best practices

How Can a Service Provider Take Advantage of the Increase in New Shared Services Starts? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

In a recent blog I noted that there is a new wave of shared services activity. But don’t dismiss that news with an assumption that new starts in shared services just means taking a slice of business away from third-party service providers. Here are my tips for shifting this potential business loss to a new revenue stream.

Tip #1: Be patient

If a company has decided to go down the shared services path, your trying to convince them to use purely outsourcing is not likely to succeed. However, we know that over time companies that decide to embark on a shared services journey later decide to use third-party providers in their shared services mix, to a lesser or larger degree. So be patient. These activities take years to develop.

Tip #2: Be an ally 

Don’t be an enemy of their decision to take the shared services path. Instead, be an ally and assist them on their journey. You can help them build out their shared services approach and use that relationship to identify where they could use a third party for part of of the services.

Tip #3: Cede control

At some point a shared services unit probably will adopt a hybrid approach to services. Even so, companies moving to shared services inherently favor maintaining control; so the types of services you offer them should be designed to allow them to exercise control.

Much of the outsourcing model is about giving the provider control so the provider can operate in an efficient manner and give the customer a low price. That approach won’t work in a hybrid shared services model. Instead, take an approach along the lines of “Let us help you craft control” so you can participate going forward.

Don’t SMAC Your Customer! | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The service provider community is very fond of clever terms, and SMAC — standing for Social, Mobile, Analytics, Cloud — is a good example of that. However, if you’re a service provider looking to sell to new or existing clients, talking about SMAC may not be the most productive way to hold the conversation.

The most productive way to uncover a significant opportunity is to talk to your customers in their language about the business issues they have. Sure, they’re looking for technology answers to their issues, but very few of them use the term SMAC of their own volition.

So if you’re talking to a retailer about their out-of-stock condition, for instance, talk about the practical ways that your solution will help them identify where they’re out of stock and how you can help them prevent that from happening.

Software tools can be very powerful. But as I’ve blogged several times in recent months, decision rights and buying influence are flowing toward the business users rather than CIOs. Providers must change terminology and communication to successfully capture their attention and serve them well.

Use simple business terms to communicate what you can do for a customer. If you use clever technology terms, you’ll probably just marginalize your impact and consign yourself to the realm of being a geek.

My advice: Keep the acronym out of your sales toolkit. Don’t SMAC your customer!

Cognizant Finds the Secret to Growing a Services Business Faster | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Service providers often ask Everest Group for advice on how to grow their business faster. We usually find that their starting-point perspective has a pitfall. They fall for the seduction of new logos.

The problem with this growth strategy is that it’s very difficult to win a brand new customer without “privilege.”  Privilege is not a well-understood concept, but basically it requires that your company has an existing relationship with a customer. Where this is not the case your company will have to prove that it is credible, different from competitors and special. Specialness is the depth of understanding that you have in the uniqueness of the customer, an industry or a function. Obviously it’s easier to build this within an existing client base.

In most service industries, companies can grow three to four times faster in their existing client base than they can by adding new clients. Why? Because they already have a relationship, and the customers understand that the provider is “special.”

The master of this strategy is Cognizant. They are great at enlarging the “mine.” To do this, they sell more to their existing stakeholder groups, creating new mines in that client base. They are very adept at befriending and really understanding CIOs, CTOs and department managers’ needs where they already serve a client.

The first thing they do is look for a new mine in an existing customer. They first service HR, accounting or another stakeholder group and learn how best to service them. Based on the depth of understanding of industry or function they get from serving that stakeholder group, they are more credible in the open marketplace than their competitors. By growing fast and broadly in their existing client base, they build a richness of how to service clients and what each client’s real issues are. And they build real stories that make them much more credible. It’s that experience and credibility that make them special.

Cognizant also organizes its business around this methodology. For example, they put more people into their customer accounts than many other providers. Why? It’s their growth strategy:

  • They have more people at the customer location to help outsell their competition.
  • When they go to start a new mine, they can move in people who already know the customer rather than bringing in people from the outside.
  • When they go to get a new logo outside their customer base, they are able to bring in people with direct experience. And they don’t violate the existing customer’s need for consistency because they have a surplus of people in the account. So the customer doesn’t lose key people; they lose one of three key people, not the one key person.

