Eric S, Author At Everest Group

Vertical Industry Strategies – Getting Serious about Value and Investments | Sherpas in Blue Shirts

December 19, 2011

With the maturation of legacy service delivery models, everyone is looking for the next lever to pull.

And the first-ever survey into how shared services and outsourcing models are maturing by industry – being jointly conducted by Everest Group and the Shared Services and Outsourcing Network (SSON) – will finally yield definitive insights from buyers, providers and consultants alike on the abundantly clear next lever…industry-specific strategies. Take the survey now.

For the first time, we will be able to look at how shared services and outsourcing models are maturing for functions specific to more than 25 industries, such as claims management in insurance, order management in telecommunications, and loyalty program management in hospitality and tourism.

The responses from the Vertical Industries Strategies for Shared Services and Outsourcing survey will enable us to document the current role of shared services and outsourcing, degree of centralization, expected optimization initiatives, technology strategies, and other factors relating to more than 150 functions across all the covered industries. We’ll then be able to arm you with both the broad themes and the detailed nuances that are relevant to you and your business.

Why is a view of vertical industry strategies important?

First, we are receiving an abundance of these questions. We are increasingly asked to help organizations calibrate their approaches based upon factors unique to their businesses. For example, although sometimes collectively referred to as “Energy and Resources”, oil & gas, utilities, and mining are very different industries, and the location of businesses requiring support, the role and degree of centralization, and the tolerance for operating shared services in “non-traditional” geographies vary tremendously. And SSON is hearing the same thing from its members –industry-specific content and networking are increasing in prominence.

Second, solutions specific to vertical industry strategies drive more complex economics, especially as they relate to technology. As the functions being supported more closely touch the business, the potential impact on revenue and cost increases…as does the potential for greater value. However, the unique nature of each function complicates the technology options. Make-buy decisions become more complicated and fewer options exist. Further, service providers must carefully assess whether they have the stomach to invest in and maintain more narrow solutions with fewer potential clients across which to spread their investments. As illustrated below, service providers must think carefully about where to draw the line in making technology investments to serve unique industry needs. Further, their clients must make a corresponding commitment to a technology model.

Increasing level of industry specificity

Third, organization models are under attack and will be shaped by the answer. Traditional shared services models were initially defined around the scope being impacted by ERP implementations. The scope for offshore outsourcing and captives was largely shaped around roles that could be delivered remotely with lower cost labor. Neither was fundamentally designed around what best enabled the business. As shared services and outsourcing initiatives mature and expand, they are challenging existing organizing philosophies, and the degree and type of industry-specific services will fundamentally set the stage for the next generation in global services.

Oh yes, this is an important topic.

The survey, which will launch in early January 2012, will include relevant questions for enterprises, service providers, and consultant/analysts. If you have any questions or comments before you participate in it, please contact me at [email protected].

Musings and Pontifications after Infosys’s BPO Event | Sherpas in Blue Shirts

October 27, 2011

Infosys’s BPO Colloquium late last week, in Boca Raton, Florida, was a good event and a nice chance to catch-up with old friends. A couple of day’s worth of sessions covering a wide range of forward-looking topics yielded several standouts for me. They are not necessarily new trends but, rather, greater progress on key themes that used to seem further away.

First, the overall level of conversation is so much more advanced than even three years ago. The state of the art for global services has clearly advanced, and almost everyone is now focusing on how to take things to a new level. Questions and strategies are more multi-layered, with less of an underlying hope or expectation that there is a single, simple, optimal-for-all answer. True services strategies with enterprise-wide thinking are no longer the rare exception – the “sign a deal and save some money quick” mentality has matured into a more thoughtful and strategic mindset.

Second, the march of technology into BPO is both unavoidable and a force that will create significant variation and differentiation among BPO solutions and service providers – and not just three to five variations but hundreds. While labor arbitrage continues to be an anchor of business cases, technology is what provides the opportunity to change the equation and better respond to business needs. And technology is going to take many, many forms – tools with which to suck value from data or plug gaps in existing functionality, service integration platforms, small-scale platforms (five-30 users), large scale platforms (SaaS), industry-specific platforms, mobility capabilities, etc.

