The business world is changing quickly and affecting decisions as to whether a company brings work back in house that it previously outsourced to third-party service providers, outsources functions that previously were in house, or builds their own Global Business Services (GBS) centers in regions like India, the Philippines, Eastern Europe, and even in US territories such as Puerto Rico. This results in a fast-moving set of changing ecosystems. Why? And how will the increase in GBS centers affect the third-party services model?
COVID-19 has fundamentally altered the Work From Home (WFH) proposition for global organizations, prompting a shift from opportunistic leverage in 2020 to rapid integration of WFH within the future delivery model strategy. Now that the dust is settling a bit from the global health crisis, WFH strategy design and implementation will be critical to ensuring global business services (GBS) organizations’ future success. And WFH will look far different than it did in 2020.
Key learnings from 2020
Most organizations successfully transitioned to scaled remote delivery models with minimal service delivery disruptions in response to COVID-19. This experience has served as a critical proof of concept, and exposed key learnings and opportunity areas associated with scaled WFH delivery.
Employee preferences have evolved as the pandemic unfolded, from a strong preference for full-time/partial WFH to a choice between WFH/WFO in a hybrid delivery model
Overallproductivity has either sustained or increased for most organizations. That said, there are issues building below the surface and concerns around false positives, i.e., increase in productivity driven by higher efficiency or higher throughput
WFH can drive the next wave of cost optimization across locations for GBS organizations, though true savings will depend on their ability to exploit underlying levers such as real estate, technology, and talent
WFH has opened new opportunity areas, like accessing new talent markets, improving retention, and enhancing the employee experience, for improving the GBS talent model
WFH is prompting a shift toward a more holistic hub, spoke, and satellite model to enable hybrid delivery models and enhance employee choice and internal workforce mobility
Regulatory environment is still an unknown, though governments are taking a proactive approach to define policies such as taxation and labor laws to enable hybrid delivery going forward
The WFH model is lucrative but comes with complexities like employee fatigue, potential loss of productivity, work-life balance, and loss of organizational culture that cannot be downplayed
Our interactions with leading GBS organizations over the last 12 months revealed multiple key themes that will determine the success of a hybrid WFH model going forward:
Determining roles adjacency, and how they fit into a hybrid delivery model. This is about understanding implications on office design, real estate right sizing, and the technology interventions needed to enable this shift
Training employees, especially front-line managers and new employees, on key aspects of virtual delivery, such as target setting, self-time management, and stress management
Clear articulation and understanding of organizational culture, managing the employee experience, and driving collaboration in a virtual environment
Managing the contingent/extended workforce, including safeguarding intellectual property, monitoring performance, and sustaining productivity
While many GBS organizations are addressing key WFH-related challenges in an agile manner, they must proactively design their WFH strategy and align it with their parent organization’s needs and objectives.
Building a future proof WFH strategy
As GBS organizations build their future WFH strategy, they need to solve for six key elements.
Work portfolio – GBS organizations must utilize a structured and fact-based approach to identifying the best fit work-types and employees for remote delivery, while ensuring a balance between organizational imperatives and employee choice
Talent model – GBS organizations must address multiple talent model changes – including the evolving role of the human workforce, workforce engagement models, talent implications of remote working, and leadership development models – with a focus on adapting the workforce to future delivery models
Locations portfolio – As a holistic hub, spoke, and satellite delivery model gains traction, GBS organizations must evaluate the role of nearshore/offshore locations based on feasibility and cost savings offered by the WFH model across locations. As organizations evaluate new markets with attractive talent cost propositions, especially offshore locations, location optimization will likely happen over the next 6 – 12 months
Technology and real estate infrastructure – GBS organizations must leverage technology to achieve key organizational objectives, such as enhancing productivity, ensuring security and compliance, and improving the employee experience, and to reimagine the workspace, like floor layout, seat allocation, and office safety equipment, to adapt to the unique demands of a hybrid delivery model
Performance management – GBS organizations must identify the right levers and leverage best practices – such as adopting an outcome-driven culture, setting clear goals, and realigning the expectations with remote workers – to drive productivity improvements in a sustained WFH environment
Risk management – GBS organizations must proactively identify business, talent, data, and regulatory risks related to the WFH model and mitigate the potential impacts.
