Tag: outsourcing relationship

The Limits of Verticalization | Sherpas in Blue Shirts

Many service providers are busy organizing along vertical industries and going to market with vertical solutions. As the services industry matures, it’s very clear that customers want to do business with companies that understand their industry. However, many providers find that verticalization doesn’t give them the growth acceleration they anticipated. So there are limits to this strategy; just knowing about a customer’s industry is not enough. What’s missing?

Customers want providers to know more about their industry but also to know more about their business and how they operate. Providers that succeed in putting these two aspects together enjoy faster growth.

Cognizant is an example of how to be effective in this strategy. They have organized by industry and built industry expertise, but they also invest a great deal in understanding their clients and leaving the teams or key players in place for clients (particularly the in-country teams).

Customers express a lot of frustration to us. They don’t like providers’ churn. They have to train new people every six months, and the churn is debilitating. They want providers whose people get to know them, build relationships with them and understand who they are and how they work. Those kinds of relationships allow both parties to cut through the noise and get things done.

Despite what the customers are looking for, we see many providers responding in one dimension — the industry knowledge.

My advice to providers: don’t overlook how important relationships are. It doesn’t matter how clever you are or how much vertical knowledge you have. The relationship activates the opportunity.


Photo credit: Curtis Perry

How Can a Service Provider Take Advantage of the Increase in New Shared Services Starts? | Sherpas in Blue Shirts

In a recent blog I noted that there is a new wave of shared services activity. But don’t dismiss that news with an assumption that new starts in shared services just means taking a slice of business away from third-party service providers. Here are my tips for shifting this potential business loss to a new revenue stream.

Tip #1: Be patient

If a company has decided to go down the shared services path, your trying to convince them to use purely outsourcing is not likely to succeed. However, we know that over time companies that decide to embark on a shared services journey later decide to use third-party providers in their shared services mix, to a lesser or larger degree. So be patient. These activities take years to develop.

Tip #2: Be an ally 

Don’t be an enemy of their decision to take the shared services path. Instead, be an ally and assist them on their journey. You can help them build out their shared services approach and use that relationship to identify where they could use a third party for part of of the services.

Tip #3: Cede control

At some point a shared services unit probably will adopt a hybrid approach to services. Even so, companies moving to shared services inherently favor maintaining control; so the types of services you offer them should be designed to allow them to exercise control.

Much of the outsourcing model is about giving the provider control so the provider can operate in an efficient manner and give the customer a low price. That approach won’t work in a hybrid shared services model. Instead, take an approach along the lines of “Let us help you craft control” so you can participate going forward.

The Services Industry Is Not Getting Its Return from Investing in Innovation | Sherpas in Blue Shirts

At the request of a BPO provider, we did a fairly exhaustive study of all vendor/provider-funded innovations and their impact on the business growth. The data were startling. Our study clearly revealed that the hundreds of millions of dollars that providers invested in innovation yielded very disappointing returns. Although they often succeeded in taking their innovations to market, they realized only scanty returns and not the kind of return that creates a differentiated accelerated growth. Why is that? Were their hopes too ambitious?

The biggest culprit in the poverty of their return on investments is that those investments didn’t have the necessities for success built into their DNA. What was missing? In many cases innovation initiatives don’t resonate with existing and prospective clients because they simply don’t meet the clients’ needs. In other cases the offerings require a different kind of sales discussion as the provider tries to sell something the client isn’t looking to buy. In both cases this creates a difficult sell and largely proves unsuccessful.

Strategy for innovation that leads to business growth

As I explained in a previous blog post about innovation agendas, these disappointing outcomes from provider-funded innovation initiatives often start with trying to design a solution for multiple clients rather than innovating on a single client’s defined needs. Providers fall into the seduction of believing it makes sense that just because one client wants a particular innovation other clients also will want it that way.

Further, building things in a vacuum away from a client is not helpful and tends to result in outcomes that are off target.

The path to innovation that accelerates growth lies with the provider working closely with clients to define their needs and then bringing the provider’s capabilities to meet those needs. It’s a powerful strategy that results in much deeper client satisfaction.

It also allows a provider to deal with the issue of changing influence structures that we’ve noted in previous blog posts, where the business stakeholder is now more influential in defining a client’s business needs and driving investment and work that goes to third parties.

Providers that interact with business stakeholders to address their needs find the effort pans out and they can move to more impactful innovations that the client will be ready to fund.

