Category: Business Process Services

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. An 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.

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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.

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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

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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)

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

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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)

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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

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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

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Customers

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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:

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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.

Generative AI in Marketing: The Sidekick You Never Knew You Needed | Blog

Generative Artificial Intelligence (GAI) can deliver efficiency and scale in content production, marketing support, and media channels like never seen before while also spurring innovation. Learn about the opportunities and obstacles of Generative AI in marketing in this blog.

Don’t miss the webinar, Welcoming the AI Summer: How Generative AI is Transforming Experiences.

“In my lifetime, I’ve seen two demonstrations of technology that struck me as revolutionary. The first time was in 1980, when I was introduced to a graphical user interface… The second big surprise came last year… from OpenAI… I knew I had just seen the most important advance in technology since the graphical user interface.” – Bill Gates

OpenAI’s introduction of ChatGPT onto the world stage heralded a seismic shift in the path toward intelligent automation. With its ability to create complex and innovative solutions, GAI has become the buzzword in boardrooms and strategy meetings. Enterprises are in an arms race to tap GAI through integrations, in-house development, and investments in start-ups.

Let’s look at its soaring popularity in the illustration below:

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From healthcare to finance and from content creation to moderation, GAI has potential use cases cutting across almost every industry. Enterprises are eager to harness this groundbreaking technology’s power to streamline operations, improve efficiency, and unlock new opportunities.

What will the use of Generative AI in marketing mean?

With its impact spread across the marketing services value chain, GAI opens a novel world of possibilities, as illustrated below:

Picture1 2

GAI proves to be efficient and effective in marketing services, particularly in content production, marketing support, and media channels. However, as with any emerging technology, it comes with concerns and challenges. Some of the implications and concerns are discussed below.

Content generation

Perceived implication: GAI frees resources for other higher-level tasks that require human attention, such as strategic planning and community building.

Possible concern: Marketers need to weigh the time and efforts required to review and validate the content generated by GAI to ensure accuracy and consistency with brand messaging.

AI-assisted branding

Perceived implication: GAI’s capabilities can improve digital media and also can impact traditional channels in areas of product ideation, branding initiatives, and advertising campaigns.

Possible concern: Despite aesthetic designs and descriptive language, consumers might not feel connected to the products without a sense-check from human input.

Search engine optimization (SEO) and organic search

Perceived implication: Due to the conversational interface, the query results are highly pinpointed, raising the bar for enterprises to focus on contextually relevant content on their landing pages.

Possible concern: The new face of search marketing will rely heavily on AI technology, meaning marketers need to upgrade to real-time AI-driven and intent-based analysis for search to stay competitive.

Intent-driven search marketing

Perceived implication: Search algorithms increasingly will be built around user-intent and intent-driven actions rather than keywords or links.

Possible concern: Instead of focusing on keywords and links as ranking factors, marketers will need to keep updated through intent analytics and stay relevant by providing users with the right information at the right time to drive conversion or engagement.

Lead generation

Perceived implication: GAI can engage with website visitors in real time and help qualify them as leads based on their specific needs and interests. This can help sales teams focus efforts on the most promising leads and improve conversion rates.

Possible concern: Customer-facing GAI tools need to be accurate and handle queries without any biases. Since the answers offered are only as accurate as the training dataset, customer dissatisfaction is always a risk.

Sales enablement

Perceived implication: GAI can provide sales teams with real-time data and insights on customer behavior, payment status, billing cycle, etc., enabling them to tailor sales pitches and ultimately lead toward revenue operations.

Possible concern: Access to consumer touchpoints and lack of transparency in the algorithms raises data privacy issues since whatever is fed into the AI is processed, stored, and re-utilized to improve query responses.

