Category

Onshoring

Cost Impact of Immigration and Visa Reform to US Customers Using Offshore Services | Sherpas in Blue Shirts

By | Blog, Onshoring, Outsourcing

Most US organizations have substantially used offshore service providers in IT and business process outsourcing (BPO) to drive cost reduction. But there is currently a great deal of discussion in Congress and the Trump Administration – as well as actions taken by Executive Orders in the last seven days – about changing the H-1B and L1 visas. The changes affect the offshoring services provider as well as US enterprise customers that utilize offshored services. What are the impending impacts?

My company collaborates with Rod Bourgeois, head of research and consulting at DeepDive Equity Research, and together we have followed the proposed immigration and visa reform. Since 2013, I’ve blogged many times about the potential impacts. Rod’s January 25, 2017 report, “IT Services: Update on Visa-Reform Risks Facing Indian Outsourcers,” highlights recent proposals. The essence: it now looks like real change is on its way.

Read more at Peter’s Forbes blog

Trump’s Visa Reforms: The Bitter Pill IT Needed | Sherpas in Blue Shirts

By | Blog, Onshoring, Outsourcing

The Trump administration’s move to table H1-B visa bill in the house has led to a bloodbath for IT services stocks. While there appears to be near unanimity on the “absurdness” of the move, there is a silver lining most experts seem to have missed. I’ll explain this through two acts that have played out.

Act #1: Old Wine in New Bottle
In a November 2015 blog (“My Digital is Bigger Than Yours” and The Technology Pulp Fiction), I explained the rationale behind my cynicism for buzzwords that were driving the discourse on IT services. The story being told was that IT services was undergoing a paradigm shift in innovation. However, instead of witnessing a real shift in strategy, talent model, and offerings, what we have seen is a largely marketing driven illusion of change. Digital, cloud, automation, and cognitive are terms that are being thrown around without caution, giving an impression of disruption in services delivery. In reality, it’s just the natural course of progression in IT services getting embellished by these buzzwords. Analysts know it, service providers know it and – no prizes for guessing – buyers know it too.

As our January 2017 enterprise pulse report on buyer (Dis)satisfaction highlighted:

  1. Buyers are unhappy
  2. They aren’t enamored by these buzzwords
  3. While they consider their existing IT services mediocre, they are still hanging on to it.

Point 3 above is the reason why, as much as I would like to take service providers to task on this pretense of transformation, I believe that enterprise IT must take its fair share of the blame. They have been running mediocre, unimaginative, and long past use-by-date procurement practices. There are two primary reasons behind this inertia:

  • There aren’t any better services options at comparable current prices. Sure, they would love to get something like IBM Watson for infrastructure automation, but their annual IT budgets won’t allow for it. Pretty much a thought process like, “Why buy a Ferrari to run a NYC yellow cab?”
  • The opportunity cost of letting go of something that has been working fine for a decade and a half is huge. Enormous bureaucracies have been created around services procurement, and they are almost impossible to dismantle.

Net-net, labor arbitrage, offshoring, and time & materials still continue to drive the lion’s share of IT services. In the current scenario, despite all the “digital” and “cognitive” washing, there is no way this reality can be swept under the rug. Does this mean that services transformation is a lost cause?

Act #2: And then Trump happened….
All this is getting Trumped now. Visa regulations mean less access to the same cheap labor. Now, instead of paying lip service to service delivery automation, enterprise IT and providers will actually have to think about hyper-automation to keep the lights on and manage margin improvement expectations. Things will have to move faster towards autonomics and/or cognitive for service providers to stay afloat and enterprise IT to stay relevant for CFOs.

My message to the ecosystem to which I belong? – It’s time to put your money where your mouth is!

The Force is Strong with Technology in BPS! | Sherpas in Blue Shirts

By | Blog, Onshoring

I rose grinning like an idiot from my seat in the cinema. The heady mix of nostalgia and excitement in my heart and the thundering applause from the audience on their feet gave no room for doubt that the Force had well and truly Awakened. “Star Wars: The Force Awakens” was phenomenal. I loved seeing all the old faces, and loved even more watching the new ones. But on my way back home, despite trying hard to silence it, a nagging voice whispered – wasn’t this by-and-large more of the same from the Star Wars franchise?

