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DevOps Driving Digital Initiatives | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

DevOps as a concept has been in the market for some time now, and citations abound from the leadership of various organizations on how they have adopted DevOps successfully as part of their software implementation methodology.

But, every organization that has adopted DevOps has done so partially or almost completely on their own understanding and practice of the concept. Some suggest it as a modified form of agile development methodology, while others claim it as a simple co-location of resources with the traditional processes in place.

Here are some realities about DevOps, both for organizations that have already adopted it, and for those still sitting on the fence.

In the digital age, where faster deployment of products has become all the more important, it is imperative to develop an appropriate DevOps framework that ensures fast and easy deployment of code into the production. This framework should not only ensure a faster time to market but also affirm that the quality of the code meets or exceeds client expectations.

It has become critical for organizations to enhance the customer experience via software that meets individual customer’s expectations. DevOps as a methodology accelerates the release of this software, which is launched in form of a minimum viable product (MVP) and upgraded incrementally based on market demand.

The DevOps framework ideally should consist of the right team structure, where the development and operations teams collaborate from the beginning of the design stage to formulate an ideal system. This framework should solve old issues, such as late involvement of the operations and testing teams, which results in developers moving on to new projects while the code waits for the UAT approval before being handed over to the operations team, which in turn affects the release timing and code quality.

The framework should also incorporate guidelines on the tool stack that will help in faster code deployment while maintaining consistency across multiple environments. There are a variety of tools in the marketplace that automate DevOps testing, configuration, provisioning, and monitoring. It is highly important to choose the right tool stack that can be easily integrated, while ensuring high performance and throughput.

What are the critical DevOps underpinnings? The three pillars of reduced cost, increased quality, and lower effort are the KPIs against which the DevOps strategy should be gauged. Automated deployment of code plays a major role in achieving these objectives, helping ensure that end users get a ready to use product in a short span of time. And with the urgency with which organizations are going digital, time can equal success…or failure.

For more details on DevOps and its application, please see Everest Group’s recently published viewpoint, “DevOps: People, Processes and Products.”

Changing Times for Governance in IT Services | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The first visual that probably comes to a buyer or service provider’s mind when they think of governance is the 3 tier governance pyramid that had been around for many years. The structure of this pyramid, as well as the nature and number of the meetings/forums conducted around it between provider and buyer stakeholders have remained more or less consistent. While over the years some modifications have been made to the structure, many ideas have been more ”lip service” than reality, and most are yet to be institutionalized.

However, as business gets to have a greater say in the transformational agenda of the IT landscape, Everest Group is witnessing some prominent changes in the governance structure when governance is being delivered as a managed services. These enhancements include:

  • Involvement of the CMO/CHRO/CXO – In the current digital arena, as application and infrastructure modernize, we are increasingly seeing the business heads from both the buy and supply sides proactively participating in decisions on large transformational initiatives. These executives are involved in bi-monthly/monthly meetings during the initial stages, and directly provide oversight on the key projects being undertaken.
  • Billable domain SMEs – The domain SMEs, which have so far been corporate funded and working in an ad hoc manner, are now being included as part of the billable price to the buyer. The value they bring to the engagement is being measured in terms of IT-influenced business outcomes.
  • Joint ownership of service – There is a clear shift to buyer and supplier stakeholders jointly owning SLAs, as compared to the service provider being accountable to the buyer. One such example is the application services head from both organizations being responsible for answering to the CXO in the quarterly and half-yearly meetings.
  • The Watermelon effect – There has been upswing in this phenomenon, in which buyers say that even though each provider might be individually meeting its own SLAs, the end user experience is not rich or up to satisfactory levels. The momentum is shifting to the overall experience as evidenced by end user satisfaction scores. The primary providers are taking on overall experience responsibility by formalizing the OLA agreement levels, with penalties and service credits linked to each individual service provider.
  • Impact of the complex SaaS landscape – The role of the Service Integration and Management (SIAM) provider has become all the more important as buyers are moving from a two or three prime SI supplier landscape to multi-vendor SaaS environments. The SIAM supplier is becoming a critical function for managing end-to-end delivery of IT services.
  • Innovation fund –Service providers are committing to an innovation fund as a percentage of the overall total contract value of large outsourcing deals. This innovation fund is being used to run proof of value for next generation levers such as automation, DevOps, design thinking, digital, business intelligence, and data lakes, the outcome of which can be used to run full-fledged projects.