The way forward
COVID-19 has presented organizations with a unique opportunity to re-strategize their priorities, optimize their operating models, and develop a robust future-proof WFH strategy. We believe GBS organizations that proactively seize this opportunity will emerge resilient and stronger.
New Market Report Shows Digital Services Among Trends Driving GBS Growth
Despite the massive spread of COVID-19 across the US, the Global Business Services (GBS) model continued to grow in this market in 2020, demonstrating that the model, in its many different forms, continues to be integral to enterprise sourcing strategy.
Building on the success over the last two to three decades, GBS organizations diversified extensively and experienced growth in new verticals (such as healthcare and life sciences) and functions (such as legal, R&D, and digital).
Everest Group’s US Global Business Services Market Report provides an extensive assessment of the US GBS landscape and adoption trends, along with a deep dive into the trends leading to increased onshoring in the recent past. The report is based on Everest Group’s proprietary GBS database of more than 5,000 GBS centers.
Among the compelling findings detailed in the research are:
GBS organizations are embracing digital transformation
Both the outsourcing and GBS models continued to grow in the US in 2020, with more than 40 new GBS centers in the first three quarters. However, the pace of growth and new setups were relatively lower than the prior year. Some of the new GBS center setups in 2020 include Amazon, Denso, JP Morgan, and General Motors, to name just a few.
While traditionally, organizations have used US-based GBS organizations for customer care and back-office work, a focus on engineering and R&D (ER&D) and digital services have driven new setups in recent years. Enterprises are increasingly leveraging US-based GBS organizations to build digital hubs, especially for automation, AI, and analytics, with more than 45 percent of the setups in 2020 focused on delivering digital services. This is driven by a couple of factors. First, onshore locations can provide access to high-end talent for innovation and R&D and facilitate closer integration with business stakeholders. Secondly, resiliency shown by GBS organizations during the crisis has increased enterprises’ confidence.
This image illuminates how GBS markets are steadily moving toward digital transformation.
New adopters are driving GBS growth
Surprisingly, the majority of the new GBS setups in the US in the past years were driven by new adopters of the GBS model. This continued in 2020, with more than 70 percent of the new setups by first-time implementers. The growing maturity of the GBS model, success demonstrated by peers, and decreasing obstacles related to transitions, and legal and regulatory environments have enabled new firms to move to the GBS model.
US locations are attractive for GBS
The technology and communication verticals continue to dominate the GBS market in the US, accounting for more than one-third of the total activity. This is followed by manufacturing, which has experienced a significant increase in the share of total setups.
Historically, approximately 90 percent of firms have preferred non-tier-1 locations for GBS set up given attractive cost-talent proposition (within the US) and proximity to select industries. This continued in 2020, with tier-3/4 locations accounting for about 60 percent of new setups. Key tier-3/4 locations include Austin and Pittsburgh.
Positive Trends Emerge for Onshoring
Traditionally, key factors driving enterprises towards onshoring, especially in the US, have been ease of setup, the proximity of CS services with business and customers, and a familiar operating environment. However, in recent times, the following new drivers have emerged that will continue to contribute to a spike in GBS in the US going forward:
Rising demand for digital services – Enterprises are rethinking the role of onshore GBS to build and drive capabilities required to fulfill the demand for digital services
Tightening regulatory environment – Tightening regulatory environment (in certain verticals), increased trade protectionism, and rising stringency of visa norms have led to a recent increase in onshore center setups
COVID-19-led disruption – While the resiliency shown by GBS organizations during the crisis has increased enterprises’ confidence, they also need to ensure greater control and proximity and reduce their offshore concentration to diversify their risk portfolio
Global Business Services (GBS) organizations have positioned themselves as valuable partners of the enterprise, driving enterprises’ top priorities and aligning with overarching objectives. Currently, GBS organizations are evolving to become global talent hubs that house deep-domain expertise and next-generation skills for enterprises. However, with the pace of technology adoption intensifying, it’s becoming more challenging to find talent that can fill next-generation positions.
