Tag: BPaaS

Avoid the “Gotchas” in Purchasing Next-Gen Tech Services | Sherpas in Blue Shirts

The new technologies sweeping the market hold great promise of competitive advantages. But there’s a disturbing trend occurring in the services sales process for these technologies that poses a risk for buyers. Look out for providers talking about cloud, mobility, big data, the Internet of Things, and social in the same breath as SaaS/BPaas, automation, robotics, and artificial intelligence. Providers that jumble these technologies together as though they are homogeneous really don’t understand the implications of what they’re trying to sell you. They’re basically throwing mud against your wall and seeing what sticks.

The possibilities with all of these technologies are exciting, but they have distinctly different impacts on the buyer’s business.

As illustrated in the diagram below, we can bucket one class of impacts as those that create new business opportunities. They provide new types of services that enterprises can use to change the composition of their customers or provide different kinds of services. For example, the Internet of Things holds enormous promise around allowing enterprises to provide a completely different class of services to their customers. In mobility and social technologies, the digital revolution holds the promise of changing the way businesses interact with their end customers.

Changing technology opens up new opportunities but also creates strategic challenges

Changing technologies

The second class of new technologies (Saas/BPaaS, automation, robotics, and artificial intelligence) changes how services are delivered. For example, SaaS takes a functionality that was available but delivers it through a different mechanism. Automation and robotics changes the way service is provided by shifting from FTE-based models into an automated machine-based delivery vehicle.

The two buckets of technologies have different value propositions. The first class of technologies (cloud, mobility, big data, IoT, and social) are about getting new and different functionality. The impacts in the second class are lower costs and improved flexibility and agility. Each class of technologies has different objectives and value propositions and thus needs a different kind of business case. Buyers that mix these technologies together in a business case do themselves substantial disservice.

The way you need to evaluate the two distinct types of technologies (and providers offering them) is completely different. A provider that recognizes that automation, robotics, and SaaS are about changing the nature of delivery will have a much more thoughtful conversation with you and build its value proposition around flexibility, speed, and quality of service and cost.

A provider that recognizes the impact of mobility, cloud, big data, and the IoT technologies will talk to you about a value proposition around standing up exciting new capabilities, creating new offers and changing the conversation with your end customers.

So, buyer beware. If you’re talking with a provider that mixes these technologies’ distinct value propositions together, you’re dealing with a provider that really doesn’t understand what they’re offering.


Photo credit: Flickr

Global Services Trends and Tipping Points for 2015 | Sherpas in Blue Shirts

It’s the season when analyst/advisory firms flood the media their predictions and top-10 lists. One problem with those lists is the services world rarely has 10 things that are different from the year before. Another problem is we tend to hype new technologies and business models and make predictions about their impact in the next year, when in reality they take multiple years to validate and start to build traction. So rather than falling into this trap that I and others fall into every year, here are my thoughts on a few big secular services trends and their tipping-point positions.

Cloud

We’re over the tipping point here. As I blogged previously, the cloud experiment is over. The last three years have been a grand experiment in examining cloud and the cloud products family. 2015 will see enterprises increasingly planning and implementing new functionalities in the cloud environment.

Labor arbitrage

We’re now atop an inflection point for change in the labor arbitrage market. It’s alive and well and still powerful, but in 2014 we saw value propositions that are dominantly arbitrage based diminish in effectiveness. We also saw the growth areas increasingly shifting to an “arbitrage-plus” model in new areas. The implications are that arbitrage-based offerings will be less effective and their growth rates will continue to drop.

2015 will be a year in which provider growth is driven by differentiation around industry knowledge, firm knowledge and functional knowledge, rather than cheap resources from India. Firms that pivot and provide more and better resources in country, more focus around industry and function, more specialization for those that will succeed.

Service providers talked the talk of differentiation in 2013-2014, but they didn’t walk the walk. In 2015 providers that are successful in growing share will execute really great, meaningful differentiation rather than just giving lip service to differentiation.

Automation

The tipping point for automation is still in the future. The industry has had a couple of years of experimentation with automation, but we don’t think the experimentation phase is finished. We have yet to see the automation play done at scale either on infrastructure or BPO; it is yet to move into the mainstream and is yet to be acknowledged for the full power and capability that it possesses. So the stories of automation destroying the arbitrage game are premature.