While the above are the most prominent changes happening to outsourcing governance models today, Everest Group foresees many more significant changes at individual layers of the 3 tier governance model, with tighter controls and higher business involvement becoming part of the routine.

Cognizant’s Cash Choice is a Lesson for All Service Providers | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Cognizant is now in a position where it must make important choices, and by extension, most service providers are likely to face the same situation soon. Elliott Management, an activist investor, took a position in Cognizant. When Elliott compared Cognizant’s performance to other benchmark companies in the services industry, it determined that Cognizant is undervalued and could be managed differently to create a higher stock price. Elliott then sent an open letter to Cognizant’s board and management to lay out its thesis and outline a Value-Enhancement Plan.

The activist investor pointed out that Cognizant has a strong balance sheet and a strong cash position and the firm could return some of that cash to its shareholders by buying stock. The letter also stated that Cognizant has room to increase its margins. The basis for this belief is that Infosys, TCS and some other benchmark firms have higher margins than Cognizant and Cognizant could match those margins.

My opinion? Yes, Cognizant has plenty of capacity to generate cash and a strong balance sheet. And it certainly could return more cash to shareholders without diminishing its ability to continue to consolidate the industry through acquisitions and fund its drive into becoming a digital business. However, I think it is very risky for it to follow the rest of Elliott’s thesis of attempting to match its competitor’s margins.

Cognizant already operates just as efficiently as Infosys and TCS, and its gross margins are very similar to its leading competitor. However, its net margins are lower. What does it do with the difference? Cognizant uses it to invest in customer investments and relationships, thus driving growth in its legacy business; and it uses the money to fund its transformation into a digital company.

Basically, there is a tradeoff between margin and growth. Changing that ratio would cause two impacts:

  • It would interfere in Cognizant’s ability to continue to have distinctive, above-market growth in its legacy business.
  • It would hinder investing in digital transformation.

The future of the services market will be about digital companies. Cognizant understands this and is investing against that to change into a digital company. So, it needs that money instead of returning it to shareholders in terms of extra earnings. In my opinion, asking Cognizant to increase its margins would screw up that digital growth strategy. Funding the transformation into a digital company doesn’t come cheap, so Cognizant needs that money even more today than in the past.

It makes sense that this activist investor would go after the industry. The industry has been accumulating cash, and it is highly profitable. But it’s now an industry in change. It also makes sense that the services industry, and specifically Cognizant, can return those handsome earnings to their shareholders. But as most people often find out through life, what makes sense is not always the best choice.

The changing market conditions will make it difficult for all providers to maintain high margins. Basically, it’s unrealistic to expect them to expand margins when there is downward pressure on all margins, and they need their operating margins.

I think this puts the service providers’ choice in stark relief. Basically, the legacy services industry is now mature and the providers face three options of what to do with their cash:

  1. Use their profitability to acquire and become bigger
  2. Return cash to shareholders
  3. Fund the path to transform into digital companies so that they can compete in the future

Providers are facing a hyper-competitive pricing environment in which it will become harder and hard to maintain their existing margins in their legacy business. However, they may be able to get the same or better margins as digital companies.

I think it would be a mistake to ask Cognizant to increase its net margins and not drive growth and not drive the digital transformation. It would be very short sighted to back away from Cognizant’s current growth strategy.

Accelerated RPA, Automation-as-a-Service and Other Trends in RPA Technology | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The RPA technology landscape is rapidly evolving but nothing highlights the changes more than assessing leading software products side by side and comparing the results to the previous year. That is exactly what we have been doing at Everest Group over the past few months, as part of the research for the latest RPA Virtual Worker Technology Assessment FIT MatrixTM report.