Our advice is that your company’s growth strategy should follow the Cognizant model. Deemphasize new logos and instead focus on growing business with existing accounts. As you build depth, experience and credibility from these experiences the new logos will be much easier. Besides being a proven strategy, the good news is that your cost of sales will be lower if you adopt this strategy.

The Biggest Losers in the Service Provider World | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

I talked recently with one of the biggest losers among service providers. They had just been through a competitive RFP process as the incumbent provider. They worked tirelessly to martial the firm’s resources to get both the external and internal sale and get executives lined up. Their sales team was engaged. There were a lot of hidden costs, plus significant travel costs and deals to be brokered. And there was some relationship strain from the customer forcing them to be more competitive in their bid.

Then came the news that they came in second — the biggest loser.

Unlike the TV program where the biggest loser is a winner and receives a reward for huge weight loss, all there is for a bidding provider that comes in second place is a chest wound in the form of several million dollars in pursuit costs with no return.

What can be done to avoid being the biggest loser? That’s a question service providers ask us, and we work with them on becoming more competitive. I think there are several ways to approach this.

1. Is your company qualified? 

First of all, if you want to win, don’t pursue situations where your company is not likely to win. That sounds like a no-brainer. But how do you know if it’s qualified? Here are some of the main aspects to consider:

  • Does your company have a preferred relationship with the customer? Does the customer already know you? Are they unhappy with the incumbent provider? (Don’t kid yourself; there’s always an incumbent.)
  • Did you help shape the problem? Or are you responding to someone else’s shaping of the problem?
  • Do you know if your bid will be compelling? Do you know if you’re high priced? So many providers bid, knowing that others have a lower price, and go through the process of trying to persuade the customer that the higher price is because they’re better. That’s hard to do. There’s a higher probability of losing in that scenario.
  • Is your company distinctive? Are your capabilities and offerings differentiated? Will the customer recognize your company’s difference and care about it? Is your company’s specialness worth a premium?

2. Do you have a surplus of opportunities?

It’s tempting to run to every RFP or opportunity, but my advice is not to do this. Your company must be very disciplined not to run toward all opportunities, no matter how much they sparkle. It’s hard to pass them up, particularly in the face of an industry experiencing slow growth.

Marvin Bower, who was the guiding influence at McKinsey from 1933 – 2003, counseled that you can’t be selective about customers unless you have a surplus of opportunities.

If you’re not sitting in the midst of a surplus, then you won’t benefit by reading the rest of this blog. Basically, your company must compete on every opportunity, so you may as well resign yourself to the fact that for an uncomfortable amount of time your company will be the biggest loser and come in second.

But if you can generate a surplus of opportunities, my advice is first to categorize your opportunities and then rig the playing field.

3. Categorize your opportunities

You need to sort your opportunities into two categories: those that you’re not likely to win and those where you realistically have a good chance to win. From the first day you begin talking with the potential or existing customer, you must be ruthless in qualifying how serious the chances of winning are. Once you recognize the opportunity is one your company is not likely to win, you need to step away.

You have to be ruthless in being willing to do this. And the sooner you make this decision the better off you’ll be.

4. Rig the playing field

My observation is that the majority of the work for the best providers comes from privileged environments where they either don’t compete or they “cheat” — that is, they make sure they compete on an unfair playing field where they get to run downhill and downwind against the competitors trying to dislodge them from opportunities.

There’s a famous sports adage attributed to several famous athletes: If you ain’t cheating, you ain’t trying. In the case of opportunity bids, the cheating isn’t bad. You simply rig the playing field so that your company appears to be special among the competitors. Perhaps you own IP, for instance. Or perhaps you have an existing relationship with the customer. The best way to cheat is to make sure the work never goes to the open market for bids. How do you do that? Make sure the customer sole sources it.

So here’s the formula for not being the biggest loser: make sure your company is distinctive and that the customer can recognize it, make sure you have a surplus of opportunities, qualify the opportunities all the way through the discussions and be disciplined in walking away from those where you don’t have a clear chance of winning and then rig the playing field.

Happy bidding!

