Unprecedented pressure being applied to operations leaders to drive more value, without huge investment increases, is forging a dire need for the vast majority of service buyers and their providers to change how they work together. The legacy model of “we pay, and you deliver for cheap and we don’t really want you getting involved with helping us do things better” has to change. Otherwise, enterprise leadership will find new service partners and operations heads to take them forward.
The simple fact that 80% of services buyers simply aren’t engaging with their providers in a collaborative way, as revealed at last month’s buyers working summit in Harvard, emphasizes how critical it is to infuse the methods of Design Thinking into most of today’s flagging engagements:
So we set out on a unique Blueprint research exercise, led by myself (Phil Fersht) and supported by HfS analyst Hema Santosh, where we interviewed a host of enterprise clients on their experiences with Design Thinking exercises with their service providers, using our new Blueprint Methodology to assess their innovation and execution performances. Many of these clients were not the usual rose-tinted reference clients heavily wined and dined by the providers – they were from the HfS buyer community, who could give us an unvarnished, honest appraisal of their Design Thinking exploits.
We focused on those leading service providers, currently involved with Design Thinking as a key component of their As-a-Service delivery model. While we acknowledge there are many design boutiques and consultancies out there, we specifically focused this Blueprint on the capabilities of the leading outsourcing service providers.
And this is how the emerging service provider landscape is taking shape:
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Phil, why is Design Thinking so relevant to the future of outsourcing?
Most of the outsourcing industry is still trying to figure out what’s possible beyond doing labor arbitrage really well – because that’s what we do. Sorry, but there I said it – we officially have an identity crisis.
We’re trying to forge a new identity for ourselves and re-imagine what our careers, our services and our platforms could be like if we only figured out how we can define, prioritize and realize business outcomes that are valuable, as opposed to merely keeping the same old factory ticking over at the lowest possible cost.
Digital technologies, robotics software, analytics tools, BPaaS platforms and artificial intelligence can only be effective and impactful once enterprises have re-designed their processes in a way that drives them towards their desired business outcomes. This has always been the case with (now legacy) ERP implementations, where thousands of clients have blown billions of dollars on enterprise software they simply never could mold effectively to their businesses. They weren’t finding problems to solve, they were creating new ones they didn’t need in the first place.
It’s the same with the next wave of As-a-Service solutions – they will fail without the right approach to designing processes that produce the desired results. In short, “As-a-Service” is about a business model transformation – and how it can be empowered by digital technology, made more effective and intelligent by automation and cognitive computing, made possible by smart change management and made trustable by proactive security deployment. Hence the need to design this seismic change, in terms of both talent and solutions, is what holds the keys to the promised kingdom.
Without Design Thinking, enterprises are really just retrofitting expensive solutions into legacy processes and likely wasting a whole load of time, resources and money. It all starts with Design Thinking.
Design Thinking, and new creations of Design Thinking-eque collaborative methods, are increasingly important ways to bring together new concepts and ideas, better teamwork, and ways to design outcomes jointly that can incorporate investments from both sides.
Design Thinking is helping several relationships inject lateral thinking and renewed motivation to work together, not only in the customer-facing front office, but also in the back office operational functions. Design Thinking in services is based, primarily, on both service buyer and provider coming together to create business outcomes that are mutually beneficial – and motivational – for both parties. However, this must be established as ongoing collaboration across all key relationship stakeholders, and not simply two days of senior management putting sticky notes on each others’ foreheads. There must be senior pressure and buy-in to adopt Design Thinking as a means to move away from Six Sigma-obsessed old world models, and really change the way the service buyer and provider teams work together.
What are you seeing on the service provider side for engaging with clients with a design mindset?
We’re seeing encouraging signs from several providers aggressively promoting Design Thinking techniques, such as our early leaders Infosys, IBM, Cognizant and Accenture (see above), into their engagements, but this is still restricted to far too few a number of buyers at this stage.