And that’s a recipe for explosive growth.


Photo credit: Matter Photography

The Ethical Dilemma of Service Provider Innovation | Sherpas in Blue Shirts

I must confess I look askance at how some services customers think. They want to keep their cake and eat it too. But it’s batty and preposterous to think you can have something both ways if the two ways conflict.

We’re seeing schizophrenia in the marketplace. Customers look to the provider community for insight and innovation to deliver services and functionalities that will change their business. Typically they say, “Bring us ideas about how we can change our business. But don’t just bring us ideas — show us that you’ve used these ideas in other clients of similar size and scale to us. Show us that these ideas have generated substantial business impact. And bring us people that have implemented and successfully delivered these services to our peer companies. BUT DON’T TAKE ANYTHING OF OURS TO THE MARKETPLACE.”

They demand complete protection about not taking to the market any of their intellectual property (IP) or any ideas generated while the provider works with them, yet they refuse to do business with any provider that hasn’t done this for other companies.

At a minimum, such a customer is intellectually dishonest.

This schizophrenic behavior underlines a fundamental dilemma of using third parties on innovation and creating competitive advantage. It ensures that if, in fact, vendors or providers stay true to these demands, they can only re-use insights and actions that are not compelling and don’t drive competitive advantage.

But customers insist that they only want to buy things that drive insight and competitive advantage, which forces providers either to be dishonest and, in some way, skirt around these commitments or to be uncompelling. The customer’s preposterous demand puts the provider in a dilemma with no possible good outcome.

As a customer, when you select a provider that brings you compelling ideas that they implemented elsewhere and that provide tremendous competitive advantage, then you must expect that they may well be violating commitments to other customers and they will take ideas generated with you elsewhere too. So you’re effectively dealing with a dishonest organization.

If they’re honest, they can only provide things that don’t create competitive advantage. And if they’re dishonest, then why are you buying from them?

So what’s the answer to this dilemma? Please post your comment on your experiences in this area.

We Don’t Get Innovation | Sherpas in Blue Shirts

The lack of innovation from service providers is a constant and mournful refrain echoing around the industry. This plaintive and mournful dirge reminds me of Sisyphus, who was cursed to endlessly roll a boulder up a hill, only to watch it tumble back down, never achieving satisfaction. Likewise, the unending efforts of service providers to provide innovation to their customers seem similarly futile, resulting in the same frustrating lack of satisfaction for either provider or customer.

Why are these efforts doomed?

Service providers and their customers have different goals. Providers invest in initiatives that drive growth or improve profitability for the provider. Customers want lower cost, increased productivity and more functionality. These goals seldom align and the parties often work at cross purposes.

What do we do about it? 

The answer is that the customer must take the responsibility for defining the innovation agenda. The customer must outline what will be impactful and make a difference in its business and then share that agenda with the service provider. Whatever the issue is — reducing receivables, stock-outs in retail, more productivity, faster time to market — the customer must illuminate and define the target for the provider.

What if the provider is reluctant to pursue the innovation agenda?

Our experience is that providers often are willing to fund innovation and work across the customer’s agenda when it’s clear that it will make a difference to the customer. In these situations, the exercises in innovation lead to higher customer satisfaction and also lead to an extended contract or changing the relationship in mutually beneficial ways for both parties.

But a provider may be reluctant to pursue some aspects on an innovation agenda. An example is driving increased productivity in the provider’s organization. In a world of (P) Price x (Q) Quantity = Revenue, the provider wants to keep Q as high as possible, and productivity issues bring quality down.

From the provider’s perspective, there are two categories of innovation:

  1. Those that the provider wants to pursue and naturally aligns with (the opportunities that give new revenue opportunities or better industry insight)
  2. Those that the provider likely won’t want to pursue (things that negatively affect its commercial environment, especially its productivity).

To avoid continuously pushing your innovation boulder uphill, keep the provider’s perspective in mind. If your innovation agenda focuses on category #1, you can expect a rewarding discussion around the areas where you and the provider are aligned. But you will need to take a much more active role in driving the category #2 initiatives that are not aligned with the provider’s interests.


Photo credit: Kristina Alexanderson

It’s Hard to be Humble When You’re Perfect in Every Way | Sherpas in Blue Shirts

Mac Davis Muppet Show
Before you read the blog, watch Mac Davis on The Muppet Show singing “It’s Hard to Be Humble”!

