Category: Business Process Services

From Chaos to Harmony: The Transformative Role of Supply Chain Orchestration | Blog

Navigating the complexities of global supply chains has become increasingly challenging due to recent disruptions and evolving customer . Read on to discover how supply chain orchestration helps enable operational efficiency, resilience, and adaptability to thrive amid continuous changes and pressures.

In the intricate world of global business, supply chains serve as the backbone, ensuring products seamlessly move from factories to customers, keeping commerce fluid and consumers satisfied. However, in recent times of uncertainty, maintaining this is becoming increasingly difficult, putting supply chains under more pressure than ever. Effective supply chain management is no longer only about operational efficiencies, it is also about the ability to anticipate, adapt, and thrive amidst disruptions.

Challenges facing modern supply chains

The past few years have been tumultuous for supply chains, affected by the pandemic, geopolitical tensions, macroeconomic uncertainties, labor shortages, and disruptions in maritime trade. Incidents like the tensions in the Red Sea and attacks on pipelines and cables in the Baltic and North Seas have also underscored the fragility of these networks, creating ripples and shocks across the supply chains. Compounding these environmental challenges are additional hurdles, such as limited real-time visibility and evolving customer demands, such as the rise of omnichannel distribution, real-time order status updates, and requirements for same-day or next-day delivery. Furthermore, the use of disparate management systems across processes hampers the ability to capture and transfer real-time data effectively, and organizing, processing, and managing internal and external data remains inefficient due to limited interoperability caused by differing operating and design standards.

The current state of supply chains

Modern supply chains are uniquely complex and multi-faceted, more so than many other enterprise functions. Unlike functions such as Finance & Accounting (F&A) or Customer Experience Management, supply chain operations involve a higher number of decision-makers. Supply chain operations are often overseen by a range of C-suite executives and senior leaders, including Chief Procurement Officer (CPO), Chief Operating Officer (COO), Chief Supply Chain Officer (CSCO), Chief Information Officer (CIO), and Chief Sustainability Officer (CSO), often with distinct and sometimes conflicting priorities. The varied goals of these stakeholders can often lead to fragmented decision-making and operations. For example, a CPO’s focus on minimizing costs may clash with a COO’s priority for agility or a Chief Sustainability Officer’s push for environmentally friendly practices. This misalignment creates operational silos, where different parts of the supply chain work in isolation rather than as a cohesive unit. Additionally, the provider landscape in supply chain management reflects this fragmentation. Providers often tailor their solutions to meet the needs of one or a few stakeholder groups, leading to a segmented approach that exacerbates the issue of silos.

The result of this fragmented approach is a series of data silos, disconnected processes, and isolated systems across various supply chain functions—planning, inventory management, procurement, and logistics.

  • Fragmented data: Without integrated data systems, supply chain leaders struggle to obtain a holistic view of operations, making it difficult to align inventory levels with real-time demand
  • Fragmented processes: Disjointed operations can slow down order processing and fulfillment, impacting customer satisfaction and leading to lost sales opportunities
  • Fragmented systems: When technology systems across the supply chain don’t communicate effectively, it can result in inefficiencies and increased operational costs

These fragmentations significantly impede visibility and the ability to make informed, timely decisions and cause missed opportunities. To overcome these challenges and transform their supply chains into agile, resilient networks, organizations must seek integrated, holistic solutions that foster collaboration and seamless operation across all functions and stakeholders.

Emerging as a solution: supply chain orchestration

C-suite executives are turning to supply chain orchestration to address these challenges and build resilient, agile supply chains.

From Chaos to Harmony The Transformative Role of Supply Chain

Supply chain orchestration is the comprehensive coordination and synchronization of all activities and processes involved in the supply chain—from planning to logistics and after-sales services.

It involves integrating and harmonizing various functions, systems, and stakeholders to ensure a seamless flow of information and real-time visibility. It comprises three core components:

Data orchestration

This involves aggregating data from all internal and external sources into a unified data lake, followed by rigorous cleaning, refining, and making the data usable across functions. Multiple teams can then leverage the data for predictive and prescriptive analytics, real-time visibility, and data-driven decision-making.

Technology orchestration

Connecting various supply chain platforms and software, such as planning software, manufacturing execution systems, Order Management Systems (OMS), Transport Management Systems (TMS), Warehouse Management Systems (WMS), Returns Management Systems (RMS), and others, through APIs or integration software ensures real-time data flow and information exchange.

People/Service orchestration:

This component focuses on aligning organizational structures and processes across functions, promoting a unified approach to supply chain management. It also encourages collective planning and decision-making, reducing fragmented communication with external and internal stakeholders.

What’s ahead

Supply chain orchestration, although still evolving, represents a forward-thinking goal for both mature and emerging organizations. Achieving end-to-end orchestration requires significant investments in time, effort, and resources. The path forward involves a phased approach.

Organizations can begin by orchestrating data, focusing on integration, cleansing, and harmonization across all supply chain functions. This foundational step establishes the groundwork for integrating technology systems to ensure seamless information flow across different systems. Subsequently, aligning organizational processes to foster seamless communication and collaboration among departments and stakeholders becomes essential. Additionally, organizational structures, including appropriate governance, change management, and stakeholder alignment, are crucial to enable the holistic orchestration of supply chains across data, technology, and people.

Ultimately, this phased approach sets the stage for comprehensive supply chain orchestration, allowing companies to adapt swiftly to market changes, mitigate risks, and capitalize on growth opportunities in today’s dynamic global landscape.

Discover more about how to navigate the evolving supply chain landscape in the webinar, Innovating End-to-End Supply Chain Orchestration.

Changing of the Guard | Blog

The other day I was speaking to my good friend Cara Herrick of ServiceNow, bemoaning the fact that when I go to a GBS industry event, increasingly the leaders are sufficiently young enough to be my children—just like her. The discussion prompted me to go beyond their age and tenure, trying to unpack the difference between their GBS leadership approach and those of my age cohort who are moving onto the 4 G’s—grey hair, golf, grenache, and grandchildren at increasing rates.

Now, I must confess that, as a baby boomer, I’m not always au fait with how my younger peers work. I’ve never figured out work-life balance; I prefer picking up the phone; I like writing emails and penning monthly articles such as this one—and I struggle with Slack, podcasts, wearing iPods, and 25-minute Teams meetings.

But I’m increasingly working with GBS leaders who were born after IBM released the first personal computer or even when the Berlin Wall fell, forcing me to figure how these folks tick, and what it means for the future of GBS. No doubt about it, they are a different breed—now more likely to come to the role either as a loyalist—from another enterprise function—or as a step-up leader from a shared services or smaller GBS organization.

Looking at these next-gen leaders, does any of what I am seeing resonate?