We have been impressed by the focus from Infosys, where their CEO has personally hired a team under Sanjay Rajagopalan to train all staff on Design Thinking methods and embed it into all RFPs over $50m in value and drive some significant engagements worldwide across both IT and business process areas. IBM has made significant investments in its global centers, with over 600 designers working in 20 schools worldwide and has engaged its entire leadership team in Design Thinking workshops internally. Cognizant impressed us greatly as a firm where a design mentality is native to its hyper-development and growth in recent years – and its determined focus on digital has Design Thinking at its core. Accenture has made recent investments to infuse Design Thinking into its engagements, which is a unique challenge for a firm that has evolved with a client/partner model, but we were, nevertheless, encouraged by the significant investments being set aside by its operations group, with specific focus from its strategy lead, Michael Corcoran, to As-a-Service model with a Design Thinking ethos.
We also saw determined efforts to develop a Design Thinking mindset from other leading service providers during our study, such as Genpact in F&A and its Lean Digital approach, which has a real tie-in to Design Thinking. Infusing design concepts into a function as slow-moving as F&A is challenging, but Genpact is one of the most proactive providers in the market in pushing its clients hard to re-imagine their finance and procurement processes to be more effective. Wipro‘s acquisition of Designit has advanced its Design Capabilities in digital areas and its new CEO, Abid Neemuchwala has come from a heritage of rethinking roles and capabilities from his time building up the TCS BPS business.
Sutherland Global Services‘ focus on providing Design Thinking engagements in marketing and customer support areas has been impressive, which includes two of the largest technology firms in the world. In addition, TCS has been pushing various flavors of Design Thinking for sometime, especially with financial services clients, while EXL‘s EXLerator framework incorporates elements of Design Thinking and promotes the mindset with its ambitious clients. Other providers we expect to see emerge in the future include Concentrix, an innovative leader in the contact center space and Capgemini, which is busily integrating its IGATE acquisition, but has some real potential, especially with its global process model and robotic process automation.
And where does Design Thinking fit into the As-a-Service continuum, Phil?
Being successful in the As-a-Service Economy requires ambitious service providers to make fundamental changes to their whole approach to service design and delivery. At the heart of this evolution, is a shift to service solutions being designed with real business context, as opposed to simply “looking at a process”. This involves a genuine focus on approaching and interpreting a client’s challenges, identifying and experimenting with opportunities, and ultimately evolving these approaches into the service delivery.
HfS believes that “traditional” capabilities, such as Six Sigma-based process design and execution, while essential to delivering the efficiency benefits of traditional sourcing, are today standard, commodity-based capabilities embedded into any standard service delivery model. We believe that a new Design Thinking methodology must be front-and-center that imbues the full spectrum of human-centric design ethos. HfS’ Design Thinking methodology is based upon a more responsive relationship between the service buyer and the provider, one that is open, empathetic, experimental and yet efficient.
There is no one best way to apply Design Thinking, but there are useful starting points, and we believe the HfS Design Thinking for Outcomes Continuum to be a valuable and meaningful way to think about how to solve problems in designing services for the As-a-Service Economy:
We firmly believe 2016 to be the year in which Design Thinking comes to the forefront of the sourcing and services market. It will be the time during which service provider leadership teams are sent to design camps, and a whole new set of conferences and workshops feature Design Thinking as their theme of the moment. Some of that may be hype or even unnecessary, but at the root of it, the arrival of Design Thinking into the mainstream of the IT and BPO services world makes sense to us as a way to re-imagine more effective process-based solutions for this increasingly digitized As-a-Service world.
So what are the key takeaways you would like to leave people with, before they download the report?
Design Thinking for outcomes is a real methodology that enterprises can understand and embrace today, as opposed to five years’ time. However, while we believe Design Thinking will firmly take root in IT and business services in 2016 as a methodology to drive genuine collaboration and creative ideas, at the end of the day, it is still just another tool. What you make of it depends on the intent and practices of its users, whether individuals or organizations.
This approach will not be easy for some legacy service providers who cannot yet see how the world is changing – or can see it but are paralyzed to do anything about it. For those service providers and their enterprise clients which can see that thriving in the As-a-Service Economy requires new approaches and capabilities, we see a real potential to use Design Thinking in the move from the present into the future.
