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Budgeting Is A Big Constraint In Digital Transformation | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts, Uncategorized

As I’ve been working with companies that are in the process of digital transformation, nearly all mention a common challenge: “How can we create a budget for digital transformation initiatives for a multi-year digital journey?” I’ve blogged before about funding for digital initiatives veering off track due to the complex, cross-functional nature of a multi-year journey. But the budget approval problem starts at the outset. In fact, most traditional budgeting structures break down in the face of the challenges of digital transformation.

Obviously, digital transformation doesn’t come without investment or without costs, and it takes time to deliver on the promise. But funding for digital transformation journeys is particularly nettlesome. Often the promise of a digital transformation is some combination of better business impact as well as lower operating costs. Consequently, executives quickly gravitate to the lower operating costs. That leads them to design short sprints or projects to deliver savings. This strategy often is not realistic for funding the digital journey.

Read more at my Forbes Blog

The Wide-Ranging Impacts of a Single Payer Healthcare System | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

On June 1, 2017, the California state senate passed the “Healthy California Act (HCA.)” The bill (SB 562), which is now in the state assembly for further action, aims to replace all private/government insurance plans in the state with a single, government-run insurance plan.

There are numerous reasons the bill will likely not pass. For example, the California state government would need to spend US$400 billion per year (more than twice the current spend) to fund the proposals in the bill, in turn requiring a massive increase in taxes, including a 15 percent payroll tax increase (source: California Senate Appropriations Committee). There’s limited political support for the bill, even among Democrats. There’s also minimal popular support, per a Pew Research Center poll, which concluded that only 30 percent of California residents prefer having the government be the sole payer. Previous similar attempts at a single, state-run payer system have failed due to the expense involved.

On the other hand, there are voices of support for a single payer system, including Bernie Sanders, the longest serving independent in U.S. congressional history, and Mark Bertolini, Aetna’s CEO, who in May 2017 asked the nation to ponder such an arrangement.

If a single payer system were ever implemented, sweeping changes would impact multiple parties.

How would a single payer system look if it were ever implemented?

Healthcare Payers:

  • If the government was the sole provider of health insurance, commercial payers would get absorbed into the government-run business
  • If the government expanded Medicare coverage to all citizens, commercial payers would die out due to strong competition from government plans
  • If the government sublet to a single commercial payer to handle the insurance market, there would be large-scale consolidation in the payer market

While there are many ways in which this could play out, a move to a single payer system would in most cases be a bane for the payers.

Healthcare Providers:

  • A commercial payer-controlled single payer system would severely undermine providers’ negotiating power. However, a government-controlled single payer system would give them some negotiating leverage
  • They would experience significantly reduced administration costs, as everything would be sponsored by the single payer

Thus, healthcare providers would experience positives as well as negatives in a single payer system.

Outsourcing Service Providers:

A single payer system would bring many opportunities to outsourcing service providers. For example:

  • Payer consolidation would require third-party support across system integration, consulting, process expertise, BPO, and many other areas
  • A government-run consolidation would lead to new areas of investments, similar to the Medicaid Management Information System (MMIS) that the states currently run
  • Integration of everything, including clinical data, under one umbrella payer would enable service providers to develop much more powerful analytics and insights

Single payer system’s governmental requirement for service providers

Of course, not all would be rosy. As a single payer system would require service providers to work with the government instead of commercial entities, they would likely face slower processing, a smaller appetite for innovation, and bureaucratic red tape. Additionally, payer consolidation would lead to outsourcing industry consolidation, likely putting some service providers out of business.

We don’t mean to spook outsourcing service providers with our views. Nor are we encouraging them to start investing in expanding their offerings. But we are recommending they keep an eye on the progress of the HCA and other similar acts around the country. Doing so might just save them from the same fate Nokia suffered at the hands of Google and Apple.

In Digital, What was Context Now Becomes Core | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts, Uncategorized

I don’t know about your company’s situation; but having looked at literally hundreds of outsourcing contracts, I see that they all have something in common. The original intent was a one-time shift to transform and improve an operational aspect. Unfortunately, IT outsourcing contracts sort of poured concrete around the outsourced processes. Thus, the quest for operational excellence through outsourcing IT has the effect of stopping companies from changing. That’s a non-starter in the digital world.