  • Less flash and splash: Next-gen leaders are focused on getting their GBS houses in order and all their internal ducks in a row rather than looking for industry glory. When do they have a story to tell, they often need cajoling to take a conference podium, preferring venues that allow them to share practices and explore ideas rather than play rock star.
  • Tightly aligned with the enterprise agenda rather than to GBS orthodoxy: I see our younger leaders really focused on their enterprise agendas rather than being seen as external vanguards of a GBS movement as their predecessors did. These folks don’t swallow the GBS common wisdom hook, line, and sinker. While they actively look at industry trends and best practices, imposing GBS best practices as a North Star is not in their DNA. They pick and choose, mindful of what will drive effective change, and eschew the rest of the usual playbook.
  • Penchant for action: These leaders do not act sequentially, first thinking through a transformation blueprint. Rather, they come up with a thesis, then continually test and learn to drive change. Operations becomes a transformation lab rather than an implementation, driving operations with transformative actions rather than making change sequentially. They are sufficiently agile and flexible to pivot quickly.
  • IT, their new best friend: Fewer millennial leaders are fighting battles royal with their IT counterparts as their forebears often did. The imperative to go digital, partner in an S4Hana implementation, and figure out AI use cases is forcing a more collaborative co-existence—and increasingly new reporting lines to IT. Under their stewardship, the dialog is combative and fraught with fights over who’s the boss.
  • Unrelenting incrementalists: More often than previously, our new leaders come into GBS roles as loyalists, having had success in another enterprise position. They take the helm with effective working relationships with their stakeholders and know which change levers to pull when. Adeptness at forming coalition is a hallmark of their leadership. Consequently, they exhibit far less of the “savior syndrome.”
  • Less tribal: Let’s be honest; our more mature GBSs have been staffed by keeping the tribe together; when an expert leader moves, they are more often than not bringing at least one member, if not the entire tribe, along with them. Next-gen leaders have become adept at blending the DNA of their organizations, with less dependence on their friends.
  • More tech conversant, if not savvy: It seems to me that they don’t jump as quickly to the trifecta solution of people, process, and cheaper location as their GBS forebearers did (and are still doing) without first looking through the lens of digitization. They know what they are buying and are often more fluent in the features and functionality of their tools than the salespeople knocking at their doors. Last, they expect their workplaces—and GBS to have up-to-date tools and platforms, and are willing aggressively to fight for them.
  • Fixated on talent and structure: Having the right capabilities on their teams is priority one for these leaders. They tend to think about their organizations as an orchestration of capability rather than a hierarchy, embracing structures that are flat, moving talent into roles laterally as a cross-training exercise, and compelling double hatting responsibilities. And, because their management prowess was honed during the pandemic, they aren’t afraid of appointing a truly global leadership team.
  • Transparent: No black box for many of these folks; governance is as much about keeping their stakeholders informed as it is managing performance, risk, and compliance. They’ll more easily discuss their challenges and set realistic expectations as opposed to glossing over them.
  • Adept at forming critical coalitions: Collaborating internally is a priority for these next-gen leaders. They pick their battles when driving change and looking to increase scope, pairing up CXOs and peers that share and support key elements of the GBS imperative (note that I don’t use the term “vision”).
  • Less dependent on outside help: These folks are sufficiently confident and fluent in GBS operations to keep their own counsel. When a big name is “transforming” their operation, it’s more likely a decision in response to a major corporate change or made by a CXO than by themselves. When they do hire outside consultants, it’s likely due to a) a need for arms and legs; b) a request for strategy validation; or c) a discrete project. They are also less fussed about consulting brand names; they will fight procurement to hire small boutiques, one-man shop advisors, and interims to help move the dial.

So, if you are coming away thinking that I’m dismissing the old guard, nothing could be further from the truth. Today’s GBS leaders have career advantages that those of us around at the advent of the model never had; they don’t have to spend the same amount of evangelizing, fighting, and figuring out what good should look like. The model is accepted, career potential is acknowledged, and we have practices and precedents on which to build.

I’m optimistic that this next generation of leadership will force a radical rethink of the GBS model, about five years overdue to my mind. Perhaps we will be less fussed about GBS orthodoxy, creating new operating models where control and ownership are no longer the main imperative. Perhaps we’ll move a little bit closer to harnessing the promise of technology. Perhaps GBS will become an enterprise state of mind rather than a service organization, delivering value beyond cost.

New guard, I’m counting on you.

Revolutionizing Risk: Exploring Actuarial Outsourcing in Insurance | Blog

Outsourcing is a growing trend in the insurance industry to transform the actuarial function by reducing costs, creating innovation, increasing efficiencies, and filling the talent demand. Explore the factors driving insurers to partner with specialized service providers and the advantages and obstacles of actuarial outsourcing. Contact us to learn more.

In response to today’s uncertain macroeconomic conditions, changing customer demands, and geopolitical and climate risks, insurance and financial institutions realize the critical need for actuarial transformation.

This transformation involves reimagining the role of actuaries in the organization and adopting new technologies and methodologies. Enterprises increasingly seek outsourcing support from specialized service providers to enhance the effectiveness and efficiency of actuarial processes, including pricing, reserves determination, capital assessments, and financial reporting.

Outsourcing can also help enterprises meet a surging demand for specialized actuarial talent. According to the Bureau of Labor Statistics, the demand for actuaries is expected to increase by 21% between 2021 and 2031. This growth rate surpasses most occupations, signaling a promising future for those working in the industry.

The rising demand for attractive job opportunities in related fields like data science compounds this increasing demand. Additionally, insurers compete with technology firms for the best actuarial professionals, even inside the profession.

Recognizing that the increasing demand for actuaries is unlikely to subside naturally, insurers are proactively addressing this issue. Outsourcing actuarial services is emerging as a compelling long-term solution that enables insurers to maintain control and gain a strategic market advantage.

While insurance providers and insurtechs have outsourced actuarial services since the early 2000s, the trend has accelerated in recent years due to the rising complexity of actuarial work, the need to focus on core competencies, and the rise of insurtechs. Let’s take a look at the factors fueling its momentum.

Key trends shaping actuarial services outsourcing

Heightened demand for expertise and the integration of cutting-edge technologies are among the key factors shaping the future of actuarial outsourcing. These trends reflect the industry’s commitment to staying ahead in a competitive market.  Understanding these driving factors is crucial for insurers to harness the full potential of actuarial services outsourcing.

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Advantages of outsourcing in actuarial transformation

The advantages of outsourcing in actuarial transformation extend beyond fiscal efficiency to encompass resource flexibility, access to specialized knowledge, and freeing resources to focus on more strategic tasks.

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  • Cost optimization: Actuarial outsourcing optimizes costs by using offshore resources and the specialized expertise of external partners. This fiscal advantage is significant in the insurance industry, where financial prudence is paramount. Insurance companies can significantly cut operational costs by automating manual processes and eliminating the need for an extensive in-house team
  • Resource scalability: Actuarial workload fluctuates frequently, making maintaining an appropriately sized in-house team difficult. Outsourcing enables insurers to adapt their actuarial workforce to changing demands. This flexibility encourages prudent control of operating costs while ensuring workforce numbers align with actual needs
  • Specialized expertise: Outsourcing partners bring a rich reservoir of specialized knowledge and expertise. Their in-depth understanding of actuarial nuances and steadfast commitment to staying current with best practices elevate actuarial work standards and expedite the implementation of novel solutions. This augmented expertise ensures alignment with the ever-evolving regulatory framework and enhances the organization’s overall actuarial capabilities
  • Strategic focus: Outsourcing relieves internal teams of routine actuarial tasks, freeing them to concentrate on key strategic objectives. Insurance companies can focus on developing cutting-edge products, creating customer-centric solutions, and other mission-critical initiatives supporting growth, leading to a competitive edge
  • Regulatory agility: Actuarial outsourcing is a flexible tool for regulatory conformity when supported by providers with a clear focus on compliance. It ensures that actuarial procedures consistently meet the ever-changing regulatory environment. This regulatory agility helps insurers avoid compliance-related pitfalls while enhancing their reputation for diligence and reliability
  • Resource optimization: Actuarial outsourcing allows insurers to manage their resources more effectively. It will enable insurers to skillfully adjust their resource configuration while supporting legacy applications during the transformation without incurring internal hiring and training costs. This flexibility ensures actuarial tasks are handled quickly and continuously, guaranteeing smooth operations even in the face of unforeseen resource constraints

