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Small service providers becoming heavyweights and outcompeting system integrators | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Why would a large retail bank with access to the largest, most sophisticated systems integrators and fintech firms in the world opt, instead, for a relatively small boutique service provider to build one of its most important systems? This “David vs. Goliath” story caught my attention as it illustrates one of the most exciting trends of 2017 in the digital services world. I think the outcome of this story is rather amazing, given that winning in the payment space is among the highest priorities for a retail bank, and this project was highly visible to customers.

The project was to build the back-end payment system supporting digital wallet transactions. The bank initially made several attempts at building the digital payments system internally and released a digital payment system to a couple of retailers, but the system was not powerful enough. Then it tried working with systems integrators (SIs) in several attempts. But a legacy SI approach didn’t deliver the necessary innovation and best thinking. So, Quisitive, a small, boutique firm stepped in to compete for the work.

Read more in my blog in CIO

Technology influence pendulum swinging back to CIOs | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

For the past few years, the pendulum for control over technology decisions moved into the business, and the stakeholders other than the CIO gained increasing flexibility to deploy technology. Now we’re seeing a bit of a pendulum swing back towards the CIO’s influence. It isn’t that we’re going back to the days in which all technology decision making happened in IT. What’s happening now is a move towards a more integrated approach.

Why is this happening?

As digital transformation projects become larger, their implications cut across business units and across functions. These projects are not small pilots. The transformation is an end-to-end experience that requires substantial change from integrating legacy systems through new digital systems.

As these end-to-end journeys become larger and more complicated, the business is less able to drive them. The CIOs’ existing responsibilities naturally drive them to play a larger role. Also, the project management and change management skills within an organization are often vested in IT or closely aligned with IT. So, IT is in the best position in terms of its skills to manage end-to-end journeys.

Digital transformation involves more than collapsing a business process into a set of data

As companies drive deeper and further into the journey of digital transformation, many aspects of the business model must change, as processes and data are interrelated throughout the organization. As digital transformation starts taking hold and these projects begin making substantive business impacts, the CIO or CTO needs to be responsible for integrating existing enterprise apps and digital technologies to make the digital promise effective.

An interesting phenomenon is happening as the business unit leaders start relying more and more on IT. As the business gives more influence back to the CIO, it results in an imperative for CIOs to become more flexible, more business oriented and sensitive to business needs. It’s also causing CIOs to recognize the need to modernize the IT environment so that the business can operate in a more integrated, end-to-end manner.

The bottom line is IT is increasingly in a better position to deal with large digital projects and end-to-end transformation journeys; so, CIOs and CTOs are gaining a little more influence in technology decisions. Note that I said, “a little more influence.” Currently, CIOs and the business are sharing decision making and influence. But at least for the time being, the pendulum seems to be moving slowly back to the CIO. However, I don’t believe it will swing back to the old command-and-control world of IT.

 

Leadership Tips For Driving IT Modernization and Transformation | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Digital transformation and IT modernization initiatives require strong leaders to lead an organization through change – and not just technology and process change. Mindsets, organizational principles and policies, as well as combatting resistance to changing the status quo are major activities in these types of initiatives. I recently blogged about a highly successful initiative at NYU Lagone Health. Now let’s delve into some of their leadership activities and strategies. I believe executives can gain tips from how they handled these challenges at NYU.

Jim Song, former Vice President, IT Infrastructure and Shared Services was brought into the organization to lead the IT change effort. He soon recognized the need to bring other leaders into the organization.

Read more in my blog on Forbes

Why Tier-2 and 3 Cities in Poland Should be on your Global Services Radar Screen | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

In the past several years, Poland has become the most prominent global services delivery destination in the European region. But, unlike other countries in which the lion’s share of digital services activity is in tier-1 cities – think India and the Philippines – Poland’s tier-2 and 3 cities have outpaced activity in its tier-1 cities since 2008.