Getting new digital processes and services right from the perspective of their end users is critical, especially as this is really about a business model transformation that is enabled by digital technologies. Design Thinking, which is about context and empathy for the user, can facilitate this focus. It will be an integral part of the emerging As-a-Service provider offerings, many of whom are already rapidly emerging to redefine the market.
Following on from our recent discussion on Social Intelligence, I drew some real inspiration from this recent speech from Bollywood actor R. Madhavan, who touches on three critical elements for success (combined with your sheer determination to succeed and to seize opportunities):
Situational Awareness: Being completely aware of everything that is going on around you at all times;
Good Manners: Being courteous and pleasant at all times really helps makes the most out of opportunities when they come along;
Strong Communication: Being able to express your desires, capabilities and determination to be successful will help you maximize opportunities when they come knocking.
In November 2014, we released the industry’s Maturity Model for Robotic Process Automation deployments. The model provided a guide for what service providers and enterprise clients must do to become proficient and scaled in achieving the efficiency and cost benefits that this technology can provide in business processes and IT delivery.
Author of the RPA Maturity Model, Charles Sutherland, is Chief Research Officer at HfS (Click for bio)
Now Charles Sutherland has updated the RPA Maturity Model and has created a service provider-specific version. Soon he’ll publish a version specific to the enterprise environment as to highlight the differences but also to recognize some of the commonalities in strategy and operations between the two as well.
The RPA Maturity Model is designed around two different components. The first component is comprised of 17 elements, each of which covers different aspects of RPA strategy or RPA operations that have come out of the dozens and dozens of discussions, briefings and site visits over the last 3 years. The second component is the levels of RPA Maturity that can be used to assess comparative states of RPA maturity across the Elements.
There are now four Levels of RPA Maturity, three of which are uniquely defined based on the requirements of each of service providers and enterprises and one of which is a shared Level for the integration of RPA between service providers and enterprises across the same business and IT processes.
Charles Sutherland is Chief Research Officer for HfS. (click for bio)
Amidst all the feverish talk of acquisitions and divestitures in the services industry of late, spare a thought for one dynamic service provider focusing its growth the organic way: Genpact. The business process service giant has been stealthily hiring talent left right and center in recent times – mainly from its competitors – as it sharpens its focus on operations services in the finance, procurement and supply chain business services markets.
And we’re impressed with its latest deal – the absorption of respected procurement consulting firm Strategic Sourcing Excellence (SSE), which propels Genpact’s procurement-as-a-service capability to the forefront of the market – at a time when procurement BPO decisions are increasingly being made by the CFO, which is where Genpact rules the roost. Hence a timely move and a smart play to really get to grips on this market. So who better than our own procurement guru, Charles Sutherland, to take a closer look at this integrative move and its impact on the global procurement-as-a-service market space…
Movin’ On Up In Procurement Outsourcing
In June of 2015, we published our HfS Blueprint on Procurement As-a-Service which the continued evolution of this market around end to end and modular solutions enabled by cloud technologies and supported by ever deeper category management expertise. At that time, we placed Genpact as one of our “High Performers” with strengths in transactional procurement, process automation, geographic reach and a focus on continuous improvement. But we also felt that by comparison to the market leader Accenture, Genpact still had to further develop capabilities in category management, market intelligence and transformational procurement consulting to challenge for a leading position across the entire market.
We thought that Genpact would likely combine an inorganic acquisition strategy with organic activities such as the aggressive recruitment of category managers and rolling out new technology investment to make a push to move into our Procurement “Winner’s Circle” in 2016. And while we saw signs of the organic activities from Genpact in the 2H of 2015 as some of the other service providers stayed put, we kept waiting to see a coordinated inorganic play as well as 2015 came to a close.
So, now it’s here, the announcement that Genpact has pulled off a combined inorganic and organic play with the announcement of the integration of the transformational procurement consultancy of Strategic Sourcing Excellence (SSE) led by former Astra Zeneca CPO, Jon Kirby. Jon will be joining as the new lead for source to pay services within the CFO Services and Consulting Groups led by Shantanu Ghosh.
