had a lot of capabilities that we thought we could exploit. It had a blue-chip client base that would have taken us years to develop. So, we decided that this was the way to go and really grow the business and we went ahead with the IBM acquisition.
It was a huge task. We went from having a business of approx. 12,000 people to bringing on board an extra 35,000 overnight. The business changed from covering 10-11 countries up to 24 countries at the same time. Suddenly we went from primarily servicing smaller banking, consumer electronics and IT types of clients to significant banks and insurance companies around the world This really changed the dynamic of our business, which gave us a launching pad to grow from approx. $1bn dollars 4 years ago, to $2bn this year.
The acquisition clearly allowed us not only to grow our existing client base but also expand into new verticals. It really was a big change for us, but it was a part of this strategy of ‘how do we become a significant player in the BPO business’. Where we see the market going, it was certainly something we had to do to stay relevant in the market.
Phil: That’s a good background, Chris and it’s great to see the effort, and the impact that has gone into this. When we look at where the industry is going, there’s been a lot of sort of noise in the market, in the last couple of years. Firstly, we had the ‘Digital’ bandwagon. Now it’s evolving more around Automation, and AI. How would you say this is impacting the contact center business, in terms of the way the clients are behaving, the way that you are behaving?
Chris: So, I think that there are few things here. For example, we were primarily voice 5-6 years ago. We now are almost 50-50 between voice and non-voice. And our belief is that, and we talk about this a lot in one-office, the reality is that you no longer can segregate voice and non-voice. It requires them to come together, and I see that happening increasingly, where our clients are asking us to take over an entire process or solution, which requires you to pull bits and pieces together to make that happen.
While that’s happening, the reality is that, you’ve got these change elements saying, okay, now that you are doing both voice and non-voice, how can we digitize some of this; now let’s figure out how to put RPA on that. When you look at AI, it has got a lot of sex appeal to it, I am not sure if it has got a lot of meat to it yet. But driving a better process, better efficiencies, and really taking the cost out of the equation for our clients, I just see that continuing. I see the development of tools and technology continuing to try and work out the process to enhance the customer experience – that’s clearly key. I think the brands that will survive will create a much more engaged and personalized customer experience regardless of what they do. And that’s really where we want to see our market growing, where we want to be present.
Phil: Chris, we are seeing a convergence of the traditional and the emerging businesses, in terms of business models and technologies. And I’ve noticed you’ve made acquisitions that seem to approach both markets. You bought Minacs a couple of years ago, and then Tigerspike more recently. Can you sort of expand a little bit on where you are doubling down?
Chris:We will never be an Information Technology Outsourcing player. However, our belief is that we need to have technology integrated into our solutions, some of which will be proprietary technology that we will develop ourselves by our large development team. Then a part of that will be an ‘off-the-shelf’ customization that we will add to finish off the solution. I think just going to the market with a labour solution or a cost solution is irrelevant now. There’s still some business for it, but over the coming months and years, it is likely to diminish.
So, the investments we’ve made in Minacs were about Internet of Things (IoT), Connected Car and Automotive. Our investments in Tigerspike are about driving a superior UX and UI design, as well executional mobile enterprise and mobile applications. We see the needs from our client base and then we also see where the market is going and needing more of these types of services. We really want to be a leader around how to deliver this and frankly disrupt our competitor’s businesses by going to their client’s and saying, ‘not only can we take up this work, we can develop a much better customer experience. We can measure that customer experience differently. We are going to create a very flexible workforce model that allows you to really manage your peaks and valleys at a much more variable cost solution versus a conventional FTE type of solution, which historically has been sort of where a lot of our competitors continue to focus.
Phil: Right, and do you see more opportunity going after tired competitive deals and trying to offer something more disruptive, or by targeting green-field clients which might be in the emerging markets and needing a contact center solution? Where do you see the bigger growth opportunity in the short to medium term?
Chris: So, it’s interesting. We have two very focused directions for these types of clients. One is the larger clients that are in our vertical industry that we are focussed on, where we are coming together with a complete solution. We also invest in the ‘unicorns’, the ‘up and comers’ where we know that out of five or six, a few will perish, but one or two might become the ‘next best thing’. That’s been a very successful model for us for several years. We don’t basically go to market via the contact center. In fact, we are almost 50-50 in terms of voice / non-voice. It’s more about what type of solution that the client is trying to drive; what customer engagement are they trying to achieve? And then building a solution around that wholesome technology, as well as services, and a global footprint, and then everything else that goes along with it. That’s a more compelling thing.
We stay away from industries that are just body shop industries. We tend to stay away from clients who are “most common denominator” procurers and really focus on the people who are trying to differentiate their brand in the marketplace.
Phil:Okay. You mentioned at our Chicago conference a few months ago that you are very tired of these buying practices where many clients are still trying to buy in the old-fashioned procurement way, where the focus remains purely on cost and labor. You made it very clear you wanted to see a shift in how these services are positioned, delivered and managed, where the onus switches to value metrics and business outcomes. I don’t think it’s just the fault of the buyers, as most of the contact center service providers propagate that model… simply because they are comfortable with it as well. What do you think really needs to happen to change this attitude and approach and get some real shifts in a different direction?
Chris: That’s an interesting question, Phil. I see the shift coming when consumers procure services in a different manner. And that tends to kind of permeate all the way through the organization or the company providing those services. ‘We can’t do it in the same old way. We need new innovations. We need to change that up.’ They go back to their vendor partners, and the vendor partners go, ‘we are not going to work with you to procure or deliver these services in the old methodology.’ And we are seeing a bit of that.
I think it’s also particular in our industry, where we see new arrivals taking share from the incumbents by being a very disruptive force in the marketplace. And then they come back to us, and say, ‘we need something different.’ And we say, ‘well, you are not going to be able to procure it the way we normally procured it.’
I think that’s what’s really going to be a driver for change. There’ll still be some companies who want to do everything through procurement, and that’s fine. But I see it as a very big competitive disadvantage to what more nimble companies are doing. And we are seeing very large companies who are incredibly successful in the States now totally change how they are procuring services. Because you are having an end-to end business conversation where you are talking about the solution, the end-customer goal, different types of deliverables and then you are talking about the total cost of delivery execution around these solutions by ending with focusing on how is that better than what their current cost structure is. That’s a different conversation.
Then what tends to happen is procurement comes in, and handles the contract administration, and compliance, which are very important things. However, the difference is that they do not get into how much you are going to charge for this transaction, or how much your FTE rate is etc. and that’s where we see real changes happening in the industry.
Phil: Okay. So, if I could anoint you as the Emperor of Contact Centers for the next year and you could have one wish to change this industry, what would that wish be?
Chris:Ah! Umm. People stop making claims about AI that are completely wrong, irrelevant, and lies!
In all seriousness, I think from my standpoint it’s about having real business discussions around the solutions they need versus trying to procure these types of services through a lowest cost RFP discussion. That I think would up-the-game and would make a healthier business because you find some providers couldn’t compete anymore, and would just fall off the radar, which would then enable the others to drive more innovative solutions. So, a lot of things that people talk about would then start to get baked into these solutions rather than just talked about, which seems to happen a lot in our industry.