Likewise, when looking at the technology landscape in Business Process Services (BPS), one might be tempted to let this voice have its day and think, weren’t these technologies and strategies almost the same as those talked of a year or two ago? On deeper analysis, the truth is far from it, for both The Force Awakens and technology in BPS.

Star Wars – More of the Same?

The Star Wars movie definitely has many familiar tropes – a commoner recognizing her true potential and rising up to it, a person caught up in the struggle between his inherent goodness and the tempting dark-side, a predictably successful attack by the good side on a powerful, but vulnerable, weapon, and so on. However, these serve as tools to initiate the uninitiated, and to excite the nostalgic. What made the movie strike gold at the box-office were the new delights – a cast that broke gender and racial stereotypes, characters shrouded in mystery, and an effective handover from the old guard to very promising young talents. The latter has sprung up real possibilities to take the plot in drastically innovative directions, now that the fan base has been re-established strongly.

Technology in BPS – More of the Same?

Similarly, technology in BPS continues to be dominated by the traditional tools – workflow solutions, reporting solutions, OCRs, etc. And technology strategies are never complete without a mention of automation. Do these technologies still define the battle, and are these strategies merely buzzwords?

The answer is an emphatic no! Technologies such as the ones above are surely important, but as table stakes and as tools without which landing a deal is well-nigh impossible. And automation, especially Service Delivery Automation (SDA), has undeniably transcended the domain of what-ifs. Along with technological options such as Business Process as a Service (BPaaS) and predictive and prescriptive analytics, SDA now serves as the differentiating factor – one for which buyers are willing to pay a premium. A BPS strategy focused on strong integration of such technology with domain knowledge has become imperative rather than good-to-have.

Such an enhanced role of technology will have far-reaching impacts on both service providers and buyers in the near-term. Let’s look at four big ones, specific to service providers – resurgence of onshore delivery, expansion of delivery scope, distortion of talent pyramid and shift in strategic mindset.

Resurgence of onshore delivery

The engine of BPS has long used labor arbitrage as its fuel. But technology has now disrupted this engine. Robots are replacing, and will continue to replace, labor at a steady pace in finance and accounting, banking, insurance, and other areas, thus reducing the role of labor in BPS. Consequently, the challenges of onshoring – controlling labor cost and scaling labor up or down per requirement – seem less daunting. That, combined with lower lead times, lower intellectual property and regulatory risks, and lesser cultural and language issues of onshore operations, are likely to prompt providers to reshore their delivery.

Expansion of delivery scope

Traditionally, transactional processes were the bread-and-butter of service providers. However, as SDA matures, exception management, rather than process management, will become providers’ value proposition. Thus, delivery differentiation will steadily become more difficult. The margins will migrate to judgment-oriented processes where providers can harmonize process flows and reduce costs and, simultaneously, leverage deep domain expertise and create strategic impacts.

Distortion of talent pyramid

The typical service provider talent pyramid has associates at the base performing repetitive rule-based activities. Next up are the SMEs who bring in the domain expertise to connect the activities of the associates into meaningful wholes. Above the SMEs are managers and the head who translate the domain-based efforts to business results through their extensive experience. By replacing associates with robots, automation will squeeze the pyramid at the bottom to create a pentagon. SMEs will collaborate with associates to contribute to artificial intelligence creation to further automate processes, while the managers and the head will leverage descriptive and predictive analytics to make informed business decisions.

SDA Beyond Mssgs Talent Pyramid

Shift in strategic mindset

Traditionally, service providers offered buyers operational cost reduction. However, technology has now raised the stakes, and that strategy is no longer enough to thrive in the market. Providers have to look beyond operational metrics to create business impact and influence clients’ top-line. For instance, SDA can be leveraged to improve processing times and throughput, thus freeing capacity which in turn can produce extra revenue for the client. The shift in mindset also translates to opportunities for the provider to focus on business-level metrics, as opposed to process-level or service-level metrics, and deliver higher value.