The Bottom Line: This may not be a “bet the farm” deal monetarily, but it does show Genpact’s determination to deliver transformational procurement and compete in the HfS “Winner’s Circle” in a market, where access to experienced talent is critical
As we have noted for the last several years, it’s a continuing struggle for all of the major procurement service providers to attract and retain sourcing and category management experts. It’s a “seller’s market for procurement buyers” if you will. Since consulting skills and category management talent are what is key to driving benefits for enterprise clients in procurement outsourcing, they have to be sourced. Hiring individual talent is a time consuming and risk strategy but it’s also easy to over-pay for talent in an acquisition who might not be properly incented to stick around after the deal is done. So there’s an inherent logic to buying just enough talent and leadership to then accelerate the effectiveness of the organic investments as well, which is what we believe Genpact has decided to do.
Genpact can make it into the HfS Winner’s Circle for Procurement As-a-Service in 2016 if Shantanu and Jon use this investment to enhance Genpact’s existing procurement capabilities in the following ways:
Drive the further adoption of As-a-Service solutions and commercial models and to move Genpact away from its historic focus in transactional procurement deals that were build around FTE or transaction based pricing alone.
Respond to the demand from clients for greater depth in category management (on-shore and off-shore) both in broad indirect categories of spend and in niche areas where the long tail of spend in a client creates cost and operating challenges today.
Retain the recent category talent and create momentum for new talent to pick Genpact (rather than other service providers) as a first choice for procurement career development
Reinforce the existing investments in spend analytics and operating insights with a greater business results orientation rather than performance management analytics alone.
Expand the investment in process automation and cognitive tools to replace human agent involvement in procurement processing as well as in sourcing and category management tasks.
Maintain the incumbent relationships for transformational consulting skills with third parties such as AT Kearney to supplement the still growing reach of the source to pay team inside Genpact.
Develop both end to end transformational consulting based solutions for enterprise clients in key verticals while also allowing clients to source more modular, technology and expertise based offerings as required.
The procurement outsourcing market is already one of the most “as-a-service” of markets today but it continues to evolve rapidly and in that time of change there is a real opportunity for change in the structure of the market leaders. The time is now in the adapted words of ‘70s TV character George Jefferson to be “…movin’ on up … to a deluxe position in the Winner’s Circle.. we finally got a piece of the pie”,
I was intrigued by Drupal’s creator (the open source content platform upon which HfS is built), Dries Buytaert’s, claim that “Data is Eating the World”, a contrarian viewpoint to Marc Andreessen’s famous 2011 quote that “Software is Eating the World”.
In short, Dries is correct in his view that the value is no longer really in owning the software, it’s in owning and orchestrating data powered by huge internet-enabled communities. And it’s also very appropriate to take this viewpoint when we look at the future of operations and service delivery, which I’ll get to soon. But first, let’s peruse several real-world examples where data is king and the orchestrators are not from the world of traditional businesses, including one that is very close to home:
Yes, HfS makes the list because we extract data from thousands of enterprises and create a service to empower them to make decisions and stay informed – in real-time. We do not need to invest fortunes in collecting that data. We merely are the orchestrator of the world’s largest community of service buyers and use digital tools and smart analysts to empower and inform our clients. We do not need physical offices in every major country, or armies of sales people to drive business. We let the community come to us and we facilitate the research data collection to reach our global participants.
And it’s the same in all of these other markets – the legacy (former) incumbents can see exactly what is going on. But sadly – for many – it is already too late to disrupt their revenues and survive. The sad truth here is that if you already know you’ve been disrupted, it’s probably too late.
The Bottom-line: The services winners are shifting the model from proprietary software and people scale to qualitydata creation and capability… as they make the true leap to true As-a-Service
A similar disruptive trend is occurring with regards to service delivery. Gone are the days when owning proprietary technology – and global capacity – was king. Yes, there are certain discrete segments in which owning software tools provides real competitive advantage (such as procurement and supply chain), so some providers can still steal a march on their competitors. But as more and more software apps become increasingly accessible and industry-standard, the value shifts to the quality of data and business services providers can offer to optimize the software platform, as opposed to providing the software itself.
