Employers are also developing their own internal bootcamps as well as apprenticeship programs, Anurag Srivastava, vice president with management consultancy Everest Group, notes. The industry is trying to apply lessons it has learned from high turn-over rates among the hot talent it has cultivated thus far, and so it is beginning to invest more in retention. Read more at CIO Dive.
In his 1970 book “Future Shock,” author and futurist Alvin Toffler made the argument that the modern world disorients people as it creates so many overwhelming changes that we are unable to handle them. Almost 50 years after the book was published, I was struck by Toffler’s argument during a recent client engagement in which we were helping an enterprise identify virtual agents/chatbots for its customer-facing processes. All of the bots contained a healthy dose of artificial intelligence (AI), and each one was trying to push the envelope.
Is AI starting to overwhelm people to the point that they may get frustrated with developments they cannot fathom or use?
Every day we see and read about new use cases that “wow” us. We are amazed and bedazzled by advances in AI. And some are becoming increasingly commonplace in the consumer arena…just think smart homes.
On the flip side, there have been instances in which consumers have found dealing with these omnipresent home devices scary and frustrating. Humans have already strongly voiced that they don’t need bots to shop. And, feeling the need for peace in their home, they have switched off many of their home assistance devices.
Some may argue that the technology industry, driven by the high intoxication from the ivory towers of Silicon Valley, is getting way ahead of the people who are expected to be the eventual consumers of these technologies. The amount of new AI research and products coming every day out of these factories is mind numbing. A significant number of such products may not have any immediate utility, but they do indeed demonstrate the far-reaching power of such advanced systems.
There is an unending scare around AI, cognitive, and other advanced systems taking away jobs from human beings. In the case of virtual reality, people are entranced by engaging with virtual objects as if they are real. It’s fun, until they realize the negative impacts it can have on their day-to-day lives. And, instead of assuaging such fears, the technology industry continues to create use cases to replace human tasks with robots.
From an enterprise perspective, organizations need to proactively create an AI adoption strategy for their business. Though most now have some vision around using AI technologies, frighteningly few are preparing for the massive change management aspect. Their employees must be comforted around the impact AI can and will have on their lives. Indeed, the significant disruption AI technologies can create within a business context may require a very different approach than other technology adoption we have ever witnessed. Technology vendors need to focus on how AI-enabled systems are assisting or helping human beings. The use cases need to be very precise, clear, and friendly, not overwhelming and complex, which they currently are.
The problem is not AI technology. The problem is the way it is being introduced, and the hyperbole around it that may end up overwhelming a significant portion of the human race, leading to eventual burnout. We are humans, and should create technology for humans. If the very technology we create results in alienating a large percentage of us, we will have failed as a human race. AI systems need to be leveraged for enhancing human lives, not for creating technology marvels that overwhelm people and create the future shock.
Amidst unprecedented uncertainty, Everest Group predicts 2017 will bring continued market slowdown and technology-led disruption in sourcing
While the global services industry experienced continued growth in 2016, the pace of year-on-year revenue growth1 slowed from 4.5 percent in Q1 to below 3 percent by the end of the year, and the momentum of new activity shifted towards in-house delivery as opposed to outsourcing. In fact, setups of Global In-house Centers (GICs) reached an all-time high in 2016.
Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate1 over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.
Sourcing activity in 2016 was marked by increased location activity that was concentrated in the top-10 locations in offshore/nearshore countries. Another prominent trend in 2016 was the growth of digital services; the share of digital services in outsourcing deals as compared to traditional services rose to 35 percent in 2016, with cloud, analytics and mobility services leading the way.
The outsourcing transactions of United Kingdom buyers neared three-year lows in 2016 as UK buyers followed a “wait and watch” approach amidst uncertainty around Brexit. Similarly, buyers in the United States are facing considerable uncertainty in 2017 regarding the Trump Administration’s approach to visa and immigration reform as well as the political climate around offshoring in general.
The sourcing industry is also facing substantial technology-led disruption. The increasing adoption of automation and DevOps; the growing utilization of IoT, machine learning and analytics; and the need for higher-skilled talent with digital expertise will be key drivers, causing enterprises to re-evaluate their location portfolios to address changing service delivery models.
Overall, Everest Group expects the preference for the in-house delivery model to increase, as it offers the potential for better risk management and control over IP, increased productivity, the ability to deliver more specialized or complex work, and other value benefits beyond labor arbitrage.