Phil:Yes, the blurring lines between hype and what’s actually possible, right? And I agree with you on the AI stuff, we need to have a more realistic conversation about the business. And I like some of the things you’ve been saying around this shift towards an outcome type conversation and less of the administration stuff. This has been really refreshing. Hopefully, we’ll get to see you soon in one of our summits and engage again. It’s been great catching up.
Chris: Yes, for sure. It’s funny, I’m used to saying it a few times over the last week. I love your line about ‘AI is like your first teenage experience where there is a lot of excitement; It happens very quickly, and then a lot of disappointment, and missed expectations’. And I’ve used that a lot to describe the hype in this business. I keep attributing it to you, so you might get a few emails about it. I thought it was brilliant.
Phil: Yes. I seem to have got away with that one! I really enjoyed this and thanks again for your time today.
Yes, people, as we inch towards the dreaded singularity, we will continue to be bored silly with arrogant diatribes describing how “humans can stay relevant”.
Do we really need to hear this daily splurge of pontifications from business leaders in Davos about reskilling the workforce, without any real practical advice on what that reskilling is? I would argue this is more about culture and attitude, than training students to learn new programming languages and data analyst skills. The latter will come naturally as the needs of the workplace change, my view is that it’s the former which poses the real challenge: how can we enlighten people to change their working attitudes to make them much more valuable and irreplaceable to their employers? Anyone can fix a line of code within hours, or slam in some new software, it’s what you actually do with the tech that really counts.
It’s what you do when your boss isn’t looking, that makes you less predictable and more valuable
It’s not just about performing predictable tasks, it’s also about helping your firm devise new ways of doing things – that is the magic that makes staff valued. The truth is the singularity is a gimmick to jazz up advances with intelligent computing capability; the reality is the present and the future of the workplace are converging before our very eyes, and the survival of the digital worker depends on our ability to be looking constantly at where our firms are going, and being part of that journey.
The future of every type of ambitious commercial business, whether it’s a factory making products, a bank loaning money, an IT support shop helping users, a grocery store selling goods, a law firm prepping available information for its client cases, an analyst firm producing insight… is to perform its business operations with the optimum balance of talent, so it can maximise its immediate profits, with an eye on the future to stay ahead of the competition. As soon as someone’s output is predictable, taking inputs from various sources to produce outputs, you can start to figure out how to program software and machines to perform said tasks – and computers will always be cheaper than humans, once they are functional and can do the job. So our goal has to be about furthering our abilities, not only to get the basics of our jobs done, but to immerse ourselves into helping our colleagues and bosses figure out the what next. Because if we only focus on the now, we are eventually going to render ourselves predictable and replaceable.
Xerox and Zume: Two ends of the comfort/innovation spectrum
However, not all businesses are ambitious – some just want to milk what they have, squeeze as much as they can out of their current product and then exit. Just look at Xerox – the firm developed a tremendous product for many years (and was the most patented and innovative workplace technology alongside the emergence of the IBM computer back in Don Draper time), which literally dominated a market in such a way that their brand became a verb. However, Xerox just couldn’t find a way to become something else as copying documents became a commodity practise, and recently took its final payday before becoming part of Fujifilm.
Maybe some firms and some boards just aren’t destined to do anything else, and those who made millions and retired off their stock can sip their martinis and congratulate themselves on their success (and luck). However, for every millionaire, there will be a thousand mid-career folks rendered practically unemployable with a legacy skillset servicing a legacy product. So often we see people clinging onto the past with their careers, when it’s abundantly clear their train has left the station. Good money today doesn’t always mean a healthy long-term decision, and there are so many people facing that predicament. What of the bank teller facing branch closures and their role being BPO-ed? Or the insurance inspector being replaced by flying drones with webcams? Or the call center agent being phased out for an intelligent chatbot? Or the investment analyst being replaced by smart algorithms? We can just go on and on and on… and there are so many more examples, such as the case of Zume pizza.
Zume, a typical Californian disruptive business, makes its pizzas with robots, and can deliver up to 200 at a time thanks to remotely controlled ovens inside their delivery trucks, their patented “Cooking en Route” system. It’s secret sauce is literally automation (not tomato purée) which speeds pizzas to market more cheaply, efficiently and at scale (and delivered freshly cooked ant hot). Instead, it can invest its profits in hiring creative people to think of clever occasions with which to personalize and sell pizzas (i.e. during The Superbowl and Game of Thrones). In short, tasks that are automatable such as rolling out the dough, adding on the sauce and toppings and placing the pizzas into and out of ovens are much more cost effective to use machine labor. And when predictable intelligence is needed, such as forecasting weather conditions and popular events can benefit from a machine learning algorithm, the supply chain mechanism can be astutely optimized to get products to hungry customers quickly and profitably as possible. Hence, the human skills are being pushed further and further up the creative value chain, such as designing a Philly cheese steak pizza for Eagles fans, or a lobster roll pizza for new England fans (OK I just made those up, but you get the picture).
If you are an employer looking for creative talent, would you rather hire a successful Xerox executive who’s kept that beast trundling along for the last couple of decades, or someone who’s been immersed in the exciting growth of Zume over the past 18 months? Hmmm…
The secret sauce to an ambitious business lies in energizing its culture and mindset to focus on the now and the next
As we have discussed, predictable is not the secret sauce – the secret sauce is what you do when no one is looking, the less obvious tasks that make you irreplaceable. The key is to immerse yourself into the personable side of the business to become part of how the company drives value. This means making your value less simple to put on a spreadsheet – successful companies are those that create a culture that is unique to them, where its people are engaging in an enthusiastic way to find new sources of value for their firm, while enjoying being part of that journey. People who love what they do and energize those around them are rarely fired.
In the case of Zume, once you have your intelligent pizza supply chain perfected, the human differentiator lies in marketing the product to drive the customer experience, which means having teams of smart people who love the product and work enthusiastically to come up with ideas to win in their marketplace. It’s the same analogy with many insurance firms, where the whole process of managing an insurance process and developing smart algorithms to predict risk are increasingly digitizing (with the help of outsourced support), and the human edge lies with insurance firms out-marketing and out-thinking each other to offer the customer something that is more appealing to them? Do we really care whether Geiko or Progressive insures our cars? Probably not, but we will buy with whoever targeted us most effectively and made it easiest to get the transaction done. Or it may be as simple as which TV commercial appealed to us to the most – the frog with the British cockney access or the friendly Flo who just seems to trustworthy and nice. The simple reality here is as routine tasks become automated and the data becomes increasingly predictable with the use of advanced analytics and machine learning, the human skill lies in establishing the culture of a firm and the creativity in connecting and engaging as impactfully as possible with a customer base which just wants to be served as quickly and touchlessly as possible. Do we really care about talking to a pizza order-taker or an insurance customer rep on the phone, when we can just order something on an iphone app? I bet we’d hardly care if a drone rang our doorbell with a piping hot pizza at out front door, as long as it tasted great and was delivered quickly. And you wouldn’t have to tip either =)
The Bottom-line: Future workplace success is as much about attitude as it is skillset, where we need to focus on this convergance of the present and the future
If I have to hear yet another “we need to fix the skills gap” diatribe from some plastic HR analyst I am going to become a Belgian trappist monk and brew very strong beer all day. But I think you already knew that… so hear are some takeaways:
Get out of your silo. Get to know your colleagues and get them excited about what you do. Even if your work areas don’t converge that much, how hard is it to give up some time to get to know who you’re working with, and exploring how you can help each other. While we are all becoming digitally lazy with our social interactions (and many other activities) we need to focus harder on our people relationships to energize those around us. So get back to having lunch with colleagues… call them up to air ideas. Don’t be unafraid to get people to explain what the hell it is they actually do (because they are likely clueless whay you do also…).
