Having spent more than a decade in traditional analyst houses before starting a boutique research firm over four years ago, I’ve genuinely seen both sides of the coin when it comes to “pay-to-play” shenanigans with analysts.
We’ve heard all the accusations of vendors “buying” their positioning in quadrants, waves and marketscapes for years, and I’ll leave it to your own judgement what actually transpires there. In anycase, I think most knowledgeable people just use those things as guides when they make decisions.. and do not always take them as gospel. Am sure we get the some sniping when we run our Blueprints, even though analyst opinion only accounts for 10% of the scoring.
However, one practice I seem to be exposed to every bloody day is the blatant opinionating from a host of “independent” analysts/bloggers/pundits/consultants /influencers/journalists who all make a living from the dirty vendor marketing dollar.
Essentially, these “independents” make money using three tactics:
Tactic 1) Pay for Praise:
The oldest model for the dollar-eager “independent”. Simply go to vendor conferences, tweet sweet-nothings to noone in-particular (just so their marketing team notices) and write up some favorable pitch for their products/services. Then license it to them for ten grand and Bob’s yer uncle. Do one of those a month and you can eke out a meager living for not using a helluva lot of brainpower. Alternatively, just call up a vendor and offer up your praise services, and have them pay you twenty grand to write a white paper where they can have liberal “editing rights”.
How to identify: It’s pretty easy to pinpoint these”independents”, and there seems to be an inexhaustive supply of marketeers who persist with feeding the beast for their nice little independent endorsements to add to their handout bags at conferences. Why they haven’t figured out that noone trusts (or reads) “analyst” puff-pieces being offered up from vendors is another curious enigma.
Tactic 2) Pay to Shut-Up:
A more recent phenomenon where the “independent” analyst repeatedly publicly slams a vendor. At some point, said vendor may succumb and write them a check for “subscription services”, but the real deal is that the analyst needs to shut the xxxx up if they want to keep those checks coming. This tends to work for the more credible, influential “independents” who don’t need to resort to blatant white-papering and reprint-whoring to make their money.
How to identify: This can take a while to figure out – essentially watch out for analysts who never offer comment on a key vendor in their space (especially one whom it’s not very cool to praise, but has deep pockets). Or just observe which vendors an “independent” analyst likes to criticize and work out why they’re not commenting on others.
Tactic 3) Pay to Attack:
Most pay-to-play independents, who’ve lost all sight of what it means to be credible, will write nasties about their non-clients and sweet-nothings about the paying ones (unless they are influential enough to make more cash via the Shut-Up model). The vendors who get the nasty treatment have either given up trying to bribe the analyst, or have too much pride to be drawn into the pay-to-play game. Or simply, the money from the vendors getting praised far outweighs the money on offer from the other ones. This type of “independent” is in a constant state of flux praising their money masters and bitching about their competitors. What’s often most baffling is some these “analysts” are so lost in their little business model they actually believe the crap they are writing – they truly have become coin-operated.
How to identify: Pretty easy to figure these ones. Just read their stuff and join the dots.
The Bottom-line: Who can you trust?
There is only one opinion, at the end of the day, you can rely 100% on – your own. You’ll hear all sorts of puff and bluster, observe all sorts of fancy grids and scatterplot charts, and you’ll be able to pick up a lot of useful datapoints, especially with the plethora of free information available today. But the only opinion that ultimately matters is what you see with your own eyes – and hear from other customers who’ve experienced the products and services.
And trust research you know is straight from the customer and not written by whomever is bankrolling it. Talk to the analysts writing the stuff too, as it’s harder for them to play the act when they are actually having to give you their real opinion.
Sadly, this is only going to get worse before it gets any better. Suddenly, in today’s media-insane environment, everyone is an expert and can put out their own version of the world in many different forms and soundbites, across many different information channels. It must be getting really, really hard for some people to keep track of what is real versus propaganda (or just plain crap). I can only hope that better filtering tools are developed in the future that allow us to manage our information environments better, de-social some of the insanity that deluges us, and focus on the experts we trust and opinions that matter.
Our new “Technology in BPO” study will soon reveal (stay tuned) that this industry is on the brink of a significant, radical overhaul to its very core value proposition. Quite simply, when we look at the current performance of BPO engagements today, the results are more than depressing, but the encouraging news is that half of today’s clients are not expecting to settle for this status quo:
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Where BPO is performing well (green). The positive news for the BPO industry is that providers are proving effective at delivering the principal two table-stakes of BPO: (1) delivering the standard basic operations, and (2) meeting the pre-agreed contractual cost reduction targets for clients on more that six out of every ten engagements.
Where BPO performance is average (amber). Encouragingly, half of BPO buyers are pleased with the efforts their providers’ leaders are making collaborating well with their own leadership, a recent trend we have observed where senior provider executives are getting more hands-on with their clients, as opposed to disappearing from sight the moment the contract ink is dry. This is positive news for buyers which need to discuss how evolve their BPO value beyond very basic service provision and gain senior buy-in. In addition, it is reassuring that more than half of buyers are pleased with the specific industry process knowledge their providers are bringing to the table – an area that has proved much more disappointing in past studies.
Where BPO is struggling (red). The areas in the red box give serious cause for concern regarding the potential of the vast majority of today’s BPO engagements. When you consider that many of the leading BPO providers today are significant IT services firms, it is staggering that over half of buyers are dissatisfied with the technology solutions and automation being incorporated into their engagements. Not only that, among the areas where providers can easily impress with a little investment is in providing talent that can be more proactive with their clients, and also deliver more than simply operational support. The picture becomes even more depressing with the fact that barely four out of ten BPO buyers can attest to some positive performance with new ideas and initiatives and some analytical insight from their providers.
Simply put, the majority of providers need to step up significantly, if they can fulfill their clients’ ambitions of moving to a broader transformational environment where they are benefitting from process and technology transformations. On the flip side, HfS research last year (see link) examined the talent issues in sourcing, revealing that many buyers simply do not have the right talent mixes on their outsourcing governance teams to work effectively with their providers to take advantage of their analytics capabilities, jointly plan and develop new initiatives, or work collaboratively on problem-solving or outcome-based gainshare initiatives.
