A memorable exchange I once had with a former HR colleague went like this:
Me: “When Workforce Planning accounts for cascading gaps because you filled some jobs from within, that’s commonly viewed as HR best practice.” Colleague: “Oh really, Well I think best practice is simply the practice that works best!”
Borrowing a line from the classic movie Cool Hand Luke … his statement “helped get my mind right.”
So one suggestion coming out of my initiation into the world of practical HR thinking: Whenever you hear someone say: It’s “HR best practice”, perhaps you should ask if they’re following a blueprint crafted specifically for their organization and business context. And if they’re not, odds are that particular practice will come under some scrutiny soon, and perhaps shortly thereafter, the individual that architected the practice.
Many of us were a bit taken aback when we heard highly regarded Zappos was generously paying new hires to quit if they were dissatisfied, and not just because it was likely deemed more cost-effective in the long run. It was mostly because the company’s brand is totally about “best customer experience imaginable” and this is so much more than a tag line. One of countless examples is that their customer service reps never use scripts. Genius, common sense, or both. You decide, but also think about whether this would work for a phone company. Fat chance as they say.
As With New Employees, Best is Mostly About Fit
Elsewhere, a number of well-known large companies including LinkedIn, Virgin America, Best Buy and Netflix have started experimenting with unlimited paid time off. The rationale: time away from the job helped with employee productivity; e.g., by avoiding burn-out. Beyond that benefit, trusting employees not to take advantage of the company can make them feel – and therefore act — like part owners of the business. This practice worked for these employers, particularly when employees and managers discussed adequate coverage for key duties in their absence, but clearly it’s not a universally great fit. Consider the impact on an impending re-start of a nuclear power plant if even one senior-level nuclear or safety engineer was in urgent need of some downtime. “Adequate coverage” is in the eye of the beholder.
Outside the realm of potential life and death consequences, however, innovative crowd-funding company Kickstarter abandoned its unlimited vacation policy when they thought it was sending some type of message (subliminal?) to employees to take less time off. So a creative HR practice designed to minimize burn-out was actually burning people out!
As in the aforementioned exchange with that colleague, best practice does indeed come down to what works in a particular business context; and when you’re talking about a new HR practice under consideration, desired corporate culture might be the #1 element to focus on. In high-tech startups, a very informal, “we’re one family” culture and typically doling out some equity are used to attract top talent. Arguably it’s also to compensate for a lower salary initially. By way of contrast, when was the last time you saw someone’s canine companion taking a stroll inside a blue-chip investment advisory firm?
Bottom Line: HR practices are “best” when they support both a company’s culture and its workforce strategies designed to create a great customer experience.
Let’s not be wedded to any particular best practice within the HR / HCM domain, as best practices are really tools to effectively manage an ever-changing operating landscape.
Everywhere I turn, service providers are talking about how they’re going to enable services clients to delight end customers. There’s nothing wrong with aspiring to delight customers; in fact it’s an admirable goal. But let’s take a step back and talk about what really matters when it comes to customer experience. Partly due to increased expectations set by our more digital world, customers want and expect things to be simple and easy. When I order an Uber or an Amazon package, it arrives at my door in the time predicted. Am I delighted? Not really. Am I really loyal customer who spends increasingly more money with these companies? Yes.
Full disclosure, we talk about delighting customers in our OneOffice concept of using a customer focus to align business operations. After all, in a customer-centric utopia, smiling, happy, loyal customers are the ultimate goal. But right now, I think it’s time to talk more realistically and focus on the basics. As a customer, I want to get my package on time, my question answered simply and easily.
Here are some service provider promises in marketing materials out there now:
“Elegant creative designs that go beyond average usability to deliver individualized experiences that charm, delight and engage”
“Utilizing the science of data and a unique approach and focus on the art of the possible, (we are) leading the way in designing transformative customer experiences that delight and engage”
“Our vision is to make our customers experience the delight of their customers”
It all sounds wonderful, but let’s get a bit more realistic. Think about the last time you as a customer felt really thrilled by the service you received.