Today, software is the commodity – any service provider can slam in a Salesforce, a Workday, a Sage, a Blackline, a SmartStream, etc. The value the service provider needs to build is in the data model templates that can be standardized across multiple clients, tweaked when needed and delivered by service talent that understands the data to really empower their clients.
Owning vast software and infrastructure resources is becoming secondary to being the orchestrator of core enterprise systems-of-record data. Today, we are seeing several exciting niche as-a-service providers spring up where automation is already native to their environment, where they do not need the massive people scale of yesteryear to deliver processes which should be standardized and much better automated today. The more ambitious clients focus on outcomes with their partners, the more the onus will turn to the quality of data being managed and analyzed, and the winning providers will be those who can do this using much smarter technology and people capability – at much lower cost to the customer.
And being able to orchestrate the delivery across multiple clients creates powerful process data templates that are much more “plug and play” for clients than in the past. This isn’t new, but it’s really evolving, and the availability of better tools and robotic automation, coupled with the advent of cognitive computing and advanced analytics, are the accelerants for providers to become true orchestrators of their clients’ collective experiences and best practices, as opposed to owners of proprietary applications and legacy lock-in systems.
I’m personally excited by the advent of these As-a-Service providers. Facilitating and empowering the core data of the enterprise is where the real value is. This is the “lock-in” of the future: not holding clients hostage to software licenses, but instead holding them ransom to the value of the data you are enriching for them.
If you haven’t been bored silly listening to all the rampant change we are about to endure from literally every information outlet (and we are also complicit), then this data point from our recent Harvard Buyers Summit will open your eyes. Simply put, when we anonymously polled the service provider leaders in the room on what they really thought about buyers, half of them view them as only pretending they welcome change, and don’t really want to:
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On the positive side, 50% do want to change, but most struggle, but the fact that so many are only paying lip service to their peers, colleagues and service partners is a real issue. How can you effectively target clients you can grow with as a provider, if you can’t really trust the intentions of half your clients? And how can you drive initiatives as a buyer, when most your colleagues really do not have any interest?
The Bottom-line: You must weed out the change imposters if you don’t want to go down with them, or find another employer who promotes change
Smart consultants and practitioners are those who can quickly read their colleagues to find out if they genuinely are prepared to do things differently – and make real efforts to learn new methods and create new ideas. And this is really done through the legacy old school techniques of developing close relationships. You’ll learn more about someone’s attitude and approach over a few drinks or a nice dinner than sharing big words and corporate pleasantries in a boardroom.
Your skills to collaborate and engage with people is critical in identifying where people need to change, and how we can all improve as a team. This is where methods like Design Thinking are so important – there is little hiding from initiatives where the outcomes are clearly defined, prioritized and an execution plan is put in place. If people really do not want to embrace change, then they can’t hide forever, and clearly many are in this camp. However, if you surround yourself with unambitious people, they will eventually throw you off their sinking ship to save themselves…
Alternatively, if your company is fully laden with change-imposters and there’s no simple way to avoid them, despite your best efforts, then get out of there now. You owe nothing to an employer unwilling to foster change and encourage innovation, and there is such a talent shortage in industry these days, you’ll find plenty of firms willing to take you on with your attitude…
Utilities organizations are under real pressure on many fronts to improve their operational performances, with many are facing competition for the first time as a result of deregulation and feisty competitors offering genuinely disruptive solutions.
We asked HfS Research Director, Reetika Joshi, to take a deep look at the marketplace, with the resulting HfS Blueprint Report: Utilities BPO 2015 looking at traditional BPO services, in addition to emerging As-a-Service platforms and evolving commercial models. Plus, Reetika uncovers robotic process automation (RPA) and analytics in service delivery.
So let’s get an up-close view from Reetika:
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What’s on the minds of utilities services buyers, Reetika?
