Unless your contact center clients are all blunt Bostonians like me, they may not be in your face about one thing they need that you’re not giving them – customer experience delight beyond the standard service delivery. Maybe customer service leaders get so harassed on the job, they just hate to complain themselves when their expectations fall short!
As a service provider hitting all your KPI metrics, delivering the services the contract requires, you might be completely oblivious to an undercurrent of dissatisfaction, even among your most seemingly happy service buyers. We interviewed many contact center clients for our recent Contact Center Operations Blueprint report and the one resounding piece of feedback, even from clients that achieved Winner’s Circle glory, was that service providers need to be much more proactive, in particular with improving customer experience. Omnichannel discussions have got them thirsty for ideas, and they want leadership and guidance. They are hearing “digital customer experience” everywhere and need help with how to approach it. So while business is humming along as usual, and buyers may not be telling you directly, they’re wanting a lot more from their contact center providers.
This is not to say providers don’t have the capabilities. There’s some pretty exciting stuff happening in this space, and contact center providers have been eager to rave to us analysts about things like omnichannel platforms, customer journey mapping, sophisticated analytics and the like, which could all somehow get baked into “proactive” ideas for clients. It seems like these value added services are landing on the ears of new logos, but many long term clients are unaware that their providers had these capabilities. In fact, most of the clients we spoke to were only using their service providers for basic phone and email customer service and not much else. No doubt being a trusted, reliable partner is still of prime importance; it’s the foundation of every successful contact center BPO relationship. A lot of these relationships are long term, stable, comfortable relationships. When things are going well, why rock the boat?
This doesn’t necessarily mean that buyers are lining up to jump ship on their current providers, but, as one buyer put it, regarding transforming for digital customer experience, “I started on this journey with them but don’t know if they can keep up the pace in the future.” Times are changing, and rapidly, for contact center dynamics. Consider that new HfS research covering 361 major enterprise buyers indicates that 15% of customer service/ sales support buyers are likely to change sourcing providers when their contract is up, combined with an increasingly competitive marketplace, and you realize that breaking up may not be that hard to do in this space:
Along with this need to showcase higher value CX services to key clients is also a recognition of legacy engagements that need to morph or face imminent danger of extinction. One buyer reference I spoke with from an office supply chain had 700 plus BPO agents, many doing data entry of B2B orders that are faxed in. He praised his service provider’s work, especially their ability to meet SLAs. This is problematic for many reasons. For one thing, in the short term view, OCR can likely do most or all of the work those agents are doing. For another, who still wants to submit an order via fax? This company needs to implement an online ordering system or will be out of business in short time. One way or another this contract is going away in the foreseeable future. So now is the time to take the opportunity to step up and to help roll out an automation strategy, assist the client with digital transformation and customer experience by designing and setting up web ordering…. or just wait a while and let it die a slow death on its own.
The Bottom Line: The comfort zone has become a deceptive place for unsuspecting providers
By not stepping up to this call for action, service providers are missing opportunities to establish better client relationships, leaving money on the table, and burying their heads in the sand about the quality of their client relationships—and the future of the contact center business. This business is fast commoditizing, with many providers chasing too few clients – if you fail to do anything more that the basics you could be in for a rude awakening come renewal time. So be proactive, go see you clients and ask them where they aren’t being delighted – and come equipped with plans to surprise them.
While we all are debating the impact of Brexit, I feel that Brexit will be advantageous to Indian engineering service providers in the long-term, both in the post-Brexit UK and EU marketplaces. And it’s not that I am biased as I cover engineering services sector – so here are some reasons for this hypothesis.
First, some context around the global engineering services outsourcing landscape. The global engineering outsourcing service sector is somewhat unique as it is dominated by European companies (mainly French, German and Austrian Firms). In the top 10 list, there are three French firms, two German firms and one Austrian firm. (Read HfS Engineering Services Top 20)
I don’t know any other services segments which are dominated by European firms to this extent. And there is a reason to this European dominance; product engineering is a core business activity for enterprises which many were unwilling to outsource in the early days of outsourcing, unlike transactional IT Services and BPO services which are not core activities and can be better managed by experts. Product manufacturers’ “secret sauce” that has kept them competitive, has traditionally been their internal design and make capability. It started with Airbus, which wanted to accelerate its product development to compete with Boeing and started leveraging local outsourcing partners to access the expertise it needed to be more competitive. This led to the scaling up of the French engineering outsourcing industry, as more enterprises saw the potential of outsourcing for engineering competency in a country with a strong engineering culture. Still, Airbus will be one of the biggest customers of all leading French engineering service providers and Aerospace being of the largest verticals. There’s a similar story with the German automotive industry. The German automotive firms started outsourcing to local outsourcing partners to accelerate product development to compete with US and Japanese automotive OEMs. In the last few years, there was a lot of M&A among the engineering providers and few French and German firms have scaled-up and surpassed a billion dollars in revenue. Still, European engineering services firms will have automotive and aerospace as their largest verticals.
