Most of the coverage of the Walmart/Jet.com deal has focused on whether this helps the firm compete more effectively with Amazon. Speaking as an Amazon addict, ahem, loyalist, my initial thought was there is no way this deal even comes close to having the intended impact. But as I dwelled on it further, I realized the more interesting facet of this news is how ecommerce competition is driving a fundamental change in the retail business model to support today’s digitally savvy customer; namely to architect a digital strategy that carves out a new value proposition for traditional retailers.
Walmart brings “digital brain” Marc Lore into the fold as its architect
This acquisition is as much about platform, relationships and customers as it is about the experience and savvy of Marc Lore, who also launched Diapers.com, which was acquired by Amazon in 2010. This is a tangible sign of Walmart looking to “get digital” in the core of the company—hiring someone who has turned boring legacy markets upside down by making the unsexy task of shopping for products like diapers and laundry detergent easy and appealing to yuppies and millennial shoppers.
The biggest part of this strategy is about better serving and understanding the customer. Retail, arguably more than any industry, has a real competitive need to move away from general segmentation to individual personalization. Jet.com leverages technology in a way that enables lower cost and greater personalization with its dynamic pricing engine. The retailer has also grown substantially in terms of membership and product availability and has been hyped as a potential Amazon disruptor since its inception.
Retail self-disruption is critical – where does the store fit in?
Emerging digital business models are disrupting retail in a way that legacy companies like Walmart simply cannot respond to fast enough and remain viable. Headlines of store closings are ubiquitous, while others scramble to leverage stores more effectively and invest in digital (such as Kohl’s use of ApplePay). For legacy brick and mortar retailers, the key is finding the right balance of in-store and online shopping capabilities, and ensuring a seamless experience between the two. In terms of physical real estate, writing off legacy isn’t necessarily the best approach- it’s about morphing and shaping that legacy into something that meets customer demand and supports the digital customer. Retailers like Macy’s, which has just announced significant store closings, may be missing out on an opportunity to use their real estate legacy to their advantage by making those stores points of shipping, pick up, or experience. And let’s not forget that today online sales are still a very small percentage of retail sales overall. One advantage of the Jet.com acquisition (over say Diapers.com being absorbed by an online native) is that it can leverage Walmart’s massive brick and mortar presence as a point of shipment for products.
The Bottom-line: You don’t have to completely write-off legacy – it’s about morphing legacy businesses to meet customer demand. Digital architects can save traditional retail if they adopt this approach
Retailers need to have leadership that addresses the overarching digital picture—a digital architect. They also need to master personalization in the same way that ecommerce natives have. This is no easy feat. In the case of Walmart/Jet.com, it is just one more example of on how difficult it is to redefine and recreate an existing legacy company into a digitized company, and addressing the need to understand the digital customer more effectively. Walmart has recognized that it cannot rest on its laurels—a company that was once seen as innovative because of its supply chain practices, but lost its edge over time, is making a bold move to revitalize the innovation. The challenge lies in integrating these two very different creatures. The acquisition is bold, and the market is taking notice—now begins the tough job of making it work for the digital shopper.
For the first time since Al Gore and Donald Trump founded the Internet, I am braving a few days in the analog world on a camp-site up in Canada somewhere. In fact, I don’t think this place has even undergone analog disruption yet…
At HfS, we’re growing fast in a very competitive and volatile market… and with growth comes change – but change is always good if you ask me! The most fun in jobs is when you have changes – you learn new things, get new ideas and you meet new people to help accommodate the change.
HfS is always on the lookout for serious talent that can help our clients become even more successful. So happy days when I heard that some serious quality was on the lookout for some new chapter in his life. Sunjeet Ahluwalia has joined per August, and today I wanted to give you a little more background about him.
Bram Weerts, Chief Commercial Officer, HfS: Sunjeet, can you share a little about your background and why you have chosen sales as your career path?
Sunjeet Ahluwalia, Senior Director, Global Business Development, HfS: Having completed my Course in Metallurgy and Material Science, I took up my first job in 2001. Traveled all over India and experienced the diversity this great Nation has to offer. Sales were fascinating, and I met various interesting people all during my life.
With a sales career, you have a high level of accomplishment as you are directly the person responsible for making things happen. It is quite an adrenalin rush when you close a sale. You also get the satisfying feeling of providing your customers with products that they truly want and need, and you had a large part in facilitating and meeting their needs. Some jobs can be really redundant, and you might feel that you have not accomplished anything, but with a sales career, every sale is a direct result of your efforts.