Challenges with outsourcing actuarial services

Next, we explore the obstacles insurers may face, as illustrated below:

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Financial challenges

  • Accuracy and timeliness: Outsourcing partners may struggle to deliver accurate results on time because of the complex nature of actuarial processes, potentially leading to financial errors or reporting delays
  • Expertise gap: Outsourcing providers might lack the in-depth actuarial expertise required for precise financial calculations, raising concerns about the quality of results

Operational challenges

  • Communication challenges: Poor communication between the insurer and the outsourcing partner can result in subpar project management, inefficient processes, and delays in critical tasks
  • Quality and risk management: Inadequate quality and risk management processes by the outsourcing provider can compromise the overall quality of work, leading to operational inefficiencies

Counterparty challenges

  • Resource scalability: The outsourcing partner’s ability to scale resources to match fluctuating actuarial workloads is crucial. If they lack the talent, capacity, or expertise, it can hinder the insurer’s objectives
  • Contractual obligations: If the provider does not fulfill contractual terms, actuarial processes may be disrupted, causing unanticipated issues

Reputational challenges

  • Stakeholder interactions: Inexperienced outsourcing partners may jeopardize relationships with external stakeholders such as regulators, insurers, and policyholders, leading to reputational risks
  • Specialized roles: Outsourcing specialized actuarial roles due to a shortage of local talent may negatively impact the insurer’s reputation in those areas if the provider is inexperienced

Armed with an understanding of the opportunities and challenges of outsourcing actuarial services, selecting the right partner is critical. Insurers must evaluate providers’ capabilities by carefully considering their expertise, experience, cost-effectiveness, security measures, and technology infrastructure to make an informed decision.

To discuss actuarial outsourcing trends, contact [email protected] and/or [email protected]. Stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Watch the webinar, Transforming to Thrive: Building Winning Operating Models Amid Disruption Across Industries, to learn about trends impacting enterprises across industries, such as healthcare, life sciences, insurance, and banking and financial services?

From Auditors to Providers: Big Four’s Journey into FAO Services | Blog

The Big Four accounting firms have been steadily expanding their service horizons, casting a wider net in the managed services market in pursuit of growth and diversification. Leveraging their deep-rooted understanding of global organizations’ financial and operational intricacies, the Big Four possess a unique vantage point that can help them cause a shift in the Finance and Accounting Outsourcing (FAO) market. With their proven track record of innovation and adaptability, coupled with the inherent synergies between their core competencies and the F&A value chain, the stage is set for the Big Four to carve out a significant stake in this competitive domain. Read on for insights into the research. Or reach out to discuss this topic further.

FAO market’s appeal for the Big Four

Despite uncertain economic conditions, the FAO market has demonstrated remarkable resilience, with robust growth in the last year (~9%) and a double-digit growth forecast (11-13%) till 2025, demonstrating sustained expansion in the coming years. This growth goes beyond the mature North American and European markets. Geographies such as Latin America (LATAM) and Asia-Pacific (APAC) and industry segments such as retail and CPG, healthcare, and travel and logistics are witnessing a recent surge in FAO demand, indicating increasing openness to leverage third-party support for F&A operations.

Though FAO is the most mature BPO segment, there is enough white space for new and incumbent players to mark their presence in the market. With an estimated total addressable market of US$80-85 billion in 2023, the penetration rate is no more than 15-17%. This suggests that many global organizations have yet to fully embrace outsourcing services for their F&A function, which signifies ample opportunities for growth and expansion for FAO service providers.

Parallelly, enterprise satisfaction levels have remained stagnant over the past two years, primarily due to perceived shortcomings in innovation, slow decision-making processes, and inadequate stakeholder management. As enterprises increasingly demand contextualized and high-end niche services, there’s an anticipated transformation in the dynamics of outsourcing relationships. This evolution underscores a growing emphasis on long-term sustainable outcomes, prompting providers to recalibrate their strategies to meet evolving client needs.

This shifting landscape sets the stage for significant disruption, with providers gearing up to offer innovative solutions that cater to enterprises’ evolving demands and expectations.

Assessing the Big Four’s dive into FAO waters

With their formidable expertise, extensive resources, and global delivery network, the Big Four possess the capabilities to seize untapped opportunities and capture the white spaces in this evolving FAO market. While their vast client network will allow them to cross-sell their F&A services to their existing consulting customer base, their trust and track record will also solidify a credible foundation in competitive RFP scenarios for FAO contracts. Such strategic advantages in favor of the Big Four ensure significant benefits for buyers, as has been detailed in the exhibit below: 

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Buyer benefits from Big Four’s FAO market expansion | Source: Everest Group (2024)

Beyond tapping into new revenue streams, the Big Four’s foray into this market offers an opportunity to strengthen client relationships and mitigate risks by diversifying their services beyond traditional audit, tax, and advisory services. It also gives them an opportunity to expand their footprint globally and penetrate new geographies and industries. Leveraging the natural synergies of their existing capabilities with F&A, the Big Four can take a stronger value proposition to the clients, which would ensure a comprehensive suite of services for organizations as they focus on their core operations.

While entering the FAO market seems promising, it also demands meticulous evaluation of critical factors to ensure success, as detailed in the table below:

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Key considerations for successful FAO market expansion for the Big Four | Source: Everest Group (2024)

What happens to the existing provider landscape?

Both large and small providers need to strategically adapt in the FAO market due to increased competition from the Big Four. However, there could be inherent differences in the way these two categories might experience the expansion of the Big Four in the FAO space:

  • Impact on large providers: Even while the large F&A players have the capabilities to withstand the Big Four’s expansion, they will find themselves amid a fierce competitive storm. While many of the large F&A players come either from a domain or technology heritage, the entry of the Big Four from their consulting roots will create a pull for advisory capabilities from the clientele of most of the existing large F&A providers, compelling them to ramp up their advisory capabilities. Niche services such as enterprise risk management and compliance will no longer remain as good-to-haves given the experience of the Big Four in these areas. Large providers must also be attentive to client perception since preserving long-term partnerships requires upholding trust and proving value in the face of formidable competitors
  • Impact on small providers: While the impact of the entry of the Big Four for the smaller players remains minimal, they still need to prepare to compete for market share at a larger scale than before. Both the Big Four and existing providers will look to homogenize their target segments by penetrating the booming SMB and lower mid-market segments, which have historically been the forte of these small providers. Hence, differentiation will be paramount for these small providers to stay relevant with the big players of the market. Some of the ways smaller providers can create differentiation are by providing tailored solutions in an as-a-service construct, offering flexibility in pricing and scope expansion after SoW signing, and handholding throughout the client’s transformation journey

What’s ahead?

