{"id":1643,"date":"2010-08-02T22:37:00","date_gmt":"2010-08-02T22:37:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/wang-fersht2_080210\/"},"modified":"2010-08-02T22:37:00","modified_gmt":"2010-08-02T22:37:00","slug":"wang-fersht2_080210","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/wang-fersht2_080210\/","title":{"rendered":"Wang \/ Fersht uncut. Part II"},"content":{"rendered":"

During <\/strong>Part I<\/strong><\/a>, we talked about social media and marketing, a little bit about outsourcing, and touched upon the\u00a0late-night cannoli scene\u00a0in Baltimore. <\/strong>\u00a0<\/p>\n

\"Rebels<\/p>\n

Rebels without much pause…<\/p>\n<\/div>\n

In\u00a0Part III,\u00a0 we will discuss the merits of ricotta versus custard cream filling, but for now,\u00a0let’s dive into where the outsourcing business is heading…\u00a0<\/p>\n

Phil Fersht:<\/strong>\u00a0\u00a0 I\u2019ve observed, at several recent forums, that most software folks still<\/em>\u00a0don\u2019t really understand the services market. They seem to think services people\u00a0do the grunt work and it\u2019s still\u00a0all about the app. Do you agree that software people still don\u2019t have their head around ITO, BPO and how it all fits together?\u00a0<\/p>\n

Ray Wang:<\/strong> I think software people see that the value-add in the solution is what customers are looking for. And that last mile, which is still in services, is even harder to deliver as customers\u2019 requirements continue get tougher. Flipping that around, do you think the service providers see that their solutions are increasingly differentiated by software or their own IP?\u00a0<\/p>\n

Phil Fersht:\u00a0 <\/strong>Let\u2019s look at a\u00a0growting BPO\u00a0area like F&A (finance and accounting), where clients want service providers to handle their AP, procure to pay, payroll\u00a0and other\u00a0related processes. The providers can partner with a company like NetSuite or Workday and deliver to their clients the hosted application and the processing around it. But if you have 10 service providers offering NetSuite F&A, what\u2019s differentiating them? Their ability to process invoices? No. For the service providers to gain competitive advantage, they need to develop their own IP and their own applications to add value for their clients. And when we\u2019re talking about the coming together of SaaS\/Cloud and BPO, it really becomes more of a business transformation<\/em> issue than a technology transformation one.\u00a0<\/p>\n

Ray Wang:\u00a0 <\/strong>Yes. With the Cloud, all the pieces of what I call commoditized infrastructure go away. Think about it. Do I really care what hardware, databases or applications are out there? No. All I really care about is that you\u2019re giving me a service level guarantee. But then I want more. Can the service provider give me value add on top of that? Can someone give me those services with strategic economies of scale and innovation? The providers that help with commoditized processes and incrementally add more value are going to make a big difference.\u00a0<\/p>\n

Phil Fersht:<\/strong>\u00a0 One of the most fascinating aspects of the way the industry is developing, is the\u00a0rapid rise\u00a0of the Indian pure play providers. They\u2019ve really been a game-changer in how these solutions get adopted. Their attitude is increasingly, \u201cLet\u2019s try and sell a solution first, be flexible and as easy-as-possible to work with, and then figure out how to deliver it.\u201d In many cases that has actually worked for them. We\u2019ve seen\u00a0that \u00a0have a huge impact in the ITO business, where you\u2019ve seen the rise of companies like Cognizant, TCS and Infosys as they\u2019ve adopted this bold attitude of marching into clients and increasing their footprint by being very easy to work with, and\u00a0very eager to take on business. Quite frankly, if I were an IT VP these days and I had one of the Indian providers coming to me, begging for my business and offering to do whatever it took to win that piece of the pie\u2026 it\u2019s becoming vogue for IT professionals to start dealing with these folks. That\u2019s been a major change from everything we\u2019ve previously seen, and it\u2019s reaching a fever pitch with the Indian providers, and poses a lotof critical questioms regarding where things are heading next in the outsourcing business. They\u2019ve really proven themselves in the IT services space, and are now trying to do something similar in the BPO space.\u00a0<\/p>\n

Ray Wang:\u00a0 <\/strong>What we\u2019re seeing among the Indian providers \u2013 no matter what their entry point was, whether testing or break fix or maintenance \u2013 is that there\u2019s a certain level of confidence that wasn\u2019t there 10 years ago. They\u2019ve been doing a fairly decent job across the board, and each one of them has a stronghold with achieving \u201cquote unquote\u201d trusted advisor status. As they\u2019ve been trying to achieve that status, they\u2019ve started looking at IP for differentiation.\u00a0\u00a0<\/p>\n

A related question for you Phil: are the service providers becoming less reliant on the large software vendors, or do they still see them as an important part of their income stream, especially dealing with SaaS?\u00a0<\/p>\n