Bram: Why did you choose to join HfS?
Sunjeet: While in Gartner, came across clients who spoke highly of this new upcoming company called HfS. I did spend some time to understand HfS and was very impressed by the depth and knowledge they bring to the industry. Two things that stood out were Social Media Impact and premium research that set HfS apart from others in their peer group. I wanted to be a part of this growth and contribute significantly to their success in APAC.
Bram: What are the areas focus on driving in your Sales role?
Sunjeet: Relationship and trust are two key pillars of Analyst and advisory industry. Aligning yourself to your client’s goal and priorities will help you become more credible. Being relevant to what your client needs are and trying to always provide them with superlative value surpassing their investments will be my key focus.
Bram: What trends and developments are capturing your attention today?
Sunjeet: Automation, AI, and Data-driven Analytics Capability are in my opinion redefining the way industries do and conduct businesses. Innovation isn’t mere a fancy term now; rather it is the necessity if you intend to keep the Brand high and retain your clients.
Bram: And what would you like to see different in the research / services industries?
Sunjeet: I wish research / services industries have a wider reach within the audience. It should be able to impact the way people work within their teams and hence enable them to achieve their personal and business objectives. Key decisions are formed using insights and hence its key to be very relevant and objective while we work with clients.
Bram: And, what do you do with your spare time?
Sunjeet:I enjoy reading poetries and listening to music. If I have more time, I probably will go for a swim or cycling.
Bram: If you could change one thing in Sales what would that be?
Sunjeet: People buy from people, and hence we should aim at superior trust based value added relationships. Discounting reduces credibility and hence that should not be a driver for a sales guy’s success.
Bram: Thank you for your time Sunjeet, it’s a real delight to have you onboard and work with you in these fascinating times!
Q2 2016 has been an exciting quarter of results so far, with a few surprises particularly amongst the large offshore providers. We commented on the pressure on Infosys caused by its results last month.
We see a real change in fortune amongst the big players, certainly over the last two quarters. With the players with strongest growth rates over the last three years, TCS and Cognizant dropping year on year growth to single digit.
If you look longer term, the shift left of the big offshore players is accelerating—with these latest results accelerating this trend.
TCS, HCL, and Cognizant will see revenue growth slow dramatically over the last three years. The bubble chart shows the Trailing Twelve Month revenue growth and margin for a period to end June for the last four years. So the TCS 2016 bubble gives aggregate revenue growth and operating margin for the last four quarter to June 2016. Incidentally, the size of the bubble is proportional to revenue.
All of the providers have managed to keep operating margins within a fairly narrow range—certainly better than most of the traditional onshore IT and BPO players.
The reasons for the shift are complicated and intertwined. It is tempting to see the most consistent providers, in this case Cognizant and TC,S as bellwethers of the market—so the slowing down of these firms growth is a strong indication of a slowdown in the market overall. Although this, particularly when you look at Q2 results so far, isn’t borne out by other provider’s results, particularly Accenture, which had a bit of a barnstormer certainly compared to its recent results.
Another possibility is that the scale of these firms is getting to point that maintaining double-digit growth rates is such a large amount of actual dollars that these providers sales engines cannot fuel level of client acquisition. There is probably some truth in this and getting the size and shape of your sales team right is a major challenge for service providers at the moment—particularly given the current uncertainty in the market. However, given that both Cognizant and TCS achieved higher levels of dollar growth throughout 2010 and 2011—while they were half the size—makes this theory less appealing, and certainly isn’t the whole truth. In Q4 2010 (calendar to end December 2010) Cognizant added $408 million in revenue, and TCS added an impressive $607 million year on year. This is compared with $285 million and $326 million, respectively, in the latest quarter Q2 2016.
What has changed most is the market itself. Partly with the size of the engagements, we have seen the outsourcing bills in IT infrastructure tumble by 40-50% and in some cases 60%, which means renewals come in at reduced rates and expectations around cost savings continue to ramp up, especially since automation starts to add another lever to the cost saving toolkit. This is particularly crucial as Tier 2 offshore firms focus efforts on combining savings from even cheaper locations and automation to lick the remaining cream off many deals.
