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At Everest Group, we’ve been studying the reason behind the disappointing phenomenon of powerful new disruptive technologies achieving only modest, incremental benefits instead of their promised performance breakthroughs. In my recent blogs, we’ve looked at whether the fault could be due to hype or immaturity of the technologies, whether it might be a lack of talent or whether there is an inherent conflict of interest in companies’ incumbent ecosystem. Not one of those things is sufficient to explain why we’re not getting the breakthrough in performance that is ripe for the taking if we can get there. We think all of these factors may contribute to the phenomenon; but these factors don’t seem to be powerful enough to prevent the breakthroughs.
We think a missing ingredient is the organization. When companies implement these new technologies, they must also change the fundamental organization.
At the moment, these technologies tend to be implemented to save costs, whereas the change in performance is far more than cost savings. It has to do with customer experience and cycle time. Although cost is often reduced, that is a byproduct of the greater performance that is generated.
As the buyer of the new technologies, the remedy is to be willing to step back and understand that you have to create a new strategic intent. That intent must focus on performance. It also requires a willingness to address the organizational dynamics. Whenever you digitize a workforce or you embed analytics into it, this affects how you organize work. So often we see people attempting to bring in tools but just adding them to the existing organization. That doesn’t work.
Fundamentally, to get a performance breakthrough, you have to rework your organization. Doing that means significant change across all the pieces. Along with creating a new strategic intent, you have to change your organization, your ecosystem, your technologies and your talent. All of those components have to come together and focus on the promised improvement you’re seeking. Only then will you get the step change performance. If you do them individually or only partially, you’ll only get is more of the same. You’ll get a better status quo, not a changed status quo.
There’s no doubt that Brexit created a slowdown in European outsourcing during the last two quarters, especially in the UK. How long will the slowdown last? Let’s look at what’s really going on.
The reason Brexit contributed to slowdown is because it created indecision and senior management attention was captivated by the unthinkable prospect of the UK exiting the EU. That indecision caused the slowdown.
Having just returned from the UK and talking to UK leaders, I believe that the indecision has passed and decisions are reversing back to their normal rhythm. I expect there to be a little ongoing hangover; but going forward, I expect an increasingly low impact on outsourcing growth due to the UK exiting the EU. Yes, it’s still uncertain as to how the UK will exit, but that’s different from the indecision based on whether or not it would actually happen. I’m seeing signs that the indecision and senior management attention necessary to do outsourcing deals has now reverted back to running the business.
On their earnings calls, a number of outsourcing executives called out that they expect Brexit will create an imperative to do more outsourcing and to accelerate deals. I see no indication that is likely to happen. Here’s why:
Summing up, Brexit has had a modest impact on growth of UK outsourcing; but I think that impact is lessening dramatically by the day and will have little or no impact within a month. Where it does have an impact, and counter to well-publicized prophecies, I believe Brexit will not lead to further growth in the labor arbitrage space, but it’s likely to impact the transition to automated solutions.
After a long, drawn-out, and scrutinized sale process, Verizon is acquiring Yahoo’s core operating business for ~US$4.83 billion in cash, marking a tumultuous fall for the once-iconic Internet giant, which once had a market capitalization exceeding US$125 billion. Verizon’s purchase includes “core” Yahoo, which spans search, email, advertising products, and the media business, including Yahoo Finance. It does not include Yahoo’s ~ 3,000 patents with an estimated value of over US$1 billion, which reportedly are being hived off through a parallel auction process. Beating out competing bids from a range of probables such as Advent International Inc., AT&T, Bain Capital, TPG, and Vista Equity Partners, the deal adds an important dimension to Verizon’s burgeoning digital media and advertising business, building on its 2015, US$4.4 billion acquisition of AOL.
Not surprisingly, numerous digital revolution themes are reflected in this deal.
