It is that time of the quarter again; we are about to see a whole raft of quarterly results for Q3. HfS uses the results as a barometer for market performance, and we make decisions around the market sizing and forecasting from these numbers. The Q3 figures will give us three-quarters of the year’s results, so they start to give us a good idea of what the year is shaping up to be. We have already seen some important results from the early announcers, Accenture, TCS, Infosys, IBM, Wipro and WNS providing us with an indication of what is to come and speculate about the overall results.
As we mentioned in our recent analysis of the HCL / IBM partnership, the IT market has become much more complicated. For services buyers, it has impacted their ability to choose the right solution alignment for their businesses and for service providers in selecting the optimum places to make their investments. This is exacerbated further with the emergence of new disruptive competitors, both on client and provider sides, threatening the marketplace. In the past, we tried to simplify this market disruption by characterizing it as “two tier”, with service providers either being traditional or more “As-a-Service.” The theory, over the past 2-3 years, has been that growth will be slow, or non-existent, in the traditional services markets, while we will see emerging As-a-Service markets like cloud, BPaaS, digital and intelligent automation, growing in multiple double digits. Many of the traditional providers will experience revenue declines in this period as they burn through their backlogs of legacy contracts, particularly the large multi-tower outsourcing deals they may have. With most of these contracts morphing into As-a-Service delivery models or becoming increasingly cheap as the FTEs get reduced over time.
When we looked at the early announcers, at the start of the year, we predicted that the market would find renewed growth, as the market started to adopt the Ideals of As-a-Service, and growth in new business outweighing the decline of traditional spend. If you look at the performance of the early announcers in the chart, broadly this is true, with all the providers improving in revenue growth over the past four quarters, compared to the same four quarters last year. We use the twelve-month trailing data, as quarterly growth for individual companies can often fluctuate, and this gives a better direction of travel.
Bottom Line: Early signs are encouraging, but we need a consistent cadence of positive results over a sustained period
It is still early days – both with these secular changes to the market and in the results season for this quarter. However, if we see the rest of the market improve in a similar vain, we may well see growth rates improve for the IT and BPO services market, right across the board. This may be confined to more discretionary IT services markets like consulting and systems integration for the time being, and industry-specific BPO markets, such as insurance and healthcare. However, if this trend continues, we may see growth in infrastructure management spend in 2017. This is particularly significant for infrastructure as the market has been in decline for the last three years.
Over the next two months, as we digest all the results from the major IT and business services firms, we will form a viewpoint whether the market, as a whole, is seeing improvement and in what sectors. For example, whether the shift left of the offshore majors is set to continue in 2016 and beyond. We may also start to see signs that the IT and business services market might escape the low single digital purgatory it has been stuck for the last five years.
Still confused about what robobosses are and why you may be working for one soon… according to some experts?
Well, your confusion will soon be over, as we’ve assembled the ultimate interstellar panel consisting of client leaders, technologists, service providers, analysts and advisors to debate – once and for all – the true impact of cognitive computing, artificial intelligence, IT automation, robotic process automation software and smart algorithms are having – and will have – on our lives, our jobs, our enterprises, our politics and our society.
Your Robo-Host: • Phil Fersht, CEO and Chief Roboboss, HfS Research
Robo-Participants should learn about: • How should we define what a “Roboboss” is… and should be? • How far from reality are today’s viewpoints from other “experts” – what’s real and what’s fantasy? • Do we need a Code of Ethics for Intelligent Automation and Cognitive? • Where are we going to see “real Cognitive applications” in the short-medium term? • Where should we start our Intelligent Automation and Cognitive journey? • Are today’s service providers really going to be the enablers of Intelligent Automation and Cognitive? • Buyers – if you could start this all over again, what would you do differently? • How can we develop “Cogno-boss” skills? • What is the Real Endgame with Intelligent Automation and Cognitive?
Your Robo-Panelists: • Lee Coulter, CEO Shared Services, Ascension Health • Matthew Heffron, VP Innovation Initiatives, Wells Fargo • Mary Lacity, Curators’ Distinguished Professor, UMSL • Cliff Justice, Partner and Innovation/Cognitive Lead, KPMG • Dr. Thomas Reuner, Research VP, HfS Research • Chitra Dorai, IBM Fellow & CTO Cognitive Services, IBM Watson • Mihir Shukla, CEO, Automation Anywhere • Chetan Dube, CEO, IPSoft • Alastair Bathgate, CEO, Blue Prism
After attending HR Tech in Paris this week, it became apparent just how much the HRO market is changing. This change has started to happen across the board: service and tech providers, buyers and (even some!) analysts are starting to identify and adapt to the new era of HRO—as HR “Intelligent Operations.”
Having personally had experience in different areas of BPO, it’s been extremely interesting to look at HRO with a fresh pair of eyes. So, given that it’s Friday I’m going to condense my takeaways down to the following points:
The move to the cloud is not the end point: In HfS’s Eight-Ideals of the As-a-Service Economy, the starting point for organizations in the As-a-Service journey is Overcoming Legacy. It’s important to realize that this is indeed the starting point and not the end goal. I hear all too often from buyers that they go through all the pain of implementing a cloud HCM system and then end up with the same functionality and using the same processes they had with their legacy system. This should be the organization’s first steps in transforming their HR function, so partnering with a provider that recognizes this and will take you on that journey is crucial.
OneOffice is alive and well in HRO: Having previously covered the contact center space, I’m noting the increasing parallels between the front office customer experience and HR. What I will say though is that HR is five steps behind the front office, but we all knew that, right? The increasing focus on the employee experience can be directly compared to the focus on customer experience we saw starting in the noughties in contact centers. The increasing use of digital employee engagement through mobile and social looks very similar, although very much less mature, to the frantic race for digitization of the front office. Essentially what we are seeing in HR is more of the consumerization we’ve identified in the front office.