In contrast, Indian engineering services providers became US-centric and followed general IT services industry footprints. Their largest verticals, for engineering services, are the telecom and software markets. In Europe, Indian engineering service providers have struggled to penetrate the French and German engineering sectors and compete effectively with the local European engineering services firms. When the overall corporate focus for the Indian IT service providers in Europe has been UK-focused, it has become difficult for engineering service providers to leverage their parent companies for to win business in Germany and France. Many engineering service providers have realized this of the late and started locating their senior management to Germany. Simply put, Germans like to buy from Germans and the French from French!
Now with Brexit, Indian IT service providers will reevaluate their European strategy and probably France or/ and Germany will become the center of the action. The language barriers will be taken care of. And this will help engineering service divisions to sell their story and capabilities better in the German and the French markets.
The other factor will be engineering demand in the UK. It is estimated that the UK is facing increased shortages of engineering graduates in the manufacturing sector. According to 2015 estimates from EngineeringUK, UK manufacturing sector needs, on average, 182,000 people annually with engineering backgrounds through 2022, and supply is only at 108,000 people annually. These numbers will be revised downwards post-Brexit, but it should be reasonable assumption that after Brexit, UK will face further supply crunches in the engineering sector as it will rely less on EU engineering talent. This will be an opportunity for Indian engineering service providers to get in and win the higher share of UK engineering services industry.
The Bottom line: It’s all upside for Indian Engineering Providers post-Brexit
There are lots of ifs and buts, but I don’t see any major potential downside to Indian engineering services business from Brexit. It can only provide further opportunities for Indian engineering service providers to increase their spread and penetration both across the EU and the post-Brexit UK. It’s the European service providers which need to worry more now!
There was a time when “learning on the job” meant you were an apprentice or a “newbie,” someone with little practical experience. However, today, “learning on the job,” is a critical activity to do all the time, as digital technologies and business models change the way we work, not a little, but quite significantly and often at a breathtaking pace. There is no defined curriculum for the pace of change in today’s businesses—it’s a capability we must all be very adept at—dealing with a constant flow of new ideas, new technologies and ambiguity that takes us outside our comfort zones.
The expectation today to drive faster time to market with new ideas, faster response to queries, and faster results from the work we do is also impacting the services and outsourcing industry. This industry grew up based on a culture of “getting the job done faster, cheaper, more efficiently”… and as those expectations are met… it’s still true. And because many companies can meet the cost reduction baseline, differentiation now depends on quality, innovation, and not meeting but beating expectations. And that means constantly evolving.
Do you need to shake up your outsourcing engagement to redefine the value and create a new way of working together? A way to bring “both sides” back to the table? To build on a trusted relationship, one that is collaborative? Nothing creates a team like solving a problem together. There needs to be some degree of trust in place—either through experience or through reputation and recommendation. Design Thinking is also gaining interest and traction as a way to identify and solve a problem as a team in a services relationship. The bottom line is that the way forward for outsourcing—service buyers and service providers—is based on willingness to learn… experiment… and start over.
On the Job: Learning by Doing is the way forward
To make it work, service providers—and many service buyers too—need to step out of the risk averse and “no fail” “yes” culture. By nature, Design Thinking requires more of a “learning by doing” approach. And it may take awhile to yield measurable results. In one example, a service provider launched a Design Thinking exercise to address a very general interest—to reduce the cost of their collections process. Reducing collections would help the client but also may hurt the service provider as that was their job. But this problem of the cost of collections is not unique to that one client or to one industry, so anything learned could likely be reused.
While the project was focused and undertaken with a specific client, the learnings, regardless of whether they led to more work for the client, would still increase the understanding of the service provider team of the consumers in that industry and the experience they were having at the time. In this way, it became a learning exercise as well. It also focused the service provider on the clients’ consumer base, increasing the understanding of the context of their work.
The interaction between the service provider and the service buyer’s customers brought to light some opportunities and challenges that would not have been noticed without a service provider employee “shadowing” someone living the process that had been in place for years. This effort was not about changing the process per se, but about changing the focal point from the process itself to “who” was in the process—to the experience and the desired outcome. That’s a pretty new way of working in the outsourcing industry.
From the observations and interviews, and studying data collected over time from its call center, the service provider came to the table with the client with an informed, but different, perspective, and with some ideas on what to do next. Some of these ideas were ones that interested the client and led to further plans and projects. Some were not, and others were simply put on hold. The point is, the service provider took the first step to say, let’s try this—with the client’s permission and participation—and invested in those first steps.