Why? Everest Group research identified two key reasons:

  1. Increasing activity in tier-1 Polish cities, e.g., Krakow and Warsaw, has created intense competition for talent, driving higher attrition/turnover, longer hiring cycles, increased premiums for niche skills and seniority, and faster wage inflation
  2. Increasing maturity of tier-2/3 cities over the past five years has established a critical mass for global services delivery in these cities, leading to a higher degree of comfort in talent capabilities and the ease of scaling up operations in these cities.

Other factors, including less competition for talent, lower salaries and infrastructure costs, better quality of life, stronger government support, and the opportunity to leverage untapped talent pools, have also contributed to tier-2/3 Polish cities’ rise above tier-1 cities in the country.

To understand the full story, Everest Group evaluated multiple aspects of the tier-2 and 3 cities, including relative delivery scale/size, work complexity, extent of digital services delivery, and typical source markets supported.

Here are some of our findings.

Shift in nature of leverage

Historically, tier-2 Polish cities, such as Katowice, Łódź, Poznań, and Tri-city, and those in tier-3, including Bydgoszcz, Opole, Rzeszów, and Szczecin, were leveraged as small spokes to tier-1 city hubs. They were largely meant to accommodate “spill-over” growth, or to host more transactional work. But this is changing rapidly, as more companies, both in captive and outsourced arrangements, are establishing their delivery hubs in these cities.

Largely single functions to multi-functional delivery

While both Global In-house Centers (GICs) and service providers had previously been leveraging the tier 2- and 3 cities largely for IT services delivery, their increased confidence in the breadth of talent has prompted establishment of large, multi-functional centers in these locations.

Digital services CoEs

Most importantly, while where tier-1 cities in other delivery destinations like India and the Philippines account for more than 70 percent of all digital delivery centers, Poland’s tier-2/3 cities are brimming with digital services activity.

Tier 2-3 cities

Of course, any company’s selection of a tier-2 or 3 location in any country depends on its appetite for benefits versus trade-offs, including high cost savings versus low scalability, and early mover advantage versus relatively lower maturity. But Poland’s smaller cities certainly have a compelling digital services delivery proposition.

For a more detailed analysis of the value proposition of Polish tier-2/3 cities, and relative comparisons of these locations with tier-1 cities, please see our recently published report, “Poland Tier-2/3 Cities: Complementing Tier-1 Cities or Carving a Niche for Digital Services?

Three Truths about H-1B Visa Reform | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The news about pending immigration and H-1B visa reform in recent weeks plowed anxiety into companies and workers in both the US and India. I’ve closely followed the visa reform movement and blogged about how it was evolving many times since 2013. The buzz in recent weeks was so hot it carried a “the sky is falling” flavor because of rumors of ending the policy of extending visas for workers already in the US. But the US Customs and Immigration Services agency announced this week the policy is not currently changing. So, what does this really mean? I believe there are three truths we should not overlook.

Truth #1: It’s not over til it’s over

As the Yankees’ baseball legendary Yogi Berra pointed out about apparent wins, “It ain’t over til it’s over.” There is still real momentum to reform the H-1B visa program. President Trump wants change, and now, for the first time, there is bipartisan support for meaningful legislation being enacted. Both parties agree on a narrow scope of reform to the visa program without the larger contentious issues of immigration reform. In addition, mid-term elections loom, and both Republicans and Democrats want to show accomplishment and want to demonstrate they can work together. Although visa reform had a low-odds chance of enactment over the past few years, the probability now has high odds.

Truth #2: India stands to benefit from the legislation

Despite the intense rhetoric, H-1B visa reform is not draconian. There will be winners and losers; but in many respects, India stands to benefit from the legislation when it’s enacted.

For example, many workers participating in the H-1B program will receive higher wages and will do more interesting work. The individuals that want to work in America through H-1B visas may find themselves more likely to work for an Amazon, Microsoft, Facebook or Netflix type of company.

From an Indian diaspora perspective, India has the deepest talent pool and the most qualified group of workers wishing to emigrate to the US. India has the largest and deepest talent pool and the most qualified workers. India’s talent pool is highly valuable to the US economy, especially high-tech firms; and the pressure to retain this talent in the US won’t go away.