Outcomes, outcomes, outcomes! And more OneOffice: Keeping to the OneOffice theme is the increasing focus on business outcomes through HR optimization. In my point above I mentioned employee engagement. While this is an important endeavor it, in itself, is an HR metric and should be viewed as such. Rather the focus should be on improving real business outcomes such as reducing product development cycle times, increasing revenue and improving margins. These business outcomes are influenced by numerous factors including HR, and metrics like employee engagement are a means to drive that, but employee engagement is not the end goal. It is important to note that employees are also customers, and alienating these customers through abysmal hiring practices and sub-standard HR functions seems counterproductive.
HR conversations are moving out of the director’s office and into the c-suite: With business outcomes been the goal of HR, HR now needs a seat at the c-suite and a an active voice on the relevance of digital. Cloud, analytics, and automation cannot be effective in enabling business objectives if they are implemented in a tick-box fashion due to a directive from above, with no real sense of what impact it will have. Therefore the c-suite firstly needs to realize the impact HR can and does have on business outcomes and then endorse the strategic changes to HR functions that are needed.
So this is my take on the changing shape of the HR market coming out of a week of conversations at HR Tech and findings over the last few years. Furthermore, I want to introduce the idea of the OneHR concept (more to come) where typically siloed aspects of the HR value chain (hiring, talent management, benefits admin, learning, payroll) are continuing to merge into a unified HR experience for the employee. This is taking place within the technology realm but has some way to go from a services standpoint. Like I said, more to follow.
Predictive analytics in human capital management continues its slow but inexorable march out of the sizzle phase and into the steak — or for my vegan friends quinoa — phase. As this phenomenon is occurring, a few topics are getting considerable air time.
These include:
How are predictive engines adapted and applied to the unique business context of every organization – and by whom!
What types of predictive capabilities in HCM solutions (largely algorithms coupled with machine learning and human testing) have the most relevance and value to a particular HR/HCM agenda?
Will the predictive analytics guide in solving business problems? … and the all-important …
How much do data scientists earn and can HR afford them?
Forecasting the winners… more to come (winners and research)
An HCM or Talent Management offering that lacks a compelling predictive analytics strategy and capability set, and is competing outside of smaller companies, is akin to the proverbial “dog that won’t hunt.” (Yes I’ve fully acclimated to living in the South). Although from the buyer perspective, trying to unpack a vendor’s people analytics strategy, or just distinguish it from other capabilities out there that sound awfully similar, might keep some dogs hunting for a while. I’ve maintained for years that the HR tech market needs much more clarity around how solutions are different and why the difference really matters, in a language that typical HR professionals relate to. The absence of this makes the landscape more cluttered and more confusing for buyers.
I’ll be covering key operational and technology dependencies that affect the leveraging of people analytics in my upcoming HfS Blueprint Guide entitled “Predictive Analytics in HR Technology.” This will be published in early March 2017, but way before that, my related HfS POV is coming out in the next week or so. Among other things, it will offer-up a new industry metric called “Time to Predictive Value.” For now, here’s a preview.
Assessing a solution’s predictive analytics capabilities – checkmark or not
Here are three lenses to apply when evaluating whether an HR tech product’s predictive analytics will achieve desired outcomes; and by product, I mean HRMS platform, Talent Management Suite or HR Point Solution:
Time-to-Predictive Value (“TtPV”) is my stab (POV forthcoming!) at creating a meaningful guidepost to help judge one aspect of a product’s capabilities in this realm. It will hopefully bring some much needed clarity to a domain where, for example, “retention or flight risk” -– not a very meaningful metric in isolation, as most metrics aren’t –- often gets a vendor a quarter or half-way toward qualifying for a predictive analytics checkmark.
There are various operational dependencies for leveraging predictive analytics in HCM (or within any business discipline), such as having a large enough relevant data set, sufficient analytics and data science competencies and staff, pursuing closed-loop validations with well defined scenarios, applying appropriate calibrations for different data (e.g., job and organizational) contexts either performed by people or machines (via machine learning), etc. These dependencies and conditions typically take time to be addressed –- from weeks to months or longer. Buyers should have a sense of when they will actually see the predictive value manifesting itself, as that influences ROI and is also a major input to my lens #2.
Degree of Predictive Analytics Business Impact: There’s a wide range of potential business impact and value to be derived from these capabilities in HCM. Two factors that seem to correlate with impact beyond TtPV:
– Whether the best actions or decisions are being guided by the predictive information. In other words, is the analytic prescriptive as well as predictive? (A reason why retention risk in isolation probably has less value than what is often hyped.)
– Is the business problem being solved/avoided, or opportunity created, going to deliver noticeable competitive advantage? Examples include knowing the most important predictors of job success in a critical role, or what factors materially drive or impede employee productivity or customer retention, or is the organization truly ready to succeed on a strategic initiative?
Finally, Innovativeness (yes, it’s a word) of the predictive analytics capabilities: The more innovative a set of these capabilities are, particularly if they lead to practical and measurable business value delivered in relatively short order, the more it inspires other creative ways for solution providers to help solve HCM business problems. Data correlations and cause-and-effect relationships that are very intuitive to discern or simply the product of good common sense (e.g., freezing salary increases or cutting back on company-paid benefits will likely result in a spike in employee turnover) earn very low marks on the innovativeness scale.
In contrast, when Walmart years ago determined that putting diapers on sale will often lead to increased beer sales (somewhat logical, but only AFTER the non-intuitive relationship was discovered), now that’s a winner.
Bottom line
People analytics is hot, and predictive capabilities is a major reason why. But in order for customers to derive business value commensurate with what they are paying for the surrounding solution, they must look beyond the sizzle and assess the quality of the steak in meaningful and business-relevant ways.
