Experts in the global services terrain

The current way we buy complex services through a purchasing department is to come up with elaborate detailed requirements, which often can only be implemented over several years. We put these out to bid, forcing the vendor community to respond with far more detail and waterfall project plans laying out in excruciating detail how they will architect and migrate this environment to the new desired state. We then conduct the services version of the limbo dance – how low can we go – where providers compete the price of the solutions. But there is a huge fallacy in this procurement methodology.

We have a long history of unhappy results from this methodology, a body of work spanning 10 to 15 years demonstrating that these procurement efforts mostly result in unmet expectations, cost overruns, and evolving service levels. This is insane. Insanity is doing the same thing again and again and expecting a different result.

The fallacy of the procurement methodology

By using this methodology, we effectively try to articulate a transformational journey in an overly precise way even though we have only a limited understanding of both the existing and future environments. The result is exercises in creative writing with overly precise work plans and cost estimates. The only thing we can be sure of is that the plans are wrong because of the lack of information (no matter how much time we spend on the plans), and the fact that the world changes during this timeframe. So we’re guaranteed to be wrong.

Therefore, our preferred way to purchase services is flawed. It pretends that we know with precision things we don’t know and it does not adequately accommodate for the nature of change in technology, business process and business conditions.

What can venture capitalists teach us?

For years VCs have faced a similar problem. How do they develop breakthrough, compelling new technology products, fund them, manage them cost-effectively and, most importantly, how do they get to great offerings?

They achieve these objectives by accepting that, although the vision for the journey can be had, the length of the journey is unknown, the amount of money required to accomplish is unknown, and the exact nature of the end product is also unknown.

This is very similar to the problem we find in most service transformations. We know the direction we want to head, but we can’t describe accurately and precisely where we’ll end up, can’t quantify how much it will cost, don’t know how many resources it will take to get there or how long it will take to get there. All of these factors vary. Yet, using the procurement methodology, we pretend we know these details and set up artificial constructs.

Applying the VC principles to transformation services

Why don’t we do what the venture capitalists do? First of all, they break the project down into a series of gates. The only detailed road map is the one between where you currently are and the next gate. That requires a detailed plan. One of the parts of the plan is to develop a plan for the next gate.

Using VC principles, the vision and the dimensions of what you want to accomplish are clearly stated. For example, “I want to bring the cost of IT down by 40 percent” or “I’m going to standardize my components and move them into an elastic or consumption-based model, and I’m going to develop agile vehicles to integrate the components.” But how you will do that and how it will involve your current environment is unknowable.

All that is knowable is how you develop a proof of concept and how you move from POC to rapid implementation. You can fund each step much like VCs do (Series A, Series B, and Series C funding) and break it down to create funding associated with milestones that get you to the next gate.

This is a broad application of the VC philosophy, and there’s much more to it. But I believe by applying these principles, we can change how we drive transformation. We can dramatically lower the interaction costs of the purchasing process, and we can spend that money and time instead on the actual transformation. And we can deal with our providers or ecosystem partners in a much more transparent and direct way.

It’s best to apply this VC-based methodology where the benefits of design and architecture drive the value, instead of price reduction as the driver. You can still get lower unit prices, but the old procurement process is dead. That process is useful if you’re trying to take a stable environment and reduce its unit price. But it is not useful where you are driving a transformational agenda, which cannot be precisely defined. Using the old methodology for a transformational agenda tends to waste time, frustrate ecosystem partners and create false promises.

I recently went to dinner with a CIO who talked about having two major service providers in his company’s portfolio – an Indian provider and Accenture. He told me he uses both providers aggressively. We were talking about the fact that both providers have similar rate cards, large numbers of offshore workers, and they both come to him with an unending set of transformational ideas. I asked him how he chooses between the two.

Here’s his methodology:

  • When the business problem requires a whiteboard – in other words, he wants the provider to lead change in his organization (and typically that’s a transformational situation) – he uses Accenture.
  • When the business problem requires a keyboard – or people to execute against a plan he has already developed and he will closely manage – he uses the Indian service provider.

He added that he’s not sure it’s possible for either provider to become the other. He explained that when he asks Accenture to operate from a keyboard mentality, they fight him for the steering wheel. They want to lead and want to drive the transformation. Alternatively, when he asks the Indian provider to lead, they defer to his management team and do as they’re told.