We think that, much like cloud in the last three years, in 2015 the automation journey will continue its experimentation and advance toward a time where it is implemented at scale and is able to change the value proposition in a meaningful way.

In 2015, we do not expect automation to take meaningful share from the BPO or infrastructure players. But we expect many more proof points to develop and more hype or industry attention to focus on automation.

As a service

We’re not near a tipping point in moving to a consistent as-a-service model, but we’re definitely seeing a growing uptick in experimentation with this model. In 2014, we saw a number of important companies experimenting with implementing as a-service solutions, but they weren’t multi-tenant. What they’re doing is taking their entire supply chain and turning it into a consumable, as-a-service supply chain and achieving similar benefits that are derived from a multi-tenant SaaS offering but without having the multi-tenant characteristic.

The implications of early experimentation are very significant for legacy environments. We expect 2015 to have a number of announcements of leading firms implementing this approach. We believe this is an important development but will not become an industry standard for several years to come.

Service provider landscape

As to the service providers, in 2015 we expect some changes in dominance and success. Cognizant and TCS always do well and will do so again in 2015. What’s interesting is to look at those that are going to change their fortunes. Specifically we’re watching two companies: IBM and Wipro. In 2013-2014 both made structural changes that position them well for entering 2015.

IBM decided to address the cloud issue head on. Big Blue’s purchase of SoftLayer, the moving of IBM’s middleware suite to an as-a-service delivery vehicle and willingness to deal directly and forthrightly with customers on cannibalization issues positions IBM for a potentially strong turnaround in 2015. We already see signs of that in the three megadeals IBM announced in the last quarter of 2014. We believe IBM is in for a strong year in 2015 if it stays the course.

Likewise, I’ve blogged before about Wipro laying the groundwork for a resurgence. Specifically I call out the firm’s early adoption of automation and increased focus on the large megadeal space. We believe Wipro’s adoption of automation allows the provider to be a cost challenger without giving up margins in the multi-tower megadeal space. I expect Wipro will continue its momentum into 2015, building on early successes.

This is not to say that other service providers won’t do well. I highlight these two because they took big steps to turn around their business and position themselves for the future and for velocity coming into 2015.


Photo credit: harmish khambhaita

Sales Strategy Shift in the Cloud Services Market | Sherpas in Blue Shirts

The fact that enterprises are making a strategic intent shift to cloud and as-a-service models changes more than the service delivery model. It also changes the value proposition and therefore causes implications for provider’s sales strategies. For starters, the focus turns away from the provider’s capabilities.

Sure, those capabilities are still important. But with the new models the focus shifts to the customer’s needs.

The old strategic intent and value proposition was to achieve cost savings. Providers presented offer-based solutions touting the provider’s services. For example, a provider selling to a potential client in the P&C insurance industry might describe the kind of clients it services and how many clients it has, as follows:

“We have 25 clients in the P&C space with five million policies, 1000 analytics professionals with advanced statistical knowledge. We have 5,000 FTEs in eight offshore, nearshore and onshore locations. And we have a platform-based solution.”

Competition would take place on which provider’s offer is the most compelling to the customer. Typically in an offer-based solution the winning provider would be the firm with the most experience in the industry that targets the customer’s areas at appropriate price points.

But cloud and as-a-service solutions focus on the customer’s needs. This gives providers the opportunity to shift to needs-based messaging, as in the following example for a P&C insurance company:

“P&C insurers are battling high expense ratios, coupled with low interest rates globally. This is putting strains on their finances. Our solution can help you automate underwriting and shorten quote times by up to 60 percent, improve fraud detection by over 40 percent and facilitate early identification for subrogation helping improve overall margins.”

One of the most significant implications of the enterprise shift to the cloud is that focusing on needs-based messaging instead of the provider’s capabilities offer-based messaging will change the brute force product-selling mechanism that has come to define the market as we know it.

A Rose by Any Other Name | Sherpas in Blue Shirts

Shakespeare said a rose by any other name would smell as sweet. However, what the eternal bard did not say but easily could have is that it would not have sold as well. The rose that’s catching fire now in the marketplace is as-a-service offerings. But service providers are confusing the market.

As-a-service offerings take a business function (CRM, HR recruitment, etc.) and provide it on a consumption basis (pay for it as used) and bundle the entire end-to-end process including hosting the application, the network and often some business function.

