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Why Invest in Artificial Intelligence (AI)? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

“Facebook shuts down robots after they invent their own language.” This headline was splashed across myriad news outlets just a few weeks ago. And although the story itself made the event seem like just a normal science experiment, this type of alarming tone in media reports is becoming the norm and is sowing seeds of doubt, fear, and uncertainty among consumers and even some businesses.

However, behind the vendor hype and the media fear mongering, there are real, bona fide reasons for organizations to invest in artificial intelligence (AI).

Humans can perform various expert tasks with relevant training and experience. For example, a research analyst trained for and with experience in market research, can predict future market size and growth with considerable accuracy. Using machine learning, a system can be trained to perform the same task. Yet, with their enormous computational power, such expert systems/machines can beat humans’ speed, accuracy, and efficiency in this and many other tasks. This is the reason why many organizations are investing heavily in developing and creating AI-enabled systems.

Narrow AI

Have you ever encountered a situation where you’re talking to a customer service executive over chat, and wondered if you’re actually talking to a real human agent or a virtual agent/computer program?

I recently attended IPsoft’s Amelia 3.0 launch event. Amelia is an AI-powered virtual agent platform that uses advanced machine learning and deep learning techniques to get progressively better at performing tasks. In one of the more interesting demonstrations, Amelia went head-to-head with a real person in answering questions posed to it in natural language, by real-time processing of unstructured data from natural language documents such as Wikipedia pages. It was fascinating to see how Amelia could answer questions with considerable accuracy.

Such domain-specific expert systems that can simulate human-like capacities and even outperform human expertise in specific domains are called Narrow AI.

While most AI vendors typically focus on building Narrow AI systems for a specific purpose such as virtual agent capabilities, some large vendors such as IBM, under its Watson brand, offers multiple individual Narrow AI systems to cover a wide range of use cases.  For example, it is being used at several top cancer hospitals in the U.S. to help with cancer research by speeding up DNA analysis in cancer patients. In the finance sector, DBS bank in Singapore uses Watson to ensure proper advice and experience for customers of its wealth management business. And in retail, an online travel company has created a Discovery Engine that uses Watson to take in and analyze data to better link additional offers and customize preferences for individual consumers.

True, or General, AI

Artificial intelligence with multiple and broader capabilities is called True, or General, AI. When it comes to developing General AI, which has the ability to generalize and apply learnings to unlimited new domains or unexpected situations – something that humans often do – I think we are just scratching the surface. Primary barriers to achieving General AI are our lack of understanding of everything happening inside human brain and the technical feasibility of creating a system as sophisticated, complex, and vast as the human brain. As per a survey of 352 researchers published in 2017, there is a 50 percent probability that General AI will happen by around the year 2060.

Current lay of the land – A world of opportunities

Despite the many evolutional, ethical, and developmental challenges researchers and technology developers continue to face in making artificial intelligence more capable and powerful, I believe that even existing AI technology presents unique opportunities for organizations. It enables them to improve the customer experience and operational efficiency, enhance employee productivity, cut costs, accelerate speed-to-market, and develop more sophisticated products.

To help its clients understand the AI technology market better, Everest Group is researching this field with a lens on global services. Although early in our research, one fascinating use case is how AI is automating decision making with complete audit trail in the heavily regulated financial services industry. The research will be published in October, 2017 as part of our research program, Service Optimization Technologies (SOT), that focuses on technologies that are disrupting the global services space.

When And How A Digital Transformation Opportunity Appears | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Do digital transformation initiatives start with a leader having a vision for the future and making the case for that change? Sometimes. But that’s rarely the case. At most companies, it happens like this: People at many levels in the company realize that things in the business world are changing. Dramatic change can be enabled by big advances in technology and new business models. They realize the company needs to do something different to compete and they need to explore how things are changing and what’s possible. Sound familiar?

Often, something happens in the business that becomes a catalyst for exploring how the company can benefit from the big changes occurring today. The catalyst may be an outsourcing contract coming up for renewal and the realization that they don’t want vendor lock-in. It may be a realization that processes are stuck in “old school” thinking and execution, and it’s slowing down the business. The catalyst might be changing economic conditions driving the need to find a simpler way to operate. Or it could be the leaders think the company is leaving money on the table and not getting as much out of vendors as they could. A catalyst occurring more and more these days is a company recognizing it can benefit more from automation than sending work offshore.