Get to know some useful tech. Whatever you do, where are cool apps to enhance your job, whether its collaborative apps and social software, graphics and content packages, data visualization and analytics tools, CRM tools, RPA/RDA/BPM and easy-to-use process configuration software… you don’t need a computer science degree anymore to use this stuff. If you mastered that beast called PowerPoint, you can certainly use some of the sexier tools in the market and… and evaluating them is almost always free. If you’re not using some form of new tech in your job, then something is going amiss… or you’re just too busy selling your next photocoper to care.
Get to know your firm’s business better. Your bosses should be driving themselves nuts trying to get one over the competition and come up with new ideas for disrupting your market. Insert yourself in that conversation… everyone has a few good ideas in them somewhere. By showing you care about the business adds to your value and inclusion… and you’ll learn more about the business model and help people think through some clever options. If you just don’t care about the business your work in and really can’t be bothered to support your firm with its future, your current career track may be getting very limited…
Include others in what you do, even if it’s boring. Everyone loves being included in what others are doing… inclusion far out-trumps boredom. If someone enthusiastically shows you how he RPA-ed some workflows together, you’d just be happy he showed you how he did it, even though he may be dis-invited to your next pool party.
Being smart about data is no longer geeky, its career-critical. If you can’t automate and digitize your rudimentary processes, you will quickly run out of value to any organization. Plus, every siloed dataset restricts the analytics insight that makes you a strategic contributor to your business. You really can’t create value or transform a business operation without converged, real-time data. You don’t need to have a mathematics masters to understand your customers and the markets in which your operate – you just need to explain to your colleagues what you need and make sure it gets done.
Tune up your cross-cultural intelligence. We need to do a lot more than merely understand cultural differences – we need to adapt and modify our behaviors as the situation dictates as our workplaces and business environment continues to globalize. That means we need to get smarter about different senses of humor (and different sensitivities), widely differings levels of political correctness, different styles of engagement (most Americans tend to like to talk a lot more than most Europeans, for example and their meetings often last longer). Also be sensitive to time zones – the days of expecting people to take 4.00am calls are pretty much over. And be prepared to talk more about geopolitics – many people just want to talk about the big issues more openly these days (even Americans where political discourse has been taboo in days gone by). My only advice here is to try to listen, even if you are in violent disagreement with someone…
A lot has changed in the last year… especially when it comes to automation: it has now become the broadly-accepted efficiency tool for cost leverage with operations.
Every customer has RPA project managers and automation leads hungry for data, advice, and ideas. Every service provider has RPA embedded into their service delivery models, and every credible advisor has a practice that is working with multiple clients to make this happen. The Armageddon days of talking about robots taking our jobs are over – these are now the reality days where we can see exactly what’s going on with automation and AI, and accurately estimate how it’s going to impact the services industry in the next few years.
There will be impact, but it’s manageable provided we focus on new skills and value.
In short, the global IT and BPO services industry employs 16 million workers today. By 2022, our industry will employ 14.8 million – a likely decrease of 7.5%* in total workers (see our research methodology below). This isn’t devastating news – we’ll lose this many people through natural attrition, but what this data signifies is this industry is now delivering more for less because of advantages in automation and artificial intelligence. The new data also shows how job roles are evolving from low skilled workers conducting simple entry level, process driven tasks that require little abstract thinking or autonomy, to medium and high skilled workers undertaking more complicated tasks that require experience, expertise, abstract thinking, ability to manage machine-learning tools and autonomy.
The low skill routine jobs are getting increasingly impacted, and our new demand data shows an acceleration in RPA tools (a 60% increase over the next year) where service providers are the largest adopters into their own service delivery organizations. We expect to see a more rapid impact on routine job roles which is most notable in 2022 as companies take time to build the impact of RPA into service contracts and figure out how to turn work elimination into hard savings than merely soft efficiency savings. With barely a 50% satisfaction level, this will take 4-5 years to see the real cost benefits in terms of job elimination. Most of the short-medium term benefits are being seen in increased efficiencies and more digital process workflows. All major service delivery locations are expected to be impacted at the low-end, but the higher the wage costs, the higher the expected role elimination (750,000 roles in India and a similar number in the US):
Medium skilled roles are picking up across the board, especially in roles that are customer/employee facing with the need for more customized support, the ability to handle basic customer and data queries, and more customized service work with virtual agent models in 2nd / 3rd tier escalations:
As this data illustrates, the more we automate and digitize, and the more we adopt human + machine technologies, such as machine learning and cognitive solutions, the more we need people to developing skills in managing automated workflows, machine learning mechanisms, being able to interpret data, and service increasingly complex customer and employee needs. So when we take into account the total impact of automation and AI on services jobs, the impact is not nearly as severe as so many of the hypesters and fear-mongerers are prophesizing:
Philippines should actually increase its service delivery population due to its dominance in voice and capabilities to support increasingly complex and personalized customer models, the UK should be flat, especially with the challenges of Brexit and the slowdown in low cost worker immigration, while both India and the US will see a total worker reduction estimated at the 10% level between by 2022. You can view the total impact on the global services industry – a worker population decline of 7.5% here:
The Bottom-line: The rote jobs are going to be eroded, but there is time on our side to develop the new skills we need
The big narrative here isn’t about what’s going away, but more about what is emerging in its place. The next fives years we can manage, it’s the five after that when the impact on labor becomes much more challenging. Transaction roles at the bottom of the value chain have been under threat for many years now – with the impact of low cost location delivery and better technology. Now the emergence of RPA is eventually going to sound the death knell for most high-throughput, high-intensity jobs, as both service providers and enterprises master the ability to apply these technologies effectively. The good news is this takes time and there is no huge burning platform to do this overnight from most enterprises.
So our message to all stakeholders on operations and services is simply to get out of your comfort zones, accept that new skills are replacing old ones, and it’s critical we have a plan to train, develop and invest in changing what we have. I will leave you with six things to think about as you ponder your own value to this industry and your firm:
Which customers have you delighted recently?