Procurement BPO has changed substantially over the last decade. Growing maturity of procurement technology and commodification of significant parts of the procurement value change altered the value proposition of procurement BPO: From very large lift and shift outsourcing deals, heavily dependent on labor arbitrage, to smaller (about a fifth the size of ‘legacy’ deals) engagements leveraging procurement platforms, advanced analytics and intelligent automation. This exemplary of the shift in services we call the “As-a-Service Economy”. As we interview service buyers and service providers for the 2016 Procurement As-a-Service Blueprint, we home in on five facets representing Procurement As-a-Service:
Continued use of automation and robotics in services. Transactional procurement has changed tremendously. Not only by better platforms (see #5) leading to fewer and fewer exceptions in processes, and processes and exceptions that can’t be handled on a platform can be done with Robotic Process Automation. As an illustration: in spend analytics automation is used to automatically aggregate, cleanse, validate, classify and report spend data. Further areas with lots of intelligent automation potential are invoice processing, purchase order management, contract management, auto-routing of exceptions to stakeholders, invoice matching procedures, payment status and tracking.
Traditionally, the ‘higher value’ activities in contract management, category management and strategic sourcing have been consultancy driven. Skills are scarce and hard to repeat and scale.
It’s about knowledge and expertise and labor intensive processes. The market sees an accelerating talent issue, as category and sourcing experience is scarce and you can’t buy experience. Really good sourcing or category experience is built over a minimum of 10 years and many experts are retiring at a higher rate than new talent can be brought on. So there is a need for knowledge management and an opportunity with cognitive and AI becoming more mature to solve a part of this puzzle.
With cognitive platforms maturing, we will see a change in the more strategic parts of procurement.
Strategic sourcing and category management expertise and capabilities. Sourcing and category management drive a lot of value for clients, for instance in tail spend. There are many small categories, small sourcing events and potentially poorly sourced products in enterprises, which don’t warrant building in house category expertise. Procurement As-a-Service providers are expanding internal category management and sourcing capabilities by attracting and retaining more sourcing talent, arming sourcing and category talent with more and better analytics, insights and market intelligence and nurturing an ecosystem of partners, growing in the role of brokers of capability.
End-to-end capabilities. Service providers increasingly bring in traditional sourcing consulting skills into Procurement As-a-Service delivery, opening new doors to buyers looking for consulting skills at lower (BPO) costs, enhancing capabilities across the value chain. Procurement As-a-Service covers the entire Source to pay (S2P) Value Chain. The growing role of technology is enabling closed loop processes, with advanced analytics creating continuous feedback loops. New value creation in transactional procurement hinges on one to many solutions and services, deriving data and bundling insights across multiple client engagements. The game in procurement business services is scale, being able to deploy limited skilled resources across multiple clients, not on the project basis but on concurrent, day to day, shared basis.
Providers’ ability to bring sustainable change to the client organization is key to Procurement As-a-Service. Traditional challenges are compliance with procurement policy, contributing to transforming the procurement function and stakeholder management as part of continuous change management, beyond the transition period.
Commercial models. HfS’ research shows that while As-a-Service delivery is gaining ground in many horizontal and vertical offerings, the adoption of As-a-Service commercial models is lagging behind. Gain-share was popular in the early days of procurement outsourcing, but its popularity seems to have faded since in many cases the wrong behavior was incentivized. Determining actual savings and which part of the savings should be contributed to whom proved a nightmare. We are having a good look at how service providers supporting the As-a-Service vision introduce new commercial constructs and if they are bringing those into existing client engagements.
Platforms. Procurement technology is now much more integrated in platforms, where much of the technology of the past was separate, heavily customized and bespoke (point) solutions. SaaS enabled technology platforms such as Ariba, Coupa, SMART by GEP, Tradeshift, Accenture’s Radix and Capgemini’s IBX have taken a significant role at the core of procurement. In a nutshell, platforms consolidate a set of suppliers, automate most processes and put (commoditized) processes at the fingertips of buyers.
Platforms are eating into the traditional procurement outsourcing model. The mega deals of the past slimmed down due to the degree of technology being sourced, reducing human labor dependency in procurement. Key ingredients of Procurement As-a-Service are usage of platforms, services with embedded platforms, services around platforms and integration of platforms in service delivery.
What To Watch
Winners in Procurement As-a-Service are those providers going beyond merely providing a replacement or extension of existing procurement, by providing a vision and strategy for the future of procurement.
This vision includes:
Leveraging multi client insights, experience and buying power
Models for Customer management
Providing smart solutions for indirect (tail) spend
Expanding expertise in strategic sourcing and category mgmt
Putting Intelligent Automation at the core of (digital) procurement operating models
Leveraging procurement platforms (proprietary and 3rd party) in engagements and the ability to provide technology management across clients in a one to many model
Building closed loop processes
Data and information foundations
Using advanced analytics for (near) real time information and insights
Skills in consulting, technology and relationship management
End to end supply management
Creating communities for clients
The 2016 HfS Procurement As-a-Service Blueprint will investigate the progression service providers have made on the As-a-Service Journey, their vision for the future of procurement and their ability to bring this vision into the real world of procurement.
The rise of cloud-based HCM platforms has been a key driver in pushing the business case of HR to the c-suite and making HR one of the primary focus areas for IT managers. Further highlighting this point, in a recent study (attached chart) HfS identified HR as been the leading business unit adopting cloud implementation and BPaaS support. This movement is leading to the days of the dreaded green screen fading into the distance and slicker, user-friendly and more compliant HR cloud platforms becoming the norm, thanks to SaaS.
Whilst these platforms have largely been extremely positive for HR managers and employees alike, process change management and continuing integration issues have made these systems far from fool proof. Continuous updates are a headache for organizations to absorb, incomplete compliance functionality is a constant thorn in legal’s side, and piecemeal buying of these platforms has hindered the benefits organizations can glean from them.