The Big Four will bring a new set of first-generation FAO buyers with them. Progressively, a lot of them will move ahead in the maturity spectrum, exposing them to the breadth of services and providers available in the FAO market. Existing F&A players will have the chance to carve out a share from this larger market, albeit with substantial strategic adjustments. With the four biggest accounting firms jostling to create their space in the FAO services market, it will be intriguing to see how the first movers among the Big Four chart a bold course forward to secure a significant edge in the coming years.

As we continue tracking the changes in the FAO market landscape, stay tuned for the Finance and Accounting Outsourcing (FAO) PEAK Matrix® Assessment 2024 and Finance and Accounting Outsourcing (FAO) State of the Market 2024 reports for more details on the Big Four’s play in the FAO market.

Watch our webinar, Sourcing Leaders’ Key Priorities: Accelerating Growth Through Global Services, to hear our sourcing and pricing analysts discuss action items to attain an accelerated growth trajectory.

Economic Oasis: How Revenue Cycle Management is Emerging as an Investment Beacon | Blog

Amid healthcare providers’ ongoing struggles with Revenue Cycle Management (RCM) inefficiencies, a new wave of outsourcing is emerging, centered around value and technology-driven solutions like AI and analytics. This surge in demand is propelling significant growth in RCM operations outsourcing, presenting an attractive opportunity for investors and Private Equity (PE) firms and underscoring its potential for high returns in an economically turbulent environment. Explore the driving factors behind this trend and strategies for investors to capitalize on this burgeoning growth for optimal benefits. Reach out to discuss this topic.

Despite the economic uncertainty, the RCM operations outsourcing market has poised itself as a growth star, increasing at a compound annual growth rate (CAGR) of more than 12% from 2021-23.

New sourcing deals requiring providers to support multiple areas have continued to increase, driven by healthcare providers’ long-standing challenges of lower revenue collection, higher denials, and suboptimal patient experience. These issues have reduced margins and escalated providers’ workloads.

Research indicates that nearly 50% of providers witnessed an overall increase in denials in 2023 compared to the previous year, while patient collections sharply dropped to 47.8% in 2022 and 2023 from 54.8% in 2021.

Recognizing this pressure to optimize revenues, hospitals increasingly turn to RCM vendors that offer expertise to streamline administrative processes and help healthcare providers achieve much-needed financial stability while improving patient experience.

While multiple drivers beyond labor shortages are pushing providers to outsource, a few factors stand out. These include regulatory the push toward digital transformation of operations, enhancing patient experience and value-based care, and aligning with changing regulations as illustrated below:

Changing regulations

  1. Regulatory push due to interoperability measures: Healthcare providers are increasingly turning to digital solutions to manage revenue cycles effectively while investing in interoperable systems. SC Health System recently invested $40M in Epic EHR Platform to enhance interoperability. Outsourcing to specialized vendors with compliance and digital solutions expertise enables healthcare providers to leverage advanced technology beyond their internal capabilities, increasing efficiency and financial performance
  2. Thinning hospital margins: While hospitals have witnessed slight top-line improvements due to pent-up demand, the squeezed margins resulting from excessive administrative spending still require strong cost optimization strategies to improve RCM efficiency
  3. Focus on patient experience and value-based care: The healthcare industry’s shift to value-based care prioritizes quality outcomes and patient experience. RCM vendors can play a crucial role by optimizing billing processes, minimizing errors, and enhancing patient communication. RCM providers can contribute directly to improved patient experiences and support providers in the value-based reimbursement mode
  4. End-to-end integration through AI/analytics: Hospitals with sizeable investments in legacy technologies are prioritizing platform-based end-to-end integration encompassing AI and analytics to futureproof their systems against regulatory, cybersecurity, or other shocks

Driven by these factors, RCM outsourcing has matured into second-generation deals focused on value creation through advanced analytics/AI, support for platform integration, and data-led transformation, coupled with strong domain expertise.

Shift of the RCM outsourcing market towards second-generation deals focused on advanced analytics, AI, and transformation

Shift of RCM outsourcing

Seeing the marketplace potential, firms started investing in the RCM ecosystem over the past few years, and the market is now ripe for a fresh wave of capital infusion.

Is RCM the next big thing? PE investors think so

In 2022, private equity firms took a significant interest in revenue cycle management companies, with RCM companies involved in 21 private equity deals – 18 add-ons and three buyouts.

The following three factors are driving this surge in PE interest:

  1. Stable revenues amid economic uncertainty: Due to the factors discussed above, the healthcare industry’s accelerating trend towards RCM outsourcing has resulted in the emergence of fast-growing RCM vendors. For private equity firms seeking predictable returns, especially with economic fluctuation, these vendors with recurring billing models and stable revenue streams have been a key area of interest
  2. Increasing leverage of digital tools to drive margin profiles: RCM vendors are actively investing in technologies like artificial intelligence, robotic process automation (RPA), and advanced analytics. These innovations streamline operations, reduce costs, and improve efficiency, ultimately enhancing profitability margins. R1 RCM’s acquisition of Cloudmed in 2022 to advance its revenue intelligence and automation capabilities is one of many examples. PE firms recognize the potential of these tech investments to drive maximum profits in shorter periods
  3. Consolidation opportunities: With a fragmented market ecosystem and many companies with specialized capabilities operating independently, the race to become an end-to-end vendor is real. PE firms see the potential to acquire and merge these companies to create powerhouse vendors with broader service offerings and a larger client base, promising rapid growth and scalability. One example is Veritas Capital consolidating Coronis Health and MiraMed Global Services to create a multi-specialty RCM platform providing end-to-end technology-enabled solutions to diverse clients across the US

Below is a recap of some of the private equity activity in RCM from late 2023 through this year:

With RCM vendors accelerating toward advanced technologies like automation, advanced analytics, and AI, the adoption of cutting-edge technology will likely increase further. The potential of these digital elements in RCM processes is highlighted below:

Future potential of tech

Generative AI’s potential to unlock new revenue streams

Generative AI (gen AI) can disrupt the RCM industry and impact existing business models despite its nascent enterprise adoption. Investors remain interested in this segment even with the potential risks.

Investors and service providers should prioritize and plan portfolio updates in emerging opportunities like prompt engineering services, gen AI model training, and data contextualization. This will help future-proof their offerings portfolio and identify high-value use cases to deliver better services to clients from the existing RCM portfolio.

What key factors should investors consider for an RCM asset?

This influx of investments in the RCM space presents investors with numerous opportunities to kickstart their asset hunt. While a ripe opportunity, they must strategically approach investing in RCM. Beyond the financial and talent profile, investors should assess the following:

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Let’s take a look at the major players involved in RCM operations and platforms:

Everest Group Revenue Cycle Management (RCM) Operations PEAK Matrix® Assessment 2023

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Everest Group Revenue Cycle Management (RCM) Platforms PEAK Matrix® Assessment 2023

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The RCM industry is on the cusp of transformation as vendors push boundaries to differentiate themselves in a largely fragmented market. While this provides a ray of hope to all stakeholders, waiting and watching how the market progresses in the next couple of years is essential.

