“HFS Research was an outstanding performer in the Analyst Value Survey. Buyers of analysts’ services rate HFS Research as one of the most valuable providers, and one of a handful of firms whose influence grew most impressively in 2012”
Duncan Chapple of Analyst Equity, February 2013
Leading expert and commentator of the global analyst industry, Duncan Chapple, former board member at the International Institute of Analyst Relations and CEO of LighthouseAR, has announced findings from the Analyst Value Survey, which included 198 enterprise consumers of analyst research to understand how much influence each major analyst firm has on enterprise buying decisions and the media.
Considering this study was focused on major analyst firms such as Gartner and Forrester, which cover broad enterprise IT and services buying trends (not just sourcing), we would be have been happy with finishing somewhere in the middle of the pack, but as you can see, we are making some pretty big waves in the enterprise. It’s pretty cool what you can do with a smart group of analysts a bunch of research and a blog:
Click to Enlarge
We, at HfS, are proud to represent the sourcing industry among the global analyst firms and help communicate today’s complex issues surrounding sourcing to the forefront of the enterprise agenda. Thanks for all your support.
So if you haven’t been fired yet, here’s how to avoid it happening…
Phil Fersht (HfS Research): So, Lee, we talk about more of a fluid and evolving outsourcing relationship. How can we get there? Why is such a large proportion of this industry stuck in the weeds, with so many companies persisting in doing things in such a short-sighted way over the last decade. Why aren’t we evolving these relationships? What is holding us back?
Lee Coulter (Ascension Health): Phil, I think there are two primary reasons:
One is the most common misconception about outsourcing or shared services is that you can declare success. Some executives like to say “We’re done. We’re done outsourcing. We’re done doing shared services”. No, no you can’t! This notion that there is some finite initiative and there is some specific number of deliverables that you can check off on your old checklist and say “Oh I am done, yay”… that is a very common misconception by the leadership in many organizations.
The second one is that the work to continue to evolve the relationship, is really hard work. You know for anybody who has actually been through a significant outsourcing negotiation, it’s hard work. You know, not just to get the MSA in place, statements of work, service level targets, KPI’s, units of cost, demand management processes, these are all hard things to do. They really are pretty hard. And when we have taken the time to describe the nature of our relationship in a contract and it takes you know 6, 9, 12 months to do it and then another 12 months to work the kinks out of that. Nobody really looks at re-characterizing that relationship as something that they really want to do. But, in order for the client to get the best of what a provider has to offer, that’s what needs to happen. And to increase the value and contribution of those services for the business, that’s what has to happen. Continually moving up the value scale to the point where the provider is not only able to bring their expertise and technology to your relationship but has the incentive to do so. You’re in an FTE contract moving to a task based contract, it’s is a minor step. It is a big and important, but minor step.
However, moving into a process component, that is yet another step. Moving up the value chain from purchasing effort to purchasing tasks to result in purchasing processes to finally purchasing the contribution of that service to the business. This incents the provider to bring their own best thinking their own best technology to your services. But it requires that you completely start from scratch with the description of what it is you are buying and how it is you are paying for it, because you have to go through this process every couple of years of looking at what you are purchasing and the way you are purchasing it and say to yourself, “Is this really incenting the right behaviour from both parties?”
Phil: Our data is showing that there is a good chunk of clients today, around a third, who probably have that attitude that outsourcing is done, it’s finished – let’s just keep chugging along with that contract. So, we kind of take the attitude of if that’s the way they approach it, there is not much you can do. But it’s the remaining 66% of clients who have varying degrees of caring about improving and innovating. Would you agree with that, and do you feel that those clients who are in the bottom 33% should be just left to do it their way, or do you need there should be some overall change in the way the industry approaches outsourcing, in general?
Lee: Well, interesting data – It would be interesting to see the segmentation in the 66% and see how they separate out, in terms of what their appetite is for going up the value chain. But for the 33% that kind of describe it as “done”, it’s going to be really hard for a service provider to bring a client from thinking their “done” to convince them that there is more value to be added.
It sounds unfortunate, but I don’t know really what the service provider could do. Having been in outsourcing relationships for the last 15 years, I am sure that these providers are regularly presenting things that they could do for the client and their are conversations about innovation and projects and stuff that they could do, and it would fall on deaf ears. But I would probably encourage providers to look at a way to segment their clients and their service delivery to kind of optimize differently for those clients, on “that’s where they are and that’s where they are going to be”. You are going to be wasting your time trying to do anything else. For the 66% well, I will just leave my answer at that. I would be interested to hear more about how the 66% break down.