Our Blueprint research shows that utilities face a harsh reality in dealing with a burning platform for change today. They need to address three sets of sweeping industry forces:
Rapid innovation to grow top lines, with new energy sources, distributed power systems, changing business models, more smart grid and meter rollouts, more deregulation and a new breed of competitors ranging from internet companies to cable providers.
Customer centricity to differentiate, with consumerization that has driven customer interactions onto digital channels, changing preferences with rising environmentalism and technology advances and customers’ need for more control in energy types, sources and efficiencies.
Operational efficiency to manage bottom lines, with the global decline in power demand due to greater energy efficiency, constant debate in regulations over environmental and market policy measures, aging assets that need to be maintained and retired while acquiring new ones, and the resulting outdated legacy systems, internal structures and operational environments.
Report author Reetika Joshi, HfS Research Director (click for bio).
How does this impact BPO…what is the state of the utilities BPO market today?
Utilities BPO engagements have fulfilled very traditional needs in the last 15 years. Buyers have leveraged third party service providers predominantly to administrate their meter-to-cash operations. These volume-based activities require processing power for growing customer bases, and service providers filled the gaps well, from customer acquisition, contract processing, account maintenance to billing and cash collection. A large part of the work involves intensive call handling for support services such as debt collections, onboarding, complaints, inquiries, outage reports, etc. Cost pressures led utilities to further outsource ITO, supply chain and procurement, payroll management and accounting services. We are still hearing about interest in such traditional BPO service delivery built on labor arbitrage and process consolidation, as a section of the utilities market is still new to outsourcing and risk-averse. However, we expect this model to change in the medium to long term as As-a-Service components make their way into the mainstream.
Service providers have been instrumental in writing off legacy from a technology and consulting perspective. They have seized the opportunity to help utilities gain agility and speed to market on new product development and deriving value from smart meter and advanced metering infrastructure deployments. BPO operations are now a derivative opportunity for modernization after system upgrades. In some cases, service providers that have a long history of working with utilities have taken big leaps in bringing in automation and analytics in meter-to-cash, asset management and horizontal processes to realize new value. Others that are domain experts in customer experience are taking utilities along the journey to customer centricity similar to other retail-facing verticals.
So who’s winning in utilities by adopting an As-a-Service approach?
The HfS Winner’s Circle For Utilities BPO features service providers that have invested heavily in vertical-specific innovation in the last couple years. In the last two years, we see a heightened focus from leading service providers on enabling service delivery for true value creation — away from labor arbitrage, where large deals primarily constituted re-badging of FTEs, selecting basic SLAs and lift-and-shift of processes to the service provider.
The Winner’s Circle includes Accenture, EXL and TCS:
Accenture — demonstrating an advanced capability for utilities As-a-Service spanning platforms, automation and analytics
EXL — a partner willing to invest and evolve with utilities clients towards Smart operations
TCS — one of the largest meter-to-cash service providers pushing RPA to the forefront of utilities operations
EXL and Accenture are playing a greater role in core utilities operations such as field force management and support using predictive modeling and forecasting to optimize labor effort. Both are also developing offerings to support new operational areas such as new energy solutions and smart services. TCS has been instrumental in building collaborative engagements by committing to outcomes, gainsharing and using RPA and analytics to improve utilities operations.
The High Performers in this Blueprint include Capgemini, WNS and Vertex. These service providers all have over a decade of experience in running BPO operations for utilities clients. They have varying concentrations of geographical experience, across continental Europe, UK and the US respectively. We see the potential for differentiation with all three, with Capgemini’s thought leadership on smart grid and AMI technology that needs to be better integrated with BPO, WNS’ customer journey frameworks that utilities are finding to be extremely relevant, and Vertex’s evolution from a customer care BPO brand to an As-a-Service provider with its new customer interaction platform, VertexOne. It will take these service providers some time to bring scale to these advances in their utilities BPO portfolios, and we expect significant competition exerted by them to the Winner’s Circle providers in the near future, depending on the client geographies being targeted.
What’s next for this market?
The industry challenges for utilities service buyers that we outlined earlier resonate well with leading service providers. They are increasingly aligning themselves to deliver on such outcomes through a range of offerings and partnerships to bring the best-of-breed technologies and services together for utilities clients.
