Experts in the global services terrain
“Putting Canadians First” — the title on the document explaining changes to the nation’s Temporary Foreign Worker Program —makes the Canadian government’s intent clear. Canada is forging ahead with adjustment to its immigration policy. The result will increase costs for global service providers in two important dimensions.
At this point, it’s now very unlikely that meaningful immigration reform will happen for the next two years in the United States. But Canada is moving forward, and components of its reform will make it much more difficult for service providers to utilize temporary foreign workers.
Two cost impacts to service providers
Canada’s immigration reform will increase the cost of transitioning new work to the global services model, particularly for India-based firms.
Knowledge transfer. First, reform will raise the cost of knowledge transfer and effectively change the traditional knowledge transfer structure used by the Indian firms. Current practice is to send to Canada teams who will be doing the work to consult and learn from the existing teams and then return them back to India or other locations replete with sufficient knowledge to continue doing the work.
Consequently, they will have to rely on in-country resources, which will make the knowledge transfer slower and more complicated.
Landed model. Reform components will also increase the cost of the Indian heritage firms’ landed model — their employee base that resides in Canada. By making it harder to send Indian nationals to live in Canada, it will raise their cost of getting the visas, which will make it more likely that they will need to hire Canadian nationals to do the work.
Everest Group’s analysis is that it could increase their costs by up to 20 percent for their Canadian landed model.
Impact on competitiveness
Neither of these two factors will stop the process of sending temporary foreign workers into Canada. However, it will slow down the process and also be more expensive for service providers than their current structure.
The “Putting Canadians First” reform of the Temporary Foreign Workers Program will not stop the Indian service providers from competing effectively in the Canadian marketplace. But it will complicate their business and modestly raise their costs to compete in Canada.
We do not believe that these changes will materially affect the multinational service providers such as CGI, HP or IBM. They already have substantial presence in Canada and have large existing workforces there. In fact, the net result is that the Canadian-based multinationals’ competitive posture will be slightly improved due to these immigration changes.
Photo credit: Ian Alexander Martin
As the global banking industry continued to recover through 2013, several service providers ramped up their scale, invested in innovative technologies, and built a global delivery footprint. These initiatives have notably expanded the Major Contenders category on Everest Group’s Banking application outsourcing (AO) PEAK Matrix™. Indeed, three service providers (ITC Infotech, Luxoft, and Mindtree) joined this group from the Emerging Players category.
While the market continued to be dominated by select global and offshore majors (Accenture, Cognizant, IBM, and TCS), a number of relatively smaller and specialist players successfully created a niche for themselves by catering to the specific needs of banking AO buyers. These service providers partnered with banks, understood their business, took risks by offering performance-linked pricing, and successfully demonstrated capabilities to offer them innovation, to create differentiation in the market.
Below are some of the key highlights of this year’s banking AO PEAK assessment:
The Banking AO Leaders (Accenture, Cognizant, IBM, and TCS) continue to hold solid position on this year’s PEAK Matrix. While Wipro entered the Leaders quadrant this year, posting strong ACV growth for Banking AO services, it still lags behind the other Leaders on capability and market success.
The Leaders continued to hold the highest market shares in terms of ACV and number of deals across all geographies. Strong execution and delivery, ability to offer thought leadership, and consistent investments in developing innovative solutions for BFSI vertical were some of the key areas of strengths that led to their consistent growth in the Banking AO market. Their future success will be driven by their ability to explore new pricing models (gain-share) and expansion of nearshore and onshore delivery presence in order to stay ahead of the competition.
The Major Contenders consisted of providers across all categories: global majors (Capgemini, CSC, Dell Services, and HP); offshore majors (HCL, and Infosys); regional players (CGI, Luxoft, Softtek, Unisys, and Virtusa); and tier-2 Indian players (iGate, ITC Infotech, L&T Infotech, Mindtree, MphasiS, Polaris, Syntel, and Tech Mahindra). Service providers in this category were willing to take risks, and were more open to exploring new outcome-based models to create differentiation in the market. While these providers have built credible scale, they need to significantly expand their nearshore presence, focus more on innovative solutions, and invest more in sales/account management teams to further improve their market positioning.
The Emerging Players consisted of select regional and tier-2 Indian players. These providers must continue to expand their Banking AO scale, invest in emerging technologies, and demonstrate ability to offer innovation/improvements in clients’ business areas to break into the Major Contenders category. Their success will be driven by their ability to move beyond traditional AO work (application development, maintenance, and testing) and build capabilities to support transformation initiatives of banking AO buyers.
While each category on the PEAK Matrix has unique strengths and challenges, one key theme for all companies was the declining share of pure AO deals, which is in line with the growing trend of integrated IO and AO deals. Additionally, as banks continue to focus on managing regulatory compliance and enhancing the customer experience, all providers have begun to look more seriously at the opportunities in the regulatory and risk management, analytics, and mobility spaces. While analytics was the dominant theme for the Leaders and Emerging Players categories, Major Contenders announced the greatest number of contracts in the regulations and risk management area.
Overall, 2013 was an interesting and eventful year for banking AO services, and 2014 promises to be every bit as exciting! For more information, download a complimentary preview of “IT Outsourcing in Banking – Service Provider Landscape with PEAK Matrix™ Assessment 2014.”
Photo credit: Pranav Yaddanapudi
Much like Jonathan Swift proposed an outrageous, over-the-top suggestion that the Irish eat their children as a way to accommodate themselves in famine and over-population, I have a modest proposal for Infosys. It’s over the top, but it’s intended to highlight an issue.