So he says he came to accept that both behaviors are effective. He needs each at different times, so he should not ask one to be the other. Both are valuable assets.

Services clients should keep this CIO’s perspective in mind. There are whiteboard opportunities and there are keyboard opportunities. If you ask providers to be something they’re not, you’ll get a frustrated response. Choose carefully.

Everyone is talking about the emerging disruptive technology that is the next transformational solution…

Tales of massive cost reductions and time-to-market improvements that will leave your competitors in the dust abound…

You are getting pressure from the C-Suite about what you’re doing about it…

The vendors have lots of slideware, but precious few production examples at scale…

Everyone is launching pilots or proofs of concept…

Hmmm…is this recounting the cloud services situation of 5 to 7 years ago, or today’s RPA situation?  Well, I think it is both. Our discussions in the market – encompassing both enterprises that are commencing their RPA journey and services and technology providers jockeying to deliver solution to those enterprises – suggest a picture that is eerily similar to a number of patterns we saw as the “last” disruptive trend was gaining its footing a few years ago. It got us thinking about what those wishing to capitalize on the emergence of RPA might learn from the trials and tribulations many firms went through as cloud services emerged.

Cloud Services during emerging phaseFast forward: what happens next for RPA
Market maturity
  • Every conversation begins with “here is what we mean by RPA…”
  • Every conversation began with “here is how we define cloud…”
  • As enterprise-wide usage patterns emerge, nomenclature will converge to drive clarity on the value levers
Adoption patterns
  • Lots of pilots; slow to scale across processes/ enterprise
  • Focus on “no brainer” use cases
  • Lots of pilots; slow to scale to enterprise workloads
  • Early focus on “spiky” workloads where cloud yielded extraordinary benefit
  • Many “red herring” barriers (“cloud can’t be secure”)
  • Business users will continue to drive siloed initiatives until market reconciles buyer needs with provider business models (see below)
  • Targeted at specific use cases with value enabling providers to extract maximum profit surplus
  • Not oriented toward enterprise value
  • Targeted at “low hanging fruit” use cases where benefits were unassailable
  • Broad enterprise-wide solutions limited to niche players (private cloud-led for most larger enterprises)
  • Solutions evolve from “bolt-on’s” to serving as a foundation/primary dimension of the environment
  • ROI driven by impact across processes and internal organizational boundaries
  • Enterprise software vendors build automation capabilities into their products
Market leading solution providers
  • Bifurcated market structure with leading software providers and business process services providers
  • Software firms struggling to align a software business model with market needs
  • BPO players conflicted with cannibalizing installed base
  • Tradeoffs embedded in software and BPO business models hinder adoption
  • “New entrants” exploited unique cloud business model
  • “Incumbents” that attempted to leverage their historical business model made compromises and fell behind
  • New RPA business model must emerge to fully align with market needs and drive enterprise-wide value
  • Solution providers will emerge with approaches that align interests (rather than create conflicts)
Value levers
  • Cost control by tying   cost structure to usage patterns
  • Cost reduction with the ability to replace human capital with robots
  • Value levers emerge that supplant cost reduction such as accuracy, flexibility, agility and compliance 

That’s not to say there aren’t some key differences in how these two disruptive trends are playing out. For example, while both sets of key early players created their business models from a blank sheet of paper, the cloud leaders (Amazon Web Services, Google, Microsoft Azure, etc.) clearly had deeper pockets than emerging RPA leaders and they leveraged that ability to invest ahead of demand to drive a market share-driven pricing strategy that secured and continues to protect distinct advantages.

Notwithstanding the differences, it sure feels like many enterprises (and service providers) have been down this path of pursuing the next disruptive technology before.

As you contemplate your RPA strategy, it probably makes sense to step back and gauge how your organization responded to the emergence of cloud services. The steps you took that worked for your cloud initiatives – and those that didn’t work so well – will provide a good path forward.

Photo credit: Flickr

There’s no silver bullet for driving change; it’s a challenge in any organization and services providers and their clients struggle with this. In working with providers and buyers on transformation deals over the years, I observed the need for breakthrough metrics to drive the change through the buyer’s organization.