And now the good news: Half the industry expects to break out of the old world of “lift and shift”… and fast!
Some buyers and their providers will embrace what needs to be done to evolve this business beyond being a mere wage-reducing staff augmentation service, while others will persist in slogging away with a model that is now proven, beyond any doubt, that the only real benefits are from the supply and purchase of cheaper labor.
BPO creates a new normal for businesses… and the winners will be those which can break from the status quo. Sadly, once enterprises offload labor costs, they don’t ever want them back, so a new normal will quickly occur where the most enterprises’ leaderships will start to demand further efficiencies – and smart governance leaders today know they will be out of job before long if they are simply going to persist in overseeing a stagnating offshore-based operation. What’s more, expectations are moving a lot faster in today’s environment, where function leaders don’t have the luxury of ten year programs anymore – leadership expects to see tangible results in much shorter timeframes.
Smart enterprise leaders know they have to change how they add value to their firms. You only have to look at the growing number of unemployed CIOs to understand what happens when functions become overly operational and limited value and innovation is being achieved. It’s the same for CFOs, CPOs, supply chain heads and other function leaders – they are all under pressure to drive out costs, while delivering ongoing improvements to data quality and having greater alignment with front-office activities. This is why 49% of today’s BPO buyers expect to have moved to a “wide-scale transformation of business processes enabled by new technology tools/platforms” in just two years:
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The Bottom-line: BPO will only fail those enterprises which settle for “mediocre”
Providers can only deliver what their clients demand of them – and pay for. Simply put, 49% of enterprise buyers have only ventured as far as doing basic labor arbitrage, and are clearly failing to find much (if any) value beyond those wage savings. Most providers are not delivering that value, but, in most circumstances, this is because their customers have not got their act together to set out a value-based agenda and work with their provider to have them help achieve it. Providers will not seek to deliver value until their clients demand it, are prepared to invest in it – and will kick them out if if they then fail to deliver it.
BPO is the start of a new phase of change for more enterprises… it’s persisting with the change agenda which dictates the pace of new value creation. These 49% of “lift and shift” engagements have been set up for short-term cost gains, not long term improvements and innovations. However, all is not lost, because moving into a “lift and shift” BPO environment isn’t necessarily leaving the buyer and provider in a bad situation. They have achieved goal number one with most outsourcing: they got the bloated costs off the books and are in a better place to effect change.
In essence, BPO isn’t failing, it’s simply milked as much as it can from the very first phase of efficiency gains… the removal of bloated costs from years of onshore staff hiring. As one major BPO enterprise adopter, now in a very mature state, declared, “We were mired in expensive shared services and politics. The situation had reached the point where we were unable to drive any changes, efficiencies or innovations. Every decision to change a process, procedure or policy would require a committee meeting of people who had no desire or incentive to do anything differently. BPO saved us – it drove the shock through the system we needed to change our ways, and created a new starting point for creating a much more effective, scalable operations infrastructure.”
So, folks, this isn’t the end, or the beginning of the end… moreover, its the start of a new beginning.. for at least half of today’s BPO buyers.
HfS will shortly release its new report, entitled “BPO on the Brink”, that analyzes, in full, the results of this groundbreaking study that covered 189 experienced buyers of BPO services and their practices with regards to achieving business outcomes, deriving value beyond cost and adopting enabling technologies to improve processes and performance.
When God invented broad-scale multi-process outsourcing for the back office in the 1990’s, a big chunk of the Global 2000 leapt up screaming “Please take our HR! Please fix it – Oh and save us 20% off the bottom-line while you’re at it”.
Lo and behold, by 2006, more than 300 major enterprises had already outsourced a proper bundle of core HR process to providers brave enough to take it all on – and try to make a profit in the process. Typically, these deals were payroll, benefits admin and a plethora of HR administrivia… all lumped together within an HR call center, with an employee portal veneer as a band-aid attempting to mask whatever assortment of manual non-standard processes, custom made spaghetti-code and dysfunctional on-premise technologies that came with the package.
In short, how can you outsource a people, process and technology nightmare and expect someone to replicate it and run it for less? Not only that, when the function being outsourced screams for the hills to resist this corporate colonoscopy with a stubbornness not seen since Custer’s Last Stand, it’s gonna go south… and fast.
Hence, it was hardly a surprise when Hewitt (pre-Aon) got skewered by its purchase of Exult, while Convergys almost died of HR-poisoning before offloading its HRO beast business to NGA. And we bet you’ve all long forgotten the aborted attempts of benefits specialists Fidelity and Mercer, which got the hell out of Dodge at the first sight of a “ring-fenced contract”. Meanwhile, the likes of perennial outsourcers HP (EDS), Accenture, IBM and Xerox (ACS) quickly got queasy with that they saw, opting to hang around on the off-chance something tasty came along, without sinking vast wads of cash into a function that was simply horrible to outsource.
So, what’s happened to multi-process HRO in today’s slightly-smarter BPO world? Who survived the early HRO ordeal to develop solutions that are profitable and functioning? And how have the Indian providers fared, with their own flavor of operational discipline?
So without further ado, let’s ask HfS’ lead analyst for HR and talent research and report author, Christa Degnan Manning, what in the world is happening in the HRO universe after conducting the most comprehensive study of multi-process HR providers and buyers to-date…
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Christa – before we even get into the details of this Blueprint Report, the first thing that jumps out is the fact that the provider performance is a tad “mediocre”. What’s going on here?
It’s simple really – the employee experience still sucks! Given the significant dynamics of the changing global workforce and workplace, HfS has seen an opportunity to revisit this space and to redefine it from the consumer of services point of view – the employee. Too often in the quest for administrative cost savings and automation in the enterprise, the worker has been left out of the equation and HfS research shows this has had a significant impact on employee engagement, productivity, and retention.
