Month: May 2017

Which Way are the Winds of Change Blowing in the Global Services Industry? | Sherpas in Blue Shirts

2016 will unquestionably be recorded in the history books as one of the most turbulent years in modern times. Geopolitical, socio-economic, and technological volatility hit global service providers and enterprises alike particularly hard, leaving them in a state of uncertainty never seen before in the services industry.

Everest Group’s recently-published Market Vista™ – 2016 Year in Review report took a deep-dive look at these and other key trends and drivers impacting GICs, offshore/nearshore locations, service providers, and outsourcing transactions.

Here’s a snapshot view into some of the most interesting developments of 2016:

Digital takes center stage in outsourcing deals

While the volume of BPO deals had surpassed that of traditional IT services (e.g., application development and infrastructure services) in the previous decade, the pendulum has swung back to IT – now in a digital form. Several factors are driving this change, including increasing maturity of traditional services, the need for a personalized customer strategy, the need for increasing operational efficiency, and the protectionism wave. Indeed, the number of inked digital deals increased by 175 percent between 2014 and 2016.

Outsourcing deal sizes are decreasing – but not for everyone!

Higher maturity and increasing customer expectations continue to drive comparatively smaller or unbundled deals, particularly in the U.K. and North America, where a significant portion of deals are incremental or outcome-based. However, many enterprises, are signing larger deals as they invest in infrastructure and supporting platforms in order to build digital capabilities in the near future.

New technology, but different implementation strategy

Although large buyers have the capabilities to insource digital services delivery, dearth of talent and investment size and complexity forced smaller buyers to outsource delivery of their digital services.

Concentration in leading geographies

With digital services talent availability increasing in some global services destinations, the share of activity is being redistributed. Share of top-10 locations increased from 60 percent in 2015 to 70 percent in 2016. Locations recording a >50 percent increase in activity in 2016 were Ireland, Malaysia, Poland, Romania, and Singapore.

Surging wave of protectionism

A growing set of countries, including the U.S., U.K., Australia, and Singapore are adopting an “our country first” stance. This has manifested into a series of inward looking protectionist steps and safeguarding regulations, such as Brexit, the recent change in visa regulations in Singapore and Australia, and proposed immigration changes in the U.S. While these had limited impact in 2016, as most of them came into effect in early 2017, it will be interesting to see how players’ location activity evolves going forward.

Following are the five key trends we believe will define the global services industry in 2017:

Global Services Outsourcing Deals in Market Vista

To learn more about Everest Group’s take on 2016’s key trends, developments, and associated drivers – and how these will impact what happens in the global services industry in 2017 – please refer to Everest Group’s report titled Market Vista™: 2016 Year in Review: Global Services Industry Facing “Winds of Change.”

Why IT Service Providers are Investing in North America | In the News

The demand for digital transformation related technologies specifically is driving interest in certain metropolitan areas. The share of digital services being delivered in new service provider set-ups has been steadily increasing from approximately 25 percent in 2012 to 63 percent in 2016. “This percentage is expected to continue to remain high as service providers focus on expanding and broadening their digital capabilities,” says Everest Group Vice President Salil Dani.

 

Bitten by the Blockchain Bug | Sherpas in Blue Shirts

The business world is abuzz with the potential benefits of blockchain distributed ledger technology and the wave of disruption it will bring in not just payment transactions but also sharing information of value to participants in a distributed ledger. The media are already referring to it as an “internet of value.” Even though Blockchain is still nascent, a research report predicts the blockchain market will be worth $5.4 billion by 2023. In this blog post, I’ll highlight how some organizations around the world have decided to capture value from blockchain.

Although blockchain first captured attention of banks and other financial institutions, the use cases have expanded far beyond the BFSI industry. In all corners of the world, organizations have been conducting blockchain pilots and proofs of concepts, evaluating its validity, security and how it stacks up against delivering on their business objectives. Need evidence? Look at the following examples.

Blockchain use cases

Secure Communications. Since they invented the internet, you probably remember DARPA (Defense Advanced Research Projects Agency) the research unit of the U.S. Department of Defense. Now DARPA is funding startups to develop blockchain to ensure secure communications in the area of weapons systems development and in storage. In the intelligence arena, blockchain could help determine data integrity and whether hostile players have viewed or modified information.