Exploring GAI: some novel use cases

As the market perspective is being developed, GAI is still in the test-and-play phase as enterprises and service providers have started experimenting with potential use cases like the ones below:

AI content creation engine Branding through Generative AI
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  • Samsung Europe has started using GAI to automate the creation and publication of digital banner ads running across platforms such as TikTok, Instagram, and Spotify
  • CopyAI, Jasper AI, and Writesonic, to name just a few are helping pioneer personalized marketing at scale by applying GAI solutions in upper-funnel marketing activities
  • Coca-Cola launched a campaign encouraging consumers to use GAI tools to create artwork for the brand that would appear on billboards
  • Beck’s, the German beverage brand, put GAI to full use. While ChatGPT was used to develop the recipe and name the brew Beck’s Autonomous, Midjourney developed and created its futuristic packaging, campaign, and imagery

 

Intelligent chatbots Marketing and campaign support
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  • Used vehicle seller CarMax is summarizing thousands of customer reviews using GAI
  • Grocery delivery company Instacart is integrating ChatGPT to answer customers’ queries
  • Snapchat announced that it is adding My AI, an experimental chatbot to its paid Snapchat+ customers, enabling them to post content with quippy descriptions
  • Salesforce launched Einstein GPT, a GAI-based CRM technology, that generates personalized emails, supporting the sales team and generates nuanced responses for customer service teams
  • Attentive AI introduced Magic Message, which leverages GAI for message creation, and automated campaigns to take the manual work out of planning and testing

 CMO compass: order out of chaos

Although many enterprises are using GAI as an exploration tool in marketing, realizing the business opportunity will require a customized Chief Marketing Officer (CMO) compass that can help create order out of chaos, as seen in the likeness below:

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These four facets can act as the cardinal directions while navigating the GAI conversation.

GAI has rapidly transformed how content creation and marketing support are managed, showcasing a level of efficiency and scale that was previously impossible. In fact, by the time one finishes reading this blog, GAI likely handled hundreds or even thousands of queries and helped develop countless lines of content.

As this technology continues to evolve and mature, we can only expect its impact to grow, ushering in a new era of innovation. Enterprises must exercise prudence and careful consideration as they delve deeper into the potential applications of GAI. Ensuring that responsible implementation and ethical concerns remain at the forefront of their decision-making process is essential.

To discuss Generative AI in marketing, please contact Ravi Varun, or Nishant Jeyanth.

Learn more about Generative AI in marketing in, Generative AI – Redefining the Experience Design and Development Process.

Coping With Recession: How Healthcare Providers Can Maintain Financial Stability | Blog

To combat a looming recession, healthcare providers will need to take strategic action, including cutting costs, investing in patient experience, embracing digital technologies, and strengthening outsourcing partnerships. Read on to learn about the healthcare provider trends coming and how service partners can help hospitals and health systems overcome the challenges in an economic downturn. 

Reach out to learn more on this topic or ask questions.

As we covered in our last blog, healthcare payers, particularly commercially-focused enterprises, have to brace for the impending economic downturn. The need to survive becomes even more essential for healthcare providers that are already bleeding under financial challenges.

The first half of the fiscal year 2022 was one of the most challenging times for hospitals in the US as they faced months of high-magnitude negative operating margins (Fig. 1). Although the margins stabilized slightly later, 2023 started on a rough note again owing to labor shortages, rising supply chain costs, and lower patient volumes – eventually leading to a further drop in hospital margins. To add to their challenges, the prospect of an impending recession is likely to exacerbate the situation.

As concerns of an impending recession take hold, patients may begin to reassess planned medical expenses in relation to other household costs, particularly when budgets become tighter. This can be particularly challenging for hospitals, especially given the aggressive cost-sharing measures associated with high-deductible health plans (HDHPs), which can pose additional obstacles to their financial recovery.

Recently, 4 in 10 Americans were compelled to delay or skip healthcare treatments, trim regular household expenses, or borrow money due to rising healthcare costs. These pressures will lead hospitals to carefully re-strategize their investments. Let’s deep-dive into some of the changes that hospitals and health systems can expect in a recessionary year.

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Fig. 1: Kaufman Hall Operating Margin Index by Month

What healthcare provider trends can we expect in a recession?

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  • Moderate drop in specialized resources demand: An extreme shortage of clinical resources last year led hospitals to depend heavily on expensive contract nurses, extended overtime hours, and more clinical errors, eventually resulting in worse patient outcomes.

While the demand for clinical resources is expected to continue to keep provider leaders up at night, a full-fledged recession might ease the shortage a bit. Several healthcare institutions reported a rise in nurses in the last recession because some retired nurses started working again or postponed retirement.

However, this is not expected to eradicate the labor problem in the long term as the “experience-complexity gap” will only worsen with an increasingly aging population having complex and chronic care needs

  • Squeezed cost pressure: Hospitals will continue to see cost pressures hitting their margins because of increased baseline labor rates and supply chain costs. The pandemic and ongoing geopolitical issues elevated the supply chain disruption leading to costlier negotiations for specialized medical products. As a result, medical supply prices were up a whopping 46% at the end of 2021, compared to 2019.