It’s interesting to see these function ideas brought to the market, and it’s the most powerful and disruptive force in services today. Providers range from startups such as ZenCash, which delivers receivables as a service, to more established companies such as Salesforce for CRM as a service. Many of the Indian providers’ as-a-service offerings come in the model of platforms or as managed services.

No matter what the providers call their offerings, all the marketing terms are names for very similar business constructs. The providers seek to differentiate themselves by naming the offering using different terminology in an effort to claim that they’re different. But the market largely ignores these efforts. Why?

Because, a rose by any other name may be just as sweet, but people looking for roses don’t stop to look at flowers called something else. Buyers adopt offerings that they recognize as something they want. The sweet thing the market now recognizes it wants is the power of consumption and end-to-end functionality — which it recognizes as buying an “as a-service” offering.

Providers can deliver an as-a-service offering off a common platform or build it unique. But the market is signaling that “as-a-service” has become the recognized term for what the market wants — simplicity and easy-to-adopt functionality instead of past experiences with big, complex projects that require long lead time and are complicated and risky to implement.

Calling as-a-service offerings by different terms just confuses the market and slows down growth.


Photo credit: Yannis

Automation, the Once and Future King | Sherpas in Blue Shirts

I once read that our society’s major accomplishments over the last 50 years were that we had harnessed lightning and used it to get sand to think. This massive leap forward was about using information and computers to automate processes, and it really took center stage in the service marketplace. But 15 years ago labor arbitrage emerged and arguably supplanted automation as the dominant source of value creation in the services field. With the maturing of the arbitrage market, we are seeing automation reemerge at the center of service offerings, and I feel we are in the early stages of a tectonic shift where automation once again dominates the landscape.

We see this disruptive shift to automation happening in many areas. For instance, what moves the market now in end-user customer service isn’t outstanding service from India or the Philippines. It’s the emergence of “service now,” an automation SaaS play, which creates increased levels of automation for customer service.

And there is the expectation of just-in-time cloud or consumption-based CRM. I blogged before about IBM reacting to this trend by selling its transactional BPO and CRM practice when the space commoditized. Dell and CSC are other market leaders reacting to the move toward automated services.

The analytics movement is part of the shift to automation. Another hot growth area is digital commerce. Both of these areas have become largely a tools play rather than a labor arbitrage play.

The as-a-service platforms are also a manifestation of the shift to automated services. Hot new offerings are coming out as BPaaS platform-based services and disrupting the BPO space. In a previous blog I mentioned how payments companies are outperforming BPO companies because of the automated platforms that allow the payments providers to be highly profitable.

These are all harbingers of things to come as automation re-disrupts the global services world.

3rd Party BPaaS Solutions Significantly Impact MPHRO | Market Insights™

HRO Annual Report, I3

New BPaaS solutions (process+SaaS), offered by providers such as Workday and SuccessFactors, which had made a strong mark in the wider HR market in the past, made their entry into the HR outsourcing market in 2013. Enterprises signing new deals, and a number of organizations with existing HR outsourcing arrangements, contracted with providers for these new third-party BPaaS solutions.

Visit the report page

IBM Remakes Itself | Sherpas in Blue Shirts

You can bet IBM Global Services doesn’t want any more earnings announcements like its Q4 2013 report.  Big Blue posted year-over-year revenue growth of only 4 percent instead of the 7 percent it indicated just three months ago and its 5 percent Q3 growth. Its margins are good, but clearly IBM has a growth issue. However, IBM is unfolding its strategic readjustment to drive global services growth in the future. It’s a three-pronged plan.

1. The exit path

Step one is to jettison the low-margin, commoditized and mature parts of the business, and I’ve blogged before about the crucial timing aspect of this strategy.

2. What is IBM doing with two acquisitions per month?

In the plan’s second prong IBM replaces its jettisoned revenue and direction by acquiring both software and services businesses. At the moment its acquisition pace is torrid — a little over two companies a month!

