Looking forward to a phenomenal couple of days… a great opening buyers session was enjoyed by all!

Posted in : Outsourcing Events

It’s official:  outsourcing is not dying – it’s simply become a key part of a broader enterprise operations strategy: Integrated Global Services.  312 buyers recently shared their investment intentions over the next two years during our 2014 State of Outsourcing study, conducted with support from KPMG, and their operations strategy clear:  one in four are reinvesting heavily in their global shared services operations, while seven-out-of-ten are continuing to make (largely moderate) investments in their outsourcing delivery.

The long and short of this is that 93% of enterprises today have shared services and 96% are outsourcing some element of their back office IT and business operations, while 27% are actually reducing their investments in their own internal business units. What’s more, 56% are already increasing investments in their centralized hybrid governance function to manage their mix of service delivery models. To this end, the increasing majority of enterprise buyers today are investing in an integrated global services model that orchestrates their process delivery across all available vehicles of sourcing:

Click to Enlarge

Let’s delve a bit deeper here and view how these investment intentions have shifted over the last three years, comparing this with the 2011 and 2013 State of Outsourcing studies:

Click to Enlarge

Shared Services makes its strongest re-emergence as a delivery model for a decade.   While the broad number of firms increasing their focus on both the outsourcing and shared services models is relatively consistent over the past 3 years, the difference today is the intensity of investment.  Outsourcing has slowed to a more moderate pace, while a number of large-scale enterprises are focusing on moving more work into their internal shared services centers – the first time in a decade we are really seeing shared services making a reemergence of this magnitude.

Buyers are shifting more of their higher-value work into their offshore shared services operations.  It’s become abundantly clear that buyers are now aggressively globalizing their operational strategies and are leveraging their offshore shared services centers, almost as much as their outsourcing providers, as they seek to move more work from their internal business units into an integrated centralized services delivery model. As our previous post from the 2014 study emphasized, close to 3-out-of-10 enterprises are increasing the offshore component of their finance and accounting, over the next year, into both their shared services and outsourcing operations, while similar trends are occurring across IT, procurement, HR, industry-specific and customer service functions. From our discussion with multiple buyers of late, many are moving much of that next wave of business processes into their offshore shared services that require a greater deal of context and specificity to their own businesses and, in many cases, compliance requirements.

Providers need to earn the trust of their clients in order to take on higher value processes. In many cases, providers need to prove they have the capabilities to move beyond highly transactional processes before their clients will trust them to take them on. We will discuss this dynamic further in our next post on the study, but far too much outsourcing today has struggled to delivery value beyond transactional process delivery, usually because of the talent deficiencies on the buy side and mismatched expectations on the provider side, as buyer expectations evolve during the course of a relationship.

The integrated services model is going to force ambitious providers to evolve their capabilities if they want to survive in the long-term. The traditional global services model has evolved largely by transactional work being moved initially into shared services centers and buyers eventually outsourcing that work to providers as it becomes easier to “shift”, once is has become centralized into a smaller number of locations.  Now a similar cycle could well be happening with middle and front office processes.  However, as global management of integrated processes matures, and buyers become increasingly adept at developing their own offshore management competencies, it is not guaranteed that the majority of buyers will continue to look at the traditional outsourcing model down the road (and several are already evaluating their future sourcing strategies).

In short, there are multiple levers now available to clients seeking greater productivity and value, such as SaaS-based business platforms, high-value analytics tools and skills, better automation and robotization of their processes, and simply hiring their own offshore teams to do the work, as opposed to paying the (often higher) rates of the providers. Hence,  those providers which are getting ahead of the disruption curve and supporting clients with more productivity tools and capabilities beyond simply offshore arbitrage and process standardization (read earlier post), are the likely winners down the road as clients integrate their global services delivery.

The Bottom-line:  Outsourcing is teetering at a crucial juncture between providing genuine value and low-cost staff fungibility

In today’s global operations environment, many buyers are getting smarter and figuring out they can do a lot more themselves. Many are evaluating the potential of new tools and technologies, niche provider capabilities and managed governance services as vehicles to find new sources of value.  While there are clearly several more years of productivity improvements to be made simply shifting work to lower cost locations and tweaking processes, eventually buyers will have to transform their current operations model from the status quo of today.

Simply plastering more and more lipstick on the same old pig is eventually going to fail for many, and transforming the global operations model into an integrated range of services, underpinned by cloud-based platforms, plug-and-play digital capabilities and supported by teams of innovative and analytical staff is the promised land most ambitious clients yearn to (one day) find for their organizations.

Providers need to prove they can do more than basic operations, otherwise outsourcing runs the risk of becoming a staff augmentation model for flexing operations as opposed to a strategic partnership between provider and buyer that can add more skill, technology and analytical capability for clients.