Phil: Of the 66% who still actually care about value beyond cost, it’s roughly an even split. You’ve got half of them in the death throes of grappling with antiquated contracts that haven’t been updated in quite some time. But they want to break out of that – they are showing some desire to do that. Then you’ve got the upper echelon 33%, whom we have called the “strategic” camp, who are in more regular dialogue with their providers about defining business outcomes, about trying to align stakeholders more effectively and trying to approach things in a different way. So, we really look at three different camps across the industry – you got “lights on” camp on the left and this “efficiency camp” in the middle that could go either way, and on the right hand side we’ve got this kind of “collaborative strategic camp” who are trying to break out and change:
Today’s outsourcing industry split into three camps
Lee: How does this compare, or is that kind of a snapshot of current state?
Phil: It’s the first time we have really broken it out this way. I think the way to look at this is to realize most enterprise BPO engagements have only really been around for ten years and I think companies are kind of feeling their way, since this the first real view of where companies attitudes and approaches are emerging in all of this. Whereas ITO is obviously a lot more mature and we are in a very operational phase in that industry. But also, with ITO, is that you still have 65% of IT staff doing ERP development work that are still based onshore. I think it’s just still a market where it’s a lot of the low-hanging-fruit administrative work that’s still moving out there. I think ITO has really struggled to move up the value chain from the very early days. Is that something you would agree with, or do you think it is evolving?
Lee: Yes. I really would. The complexities of delivering increased value in technology today and I am going to say the permissiveness or the size of the invitation that the client has to provide to the provider is pretty big. Because every time you talk about evolving your technology portfolio, the number of stakeholders and the level of complexity it takes to do that work – it’s really significant.
If a client isn’t really tuned into that and willing to clear the way for the provider to do that work, and not blame them when there are bumps in the road, it’s really tough for a provider to move out of “run and maintain”, and I make the distinction between “run and maintain” and “evolve and re-transform”. So, the business of evolving and re-transforming – that’s where there is change management, communication, training, engaging directly with the business there is all of these things most organizations are not really thrilled about offering to a provider.
Lee Coulter, CEO Shared Services, Ascension Health (click for bio)
Phil: Lee, I can’t wait for our session at dreamSource. Thanks for your time today, this real is the “hard talk track” so many of the sourcing industry needs to have, to get out of its own way.
Lee: A pleasure, Phil, and looking forward to meeting a lot interesting folks there!
Lee Coulter (pictured right) is Senior Vice President and Chief Executive Officer, Ascension Health Ministry Service Center, LLC. As a distinguished practioner in the fields of outsourcing and shared services he has held several senior operations leadership roles at Kraft, AON and GE. Lee also serves on the board if HfS Research. You can view his full bio by clicking here.
The first time I spoke to Lee Coulter, I was an analyst at the old AMR Research (now Gartner) and managed to get him on the phone, where I hoped to convince Kraft’s global überlord of shared services, IT and outsourcing to spend a day at a roundtable I was organizing. “You’ve got 5 minutes to convince me why I should invest my time with you”, was his response. I knew straight away this was a guy who didn’t like to xxxx around.
Since then, Lee has been a great friend in helping us establish the HfS Research organization three years ago, in addition to lending his time and support helping us assemble the most irresistible community of senior sourcing practitioners. For those of you attending our dreamSource summit this Spring, Lee and I will co-host a session entitled “If outsourcing were an employee, it would be fired“. Lee, who today has built and now leads shared services for heathcare provider, Ascension Health, caught up with us last week to talk about the session and why we called it just that…
Phil Fersht (HfS Research): Good morning Lee – a pleasure to get you on the line today. You’ve been a well known figure in sourcing shared services and outsourcing world for quite a few years now. Can you tell us a bit about your background and how you got to where you are today?
Lee Coulter (Ascension Health): Sure, Phil, I guess it goes back quite a ways! Originally, I guess I was starting my career in what wasn’t really an outsourcing or shared services configuration. Actually as a delivery guy, I was a service engineer delivering services to hospitals and health systems. Twelve years, later I had moved from delivering services for diagnostic imaging equipment to delivering services for IT. And it was pretty surprising to me to find that the whole delivery process was a copy-paste, it was the same stuff. Today, I am in my sixth industry and I have managed every function in a company except marketing. And every time I come to look at these things I find the service delivery process is the same. So, shared services and outsourcing I don’t really consider them to be different. There happens to be a second set of shareholders in an outsourcing relationship, but the dynamics of establishing the service, the KPI’s, the unit of service, the unit of cost, the drive to innovate and then retransform, all of those things… they are essentially the same.