We should take a good look at how we can start preventing bad customer experiences, which have a much greater potential to do business damage than great experiences do to have a positive impact. I recently participated in 4- literally 4- online chat conversations regarding an order that arrived damaged. None of the chats had record of the previous, or of the initial order. It was the most anti-omnichannel experience I’ve ever had. It seems everyone has one or more of these stories. For many companies, there’s a lot of work to be done to improve basic customer service.
Take this as food for thought. Satmetrix, the company which owns NPS (net promoter score) benchmarks customer satisfaction annually, using Net Promoter Score (NPS) which reports that the industry with the highest NPS is retail, with a 58 average. That’s the highest. The lowest is internet service providers at 2. The standard for “world class service”? 75. Even the top-rated customer service companies (i.e. USAA, Nordstrom, Apple) are hardly close.
Aspire to delight, but focus on the results that really matter.
Let’s face it, as much as it’s a cheerful concept and inherently the right thing to do, how does delightful customer service translate to business value? The business goals are to increase loyalty and repeat sales, and reduce churn in retail; lower admissions/re-admissions in hospitals and improve patient health in healthcare; reduce claims leakage in insurance, improve regulatory compliance in BFSI. So, the idea is you want to engage your consumers in order to impact these types of outcomes.
I do believe customer delight exists, and it’s certainly relevant and valuable. But to try and put delight into some systematic, algorithmically programmed process is a waste of time if you don’t have the right design and talent. So, yes, set everything up – connect the front and back end systems so that employees have the information they need – set up digital channels for customers to communicate and then, the most important piece– hire the right people who are empowered to act on it. Make the goal to simplify communication and the ease of doing business to generate loyalty with your customers.
Bottom line: Make life simpler for your customers, and loyalty (and hopefully delight!) will follow
As I said about forgetting omnichannel when your basic customer service sucks, make the customer experience goals about personalizing, consistency and simplicity. If delight follows, fantastic! Look to pivot operations toward OneOffice to become nimbler, more intelligent digital organizations that deliver on customer needs. Now that would be delightful.
In our bid to make our research more visually appealing we would like to post the first version of our IT Services market primer. This shows the first round of the 2017 HfS market size and forecast for IT Services for 2015 to 2021. We will be doing a full update of the forecast at the end of Q1. When we have a chance to analyze all the vendor results for 2016.
This chart gives our top level view of the IT Services market in numbers – the market we focus on here is our high-value market – by this we mean the outsourcing/managed services and professional services markets – we exclude standalone support and training from these numbers.
We will be producing more graphics such as this, the next will be a top line view of the BPO market. We’ll also be writing up our thoughts on both markets in a PoV by the end of the month.
In the post-digital world, no one cares much about “offshore” as a strategy – it has become part of the fabric of managing a global operating model, where operations leaders just tap into whatever global resource they need to achieve their desired outcomes. This doesn’t mean that traditional “offshore” global delivery locations, such as India and the Philippines, are going bust overnight. But it does mean the playing field is leveling out as the need for emerging skills trumps the desire simply to reduce labor costs.
Our new State of Industry Study, conducted with KPMG (see above) of more that 450 major global enterprises – shows an increasing majority of customers of traditional shared services and outsourcing feel they have wrung most of the juice offshore has to offer from their existing operations, and aren’t looking to increase offshore investments. When we compare enterprise aspirations for offshore use between the 2014 and 2017 State of the Industry studies, we see a significant drop, right across the board, with plans to offshore services. Organizations are now either looking to make their existing offshore operations more effective, or even reduce them where they can (especially in F&A and HR), using new technologies and smarter process management.
It’s all about future scalability without the linear resource investments
The difference between new style of automation-rich intelligent operations and offshore-centric traditional operations is growing. It’s a bit like comparing the growth of Walmart to that of Amazon – (although it has started to change with its belated online strategy and acquisition of Jet.com), for many decades, the success and growth of Walmart has largely been tied to selling more retail products by continually adding new stores, and continually increasing its supply chain to support them. The firm could produce a linear business forecast that tied revenues to employees and capital infrastructure investments. Expansion and profitability was always dependent upon investing in more people to service need of the increased clientele – both the end customers and suppliers. With Amazon, so much of the customer front end is intelligently automated, adding customers often requires very few additional labor or capital investments – most front line customer support is completely automated, most the point-of-sale promotions are entirely driven by cognitive tools and smart algorithms that tie together customer needs and preferences with all the products on offer.
