Experts in the global services terrain

Accenture’s set of service offerings is incredibly broad-based. They serve clients in an incredible number of business processes. They provide services in every geography. They deal with a huge variety of industries. How can a firm do so many things at the same time with such excellence?

Simply put, the answer is people. Using our framework assessing companies’ characteristics necessary for success, Accenture’s team of exceptional talent stands out. The provider is able to deal with a profusion of diversity in processes, industries and geographies because it aligns its brand, go-to-market approach, portfolio and business model with high-performance talent.

Assessment framework technology service companies

Accenture takes on clients’ big problems that require a transformational journey. Typically the challenge has a technology component or basis. And typically it requires the use of exceptionally deep talent.

Accenture’s relentless focus on high-end talent deployed against big business problems enables the provider to make decisions around what not to do. They are a talent engine, so they let others take on the roles of owning the technologies and servers. They play well in the ecosystem.

They also exit spaces that are highly commoditized where a provider can deploy less talented, cheaper resources. Accenture stays focused on big problems that require transformational journeys, which require high-end, exceptional talent. That’s why they’re extraordinarily successful in providing services in a bewildering variety of processes and industries.

A widely quoted phrase these days is “software eats everything.” It refers to the great value that software delivers. I believe it also applies to the profound impact it’s making in the services world. Software is disintermediating the industrialized labor arbitrage model and also infrastructure services. Let’s look at the huge implications for the services industry.

How is software eating services? It’s happening in a number of important ways and areas.

Software eating BPO

First, software enables automation and RPA to replace much of what the current industrialized arbitrage model does. Much of this work is repetitive and screams for a more automated approach. BPO work, for instance, bridges the gap between the labor that interfaces between records and the system of records. As I’ve blogged before, software is about to eat BPO labor.

DevOps and software eating infrastructure services

The DevOps revolution’s impact on infrastructure services is another example of software eating everything. A fully integrated DevOps platform allows defining code for infrastructure hardware at the same time as defining code for functionality. Increasingly in a software-defined infrastructure, companies can build an integrated DevOps platform that enables simultaneously configuring the entire supply chain from functionality all the way down to the number of cores it requires to run and test it.

Prior to the DevOps movement, all these steps were labor based, and much of this work migrated into the industrialized arbitrage model. They now become largely automated and software controlled.

Software and virtual services eating infrastructure services

Another example within infrastructure is the infrastructure itself. Five years ago, companies operated in a world where they were trying to move from 20 servers per FTE to 50. Most of the infrastructure service providers succeeded based upon their ability to make that shift.

Today, the services industry tries to get up to somewhere in the range of 200 to 500 FTEs per server. But the highly automated world in Silicon Valley has over 100,000 virtual servers per person. They’ve completely severed the link between people and servers. Again, a dramatic example of software eating everything.

SaaS, BPaaS impact

Another dramatic example of software eating everything is the Software-as-a-Service (SaaS) and Business Process as a Service (BPaaS) offerings. These software-based services offerings completely automate and configure the software, hardware, and business process experience for customers. SaaS and BPaaS completely upend the classic functional model previously used to deliver these functions.

Implications for the service industry

Software eating everything is a relentless focus on different ways to sever the traditional link of labor (FTEs) to service. The dislocation to labor-based businesses will be immense over the next few years as this journey to a software-defined world continues and existing business models struggle to adapt.

A software-defined marketplace will dramatically change the current services market. It will create opportunities for new industries to emerge and force tremendous tension on the incumbent service providers to survive by embracing the change and cannibalizing their existing work.


Photo credit: Flickr

As much has already been written about Cognizant and its Trizetto acquisition – including Everest Group’s take: The New “Big Blue” of Healthcare IT? – it is time for us to do a post-facto check on Cognizant’s healthcare IT services business, and ruminate on the state of the healthcare IT market.

What’s up with Cognizant’s healthcare business?