SDA Beyond Mssgs Tech shifts

The Force and technology in BPS

The Force is strong with Rey in the Star Wars movie as she, along with Finn and the Resistance, fights the evil First Order and Kylo Ren. Looking at the way technology in BPS has been growing in recent times, I definitely believe that the Force is strong with it as well. With service providers tweaking their strategy and operations to keep abreast of this growth, exciting possibilities are ahead. To both the franchise and BPS technology, I have this to say – may the Force continue to be with you!

 Check out this space for my next blog – Carbon Dating Technology in BPS.

Think Oak Ridge, Tennessee Isn’t on Your List of Likely Domestic Service Delivery Sites? Think Again | Sherpas in Blue Shirts

By | Blog, Onshoring

Eric Simonson’s recent blog, “John Mellencamp Named Honorary Everest Group Analyst of the Month,” highlighted the dominance of tier-3 locations in the United Sates for onshore service delivery. Now it’s time to take a look at the tier-5 and rural locations in the U.S., per the North America Domestic Outsourcing location landscape study we recently conducted for RevAmerica, an event focused solely on domestic ITO and BPO sourcing.

Given that places such as Oak Ridge, Tennessee, Albany, Georgia, and Jacksonville, Texas have populations below 100,000, with limited presence of colleges and poor connectivity to commercial airports, one would not expect them to contribute significantly to onshore service delivery. However, our analysis of tier-5 and rural locations revealed five interesting facts.

Tier-5 and rural locations are growing and have a sizeable share in the domestic sourcing market

Tier-5 and rural locations account for approximately 20 percent of the total service providers’ delivery centers, and 16 percent of the delivery FTEs in the United States. The Midwest region has the highest share of these delivery centers.

Distribution of domestic FTEs and US delivery centers by city-tiers

While onshoring in general has been on the rise, the leverage of tier-5 and rural locations has witnessed significant momentum. In the last decade, the number of new delivery center set ups in these locations has increased by ~150 percent, from an average of three centers per year in 2005-2006 to seven centers in 2013-2014.

Number of new center setups per year in tier-5 and rural locations in US

At the same time, the share of tier-5 and rural locations in new U.S. delivery center set ups has gone up from ~19 percent in 2005-2006 to 25 percent in 2013-2014.

There are 100+ tier-5 and rural cities to choose from

More than a hundred tier-5 and rural locations are currently being leveraged by service providers for onshore service delivery. There are also a number of other potentially viable locales. Given the wide range of options these locations provide, they become an important consideration for players looking to establish a wider U.S. presence.

A large number of contact centers call these locations home

Distribution of delivery centers by function in tier-5 and rural cities

~61 percent of the existing centers in these locations deliver contact center services, as compared to 22 percent for IT services, and 17 percent for business process services. Leading multinational players such as Alorica, Convergys, Sitel, Sykes, Teleperformance, and Teletech leverage these locations for contact center service delivery.

These locations play a meaningful role in the location portfolio for domestic pure-plays

Number of delivery centers by provider

The leverage of tier-5 and rural locations is highest for domestic pure-plays – e.g., CrossUSA, Eagle Creek Software Services, Onshore Outsourcing, and Rural Sourcing Inc. – which have ~37 percent of their delivery centers in these locations. On an overall basis, traditional MNC’s still dominate the market landscape as they have significantly large number of delivery centers in the United States as compared to other players.

The talent pool is sizeable enough to support 1-2 moderate sized delivery centers per location

While talent availability in tier-5 and rural locations is generally lower than in tiers 1 to 4, they still offer a pool capable to support one or two moderate sized delivery centers. The typical delivery center size in these places is ~340 FTEs, as compared to a national average of ~445 FTEs.  However, there is evidence of players achieving a scale of above 500 FTEs, especially for contact center services, where high school graduates are utilized.

Average number of FTEs per delivery center

As onshoring grows in the United States, leverage of tier-5 and rural locations will also grow. Service providers are establishing their presence in these locales due to their lower costs and lesser competitive intensity. Hence, there is a significant opportunity for economic development agencies in these locations to attract potential investors and create employment opportunities.