The offshore model is being dis-intermediated by intelligent automation in a similar way Amazon completely disrupted the traditional retail supply chain
It’s the same dynamic that is impacting the use of affordable offshore people services to be augmented, or even replaced by the almost-free fruits of intelligent automation. While Walmart was always an attractive outlet to push products to market, suddenly that business model is no longer viable when you can push your products to customers without the need for new investments in capital infrastructure or staff.
The emerging brand of more packaged operational services, outcome based services, and As-a-Service offerings – will be much more location neutral. It just doesn’t matter as much to the client where the service is delivered – they will only care if they have a reason to, like compliance, latency, etc… It’s not dissimilar to what’s happening in manufacturing – over the last 20-30 years, it made a load of business sense to displace, for example, 5000 onshore factory workers with the vastly cheaper services on offer in locations such as Taiwan and China, but as manufacturing automation advanced, the same products could be made by 100 workers managing machines. It gradually became more cost effective to bring the work closer to where end customers were situated to speed up inventory replenishment and reduce transportation costs. Why is it any different with finance, or procurement or HR – wouldn’t you rather have support services that were more culturally aligned with your staff and had a better understanding of your business needs?
You could argue that this dramatic shift is caused by automation or a desire for organizations to have more control over parts of their operations. We’ve seen examples of large organizations growing on-shore application development teams, partly because they need additional resources given the increasing numbers of complex customer-facing applications they are designing. But also because the applications needed to address onshore customer needs more directly – with greater personalisation and cultural affinity.
Offshore provides truly effective applications teams in terms of speed of development and technical quality of the final applications, but is less able to deliver the wow factor needed for the digital economy – especially in areas that require cutting-edge design and alignment with emerging digital business models. Also DevOps environments and agile have made on-shore development more cost effective and help deliver the same disciplined development ethos offshore has delivered. This does not mean that application development and maintenance disappears from offshore – far from it. It just means that services being delivered will be from more globally diverse teams and are more outcome-oriented, with offshore services leading the compliance / technical quality aspects of the delivery – at least for applications.
However, we think this is only part of the story, particularly as you move into other process areas, where there isn’t a hugely creative element and the service can be better delivered through automation as processes are standardized (such as back office F&A, HR and Procurement). In addition, areas where cognitive tools and virtual agents are emerging are also slowing the need to add bodies offshore, where self learning systems are really starting to work effectively. This is where the real change lies.
The Bottom Line – No more “location, location, location”, it’s now “skills, skills, skills”…
In the post-digital world, no-one care’s as much about offshore anymore. Offshore is going to be an ever decreasing part of the consideration for operational managers and their C-Suite. Location will still play its part as a cost lever in some circumstances – but it’s becoming a side issue, in most cases. Service is becoming outcome-led and driven by automation – people will add flair and handle exceptions – the HfS/KPMG survey shows that they aren’t thinking about it as an issue. It is either an ingrained part of a legacy operation, which is shrinking over time and a component of a more streamlined automated, As-a-Service delivery model. However, what is clear, is the need for skills to drive business outcomes, and if those can be found offshore, that is a bonus, but not the deciding factor.
The Indian IT/BPO services majors should also be more concerned by President Trump’s stance on outsourcing than any other factor over the last 20 years. Not only is offshoring of IT and BPO slowing because of lessening demand, but increased political pressures and policies being driven by the Trump leadership are completely changing the game. When it comes to IT services and BPO, it’s no longer about “location, location, location”, it’s now all about “skills, skills, skills”.
Since we published our first report on blockchain, we continue to talk to players in the industry about how this fast-moving market is changing and growing. Compared to last year, there’s more discussion about security and privacy (evolving from the “blockchain is unhackable” talking point that was popular last summer,) there’s more talk about non-financial examples like using blockchain to help with supply chain compliance issues, and a hunger to get beyond POCs into valuable operational execution.