We’ve noted several instances in our research and consulting practices where providers’ behavior reminds me of an old Mac Davis song. The lyrics proclaim that he no longer has a girlfriend but he never gets lonesome because he treasures his own company and that it’s hard for him to be humble because he’s perfect in every way. It is remarkable how self-confident service providers become when they have the dominant market share in their space. They become so enamored of their position that they don’t notice their clients start to resent them.

Sure, there is much to admire about these providers. They have had great growth, enjoy great profitability and clients invite them to do important things in transformational ways that they could only have dreamed about a few years ago. Thus, borrowing from the song, they think they’re perfect in every way. This leads to unintentionally expressing a level of arrogance.

The arrogance is displayed as the account team talking about their company instead of the client’s business. And account teams start trying to shape the solution or services and dictate to the client. They tell the client, “We’ve got a great idea; you should do this.” Clients resent this provider behavior.

Clients prefer account teams with this kind of approach: “Oh, you have a problem over here. We’ll help you with that.”

These service providers have also invested a lot of money in innovation. But we recently conducted a study on innovation investments across a wide variety of providers and found that very little of this money was rewarded in terms of the provider’s growth or profitability. So what went wrong?

Clients don’t want factory-centric service delivery

In analyzing these situations of arrogance and low return on innovation investments, we note that they share a common foundation: the provider bases its solutioning and delivery approach on centralized “factory” control. Historically providers demonstrated they had a good service factory, and clients put into their provider’s factory the work appropriate for the factory.

The factories include centralized innovation centers where providers pick up ideas from clients, refine them and then take them out to other clients. The problem with this approach is that the provider develops the ideas in a vacuum and then believes that they fit the entire industry. The provider believes it is cleverer than clients. But the ideas don’t fit other clients well enough. So it’s very high risk, and our study shows it’s proving to be spectacularly unsuccessful.

Today’s customers look to do things differently and want to invert the factory model to shift the power of running the factory to the client account. But this is very difficult for providers to do; it takes a long time, imposes a different listening culture and the providers don’t give up control easily. In addition, there must be clear accountability in place to hold the client responsible for the resources provided and accountable for the provider’s profitability.

Another way for providers to deal with this situation is to eliminate the central innovation center and start innovating out in the clients’ locations. In this model, the provider is positioned much closer to reality, listening to and responding to client needs and extending that into innovation efforts rather than making big bets from a centralized position.

This model requires having more of the provider’s people at the client’s site. And they must be empowered to make decisions about where to invest, make pricing decisions and make quality decisions, rather than going back to the factory head and solutioning decisions. So it’s much easier for the client to do business with the provider, and the provider can react quickly and flexibly to client needs.

Our observation is that providers that adopt this approach and place empowered account teams at the client’s location not only eliminate the resentment of clients but also have the added benefit of rapid growth. Where services are structured so that the account team must go back to the central factory for solutioning decisions and permissions, the provider will struggle to grow.

Cognizant Finds the Secret to Growing a Services Business Faster | Sherpas in Blue Shirts

Service providers often ask Everest Group for advice on how to grow their business faster. We usually find that their starting-point perspective has a pitfall. They fall for the seduction of new logos.

The problem with this growth strategy is that it’s very difficult to win a brand new customer without “privilege.”  Privilege is not a well-understood concept, but basically it requires that your company has an existing relationship with a customer. Where this is not the case your company will have to prove that it is credible, different from competitors and special. Specialness is the depth of understanding that you have in the uniqueness of the customer, an industry or a function. Obviously it’s easier to build this within an existing client base.

In most service industries, companies can grow three to four times faster in their existing client base than they can by adding new clients. Why? Because they already have a relationship, and the customers understand that the provider is “special.”

The master of this strategy is Cognizant. They are great at enlarging the “mine.” To do this, they sell more to their existing stakeholder groups, creating new mines in that client base. They are very adept at befriending and really understanding CIOs, CTOs and department managers’ needs where they already serve a client.

The first thing they do is look for a new mine in an existing customer. They first service HR, accounting or another stakeholder group and learn how best to service them. Based on the depth of understanding of industry or function they get from serving that stakeholder group, they are more credible in the open marketplace than their competitors. By growing fast and broadly in their existing client base, they build a richness of how to service clients and what each client’s real issues are. And they build real stories that make them much more credible. It’s that experience and credibility that make them special.