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, Cloud Computing, Digital Transformation, Global Business Services, HfS Surveys: State of Outsourcing 2014, HfS Surveys: State of the Outsourcing 2013, HfSResearch.com Homepage, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, Security and Risk, smac-and-big-data, Sourcing Best Practises, sourcing-change, state-of-outsourcing-2011-study, Talent in Sourcing, the-industry-speaks

As with the airline industry, consulting firms have become highly commoditized with little client service and the willingness to serve others

 -Kevin Parikh, Avasant, June 2014

In Part 1, Avasant’s CEO Kevin Parikh talked about his emerging advisory firm and how it intends to help its clients tackle digital transformation.  In Part II we warm up the talk to cogitate the impending talent crunch, the democratization of sourcing and the new levers enterprises can pull in their relentless quest to find new productivity…  so without further ado, here’s Part 2:

Avasant CEO Kevin Parikh addresses some big industry issues with an ambitious consulting approach

Phil Fersht, CEO, HfS Research: Kevin, traditionally outsourcing advisors were focused primarily on reducing labor cost more than anything else. But now it looks like the decisions of driving out labor costs are democratized within companies. Let’s say they came out to look at Cloud; they can look at crowd sourcing type solutions. They can look at robotics. They can look at a lot of things and not just outsourcing. In fact, in many cases outsourcing is like a band-aid. Do you feel today’s advisors are really equipped to help their clients think through all these variables?

Kevin Parikh, CEO and Senior Partner, Avasant: Phil, I love how you put it—the democratization of sourcing selection. We all have a vote. We can take what we want.

Phil: Exactly…

Kevin: And I think Cloud has enabled us to do that. Are the typical advisors prepared to enter this market? Absolutely not. The traditional outsourcing advisor is focused on towers of service, offering templates and financial models. This really requires a strategy-oriented consultant coupled with a sourcing consultant, and that is where we have been investing so much of our time and funding for many years. That is why we are in the globalization space and also focusing in the digital areas because we see this market as requiring strategy consultants. We are seeing that our traditional competition is not really the focus anymore. We find ourselves competing with other strategy firms. I believe this is because Avasant has entered into the revenue-side of the business, not into the cost-saving side of the business. Now it is a different set of competition, and it is a different kind of consultant that needs to do this work.

Phil: Now, that is very interesting…

Kevin: I am equally interested in hearing your take on this, Phil.

Phil: We are entering a phase where we are talking about true societal impacts of change, Kevin. Five years ago, it was about the possibility of a few jobs getting lost to some offshore arbitrage. But now labor costs have almost become a dirty word in many enterprises. There is an increased focus for executives to drive out as much labor cost as they can in operational areas. And what frightens me is there are a lot of mid-career executives today who are stuck between the new world and the old world, and they are not developing their skills. Many of these operational folks in IT and business operations, in the short to medium term, are going to feel more pressure to add more value to their outputs. They are going to be expected to be more analytical, more strategic and creative, and they are going to need to get more involved in front-office type activities; and those jobs are not going to be available for everybody – there aren’t going to be as many of them.

I do think we are reaching a possible talent crisis in the industry over the next few years. And it is these types of rapid developments we are seeing in Cloud and robotic automation as well as just more mature outsourcing models, which is driving all of it. This is something I believe to be a societal problem. It is not just a political or corporate issue.

Kevin: Agreed. There is a labor gap, and we have significant underemployment, even in our own industry. And that lack of ability to align talent with the available and required expertise is our challenge as well. As we hire and bring in more strategic consultants, we are also looking for the people that we can train and grow in the industry with us. We are looking for high talent; we are not necessarily looking for the traditional sourcing advisor who has done 100 deals or 1,000 deals. Those individuals for Avasant, are increasingly a commoditized expertise, and that is not what our clients are asking for today. Clients do not invest their spend with us on our large transactions because they want us to do a sourcing deal for them. Yes, that is part of the deal. But what they really want is for Avasant to help them with whatever disruptive technology they are trying to implement or the strategy they want to implement or transformation. That is where Avasant is able to drive higher value for the client engagement.

Phil: It is interesting because when I talk with your competitors, they are all saying the same thing: There is not a shortage of business out there; there is a real shortage of finding the talented consultants who can steer clients to where they want to go, and it is getting harder to do that. The traditional consulting model does not often cater for that type of experience. Have you managed to counteract this trend?

Kevin: Yes, but I believe it is first about culture. We have a high retention rate in Avasant. We focus on knowledge management and consultant education. Although we are not a research firm, we have a significant amount of knowledge management, which means keeping information, models and strategic documentation that can be used and reused. As we continue to quickly evolve in this industry, it is not just about the human factor, it is also about the kind of intellectual property we can keep, that we can consistently make available to our consultants over time; that enables us to bring in smart consultants that can take immediate advantage to achieve the customer’s objectives.

You are correct. There is a talent gap in our industry. Our challenge is to move faster than our competition. We believe Avasant can continue to adapt to the industry more quickly because we are structured to ensure ongoing innovation, and it is rooted in our culture to do so. Rather than partaking in the “race to the bottom,” where the only driving factor is cost reduction, we are focusing on value. As we continue to focus on a broader set of services — you mentioned robotics, SMAC, and digital strategy—we will also continue to create more value for Avasant customer.

Phil: I have one final question for you: say you are given a role where you can be Lord of the Consulting industry for one whole week. What two changes would you make to that industry that you would like to see happen?