We have collected detailed information from 10 leading RPA vendors, including their product features, deployment options, go-to-market strategies, global partnerships, and market presence. We have interviewed them and their clients, as well as had their products demonstrated to us in a standardized way to compare and contrast them.

Our latest findings will be published in full in December, including updated detailed profiles of each of the technology vendors that took part in the report. In the meantime, our interim findings paint an interesting picture of:

  • Increasing depth and richness of functionality
  • More deployment and pricing options
  • The emergence of function-focused or knowledge-based automation that accelerates automation – accelerated RPA

Increasing depth and richness of functionality
There is no doubt that the vendors are learning from each other and from our last report (Service Delivery Automation (SDA) – The Story Beyond Marketing Messages and an Assessment of SDA Tools) to enhance their product features. Examples of the latest batch of enhancements include but are not limited to:

  • Features to ensure that robot connectivity through the UI is maintained (e.g., NICE’s Connectivity Watcher)
  • Better robot controls such as priority work re-allocation to robots in real time ( e.g., Thoughtonomy and WorkFusion)
  • Introduction of enhanced robot performance analytics including smart searches (UiPath) and real-time business intelligence from robot-powered process data (e.g., Automation Anywhere, and Softmotive ProcessRobot)
  • Ability to dynamically scale bots to instantly match demand from the systems that the processes run on (e.g., Automation Anywhere, Blue Prism, Thoughtonomy, WorkFusion)

The AI in the Robot
Another point to note is the use of different grades of Artificial Intelligence (AI) by robotic automation vendors for different purposes. For example, Kryon Systems’ Leo has visual integration powered by intelligent techniques and advanced pattern matching algorithms.

Automation Anywhere is leveraging machine learning and natural language processing features for handling unstructured data, consequently expanding the range of processes that it can automate.

More deployment and pricing options
More vendors have made their software available on the cloud and on more public clouds, for example, on Azure and AWS.
There are also more deployment options such as Automation-as-a-Service offered in a variety of flavours from automating tasks to processes end-to-end.

We are also seeing more and more usage and utility-based pricing options. Kofax, for example, has come up with a server licensing model for Kapow RPA based on usage levels that allows organizations to start small and control the number of robots that can be executed simultaneously.

Accelerated RPA
Another development is the emergence of function-focused or knowledge-based automation that accelerates automation. This type of accelerated RPA comes with the knowledge of the process that is being automated.
At the entry level end of the spectrum to this group are vendors that provide libraries of re-usable industry-based automations, for example, for the financial services sector.

At the more sophisticated end of the spectrum is Redwood Software that offers automation of the whole financial close process as well as other back-office functions. The software comes with the knowledge of the process and the underlying ERP system in an existing function-based process model that can be customized for clients. The focus is on the process (not the user) to directly automate all the ERP-based steps, and that, within the typical end-to-end process, e.g. the financial close.

This is certainly a dynamic and evolving market. Keep up with us to keep up with it.

Look out for our full report and vendor profiles to be published in the coming weeks.

Accessing Relevant Talent is New Value Proposition for Impact Sourcing in South Africa | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Earlier this year, Everest Group and The Rockefeller Foundation partnered on research in support of the Foundation’s Digital Jobs in Africa (DJA) initiative, the goal for which is to demonstrate the value of impact sourcing and promote its adoption in South Africa and beyond.

Impact sourcing is a business process service delivery model that provides employment opportunities to previously unemployed individuals who have not been meaningfully engaged in the formal economy. Generally, the individuals who are employed via impact sourcing belong to economically and/or socially disadvantaged backgrounds, or are differently-abled.

An overview of the impact sourcing market in South Africa in 2016
50 to 55 percent of the ~ 235,000 FTEs in the South Africa BPO market qualify as impact workers. This high share is because there is no, or limited, difference in the profile of impact and traditional workers hired in normal course of operations, meaning that although companies hire impact workers, they do not claim it to be impact sourcing.