Cognizant also organizes its business around this methodology. For example, they put more people into their customer accounts than many other providers. Why? It’s their growth strategy:

  • They have more people at the customer location to help outsell their competition.
  • When they go to start a new mine, they can move in people who already know the customer rather than bringing in people from the outside.
  • When they go to get a new logo outside their customer base, they are able to bring in people with direct experience. And they don’t violate the existing customer’s need for consistency because they have a surplus of people in the account. So the customer doesn’t lose key people; they lose one of three key people, not the one key person.

Our advice is that your company’s growth strategy should follow the Cognizant model. Deemphasize new logos and instead focus on growing business with existing accounts. As you build depth, experience and credibility from these experiences the new logos will be much easier. Besides being a proven strategy, the good news is that your cost of sales will be lower if you adopt this strategy.

The Biggest Losers in the Service Provider World | Sherpas in Blue Shirts

I talked recently with one of the biggest losers among service providers. They had just been through a competitive RFP process as the incumbent provider. They worked tirelessly to martial the firm’s resources to get both the external and internal sale and get executives lined up. Their sales team was engaged. There were a lot of hidden costs, plus significant travel costs and deals to be brokered. And there was some relationship strain from the customer forcing them to be more competitive in their bid.

Then came the news that they came in second — the biggest loser.

Unlike the TV program where the biggest loser is a winner and receives a reward for huge weight loss, all there is for a bidding provider that comes in second place is a chest wound in the form of several million dollars in pursuit costs with no return.

What can be done to avoid being the biggest loser? That’s a question service providers ask us, and we work with them on becoming more competitive. I think there are several ways to approach this.

1. Is your company qualified? 

First of all, if you want to win, don’t pursue situations where your company is not likely to win. That sounds like a no-brainer. But how do you know if it’s qualified? Here are some of the main aspects to consider:

  • Does your company have a preferred relationship with the customer? Does the customer already know you? Are they unhappy with the incumbent provider? (Don’t kid yourself; there’s always an incumbent.)
  • Did you help shape the problem? Or are you responding to someone else’s shaping of the problem?
  • Do you know if your bid will be compelling? Do you know if you’re high priced? So many providers bid, knowing that others have a lower price, and go through the process of trying to persuade the customer that the higher price is because they’re better. That’s hard to do. There’s a higher probability of losing in that scenario.
  • Is your company distinctive? Are your capabilities and offerings differentiated? Will the customer recognize your company’s difference and care about it? Is your company’s specialness worth a premium?

2. Do you have a surplus of opportunities?

It’s tempting to run to every RFP or opportunity, but my advice is not to do this. Your company must be very disciplined not to run toward all opportunities, no matter how much they sparkle. It’s hard to pass them up, particularly in the face of an industry experiencing slow growth.

Marvin Bower, who was the guiding influence at McKinsey from 1933 – 2003, counseled that you can’t be selective about customers unless you have a surplus of opportunities.

If you’re not sitting in the midst of a surplus, then you won’t benefit by reading the rest of this blog. Basically, your company must compete on every opportunity, so you may as well resign yourself to the fact that for an uncomfortable amount of time your company will be the biggest loser and come in second.

But if you can generate a surplus of opportunities, my advice is first to categorize your opportunities and then rig the playing field.

3. Categorize your opportunities

You need to sort your opportunities into two categories: those that you’re not likely to win and those where you realistically have a good chance to win. From the first day you begin talking with the potential or existing customer, you must be ruthless in qualifying how serious the chances of winning are. Once you recognize the opportunity is one your company is not likely to win, you need to step away.

You have to be ruthless in being willing to do this. And the sooner you make this decision the better off you’ll be.

4. Rig the playing field

My observation is that the majority of the work for the best providers comes from privileged environments where they either don’t compete or they “cheat” — that is, they make sure they compete on an unfair playing field where they get to run downhill and downwind against the competitors trying to dislodge them from opportunities.

There’s a famous sports adage attributed to several famous athletes: If you ain’t cheating, you ain’t trying. In the case of opportunity bids, the cheating isn’t bad. You simply rig the playing field so that your company appears to be special among the competitors. Perhaps you own IP, for instance. Or perhaps you have an existing relationship with the customer. The best way to cheat is to make sure the work never goes to the open market for bids. How do you do that? Make sure the customer sole sources it.