Kevin: Well, I never really thought of being the lord of anything. I am not sure I care about being lord of the sourcing industry [laugh]. Especially an industry that is changing the way it is today, but what I do care about is investing in a fantastic consultant culture and creating extraordinary service for Avasant’s clients.

So if you think about what I would like to change in our industry, and maybe we are driving it, is if you look at the airline industry today as an example. In the old days, and not all that long ago, traveling on an airline was a bit of an experience. You would have a nice meal, you might even have a nice smile and courteous service. Today we do not expect anything but a no-frills experience. As with the airline industry, consulting firms have become the same and highly commoditized with little client service and the willingness to serve others and be that steward the client is seeking. This is a key differentiator about how Avasant approaches the industry; we focus on providing extraordinary service. That means going and doing a few extra things and doing them very well. We will sponsor our clients to go to networking events to learn from their peers; we will sponsor client education programs, and through this process we ensure longer lasting relationships and more successful deals. We also sponsor corporate social responsibility and do a lot of nonprofit work with our clients.

If you are asking me what I would want to see as lord of the sourcing advisor industry for a day or for a week, I would say it is more about returning to quality and great client service. That is what Avasant continues to focus on today with each client encounter.

Phil: Well answered! Thanks for your time today, Kevin – and for being a good sport!

Kevin Parikh is Global CEO and Senior Partner at Avasant (click here for bio) 

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Digital Transformation, HfSResearch.com Homepage, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Advisors, Outsourcing Heros, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, smac-and-big-data, sourcing-change, Talent in Sourcing

Wow.  When the rumors leaked out about Vishal Sikka being tapped up for the Infosys CEO job, we thought this idle speculation, but a possibility that Vishal could have some role where he could absorb the nuances of the services business to potentially take over in a couple of years.

But – lo and behold – the old guard have decided it’s time to make a dramatic change and a big bold statement to the world by placing the popular tech innovator, Vishal Sikka, in charge of rediscovering that elusive Infosys mojo that has been absent for some time now. So… is the Infosys monarchy behaving like a Premier League soccer club and making a panic play to stave off relegation to the second tier of providers, or is this the boldest move yet from one of the TWITCH* provider family to make a late run at the Champions League?

Infovish Pros

Vishal is a technologist and much admired by technology-driven executives.  His recent departure at SAP demonstrated how loved he was by the techno-purists and was seen by many as SAP selling its technology soul to appease the money-men. He was a driving force behind SAP’s HANA (Hasso Plattner’s brainchild) and  the firm’s emerging Cloud capabilities – and his absence at the recent Sapphire event was even more depressing than Bill McDermott’s keynote speech.

Vishal will be key to driving Infosys’ platforms strategy.  You only need to look at the acquisitions made by the likes of Accenture and IBM over the last couple of years to realize that Cloud-based platforms that underpin analytical, consultative value-add services are the long-term future of services.  One of the brighter spots in Infosys’ recent troubled history has been its investments in its Edge platforms which target key industries such as insurance and manufacturing, and horizontal competences such as procurement and marketing.  Having a real tech products guy at the helm will do wonders for helping Infosys develop out these platforms further and develop a “products culture” for that part of the firm.

Something needed to change – and fast.  Despite a pretty decent financial performance in the market over the last 18 months (though lagging its major Indian counterparts), it was still abundantly clear that Infosys was struggling to break from its legacy past and make the changes necessary to rebuild company moral, reinforce strategic direction and re-invigorate the whole company culture and ethos. With TCS and Cognizant continuing their surge, Wipro getting its own act together and the emergence of Tech Mahindra and HCL as genuine contenders for deals that Infosys would have easily won in days-gone-by, the firm was getting squeezed and executives continued to leave the firm at a frequent clip – some volunatily, but most forced out. Infosys had managed to become cast as a “legacy” provider by several industry observers, which is not a place anyone wants to be in this cut-throat market.  Vishal is an outsider, he is new blood, he has youth on his side. He gives them the immediate facelift they were craving.

Infovish Cons

Vishal is not a services guy.  Technology products people often struggle to understand the nuances, challenges and culture of IT and business process services.  Most view services as the grunt work that does the plumbing, while all the important stuff gets done in the innovation lab. HP practically committed Hara-kiri when it appointed  Léo Apotheker, a software executive (also from SAP), to fix a company whose primary business was services and hardware.  Léo ended up blowing $10bn on Autonomy, for no fathomable reason, before being hastily ejected, and Meg Whitman is still cleaning up the mess he left behind.  While we laud the bold approach Infosys is making by putting a technology products innovator at the helm, the firm is still primarily a services business with a services culture.  The CEO needs to understand what make millennials tick, how to develop training programs, how to keep wages low and morale high, how to develop succession plans and “up and out” models that work, how to inject analytical and creative thinking into its staff.  In addition, 94% of Infosys staff are still India-based and they need to figure out a people strategy that is global, not just tailored for the Indian employment market. However which way we look at this, services is about people first, and Vishal needs to figure out how to make Infosys a more attractive career proposition for the best college graduates and experienced executives, than the likes of TCS and Accenture.