Value proposition of impact sourcing in South Africa
As part of the 2016 engagement with The Rockefeller Foundation, our detailed business case included identification of six key elements to the impact sourcing value proposition in South Africa:

 

During our research, companies indicated that impact workers, especially those who have gone through training programs, exhibit better behavioral characteristics. These include higher adherence to timetable, lower absenteeism, higher motivation level, and lower attrition. In fact, as it relates to workforce stability, which is a critical component of the value proposition, the companies indicated almost 50 percent lower attrition among impact workers as compared to traditional workers.

Impact sourcing ecosystem in South Africa
A unique feature about impact sourcing in South Africa is the presence of a robust ecosystem comprised of BPO service providers, buyers, training academies, and government/industry associations. The presence of impact sourcing-focused training academies is a key element of this ecosystem.

These academies, such as Careerbox, Harambee, and Maharishi Institute, help buyers and service providers identify, screen, and train entry-level candidates through job readiness training or learnership programs. The thrust of these programs is on intentional talent development to ensure impact workers are employment ready. These programs include training on technical skills (e.g., computer literacy and language) and soft skills (e.g., adapting to a corporate environment, dealing with stress, and the benefits of stable employment).

In fact, providers including Aegis, CCI, and WNS have established their own in-house learnership programs as part of their intentional focus on impact sourcing.

What has changed since 2014?
Since our last study in 2014, there have been some significant positive developments in the impact sourcing market landscape in South Africa.

Perhaps the most important is the higher level of maturity exhibited by companies in understanding the benefits and challenges associated with impact sourcing, thereby, enhancing intentional adoption. Moreover, there has been a shift in the value proposition toward “accessing relevant talent” rather than just “cost savings.” In the past, companies had expressed concerns related to higher upfront training and the administration cost of impact sourcing programs. But our research established that the total cost of ownership (TCO) for impact sourcing is 3-10 percent lower than that of traditional sourcing. Finally, companies are increasingly adopting impact sourcing for the many different types of value it provides. For example, significantly lower attrition among impact workers not only contributes to improvement of the work culture of the organization, but also translates into better service delivery.

Outlook
As there is an intrinsic link between adoption of impact sourcing in South Africa and the expansion of the BPO market in the country, there are understandably concerns around security risks, the impact of automation technologies, etc. Nevertheless, our study shows that the desire to intentionally adopt impact sourcing in the country has increased, and that the model is expected to grow, albeit gradually.

For more details on impact sourcing see our additional insight infographic.

 

2016: The Disappointing Year in the Services Industry | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

As many executives are focusing on the changes that may occur in their business in 2017, I think it’s important to take a moment to review what happened in the services industry in 2016.

At the outset of this year, we at Everest Group believed the U.S. economy would continue to grow and that discretionary spend would build. We realized—and I often blogged—that the labor arbitrage model was mature and growth was slowing, but we believed the model still had more to play out.

However, the reality as it played out over the past 11 months is that the labor arbitrage market matured much faster than anticipated and discretionary spend was less robust than we expected. Consequently, earnings and growth disappeared for most of the providers in the services industry. The labor arbitrage business is flat and has effectively stopped growing.

Because of maturing service models, the year also brought a great deal of pricing pressure and providers’ growing by taking each other’s share.

But there is also good news. Almost all service providers’ growth in 2016 was in cloud and automation, and these areas are growing at a rate of almost 22 percent.

The industry is also showing early signs of revenue compression, and I believe it will be 40 percent or more over the next few years. Digital technologies such as automation, analytics, cloud and cognitive computing allow providers to do existing work much more efficiently. In many service categories, there is a 40 percent or more opportunity to eliminate FTEs. This year clearly showed providers integrating automation into their contract recompetes as well as in aggressive productivity performance.

The pace of cloud and automation adoption in services picked up significantly this year. In my next post, I’ll discuss what this means for 2017 as well as other predictions for the coming year in services.