Going forward, we expect other marquee tech companies to also face the heat, whether it’s Apple trying to tackle plateauing iPhone sales, and perhaps pivoting to a rising enterprise business, Facebook/Google endeavoring to increasingly monetize their saturating mobile advertising moats, or Twitter attempting to answer its user acquisition dilemma. The future is uncertain, and there are no longer clear winners in the digital era.
In three of my recent blogs, I’ve discussed the possible reasons as to why companies are only getting modest, incremental benefits from vetted, powerful new technologies such as cloud, analytics, cognitive computing and robotic process automation (RPA). These technologies should be making big differences – performance breakthroughs. As I’ve mentioned, we at Everest Group are studying this phenomenon – an important issue these days as these technologies continue to disrupt business. We’ve looked at whether the maturity of the technologies is the reason for their not delivering performance breakthroughs and whether it might be due to lack of talent. In this blog I’ll discuss the role of incumbent ecosystems as a possible culprit.
Take the situation of RPA in finance and accounting (F&A) processes as an example. It’s reasonable that, with our current state of technology and current adoption, 40 percent of the FTEs in the F&A function can and should be turned into a digital workforce. So the question is, would the current service provider resist the RPA technology because it would lose revenue (or in the case of internal services, the company would lose people and prestige)?
Let’s examine that in the most difficult situation, which is the third-party providers. If they charge on an FTE basis, as much F&A is done, why would they be reluctant to bring in the technology?
We find that today almost all new F&A bids for work have an RPA (robotic automation) component. And if you go to an Accenture or a Genpact delivery center, it’s very clear that they have an aggressive program to implement automation. So, yes, they could resist it in existing contracts (and the same could be said for internal services).
But this alone doesn’t seem to be a sufficient answer to the question of why companies are not getting performance breakthroughs. Why aren’t they getting the step change in delivery that they could be getting?
Is it a conflict of interest? No. That seems a hard argument to make because service providers are actively implementing the RPA technology.
In my next blog, the final one in this series, I’ll reveal the answer to what’s causing the phenomenon of powerful new technologies not delivering on their promise of performance breakthroughs.
The digital services market is seeing a lot of traction, with technology companies acquiring digital and creative agencies to expand their digital portfolio. A modern digital services provider is continuously adding services into its digital portfolio, such as social, mobile, analytics, and cloud. Digital agencies help these technology providers build expertise in customer insight, user interface (UI) design, and campaign design. Hence, digital acquisitions help service providers expand quickly, and compete to grab a larger pie of the digital services market.
This is leading to a new disruptive model where customers get creative and seek business strategy from one firm instead of multiple agencies and consulting firms. However, the integration between consulting, design, and system development/deployment is harder to achieve on real customer engagements.
The new digital landscape is making a significant impact on traditional delivery models. Most organizations have adopted agile and DevOps models to help development and operation teams deliver with higher speed and efficiency. The focus on digital and design thinking is pushing organizations to think through new models to integrate user experience (UX) with agile delivery teams.
Traditionally, there has been little overlap between UX and development teams, and both teams have operated in silos. In order to provide digital capabilities, service providers are setting up design studios to ideate and prototype digital solutions for clients. This requires UI designers, solution architects, and developers to quickly prototype a solution to test feasibility before piloting the solution.
UX professionals might find it difficult to understand and collaborate with agile teams. UX designers typically focus on laying out the entire design in one go. In contrast, development teams focus on creating a “Minimal Viable Product” using agile methodology.
Historically, enterprises have adopted an internal agency approach wherein the UI designers are allocated to projects based on their area of specialization. But, this model may not be best suited in the new digital world, wherein UI designers and development teams need to work in tandem to quickly deliver sprints. In cross-functional teams, UI designers will have to be closely aligned to the agile teams for digital transformation projects.
There are several ways enterprises can address some of these challenges:
Enterprises that are able to think ahead and focus on solving these team integration challenges will be able to reap the most benefit from an integrated digital environment. As I see it, enterprises have barely started with DevOps! So the cultural shift to DevOps might need to be even more dramatic, as it now needs to integrate design as well!