So what is this report all about? Why is this the first Blueprint we are doing in HR?
The genesis of this study – taking this research job at HfS really – was that the typical state of employee support services today in large and small companies alike is abysmal. I have experienced it first hand, my friends have, even people at some of the large vendors we cover admit they feel similar frustrations as a worker – too many different self-service apps, help-desk service tickets, call center numbers, IVR (interactive voice response) rat holes – it is not a joke that the biggest advancement in HR for most firms is single sign on.
I make the analogy in the report that if the typical corporate HR service portfolio today was a retailer, it would be a dead-end discount strip mall with confusing, competing storefronts short on staff where people dread going. Just as companies that outsourced key customer support functions purely for cost reasons have learned from the error of their ways, I think the best businesses are going to realize that the employee experience is just as important as the customer experience. Maybe even more so, because the employee ultimately affects the customer experience.
So what we wanted to do was redefine “multi-process HRO” – a meaningless term really – in terms of workforce support services and what the worker wants. From the workforce research we have done, we know that people today want to be doing meaningful work, collaborating with colleagues, and rewarded for their best effforts – so we have reframed the consumption of services from a linear “hire to retire” model – (seriously, who knows anyone who has been hired and retired from the same firm these days? Except IBM?) To a more non-linear, day to day work day experience of the employee: What am I doing? Why am I doing it? Which gets to the whole area around rewards, remuneration, and recognition – what is my basic motivation for working here?
We think this sets the foundation for HR service delivery, starting with the most fundamental stuff, payroll, benefits, which absolutely require a consistent set of core data and have to be gotten right or all the talk of talent management, career development, and employee engagement is pointless. But we also included other monetary and non-monetary rewards such as tuition assistance, social media recognition, and even incentive travel as pure compensation budgets are strapped or capped and companies need to look at new ways to motivate workers.
So what did we find?
In 2014 multi-process HRO (excluding recruitment and learning outsourcing) will hit $36 billion, growing at a 5% clip and expected to grow closer to 6% for the next 4 years. I’d say this market is virtually untapped, though, when you consider the upside from truly transforming into workforce enablement services, which also takes into account collaboration, mobility, and performance management areas.
But, for now, to some extent we are using binoculars to look in a rear view mirror. While HfS research has shown that enterprises want to see more innovation and execution excellence from outsourcing providers across the board, this multi-tower HRO market today is largely a reflection of cost-cutting deals cut five to ten years ago.
That being said, given the competitive workforce and workplace dynamics today, companies that want to differentiate themselves can no longer accept simply not screwing up paying workers – they need to embrace new ways of engaging and empowering them to get back to the real business of serving the customer. The HRO service providers that have recognized this are the actors that dominate the stage and are in the prime position to take on more higher value BPO work around workforce analytics, planning, sourcing, and development over time as well.
Who is in the Winner’s Circle and High Performers categories and Why?
HRO specialists dominated, but the upstart competition is fierce and hungry. Amongst the top performers, the companies that have been doing payroll and benefits as their core businesses were recognized (ADP, Aon Hewitt, Ceridian) as well as those that have particular discipline in HR outsourcing (NGA HR, Neeyamo, Xerox).
Winner’s Circle:
NGA HR — proactive, flexible, global, partnership culture
Aon Hewitt — total benefits approach, consulting capabilities for communications and change
However, several traditional and niche Indian-headquartered services firms, such as Wipro, Neeyamo and WNS, are aggressively investing and targeting workforce services as their next growth platform and counting on their traditional strengths of cost-efficiency, process excellence, and continuous improvement to win business and expand footprint with major enterprises worldwide. Buyers are taking notice and will definitely put these players in the mix to put pressure on their incumbents as many early HRO deals come up for renewal.
Of note, some of the High Performers have virtually no market share, but you know what? Neither did Google or Zappos or Netflix or any disruptive player in any market. In fact, whole books like the Innovator’s Dilemma have been written that in order to be bold and actually disrupt a market you have to come from the outside and start fresh with a whole new take. They are coming from related disciplines like ITO which in many cases is a workforce support service in and of itself. So I’d say we are at an inflection point in the industry. What used to be known as multi-process HRO, is now workforce services, and a different set of rules for success are being written.
What about some of the earlier leaders like HP, Xerox and IBM? Are they still in the game, or just seeing out their contracts?
Early pioneers/players HP, Xerox, and IBM all suffered in general from the fact their customers are reaping the seeds sown of first generation outsourcing based on labor arbitrage and cost reduction. While they can speak to a refreshed employee experience vision and offering set, by and large it remains to be seen if they can make the transition.
What about the role of technology here? What did you find from that perspective?
Good question. Many say the early mega multi-tower HRO deals went wrong because the systems were not in place to make the engagements scale effectively and I think the industry has learned its lesson. While there are still plenty of deals where the enterprise retains responsibility for the core HRIS (human resources information system), a number of vendors are now including technology, notably SaaS applications such as Dayforce, Ramco, and Workday as key enablers of the deals. However, these personnel data systems only go so far, and the leading HRO players have invested in their own technology wrappers and enablers such as portals and multi-channel communications platforms to provide a more streamlined and seamless user experience.
Software as a service is a real game changer though. The popularity of SaaS has helped HRO mature as companies learn to accept technology as an enabler of value in outsourcing as well as standardization. SaaS is also key to the market as companies consider giving additional work to incumbent information technology (IT) service providers they have good relationships with — they already know their industries and businesses. Providers doing SaaS implementations, collaboration, mobility, and analytics support are in prime position to extend these into workforce productivity services more broadly, particularly if they have global and on/nearshore footprints for contact center support.
So what are the key take aways?