Looking Beyond the Hype – Healthcare in the Trump Era | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Healthcare is one of the principal areas facing upheaval after Donald Trump’s U.S. presidential win last week. Beyond being a major socioeconomic issue (it does consume close to 20 percent of the U.S.’ GDP, which is ~2x that of any other developed country), it is also President Obama’s key legacy given his championing of the reform through the Affordable Care Act (ACA, dubbed Obamacare). Broadly, Trump’s proposed healthcare plan is likely to feature the following changes:

  • Partial repeal of the ACA (complete repeal is more likely to be political posturing)
  • More decentralization of public healthcare spending
  • Ceasing Medicaid expansion and changes to funding
  • Medicare reform
  • Broad implementation of free market principles to let “animal spirits” prevail
  • Prescription drug reform
  • Increased push for price transparency
  • Use of Health Savings Accounts (HSA), and allowing states to regulate health insurance
  • Ability to purchase insurance across state lines
  • Allowing premium deductions on  tax returns

Here’s how the cards stack up

Trumpcare

The good…

Commercial payers
Any kind of partial repeal or change to the ACA will actually be in line with what leading commercial payers have stated, given how broken and unviable the current HIX model is. Most C-suite execs indicate that such a repeal will make health insurance companies more competitive and more influential. This should bode well for large national payers such as Aetna, Cigna, and UHG, which have been bleeding money. This could provide a spurt to discretionary spend, which had seen a pause following mega mergers in the industry, Department of Justice injunction, and HIX losses. At a broader level, the Trump camp has proposed “following free market principles and working together to create sound public policy…” Some early reactions are calling this a welcome change that will allow free enterprise back into healthcare, and let patients, not government agencies, manage their health.

Medicaid-focused payers (states and managed care organizations)
Another key element will be the decentralization of healthcare, as Trump’s plan focuses on giving more Medicaid and other public spending power to states. Combined with the modularity mandate, (essentially breaking down state’s Medicaid Management Information Systems into smaller reusable components,) this is likely to give state health departments more bargaining power as prices decrease and competition – which in the MMIS market has been restricted to players such as CNSI, CSRA, HP, Molina Information Systems, and Xerox – intensifies. Also, managed care organizations (MCO) will benefit from the continuing shift away from state Medicaid.

Consumers
Trump has also recommended that Congress break down state barriers to allow insurance companies to offer plans in any state, as long as the plans are in compliance with state requirements. This should increase choices for consumers, and result in more competition. However, such an environment has not found much favor with payers struggling to manage the risk on their books, and will likely not find much with the challenge of entering new markets.

Life sciences firms
Most pharma and biotech stocks have soared in the past week, driven by Trump’s lukewarm stance on price regulation, as compared to Hilary Clinton’s more hawkish position on drug price reforms. Throughout her campaign, Clinton repeatedly vowed to limit the power of drug manufacturers, and suggested introducing monetary penalties to punish price gouging. The industry’s much maligned tax inversion practices have also ranked rather low on the president-elect’s agenda.

The not so good…

ACA
Despite the political posturing in the run-up to November 8, Trump/the GOP is unlikely to be able to fully repeal the ACA. It’s more likely that they will pursue a partial repeal through the budget reconciliation process, which allows bills related to spending and revenue to be passed by a simple majority, without being subject to a potential filibuster. Trump is likely to sign a bill similar to the one GOP lawmakers passed earlier this year as a counter-measure to the “failings of Obamacare/ACA.” Broad-based changes are likely to be equally, if not more, unpopular than the perceived problems with the ACA. Most of the market has invested considerable resources in reinventing their fundamental business models, and rolling back the clock is not really an option. The market will be forced into a period of uncertainty as stakeholders evaluate options amidst upheaval. While HIX plans have been value-dilutive for most payers, some such as Molina have made it work as a viable business model. However, the movements toward value-based care won’t be affected as the Medicare Access and CHIP Reauthorization Act (MACRA) and other reform tenets will continue it.