Although outsourcing was the example used, this is also impacting professional services, mainly implementation services. The increasing emphasis on technology driven by digital and customer centric solutions has produced many opportunities, and while the number of deals may have increased, the contracts remain relatively small. Reengineering a bank’s core applications is, in scale terms, 20 or 30 times the design and implementation of a mobile app. Additionally, digital deals are often more involved and have more complex requirements that draw on a broader set of skills. This is undoubtedly slowing the sales cycle and means the upfront effort to engage with these small deals is higher. The promise is that demonstrating competence and the ability to deliver value within these often high-profile engagements will bring further work downstream. The market is still awash with proof of concept digital deals and the converting these into more meaty engagements is taking its time. So, rather than a lack of absolute capacity in the offshore provider’s sales teams, it is the makeup of these teams that is taking the time to adapt to these new types of deal.
The Bottom Line: The market sands have shifted, and the impact is now being felt by offshore firms
OK—so we may start sounding like a bit of a broken record. However, 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 growing, and they’re not necessarily the low-cost offshore-centric providers. We are sticking to this message: the x-factor for an enterprise service provider is agility—both regarding the provider’s ability to adapt to the market conditions and capacity to deliver adaptive intelligent solutions to clients.
These firms are having to adapt to these changing conditions on the fly. Unfortunately, there is no timeout to use while you have to adjust your processes, bring in new skills or reenergize your sales teams.
We are keeping an eye on all the players in the market and are looking for signs of this agility being reflected in financial results—halting what seems like the inevitable shift left.
But all is not lost! I see some very powerful paths Procurement can take to become a more appreciated and valuable business function in enterprises.
Procurement is suffering from a reputation problem
Many executives express their frustration with procurement frequently claim, “they just don’t understand what I need, and obstruct me from achieving my goals”. Procurement is often seen as that last hurdle before reaching the finish line like a police officer trying to find holes in your story, looking to give you a slap on the wrist if they can. Everyone tries to circumvent Procurement when they need to buy products or services.
The underlying issue often lies in the emphasis on the transactional side of procurement in enterprises. People are subjected to procurement processes and form-filling that are very time-consuming, valueless and inefficient, feeling like they’re being sent from one desk to the other.
Of course, there is a role for Procurement. Of course an enterprise needs to have expertise and capability in contracting, buying and using services from third parties. And of course rogue spending is an issue for enterprises. But it’s time to take the next step. If being restrictive didn’t bring you the seat at the table you envisioned, if ‘the business’ still doesn’t ‘get’ you and doesn’t take you serious, its time to change the tune. But how?
Guides of the As-a-Service Journey
I want to argue Procurement is in a unique position to reinvent itself and that we should love Procurement.
HfS sees a dramatic shift in services towards the As-a-Service Economy. Key characteristics of the As-a-Service Economy are:
More and deeper collaboration between suppliers and buyers
A focus on business outcomes
Usage of digital platforms, analytics and automation to facilitate the convergence of people, technology and process
Services that are multi-client, leverage new opportunities for efficiency and quality and focus on the customers’ customers.
Procurement can be the enabler of the As-a-Service Journey. Don’t look further…. Procurement should be the broker of capability. Haven’t you noticed how “IT Services” and “BPO” and “software” have become procurement categories in so many buyers today? As services and technology become increasingly commoditized, standardized and commonplace, the greater the opportunity for Procurement to take the lead in adding value beyond merely negotiating price points.
The future of the supplier-buyer relationship is collaborative engagement and that starts in the contracting phase. Procurement should have a clear vision on the way the enterprise wants to form relationships with suppliers, what the nature of the collaboration should look like and how contracts facilitate collaborative engagements.
Procurement Brokers of Capability
The key to becoming a broker of capability is to be the spider in the web. In my years as a consultant, I often didn’t have a formal team. I went out into the organisation, identified the people and capabilities I needed to tackle the problem, formed informal teams of the right people and made it happen with them. I was a fixer more than anything, understanding the problem, limitations, possibilities and I knew the right people and brought them together. Not always easy, but a lot of fun. This is how I envision the future of the procurement professional. Identify business needs (you do this by actually talking to these people, understanding what they have to achieve), dive into your network and get the capabilities together that are needed. If you take a partnership approach, look at relationships long-term rather than short-term transactions, people are willing to do a lot for you.
So what is needed to truly become Brokers of Capability?