When companies begin to rotate from legacy environments into digital technologies and digital business models, it’s not long before they realize they must fundamentally rethink their assumptions around the old ways of doing things. In those old assumptions, outsourcing IT infrastructure, development and maintenance and other IT functions made sense. The assumption was those functions were not core competencies, so the company should outsource to get efficiencies of scale and price points through leveraging the outsourcer’s core expertise. That assumption was usually right; the company transformed from Point A to Point B and achieved a one-time shift in improving operations.

Read more at my CIO Blog

Repositioning For Digital: Four Keys To Success | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

What if the foundations upon which your company built its business shift suddenly and you’re forced to reevaluate long-established strategies and investments? That’s the situation as the business world embraces digital technologies and digital business models. Accompanying this disruption is the inconvenient truth that most companies fail to overcome the huge challenges and achieve their hoped-for breakthrough performance. So, what can your company do to safeguard its investment in the shift to digital and achieve your desired outcomes? Let’s look at key steps in a designed-for-success approach. These steps aim to eliminate risks and failure points that usually occur in digital transformation.

LTI (Larsen & Toubro Infotech), Tata Consultancy Services (TCS) and Wipro are three service providers that recently took steps to accelerate their journey into the digital era. Just like many of their customers, digital disruption threatens these prominent service providers’ legacy business. To maintain their competitive position, they are making deep, bold changes to their business models. Their actions serve as a model for approaching your company’s digital transformation.

Read more at my Forbes blog

Is Big Bad? Two Sides of the Coin for Scaled-up BPS Providers in the Digital-First World | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

One of my favorite quotes is “Disruption doesn’t discriminate.” And you’d have to be living under a rock if you hadn’t noticed the fundamental shifts taking place in the global services market due to digital disruption. We know that digital disruption is generally chaotic. It shakes up the existing business models, (likely destroys them), and paves the path for new ones. And it creates a set of opportunities not apparent earlier, while eliminating those we took for granted.

In general, big incumbents find it difficult to change, (change is hard, really hard when you are large – just ask prehistoric dinosaurs!), thus creating opportunities for smaller, nimbler ones that embrace it. Is this the case in the Business Process Services (BPS, also called BPO) market as well? Are the large incumbents necessarily in the disadvantageous position? The answer is actually more nuanced. Here are two big themes that highlight two very different sides of the coin:

  • Curse of Incumbency The rise of automation (especially RPA) is creating the biggest challenge for incumbents in their existing business model. Everest Group research shows that on a like-to-like basis, buyers are expecting the price per unit of work delivered in transactional BPS to reduce by at least 25-30 percent. If the incumbent shows reluctance, buyers are not hesitant to move the work to others. To put things in perspective, it means a USD $1 billion BPS company would see its base shrink by at least USD $100-120 million every year on an as-is base account basis (assuming an average five-year contract term, 40 percent of the portfolio will each year face pressure coming from renewal (20%) or a mid-term benchmarking (20%) situation). In reality, providers with the right approach and strategy will be able to mitigate this through scope expansion and new wins. Nonetheless, the pressure on an existing large book of business is tremendous.
  • Benefit of Data As I highlighted in a blog last year, scaled-up providers are sitting on a treasure trove of data that is ready to be exploited and monetized from a benchmarking and associated analytics perspective. Some of the providers have started to make the right moves here. The next frontier is leveraging it for artificial intelligence (AI). One of the big challenges of making AI tools enterprise-ready is helping them learn fast. Injecting the AI tool with variety, volume, and contextual data is key to making this happen. Large incumbent providers are uniquely positioned to exploit this opportunity. Combined with their deep domain expertise, this can act as a powerful differentiator, and help them create significant value for their client, and, in turn, for their own business.

Big is not bad. It is about identifying the digital disruption opportunities while managing the risks proactively. Speaking of size, my next blog will discuss what sized providers seem to be well positioned to exploit the opportunities created by digital disruptions. Stay tuned.

