“An onshore, co-located team model enables higher real-time interaction and collaboration, leading to faster time-to-market and facilitating innovation,” says Sakshi Garg, global sourcing practice leader for Everest Group. Certain nice skills like data architecture, cloud consulting, and cyber security may be in greater abundance in U.S. cities. And American IT professionals “tend to have higher customer-centricity and business understanding,” Garg says. Read more at CIO online.
Thursday, March 30 | 10:00 – 11:00 am PDT
Research Practice Director Arkadev Basak will help lead an AMN Healthcare-hosted webinar titled Patient Care to Talent Care: Optimizing Talent Acquition. The webinar will feature key speakers from Everest Group and AMN Healthcare and will discuss discuss why the complex talent needs of the healthcare industry require a look at the talent acquisition function with a combined lens that considers both permanent and contingent staff. Attendees will learn how:
- A single service provider managing the entire spectrum of talent facilitates better onboarding of hires
- A holistic talent management solution can help reduce compliance issues
- Selecting the right workforce solutions partner can help accelerate a healthcare provider’s transition to an integrated talent management strategy
Practice Director, Research
President, Strategic Workforce Solutions
SVP, Strategic Workforce Solutions
ADP’s Meeting of the Minds event in late March brought together approximately 1,000 of its clients for three days of networking, continuing education, and showcasing of some of its latest thinking and newest capabilities. In back-to-back sessions throughout the day I was there, I met with leaders across the company’s different offerings to gain insights into how they were addressing important marketplace issues.
Three major areas stood out during these conversations:
- Rising expectations: These days, clients are expecting their service providers to deliver benefits extending far beyond cost savings. To address this, ADP is leveraging DataCloud – its big data platform – and taking advantage of millions of employee records to deliver benchmarking and insights through analytics, including those that help its clients gauge the risk of losing valued employees. In the coming months, clients will also be able to pull in data from outside sources, and attend “Benchmarking Bootcamps” to help them understand data and what they can do with it. To provide the “proof in the pudding,” the three-day event featured 25 ADP clients sharing their stories on how ADP was enabling HR to become more involved in their company’s overall business strategy.
- Addressing the pay gap: One of ADPs newest capabilities – the Pay Equity Explorer – is aimed at doing away with still rampant pay gaps. (Note: According to the US Census Bureau, the average woman earns 20 percent less than her male counterpart.) This dashboard, backed with analytics, identifies roles and geographies in which potential pay gaps exist, negatively impacting women and minorities. Once a potential pay gap is identified, the tool has drill down capabilities to pinpoint specific people, quantify their pay gap, review their past performance, and mark them as potentially needing corrective action via an off-cycle market adjustment to pay. When you consider the looming talent shortage – there are 6 million fewer resources ages 40 to 49 than there are in the starting-to-retire 50 to 59 age group – not to mention hiring and training costs, retaining resources by ensuring they feel valued and appreciated is critical.
- Orchestration over outsourcing: At Everest Group, we believe that the next generation HR service delivery model needs to be focused on a seamless employee experience, often referred to as the “Amazon experience,” rather than the traditional model of siloed HR processes that lead to a poor employee experience. The approach requires all of the components of Human Capital Management (HCM) be brought together, including payroll services, talent management, HR management, time and attendance, and benefits administration, and then delivered as an integrated solution via BPaaS. ADP seems to have grasped the importance of delivering an end-to-end solution that improves the user experience and harvests information across multiple processes from a single platform, making it easier to apply analytics to uncover cause and effect relationships. The company also developed a mobile app via which users can access and print pay, manage their teams, track and approve time, and review their 401K.
My takeaways from the event are that it appears ADP is building upon its strengths to satisfy market requirements, and making strides to improve its consultative approach to HR services and better leverage ADP DataCloud across offerings to provide more insightful and advanced analytics.
The current tumultuous times represent significant opportunities for service providers that continue to invest in end-to-end capabilities and analytical tools that drive insights to enable better business outcomes.
Tuesday, March 28th, 2017 | 9 a.m. CDT, 10 a.m. EDT, 3 p.m. BST, 7:30 p.m. IST
The RPA market and technology landscape are rapidly evolving. We have been following the trends closely and have unique insights to offer industry stakeholders as they evaluate how these changes will impact their organizations. From collecting unique datasets to assessing and comparing leading technologies side-by-side, Everest Group has a unique perspective to offer as part of this live event.
In this one-hour webinar we address the following questions:
- What are the key RPA market trends?
- How are RPA technologies evolving, and what the trends mean for users?
- How are RPA vendors’ commercial models changing?
- What challenges have users faced in deploying RPA?
- How are leading organizations managing their deployments?
Sarah Burnett, Vice President – European Research & Service Optimization Technologies
Amardeep Modi, Senior Analyst – Service Optimization Technologies
Who should view?