Did Your SMEs Derail Your Finance and Accounting Outsourcing Plans? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

It’s a curious conundrum. Finance and Accounting Outsourcing (FAO) has proven its ability to deliver savings of 30-45 percent, and usually provides other non-financial benefits such as better transaction documentation/auditability, faster and richer reportability, and dynamic workflow.

So why are FAO transitions far more hesitant and spasmodic than those of Information Technology Outsourcing (ITO) or other Business Process Outsourcing (BPO) functions?

The answer may reside among enterprises’ subject matter experts (SMEs), who may unintentionally disrupt the FAO progression. Now, before CFOs, controllers, or accounting directors raise their arms in protest, let me explain.

Consider that F&A, with its inflexibly cyclical, month-end, quarter-end, and year-end closing peaks, regularly places a significant and critically important load on SMEs plates. Is it any wonder that they request breathing room – sometimes of several weeks, or even months – between outsourcing exploration and execution, so they can focus on top-down priority projects?

Consider that F&A has the potential to immediately impact stock price or create the possibility of legal proceedings, thus negatively affecting the business to a far greater extent than any other function. Is it any wonder that SMEs, often inadvertently, spawn enough fear, uncertainty, and doubt about missing internal and external reporting cycles, and thus raise the “real and present danger” flag about outsourcing unless certain components are de-scoped?

Following is Everest Group’s advice for avoiding or counteracting SMEs’ derailment of FAO plans:

  • Acknowledge that value is greater in FAO than in most other functions, and it is worth the extra effort
  • Recognize competing demands, and adjust the timeline and/or add extra external resources to compensate
  • Invest time in reference calls and site visits to build comfort that FAO works elsewhere in equally complex environments
  • Commit internal SMEs’ time to explore the intricacies of their areas directly with service provider SMEs to build comfort that FAO can work in their own environment
  • View demonstrations of workflow, intelligent document management, and other service provider tools to help drive excitement for a better way
  • Where de-scoping occurs, consider it a first step to future expansion, rather than a “deal killer”
  • Engage senior leadership including key client stakeholders early and often to witness the value potential and garner their support in driving past obstacles

Have your organization’s FAO plans been disrupted by internal forces, either unintentionally or purposefully? Do you firmly believe that outsourcing in all but the most basic activities is too risky for F&A? Please share your experiences and perspectives with other readers!

The Three Foundational Elements of Cost Benchmarking | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

In the global services industry, cost benchmarking is a method enterprises use to compare their outsourcing cost competitiveness against those of similar organizations. Yet, in Everest Group’s experience and observations, businesses all too often erroneously view salary benchmarking as indicative of overall expenditures.

While salaries constitute the biggest component (60-70 percent) of operating costs, salary benchmarks fall short of providing the requisite insights, as higher salaries don’t necessarily mean higher overall costs. There are multiple other factors driving costs. The top three factors driving outsourcing operating costs, other than salaries, are:

  • Pyramid and talent model
  • Scope of work
  • Non-compensation cost

These factors are specific to companies’ context and typically depend on their positioning. In addition, there are market-driven forces impacting costs, such as attrition, wage inflation, and the exchange rate in different countries.

A typical benchmarking exercise takes all these factors, and others, into consideration.

Following are three cost benchmarking best practices.

Best practices of cost benchmarking

Take a holistic view

Cost benchmarking should consider a comprehensive set of factors effecting cost. Everest Group classifies these components into three broad buckets:

  • Compensation-linked costs (e.g., salaries, benefits)
  • Non-compensation costs (e.g., real estate, technology, support staff, transportation, recruitment, and training)
  • Policy levers (e.g., delivery pyramid, support staff leverage, and space usage)

An ideal cost benchmarking takes a holistic view across all three categories.

Identify underlying cost drivers

By definition, cost benchmarking determines differences within the market. However, on their own, these differences offer limited insights. To discover opportunity areas for cost optimization and subsequent calibration, enterprises need to identify the underlying drivers of differences.

For example, if an organization’s real estate costs are higher than the market average, benchmarking should identify whether it is due to rentals, space per seat, seat utilization, or a combination of these factors. Similarly, for companies with higher support staff costs, benchmarking should identify if it is driven by higher support staff salaries, skewed support staff ratios, or both. There are multiple such costs elements (e.g., transportation, recruitment, training) for which benchmarking could help identify the underlying drivers for calibration.

