Month: January 2015

Outsourcing In 2015 – Manila Bulletin | In The News

“There is now more growth globally on industry-specific outsourcing rather than generic process-oriented offerings. In an article in Everest Group written by Peter Bendor-S on Trends Reshaping the Marketplace last December 3, 2014, it mentioned  about the tremendous shift to industry-specific outsourcing from horizontal outsourcing.” Read More.

TCS Shows Continued Momentum in Continental Europe | Sherpas in Blue Shirts

I recently attended TCS’ analyst summit in Paris. In this blog I examine the objectives that it set out at the summit and its latest financials, focusing on TCS’ investments and localization strategies for growth in Europe.

Q3 2015

TCS’s push into continental Europe continues apace. Its Q3 results for the financial year 2014/15 (for period ended December 31 2014) shows revenue growth in constant currency (CC) of 6.6% in the region. The growth outpaced that of the U.S. at 2.1% CC, and the UK which declined by 1% CC.

Group-wide revenue in Q3 was US$3.93 billion, flat sequentially, up 2.5% CC, and up 14.3% year on year.  The operating margin at 27% was marginally higher than Q2.

Investments in Europe

TCS has been targeting growth in major European countries such as France and Germany for some time. It has been investing in Europe, e.g., acquiring Alti, for €75 million in 2013. Alti, a French IT services and consulting business had annual revenues of €126 million at the time of the acquisition. It has a strong presence in the banking, financial services and insurance (BFSI) as well as luxury, manufacturing and utilities sectors. Following Alti’s integration, today BFSI accounts for nearly half (49%) of TCS France’s revenue. Alti also added 1000 consultants to TCS ranks.

Other TCS investments have included:

  • The opening of a SAP innovation center in Paris in May 2014
  • Hiring of local staff
  • Investment in local facilities such as Lille and Poitiers.

TCS is aiming high in Europe. In France, Alti’s French market presence has already helped and led to major contract wins such as a GDF Suez contract, won in March 2014.

Localization

One aspect of TCS’ strategy for growth in Europe is its localization program. It is investing in more locally hired staff and is enhancing training and induction programs. For example, it has recruited 500 staff in France since July 2013.  A local presence would help TCS allay concerns over offshoring, increase customer intimacy and allow it to tap into local knowledge and specialist skills.

Other measures include a focused programme on employer branding and a recruitment campaign to fast track local graduates. This is needed if TCS is to compete for top talent against bigger and better known brands in Europe.

Contract wins

Major contract awards that are helping TCS grow in continental Europe include:

  • A multi-million, multi-year award by GDF Suez, won by Alti in March 2014. The deal pans across France, Belgium, and the Netherlands and is to rationalize and standardize CRM and billing applications
  • A major IT infrastructure contract by Germany’s Bombardier Transportation awarded in October 2013. The contract includes Remote Infrastructure Management (RIM), managing newly commissioned data centers and SAP Basis support.

UK Woes

The picture is a little different in the UK where Diligenta policy run-offs continue to drag on revenue growth despite other major contracts such as the UK government’s NEST and the Disclosure and Barring Service contracts.

Diligenta revenue has declined for the past two/three quarters and is expected to continue to decline in the next two/three quarters also. Revenue from the new multi-million pound, multi-year contract with Friends Life, for its International operation, should start to make a difference soon. Friends Life is an existing client. Awarded in 2011, its closed book administration contract alone is worth £1.4 billion over 15 years to Diligenta. There is a potential risk to this deal since Aviva agreed to acquire Friends Life in December 2014. Aviva has an ongoing contract and a long- term relationship with WNS.

Excluding Diligenta, UK revenue grew but no growth figures were provided for Q3. In Q2 growth excluding Diligenta was 4.3% CC.

The Road Ahead

The investments and localization strategies are essential for TCS to succeed in Europe. Service providers with local/nearshore delivery capabilities will always find it easier to grow in continental Europe and this is true in many countries such as Switzerland, France, and Germany.

TCS Europe

European investments and localization raise the issue of higher costs and the effect on the bottom line. TCS will have to draw on its productivity methodology, automation and other capabilities to ensure that margins remain high as it grows its local presence in Europe.

TCS also has to steer a path to growth through economic uncertainty in Europe. There is the spectre of a Greek exit from EU monetary union and default on its debt, a declining Euro against other major currencies and deflation.