- Enterprises: C-level executives, VPs, and decision-makers of enterprises looking to understand anticipated developments in the RPA space in 2017
- Service providers: C-level executives and VPs interested in understanding the anticipated progression of the RPA space in 2017
- Anyone wanting to understand RPA technology trends in 2017
Genpact first began partnering with Rage Frameworks to harness its AI capabilities. Rage Frameworks’ technologies “are immediately applicable to Genpact’s existing client base,” says Peter Bendor-Samuel, CEO of outsourcing research firm Everest Group. “Leveraging Rage’s AI platform, Genpact hopes to provide real-time insights, simplify automation, and gain competitive advantages. Their theory is that their combined capabilities will help clients drive digital transformation at scale and accelerate clients’ digital journey.”
It is no hidden fact that the outsourcing industry is on the cusp of change. While the labor arbitrage model and legacy ERP applications ruled the 1990s and 2000s, digital has become the heartthrob of the current decade, and you can see enterprises entering new forays to keep themselves relevant in this fast-changing business landscape.
In this context, even the demand for technical skills has changed tremendously over the past few years. Some skills that used to have the largest pull have become obsolete, and others are struggling to keep their hold in the IT services industry.
Specialist skills losing leverage against generic skills
Consider the case of SAP on-premise business solutions. Until recently, SAP as a skillset had been very attractive among fresh graduates and lateral hires alike. High market demand coupled with supply playing catch up meant higher wages and easy to switch options in the ever-competitive outsourcing market. But over the past few years, on-premise ERP and factory-led offshoring have matured to the extent that once premium technical skills such as ABAP or Basis no longer command the same leverage over generic skills such as Java, .NET, and COBOL. Even functional skills such as finance controller (FICO) or sales and distribution have seen their premium declining over the last few years.
Specialist skills such as Cognos, Informatica, and IBM Websphere are also facing the heat in large outsourcing deals, where high competition and enterprise awareness have forced service providers to utilize a common, generic rate card irrespective of the complexity or diversity of skills involved. Also, organizations such as NetSuite, Salesforce, SuccessFactors, and Workday provide a viable option with consumption-led pricing models, which make them highly attractive. The level of competition and clear buying trends are forcing even behemoths to come to the table with cloud-based, integrated business solutions. Think SAP with S/4 HANA, which is pushed aggressively by the company’s account sales teams.
With the change in the business landscape, there’s increasingly a clear preference for new age phenomena such as big data analytics, hyper-automation, and the Internet of Things (IoT).
The impact of IoT, digital technologies, and automation on skill demand
IoT is one area in which organizations are investing large sums for either cost optimization or revenue generation, depending on their business models. And it is one area in which hardware, firmware, mobility, cloud, and analytics specialists are in extremely high demand to address its hot growth. While the likes of Angular JS and Swift are being used to develop mobile applications, Hadoop and Spark are seeing a huge demand in data analytics. Even firmware and hardware engineers are being required to work in an agile fashion using DevOps methodology, a phenomenon never seen before in industrial manufacturing.
Another big area in which significant investment is being made is Service Delivery Automation (SDA). It is being looked at as a viable alternative to labor arbitrage. Enterprises are looking to automation to reduce costs and streamline business processes. Service providers and enterprises alike are scouting for Robotic Process Automation (RPA) developers and DevOps engineers for onshore/GIC/service provider operations to significantly downsize the low-level tasks performed offshore.
Overall, the current market is in a state of flux as digital takes precedence and legacy becomes less prominent. But the demand for digital services across enterprises is clear, regardless of existing market shares.
There are a number of considerations for IT and business leaders when deciding which providers to work within the area of automation-enabled transformation. “As customers consider their own adoption of digital business models they need to consider how they are going to accomplish the significant business model change that these new service models require,” says Peter Bendor-Samuel, CEO of outsourcing research firm Everest Research. “These changes are far bigger and deeper than those they faced when they adopted labor arbitrage [engagements],” says Bendor-Samuel.
Not surprisingly, every service provider claims to have exceptionally high customer satisfaction ratings from their enterprise clients. Yet, we see anti-incumbency rising and deal size dwindling.
To assess enterprises’ satisfaction levels in IT services engagements, we conducted a deep dive study of 30 service providers and 130+ of their clients. We largely focused our analysis lens on six vital parameters of service delivery – technical expertise, domain expertise, talent management, commercial models, client management, and strategic partnership.
Enterprise customers are dissatisfied with service providers
The results, presented in our recently published report entitled, “Customer (Dis)Satisfaction: Why Are Enterprises Unhappy with Their Service Providers?” were quite disturbing. They indicated that nearly 50 percent of IT service buyers are not satisfied with their providers, feeling that they fall short in many areas of service delivery.
We investigated the reasons behind the huge gap between buyer expectations and current service delivery and arrived at the following insights:
- Early-stage differentiating factors have become table stakes: The value propositions of labor arbitrage and low-cost delivery are no longer compelling. Instead, enterprises want service providers that can create a positive impact on their core business functions.