So, I had an opportunity through my career to sit on a commercial outsourcer as well as a buyer and doing so with long-shore, off-shore, near-shore, in-sources, outsources I have kind of had a chance to do kind of all the major things within the industry.
Phil: So, what’s changed, would you say, in the last decade? Do you feel that the attitudes and approaches of enterprises have shifted at all, or do you think we are still going around in the same circles?
Lee: One of the expressions I have been using lately is that the expectation of the business today is far more than simply to “successfully transact”. When you look at what typically gets included in the shared service or outsourcing scope, it is typically transactional or business-rules based work. If we look back to the 80’s and 90’s, it was really about “getting to OK”. If you got “OK”, meaning you successfully reduced the cost of delivering it and you successfully met the very basic expectation of simply “do the transactions and do them satisfactorily well”, that was the challenge. Today, that is no longer considered a challenge; those are now table-stakes.
So for every practitioner, whether they live inside a commercial provider, or inside a company, the expectation is much bigger. It is around business process effectiveness, business process transformation, business insight through analytics, the addition of certain skill-sets that are created to help manage in a shared services or outsourcing environment, like project management and quality, Six Sigma and that kind of stuff. So, all of a sudden what used to be the objective has now become the table-stake. Now businesses are expecting a whole different level of contribution – I’m not just saying performance, but contribution by the shared services/governance organization.
And now you also introduce a couple of major disruptors, namely technology and cloud. And it’s kind of funny, cloud has been around a very long time. When we go back far enough we could argue that AOL, CompuServe is where cloud and well, I guess in the strictest definition they were. In the way we talk about cloud today, where you have applications-as-a-service and cloud-based service platforms which are location-agnostic, in terms of whether resources are need to be there delivering service, it really changes the game in terms of what level of contribution you can have to an organization.
Phil: We’ve got new data that shows the desire to standardize processes is very, very strong behind an outsourcing decision. How much is that playing into the hands of the providers who have good technology? Do you think that the ability to couple good platforms with the right process is now the way to go?
Lee: Absolutely, I would even offer a little bit more, which is the level of variation in core processes is diminishing from organization to organization. What do I mean by that? Well, if we go into some of the tried and true world of shared services and outsourcing… let’s take F&A, AP – your basic hire-to-retire services. It used to be that there was a pretty enormous variation. But, over the last twenty years the adoption of things like SAP and other ERP solutions and the broadly available best practice operating models for running these parts of your organization, have resulted in less variation. Well that means a service provider can build a technology platform and it used to be it was a pretty big leap in terms of process transformation to get a client from their existing process to what we’ll call a best practice standard operating model. More and more companies, to the extent that has been possible for them, have already attempted to adopt these best practice operating models. So, it increases the speed and minimizes the amount of change and disruption from these transitions.
Phil: Lee, we are delighted to have you lead one of our core sessions at our dreamSource summit this year. And, I am going to give you credit for coming up with the title “If outsourcing were an employee, it would be fired”. How did you come up with that and what is the thinking behind it?
Lee: So, let’s say you have signed an employment agreement with someone to become and employee for seven years with some options to extend. Your employee starts and you put some objectives out there around getting control of the stuff and delivering these transactions. You have your annual review and they’re saying, “I’ve now got control of the process and I’m transacting. Pretty soon it will be stable and I will be consistently transacting these services”. You get to the next year and you ask the employee what are their objectives and your employee responds “Well I am going to keep right on transacting”. And the following year you ask “What are your objectives this year” and the employee responds “Well, I am going to try and transact a little bit less expensively”. And every year is the same conversation about “Well, I am going to meet my SLA’s, and I am going to try and not disrupt our business”. Is that the kind of employee you want working in your organization? It’s really become the longest-lived most frustrating conversations around outsourcing in the nation.
The framework of the relationship between outsourcing as an employee and the employer needs to be driven to change, and the employee needs to provoke that. For the folks that work for me, if they give me the same goals this year that they had last year, and their performance is simply a “meets expectations”, well if I keep them around that long, my expectation is that we continually increase the scope of our objectives and that we look for ways to increase our contributions to the business and force ourselves, by virtue of establishing these goals, to do that.