To continue to add value, service providers will have to develop and demonstrate the following capabilities in the next few years:
Significant expertise in various intelligent automation technologies to automate back-office processes and release FTEs in legacy contracts in meter-to-cash, F&A, and HR.
Flexible commercial models, especially for new energy products and services where utilities require more variability to test market demand.
Developing multi-channel customer interaction services in multiple geographies, particularly 24/7 support for critical interactions such as fault and emergencies.
Continued evolution of smart service offerings as service providers get more hands-on experience with new deployments.
Consultative support and collaboration tools such as design thinking methodology to orient utilities operations around the customer journey.
Overall, we see a growing appetite for change with utilities services buyers, but execution will be entrusted gradually to domain/geographic experts. HfS sees utilities services buyers starting to realize that they need to fundamentally rethink their business models and operations, spurred by industry disruption. Being asset-laden and capex-intensive commodity providers traditionally makes it an extremely challenging environment for driving internal change. It will thus take this vertical longer to write off legacy and execute on strategic priorities that are being set now. However, the ones that can engage a broader ecosystem of partners to play catch-up on consumerization and new technology investments will see greater differentiation, even with the pace of regulatory and industry change underway today.
It’s on… 2016 is the year that will separate the service dinosaurs from the savvy cannibalizers, as revenue growth slides towards negative territory and the onus shifts from selling more buttocks on seats to maintaining sexy profit margins.
Cutting to the chase, the technology and business services industry is becoming a very different place, and those of us failing to adapt, should start considering alternative career plans. I hear massage therapy is in high demand these days…
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So what will really happen as we embark on our negative revenue growth journey? Here are five scenarios detailing how this will play out…
1) Big sucks – especially for providers… so get smaller and smarter. You’re still huge, clunky, siloed and political, constantly looking at “new” ways to reduce the workforce, while only being allowed to bid on big legacy deals, where the advisor is (still) squeezing everyone for price and your marketing team is still pretending you’re delivering nextgen solutions to clients (which you really aren’t). Under all the swirl of nonsense, you’re strategy is still really all about carting in even cheaper, younger kids from even cheaper, more remote places, and quietly ushering your burned out middle-management the exit. Meanwhile, as the allure of big provider life fades, many of the stars you want to keep are getting enticed by the thriving start up scene. Yes, people, being big and clunky is an increasingly crappy place to be, and many people reading this will be nodding violently that this is where they, quite frankly, are.
2) The mid-tier BPOs and up-and-coming As-a-Service providers have a great opportunity to steal the show. You either need to find sole source clients prepared to co-invest with you in their futures, or start to cater for new-gen deals that force you to build out your multitenant delivery
infrastructure to entice future clients. Believe it or not, these are interesting times for the mid-tier BPOs which can scale down for smaller deals and build out BPaaS capability for the future. Watch out for the likes of EXL, WNS and Sutherland which have all been active with the smaller stuff this year (while growing their business at a healthy clip). Other mid-size providers worth keeping an As-a-Service eye on are OneSource Virtual, which recently expanded its Workday-based HRO offering to accommodate FAO, Aassonn’s focused play around SAP Successfactors and Equiniti, a UK-based services firms very focus on BPO services tied to finance and banking technology. Also keep tabs on the ambitious contact center providers, such as Concentrix and HGS, which are verticalizing their offerings and leveraging new technologies and talent strategies to take on higher value work with much more scalable models. We are truly witnessing the convergence of BPO across the horizontal and vertical domains.