Discover Issues in Mission-Critical Process. Lockheed Martin recently announced it is incorporating blockchain into its operations to improve efficiency and cybersecurity in its systems engineering processes, supply chain risk management and software development efforts. In addition to its operations in developing military weapons, the firm is involved in several NASA space projects requiring smaller, nimble operations.

Improve Transparency in Internal Workflows. Software giant Oracle was granted a patent to use blockchain to improve real-time transparency and keep data on employees’ tasks in a workflow. Another benefit? Protecting proprietary or sensitive information in workflows.

Raise Funds. Crowdfunding is an obvious use case for blockchain. But the World Bank is taking this application further. It plans to use blockchain in issuing bonds to help Kenya’s government. The concept was already tested by Australia’s Commonwealth Bank regarding a provincial treasury service.

Sharing Medical Information. In April 2017, a Japanese insurance company, Tokio Marine & Nichido Fire, won the second annual Efma-Accenture Innovation in Insurance awards. The company created a blockchain-based platform for sharing patient’s medical information among relevant parties. It’s being touted as a “new best practice.”

Healthcare Incentive Programs. I blogged before about blockchain being ideal for incentive programs. That use application is now evident in healthcare. Healthcoin is a blockchain-enabled platform focusing on insurers and employers incentivizing people to make lifestyle changes to prevent diabetes. Patients earn tokens they can cash in for rewards.

Reconciliation Among Reinsurance Companies. The reinsurance business involves complex relationships among insurance companies, a tedious, multi-ledger process of calculating multiple exchange rates and currencies, transaction costs – those aspects that I refer to as “friction” in a business process. Currently, a group of 15 of the world’s largest insurance companies are working on a blockchain-based prototype designed to simplify the process. The group hopes to reduce the transaction time from seven weeks to almost instantly. One of the companies had already completed its internal blockchain pilot for handling bonds for catastrophic events.

Assets Sales Transactions and Government Records. Malta plans to use blockchain in its Lands Registry and national health registries. Sweden, Honduras and Brazil are among the countries exploring how to use blockchain to track progress in real estate or other asset sales transactions.

Contributions Transactions. The United Nations has a cross-agency blockchain working group, which is analyzing the use of a blockchain distributed ledger system in international assistance. The UN is considering blockchain for the digital currencies, supply chain management, self-auditing of payment, identity management and data storage aspects of the potential system.

The United Nations is also studying how to rethink cash-based transfers. Within that study, the UN’s World Food Program is conducting a proof of concept (and an upcoming pilot) using blockchain to improve security and eliminate administrative fees in distributing humanitarian aid.

Service Providers’ Incubators. All major service providers have conducted in-house proofs of concept and pilots for various use cases. Some have taken this strategy a step further and are creating environments (or incubators) where their enterprise clients can experiment with blockchain technology for their own applications.

Blockchain as a Service (BaaS). IBM is one of the service firms providing client support of blockchain production pilots in a low-risk, fail-fast platform in its Bluemix cloud. Recently Big Blue boosted this Blockchain-as-a-Service platform to provide even more value by enabling multi-company blockchain networks across Bluemix regions and subscriptions.

What you need to know

So, what’s the big takeaway that emerges from this glimpse into current trends in blockchain adoption? The use cases are quickly expanding to more industries and governments, and I’m seeing a lot of activity across the board from different kinds of players. Yes, it’s still in an early growth stage. But if you were to ask me what’s really happening with blockchain technology now, I’d say organizations are finding more and more ways to capture business value from it. Creating new value is a prime focus for most companies, so I look for blockchain to be highly disruptive and the adoption pace to quickly grow.

Why Anticipated Value From Digital Implementation Often Disappoints | Sherpas in Blue Shirts

Every senior executive recognizes that digital disruptions are both a huge potential blessing and an enormous threat. Companies can be Uberized out of existence, as is happening with taxi cabs. Or like Amazon, companies can create whole new offerings and competitive advantage. GE uses the power of the Internet of Things to create a new $5 billion business and transform its competitive position. But if it didn’t, new competitors could take its place. It’s no wonder companies often fall into the trap of believing technology can create value.

Businesses recognize the power of digital technology. However, the technology business presents a great lie to the market: Buy this technology and you will be able to do wonderful things. At one level, that’s true. Companies that have bought technology have accomplished wonderful things. But it isn’t true that the technology drives the benefit. The business model drives the benefit.

Read more in my blog at Forbes.