The vast majority of outsourcing relationships don’t fit this model. All the FTE relationships that every single year has the same expectation – “Well, I am going to transact and I am going to wrestle with you on forex and inflation to offset the price reduction you think we should get”. That’s not an employee I want, I don’t know about you…
Stay tuned for Part II (click here) where we talk about how this industry can get out of its own way to evolve these rigid relationships…
Lee Coulter (pictured above) is Senior Vice President and Chief Executive Officer, Ascension Health Ministry Service Center, LLC. As a distinguished practioner in the fields of outsourcing and shared services he has held several senior operations leadership roles at Kraft, AON and GE. Lee also serves on the board if HfS Research. You can view his full bio by clicking here.
The official definition of insanity: asking the same question over and over again, from every conceivable angle, and always arriving at the same conclusion.
The official definition of insanity in sourcing: recounting how many times a service provider has asked you, “We’ve got to get to the C-suite to pitch innovative ideas, because middle management is too risk adverse.”
So who better to analyse sourcing insanity than HfS’ own sourcing insanity analyst, Tony Filippone…
Are service providers addressing the right audiences?
Is there really a disconnect between senior executives and the rest of their teams regarding the importance of innovation during service provider selection? Will ideas fall on deaf ears unless a service provider can schmooze a CFO? Are service providers addressing the right audiences? We asked a few questions in our State of Outsourcing survey to delve deeper into the topic…
To begin with, we can bust part of this myth once and for all. Namely, during evaluations of service providers is the executive suite the only group interested in transformational and innovative ideas while the junior ranks are concerned with process efficiency and execution? When asked which was more important, senior executives favored execution over innovation 71% of the time. That result is statistically consistent with opinions of their middle management (73%) and junior management (70%). All levels of buyer organizations are severely and equally biased toward process efficiency and execution issues, which strongly supports our research findings that motivations of buyers are firm focused on cost reduction. Transformational ideas are going to fall on relatively deaf ears at all levels of the organization.
Exhibit 1: “Which is more important: Execution or Innovation?”
Is time spent with the C-suite worthwhile?
But isn’t there value to schmoozing up the C-suite? Aren’t senior executives swayed more often by relationships over delivery capability than their middle management? Is time spent with the C-suite worthwhile?
This is another myth we’ve bused. We asked whether customer relationship skills were more important than delivery capability during service provider selection, and senior and middle management have statistically similar opinions. For both groups, nearly 30% feel relationships are more important than delivery capability, about 40% feel the opposite, and 30% feel the issues are equal. Junior management is where the switch in perspectives appears. While a similar percentage of junior managers find relationships more important (28%), 52% believe delivery capability is more important and just 10% find the areas equally important. Energy to build relationships therefore is best spent on directors, vice presidents, and senior executives who all find relationships more important than their frontline staff.
Exhibit 2: “Which is more important: Customer Relationship or Delivery Capability?”
The Bottom Line: Don’t Sell Execution Capabilities Short
Our newest data should help service providers build the right strategies to address potential customer interests. Most importantly, all service providers should realize:
The current state of buyer sentiment is emphatic: Today’s market is obsessed with execution, which demonstrates buyers haven’t grasped the potential value of outsourcing. In most competitive bids which sadly provide limited time for buyers and service providers to exchange information, pushing innovation and transformation to hard in evaluation processes may not ensure buyers that service providers can do the work.
Buyer values are identical throughout their ranks. While a CFO may hold the decision-making power, recommendations from their staff are likely to reflect the same bias of execution capabilities over innovative opportunities. This makes influencing all levels in equally important in a buy-decision.
Relationships matter as much to middle managers as they do to senior managers. They want partners with great relationship skills and people they can trust. Spending political capital to address these levels of influencers is important, but the focus of these discussions needs to be on strengthening relationships, not on delivery. Pitching quantities of FTEs and systems savvy to senior executives are wasted opportunities.
Jumping rank over a potential client’s vice president wont win you any favors and doesn’t reach an audience that has a difference of opinion. In fact, vice presidents value relationships just as much as their bosses do and building these relationships may be just as valuable in a competitive bid.
Note to readers: there are no intended political undertones to this article, based on the picture above. All good, apolitical, tongue-in-cheek humor 🙂
As HfS’ Tony Filippone recently prophesied, November’s election result would dictate the future of the US healthcare industry… and the titanic upheaval of Obama’s reforms is quickly being felt. Consequently, providers such as Genpact, are wasting no time trying to seize the initiative, as Tony discusses…
Get ready for the healthcare market to heat up over the next three years as a result of state health insurance market places, the rapid expansion of accountable care organizations, and ICD-10 implementations.
