Experts in the global services terrain

Sole sourcing can deliver multiple benefits, including reduced cost- and time-to-decision, elimination of the need to manage a large portfolio of providers, and likelihood of reaping greater value from a closer relationship with a single services delivery partner. Yet the sole-source process can quickly unravel if not carefully designed and managed by the buyer, even (or perhaps, especially) when a strong relationship between the buyer and provider already exists.

Several factors are critical to sole sourcing success. 

Deepen the relationship

While mutual respect, aligned interests, commitment, and trust are critical in any outsourcing relationship, they assume greater importance in a sole-source situation. Why? Buyers look to sole source to achieve collaborative, insights-based solutions, rather than merely receiving a table stakes collection of transactions. Buyers achieve this by openly sharing their desired outcomes and concerns, and building an outcomes-focused, value-oriented foundation during the solutioning and negotiation process. This depth of relationship must be nurtured throughout the tenure of the engagement. This applies whether looking to transform the relationship or simply update it. Alignment of both organizations to the objectives is key to a successful sole-source.

Engage senior leadership

Senior leadership from both the buyer and supplier need to set the initial goals for the relationship as they deepen it, and then continue to reinforce the desired outcomes to their teams throughout the sole sourcing process. Institutionalizing these objectives will ensure that they become the parameters that guide behavior in all interactions. This takes significant and persistent effort at all levels, and will require some spot coaching to realign team members who fall back to the old ways of doing things.

Get approvals early and often

Given their role as stewards of an enterprise’s activities, boards of directors may balk at the idea of sole sourcing. To avoid delays and additional fact gathering expenses – and even the requirement to tender an RFP to multiple providers – the buyer should present the opportunity to its board as early as possible in the process. The buyer must understand the concerns the board might have around the value of a competitive process, and address them through external benchmarking, leveraging current market information about suppliers and services, and a thorough understanding of the value of the current relationship. An early confirmation from the board that this is worth considering will avoid wasting time, resources, money, and momentum.  

Don’t boil the ocean

As one of the key advantages of sole sourcing is time-to-execution of the agreement, buyers need to focus on three factors during the sourcing process: a strong, solid, and accurate business case that is easily explained to the organization; confidence (through benchmarking and external validation) that the service provider, scope, and pricing are market-competitive and aligned to the desired outcomes; and a robust contract that focuses negotiations on the most relevant terms.

Develop a robust business case

To attain buy-in from senior leadership, the board, and the overall organization, the buyer’s business case must include: a baseline to demonstrate the full current service delivery costs; projections for the contract duration; dynamic modeling for real-time solutioning; an accounting of direct cost, business, and strategic benefits; and multi-dimensional risk measures. The business case must include a comparison to a competitive process, ensuring that the organization understands the value of the sole-source. And while it must cover all these bases, the resulting information must be presented in a clear, simple, direct, and compelling manner.

Compare to ensure value

The onus is on the buyer to ensure that the scope, pricing, and value are reasonable. As the buyer, you need to know what you want from the provider’s services, and how they’ll help you achieve your goals. After analyzing all through a market-comparative lens, you should work hand-in-hand with the provider to set specific (and quantifiable!) solution targets, making it clear that under-achieved goals may re-open a multi-provider sourcing process.

Focus the contract and negotiations on truly important factors

By taking ownership of the engagement process to set specific milestones and goals, the buyer maintains control of the decision and problem solving involved in reaching the goal, and eliminates any ambiguities relating to timing, scope, responsibilities, metrics, and targets. But a bit of buyer beware: Everest Group has identified 31 relevant contractual terms that sourcing negotiations should address.

For more specifics on attaining sole-sourcing success, please read our paper, “Sole Source Outsourcing – Ensuring a Successful Outcome.”

There is rising concern among the Indian service providers that their arbitrage model is about to go through a significant and abrupt change – and not to their benefit. As I look at the various factors driving their concern, I see a set of challenges that will fundamentally reshape the industry and create new winners and losers. What remains to be seen is how quickly it will happen and exactly how it will affect the providers. Here is my analysis of the situation.

What is driving providers’ concern – even fears for their business?

Challenge to FTE model. Clients want automation, and the providers fear that automation will require far fewer people to deliver services. They now want to buy software-as-a-service rather than people. It’s basically a substitution of technology for labor, which manifests itself as robotics, SaaS and cloud. Growth of the Indian ISP businesses is slowing as the customer demand now is to have a different conversation around capabilities instead of just moving the work to India for labor arbitrage.