My modest proposal is that Infosys keep its platform IP business, sell its labor arbitrage business and use the proceeds to buy IP and software and further develop it.
I understand that this sounds beyond the pale that Infosys would ever sell its arbitrage business. But think about this: they already split the company into two. They recognized that the arbitrage outsourcing business is maturing and is going to be in a mature state.
They already clearly bet the future of Infosys on its ability to jump on the next S curve in terms of IP. I say go ahead and go whole hog. In the words of the country and western song, sell the truck while it’s still running.
Why not sell it while they can get a huge premium? The Infosys arbitrage business is the jewel of the industry. Great people, great clients and extremely high-quality work. It would fetch a very high multiple. Any competitor would be proud to own it.
Infosys could then deploy its capital into its IP business. The strategy goes along with already having hired a CEO from SAP who understands products and IP, and it would free management from the complications of having to manage two business models at the same time.
My modest proposal illustrates the underlying issue that faces the offshore services industry. It contemplates the maturing of the space and the complications of jumping to a new high-growth market segment. If you want to look at other similar situations, consider IBM, which recently sold its transactional BPO and voice BPO services.
It would be a breathtaking move. But, with my apologies to Jonathan Swift, it’s certainly food for thought.
Photo credit: “Jonathan Swift by Charles Jervas detail” by Charles Jervas
Companies’ end-user compute budgets are flat to down. Yet they’re challenged by much more complexity in terms of many more devices. This is a surprising fact. There is an explosion of devices that need to be secured and managed and that are often paid for by the corporate enterprise. Why has the explosion of mobile devices not resulted in corresponding growth in companies’ budgets for servicing end-user computing?
There are several reasons for new offers not coming into play despite the hope generated by the increase in devices. But the main reason is that the way support is provided has shifted.
The level of robustness of the support has shifted spend away from the central groups that used to provide support. Increasingly the manufacturers of the devices are taking on far more of the support responsibilities. They do this through extended warranties and service agreements attached to the devices.
The end-user compute services landscape is shifting in unanticipated ways.
As part of our efforts to profile the rapidly evolving service delivery automation (SDA) landscape, I am speaking with the leaders of many of the technology players who are helping stimulate innovation in this space. This second of a series of blogs on SDA technologies, is based on observations and learnings from a recent briefing with Hans Christian (Chris) Boos, CEO of Arago.
Arago and its Proposition
The company was founded in 1995 but its intelligent automation software for enterprise IT, in its current form, became generally available only 2-3 years ago. Arago has since experienced rapid growth, more than trebling revenue since 2011.
Arago’s flagship product is AutoPilot. This uses an inference engine with, what essentially sounds like, a neural network to speed up processing, although the term was not used by Boos during the briefing. Instead, he refers to human brain like activity to learn and apply learning (knowledge items) to new or changing environments to infer how to process requirements automatically. The machine gets more useful the more knowledge it gains but it also has to manage the knowledge, for example, deal with rules that contradict each other. It does this in a mathematical way and uses analytics. According to Boos, it can apply this approach to different areas such as database management, incident management and also to more architectural processes and business logic.
Arago figures show that AutoPilot processed nearly 2 million tickets (as produced by infrastructure management tools such as BMC) for clients in 2013. Circa 87% of these were fully automated. Processes automated at the middleware layer, AutoPilot’s sweet spot, had the highest level of automation at 98%.
Clients are typically large organizations or IT service providers. These include two major global IT service providers.
The software is available as a service, as well as on premise but interestingly the majority of clients want it on premise.
Two licensing models are available from Arago:
- Outcome-based pricing: Based on the number of tickets that are automated
- The second model is the traditional software licensing model.
AutoPilot comes with built connectivity to infrastructure management tools such as BMC and IBM Tivoli and with APIs for integration with other packages.
Arago’s proposition comes with an estimated cost saving of between 30% and 50%.
The Inference Way
If AutoPilot can successfully tap into its acquired knowledge to handle non-standard environments or changing conditions, then it could minimize the need for predefined scripts, to automate parts of IT that are more challenging to automate. I believe this can complement other automation tools that are highly scripted and which are used in other parts of IT infrastructure. The potential benefits in large and highly heterogeneous IT environments, could soon accumulate.
This is advanced technology and could also increase complexity, potentially leading to tickets itself, at least initially while the knowledge-base is being developed.
In terms of Arago’s target market, the company is selling to a converted crowd – IT service providers and IT departments of large organizations that have automated parts of their IT infrastructure already. Its challenge is its size which is not big enough for the demand that it is seeing. Arago is enhancing its partnership network. It is also expanding geographically. At the moment Arago operates out of Germany with all its 92 staff currently based there. It is looking to open an office in the United States soon but it has no physical presence in other countries such as India.
Other measures include creating a community where clients can share automations/knowledge items for free or buy or sell them.
These plans will start to pay off but for now demand is likely to remain choked by lack of scale, I believe, particularly, in initial consultancy and client training services.
AutoPilot is still a relatively new product and I expect some functionality enhancements to be on the cards. More work on the UI is already underway.
Growth opportunities include selling to smaller companies. Arago has released a community edition that can give smaller organizations a fully functioning AutoPilot that is only limited in the size of the IT that it can automate. This is a clever bit of marketing that prepares the ground for attracting large companies of the future.
Arago’s core technology is application agnostic. The company chose to apply it to IT first but the core product can also learn to handle business logic, potentially leaving Arago with opportunities to expand into business process automation in the future.