  • Healthcare@Cognizant officially crossed the 30 percent revenue share mark (just behind BFSI at 39.9 percent) in the first quarter of this calendar year
  • Cognizant is the only WITCH (Wipro, Infosys, TCS, Cognizant, and HCL) company with healthcare among its top three industry verticals by revenue
  • In fact, after its Trizetto acquisition, Cognizant’s annual healthcare revenue (in the range of US$3.2 billion) will be more or less equivalent to the sum of the healthcare revenues of WITH combined
  • Per Healthcare Informatics’ Top 100 Healthcare IT providers: Cognizant’s 2013 healthcare revenues, if added to Trizetto’s (a sum of US$2.94 billion) make it the second largest healthcare IT vendor on the list. It is behind only McKesson, and ahead of technology and services behemoths such as Cerner, Dell, Optum, Epic, and Allscripts
  • For the quarter ending March 2015, Cognizant’s healthcare topline grew 42.7 percent year on year, obviously driven by Trizetto’s numbers. Given the growth outlook company has shared with the market, Healthcare@Cognizant is headed toward becoming a US$4 billion unit in the next 18 months – which is huge.

Is healthcare IT a great market to be in?

Let’s put Cognizant’s numbers into perspective with our growth estimates for the overall healthcare IT industry. With the healthcare industry set to grow at a CAGR of 12 percent through 2020, and given what we have seen since we published the following in 2013, the market size projections for healthcare appear well on track to humble the pessimists among analysts.

Global healthcare ITO market

Healthcare – why so serious?

While services spending growth has been steady, especially for the payer and provider markets, the innovation side of healthcare IT has been sulking for a while. Yes, “sulky” is the word that comes to mind when you sit listening to a panel discussion on digital innovation at #AHIPInstitute2015 and not one panelist cites an example of innovation from the healthcare space. They either talk Uber or Airbnb. This is unfortunate.

Despite the huge numbers up for the taking, a big spike in the booming healthcare IT market will not come by unless there is a dawn of new and nimble technology start-ups that change the game of healthcare enterprises looking to move away from bespoke solutions to as-a-service models that reduce their time-to-value exponentially. For good or bad, the healthcare industry in the U.S. has always had an umbilical cord connection closer to Washington D.C. than to Silicon Valley. That is probably what curbs innovation in this industry from breaking out of its shackles to produce its own Ubers and Airbnbs. In my opinion, except for a few fitness/therapeutic/diagnostic wearable-focused investments, little causes titillation in the healthcare technology start-up space. Despite all the brouhaha on the B2C shift, consumer-focused investments are coming more from the enterprise IT side than from third-party innovation. Frankly, do we want to be in a world where Ford not only makes the cars but also drives the cabs? Hence, the question is – in a world dominated by technology vendors (Epic, GE, McKesson, and Philips) are we ready to declutch third-party innovation and let it bloom?

Is this a blog on Cognizant?

There was a reason we titled our blog about Cognizant’s acquisition of Trizetto, “The New Big Blue of Healthcare IT?” The simile was not to herald the dawn of a new behemoth, but to provoke the sort of nimbleness and courage in healthcare IT industry that IBM (the original Big Blue) has shown over the last many decades to stay relevant in the overall technology industry. In an industry with a muffled voice of innovation (few exciting start-ups), a few big bullies (large technology vendors, EMRs, etc.), and well-meaning presiding deities (government and legislatures), the push for change will have to come from outside.

  • Will it be the venture funds and geeks sitting in Silicon Valley who will do the trick?
  • Will it be the EMRs who open up their platforms for an integrated and interoperable healthcare world?
  • Will it be IBM’s Watson that will change the game?
  • Will a recently gone private Dell up the ante toward innovation?
  • Will Cognizant take up the mantle of being an angel integrator for healthcare innovators?
  • Will it be Infosys’ Vishal Sikka, whose US$500 million investment fund will drive traction?
  • Will Google or Microsoft provide the platforms that will gamify technology innovation?

Why did I harp on Cognizant while writing this blog? It was a rank outsider in the healthcare technology industry (well, almost, given its offshoring, pure play service legacy). Even if it becomes a US$4 billion healthcare enterprise, it will still be a fraction of the market. Via its investments, growth, and outlook, what it has given the industry is a peek into the kind of bravado that can make this market rock. We require more of this bravado. But, if it is going to be just once in a blue (pun unintended) moon, it will be rank boring. So, as the Joker would have said, let’s put a smile on that face!

This is the first in a series of blogs Everest Group is publishing on exciting opportunities and implications to watch out for in the healthcare IT services market.

We regularly make small adjustments to our PEAK Matrix™ assessment methodology – minor tweaks to fine-tune our approach to align with market evolution. This year, however, we have decided to undertake a more comprehensive modification to the assessment.