Christa Degnan Manning is SVP, Workforce and Talent Strategies at HfS (Click for bio)
There can’t be better business processes suited for outsourcing than payroll and benefits administration, but everyone has to take a more strategic view of it, enterprises understanding what motivates their workforces and the providers leading the way on the “how” which is serving the employee, not HR or procurement ends of themselves. A lot of HR and even HRO folks seem to be beaten down that HRO can never really come together to delight workers, but the people that believe in the employee experience and are energized to deliver good service – because at the end of the day HR is a service – are the ones that will be differentiated in their roles and their firms in the marketplace.
In the meantime, we offer the following advice:
End-to-end doesn’t exist. When one assesses the global breadth and depth of capabilities across the employee’s experience of pay, benefits, and other rewards from HRO vendors today, there is a wide range of support offerings. In speaking with vendors, it seems models often opportunistically developed to meet individual client’s needs so they don’t match the same footprint or needs of another consistently worldwide just yet. So companies should consider the areas where they have the biggest pain points or opportunities for improvement and evaluate vendors current and future product strategy against their own workforce objectives and reward maturity.
Look under the covers. More than one vendor indicated it is the subcontracted provider of another vendor in certain areas, despite that vendor selling a global solution. In HfS’s mind, this is acceptable if not inevitable, as long as the prime HRO providers are ultimately accountable for total global outcomes.
People help people. Despite or perhaps because of the advances in technology and the systems integration role that HRO providers are playing, buyers expressed particular appreciation for the staff of the HRO partner – both account management and operational teams – for making the difference in vendor performance. Buyers acknowledged that everything can not be seamless and integrated but the HRO providers that are responsive and accountable when exceptions arise or things go wrong are the ones that earned the highest marks.
The best is still not great. While the Blueprint methodology identifies the best players in the “Winners’ Circle” and those following as “High Performers,” even these players did not score high marks consistently across the board nor across all reference customers. Also of note, while the buyers of HRO services often praised their provider, there was frequent acknowledgement that the employee consumers of the services would not likely score the vendor as highly. This reflects the shift going on in the BPO marketplace to get beyond adequate in general and we predict the bar will be raised on service providers to meet consumer-grade retail shopping expectations of service across HRO.
Thanks, Christa, for an excellent synopsis of the new Blueprint.
HfS subscribers can click here to download their copy of the 2014 Multi-tower HR Outsourcing Blueprint Report
We’re very shortly going to reveal the incredible findings (and they really are) of our new Technology in BPO study, and one of the key areas that jumps out at us is the rising importance of automation as a core value-driver for BPO clients.
As organizations seek to “cross the chasm” from a legacy labor arbitrage / staff augmentation model of business service delivery to a technology-enabled service experience that isn’t completely dependent on adding extra bodies to scale a service, the most immediate measure is to map out simple process workflows that humans are doing, and develop them in a software program using a process automation tool (and yes, I am trying to avoid using the term “robot” for now…).
Suddenly BPO clients discover, for example, that as sales of a particular product increase, they can scale their order management capability by replicating many of the human tasks processing those orders, as opposed to simply throwing more bodies at the problem. Many service providers will not be happy as this may well hurt their model of earning money through the supply of additional labor, but smart clients are already wisening up to the fact they need to get out of the FTE game. So, we asked HfS’ Charles Sutherland to share his views on what is really happening with process automation and why is shouldn’t be confused with technology automation theories of yesteryear…
We’ve seen it all before: IT suites, BPM Suites, customer service management tools etc. so how is this any different?
I came across a blog on automation by Somok Roy at ISG entitled “Lets Be Clear: Automation Is Not New Technology“. I couldn’t be more in agreement with the title, and its premise that the term “automation” is imprecise and a source of confusion. In fact, the blog is a case study in how automation can be misunderstood when approached as a lesson in IT history and not as a means to solve a set of current business problems.
So in the spirit of collegiality, I thought it would be useful to share some perspectives on why process automation is more than a surge of breathless marketing and less than the arrival of an entirely new outsourcing paradigm, but still a solution to many business problems. That’s why it is resonating with every enterprise client and every service provider we talk to today – and why two current market surveys we have in the field capture interest in automation as a solution to current business problems that is second only to analytics:
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My take is that all these other forms of automation have certainly played a role in how IT and business processes are delivered inside clients and in service providers, but in many cases those tools are too hard to implement, over-engineered, too costly and – more often than not – fail to live up to their promise. If they were so great, we wouldn’t have had the creation of the “lights-on-outsourcing” industry that we have today or at least certainly not at the scale it has reached. Instead, we’ve had an FTE-dependent model for service delivery that, for a great many enterprises (and service providers) is losing its viability, as ongoing productivity gains prove harder to squeeze out of the status quo and COLA driven increases reduce the business benefits for all.
Process automation is new in that it doesn’t try to be as transformative as BPM Suites or as dependent on deep tech skills as past IT infrastructure automation tools. Instead, these new breed of tools, such as Blue Prism, IPSoft and UiPath, are meant to be used by business analysts working on small-to-medium sized projects so that they can replicate the process done today by a human, by setting up a software-based equivalent instead. When that occurs, it becomes possible to reduce costs further, pilot additional new productivity improvements and make these changes quickly, whether in the enterprise location and or in a service providers delivery center. To me, actually achieving process automation quickly, with lower net costs and without the overhead of a broad transformative effort seems like something new. That their interfaces are user friendly and you can readily apply them, even in the sort of Citrix-based processing environments many BPOs use today, also suggests that they are something new. I’m not a developer by any means and so when I can use them to replicate simple processes with only a minimal level of training, then that also suggests that there might be something new in this as well.
The Bottom-line: Automation projects can provide those first baby-steps away from the FTE-model
They are a step in the journey, especially for enterprises that aren’t in a position to swap out their enterprise applications, but are looking for something more than they can achieve by merely hurling incremental labor at a process.
Charles Sutherland (pictured left) is Executive Vice President, Research at HfS
Now here is where the breathlessness has occurred so far…. these tools don’t eliminate the value of all the other automation capabilities out there.