Challenge to factory model. We’re seeing increasing commoditization of services. The Indian providers recognize that they built factories that, at the core, break work into different constituent pieces and drive that work to be done with the most junior people possible. But that actually caused commoditization. The client mindset is: “If you can segment the work like that, why not go ahead and automate it?”

Clients today want domain industry knowledge, rare skills, more capabilities on site at the client location and more intimacy from their service providers – and all four of these demands are hard to deliver in the factory model.

Challenge to profit margins. The challenge to the FTE and factory models drive providers’ fear that they won’t be able to maintain profit margins like those in the past built on labor arbitrage.

We’ve known that arbitrage wouldn’t last forever and that providers couldn’t keep extending it indefinitely. It had natural limitations. Now we see the market moving in a new direction. At Everest Group, we believe this will fundamentally reshape the industry.

Kaboom

Important issues in heading in the new direction

I think there are important questions around the reshaping of the Indian ISPs’ businesses.

In what way will the change manifest itself? Will the change in business models result in growth, cannibalism, or both? And to what degree? Will the change, for the most part, only affect where the new growth opportunities are? Or will it cause providers to cannibalize their existing client work?

If it just affects where new work is, it’s much easier for challengers to capture those opportunities. But it’s more difficult for incumbents to transition. For example, in automation they would need to cannibalize the existing work by reducing the number of FTEs, which also will reduce revenue. It will be difficult for incumbents to react to their existing clients’ demands in the change in direction.

There are other questions:

  • How soon will the changes come?
  • How will the Indian providers react?

These are unanswered questions today, but they’re very important. How quickly it happens will affect how the incumbents react. And how they react will determine whether they will succeed or whether challengers will reap the benefits of the new direction the market takes.

What do you think? Are we going to watch the implosion of the services model where it clashes in on itself and technology cannibalizes the industry, shrinks the revenue, changes the FTE model to a transaction model and shifts the terms and conditions to favor new players over old players?

Everest Group recently conducted an interesting engagement with a large service provider organization that displays the opposite of the phrase “caveat emptor”…caveat venditor, or “seller beware.”

The provider was trying to extend its five-year-old deal with its client. The buyer had retained a consulting firm to advise on the competitiveness of the proposed pricing. Based on a quick diagnostic assessment, the consulting firm suggested that the as-is pricing was above the market. The service provider, faced with the threat of pulling down the price to avoid the deal going into a competitive bid process, asked for opinion on the pricing. Based on a detailed analysis of the in-scope services, we found that the pricing – which was prima-facie 9-12 percent above the market – was actually 2-3 percent lower than market after factoring in value-added services and other deal-specific nuances.

We’ve seen multiple such examples recently. Buyers are churning their vendor portfolios much more than in the past, and aren’t afraid to pressure their service providers for reduced pricing with the underlying message that they should be prepared for competitive re-bidding process. Deal pursuit life cycles have also become longer, and the competitive intensity has been on the rise consistently.

In this environment, it becomes paramount that service providers get their solution and pricing correct on the first go. And it can be to their advantage to obtain advisory support during live deal negotiations. However, there is a big caveat here: leveraging off-the-shelf benchmarks is unlikely to add any competitive advantage to providers’ bids. The benchmarks must be very contextualized, bearing in mind the buyer environment, the vertical industry, the volumes in scope, the deal terms, the delivery locations, the provider’s solution, etc. This will not only enable development of winning bids, but also ensure that the provider doesn’t leave money on the table.

Caveat venditor!

The healthcare payer market continues to experience rapid transformation as efforts to control costs, minimize waste, and root out fraud and abuse collide with the effects of an aging population, the burgeoning insured population brought on by the implementation of the Patient Protection and Affordable Care Act (PPACA), and advances in technology and medicine. Taken alone, any one of these events would have significant impact on healthcare payers; together they’re nothing short of revolutionary.

Faced with such transformation, healthcare insurers are seeking strategies that can help them to manage ever-increasing demands. Among the more impactful tools they can employ is business process outsourcing (BPO). The healthcare payer BPO market, currently estimated at about US$4 billion, is growing at a healthy 14 percent annually. And it’s no surprise, as BPO is more important than ever in helping healthcare payers to streamline their operations and reduce costs. Beyond the basics, BPO can also help providers to research, develop and launch new products; to glean value from the masses of data they capture; and, to identify and reduce cases of fraud, waste, and abuse.