Quite simply, many of today’s technology plays require more meaningful investment (not to mention new skills and management disciplines) than has been true in legacy BPO. And service providers – none of which can be, if they ever really were, everything to everyone – will have to pick and choose where they invest, which in turn will guide the areas in which they become distinctive and higher value-add. So what started more than a decade ago as a fairly universal proposition around cheap, skilled, and abundant labor is being quickly redefined by technology, leading to much greater variation in competencies than we have seen to date.

Finally, it is good to see Infosys putting more definition and precision around its Infosys 3.0 vision. This has advanced a fair bit in the last three to four months and will continue to do so as it works through the implications of increasing its focus on platform-type business models and more closely linking its consulting and systems integration businesses. From my perspective, the key thing to watch with Infosys (and every other service provider) is what significant investments it makes, in which areas, and how those are intended to advance the business model – industry focus, client segmentation, role of technologies, end-to-end process approach, pricing and service structures, etc.

The next level of investments is becoming far more differentiating than the ramp-up investments of several years ago, which focused on setting up centers in the right places to support FTE volume growth. Most of the emerging investments will naturally benefit some clients (those to whom the solution applies), while providing little, if any, value to other clients (e.g., does a retailer care if a new banking platform is receiving investment?).Overall, a lot to look forward to as BPO settles into the next phase of maturity. The rapid growth of BPO was led by the fairly universal pursuit of labor arbitrage, but the real innovation is just now getting started (not to mention the need to continue changing!).

Overall, a lot to look forward to as BPO settles into the next phase of maturity. The rapid growth of BPO was led by the fairly universal pursuit of labor arbitrage but the real innovation is just now getting started (not to mention the need to continue changing!)

What Might Osama bin Laden’s Death in Pakistan Mean for Global Services? | Sherpas in Blue Shirts

May 2, 2011

With the announcement by Barack Obama that Osama bin Laden has been killed after a nearly 10-year hunt, the world seems to be on the path towards being a bit safer.

Hopefully that is what will happen.

Unfortunately, that may not be the implication — and, in particular, it may validate the lack of trust between India and Pakistan. The world will be watching carefully in the coming days to learn Pakistan’s true role in helping track-down bin Laden; who owned the compound in which bin Laden was staying; and the tone of the reactions of the governments and citizens of Pakistan, India, the United States, and other countries.

Having stayed at the Trident hotel in Mumbai just three days ago (one of the sites of the November 26, 2008 terror attack by a Pakistan-trained terror group against India), I can’t help but see this development as shining a bright light on Pakistan’s role in fighting terror.

Will Pakistan be seen as demonstrating courage and collaboration in fighting global terror or as a reluctant and superficial supporter?

Depending upon the answer to that question, the relationship between Pakistan and India may modestly advance one small step towards building trust — or the suspicion and divisiveness may further deepen. And the trend in the relationship between these two important South Asian countries can have big implications in the longer term for the global services market. Let’s hope it is a positive development.

Global services supporting information technology, finance, engineering, and other business processes has a very positive impact on the citizens of a country and helps form increasingly dependent bonds between countries. Unlike manufacturing-oriented trade, where countries simply just buy and sell to each other, in global services the citizens of countries actually work together — they must overcome differences and miscommunications, but they achieve goals together and develop a deeper understanding of the nuances of each other’s mindsets. And, in turn, understanding of others exposes the emptiness of hate and ridicule for other societies.

Across the global services sector, only about four million direct offshore jobs have been created thus far. Despite the significant apprehension about the impact on jobs around the world, this is still a fairly small amount, although it has helped accelerate economic and human capital development in many countries — India, the Philippines, and about 20 other destinations.