The Bottom-line: It’s about courage, budget and stories
This exercise tapped into the three partnership “Power Ups”—the courage of the service buyer to let the service provider get close enough to their customer base to interact with them personally; a budget for the shadowing and testing ideas; and stories—those of the consumers that drove the next steps toward change and business impact—and that of the project overall. Are you ready to tap into your inner “gamer,” and partner to Power Up to drive real, impactful innovation?
Superhero movies have been particularly popular over the past several years, but long before then they’ve been a staple of our culture. We love the hero coming to save the day, helping fellow citizens and making the world better. In the movies (and in real life) there are superheroes who save countless people from human trafficking, sweat shops, and other dangerous conditions. I want to be a superhero and do these things too. And guess what? I’m going to do it. How? By helping companies buy IT products and services ethically and by helping suppliers create new opportunities for themselves and their people.
Will you be a superhero with me? Here’s what we can work on together to make our world a better place:
Buyers, make it your mission to use sourcing for the good of your company and all workers/locations touched by a deal.
Source ethically. Searching for the lowest cost labor (and then negotiating even lower rates) often can lead to firms ignoring warning signs of poor ethical labor practices. Don’t be one of the companies that will choose the lowest price over a supplier that treats it workers fairly and gives them good working conditions.
Don’t rush through compliance and treat it as a “check the box” activity. Use compliance and regulatory requirements to shine a light on where your value chain can be improved. Try to exceed regulations on supplier ethics and work practices.
Monitor, test, and remediate on supplier compliance obligations. It’s expensive, annoying, and time consuming to audit whether suppliers were telling you the truth on their security, compliance, and other obligations. Do it anyway. It’s important for your legal and regulatory obligations. It’s also important for you as you try to make the world better. Hold your suppliers accountable – make them fix what’s wrong or pick different suppliers.
Suppliers, use new technology to create opportunities. Don’t just settle for doing the same thing with fewer people or for less money.
Use automation to find new ways to employ your talent and spend more on retraining before choosing staff reductions. HfS’ latest research shows automation taking away about 1.4 million jobs. Will you just take those jobs (and people!) out of your company, or will you find new things for them to do, new places to invest, new frontiers to explore? Don’t get lazy and settle for doing the same thing faster and cheaper. Find new things to do and create more opportunities for your people and your clients’ people.
Show clients your worker conditions and how you’re making the world better for your people and the communities where they live. Clients need to know you’re following legal and ethical practices. Go beyond that to proactively showcase the programs you have in place to enhance the lives of your workers. Turn corporate social responsibility into a differentiator.
Follow compliance guidelines in practice, not just on paper. Just like buyers need to make sure they’re not just “checking boxes,” suppliers need to make sure they follow the spirit of these regulations and use them to drive business and worker improvements.
Influencers (analysts, deal advisors, self-proclaimed evangelists,) Find and expose areas where the market is hurting workers and communities, and talking about ways to fix those areas.
Educate the market on opportunities coming from new technologies and service models. Many of us in this space are automatically attracted to new things and shiny objects, so this one might not seem difficult. But as you look at these new areas, get beyond the sunshine and roses to discuss downsides and how to avoid them or to balance those negatives by positives in other areas. Explain to buyers why ethical sourcing is important for their specific engagement and for the market.
Help buyers find suppliers who can collaborate on the superhero-mindset of the market instead of road-blocking it. Clients that want to find suppliers who are legitimately invested in avoiding issues like poor worker conditions need help from advisors who feel the same way. Make worker conditions, people issues, and other similar areas a more explicit part of selection criteria and educate buyers on how to validate supplier responses to those criteria.
Guide suppliers to find ways to deliver services that treat employees fairly, serve market needs, and create growth opportunities for both suppliers and clients. Just as suppliers should find ways to expand the market as new technologies emerge, influencers should work with them to discuss how suppliers can operationalize their ideals.
With no physical danger to ourselves, we can help stop poor working conditions, human trafficking, and a host of other challenges affecting the world right now. We only need to do our existing jobs well. I want to do that. I want to be a superhero. What about you?
At HfS, we’re growing fast in a very competitive and volatile market… and with growth comes change – but change is always good if you ask me! The most fun in jobs is when you have changed – you learn new things, get new ideas and you meet new people to help accommodate the change. Nine months ago, we needed to add more firepower to our sales function. To be precise, we needed top sales quality that could thrive with the HfS mentality and culture. We found that person in Samyr Jriri (see bio), and today I wanted to give you a little more background about him.
Bram Weerts, Chief Commercial Officer, HfS: Samyr, can you share a little about your background and why you have chosen sales as your career path?