What new relationships have you made that add value to our business?
What work have you done that excited people inside and outside of the business?
How are you helping energize your colleagues and exciting them with new ideas?
How have you helped add value to new business wins?
How have you contributed to new initiatives that improve productivity and effectiveness?
HfS has taken the following assumptions to form this size and forecast for the services industry:
A more aggressive uptake of RPA and Autonomic plus adoption of Cognitive in second half 2017 Leading stakeholders start to educate the market more realistically The adoption of RPA, RDA, Cognitive Computing and AI reaches exponential growth Visibility on impact through details in financial earnings calls and beyond Stronger impact on supply-side, more marginal on buy-side 30% Reskilling to medium and high skilled jobs, with 2/3rd to medium and 1/3 to high
HfS bases its data findings on the following sources:
HfS State of Automation survey (June 2017) covering the dynamics of 400 business operations and IT executives leading automation initiatives;
Market expertise of the HfS analysts across RPA, AI, BPO, IT Services and key industries;
Service provider interviews to understand their automation adoption across global delivery centers and emerging skills competencies with automation and AI solutions;
Government data and data published by industry associations, such as NASSCOM, US Bureau of Labor Statistics, IBAP, OECD Employment and Labour Market Statistics and Office of National Statistics, which provide data on IT industries and education – including specific information about job creation and the impact of automation;
HfS services contracts database, which provides analysis of service providers contracting activity;
Qualitative interviews with service buyers across different industries and company sizes;
Executive-level interviews with key independent advisors in the automation arena, such as KPMG, EY, Deloitte and Symphony Ventures to understand rate of adoption and other core issues related to automation and AI.
Having spent the last 15 years of my life in the US before recently returning to my British homeland to focus on the global expansion of HfS, I think I have earned the right to offer a view on how global innovation will evolve in the coming years. So let’s have a real State of the Union look into global battle for economic and digital supremacy.
For decades now, Silicon Valley has driven technology innovation, US corporates dominated business innovation, and US healthcare was the paragon of high-quality patient care. Everyone looked to the US for innovation, leadership and entrepreneurship. Hell, there was nowhere else in the world I could have founded and made HfS a success eight years’ ago… people in the UK used to sneer at new brands, ideas and anything that cut against the legacy business establishment. But Americans liked shiny new things, they embraced entrepreneurship and new ideas, and welcomed foreign talent. The US was the world’s innovator, the world’s entrepreneur… it was the place where ambitious people aspired to flourish. All good things happened in America – it’s where dreams were hatched and made real.
Fast-forward to present day and all this is changing before our eyes
Tech innovation is no longer confined to a politically exhausted, entitled and overpriced Silicon Valley. Israel is becoming a leading hub for security, blockchain and AI start-ups and talent. India’s startup scene is especially vibrant as ambitious IT talent grows frustrated with the monolithic outsourcers and seeks to join emerging tech firms and get involved with AI development environments such as Python, R, Caffe, Google TensorFlow, the Azure ML Workbench, Amazon’s Sagemaker etc. In China, real cooperation between the government and its tech giants is significantly positioning the country’s advancements as an AI leader. Meanwhile, Estonia is already putting its entire population database on a blockchain platform as part of its plans to build a digital nation, and even Dubai is declaring it will be a Blockchain city run by smart contracts by 2020.
The abhorrent cost of talent in Silicon Valley, coupled with the extremely negative politics asphyxiating their once-dynamic firms is driving investors and valley firms to globalize their approach to talent access and their partnership ecospheres. US Patent and Trademark Office data shows that the number of patents granted to foreign countries (outside US) is now greater than US itself. Moreover, as tech power increasingly shifts to true global players such as Amazon, Alibaba and Google, and the establishment tech giants servicing legacy enterprises, such as Workday, Salesforce, SAP and Oracle become increasingly confined to a shrinking global 2000 (while ignoring the burgeoning small/mid-sized enterprise sector), the whole tech innovation industry will become increasingly globally distributed, as opposed to controlled from the entitled Californian epicentre.
The crypto technologies and AI ecosystems will really start to blend, creating a whole new global tech economy. Use-cases around traceability through provenance and asset tracking, digitization of contracts leading to faster settlements, management of private data and digital identity will drive significant effectiveness gains in existing business models. Blockchain can also become a source of competitive differentiation in the medium term by re-imagining IT infrastructure that is shared and decentralized, re-defining transaction management that is transparent and immutable and driving additional trust in multi-party collaboration. Consequently, we’ll see AI developers increasingly involve themselves with this exciting combination of AI and blockchain. These areas include how to build together common collaborative data hubs to z the sharing of data, allow the sharing of emerging blockchain models, using distributed ledgers, blockchains and smart contracts for individual AIs to mediate their machine-to-machine interactions. As the stranglehold of the legacy US banks policing the world’s financial markets starts to loosen, we’ll see the global development communities come together to develop the new phase of crypto-intelligent tech for the AI economy. You only need to look at the spread of Initial Coin Offerings (ICOs) to see that the US only accounts for a fifth of global cryptocurrency projects:
Brexit is forcing new thinking and new ways of enterprise collaboration. While I have been honest about my views towards the negative aspects of Brexit, it has forced new thinking as Britain goes down it’s own path of looking within itself, not dissimilar to what Trump is doing in the US. The difference with Brexit is it’s highlighting the desire of British businesses and academia to embrace global talent and collaboration with other nations. The threat of losing its openness may have the longer term impact of driving British firms to work more closely with emerging nations, such as China and India, and not rely so much on its legacy business partners. It will be the same for the likes of economic powerhouses such as Germany and France, who are also being forced to look beyond the EU for their future commercial alliances. In short, outside of the US, most of the major economies are looking outward to grow, while the US is too busy navel-gazing and trying to figure out how to embrace its past, as opposed to the unraveling future.
The global giants stash their cash offshore these days, creating a corporate versus government sovereignty war. While the massive US corporate tax cuts will bring some businesses back to the States, it’s pretty alarming when you look at how much money today is residing (and flowing) outside of the country, from the leading global enterprises. The global wealth is being truly spread around these days as the digital economy takes over and spreads across borders. This corporate-versus-government sovereignty war is well and truly in play, and it impacts every nation – and every business:
Digital means global, and there’s not much governments can do about it but become AI powerhouses, thus leveling the playing field. As the major corporates become increasingly global this is increasingly conflicting with governments’ desire to maintain control over their businesses to hire locally and maximize their tax revenue. A consumer in Bangalore is just as important as a consumer in Omaha to Jeff Bezos these days. It’s all one big global digital economy these days. In order for governments to stay ahead, they need to become fluent in AI to keep tabs on these data flows and maintain some sort of control over what is going on… from cyber-security, massive analytics to legislation and regulation. National AI policy and strategy will take center stage creating vastly different types of cooperation deals between governments and continual debate over data privacy and business licenses for firms where data crosses borders. Net-net, there is a new playing field being leveled for the next creation of wealth where data and AI is at the core.