Vishal needs to balance the realities of the present world with the one we’re moving into.  Infosys isn’t IBM – it isn’t at the sheer size and scale that it can throw all its eggs into the Cloud basket and take its eye off the ball with its existing business. Infosys needs to keep one foot firmly planted in the reality of today’s business, while also developing for the future. While we all know the future is less about effort-based services and more about platforms with distinctive, value-add services, most of today’s buyers are still focused on global scale with their global sourcing strategies and that is where the bulk of the money is – and will be – for a few years to come.  Even on today’s analyst call, Murthy declared that “10% of revenue being product driven in 5 years would be a good achievement”, which is statement enough that Vishal needs to place a lot more focus on the 90%. Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve – coming up with the big vision is one thing… executing on it is another.

The Bottom-line: The big vision is easy, executing on it is another ball-game entirely

Services firms are so much more than development labs – they are people environments the size of small cities that need very smart management which can manage their costs, while providing great careers for the brightest talent around.  Vishal needs to make sure he has the right management under him which knows services back-to-front to create a world class services organization that can support its home-grown disruptive and innovative platforms. He must resist the temptation not to surround himself with yes-men, but with people who can challenge his vision and make sure they are evolving it in the right way to be as competitive as their rivals.

*TWITCH refers to Tech Mahindra, Wipro, Infosys, TCS, Cognizant, HCL

Posted in : Business Process Outsourcing (BPO), Cloud Computing, CRM and Marketing, HfSResearch.com Homepage, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, SaaS, PaaS, IaaS and BPaaS, sourcing-change, Talent in Sourcing

As we peruse the results of our soon-to-be-released State of Outsourcing 2014 study, one of the core elements that jumps out at us is the widespread dissatisfaction of enterprises in their own internal operations talent to change the processes, automate them, analyze them… or come up with creative thinking on how to improve things in general.  The talent dearth is so bad that barely a third of buyers from the 312 enterprises we surveyed has seen any positive impact on their own talent with their current outsourcing relationships using their own internal talent:

Click to Enlarge

Organizations clearly cannot reach their state of  Digital nirvana without professional help.  “Digital” capabilities, in this context, relate to the acumen of operational services talent to understand the interplay between their applications and processes to achieve better automation and more productive workflows that can ultimately lead to better analytics to base future business decisions.  In addition, these capabilities also relate to the creative flair of staff to align their services with the core business and come up with new ways of doing things to drive value, new ideas for business improvement and, in short, to behave more like a “front office” employee than transactional operator.

Bad IT can be even more culpable than bad BPO.  Let’s not throw all the blame for this talent failure at the doorstep of the business operations staff. In so many cases, enterprises would have much more effective process capability if corporate IT wasn’t so constipated with maintenance and infrastructure. In so many client cases, IT still can’t figure out how to code without error, and they’ve done it for decades… at least processes change, but IT continues to be stuck in the dark ages for so many organizations.

The Bottom-line:  A Digital talent crunch is coming and this could get ugly for some

At HfS, we predict a major talent crunch coming to the vast majority of ambitious organizations who are struggling to find or retrain their back office staff to be more front office staff and “Digitally savvy” with their approach to services.  Two thirds of outsourcing clients are happy with how their internal teams manage costs, keep the basics ticking over (“lights on”) and respond to compliance needs.  But, as these “light on” capabilities become increasingly commoditized through more sophisticated global delivery and standardized technology platforms, the need for these armies of back office operators is steadily decreasing.

What is clear is that technology has become a major component for future value of the enterprise (read our earlier study on this topic) and one avenue for operations staff to increase their future value is to train in areas like analytics and process automation where they can add whole new echelons of value to their organizations.  Sadly, many of the two-thirds we identify above are not going to make it, and others are simply not going to be needed – the relentless pursuit of increased value and decreased labor costs will see to that.  Less is more is the brutal rule for the future of the enterprise operations function.

For forward looking service providers and consultants, these clients are becoming rich hunting grounds for valuable partnerships in the future as the need for the Digital skills and new talent exacerbates.  Most clients will find their need to develop or acquire better talent a fruitless exercise and will look to their external partners to plug these operational gaps that will drive future value.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Digital Transformation, HfS Surveys: State of Outsourcing 2014, HfSResearch.com Homepage, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Advisors, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, Security and Risk, smac-and-big-data, Social Networking, Sourcing Best Practises, Talent in Sourcing, The Internet of Things

Kevin Parikh is Global CEO and Senior Partner at Avasant (click here for bio)

Isn’t is just so exciting to work in an industry where we are constantly seeing new competitors emerge, seemingly boundless innovation from enterprise clients pushing their capabilities to the limit… and all with such a refreshing lack of confusing verbiage.

OK – I was dreaming there for a moment, but one company we have seen emerge from the ground up in just a few short years to challenge the top advisory firms is Avasant. And most of this is credited to one man and the team he has built since he left Gartner, where he led the firm’s sourcing practice:  Kevin Parikh.

So we managed to catch Kevin at his Manhattan Beach home, where he resides with his wife and two daughters, to talk to us about what makes him tick, how his firm is disrupting the advisor space (in dire need of disruption) and how he is intends to tackle clients needs around Digital transformation that is so high on enterprise agendas today…

Phil Fersht, CEO, HfS Research: Good afternoon, Kevin – thank you very much for your time today.  You’ve been quietly empire-building in the advisory space for a few years now – I think I first met you about seven years ago when you’d just left Gartner to set up your own shop.  Please share with our readers a little bit about your background, how you got into this space and the journey you are on today.