Samyr Jriri, Vice President, Global Business Development, HfS: Next to having owned a small restaurant and antique furniture business, I started out working in the Telco sector here in Belgium. That was just at the time when the monopoly held by the – at that point – state-owned Telco provider, was broken up, and I joined it’s first big competitor. After spending about five years working for the two largest Telco providers in Belgium, I joined Microsoft where I focused on the upcoming Dynamics platform and later on became a generalist, managing a portfolio of top and mid-market clients. In those days I wasn’t too familiar with the research industry yet until I moved to London and joined Gartner. There I spent seven years, mainly working with startup and midsized tech providers, as well as helping set up the account management team for their Supply Chain business in Europe post the AMR acquisition during my last year there. After that, I went to Kea Company, a consulting business in the analyst relations industry, before joining the HfS team. Sales were always in my blood I guess, I always had an interest in this multi-faceted discipline, from the perspective of an individual contributor as well as from sales leadership point of view. It’s one of those arty sciences that touches upon many principals that are applicable in daily life. I also always enjoyed the meritocratic character of a pure sales role, where I think this philosophy had a motivating effect on me.
Bram: Why did you choose to join HfS?
Samyr: Being active in the research industry for quite some years, I was already familiar with HfS before joining. I guess HfS had a high likeability factor as a new upcoming brand, but my sympathy for HfS went further than that. The As-a-Service Economy really isn’t covered by any other analyst firm in the way that HfS does it, and it profoundly resonates with where the market is going. On top of that, I liked watching this ‘new kid on the block’ who came to challenge the conventional business models of the bigger analyst firms – and successfully so! Everyone talks about change, innovation, sharing and all that good stuff, but in practice, we often see the low-risk safety approach. So for a young research firm to put out 70% of their punchy and high-quality publications for free, shows a great understanding of how information and insights should be treated these days, as well as courage to do so in today’s economy. That was all before I got to meet the team here, where I discovered the pleasure of being part of the HfS family.
Bram: What are the focus areas on driving your revenue?
Samyr: The research and advisory business are all about the relevant exchange of information and insights that fuel business decision making. What we sell is not transactional, nor is it tangible, so relationship and trust are essential. In our efforts to grow the business, we focus on matching our capabilities against our clients’ priorities, as well as ensure that the ecosystem we build up is compatible with the trends we see happening in the market. Sales are the growth engine, which fuels the investments in talent and content, which in turn fuels business growth and market influence. This principal needs careful discernment.
Bram: What trends and developments are capturing your attention today?
Samyr: I think that we are living in great times, there is great insecurity of course, but great opportunity equally balances that. It’s a cliché sentence, but it seems that the fabric of our current organizational structures is being pressured so much that we will start to see real change in how people organize themselves from the bottom up. It can be observed in the business world as well as socially and politically. The automation trend is a great example; there are many doomsday predictions of disappearing jobs and the redundancy of human labor. This only used to be true for mechanical processes, today it is almost equally applicable to cognitive processes. It’s the organizations’ actual choices that will determine whether we will experience the automation continuum as positive or negative. One thing is for sure, at some point, the entire organizational premise on which automation solutions are built will need to be revisited. This will initiate the real change.
Bram: And what would you like to see different in the research / services industries?
Samyr: We already see the beginning of an important trend that I would like to see move a little bit faster: companies should refrain from taking a directive role towards their service providers by just telling them what they want from them and move towards treating them as equal partners, which allows for more dialogue leading to better solutions. Only when this dynamic is truly in place from both sides will we see real innovation. But it takes some time to learn to let go. It remains hard to let complete control slip through your fingers in exchange for projected innovation and improvement.
Bram: And, what do you do with your spare time?
Samyr: I love cooking; I am a bit of an audiophile, and I enjoy traveling as well as hiking.
Bram: If you could change one thing in Sales what would that be?
Samyr: I think a lot of sales efforts across markets have created a dynamic that is seen as normal when it comes to negotiations. If you can get a 50% discount on a deal, you might be happy with that cut. However, I see that as a total loss of credibility. Every company is trying to create customer loyalty, meaning no matter how transactional your business is, you need to build trust. A correct pricing strategy should therefore not allow for ridiculous discounts, which in the long term only creates unnecessary confusion with the buyer, as well as often cannibalizes long time opportunity for the seller anyway.
Bram: Thank you for your time Samyr, it’s a real delight to have you onboard and work with you in these exciting times!
Last week (see post) we revealed the true impact of the emergence of Intelligent Automation on the global industry of 15 million IT services and BPO workers, revealing a net decrease of 9% and ~1.4 million jobs.
The HfS future workforce impactmodel predicts the likely impact of the most recent wave of automation on the IT Services and BPO industry. We estimate that the current total IT Service and BPO industry employs c15 million in 2015, with ~3.5 million in India, ~1 million in Philippines, ~5 million in North America and ~4 million in Europe.