US no longer runs the global tech services game like it used to. The emergence of India as a technology services brand has been stellar over the past two decades, and even most US corporates prefer to work with a portfolio of Indian heritage firms, because of their quality and affordability – and flexibility. This is why “traditional” technology firms, such as DXC (HPE+CSC), Capgemini and Atos are finding it harder than ever to compete with the Indian heritage ower houses, who have all withstood the Trump anti-immigration policies impressively. Plus, America’s two tech powerhouses, IBM and Accenture are not really that “American” anymore – they have globalized themselves along with the digital economy – just look at the distribution of managed IBM laptops in 2016, as revealed by IBM’s CIO Fletcher Previn:
The Bottom-Line:There was only one bailout – and we’ve had that already. The new global economic war is being fought in data and AI
There is less tax revenue for the US government to boost its economy and reduce its massive $20 trillion debt. There won’t be a government bailout the next time the economy crashes – there is no more debt to be secured. Do we really think Amazon, Apple and Google will bail out governments? President Trump hopes corporate tax cuts will stimulate a massive reinvestment in the country, but the creation of new wealth goes a lot deeper, where access to talent with innovative and entrepreneurial mindsets is no longer confined to the blessed US of A.
Outside of the US, the recession of 2008 cut deep, and people know they cannot afford that happening again. Inside of the US, that massive Bandaid is still masking the inherent demise of the country’s core issues, as the rest of the world catches up. The next phase will not be about artificially propping up legacy banking systems and pumping borrowed money into infrastructure projects… it’s about taking the lead in a global digital economy by embracing, educating and possessing the best talent, the best homegrown companies to house that talent … and having the smartest leaders who understand the power data and AI.
Knowing full and well that predictions can bite you on the arse isn’t going to stop us making them! Particularly when the financial reports pour in from some of the biggest movers and shakers in the services industry confirm what we are thinking.
What do we know now?
Unlike the Trump-esque games of ‘I told you so’, we’re not going to pass off something everyone knows already as a prediction (and then immediately congratulate ourselves on doing such a good job at getting a prediction bang on the money).
First up, we need to talk about what we already know; most of the big providers have already posted their results and they make for interesting – and upbeat – reading.
Let’s start by taking the TWITCH providers (Tech Mahindra, Wipro, Infosys, TCS, Cognizant, and HCL). By now, all of these providers, barring Cognizant and Tech Mahindra, have submitted their financial reports for Q4 2017. This gives us a decent picture of the state of the market in general—a topic tackled in greater detail in our latest 2018 market primer—but, suffice it to say, we are starting to look at the IT services market more optimistically – for the first time in years. Our expectations that all of the major providers would report reasonable growth figures have largely been met, a sure sign of the market finally reaching the tipping point. In short, we’re leaving behind much of the turmoil-ridden restructuring of the market from traditional and legacy services to the as-a-service and digital models enterprises now consume with increasingly insatiable appetites.
TWITCH is the winner?
Even so, there are winners and losers, and the pick up in market growth is not shared equally. Wipro, for example, is bucking the trend somewhat by reporting weaker growth than its contemporaries. Similarly, TCS is pushing a more consistent growth line, but the increase of a few percentage points doesn’t quite match the considerable spike other providers are seeing.
HCL’s continued growth has come as somewhat of a surprise to us. While the firm has a strong track-record as an IT services major, there were expectations that the emergence of increased digital uptake would leave the firm struggling to mirror its rivals. Central to this thinking is the fact that the firm has acquired digital capabilities less voraciously than some of its peers, and many of the larger acquisitions, such as Volvo IT, are now mature enough that we would not expect to see them contribute enormously to revenue growth. However, HCL’s continued growth—it is currently the fastest growing TWITCH provider—tells us several things about the firm. First, HCL clearly has the ability to grow digital capabilities organically to help pivot its products and services to meet new demand. Second, it has the leadership talent to keep the ship steady, even when dynamic market forces are making a significant impact, for better or for worse. In addition, HCL has smartly balanced its organic digital investments by focusing on reliable traditional market segments, such as its partnership supporting IBM Tivoli customers, which clearly has many years of profitable revenue to enjoy.
Infosys, too, reported a strong performance as 2017 closed, signalling the firm’s recently acquired ability to negotiate leadership crises with imperviousness. Expectations for the firm’s growth were somewhat muted as analysts and commentators took on a wait-and-see approach to observe if the firm’s revenue would be another casualty of the Infosys CEO sideshow. However, Infosys has continued to post solid growth, a testament to changing customer expectations (if the services are fine, who cares if the CEO changes?) and the firm’s investment in digital, its strong DNA for providing data driven support, and remodelling service delivery. The track-record of investment exemplified in both acquisitions of digital firms such as Brilliant Basics, and the upskilling and reskilling of staff, most notably the training of large chunks of service delivery teams in areas such as design thinking.
Finally, we have Cognizant, which is yet to report its Q4 2017 results. We expect no surprises, though, as the firm shows all signs of enjoying the uptake in the market with the other TWITCH providers. The firm is far from the dizzying heights of growth it became famous for in earlier years, but it continues to plug on and with recent acquisitions in analytics, digital, and design plus a strong narrative, we can expect the firm to fully enjoy the benefits of the expected tipping point from traditional to as-a-service and digital. However, the pressure is on, given the mark that Accenture has set with its 31 recent digital-esque acquisitions; expectations will be a return to double digits and anything falling short of this is bound to be a disappointment to stakeholders.
WITCH providers’ and Accenture’s revenue growth over seven years
Accenture’s enjoyed an unstoppable rise, but will digital continue to be the flavor in 2018, or is automation coming to the fore? And is this IBM’s time to seize back its throne?
Other firms are also revealing how they are handling the restructuring of the market—even IBM, which has finally arrested 22 consecutive quarters of decline in revenues, is approaching what could pass for growth. The latest financial reports from the firm place the decline in revenues as fractional as 0.6%. But the real standout provider is Accenture, which has reported revenue growth rates that actually exceed many of its TWITCH contemporaries. Given that its total revenues are double that of its nearest TWITCH rival, this is no mean feat.
If we were to categorise providers for their appetite for acquisitions and investments, then Accenture must have been famished. The firm’s list of acquisitions, particularly in digital, runs lengths longer than the combined total of major players in the space. Accenture’s reputation for delivering the goods—albeit with a premium price tag—has set the firm up to become the flagship of the digital services industry, assuming other providers remain on their current trajectory and we don’t see any furtive market leadership contest over the next few years. Conversely, IBM doubled-down on cognitive, before the market was ready, but should now find itself in a position to capitalize, with a compelling automation-AI suite of offerings coming emerging from its GBS division. Observing IBM versus Accenture over the next couple of years may boil down to a battle of two philosophies for clients: do they primarily need a services partner focused on the front end (digital), or transforming the middle-back end (automation). Having that OneOffice broad suite of skills to pull both together is where the real winning line is…
You were promised a prediction… here’s several
With all of that data at our fingertips and the recently published market primer giving us food for thought, it’s about time we started to make a few predictions about what we’ll see when all of the providers report their financial results. Foremost, it looks like we can expect to be more optimistic about the IT services market—something that IT services analysts are no doubt finding deeply unsettling. If, indeed, we are witnessing the market hitting rock bottom as posited in a recent blog, then it appears to be bouncing back with some vigour. It’s worth noting that growth in the global economy has been unexpectedly strong, which may be the cause of the improved growth rates. However, the growth seems more decided and uniform, which leads us to expect consistent positive results due to broader market restructuring rather than a macroeconomic fuelled one-off.
