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…
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:
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.
Oh and Merry Xmas all =)
Posted in : Business Process Outsourcing (BPO), Cognitive Computing, Contact Center and Omni-Channel, CRM and Marketing, Digital Transformation, fa-bpo, HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, Security and Risk, smac-and-big-data, sourcing-change, Talent in Sourcing, The As-a-Service Economy