On Point | Summit: New World [Dis]Order — May 17-18 | Event

request to attend dk blue

 

 

Managing in times of uncertainty requires more than a wait-and-see approach. Join our two-day event in which we’ll discuss the rapidly evolving landscapes of globalization, automation, immigration, and digital transformation. (All meals and cocktail reception provided.)

Everest Group and other global services experts will lead group discussions and networking on the challenges of managing in uncertain times. You will have the opportunity to gain insights and exchange war stories with your strategic sourcing executive peers.

Join us for a lively exchange of ideas and learnings from industry experts

Keynote speaker:

  • Dr. Uri Dadush – Former Director of International Trade for the World Bank

Everest Group speakers:

See the full agenda and request to attend

What Pain will You Experience if the AHCA Bill Becomes Law? | Sherpas in Blue Shirts

  • Health insurance lost for 24 million U.S. consumers
  • Billions of dollars of care investment marginalized
  • Providers’ margins eroded by payers
  • And a five-year setback to the healthcare system

These are potential side effects if the U.S. House of Representatives- approved American Health Care Act (AHCA) bill becomes a law. Let’s look at the impact the law would have on the key constituencies.

Healthcare providers

With the most needy (the sick and the elderly) portion of the population left uninsured, the healthcare providers will once again be expected to foot a large part of their healthcare bills due to lack of coverage, non-payments, use of ER services, etc.

Healthcare consumers

With premium increases, credits/subsidies being based on age instead of income level, and states’ ability to change or waive pre-existing health condition coverage, a large percentage of older, lower income, and infirmed consumers would likely opt out of having coverage altogether. Young and healthy people would have less incentive to get insurance coverage.

Healthcare payers

The overall theme of the bill would result in a significant decline in volume of work managed by payers. That said, there would be numerous key operational implications for both private and government payers including:

  • Product development: Payers would end up having state specific plans, leading to increased administrative work around plan design and development activities. This would likely have a cascading effect on downstream processes (policy servicing, network and care management, and claims management) which are expected to become more complex and specialized.
  • Claims: Claims volume would likely dwindle, particularly among the old and ill, as a large percentage would have opted out of coverage.
  • Policy servicing: Payers would likely experience a significant uptick in queries from patients and providers, as uncertainty around topics such as eligibility, verification, and premium collection amplifies. However, demand for certain processes, such as HIX support, would likely be sluggish.
  • Care and network management: Care management programs would likely take a backseat, given their significant cost to enrollees and providers. Additionally, companies that had invested heavily in such programs could see decline in their ROI. Lower patient volumes might drive payers to tighten their provider network, leading to less work around network management activities.
  • Government (Medicaid): Reduced federal spend on Medicaid would likely push states towards a modular approach, and maybe even a shift towards a managed care construct.

With a decline in volume of work, it might not be surprising to see some of the larger payers insource certain processes.

The Healthcare IT and BPO service providers

A lesser volume of work across various value-chain segments would translate into lower revenue for third-party vendors. In fact, even though a law hasn’t yet been enacted, the healthcare business in some of the key players, such as Accenture and Cognizant, is already growing at a slower rate than their overall company growth rate. This impact could extend to the overall outsourcing industry. On the other hand, if states decided to exercise the power granted to them differently, service providers could also expect to see increase in the complexity of work around certain functions such as policy servicing and claims management.

Additionally, the ratified law might just be the impetus that mid-to-large buyers without GICs need to opt for bundled IT and BPO deals, which were traditionally a feature of mid-sized buyers.

Of course, the above-mentioned implications are for the bill in its current form. However, moderate Republican senators might well make massive changes to it, especially after the public outrage over certain parts of the bill.

It is going to be tough time of uncertainty for all stakeholders until a law – in whatever shape and form – is passed. In the meantime, payers and healthcare providers need to work closely with their respective service providers to ensure they stay afloat and come out on the right side of fence when the dust settles.
For a detailed analysis comparing the AHCA and ACA, please see our report titled: Acing Uncertainties in the Payer Market: The Trump Cards.

Market Vista™ 1Q17 Update PLUS an Exploration of Hybrid Sourcing Delivery Models — On-Demand | Webinar

Tuesday, May 16, 2017 | 9 a.m. CDT, 10 a.m. EDT, 3 p.m. BST, 7:30 p.m. IST

View this webinar playback to gain insights on the global services industry. We discuss the latest global service market trends as well as the impact of regulation on the industry. In addition, we provide a unique perspective on the adoption of hybrid sourcing delivery models.