GBS organizations need a robust, futuristic skilling strategy and will want to take steps to hire talent and educate, train, upskill, and reskill their current workforce to fill these necessary roles. The below image illustrates talent-related issues that are arising for GBS organizations.
Getting on the right path with a future-ready workforce
To deliver maximum value, GBS organizations should begin to strategize how to bring in next-generation talent and deliver development opportunities to advance current employees’ abilities and skills. With future-ready talent, GBS organizations will bring even more value to the table, encouraging enterprises to view them as operating units with increased leadership contributions and less as helpers. Having the right talent could also lead to expanding into additional areas in which GBS can be more involved and entrenched with enterprise strategy and decision-making.
Further, skilled talent will provide a competitive advantage for GBS organizations, with the most success coming from those that have invested heavily in their employees’ skills and competencies. Enhancing skills within the workforce will be key to augmenting strengths and differentiators for the GBS model in 2021 and beyond.
Talent strategy focus areas
There are a few specific areas where GBS organizations can adapt when it comes to acquiring talent and advancing current workforce skills, including:
Offering learning and development (L&D) and talent reskilling and upskilling
GBS organizations that are proactive with their talent strategies, open to adopting new tactics, and not tethered to traditional methods are among those that may see the most success.
Enhancing brand perception in the talent market
With access to high-skill capabilities being a top priority for GBS organizations in 2021, there are expected changes to GBS talent-related performance metrics, including a higher bar for quickly finding and hiring talent. Turning to non-traditional methods to catch attention is becoming more common. One of the most effective approaches is a stronger social media presence to boost brand awareness and to be viewed as a desirable place to work. Hiring strategies now include being active in niche group conversations on social media and using hashtags to get in front of the right crowds.
Out-of-the-box talent acquisition methods
GBS organizations are searching out a variety of ways to find talent. Some have found success by hiring talent with specific skills from alternative and adjacent industries. There is also a different approach when it comes to reaching junior-level talent. Organizations are partnering with educational institutions, not just to offer internships, but to co-develop classes and implement projects like campus ambassador programs and hackathons. This gives the student an opportunity to get to know the organization and develop relationships with employees. One other method of attaining niche talent is through acquihiring, where a company will acquire another company, primarily for the skills of the staff.
L&D and talent reskilling and upskilling
As GBS organizations strive to deliver higher-value and multi-function services, they will not only need to find the talent, but work to keep that talent. This could be carried out by incorporating career paths and L&D opportunities, so talent stays trained and relevant on new skills. Many organizations are developing in-house learning for employees through gamification-based programs, making learning fun and improving employee engagement. Another method taking shape is peer-to-peer learning, where employees can come together to be innovative and learn from each other.
By creating a culture of learning, investing in talent, and helping the workforce to continually develop skills, GBS organizations can create a cycle of upskilling and reskilling, which could ultimately close the talent shortage gap for good.
The 2021 Pinnacle Model study for skilling strategies in GBS organizations
To discover more about talent and skilling strategies within GBS organizations, Everest Group and The Conference Board have developed the 2021 Pinnacle Model study. The research accumulated from the study will narrow down future skilling and talent strategies and provide valuable insights around best-in-class, or Pinnacle, skilling strategies in leading GBS organizations based on our proprietary Pinnacle Model framework.
How will this research help you?
By contributing to this study, you will learn how your peers – and the best of the best – are designing and implementing their skilling strategies. We will share a complimentary summary analysis of the survey results highlighting how your organization compares against peer groups with respect to capabilities created and business outcomes achieved.
Despite the struggles that COVID-19 threw at all industries across the world, the GBS market not only made it out, it advanced in 2020. Now, in 2021, it continues to be an integral element of the sourcing model, accounting for 27 percent of the global services market.