So, if you step back and don’t try to confuse this emerging capability in process automation with other forms of the term covering BPM, analytics and infrastructure monitoring, then maybe, just maybe it will be a little clearer why this is an important trend in business services delivery in 2014+.
The insurance BPO market will hit $5 billion this year, growing at a 5% clip and has proven to be one of the select verticals truly embracing technology enabled BPO capability to support operations. The insurance market has become incredibly competitive in recent years, with the differentiation across insurers moving to customer service and brand perception, once price points are relatively similar across the reputable firms.
In short, these insurance firms need to invest every cent they can in their advertising intensity and customer facing capability to keep ahead in this market. And with advertising costs becoming so immense for the firms operating on wafer thin margins for many insurance products, they have no choice but to find cost efficiencies from elsewhere in the organization to pay for it all, if they are really going to save you 15% or more in a 15 minute phone call…
For the large insurers, many could go out of business if it wasn’t for the savings and efficiencies generated by maturing BPO delivery models. So let’s take a look at the industry’s first meaningful analysis of the innovation and execution capabilities of all the leading service providers:
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HfS has evaluated the innovation and execution capabilities of service providers catering to life and annuities (L&A) and property and casualty (P&C) insurers, brokers, reinsurers and others (excluding healthcare). We asked Research Director leading the blueprint initiative, Reetika Joshi, to elaborate further on the results of the exhaustive study.
Reetika, what are the key challenges facing insurers today?
The key challenges global insurers in our study face are regulatory compliance, member retention, reducing total cost to service, integration efforts for aggressive acquisitions, multi-line agency management, profitable growth in new markets (esp. for L&A), pricing pressure (esp. for P&C) and most importantly, risk management. Our conversations with these insurers and their service providers, along with exhaustive secondary research reveal the changing mindset of buyers in this industry. Insurance clients’ outsourcing motivations are slowly starting to change, going from task outsourcing and optimization to impacting total cost to serve, cost of compliance, organization level efficiency and insight generation – in line with core organizational challenges.
How are service providers adding value beyond basic low cost staff augmentation?
Clients are increasingly looking to their service providers to help them with these business outcomes (part of what HfS calls “progressive outsourcing”) which goes beyond traditional, transactional “lights-on outsourcing”. Insurers are continuing to expand the scope of their processes with service providers to include more high-value, complex and core functions such as actuarial and underwriting support, agency network optimization and analytics across areas such as new product, risk and claims. However, service provider capabilities in these service areas are not consistent. Clients are more willing to entrust execution of complex processes to market leading service providers. Further, the delay in decision making around closed block administration outsourcing is starting to give way to a host of new contracts in the last two years. North American insurers are the source for the vast majority of these deals since 2011.
Our research sizes the global insurance BPO market at $4.72 billion in 2013, growing at a CAGR of 4.6% to reach $6.19 billion in 2018. For the scope of this study, we have excluded the traditional third party administrator (TPA)/loss adjustment segments as we believe the competitive dynamics of the outsourcing provider group is unique.
So how did they winners shake out?
The Winner’s Circle Features a Mix of Provider Groups and Strategies. The leaders in our analysis represent a diverse mix of strategies and strengths:
The leaders in our analysis represent a diverse mix of strategies and strengths:
Accenture with dominance in Europe and strengths in catering to both P&C and L&A segments
IBM which exclusively plays in the North American and Asian L&A market
EXL and Genpact which have a mix of P&C and L&A coverage, tending towards North American clients
TCS which has a stronghold in the UK L&A market through its subsidiary Diligenta
These service providers have robust global delivery capabilities, demonstrated expertise across the core insurance BPO services value chain, have exceptional account management and client engagement efforts. Accenture, EXL, Genpact, IBM and TCS have all made significant investments in insurance technology to offer integrated technology and business process solutions to clients. Further, they are committed to future investments in the insurance vertical and delivering value beyond cost by consistently engaging with their customers on vertical-specific innovations. Their forward-thinking vision for the future scope of insurance BPO has helped clients realize benefits from the use of emerging technologies, continuous improvements efforts and regulatory compliance vigilance. We recognize Accenture, Genpact and IBM for leading overall Execution, while Accenture, EXL and Genpact lead Innovation in global insurance BPO.
High Performers Represent Strong Competition. High Performing service providers including Capita, Cognizant, CSC, Infosys, Wipro, WNS and Xchanging have strong execution skills and existing market share. Our study suggests that of this group, Capita, Cognizant, Infosys and WNS will prove to be strong competitors to the Winner’s Circle in the medium term. This is due to their significant commitments to the insurance vertical and investments in innovation capabilities that require time to mature.
And finally, Reetika, what are the key takeaways?
» Most buyers are unimpressed with technology enablers in use today – time to invest in real “value add”. Our primary research with a diverse group of insurers across geographies reveals that most buyers are ambivalent about the performance of technology enablers embedded in their BPO operations today (including reporting dashboards and other tool kits). Bar a couple outperformers, service providers need to address client expectations and improve the standard technology enablers provided to their insurance BPO clients.
» Buyers most swayed by talent management – at the operations level as well as account management. Insurers are highly vocal about how critical the talent brought in by service providers is to client satisfaction. Account managers are one such layer where buyers appreciate prior insurance industry experience apart from account management skills. Further, the industry knowledge and local domain expertise of BPO teams is highly valued by clients, and cited as one of the most important reasons for client satisfaction.
» Service providers of all categories have upped their game on industry knowledge – differentiation will now come from niches. We found numerous examples of efforts by service providers to impact outcomes through industry-specific solutions. Clients have consistently attested to their service providers’ level of knowledge on domain-specific processes including complex service areas, regulatory compliance and reporting knowledge and nuances of different market segments and niches. What this implies is that insurance industry knowledge is now becoming the norm, and will no longer be a source of differentiation in and of itself. Service providers will need to dig deeper into their niches within different market segments and geographic markets to push the envelope on further differentiation.