On Friday, Genpact announced its acquisitions of JAWOOD and Felix Software Solutions. This announcement comes on the heels of Cognizant’s November acquisition of Medicall, a BPO specialist provider of medical talent to the payer and provider industries with nearly 800 resources. Clearly, leading IT/BPO services providers sense real growth potential from healthcare insurers (payers) bracing to cope with these seismic changes. We explain the forces influencing the payer market more thoroughly in our February RapidInsight™, Regulatory Fallout or a New Beginning in Healthcare?
What is Genpact getting with JAWOOD?
JAWOOD is a privately held, Michigan-based firm with 400 employees with three particular strengths in the technology enablement of healthcare payor operations.
1) It has a variety of existing client relationships with Blue Cross and Blue Shield plans serviced completely domestically. We estimate JAWOOD’s revenues to be between $55 million to $60 million.
2) The company specialized in ICD10 and HIPAA 5010 readiness and conversion with technical solutions provided by Felix Software.
3) The company is a regionally strong contingent labor supplier to payers seeking operational and technical skills in McKesson, Trizetto FACETS, and NASCO.
What motivated Genpact to make the acquisition?
With over 60,000 professionals in the Genpact global organization, JAWOOD’s 400 employees would seem a rounding error inconveniently located in Detroit, Michigan, a city better-known for the American automotive industry, music (Motown, Eminem, and Kid Rock), and crime.
Nestled among such non-sequiturs, JAWOOD has exploded on the payer market in recent years, with estimated annual revenue growth of 19% over the last four years. The company’s close ties with BCBS insurers and strong systems capabilities were ideal as payers’ raced to comply with 2012’s HIPAA 5010 transaction standards. Importantly, the company built a portal to automate HIPAA transactions and pre-certify healthcare providers – an invaluable asset as the payers and providers integrate their revenue cycle processes. These customer relationships and technology assets are valuable to Genpact.
Yet, bigger changes are afoot. In particular, ICD-10’s conversion maelstrom looms around the corner with a CMS compliance mandate scheduled in October 2014. Just how big is this change? ICD-9, the current standard, has a mere 13,000 codes describing medical diagnoses upon which billing, claims adjudication, and utilization decisions are made. ICD-10 contains over 68,000 codes, including such gems as T7501XD (shock due to being struck by lightning, subsequent encounter). V91.07XA (burn due to water-skis on fire, initial encounter), and V9542XA (spacecraft crash injuring occupant, initial encounter).
Since historical claims data must still be compared to new data, payers will need to map ICD-9 codes to ICD-10 standards and vice versus. This process is called cross-walking and requires specialized tools and technology, which JAWOOD has developed. We expect solid client results from mixing JAWOOD’s technology with Genpact’s wickedly smart DNA and it puts them in the running with Accenture, Cognizant, and Infosys for ICD-10 conversion work.
More importantly, the change of codes has significant process implications in claims, pricing, and utilization management operations. Every claim must be accurately coded, payer systems must accurately adjudicate claims based on the code, and actuaries must forecast population changes based on these codes. Genpact already has a reasonably strong healthcare payer BPO bench (over 1,500 mostly Indian-based resources), and this acquisition positions the BPO pure-play behemoth in the conversation to help when payers need operational support. This positioning is doubly important with medical loss ratio mandates that regional insurance plans will struggle to achieve without outsourcing.
The Bottom Line: Ramping up the capability is only one part of the equation. Communicating them to the healthcare industry is the other
Genpact now has a onshore healthcare toehold upon which it can expand, especially with the availability to talent in Detroit. SourceHOV, the $500m BPO provider with many large healthcare payer BPO clients, has two locations within 20 miles of JAWOOD. The Detroit Medical Center, Henry Ford Health System, Blue Cross Blue Shield Michigan, and St. John Health System all rank in the top 15 employers. With a number of Federal and state regulations prohibiting offshoring, Genpact can now enter the game – and its has thousands of resumes in JAWOOD’s staffing database to jumpstart operations on a moment’s notice. It is also worth noting that Genpact now has 3,500 staff located across US locations – far more than most leading Indian-headquartered business services providers.