The workers within the worldwide industry have been divided into 3 categories: low skilled, medium skilled and high skilled. Low skilled workers conduct simple entry level, process driven tasks that require little abstract thinking or autonomy. Medium-to-High level workers undertake more complicated tasks that require experience, complex problem solving, ability to learn on-the-job and to work autonomously. The model then applies underlying growth rates for each category linked to market growth. Each scenario has a different set of parameters that will impact each level of worker setting out likely degree of automation for each group and the probability that the job will be automated and in what time frame this is likely to happen. You can read a fuller description of our methodology for our future workforce impactmodelhere.
The low-skilled United States and Indian services workforces are most impacted
So what does this look like when we drill down to the country levels of the main global delivery locations: UK, US, India and Philippines? Let’s start with the low-skilled positions, greatest at risk from robotic process automation (RPA):
(Click to Enlarge)
As the graphic illustrates, India is set to lose 640,000 and the US 770,000 low-skilled positions by 2021 – these are decreases of 28% and 33% respectively. This is largely because there are a large number of non-customer facing roles at the low-skill level in these countries, when you take into account the amount of back office processing and IT support work that are likely to be automated and consolidated across a smaller number of workers. On the flip side, the Philippines is expected to be the least impacted, due to its heavy reliance on voice-based customer support and high-touch healthcare operations work undertaken – and the location’s reputation for low-cost, high-quality services. The UK has a very large customer service call center industry, in addition to IT and back office clerical processing work, which protects the impact somewhat, but we still expect the impact to be high at the low-skill end (200,000 jobs at 27% decrease), especially with uncertainly over Brexit expected to drive enterprises to source to alternative locations.
Philippines, UK and India set to benefit the most from medium/high skills job creation by 2021
The whole counter-argument to job losses caused by automation is the new work created in the future to focus on higher value work. In addition, most of the low-end skills jobs are not being created in any case, hence many workers will be challenged to migrate and evolve their skills to take on roles with higher degrees of complex problem solving, autonomy, creativity and emotional intelligence. Based on the make up of the workforces, education levels anticipated service delivery work, we expect the Philippines to make the move higher up the mid/high value skills value chain (48% growth, albeit from a low base), the UK creating 131,000 new services jobs at 16% growth, India 160,000 at 14% growth and the US lagging with 7% expected growth at 173,000 new jobs:
(Click to Enlarge)
So what impact is all this having on the overall likely scenario to these countries’ service delivery workforces?
Overall, India’s services industry set to endure the largest negative impact with a 14% decline in its workforce
With 640,000 low-skilled jobs at risk, only being offset by 160,000 mid-high skilled jobs being created, HfS’ model predicts a 14% decline for India:
(Click to Enlarge)
The US service industry is also expected to suffer a notable decline with 12% total workforce reduction, with the UK at a more modest decline of 4%. The Philippines is actually expected to increase overall by 8%.
The Bottom-line: The advantage will go to those nations investing in the next waves of opportunities, not those stubbornly resisting innovation and obsessively trying to protect legacy business models that won’t be around in another decade
The good news is that the impact of automation isn’t about to have the Armageddon impact many outlandish futurists have predicted. However, I am not going to sugar-coat the impact advances in both automation an digital technologies are having on workforces, which struggle to change with the times. Enterprises today, which need to expand their operations, are not always going to look at extra headcounts to do it – if they need more insurance clams processed, they will want to ensure they have a platform in place to scale for the extra work (whether inhouse of with their service partner). If they have greater IT infrastructure management needs, they will look to better cloud-based orchestration tools to manage them. Simply put, the services industry grew up through more enterprises out-tasking work that was largely conducted by people. Now, the onus is shifting to using only people for tasks that require human skills that cannot be replicated in a piece of software – and this trend is snowballing as more tools for RPA and autonomics management are being widely adopted by enterprises and service providers alike.
The service providers cannot mess around here – their very competitiveness is at stake and they have to adopt Intelligent Automation aggressively if they want to remain viable and competitive with ambitious clients. This is creating a serious, significant issue for governments of countries with a heavy reliance on its workers providing outsourcing services for Western enterprises. India has enjoyed hyper-growth in its services industry for over two decades now, and this is the first time a decline is now setting in, in terms of worker numbers. Its leading service providers will maintain high margins for several years to come, but their growth through linear employee scale addition is on the slide. Half a million workers to be re-employed elsewhere is a large number, not the mention where the armies of “freshers” leaving the colleges are going to go. And let’s not forget the low-skilled employees not willing/capable of learning new skills and new ways of working. Meanwhile, the focus on affordable, multi-lingual customer work has been a masterstroke for the Philippines government, while the UK similarly benefits from a robust call center economy – industries core to their strengths in numbers.