Kevin Parikh, CEO and Senior Partner, Avasant: Yes, we have known each other for several years now.  I started my career as an attorney in Washington, D.C., during the Clinton years. I was in the Clinton administration with the United States Environmental Protection Agency.  This is pre-Y2K, pre-IT outsourcing transactions, and in many cases, it was just the beginning of when the advisory space really started.

After the EPA, I moved to KPMG to join their LLP assurance practice, continuing my focus on contractual and litigation work that I had performed while at the EPA.  During the 1990s, I became increasingly engaged in KPMG consulting activities, including reviews of some of the very first outsourcing transactions.  I found myself sitting on panels with John Halvey and Bob Zaylor debating service levels and metrics in some of the early outsourcing contracts.

As KPMG became BearingPoint, I joined Gartner to help lead their strategic sourcing practice, which at that time was under a million dollars in revenue.  When I left Gartner, I was the global sourcing lead and the Gartner practice was a hundred million in revenue across consulting and research services.  With these experiences I founded Avasant and brought many of the key leaders and experts in the field into our firm.

Phil: So tell us a bit about Avasant – you seem to be very active in the outsourcing space, in particular.  But are you a traditional outsourcing advisor or do you have special focus areas that separate you from the traditional advisory players? 

Kevin: We definitely have the traditional outsourcing advisory business as part of our service suite, but that certainly does not define us.  What we are seeing is somewhat of a race to the bottom, or lowest cost, with outsourcing advisory.   And when we say, “established players” or “historic players,” what we are really talking about are the folks who come from the early IT service provider deals such as with EDS, IBM etc.  These types of transactions were historically very large, and they were focused primarily on IT infrastructure and applications services.  Today’s deals are driving very complex business strategies, and they are focusing on Cloud.  They are focusing on the Digital Enterprise.

In that sense, I believe we are quite different than our traditional competition because while Avasant is focusing on larger and more strategic relationships with our clients, we see our competitors focusing on smaller and smaller deals.  And what do I mean by that?  Well, that’s the race to the bottom I referred to.  If you know how to do a certain kind of deal, and you have been doing it for 20 years, it is difficult to stop doing that kind of transaction.  And you have hired people that know how to this work, and you have got a lot of investment.  But the commoditization of the standard IT infrastructure outsourcing—and more so now with Cloud services layering on top—that commoditization is forcing deals to get smaller. Actually, at Avasant, we see the opposite.

We are involved at a strategic level with our clients, so Avasant’s deals tend to be larger focusing on business drivers.  They are bigger because we are focusing on transformational deals that do not only  underscore technology, but also focus on e-commerce, the digital enterprise and technology enablement.

I’m very excited about our business today because we are nimble, and we are able to focus on large, not small, transactions.  We really do not want to be the “McDonalds” of transaction providers because that business is going away.  As we look at where we are growing, we are growing in two primary areas; I’ll give you the first take on this one.

First, we will soon be announcing our digital strategy practice—Avasant Digital—and folks have been asking about it because of all the things we have been doing in this space.  We have been waiting to announce this practice until we had a few really good client relationships that we could build on, and of course, a more defined practice.  But that is going to be announced in the coming month.

The second area of growth is our globalization practice, which many are very familiar with.  Although this does not comprise a large portion of our revenue, it is different and none of the other established players have this kind of a practice.  Today we have 29 national governments that are Avasant customers. They hire us to establish a BPO strategy in their emerging market to attract service providers and buyers to those regions, attracting foreign directive investment and jobs, and we advise them.

We compete with different types of firms in this space.  But this is a strategic opportunity for us; we have been doing it for many years.  We have a relationship with the World Bank as a result of this, as well as the Inter-American Development Bank and United States Trade Development Agency.  And our focus is really broader than just sourcing.  We think that by focusing on the emerging markets, we are creating a more diverse opportunity set for our clients than maybe just outsourcing to India.

The second area of growth is our globalization practice, which many are very familiar with.  Although this does not comprise a large portion of our revenue, it is different and none of the other established players have this kind of a practice.  Today we have 29 national governments that are Avasant customers. They hire us to establish a BPO strategy in their emerging market to attract service providers and buyers to those regions, attracting foreign directive investment and jobs, and we advise them.

We compete with different types of firms in this space.  But this is a strategic opportunity for us; we have been doing it for many years.  We have a relationship with the World Bank as a result of this, as well as the Inter-American Development Bank and United States Trade Development Agency.  And our focus is really broader than just sourcing.  We think that by focusing on the emerging markets, we are creating a more diverse opportunity set for our clients than maybe just outsourcing to India.

The third separation is this: Avasant launched a foundation in 2012 called the “Avasant Foundation.”  This came about from the Rockefeller Foundation, which provided Avasant a grant to analyze “Impact Sourcing,” which is essentially the outsourcing of services to rural communities and emerging markets.  This is regarding certain defined levels of poverty and socio-economically disadvantaged people, and the goal is getting them into the global economy.