Phil Fersht:<\/strong>\u00a0 I do think the way service providers engage with technology, is proving to be one of the major differentiators, and the service providers who are developing their own IP and actually acquiring SaaS solutions are gaining quite a significant advantage \"\"<\/a>within industries. So let\u2019s take an example of Navitaire, an airlines reservations solution Accenture acquired, and now leverages to deliver full scope F&A services, hosted and fully BPOed, to all the major low cost airlines. It\u2019s very hard to compete with them on that business because only one other competitor we know has developed a similar reservations system. It\u2019s the same in the insurance industry, where providers like Infosys and Genpact have acquired specific insurance platforms and are delivering them as their own hosted applications to their clients. On the flip side, you have five or more different service providers offering an off-the-shelf application like SmartStream<\/a>, which does trade settlements in banking. And all are trying to differentiate themselves on how distinctive they are. But, \u201cWe do it better than they do because understand GAAP better,\u201d just isn\u2019t a selling point. It\u2019s much harder to differentiate on operational capability than it is on having something no one else has. That\u2019s why technology IP is becoming so important for the service providers. And I think we\u2019re going to see more exclusive partnerships pop up. The software vendors are going to want to have exclusive arrangements with services companies so they can provide them with the support and the capabilities to deliver and manage it properly. And having exclusive partnerships with cutting edge software is going to be a major differentiator for the providers, especially as industry specific solutions become more important in this market.\u00a0<\/p>\n

Taking it beyond exclusive agreements into acquisitions\u2026do you think at some point we could see some one of the big ERPs purchasing one of the leading service providers?\u00a0\u00a0<\/p>\n

Ray Wang:<\/strong> It depends. It seems most companies are headed in the direction of having both technology and services businesses. If you look at the transition for software vendors and getting tighter services partnerships, they can easily build their professional services units. Instead of doing an acquisition, it may be cheaper just to recruit everyone into their unit. I mean kind of like the old IBM model \u2013 you can\u2019t beat them, they\u2019re just going to be the largest provider in India. What do you think?\u00a0<\/p>\n

Phil Fersht:<\/strong> Well, you could argue that Oracle buying Sun was the first start at looking at this space a bit more \u2013 even though I think Larry\u2019s motives for buying that company were very different from making a services play. It\u2019s already invested in BPO by buying an Indian company called i-flex Solutions, (which they renamed Oracle Financial Services Software Limited.) It wouldn\u2019t surprise me if things got so competitive at some point that one of the software companies decided it needed to have a greater services channel. Because, for example, when you look at SAP\u2019s revenues, isn\u2019t its consulting business one of its fastest growing units right now, and it has to sort of disguise some of that revenue?\u00a0<\/p>\n

Ray Wang:<\/strong>Well, some vendors are actually claiming license revenue for custom maintenance work, so that makes things very interesting. For example, Amdocs has been 80 percent services revenue for a long time. But is it a software company or a services company? I argue it\u2019s a DSI shop focused on telco that happens to own software.\u00a0<\/p>\n

Phil Fersht:<\/strong>I agree, and looking at it very simplistically \u2013 if a company is increasingly moving to hosted SaaS-based applications and the amount of IT reconfiguration is consistently decreasing, we\u2019re not really talking about these massively drawn out, painful systems reengineering projects. Instead, the company is going to have to change all its processes and completely transform its business to run on this type of solution. Since we\u2019re really moving from technology transformation to business transformation, I believe that means the winners in this space are going to be the ones that can take their clients through transformative business change, not technology change.\u00a0<\/p>\n

Ray Wang:<\/strong>\u00a0 Interesting, huh?\u00a0<\/p>\n

Phil Fersht:<\/strong>\u00a0 These are certainly interesting times, Ray…\u00a0<\/p>\n

Ray Wang (pictured top right) is Enterprise Strategist, Disruptive Technologies Expert and a Managing Partner at analyst advisory firm, Altimer Group.\u00a0 You can rach Ray at R at Altimetergroup dot com.\u00a0 You can also follow his tweets at @rwang0.\u00a0 <\/em>His personal blog, \u201cA Software Insider\u2019s Point of View<\/a>” is one of the most visitied in the software business.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

During Part I, we talked about social media and marketing, a little bit about outsourcing, and touched upon the\u00a0late-night cannoli…<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48,51,835,81,86,88,91,93],"tags":[],"organization":[125],"ppma_author":[19],"class_list":["post-1643","post","type-post","status-publish","format-standard","hentry","category-business-process-outsourcing-bpo","category-cloud-computing","category-f-a","category-it-outsourcing-it-services","category-outsourcing-advisors","category-outsourcing-heros","category-saas","category-social-networking","organization-altimeter"],"yoast_head":"\nWang \/ Fersht uncut. 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