Recently we spoke to Santosh Kumar, Rob Ellis, and Mani Nagasundaram from HCL about blockchain trends. HCL shares many characteristics with the players we included in the report, such as:
Basing its blockchain expertise within its financial services practice
Building expertise in some key industry hot buttons like international money transfer, asset tracking, and trade operations
Creating POCs with global banks like one HCL did on cross-border money transfers across subsidiaries
Exploring partnerships with several key blockchain technology vendors like Ethereum and ERIS Industries
Regarding trends, HCL sees a lot happening in security and privacy, as well as regulatory agencies stepping up to help businesses form some governance policies around blockchain. We’ve seen in the past few months that while maybe the blocks in the chain aren’t hackable per se, there have been identity thefts, fraudulence, and further concerns about public blockchain networks.
The HCL team notes that transactions are well executed in blockchain, but identity validation and asset validation are less mature. And valuation of assets still needs to happen in the real world, so they caution over-optimism in moving quickly to broad blockchain adoption.
Also, adoption may be slowed down until we can answer the key question, “who owns the network?” HCL’s current thinking is that there’s likely to be one or two per industry and that moving or crossing networks will be difficult (HfS agrees that network interoperability is a big problem. See my prior blog on network interoperability issues here.)
They also believe that maturity in blockchain comes in three phases and that blockchain mirrors the Internet itself in this maturity curve:
Operating business processes better with blockchain
Changing operations using blockchain
Using blockchain to create new business models, processes, and activities
When you get to the discussion of new business models, HCL has a few scenarios that they share (see Exhibit 1 for an example.) We like HCL’s ability to not just explain the technology in-and-outs, but blockchain’s impact on business. In the blueprint guide on blockchain, we scored providers highly on innovation when they have strong business stories and the ability to demonstrate blockchain’s potential to prospective clients.
Bottom Line: 2017 will be an important validation year for blockchain
As HfS continues to research HCL and its competitors, we’re looking for the following in 2017:
Movement beyond POCs into live implementations
An example of inter-company blockchain work (remember, most POCs right now are intra-company, which is why the network question didn’t come up much this year)
Some hardening lines in the partnership area as the winners and losers on the technology side become clearer and providers get pickier about which vendors they bring into client engagements
We started off the new year at HfS with the launch of the Capital Markets Operations Blueprint last week. This is our first coverage of the key dynamics in capital markets and furthers our BFS research on the back of the HfS Mortgage As-a-Service Blueprint mid-last year.
Policies, politics, and structural market challenges are plaguing capital markets firms, raising the stakes in partnerships with service providers
Going into 2017, we find banks and capital markets firms are cautious as they continue to endure a volatile environment with no signs of letting up. Policy ambiguity across the US and European markets, political uncertainty, and structural market changes continue to plague the capital markets industry. Meanwhile, low interest rates and as a consequence, bank margins across sectors have created new waves of cost pressures. Capital markets firms continue to struggle to generate more revenues to counter their rising cost of capital.
To add to this perfect storm, the revenue-generating aspect of this industry is under fire as well. Capital markets firms have had to abandon categories of products due to new regulations. They are more challenged to attract and retain clients that expect different, digitally enabled levels of service with faster turnaround times across the ecosystem, particularly in wealth management. As more big-ticket fines and penalties hit the headlines, public confidence and trust are continuing to erode, and at the same time, the competitor landscape is expanding for the biggest players with the continued success of community banks, regional banks, and fintech disruptors.
Overall, banks and capital markets firms are severely challenged in predicting strategies for long-term sustainability in a changing market and need to have several strategies in play to meet short-term cost pressures. Traditional cost management from cutting back trading desks and providing front-line compensation have not yielded results at the magnitude required to significantly balance profitability.
As a result, we believe that capital markets firms will undergo large-scale operational transformations in 2017 and beyond.
Since the early to mid-2000s, global technology and business services providers have taken over large parts of the back and middle office processes for banks and capital markets clients. They are now in a unique position to help rethink and run more Intelligent Operations as capital markets clients figure out their strategies to tackle these market challenges. Some of the key buyer-service provider dynamics include:
Back Office Processes Continue to Dominate the Services Landscape: The capital markets operations market started a little over a decade ago with back-office BPO processes offshored to IT service providers. Today, these processes are the majority of work engagements, prominent in 63% of contracts in our analysis. Major service areas include clearing and settlement, corporate actions, reconciliations, fund accounting, collateral management, data management and reporting, investor operations, and product control.