Here’s the clincher, though. While the spoils of increased market growth is being shared somewhat ubiquitously at the moment, it’s unlikely to lead to a utopian future, where all providers are winners. The best way to predict which providers will perform well in the new digital race and which will false-start is to take a look at the engine. While many providers have the capabilities and capacity to profit from the changing market initially, many don’t yet have the brake horsepower to gain enough momentum. Fewer still have the fuel needed to keep performance consistent and long-lasting.
So, here’s the next prediction: While we can be optimistic about the market generally, in the digital race not everyone will make it to the podium. Outside of the major providers we discussed earlier are a plethora of other IT service providers, some of which are set to outpace even the most entrenched and well-funded of the old guard. Beside these disruptors are the firms reluctant to make the jump to new delivery models, sticking to the safe harbours of legacy and tradition. These may be the first casualties that come sputtering to a halt well before sight of the checked flag. The upshot is, although things look rosy now, the change required to succeed in the new market is likely to be a step too far for many. Expect a frantic and bitter melee to ensue as legacy providers fight for relevancy in the new services landscape.
And, as a final prediction: Because these things are often best in threes and there hasn’t really been a strong prediction that we can really hang our hat on, we’re going to go out on a limb here and say 2018 might be the year we see IBM Services report actual revenue growth. There. We said it.
Bottom Line: Those providers that are investing during these transitional times will be the winners
While the biggest providers in the IT services space are validating a more optimistic market outlook, the picture is far from Utopian and while the first signs of the market finally reaching the tipping point marks the start of a positive decline for some providers, for others it signals the start of their decline. The new wave of OneOffice is forcing providers to invest further up the consultative chain to help clients move with technology. The tech is here and it’s easy to install and support – it’s being able to help clients use it and align it with their processes and business models, which is where the new spend is being created. It’s all about digitizing the front end and aligning those customer driven processes to an automated middle and back office… and, as we discussed, most of today’s motley crew of providers have pieces of the puzzle, but not all of it. Let’s face it, most will never be great at delivering everything, so clients will need to choose partners who can bring together the pieces and deliver to the outcomes they defined.
That requires real investment in your people, intense training and education, and establishment of an innovative culture to make the shift. Legacy providers will not get there with fancy marketing and a veneer of OneOffice—they need to establish it at their core, which is incredibly painful for firms that have never had this in their DNA. So the short answer to the question posed in the title of this blog is that many providers will fail to make the leap. There will be enough legacy business for years to come to feed these firms, but many will wither away as they reach the lowest common denominator of commodity value.
Surely not, folks… but did the flagging IT services business finally find rock bottom… and we’re now working our way back to something resembling (gasp) growth?
According to our latest market size and forecast, Q3 2017 showed real signs of genuine improvement in the services business. It is consistent with the gradual upward trend we’ve been monitoring over the past 8 quarters (with the exception of Q4 2016), when the market dipped due to concerns around Brexit and Trump. We’ve been observing an increasingly significant number of Digital OneOffice type deals, and it seems we may have finally reached an inflection point where these “OneOffice style” engagements are driving more growth than the legacy is sucking out of the market.
How we define OneOffice IT Services
The OneOffice framework is all about collapsing the barriers between front and back office to create OneOffice with unified outcomes, centered around customer impact. OneOffice IT supports this framework. As such, OneOffice IT Services is split into two main components – operational services and professional services:
The difference between traditional operational services and OneOffice operational services is the business model of the services itself and the manner in which the service is delivered. Operational OneOffice services can include both application management and IT Infrastructure focused services. OneOffice services use an evolved service delivery model that shifts the business model towards outcome realization and consumption, so would include hybrid and cloud infrastructure as-a-service, application management in SaaS and DevOps environments, and evolved enterprise wide managed services service desk support. OneOffice framework is all about collapsing the barriers between front and back office to create OneOffice with unified outcomes, centered around customer impact. OneOffice IT support this framework.
ii) Professional Services
The shift in professional services is less about changes to the business model of the service itself, but more about the technology being implemented or consulted about. HfS includes all the services used to support the new technology change agents, namely cloud, digital, analytics, blockchain, process automation, IoT, and AI. Importantly, this includes consulting that changes clients’ businesses as part of this new technology adoption.
We are translating this optimism into our market forecasting and are starting by making the first adjustment to the IT Services forecast which you can see in the 2018 market primer infographic:
Why OneOffice IT is driving the IT services rebound
The market primer provides our latest size and forecast for the high value IT Services market – this market excludes support services and training and education services. Its main constituents are applications development and management, IT infrastructure management services and professional services. We have provided a split between the new style of IT Services – what we are calling Digital OneOffice IT Services – and traditional IT Services. With the former a combination of newer engagement models and services directed at the implementation and running of the new technology change agents.
Although we do expect the old and new worlds to coexist for some time to come, the distinction between the two will become harder, and less relevant – particularly as the market overall starts to accelerate its growth. We have increased our forecast for IT Services overall to 4.5%, with OneOffice services growing at 20.7% and the traditional markets declining at 5.3%. We expect 90% of professional services growth to come from the emerging change agents (namely digital tech, automation, AI and eventually blockchain), as the consulting and implementation services for traditional IT shrinks.
We can see traditional (or “legacy”) IT outsourcing being impacted by big price dips in traditional infra and apps work – and general cost impetus – and a falling out of love with outsourcing as a deliverer of real business value. There is still too much focus on legacy deals – even with the shift towards asset light, as-a-service and cloud taking operating costs out of larger contracts – and the upside of new technologies not compensating. However, we can see some of this changing as growth in cloud services becomes enough to offset these declines.
The application development and management market is still growing faster than the market as a whole. Due to new methodologies like DevOps and the increased “cloudification” of business infrastructure, the lines between IT Services towers continue to blur. This means applications become more front and center and the infrastructure that supports them becomes less important. We have seen more deals and more RFIs where applications and the infrastructure supporting the apps is combined.
Crucially, traditional application management is now largely commoditized, with new growth areas stemming from systems integration, application engineering, and design, enabling the adoption of new IT and digital technologies. Indeed, SaaS adoption is set to grow almost five times faster than traditional software product delivery, with many large businesses showing a preference for the As-a-Service model instead of capital investment.
In 2016, the number of contracts for Custom Application Development (CAD) and Maintenance accounted for 25% of the total market activity, whereas the application maintenance share reduced to 18%. In 2017, we expect customization to be the second service in demand under ADM, after SaaS services.