In short, India needs to focus on new avenues for services job creation where it has strength in numbers and strength in potential. Engineering services in a bright spot, and so is analytics, with their being such a proficiency for data and technology from its services talent. Moreover, India has a very strong competency for process and, believe it or not, automation capability. So why not become a leader in helping clients access better data from better automated processes? Yes, the next five years will be the painful ones for India as we go through this transition from people to technology-plus-people services, but the five after that could well be a different story as enterprise crave more human-centric skills at scale that can’t be fed into a software object recording or SaaS platform. These are challenging times ahead, but where there is change these is always opportunity – and the advantage will go to those nations investing in the next waves of opportunities, not those stubbornly resisting innovation and obsessively trying to protect legacy business models that won’t be around in another decade…
We are all sick and tired of this conversation by now, so I’ll make this short and sweet (hmmm…. Maybe not so sweet). So now that the dust has settled what can we expect the impact of Brexit to have on the U.K. jobs market?
I’m going to steer intentionally away from the hyperbole here, as we’ve all heard way too much of that, and just focus on the raw facts. As someone with an Economics and stats background I like facts… (less sniggers in the back row please).
Let’s examine the bare facts behind this impending skills crisis:
UK job vacancies have increased 42% since 2013. Well, in the HRO world, we often speak about the mythical skills shortage. But what is the real situation in the U.K.? The revival of the economy, since the dark days of 2008, has created an obvious uplift in job vacancies. The UKCES Employer Skills Survey 2015 states that in 2015 there were 900,000 job vacancies in the U.K. (up from 600,000 in 2013), this 2015 figure represents 3.3% of total employment in the U.K. and indicates a considerable 42% increase compared to the number of vacancies reported in 2013. In addition, the percentage of organizations with vacancies has increased from 15% in 2013 to 19% in 2015.
Low growth in EU migrant workers moving to the UK. In the most recent ONS survey (U.K Labour Market: June 2016) we can see that at present we have 2.15 million EU nationals working in the U.K., this has grown from less than 500,000 in 2000 (year on year CAGR of 10%).
So from these figures it is plain to see that, yes there is a skills shortage and even with EU nationals “flooding” our borders and accounting for around 7.8% of the U. K’s workforce, there is still an increasing number of vacancies struggling to be filled.
So yes, right now the data would indicate that the U.K. is in desperate need for more talent and if that talent comes over from the EU, great.
In the short-to-medium term, the outlook for the UK skills market is bleak
Firstly, potential candidates from the EU looking to enter the U.K. will be discouraged by the uncertainty of free passage and working rights in the U.K, coupled with the lower real earnings in their home currency, due to reductions in the GBP/Euro exchange rate. Given the stated skills deficiency and the significant role EU migrants play, in the U.K. job markets, this is a less than ideal scenario.
In the long term, interest rates cuts, due to currency devaluation, should more than mitigate the potential fallout from Brexit and stimulate the U.K. economy. Now I know I’m getting dangerously close to the “what if” and deviating from the “hard facts”, but the empirical evidence of interest rate reduction effect on the U.K economy has been born out post the 2008 recession. This stimulus should further exacerbate the skills shortage already in place.
The Bottom-line: The immediate impacts of Brexit on the UK talent gap are all negative, however, with change often comes new opportunity
So where does this leave the U.K? Well, as can be seen from the evidence, the EU was contributing a significant amount of talent to the U.K. market, but even with this inflow it has still been insufficient to fill demand. Stifling EU talent inflow is only going to exacerbate the issue thereby leading to drastic measures whereby the government might be forced to falsely boost the U.K. job market through fiscal incentive. This represents a situation that no one, least of all, U.K. tax payers would appreciate.
Right now it would seem that to fill this skills gap the U.K. has to look further afield than the EU. Given the freedom Brexit would give the U.K. there could now be the opportunity for freer movement agreements with other English speaking nations including the U.S, Australia, Singapore, South Africa and India. Positively, within all these nations there is a substantial mix of both low, medium and high end talent available, the challenge lies in selling this to the U.K. public who have largely voted to leave the EU due to immigration concerns.
Any organization can quickly come up with a list of the top 50 partners with which they would love to work… identifying these opportunities really isn’t hard.
The real trick is to identify what you can offer and align these incentives with a company that fills one of your needs. Look for companies that might be able to bring in valuable customers and give you added credibility. The key is finding a partner with a similar vision who wants to find mutual value, “beyond the press release.” Chances are you are going to be working closely with these companies for extended periods of time, so it’s in everyone’s best interest to make sure the spirit, vision, and culture are all aligned.
Why are the strategic objectives so often forgotten in the hurry to get a deal done?
The stakes are always high: capital is always scarce, management always under pressure, and high-quality talent is in short supply. Challenging economic conditions so often compel those involved to ‘close the deal’ as quickly as they can. Whatever people say, the experience of partnerships is nearly always mixed; how often do partnerships take longer to negotiate and become harder to implement, than expected? We all know how people operate when they rush these things – they may look great on paper, but rarely deliver in practice.
Let’s face it; it’s time for a rethink and a fresh perspective on the structuring of strategic partnerships.
