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Artificial Intelligence and The Shape of Things to Come | Sherps in Blue Shirts

By | Sherpas in Blue Shirts

Recently, as guest speaker at an event for senior lawyers, I looked at “Artificial Intelligence (AI) and the Shape of Things to come”. I started by asking who was using artificial intelligence.  A few hands went up but of course, it was a trick question!  I held up my mobile phone and pointed out that everyone using Google or mobile assistants, such as, Siri and Galaxy, is using some form of AI – and it neatly demonstrates that AI has arrived in all our lives in ways we have not even realised.

AI is working its way into all aspect of work, business and leisure. The likes of Amazon Echo and Alexa have brought AI to the home while businesses have started to use AI to handle some of their core functions. Examples include processing invoice payments, insurance claims and customer complaints. In the professions such as legal services, some firms have deployed AI that decides what paragraphs to include in legal contracts. On another front, AI is being used in law enforcement, helping police forces uncover fraud.

AI is here and is touching our lives one way or another, sometimes without us even knowing it. So what is it and what kind of benefits or challenges does it bring? I am not an AI scientist and in this blog, attempt to shine only some light on this vast and fast developing topic.

Read more at the Digital Leaders blog

U.S. Domestic Locations for IT Services Delivery: Your Trump Card amidst H-1B Uncertainties | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

As part of President Donald Trump’s immigration reform efforts, the recently introduced legislation could make hiring H-1B visa holders significantly more expensive. The legislation calls for more than doubling the minimum salary of H-1B visa holders to $130,000.

The technology sector is the largest consumer of the visa. And about 70 percent of the 85,000 visas issued every year go to Indian workers employed by technology and outsourcing service providers to provide IT services to leading American enterprises.

Such a massive hike in the proposed minimum salary for H-1B visa holders is forcing enterprises and service providers alike to rethink their talent strategy from offshore to onshore. Factors such as adoption of agile methodology and regulatory requirements are also driving up the demand for onsite resources, and those will likely need to be sourced locally from within the U.S. as the landed resource model become challenged.

This increased focus on onshore resources has both enterprises and service providers alike considering the merits of potential U.S. locations. The landscape of IT services delivery from within the U.S. is complex, with more than 150 leverageable locations. The help simplify the view, Everest Group has classified delivery locations in the country into various tiers based on socio-economic status, maturity of IT services delivery, talent availability, and operating costs.

US Domestic Sourcing for IT Services

Deciding on the best location for U.S.-based IT services delivery must be based on a business case that considers multiple factors, and perhaps some trade-offs. For example, Tier-2 locations offer the twin advantage of moderate operating cost and breadth and depth of skills, but you might have difficulty attracting resources with extremely specialized skills to move from a Tier-1 city such as San Francisco to Dallas or Atlanta. And although Tier-3 and 4 locations are suitable for low-cost transactional IT services delivery, they may not be appropriate options if you need, or anticipate needing, more advanced skills.

US Domestic Sourcing for IT Services 2

While the proposed legislation hasn’t yet become law, turbulence and disruption of this potential magnitude demands significant research and pre-planning. As Benjamin Franklin, one of the founding fathers of the United States said, “By failing to prepare, you are preparing to fail.”
For more information on this topic, please read the following Everest Group reports.

A Pig in a Poke: Trump Administration Policies Could Spell Trouble for Banking Industry | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Thus far, the banking industry has expressed optimism about the Trump administration’s policy announcements, particularly with respect to potential rollbacks of Dodd-Frank regulations. As evidenced by the positive upswing bank stocks have experienced since the election, the banking industry is thoroughly enjoying the prospects of reduced regulations, expansionary fiscal policy, corporate tax cuts, and increased infrastructure spending.

After suffering a decade of challenges and disappointing performance since the 2008 financial crisis, it is no wonder banks would revel in a swing of the pendulum. This euphoria, however, may be short-lived, because some of the potential policies being floated by the Trump administration – particularly as they relate to global service delivery models – have strong downsides that must not be ignored.

Chief among the downside risks is the Trump administration’s strong position on US job protection. The cost challenges of the last decade have necessarily led banks’ significant use of offshore labor for back-office business processes and customer contact-centers. In many cases, over 50 percent of the FTE involved in business processes and IT for US banks are in offshore locations. This significant workforce is at risk of becoming the next target for President Trump’s bully pulpit.

In addition, the proposed visa reforms and border restrictions will reduce access to skilled technical resources at a cost-effective rate. Or, as Everest Group CEO Peter Bendor-Samuel puts it, visa regulations mean less access to the same cheap labor. Combining that with the draw of Fintech firms fighting for the same talent, talent scarcity will have an overall impact on the ability for banks to compete in the ever more technology-driven arena of banking innovation.

