Month: February 2017

How to Evaluate Your Service Providers in 2017 | Sherpas in Blue Shirts

In a video discussion, General Electric’s CEO Jeff Immelt discussed digital transformation and stated that companies must “either embrace the future or you’ll find yourself not able to satisfy your customers.” Third-party IT and business service providers also face a changing market and are taking steps to align themselves with the new business realities and new market opportunities — which is what brings me to the discussion in this blog post. You need to understand the current debate in the service industry and how the providers’ decisions can affect your company.  Read more at Peter’s CIO online blog.

The Cognizant Dilemma | Sherpas in Blue Shirts

A very public debate has been taking place between Cognizant and Elliot Management Corp – the activist investor that bought a $1.4 billion stake in Cognizant a year ago. Effectively, Elliot has actively sought to alter the course Cognizant’s board has taken for dealing with the changing situation in the IT services industry. As the leading providers in the services industry have accumulated a lot of cash, investors say it makes sense that they should return extra earnings to the shareholders. Let’s look at both positions.

The Debate Essentially Focuses on a Tradeoff

The legacy labor arbitrage market is mature and services providers can no longer maintain their high margins. However, if they transform to digital business models, they have an opportunity to achieve the same or even better margins.

Which vision is the right strategy for their future? As I explained in my recent post, “The Infosys Dilemma,” Cognizant faces the same tradeoff situation currently causing a noisy debate among the founders, board, CEO, and activist investors at Infosys as to which vision is right.

Providers with a legacy arbitrage-based book of business have two options for growth strategies:

  1. Arbitrage-First Vision. In this strategy, providers use their profitability to invest in mergers/acquisitions, consolidating the industry and becoming even bigger in the arbitrage market. This strategy offsets the declining growth of this market. It also drives shareholder value by returning cash to shareholders through repurchased shares and increased dividends.
  2. Digital-First Vision. In this strategy, providers use their profitability to invest in transforming into digital companies with new opportunities to compete and grow in the future. This is the path Accenture has taken to drive growth. This strategy is higher risk and involves actively cannibalizing a provider’s existing arbitrage business. Further, it doesn’t allow returning cash to shareholders, as providers need to invest in digital transformation including aggressive mergers/acquisitions to quickly gain digital talent and business.

Cognizant initially chose the second path. But in December 2016, Elliot sent a letter to Cognizant’s board stating the company should be managed differently to achieve a higher stock price. It also stated the firm should return some of its cash to its shareholders by buying back stock. Its opinion was, and is, that the firm has a strong enough balance sheet to undertake both growth strategies but that it needs to increase its margins.

Therein lies the dilemma: there is a tradeoff between margins and growth. The inconvenient truth is digital is less profitable right now, so a digital-first strategy means giving up profitability.

Cognizant’s management agreed to change its position to come into conformance with Elliot’s open letter to its shareholders, agreeing to a substantial return of cash to shareholders and committing to improving its margins. Cognizant is well positioned to execute on both these commitments; however, it is also clear that these commitments add difficulty to executing a digital-first strategy.

The commitment to improve margins is particularly risky at a time when the market is facing increasing competitive intensity resulting in downward pressure on margins. Cognizant’s plans to increase profit margins and drive stock valuations up by emphasizing its arbitrage business will inevitably deemphasize a digital-first strategy, which requires a willingness to trade margins for digital growth.

Artificial Intelligence and The Shape of Things to Come | 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

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.

IAOP’s The Outsourcing World Summit® 2017 — February 19-22 | Event

Everest Group is once again exhibiting at The Outsourcing World Summit 2017, IAOP’s annual global gathering. The event is taking place at JW Marriot Hill Country in San Antonio, Texas, February 19-22, 2017.

Managing Partner, Research, Eric Simonson will co-lead an outsourcing leadership session on key benchmarking trends with Jim Loftin, Director of Silicon Valley Bank. The session will be held on Tuesday, February 21 from 11:45 a.m. – 12:30 p.m. The room location is TBD and will be provided as soon as it is available.

If you’re attending, plan to stop by booth #69, to talk with our analysts, consultants, and executives.

Read more about OWS 17

IT-as-a-Service Model Essential in Digital Transformation | Sherpas in Blue Shirts

Some issues never seem to go away, including business users’ demands for IT departments delivering against business needs — and doing it quickly to gain or sustain a competitive advantage. Legacy infrastructure and processes make it difficult to achieve. It reminds me of a friend’s dachshund who incurred a slipped disc. The back of a dachshund, of course, is elongated. She could no longer jump or sprint, and when trying to walk straight, the front half of her body went straight forward, but the back half awkwardly took a more roundabout swerve to the left. IT departments still organized in a traditional, function-based construct are like the injured dachshund — unable to move quickly and straight to address business needs and having to swerve and do workarounds for new technologies. Read more at Peter’s CIO online blog.

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