With a population of approximately 170 million (sixth largest country in the world) and many of the same legacy talent benefits as India (English language skills and quality education systems for some of its citizens), Pakistan certainly has the theoretical possibility to play a bigger role in global services. If Pakistan can be seen as helping fight global terror, many benefits can start to accrue through an improving relationship with India. These benefits would help both Pakistan and India address global concerns about regional security while also helping provide more opportunities for their citizens and also strengthening their economies.

I suspect most of you just laughed and thought I am being far too optimistic (and certainly naïve about the true motivations of South Asian politicians and military leaders). I politely suggest you might be overlooking what is already happening. First, remember that global sourcing is all about capturing a new profile of benefits in exchange for successfully managing a different profile or risks. Some will seek risk and carefully manage them to capture the benefits, while others will watch and follow. Those organizations which got things started in India 20-25 years ago were seen by others as taking too much risk.

Second, although most would not list Pakistan as a global services destination, it does host a limited number of service delivery centers supporting end users in North America and Europe. In the past 18 months, we have served two clients whom already had service delivery from Pakistan and are very happy with the level of talent available — but are naturally concerned about the risk profile.

Will more organizations set-up shop in Pakistan? Possibly, but not in significant numbers anytime soon. Might this be slightly accelerated if Pakistan begins to take fighting terrorism more seriously? Hopefully.

A Deeper Dive Analysis of iGATE’s Acquisition of Patni | Sherpas in Blue Shirts

January 12, 2011

The IT services industry has been abuzz since iGATE’s January 10, 2011 announcement of its definitive agreement to acquire Patni. And we, along with all those who felt they had at least two cents to share, chimed in with their initial reactions to the announcement (see our January 10, 2011 blog, “On and Off is Finally On…iGATE to Acquire Patni.” )

But to gain deeper dive insights into the acquisition, we tasked our research team to analyze the implications of the acquisition. Here goes:

The acquisition will help iGATE shed the “small provider” moniker and catapult it into the mainstream of the Indian IT service provider landscape. This is particularly important in an environment in which buyers want/need to rationalize their provider portfolio, and a threshold of US$1 billion in revenues is fast becoming table stakes for consideration in large deals. The increased scale, enhanced talent pool, client base, and breadth of capability should enable the combined entity to qualify for larger deals that were previously out of reach. Further, limited client overlap and a broader suite of industry experiences give the combined entity a renewed opportunity to capture additional volumes from existing clients, and the new financial partners (let’s talk Royal Bank of Canada and Apax Partners) could potentially help drive new business.

However, while the acquisition creates a more credible, scaled and potentially hungrier competitor, it does not create a fundamentally differentiated service provider or alter the pecking order in the Indian IT services landscape. Indeed, as depicted in the graphic below, the combined entity retains Patni’s original position behind MphasiS, per revenue reports as of the 12 months ended September 2010. Further, inexperience in large deal pursuits (which will be especially pronounced versus the larger and more sophisticated competition) and the distractions related to the complex integration could be inhibitors in kick-starting growth in the early years.

As it relates to the future of the Tier-2 Indian IT service provider landscape, the iGATE-Patni deal provides a glimpse (see graphic below.) Sustained growth in this segment lies in the ability to create a differentiated market focus that extends beyond the previous generalist approach adopted by most Indian service providers. If the two acquisitions in this segment (Hitachi Consulting acquired Sierra Atlantic on January 4) in just the first ten days of 2011 are anything to go by, we are witnessing the beginning of a consolidation wave that will sweep the Tier-2 IT services landscape in the near future.

For more details and analysis of the iGATE-Patni merger and the Indian IT services market, please see Everest Research Institute’s: “iGATE Acquires Patni, Finally!”

On and Off is Finally On…iGATE to Acquire Patni | Sherpas in Blue Shirts

January 10, 2011

After more than a year of “will it happen, and who will it be?” speculation, Patni Computers is finally being scooped up…by iGATE Corporation. On January 10, 2011, iGATE announced the signing of a definitive agreement to acquire up to an 83 percent stake in Patni. At a transaction value of US$1.22 billion, it is the largest acquisition in the Indian IT services market.

