Attend any European analyst meeting and there’s one character guaranteed to be propping up the bar. Scratch that, there are normally about 50 analysts propping up the bar. But in the midst of the throng you will undoubtedly find the stolid Euan Davis of Forrester Research.
I recall a conversation with Euan back in '95 when I told him “you should give this analyst lark a try” (If you want to know what he working on in those days, drop me a note…). Anyhow, the story began from there, with Euan rising through the ranks at IDC’s European operation, making a curious detour to Yankee Group, before finally attaining new heights of stardom and adulation with Forrester.
Euan now boasts the words Principal Analyst in his job title and waxes lyrical about IT services in the Eurozone. Ask anyone in the industry and you’ll discover he’s fast becoming one of the most popular analyst figures on the European services circuit. And, despite the fact he once lost to me at tennis (a shameful occurrence for any man or beast), he still warrants an airing on the Horses…
Phil Fersht (PF): Euan, firstly, what are the main issues you’re hearing from your Euro clients these days? What are the main contrasts between now and before the economic crash last year?
Euan Davis (ED): The issues are many and varied but if I was to distill it down to what I see as the issues that clients are facing today then they fall into three categories: Some are “firefighters” and are looking to reduce costs wherever they can, pushing for discounts and getting economies of scale through aggressive supplier consolidation. Others are “explorers” and are directing energies into investigating a host of emerging options for IT service deliver—and business process outsourcing is one such area. The exciting ones to watch for my money are the “builders.” These firms are sinking the foundations that underpin a profound shift in their operating model architecture, IT/business redesign, and supplier engagement models. These firms are building hybrid operating models driven by a structured sourcing frame works, regulated through a retooled service management structure, and connected to a core set of suppliers. And the recession has speeded up the process of change.
PF: With ITO are you seeing more clients moving to broader managed services and away from staff augmentation, or is it the same story of project based spend using offshore resources?
ED: It makes sense for clients new to global delivery or offshore outsourcing to begin on a staff augmentation, time-and-materials basis as a way to gain experience and reduce initial risk. But such relationships have a tendency to stick — conversations with my clients reveal how stakeholders insist on such one-for-one relationships in mainland Europe anyhow before moving to more remote IT delivery models. But I do think this is starting to change. When engagements are based on staff augmentation, little motivation exists for the client and provider to concentrate on improving software development processes, for example, which can potentially have an economic impact greater than the labor arbitrage itself…I see a part of my job is to educate and persuade them otherwise and many are get this.
PF: Which European nations are stepping up sourcing initiatives since the recession? What are the contrasts between the behavior of British, French, German firms? Are other European nations getting more aggressive with BPO/ITO?
ED: The IT services industry in Europe continues to mature, with global delivery strategies superseding traditional offshore approaches—so if I was to characterize sourcing, I would characterize it around the use of global delivery rather than BPO. First, movers with standard IT process models configured for sourcing maturity fully exploited global delivery; but now I see a second generation of clients exploring the services on offer and how these can be tuned to uniquely serve European firms no matter where they are. Skeptical stakeholders are starting to understand the commercial imperatives propelling global delivery forward in the Nordics, Germany, France, Italy etc and how blending global delivery allows deal-makers to hedge its risks. My advice is that European firms need to quantify the interplay between cost and risk and then tune the model around the blend of onshore, nearshore, and offshore resources. They then need to invest in vendor management functions.
PF: Do you see specific industries getting more active across Europe? And how are the European banks approaching sourcing these days – have many put their sourcing plans on the backburner, or are they now stepping up?
ED: Questions fielded by Forrester’s sourcing team have revealed to me what life's like at the sharp end of the banking crisis for an embattled executive. An examination of our inquiry traffic among banking clients highlights three core outsourcing topics that banks are trying to address: offshore, business process outsourcing (BPO), and selecting the correct outsourcing model for their firm. What interests me are the new operating models built by the COO office, the enterprise architects, and strategic sourcing that are beginning to connect siloed divisions together. I fully expect to see new IT services-led consumption models build around an ecosystem of vendors—systematic multisourcing—which will offer a profound shift in technology value.
PF: So what do you see next on European companies’ agendas in the medium term? Is it going to be all about cost-containment, or do you see a greater focus on innovation with their approach to global sourcing?