That study spawned a foundation, and that foundation now works very closely with several service providers as well as the nonprofit space to help build opportunities in those communities.  We are very excited about that.  It is obviously not part of our commercial business; it is a separate company.

Avasant also maintains a separate law firm, Avasant Law Incorporated in Washington DC, to support our transactional work and sourcing.

These are some of the differences in how we view the market, why we are expanding into the digital space and continuing to work with emerging markets in addition to sourcing, which is our primary focus.

Phil: When you talk about digital, isn’t that really CMO-led engagements in areas like social, mobile and analytics?

Kevin: It can be, yes.  Increasingly chief marketing officers are leading these engagements.  But what we are finding is that the smart CIO is not getting left behind. In many cases, the CIO is actually leading and taking these “digital” opportunities to the CMO and saying, “Hey, have you thought about this?  Did you know that we could develop a platform on Amazon?”  Or, “Did you know we could have the eBay GSI commerce store?”  These are the kinds of services that CIOs, historically Avasant’s clients, are struggling with today; they need a lot of guidance to stay relevant.  But the buyers are the chief marketing officers and chief strategy officers; we even have a few COOs.

Stay tuned for Part 2, where we discuss the democratization of sourcing and the new levers enterprises can pull in their relentless quest to find new productivity… and the impact this is all going to have on the labor force of the future.

Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, Cloud Computing, Digital Transformation, Global Business Services, HfSResearch.com Homepage, HR Strategy, IT Outsourcing / IT Services, kpo-analytics, Mobility, Outsourcing Heros, SaaS, PaaS, IaaS and BPaaS, smac-and-big-data, Sourcing Best Practises, sourcing-change

Firms like HfS Research, Constellation and GigaOm have built their brands very quickly, in just a few years, and are now more visible than more established firms.

–Duncan Chapple, Influencer Relations, June, 2014

As if by some freak of nature, the very next day after we stirred the pot questioning whether analysts needed regulating (or self-regulating), the industry’s leading analyst/influencer observer, the venerable Duncan Chapple of Influencer Relations and Kea Company fame, penned a blog that clearly demonstrates the sands are shifting in the analyst world when it comes to wielding influence over enterprise buying decisions:

Click to Enlarge

Several analyst boutiques are out-influencing their much larger competitors

As these results reveal from Analyst Equity and Kea’s recent Analyst Value Survey of several hundred research consumers, Chapple states that “Firms like HfS Research, Constellation and GigaOm have built their brands very quickly, in just a few years, and are now more visible than more established firms. A great example of this is shown by the Net Influence Score from our survey, shown above.”

The Net Influence Score shows, for each firm, the net percentage of the respondents mentioning a firm as having rising or falling influence. This chart shows the percentages for the firms about which the most respondents had an opinion. Chapple continues, “Newer firms like HfS and GigaOm are coming from a lower base of awareness: that makes it all the more remarkable that HfS was not only one of the two firms which the most people commented on (alongside Gartner) but also had the highest Net Influence Score. GigaOm and Constellation’s scores were almost as high, but far fewer people commented on them. This also reflects HfS’s successful 50:50 income split between vendors and end-user clients, developed through compelling offers like its Sourcing Executive Council.”

Does this mean the analyst industry is going to change overnight?

I believe it is unlikely that we’ll see many new behaviors coming from the incumbents as a result of the gaining traction made by several of these upstarts. While Forrester seems to be making some more dramatic recent moves by replacing several traditional analysts with consultants to sell more strategic/consultative product to clients, the established “big two” of Gartner and IDC are persisting with the same firewalled model and approach that has served them so well for decades. And why change their successful models until they have to?  Surely they are entitled to feel immune to disruption and innovation from nimble competitors… they are, after all, comprised of analysts who cover innovation and disruption for a living.

However, what is changing is the emergence of boutiques, often with much deeper specialization, more open collaborative models and a more engaging, personable approach to working with clients. What is also happening is the capability of small firms to influence and make a damn big noise to industry – often bigger than the incumbents.  Analyst firms which are steeped in social media and “born in the cloud” are simply more nimble, less costly to operate, and much easier to engage with in an open and collaborative model. They are also not steeped in legacy business practices and bloated bureaucracy that is highly resistant to change.

Duncan Chapple is MD for Kea Group's Influencer Relations Practice (Click for Bio)

Whether these boutiques will ever grow to be the size of Gartner is highly unlikely (those days are over), but it’s clear that the legacy model is being slowly eroded – and – as so many people pointed out in my recent blog-rant, regulation shouldn’t be necessary as many industries a way of evolving and disrupting themselves.  Personally, I would like to see the analyst industry impose upon itself some form of self-regulation, but I do not believe we will have many willing accomplices who would join us on said mission.

The Bottom-line:  Change is coming – and not everyone will be ready for it

Net-net, just look at how social media and the open information market have disrupted other content-based industries such as PR, media, advertising, publishing and education… surely it’s now only a matter of time until the analysts and consultants get turned on their heads with the nimble, engaging disruptors coming along to change the model forever… there’s a whiff of change in the air and it maybe coming sooner than many of us realize.