Tony Filippone, Healthcare Payor Expert (among other things) at HfS research (click for bio)
However, as we’ve seen in many past acquisitions, acquisition decisions must do more than add capability or increase economies of scale; they must provide client relationships that can be grown, and new capabilities that can be extended. Take Cognizant’s acquisition of Medicall, which allowed Cognizant to engage the care management units of payer operations. Since care and utilization management drives medical loss ratios, it allows Cognizant to open discussions to address the 80% of payers’ costs that are medically related instead of the administratively focused 20%. With capabilities to address ICD-10 migrations and provide HIPAA-compliant portals, HfS believes that JAWOOD provides this potential for Genpact to introduce its technology-infused BPO capabilities to healthcare payers, while creating a leverage point to enter healthcare provider revenue cycle management discussions.
However, for Genpact to leverage successfully ICD-10 capabilities, they must immediately communicate their operational and transformative capabilities to payers because window of opportunity is closing quickly – by October 2014 payers must be compliant, which means payers are allocating budget in 2013 to their vendors. They also must differentiate from Infosys, Cognizant, and a variety of specialized consultants who are pitching ICD-10 solutions by emphasizing their process expertise, experience in the Blue Cross Blue Shield community, and onshore delivery model.
You can read more about the forces influencing the payer market more thoroughly in our complimentary February RapidInsight™, Regulatory Fallout or a New Beginning in Healthcare co-authored by HfS analysts Adam Luciano and Tony Filippone.
Question: Which vertical industry really struggles to let anything remotely strategic go out the door when it comes to outsourcing? No, it’s not public sector, it’s banking. So why is this?
Banks are seeking to grow their revenues in many areas impacted by the recession, most notably lending services. As they regain momentum in areas such as mortgage processing and commercial lending, the operational support and infrastructure that many banks had previously down-sized, is again needed and outsourcing helps add that scale and flexibility in this volatile environment. Hence, while cost savings continue to drive outsourcing business decisions, the capabilities to scale up business volume and meet complex regulations are paramount:
Conversely, banking and financial services organizations are clearly not viewing outsourcing as an opportunity to improve analytical capability or transform operations. Clearly, many banking executives still view outsourcing as a utility solution and are yet to be convinced of the greater strategic benefits… or are simply control freaks who just can’t let go of anything remotely strategic to their organizations.
2013 poses unprecendented challenges
The banking and financial services industry has endured one of the most turbulent times in the history of the global financial markets. While there is no doubt that this pivotal time has re-shaped the industry forever, it is now time to look into the future and move ahead. 2013 is poised to be the year of action. Financial services are poised to have a huge year; there will be mergers, systems upgrades, global expansion and new product launches all designed to regain their positions as industry leaders. Leaders are faced with regulatory changes that can’t be compared to anything seen in history, customers who are demanding improved services, credit policies that seem to change with the weather and shareholders who are tired of waiting for results. Strong business leaders understand they cannot be successful alone and they cannot operate the same way they did a decade ago, so there will be changes, the question that remains to be answered is who will make the right changes for success? It all starts with these two questions:
1. Have companies learned from the crisis and are they taking meaningful action to prevent a future one?
2. How will financial institutions conduct business going forward and regain the confidence of their customers and investors?
In our new report “Business Services Outsourcing in Banking and Financial Services“, HfS Research looks at the willingness of executives to utilize outsourcing in helping the meet these challenges. BFS leaders have shared with HfS that they do not plan to bring large amounts of work back onshore; they don’t even plan to change providers in most cases. What they do want is to be able to build stronger more collaborative relationships with their service providers but what does this mean and are providers finally willing to put some skin in the game themselves and step up to support their clients?
HFS' Michael Koontz, author of Business Services Outsourcing in Banking and Financial Services: 2013 Market Report (click to view)
Data shows that providers continue to do a great job at decreasing cost and bringing great process rigor to their relationships but they are not supporting their clients at the next level; technology platforms and innovation. Our recent survey tells us that buyers continue to want a partner that is willing to help take their business to the next level, whether this is through technology or better processes. As the businesses have evolved to include in-house processing, captives and outsourced models, both providers and buyers must work together to be able to effectively integrate these into a seamless operation. Those who do this and do it well will finally realize the value of a global operating model.
HfS Research has calculated that the outsourcing market is now closing in on $170 billion and will continue to grow at just over 5 percent a year for the next five years. While BPO services are expected to grow at just over 7 percent, ITO and professional services will be around 5 percent. The difference can be attributed to the overall market ITO and the services business as compared to a more immature BPO market.