“We are seeing a definite skew toward in-house models as opposed to outsourcing, but we characterize it as a shift rather than a complete pendulum swing,” said H. Karthik, partner, Global Sourcing, at Everest Group. “Factoring in political uncertainties, the impact of technology, competitive drivers and many other dynamics in the market, we believe that in the coming year enterprises will continue to leverage both in-house delivery and outsourcing, but they will be more intentional about their location strategy and how to optimize their overall sourcing model.”
Everest Group’s latest research on the global services market explores the evolving market drivers and their implications for global services buyers and providers in two recent reports and a webinar deck available for complimentary download:
- Market Vista Q4 2016
- Market Vista Q4 2016 Primer — IT Services Delivery from the US
- Market Vista Q4 2016 Year-in-Review and Outlook for 2017 (Webinar Deck)
About Market Vista™
Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.
1 in organic constant currency terms
Vice President of Location Optimization Salil Dani will be a featured speaker at the Philippine Health Information Management Business Process Offshoring Forum. He will host a session titled “Assessment of the Philippines as a Leading HIM Services Delivery Location.”
The purpose of the forum is to provide learnings about new developments in the Philippine offshoring industry and to exchange ideas with US and Philippine healthcare industry stakeholders.
When
February 27, 2017
9:00 a.m. – 2:00 p.m. PT
Where
San Francisco Marriott Union Square
Ballroom
480 Sutter St., San Francisco, CA 94108
Speaker
Salil Dani
Vice President, Location Optimization
Everest Group
Research indicates IT compensation rose for most certified and noncertified skills in 2016. The market for IoT services is expected to double to $18 billion by 2020. Read more at TechTarget.
Peter Bendor Samuel, CEO of Everest Group, a research firm, says the fight is about two competing visions of Infosys’s future. “Arbitrage-first or digital-first. Under the arbitrage-first vision of the founders, Infosys will consolidate its role as the leading labour arbitrage player.” The digital first vision of Sikka’s will ensure that Infosys will transform itself into a digital company in much the same way Accenture is driving its transformation. “Infosys will accelerate its investments in automation, analytics, cloud and cognitive technologies to build a new source of value for its customers,” says Samuel. Read more at Business Today
Talent acquisition teams across companies and countries have spent decades looking for a utopian talent acquisition solution through which they can find the right talent, at the right time, in the right place, and at the right cost. This rare, elusive combination may just start becoming a reality in 2017, as promising themes from 2016 begin to emerge on the mainstream, and new technologies and ideas surface.
Think about the unification of these, resulting in an ideal world order for talent acquisition teams in which:
- Companies can leverage workforce planning tools to decide on the type of talent – permanent versus, temporary, internal versus external –they want to hire
- Sourcers, in a split second, can decide on the talent source they want to leverage, immediately access their diligently cultivated employer-specific talent pools, and screen candidates by parsing resumes using cognitive, AI and NLP-enabled tools
- There is a seamless flow of data between HRMS and talent acquisition systems, and recruiters can leverage this data to run predictive analytics to gauge the candidate fit
- Employers can attract and engage candidates through their brand by continuously interacting with them leveraging chatbots for email, chat, and voice communication. Availability of add-on tools allows recruiters to interview candidates remotely, run background checks, and conduct mobile assessments
- HR managers can identify candidates who are susceptible to attrition, and devise effective strategies to retain them
- Recruiters are able to map the entire employment lifecycle of a potential hire, and leverage it for making an informed decision about the candidate
Integrating all these scenarios into one single solution offering might feel like fiction, but Everest Group feels it will start manifesting into reality later in the year. Enterprises and providers alike have been using video interviewing, self-scheduling, and background screening tools for quite some time. Other more advanced technologies such as AI, cognitive, predictive analytics, and NLP-enabled tools are evolving fast. And service providers that are the flag bearers of innovation in RPO are already investing in and working on some of these technologies. It will be interesting to see which service provider is able to integrate all these technologies into a one-stop solution, whether through new investments, or through partnerships and acquisitions.
But, one thing is certain: this whole ecosystem is about to be disrupted, to such an extent that we believe that 2017 will probably be remembered as the year in which the concept of technology became deeply entrenched in the talent acquisition function psyche. This will also result in technology slowly becoming an extension of a recruiter’s physical being in the years to come.
For more insight into some of these technologies, please see our reports including Technology in Recruitment Process Outsourcing – Enabling a Paradigm Shift, and Giving Talent Acquisition the “Analytics Nirvana” Edge.
Suddenly, on-shoring is becoming more in vogue. Like many U.S. CIOs and their C-suite colleagues, you may be actively exploring how to duplicate or offset the loss of cost benefits from offshore/labor-arbitrage services. I have good news for you, along with a crucial tip.