NGA has just introduced a new offering into this market that is designed to be fit for purpose and globally compliant. It’s built around SAP SuccessFactors as a bundled software offering including the NGA’s proprietary MyHRW, and PEX platforms. PEX allows for integration with payroll systems. cleaHRsky will be front ended by SuccessFactors Employee Central and include an interactive case management portal, AskHR as well as transactional automation in support of processes, reporting, and interfaces.
Here are three characteristics of what NGA is offering:
Support for Local to Global Growth: CleaHRsky will be marketed to medium, private domestic firms that do not have established, centralized global HR functions and are mid-sized multinationals between 5,000 and 25,000 employees aspiring to become global. In the interest of practicing what they preach, NGA is in the process of rolling out cleaHRsky internally.
Plug-and-Play Functionality: The solution pivots around a “grow and evolve” approach. NGA is offering it to clients with Employee Central and therefore core HR at the heart of the solution. Clients can then opt in to deploy payroll and talent management support as well as expanding geographically. NGA is seeking an aggressive implementation time-frame of 14 weeks including change management for core HR functionality aspects of cleaHRsky
Mobile and Social Support: cleaHRsky will include essential components of SuccessFactors which will be optimized across mobile and social channels. In support of cleaHRsky, NGA will provide a global best practice catalog to support in-house processes of the implementation.
Will it work for everyone? No, the preconfigured nature of the offering will not work across the board. The solution is better suited to organizations that are seeking more vanilla HR standardization across their operation. There is a certain degree of customization within cleaHRsky, but its core aim is to be a fit for purpose SuccessFactors implementation. I have spoken to many buyers who have dived head first into implementing cloud HCM platform and in some cases, these buyers have ended up using the same functionality and processes that they did on their legacy platform. In short, a key attraction is that this approach is how it can remove much of the consultancy and internal debate over SuccessFactors module usage and processes to optimize use of SuccessFactors based on NGA’s experience.
The key challenge for NGA is selling an end-to-end solution of this ilk, especially in the upper end of NGA’s target market (up to 25,000 employees). At these larger companies, the need for customization to fit standard procedures generally increases and HR and finance departments are more formally separated internally, often requiring a top down, transformative approach to HR. Currently many of NGA’s relationships remain with the VP’s of HR making this level of transformation a challenge. NGA requires a new approach to get c-suite buy-in and has been acquiring sales talent, over the last year, in support of this.
NGA is putting its weight behind this offering and has stated that cleaHRsky will be its “go-to” offering for all organizations that fit within its target range. This big push could be just what NGA needs to kick-start adoption of cleaHRsky and entrench itself as an HR transformation partner.
From An Interview with Charlotte Bui, Global Lead of Design Thinking at SAP
Recently a colleague in common introduced me to Charlotte Bui, Global Lead of Design Thinking at SAP, and I chatted with her about how design thinking is used with SAP clients. I’m sharing snippets of this interview to get you thinking about how to use design thinking in your work, and in your partnerships and outsourcing engagements to drive new levels of innovation and impact from them. Consider it a way to address the challenge Phil laid out in his October 2nd blog: “let’s make outsourcing great again”… because there is a lot of untapped potential …
Charlotte, how do you bring design thinking into your work?
We ask questions to uncover and discover the true needs of our customers as it relates to their business and their customers. What that means is that we often dig deeper to better understand the “why” behind their needs, their motivation. We ask questions about how the work they do impacts stakeholders and customers, such as: Why do they need this? Why do they care? What’s missing? These questions can be applied to any situation to get focused on how to solve problems with a human-centered, customer first approach, versus a business-centric, solution first approach. And by leading with listening, we work with them to help uncover what’s missing or even what could potentially change their entire business model.
Business process services and IT services is a process driven industry; what can you tell us about how to structure an approach to work that uses design thinking? We share customer stories and we talk through our method; there are many design thinking methods that all share a same common theme. At SAP, we use “look-think-do.” (link) It is about understanding WHO you are doing it for, cultivating ideas, finding the one (or more) that is real and can be implemented, and execute it. That last step is where the value is realized from the design thinking driven work. We use design thinking to understand what clients need, then work to define and apply the right solutions to bring those ideas to reality.
Will you share a story with us about how design thinking is part of a corporate culture?
Look at Discount Tire, which is a tire company mostly in Arizona, California, and New Mexico. They are well known for their friendly approach to something as common as tires because at the core of what they do is ensuring safety. Yes, they need to sell tires to be in business; but the tires need to support a safe drive. The team at Discount Tire continually thinks about how to create that safe situation for drivers, and that leads to services with loyal customers. In the video they made to capture their experience, Discount Tire employees talk about “slowing down and thinking more,” and “making decisions with empathy.” For them, it was not a “one and done” project. Discount Tire liked the design thinking approach and results so much, they created dedicated spaces for their employees to keep using the approach they learned while working with SAP.
A guiding principle of Design Thinking is prototyping. If you are talking about doing delivery services in a different way, how do you prototype?
We do low and medium fidelity prototyping: storyboards and vision videos, for example. We take ideas coming out of a workshop engagement and put it together into a story and then play the story back. For example, for a discrete manufacturer exploring the use of 3D printing, we would develop an end to end story, such as, if you used 3D printing on site, here’s how your supply chain might change… what it might look like… in a video or storyboard. The power behind low and medium fidelity prototyping is the ability to see the different ideas in action and imagine a future with those concepts applied. This allows for iterations without long-term investments, promotes learning, and embodies the concept of “fail forward” to ensure the changes can be easily adapted.