Consumers
Repeal of the Individual mandate may result in truncated consumer choices for coverage of pre-existing conditions, premium hikes due to reduced competition, and limited-benefit plans.

Medicaid
Any repeal would likely include the elimination of the ACA’s Medicaid expansion, insurance subsidies, individual and employer mandates, and several taxes that help fund the law, effective two years after the bill’s passage (this was vetoed by President Obama after the House and Senate earlier this year passed a partial ACA repeal bill through the reconciliation process.) Depending on how block grants play out, providers could experience a shortfall in government spending, and may need to rebalance their exposure to commercial payers.

Medicare
If the current GOP plan to transition it to a premium-support plan continues, there is likely to be a rise in financial uncertainty as payers’ reimbursements get linked to average versus submitted bids. This will further sharpen the focus on payers’ cost efficiency and optimization efforts to manage business models.

… and the uncertain

In most of these scenarios, we can only make an educated guess about what the Trump era means for healthcare. The next few months will be crucial in setting the tone for the changes to come – leadership appointments, policy moves, etc. The ACA seems to be the most contentious piece, and likely the first to be tackled by the administration. However, Trump’s public posturing will need to contextualized with the complexities of the legislative process to fully assess the material impact.

We would love to hear your views on how this will play out.

How to Work with Your Service Provider in a Consumption-Based Pricing Model | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

I’ve blogged several times in the past three years about the benefits of switching to a consumption-based pricing model for services, especially the benefit it delivers in shaving off operational costs. In this model, companies pay only for what they use instead of paying for over-capacity. We see customers’ desire for consumption-based pricing coming across all service lines. But, as one of the world’s largest electronics companies found in switching to consumption-based services, it creates some new challenges.

The situation that motivated the electronics company to consider switching to consumption-based services is that the company was splitting into two different operating units to strengthen its market in both areas. So agility was the main driver. The leaders knew they needed a lot more flexibility in adding or subtracting apps and services and quickly scaling the volume of work up or down. They wanted to make it easier to adopt providers’ services, and they wanted to ensure the company would not overpay for services.

But as I mentioned earlier, the company encountered some challenges. Challenges tend to increase costs. Here are three aspects to keep in mind when you work with your service provider in a consumption-based model.

  1. Pay attention to the architecture mindset. Service providers that were “born in the cloud” have a cloud mentality and expertise when it comes to architecture. But it can be challenging to work with established providers having to change their mindset around solution design and traditional architectures. The electronics company found some providers wanting to wrap cloud capabilities in traditional delivery models. A characteristic of this type of provider is the demand to establish change control procedures. The electronics company found that changing mindsets works both ways. A big lesson learned was that the company couldn’t manage IT as it did before in that it couldn’t treat infrastructure as if the company owned it. Working from an ownership mentality will drive up costs. Another lesson learned was to turn off services and components the company no longer needed.
  2. Accurately define compliance requirements up front. As the electronics company found, it’s crucial to map out all the different regulatory compliance and legal requirements and what each means for IT as well as business continuity. They encountered service providers that lacked understanding of patterns among multiple compliance and legal requirements. For example, some providers didn’t know whether a requirement also applied to other regulations, or providers didn’t know how compliance with Russian regulations for storing personal data differed from European compliance.
  3. Operational changes will be required. In a consumption-based services model, your organization will need fewer people to monitor the services. Monitoring the infrastructure will no longer be necessary, but you will need to make sure the service provider monitors it. The electronics company used multiple providers for different cloud components and found it necessary to aggregate their performance, coordinate among them if something was not working and, in such case, escalate upwards to decide what to do. Aggregating, coordinating and escalating require different skills and capabilities than performance monitoring.

When the operating model changes to a consumption basis, you may also need to configure your database differently. And you may need to retrain employees or augment current staff with new skills. The electronics company, for instance, found it lacked IT people with the skills necessary to lead a solution design discussion with the business.