Reetika Joshi is HfS Research Director, Industry BPO and Analytics Strategies (click for bio)
» Platform play is emerging as one of the strongest engagement models and differentiating strategy. Service providers have seen the most prominent uptake in business platform adoption from the insurance industry. 54% of the deals analyzed for this study featured modern business platforms proprietary to providers. Insurers are accessing new sources of cost reduction, process consolidation and standardization and technology modernization through platform based BPO engagements. Service providers are in turn owning larger parts of clients’ processes, and creating larger and longer lasting relationships (e.g. while average contract length is 7 years, platform based BPO engagements average at 8.2 years)
» Buyers are yet to see a proactive and consistent approach to innovation from their service providers. Our research finds that buyers and service providers have not yet tapped collaboration opportunities for disruptive innovation. Most innovation effected so far has had incremental operational and financial benefits for insurers.
» Regulatory support and compliance is top of mind for both buyers and service providers. Both clients and service providers are very aware of the possibilities of working together to improve regulatory compliance and support. Even if it doesn’t translate into actual business right now for all insurers, this is definitely an area where we see an increased scope for work in the near future.
Thanks, Reetika, for an excellent synopsis of the new blueprint.
HfS subscribers can click here to download their copy of the 2014 Insurance BPO Blueprint Report
And after all these years of horsing with sourcing, it’s finally OUR YEAR! Yes – this is the year of the horse, where HfS is going to achieve all of its wildest ambitions 🙂
Just when you thought it was safe to turn on your PC… then HfS’ webcast roller-coaster returns for another hour of undiluted words and data…
Renewed economic growth, the onset of the digital enterprise, a rebounding outsourcing market and the rise of process robots. That’s what we’re having to contend with in 2014, so we’ve dredged up a plethora of experts to help us understand how this will impact business and IT services dynamics, operations frameworks and investment behavior across the world – and what this all means to the impact on talent and the extended enterprise.
Have you ever tried to dissect the assortment of (sometimes absurd) characters in your professional life with whom you have to invest so much of your time? Well now you don’t have to, because here they all are in their naked glory…
The haters. There are people out there who will always despise and resent you, no matter how hard you try. Just ignore them… if you can. They’re jealous.
The skin-crawlers. There are people you will just despise, no matter how hard you try to like them. Keep trying… never give up, one day you might find something you like about them… unlikely, but you never know. However, once your skin crawls, it usually stays crawling.
The irritants. There are people who will just irritate you. There is no remedy, just suck it up. Try to think about how you deal with the in-laws…
The zombies. There are people who somehow always seem to be employed, despite being completely and utterly unemployable. Just remember, they will keep finding some idiot to give them a job. It’s just reality… deal with it. God invented zombie companies to hire zombie staff…
The upwardly immobiles. There are some people who always seem to get overlooked for promotion, despite the fact they are the only person in that company who does any work and has half a brain. Just keep dealing with them and ccing their management to give them recognition.
The rejections. There are some people whom you really admire and respect, but just don’t seem to feel the same about you. They probably think you’re an idiot, so just move on – they just don’t see your greatness through their mental fog. Remember high-school and the cool kids who just didn’t want to hang out with you…
The hate-hates. There are some people whom you despise, who also (probably) despise you. Might as well pretend to be friends and have painful conversations where you pretend to like each other… keep your enemies closer, and all that.
The drama queens. There are some people who are just a nightmare to deal with – always blowing up with every little activity always becoming a major issue. Just keep practicing that egg-shell walking… this one ain’t going to change anytime soon.
The walking dead. There are some people whom you have no idea what it is they actually do all day. They just exist. They will always exist. Be nice and never probe too deeply on the specifics…
The whiners. There are some people who just go on and on about how busy and over-worked they are all the time – even though you’re not exactly sure doing what. But they somehow manage to spend an awfully large amount of time complaining about their inhumane workload . Just sympathize with how hard they have it and let them know you’re always here to help them… but you have to run, as you “don’t want to take up any more of their precious time…”
The job-hoppers. How about those peeps who are always looking for their next gig as their current job just sucks big-time (like their previous six). Like, what do they expect to be different each time they jump ship? Haven’t they realized that they’re going to be somebody’s b***h wherever they go? Sadly, their new companies are becoming increasingly obscure and the hopping time-spans are decreasing. Just avoid being a reference… you’ll become someone’s enemy pretty quickly!
The “refuse to find a new line of work” people. The are more blogs on HR than any other business topic, because people in the HR industry don’t have anything else to do (or the work is so boring, they just avoid doing it). Why spend all your time writing how fxxxxxd-up your function is than actually doing something about it? No remedy for this, unfortunately. We’ll no doubt get deluged with thousands more blogs about how messed up HR is in 2014… or, heaven forbid, some of these people will actually find jobs in other functions where they can actually do some work.
The social media zombies. A more recent creation of colleague, but one with a high-irritant factor – those people who seem to be endlessly on Facebook, LinkedIn, Twitter, Quora, SlideShare and lord-knows-what-else every minute of every day. What the xxxx do these these people do all day, or are they still living on the memory of the work they used to do pre-2007? Just don’t “like” or re-tweet any of their mindless updates, if you want to avoid them electronically stalking you for the next 20 years…
True corporate love. And finally. there still exists a small number of people in your work environment whom you admire, who feels the same about you. Go see them, have dinner, take in a movie, it’s a rare, but pleasurable experience!
Big data, outcome-pricing, “transformation”, process transmogrification, value thresholding… all big words indicating big ambitions, but they’ll mean squat if your only real strategy is to keep cramming more and more bodies into the same space to drive down costs.
Non-linear growth and outcome-based services in full swing
It may work for United Airlines, but with BPO, all you’ll end up with is the bottom of the barrel choice of talent and more “chop shop” comments from Chuckie Schumer. And, once you’ve run out of floor space and your company is too cheap to rent more, your only choice will be to hire robots, which aren’t programmed to complain about working conditions or undertake industrial action. Unless, of course, they become self-aware and send a re-conditioned Arnold Schwarzenegger on a mission to Nasscom.