Everest Group’s GBS State of the Market Report: Top 2021 Priorities for GBS explores the current GBS market, how it arrived where it is today, and peak initiatives for 2021. The report examines landscape and adoption trends for a clear view forward for GBS, including top expectations of enterprises and the role that GBS organizations can play to strengthen their influence within the enterprise.
The report is based on Everest Group’s proprietary GBS database of more than 3,500 offshore/nearshore GBS centers. Throughout this blog, we’ll examine a few of the report’s many compelling findings.
Keeping pace with an agile approach
It was encouraging to discover that both outsourcing and GBS models continued to grow in 2020, albeit at a slower pace than in 2019. More than 200 GBS centers were established across onshore and offshore/nearshore locations in 2020, with the addition of 40,000+ full-time employees (FTEs). Some of the new GBS center set-ups in 2020 include Qualcomm, Microsoft, and Barclays, to name just a few.
Enterprises are increasingly leveraging the GBS model to establish digital hubs and ER&D (engineering and R&D) centers to create successful digital customer and employee experiences. The resiliency and growth shown from the GBS market in 2020 helped to deepen confidence from enterprises. For example, when COVID-19 propelled digital initiative adoption forward across most verticals (technology and communication, Banking Financial Services and Insurance (BFSI) firms, manufacturing, retail and CPG, and healthcare and life sciences), GBS organizations saw it as an opportunity to step up and deliver higher value-add digital services for enterprises. These services included expanded digital capabilities in areas such as advanced automation, analytics, cloud, platform-based engineering, etc., to meet evolving enterprise expectations and priorities.
Accelerating digital offerings is one way that GBS organizations can continue to drive operational resiliency and better position themselves as strategic business partners for change management initiatives within enterprises in 2021. This image illuminates how GBS markets are steadily moving in a direction toward digital transformation.
GBS activity across locations
After the initial shock of the pandemic, Q4 of 2020 witnessed rapid recovery, especially across India, Rest of Nearshore Europe, and Rest of Asia.
The below image portrays GBS market activity by delivery location and the number of new set-ups. Interestingly, only 13 percent of the companies that set up GBS centers in tier-2/3 locations in 2020 already had GBS centers in tier-1 locations; the remaining 87 percent of companies were exploring the offshore GBS model for the first time.
Additionally, 40 percent of GBS organizations in the report are examining geographic diversification, and 30 percent are looking into the adoption of small-scale/satellite centers to better manage both risk and future cost structures.
GBS across industries and functions
Across industries, the technology and communication vertical continued to dominate the market, contributing to more than half of the new center set-ups in 2020. The BFSI firms were next in line, accounting for one-third of the headcount (FTEs to date), followed by manufacturing.
Forging into 2021 and beyond
The GBS market stood its ground as the pandemic swept through, and in the end, it has come out a more evolved industry with overall improvement in performance. However, GBS organizations will need to continue to evolve in the aftermath of COVID-19 and as the needs of enterprises shift. GBS organizations should focus on:
Refining overall productivity as it will be the next frontier beyond scaled arbitrage
A robust, futuristic workforce strategy that can unlock high-talent capabilities
Taking a larger picture view of WFH to confirm the model aligns with overall talent goals and targeted growth
Creating a holistic and design principle-led global workforce strategy
A clear path for digital transformation, which will be paramount throughout 2021 and years after
Ensuring cost-competitiveness to avoid third-party economic comparisons
Opportunities where GBS organizations can strengthen and expand their influence with enterprises and meet evolving expectations, for example, moving from being viewed as just the enterprise’s helper to an entity that can help shape ideation, design, and even influence major initiatives
We recently partnered with the IT & Business Process Association of the Philippines (IBPAP) for its International Innovation Summit. The conference was a huge success despite prevailing uncertainties, bringing together global experts and leaders from the IT-BPM industry. The sessions were engaging and captured how the IT-BPM sector adapted to the disruptions caused by the pandemic and what lies ahead for the industry.