Four primary factors are driving U.S. companies to make the move to onshore service delivery … Read more at Peter’s CIO online blog
I think the annual NASSCOM conference is always a great time. I get to catch up with old friends, at least one-third of the Indian service providers industry’s leadership attends and it’s an insightful venue for capturing the mood of the industry’s providers. This year the mood was more somber and more reflective than in past years. The Indian service provider industry is clearly grappling with several issues.
Worrisome Decelerating Growth
The first issue is the deceleration in growth. The industry has had four straight quarters of deceleration. Last quarter, the industry grew at 3.1 percent, and the top five Indian firms grew at 7.7 percent. This is the lowest level of growth the Indian service provider industry has ever experienced. This decelerating growth is worrisome.
Behind this growth deceleration is the fact that 78 percent of the industry is now arbitrage-first services – which are now legacy. Collectively, growth in the arbitrage group of services was flat; in fact, it declined by .2 percent. The growth area of the industry is digital first, which now makes up 22 percent of the industry, and it grew at 20.8 percent. The industry is clearly focusing on the rotation into digital.
The inconvenient fact around this digital journey effort is that digital services are less than the mature arbitrage work. Therefore, the faster a provider’s business grows in digital, the more it stresses its arbitrage-first margins.
Activist Shareholders are a Complicating Factor for Growth
The “Elliot thesis” has captured the entire industry’s attention. Elliot Management Corp is an activist shareholder that has taken a position in Cognizant and written an open letter to the board and shareholders. Effectively, Elliot’s thesis states that a provider should constrain its rotation from arbitrage into digital services by increasing margins in arbitrage and returning cash to shareholders. Recently TCS announced it is returning cash to shareholders through a share-buyback.
The Elliot thesis complicates service providers’ business. Now they are not just struggling with how to rotate into digital but also the need to placate their shareholders at the same time. Returning cash to shareholders complicates the digital journey in that it results in less cash available to accelerate their journey by buying digital companies and making other digital investments.
The Trump Effect
That’s the background to the somberness I observed. There’s no denying it’s a tough time for the industry. But recent complicating events raised the stakes: The Trump effect and Brexit are causing a slowdown or pause in globalization.
The talk of the halls at the conference was the Trump effect. It’s very clear that the arbitrage-first industry is facing numerous instances in which companies are delaying or potentially cancelling offshoring/arbitrage initiatives. An additional concern is that some companies may decide to repatriate offshored services, while others may take a fig leaf or olive branch strategy, moving some work back onshore and thus focusing the media on their investment in US jobs.
Real Hope Despite Somberness
Balanced against the factors causing the sobering times for the Indian service provider industry is the bright prospect of a digital-first future. The industry firmly believes that there is significant growth in a digital-first future and that it will not necessarily be without labor arbitrage. Providers believe their digital-first future will pivot to their value being based on the disruptive digital technologies and capabilities, but they will be able to further enhance that by deploying their robust talent coming out of India on an affordable basis.
So, there is some hope, despite the mature arbitrage market and the slowdown or pause in globalization. However, there are real concerns around managing the rotation into digital as well as the impact on profit margins. Certainly, there is substantial uncertainty around at least the short-term prospects for the industry – enough uncertainty in the picture that NASSCOM decided to postpone its annual forecast for the Indian services industry.
Thursday, February 23rd, 2017 | 9 a.m. CST, 10 a.m. EST, 3 p.m. BST, 8:30 p.m. IST
The banking industry is optimistic about the Trump administration’s policy announcements thus far. HOWEVER, the downsides of these potential changes—particularly as they relate to global service delivery models—must not be ignored. Join this webinar to hear Everest Group’s perspective on how these and other growing protectionist policies will impact your operational strategy.
In this one-hour webinar we’ll cover:
- Trump’s statements on US job protection and what it could mean for the banking industry’s significant use of offshore labor
- The proposed visa reforms and border restrictions and their impact on access to skilled technical resources at a cost-effective rate
- The impact of talent scarcity on the ability for banks to compete in the ever more technology-driven arena of banking innovation
- Other risks we are monitoring, including:
- Trade protectionism’s impact on the US economy
- Corporations’ ability to move resources internationally
- Tightening of foreign ownership rules
Presenters:
Todd Hintze, Managing Partner – Everest Group
Mark Lade, Associate Partner – Everest Group
Who should attend?
- Enterprises: C-level executives, VPs, banking leaders and decision-makers who need to stay on top of the changing political landscape as they plan future strategies
- Service Providers: C-level executives and VPs looking for insights to help them build service delivery strategies
- Anyone who depends on key IT and business process services industry insights as part of his/her strategic role