Be a business function, not a finance function – Procurement should be immersed in business units to understand the business, understand the needs, understand the market. Business executives have to allow Procurement into their world, Bram was right to point to business executives as a source of Procurement’s woes.
Category Expertise – One of the hardest areas to fix for procurement is strategic sourcing and category expertise, especially in the tail of indirect spend. This requires deep expertise of the category and the market, which is a challenge for enterprises to build in-house.
Information – At the heart of every buying decision lies information. Procurement has more data at its disposal than ever before. Information and insights derived from all this data is critical for the evolution of the profession. Digital platforms have emerged and are quickly growing in adoption and capability. Advanced analytics are drastically improving the insights and decision-making processes for Procurement.
Relationships – Building and maintaining relationships, internally and externally, is critical for modern Procurement. Price isn’t everything and it’s definitely not a predictor for the willingness to go beyond the contract and take a relationship approach to the engagement. Time and time again in reference calls for HfS Research Blueprints and in our discussions with services buyers at HfS events, the best service providers are perceived to be the ones investing in the long-term relationship, going above and beyond expectations and contractual obligations to deliver real business value to the client. Incorporate these tenets in your sourcing practices and your enterprise will benefit.
End-to-end focus – Key to realizing business outcomes and benefits of good procurement are closed loop processes and follow through after the ink on the contract is dry. Turning theoretic savings into real ones is still pretty hard to achieve.
Tech savvy – Technology platforms with embedded process automation and advanced analytics are emerging at the core of Procurement. Procurement professionals need to be more tech savvy than ever before to make sure they use and leverage the available technology platforms.
Ok, we agree it’s Procurement’s job to know what is out there, what the quality of products and services are, what going rates are and which terms are acceptable. They are the ‘go to guys’ when you as a business executive need something to achieve your goals.
I’m not naive. I know there are still a lot of people in Procurement hiding behind procedures and forms, terrified of becoming obsolete without them, clueless what your business goals are.
The Bottom-line: It takes two to tango
Friends in Procurement, if you don’t have a vision of Procurement being a business facilitator, now is a good time to get one. And “business”, this asks for different behaviour from you as well.
Question: Why are we becoming so obsessed with Automation and As-a-Service relationships?
Answer: Because outsourcing has worked so effectively, we can now look to new levers to pull to find that next threshold of value
Question: Will the next person who says “Outsourcing is just so Passé” get a punch in the face?
Answer: Yes
Barely three years’ ago, we were still lamenting that nagging lack of innovation in outsourcing relationships and the inability of service providers to deliver those transformational delights to their clients after they had come through with their promised cost savings. But let’s face it, the FTE-based labor arbitrage model has really worked – and a lot better than we thought it would, during those heady days of offshore screw-ups. I can barely remember the last time I sat on the receiving end of a group of clients throwing their service providers under the bus because they couldn’t get the procure-to-pay transition right, or got caught sneaking through change-orders to fix their dodgy coding.
Service relationships are more stable than ever, but focus is shifting to As-a-Service delivery and Intelligent Automation
You only need to look at the intentions of 371 major enterprise buyers towards their outsourcing contract renewals from our new Intelligent Operations Study to get the picture that this isn’t an industry in delivery turmoil, about to self-combust because deal flow isn’t growing at quite the clip it was a couple of years’ ago. In fact, only one-in-four IT services clients today are even considering ditching their current partner, and a even lesser proportion with their BPO provider. However, many do want to make the switch to As-a-Service contracts:
The focus on automation is the logical next phase of value once stability of global service delivery has been reached.
The availability of smart automation tools and platforms from the likes of Automation Anywhere, BluePrism, IPSoft, Nice, UIPath, WorkFusion and Redwood have really been conversation catalysts to get the automation conversation to the table. In fact, most of the buyers we’ve been interviewing in our current Intelligent Automation blueprint are still in the early strategy and roll-out phases of their automation experiments. Moreover, as our research clearly shows, well over half of today’s major enterprises have automation plans firmly in play over the next year:
Bottom-line: From offshoring to efficiency to automation, it’s all a natural evolution
Let’s face facts, when your company hires an outsourcer to provide you with 500 staff to deliver back-office transactional operations, do you really expect this 500 number to stay constant for ten years? Of course not… as operations stabilize, as better technology helps streamline processes, your expectation is always to get the same work done for less hired effort. It’s like when you upgrade your accounting software – do you really expect to have to hire more people to operate it for you? Of course you don’t… you expect better quality for less effort.