The macro-economic conditions could create as many opportunities as threats in the market, given that uncertainty and the tightening of enterprise budgets often drive outsourcing and change and transformation programs.


Photo credit: Flickr

Obama Goes to India | Sherpas in Blue Shirts

What could be the implications for global services from President Obama going to India?

It’s clear what the United States wants. We want to sell technology and nuclear equipment to India. And the U.S. wants to move India out of the China camp geopolitically into the U.S. camp. The U.S. wants trade and joint efforts in the areas of climate change and energy.

What does India want? They’re also focusing on trade. One of the key flagship industries for India has been outsourcing and global services. Of particular interest is protecting the spectacular growth of the Indian heritage firms such as Infosys, TCS and Wipro and allowing the next generation to flourish. In that important area, what could they ask of Obama?

It’s clear that with two years left in Obama’s term without a Democratic congress, there is a limit to what President Obama can agree to. But there is something big he could agree to that’s within his administrative powers. He could agree to direct the U.S. immigration service to be more flexible in how they interpret the visa laws, specifically around H-1B and L-1 visas.

Obama goes to India

As written, the immigration laws include a great deal of ambiguity, giving much discretion to the immigration services on whether to grant visas and the degree of freedom that companies or individuals have in what work they can do under those visas.

This is an area that is clearly within Obama’s ability to affect, and it would be a substantial win for India. So, Mr. Modi, I don’t know if you have asked for this – but you should.

And in no way would such a move hurt the U.S. It would not only help India but also help the U.S. economy with competitiveness. There simply isn’t enough U.S. tech talent and we have to rely on Indian talent if we’re going to be competitive in driving cloud and other new service models. The agreement could even be constructed to fit in with Obama’s ongoing pressure on Republicans to reform immigration laws.

So it’s a win for both countries.

BPOs Want Perks To Stay – Manila Standard Today | In The News

“Everest Group, a leading global management consultancy firm, said the Philippines remained that top destination for voice services, accounting for 36 percent of the total outsourced services in the world. Global outsourcing is expected to continue to grow rapidly in the next few years from about $350 billion. Twenty percent of the total global worth of contact services or about $75 billion is outsourced to countries like the Philippines.”

The Innovation Dance Floor is Getting Crowded | Sherpas in Blue Shirts

The innovation dance floor is getting awfully crowded with a lot of eager participants. CIOs want to re-establish their traditional role of custodian of technology driving innovation. CMOs wants to be at the forefront of using innovation to change the customer experience and outreach. Data scientists are using the new analytics tools and want to participate in innovation strategy. And as I blogged recently, an IBM study found even chief purchasing officers are making a bid to join the innovation party. Unfortunately, they’re all joining the product managers, who are historically in a slow dance; so not only is the dance floor getting more crowded, but there are also a lot of different beats that they’re dancing to.

Each of these positions has its own point of view, its own agenda, and sees innovation differently. On the plus side, this provides for a rich mix of opportunity. But on the downside, few innovative ideas have come out of committees.

The IBM study indicates that CPOs are attempting to become more strategic and influential and they believe they are more critical to the enterprise. So by necessity, they have to better align with the corporate strategy and therefore want to participate in developing strategy.

I think it opens up even bigger questions:

  • In what areas will they seek to set strategy?
  • Do CPOs have the right background and perspective to do this?

Particularly in the area of services, which are an important ingredient to a change strategy and require deep understanding of the business and how to shape or manipulate the components to create a differentiated position as an advantage, CPOs may struggle as the champions of change.

Enterprises need to protect the innovation strategy

My view is that CPOs are not the right people to influence innovation. Their idea of innovation is do it at half the price rather than doing something different. A data scientist, for example, can get at a certain kind of innovation because they bring a fresh, different capability to the table. I don’t see purchasing bringing something fresh and different.

So this poses some very significant questions to the enterprise:

  • How do you allow for innovation?
  • Who do you want driving it?
  • How do you protect innovation from amateurs who may not be helpful?

Problems for service providers

With purchasing and other departments trying to crowd onto the innovation dance floor, service providers wanting to bring new innovative ideas or capabilities will have to navigate a gauntlet of powerful stakeholder groups. It certainly makes for an intriguing tango.


Photo credit: Piotr Pazola

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