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What the Global Services Industry Can Learn from 17th Century Firefighters | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

A couple of weeks ago, several of us from Everest Group hosted a roundtable for sourcing executives in the U.K. The event was held in London’s Moorgate area – Moorgate is the name of the northernmost gate in the old city wall, and everything to the south and west was destroyed by the 17th century Great Fire of London – so I decided to orient my discussion on benchmarking by drawing parallels between the fire and digital disruption in the global services industry.

For context, the Great Fire started shortly after midnight on 2 September 1666 in a bakery on Pudding Lane. Over the next three days, the fire gutted the medieval City of London inside the old Roman city wall, and consumed 13,200 houses, 87 parish churches, St. Paul’s cathedral, and most of the buildings of the City authorities.

As we’re just several weeks shy of the 351st anniversary of the Great Fire, let’s all have some fun by casting today’s enterprises and two different types of outsourcing service providers as the entities trying to find a solution to stop the fire from spreading.

service providers

 

First, as there was no city-run fire brigade, the householders – read, the enterprises – attempted to put out the fire themselves, as it engulfed their own buildings. But their two capabilities, dousing buildings with water despite the inadequacies of the pipe network and pulling burning material from structures with bill hooks, were reactive and futile. Theirs was a sub-optimal process.

With the fire quickly spreading, the city authorities realized that a more coordinated approach was required. The city militia – read, service providers that deliver “traditional” services – was called in, and concentrated its efforts on pulling down houses that stood in the fire’s path. While this was an optimized process, it only minimally delayed the spread of the fire, and certainly was not popular with the householders/enterprises.

Finally, the garrison at the Tower of London – read, a provider that offers transformative, digitally-based solutions – offered a solution that was conceptually challenging: the creation of effective firebreaks by using gunpowder to demolish entire streets. This genuinely transformed process rescued the city by leveraging a highly disruptive technology (gunpowder).

The immediate outcome was prevention of further fire spread. Problem solved! But the solution also resulted in two unforeseen, and highly beneficial outcomes: the end of the bubonic plague outbreak that had ravaged London since 1665, and, because of the huge anticipated cost of rebuilding the city, a financial imperative to end the Anglo-Dutch war. The eradication of disease meant that London was immediately a safer place to live, so both economic and intellectual capital returned to the city. Peace with Holland created conditions for trade to thrive, insurance against risk took off (Lloyds appeared as an insurer just 22 years later in 1688,) and London’s emergence as a global city began…extraordinary value-add.

How does this connect with service providers today?

The moral to this entertaining (and historical fact-filled) exercise? Today’s enterprises are facing multiple, unprecedented forces. In order the stop the spread of the fire – or gain and maintain a competitive foothold – they likely need to partner with  service providers that embrace innovative, disruptive, digital solutions.

Enterprises can always insist that service providers find better ways to prevent the spread of fire, and to optimize processes by taking a rounded, contextualized approach to reviewing the detail of an existing arrangement. In our experience, this can account for value improvements of between 18 and 24 percent of the total cost. But by insisting that service providers themselves start thinking innovatively and imaginatively, that improvement can often be doubled. While some of the consequences will be unintended, many of them will deliver benefit far beyond their intention.

 

An Outsider’s Inside View of the Global Services Industry: New Value Props, and Bots to Boot | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Just a month ago I rejoined Everest Group as its chief research guru. And while I thoroughly enjoyed my stints as chief research officer at Market Track (a competitive intelligence firm for advertisers) and The Hackett Group (an intellectual property-based strategic consultancy and benchmarking firm) over the last 10 years, I’m feeling like a kid in a candy store in today’s digitally-oriented global services industry!

Here are my gut reactions to visits I had last week with two sell-side organizations.

Wipro

Wow, wow, wow.

That’s research speak for how I felt after the inauguration of Wipro’s brand new Silicon Valley Innovation Center on August 1. The Center, which Wipro bills as, “…state-of-the-art R&D and incubation hub, designed to develop and showcase next-generation technologies and solutions for enterprises” clearly displayed how much its value proposition has changed.

It wasn’t that long ago that Wipro and its peers were promoting savings, quality, and scale, along with a thin layer of industry expertise. Now it’s showcasing innovative solutions along a broad array of concepts that include the future of retail, banking, and healthcare, to name just a few.

It’s clear Wipro knows that the robots are coming, rendering its traditional proposition passé, similar to what EDS, CSC, ACS, and HPE experienced over the past 15 or so years. So will its ideas be enough to compete in this dog-eat-digital global services environment? It’s hard to say, but it’s certainly going to give it the old college try. We’ll update our thoughts in due time.