- Inability to meet the unspoken demands of customers: Enterprises expect their service providers to have evolved from “order takers” to “collaborators” capable of effectively partnering with them in strategic decision making. They want their providers to go beyond the project ask and demonstrate transformative skills, even though such expectations are largely unspoken.
- Limited understanding of clients’ businesses narrows down business opportunities: Visibility into enterprises’ business dynamics and priorities are critical for service providers to align their offerings and strategy to client needs. Yet their margin obsession and hesitation to make new technology investments have precluded them from taking a futuristic approach to IT engagements.
How service providers can turn the tide
So how can service providers turn the tide to have a more positive impact on existing and future engagements? Here are Everest Group’s top three recommendations.
- Shift from an operational to a strategic mindset: Service providers need to go the extra mile to proactively identify enterprises’ business drivers and must develop capabilities to offer innovative solutions. Just delivering on the agreed upon SLAs does not elevate service providers to the level of service partners.
- Innovative engagement: With rising competition, it is imperative that service providers walk the talk. While they cannot avoid investing in new technologies, they can share the adoption risk with their enterprise clients. Newer engagement models like outcome-based, risk-reward sharing, and output-based give enterprises the necessary confidence to take the leap and engage service providers for a next generation technology adoption initiative.
- Invest. Automate. Improve: Two-thirds of the enterprises are gearing up for large scale process digitalization, and they expect their service providers to be able to technologically support their objectives. Service providers must strategically invest in automation to improve efficiency, reduce costs, enable faster time-to-market, and deliver process improvements in order to offer a compelling solution.
With anti-incumbency risks, anti-offshoring rhetoric, and clients’ propensity to adopt a digital arbitrage model looming large, service providers cannot afford to lose customer confidence. They must, today, start looking through a clearer lens to evaluate where their relationships with their enterprise clients stand.
For details on the areas in which service providers must smooth their rough edges, polish their existing skills, and develop new skill sets, please read our report, “Customer (Dis)Satisfaction: Why Are Enterprises Unhappy with Their Service Providers?”
The business environment in which today’s IT service providers are operating is one of the most challenging in recent times. A host of buy- and supply-side factors are impacting the prices they can feasibly and competitively charge their enterprise clients in the U.S., and their margins are being constricted at every turn.
On the buy-side, ongoing commodity slowdown led to overall softening in the global services market in 2016. Uncertainties created by Brexit in mid-year and the U.S. elections in Q4 delayed decisions on new sourcing contracts and temporary cuts in discretionary spending in SI type engagements.
The quantum of large application outsourcing (AO)/systems integration (SI) deals (>US$100 million annual contract value, or ACV) as a percent of total deals fell from 3.3 percent in 2015 to a low of 1.7 percent in 2016, reducing the pricing cushion typically afforded by large deals. And because enterprises continue to maintain a portfolio of preferred AO vendors to foster price competitiveness and innovation, resulting in a price war for deals, the average ACV in AO deals dropped by ~20% in 2016.
Most enterprises are optimizing their portfolios of contracted relationships to reduce overall TCO by improving nomenclatures, rates, service levels, T&Cs, productivity, etc., leading to a dip in realized revenue per FTE for providers.
Additional downward pressure on realized revenue per FTE has resulted from an increase in brownfield automation, especially in compete situations and second generation renewals. And renewals fell sharply, from 55 percent in 2015 to just 27 percent in 2016, driving price wars among providers.
On the supply-side, although resource utilization increased for Tier 1 service providers from ~80 percent in 2015 to >82 percent in 2016, it is beginning to max out as a delivery optimization lever. Consequently, providers are trying to achieve higher efficiencies and sustain margins via better project planning, DevOps, agile staffing, and proactive use of automation.
There is extreme competition in most rebid and re-compete situations, which has led to an overall decline in pricing. We saw an average dip of 1-2 percent in AO /SI FTE rate cards, but bigger dips in overall account-level TCVs. And per rate cards, some enterprises have pushed for single onshore rate card that doesn’t delineate between local and landed resources, leading to cheaper onshore rates. That said, the new U.S. government may push for more onshore hiring and localized presence, including sanctions on landed resources. This may push onshore rates higher, marginalize the landed resource model, and put additional margin pressures on service providers in the second half of 2017.
All this paints a pretty gloomy picture for IT service providers. However, they have started pivoting towards a digital first future, which can help stem their margin and profit erosion, and reverse the worrisome growth deceleration. Most are growing their top line and/or capability portfolio inorganically. Most are also investing in and pitching automation capabilities in a bullish manner. While this may led to a near-term cannibalization of their traditional offerings, in the medium- to long-term it will help sustain their margins in a price competitive landscape.
Do you believe that a digital first pivot will help service providers get back to double digit growth rates?