Normalize data

Even in situations where cost drivers are identified, it is critical to ensure like-to-like comparisons in order to derive meaningful conclusions. For illustration, in the real estate example above, economies of scale can result in different real estate costs for a 100 seat center and a 1,000 seat center.

Thus, organizations should normalize data along key dimensions impacting the cost. Typical dimensions to normalize include:

  • Locations (e.g., onshore/offshore, Tier-I/II/III)
  • Scope of work (e.g., ITO/BPO, front office, back office)
  • Nature of work (e.g., transactional, complex)
  • Player type (e.g., GIC, service provider, specialist)
  • Scale (e.g., mid-size, large scale)

Cost benchmarking is not an easy, close your eyes and toss the dart exercise. Benchmarking that fails to take a comprehensive view of cost, identify underlying drivers, and normalize data runs the risk of making misleading comparisons that may lead to flawed results.

What’s Reinvigorating EPAM, Syntel and Virtusa? | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Over the last five years the story of growth in the global services industry has been one of the rich getting richer. In fact, the larger tier-one firms, especially Cognizant and TCS, are growing faster than the marketplace. But I think it’s more notable, at this time when markets are maturing and growth is difficult to achieve, that some of the tier-two providers, such as EPAM, Syntel and Virtusa also outperform the market.

A few years ago the global services industry basically wrote off most of the tier-two providers, relegating them to a fate of consolidation. But like the still-alive man being carted away mistakenly in the British comedy film, “Monty Python and the Holy Grail,” they’re not dead yet. Just the opposite — these three tier-twos are enjoying increased profit and earnings. This is not the case for all smaller providers, so what’s their formula for success?

Market challengers 

They follow a simple but long-proven formula. EPAM, Syntel and Virtusa offer a differentiated alternative to their competitors and thus become market challengers that stand out to buyers.

In some cases they provide a challenge on price. In others they bring a differentiated source of deep industry and functional expertise. In the case of EPAM, the alternative challenge is a delivery model with a source of highly technical talent from Eastern Europe.

Perhaps the most piercing challenge they have ushered into the marketplace is attention. In some of the more mature spaces in the services market the providers have become complacent. Clients are frustrated because they don’t get the level of attention they used to enjoy. The challengers are delivering intense attention to existing and potential clients’ needs.

The tier-two providers bear watching. History demonstrates that shake-ups result on any battlefield where challengers successfully deliver levers that break down barriers.

In Services Marketing, Fruitcake Won’t Bring You New Business | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

One of my favorite quotes of American humorist Mark Twain is: “I didn’t have time to write you a short letter, so I wrote a long one instead.” He knew the secret of creating effective content: less is more. This is absolutely the case when creating content for marketing your service offerings and capabilities. But it’s not the dominant view, which is why so many service providers’ odds of getting new business sink when they launch new content — sort of like fruitcake.

Fruitcake is dense and heavy. Although it’s sweet and looks like a dessert, many people just pass it around without sampling it. Don’t let your marketing content be like fruitcake. It needs to be like a buntini — light, snack size, easily picked up and memorable. Your marketing intellectual property needs to be short, easy to digest, and easy to refer to other people.

I’ve blogged before about problems with ineffective thought leadership and marketing content. Often the issue is people and companies want to be stars. To be effective and memorable, you need to check that mindset at the door and focus on creating content that is compelling, interesting and based on real experience.

It’s even better if you serve up your content as a story or illustration rather than presenting it in a theoretical context. People gobble up stories. But theories, like fruitcake, are difficult to digest. If you go the theoretical route, you need to increase the level of synthesis and brevity.

Yes, it takes more time and effort to be concise. But your content will be more effective if you whip up a compelling topic, synthesize it down to its essence, present the essence in a short story and then stop. This way you’ll leave your potential customers hungry for more instead of wondering how they can squeeze in a nap to digest what they’ve eaten.

Photo credit: Richard Elzey

The World Doesn’t Need Another White Paper | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Would you maintain a marketing strategy that has shifted to a disadvantage? The answer seems like a no-brainer, but the reality is many providers in the global services market are indeed marching forward with a disadvantaged strategy.