Other risks aren’t as clear but warrant monitoring, including the potential that trade protectionism could ultimately lead to an overall slowing of the US economy, restrictions on the ability to freely move corporate resources internationally, and the tightening of foreign ownership rules.

Everest Group cautions organizations in the US banking industry not to buy a pig in a poke, that is, foolishly revel in the benefits of attractive policies without fully examining the impact of policies that may have damaging repercussions. At the very least, banking institutions should investigate the full scope of the political strategies of the Trump administration, consider the implications, and develop strategies to mitigate the potential downsides of those policies.

We invite you to join Todd Hintze, Managing Partner, and Mark Lade, Associate Partner, for an eye-opening discussion on how Trump policies and other growing protectionist policies will impact your operational strategy. Register here to join the webinar “Everest Group Special Coverage: Is banking industry optimism at risk of being trumped by delivery model impacts?” – live on Thursday, February 23, 2017, at 9 a.m. CST [10 a.m. EST, 3 p.m. BST, 8:30 p.m. IST].

The Infosys Dilemma | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Is Infosys moving in the right direction? At the end of 2014, I blogged that Vishal Sikka, who had been on board as CEO and MD only a few months, had made an effective start in reshaping the company’s strategy. In Q1 2015, I blogged about how Infosys was aligning with the digital direction of the market and rethinking how to optimize its existing services. And a year ago, I blogged about Sikka shifting the company away from the maturing labor arbitrage market with slowing growth and margin compression and into more fertile growing markets. Recently there has been a lot of noise in the media again and a lot of rumors about disagreement among the company’s founders, board members, and activist investors/shareholders. I want to shed some light on their debate, as the Infosys dilemma is really an industry-wide dilemma.

Infosys has been in the press a lot recently, across a number of issues. However, at the heart of many of these stories is a deeper debate that Infosys is having with its shareholders to determine the go-forward vision for the company. At this time, it appears that the two visions Infosys must choose between are “arbitrage first” or “digital first.” Let’s look at these visions from each side’s perspective.

“Arbitrage First” Vision

The vision: Infosys will consolidate its role as the leading labor arbitrage player. It will grow through industry-leading talent based in India and build on its reputation for premium services.

Proponents: Infosys’ founders and activist shareholders advocate this vision, pointing to the fact that this strategy yielded robust margins for many years and gave Infosys its market-leading position. The company they built was aligned against values of personal sacrifice, frugality and expectation of high margins; and they believe the services industry will continue to be dominated by companies that maintain tight cost controls and pricing discipline.

  • The labor-arbitrage market is mature, has stopped growing, and margins have been declining. Providers’ current robust margins will not be sustained into the future.
  • For the past year, almost all the growth in the services space is in digital and cloud offerings, which currently are growing at over 20 percent.

Under this scenario:

  • Under this scenario, Infosys will offset the effects of a maturing market on its stock price with slowing growth by returning substantial cash to shareholders through stock repurchases and increased dividends.
  • Management will take steps to protect its margins by controlling sales and overhead expense and increasing the efficiency of Infosys – already an excellent delivery organization.

“Digital First” Vision

The vision: Infosys will transform into a digital company to create a new source of value for its customers. The new digital business models will involve a new talent base be less dependent on labor arbitrage.

Proponents: The Infosys board of directors and CEO Sikka. When Sikka was appointed, he was given a mandate to implement a digital-first strategy. He clearly understands the challenges and has been moving the firm in this direction.

Market realities:

  • We estimate digital revenues at 25 percent of Infosys’ current book of business. We also believe that, at this time, digital revenues are not yielding as high a margin as Infosys’ arbitrage business.
  • A digital-first vision requires transforming the Infosys culture, rebranding the firm and resetting investor expectations.
  • Attracting and retaining digital talent means Infosys must compete with US technology companies and be prepared to match compensation with the tech industry, thus driving up labor cost and changing some of its benefit and talent management policies.

Under this scenario:

  • The digital-first vision requires transforming the firm, culture and brand. This transformation is a high-risk strategy, but it could result in substantial value creation for shareholders. Infosys must align investor, founder and board expectations to gain room to execute the necessary change.
  • Infosys will need to accelerate investments in new technologies and acquire companies that have already developed a digital business and have a digital talent base.
  • Bowing to the pressure of activist investors’ demand that the firm return substantial cash to the shareholders through stock repurchases and increased dividends will handicap the firm’s ability to aggressively invest in mergers/acquisitions.
  • Shareholders would need to forego Infosys returning cash now, recognizing the company would be more valuable in the future.

Hybrid Vision

In theory, both visions could exist simultaneously in a “hybrid” version. However, I believe that a hybrid vision inevitably will lead to an arbitrage-first company. I argue that the difficulty of executing the digital-first component will be overwhelmed by the near-term benefits of the arbitrage-first vision. By forcing a clear choice, Infosys will achieve better results in either strategy and avoid the pitfalls of conflicting goals and poor execution.