Why mess with a good thing? To make it even better and more relevant. In particular, we’re making changes to keep pace with the rapid evolution of IT and business process services, particularly as innovation, intellectual property (IP), digital, and technology-driven solutions take center stage in the delivery of these services.

While our fundamental principle of using a fact-based assessment remains core to our methodology, we are enhancing our PEAK Matrix assessment methodology in three principle areas.

  1. Maximize IP and innovation. We are recognizing the rising value of IP and innovation in global services by significantly increasing the weighting assigned to them. Of course, IP and innovation have always been a part of the PEAK Matrix Assessment, but their status will rise in the assessment, as has their significance in the global services market.
  2. Eliminate FTE count. At the same time, we are eliminating FTE count as an assessment dimension altogether. As technology increasingly fills the roles FTEs had managed in the past – at lower cost and often better outcomes – the size of a provider’s delivery talent pool has become irrelevant.
  3. Minimize scale. The provider’s overall scale – a combination of financial strength and focus on the service area being assessed – will remain as part of the assessment, but will decline in importance in the evaluation, making room for innovation to take on a larger role.

Together, we believe these changes assure that our assessment framework continues to be aligned with the emerging and future direction of the global services market.

We expect these changes to have a couple of implications for service providers. First, those providers that bring innovative programs to their clients will be recognized for their efforts – and expense. Furthermore, overall scale will have less impact on the providers’ ratings, assuming they demonstrate high levels of innovation and good business outcomes.

The recipients of these services, the enterprise buyer, will have a much clearer view of each provider’s ability to deliver innovation and outcome-oriented solutions. And they will gain insights that will help them better understand how service providers’ capabilities align with future objectives.

As the dynamic global services industry evolves, we will continue to make adjustments to our PEAK Matrix assessment methodology – some minor, some major – to ensure that it retains its universal relevance and value.

Because sometimes messing with a good thing is a good thing.

While Brits eat biscuits and chips, Americans eat cookies and French fries. You take a lift in a multi-story UK building, but an elevator takes you to different stories in a building in the US. In the US, you get over-the-counter medications from a pharmacist; in the UK, from a chemist. But, in addition to vocabulary differences between the two countries, they both have very different global in-house center (GIC) adoption models. In the overall GIC landscape (with more than 1,900 in total) UK-based firms have an 11 percent share, which is second only to US-based firms (more than 50 percent). Over 35 percent of the Forbes 2000 UK-based firms have adopted the GIC model, as compared to just 29 percent of US companies. Why are the sourcing decisions in the two countries so different?

Among UK-based firms, BFSI is the dominant vertical (~44 percent), while the technology vertical leads the pack among the US-based companies (~41 percent.) The delivery requirements, regulatory obligations, and intellectual property are significantly different in the two sectors, which partly explains the contrast in their sourcing decisions.

GIC adoption among small and medium sized firms (parent revenue <US$ 10 billion) has been much higher (~50 percent) for US-based firms, while the GIC landscape of UK-based firms is dominated by large firms (revenue > US$ 10 billion) with a staggering 73 percent share. Significant disparity is also seen in the GIC adoption levels for emerging verticals such as consulting, professional services, and legal services, which constitute ~7 percent of UK-based firms as compared to ~3 percent of US-based firms.

There are also big differences in the business leadership style and risk averseness of UK versus US firms. Companies in the UK are much more averse to risk when making a sourcing decision, as evidenced by their choice of mostly tier-1 cities with proven delivery ecosystems, while US-based firms also adopt tier-2 and tier-3 locations to manage costs. Additionally, there’s a lot of nearshore location activity by the UK-based buyers, primarily for contact center delivery, as you’ll see in this Everest Group Nearshored GICs Experiencing Significant Growth among UK-based Buyers. This trend continues, with more and more UK-based buyers embracing CEE and nearshore UK locations.

The following sneak peek into our upcoming report on the GIC landscape among UK-based buyers demonstrates these firms’ changing delivery location preference.

GICs of UK-based buyers by delivery location

Stay tuned for the report, which provides more analysis of the GIC landscape among UK-based buyers, and differences in delivery trends by offshore and nearshore geographies. Our report will be published by end of June 2015.


Photo credit: Flickr

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