However, who will be the providers that will benefit from this growth and which providers will remain in their safe zone of lift-and-shift commodity BPO processing? For those businesses that are ready to move ahead in 2013, HfS Research has looked at 13 of the top providers in the BFS space and ranked them against their peers based on their scale, capabilities, technology and ability to drive innovation in the financial services space:
Missed last week’s Banking & Financial Services webinar?
If you weren’t still sleeping off your champagne breakfast, you may recall we discussed the 2012 market challenges and how they’re impacting 2013’s strategies and priorities. We also managed to expose KPMG’s Stan Lepeak for who he really is… (Kiefer anyone?)
Well fret no more, as we have the replay now available for your viewing and a full slide deck for our premium research subscribers. Enjoy!
One issue dominating the tech-media back channels of late is publisher Forbe’s use of its column “BrandVoice” to promote blatantly various technology products, such as Oracle and SAP.
“What’s wrong with advertorials?” I hear you ask. Well, simply put, BrandVoice articles are not clearly portrayed as advertorials, such as when you read a car advertisement in the Wall Street Journal, but appear to be regular news and opinion pieces. For example, take a look at this write up of SAP’s “Pioneering Walk in the Cloud”, or Oracle’s “Why Exadata Is Rocking the Tech Industry”. The only indication that these are sponsored columns, is the “BrandVoice” note at the top, if you happen to know what “BrandVoice” actually means. There is no sponsored content indication anywhere on the BrandVoice articles, not even a company logo at the top of the pieces. Moreover, midway through last year, the column title was changed from AdVoice to BrandVoice, further blurring the lines between reality and fantasy.
The list of praiseworthy articles is endless, and (seemingly) very convincing to the general reader, who is being fooled into thinking they are reading real journalism. And why would you think these articles were suspiciously fictional marketing puffery, while skim-reading over your corn flakes and coffee? It’s Forbes, for chrissakes… has to be great content, right?
Sadly, these pieces are not even written by journalists, but by marketers within the respective vendors. And hey – it’s awesome marketing. A prestige media platform like Forbes allowing sponsors to pen their own content under their famous brand? Can’t fault the savvy CMOs for buying up some serious media real-estate.
And this pay-for-praise content fest doesn’t stop with the BrandVoices. There is more blurring of the lines as some regular Forbes columnists are brand sponsored, for example Dan Woods used to be sponsored by IBM, now he is sponsored by SAS. How do his followers know who’s paying him to wear their rose-tinted spectacles. Even at HfS, we’ve been approached to be interviewed by Forbes “journalists” for sponsored pieces by services providers.
So what does this say about Forbes and the state of tech journalism?
Has Forbes reached a level of greed from its advertising revenue, that it simply doesn’t care about fooling its readership into reading blatant commercials? According to one (highly credible) vendor marketer, the cost is $1M to get into BrandVoice, and there is even a more modest program requiring a paltry $50K to $100K a month for a six-month trial package of fantasy pieces. This isn’t small potatoes stuff, ladies and gentelmen…
Or is this simply the decline of the tech journalism industry, where vendors have taken their level of control over written content to a whole new level where the publisher and vendor have lost all respect for impartiality? The vendor having its unblemished one-sided spectacular praise pieces, the publisher getting paid spectacularly well, despite risking losing all credibility with its readers.
We had the opportunity to talk to some vendor executives recently to get their experience working of the strategy behind Forbes’ BrandVoice….
HfS: Does Forbes promise to make the sponsored content appear independent?
Potential Advertiser: No, they don’t promise to make their content appear independent. They position it as another marketing channel where editorial and advertorial co-mingle and co-exist. They are, in fact, quite proud of the hits BrandVoice articles get relative to straight editorial. They like that blending of content.
HfS: Does Forbes have specific writing/content guidelines – and how much do their own staff shape the content?
Potential Advertiser: They do have specific writing and content guidelines, yet there is no vetting process whatsoever. Vendors can publish anything through the WordPress site. I get the impression that only after someone calls out an egregious post will they do anything. There is no filter, no vetting, vendors can post anything they want. In the case of using their content bureau, things are different, however – they do screen their own content. It is very much like the Wild West, that’s why Oracle and co. can get away with such blatant advertorials.
Key facts* about Forbes BrandVoice, relayed to HfS:
33 active advertisers as of today
BrandVoice generates 150,000 hits a month on average
Forbes has added what it calls a “service bureau,” which operates like a creative services team, to help brands publish content of interest to readers across not only the site, but also social media
SAP has been onboard since the beginning and averages about 60% of all hits to BrandVoice columns
SAP aspires to turn 10% of its Forbes readers into what it calls “marketable contacts,” but right now that number is somewhere between 2% and 10%.