Quality Management in Product Engineering: You Just Can’t Afford to Ignore It | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

What do products like the Samsung Galaxy Note 7, the Toyota Corolla/Yaris (in 2016), and the Fitbit Force (in 2016) have in common? All were potentially great products that cost their companies dearly – in both image and money – due to faulty performance resulting from poor quality management.

Enterprises have come to realize the significance of quality as an indispensable ingredient for creating impactful products. They not only view product quality management as a cost-saving measure (preventing the costs of rework, wastage, regulatory breaches, warranties, product recalls, etc.) but also as a way of accelerating product launches and creating a differentiating value proposition in increasingly commoditizing markets. Given the vast intermediation of product supply chains among vendors, technology partners, assembly partners, and logistic partners in today’s operating environment, the need for quality management activities is even more pronounced as products flow from one stakeholder to another.

Yet, despite acknowledging the positive impact of product quality management, many enterprises grapple with fully integrating, and regularly upgrading, their quality management initiatives across business activities. Some reasons for this are:Quality Management, Quality Management Services, Product Quality Management

To counter these issues, enterprise stakeholders need to commit to quality management as seriously as their other business mandates (innovation, margins, etc.) They should also be open to the idea of partnering with external entities and service providers in areas where their internal capabilities fall short on yielding the desired levels of quality standards.

Product Quality Management in the Digital World

Digital themes like mobility, IoT, and data analytics are enabling enterprises to build new capabilities in their products and enhance the customer experience. The advent of IoT and automation has also led to a transformation of production processes, wherein enterprises can build their products more smartly and with shorter turnaround times.

However, many enterprises face initial failures in bringing robust digital products to market because they tend to focus only on developing digital products, completely ignoring the need to adapt the underlying processes to ensure the reliability and quality of these products. This is the same as having a Euro Standard VII vehicle engine ready for market, but not having focused one bit on developing compatible fuels. We all can guess how successful (at least in the near term) these engines will be.

Digitization has thus ushered in a new era of product quality management, where capabilities need to be enhanced for testing more sophisticated products while factoring in for data management and security. Further, advancement and automation of production processes is creating the need for redefining metrics and KPIs for quality management.

So, what immediate steps should enterprises take to develop digital-ready and digitally-enabled quality management activities? They include:Product Quality Management, Quality Management, Quality Management Services

Everest Group has conducted deep-dive research on quality management services in the product engineering space, covering all activities that are involved in the validation, verification, and testing of products (hardware or software) across the product lifecycle. The research covers the market landscape of quality management services, and delves into the role of digital technology themes in reshaping the way enterprises look at their product quality management efforts. Read a preview of our report, “In Pursuit of Product Excellence: Quality Management in the Engineering Services Industry.”

How DevOps changes the delivery of IT functions | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Labor arbitrage and shared services companies have had a perfect marriage over the last 20 years. Then along came the Digital Revolution with new business models and a new construct for services. One component of the digital model construct is DevOps. It makes a significant impact on business services, but it’s important to understand how it changes the picture for labor arbitrage and shared services.

Shared service companies are structured on a functional basis. One way to think about them is they are a stack of functional expertise. In the case of IT, the stack includes such functions as infrastructure, security, application development and maintenance, and compliance. There is a multiple stack hierarchy, with each functional layer having shared service champions responsible for delivering that function cost-effectively at a high level of quality. Labor arbitrage fits perfectly into this equation in that each functional layer uses people, and the work can often be done more cost-effectively offshore than onshore.

Read more at my CIO blog

The Dichotomy of Current and Future Offshore/Nearshore Delivery Locations | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

An interesting offshore/nearshore locations strategy dichotomy is emerging for today’s major third-party service providers and enterprise firms, as well as their GICs. On one hand, they are continuing to set up delivery centers in new and unexplored locations due to increasing competition, business continuity planning, and risk diversification. On the other hand, the pressure of new disruptive technologies, changing consumer demands, and need to maintain points of parity with competitors is pushing them to consolidate their footprint in the top 10 locations.