Market Forces and Regulation Stimulating New Demand: With global regulatory bodies placing continual pressure on banks and capital markets firms, there are new areas of opportunity for service providers to step in to help clients meet regulatory compliance requirements in different ways. Regulatory data management and reporting and analytics modeling and model monitoring are some of the biggest areas of growth for service providers.
Industry Staring at Technology-Driven Change: We see multiple initiatives fighting for prioritization within client stakeholders and service providers’ strategies, all related to technology-enabled service delivery in capital markets’ operational processes. Platform-based services, provided as a utility, are sparking new interest from clients especially as these models promise consolidation and economies of scale across internal LOBs and asset classes. Similarly, clients are also driving automation initiatives within each business, led by robotic process automation and some level of machine learning and predictive analytics to improve operational performance for retained and outsourced functions.
What’s next?
Standardization: We see a sort of “gold rush” for standardization in the foreseeable future of the capital markets operations. Service providers, including new entrants and industry veterans, are in a race to find ways to bring more standardization to overcome the significant challenges in data management. The managing director at a midsize PE firm we interviewed remarked, “Although we all have to do reconciliations, everyone’s built up in a certain way. The challenge for a service provider or market utility is not the actual processing but standardization in the upstream data that has to be fed in from various systems and the downstream outputs to different stakeholders like regulators and clients where the reporting requirements may be different.” Even within the walls of one enterprise client, data metrics, logs, and audit terms and the systems that consume them across businesses are varied. The biggest areas of investment for clients in the next few years will be in consolidating and standardizing processes such as reference data management and reconciliations.
Robotic Process Automation: Along with potential cost savings, one of the biggest business benefits of using intelligent automation technologies is the higher level of accuracy and standardization due to the lack of manual errors. It is no wonder that the new breed of automation tools has caught the attention of capital markets clients. We see a strong appetite for automation with RPA at the forefront. In the next year, we anticipate many more implementations, particularly for processes that have not been offshored yet where big bang savings are more possible. In the medium term, the cognitive capabilities and machine learning projects under way today in areas like due diligence and inquiry management will have matured and created more confidence for conservative buyers. This is a big opportunity for new market entrants to come in with an automation-first strategy for displacing incumbents. The key will be in proving domain knowledge by coming to service buyers with industry-specific use cases and examples; don’t expect them to have done the homework in this emerging area.
Industry Expertise: On the subject of domain experience, we see emerging opportunity for providing ongoing guidance to capital markets clients for the changes in and the impact of regulatory reforms on their operations and compliance needs. They have traditionally sought consultative advice from risk advisories and consulting firms, and our primary research reveals that for many clients, most service providers are not perceived by key client stakeholders as experienced enough to take on those advisory roles. We anticipate more acquisitions and strategic partnerships by service providers to bridge this gap as multiple clients in our research state that they would find value in getting advisory input from experienced operations partners.
Overall, banks and capital markets firm in our Blueprint research highlighted – and evaluated—the need for a collaborative service provider that is willing to take risks on critical new initiatives that they plan to roll out in the next 12-18 months.
Bottom Line: Whether it’s automation-led, pure-play BPO services, platform investments to drive BPaaS and/or market utilities, or bringing experienced consultants to address regulatory concerns, this high-stakes market demands service providers that are willing to take risks and invest for the long term.
For more details –including visuals of the market activity and analyses of the service providers—click here to access and download the HfS Capital Markets Operations Blueprint. The service providers included in this report include Capgemini, Cognizant, EXL, Genpact, HCL, Hexaware, Infosys, NIIT Technologies, Syntel, TCS, Tech Mahindra, WNS and Wipro.
A couple of months ago we wrote about meaningless data – the seemingly endless spew of pointless information that just starts to grate. Recently, we’ve started to see another related category of pointless crap – which is probably going to become more prevalent as organizations seek to increase the ease with which information is conveyed to a public that cannot be bothered to read anything anymore.