Implications of the Vision Choice

Both the arbitrage-first and digital-first visions are legitimate. But each will lead the firm to a different place. These choices have far-reaching consequence across all of Infosys’ constituents – affecting board make-up, firm governance, employee talent models and compensation. Investment decisions, whether to return cash to shareholders and the brand and promise that the firm communicates to customers also will flow from the choice in vision.

For now, it appears that the digital-first vision is in ascendancy. However, it remains to be seen whether the shareholders will have the patience to see this through given the activist shareholder agitation.

Stepping Back from Globalization and Offshoring | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

A sea change is starting because of digital technologies. The impact as companies apply these technologies to their business will be massive – much bigger than the Industrial Revolution with the invention of the loom for manufacturing clothing and Ford inventing the production for manufacturing automobiles. Everyone has been talking for some time about how big an impact these technologies will have on the services industry. But there is a new factor now that makes the potential impact even more significant: the protectionist activities driving companies to step back or pause in globalization and offshoring. I think the services industry would be foolish to ignore the potential of this greater impact. Let’s look at where businesses are headed.

There can be no denying that the stakes have been raised and barriers are being put in place to make globalization and offshoring less acceptable and expensive. In Europe, it is evident with the Brexit bill and the UK opting to leave the EU. In the US, protectionist barriers are starting to be executed through proposed changes to immigration law and H-1B visas, tax reform and potential border tax implications, and reputational risks arising to companies from government entities or disgruntled employees and vocal press entities. The result: companies are paying more attention to how to do work onshore without suffering negative cost impacts.

By investing in digital technologies such as Robotic Process Automation (RPA), cognitive computing, automation and cloud, companies can drive cost improvement by dramatically improving the productivity of their workforce. In many cases, they can achieve cost improvement even greater through improved productivity than through labor arbitrage and thus offset impact of not sending their work offshore.

Of course, service providers also can use these technologies to improve their own workforce productivity to offset the potential of rising costs from immigration and H-1B visa reform in the US.

Our market data shows leading providers in the services industry have been looking at digital technologies and associated digital models well before this step back in globalization. Our tracking of service providers clearly shows the traditional services (labor arbitrage, offshore factory model, remote infrastructure management and asset-intensive infrastructure) grew by only .1 percent last year. Almost all the growth in the IT and business process services market came from new digital offerings – which are currently growing at over 18 percent a year.

Although the trend in digital services has already been growing, we believe the current climate discouraging globalization and offshoring will further accelerate the adoption of digital models. This will force the current shared-services structure. It also will force the provider community to fundamentally change their business models and the way they currently structure their business to deliver services.

Digital Models Change the Location of Call Center and Finance / Accounting Work | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Leading companies are re-imagining their call centers and customer experience to integrate digital models into their voice models. Work volumes are shifting from voice call centers into new channels such as chat apps, email, tweets and other social channels. Companies are adopting these new ways of communicating with customers and integrating them into their customer service models. The digital model is disrupting the call center.

A recent Everest Group study showed that across a number of call center situations, companies eliminated 40 percent of the FTEs in their call centers – while improving customer service. They achieved this by applying Robotic Process Automation (RPA) technology.

Read more at Peter’s Forbes blog

How to avoid Hitting a Wall in a Digital Transformation | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

I recently spoke with Alexandre Pereira, Global CIO at Vale, a Brazilian multinational mining company, who told me about a conversation with one of the company’s business leaders when they considered launching a transformation initiative. The executive asked Alex, “Why do cars have brakes?” The answer: “It allows cars to go faster.” When it comes to advice about how to build a foundation for success in a transformation initiative, the comment about car brakes is one of the most insightful analogies I’ve heard, and I want to share its deeper meaning in this blog post so you can apply it at your company.

Read more at Peter’s CIO online blog

Service Provider of the Year Awards 2017 | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Everest Group is proud to release the second edition of its annual PEAK Matrix Service Provider of the Year™ awards for IT Services 2017.

2016 was an interesting year for the IT services industry. Political upheavals (think Brexit and the U.S. presidential election), growing consumerization, the Internet of Things (IoT), and artificial intelligence were the key topics that defined the discourse of this highly watchful industry.

Everest Group took all of the above, and more, into account with its 2016 research. Under the aegis of four key IT Services (ITS) practices – Banking, Financial Services & Insurance (BFSI), Healthcare & Life Sciences (HLS), Application & Digital Services (ADS), and Cloud & Infrastructure Services (CIS) – we published a whopping 21 PEAK Matrix evaluations, assessing service providers on their capabilities and market success across multiple practice sub-segments.