To download a full copy of our research on domestic delivery, please visit: https://research.everestgrp.com/Product/EGR-2015-2-R-1455/North-America-Domestic-Outsourcing-Services-Providers-Embrace-

For more Market Insights™ on this topic, please visit:

https://www.everestgrp.com/tag/domestic-sourcing

To download our presentation from the RevAmerica event, please visit: http://www.revamerica.com/program/


Photo credit: Wikipedia

Onshoring, Talent Development, Automation – My Top 10 Picks from RevAmerica 2015 | Sherpas in Blue Shirts

By | Blog, Onshoring, Talent

Last month I had the opportunity to attend and co-present with Eric Simonson at a special event in the outsourcing sector, RevAmerica 2015, held in New Orleans, LA. You can download our keynote presentation here. For those who might not know, RevAmerica is a domestic outsourcing event in its second year. The event focused on a multitude of topics and was attended by a strong community of service providers, buyers, economic development agencies, analysts/consulting firms, and academic institutions. Here are my top 10 takeaways from the event:

  1. Buyers are looking at their IT and BP service delivery portfolio more holistically than ever and asking the shoring question more seriously. They are willing to evaluate onshoring as an alternate and in some cases willing to even bend their rules around cost savings to get the extra flexibility in delivery.

  2. Service providers have a major role to play in onshoring growth as they can not only harness the available talent pool, but also create a delivery model that makes economic sense.

  3. Domestic pure-play service providers are diligently making the business case for onshoring. The ones that do this without demeaning the offshoring benefits are likely to be more successful in not only winning pursuits, but also in sharpening their own value proposition for buyers. In this regard, I liked Genesis10, Nexient, and Rural Sourcing’s approach that are playing on the strengths of onshoring rather than making unnecessary comparisons with offshoring.

  4. Economic development agencies (EDAs) are evolving in their thinking and go-to-market approach. Those who are serious about this sector, such as North Dakota Dept. of Commerce and Louisiana Economic Development (LED), have a more collaborative approach towards working with providers/enterprises. However, there is a lack of collaboration among economic development agencies for the common goal.

  5. Talent development continues to be an area of immense interest. Partnership with universities, training/re-skilling programs to create talent in places where people have limited opportunities, and hiring veterans and their spouses are all examples of initiatives to strategically develop the available talent for domestic sourcing. A great example of this is the partnership between IBM, LED, and LSU College of Engineering where State of Louisiana will invest in the institution to expand higher education programs in order to increase the annual computer science graduate output to support IBM’s delivery center in Baton Rouge.

  6. Tier-3 cities are the epicenter of activity in the domestic sourcing space, with maximum centers and headcount located in this cities. They are also the ones that will see maximum growth in the future, but we should watch for saturation trends.

  7. The buzz around robotic process automation (RPA) is getting stronger, especially in the context of domestic sourcing as onshore providers can compete with the offshore labor arbitrage model by harnessing the potential of RPA (where applicable).

  8. The role of educational institutions has to increase to make onshoring a compelling alternative in the eyes of both providers and buyers. EDAs can only promise sustainable talent pool, but not deliver it unless educational institutions show the flexibility and support at a sustained, tactical level – implying changing curriculum, adding industry interaction programs, etc. while still serving the overall mission.

  9. Agile methodology and its implications for working models for IT teams are a great blessing for the onshore model. However, agile can only be one of the selling points. Domain expertise, ability to ramp up/ramp down, technology expertise, and cost of delivery are all factors for evaluating a provider’s capabilities in the onshore context.

  10. The notion of “domestic sourcing = impact sourcing” is flawed. Beyond generating jobs for the underprivileged, domestic sourcing’s larger mandate is to create jobs for the unemployed educated people of the country. There are some domestic sourcing plays such as Onshore Outsourcing and Liberty Source that are doing impact sourcing in an onshore model.

Overall the event touched upon some very relevant topics from the domestic outsourcing perspective and is paving the way for developing a stronger ecosystem to support this sector. Kudos to the Ahilia team for organizing a great event! Last but not the least, in case you are interested in learning more about the domestic outsourcing landscape, you can download Everest Group’s full report here. You may also want to read Eric’s blog on tier-3 cities: John Mellencamp Named Honorary Everest Group Analyst of the Month.