So let’s stop berating “outsourcing” as some archaic practice that went out of fashion with the Blackberry. It’s a practice of globalizing operations that we’ve got really good at – and the fact that we’re now obsessing with getting into the weeds of automating processes, is testament to our progress that we’re running our businesses much more efficiently – and digitally – these days.
Usually when there is an acquisition in the tech/services space, you can always appreciate why the deal was done; no matter how cynical you try to be, there is always some gold in there to dig out.
However, in the case of Dutch staffing giant Ranstad buying the shriveled remains of a legacy resumé-based online recruitment firm that made its name during the dot-com days, my reaction is simply one of “Why? Just why?” The business was cratering (albeit slowly, but steadily) in a world where most people just don’t use Monster anymore to do their recruiting and job hunting—it’s a business from a bygone era. But there’s always someone out there ready and willing with the ego to resurrect a dinosaur (or a Monster in this case). So I asked the question to our HR-as-a-Service analyst, Mike Cook, to give us the answer…
Mike, Is there a Monet in the Monster or has LinkedIn already Rinsed the Shop?
Phil, Once Randstad blows off the dust from Monster, will it like what it finds? In the thrift shop of the recruitment market there are treasures to be found but in a market that has been turned on its head by the LinkedIn juggernaut, there isn’t much left.
In its strategic priorities for 2015-2016 Randstad aimed to capture positive growth opportunities as well as be in the top 3 scale positions in each market it participates in. Over the last 12 months this strategy has been bearing fruit—following the acquisitions of twago, Careo Group, Obiettivo Lavoro and RiseSmart.
However, these acquisitions have just been dwarfed with Randstad announcing the acquisition of one of the true veterans of the online recruitment market—Monster, for $429 million in cash. This represents a sale price of $3.40 per share, a premium of 63.7% over Monday’s closing stock price. But it’s worlds away from Monster’s $8 billion market cap achieved in early 2000. With much of the market questioning the 47% premium Microsoft paid for (a still extremely relevant) LinkedIn (see post), one should wonder about the wisdom of paying such a price for a site that is declining in popularity.
Monster was one of the original online recruitment leaders but has struggled to stay ahead of the pack and has lost significant market share in recent years. Direct competition is fierce in this industry and recent acquisitions, such as Indeed.com taking over Simply Hired, have highlighted this.
So what does this acquisition mean for Randstad?
Bolsters Randstad’s staffing and RPO capabilities: The increased footprint this acquisition gives Randstad should prove beneficial and provide improved service delivery to the provider’s staffing and RPO clients. However, the value of Monster’s candidate database is questionable. Unlike LinkedIn, which users update regularly, job seekers usually abandon job search site profiles when they’re not actively searching for a role.
Raise Randstad’s profile, particularly in the US: Currently Randstad’s US operation accounts for around 20% of its revenue. Considering its aim to be in the top 3 of each of its markets, the acquisition of Monster with its US-heavy revenue model (70% revenues from North American operations in 2015) may make sense.
Outside of these takeaways, it is difficult to see the value for Randstad in this deal. Monster looks to be the pensioner still wearing high tops, shades and a tank top, with its platform now largely outdated and its market share no longer what it once was. The likes of LinkedIn have disrupted this market to such a degree that legacy online recruitment sites are struggling to survive. This bid for survival is being played out in the massive consolidation currently taking place in this market. The one card that online recruitment sites still have to play is in the contingent workforce market, but with Microsoft is looking to steamroll its way into this area, through LinkedIn—and the forecast looks less than sunny.
HfS readers are used to us relentlessly preaching the inexorable journey toward the As-a-Service Economy. And you still aren’t get familiar with the Eight Ideals, then you must have locked in solitary confinement for the last year…
But there are many missing pieces in that big jigsaw. Service management, while unspectacular, is a critical component of the digital underbelly of the OneOffice as HfS has termed it. As ServiceNow is aiming to expand the notion of service management to evolving into the “third estate between CRM and ERP,” providing a new cloud-based level of efficiency between front and back office, we have asked our Intelligent Automation expert in residence, Tom Reuner, to take stock as to where the ServiceNow ecosystem has advanced to.