The outcome for the electronics company was worth the challenges. The company achieved significant cost benefits from the consumption-based strategy, including:

  • Fees elimination. The company implemented a cloud model for IT infrastructure, which ensured it would pay only for what it used, plus it eliminated start-up and termination fees to service providers.
  • Cost reduction—in fact, 70 percent unit-cost reduction in most of the Infrastructure-as-a-Service components. First came a 40 percent reduction by recompeting legacy outsourcing agreements. The next tactic was moving core cloud infrastructure services and workloads (including storage, compute, security, analytics, devices and network) to the company’s infrastructure and operating platform based on a consumption model. This resulted in an additional 30 percent cost reduction.
  • Portability. Using SaaS apps made it easier to switch applications such as email and analytics.
  • Standardization. Market standards in areas as analytics, storage and the Internet of Things are still evolving. To avoid additional costs while market standards evolve, the company standardized on the service provider’s architecture instead of on a market standard.

Most of all, switching to a consumption-based model eliminated the friction that exists in many services relationships. It eliminated the problem of misaligned provider/customer interests that occurs in traditional take-or-pay situations that often result in customers deciding to switch to a different service provider.

AI Bots for Strategy-in-a-Box? This Is Not a Google Problem | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Most, if not all, of us rely on some form of Google search these days to accomplish our tasks. And because of its ease, we tend to be unwilling to say no to questions because we know we can Google to get the answers. By proxy, this has deluded us into believing we are “experts” on everything.

Bots for strategy-in-a-box
How does this relate to Artificial Intelligence (AI) enabled-bots in a business strategy context? AI is disrupting every walk of the life. The likes of Google (Alphabet) DeepMind, Facebook FAIR, IBM Watson, and Microsoft Cognitive Network Technology are demonstrating increasing use cases by the day. All these platforms crunch massive amount of data to become intelligent over a period of time.

As strategic decisions and long-term initiatives require huge amounts of data to be churned, AI bots are ideal candidates to assist, particularly because it’s not humanly possible to keep track of the multitudes of parameters that must be factored into development of a business strategy in today’s environment. Thus, strategic leaders may have to rely on a second “expert” going forward…an AI-enabled machine expert, that is.

Can the data crunching go so far that enterprises won’t need strategic leaders at all anymore and, instead, will be able to pretty much leverage a virtual agent to create their business strategy? Can this data crunching make the bot a strategy “expert” that can design a strategy out of the box?  Let’s step back for a moment.

Who needs a 10-year strategic plan?
I have argued multiple times that the days of creating a long-term enterprise strategy are well over. Given business and technology disruption, it is becoming impossible to see beyond your nose, forget 10 years. Can an enterprise afford to create a 10-year strategic plan? Can any business leader put her hands on her heart and say she believes in that strategy?

I doubt any enterprise can make that kind of long-term commitment. While a long-term vision used to be the differentiator between a great company and its peers, the differentiation point is quickly becoming how nimble the strategy is to incorporate and adapt to the rapidly changing business environment. Such a dynamic strategy needs to be built on massive amounts of data that incorporates parameters, including disruptions from outside a given industry, which the human mind cannot fathom. For this, enterprises need AI.

Back to strategy-in-a-box from a bot
If the above is the case, should an enterprise opt for a strategy-in-a-box rather than a strategic planning exercise? Can a bot create an enterprise’s strategy roadmap sans business leaders or maybe with just a little help from them? This may sound far-fetched, but it is certainly possible.

One can argue that strategic leaders rely on their experience, intuition, and other factors beyond data to make decisions and create an enterprise vision. While this experience and intuition were valuable when the business environment was largely stable and “known,” in the rapidly changing world these “assets” could be counterproductive. Strategy leaders experience will continue to hold value but less than what is generally thought.

If the enterprises do not need or can’t afford a long-term strategy in this rapidly changing world, why would they need the experience and intuition of strategy leaders? How is this experience that was accumulated in the last 30 years relevant for the coming years in such a fast changing technology environment? Moreover, an AI-enabled bot can possibly compensate for some of this experience and intuition through other parameters such as correlating seemingly uncorrelated data.