To discuss the Revenue Cycle Management outsourcing market, contact Abhishek AK, Ankur Verma, and Ishita Aggarwal.

See the RCM Platforms PEAK Matrix® Assessment 2023 and the Revenue Cycle Management (RCM) Operations PEAK Matrix® Assessment 2023 to see market trends for RCM platforms and the RCM platform providers in the market.

Beyond Filters: Exploring the Impact of Generative AI Influencers on the Marketing Landscape | Blog

By leveraging generative Artificial Intelligence (gen AI), brands can elevate influencer marketing to the next level by creating compelling content that connects more deeply with consumers. In this blog, discover how AI influencers are changing the influencer marketing market and key factors brands should consider.

In an increasingly digital world, consumers seek personalized connections and are drawn to influencers who embody relatable lifestyles and offer trustworthy recommendations. Brands recognize the potential of influencer marketing to enhance visibility, credibility, and engagement. Influencer marketing fosters genuine connections that resonate with today’s consumers and provides brands with a powerful platform to amplify their message in the crowded digital marketplace.

Let’s take a look at how consumers and brands perceive influencer marketing.

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Adding gen AI to the mix

Quick cut to the gen AI disruption – where cutting-edge technology meets influencer creativity. With its capability to produce creative text formats, images, and videos, gen AI brings a new opportunity to this market. It has the potential to empower influencers to craft compelling content at scale that uniquely resonates with followers.

Influencers now find themselves equipped with innovative means to captivate audiences, experiment with storytelling formats, and consistently produce engaging content that reflects the pulse of their followers.

Callout: “A survey of consumers across the UK and the US found a majority (60 percent) prefer creator content designed using gen AI. An additional poll of content creators found most (81 percent) reported more favorable audience engagement with content designed using AI technology.”

Let’s look deeper at how gen AI is being used in influencer marketing.

  • Influencers are crafting more personalized and authentic content, easier and quicker using gen AI
  • Gen AI is assisting influencers with audience engagement, based on data and insights from sentiment analysis
  • Influencers are using AI-generated prompts and ideas to spark creativity, ranging from unique storytelling angles to creative challenges
  • Gen AI-powered influencers are gaining popularity on social media platforms enabling conversations and human-like responses in comments and messages

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Rise of AI influencers

The use of AI influencers in marketing is a relatively recent development that has gained significant traction. High-profile brands such as Prada, Versace, Red Bull, and Tinder have all activated AI influencers for social media promotions. Although the results driven by AI influencers are similar to those of human creators, the key difference lies in creating a relatable brand presence in consumers’ minds.

In the graphic below, we compare the skill levels of human and AI influencers in important areas:

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With their complementing skills, virtual and human influencers can create engaging content at different ends of the same spectrum. As gen AI becomes more prevalent in the influencer industry, balancing authenticity and AI-generated content will be crucial to maintaining genuine connections.

 Key considerations for brands

 While the intersection of gen AI and influencer marketing presents a transformative landscape for brands to connect with their target audience, a few areas of concern still need to be addressed, including:

  • Identifying the right influencers from a crowd of “experts” with genuine followers
  • Managing controversial content or affiliations that conflict with the brand message
  • Safeguarding against the potential risk of copyright infringement due to inspired content from gen AI
  • Measuring the actual impact and return on investment (ROI) of influencer marketing

As influencer marketing evolves, the future is oriented toward adopting an omnichannel and full-funnel strategy. This entails brands leveraging influencer content across diverse marketing channels, from connected television (CTV) ads to opportunity-to-hear (OTH) display ads. By taking this approach, brands can establish influencer-led paid media and integrate it with commerce, removing steps in the customer journey and ultimately driving faster conversions.

To discuss the growing role of AI influencers in the influencer marketing market, contact [email protected] and [email protected].

Join our webinar, The Generative AI Advantage in Enterprise CXM Operations, to learn how enterprises are looking at generative AI-based solutions adoption to improve customer experiences.

 

Accenture to Acquire OnProcess Technology: Unleashing the Potential of Integrated After-sales Services | Blog

Accenture aims to enhance its supply chain prowess by acquiring after-sales services provider OnProcess Technology. The deal can create opportunities for both firms, their clients, and the overall supply chain business process services market. Discover the key drivers behind this union and its potential impact in this breaking blog.

Reach out to us directly to discuss this acquisition further.

Accenture’s plan to acquire OnProcess Technology, announced on Oct. 31, 2023, aligns with Accenture’s inorganic growth strategy to expand its supply chain management capabilities. As a leading managed services provider, Accenture provides a wide range of services and solutions in strategy, consulting, technology, business processes, and operations.

OnProcess Technology specializes in after-sales services, one of the fastest-growing supply chain business process services. This segment is expected to grow even further due to its close ties to sustainability and its potential to impact revenue and customer satisfaction directly.

Based on our research and analysis, we view this acquisition as a good business move for Accenture. This is due to the segment’s strong potential and the opportunities it gives Accenture to leverage OnProcess Technology’s after-sales capabilities to enhance its supply chain offerings. Read on to learn more.

Key drivers of this acquisition

Three main factors are behind this deal. Let’s explore each further.

  • Creation of a single entity with the breadth and depth to meet end-to-end supply chain needs

Supply Chain Management Business Process Services (SCM BPS) has grown 15-20% over the past few years. The market encompasses four major processes: planning, making/manufacturing, delivery, and one of the fastest growth areas – after-sales services. Though each company has the strength and capabilities to manage aspects of after-sales services, the combined entity enhances Accenture’s end-to-end supply chain coverage by augmenting existing capabilities and filling specific gaps within their portfolios.

While OnProcess specializes in after-sales services, it lacks the operational scale and broader end-to-end capabilities Accenture offers. Accenture holds a Leader position in the Everest Group SCM BPS PEAK Matrix® Assessment 2023. OnProcess Technology is also a prominent Major Contender, supported by a strong vision and focused investment.

Combining the capabilities of both firms could provide enterprises with a one-stop supply chain solution. Additionally, OnProcess Technology’s existing clients can access Accenture’s broader capabilities in supply chain and other synergist functions. This will give clients a comprehensive ecosystem to seamlessly access their business process and IT services needs.

Exhibit 1 shows the findings from the 2023 SCM BPS PEAK Matrix® Assessment, where Accenture and OnProcess Technology are positioned strongly.

Supply Chain Management (SCM) BPS – PEAK Matrix® Assessment 2023

The combined entity will extend Accenture’s leadership position with strong end-to-end supply chain management services.Slide3

This exhibit shows a high-level view of Accenture’s and OnProcess Technology’s key capabilities/offerings

  • Aggressive expansion strategy to strengthen supply chain capabilities through inorganic growth and other investments

Continuing its concerted efforts to boost its supply chain capabilities both organically and inorganically, Accenture has made significant investments and more than 40 acquisitions in recent years. This latest acquisition will significantly boost and enhance Accenture’s after-sales capabilities within the supply chain.

The below exhibit outlines Accenture’s inorganic investments since May 2020.

Slide4

Accenture’s supply chain investments

Accenture has invested in the entire supply chain value chain across plan, make/manufacture, deliver, and after-sales services and has also acquired multiple sustainability-focused companies in the past few years to meet clients’ demands in this space.