Tom, there appears to be a buzz around ServiceNow in the industry? Is the hype justified and where does it fit in strategically for buyers?
Amidst the marketing noise in our industry, ServiceNow still stands out. And that, Phil, is quite an achievement as service management is really not among the sexiest of topics. You can see that in thousands of developers and partners having made their pilgrimage to Knowledge 16, ServiceNow’s customer event in Las Vegas this year. Crucially though, ServiceNow has expanded from the early focus on ITSM and from the slightly blurry yet smart positioning as “Enterprise Cloud Company.” Industry stakeholders are rather enthusiastic about the single data model, the embedded workflows and new ways of collaboration. As such, ServiceNow has the potential to evolve into one of the key building blocks for moving toward As-a-Service because its core value proposition centers on clients accelerating their time to value through faster actions and interactions, overcoming clunky legacy solutions like ITSM.
With that in mind, the focus is on working toward a real-time single pane of glass: The ability to communicate, collaborate and manage IT and operations in real-time is at the heart of ServiceNow projects and thus strongly aligned with the notion of the As-a-Service. Yet, only few providers articulate this as part of an innovation journey. Leading proponents that actually do this are Linium and Infosys. And this points to a broader challenge. As ServiceNow is expanding its capabilities, providers have to find a common language between IT and business: The marketing and go-to-market messaging is largely stuck in an ITSM centric mindset. The language is dominated by function, features and copious amount of jargon. However, the more ServiceNow is moving beyond the core ITSM capabilities, the more the messaging has to be adapted to this new set of non-technically minded stakeholders.
More broadly speaking, for buyers ServiceNow can help to make business alignment finally a reality: Several stakeholders we spoke to referred to ServiceNow as having the potential to evolve into the “ERP for IT.” Yet, business leaders rarely get involved in the planning process and often wait till “IT got its house in order.” Thus, there is a disconnect between the ambition to establish ServiceNow as the operational foundation and the implications to manage and run the business.
How are the winning service providers approaching ServiceNow services today? What are they doing beyond the bread-and-butter basic ITSM services?
Phil, the market is still in a nascent phase of development and therefore we see a fragmented service provider landscape: Revenues from ServiceNow Services for individual service providers are still below $100m from the leading providers, indicating a small fast growing market. There is plethora of start-ups and boutiques that will drive innovation and find their place in the growing ServiceNow ecosystem. ServiceNow aims to be the Third Estate between the front and the back-office. At same time it aims to expand toward the front office. Thus, comparison with Salesforce is unavoidable.
With that in mind, providers are evolving from the initial focus on ITSM capabilities toward what ServiceNow calls Enterprise Service Management. Thus we see them expanding into business functions such as HR, Facilities, Legal, etc., thus overcoming the traditional barrier between IT and business. Leading proponents are Linium, with CSC and Accenture catching up. But we see also ServiceNow being increasingly integrated into vertical offerings and well as frameworks and accelerators offered. Accenture is leading the space, with Cognizant catching up. Beyond that we would highlight innovative offerings around security and IoT. ServiceNow has acquired BrightPoint Security to close the gap between IT operations and security. As a result, CSC, EY and Acorio have started to build out capabilities. Similarly in IoT, While nascent and at proof of concept stage, providers like Aptris and EY are starting to experiment with IoT scenarios. And lastly, of course SIAM/MSI is the logical evolution from the starting point in service desk projects with Atos, HCL, Wipro and Accenture being the leading proponents.
Surely, it is not all plain sailing, Tom. Where are currently the main challenges around ServiceNow services?
Two issues are jumping to mind: The battle for talent and the lack of clarity for the direction of travel. As the ServiceNow ecosystem is still nascent, talent remains scarce. In many projects staff is being trained on the job with varying degree of success. Consequently, organizations have not always seen an alignment from sales process (and promises) and delivery. On the other hand the direction of travel remains a blurred picture: While an organization’s starting point is firmly rooted in ITSM capabilities with a view to overcome clunky legacy tools, the eventual destination is blurred at best. Crucially, the motivation for ServiceNow adoption lies more in embracing a single data model than the allure of cloud-based services. Yet, consulting capabilities that go beyond ITSM are scarce and many provider follow a “land and expand” approach. Many organizations we spoke to outlined that service providers fail to proactively propose innovation and help buyers with a clear outline of the future state.