Have you seen other companies besides SAP that are using Design Thinking in their culture? Which ones come to mind as a good example of incorporating Design Thinking into the way they work? Has it helped them change their business?
There are several other companies that use design thinking although most of them are in the business-to-consumer market. Harvard Business Review recently profiled the CEO of Pepsi, Indra Nooyi, who introduced design thinking into the core of the company, driving change that has resulted in revenue and stock price increases for the past few years after stagnating. (link) Other familiar brands like P&G, Marriott, and Fidelity are well known in the design thinking sphere where they also customize the concept in order to ideate and co-create with their customers. These companies are going beyond just dabbling in it, and are working to make design thinking a part of their organization.
What if Design Thinking is not part of the culture or driven by the leadership in your organization? How can someone use it in her or his everyday work?
I rely on a broad ecosystem of people who leverage design thinking every day, including Mark Leung, Director at Rotman DesignWorks, who shared his approach around being a DT ninja at the onset. Even without a “guru” or network, you can practice with design thinking tools and techniques in your everyday work, like using empathy, thinking out loud (write up what you think on a board rather than your little black notebook), and doing small rounds of ideation and prototypes. You’ll find other tools on the Stanford d.school site, as well.
As part of our journey at SAP, we were very fortunate to partner with the creative technology firm Gorbet Design. During our time together, we built a business-focused design approach to working with customers, and learned how to leverage those tools and techniques to uncover and solve both internal and external business challenges. We found that a design thinking approach that includes perspectives from many people, rapid iteration, and a focus on the human in the system will generate far broader and more innovative ideas than a standard business approach.
I have learned that you don’t need to wait for permission to use design thinking, you need to just start doing it… delighted customers and powerful results speak for themselves. You’ll find examples in these customer stories.
Charlotte, thank you for sharing your experience and ideas that hopefully will inspire the designer in more of us!
In summary, design thinking can help you create “connections” with your customers and client base because it is about knowing, understanding, and creating new and creative ideas leading to solutions that enable those connections. Connections and experience create relationships and loyalty, which is good for business… and the financial bottom line.
Even if you are not a designer, don’t have a budget for engaging a third party for a workshop, or have a leader promoting design thinking, you can incorporate the principles of Design Thinking—asking questions, observing your end users, experimenting—into your own approach to problem solving and start a new movement.
Finally… exactly four years after HfS introduced the concept of Robotic Process Automation (RPA) to the services industry, we can reveal to the world how our service provider and advisor friends are performing with the industry’s inaugural HfS Blueprint report on Intelligent Automation.
Back in 2012, HfS brought the topic of RPA (see link) to the attention of the sourcing industry by challenging its dependency on low cost labor made widely accessible through the ubiquity of global sourcing resources. The report, “Robotic automation emerges as a threat to traditional low‐cost outsourcing,” examined whether affordable, easy‐to‐develop software robots would eventually supplant many offshore FTEs to drive down the cost of outsourcing to an entirely new digital level. We concluded that robotic automation, or Robotistan as we affectionately called it nack then, had immense potential to be a highly disruptive and a transformative technology for buyers and service providers that would forge a whole new services industry landscape that incorporated truly global operating models that not only took advantage of globally available labor, but also accessible technology that could help digitize, streamline and standardize business processes. This wasn’t only about making thing run more affordably, but this was about helping enterprises digitize their business operations more effectively to respond to their customers’, partners’ and employees’ needs… as those needs arose. That was then, and was just RPA.
Fast forward 4 years, and the broader notion of Intelligent Automation (IA) is not only top mind of BPO executives but across the whole industry as all the facets of IA are about decoupling routine service delivery from labor arbitrage. However, despite the high profile, the understanding of how IA is impacting the industry is at best blurred as the marketing communication is both scarce and often confusing. Normally, no topic is small enough to be hyped, to be shamelessly exaggerated. Yet, in the context of automation the usual suspects, the service providers, ISVs and sourcing advisor remain coy and largely on the sidelines. Probably the two key reasons for that are that the impact on revenue models is not well understood and the disruption among workforces, the fear factor, the connotations around the topic. As such as our own Lee Coulter aptly put it, in the context of IA we have something akin to the Tower of Babel. We have many languages but can’t understand each other. Enough reasons for our Intelligent Automation expert in residence, Tom Reuner, to take stock as to where the development of IA has advanced to.
Tom, there appears to be a lot of noise around Intelligent Automation in the industry? Is the hype justified and where does it fit in strategically for buyers?
Noise is probably a good way of putting it, Phil. While many talk about automation or least refer to it, few actually provide insights about the market dynamics or even educate stakeholders about the many implications of IA. In my 20 years of being an analyst and consultant I can’t think of any comparable topic where the industry is so coy of effectively engaging with stakeholders. Thus, it is (the often tiny) automation tool providers and the specialist consultants who are leading the marketing communication and are educating the market.
While the market is still nascent, we are seeing signs for exponential growth kicking in. Both in terms of build out of capabilities by the supply side as well as by the scale of the deployments. The best way to think about it is the hockey stick effect, and we are starting to get to the long shaft of the stick representing hyper growth. As for your question, as to where IA fits in strategically for buyers, the answer is it is in the eye of the beholder. And this is not the usual analyst cop out. It really comes down to how stakeholders are approaching IA and what their requirements are. For HfS, the relevant context is service delivery and not function and features. Consequently, the discussion should focus on specific use cases and not generalist statements.
Regardless of the specific use cases, IA is a critical building block for organizations journey toward the As-a-Service Economy as it is significantly accelerating the speed of service delivery and moving toward notion to straight-through-processing. Critically, the mainstream view is that bots, robots and algorithms are supporting and augmenting IT and business analysts rather than supplanting them. Thus, notions of a virtual workforce are pointing toward blending bots and human workers. However, particularly among the more business process centric supply side, we are expecting widespread disruption as generic activities such as compliance, reconciliation, data entry etc. will be phased out and we will see a shift toward higher value activities such as analytical and cognitive skills. Therefore, we need urgently a fundamental debate about the transformation of knowledge work in order to help organization on this extremely challenging transition.