The category that is pointless crap visualization (PCV). Where an attempt is made to visualize something, often a relatively complex concept and it fails utterly to get the point across. But looks nice and gets attention because they drop some names of big vendors in there.
We recently noticed a thoroughly confusing diagram from one of our analyst colleagues, NelsonHall, that caused us scratch our heads in utter bewilderment:
PCV From NelsonHall
The diagram is supposed to tell you something about the acquisition strategy of the companies in the triangle. We wrote down a couple of questions about what the chart meant, having not read the associated blog post.
It looks like Cognizant is more likely to make acquisitions than IBM? Really? Which seems highly unlikely given the huge difference between the two companies in the past – and the fact that Cognizant has a much smaller war chest for M&As, especially after its massive $2.7bn investment in Trizetto. We suppose you could limit to purely IT services – but a tuck-in acquisition is just as likely to be IP based as it is additional niche skills. Although even then we’d expect IBM to spend a great deal more – its Software group having notorious deep pockets for acquisition. Cognizant have made some significant acquisitions like Trizetto, but like all the offshore firms have been pretty gun shy when it comes to inorganic expansion compared to the big traditional technology firms.
Cognizant/TCS are more likely to acquire than NTT or Fujitsu? Mmmm… Fujitsu has been fairly quiet on the acquisition front for a few years, but you cannot count them out of the acquisition game – they made a few acquisitions in 2016 and made some very large purchases in the past. Given their cloud capabilities in Asia, it seems likely it would want to build on consulting capabilities particularly in Europe and the US. And NTT – certainly we may see a lull in activity as Dell Services gets absorbed, but NTT has been one of the most acquisitive of the services firms over the years, so this again seems slightly at odds. This seems much more likely than TCS, the least acquisitive of the already reluctant offshore providers.
The inclusion of CSC using the CSC logo… er seems a bit unnecessary. In fairness it may just be the choice of CSC as the logo – but CSC is part of HPE and no longer exists – so we do wonder how useful it is to know they won’t acquire…
Also, what is the difference between a “tuck-in acquisition” and active acquisitions? To say that IBM is not an active acquirer seems odd – again it may be a narrow view of just the IT services business, but we’re not sure that view really helps anyone considering IBM as a partner given that any software acquisitions bring IP which add to the richness of the services offerings.
Again the distinction between active and tuck-in is not clear for Accenture – which is certainly the most acquisitive and has a very active strategy with an acquisition made seemingly every week, but some of these will be tuck-in, maybe half of them? You can judge for yourself and look at the list of Accenture acquisitions we tracked in the table below. We did some work on which providers are making digital acquisitions – not with the same list of providers, but it illustrates the scale of Accenture’s acquisition activity, compared with some of the providers on the NH diagram. So we’re not sure the visualization really captures the huge difference in acquisition trails between Accenture and the other pure services companies on the list.
HfS – Just The Deals
It is a challenge to come up with good visualizations – that support data and summarize points being made. We have some way to go converting our list of contracts above into a statement about the different players – but I think if we do something around our acquisitions data we’ll probably convert into an index and visualize as a quadrant (oh no) or a simple bar chart. So in a way you have to applaud NH for trying something new.
To be fair the associated blog made a lot more sense – but the chart fails to reflect what is said or adds much to the understanding – it just throws names at you without any clear reasoning. What the diagram needs to do is illustrate a point or, ideally, provide a short cut to understanding. This doesn’t seem to do either. Frankly, it just obscured any of the valid points being made.
The Bottom Line – in this era of fake news and poor information, analysts have more responsibility than ever to reflect reality
This year HfS is making a clear commitment to visualizing our information better and trying to make our perspective in as clear and concise a way as possible. Like the above chart we may not always get it right – but hopefully, that is where our community comes into play and you will let us know what we get right and what we get wrong.