The Bottom-line: As the line between traditional IT services and OneOffice services continues to blur, we’ll see some traditional offshore-centric providers making the smart investments begin to reap the benefits
The professional services market has been kept buoyant with new technologies and digital. However, the pricing for professional services is increasingly at odds with pricing for operational IT services – with operational services becoming cheaper and more efficient over the past decade, through the use of cloud, better development platforms, standardization, automation and, offshore. This disparity between the perceived value of professional services and operational services is starting to show in customer attitudes toward consulting. This also creates significant opportunities for the offshore-centric service providers moving up the value chain to cater for broader transformations over longer team deals – such as the recent slew of TCS wins over the past few weeks.
While it’s been a “sluggish” couple of years for the likes of Wipro, TCS, Cognizant, HCL and Infosys (sluggish in the sense of only single-digit growth), we expect many of the investments these firms have made in their delivery capabilities to bear fruit over the course of 2018 and beyond – such as Wipro’s Holmes, TCS’s ignio, Cognizant’s BigDecisions, HCL’s DRYiCE etc. While uptake of many of these investments has been slow, we are now seeing many of them being embedded into longer, higher risk engagements, which should ultimately lead to more profitable, higher value delivery. On top of this, we are seeing Accenture lead the way with its concerted focus on digital solutions, but not every enterprise is ready to pay Accenture prices. And with IBM’s 23 consecutive quarters of negative growth finally came to an end, this may signal the firm is managing to balance its OneOffice capabilities with its struggling traditional business to better effect. On the flip side, those that fail to convince their shareholders they have to make the smart investments, will shrink and wither away like many of the monoliths of yesteryear (several of whom still limp along on life support).
All in all, we may finally be emerging from a confused couple of years, where the industry struggled to make the switch from the old to the new. Now the blurring if the lines is bringing higher value IT to the forefront and forcing many of the traditional service providers to up their game and provide more value. Expect more investments to follow and some erosion of profit margins to fund this next wave of IT service development… but ultimately renewed growth, which ultimately leads to a healthier, more buoyant and innovative industry.
Yes, folks, that was one of the key takeaways one of the delegates pointed out at the FORA Summit in London last month, where a very mature conversation took place about the real future of operations in this lovely robotic age (download your full copy here).
This packed-out event was attended by 120 senior executives, the majority being senior buyside enterprise clients, joined by the CEOs of the leading automation solutions vendors, practice leaders across the leading service providers and global advisors. and the HfS analyst team. This was a chance to get beyond that deluge of wooden marketing and sales hype that is murdering our sanity… and get to the real nub of the of the issues plaguing a confused – and fumbling – industry.
Ten Big Takeaways from the Discussions
1. RPA needs to move beyond the teenage romance stage. One delegate pointed out that RPA often started out like a teenage romance – a lot of fumbling around with enthusiasm that ends quickly, often leading to disappointment. Past events have focused on the importance of change management to the process, however, our recent study of 400 automation buyers shows that a lack of clarity around the business case is the major barrier to RPA adoption (change management rears its head after all the fun and games of implementing the software):
2. RPA hype is over and it’s nearing time to retire the term in favor of Digital Operations and the emerging Digital Workforce. Hype needs to move from replacement to enablement. The benefit of automation and AI are not reducing the workforce, but enabling machine to human and human to machine interaction. Helping enterprises and governments make better decisions with data. Building a more virtuous cycle with automation, decision making and data.
3. The Pace of Change Cannot Be Slowed – If You Aren’t Disrupting You Aren’t Surviving. Companies that view disruption as an opportunity and are not complacent are the most successful. Paranoia about the world ahead is your friend – driving staff to innovate and disrupt. Technology in this circumstance is a tool not a solution. Our customer panel said that there are ‘burning platforms’ already being created and businesses are going to have to come to a decision at some point soon to adopt. The supplier panel were agreeing that automation is surviving for big businesses and large enterprises have less than five years to sort this out.
4. The biggest challenge for Automation is the shift to scale. It’s not a technology problem, but an organizational change issue and how to achieve a broad set of outcomes at scale. Currently many implementations are sub-scale – tens or hundreds of bots instead of thousands they could potentially be.
5. Ultimately the world needs to shift its economic measure from effort to outcomes – where value is linked to achievement rather than the effort to achieve. The value of relationships need to be more interactive than ever, to make the shift towards outcome-based engagements, and away from effort-based.
6. The C-Suite is paranoid about the future and eager to make changes, while middle management is complacent and resistant to change. Culture is a major impediment to changing this dynamic. This requires a number of changes –change in the way companies operate, change in the skills that companies value, change in the incentives and the training that enterprises offer staff.
7. To adapt we need to constantly learn. This means better understanding of new technologies, better understanding of underlying processes and what can be improved. But ultimately it is about the best way to drive outcomes within the business.
8. We still need more use cases – especially as we look to Cognitive/ML/AI. As the hype shifts to higher forms of automation the need for use cases for all automation expands. There needs to be clearer understanding of where the value lies and where the process should begin. RPA is being passed over even when it offers 80% value for 20% cost and should be recognized as a valuable tool in an enterprise’s arsenal.
9. The purpose of digital is to bring humans and technology together. One of the panellists made the comment that digital was not about specific technology or about a transformation. “Digital” is about the bringing together of humans and technology. It is the interface, closing the gap between the two.
10. Change management remains a vital component of automation strategies. The difficulty in delivering at scale is exacerbated by poor change management and planning. It’s clear from our event in Chicago and in London that enterprise customers and service providers need to spend more time on planning to get automation to work effectively. One senior buyer representative said “change is not like flipping a light switch… more like a dimmer where it comes to full light over time and every new leaders is a new start.” So there needs to be a clear outcome and commitment – one of the main topics of conversation during the event was around the need for better change management to ensure that nothing is left behind in the race to transform. With important advice that “change management is about educating people slowly toward what the world will look like tomorrow”.
The Bottom line: Here are the anti-fumbling themes taking the conversation to New York this coming March…
To conclude the London summit and take the narrative onto our biggest and baddest FORA summit yet, the following four themes will steer the next phase of this industry mandate:
The Technology – a means, not an end. Data is the currency of transformation
Like with many new technologies, analysts, consultants and industry practitioners become obsessed with definitions and the demarcation between automation variants: in this case RDA, RPA, AI, Machine Learning, Cognitive, and all their permutations and combinations. Whilst this might be important for market sizing and positioning – many of the conversations in London reinforced the point that technology is a means, not an end – deemphasizing this definitional obsession. All these pieces of tech are tools, not solutions themselves. Without a coherent, end-to-end business transformation strategy, “dabbling” with automation technologies frequently does more harm than good, at best yielding only meagre results. Given the amount of potential disruption to legacy work practices businesses are facing, a deeper transformation strategy is required which will take automation at scale – “you need to go big,” as one participant put it, to get real benefit from automation. But first, organizations must map out the path to understand where they’re going. This brings with it another crucial part of the transformation recipe – data. Understanding the centrality of data to the digital enterprise – how to acquire, structure, interpret and act on it – is essential
The Value – shifting the metrics from effort to outcomes
Much of the discussion during the event focused on the outsourcing services industry, in part because that’s where the prevailing labor-arbitrage business model is under existential threat, and in part because that’s where automation technology is already being deployed at scale. During his keynote Phil Fersht observed that “Transactional outsourcing’s death throws began in 2012” – dating its demise to the rapid emergence of RPA. However, there is a new, business model within reach. Providers have meaningful experience with automation technologies and valuable know-how, while buyers desperately need expert help with design and implementation. What’s needed is a new value proposition – one that separates effort and time from cost and revenue, and shares risks and gains. “Clients will have to contribute value to their suppliers,” as one participant put it, and providers will have to become more innovative and willing to expose their balance sheets – in short, being less transactional and more consultative.