Despite intense competition, politico-legal challenges, and the changing shape of technology adoption, the ITS market continues to grow, albeit at a slower pace. There are some service providers that, through their consistency and innovation, continued to lead the discourse on change and adaption. Hence, while there indeed are Leaders and Star Performers for each of the segments we evaluated, the composite picture clearly shows that some deliver consistent leadership and top performance across many different categories.

As today’s enterprises navigate the complex landscape of next-generation and legacy technology, a global business footprint, and a complex vendor portfolio, Everest Group’s PEAK Matrix Service Provider of the Year awards will help them to identify the best of the best – service providers with strong broad-based capabilities and successful service strategies that align well with the evolving enterprise IT demand.

The 2017 award categories are:

  • ITS Top 20: We arrived at this list using a consolidated score reflecting points received on individual evaluations based on tiered scores for Star Performer, Leader, Major Contender, and Aspirant positions.
  • Individual awards categories: These awards are based on the count of Leader or Star Performer positions across the category evaluated:
    • Leader Of The Year
      • ITS (overall)
      • HLS
      • BFSI
      • ADS
      • CIS
    • Star Performer Of The Year
      • ITS (overall)
      • HLS
      • BFSI

Here’s a PEAK peek at the top five on the ITS Top 20 leader board.

Service Provider of the Year Awards 2017

For the complete list of awardees, please click here.

Have you had experience with one or more of these providers? Our readers would love to hear your views about them!

Companies Face A Deal They Can’t Refuse | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Just a month into 2017, the acceptability sentiment toward sending work offshore has changed. Companies are increasingly eager to explore ways to do work onshore which they would otherwise do offshore or is currently offshore. The question is how to do that without creating a negative cost impact.

A wide variety of factors are shifting the sentiment toward offshoring work, including …

Read more at Peter’s Forbes blog

Shedding Light on Proposed High-Wage Immigration Changes | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Although US immigration reform is front and center in the media since the Trump administration took office, the US Congress has debated the need to change immigration legislation for years and has introduced significant proposals since 2013. An integral component is the H-1B work visas heavily used in the global services industry. Right now, the details of visa reform are a moving target, but there is a new angle in the shake-up – the proposed benefits are likely to benefit Global In-house Centers (GICs.

CNBC interviewed Congressman Darrell Issa (R-Calif.) this week about proposed policy changes and his discussions with President Trump. Issa stated that Trump believes foreign service providers are gaming the H-1B visa program, undermining the intent of the program.

He explained that Trump may be more favorable toward a policy capping the minimum H-1B salary at $135,000, as opposed to the current minimum salary of $60,000. Two other minimum salary proposals are on the table: $100,000 proposed by Issa and $132,000 proposed by Rep. Lofgren (D-Calif.). In essence, all three plans thus emphasize focus on allowing visas for high-skilled labor, and Issa affirmed that he expects Congress will pass bipartisan immigration reform dealing with high skills this year.

Two Greatest Impacts from Proposed Changes

It’s still unclear, but it’s likely that the changes won’t affect US providers and tech companies to the same degree as the third-party service providers in India. Changes aim to raise their onshore costs. This will significantly raise costs for H-1B-dependent providers such as Cognizant, Infosys and TCS. Although these firms currently enjoy a competitive advantage over Accenture, Capgemini and IBM, the advantage will narrow and potentially go away with the increased costs.

The second greatest impact from proposed changes is the GICs. Notably, the proposed legislation does not impact firms with GICs. In fact, it is likely to make the Indian GIC model (or captives) more attractive, thereby increasing employment opportunities in these Indian firms and giving these providers a greater share of the offshore pie. Why? Because reducing or restricting the available pool of H-1B talent when there is rising demand for US-based tech talent is likely to create wage inflation.

Although rising tech wages in the US will create a tailwind for all offshore models, GICs may benefit disproportionally because, unlike third-party providers, GICs don’t depend on the H-1B onshore model.

Digital Revolution Impact on Job Creation

Visa reform is not the only factor disrupting the labor arbitrage model. The emerging digital revolution holds the promise of significant productivity increases in the existing workforce – often as much as 30-60 percent. Coupled with US companies’ increasing risk of reputation damage for using offshore services, I believe the move to digital services will accelerate, as its value proposition includes the advantage of onshore delivery and relies less on service delivery based on the offshore labor arbitrage model.

H-1B-dependent service providers will likely use digital technologies and business models to offset the impact of rising wages. A short-term rise in employment is probable, given that it takes some time to implement digital productivity improvements.

No matter which side you’re on, the offshore labor arbitrage market is shifting. The US government definitely is moving aggressively in the direction of significant visa reform, especially focusing on high-skilled workers. However, the other items high on the loaded US policy agenda – especially repealing the Affordable Care Act and changing tax laws) could become a factor moving visa reform to a lower priority.