How are the winning service providers approaching Intelligent Automation today? What are they doing beyond more low level RPA?
Phil, to answer your question, let me level set on the key criteria that we were assessing the service providers on. What we were trying to assess was how service providers are orchestrating diverse sets of automation within the context of service delivery. How are they proactively transforming the processes for clients? Thus, the emphasis is not on task automation or isolated point solutions, but on automation from a business function or process point of view. Similarly, advisory is only relevant as part of implementations. These capabilities might sit within traditional business units, but we are seeing the leading providers build out capabilities across those business units. While IA can be an internal capability for delivery and costs optimization, we are trying to understand with this Blueprint is how IA is helping clients on their journey toward the As-a-Service Economy.
Against this background, the pace of change in building out IA capabilities is nothing short of astounding. All providers have built out centers of excellence that tend cut across the entire Continuum of Intelligent Automation ranging from RPA on the business process centric side to Cognitive Computing, AI all the way to self-learning and self-remediating engines. In this increasingly crowded space, Accenture stands out through investments in a holistic automation strategy. The reference point is the Accenture Intelligent Automation Platform integrates Business Workflow Management, Delivery Management, Intelligent Automation, and Analytics and Insights, with a neutral ERP interface at the core. This is further enhanced by the Accenture AI Engine that provides an architecture abstraction layer for interacting with various AI based services, such as natural language processing (NLP) and machine learning. In contrast to Accenture, IBM is pursuing a highly pragmatic strategy by driving scale through focus on core technologies: IBM is focusing on three core technologies and driving them out at scale: Blue Prism in RPA, IPsoft in Autonomics, and Watson as a virtual agent and broader analytics scenarios. This allow not only for scale but also results in robust delivery. These leaders are joined by Cognizant, Genpact and Atos in the Winners Circle. Cognizant is a reference point for thought leadership. Its automation team within the Emerging Business Accelerator (EBA) is at the vanguard of educating the market place on the implications of automation. Genpact stood out by proactively providing innovation. Clients praise Genpact for consistently proposing innovation. This includes a consistent approach to monitoring even for activities that are outside of scope. And last but not least, Atos stands out by driving IA at the heart of its service delivery backbone. This includes linking business services and applications orchestration with infrastructure cloud provisioning. A crucial element in this strategy is integrating big data and operational analytics into the automation approach.
What are the main lessons coming from the early deployments? What are the issues buyers should look out for?
Three issues are jumping to my mind:
Look beyond task automation: The marketing noise is largely around RPA and implicitly notions of task automation. Therefore, it can be challenging to get a sense of the bigger picture. However, as one provider aptly put it: “Automation success starts with good design, efficient processes, and data curation.” Crucially, what is the future state and how do organizations get on the path toward the As-a-Service Economy?
Automation is a journey: Automation is not a quick fix; it is a journey. It takes preparation to find the right candidates and can be done effectively only by taking support from the people who are involved in the business or IT operations. Projects should start with advisory and process consulting.
Data curation is critical: Applying Cognitive and machine learning solutions to IA requires access to large amounts of relevant data to build reliable models. Data can be pertinent to IT operations, business processes, and publicly accessible data. Thus, there is a need for quality and quantity of the data, and associated compliance considerations are often under-estimated by clients when they consider AI-based automation solutions.
How will all of that impact workforces, Tom, and what are the broader implications for talent? Are the fears justified or is it plain scaremongering?
Phil, this is probably the most contentious issue. We all have seen the studies by McKinsey and the World Economic Forum predicting the loss of hundreds of millions of jobs or Gartner’s assertions that in 2018 3 million employees will be managed by a robo-boss. HfS is taking a more balanced view that is both specific and relevant to our industry that we need an urgent and honest debate about the transformation of knowledge work. And you have been quoted left right and center that digital disruption is killing jobs – not automation.
For me two issues are standing out. First, successful automation projects require a proactive stakeholder management that is taking the concerns of employees serious. Change management is crucial for achieving projects goals. While anecdotal, examples for successful projects were where employees were giving automation terminals names and even window seats as they freed up from mundane and often boring tasks. Second, and very close to my heart, we need to rethink our approach to talent. Data scientists and cognitive skill sets are not growing on trees. Universities have to start adapting their curricula. But even more importantly, organizations have to fundamentally revisit their strategies on talent. Many activities that their employees will do today are not needed anymore in 2 or 3 years’ time.
Will the juggernauts finally start to properly engage with clients and stakeholders around the notion of Intelligent Automation? How do you see the market evolving in the next few years?
I am not holding my breath that the juggernauts will start to properly engage with stakeholders on the topic any time soon. It is a classic case of innovators dilemma. Many will continue to make more money with labor arbitrage. In the same vein the automation giants such as BMC or CA are ringfencing their licenses. But make no mistake, they are evaluating M&A opportunities and will pounce when they feel the time is right.
In terms of market evolution one of the key findings of this research is the emergence of Virtual Agents. These agents (ranging from the big beasts Watson and Amelia to OpenSoure avatars) are underpinned by broad process and automation capabilities. The case study that highlights this best but also underpins that looming disruption is KPMG. KPMG is anticipating and investing significantly in the disruption of their core business (tax, accounting, advisory etc.) through robo-accountants and advisors. And their core business is not high on the technology affinity list. And this disruption is not 5 or 10 years out but over the next 2 or 3 years.