Here are our key takeaways from the conference.
Success factors for the IT-BPM industry
Organizations’ success will depend on how they capitalize on opportunities arising from the pandemic and how quickly they adapt to the evolving business landscape. In all forms of adversity, there is increased need for reliable leadership that puts people and customers first, and treats profit as an outcome rather than the goal. More than ever, it has become important to co-create with the client and culturally adapt to them.
Reinvent the worker, workplace, and workways
While there’s an immediate and critical need to redesign the worker, workplace, and workways to accommodate the new reality, different organizations are in different places in their comfort and readiness to adjust to the disrupted world. Hence, a single future of work strategy will not be effective for all organizations.
There are, however, some common themes for a successful future of work strategy. It should not be limited to work-from-home (WFH) enablement; it is important to consider the interplay of WFH with other decisions related to work. Organizations need to come up with an integrated approach involving the worker, workplace, and workways to adapt and progress in this dynamic environment.
Accelerate digital transformation and develop the digital workforce
COVID-19 has compelled enterprises to accelerate digitalization. While business transformation is fueled by increased adoption of digital technologies, the success of digital transformation is not rooted in technology.
A successful digital transformation initiative considers multiple factors – fostering a culture of continuous learning and innovation, embracing an agile operating model, creating a well-connected and collaborative workplace to enable higher output, among others.
At the core of accelerated digital transformation remains talent and, hence, the importance of future-proofing the workforce with digital skills. Talent will be the key differentiator, as work will follow where there is readily available skilled talent. The new digital era calls for increased focus on upskilling and reskilling, which can only be possible through a multi-stakeholder coalition of government, industry, and academia.
Rethink business resiliency
Every business and organization is experiencing some degree of pandemic-driven disruption. The crisis has redefined the meaning of Business Continuity Planning (BCP), and organizations need to rethink their BCPs to ensure necessary resilience.
This future resiliency will be characterized by dependability on teams and leaders, creating/fortifying a nerve center that’s enabled and empowered to respond quickly to various situations, enabling organization and delivery structure, and empowering teams on the ground. There’s also an increasing need to become more agile and cooperative with competition and more consultative with clients.
A unified IT-BPM industry forging forward in the Philippines
The Philippines IT-BPM industry has shown resilience amidst the challenges arising from COVID-19. The fact that the industry was allowed to operate even during the Enhanced Community Quarantine – as these services were deemed essential – demonstrates the government’s commitment to the industry.
The Philippines will continue to remain a key destination for services delivery due to cost arbitrage and a steady supply of young and tech-savvy workers. The industry is focusing on enhancing digital capabilities and will focus on upskilling talent – for example, one planned initiative is the National Upskilling and Reskilling program, which intends to upskill one million workers over the next five years.
The country launched the Digital Cities 2025 program to promote countryside development and build IT-BPM sector resiliency. The Philippine telecom providers are working in partnership with the government to mitigate the limitations on the retail telecom infrastructure exposed by the WFH model. And the Philippines will continue to improve its infrastructure to provide a more robust ecosystem for existing and new players.
Overall, the IT-BPM industry in the Philippines is well positioned to deliver services at a large scale due to its large talent supply, strong language proficiency, attractive cost savings, robust ecosystem, and strong government support. The industry also plans to take proactive measures to address some of the challenges exposed by the pandemic. It’ll be interesting to see the developments in one of the leading global locations for IT-BPM services delivery.
Many US and European businesses now recognize that their third-party services agreements are over-concentrated in some locations and are bundled in key areas such as manufacturing and IP development. In some key industries, companies are starting to unbundle those services and shift that work to other locations. This will trigger a set of consequences that affect the third-party services industry, and companies using those services need to understand the decisions in this process.
Part of the issue in bundled services is that many companies went “whole hog” (to the fullest extent) into third-party service agreements that feature joint collaboration with service providers in developing intellectual property. The advantages of such a relationship seemed worth the collaborative venture and, in some cases, even an incentive risk-reward structure. But the table turned, and the advantages turned to a disadvantage. Both the service provider and the customer want IP ownership and control.