ED: Depends on how strategic the sourcing function is run: firefighters will be pushing for discounts and cost reduction while those using the recession to deconstruct IT delivery and reconfigure it around innovation. I see my clients setting the parameters for inter-provider collaboration—so across multiple providers and across multiple service towers like the banks in the previous answer. It’s a trend in the outsourcing industry that I have noticed for some time now—this shift from global, single-source deals to a world of multiprovider relationships. What I think you’ll see start to happen is more structured approaches to sourcing as executives work on integrating multiple IT services from their IT providers through overarching governance mechanisms—what I call systematic multisourcing.
PF: And finally, you’ve been an analyst since the heyday of the Internet boom, the onset and maturing of global sourcing, while tackling two recessions. How do you see the analyst and consulting industry evolving? Do you see the impact of social-media (blogs/twitter etc) blowing up the delivery models, or is it just a lot of hype?
ED: Well I am really starting to feel my age when you put it like that Phil! You know what firms need are trusted advisors that can help them in making the right decision about an IT provider, whether to use the cloud, single source versus multisource or whatever. That is the role that I see consultants and the analyst industry should be doing. I also see the value from social media allowing clients to make IT services decisions, inform others of those decisions, execute and monitor the outcomes, and report them to their peers. This is where the power of digital media resides. But the greater power is still vested in the oldest information source open to executives: word of mouth shared with peers and colleagues. IT services market information — whether vendor intelligence, pricing trends, or contracting best practices — comes to those that network for it and that it what an analyst worth his salt should be doing. These emerging social technologies propel these networks forward, adding value at different stages of the outsourcing life cycle.
PF: Spoken like a true analyst, Mr Davis… thanks for your time today
Euan Davis (Pictured) is Principal Analyst for Forrester Research, based in London, where he writes and consults for Forrester's Sourcing & Vendor Management professionals and is recognized as a long-standing expert in IT services and sourcing-related issues. He lives in Cambridge, England, with wife Hannah and two kids, Rosa and Oliver. In spite of his one embarrassment, he is a fine tennis player, avid connoisseur of real ale and cheap wine, and also an accomplished skier.
Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Outsourcing Advisors, Outsourcing Heros, Sourcing Best Practises
Euan – interesting perspective.
Do you ever see the French and Germans relaxing their labor laws to make it financially feasible to use third party services in a managed services context?
Stephen Leonard
My view is that firms need a longer-term perspective when they consider outsourcing, and too many European businesses are far too focused on short-term measures. Don’t see a lot of moves to broader outsourcing models outside of Britain, as short-term cost-savings are completely negated by prohibitive costs of displacing workers in countries such as France, Italy and Germany.
Over the past decade, “European firms needing to quantify interplay between cost and risk and then trying to tune their model around the blend of onshore, nearshore, and offshore resources”, have mostly settled for “nearshore” (Through Acquired-companies(eg. banking industry), setting up captives or outsourcing). Besides the fact that most advisors, like to take the path of least resistance, there is good economic reason for this too. Each new EU entrant country brings young labor pools with skills at attractive price-points & labor regulation flexibility, unheard of inside western europe. Add to this, the EU-subsidy dole available to new investors in their first 3 to 5 years, & you’ll know why Eurozone jobs have stayed in the Eurozone. EU expansion at regular intervals & the 5 year economic-window in which a new EU country’s new graduate wage-escalates from approx Euros 300 per month to Euros 1000 per month (Approximate Min. Wage in Most Western EU countries), has been breathing-in a fresh lease of life, into the financial-model that helps to avoid global-delivery/full-blown outsourcing decisions. Of-course, recession-hit companies may try riskier sourcing strategies but the Croatia/ Macedonia/Ukraine/Turkey etc tap that Brussels controls, will eventually decide the flow of Eurozone outsourcing – a trickle or a flood ….
Pierre/ Stephen – try a 2-step sourcing approach – first Intra-Eurozone (EU to New-EU (better labor codes)) & then global delivery – there is a way to make the financial model work ..
Ratnesh
( Phil – Congratulations on your move to Cognizant – the doers side of the sourcing world !)
Hi Stephen
No I don’t – however I do see IT providers getting better at making the economics work through programs that placate the local working councils which do recognize the new reality. European firms need services to support their employees through any reduction in force (RIF). Several IT service providers revealed to me how importantly clients rated these HR skills that they can offer their clients during the implementation process and Forrester inquiries back this up. Some providers offer staff affected by the RIF onsite employee retraining and outreach programs. These services work to win the engagement and cooperation of the local working councils in the Netherlands and Germany, for example, which insist that service providers have these skills in place when implementation begins — or at least can work through local partners to provide these services to their members.
Hi Davis, that was a good insight on sourcing strategies..however a bit contrary to your thought of ‘systematic multisourcing’ what we are witnessing is vendor consolidation..how do you explain that.