So, without further ado, we asked HfS’ own cube-farm specialist Charles Sutherland, to take a look at what the delivery floor of the future may just look like…
Getting Beyond The “Lights On” Standard for Delivery Center Floors
There can be few places more soul-sapping over time than the standard, traditional shared services or BPO delivery floor made up of endless rows of nearly identical cubicles with a few dated operational metric posters tacked to the walls. Whether that’s your daily work environment or you are there on a floor walk as a client or advisor, you probably hoped as the hours passed that the colleagues on the floor were engaging and providing a spark of innovation and excitement otherwise the days (and nights) just seemed to go on forever in these bland and joyless workspaces.
We got to this dire state as a result of a fixation on controllable cost management above all else. In particular by focusing in on the expense components of seat charges to help create “value”. And as an industry we were effective, we shrunk the size of cubicles, minimized the “add-ons” and worried about seat utilizations so that the delivery floor became a predictable and controllable cost in an era lf “lights-on-outsourcing”.
Then as an industry we wondered why employee attrition stayed high, why innovation seemed to trickle rather than flow from operations and why our service provider teams weren’t as connected to the business outcomes of our clients as the occasional logo poster above them suggested they should be.
HfS believes that the BPO marketplace is in the midst of a significant change, as the majority of clients have ambitions to move from a model of “lights-on outsourcing” to “progressive outsourcing”. However, many of the elements of “progressive outsourcing” are so fundamentally different from where this marketplace has been languishing for the last twenty years, there is, in essence, a chasm to cross, in terms of the level of change management needed to discard the legacy enterprise practices and/or the ageing capability models that are in place throughout much of this industry.
A recent discussion with Accenture sparked the thinking at HfS with regards to how the introduction of new ideas and investments to the delivery center floor plays another important role in this transformation journey towards “progressive outsourcing”. We noticed that how delivery floors are structured, how the offices and desks are laid out, and the ergonomics of the environment can have a monumental impact on the overall effectiveness of the team and the results that it can achieve.
For all service providers, reforming the model of the BPO delivery floor has the potential to create additional client value and help cross the chasm to “progressive outsourcing” in four ways:
Heighted Collaboration – New collaborative models inside BPO teams and together with clients is a central to the value to be created by “progressive outsourcing”. By creating new formal and informal ways to collaborate facilitated by technology and ergonomics, these new delivery floors encourage BPO teams to go beyond base delivery of the transactions and work together to solve problems.
Rapid Testing of “What Ifs” – client value is further created by BPO delivery, when the very nature of the process and delivery is continually challenged and improved. Providing a delivery environment where teams have access to client and industry data with the spaces to meet and conduct “what if sessions” helps to foster a delivery culture of not just process excellence but process improvement and innovation as well.
Industry Acumen – delivery floors can create additional industry acumen on the teams by providing easier access to industry benchmarks in real-time using innovation rooms and easy to access visual displays across the floor to increase awareness of industry norms and trends.
Reduced Attrition – one of the primary drivers of excessive unmanaged attrition in BPO delivery is just simply that the work environment BPO employees may be asked to be part of just aren’t very nice. By brightening up floors, making management more integrated into the floor with command center stations (without them having to stand behind everyone all the time) and just generally making a more pleasant work environment, there is every reason to believe that valued BPO employees will be more motivated and committed to their clients than before.
Charles Sutherland is EVP Research and Guinness, HfS (click for bio)
Leading service providers are opening up to the possibilities that the delivery floor can be a driver of change in how processes are delivered and the value that is created, and, in doing so, the new delivery floor becomes yet another tool to help move the marketplace towards “progressive outsourcing”. At HfS we look forward to future floor walks in these delivery centers and discovering all the new benefits they have brought to clients, service providers and employees.
Mike Beals is Vice President, Governance Research and Strategy, HfS Research (click for bio)
The implications of evolving to a GBS model are significant for all affected enterprises, but possibly none more so than those responsible for service delivery governance, as described in our Six Maturity Leaps.
This governance group has the challenge of managing an increasingly complex environment, with aspirations much loftier than in the past to achieve the right maturity levels to run GBS effectively. So, if you have aspirations to make some of these leaps and want to find out how to develop the skills needed, without hiring in a crack team of black belts, you could do worse than read our latest report (click here to download your complimentary copy), authored my HfS’ VP for Governance Research, Mike Beals, aptly entitled “Heroes Don’t Scale”.
In the meantime, we caught up with Mike to discuss the context of the new report and how governance is evolving with the onset of the GBS framework for the back office that promotes control, efficiency, quality and visibility of end-to-end-processes…
Mike, what are the key trends you are seeing in outsourcing governance as we move into 2014?
We’ve seen quite a lot of advancement in the capability and maturity of governance organizations over the past 10 years and I think we’ve hit a tipping point relative to understanding the need for good governance. I believe that as organizations move toward a hybrid model, or a global business services environment, that they will increase their investment and awareness of governance even further. The companies that have not done so, will advance past the point that they are managing each individual outsourcing and shared services environment individually and will aggregate this capability into a center of expertise or a GBS group. I also believe that organizations that have multiple outsourcing or shared services environments will recognize the need to adopt a common framework across the enterprise and implement a training program to ensure their resources have the appropriate level of demonstrated proficiency. There is just too much risk not to.
One aspect we noticed at the recent HfS Blueprint 3.0 session was the difference in skillsets between vendor managers and governance professionals. Is this a common trend developing, where some executives view themselves purely as a “vendor manager” and others as a “governance professional”?
I don’t think it’s as much of a trend as an observation of the career paths that have led them to their current role. There is a group who started out in procurement and have landed in vendor management roles, and then there is a group who started in a business function and are now in a governance role. There are pluses and minuses of each career path, but I think the trend is that the two skill sets will merge together. I think it is somewhat similar to the way CIOs used to be selected in the past. Many of them were very technical and were promoted out of the ranks of IT, but over time, more CIOs came from the business. The point is that CIO’s that came from the IT department sometimes struggled in relating to the business and driving business value. The same type of challenge exists for traditional procurement professionals that stay in their comfort zone and manage vendors but do not effectively understand broad business requirements and how to drive business value.