While enterprises around the globe began their steady march toward cloud services well before the outbreak of COVID-19, the pandemic has fueled cloud adoption like never before. Following the outbreak, organizations quickly went digital to enable remote working, maintain data security, and ensure operational efficiencies. Globally, first quarter spend on cloud infrastructure services in 2020 increased 39% over the same period last year.
Given the new realities, as firms make long-term cloud investments, it is vital for them to understand the cloud landscape and how various regions and countries fare in comparison to each other as cloud destinations. In this blog, we evaluate and compare the capabilities of different geographies in delivering cloud services.
North America is among the most mature geographies for cloud services delivery. The US and Canada offer excellent infrastructure, a mature cloud ecosystem, high innovation potential, a favorable business environment, and business-friendly rules and regulations. The US is the most mature location in North America, offering a large talent pool and high collaboration prospects due to the presence of multiple technology start-ups, global business services centers, and service providers. However, the cost of operations is significantly high, primarily driven by high labor and real estate costs.
In contrast, most locations in Latin America (LATAM) have less mature cloud markets and ecosystems. While they provide proximity to key source markets in the US and considerable cost savings as compared with established markets (60-80%), they offer low innovation potential, a relatively small talent pool, few government policies to promote cloud computing, and limited breadth and depth of cloud delivery. Mexico is a standout location in LATAM, scoring better than others on parameters such as quality of cloud infrastructure, size of talent pool, and business environment.
Europe provides a good mix of established and emerging locations for cloud services. Countries in Western Europe have a fairly robust infrastructure to support cloud services, with high cybersecurity readiness, sizable talent pools, high complexity of services, and robust digital agendas and cloud policies. England and Germany are the most favorable locations in the region, driven by a comparatively large talent pool accompanied by high innovation potential, excellent cloud and general infrastructure, and high collaboration prospects due to numerous technology start-ups and enterprises. However, high cloud-adoption maturity has markedly driven up operating costs and intensified competition in these markets.
Countries in Central and Eastern Europe (CEE) offer moderate cost savings (in the 50-70% range) over leading source locations in Western Europe. While they offer a favorable cloud ecosystem, talent availability, greater proximity to key source markets, and lower competitive intensity, they score lower on innovation potential, complexity of services offered, and concentration of technology start-ups and players. The Czech Republic is a prominent location for cloud services in the CEE, while Poland and Romania are emerging destinations.
Asia Pacific (APAC)
Most locations in APAC have high to moderate maturity for cloud services delivery due to the size of the talent pool and significant cost savings (as high as 70-80%) over source markets such as the US. For example, India offers low operating costs, coupled with a large talent pool adept in cloud skills and a significant service provider and enterprise presence. However, it scores lower on aspects such as innovation potential, infrastructure, and quality of business environment. Singapore is an established location that offers well-developed infrastructure and high innovation potential but also involves steep operating costs (40-45% cost arbitrage with the US). The Philippines, a popular outsourcing destination, has lower cloud delivery maturity given its low innovation potential and talent availability for cloud services.
Middle East and Africa (MEA)
Israel is an emerging cloud location in the MEA that has achieved high cloud services maturity, but that benefit is accompanied by high operating costs and low cost-savings opportunity (about 10-15%). Other locations in the region have moderate to low opportunity due to small talent pools and lower maturity in terms of cloud services delivery.
Choosing your best-fit cloud services delivery location
Our analysis of locations globally reveals that, while different locations can cater to the increasing cloud demand, there is no single one-size-fits-all destination. Instead, the right choice depends on several considerations and priorities:
If operating cost is not a constraint and the key requirements are proximity to key source markets and a favorable ecosystem, the US, Canada, Germany, England, Singapore, and Israel are suitable locations, depending on the demand geography
If you are looking for moderate cost savings, proximity to source markets, and a favorable ecosystem, with the acceptable trade off of operations in a relatively low maturity market, countries such as Mexico, the Czech Republic, Hungary, Poland, Ireland, Romania, and Spain are attractive targets
However, if cost is driving your decision and proximity to demand geographies is not a priority, India, Malaysia, and China emerge as clear winners
The exhibit below helps clarify and streamline location-related decisions, placing an organization’s key considerations up front and identifying acceptable trade-offs to arrive at the best-fit locations shortlist.