OnProcess Technology has also been in a growth phase over the last couple of years. It has significantly invested in developing its after-sales capabilities, including appointing a new executive team, sustainability head, and chief product officer, launching a cloud-based platform, and expanding in regions such as Latin America.

The exhibit below outlines OnProcess Technology’s key milestones since its inception.

Slide5

OnProcess Technology’s key milestones since inception

Given the firms’ investment appetite and strategic alignment, this latest acquisition is a logical
step to strengthen Accenture’s positioning in the supply chain market.

  • Supply chain portfolio diversification in the rapidly growing after-sales services market

After-sales services is the fastest-growing SCM BPS segment, with a forecasted compound annual growth rate of about 20%. Many SCM BPS providers have tried to develop end-to-end after-sales capabilities, yet none have fully achieved this. The OnProcess Technology acquisition will help Accenture fill its missing after-sales services capability gaps and pave the way for comprehensive supply chain management capabilities.

Furthermore, OnProcess Technology has a large number of long-term clients, many with relationships spanning more than eight years. This gives Accenture opportunities to expand its existing engagement scope in established accounts with high customer satisfaction.

Additionally, more than two-thirds of OnProcess Technology’s revenue comes from clients in the high-tech and technology sector, one of the fastest-growing segments within supply chain management BPS. This sector is focused on sustainability and enabling circular supply chains through repairing, recycling, and refurbishing electronic devices. Accenture’s acquisition of OnProcess Technology opens access to an attractive client base to support its broader vision of fostering sustainable supply chains.

One-stop solution for all the supply chain needs of enterprises

The combined entity will address enterprises’ demand for end-to-end supply chain services.

In the rapidly evolving SCM market, demand for end-to-end SCM offerings is on the rise. Given the urgency to rapidly develop capabilities, many providers are expanding inorganically to gain a head start in capturing the growing market. With the acquisition of OnProcess Technology, Accenture stands to augment its ability to offer integrated SCM services and customized after-sales offerings at scale to clients.

If you have questions or would like to discuss supply chain management strategies, trends, or insights, reach out to Vignesh K, [email protected], or Amir Khan, [email protected].

Catch our webinar, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists, to learn how enterprises can drive more savings from their outsourcing contracts.

Contracting for Value: Balancing Expectations and Reality in Outsourcing Engagements | Blog

Everest Group’s Strategic Engagement Reviews (SERs) reveal several key trends that hinder enterprises from realizing maximum value from business process services (BPS) contracts. As enterprises rethink their outsourcing strategies, reevaluate current contracts, and rebalance work, these findings are highly relevant. Read on for insights into the research.

Connect with us to discuss BPS contracting.

Recently, when reading the Aesop fable The Tortoise and the Hare to my toddler niece, I was struck by its resemblance to the current state of outsourcing engagements. During the pandemic, service providers were in emergency mode to ensure business continuity for their clients, which increased satisfaction scores in 2021. However, providers faltered in maintaining the same momentum going into 2022 during the period of the Great Resignation. Providers were not prepared for the sudden large-scale attrition in the services industry, resulting in inconsistent service delivery quality and, consequently, impacting client satisfaction.

Decreased buyer satisfaction from key issues study

Fast forward to today, we see the recent banking collapse already casting a haze over the business landscape. As the saying goes, “Where there’s smoke, there’s fire.” Enterprises are investing more cautiously, given the current cost pressures along with fears of an economic slowdown and uncertainty. With every dollar being scrutinized, enterprises are rethinking their outsourcing strategies and evaluating the value realized from their outsourcing engagements. Let’s explore this further.

Key observations from strategic engagement reviews (SERs)  

Over the past year, Everest Group has supported many leading enterprises in evaluating their outsourcing contracts across different functional areas and benchmarking them against industry standards by leveraging our proprietary Strategic Engagement Review (SER) framework. The framework enables 360-degree assessment of outsourcing engagements with analysis across various dimensions, including solutions, pricing, contract terms, provider delivery and performance, and transformation.

While most of these contracts remain operational with transactional/tactical processes, outsourcing complex and upstream work has increased. We also observed the scope is expanding into adjacent and/or non-traditional areas such as risk management and compliance and environmental, social, and governance (ESG). These advancements are the result of joint efforts by enterprises welcoming providers as strategic partners and providers building robust capabilities to support the judgment-intensive processes.

Strategic Engagement Reviews (SER) framework

While benchmarking commercials remains a high priority for enterprises, the focus is shifting to understanding how to enhance the value from outsourcing engagements (beyond cost) and transform operations through best practices and digital adoption.

Below are a few observations from these engagements:

  • Most of these contracts inaccurately reflect client satisfaction due to irrelevant tracking metrics and unclear communication between parties regarding outcomes
  • Most of the contracts lack innovative commercial constructs that often impede full value realization out of the engagement
  • Both enterprises and providers need to fulfill certain existing gaps to embrace and implement more mature transformation models
  • This can be achieved by considering dedicated change management practices as the heart of any outsourcing engagement

Are performance dashboards merely a facade?

Indeed, performance dashboards tracking Service Level Agreements (SLAs) look as green as the proverbial “grass on the other side,” but the reality is not as rosy for a myriad of reasons. This phenomenon is often called the “watermelon effect.” Much like a watermelon that is smooth and green on the outside, hiding a red core, service metrics can be on target on the surface, but underneath, they may indicate poor service delivery and enterprise dissatisfaction.

Unclear communication regarding outcomes that lead to contract value leakage is the primary reason for this occurring. With the focus on client-centricity and winning deals, providers often commit to almost all client demands without properly clarifying how the “value gains” will be achieved. This leads to incongruity between the implementation and the client’s vision. For instance, productivity gains can be achieved either through digital resources or full-time equivalents (FTEs). Failing to mention these intricacies often results in difficulty in agreeing on the realized value after the implementation.

Aligning on well-defined outcomes won’t necessarily lead to maximum value realization without identifying and tracking the right metrics to govern the service delivery quality. We often find contractual SLAs that measure activity and workflow steps without aligning with the strategic business outcomes. Measuring irrelevant metrics may dilute the service level credit mechanism, which determines the provider’s fees tied to SLAs.

The holy grail for measuring outcomes and avoiding excess provider payouts is tracking relevant metrics that truly represent the end business goal. For example, if the goal is process standardization, then operational metrics such as payment processing accuracy might be relevant. For more mature organizations looking for large-scale transformation for topline improvement, outcome-oriented metrics, such as Days Sales Outstanding (DSO) could be better.

Sharing is indeed caring – the need for gain-sharing commercials

Enterprises often are dissatisfied with providers’ lack of proactiveness in bringing in innovation for transformation. This stems from the prevalence of the typical time-and-value commercial construct, which doesn’t incentivize the provider to exceed contractual commitments.

By embracing a gain-sharing pricing model that incentivizes providers to bring in more value-adds, enterprises can ensure providers have skin in the game. This approach not only fosters collaboration between the provider and enterprise but also builds an alliance as both parties work hand-in-hand towards a common goal. Moreover, this strategy further establishes the pathway for improved trust within the relationship, which is essential for the provider to act as a strategic partner.

It takes two to tango! Two to transform!