Adopting bots as a fulcrum of strategy development may go against the general perception that AI-enabled systems will augment, rather than replace, human powers. I, for one, don’t buy that “enhance human” argument entirely. In fact, humans may be assisting machines to make better decisions, rather than vice versa.

I think next-generation AI, automation, deep learning, and cognitive systems will definitely result in job losses, and we should be prepared for it. The argument that technology in the long term helps create more jobs has been sugar coated, and no one talks about the fact that disruption can create havoc in the short term. And people being impacted by this mayhem see no long term.

However, this is a reality from which we cannot escape. Enterprises need to ensure they are using AI as much as possible in their strategic planning. Believing that AI is only suitable for basic tasks will set them up for disaster.

Therefore, enterprises should not confuse AI-enabled bots as “experts” who rely on Google… “experts” who may not know but still answer. AI-enabled bots will be credible experts who rely on data, massive data, and their own intelligence.

The bottom line is that while your enterprise may not yet be ready for an AI-enabled, bot-developed strategy-in-a-box, you must take baby steps toward that future.

Social Media-based Disruption is Even Hitting the General Insurance Industry | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts, Uncategorized

The general insurance (GI) industry has largely remained silent in a world where conversations either begin or end with the word “digital.” Products and services from the traditional GI providers have failed to keep tempo with the rapid technological developments happening everywhere else. One reason for this is that GI offerings are low-touch products about which customers interact with the provider just once or twice a year. Another is that GI providers have traditionally not focused on customer experience or value generation for their clients. They lag the Ubers and Amazons of the world by many miles.

However, the landscape has started to change recently due to the entry of disruptive start-ups trying to bridge the gap between service delivery and customer expectations. Areas gaining traction include price comparison services and mobile-based services. The real standout is peer-to-peer (P2P) insurance. It has gained more market buzz because the business model is not as opaque as the traditional model and provides clear benefits for the customers.

The P2P insurance business model
P2P insurance is a novel model facilitated by social media. Customers form their own online networks, and each pools in money to build a corpus. They allocate some portion of the fund to the mutual pool and pay the balance to a traditional insurer. When a claim must be made, members pull money from the mutual pool. If a claim exceeds the mutual pool corpus, they approach the reinsurer. If the claim is less than in the mutual pool, the remaining amount is distributed back to the members.

What are the benefits?

  • Risk reduction
    • There is less likelihood of fraudulent claims, as the small group of members who know each other share the risk
    • The members can select the risk level of their group, unlike in the traditional model
  • Non-operating cost optimization
    • Marketing and administration costs account for nearly 10-15 percent of policy premiums in the traditional model. These costs are nominal in the P2P model, as marketing is done by members personally. Hence, members pay less than usual premiums
  • Savings generation
    • Unclaimed insurance premiums are profits for traditional insurers. However, P2P insurance gives unclaimed money back to the members.

How does this disrupt the status-quo?
In the medium to long term, as this model gains maturity and acceptance, customers may switch to the P2P model. This will shrink the market share held by traditional players. Reduced demand for traditional insurance plans, coupled with increased supply, will drive down prices. Thus, customers are likely to benefit in the end.

Who are the current prominent P2P start-ups?
P2P Start Ups

These companies are the hot start-ups in this space for a number of reasons. First, they are the early movers that have leveraged cutting-edge technology tenets such as social media and mobility. Second, they are trying to tackle a real business problem and, in the process, are improving efficiency in the market. Finally, they are managing to raise substantial funding from prominent investors such as Sequoia Capital and Horizons Ventures.

An urge for innovation in the industry, coupled with high potential demand from the customers, will drive further disruptions in the GI market. Start-ups are likely to be the vanguard in this evolution, by introducing value generating products and services. Sooner than later, the traditional players will wake up to the new normal, and will try to catch up by either acquiring these start-ups or partnering with them. Ultimately, the end-customers will be the beneficiaries, as competition forces the prices down and innovation drives the quality of services up.