Truth #3: Indian service providers must address the issues

As I said already, there will be winners and losers when visa reform legislation is eventually enacted. The workers will win, assuming the green card processing backlog clears up by that time. But the Indian service provider firms will clearly lose their ability to use the H-1B visa system to their advantage. That’s not to say that it would preclude them from utilizing H-1B visas, but it would increase their costs. They would have to either pay more for the H-1B workers or pay more when they hire domestic talent.

That said, it’s important to recognize that India’s service providers have many levers to address the issue. Most, if not all, service providers have an adjustment process well underway. Wipro, for example, is leading the way and has been working for years to address this issue.

The legislation, when enacted, will cause downward pressure on service providers’ margins. This alone will not challenge their relative profitability but will at least create a headwind for their absolute profitability. Having said that, their margin gap will narrow only modestly. The truth is, the Indian service providers have envious industry-leading margins and will continue to be the most profitable service providers in the world even after they make the necessary adjustments to H-1B visa reform.

The approach to IT modernization at NYU Lagone Health | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

I’ve consulted with and observed many organizations undertaking IT modernization initiatives. An organization that achieved impressive results is NYU Lagone Health, the academic medical center at New York University. The initiative started with the vision of the chairman of the board and the CEO to grow the business and make NYU the best hospital in New York. But the hospital’s IT capabilities at the time couldn’t enable the business to accomplish these objectives. To make matters worse, Hurricane Sandy blew through and destroyed key systems that were in the main hospital’s basement, which included connectivity. And this happened while the hospital was undergoing a major shift to replace the electronic medical record (EMR) to the new Epic system and acquiring many specialty group health practices throughout New York’s tri-state area annually. To learn more about the approach the hospital took in modernizing its IT and growing the business amid major challenges, I recently had a conversation with Jim Song, former Vice President, IT Infrastructure and Shared Services.

Read more in my blog on CIO

Enterprises Mistakenly Conflate Approach To IT Modernization and Digital Transformation | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Two important activities are happening today in IT. One is a requirement to modernize IT. The second is digital transformation. These are the types of initiatives happening now in all enterprises. Both are important. Both drive value. Both prepare IT to make a bigger impact on the business, and both lower costs. But their starting orientation differs, and their sequence of goals differs. Therefore, the approach to deal with each type of initiative is different. Unfortunately, companies are mistakenly conflating the approach to both types of initiatives.

It’s important that enterprises understand both types of initiatives.

Read more in my Forbes blog

Investments in Digital Pay Off for Retail Banks | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Our banking analyst team just finished its evaluation of how the leading North American retail banks are doing in their efforts to create the best digital customer experience, and we want to share some highlights from this breakthrough research. This is our third year of assessing 30 of the largest retail banks. The premise for the research is to examine the new consumption context of financial services – where customers are demanding a SUPER (Secure, Ubiquitous, Personalized, Easy, Responsive) banking experience.

Our research assessed the functionality and pervasiveness of the banks’ consumer-facing digital interaction layer to help establish correlations with superior customer experiences, stronger customer engagement, and higher overall business growth.

Based on our research, nine U.S. banks (Ally Bank, Bank of America, Capital One, Chase, Citi, PNC, SunTrust, USAA Bank, and Wells Fargo) and two Canadian banks (CIBC and RBC) have been featured as “Digital Banking Pinnacle Enterprises™.” These banks demonstrated business results that stood above the rest:

  • Better growth – 3% higher growth in deposits
  • Better efficiency – 9% lower efficiency ratio
  • Better customer experience – 20% higher mobile application ratings

We have also recognized four retail banks as “Agile Performers,” as they made the greatest improvements in 2017. These banks include Ally Bank and Bank of America, both of which launched multiple initiatives to meet millennials’ customer experience expectations, such as virtual assistants for personalized experiences and voice-command enabled banking capabilities. USAA demonstrated best-in-class adoption of digital banking channels and maintained its frontrunner position in customer-centric innovation. USAA also joined the cryptocurrency world by adding the ability to display customers’ bitcoin balances. SunTrust made considerable investments into self-service technologies across its branch network and recorded strong growth in customer engagement on social media.