Cost is $1M to get into BrandVoice, and there is a more modest program requiring $50K to $100K a month for six months
Forbes expects BrandVoice to generate 25% of all revenues in 2013, up from 10% this year
*If Forbes deems these to be wildly inaccurate, then please share this openly with us here
The Bottom-line: Beware of famous media brands bearing free content
To be honest, this whole debacle leaves me depressed and speechless. While less credible or renowned brands (or some lower tier analysts) might be pressured to take vendor handouts for rose-tinted articles, you expect more from a world famous brand like Forbes. It’s almost as if the vendors want to cut corners these days and simply buy opinion – and even write it themselves, and some of these media platforms are (apparently) giving up the ghost on quality reporting and journalism. This is a slippery slope, and one you struggle to see bottoming out anytime soon.
2013: A new dawn for a maturing outsourcing industry
Make no bones about it: 2012 was a pretty dire year for the industry known as “outsourcing”.
However, brand new data from our State of Outsourcing 2013 Study conducted with the support of KPMG, the largest-ever research survey focused on IT and business function outsourcing, clearly shows that the majority of enterprises are not only aggressively focused on increasing their outsourcing portfoilios, but many are now taking a more mature and realistic approach.
So, as always, let’s examine the facts…
How outsourcing got battered, bruised and vilified in 2012
A media desperate to jump on the fact that IT outsourcing must be in its death throes if GM’s Randy Mott was creating a few jobs on US soil;
Pundits, consultants and “analysts” claiming outsourcing is yesterday’s strategy for our enterprises, without really being able to explain why, but eager to bury it under the negativity. Meanwhile, the fact that the great American innovator they love to laud, Apple, has been using Chinese children to manufacturer its wares, seems to escape practically unnoticed…
The outsourcing industry itself calling for a re-brand to escape the negativity.
Why outsourcing is more embedded than ever in corporate operations strategy
1355 stakeholders across enterprise buyers, service providers and consultant/influencer organizations shared their views, observations and intentions for 2013 and beyond, when it comes to outsourcing IT and business processes. We are going to delve deep to share these dynamics with you in the coming weeks, but let’s start with the key dynamics – how fast is the industry growing, and what is driving the decisions:
399 major buy-side enterprises have spoken about their 2013 outsourcing plans, and barely a twentieth of them are looking to reduce their outsourcing scope across any IT or business function in 2013. Moreover, half of them are looking to increase their outsourcing of application services, four out-of-ten their finance and accounting, and a third their HR. In addition, there is a notable pick up in newer sourcing areas, such as analytics and legal.
The classical values of outsourcing are stronger than ever: cost, standardization and global delivery
When it comes to the decision drivers, it’s almost refreshing to see enterprises focusing on the basics: cost, global delivery and standardized process:
While, on the surface, this data isn’t exactly surprising, what it’s telling us is the vast majority of enterprises are eagerly looking to industry standard offerings as a priority. We’ve been lauding the old “ADP payroll analogy” for several years now, where there is little discernible business reason to run your payrolls yourself these days, and this is ringing true for the rest of the operational functions: being competitive with business operations is achieved by standardizing onto best-in-class processes. And to achieve that standardization is, really, quite straightforward – move these processes onto proven technology platforms and have them operated in a cost-efficient manner. For most organizations today, they’ve failed to do this effectively inhouse (through many years of pain and wasted investments) and shifting them over to a third-party has forced the issue and got them from A to C.
The Bottom-line: The tenets of outsourcing haven’t changed – it’s the simple fact that operations leaders have run out of excuses not to do it
The outsourcing debate used to be centered on the ability of enterprises and providers to do it right, to make the required cost savings with the appropriate amount of risk mitigation. This data finally, finally, renders that debate moot: the basic ingredients of outsourcing today are maturing and proven to work when executed effectively… the focus now shifts to the how enterprises can evolve into a globally sourced environment, not simply the should. Our next piece of analysis will zone into the core challenge of enterprise operations in 2013: how enterprises can alter their internal mindsets, attitudes and operational issues holding them back. Stay tuned…
Your week not quite the same without seven dudes rabbiting on about best practices and being over-polite with each other? Well, your addiction can be cured by listening to the replay:
The official definition of insanity: asking the same question over and over again, from every conceivable angle, and always arriving at the same conclusion.
As HfS’ Tony Filippone 