Automation Anywhere

No C3POs to be found, but I did see some game changers.

I took advantage of my time in Silicon Valley to stop by Automation Anywhere’s headquarters. And I was sorely disappointed when they didn’t show me a warehouse full of R2D2 and C3PO robots. Instead, they showed me an evolutionary capability that has reached a tipping point that should make enterprise executives do an immediate rethink of how they design their organizations.

I had a spirited debate with CEO Mihir Shukla and his team about how Automation Anywhere’s RPA-based solution will impact enterprises. Our mutual thoughts were that some will use it incrementally to create short-term savings and process improvements, but that really innovative executives will use it as one of several key tools to change the competitive landscape in their markets. For them, it will be a thing of beauty. For others? Well, let’s be positive.

Watch this space for some really cool fact-based insights that help differentiate the winner and loser enterprises over the coming months.

Ordering a Pizza in Today’s Global Connected Ecosystem | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

If you had a 10pm craving for a hot pizza to be delivered to you in the 1990’s, you’d pick up the telephone and call your local pizza restaurant. In the early 2000’s, you’d satisfy that late night hunger by logging into a pizza chain’s website and placing an order to be delivered by the nearest location. Now, you can just sit back in your easy chair and instruct Amazon Alexa or Google Home to place your order with one of several chains.

But the only way this can happen is through a global connected ecosystem in which many players must interoperate to deliver a satisfying, end-to-end customer experience. Without an intricate connection among your intelligent personal assistant, a technology provider, a network provider, etc., you’ll be left longing for a pizza that never arrives.

This simple (and hunger-inducing!) example illustrates the need for what Everest Group calls ecosystem-centric design thinking in the product development space.

The goal of this approach is to design and engineer products that have significant intelligence, and are built to interoperate in today’s environment in which the lines between humans and machines are becoming increasingly blurred. It takes into consideration that optimizing individual touch points is insufficient to deliver a truly satisfactory overall journey, and that consumers today do not separate products or services from the experience of buying and owning them. As a result, the entire end-to-end “package” needs to be carefully designed. For example, a manufacturer of a smart home alarm system must design its product in line with device OEM providers, a platform provider, a network provider, a technology provider, etc.

Ecosystem-centric design thinking works on following underlying principles:

 

Design Thinking

Ecosystem-centric design thinking – enabled by capabilities such as the Internet of Things, open innovation, 3D printing, augmented and virtual reality, and edge analytics, machine learning, and artificial intelligence – is already being utilized in numerous industries. For instance, Nike Plus Group is embedding sensors in the shoes of runners to engage with the runners and their social network, enabling it to develop deep running experience insights upon which to design new products and events. Another example is Local Motors, which has established an open innovation platform for anyone to share their ideas for development of smart vehicles. Next-generation products such as live hologram projectors and smart mirrors are also entering the market.

Not sure whether ecosystem-centric design thinking is for you or not? Everest Group has conducted deep-dive research on design-thinking augmentation in the rapidly evolving product engineering space. Our recently released report, “Designing Products in the Age of Human-Machine Nexus for the Global Connected Ecosystemprovides details on the why’s and what’s behind ecosystem-centric design thinking, and contains a questionnaire that will help you determine if the time is right you for to start exploring it.

Is Infosys Stepping Up Its Acquisition Game? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The disruptive turmoil of the digital revolution is felt in all corners of the world, particularly among India’s service providers. In several blogs, I’ve discussed the differing tactics third-party IT and business service providers are using to address the steep challenges in the changing market. The steps they’re taking to clamp down on the shift to digital services can affect your company’s decision around third-party services. Infosys’ announcement this week of its agreement to acquire Brilliant Basics illustrates it’s on the way to turning vision into reality.

CEO Vishal Sikka joined Infosys with a mandate to transform the company and implement a “digital first” strategy. Two big areas of change in this transformation are acquiring new talent and rethinking assumptions embedded in the organizational culture. New digital business models require that a service provider’s talent base have digital expertise. In an earlier blog, I pointed out Infosys would need to acquire companies that have already developed a digital business and have a digital talent base.