In the increasingly competitive services marketplace, providers are running to thought leadership as a differentiation. That’s great. But here’s the problem: they use white papers to present their thought leadership but, frankly speaking, the world doesn’t need another white paper.

Nearly every provider has dozens of white papers; some have hundreds. Hoping to get past purchasing and get access to more senior people and business stakeholders, providers write white papers with the hope that they will percolate new business.

But the papers are not compelling enough to help increase their customer bases. They don’t differentiate in the area of thought leadership, because most of the providers are talking about the same topics or angles. The strategy might have worked when the topics were new; but that’s no longer the case. White papers usually sit on people’s desks and don’t get read. Even if they are read, they don’t make a strong impression and rarely result in new customers or serving an existing customer better.

For a white paper to work, it has to be different. It needs to be simple, profound and short. Buyers are looking for a practical vision of how to improve their business — they want something different than another paper about the capabilities of some tool or process. The paper won’t be remembered if it just tells the reader how to use a tool or process to do something.

Instead, a white paper with an effective message must ask penetrating questions. The right five questions will open the door.

IBM’s is doing this very well. So is Accenture. Think of their paper that gives an illustration of how a company saved $1 billion. The message is simple, clear, and leaves the potential customer asking questions. It invites a conversation between the buyer and the provider.

Webinars are similarly not effective. Like white papers, everybody is doing webinars and talking about the same thing. There is nothing compelling.

So you’re probably asking: Why is Everest Group doing webinars?

The audience for our webinars is a group of people who have subscribed to our content agenda on certain topics. In the webinars we effectively have a conversation with an intimate group invited to that conversation based on their expressed interest in it. We don’t attempt to evangelize through webinars; instead, we attempt to advance the knowledge of people who tell us they want to learn more about a topic and what’s going on in a particular space. Then we seek to move past the webinars to personal interactions and conversation with individuals.

It’s not that white papers or webinars are wrong in today’s marketing maneuvers. They have their place. It’s just that they are bad vehicles for projecting and demonstrating thought leadership to new people. They tend to be not insightful, all providers have them and the intended audience for the papers and webinars aren’t reading them or attending.

In the global services world marketing leaders depending on white papers or webinars to convey their message need to reinvent their strategy.

How to Avoid a Mistake in Buying Analytics Tools | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

We need to stop using the term “analytics.” Yes, I know analytics is red hot. Practically every service provider has an analytics group. IBM has poured billions into acquiring analytics software companies and has built a formidable capability in this area. The marketplace is full of anecdotes about how powerful and impactful analytics can be, and enterprises are enamored with the possibilities from this capability. But if you’re a buyer, you need to refuse to have conversations about analytics.

Beware of engaging with vendors and providers talking about analytics — it’s a waste of your time on a conversation that is really a distraction and, if successful, will result in your making a wasted investment. My advice is to show the door immediately to any vendor or provider trying to talk with you about analytics without first making sure they understand your organization and know what business problem you are trying to solve.

Don’t let a vendor or provider talk to you in abstract terms about the capabilities of analytics or tell you anecdotes that are not specific to your company’s situation and business issue. If you force the salesperson to talk about how a tool is the solution that will deliver the capability you need to meet a specific objective, you’ll eliminate much of the noise and get answers and solutions much quicker.

Shape the discussion to your business relevance. For example, let’s say your business problem is managing your company’s reputation and you’re concerned about the unintended consequences of social media destroying your firm’s reputation. The vendor or provider needs to discuss tools you can deploy to monitor the Web and identify where you have potential problems so you can nip reputation problems in the bud.

Another example: your business objective may be to limit or control the amount of credit card fraud in your retail stores. With this clear perspective on what you’re trying to accomplish, the vendor or provider needs to identify tools for fraud detection.

Insist on an analytics-free discussion. Make sure the vendor or provider converses with you in terms specific to your business problem. The moment they veer from that path, explain that you’re not interested in the “value” of “analytics” and you expect them instead to discuss specific answers to your problem. If they don’t do it, show them the door.

This will separate the wheat from the chaff, the solution pretenders from the reality — and it’s likely also to lower the cost of your solution.