So here are ten questions to make your strategic partnership successful:
1. How does the partnership fit into the bigger strategic picture? The partnership may be significant in itself but should be seen in the context of other partnerships and other strategic activities. Are there under-exploited synergies or conflicting objectives?
2. Is everyone onboard? Cultural fit is often as important as financial fit and is often overlooked. Be sensitive to cultural differences – whether between organizations, industries or countries. The “softer issues” are often the most difficult to tackle, but the most lucrative when you get them right.
3. Are you afraid to iron out your differences? Identify the potential clashes between individuals, and any conflicting goals and ideas between you and your partner. Don’t just stay in the comfort zone; you need to deal with conflict upfront and find your common goals and outcomes.
4. How well do you really know your future partner? Anticipate and evaluate your partner’s value proposition – get inside their head. It will help avoid surprises and enable a solution that works for both parties.
5. How well have you defined and monitored KPIs for the partnership? It’s important that both parties agree on both “what” to measure but also “how” to measure it. Otherwise, you’ll struggle to call your partnership a success, or identify how to improve it.
6. How much ongoing evaluation and analysis are you doing? Continuous analysis and assessment or your partnership make you both more confident, agile and sensitive to differences in culture and approach, in addition to avoiding misunderstandings.
7. How positive and constructive are you in your negotiations? Framing the proposition in a positive, constructive manner makes a huge difference – ‘take-it-or-leave-it’ deals may appeal, but risk alienation and relationship breakdowns.
8. Are you prepared for disagreements? Establish review and dispute steps in the negotiation and implementation process early on – it avoids the potential for litigation and opens up new possibilities for challenge and improvement.
9. How many unanswered questions remain? Always raise questions or issues that have come from the analysis and preparation you have conducted – the path untrodden may have been paved with gold, or at least been an easier journey for all parties.
10. How much sponsorship with all stakeholders do you currently have? Communicating benefits along the way helps to keep up momentum and increase support with the parent companies – it also keeps spirits up when times get tough (which they will, at some point!).
Bottom-line: Creating a strategic partnership is wisdom and art combined. Like all areas of business, perception is still essential. It’s important to choose brands with an excellent reputation, but you also want to work with companies that will make good partners. When assessing a potential partner, look at which brands or individuals they’ve worked with in the past. Reach out to those brands or individuals and ask them how the partnership worked out. And don’t hesitate to reach out to those outside of your industry for a fresh perspective. It is ideal to cooperate with an organization that stays true to your key messages, goals, and demographics. Most of all, enjoy the ride. This “mini-MBA” will enrich your career forever!
The rapid onset of Digital business models is having a number of implications for developing a service provider – client contract, including:
Lack of defined outcomes: Engagements are starting to have a more open ended nature: the end result is not clearly defined nor are the steps needed to get there. Experimentation and agility are key characteristics of many new engagements.;
Challenges of embracing new tech: Accelerating change driven by more and more emerging technologies that affect the operating environment of enterprises and service providers;
Setting future milestones: Plotting a detailed course of action (and relevant KPIs!) over multiple years has become virtually impossible: one simply cannot know what one needs in 2 years’ time, let alone look 5 years’ ahead
I see service providers and buyers struggle to deal with this new reality.
Existing commercial models and contracting practices are no longer viable to capture the outcome of the engagement, let alone the spirit of collaboration, co-innovation and partnership.
The old way of contracting is not sustainable and leads to sub-optimal results in a Digital, As-a-Service world. What should the sales process, the contract, governance, contract duration and responsibilities then look like?
The big issue here is trust. In a situation that calls for innovation and new ways of working, there is a double trust dilemma. It’s the classic “agency problem” times two: neither party has an information advantage in the relationship and aligning interests is very difficult in situations with a lot of moving parts and uncertainty about goals and how to get there. Trust requires mutual understanding of people’s and companies’ interests and culture. A huge part of trust is predictable behavior, knowing what to expect from the other. Understanding each other and customers’ customer is critical in creating mutually beneficial relationships.
In typical (legacy) engagements today, many parties have failed to contract in a way that cements trust.
Thick documents, dozens if not hundreds, of KPI’s to measure performance, and other metrics, which all create a (false) sense of certainty. This hasn’t been terribly effective, as business environments change and KPIs often don’t as they are part of the contract, and it is even less satisfying from a perspective of really solving business problems. Business cases are often based on a best estimate or just plain guesswork as the glass ball gets more foggy as tech driven change accelerates. Enter even more uncertainty, velocity and tech driven change and it becomes almost undoable to define the goals and terms of contracts.
So what is the way forward for contracting in an age of uncertainty and novelty?
HfS is going on an ambitious journey to answer the key questions:
What ways are there to tackle the double trust dilemma?
How to deal with the open-ended engagements?