Read more here

Three reasons why innovation and technology pilots often don’t succeed | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Disruption from new technologies and new business models fundamentally changes companies’ competitive positioning. Most CEOs and boards of directors today recognize their business is at risk if they don’t change, as disruptive competitors will gain ascendency over them. Because they recognize the power of disruptive technologies and the need to change, many invest in pilots to determine whether a technology can create the desired performance outcome. Unfortunately, pilots rarely deliver real value. Furthermore, look at Amazon, GE and other firms that successfully incorporate disruptive technologies into their business model, and you’ll realize they don’t use pilots to drive change. Why not?

Pilots often succeed in demonstrating a technology is useful in achieving company objectives. What happens next is an “evangelist” communicates the success, believing this will result in the organization implementing the technology and driving change. Sounds good, but there’s little evidence that this works. I’ve observed countless pilots over more than two decades, and very few resulted in meaningful changes to competitive positioning. There are three primary reasons why this happens.

Read more at my CIO Online blog

Outcome-Based Contracts in Life Sciences – An Age-old Idea Taking a New Avatar | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Outcome-based contracts in the life sciences industry are essentially a risk sharing agreement between a drug manufacturer and its consumers, which include healthcare payers, healthcare providers, and physician groups. The agreement guarantees that if defined care outcomes are not achieved, the drug manufacturer is liable to pay compensation.

This type of contract is not a new concept in life sciences. For instance, money-back guarantees from snake oil liniment companies and for products such as Emerson’s Bromo-Seltzer have been advertised since the 1800’s. However, the idea is getting a makeover, thanks to value-based healthcare, Medicare Access and CHIP Reauthorization Act (MACRA), falling R&D productivity, and the slow death of the blockbuster drug discovery business model.

outcome-based contracts

Comparing volume versus value

Given the push for value-based healthcare, outcome-based contracts in life sciences are gaining momentum. Leading life sciences companies are making a transition from volume-based contracts to outcome-based contracts to drive higher accountability and ownership, better quality of care, optimized R&D costs, and competitive differentiation.

Outcome-based contracts

Indeed, many pharma companies, such as Amgen, Merck, and Novartis, are already experimenting with outcome-based contracts for areas such as cardiovascular treatments, diabetes medication, and cholesterol cures.

Operationalizing outcome-based contracts

To operationalize outcome-based contracts, drug companies, consumers, and technology-providers must work in tandem.

  • Life sciences firms must have a risk appetite to share the financial burden with their consumers
  • Consumers must be willing to appreciate and reward innovation provided by drug companies
  • Technology is the key catalyst in accelerating an outcome-based contracts model. In fact, it becomes the key pillar in risk analysis, value analysis, and reward analysis. Technology providers must co-innovate with pharma firms in identifying and measuring care outcomes. For example, they can provide cloud-powered IT infrastructure to enable clinical trials orchestration across multiple trial sites, and implement predictive modeling techniques to help drug companies understand consumers’ unmet needs.

Outcome-based contracts challenges

Although outcome-based contracts open new vistas for drug companies, significant challenges hamper adoption. A study conducted by the “American Journal of Managed Care” indicated that incremental investments – in both money and time—is the biggest hindrance, and pharmaceutical firms mention they are not yet witnessing evident RoI from these investments.

Stakeholders’ reluctance and regulatory restrictions are also deterring outcome-based contracts adoption.

outcome-based contracts implications for stakeholders

Implications for stakeholders

Life sciences firms
With outcome-based contracts gaining momentum, life sciences companies should be more accountable for their products. They should interact with healthcare entities and consumers to understand the efficacy of their products, and work towards improving care outcomes.

Payers
As life sciences firms embrace outcome-based contracts and providers embrace value-based care tenets, payers will have a direct financial impact. They can derive breakthrough value from their operating costs as any medication or procedure charges are directly linked to the drug quality and/or quality of care. This, in turn, optimizes claims costs and reduces fraud and abuse incidents.

Technology partners
Technology vendors and IT service providers that are struggling to open new business arenas with life sciences companies must see this as a lucrative opportunity to propose high-value technology services. Example opportunities include infrastructure modernization, cloud orchestration, a data analytics suite, interoperable API creation, customer experience management solutions, pricing analytics, etc. Overall, developing outcome-based contracts can not only create market success with life sciences clients but also help technology and IT service providers cross-leverage these capabilities in other industry verticals.

Has your company ventured into or fully-embraced outcome-based contracts? What successes and challenges have you experienced? Feel free to contact the authors (either Nitish Mittal or Chathurya Pandurangan) and let us know.

Is Mexico Losing its Luster as a Nearshore Delivery Location? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Over the years, Mexico has become an attractive nearshore delivery location for U.S. enterprises and service providers. But two significant potential challenges may impact its popularity.