To draw a parallel about these engagements, a contract is like two rowers wading a boat through a turbulent river – it takes joint efforts to row through the perilous journey to reach the shore safely! Likewise, the onus of creating a sustaining long-term outsourcing relationship with maximum value realization lies with both the provider and the enterprise.

While the lift-shift-fix transformation model appears to be the most prevalent, there are profound reasons more mature transformation models are not being implemented. Although enterprises want providers to proactively pitch their technology solutions, the reality is that the willingness to embrace these contributions is limited! The reason enterprises are reluctant to adopt provider technology beyond point solutions is simply because this typically entails heavy provider ownership of the technology infrastructure. Consequently, enterprises want to avoid operational dependency that might increase future switching or termination costs.

On the other side, we also see providers being a bit risk-averse about challenging the in-house enterprise technology landscape to maintain good relationships with their clients by avoiding ruffling the features of the enterprise infrastructure!

While this type of arrangement minimizes provider intervention and operational dependency, it also limits cost efficiencies and business value that comes from leveraging provider technology. True value realization from outsourcing engagements will be achieved when enterprises provide more ownership of processes, visibility into organizational data, and greater flexibility to operationalize providers’ transformation initiatives. Concurrently, providers need to outline a clear transformation roadmap for enterprises, enabling them to visualize their journey ahead.

It’s high time that we see the “C” in change management as an underrated pivot to outsourcing

The change management aspect of resources is often underestimated in outsourcing relationships. Enterprises report that poor change management initiatives from providers can lead to disgruntled employees, resulting in employee attrition that indirectly affects the outsourcing project quality. Therefore, it is important to take a more proactive and structured approach to increase employee engagement and productivity in the outsourced service function, rather than approaching change management reactively and on an ad hoc basis.

What is the best way forward?

As enterprises plan for renewed growth, it will be intriguing to see how the outsourcing landscape evolves amidst the anticipated geopolitical unrest and recessionary environment. Some questions we’ll be following are: Will organizations need to rebalance work? Will increased provider rates challenge the cost advantages of outsourcing? Will large-scale transformation initiatives take a back seat to increased demand for short-time-to-value products in the near term?

To benchmark your current outsourcing contract, contact Everest Group. For more information, reach out to Prateek Singh, Practice Director, BPS, and Asmita Das, Senior Analyst, BPS.

Join our webinar, Key Issues 2024: Creating Accelerated Value in a Dynamic World, to discover insights into the current perspectives of IT-BP industry leaders and the major concerns, expectations, and trends for 2024.

Key Issues 2023: Assessing the Global Services Industry’s Performance Against Expectations | Blog

The global services industry’s confidence waned in 2023 after a banner post-pandemic year. Leaders were more cautious and prioritized cost optimization. To gain valuable insights into how the year unfolded compared to expectations, read on.

Participate in the Key Issues Survey 2024 to better understand the current thinking of industry leaders across the globe.

Coming off a bumper year in 2022 with double-digit growth driven by pent-up demand after the pandemic, the global services industry entered 2023 with macroeconomic uncertainty clouding the forecast.

As a result of these concerns, global leaders adopted a more cautious stance going into this year, according to Everest Group’s annual Key Issues survey of over 200 global leaders across industry enterprises, Global Business Services (GBS) centers, and providers.

In the survey, price and cost margin pressures ranked as the top business challenge expected in 2023, and subsequently, cost optimization emerged as the highest business priority for the year.

As 2023 nears an end and leaders start planning for 2024, let’s reflect on how the year fared against global services industry expectations of the industry.

1. Macroeconomic uncertainty subdued industry growth in 2023

In the face of macroeconomic uncertainty, most industry leaders felt cautiously optimistic about 2023. True to their expectations, results from the first three quarters of this year indicate subdued industry growth similar to the pre-pandemic numbers. A mix of macroeconomic concerns, rising prices, fiscal tightening, and geo-political tensions have resulted in a slowdown in customer demand and growing margin pressures on the global services industry. While revenues grew, the escalated cost and price pressure resulted in stagnant or even declining operating margins for most providers, as presented in Exhibit 1.

Exhibit 1: Key financial metrics for providers for 2022-23

Picture1 2

2. Talent demand and supply mismatch eased but remain challenging for niche skills

With attrition at an all-time high and growing industry demand, talent supply continued to fall short of the demand in 2022. The talent/skill shortage was the top concern industry leaders highlighted as part of the Key Issues Survey 2022. However, as the industry prepared for the looming uncertainty in 2023, these concerns took a back seat. In line with the industry expectations, the talent situation eased in 2023. Data for the first half of 2023 show that attrition rates have declined, and most delivery geographies are reporting a narrowing talent demand-supply gap. An assessment using Everest Group’s proprietary Talent GeniusTM tool indicates talent demand for delivery of IT and contact center services has declined substantially compared to 2022, as shown in Exhibit 2.

Exhibit 2. a: Talent demand across select countries for delivery of IT services indexed to January 2022 (Jan 2022 = 100)

Picture2 1

Exhibit 2. b: Talent demand across select countries for delivery of contact center services indexed to January 2022 (Jan 2022 = 100)

Picture3

However, this improvement in talent supply has not applied to all global services, especially those requiring niche skills. Digital and next-generation technology services continue to witness a mismatch between talent demand and supply. This disparity is especially true for emerging skills like generative Artificial Intelligence (AI), where talent supply is even more limited. Preliminary estimates by Everest Group show that only 1% of AI talent has expertise in generative AI, pushing companies to focus on upskilling and reskilling their employed talent pools to bridge this gap.

3. Offshore locations and tier 2/3 cities are being considered to optimize costs

To manage growing cost pressures, a key strategy for global leaders entering 2023 was continuing to leverage offshore locations and exploring alternative delivery strategies, such as leverage of tier 2/3 cities. Global services trends in 2023 resonate with this approach. Offshore locations like India continue to be the destination of choice for global service delivery, given the significant cost arbitrage opportunities. Similarly, enterprises and providers alike are more enthusiastically exploring tier 2/3 locations driven by needs of cost savings, talent access, employee preference, and market competition management. Exhibit 3 shows how the leverage of tier 2/3 cities witnessed growth in 2023.

Exhibit 3: Trends in center setup across Tier 1 and Tier 2/3 locations (2022-23)

Picture4

4. Provider bill rates increased but at lower levels than expected

Despite the prevailing macroeconomic pressures, providers maintained optimism about bill rate increases in 2023, although they were expected to be at a lower rate than in 2022. Unlike other economic downturns, provider bill rates have continued to show positive growth despite the growing cost and price pressures in the first seven months of 2023. However, with the macroeconomic scenario hitting much harder than expected, input-based pricing has been subjected to hard negotiations. This has led to muted growth (0.5-2%) in bill rates across different functions, much lower than provider industry expectations going into 2023. For example, provider bill rates for traditional applications skill delivery in offshore regions grew by only 0.5-1% compared to the expected growth of 2-5% from January to July 2023.