With more risk involved, is there a tendency to share risks? If so, how does that work out, what works, what doesn’t
What ways of contracting are actually enabling innovation rather than hindering innovation, new ways of working, collaboration and co-investing?
One solution we are exploring is that of an “Uncertainty premium” for the service provider taking on more risk in new commercial constructs. This uncertainty premium could be in the form of an “Innovation bonus” which entails achieving innovation and/or cost savings (with the savings earmarked for innovation). This approach could then drive budget for additional innovative work, benefitting both parties. One increasingly popular measure is the introduction of Robotic Process Automation into an engagement – one oil and gas firm stipulated that if the service provider can hit a 20% saving, that 20% will be added to a budget earmarked for innovation projects. Another I’ve heard is along the same lines but with the savings being earmarked for more industry talent / SME’s to be paid for by the client, and so introducing more quality and higher value work into the engagement.
We have launched our research initiative recently with selected buyers and providers. We will report back to the industry in twofold: a report and a session at the HfS Buyers Convention in New York September 14-16 2016.
Imagine if you have a clone which can do less interesting work for you, such as attending events, dialing conference calls, sitting in meetings, visiting doctors, meeting social obligations, etc. and can be present at different places while you are doing real work (for me, that’s reading a book or writing research in my study), how much productive you can be. Well, we don’t know whether we will have such human clones in our lifetime, but in engineering industry, digital clones are definitely beginning to appear.
Call it the digital clone, digital twin or digital thread, it is now possible to represent industrial products digitally – opening the door for amazing possibilities. It starts even before products are manufactured where all the data from design, analysis and manufacturing can be digitized and connected by a digital thread. This can lead to the construction of the digital clone or the digital twin of each manufactured product.
As Game of Thrones is driving the entertainment industry, the Game of Digital Clones will drive engineering services industry.
Take an example of industrial machinery operating in a manufacturing plant. Now a number of sensors can be placed on each machinery and its output can be simulated back to the digital clone. These sensors can track all machinery parameters such as vibration, temperature, humidity, etc. The exact behavior of the product can be simulated on the digital clone in the real time. Each industrial product is made of thousands of systems, subsystems, parts, and subparts. Imagine the ability to simulate behavior, not only at the product level, but at the system, subsystem part and even subpart level. What kind of insights and possibilities it can generate? And all this without stopping the products from working or tearing them down. All product information can be available, anywhere and anytime.
This will tell us when the product will need maintenance, when it can break, how it can react in changed circumstances, how it will be serviced, etc. All this intelligence can go back in designing better parts, better systems and subsystems and ultimately better products. Also, each OEMs have hundreds of tier 1 and tier 2 service providers and sharing this digital information with them can develop better products.
Initially, these digital clones use cases are largely for the optimization of existing products. However, this will be even more helpful in the innovation and design of new products. The digitalization of the whole process of design, testing and operation of new products, using digital clones, will significantly reduce the time from design to manufacture of new products. It can lead to challenge of some of assumptions we make while designing the products. Some of the engineering theories and best practices, which have stood the test of time for the lack of better data and experiments, can be significantly augmented with a digital clone model – this is about enhancing capabilities, not constraining them. And combine the digital twin with robotics, 3D printing, composites these are interesting possibilities awaiting us to say the least.
And digital clones don’t need to be confined to industrial machinery – cars, locomotives, planes, medical devices, turbines, pipelines, etc – any manufactured item can be digital cloned and improved. In fact, digital clones will move beyond products and vehicles to houses, buildings, factories – in the construction industry, they being applied in the form of BIM (Building Information Modelling). Governments are mandating construction of BIM, which will have details of all construction, plumbing, electricity etc at the granular level. Digital clones can be applied to whole towns or cities. We can go as far as privacy debate permits, but the possibilities are endless.
Manufacturing companies cannot play this Game of Clones themselves as their expertise is in manufacturing physical products, not developing software tools – they will need support in developing digital clones and exploring all possibilities it can bring with it, otherwise, they will be at a significant competitive disadvantage. Digital clones represent a golden opportunity for all consulting firms, IT service providers, engineering service providers and even BPO service providers. Like Game of Thrones, in Game of Clones, manufacturing companies will need all the help they can!
I think this is the most disruptive trend which is hitting manufacturing industry and this the backbone of Industry 4.0, the fourth industrial revolution. The combination of cheap sensors, storage, computing, analytics, and connectivity is enabling digital clones and Industry 4.0 now.
Considering its importance, our next two engineering services Blueprints will focus on uncovering this trend. This digital thread is driving adoption of PLM services and we will cover it in our recently launched HfS PLM Services Blueprint Study. In our next HfS Manufacturing As-a-Service study we will explore the digital clone and Industry 4.0 development in much greater details. If you are interested in participating these studies, please drop a line to [email protected]
On the closing note, engineering services providers which will not be ready to play Game of Clones will have to prepare for a long winter!