As I mentioned in my previous blog post, transformation needs to start with defining the business outcome goal from the customer perspective and then translating it into issues and organizational implications that the delivery organization can align against. Those issues include metrics that you must clearly articulate at three levels in the buyer’s organization:

  1. C-level vision – Here the highest level of metrics calibrate the benefits and what needs to change in the status quo to accommodate the benefits. In the event you find you can’t get to the goal with what you conceive for the journey, you need to start again and conceive the journey differently.
  2. Direct reports responsible for executing on the vision – These metrics focus on the implications for the delivery organization.
  3. Technical talent – Metrics at this level focus on the tools, talent, and process changes that the goal affects. What are the details that the architects need to understand as they solution the goal?

Having metrics at each level puts business transformation not in light of those who are doing it but, rather, those who are experiencing it.

Service providers need to keep in mind that this shouldn’t be a roadmap with a detailed plan. But people at each level in the client enterprise need assistance in understanding what they are trying to do, how they have to measure themselves against that goal, and what the implications are to technology, talent, policy, process, and sourcing. The metrics can’t be prescriptive.

If you’re an executive, you can break through your organization’s obstacles to change by driving change through the benefit goal and the metrics that allow the organization to understand and configure against the goal. First define the experience you’re looking for. Then ask how to accomplish that. You’ll end up with a set of metrics that defines what you have to do to get to that experience.

As an example, let’s say you want to improve the speed of the employee onboarding process. What are the technologies you have to put in place? What talent issues do you have to think through? What policies and processes do you need to think through? What are the consequences of changes to those technologies, talent, policies, and processes? Now you have the metric and sub-metrics that help guide those implications.

Once the client organization is committed to the transformation journey at each level, the service provider can then engage with them around how that should be done.

Photo credit: Flickr

For large transformation projects, the services world has locked itself into a world permeated with high dead deal costs, wasted solutioning, and long transitions of nine to 18 months where the client sees low value and tries to get the provider to absorb the cost as well as expensive consultants and legal fees for the client on top of distracting management. And in the end, we have a lot of unhappy clients. This needs to change.

Remember John Lennon’s song: “Imagine?” Imagine a world in which we compress these cycles and we don’t have high transition costs. As Lennon wrote, you may say that I’m a dreamer, but I’m not the only one. Over the years there have been a lot of experiments in how to shorten the sales cycle. But largely they were frustrating. Even when you rush through the process, it still tends to straighten back out to the nine-plus months’ duration because it takes time for the enterprise to understand and absorb the journey and get to decisions. Others have experimented with sole sourcing, but it doesn’t really shorten the sales cycle and has a lot of limitations from the client side in terms of leaving them wondering whether they got a market deal, despite benchmarks and pricing assurance.

From studying this over the years, I’ve come to believe that as long as providers and clients define the goal in terms of procurement, they’re likely to be disappointed. The process and price become too influential and the provider loses sight of the client’s real goal. So they end up with incremental gains but not breakthrough, transformation gains.

Let’s think about these deals as transformation journeys instead of procurements. Just imagine ….

After all, the client doesn’t want the outcome to be a contract; the outcome needs to be a transformed state of the client’s process or capability. So we need to reconceive the origination of these transformation deals along this line.

We need to first focus on the benefits, defining the game-changing benefits the enterprise wants to build. Typically those benefits in today’s world have something to do with efficiency gains, cost savings, better aligning the process to the requirements of the business users, and improving the speed and agility to be responsive to the business needs.

If service providers stop thinking about the procurement process and think from the consumer’s point of view, it works great. The client gets what it wants and needs, friction is reduced, it’s clear what the client needs to reach its goal, and the provider gets to pull the client on the journey rather than pushing and selling to the client.

After defining the business outcome goal from the client’s perspective, the next step in developing a solution would be to develop breakthrough metrics to drive the change through the client’s organization. I’ll discuss this in my next blog post.

The parties build the journey together, and the client sees the solutioning as value rather than a sales exercise to be viewed with skepticism. In effect, this method turns the procurement process on its head and eliminates the sales cycle. The provider get paid to assist the client in solutioning rather than for building a complete construct to be compared to competitors’ solutions and examined at every level.

The result is a better outcome, focused not on contractual terms but on results for the client. And this process goes a long way to eliminate the nettlesome issues around the procurement transition phase because transition is accomplished as the transformation journey progresses. Just imagine.

In John Lennon’s words, I hope someday you’ll join us, and the world will be as one.

Page 1 of 13012345...Last »