retail-banking-digital-pinnacle-banks

The retail banking industry will continue to make dramatic changes in the next few years. These shifts will require banks to have increased capabilities to deliver an enhanced customer experience whose key elements include:

  • A paradigm shift from the current “product” mindset to a “customer lifestyle” mindset to combine, package, and offer products/services from banking and allied businesses
  • Open banking and partner ecosystems leveraging APIs to integrate third-party services into the bank’s digital banking platforms
  • Collapsing the siloes across the front-, mid-, and back-office to create a frictionless front-to-back experience
  • Harmonized data repositories to enable a unified view of the customer
  • A technology operating model that embraces automation, AI, blockchain, and cloud to enable the needs of the “new business”

We believe the current Digital Banking Pinnacle Enterprises have created superior customer experiences because they deliberately invested in their digital capabilities. But the bar for success is constantly moving, as the industry continues to witness rapid and significant changes. Nonetheless, our data from the last three years establishes an increasing correlation between digital functionality and business outcomes. Banks that are able to quickly adopt a human-centered design thinking approach, build usable experiences, and create a culture of obsessive customer focus will be able to better differentiated experiences, achieve growth, create shareholder value, and ensure market relevance.

To read all of our research findings, see our report: Digital Effectiveness in Retail Banking | Pinnacle Model™ Assessment 2018: Journey of North American Banks to Build SUPER Experiences

IT Modernization Investments to Dominate 2018 | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

What are the major areas where companies will focus their spend on technology or third-party services this year? What challenges will impact those investments? In reviewing the trends in 2017, I believe we’ll see more of the same this year and an increase in digital adoption. However, I believe we’re at the beginning stages of a megatrend for the next five years, and I’m calling the start of this phenomenon: I believe 2018 will be the year of IT modernization.

Over the next five years, large enterprises will drive relentlessly to modernize their IT environment. This activity will range from moving workloads out of legacy environments into the cloud, adopting agile and DevOps and investing much more deeply and thoroughly in world-class security.

I differentiate modernization from digital transformation. I see a different set of initiatives occurring often in the same companies, which I characterize as digital transformation. These initiatives often use some of the same technologies; however, they arise from the business and are focused on achieving competitive advantage. The funding, project management, and impact on change management are different in kind and scope. The rise of IT modernization will not slow the need and velocity of digital transformation, which I believe will continue to grow as well.

With respect to digital transformation,  we can expect the 2017 trend of digital pilots moving to much bigger programs to continue. However, change management and business model redesign will be a major constraining factor for successful digital transformation, and I believe we’ll see companies start focusing more on managing digital change.

As IT organizations prepare for modernization, they increasingly focus on three main journeys:

  • The journey to cloud resulting in establishing cloud as the infrastructure of choice
  • The journey from waterfall to agile
  • The journey to implement adequate security.

IT modernization will sweep across an organization’s entire IT portfolio, rethinking and restructuring infrastructure, networks, applications, and the process and policies that govern them. I expect IT modernization to drive a profound rethink of the enterprise IT structure as it will both collapse the IT stack and cause organizations to align services by end-to-end functions rather than horizontal functions. In contrast, digital transformation goes end to end and integrates the portfolio. In digital transformation, a company considers pulling workloads and activity out of the enterprise IT function or segmenting it into a different organization that is run end to end.

The results of this modernization will lead to a dramatic decrease in IT costs, while significantly increasing the speed and agility of IT’s ability to react in a timely fashion to business demand. This sudden increase in efficiency will have a dramatic effect on the service provider community, shrinking their existing revenue streams while demanding new skills and capabilities.

The new business models that emerge from this transformation are unlikely, at least at first, to be as profitable as the existing business models based on labor arbitrage. The combination of reduced revenues and lowered margins will place the incumbent service providers in a dilemma with very substantial conflicts of interest. The necessity to protect revenues and keep margins high is likely to make the incumbent service providers poor partners in the emerging digital marketplace.