The hype around Intelligent Automation keeps bubbling on days, to put it mildly. So where is ServiceNow fitting into that picture?
Phil, the disruptive element of Intelligent Automation is decoupling routine service delivery from labor arbitrage. Therefore, service providers remain comparatively and unusually coy on the topic, so I am struggling with the term “hype.” Rather, I see hesitation and confusion out there. Having that said, the market development is noticeably maturing. A reference point for that is the service orchestration around the notion of Intelligent Automation that is starting to set in. Providers like Atos, TechMahindra and Hexaware are starting to standardize service delivery on ServiceNow, link this up to orchestration engines like Automic or Cortex and put the plethora of Intelligent Automation on top of that. Thus, ServiceNow is becoming part of the broader discussions on service delivery and automation.
Does ServiceNow have the potential to move center stage in the As-a-Service Economy? How do you see the market evolving in the next few years?
As I have outlined, stakeholders suggest that ServiceNow has the potential to evolve into a critical building block for the As-a-Service Economy—not least because of its single code and data model. Yet, ServiceNow itself has been slow in embracing the notion of an ecosystem that goes beyond treating partners as mere sales channels. This is starting to change though, which is critical as the notion of the As-a-Service Economy is predicated on a collaborative partner ecosystem. Partners would like to see more investments in joint marketing and joint capability development such as vertical offerings.
In order to progress toward the As-a-Service Economy, the supply side needs to invest in consulting capabilities that go beyond technical consulting. In our discussions with clients the lack of proactive innovation and the struggle to provide guidance on the future state of operations have been as vocal as consistent. But we will see more M&A activities as the juggernauts will continue to build out capabilities. During the project CSC did acquire Swiss Aspediens and we expect to see many of the boutiques absorbed over time. Thus, we look forward to extend the discussions beyond the organizations that we have covered in this report.
HfS Premium Subscribers can click here to download their copy of the new Blueprint Report, ServiceNow Services 2016
It’s hard to overstate the importance of product support to software and high-tech companies. Good product support helps in customer satisfaction and influences purchase and repurchase decisions.
But what is good product support? Ideally, it’s where no support is required. Although companies should strive to develop products that require minimum product support, they should also look at improving the customer experience and reducing time spent on product support. Overall product support systems should be cognitive, intelligent and self-improving.
This is all the more important because most customers in the As-a-Service Economy are used to a customer-centric user experience and instant gratification. They expect the same for software and high-tech firms in both the consumer and enterprise segments. Companies need to minimize the need for product support, provide an improved customer support experience, and improve the effectiveness and timelines for product support.
Most companies outsource product support. But, whether in-house or outsourced, improving product support typically means adding headcount or seats, which will increase costs. Adding seats may improve responsiveness but may not improve customer support effectiveness.
There has to be a better way to do it. Enter the As-a-Service Economy, in which product support can be re-imagined and existing product support process can be disrupted.
Goodbye legacy product support and welcome cognitive product support
The product support process can be made cognitive or intelligent by leveraging analytics, automation, and engineering approach. The business outcome and productivity gains committed in the contract will drive the adoption of cognitive product support levers and deliver value to the enterprises. Our estimation based on case studies we discussed shows that software and high-tech companies can save about 40% of total product support cost by moving to cognitive product support as shown in the Exhibit. This 40% saving is over and above any labor arbitrage which service providers promise when they leverage offshore resources.
Exhibit: Value Proposition of Reimagined Cognitive Product Support Process
Apart from reduction in product support cost, cognitive product support increases customer satisfaction by
Reduce MTTR by increasing resolution accuracy
Reduction in invalid escalations to backline/frontline
Increase Self Service to maximum extent possible
Improve forecasting accuracy
Both users and enterprise will benefit from cognitive software product support but existing outsourcing relationships need to be revisited
In our research, we’ve found that biggest obstacle for software and high-tech firms in achieving cognitive or intelligent operations is their existing outsourcing relationships. Some of our buy-side customers believe that their primary service providers though are providing the good quality support they are still using legacy ways and nothing has changed in the product support process in the last ten years.
Enterprises should leverage cognitive product support if not for savings then for customer satisfaction. Phil recently had a very bad experience in customer support from a large high-tech enterprise. He had to speak to 16 reps to resolve the issue. No prize for guessing that this large high-tech enterprise will not be Phil’s first choice at the time of repurchase.