NAFTA

To boost economic ties, Mexico, Canada, and the United States entered the North American Free Trade Agreement (NAFTA) in 1993. However, NAFTA critics argue that it has resulted in job losses and suppressed wages in the U.S., and encouraged illegal migration of workers from Mexico into the U.S. The Trump administration is considering withdrawing the U.S. from NAFTA due to ‘protectionist’ measures, i.e., those that are in the interest of U.S. domestic market.

The proposed outsourcing tax/Border Adjustment Tax (BAT)

To further promote and create jobs in the U.S., President Trump has proposed incentivizing companies to make goods domestically by adding a tax – an outsourcing, or border adjustment tax (BAT) – on companies that import goods and services from other countries. He has floated the idea of 20-30 percent BAT on imports.

While the actual impact of impending renegotiations on NAFTA and potential implementation of the BAT on Mexico as a nearshore service delivery location is yet to be seen, Everest Group conducted research to determine the likely short-term effect of these developments on the IT-BP industry in Mexico. Following are snapshot findings from our study.

everestnew1

 

Further, while there are multiple alternative locations in Latin America available to U.S. enterprises, very few offer a significantly better cost-talent proposition than Mexico. Thus, even in the likely scenario of NAFTA revocation, Mexico is not likely to lose its sheen as an attractive nearshore location for IT-BP service delivery for U.S.-based organizations.
Although there are no favorable indicators in the short-term, there have been no knee-jerk reactions from firms leveraging Mexico for service delivery. We believe the country’s medium- to long-term outlook continues to remain positive for IT-BP services delivery.

For more detailed findings, please read our report: “Mexico IT-BP Services Viewpoint.”

Should Your Global Service Delivery Locations Portfolio Include Western Europe? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

As enterprises move from an arbitrage-first to a digital-first model to gain business value beyond cost savings, and to lessen the impact of potential immigration-related issues, service delivery from locations that were traditionally considered “onshore” is gaining prominence.

Western Europe* is one region that has gained significant importance as a global/regional delivery geography over the last several years. Indeed, Everest Group’s research on the growth of back- and middle-office services delivery demonstrates a compellingly strong value proposition across all the countries in the region.

 

service delivery

* The Western European region is defined as Austria, Belgium, Denmark, France, Finland, Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and United Kingdom.

Yet, due to multiple misconceptions about the region, some readers may need to be convinced of its viability as a digital-first delivery location. Thus, here are some fallacy-busting facts from our recently-released report, “Emergence of Western Europe for Centralized Global Service Delivery to Europe”:

  • Myth 1: Western Europe is predominantly a source geography, not a delivery geography
  • Reality 1: Global in-house Center (GIC) setup activity has seen significant growth, with double the number of new setups in 2014-2016 compared to 2011-2013

service delivery

  • Myth 2: Western European cities cannot offer more than 10-20 percent savings
  • Reality 2: Contrary to popular belief, selected locations in Western Europe can offer cost savings up to 30-50 percent over tier-1 locations (e.g., London, Frankfurt, and Paris)
    • Barcelona, Belfast, and Lisbon offer the highest cost savings due to lower salaries and infrastructure costs

 

  • Myth 3: Western Europe is primarily leveraged by Western Europe-based enterprises for service delivery
  • Reality 3: In 2016, U.S-based enterprises established the largest percentage of new GICs in the region

 

service delivery

 

  • Myth 4: The value proposition offered by Western European locations is limited to support of European languages
  • Reality 4: Western Europe’s value proposition extends far beyond language to the availability of skilled talent, stable business/operating environment, cultural affinity, high maturity for certain niche services, and delivery of skill-intensive work. Multiple locations in Western Europe are particularly well suited for complex digital services (e.g., analytics, blockchain, and mobile development.)

Clearly, there are many reasons why Western European cities are playing a strong role in the delivery portfolio of a growing number of organizations that have highly advanced locations strategies.

Of course, there are multiple factors that could potentially alter the landscape of delivery from Western Europe. Issues global services leaders need to carefully consider include Brexit, adoption of digital technologies (e.g., social, mobile, analytics, and cloud), and likely changes driven by the General Data Protection Regulation (GDPR) and the European Central Bank (ECB.)

For a more detailed analysis of the value proposition of Western European cities, and relative comparisons of leading locations, please see our recent report, “Emergence of Western Europe for Centralized Global Service Delivery to Europe.”