So, what is direction of travel for the further development of IA? HfS believes the more service delivery is industrialized and automated, the more differentiation as well as value creation will be at the intersection of standardized service delivery and the plethora of unstructured data that will be increasingly integrated through neural networks and deep learning. Thus, vertically relevant insights and data is likely to be the endgame for both automation and service delivery. And it is here, where the providers in the Winners Circle are focusing their investments in and are ahead of the game.
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Although it’s not immediately obvious with all the talk of pilot projects and proofs of concept as businesses experiment with ‘the art of the possible’, there is a great deal of large scale and serious build out of modern digital stacks fed by modern sensor data transmission, also known as the Internet of Things (IoT). Like most competitive business differentiators, strategically important work is being planned and executed in great secrecy, which can skew perceptions of what the landscape looks like.
An illustrative example of the importance and power of the various data streams created and consumed around the IoT is precision farming.
Smart farming equipment is relatively mature, with multiple data flows about all aspects of, as a specific example, planting seeds. Heavy equipment manufacturers are under pressure to not become ‘dumb iron’ and therefore a price pressured commodity.
To avoid losing out to seed manufacturers over control of data streams and aggregated intelligence ownership, equipment manufacturers must compete by not just supplying the relevant industrial internet hardware.They must aim to control the farmer’s user interface and experience by providing the best data flows through continuous digital innovation.
Providing farmers with real time planting intelligence and best practice is the center of equipment manufacturers market leadership and survival, and data is the currency.
It’s a commercial battle: whoever is able to provide the most useful, intuitive and intelligent assistance to the farmer wins their trust, business…and their data, which can be aggregated and resold.
From a service provider perspective, the Internet of Things currently has two main dimensions, both of which are attributes of larger battles for digital dominance.
The first dimension is the Machine to Machine (M2M) industrial internet, which evolved from heavy equipment telemetrics (the measurement and transmission of data by wire, radio, or other means from remote sources to receiving stations for recording and analysis) and has matured and grown on a linear path alongside ‘traditional’ enterprise IT systems for the last fifteen years. Examples of this are ‘time to failure’ monitoring of all types of rotating heavy equipment, and data flows into and from ERP and other enterprise software.
The other, newer dimension is the explosion of product innovation enabled by new sensor developments and ‘big data’, enabling data flows from ‘born digital’ devices from and to physical ’things’ of all sizes to modern digital backbones.
Modern ‘things’ of all types are increasingly manufactured with sensors embedded in them, from tires to consumer products, and have associated API’s to send and receive data. These sets of data flows are rapidly transforming society as a subset of digital business.
There is an increasingly complex services market growing up around these two dimensions of IoT The services sector has several ‘born IoT’ specialists, multiple global IT firms expanding into IoT services, integration suppliers who have deep competencies in the industrial internet, and many more services firms with substantial multipurpose IoT departments in anticipation of increases in business demand.
We evaluated a representative 18 service providers in our IoT Blueprint research. In the process, we placed a bias on innovation, particularly around the“newer dimension” of IoT as described above. We also looked at many other contenders in the space but found inadequate activity to justify inclusion for now.
While the industrial internet is an industry in itself around all types of increasingly sophisticated data flows from manufacturing, heavy equipment, aircraft and supply chains, it is largely rooted in past technologies. Innovation for the industrial sector is around smart cars, buildings and infrastructure, which are all large scale investment projects, and are areas where there is a thriving, mature business for many of the enterprise suppliers of services.
Where things get really interesting around IoT (and where there is also substantial hype, red herrings and misunderstanding) is innovation across ‘born digital’ product and services lifecycles from inception to post sales support.
While there is hugely entrepreneurial innovation and experimentation with all the new ‘things’ made possible by sensors, connectivity and data, interoperability and integration are critical to avoid standalone solutions, which won’t work as contributing components of a larger digital framework. Revisiting the precision farming example above, the industrial internet underpinnings of a piece of agricultural equipment must be augmented with ever more innovative, newer dimensions of access and analysis of data to remain competitive.
The farmer may also choose to leverage additional ‘standalone’ IoT products and supporting mobile apps in their arsenal of digital intelligent aids, but these will be of limited and narrow use unless they can flow their data to a single digital backbone or core.This provides a more complete and sophisticated view of real time activities, with real time contextual intelligent assistance to the operator of the equipment.
Viewing the IoT services market from the client perspective, anxieties are high over security concerns and standards. The technology vendor partner ecosphere is fluid and there are concerns that placing big bets on complex integrated systems could cause headaches as technology relationships and standards evolve, resulting in disruption and forced redesign of systems created to be load bearing and mission critical. These anxieties are tempered by the reality that the world is changing fast and the fight for continued relevance in marketplaces requires being on top of customer facing digital strategies. High end-to-end security competency to protect exposed IoT data flows are table stakes to give clients the courage to embark on work with vendors.
IoT is a buyers market…for now…
Today IoT services is a buyers market as prospects and existing clients in other areas scope out the best size, specializations, partnerships and geographic location fit for their needs. There is a marked division between passive services providers with strong skillsets who are waiting to be told what to deliver and when, and the more innovate entities who will partner with their clients to innovate, perform design thinking together, and often to share risks and rewards. It is the latter who are likely to evolve to be top of a sellers market as reputations and track records are built.
The fate of being perceived as a lowest cost commodity delivery supplier is a threat to some ‘delivery only’ IoT partners, who share a similar danger with thefarming equipment manufacturers who fail to evolve and innovate in order to remain relevant to their market.
Consolidation in the SaaS services market continues apace with the boldest move yet by an India-headquartered service provider into the SaaS services market to date. Wipro has announced its intention to acquire Appirio, one of the strongest and most respected independent cloud services brands in the world for $500m.