Back in August 2016 we wrote about the shift left with offshore providers – we were recently reminded of this piece and asked to update the chart. Which we have done in the chart below. It’s interesting to see if things have progressed, and as a prelude to the new results season approaching rapidly…
These results add fuel to Phil’s thought in his Bandaid economy blog. With more traditional services markets slowing, largely because they support older business models. At the same time we see a rapid increase in wealth being generated by enterprises that are tapping directly into digital business models – with the digital pure plays like Amazon, Airbnb, NetFlix, etc. and the rapid adopters like Tesco’s, CapitalOne, Staples, The Gap, John Lewis… Service providers need to find a way to tap into the money that is flowing into the technology and talent to fuel these increasingly ubiquitous digital business models.
We have been looking to quantify the total opportunity for the digital expenditure or the “flow of revenues over digital channels between business and consumers”. We have started by quantifying the digital retails sales, but will expand to include business to business digital sales, travel and financial services expenditure. But below is a taste of this exciting work – with digital retail center stage and some estimates of the other components for North America to the right.
The Bottom Line – let’s just say it again…
As we have said before long term success in the services market is dependent on inertia or the lack of it. Providers that are reacting quickly to the changing market conditions are still finding growth, and this growth is shifting from purely low-cost or offshore providers. This is starting to show up in the financial results more and more as services firms customers ambitions drop, revenue growth fades. The “cut until it bleeds” continuous cost-saving model for operations is creaking badly, especially in light of new technology solutions and an increasingly competitive environment for many traditional businesses.
We will be taking note of the full calendar year results that are coming up this month and next. But we expect the current shift left to continue as providers adjust to the market realities.
Maximizing team performance and improving employee engagement are both winners in their own right as HCM themes to focus on. Solutions that focus on either are correlated with better business results. ADP and its clients can now play in this arena with the strategic acquisition of The Marcus Buckingham Company.
By many accounts, including mine, ADP’s past acquisitions of companies like Workscape, Virtual Edge and The Right Thing, while accretive to revenue (not necessarily a game-changer on a base of over $10 billion) and enabling a more diversified solution and customer portfolio, didn’t fully detach the company from its long-time transactional HR / Payroll branding. Yes, Workscape did bring cool technology around total rewards and portals, but ADP also talked a lot about their new benefits admin outsourcing capability after that acquisition.
The bold move of adding The Marcus Buckingham Company could pay off nicely for ADP, and in “multiplier effect” ways that, by definition, are much more consequential than incremental revenue or adding some new strategic customers.
Just as SuccessFactors was a clear catalyst in SAP’s embracing of the cloud, TMBC could do the same for ADP; not in terms of the cloud as ADP operates there already. The story here is adding a disruptive HCM solution, one that weaves together technology and services elements to help customers solve issues many HR tech products will never tackle.
Among other things, TMBC’s flagship technology StandOut distils the complexity of a team leader’s job into two fundamental questions: “what are my team members’ priorities, and how can I help them?”. As this will entail a new way of approaching the job for many team leaders, the transition is helped along by targeted and expert coaching, TMBC’s other strength that ADP plans to tap into.
TMBC’s technology and complementary coaching bring self-awareness to the performance management and career development process
Self-awareness/self-discovery is often the missing link in feedback and performance management models and systems. You could say that one exception is when an employee is told their self-ratings are very different than how others see/rate them; however that is “being told” rather than learning it through a guided process. Coaching is also advocated by more and more companies, but most aren’t consistently adept at it enterprise-wide. ADP customers can now benefit from Marcus Buckingham’s proven approach, one centered around individuals fully leveraging their strengths (motivating and energizing) vs. addressing their performance gaps (often de-motivating). The model also clearly fits organizations wanting to pursue a “learning organization” strategy and corporate culture.
While a talent management solution offering the type of capabilities TMBC brings can be ahead of many smaller company’s adoption or strategic interests for some time, this acquisition should allow ADP to finally break free of its transactional HR/ Payroll branding constraints.
The Bottom Line:
The Marcus Buckingham Company found its mother ship to reach the next stage in its journey to greater revenue and broader marketinfluence/impact; and ADP likely jumped on an acquisition that will put it on the broader HCM brand trajectory it’s been longing for. The pairing should bring even more value to ADP and TMBC customers, and broaden ADP’s strategic HCM footprint in those customers, over 600,000 strong worldwide.