Rather than building products to move into more profitable business areas, Big Blue is buying companies so it can quickly shift high-growth platforms and embracing automation and the cloud. Four acquisitions show us where IBM is doubling down on acquiring capabilities:

  • Softlayer (2013) — global cloud infrastructure
  • UrbanCode (2013) — software delivery automation
  • Green Hat (2012) — software quality and testing for cloud
  • Big Fix (2010) — management and automation for security and compliance software updates

Two particular focus areas in automation platform and services stand out:

  • Analytics (automation of high-end analysis)
  • BPaaS (Business Process as a Service), which is an automated version of IBM’s infrastructure business.

Years ago IBM put hard caps on scaling the company by adding headcount, and this is a driver in chasing automation as IBM exits low-margin, labor-arbitrage offerings.

3. Battle-tested advantage

Unlike many of its peers building and piloting solutions and products, the third prong in IBM’s growth plan ensures the companies it acquires have fully formed battle-tested models. Instead of creating a baby that has to crawl before it walks, IBM acquires “teenagers” that can run — companies that already conducted pilots and ensured there is a market for the offerings. And then IBM super-charges the model with Big Blue’s awesome brand and sales and marketing strategies. This is a time-tested formula that has worked for IBM in the past.

As we watch IBM remake itself in this three-part plan to drive services growth, we expect the strategy will be successful.


Photo credit: Irish Typepad

Pick or Pass on BPaaS? | Gaining Altitude in the Cloud

While buyers have typically approached, evaluated, and made third-party business process service delivery sourcing decisions at the operational level, and separated out decisions on the underlying software applications and/or technology infrastructure, they are increasingly realizing the value of looking at IT and BPO in an integrated manner.

Enter Business-Process-as-a-Service (BPaaS), a model in which buyers receive standardized business processes on a pay-as-you-go basis by accessing a shared set of resources – people, application, and infrastructure – from a single provider.

There are many potential upsides of BPaaS…but is it right for your organization? The answer lies in evaluating the model based on a holistic business case that looks at a range of factors including total cost of ownership (TCO), the nature of the process/functional area under consideration, business volume fluctuations, time-to-market, position on the technology curve, and internal culture and adaptability to change.

Let’s take a deeper look at the TCO factor, which must be analyzed in terms of both upfront and ongoing costs for all three layers of service delivery.

TCO cost elements to evaluate BPaaS versus traditional IT+BPO model

For our just released research report, Is BPaaS the Model for You?, we developed and used a holistic evaluation framework that compared TCO for BPaaS and the traditional IT+BPO model across three buyer sizes: small (~US$1 billion revenue/5,000 employees), medium (~US$5 billion revenue/20,000 employees), and large (~US$20 billion/100,000 employees.)

Our findings?

Small Companies

BPaaS brings big benefits. It is independent of deal duration, delivers 35-40 percent savings compared to traditional IT+BPO, enables leverage of the provider’s economies of scale, provides access to otherwise cost-prohibitive technology, and allows entry into BPO relationships that as stand-alone’s lack the necessary scale. Small buyers are also highly amenable to BPaaS’ process and technology standardization requirements.

Medium Organizations

BPaaS is pretty impressive. It delivers 25-30 percent savings over the traditional IT+BPO model, which while less than what small buyers reap is still significant in driving a successful business case. Medium buyers’ increased scale allows them to capture some of the economies of scale benefits even in the traditional IT+BPO model, thereby having a lower differential between the two models.

Large Enterprises

BPaaS is not too shoddy. While it only provides ~10 percent cost savings compared to traditional IT+BPO, the absolute differential in cumulative TCO can still be substantial given the high base. And, in certain buyer-specific situations such as technology enhancements, exploration of new BPO/IT infrastructure relationships, and expiration of legacy technology licenses, BPaaS can be a good model for large buyers to evaluate. But…their tendency to balk at following a tightly defined, standardized approach – unless significant configuration features offset a good portion of customization needs – reduces BPaaS’ appeal for them.

As you see, our evaluation framework shows an inverse relationship between buyer size and cost savings from BPaaS – i.e., the larger the buyer, the lower the percentage savings. In fact, as buyer size increases, the scale benefits of renting versus owning infrastructure and applications can dip into the negative column over ten years. Of course, the assumptions in our BPaaS to IT+BPO model analysis are ideal, and your organization’s individual reality may be quite different.

To learn more about how to evaluate BPaaS’ applicability to your company, select a BPaaS provider and solution, and implement the selected solution, please read our report, Is BPaaS the Model for You?

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