One potential bright spot for the imcumbents, at least in the short run: although the overall legacy services segment will shrink, I believe IT modernization will result in a set of workloads with new workloads for service providers. For legacy workloads that have not been outsourced and are not ready to be modernized, companies will need to put them into a stable environment. I believe some of those workloads will move to the services market so companies can focus on modernization rather than legacy. This new work for service providers will partially offset some of the runoff that is happening because of IT modernization.

As I look forward to spending trends and challenges for this year, I think Robotic Process Automation (RPA) is hot and will continue to grow in adoption. Artificial Intelligence (AI) is starting to build momentum, and I think it will be red hot in 2018. I see AI being more disruptive than RPA and, therefore, causing greater change management and business model changes than RPA. RPA adoption already was constrained by change management issues in 2017, and I believe AI will be even more constrained by these issues because of its deeply disruptive nature.

We will also see blockchain technology grow in adoption. Although blockchain is truly a disruptive technology, its disruption will focus on specific areas where a distributed ledger can be applied (in comparison to AI, which has a broader set of uses than blockchain). 2018 will see a greater number of blockchain pilots, and some pilots will become programs. However, like AI, RPA and other new technologies, disruptive business model changes will be a major constraint to adoption.

The Robots are Coming – Should You Fear or Welcome Them? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

How does your enterprise compare with peers?

A few weeks back, we opened our Robotic Process Automation (RPA) Pinnacle Model study to enterprises to compare their RPA adoption performances head-to-head. Everest Group Pinnacle ModelTM assessments are unique in that they correlate quantified outcomes and capabilities with a special spotlight on the Pinnacle Enterprises that are outperforming their peers. As part of the study process, we also interview select participants to gather qualitative information about these same enterprises.

Having completed a number of these interviews and looking at some of the early tabulations from those have completed the RPA adoption survey, I’m sharing some of my early thoughts below.

Four thoughts on our RPA Pinnacle Enterprise survey results

  • The robots are truly coming, but the fears about the impact on jobs is way overblown – it is clear from our conversations that RPA is going to have an impact in many different parts of the organization, including both front office and back office, but the number of jobs being impacted is not going to be the primary value proposition. Yes, cost take out will be part of the equation, but it is highly likely it will impact slices of jobs and/or departments that will allow for those employees to be transitioned to higher-value tasks.
  • Improving the job for employees – One of the clear messages that we have heard so far is that employees are embracing RPA. In fact, the branding of these initiatives is about getting rid of the worst tasks of their current jobs and includes names like “Smart Automation” and “We Innovate.” In fact, many of these employees are already implementing their own home automations like Nest, Alexa, Google, Rachio, etc. and are becoming quite comfortable with these quality of life improvements automations. One of the enterprises we spoke with actually talked about seeing improvements in their employee retention rates when they were included in these initiatives and allowed to improve their own jobs. However, change management has not been “easy,” and companies have adopted various ways to create awareness about the benefits of RPA and how employees can use it to be more effective in their jobs. Some of the examples of approaches include workshops, training programs, newsletters, project of the year, and hackathons.
  • The real skirmish is between the business units and IT for ownership – one of the interesting aspects of this analysis is to see where the study participants reside in their organizations. In the conversations, it becomes apparent the business is the one driving the conversation and IT has been the reluctant partner. But I got the sense this was changing pretty quickly, and IT was beginning to see the light that they have to be part of these implementations for a variety of reasons. Also, organizations have internally gone through a debate as to whether to approach this is an IT project or a business process redesign. We will be interested in hearing how your organization is thinking about this. Participate in the study.
  • We are just getting started – we can see it in the data and with our conversations, enterprises are running multiple RPA initiatives and projects are spread across RPA implementation stages. At least 65% of respondents are in the process of scaling up their RPA efforts or running steady-state automations. However, the majority of enterprises are still in their rookie year when it comes to setting up RPA CoEs (or expanding existing automation CoEs). The implications is that the initial proof of concepts projects are seeing enough promise that formal teams are being stood up to begin the scaling process.

We will be analyzing the data over the next several weeks so watch this blog for more interesting tidbits from those results.
Join the party … it is not too late for you to participate. Take the survey to compare your enterprise RPA adoption to others in the industry.

Related: The Evolution of RPA Adoption