Net-Net, software product support is ripe for disruption. Progressive software and high-tech product companies will not hesitate to leverage cognitive software product support and futureproof their value-driven product operations.
HfS subscribers can click here to download the full POV, which details our research and recommendation on cognitive software product support
I have been an avid book reader for as long as I can remember. And when I look back, I am amazed how my process of book selection has changed over time from the wisdom of crowds to the wisdom of experts. There are parallels to the outsourcing industry, including sourcing advisors and analysts.
While I was a student, I had enough spare time (this was before the internet era in India), and I used to read a variety of books. I didn’t care about the advice of experts back then. I used to go to bookshops, browse the books and bought the ones I liked. When I say bookshop, I don’t mean likes of Borders or Barnes & Noble. In India, especially in Delhi, students hang around these kinds of weekly book markets that open on streets—only on Sundays, when regular shops are closed and are student-pocketbook-friendly. These markets have second-hand books, stolen books, pirated books, all in one place—and believe me you can’t tell the difference!
I was amazed at the risk these weekly booksellers would take and physical hardship they endured moving the books books in and out every Sunday. I asked a bookseller once how he decided on his book selection because he’d have to carry unsold books back home at the end of the day via not-so-friendly public transport. He said he asked people around in the trade which books are being sold in the big bookshops, and he tried to procure them in a cost-effective way. I didn’t ask details of his cost-effective procurement ways, but this bookseller—along with other booksellers in this market—relied on the wisdom of crowds.
Fast forward to the internet era: Amazon and its best seller rankings in different categories play the role of the wisdom of crowds. Later on Goodreads came along, which took the wisdom of crowds in book selection to an another level; Amazon acquired Goodreads in 2013.
By the time Goodreads came, I was few years into my professional life and had loyalty cards of many leading bookstores. I didn’t need to visit Sunday street bookstores any more. But my behavior remained same (i.e., I still relied on the wisdom of crowds). I was buying books using Goodreads/Amazon recommendations. But there was one problem—I didn’t have enough time to read.
Also, I was frequently annoyed when I realized that my precious reading time was often wasted on books that didn’t really interest me. I later realized, using analytics on my unread books, that I could now read only 5-6 books in a year. My risk profile has become bigger because my time was now a more precious resource, as I juggled my professional and personal lives. I didn’t want to waste a couple of months reading a potentially boring book. Also, unread books in my library were annoying me because reading them were becoming my to-do list—and I hate to-do lists. The pressure of reading was overwhelming the pleasure of reading.
So I decided to rely on the wisdom of experts and not buy more than 5-6 books in a year. I now rely on book recommendations of few experts I admire, such as Bill Gates, Elon Musk, Warren Buffet, and Mark Zuckerberg. Also, there are a few more folks I know, who are not as famous, but nevertheless give equally good recommendations. I mainly select my books out of their recommendations.
In the outsourcing industry too, the wisdom of crowds and the wisdom of experts come into play but in a different way.
How does the wisdom of crowds play into the selection of service providers? The best example might be a service provider’s performance in the stock market. Service providers that are doing well in the stock market are better companies—at least according to wisdom of crowds. Who has not heard “No one ever got fired for buying IBM” in the last century?
But that was so 20th century! The companies performing well on the stock market might not fit an enterprise’s needs for a particular geography, industry vertical, service line or specific solutions. What about some of the companies that have are not listed in the stock market?
Here comes the wisdom of experts—or analysts and sourcing advisors. Analysts come first in the value chain and give enterprises the overview of the industry and help them identify good companies in their choice of industry, geography and service lines. The sourcing advisors come later. They advise enterprise on their specific needs and solutions and run the sourcing process. Enterprises that can afford to pay for analysts and sourcing advisors can rely on the wisdom of experts. The rest rely on the wisdom of crowds.
What if one firm can offer the wisdom of experts at the price of the wisdom of crowds? I don’t know if any of my sourcing advisor friends can do this (a disclosure: I am a former sourcing advisor), but analysts (not legacy) can do this, and that’s what HfS Research is trying to do by offering 75% of our research free. So enterprises/individuals who can’t pay for the wisdom of experts can also have a view of service providers better than the stock market!
Usually when there is an acquisition in the tech/services space, you can always appreciate why the deal was done; no matter how cynical you try to be, there is always some gold in there to dig out. 