And there appears to be some evidence that payers are tapping into the power of BPO to help address their most significant challenges. While claims processing remains the most commonly outsourced BPO process, other more strategic areas are driving overall growth:

  • Product development & business acquisition (PDBA) – though the smallest segment of all outsourced healthcare payer BPO market, PDBA grew the most, at about 50 percent, between 2012 and 2013. The implementation of PPACA has forced payers to come up with new plans that are comparable to others and easy for members to understand, driving significant activity in this area
  • Member management – increasing by about 35-40 percent from 2012 to 2013, member management is another fast-growth BPO trend being fueled by PPACA. The Act is driving payers’ need not only to manage more, and increasingly diverse members, but also to take advantage of the vast amounts of data generated by the growing insured population
  • Provider management – changes in the healthcare environment are compelling payers to collaborate more with healthcare providers, in turn driving a need for better provider management. The result is that outsourcing in this area grew at about 35-40 percent year-over-year
  • Care management – As payers increase their direct contact with patients, and as part of their attempts to manage costs, healthcare payers are increasingly getting involved in care management activities, driving growth in the area to about 30-35 percent in one year

The changes in the healthcare market are daunting for even the most prepared and best funded healthcare payers. In order to compete in the increasingly challenging and competitive market, payers have to take advantage of every tool available, and BPO is fast becoming the industry’s Swiss Army Knife.

For more insights on the healthcare BPO market, see our just released report, Healthcare Payer BPO – State of market with PEAK Matrix™ Assessment. Log in or register to download a complimentary preview.


Photo credit: Flickr

If this year’s International Consumer Electronics Show was any indicator, the Internet of Things (IoT) has made the transition from fascinating concept to increasing reality. Companies are developing and launching all sorts of useful products for consumers: connected lightbulbs, health sensors, parking space finders, snow monitors, smart toothbrushes, self-watering flowerpots … and just about anything else you can dream up, and probably a few you can’t.

What remains to be seen, perhaps, is what’s in it for consumers beyond the cool factor. As devices become increasingly wired and consumers become more reliant upon them, the IoT inevitably faces some real challenges. Most importantly, consumers use a broad range of electronic devices developed by different manufacturers. Because no standards currently exist, there is little interconnectivity among these devices, creating islands of potentially interesting and useful data, but virtually no causeways connecting them.

Relatedly, these devices may produce heaps of interesting data that, ultimately, is just that – interesting data. The hard work is gleaning meaningful insights from the data. Many of us can (and do!) share our step counts with anyone within our Facebook reach … but we’ve made no inroads into losing those 10 pounds we gained over the holidays.

And then there’s the issue of data security. Just who owns or has access to all of that data that is produced and just what are they going to do with it.  It may seem reasonable that the company that made the device can use the data to improve their product offering, but when it comes to specifically targeting us in sales campaigns, that seems like another line we may not want them to cross.

It just may be that the challenges with the lack of standards that would cause a consumer to have to learn how to manage multiple systems and the uncertainty around the data issues may stymie the growth of IoT with consumers.

The other IoT “consumer”

An IoT “consumer” that gets much less attention is the commercial enterprise, which is unfortunate, because there’s a lot of potential there. Enterprises are better positioned to take advantage of the IoT because they don’t face the same challenges as regular consumers do in making use of IoT outputs.

For example, organizations are accustomed to hiring systems integrators to build custom solutions to integrate across their products. They are, therefore, much more able to build the causeways to connect the islands of data that the IoT produces.

Furthermore, many enterprises have, or can hire, the resources necessary to manage the resulting data. And beyond data management, a significant proportion of organizations understand the value of collecting and analyzing data of all types, and have teams dedicated to the exercise. Ultimately, many organizations are well positioned to derive meaningful insights from the data they can collect through connected devices.

And (the recent Sony situation notwithstanding) they may be better able to control and manage the IoT data outputs, so privacy is less of a concern here than it may be for consumers.

Ultimately, though, the financial benefits offer the greatest opportunity for the enterprise consumer of IoT data. While most individual consumers can’t anticipate significant financial gain from optimally watered plants, every commercial organization can benefit by eradicating waste, speeding product delivery, and/or identifying competitive advantage.

Potentially then, the greatest short-term benefit of the IoT will go to enterprises that aggressively embrace the opportunity by leveraging the resulting data to differentiate from competitors.

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