3) Disrupt your competitors’ business upon rebid. This is where things are going to get really interesting. It’s hard enough making revenue sacrifices (a.k.a. cannibalization) to keep ambitious clients happy, but – surely – it’s more rewarding (and P&L additive) to go after your competitors legacy clients with a much more robotically-automated offering with nice savings incentives? It’s not really cannibalizing when it’s acquiring new business, is it? Expect to see a lot of nastiness where providers just go and rape their competitors with all their new fancy robotic stuff and promises of cost impact taken straight from the Gartner scare-manual…
4) Sell your legacy stuff while you can get a good price for it and “re-emerge” in the future. There are several providers out there who simply cannot figure out how to compete in the “new” market while maintaining a legacy portfolio of clients, which are increasingly less profitable and almost impossible to do anything with beyond beg them to renew and cheaper rates. So why not get the hell out while you can? Sell that legacy stuff while you can still get a half-decent price for it… reinvest that money in building true BPaaS offerings with native RPA and real cognitive capabilities… invest in the F500 of 2020, not the F500 of 2016….
5) Just milk the legacy model and play the old game. Yes, there is enough legacy business out there so that you can still survive, if you pick the right deals and go after them in the right way. There are several service providers successfully operating in this fashion, and they are very happy to keep picking off the detritus of the labor arbitrage model, as that is what many legacy enterprises want – “just do it cheaper with minimum fuss, let us dictate what we want and we’re happy with the short-term savings”. And there is a lot of legacy business on offer in the upper-middle market which has yet to be infiltrated by the Tier 1s. There is a room for the unsexy body shops to play, and I see many of them sticking around for some time to come…
However which way we look at this, 2016 is the year many providers will be hitting negative revenue growth, and sustaining those nice profit margins will be nigh-on impossible, without driving major changes to the way they operate, hiring capable talent, making smart acquisitions and rethinking their own cultures. The numbers, quite simply, tell a stark, frightening story of where this is all going:
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The Bottom-line: The major service providers need to be laser-focused on a three-pronged strategy to survive
i) Target core existing clients to develop co-investment strategies for future survival. Buyers will need to make new investments in automation technology (both robotic and IT) and people expertise to make it work, while their service providers will ultimately have to concede they may need to reduce the FTE provision on their side, as automation takes effect. The real challenge here is for the service provider to encourage their clients to have them redeploy the freed-up FTEs on their clients’ higher value processes. So these two motivations should go hand-in-hand: decreasing labor effort on automatable tasks and increasing it on the higher-value work the clients would like to outsource in the future. So… if buyers and their providers can get this right, intelligent robotic process and IT automation will be a long term play for both parties, where higher value work gets done and delivery staff are kept busy because of the closer collaborative relationship and greater volume of work being parsed out.
ii) Target your legacy competitors clients with solutions that drive that next wave of value. The likes of HCL, TCS and Cognizant have feasted off HP, CSC and IBM clients for two decades now as they could offer real cost-impact through smart global delivery capability. Now we’re in a rat-race to develop the right blend of robotic automation platforms, cognitive capability, combined with global delivery talent, to offer clients those next waves of delights. And this isn’t going to all be the same cast of characters as before – and will require a lot more risk-taking than before, as driving savings and value through other means, and not just cheaper labor, is challenging. Those providers with these capabilities can break this cycle by building multi-tenant solutions for the future – and will be the winners. I believe this could happen in barely a couple of years, when you look at the current pace of change and mood in the market. The key is to pick off the next 15-20 deals they can win at lower margins in order to invest in common automation, robotic processing platforms, common analytics, common SaaS underpinnings and common service skills – hence a more competitive, more scalable multi-tenant As-a-Service delivery model.
iii) Bring in new leadership blood which truly understands the As-a-Service Economy and what it takes to get there.It’s easy to point fingers at certain service providers for preserving the legacy FTE labor model, but the stark reality is that many of them simply don’t have leadership prepared to invest in the depth of talent, or technology capability to drive genuine advancements. So – let’s face facts here – 2016 is presenting an impasse of seismic proportions out industry had yet to experience. There are tremendous opportunities to create genuine productivity advancements through robotic process automation, smarter analytics and the onset of cognitive computing, but much of the present service provider bunch are not going to be the ones to take true advantage of them. I predict a few will break out, but the next winners will be from a new breed of As-a-Service provider, many of whom many not even have been formed yet.
If you haven’t been bored silly listening to all the rampant change we are about to endure from literally every information outlet (and we are also complicit), then this data point from our recent 