This acquisition bodes well for iGATE, Patni (which will continue to operate as an independently listed company) and the buyer market, which is increasingly questing for service provider portfolio rationalization, enhanced quality, risk mitigation (post the Satyam crisis) and larger service providers. But one of the biggest hurdles the new company must surmount from the starting line and consistently jump is presentation of competitive differentiation against global majors, Tier-1 and Tier-2 Indian service providers. For insights, please see our complimentary November 2010 report, “Survival of the Differentiated: The New Mantra of Success for Tier-2 Service Providers.”

While we’ll scrutinize this deal in detail in the next several days, its shape, flavor and underlying market and buyer drivers are largely in line with our Patni acquisition analysis, available in our free and downloadable report, “Patni: What if Ownership Changes are Afoot?”, published in December 2009.

Not Having Problems is a Problem | Sherpas in Blue Shirts

November 26, 2010

I always pause, and frequently cringe, when buyers in the first months of a new outsourcing relationship say that everything is going well because they are not having any problems. Although a honeymoon period is attractive and lulling, it isn’t reality. Reality is that the success of an outsourcing relationship will not be measured by the absence of problems, but rather by the ability to effectively resolve problems.

Outsourcing engagements are far too long and involve too much change to expect that the need to address misalignment at some point (or many points) during the lifecycle of the agreement will not arise. The sooner the buyer and supplier face this fact and begin proactively dealing with potential problems, the better the relationship will perform over time. Solving problems together is a habit, and it should be intentionally cultivated.

Over the past eight years, I have had the benefit of meeting many winners of Everest Group’s Outsourcing Excellence Awards, which annually recognize excellence in outsourcing relationships between buyers and suppliers. Both the buyer and supplier relationship managers apply for the award, submit to detailed interviews and, if chosen, participate in the annual awards event.

I am consistently struck by how the winners of these awards describe the strength of their relationships in terms of the challenges they have overcome. They are not stories of “love at first sight” followed by “happily ever after.” Additionally, most of the winners seem to have a buyer who is unafraid to point out the ugly in a situation, but then focuses on being constructive in helping address the ugly – whether it be the supplier’s ugly, the buyer’s own ugly or a joint ugly.

Open communication clearly helps enable such a relationship, and aids in creating a mindset of building the relationship to endure and avoiding unhelpful blame games (note this does not mean avoiding addressing root causes). I’ve observed that there are three signs of a positive relationship that has developed the joint habit of effective problem solving:

Respect for the motivations of the other. As the buyer and supplier develop an appreciation for each other’s motivations, they have the opportunity to develop trust – and trust is critical to a solid, ongoing relationship. Similarly, each must truly respect the motivations of the other. They must not try to over-simplify or argue the motivations, but rather use the understanding to see situations through multiple perspectives. This ability to honestly see through multiple lenses enables generation of more creative solutions for resolving problems.
Confidence in bringing others into problem solving. The teams managing a relationship are often hesitant to bring others into a problem-solving session. They typically fear this will be viewed as failure on their part, or that it may create unintended and unpredictable outcomes. As a result, most problems stay within the day-to-day team too long, and are raised only as the problem intensifies. By more confidently bringing others into problem-solving efforts, new ideas can be considered more quickly. Additionally, others can often help remove constraints that may be limiting the current problem-solving initiative.
Humor to keep things in perspective. While problems shouldn’t be taken lightly, they must be kept in perspective. Issues that arise this week, month or quarter will be replaced with others. There will always be new challenges, and the tone with which they are addressed should be as constructive and pleasant as possible. If the tone is negative and unconstructive, human nature dictates that everyone will want to avoid dealing with them! A small bit of humor and being able to poke fun at the situation can help remove the emotional edge and allow everyone to focus their energies on substantive solutions. Besides, if you can’t enjoy working with each other, then something is wrong and needs to change.

Preferring smooth sailing is natural, but not realistic. Not being real about solving problems is the bigger problem – and the one that will linger. Start early in developing the right habits for solving problems and your outsourcing relationship will be stronger and more able to stand the test of time.

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Author: Eric S