Growing Oligopoly of Offshore/Nearshore Locations Driven by the “Digital Winds of Change”

 

Offshore, NearShore

Top-10 offshore/nearshore locations include – India, Poland, Republic of Ireland, the Philippines, Costa Rica, Singapore, Romania, Malaysia, Mexico, and China

In the past few quarters, new center setups in the top-10 locations have jumped by ~10 percent, from 60 percent in 2015 to 70 percent in 2016. The key driver of this change has been availability of talent; only selective locations currently have the capability to support complex digital services. Thus, both external providers and GICs are leveraging these locations for digital services centers and setting up relevant centers of excellence. While several other non-top-10 locations are also investing in building digital talent, they are still not considered a viable option for digital delivery.

  • The major gainers from this shift have been India, Poland, Singapore, the Republic of Ireland, Romania, and Costa Rica. Analytics and cloud are the leading digital services segments in these offshore locations, primarily core software-based analytics. Both types of providers are also building centers in these locations for mobility, social, IoT, and cyber security.
  • The major losers from this shift towards digital have been China and Brazil, given providers’ caution around language constraints and political uncertainty, respectively.

Going Forward, Concentration and Diversification

While most firms are investing in the emerging technologies/digital space, they are still in the nascent stages of building capability. As they mature, they will start diversifying and distinctively leveraging different locations for supporting elements of digital, thus driving a uniform distribution amongst top-10 locations in the next three to six years.

Following are highlights of our research on the future of digital services delivery destinations:

  • India and Singapore will be large scale offshore hubs. Analytics, cloud, and mobility will continue to hold strong, while other technologies, (e.g., IoT, cybersecurity, and blockchain,) will, ultimately, be broadly and deeply supported
  • Nearshore locations such as Ireland, Poland, Mexico, and Costa Rica will support real-time innovation and product development, and provide multilingual service delivery for social media and mobility services
  • Offshore locations such as Tel Aviv, Cairo, and the Baltic states are currently the ”dark horses” in the race towards the top-10, and will gain momentum in the future. Look for them to deliver regional content contextualization, especially for mobility and social and interactive segments. Some of them will deliver digital technology R&D as well.

To learn how locations activity spanned in 2016, please refer to Everest Group’s report titled Market Vista™: 2016 Year in Review: Global Services Industry Facing “Winds of Change.”

Blockchain-enabled “Smart Contracts” Solve Problems in Administering IT Ecosystem Services | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Businesses are moving into a software-defined world with usage-based service contracts and an “Everything-as-a-Service” ecosystem of providers. But there’s a problem: Contracts have not kept up with the desire to buy things in an as-a-service model in an ecosystem. Thus, the contracts provide no accurate way to account for usage adjustments that need to be made. This is a huge, nettlesome problem for service providers and customers, which I’ve recognized for years. Now there is finally a powerful solution, and I’m excited to share with you how blockchain-enabled “smart contracts” can solve this dilemma.

Read more at my CIO Online blog

Capital Markets BPO: Provider Selection Pricing Considerations | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.

Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.

Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?

What to consider when selecting a Business Process Outsourcing provider

  • Specialists come at a premium: Specialist providers typically charge a premium price. The premium is nominal for low complexity processes such as static and dynamic data management, client onboarding, low value reconciliations, trade capture, and exception matching. Yet, it rises considerably for high complexity capital markets BPO processes such as OTC derivatives, syndicated loans, and alternative investments. Specialist capitalist providers’ expertise in niche and complex services gives them significant pricing power leverage over pureplay BPO providers.
    BPO-Business-Process-Outsourcing
  • Pureplay BPO providers on the move: However, pureplay BPO providers over the last couple of years have moved swiftly, and gained meaningful ground in terms of building competence in high value services. This increased, more head-on competition has reduced the pricing differential to some extent.
  • Pricing model induced rate differential: FTE-based pricing is most common in capital markets BPO contracts, closely followed by the transaction-based model. Typically, contracts with transaction pricing have a higher Annual Contract Value (ACV) per FTE, as the service provider agrees to share some of the buyer’s risk, and thus bakes the risk premium into the pricing. Additionally, the scope of work for capital markets BPO deals with transaction-based pricing is usually higher value and more complex, pushing up the average ACV per FTE further.

Pureplay BPO providers VS. specialists

Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.

Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers –  both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.

Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?