This is a significant deal in a services industry struggling to find fresh paths for future growth, with revenues slowing and the traditional model of outsourcing around SAP and Oracle environments commoditizing. This has especially been the case with the Indian majors, whose leaderships are starting to panic with their hyper-growth days now a thing of the past. In our view, Wipro is stepping up to the plate right where the future growth lies, by adding significant capabilities around Salesforce, Workday and ServiceNow platforms, in addition to bolstering its digital and mobility capabilities in the retail and media spaces. Our concerns are whether Wipro can truly integrate the two firms effectively, with a poor track record of Indian-US acquisitions (Lodestone/Infosys and Genpact/Headstrong are example of mergers which struggled from both a business and cultural fit.)
Adding SaaS consultants to compensate for declining legacy ERP services revenues is the new enterprise services game
The traditional Western service providers have been hard at it picking up the niche “As-a-Service” providers, most notably Accenture’s acquisition of DayNine last month, IBM picking up Meteorix and KPMG’s acquisition of Towers Watson’s Workday practice in the Workday services ecosphere, and Accenture/Cloud Sherpas, IBM/Bluewolf and Capgemini/Oinio in the Salesforce market. While the Accentures, IBMs and Capgeminis et al have been in a hurry to replace declining ERP services revenues with the implementation and consulting dollars around the hot enterprise SaaS platforms, the Indian heritage majors have been notably absent in the SaaS services space. Until now.
The acquisition strengthens Wipro’s position in the Salesforce services market and gains it access to the fast-growing Workday services market. Appirio gains important global scale, particularly to boost delivery capability in Europe, and strengthened offshore capabilities (Appirio already has a delivery location in Jaipur).
Consulting + IT integration + BPO + Global Delivery Scale = Huge potential for Wippirio
Based on the data collected for the HfS Blueprint Report: Salesforce Services 2015, we estimate the combined Salesforce certified consultant pool to be 957, which places it just behind market leaders, Accenture, Cognizant and Deloitte. In Workday, Appirio has approximately 210 certified consultants and a wealth of experience with a total of approximately 419 projects and ongoing engagements, based on our HfS Blueprint Report: Workday Services 2016. With Wipro’s massive scale in IT services and its $720m dollar BPO business, the combined entity has huge potential if its leadership can get the integration right. Moreover, the merged entity is one of a very small band of BPO providers which has a massive call center scale and client depth and a worldclass Salesforce implementation capability. There is also future opportunity to bring together the firm’s strong F&A BPO presence with the nascent uptake of the Workday Financial Management suite, in addition to supporting HRO engagements based on the Workday HRMS and HCM platform.
Both providers are known for strong technical skills and have invested heavily in tools and technologies. Wipro has developed a wide range of Salesforce1 platform based solutions, including industry sector focused offerings, such as its Physician Relationship Management solution. In addition, Appirio’s web development services around Salesforce and Heroku have led to some very impressive work for clients such as Eli Lilly is a major plus for Wipro. Appirio, for its part, has the industry renowned Appirio Topcoder Platform, its proprietary crowdsourcing development platform, which now has nearly a million members. Moreover, Wipro’s focus on management services complements Appirio’s clear strengths in implementation services. Both providers offer consulting services, but this remains an area to strengthen and market to prospective clients.
Despite Wipro’s investment in Wipro Digital, it is still known predominantly as a technology services partner which enables the digital experience, as opposed to designing it from the customer end. Appirio’s digital and mobility focus, especially with retail and media clients, should benefit the merged entity considerably. Wipro should also benefit significantly from Appirio’s Worker Experience approach, which helps organizations transform their employee experience, to gain additional credibility in the HCM and CRM markets. Aligned to this are also Appirio’s expertise in servicing popular SaaS solutions Cornerstone-on-Demand (talent management) and Medallia (customer experience management), not to mention acumen in servicing corporate Google environments
Depending on the success of the merger, clients can potentially look forward to a full service suite offering around Workday, Salesforce and ServiceNow, with a focus on business outcomes. Wipro and Appirio clients we have spoken to in these markets are already pretty satisfied, highlighting Wipro’s ability to provide proactive advice, and Appirio’s focus on customer satisfaction. A smooth merger in the services industry is, however, seldom possible and a lot hinges on Wipro’s ability to hold on to the best talent at Appirio (there will be several hungry Workday partners ready to pounce) and integrate offerings. More importantly, the challenge of integrating cultures and business could be massive, especially since Wipro has to change mindsets, working attitudes and break down its internal business silos, to take full advantage of the potential here. If it pulls it off, Wipro will be joining the front-runners of the SaaS services market, and develop a strong differentiation from the other India-headquartered service providers.
Bottom Line: Wipro muscles its way to the front the SaaS services market, with few left worth buying. Does this leave the other Indian majors out in the cold?
With this acquisition, Wipro is officially the leading Indian major in the SaaS services space, boasting significant Salesforce resources, a decent sized ServiceNow practice and, perhaps most excitingly, a Winners Circle caliber Workday practice:
When you consider DayNine is now part of Accenture, you could argue that only OneSource Virtual and Collaborative Solutions are the last two “pureplay” As-a-Service providers left in the Workday ecosphere worth acquiring to come close to matching Wippirio’s combined strengths. So does this leave the likes of Infosys, TCS, HCL, Cognizant, Tech Mahindra et al out in the cold when it comes to being serious enterprise SaaS providers? Surely one has to make a move soon to add expertise and depth to compete effectively.
We ask questions to uncover and discover the true needs of our customers as it relates to their business and their customers. What that means is that we often dig deeper to better understand the “why” behind their needs, their motivation. We ask questions about how the work they do impacts stakeholders and customers, such as: Why do they need this? Why do they care? What’s missing? These questions can be applied to any situation to get focused on how to solve problems with a human-centered, customer first approach, versus a business-centric, solution first approach. And by leading with listening, we work with them to help uncover what’s missing or even what could potentially change their entire business model.