You can read more insight on this topic at Duncan Chapple’s new blog post entitled “Mid-sized analyst upstarts are creating value faster“.

Posted in : Business Process Outsourcing (BPO), HfSResearch.com Homepage, IT Outsourcing / IT Services, kpo-analytics, Outsourcing Advisors, smac-and-big-data, Social Networking, Sourcing Best Practises

One issue that is increasingly rearing its ugly head is the ridiculous – and often insane – demands industry analysts are placing on providers of technology and business services to pony up client references for their scatterplot charts. The situation has become so bad that the integrity of these research processes appear to be reaching a breaking point, and I would argue that some form of regulation is needed to protect the interests of the business consumer.

The leading analyst firms are demanding five client references per provider.. and one recently even requested TEN client references. The requests are made with the veiled threat that the analyst will “not have sufficient information on the provider’s performance” if these references aren’t made.  When I repeatedly have multiple providers complain about the situation to me, in addition to several of these overused buyers, surely it’s high to get this issue on the table?

Correct me if I am wrong here, but isn’t it these analysts jobs to have regular ongoing conversations with buyers of their covered markets, so added references are merely a rubber-stamp? In fact, why are references even needed if these analysts are so informed, connected to the buyers and have so much valuable data and research to call on?

So why is this a growing problem, I hear you cry?

Can you imagine what it must be like for a provider to ask a good chunk of its referenceable clients to partake in one hour reference calls with 3, 4 or even 5 analyst firms?  Not only that, these same clients are being asked to provide even more detailed references to sourcing advisors and management consultants for their procurement and vetting processes. Hence, some of these referenceable clients are being asked to spend many hours of their time talking to analysts and consultants about the same old stuff. I have had several providers openly complain about the strain this is putting on them – and some are almost at the point of simply having to decline to provide any, as their clients are literally fed up with the whole racket and the demands on their time.

While these analysts can argue that providers should have lists of hundreds of clients they can use for referenceable interviews, when we get into emerging areas like analytics, mobility, social, digital, industry-specific processes etc, some providers will only actually have a handful of clients.  So going back to the same old well time and time again to reach those outer peaks of excellence in analyst graphs is becoming an increasingly impossible task that has now reached breaking-point.

Why this dog and pony show needs to change

1. The providers better at schmoozing their clients to pony up references win.  Some providers invest a fortune in their “red carpet” clients to ensure they will spend a good few hours each week singing their praises to the analysts.  This is nothing new – and most smart vendors have figured out how to game the system over the years.  However, where the demands on the clients time increases form 3 hours and month to 3 hours a week, the level of schmoozing required reaches new levels of tolerance, and even the cleverest of providers are struggling to stack the deck in their favor – they can’t provide enough World Cup tickets or VIP parties at the Masters to keep everyone happy. But this also brings into question the impartiality of these references – everyone knows they are going to be given through pink-champagne-tinted lenses, so why some analysts even bother with some of them is beyond me…

2. Some analysts clearly do not spend much (or any) of their time talking with buyers if they are relying purely on provider references.  To the defense of the analyst firms, why should their analysts have connections with enough buyers in their covered industry to conduct credible assessments of provider performances?  They’ve clearly been making a ton of money employing analysts who live in a world of listening to vendor hype, so why should they correct-course and make sure they have their analysts spend more time in the real world of (gasp) talking with buyers?  If the provider side keeps funding these analyst firms to keep behaving in the same way, nothing will change and this situation will continue to worsen.

3. Some analysts don’t even bother to include providers in their scatterplots if the vendor refused to “partake”.   Yep – this happens, folks. How any credible analyst worth her/his salt can put out provider assessment scatterplots and leave out major players in their market is beyond me.  However, there are analysts who literally have no other way to “assess” provider performance if they do not have heaps of marketing guff and a few client attestations to lean on, so they just drop those vendors unwilling to pony up the references and “partake” in their assessment process from their report.

The Bottom-line:  The analyst business is caught in a vicious Catch-22 cycle and the only way to break this is to regulate it

Have some sympathy for the providers here – there are clients who make purchasing decisions based on analysts’ assessments, so they have no choice but to jump through the ridiculous hoops some analysts are demanding.  Not only that, these vendors are forced to help fund these analyst firms so they can ensure they can monitor the analyst research and get enough face-time with the analysts to get them to portray them as accurately as they can hope.  So while the beast is constantly fed, this situation will only continue to exacerbate.

In a world where equity analysts can’t even have a provider buy them a diet coke, why are so many of the industry analysts allowed to perpetuate this ridiculous racket of having providers fund them, and even do their “research” for them?  Surely when an industry reaching a quasi-monopolistic situation, like the industry analyst business has, it’s time for fair play to be demanded?

The industry for technology and business services alone is over a trillion dollars annually (and that’s just external spend, not internal).  Surely it’s time for government to step in and demand these “research” processes are run fairly, and these analysts are doing their research appropriately? Doesn’t the government have a duty to protect its business consumers to ensure they are getting far and balanced advice for critical business decisions that could significantly impact their futures?  Should firms peddling “research” need to to meet standards of quality and integrity  to which so many other industries are held?  Somehow industry analysts have escaped the real world and create their own rules and economy…

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Sourcing Best Practises

While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.

Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely – whether by an outsourcing provider or their own offshore shared service center.  And – as we’ve lamented on this site since the days when ACS was a market leader and people still used Yahoo! – enterprises are just obsessed with driving out cost – and then figuring our things like “transformation of processes” at some future point in time.

However, the difference today is that most of the perceived “risk” of moving offshore has gone and enterprises are simply doing it as part of their day to day operations.  The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:

Click to Enlarge

The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing.  While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services – a similar trend to IT infrastructure.  Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring – almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations.  We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.

The Bottom-line:  The story today is about managing integrated services across global operations

1) The game has switched to integrated global operations management.  It was barely 2-3 years’ ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost.  What’s clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly).  They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves.  What’s more, many organizations are clearly not very impressed with the quality of their providers’ resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we’re seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called “Integrated Business Services”.  We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.

2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS.  While it’s not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today.  Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.

Net-net, offshoring provides a very durable BandAid for many organizations, and we’re still yet to witness a slowdown in the amount of offshoring that is taking place – in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher.  Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.

3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise.  Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan.  Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa.   As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.

Posted in : Business Process Outsourcing (BPO), Cloud Computing, Finance and Accounting, Global Business Services, HfS Surveys: State of Outsourcing 2014, HfSResearch.com Homepage, HR Outsourcing, HR Strategy, IT Outsourcing / IT Services, Procurement and Supply Chain, Robotic Process Automation, SaaS, PaaS, IaaS and BPaaS, Security and Risk, Sourcing Best Practises, Sourcing Locations, sourcing-change, Talent in Sourcing, the-industry-speaks

Am I smoking something illegal, or has our industry really started to lose the plot with the amount of buzz terms that – quite frankly – only mean something to the sellers and advisors trying to make their wares sound that little bit savvier than their competitors. And even then, I am not too sure whether many of them even fully understand what they are buzzing about either, more simply regurgitating what their competitors are saying.

I’m not trying to be a fuddy-duddy here, and I do empathize with the exuberance of so many sell-side individuals who are simply starry-eyed at all the disruptive technology and evolving business models that are on the horizon, but c’mon folks, can we find a sensible balance between vision and reality?  Why has it become so uncool to talk about where we are, as opposed to where we think things might evolve in 5 years’ time?

I mean, wasn’t it barely six months ago when we were still having (relatively) meaningful debates about things such as:

• “What is innovation, and how can I get some of that?”
• “How can I find a provider to do something more for me than provide cheap labor”
• “I really would like some visibility over my order-to-cash process chain”
• “Our provider still can’t figure out how to automate our accounts payable processes”
• “Do we really get value from outsourcing all this stuff – are there other options to consider?”

Instead, suddenly it’s become terribly untrendy to have meaningful conversations about what we’re actually trying to achieve… like improving processes, trying to do a better job than merely maintain status quo operational performance, and accessing meaningful data to help us get more value from our day to day operations.

Yes, folks, if we aren’t creating Digital Services on SMAC platforms, we’re going to fail with Big Data and the Robots will come to replace us… so let’s see what 312 major buyers – in the brand new State of Outsourcing Study we conducted with KPMG – really understand about today’s latest slew of sexy savvy-sounding soliloquies:

Click to Enlarge

All joking aside, there is a serious message here: too many buyers are getting lost in the verbiage and the lack of relevance to their businesses and simply don’t understand exactly what is being sold to them. Let’s be honest here, SMAC doesn’t mean anything to 70% of buyers beyond being a concoction of new technologies lumped together… finance executives have been talking about “Big Data” for four decades and nothing is really new except the fact there is better technology to help them analyze it… I can go on.  Oh – and nearly a third of buyers don’t know what “transformation” means to their business? Seriously?

The Bottom-line:  Our industry is simply terrible at communicating to clients and needs a major reality check

There is an abject communication problem in our industry, when such vast numbers of operations executives are baffled by the BS their providers and advisors are lobbing at them via boring white papers, instantly-forgotten PPT decks and thousands of automated inane tweets.

It’s time for the industry side to start tying all this buzz to the reality of operations – where we can educate how enterprises can learn more about where the world is heading, how they can start to evaluate the pace of change that will impact them and develop change programs and new operations strategies that make sense to their businesses.

We have got to stop jumping on the bandwagon of spewing poorly communicated rubbish that has little meaningful relevance to businesses today, and instead explain in plain English how processes and interactions can be digitized, how robotics could one day enable our business systems to become more cognitive and less reliant on manual steps, how new analytics tools and expertise can help our staff become more relevant and valuable, as opposed to turning widgets and updating spreadsheets. Most of the stuff I read today is focused 95% on flashy terminology and only 5% on the actual substance on what businesses can do with all this stuff.

It’s time to get meaningful people and stop this feeding frenzy of confusing jargon…

Posted in : Business Process Outsourcing (BPO), Confusing Outsourcing Information, HfS Surveys: State of Outsourcing 2014, HfSResearch.com Homepage, IT Outsourcing / IT Services, kpo-analytics, Robotic Process Automation, smac-and-big-data, Sourcing Best Practises, the-industry-speaks