So here’s the formula for not being the biggest loser: make sure your company is distinctive and that the customer can recognize it, make sure you have a surplus of opportunities, qualify the opportunities all the way through the discussions and be disciplined in walking away from those where you don’t have a clear chance of winning and then rig the playing field.

Happy bidding!

What’s Reinvigorating EPAM, Syntel and Virtusa? | Sherpas in Blue Shirts

Over the last five years the story of growth in the global services industry has been one of the rich getting richer. In fact, the larger tier-one firms, especially Cognizant and TCS, are growing faster than the marketplace. But I think it’s more notable, at this time when markets are maturing and growth is difficult to achieve, that some of the tier-two providers, such as EPAM, Syntel and Virtusa also outperform the market.

A few years ago the global services industry basically wrote off most of the tier-two providers, relegating them to a fate of consolidation. But like the still-alive man being carted away mistakenly in the British comedy film, “Monty Python and the Holy Grail,” they’re not dead yet. Just the opposite — these three tier-twos are enjoying increased profit and earnings. This is not the case for all smaller providers, so what’s their formula for success?

Market challengers 

They follow a simple but long-proven formula. EPAM, Syntel and Virtusa offer a differentiated alternative to their competitors and thus become market challengers that stand out to buyers.

In some cases they provide a challenge on price. In others they bring a differentiated source of deep industry and functional expertise. In the case of EPAM, the alternative challenge is a delivery model with a source of highly technical talent from Eastern Europe.

Perhaps the most piercing challenge they have ushered into the marketplace is attention. In some of the more mature spaces in the services market the providers have become complacent. Clients are frustrated because they don’t get the level of attention they used to enjoy. The challengers are delivering intense attention to existing and potential clients’ needs.

The tier-two providers bear watching. History demonstrates that shake-ups result on any battlefield where challengers successfully deliver levers that break down barriers.

Jilted — What Happens When Your Provider Sells the Service Line That You’re Buying? | Sherpas in Blue Shirts

So you’re in an outsourcing relationship and so far you’ve achieved impressive results in meeting your objectives. Then you wake up one day to the unwelcome news that your service provider sold that line of business to another company and you’re now relegated to a provider you didn’t select. What should you do? Do you need to start flipping through the pages of your contract? Should you be concerned? Let’s face it: this isn’t a far-fetched scenario; it easily could happen to anyone.

In fact, it actually did happen to you just a few weeks ago if your organization was buying voice and call center services from IBM. Big Blue sold its customer care outsourcing unit to Synnex and its subsidiary Concentrix.

Maybe you now feel like a jilted lover — and rightfully so. IBM loved you when they signed the contract. But now they’ve sold your contract.

It’s not a new problem by any measure, but IBM’s recent divestiture brings heightened awareness to the fact that buyers can end up with a different service provider overnight — perhaps even one that they considered early on but rejected in final selection, opting instead for the strength and commitment of the chosen partner. It feels like a betrayal.

Having said that, I think customers can get overly excited about such a situation.

So what is the best way to deal with a situation like this?

As with many of life’s surprises and dilemmas, the answer is situational. In this particular case, the fact that the provider is IBM makes a significant difference. IBM is well known for divesting assets in its portfolio that are viewed as a mature or declining space for IBM and thus would not receive ongoing investment from IBM. But Big Blue has a tradition of standing behind its services and ensuring that the services are delivered even if it sells that business. And that is what happened with the sale to Synnex.

Synnex will combine the IBM business with the business of its subsidiary Concentrix, whose core business is running outsourced call centers in the customer care space. So the silver lining in this cloud for IBM’s former customers is that their new provider will be willing to invest in deeper call center capabilities and technologies.

The divestiture leaves IBM freer to invest in analytics technologies in the customer care space. As further evidence of IBM standing behind its commitments, Concentrix will become an IBM business partner and the providers will jointly pursue business opportunities.

IBM has a history of entering into and maintaining ongoing relationships with the buyers of services that indicate they want to invest in the service space. Certainly buyers need to pay attention to this situation, but it could be a very good outcome for Big Blue’s former customers in this space.

However, not all providers have the integrity of an IBM, so customers should be concerned about their providers selling a service line the customer is buying. Our advice is to make sure you have contingency plans in place in case it happens. A moment of reflection up front plus due diligence in the provider-selection phase is equally important. Ask yourself: Does this potential partner for us have the integrity and commitment of IBM for ensuring a good outcome for us whether or not they sell the service line, or could we end up jilted?

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