Download Presentation Slides

In this one-hour webinar we discussed:

  • Trends: How did the global services industry fair in Q1 2017? Which new trends are continuing from 2016?
  • Segments: Which new segments drove growth? How and to what extent did new technologies play a role?
  • Regulations: What is the likely impact of key regulations, such as visa reforms in the United States, on the global services industry?
  • Geographies: How did locations fare given the past year’s many socio-political changes? Why did Nearshore Europe witness a decrease in activity after many years of sustained interest?
  • Hybrid Sourcing Delivery Models (Special Topic): What is the adoption of hybrid sourcing models (i.e., BOT, Virtual/Assisted GIC, Joint Venture)? What are the relative benefits and challenges associated with implementing these models?

Presenters:
H. Karthik, Partner – Global Sourcing
Salil Dani, Vice President – Global Sourcing
Sakshi Garg, Practice Director – Global Sourcing

Who should view?

  • Enterprises: C-level executives, VPs, and decision-makers of enterprises or GICs looking to understand developments in global services space
  • Service Providers: C-level executives and VPs interested in understanding the progression of the global services space
  • Anyone wanting to understand the global services industry developments in Q1 2016 and the outlook for the remainder of this year

The “War” in Ransom“war”e – Service Providers will Feel the Pain of Clients’ Tougher Security Policies | Sherpas in Blue Shirts

In the immediate aftermath of last week’s Wannacry ransomware attacks around the world, many organizations will consider how quickly and effectively to update older Microsoft operating systems and apply the necessary patches. The longer-term effects, however, will be more far reaching as governments and other organizations review their security policies to protect their systems against future attacks. This spells tougher requirements on IT services as well as service providers’ connections to client systems.

Tougher government policies on suppliers

The Wannacry attack in the UK crippled the National Health Service (NHS), putting people’s lives at risk. It is going to cost billions to put right, not only in terms of upgrading systems but also rescheduling operations and treating people whose condition will have worsened after the delay caused by the attack. The UK government must act and be seen to act to better protect vital services in the future. It is likely to unveil new stringent policies for cyber security.

While this spells new business opportunities for IT service providers to enhance the public sector’s cyber security, other service providers will feel the pain of even more longwinded procedures to connect to client’s VPNs when working on system integration or business process services. Many already have to apply to clients’ IT departments on a daily-basis to be allowed to connect to VPNs. More stringent requirements are likely to come into force.

Microsoft must face the music

Let us not forget that it was a Microsoft Windows vulnerability that enabled this attack. Microsoft must face pressure to continue to support its older operating systems for longer. There are often legacy systems that work only with older operating systems. A Windows upgrade can therefore be very costly. A cash-strapped organization, the NHS prioritises patients care over keeping up with Microsoft’s timetable for Windows upgrades and discontinuing support for older operating systems. This is something that the UK government must address. It has enough buying power to demand action from Microsoft.

Upgrade pressure on government agencies

Government bodies such as the NHS will be put under renewed pressure to upgrade their systems and keep them up-to-date. The organizations will no doubt demand extra cash to deal with the situation. Spending on cyber security is set to increase whether agencies find new money or redirect funds from other activities. This ransomware attack will therefore boost the IT market for end-point security if not the wider security sector.

Pressure on users

Users too will feel the pain of ransom“war”e. Tougher usage policies are likely to get enshrined in IT department guidelines. Users are likely to experience reduced flexibility as more organizations adopt desktop lock downs with workspaces become more centrally controlled and monitored to reduce risks.

With numbers and varieties of attacks increasing, all aspects of IT security will be tightened up. Even the most laggard of organizations will look to build better security controls across their broad IT services or risk loss of business, revenue, reputation and in some cases, the wellbeing of their customers.

A Fundamental Flaw in Approaching Digital Transformation | Sherpas in Blue Shirts

What makes digital technologies so different and disruptive is their potential to enable very substantial business benefits. “Enable” is the key word. Too often, executives see the power of a technology and reason to themselves, “This technology will create significant benefits, so we need to implement it and learn how to use it to our advantage.” The problem is this is a fundamental flaw in approach that almost always ends up in a digital transformation failure.

Technology does not drive change; creating substantial business value requires changing the business model. And a business model change requires many changes in operations, not just new technology. Yes, those changes are cross-functional, usually end to end, and always disruptive. But without changing other operational aspects than technology, the transformation initiative will fail to deliver the anticipated outcome.

Read more in Peter’s CIO online article.

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