The Talent – taking the robot out of the human and putting insights back into the process
As has been discussed at the FORA and HfS Summits in the past – and as noted by Professors Leslie Willcocks in London, automation is not about replacing humans, automation “takes the robot out of the human.” Taking the mundane and process-centric tasks to free up employees to engage in more meaningful activities. Artificial Intelligence, on the other hand, augments and extends the human mind, empowering humans to make more consequential decisions. Together, they fundamentally change human behavior and workplace management paradigms. In the digital future, all employees will need skills in data analysis and interpretation, and middle managers in particular will need to be able to connect the work they supervise with the outcomes the business requires. Both must be granted what one participant called “permission to change” the way they have traditionally operated, and business must invest to equip them with new skills to succeed.
The Change Imperative – the way operations support the business itself needs to be redesigned
There is a growing awareness that we are at a step-change – a discontinuity – in business history. The challenge presented by digital and automation technologies can only be met successfully with a commitment to transformational change; incremental, tactical approaches will only yield limited results and risk failure. As never before, senior executives in every industry face existential decisions about the future of their enterprises, and will need to “make themselves uncomfortable,” as one participant put it – to re-imagine their businesses based on the centrality of data and digital relationships (see Technology above). They will need to shed the constraints of the “as is” and articulate the journey to the “to be.” Success will be measured not on beating last quarter’s results but on the ability to see and grasp the scale of change required and create a viable and compelling digital vision for what one participant called the “journey to improvement.”
Our Chief Strategy officer, Saurabh Gupta has been pioneering new research and vision across distributed ledgers, blockchain and smart contracts. In his latest POV, entitled “The Blockchain Reality Check. Where are we, and what can we expect in 2018?” Saurabh dives into what we describe as “Blockchain Six-Pack”, which describes six built-in features of blockchains that manifest into a disruptive potential over the long run for enterprises, when leveraged intelligently in relevant business use-cases. Net-net, the Blockchain Six-Pack is changing the way we think about business transactions, data storage, and even industry value chains and associated revenue models:
Distributed shared data over Peer-to-Peer (P2P) network reduces single points of failiure. The most fundamental difference between DLT and the way we store data today, is that Distributed Ledgers do not have a central administrator. A distributed ledger is replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. This allows information to be available across the network in a fully transparent and autonomous way, reducing single points of failure and enabling far better collaboration.
Consensus-driven trust cuts out the middle-man. In blockchains, there is no need to trust the middle-man as you don’t have one. Trust is driven by consensus algorithms such as proof-of-work (PoW) or Proof-of-Stake (PoS) or some variation of these. As a result, we don’t need to worry about unreliable, inaccurate, dishonest or overpriced intermediaries.
Immutable transactions ensure trust. Each block in a blockchain contains a timestamp and a link to a previous block. By definition, blockchains are inherently resistant to modification of the data. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks and a collusion of the network majority creating a single source of truth.
Hashing-based data ensures integrity and security. All records are individually encrypted. Blockchains use cryptographic hash codes to verify data that drives up integrity and creates strong resilience to cyber-security concerns
Automated smart contracts promote touchless interactions across process chains. Several blockchains also offer ‘Smart Contract’ functionality. These are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause. This allows contracts to auto-execute based on pre-set conditions or triggers and allows for much higher levels of straight-through It can even allow the millions of IoT devices to work autonomously
Permissioned and permission-less flavors give enterprise users flexibility. Much like public and private clouds, blockchains can be private (permissioned), public (permission-less), or somewhere in between (hybrid). These flavors give enterprises the flexibility to choose their solution based on their needs and preferences. Permissioned blockchains enhance privacy and take less computational power (so have higher throughput) but lack the Utopian trust that permissionless blockchains, such as Bitcoin, can bring.
Blockchain’s inherent features give it the potential to drive new touchless business models and disrupt existing ones by removing the need for intermediaries in the long-run. This results in significant increases in the speed, security and reliability of executive processes, transactions and interactions on both micro and macro scales. The potential is enormous, provided blockchains are adopted, sensibly regulated and executed effectively. However, HfS expects a five to seven-year horizon for blockchain to delivery fully, given the nascency of the technology and associated challenges. In addition, media hype and fake news, in addition to negative activity from threatened legacy stakeholders and other economic impacts, could impede adoption.
What can we expect from blockchain in 2018?
In the near term, we do expect blockchain initiatives to drive significant business impact and create a frenzy of excitement as ambitious businesses jump on the potential of new technology developments like never before. Use-cases around traceability through provenance and asset tracking, digitization of contracts leading to faster settlements, management of private data and digital identity will drive significant efficiency and effectiveness gains in existing business models. Blockchain can also become a source of competitive differentiation in the medium term by re-imagining IT infrastructure that is shared and decentralized, re-defining transaction management that is transparent and immutable and driving additional trust in multi-party collaboration.
We might not see the true disruptive potential of blockchains over the next 12-18 months, but we will see it become much more than a conversation topic with several use-cases that are generating tremendous business value for its constituents. And let’s not discount the levels of hype that tend to drive our industry in new directions, especially when the tech works. While digital, AI and automation have been the flavors of 2017, blockchain is gearing up to lead the hype in 2018, as enterprise leaders search for new levels of value that have genuine, proven business applications.
So don’t sit back and assume that the world is not changing, because very soon this funnel is going to flip. Go ahead and investigate blockchain!
HfS subscribers can click here to download our new POV: “The Blockchain Reality Check. Where are we, and what can we expect in 2018?”
The tech is here and is being proven, but are we really, truly ready to disrupt our underlying corporate DNA to exploit it to its full potential? Can we really change how we operate, think, collaborate and focus to embrace the new wave of data-driven transformation that is engulfing us? In true ballistic HfS style, we are bringing together some of the finest minds from enterprise buyers, academia, technology and BPM services to share how change can be realized – and how to venture outside of our comfort zone to get there. As always, this is a non-salesy sharing of best practices and research between the key industry stakeholders. No cardboard cutouts, plastic booths or dodgy salesmen… honest!
Source: HfS Research. 