Key considerations for choosing your cloud services delivery location
In the last few years, for a number of reasons, there’s been a major uptick in global services delivery from Africa. The most significant driver of growth is Africa’s emergence as the next frontier for small-scale delivery centers. Another is strong government support that enables global services delivery. But there are a variety of other key forces that are making Africa a destination of choice for companies of all sizes, including some of the world’s biggest brands, such as Accenture, Daimler, Google, Microsoft, Standard Chartered, and Teleperformance.
There is less competition for talent in most locations in Africa compared to key offshore/nearshore talent hubs across leading geographies. Expansion into African cities helps organizations diversify their delivery location risk, as most locations have the ability to serve as Business Continuity Planning (BCP) locations to nearshore/offshore centers. Moving services to Africa also helps organizations differentiate themselves by capitalizing on early-mover advantage.
Other factors, such as an attractive talent-cost proposition, strong domestic demand across East and West African countries, and improving infrastructure capabilities (including rapid adoption of Work From Home (WFH) / remote working models), have improved the business case for new center set ups. For example, there’s been an increase in services maturity for delivery of key services across the region, including voice- and non-voice-based BPS services, IT services, and engineering/R&D delivery. And while most locations have low operating costs, ongoing currency depreciation and lower attrition costs across leading countries like Egypt and South Africa have helped bolster overall growth.
Trade-offs and risks
As market players prepare consider options for service delivery from Africa, they need to be cognizant of the key tradeoffs and associated risks for operating in the region, including:
At present, Africa is best suited to deliver transactional services. Companies seeking to support more specialized operations or judgement-intensive processes may find it difficult to operate, or they may find that they need to make substantial investments in the talent market
There’s a limited pool of experienced talent. Companies will need to invest in growing and developing talent locally, by training recent graduates and building a recruitment engine from the ground-up, among other options
The region poses potential challenges with delivery enablers (including utilities, transportation, meals/catering, and stationery providers), low quality office infrastructure, and comparatively poor connectivity to domestic/international locations
The business environment in East and West African countries is less favorable than nearshore Europe locations, including infrastructure quality, digital readiness, and safety and security
Given low talent availability, language support beyond English is limited and commands high premiums
The presence of key players supporting global services is limited in most African countries; the entry of a few large companies could easily congest the market and quickly increase costs
Most leveraged African countries for IT-BP delivery
Here’s a quick look at the top four global services delivery locations in Africa, by market size – largest to smallest.
Companies leverage Egypt as a hub location for multi-lingual delivery to the EMEA region, as well as delivery to the US, UK, and Australia markets. It offers an attractive cost and talent proposition to support to a wide range of functions – including voice- and non-voice business processes, IT application development and maintenance, and digital services – and high availability of talent to support English and some European languages. While it offers a favorable business environment, it has some geopolitical stability challenges.
Companies largely leverage Morocco as a spoke location for multi-lingual contact center and IT services delivery. It provides extensive support to the North Africa markets. While organizations extensively leverage Morocco to support IT services delivery, it also increasingly supports business process delivery as well, including sales, client support, HR, and F&A. French and Spanish language services continue to be in high demand, and are the most widely used for services delivery. The country offers a favorable business environment but has some geopolitical stability challenges.
#3 South Africa
Organizations continue to leverage South Africa as a global hub to support the UK, US, and Australia markets, and – in many cases – South Africa serves as a regional hub for Africa and Middle East countries. It offers an attractive talent proposition to support both transactional and judgement-intensive processes, including customer analytics, actuarial modelling, fund administration, HR, and procurement. IT services delivery has gained traction over the years, and the country boats a large talent pool to support English and multiple European languages. It has a favorable business and operating environment with no significant challenges.