Furthermore, it is important to note that healthcare provider businesses face a considerable amount of exposure to labor costs. This is especially true for more labor-intensive provider businesses like home health, personal care services, and hospice, where labor can account for more than 50% of costs.

Unfortunately, while costs continue to rise, reimbursement rates tend to only increase modestly because pricing negotiations with payers take place over multiple years, and government entities adjust pricing annually. While providers may seek to re-negotiate with health plans midway, pricing corrections may not be substantial enough to adequately prepare for the financial frugality that patients may begin to exhibit

  • Reduced demand for non-urgent/elective care: An impact on household budgets tends to make patients rethink planned surgeries and, in some cases, delay the avoidable, non-threatening ones as well. A survey conducted during the Great Recession found that families with limited financial means prioritized spending on essential non-medical items and decreased their healthcare utilization.

The survey also revealed several concerning trends in healthcare, including patient anxiety due to the inability to pay medical bills, a rise in missed appointments, an increase in significant stress symptoms, and new illnesses and health problems resulting from a lack of preventive care.

Moreover, with reduced patient volumes, healthcare providers may face increased competition for patients, particularly in the outpatient settings, leading to lower prices and diminished profitability. The competition can be further intensified with the entry of players like Walmart and Amazon expanding their retail clinic presence

  • Greater revenue dip: A recession leads to an increase in uninsured patients which negatively affects hospitals’ revenue streams. During the Great Recession, hospitals suffered a huge rise in bad debt and uncompensated care.

This impact can be more prominent for hospitals with higher exposure to commercial plans. According to the American Hospital Association, the hospital reimbursement rate by private payers increased from 116 percent of hospital costs in 2000 to 128 percent eight years later.

This rate has continued to climb, with hospital systems now charging commercial insurers an average of 208 percent of their costs or even more, findings from a 2019 Rand report that analyzed claims data from private employers in 25 states show.

If unemployment leads to a shift from privately-insured plans to Medicaid, hospitals could lose revenue. While cutting costs to save margins is an option, this might have a spiraling effect as resource and bed shortages would further impact revenues.

These healthcare provider trends will compel suppliers to take a streamlined and targeted approach to survive a recession. Here are some of these strategies:

Four strategies for healthcare providers to combat a recession

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  1. Identify cost-saving opportunities: Healthcare providers will have to conduct robust audits to identify cost-saving opportunities across the front-end, mid-, and back-end revenue cycle processes.

By identifying areas where costs can be cut without impacting patient care, providers can take concrete steps to reduce expenses and operate more efficiently. Providers with in-house revenue cycle management (RCM) operations can consider outsourcing as well as offshoring to benefit from cost arbitrage by identifying the right process, delivery, and partnership for outsourcing. In fact, outsourcing medical coding staff alone can save hospitals 25-30% on administrative costs.

Healthcare providers that have partially outsourced operations can consider expanding sourcing partnerships to other segments after a comprehensive assessment. Several health providers, such as Northern Light Health and Owensboro Health, have accelerated their RCM outsourcing plans in collaboration with service providers

  1. Double down on patient experience: With competition intensifying during a recession, healthcare providers can differentiate themselves by investing in initiatives that improve patient satisfaction and loyalty. Providers need strong customer experience (CX) capabilities and to deliver informed and robust patient communication addressing a range of administrative and clinical issues.

Providers should strategically focus on improving awareness of overlapping needs for better relationship management, segmentation, marketing, analytics, product innovation, and engagement. The CX program should be built on fundamentals of personalization, particularly for complex care needs, as every patient has their own needs and preferences.

Healthcare providers should be open to feedback and actively seek to improve the patient experience by conducting patient surveys, analyzing data to identify improvement areas, and implementing changes based on patient response

  1. Embrace digital: Providers will have to invest in future-proofed digital tools, solutions, and innovative portals that not only improve the front-end patient experience but also eradicate redundancies in the back office.

These solutions can span from point-based, pre-configurable solutions to E2E cloud-based artificial intelligence (AI)-enabled platforms coupled with automation and analytics capable of consuming vast amounts of information from data lakes.