What, in your view, makes a successful governance executive? What are the key attributes they need to develop?
First, it’s important to point out that the business environment is changing. We are moving from a cost-containment environment to a growth environment where transformation and innovation are increasingly important. So in this new environment, governance executives will have to take on a leadership role in driving change, to include better understanding business drivers, and communicating value to internal business constituents to a much higher degree than they have in the past.
To be successful, these leaders will not only have manage provider relationships well, but they will have to have strong communication skills to clearly articulate the value proposition of adopting new services and communicating value in terms understood by each key stakeholder. Just like CIOs, I think the trend will be for these top governance executives to come in higher numbers from the business rather than from procurement.
Do you see shared services and outsourcing governance genuinely coming together into a single centralized management function across the majority of enterprises? Aren’t the skillsets required very different, between managing providers and managing processes and operations? What are the challenges and opportunities of centralizing governance in the fashion?
These are great questions that many organizations are struggling with and probably deserve a much lengthier response, but here are a few thoughts. I think we first have to breakout the composition of a single central management function, whether we call it a Global Business Services group (GBS) or something else. The way I think about it, is that in both outsourcing and shared services, there is a group that sets the strategy and policies for a business function, there is a group that determines and manages how that strategy will be implemented, and an operations group that delivers.
This requires three very different skill sets. Simplistically, the strategy and policy makers need to be well-versed in their business function, understand its value to the business, and determine what services to provide. The governance, or management, layer needs to understand how to optimize, manage, and report on service delivery. The operations group needs to have very specific expertise in the processes they deliver.
The middle tier, whether outsourcing governance or shared service management requires a very similar skill set. Other than a few commercial processes, like invoice verification and contract change control, the rest of the governance processes should be very similar, if not the same, independent of who delivers the service. There is no valid reason I can think of for activities like how service levels are managed and reported, how new projects are requested, how issues are tracked and reported, or how business value is communicated, to be that different in outsourcing versus shared services. Sure, there are always varying procedures, but the core processes should be consistent.
So, yes. I believe shared services and outsourcing governance can and will come together into a single management function using a common governance framework. The challenge to pulling this off is similar to any merger of groups, and includes politics, change management, and leadership. Specifically, who will be place in charge, what is their reporting structure and mandate, and who decides which version of a governance framework gets adopted.
As far as the benefits go, there is obviously an economy of scale gained by combining independent groups. Additionally, by adopting a common governance framework, you lay the groundwork for driving consistency and improved quality. We haven’t talked about it in this interview, but a consistent governance framework and set of processes makes it much easier to tool enable with automation, workflow, reporting and analytics. This just isn’t possible if everyone is doing their own thing.
Is GBS going to have a major impact on the future of outsourcing governance? What is your advice to outsourcing governance professionals on how to approach GBS?
I believe that GBS is the logical next step in the progression of many organizations that have multiple outsourcing relationships combined with shared services groups that are inconsistently managed across business service functions. So the impact that GBS will have is to become a catalyst for taking outsourcing governance and shared services management to the next level of maturity in managing a portfolio of internal and external delivery assets.
If you think your company is ready to take the next step and move to GBS, I would suggest three things. First is to do your homework with your peers or with an outside consultancy to fully understand what’s involved. Make sure that expectations are appropriately set and that key stakeholders understand that this will be a multi-year initiative. Second, pick a strong leader to head up the charge. He or she will need a lot of credibility and the right philosophy on managing internal and external assets. And third, adopt a consistent governance framework and go through a rational design process before staffing the group. Just because “A” or “B” quality players are available doesn’t mean they have the right experience, skills, or attributes for the job.
When you look out into the future of governance in two-three years’ time, what activities do you see them taking on? Do you see most executives moving beyond tactical and operational management areas into data governance and innovation activities?
As competitive pressures continue to increase and as enterprises shift from cost-containment to growth mode, companies will not be satisfied with achieving only tactical objectives. Many companies still need to rationalize what business services they provide and how those services are delivered. I think governance organizations in the future will play a key role in developing new service offerings in collaboration with their providers and internal customers; they will play a role in ensuring the adoption of new services by selling and marketing those services; and they will be more effective at communicating the value provided by those services. Value will be defined not just in cost reduction, cost avoidance, and risk reduction, but increasingly in employee productivity improvements, capital/asset management, end-customer satisfaction, and in some cases, top-line revenue growth.
As the delivery environment gets more and more complex, tools will have to be implemented to deal with the amount of data generated. Not only will governance groups have the ability to automate almost all standard reports, they will be able to quickly respond to ad hoc reporting requests, and will be able to provide sophisticated analysis on just about any “what if” scenario you can come up with.
And finally, what is your advice for ambitious governance executives today looking to advance their careers?
Getting back to what we talked about before, if you have come up through the procurement ranks, to augment your understanding of sourcing, make sure that you have a good grounding in your company’s business and the business service function or functions you would like to represent. What are your company’s key drivers and initiatives? What are the industry trends in the marketplace? What are the provider capabilities and what new services are on their roadmaps? Take on projects that will provide broader recognition and increase your credibility with the business units.
If you have grown up in a business service function and now find yourself running a governance group, then go to school on strategic supplier management. Really understand how commercial relationships are structured and figure out the levers in the agreement that you can pull to modify provider behavior. You should also nurture relationships in each business unit and strive to better understand where your company is heading.
In either case, improve your skills in presentation, facilitation, and joint planning. All of these will be critical to your success.
Thanks for your time Mike, it’s great having you share your thinking about where governance is heading
Having spent more than a decade in traditional analyst houses before starting a boutique research firm over four years ago, I’ve genuinely seen both sides of the coin when it comes to “pay-to-play” shenanigans with analysts.
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