5. Provider portfolios underwent significant rebalancing and consolidation to ensure better deal terms

Enterprises reported much lower satisfaction with providers in 2022 compared to 2021 when providers played a key role in supporting enterprises in navigating the pandemic. The leaders cited a lack of innovation and communication as the key reasons behind this dissatisfaction. Consequently, procurement leaders expected a significant change in their provider portfolios. Additionally, with macroeconomic concerns clouding all strategies, enterprises looked to consolidate and rebalance provider portfolios to negotiate better deal terms with limited providers. As expected, 2023 witnessed a shift in provider portfolios, with major providers winning deals that had vendor consolidation components.

6. Investments in strengthening the digital core are a priority over moonshot endeavors

Prioritizing resilience through uncertainty, the focus of the global services industry continues to be on pragmatic digital investments like cloud solutions, cyber security, analytics, and automation. While the advent of newer technologies like generative AI has created an industry buzz, the primary focus continues to be on strengthening the digital core and building a resilient technological foundation. Most industry verticals continue to wait and watch before diverting constrained resources to newer projects with limited use cases and industry adoption.

As 2023 comes to a wrap, the global services industry is at the forefront of another transformative shift – the need to create value and the need to create it fast. This becomes especially imperative as technological advancements like generative AI threaten to shift the industry’s current equilibrium and potentially start the next phase of a technological revolution. The global services industry must adapt swiftly to stay ahead of the curve.

Participate in our Key Issues Survey 2024 to capture the pulse of Information Technology and Business Processing industry leaders across the globe and uncover major concerns, expectations, and key global services trends that are likely to amplify in 2024. To discuss further, or for any questions, reach out to Ravneet Kaur or Hrishi Raj Agarwalla.

Don’t miss the Key Issues 2024: Creating Accelerated Value in a Dynamic World webinar to gain valuable insights into 2024.

Transforming the Game: How Consolidation is Revolutionizing the Insurance Brokerage Industry | Blog

Readily available capital and low-interest rates made the past few years ideal for the insurance brokerage industry to consolidate in response to increased competition, changing customer expectations, and other challenges. Merged insurance intermediaries can partner with business process service (BPS) providers to optimize processes, manage risks, enhance data analytics, and improve customer experience, among other benefits. Read on to learn more.    

Reach out to us directly for questions or to learn more.

The insurance brokerage industry went through an inflection point last year. A confluence of factors happening simultaneously created a perfect recipe for consolidation. These included large quantities of readily available capital, low-interest rates, highly valued broker stocks, all-time high valuation multiples, and the challenging insurance market.

The deal frenzy of 2021 slowed towards the end of 2022, with less than $2 billion of deal value announced and no large transactions in the last six months of the year. Despite this, insurance brokerage transactions trumped the activity. More than 90% of the overall insurance deals were in the brokerage space. In terms of both the volume of transactions and the multiples being paid, the consolidation rate in the re/insurance broker industry has accelerated.

Let’s take a look at the following dominant broker groups influencing the insurance brokerage industry:

  1. Global brokers – Large multinational insurance brokers who typically operate in multiple countries and offer a wide range of insurance products and services
  2. Private Equity (PE)-backed brokers – PE firms provide the necessary capital for mergers and acquisitions
  3. Family-owned brokers – Small to mid-sized insurance brokers that are family owned and operated

Drivers and challenges leading to consolidation

Picture1 2

Competition

  • Increasing competition: The insurance intermediary industry is becoming increasingly crowded, with new players entering it all the time, further fragmenting the market. These new players often can offer better services, lower prices, and more innovative solutions than traditional insurance intermediaries
  • Market share growth: Insurance intermediaries can inorganically boost market share with additional capabilities and market penetration in new geographies by consolidating with another firm. They also can benefit from customer base growth

Capabilities

  • Technological advancements: The industry’s recent drive towards digital transformation by implementing new technology and platforms is forcing intermediaries to seek funds to invest in digitization or lose against better-capitalized intermediaries
  • Economies of scale: Insurance intermediary consolidation can spread fixed costs over a larger number of policies, resulting in lower average costs per policy. It also can provide intermediaries with increased bargaining power with insurers, provide cross-selling and up-selling opportunities, and help increase brand and mind share
  • Service offering diversification: Consolidation allows insurance intermediaries to expand and diversify their services and product lines. Intermediaries can attract new customers by acquiring another brokerage that provides different products or services. This keeps intermediaries relevant and competitive in a dynamic market

 Complexity

  • Regulatory pressure: Consolidation can help smaller intermediaries remain up to date on increasingly complex risk management requirements that would be difficult for them to do by themselves
  • Inefficient processes and people: By joining forces, smaller firms can improve process efficiencies and combine their talent pools. Consolidation also can help large entities better manage operations

 Customer

  • Changing customer expectations: Consumers increasingly demand customized and convenient services and anticipate an omnichannel experience. Insurance intermediaries that cannot meet shifting consumer expectations risk losing clients to rivals who can.

Impact of consolidation on stakeholders

Insurers

Picture2 3

Customers

Picture3 1

Routes to consolidation

Insurance intermediaries can take multiple paths to consolidate depending on their strategy, such as:

  1. Mergers & Acquisitions: This is the preferred route for consolidation where two or more intermediaries enter into an M&A to achieve economies of scale, expand into new markets, and gain access to the latest tools and technologies. Different forms of M&A pursued are horizontal mergers between intermediaries from the same market, vertical mergers between intermediaries with different capabilities, and cross-border M&A
  2. Strategic alliances and joint ventures: Insurance intermediaries can pursue strategic alliances or JVs under many forms, such as distribution agreements, co-marketing agreements, and shared service agreements to effectively share resources and expertise while reducing risks and increasing market power
  3. PE investments: In recent years, PE firms have increased their involvement in this industry as they look to invest in dependable, cash-generating companies with room for expansion. PE companies can assist insurance intermediaries seeking strategic acquisitions and expansions while also providing access to finance and experience

Many intermediaries also take an independent route and pursue organic growth by investing in digital transformation initiatives to achieve unparalleled scale and efficiency.

Key players in the insurance intermediary consolidation space

The insurance intermediary market is highly competitive and dynamic, with many players pursuing different strategies to achieve their growth objectives. Here are some of the active players in the consolidation space:

  • Marsh & McLennan: In 2019, the company acquired Jardine Lloyd Thompson Group, a leading UK-based insurance intermediary, in a deal valued at $5.6 billion. The company also has announced the acquisition of Focus Insurance, offering tailored personal insurance programs.
  • Gallagher: Gallagher has pursued a growth strategy focused on M&A and has completed over 500 acquisitions since 1984. Gallagher started 2023 with an acquisition of Dublin-based commercial and personal lines broker First Ireland, making it one of Ireland’s largest brokers.
  • Hub International: The company also is focused on growth through M&As, and has made more than 600 acquisitions since its founding in 1998. In 2020, Hub acquired the assets of The Insurance Exchange, Inc., a leading insurance brokerage firm in California.

How intermediaries can leverage insurance service providers

Intermediaries face increasing pressure to reduce costs, increase efficiency, and deliver better customer experiences. By partnering with BPS providers, they can achieve these goals. BPS providers can deliver policy administration, claims processing, customer service, data analytics, and other services, as illustrated below:

Picture4

In selecting a BPS provider, intermediaries need to evaluate the service provider’s capabilities by carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss insurance brokerage industry trends, please reach out to [email protected] and [email protected], and stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

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