Organizations primarily use Mauritius as a spoke location to support French language delivery and a suite of services including IT services (application development, maintenance, infrastructure services), voice and non-voice transactional business processes (e.g., F&A, HR, and procurement), and analytics. French language talent availability continues to drive overall demand. The country is highly favorable from a business and operating environment standpoint and has no significant challenges.
While the global services market in Africa is relatively less mature than leading offshore geographies such as India and the Philippines, there is significant potential to tap into the domestic market across the top locations. Industry verticals including BFSI, telecommunications, and IT services continue to drive overall domestic demand. Further, with the strong government support, offshore advantage, growing talent pools, and infrastructure capabilities, several African countries offer a multi-pronged value proposition to enterprises seeking an IT-BP services delivery destination.
To learn more about the dynamics in the region, please read our recently published report Africa: Emerging IT-BP Delivery Force, which highlights the relative attractiveness and talent-cost proposition of key African locations to support global services delivery, based on our holistic and multi-faceted assessment across 10 key parameters parameters.
A sustained focus on digital, agility, and advanced technologies is likely to prepare enterprises for the future, especially following COVID-19. Many enterprise leaders consider IT infrastructure to be the bedrock of business transformation at a time when the service delivery model has become more virtual and cloud based. This reality presents an opportunity for GBS organizations that deliver IT infrastructure services to rethink their long-term strategies to enhance their capabilities, thereby strengthening their value propositions for their enterprises.
GBS setups with strong IT infra capabilities can lead enterprise transformation
Over the past few years, several GBS organizations have built and strengthened capabilities across a wide range of IT infrastructure services. Best-in-class GBS setups have achieved significant scale and penetration for IT infrastructure delivery and now support a wide range of functions – such as cloud migration and transformation, desktop support and virtualization, and service desk – with high maturity. In fact, some centers have scaled as high as 250-300 Full Time Equivalents (FTEs) and 35-45% penetration.
At the same time, these organizations are fraught with legacy issues that need to be addressed to unlock full value. Our research reveals that most enterprises believe that their GBS’ current IT infrastructure services model is not ready to cater to the digital capabilities necessary for targeted transformation. Only GBS organizations that evolve and strengthen their IT infrastructure capabilities will be well positioned to extend their support to newer or more enhanced IT infrastructure services delivery.
The need for an IT infrastructure revolution and what it will take
The push to transform IT infrastructure in GBS setups should be driven by a business-centric approach to global business services. To enable this shift, GBS organizations should consider a new model for IT infrastructure that focuses on improving business metrics instead of pre-defined IT Service Line Agreements (SLA) and Total Cost of Operations (TCO) management. IT infrastructure must be able to support changes ushered in by rapid device proliferation, technology disruptions, business expansions, and escalating cost pressures post-COVID-19 to showcase sustained value.
To transition to this IT infrastructure state, GBS organizations must proactively start to identify skills that have a high likelihood of being replaced / becoming obsolete, as well as emerging skills. They must also prioritize emerging skills that have a higher reskilling/upskilling potential. These goals can be achieved through a comprehensive program that proactively builds capabilities in IT services delivery.
In the exhibit below, we highlight the shelf life of basic IT services skills by comparing the upskilling/reskilling potential of IT services skills with their expected extent of replacement.
Exhibit: Analysis of the shelf life of basic IT services skills
In the near future, GBS organizations should leverage Artificial Intelligence (AI), analytics, and automation to further revolutionize their IT capabilities. The end goal is to transition to a self-healing, self-configuring system that can dynamically and autonomously adapt to changing business needs, thereby creating an invisible IT infrastructure model. This invisible IT infrastructure will be highly secure, require minimal oversight, function across stacks, and continuously evolve with changing business needs. By leveraging an automation-, analytics-, and AI-led delivery of infrastructure, operations, and services management, GBS organizations can truly enable enterprises to make decisions based on business imperatives.