A testament to this opportunity can be seen in Norman Regional Health System’s investment in VisiQuate’s AI-powered Denials Management Analytics and Revenue Management Analytics to power RCM operations using analytics.

On the clinical side, providers will have to invest in solutions that provide a comprehensive look into patients’ care journeys through proactive insights. Areas like remote monitoring and population health analytics should no longer be considered the care of the future and must be leveraged now to improve care coordination. Some of these efforts can be channelized in collaboration with health plans to ensure that care gaps are closed in time

  1. Strengthen sourcing partnerships: Healthcare providers should comprehensively review current sourcing partnerships by taking an outcome-focused approach, adopting the right technological solutions, and creating a dynamic communication channel to manage operations and prioritize escalations.

By clearly defining performance metrics and incorporating a robust governance mechanism, healthcare providers can get the right benefits and meet the anticipated objectives.

What does this mean for service providers?

Service providers in the RCM operations space will have to adopt a unique and differentiated go-to-market strategy to solve these healthcare challenges by taking into account individual as well as market-specific issues.

This can be achieved by having a strong resource base with specialized skills and expertise, such as nursing, coupled with the scale that can support providers based on fluctuating demands.

Moreover, service providers also will have to leverage digital partnerships while simultaneously building their core competencies. By taking these steps, service providers can help hospitals and healthcare organizations weather the coming storm.

To learn more about healthcare provider trends, contact Lloyd Fernandes or Vivek Kumar.

Watch our webinar, Transforming Customer Experience in Healthcare with Hyper-personalization, to learn about hyper-personalized experiences in healthcare that span care management, proactive grievances redressal, and billing and payments.

The Rise of Retail Investors in Global Capital Markets | Blog

Retail investors are here to stay. As global capital markets face macroeconomic headwinds and a liquidity crunch, retail investors are gaining volume in traditional equity and debt markets as well as emerging alternate investments. Read on to understand the new global capital market trends, the staying power of retail investors, and the impact on investment banks, asset and wealth managers, and service providers.

Watching global capital markets over the past few years has been a rollercoaster ride of issuances and investments. Concerns of market volatility and issuances softening started way before the recent collapse of global banking giants, Silicon Valley Bank (SVB) and Credit Suisse. As illustrated below, overall global equity issuance was stagnant from 2017-2019, while global debt issuance has been steadily rising since 2017.

Driven by the pandemic, total equity issuance increased significantly starting in the third quarter of 2020 and remained high until the fourth quarter of 2021, resulting from regulatory support, major rate cuts, and gradual liquidity pumped into the markets by governments across the world.

Similarly, global debts in capital markets witnessed a significant increase in borrowing levels from the first to the third quarters of 2020. Interest rates across the globe reached historic lows during 2020 and remained down in 2021, leading to continued low borrowing costs for activities such as refinancing existing debt or financing mergers and acquisitions.

After the booms in 2020 and 2021, equity and debt issuance slowed in 2022 due to various macro-economic headwinds that resulted in volatile and low-growth capital markets.

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The current market volatility has been impacted by the following factors:

  • Tightened money supply
  • Aggressive interest rate hikes
  • Inflationary pressures
  • Heightened geopolitical risks that triggered supply chain issues; Russia’s invasion of Ukraine has resulted in higher global costs for energy, minerals, and grains
  • Tensions between the US and China and regulatory pressures

Rise of retail investors

Despite the ups and downs in global capital markets through the recurring macroeconomic headwinds, the growth of retail investors reshaped investing trends starting in early 2020 and by 2022, individual investors held roughly half of all global wealth.

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The strength of retail investors has been fueled by both demand and supply side factors. The exhibit below shows the contributing demand-side factors that include:

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Drivers for expanded retail volumes

Now let’s explore the various supply-side drivers for the increased participation of retail investors:

  • Growth of blockchain technology-backed assets – Retail investors have had a huge influence on the performance of cryptocurrencies, non-fungible tokens (NFTs), and other similar assets/stocks
  • New retail investment platforms – Newly available stock trading, investment platforms, and apps that provide better customer experience and real-time information to investors at a low commission/brokerage or subscription model have grown
  • Innovative debt, equity, and other assets investment offerings – As the market matures, banks and fund managers are delivering innovative and customized offerings, bridging the gap between retail investors and the ticket size. Concepts such as fractional investments and ownerships have highly encouraged and facilitated market entry for retail investors with smaller trades. These fractional investments can cross investment classes, such as real estate investment trusts (REITs). These tokenized options to invest in real estate allow retail investors to gain returns from fractional investments in real estate that otherwise require huge investments with low liquidity
  • New equity investment options – Similarly, investing in private companies that are not yet listed through debt instruments, invoice discounting, or sale of shares in private markets have drawn retail investors’ attention to realize high returns that are less impacted by volatility compared to stocks
  • Central Bank Digital Currency (CBDC) – The introduction of a digital currency issued by a central bank is expected to especially appeal to cash-rich yet risk-averse retail investors
  • Alternative investment funds – Private investment funds such as private equity firms and hedge funds that historically catered to institutional investors are now increasingly looking to tap wealthy individuals. According to reports, individual wealth invested in alternatives will grow more than institutional capital allocated in the next decade

As retail investors increase their volume and market participation, enterprises are rapidly scaling operations to support demand from growing retail investors as well as institutional investors.

Enterprises also are building capabilities across the traditional equity-debt markets and exploring building alternative investment offerings such as gold commodities, invoice discounting, crypto, and NFTs. To enable this, enterprises require support for back-end operations and to manage declining margins.

What does it mean for Business Process Services (BPS) on the sell side:

Amid the global rise in interest rates and capital markets volatility, investment banks have begun to feel margin and cost pressure. The subdued demand was visible in the quarterly earnings results of some major investment banks. In the fourth quarter of 2022, Morgan Stanley reported a 49% drop in its investment banking business compared to the prior year, Goldman Sachs registered a 48% plunge, and Citi Group witnessed a 58% decrease, among others.

The margin strain trickled down to operational cost pressure that led to job cuts in the investment banking division of all the big banks, including Barclays, Citi Group, Deutsche Bank, and Goldman Sachs.

The volatile environment is expected to drive the industry to look for support from service providers to stem costs and sustain business profitability in the following ways:

  • Offshoring: Tier 2 and tier 3 banks that may feel more heat are expected to move more back-office and regulatory reporting operations to low-cost nearshore and offshore centers by partnering with BPS providers
  • Accelerated shift to digitally-enabled operations: Banks are keeping IT investments restricted to core offerings and focusing on intelligent automation transformation, cloudification, and deploying machine-learning-based platforms, among other strategies
  • Captive carve-outs: Banks scrambling with extreme cost pressures are expected to carve out their captives to service providers, giving them responsibility for operations and accountability for business risks

What does it mean for BPS on the buy-side:

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Increasing demand for retail as well as private investments is driving many banks, fintechs, private equity firms, and hedge funds to make inroads or expand their existing asset and wealth management operations.

For instance, Morgan Stanley acquired E*TRADE in 2020 to strengthen its wealth management offerings, while JP Morgan bought digital wealth manager Nutmeg in 2021.

With enterprises scaling up and the regulatory environment changing, the need for low-cost and seamless operations is fuelling outsourcing spend in some of these key areas:

  • Technology-enabled and data-enabled services for better user experience
  • Asset servicing, such as fund administration and accounting
  • Corporate actions
  • Automated workflow for client onboarding, reconciliation, settlements, etc.
  • Support for existing regulations as well as up-and-coming regulations on Environmental, Social, and Governance (ESG), and cryptocurrencies
  • Increase in cyber security and data safety platforms and services

Changing yet challenging times

The fast-changing financial services landscape and the recent collapse of banking giants such as SVB and Credit Suisse are expected to influence investor sentiment as well as operating models and capital requirements of banking enterprises.

Watch this space for further updates on how the changing banking landscape opens additional risks and opportunities for service providers.

For more information on trends in global capital markets, reach out to the authors, Sakshi Maurya, Shrey Jain, Dheeraj Maken, and Suman Upardrasta. To learn more about BPS market trends, the competitive landscape, and our latest research findings, see Capital Markets Operations PEAK Matrix Assessment 2023.

Changing Dynamics In The Business Process Services Marketplace | Blog

I’ve blogged often in the past few months (here, for instance) about the emerging platform operations model and how it creates a more intimate, dynamic relationship between the tech stack and business operations. Just like the IT and engineering services marketplace, this new relationship between technology and operations because of platform operations is now increasingly dominating the business process services (BPS) outsourcing space.

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