Photo credit: Omni Royal Orleans

The Changing Delivery Location Landscape of the UK Contact Center Market | Sherpas in Blue Shirts

By | Blog, Customer Experience, Onshoring, Outsourcing

To participants in and watchers of the UK contact center market, it’s obvious there are many changes afoot. These include the third-party service provider landscape, the nature of outsourcing deals, and the maturity of buyers.

One of the key changes Everest Group is seeing is in the locations UK buyers are leveraging for their contact center activities. Let’s examine the contributing elements.

Offshoring

UK companies only offshore 10-15 percent of their contact center work, which in actual job numbers equates to 70,000 to 90,000. Consider this quantity in contrast to the U.S., which offshores greater than 25 percent/400,000 to 500,000 contact center jobs – a comparison we make given English as the common delivery language – and the fact that offshore locations offer 70-80 percent cost arbitrage advantage over locations in the UK There are two clear reasons for the limited share of contact center offshoring from the UK:

  • Increasing buyer maturity often leads to increasing openness to move from outsourcing to offshoring. But as adoption of outsourcing in the UK has been relatively narrow due to comparatively lower buyer maturity levels, offshoring uptake has also been limited.
  • UK buyers place heavy emphasis on cultural and accent similarity, and native English language speakers. Although the U.S. has comfort level with the Philippines as a key go-to destination for contact center delivery, the UK has not yet found its “Philippines.” Indeed, while India still has the majority of offshored UK contact center jobs, pure voice delivery has decreased over the years, with buyers increasingly leveraging the country’s capabilities for non-voice contact center services such as website, e-mail, and chat support.

UK contact centers

However, the forward-looking view on offshore locations for the UK contact center market is much more promising. There is increasing acceptance of South Africa as a delivery location for voice-based and domain specific delivery (e.g., insurance), due to accent similarity and strong cultural affinity. Recent market activity, such as the Serco-Shop Direct deal, WNS’ acquisition of Fusion, and Capita’s purchase of Full Circle are indicators of this affinity. We expect India to continue its uptake of non-voice contact center services from the UK.

Onshoring/Nearshoring

Contact center work within the UK is moving to low-cost locations in Northern England and to other areas such as Scotland and Northern Ireland. While there is still a higher concentration of contact centers in Southern England (the Greater Thames region), this is more of a legacy effect rather than the result of new or recent activity. The new/greenfield activity is largely moving contact center work up north to Liverpool, Leeds, Manchester, and Newcastle-Gateshead in England, Glasgow, Edinburgh, and Kilmarnock in Scotland, and Belfast and Londonderry in Northern Ireland, driven by:

  • Lower operating cost
    • Salary: Locations in Northern England (e.g., Liverpool) offer 5-10 percent savings over established locations in Southern England (e.g., Twickenham), and locations in Scotland and Northern Ireland (e.g., Glasgow and Belfast) offer 10-15 percent savings
    • Real estate cost: Real estate rentals in the northeast (e.g., Newcastle) and northwest (e.g., Liverpool) are 10 percent lower than in the south of England (e.g., Twickenham); and rentals in Northern Ireland are 30-50 percent lower than locations in England
  • Sizeable agent pool: Birmingham and Leeds, for example, have considerable talent pools (40,000-70,000 experienced contact center agents)
  • Lower attrition and unemployment: Established locations (e.g., south of England) have higher contact center attrition and unemployment rates relative to other regions in the UK, thus influencing movement to areas north of England
  • Government incentives: Most less-established locations in the UK offer multiple incentives programs, such as employment and training grants, for contact centers. This makes their value proposition competitive, especially for greenfield operations. For example, Northern Ireland provides a one-time incentive of GBP 3,000-7,000 per job created in this sector

UK Locations leveraged by leading service providers

UK contact center locations

Everest Group believes that while onshore/nearshore delivery of UK contact center services will continue to remain the predominant model over the next three to five years, offshoring will grow faster. Buyers’ comfort with the offshore model, particularly with alternatives to India, such as South Africa, for voice-based services is likely to increase. Cost pressures are liable to propel buyers to adopt offshoring and other low-cost delivery alternatives, such as less expensive locations within the UK Finally, the market movement toward multi-channel contact center delivery capabilities, resulting in higher usage of web, chat, and e-mail customer support, will further support the growth of offshore delivery.