As we discussed in Part 1 of the digital marketing operations Blueprint blog, marketers are upping their spend and re-thinking the way they spend on services as a result of digital consumer needs. The market landscape for these services includes BPO/ITO providers, marketing technology companies, traditional agencies as well as a vast array of digital and niche agencies. This is a fast-evolving space that requires multiple players to come together and create an ecosystem for business changing solutions. Many buyer organizations (e.g., PepsiCo) have been very vocal about their dissatisfaction with the traditional agency model and are taking marketing work back in-house, or instead of consolidating providers they’re distributing work to several specialty providers. The opportunity for BPO providers to disrupt in this space is increasing; while it is critical for BPO service providers to partner with agencies, which still have and will continue to have a prominent place in the ecosystem, there is much more opportunity for BPOs to provide strategic level work than in the past. In addition, technology has disrupted the way companies go to market. “Martech” has grown exponentially in the last few years, and managing an increasingly complex stack is the norm while companies struggle with the pace of change to manage these varied systems.
So traditional ad agencies have not kept pace with market changes and thus have opened up opportunities for consultancies and BPO organizations to enter the market in some unexpected ways. The part where BPO service providers play in this ecosystem is often in a paradigm referred to as a “de-coupling” strategy: separating the creative from the production. In this model, agencies set the big picture tone for the campaign but can’t meet the needs for reduced cost and speed that BPO service providers can for services such as localization, translation, regulatory/compliance and re-imaging. The service provider takes the agency campaign assets and reworks them for specific markets, devices, etc.
Sample Content Production Engagement Model
However, many of these services involve elements of creative design and require a blend of talent and automation to execute well. And services buyers are increasingly looking to providers to have more strategic capabilities, especially where the convergence of marketing, sales and customer service happens in customer experience design. Almost every services buyer we spoke to expressed an interest in more strategic, higher value services from their providers.
As in almost every market, buyers are increasingly looking to BPO service providers to get more innovative and hungry for their business. Most buyer references said their providers “do what I ask them to do well,” but these same references admitted there is much potential in the future for handling more strategic services: and many service providers have the capability. Even larger enterprise buyers see potential in moving away from the arrogant and set-in-its-ways agency model and embracing services with a fresher-thinking provider. As one client reference commented: “When you go with a big agency, you’re going to get their B team.”
So how are service providers coming to the table?
Players with smaller practices, such as EXL and Tech Mahindra, have some interesting vertically focused offerings and have the advantage of being able to give clients lots of attention and thought leadership. Customer experience management-focused companies (i.e., HGS, Concentrix, Aegis, Revana Digital) have the advantage of knowing their end customer’s requirements best through the connection of their contact center businesses. While these providers aren’t known as a marketing brand for new logos, with the convergence of service and marketing can often sell bespoke or smaller campaigns with an interesting value proposition to customer experience focused stakeholders. The same goes for ITO focused providers (i.e., HCL, NTT DATA Services), where these providers have solid operations engagements elsewhere in the organization, can leverage the strength of those relationships in the growing digital marketing space.
Companies like Genpact, Infosys and TCS have approached digital marketing operations with a strong stance around automation and analytics. And clients seeking alternatives to the traditional agency model have enabled providers like Cognizant, Wipro and Accenture to excel at an overall vision for digital marketing operations– these providers are acquiring and integrating digital expertise– unlike the traditional agencies who buy up digital agencies and run them as separate entities without as much thought to leveraging the assets of each piece across the organization.
The Bottom-Line: In the rapidly changing marketing services landscape driven by the digital consumer, there is tremendous opportunity for service providers bringing their A team … and it’s anyone’s game
The HfS 2016 Digital Marketing Operations Blueprint covers market trends and direction as well as the analysis of 14 service providers: Accenture, Aegis, Cognizant, Concentrix, EXL, Genpact, HCL, HGS, Infosys, NTT DATA Services, Revana Digital, TCS, Tech Mahindra, Wipro. For more detail—including analyses and individual profiles of the service providers—click here to access and download the Blueprint.
The bold move of adding The Marcus Buckingham Company could pay off nicely for ADP, and in “multiplier effect” ways that, by definition, are much more consequential than incremental revenue or adding some new strategic customers.
